Stock Story -
Infrastructure construction company Primoris (NYSE:PRIM) reported Q2 CY2024 results exceeding Wall Street analysts' expectations, with revenue up 10.6% year on year to $1.56 billion. It made a non-GAAP profit of $1.04 per share, improving from its profit of $0.80 per share in the same quarter last year.
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Primoris (PRIM) Q2 CY2024 Highlights:
- Revenue: $1.56 billion vs analyst estimates of $1.53 billion (2.1% beat)
- EPS (non-GAAP): $1.04 vs analyst estimates of $0.86 (20.3% beat)
- EPS (non-GAAP) guidance for the full year is $3.35 at the midpoint, beating analyst estimates by 4.5%
- Gross Margin (GAAP): 11.9%, up from 11.1% in the same quarter last year
- Adjusted EBITDA Margin: 7.5%, in line with the same quarter last year
- Free Cash Flow was -$14.65 million compared to -$32.39 million in the previous quarter
- Backlog: $4.26 billion at quarter end, down 35.4% year on year
- Market Capitalization: $2.71 billion
Listed on the NASDAQ in 2008, Primoris (NYSE:PRIM) builds, maintains, and upgrades infrastructure in the utility, energy, and civil construction industries.
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. Luckily, Primoris's sales grew at an exceptional 14% compounded annual growth rate over the last five years. This is encouraging because it shows Primoris'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. Primoris's annualized revenue growth of 29.2% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.
Primoris also reports its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Primoris's backlog reached $4.26 billion in the latest quarter and averaged 21.3% 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 Primoris was operating efficiently but raises questions about the health of its sales pipeline.
This quarter, Primoris reported robust year-on-year revenue growth of 10.6%, and its $1.56 billion of revenue exceeded Wall Street's estimates by 2.1%. Looking ahead, Wall Street expects sales to grow 3% over the next 12 months, a deceleration from this quarter.
Operating MarginOperating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Primoris 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 4.7%. This result isn't too surprising given its low gross margin as a starting point.
Looking at the trend in its profitability, Primoris'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, Primoris generated an operating profit margin of 5.5%, in line with the same quarter last year. This indicates the company's cost structure has recently been stable.
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.
Primoris's EPS grew at an astounding 28.2% compounded annual growth rate over the last five years, higher than its 14% annualized revenue growth. However, this alone doesn't tell us much about its day-to-day operations because its operating margin didn't expand.
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 Primoris, its two-year annual EPS growth of 29.4% 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, Primoris reported EPS at $1.04, up from $0.80 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 Primoris's EPS of $3.38 in the last year to stay about the same.
Key Takeaways from Primoris's Q2 Results We were impressed by how significantly Primoris blew past analysts' EPS expectations this quarter. We were also excited its revenue and full-year earnings guidance outperformed Wall Street's estimates. On the other hand, its backlog missed. Zooming out, we think this was still a decent quarter, showing the company is staying on track. The stock remained flat at $48.03 immediately after reporting.
