Stock Story -
Infrastructure construction company MasTec (NYSE:MTZ) fell short of analysts' expectations in Q2 CY2024, with revenue up 3% year on year to $2.96 billion. On the other hand, the company expects next quarter's revenue to be around $3.45 billion, in line with analysts' estimates. It made a non-GAAP profit of $0.96 per share, improving from its profit of $0.20 per share in the same quarter last year.
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MasTec (MTZ) Q2 CY2024 Highlights:
- Revenue: $2.96 billion vs analyst estimates of $3.09 billion (4.2% miss)
- EPS (non-GAAP): $0.96 vs analyst estimates of $0.87 (10.5% beat)
- Revenue Guidance for Q3 CY2024 is $3.45 billion at the midpoint, roughly in line with what analysts were expecting
- The company dropped its revenue guidance for the full year from $12.55 billion to $12.4 billion at the midpoint, a 1.2% decrease
- EBITDA Guidance for the full year is $975 million at the midpoint, in line with analysts' expectations
- Gross Margin (GAAP): 14.2%, up from 13.6% in the same quarter last year
- Free Cash Flow of $289.9 million, up from $82.34 million in the previous quarter
- Backlog: $13.3 billion at quarter end, down 1.1% year on year
- Market Capitalization: $8.57 billion
Involved in the 1996 Olympic Games MasTec (NYSE:MTZ) is an infrastructure construction company that specializes in the telecommunications, energy, and utility industries.
Engineering and Design ServicesCompanies providing engineering and design services boast ever-evolving technical expertise. Compared to their counterparts who manufacture and sell physical products, these companies can also pivot faster to more trending areas due to their smaller physical asset bases. Green energy and water conservation, for example, are current themes driving incremental demand in this space. On the other hand, those providing engineering and design services are at the whim of construction and infrastructure project volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates.
Sales GrowthA company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one tends to grow for years. Luckily, MasTec's sales grew at an impressive 10.6% compounded annual growth rate over the last five years. This shows it expanded quickly, a useful starting point for our analysis.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. MasTec's annualized revenue growth of 19.9% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.
We can better understand the company's revenue dynamics by analyzing its backlog, or the value of its outstanding orders that have not yet been executed or delivered. MasTec's backlog reached $13.3 billion in the latest quarter and averaged 14.1% year-on-year growth over the last two years. Because this number is lower than its revenue growth, we can see the company fulfilled orders at a faster rate than it added new orders to the backlog. This implies MasTec was operating efficiently but raises questions about the health of its sales pipeline.
This quarter, MasTec's revenue grew 3% year on year to $2.96 billion, falling short of Wall Street's estimates. The company is guiding for revenue to rise 5.9% year on year to $3.45 billion next quarter, slowing from the 29.6% year-on-year increase it recorded in the same quarter last year. Looking ahead, Wall Street expects sales to grow 6.5% over the next 12 months, an acceleration from this quarter.
Operating MarginOperating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. It's also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
MasTec 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 3.3%. This result isn't too surprising given its low gross margin as a starting point.
Analyzing the trend in its profitability, MasTec's annual operating margin decreased by 6.2 percentage points over the last five years. The company's performance was poor no matter how you look at it. It shows operating expenses were rising and it couldn't pass those costs onto its customers.
EPSWe track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
Sadly for MasTec, its EPS declined by 31.3% annually over the last five years while its revenue grew by 10.6%. This tells us the company became less profitable on a per-share basis as it expanded.
Diving into the nuances of MasTec's earnings can give us a better understanding of its performance. As we mentioned earlier, MasTec's operating margin declined by 6.2 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower 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 more recent period because it can give insight into an emerging theme or development for the business. For MasTec, its two-year annual EPS declines of 47.8% show it's continued to underperform. These results were bad no matter how you slice the data.
In Q2, MasTec reported EPS at $0.96, up from $0.20 in the same quarter last year. This print easily cleared analysts' estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects MasTec to grow its earnings. Analysts are projecting its EPS of $0.62 in the last year to climb by 458% to $3.48.
Key Takeaways from MasTec's Q2 Results We enjoyed seeing MasTec exceed analysts' backlog expectations this quarter. We were also excited its EPS outperformed Wall Street's estimates. On the other hand, its revenue unfortunately missed and it lowered its full-year revenue guidance. Overall, this quarter could have been better, but the stock traded up 5.1% to $111.42 immediately following the results.
