As the Q2 earnings season wraps, let’s dig into this quarter’s best and worst performers in the construction and maintenance services industry, including Construction Partners (NASDAQ:ROAD) and its peers.
Construction and maintenance services companies not only boast technical know-how in specialized areas but also may hold special licenses and permits. Those who work in more regulated areas can enjoy more predictable revenue streams - for example, fire escapes need to be inspected every five years–. More recently, services to address energy efficiency and labor availability are also creating incremental demand. But like the broader industrials sector, construction and maintenance services companies are at the whim of economic cycles as external factors like interest rates can greatly impact the new construction that drives incremental demand for these companies’ offerings.
The 13 construction and maintenance services stocks we track reported a satisfactory Q2. As a group, revenues missed analysts’ consensus estimates by 1% while next quarter’s revenue guidance was 2% below.
After much suspense, the Federal Reserve cut its policy rate by 50bps (half a percent) in September 2024. This marks the central bank’s first easing of monetary policy since 2020 and the end of its most pointed inflation-busting campaign since the 1980s. Inflation had begun to run hot in 2021 post-COVID due to a confluence of factors such as supply chain disruptions, labor shortages, and stimulus spending. While CPI (inflation) readings have been supportive lately, employment measures have prompted some concern. Going forward, the markets will debate whether this rate cut (and more potential ones in 2024 and 2025) is perfect timing to support the economy or a bit too late for a macro that has already cooled too much.
Luckily, construction and maintenance services stocks have performed well with share prices up 12.2% on average since the latest earnings results.
Construction Partners (NASDAQ:ROAD)
Founded in 2001, Construction Partners (NASDAQ:ROAD) is a civil infrastructure company that builds and maintains roads, highways, and other infrastructure projects.Construction Partners reported revenues of $517.8 million, up 22.7% year on year. This print exceeded analysts’ expectations by 2.7%. Overall, it was an exceptional quarter for the company with an impressive beat of analysts’ organic revenue estimates.
Fred J. (Jule) Smith, III, the Company's President and Chief Executive Officer, said, "We are pleased to report strong third quarter results representing substantial year-over-year growth in revenue, net income, Adjusted EBITDA and Adjusted EBITDA margin. The demand environment remains strong across our geographic footprint of more than 70 local markets in the Southeast. Once again, our robust bidding environment contributed to growth in our project backlog to $1.86 billion as of June 30, 2024. Based on the sustained industry demand and funding trends, the outstanding operational performance across our family of companies, and our visibility into the rest of our heavy work season, we are raising our fiscal 2024 outlook."
Interestingly, the stock is up 32.6% since reporting and currently trades at $77.16.
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Best Q2: Great Lakes Dredge & Dock (NASDAQ:GLDD)
Founded as Lydon & Drews dredging company, Great Lakes Dredge & Dock (NASDAQ:GLDD) provides dredging services, land reclamation, and coastal protection projects in the United States and internationally.Great Lakes Dredge & Dock reported revenues of $170.1 million, up 28.2% year on year, outperforming analysts’ expectations by 3.5%. The business had an incredible quarter with an impressive beat of analysts’ earnings estimates.
The market seems happy with the results as the stock is up 42.3% since reporting. It currently trades at $11.53.
Weakest Q2: Orion (NYSE:ORN)
Established in 1994, Orion (NYSE:ORN) provides construction services for marine infrastructure and industrial projects.Orion reported revenues of $192.2 million, up 5.3% year on year, falling short of analysts’ expectations by 3.4%. It was a disappointing quarter as it posted a miss of analysts’ earnings estimates.
As expected, the stock is down 50.3% since the results and currently trades at $5.49.
Matrix Service (NASDAQ:MTRX)
Founded in Oklahoma, Matrix Service (NASDAQ:MTRX) provides engineering, fabrication, construction, and maintenance services primarily to the energy and industrial markets.Matrix Service reported revenues of $189.5 million, down 7.9% year on year. This print lagged analysts' expectations by 6.6%. Zooming out, it was actually a very strong quarter as it produced full-year revenue guidance exceeding analysts’ expectations and an impressive beat of analysts’ earnings estimates.
The stock is up 26.7% since reporting and currently trades at $11.58.
APi (NYSE:APG)
Started in 1926 as an insulation contractor, APi (NYSE:APG) provides life safety solutions and specialty services for buildings and infrastructure.APi reported revenues of $1.73 billion, down 2.3% year on year. This print missed analysts’ expectations by 3.3%. Aside from that, it was a mixed quarter as it also produced an impressive beat of analysts’ operating margin estimates but a miss of analysts’ organic revenue estimates.
APi scored the highest full-year guidance raise among its peers. The stock is down 11.4% since reporting and currently trades at $33.57.
This content was originally published on Stock Story
