The lack of third-quarter revenue distracts from the fact that Great Lakes Dredge & Dock (GLDD) is now poised to return to significant profitability in future periods.
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Great Lakes Dredge & Dock’s (GLDD) earnings announcement sent its shares down nearly 14% today. Yet even though revenue of $117.2 million reported for the third quarter was well below the consensus estimate of $134.2 million, it was in line with the company’s expectations that it would be a period difficult due to two of its ships which should undergo their regulatory dry docking and the idling of certain equipment due to market delays compared to 2022 and the first half of 2023.
Therefore, the focus should be on GLDD’s ability to manage its costs in such an environment. The good news is that improved project performance and the benefits of its cost-cutting initiatives helped the company increase its adjusted EBITDA to $5.3 million from just $1.3 million in the second quarter 2022 and limit its adjusted net loss to just 9 cents per share, which was a marked improvement from the 15 cents lost in the prior-year period and 3 cents better than the 12 cents loss expected by analysts.
This improved profit should serve the company well as it begins to convert more of its burgeoning order book. Indeed, the latter went from just $434.6 million and $921.9 million at the end of the second quarter to $1.030 billion and $1.255 billion (including $225.0 million in low bids and options awaiting allocation) thanks to the persistence of strong call for tender activity and the ability of GLDD to win its share. of these contracts. This includes the addition of $519.7 million in higher-margin capital projects, which now represent 71.2% of the company’s total backlog. And as GLDD expects current budgeted appropriations to support funding for several previously delayed capital port improvement projects that are still expected to go to tender before the end of 2023, and the proposed 2024 budget for the U.S. Army Corps of Engineers indicates that the Port Maintenance Trust Fund to maintain and modernize the nation’s waterways will be significantly higher than the projected $2.32 billion this year, and its delay is expected to continue to grow in the periods to come.
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Combine this with the fact that GLDD is seeing its utilization increase significantly in the current quarter compared to the third quarter (as most non-cold stacked vessels are scheduled to operate and there are no planned drydocking) and also expects a greater amount of revenue from capital and beach projects, which generally generate higher margins than maintenance projects, I believe the revenue performance and earnings in the fourth quarter will be the strongest GLDD has seen in seven quarters and points to even better growth in 2024. This makes me view today’s sell-off as very short. -seeing and as having created an even better buying opportunity on the stock.
Julius Juenemann, CFA is an equity analyst and associate editor of Forbes Special Situations Survey And Forbes Investor investment newsletters. Great Lakes Dredge & Dock (GLDD) is a current recommendation in the Forbes Investor. To access this stock and other recommended stocks via the Forbes InvestorClick here to subscribe.