- Los Angeles-based contractor Tutor Perini Wednesday posted a loss of $21.6 million, or 42 cents per share for the first quarter, widely missing analysts’ expectations of 9 cents in profits, after writing off a combined $43.1 million in charges for two projects in its civil segment.
- The firm’s revenue also tumbled to $952 million, down 21% from $1.21 billion a year ago, a decline it attributed to reduced execution on two projects in California as well as an adverse legal ruling in a dispute for a completed bridge project in New York, and continued overhang on operations from the COVID-19 pandemic.
- But Tutor Perini’s backlog, or the amount of work won but not started yet, ticked up sequentially from $8.2 billion a quarter ago to $8.3 billion now, which was also 2% higher than the $8.1 billion it reported last year. The company said its operating cash flow dramatically improved to $120.7 million as it collected money owed by clients, a record first quarter amount that compared to negative cash flow of $46.7 million a year ago.
Despite its loss and lower revenue for the quarter, the company reiterated its fiscal guidance for earnings of $1.15 to $1.60 per share during all of 2022.
On a conference call following the earnings release, analysts noted that combined with the first quarter loss, the affirmed guidance effectively signaled a boost in the firm’s financial outlook for the next nine months.
“Given that you’re reiterating 2022 guidance, you’re by default significantly raising guidance for the remainder of the year,” said Alex Rygiel, an analyst with B. Riley Financial, during the call. “So my question here is, what’s changed to give you that confidence?”
CEO Ron Tutor responded that the firm had entered the year with plenty of cash on hand, and anticipated collecting even more in the months ahead.
“To be blunt, we had a significant reserve set up for 2022,” Tutor said.
The firm kept cash at the ready in anticipation of a long series of ongoing claims being litigated and negotiated, the outcomes from two of which contributed to its current loss.
The bridge ruling in New York, for example, arose from a post-bid design change for the City Island Bridge in the Bronx to make it a causeway-style span instead of the original cable-stayed structure. Tutor Perini argued it should have been compensated for the change but lost, resulting in the $25.5 million write-down.
But Tutor cast an additional $17.6 million charge related to successful change orders on a transit project in California as an actual win. He said the change orders would in fact increase the project’s overall profitability, but temporarily reduced its completion percentage and margins.
“A positive change order actually caused a $17 million paper loss for the first quarter, and it really is a paper loss,” Tutor said. “We made money on the change, even though it had a horrific impact. So that was the crux of the quarter, and we believe we have enough remaining that’s positive that will offset it.”
Tutor Perini didn’t refer to the project by name in its release. Last year, the firm was awarded $147 million in change orders for its work on the San Francisco Central Subway project.
Strong cash flow
The highlight of the firm’s results came from its overwhelmingly positive cash flow, a trend the company attributed to its customers stepping out of the shadow of the COVID-19 crisis and paying their bills. Tutor lamented on previous calls how difficult it had been to collect from its public agency clients during the pandemic, when many offices were shut down.
“We experienced strong cash generation this quarter that was primarily driven by an improved cash collection cycle,” said Gary Smalley, Tutor Perini’s chief financial officer. “We anticipate continued strong operating cash generation for the remainder of 2022, based on projected cash collections, both from project execution activities and the resolution of various other outstanding claims and change orders.”
Going forward, Tutor said the company was bidding on almost $6 billion in projects in the next three weeks, including two jobs for the $3 billion Maryland Express Lanes, the $2.5 billion Newark AirTrain replacement project and the $350 million Raritan River Bridge replacement project in New Jersey.
He said of those four jobs, the three biggest ones had only one other bidder, another indication of the muted competitive environment for mega projects in recent years. As a top 10 GC, Tutor Perini is one of just a handful of companies that have the heft to operate as a prime contractor on jobs of that magnitude, Tutor said.
“There’s no competitive environment,” Tutor said. “In order to compete on these mega projects, you have to have a major presence.”
He also reiterated his previous outlook that the company would not cut its margins simply to win such mega jobs.
“There’s very seldom more than two bidders on everything we bid,” Tutor said. “The marketplace is up significantly, and to put it bluntly, we raised our margins significantly. And if the other bidders we face don’t, we’ll address it. But we are of the belief that those few of us left should get more reasonable and sensible margins, and we remain committed to it.”