Stock Story -
Civil infrastructure company Construction Partners (NASDAQ:ROAD) reported Q2 CY2024 results beating Wall Street analysts' expectations, with revenue up 22.7% year on year to $517.8 million. The company's full-year revenue guidance of $1.85 billion at the midpoint also came in 1% above analysts' estimates. It made a GAAP profit of $0.59 per share, improving from its profit of $0.41 per share in the same quarter last year.
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Construction Partners (ROAD) Q2 CY2024 Highlights:
- Revenue: $517.8 million vs analyst estimates of $504.4 million (2.7% beat)
- EPS: $0.59 vs analyst estimates of $0.54 (9.3% beat)
- The company slightly lifted its revenue guidance for the full year from $1.83 billion to $1.85 billion at the midpoint
- EBITDA guidance for the full year is $223.5 million at the midpoint, above analyst estimates of $219 million
- Gross Margin (GAAP): 16.1%, in line with the same quarter last year
- EBITDA Margin: 14.1%, in line with the same quarter last year
- Free Cash Flow of $19.74 million is up from -$8.06 million in the previous quarter
- Organic Revenue rose 13% year on year (1% in the same quarter last year)
- Market Capitalization: $3.08 billion
Founded in 2001, Construction Partners (NASDAQ:ROAD) is a civil infrastructure company that builds and maintains roads, highways, and other infrastructure projects.
Construction and Maintenance ServicesConstruction 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.
Sales GrowthReviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one tends to sustain growth for years. Thankfully, Construction Partners's 18.2% annualized revenue growth over the last five years was incredible. This is encouraging because it shows Construction Partners's offerings resonate with customers, a helpful starting point.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Construction Partners's annualized revenue growth of 21.8% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.
We can dig further into the company's sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations because they don't accurately reflect its fundamentals. Over the last two years, Construction Partners's organic revenue averaged 10.9% year-on-year growth. Because this number is lower than its normal revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline performance.
This quarter, Construction Partners reported remarkable year-on-year revenue growth of 22.7%, and its $517.8 million of revenue topped Wall Street estimates by 2.7%. Looking ahead, Wall Street expects sales to grow 11.3% over the next 12 months, a deceleration from this quarter.
Operating MarginConstruction Partners was profitable over the last five years but held back by its large expense base. It demonstrated lousy profitability for an industrials business, producing an average operating margin of 4.8%. This result isn't too surprising given its low gross margin as a starting point.
Looking at the trend in its profitability, Construction Partners's annual operating margin might have seen some fluctuations but has remained more or less the same over the last five years, which doesn't help its cause.
This quarter, Construction Partners generated an operating profit margin of 8.8%, in line with the same quarter last year. This indicates the company's cost structure has recently been stable.
EPSAnalyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.
Construction Partners's EPS grew at a solid 10.7% compounded annual growth rate over the last five years. However, this performance was lower than its 18.2% annualized revenue growth, telling us the company became less profitable on a per-share basis as it expanded.
Diving into the nuances of Construction Partners's earnings can give us a better understanding of its performance. A five-year view shows Construction Partners has diluted its shareholders, growing its share count by 2.4%. This has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For Construction Partners, its two-year annual EPS growth of 108% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.
In Q2, Construction Partners reported EPS at $0.59, up from $0.41 in the same quarter last year. This print beat analysts' estimates by 9.3%. Over the next 12 months, Wall Street expects Construction Partners to grow its earnings. Analysts are projecting its EPS of $1.35 in the last year to climb by 21.2% to $1.63.
Key Takeaways from Construction Partners's Q2 ResultsWe were impressed by how significantly Construction Partners blew past analysts' organic revenue expectations this quarter. We were also excited its revenue outperformed Wall Street's estimates. Zooming out, we think this wasn't a perfect quarter, but it was certainly a solid one. The stock traded up 3.1% to $59.98 immediately following the results.
