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MasTec Earnings Get Hit Despite Record Oil and Gas Backlogs

By Dan Caplinger - May 11, 2015 at 5:40PM

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The infrastructure construction company wasn't able to keep up the pace from previous years.

Image: MasTec.

Energy prices have rebounded sharply from their lowest levels in recent months, but that hasn't been enough to secure the prospects for many companies associated with the sector. As a major infrastructure construction company, MasTec (MTZ 4.50%) felt the pinch of the potential loss of energy-related projects, and coming into Monday afternoon's first-quarter financial report, investors thought they were prepared for slowing growth from the company. Yet MasTec's results were even poorer than most had expected, sending shares downward after the announcement and leaving some wondering what's next for the company. Let's take a closer look at how MasTec did in the first quarter and what it says about the company and the industry as a whole.

MasTec sees red ink
MasTec's first-quarter results weren't entirely gloomy. The company met investor expectations on the revenue front, with gains of about 4% to just over $1 billion. But those greater sales didn't make it down to the bottom line, where MasTec reported adjusted net income from continuing operations of $5.6 million, equating to adjusted earnings of $0.07 per share, just a third of what the company post'ed last year and more than a dime below the consensus projections for the quarter.

Just as we saw last quarter, the Oil and Gas segment was the primary drag on results, with the segment seeing sales slump 14% to $327.5 million. By contrast, revenue in Communications, Electrical Transmission, and Power Generation all grew, with the latter two enjoying rapid growth paces of between 40% and 60%. Still, when you look at operating profit, only the Communications division managed any growth at all, with Electrical Transmission and Power Generation both losing money in reversing year-ago operating profits.

A few one-time items also held back the company's overall results. MasTec said that various one-time non-core charges pushed earnings downward, including about $0.12 per share for costs related to the WesTower integration and an audit-committee investigation and another $0.12 per share from a Canadian wind-farm project.

Image: MasTec.

Will MasTec bounce back?
CEO Jose Mas pointed to several factors holding MasTec back, citing negative impacts from "adverse weather, a weaker Canadian dollar, the impact of lower commodity prices, and a very difficult Canadian wind farm project." Still, one surprising aspect of MasTec's results was that oil and gas related backlogs are at record levels of around $870 million, and Mas thinks that the backlog figure will more than double in just the next few quarters.

CFO George Pita also mentioned the positive influence from the completion of MasTec's $100 million share repurchase program. Still, with no announcement of plans to authorize further funds, investors might well have been disappointed.

Worst of all, MasTec's guidance fell short of what investors had hoped to see. Revenue of $1 billion for the second quarter would be essentially flat sequentially, and that's well below the $1.12 billion that most investors currently expect. Similarly, adjusted earnings of $0.27 to $0.30 per share would fall roughly 20% to 25% below current projections, with the potential for further disappointment. For the full year, revenue projections of $4.4 billion are $200 million to $300 million below previous guidance, and earnings of $1.45 per share would be roughly $0.20 to $0.40 per share lower than initially estimated.

MasTec shareholders were displeased with the results, as shares fell almost 7% in the first hour of after-hours trading following the announcement. Despite assurances about backlog figures, MasTec doesn't appear to be ready to ramp up its efforts to get revenue growing at the pace investors want to see. Until the company can stoke its growth fires and get sales rising more quickly, it'll be tough for MasTec to make back some of the ground its stock has lost in the recent past.

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