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Civil infrastructure construction company Sterling Infrastructure (NASDAQ:STRL) reported Q2 CY2024 results beating Wall Street analysts' expectations, with revenue up 11.6% year on year to $582.8 million. The company expects the full year's revenue to be around $2.19 billion, in line with analysts' estimates. It made a GAAP profit of $1.67 per share, improving from its profit of $1.27 per share in the same quarter last year.
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Sterling (STRL) Q2 CY2024 Highlights:
- Revenue: $582.8 million vs analyst estimates of $559.9 million (4.1% beat)
- EPS: $1.67 vs analyst estimates of $1.43 (17.2% beat)
- The company slightly lifted its revenue guidance for the full year from $2.17 billion to $2.19 billion at the midpoint
- EPS (GAAP) guidance for the full year is $5.68 at the midpoint, beating analysts' estimates by 8.2%
- EBITDA guidance for the full year is $305 million at the midpoint, above analyst estimates of $295.3 million
- Gross Margin (GAAP): 19.3%, up from 17.7% in the same quarter last year
- Adjusted EBITDA Margin: 14.9%
- Market Capitalization: $3.24 billion
Involved in the construction of a major highway, the Grand Parkway in Houston, TX, Sterling Infrastructure (NASDAQ:STRL) provides civil infrastructure construction.
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 is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Over the last five years, Sterling grew its sales at an incredible 15.2% compounded annual growth rate. This is a great starting point for our analysis because it shows Sterling's offerings resonate with customers.
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. Sterling's annualized revenue growth of 10.6% over the last two years is below its five-year trend, but we still think the results were good and suggest demand was strong.
This quarter, Sterling reported robust year-on-year revenue growth of 11.6%, and its $582.8 million of revenue exceeded Wall Street's estimates by 4.1%. Looking ahead, Wall Street expects sales to grow 10.8% over the next 12 months.
Operating MarginSterling has done a decent job managing its expenses over the last five years. The company has produced an average operating margin of 8.5%, higher than the broader industrials sector.
Analyzing the trend in its profitability, Sterling's annual operating margin rose by 5.6 percentage points over the last five years, as its sales growth gave it immense operating leverage.
This quarter, Sterling generated an operating profit margin of 12.5%, 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.
Sterling's EPS grew at an astounding 47.4% compounded annual growth rate over the last five years, higher than its 15.2% annualized revenue growth. This tells us the company became more profitable as it expanded.
We can take a deeper look into Sterling's earnings quality to better understand the drivers of its performance. As we mentioned earlier, Sterling's operating margin was flat this quarter but expanded by 5.6 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher 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 Sterling, its two-year annual EPS growth of 41.8% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.
In Q2, Sterling reported EPS at $1.67, up from $1.27 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 Sterling to grow its earnings. Analysts are projecting its EPS of $5.21 in the last year to climb by 4.3% to $5.44.
Key Takeaways from Sterling's Q2 ResultsWe were impressed by how significantly Sterling blew past analysts' revenue expectations this quarter. We were also excited its EPS outperformed Wall Street's estimates. Overall, we think this was a strong quarter that should satisfy shareholders. The stock traded up 7% to $109.90 immediately following the results.
