Despite losing $21.6 million, Tutor Perini sticks to his advice

Diving brief:

  • Los Angeles-based entrepreneur Tutor Perini Wednesday recorded a loss of $21.6 million, or 42 cents per share for the first quarter, well below analysts’ expectations of 9 cents in profit, after writing off combined charges of $43.1 million for two projects in its segment civil.
  • The company’s revenue also fell to $952 million, down 21% from $1.21 billion a year ago, a decline it attributes to reduced execution of two projects in California as well as an adverse court ruling in a dispute over a completed bridge project in New York, and the continued overhead of operations following the COVID-19 pandemic.
  • But Tutor Perini’s backlog, or the amount of work won but not yet started, has grown from $8.2 billion a quarter ago to $8.3 billion now, which was also 2 times higher. % to the $8.1 billion announced last year. The company said its operating cash flow improved significantly to $120.7 million as it collected money from customers, a record amount in the first quarter compared to negative cash flow from $46.7 million a year ago.

Overview of the dive:

Despite its loss and lower revenue for the quarter, the company reiterated its budget guidance for earnings of $1.15 to $1.60 per share for all of 2022.

On a conference call after the earnings release, analysts noted that, combined with the first-quarter loss, the confirmed guidance effectively signaled an improvement in the company’s financial outlook for the next nine months.

“Because you’re reiterating the guidance for 2022, you’re by default significantly increasing the guidance for the rest of the year,” B. Riley Financial analyst Alex Rygiel said on the call. “So my question here is, what changed to give you that confidence?”

CEO Ron Tutor responded that the company entered the year with plenty of cash and plans to raise even more in the coming months.

“For to be frank, we had a significant reserve in place for 2022,” Tutor said.

Contested projects

The company has kept cash on hand in anticipation of a long series of ongoing claims in litigation and negotiations, the results of two of which have contributed to its current loss.

The decision for the bridge in New York, for example, stemmed from a design change after the tender for the City Island Bridge in the Bronx to make it a causeway-style span instead of the original cable-stayed structure. Tutor Perini argued it should have been compensated for the change but lost, resulting in a writedown of $25.5 million.

But Tutor paid an additional $17.6 million charge tied to successful change orders on a California transit project as an actual win. He said change orders would actually be increase the project’s overall profitability, but temporarily reduced its completion percentage and margins.

“One positive change order actually caused a paper loss of $17 million for the first quarter, and that’s really a paper loss,” Tutor said. “We made money on the change, even though it had a horrific impact. So that was the highlight of the quarter, and we think we have enough positives left to make up for it.”

Tutor Perini did not refer to the project by name in his post. Last year, the company received $147 million in change orders for its work on the San Francisco Central Subway project.

Strong cash

The highlight of the company’s results came from its extremely positive cash flow, a trend the company attributed to its customers emerging from the shadows of the COVID-19 crisis and paying their bills. Tutor lamented on previous calls how difficult it had been to collect from his clients from public agencies during the pandemic, when many offices were closed.

“We had strong cash generation this quarter, driven primarily by an improved cash collection cycle,” said Gary Smalley, chief financial officer of Tutor Perini. “We expect continued strong cash generation from operations for the remainder of 2022, based on expected cash inflows, both from project execution activities and the resolution of various other pending claims and change orders. “

Looking ahead, Tutor said the company is bidding on nearly $6 billion in projects over the next three weeks, including two jobs for the $3 billion Maryland Express Lanes, the 2.5-hour replacement project. billion dollars from Newark AirTrain and the $350 million Raritan River Bridge replacement project in New Jersey.

He said of those four jobs, the three largest had only one other bidder, another indication of the muted competitive environment for megaprojects in recent years. As a top 10 GC, Tutor Perini is one of the few companies that has the clout to operate as prime contractor on work of this magnitude, Tutor said.

“There is no competitive environment,” Tutor said. “In order to compete on these mega projects, you have to have a major presence.”

He also reiterated his previous outlook that the company would not slash margins just to win such mega jobs.

“There are very rarely more than two bidders on anything we bid,” Tutor said. “The market is up significantly, and to put it bluntly, we have increased our margins significantly. And if the other bidders we face don’t, we will respond. us who remain should get more reasonable and reasonable margins, and we remain committed to that.”

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