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MasTec Looks to Pick Itself Up Off the Energy Mat

By Dan Caplinger - Feb 25, 2016 at 9:44PM

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Results for the infrastructure construction company were still weak, but could start to improve.


Image: MasTec.

One consequence of the energy boom was the need for new infrastructure to serve areas that had previously not needed it. MasTec (MTZ 0.59%) enjoyed a lot of growth from meeting that need, but the plunge in crude oil prices put an end to demand for its services from many oil and gas producing customers.

Coming into Thursday's fourth-quarter financial report, MasTec investors were ready for a sizable contraction, but the company managed to do better than many had feared. Let's take a closer look at how MasTec did, and why 2016 could be a turnaround year for the company.

MasTec manages to limit its declines
MasTec's fourth-quarter results weren't great, but they also weren't terrible. Revenue sank 17%, to $1.03 billion, but that was far better than the 22.5% drop in sales that most investors were expecting. Similarly, adjusted net income from continuing operations got cut almost in half, to $16.8 million, but the resulting adjusted earnings of $0.21 per share, based on continuing operations, was almost $0.10 better than the consensus forecast among investors.

Interestingly, MasTec's segment results didn't show the biggest declines in the areas you might expect. Oil and gas revenues were down 19%, which was worse than the 7% drop that the key Communications unit posted. Yet the electrical transmission segment saw its revenue fall by half, and the power generation segment's sales took a 16% hit. The electrical transmission business was also the big money loser on the quarter, posting negative adjusted EBITDA of $23.7 million. Oil and gas, by contrast, saw just a 15% hit to that figure.

GAAP results were much worse. MasTec took a goodwill and intangible asset impairment charge of $0.95 per share from its western Canadian oil and gas operations, and that contributed to an overall net loss of $76.9 million for the quarter.

Nevertheless, CEO Jose Mas optimistic. "2015 was a difficult year," Mas said, but "we enter 2016 with a growing number of opportunities across our segments and record backlog." The CEO's reference to backlogs was apt, given the fact that year-end backlog figures rose to $5.7 billion, which was up 31% from a year ago, and 24% in just the past three months.

Can MasTec keep making progress?
The rise in backlog came as no big surprise to investors, given Mas' prediction three months ago that planned contracts in the oil and gas industry would get executed during the fourth quarter. Still, it will be important to see how well MasTec does in getting those projects started in a timely manner.

MasTec's 2016 guidance was also encouraging. The infrastructure giant said that it expects full-year revenue of $4.6 billion to $4.8 billion, and adjusted earnings of $1.35 to $1.45 per share. Both figures are above the current consensus estimates among investors, showing at least modest optimism about MasTec's ability to sustain a rebound.

Still, the turnaround won't necessarily come quickly. First-quarter adjusted earnings will likely come in between breakeven and a loss of $0.03 per share, which isn't as good as the $0.12 per-share estimate among investors. MasTec said that seasonality and timing of project start-ups will play a major role in holding back first-quarter results.

Finally, MasTec announced a $100 million stock-buyback authorization. CEO Mas said that MasTec will remain mindful of debt outstanding, but won't hesitate to repurchase shares if market conditions warrant.

MasTec soared in response to the results, climbing 13% in after-hours trading following the announcement. Any turnaround in energy-related business could be a game changer not just for MasTec, but also for the entire stock market; so investors are right to be excited about the potential for a longer-term rebound.

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