Analysis PRIM
Primoris's cash recovered. Why did its earnings outlook fall?
A cash rebound supports new buyback capacity. Our forecast comparison finds the expense that separates an unchanged adjusted EBITDA midpoint from lower adjusted per-share earnings.
Primoris authorized another $250 million of share purchases as quarterly cash generation recovered, but the midpoint of its annual adjusted earnings-per-share forecast moved lower. Its adjusted EBITDA midpoint stayed at $300 million.
The infrastructure contractor narrowed adjusted EPS guidance to $2.10–$2.25 from August's $2.05–$2.60. The midpoint fell about 6.5%. Adjusted EBITDA, a profit measure before interest, taxes, depreciation, amortization and selected other items, narrowed to $290 million–$310 million from $275 million–$325 million.
The cost that EBITDA leaves out
Research by Ticker Byline shows that the new forecast allows $13.5 million more depreciation and amortization that remains an expense in adjusted earnings. Depreciation and amortization spread the cost of equipment and other assets over time. EBITDA removes that expense.
Comparing the company's full forecast tables puts adjusted net income at a midpoint of $118.3 million, down from $127.0 million. Tax assumptions offset part of the higher expense. The interest forecast is unchanged, and the company expects fewer diluted shares.
That is a fresh change from August. The much larger cut prompted by six troubled renewables projects occurred in June, after the May outlook had already included the PayneCrest electrical-construction acquisition.
Cash recovered, but the year remains behind
Comparing the nine-month and first-half statements gives $140.2 million of third-quarter operating cash, versus $182.9 million a year earlier. It reverses a first-half cash use of $131.3 million.
Subtracting $42.1 million of capital spending leaves $98.1 million, almost matching $100 million of completed share purchases. Asset sales also supplied cash. Debt carrying amounts fell from June, while unrestricted cash ended September at $203.5 million.
The old $150 million repurchase program was fully used by September. The board's October 30 authorization creates another $250 million of optional capacity without an expiration date.
The operating recovery is substantial, although incomplete. Quarterly adjusted EBITDA rebounded to $134.4 million from Q2's $11.4 million, but remained below the year-earlier $168.7 million. GAAP net income returned to $51.3 million after a second-quarter loss.
Utilities improved, while Energy still faced slower project starts and the remaining effects of challenged renewables work. Management says the last of the six projects is moving toward completion.
Total backlog reached a record $14.1 billion. Of that, $8.5 billion is estimated master-service-agreement work rather than firm minimum purchases. The Primoris company profile tracks that mix, project completion and how much of the cash recovery reaches shareholders.