Wind farm projects have been a big source of revenue for MasTec. Source: MasTec.
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The oil-and-gas boom in recent years has provided huge growth opportunities not only within the energy sector, but among the companies that serve that sector. MasTec specializes in infrastructure projects, and the complete lack of energy-product transmission infrastructure in many of the most lucrative energy plays discovered since the boom began has opened up almost limitless potential for the company.
Yet coming into Thursday afternoon's fourth-quarter financial report, MasTec investors worried that the plunge in crude oil prices might weigh on its growth prospects going forward. MasTec's results gave those investors a sigh of relief, coming in better than expected; but 2015 guidance could signal further trouble ahead depending on how the energy industry responds to changing price conditions. Let's look more closely at MasTec's results and its future strategy.
MasTec grows revenue, takes a step back on profit
MasTec posted mixed results for the fourth quarter. Revenue climbed 6.7%, to $1.24 billion, surpassing consensus projections for $1.22 billion in sales. On the profit front, though, adjusted net income dropped by almost a quarter, to $34 million, sending earnings down to $0.40 per share. Even though that was down from $0.53 per share last year, MasTec nevertheless did $0.02 better than those following the stock had expected to see.
As you'd expect, a look at MasTec's segments shows quite clearly how the energy slowdown affected the company, as well as other crosswinds affecting overall performance. MasTec's Communications division, its biggest segment, saw sales growth of almost 13% for the quarter, but operating margins within the segment plunged and sent operating income from continuing operations down by more than a quarter. By contrast, the Oil & Gas segment suffered sales declines of 12%, but margins actually improved, and operating income fell by only 8% as a result.
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MasTec's smaller segments saved the day on the top line. Electrical Transmission sales climbed 37% from the year-ago quarter, and Power Generation & Industrial revenue soared 64%. Together, these businesses make up only about 20% of MasTec's overall sales, but they nevertheless have huge potential as government entities in the U.S. and abroad look at upgrades to their aging power grids.
How can MasTec power up in 2015?
CEO Jose Mas had plenty of optimism not just about the report, but also about MasTec's future. "As we look into 2015 and beyond," Mas said, "we believe that we are strongly positioned to take advantage of a growing number of opportunities in the markets we serve." Specifically, Mas mentioned not just the oil and gas industry, but also transmission, wireless communications, and high-bandwidth expansion projects as offering paths to higher sales ahead.
In addition, MasTec has expressed its confidence with its new stock buyback program. Authorized in December, MasTec can spend as much as $100 million on repurchasing shares, and already, Mas says that the company has purchased 3 million shares thus far -- stock worth about $60 million at current prices.
Fiber-laying project. Source: MasTec.
Still, MasTec's guidance didn't entirely match up to what investors hope to see from the company this year. MasTec said that full-year revenue will come in between $4.6 billion and $4.8 billion, producing adjusted earnings from continuing operations of $1.65 to $1.87 per share. That revenue range is below the $4.96 billion consensus forecast, and the earnings range offers more downside than upside to the current estimate of $1.83 per share.
Finally, MasTec reported a potential accounting issue discovered by its audit committee. Essentially, the issue involves the timing of when MasTec recognized certain costs, with the potential that as much as $13 million could end up being pushed from the third quarter of 2014 to the second quarter of 2014. For now, the committee expects no impact on full-year 2014 results, but MasTec will likely get an extension for filing its full annual report with the SEC until mid-March.
For MasTec, the headwinds in the energy industry come as unwelcome news, and have hurt the company's stock price in recent months. Yet until its customers come to final decisions about their capital spending in 2015 and beyond, MasTec will have to wait and see whether its growth comes under further pressure this year.
The article MasTec Shrugs Off the Energy Slowdown -- for Now originally appeared on Fool.com.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends MasTec. The Motley Fool owns shares of MasTec. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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