Building Business Fails to Nail Down Profit Goal

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Tutor Perini Corp. spent the last 18 months waiting out the construction industry slump, finishing off projects envisioned before the recession and investing more than a half-billion dollars in strategic acquisitions.

Even so, Wall Street was unpleasantly surprised this month when the Sylmar contracting and construction management company reported lower than expected profit and gave weaker than expected guidance for this year. Investors sent shares spiraling down 11 percent to $14 for the week ended March 7, making the company one of the biggest decliners on the LABJ Stock Index. (See page 32.)

The company, which specializes in building hotels, casinos and highways, reported fourth quarter net income of $24 million, or 50 cents a share, which was 27 percent higher than in the same period a year earlier. Revenue rose 62 percent to $1.11 billion, with recent acquisitions fueling much of the growth. But analysts had expected a profit of 75 cents a share on slightly higher revenue of $1.17 billion.

In a note to clients, analyst Avram Fisher of BMO Capital Markets in New York said Tutor Perini’s revenue has yet to catch up with the company’s overhead from its acquisitions.

General and administrative costs in the fourth quarter jumped 28 percent from the third quarter to $75 million. Fisher believes that will be a drag on earnings for at least the next few quarters.

Among seven acquisitions made to expand its specialty construction capabilities and broaden its geographical reach was the large New York electrical and mechanical systems contractor GreenStar Services Corp., which has worked on reconstruction of the World Trade Center and renovation of Madison Square Garden.

“Until the cost of operating this larger organizational structure consumes fewer project profits, then the stock should be avoided,” said Fisher, who rates the shares “market perform” and lowered his 2012 profit outlook to $2.25 a share.

The company itself, which reported $1.80 a share full-year profit last year, now expects between $2.10 and $2.30 a share profit for this year.

Tutor Perini did keep busy last year, working on more than 1,000 construction projects for more than 400 government and private clients.

But even analysts bullish on the stock lowered their expectations, acknowledging that the company won’t see much of that money until next year at the earliest.

“Their problems are overwhelmingly cyclical,” said John Rogers, a D.A. Davidson analyst who has a “buy” rating on shares but lowered his full-year profit expectations from $2.50 a share to $2. “I do believe those businesses are adding to earnings right now, but there are some opportunities to do better once their new businesses are better integrated.”

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