Shares of Great Lakes Dredge & Dock (GLDD) had a fantastic day today, surging nearly 18% on the back of strong quarterly results reported by the company this morning. Specifically, while Q4 2023 contract revenues of $181.7 million came in a hair below the $183.5 million consensus view, this finally marked a return to growth after six consecutive quarters of declines with the top line rising 23.9% year-over-year as increased coastal protection and maintenance project activity more than made up for a decrease in rivers and lakes project work. And further boosted by a favorable shift in mix to higher-margin projects, GLDD’s continued focus on cost reduction, improved utilization and fewer drydockings, the company went from losing 47 cents in Q4 of 2023 to earning 32 cents, which was significantly better than the 10-cent profit projected by the Street.
While it should be noted that the bottom line benefited from a $7.4 million termination payment stemming from the now canceled Empire II offshore wind contract, I estimate that earnings excluding this one-time cash boost would still have more than doubled analysts’ expectations at 23 cents per share. This highlights the significant progress that GLDD has made over the past year to drastically lower operating costs.
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I believe this material increase in the company’s margin profile will continue to drive earnings growth that greatly outpaces the strong rebound in revenues GLDD is likely to see this year. In fact, thanks to the improving bid market in the second half of 2023, the company entered 2024 boasting a brimming backlog of over $1.2 billion (consisting of its dredging backlog of $1.039 billion and $179.4 million in low bids and options pending award), which is up 27% from a year ago. And following the recent award of two of the largest projects ever undertaken by the company, higher-margin capital work makes up an increasingly bigger portion of this growing pie. That’s why with only three regulatory drydockings on the horizon, GLDD expects to convert about 60% of this lucrative burgeoning backlog into revenue in the current year. Combined with incremental work from new bids it should continue to win, I think this will translate into revenue and earnings growth that’s stronger than the 23% and 195% implicit in the current consensus forecasts of $725.2 million and 62 cents per share for 2024. If so, the stock’s recent advance could very well prove to be only the beginning of the much more significant and sustained move higher I believe it’s deserving of.