Great Lakes Dredge & Dock Q2 Earnings Report: Great Expectations?

The Q2 2016 earnings report for small cap dredging services stock Great Lakes Dredge & Dock Corporation (NASDAQ: GLDD) is scheduled for before the market opens on Wednesday (February 22nd).Last October, ourUnder the Radar Moversnewsletter suggestedshorting the stock:

Great Lakes Dredge and Dock is more of a momentum play. It tried to overcome its early-August plunge, but if you look closely at the chart, the undertow was bearish before and after that event. The bulls tried to reverse things again late last week and early this week, but between lackluster buying interest then and now a market that’s not helping in the least, we have good reason to expect DDCC to keep drifting lower.”

“You can’t see it on our chart, but Great Lakes Dredge and Dock were trading at $3.00 early this year, and with this recent round of bearishness is extending a pullback that’s been underway since 2014. It’s going to be a tough habit to break.

A technical chart for Great Lakes Dredge & Dock Corporation recently breaking through a key resistance level (after surging with Trumps election and his infrastructure spending promises) that appears to now be a support level:

A long term performance chart shows small caps Great Lakes Dredge & Dock Corporation andLayne Christensen Company (NASDAQ: LAYN) underperforming, but possibly recovering while Orion Group Holdings (NYSE: ORN) had a clear reversal early last year:

In early November, Great Lakes Dredge & Dock Corporation reported the following financial results for the quarter ended September 30, 2016:

Great Lakes Dredge & Dock Corporation

Select Income Statement Results
(Unaudited in 000)
Three Months Ended
September 30,
2016 2015
Dredging Environmental
Dredging Environmental
Revenue $ 154,448 $ 44,565 $ 198,869 $ 162,526 $ 60,451 $ 220,802 $ (21,933 )
Gross Profit 16,522 3,522 20,045 29,447 (5,362 ) 24,085 (4,040 )
Gross Profit Margin 10.7 % 7.9 % 10.1 % 18.1 % -8.9 % 10.9 %
Operating Income (Loss) 5,553 7,307 12,860 19,598 (9,906 ) 9,692 3,168
Operating Margin 3.6 % 16.4 % 6.5 % 12.1 % -16.4 % 4.4 %
Note: As a result of intersegment eliminations, the segment financial information will not sum to the total consolidated results.

The CEO commented:

“During the third quarter, the Dredging segment executed well on several domestic capital, coastal protection and maintenance projects. The domestic performance was offset by weak international project performance as a project in Saudi Arabia went into a loss position, and the segment did not benefit from having a large, profitable project such as the Suez Canal deepening in this year.

“Within the E&I segment, we continued to make progress, with the GLEI reporting unit executing well. In our second quarterof 2016 earnings release dated August 4, 2016, we announced the sale of assets associated with the service lines of the Terra Contracting Services, LLC business to be completed during the third quarter. The transaction did not occur. As a result, the segment was negatively impacted by underutilized equipment and additional fixed costs that did not generate revenue. The terms of the transaction have been modified to exclude certain assets and extend the closing date. The Company completed the sale of the portion of the excluded assets to a separate party subsequent to the end of the third quarter of 2016. The segment’s results were also negatively impacted by a $1.1 million project loss at Terra.”

And for outlook:

“The domestic dredging bid market through the first nine months of the year totaled $668 million, compared to $1 billion through the first nine months of 2015. Our dredging segment won 34% of our addressable bid market, which is below the average combined dredging bid market share over the prior three years. Our awards consisted of several coastal protection and maintenance projects, with the $30 million Fire Island coastal protection project being one of the larger awards. For the remainder of the year, we expect several large jobs to be tendered, particularly opportunities in the coastal protection and Gulf Coast restoration markets.

“Despite the softness of the international market, we have secured work for our entire international fleet through the rest of the year. While this work is not at the margin of recent international projects, we are pleased to have our internationally-based vessels utilized. Additionally, we are pursuing several opportunities, primarily in the Middle East, and also assessing sales or retirements of several older vessels in our fleet based outside of the United States.

“Within our E&I segment, we expect the divestiture of the non-core services businesses to be completed by the end of the year. In addition, the Terra job in a material loss position is expected to be completed by the end of the year. Going forward, as we continue to execute well and our reputation improves, we believe that we have the team in place to capture projects with attractive margins that fit within our core competencies and are within our risk appetite.”

The CFO added:

“Through the first nine months of the year, we invested $38.7 million to finance the construction cost of our ATB. As stated previously, we expect to continue to be deploying our free cash flow until construction of this vessel is complete.”

Finally, here is a quick recap of small cap Great Lakes Dredge & Dock Corporations recent earnings history along with EPS estimate trends from the Yahoo! Finance analyst estimates page:

EPS Est. 0.04 -0.07 N/A 0.03
EPS Actual -0.01 -0.07 -0.03 0.08
Difference -0.05 N/A -0.03 0.05
Surprise % -125.00% N/A N/A 166.70%
EPS TrendCurrent Qtr. (Dec 2016)Next Qtr. (Mar 2017)Current YearNext Year
Current Estimate -0.05 -0.03 -0.07 0.14
7 Days Ago -0.03 -0.04 -0.09 0.13
30 Days Ago -0.03 -0.04 -0.09 0.13
60 Days Ago -0.03 -0.04 -0.05 0.13
90 Days Ago -0.03 -0.02 -0.05 0.14

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