UPDATE 2-Sterling Construction sees bleak 2010, shares fall

* Q3 EPS $0.59 vs est $0.27

* Sees 2009 revenue below previous outlook

* Sees 2010 results below 2009

* Shares fall as much as 9 pct (Recasts; adds analyst comments, updates share movement)

By Divya Sharma

BANGALORE, Nov 9 (Reuters) - Civil construction firm Sterling Construction Co Inc (STRL.O) forecast a bleak 2010 amid rising competition and uncertainties surrounding federal funding, sending its shares down 9 percent.

Sterling said 2010 revenue and net income attributable to common stockholders may be substantially below those expected for 2009 and that it will discontinue providing outlook due to limited visibility.

"We are experiencing increased competition in our markets and while we are willing to bid at lower-than-historical profit margins, we will maintain our pricing discipline which could result in backlog contraction," Chief Executive Pat Manning said in a statement.

With no near-term recovery seen, hard-hit companies in the residential and commercial sectors are now vying for public projects, and as a result, competition is growing and margins are under pressure. [ID:nBNG460384]

A replacement for the highway bill was not enacted upon its expiration on Sept. 30, and the approved federal stimulus to states for highways and bridges is being provided on a month-to-month basis, impacting long-term visibility, the company said.

With plans to overhaul the $286 billion highway bill -- one of the richest and most popular legislative undertakings for states -- on hold, fewer states are putting out projects to bid due to the uncertainty.

"The greater issue other than the highway bill not being reauthorized is that it is operating under a continuing resolution -- which means that the overall state funding is 30 percent lower," Thompson Research Group analyst Kathryn Thompson said.

2009 FUNDING LESS THAN ANTICIPATED

The company expects to exceed its own 2009 earnings forecast, boosted by strong margins on contracts during the first nine months, but said revenue will be below prior view.

In December, the company had forecast 2009 earnings of $1.12 to $1.54 a share on revenue of $460 million to $510 million.

"State contract awards for highway and bridge construction under the economic-stimulus legislation enacted in February of this year have to date been less than anticipated," CEO Manning said in the statement.

For the third quarter, net income attributable to stockholders was $8 million, or 59 cents a share, compared with $6 million, or 44 cents a share, a year ago.

Revenue for the company, which undertakes transportation and water infrastructure projects, fell 9 percent to $103.9 million, while cost of revenue fell 14 percent to $87.4 million.

Analysts on average were expecting earnings of 27 cents a share, before special items, on revenue of $109 million, according to Thomson Reuters I/B/E/S. Shares of the company fell 5 percent to $15.35 in afternoon trade on Nasdaq. They had earlier touched a low of $14.76. (Editing by Aradhana Aravindan and Deepak Kannan)