Sterling Infrastructure Misses Q4 Earnings Estimates, Stock Drops

Sterling Infrastructure, Inc. (NASDAQ: STRL) reported fourth-quarter earnings that fell short of analyst estimates, leading to a decline in the company's stock price. The Woodlands, Texas-based company announced financial results for the fourth quarter and full year 2024, with revenues of $498.8 million, an increase of 3% year-over-year. Gross margin improved to 21.4%, up from 18.9% in the prior year quarter. However, net income of $113.2 million, or $3.64 per diluted share, was below expectations, with adjusted net income of $45.5 million, or $1.46 per diluted share, excluding one-time gains.

The earnings miss was driven by lower-than-expected revenue growth and higher operating costs. Revenue growth of 3% was lower than the 7% increase reported for the full year 2024. Additionally, operating costs increased, eroding profitability. The company's gross margin expansion was also lower than expected, with a 250 basis point increase to 21.4% compared to the prior year quarter.

Sterling Infrastructure's CEO, Joe Cutillo, attributed the earnings miss to a strategic decision to accelerate the shift away from low-bid heavy highway work in Texas. This decision is expected to pressure near-term revenue and backlog but should enhance margin profiles as 2025 progresses. The company also reported strong cash flow generation, with operating cash flow totaling $497.1 million for the twelve months ended December 31, 2024, and cash and cash equivalents of $664.2 million at the end of the year.

Despite the earnings miss, Sterling Infrastructure provided full-year 2025 guidance, projecting revenue of $2.00-2.15 billion, net income of $215-230 million, and adjusted EBITDA of $395-420 million. The company's strategic focus on higher-margin service offerings and growth in the E-Infrastructure Solutions segment is expected to drive continued growth and improved profitability.

In conclusion, Sterling Infrastructure's earnings miss in the fourth quarter led to a decline in the company's stock price. The earnings miss was driven by lower-than-expected revenue growth and higher operating costs. However, the company's strategic focus on higher-margin service offerings and growth in the E-Infrastructure Solutions segment is expected to drive continued growth and improved profitability. Investors should monitor the company's progress in addressing the underlying issues and improving future earnings prospects to assess the long-term impact on the stock price.