UPDATE 3-Sterling Construction Q4 lags Street; shares fall

Mon Mar 15, 2010 2:03pm EDT

* Q4 adj EPS $0.17 vs est $0.23 - Thomson Reuters I/B/E/S

* Revenue falls 34 pct

* Shares fall as much as 19 pct (Recasts; adds analyst comments, updates share movement)

By Fareha Khan

BANGALORE, March 15 (Reuters) - Sterling Construction Co Inc's (STRL.O) quarterly profit came in below expectations, hurt by expenses related to an acquisition and provision for loss related to a lawsuit, sending the civil construction firm's shares down as much as 19 percent.

The company also reiterated that it expects net income and earnings per share for 2010 to be substantially below 2009 levels.

"While budgeted and proposed contract awards in our markets in 2010 generally approximate those in 2009, the lack of visibility in the renewal or extension of federal highway appropriations may cause state and local governmental units to slow or defer spending," Chief Executive Pat Manning said.

Sterling, whose two key markets are Texas and Nevada, undertakes transportation and water infrastructure projects.

The law authorizing long-term federal funding for state highway projects expired in September, but Congress has kept up the flow of money through short-term extensions.[ID:nN11208676]

This makes the states more conservative in committing to larger projects as there remains uncertainty over funding, analyst Richard Rossi of Wunderlich Securities Inc said.

"This bill does not have the highest priority in Congress right now. I would not be surprised if I do not see a new highway bill at all this year," Rossi added.

The company said recession and increased competition have also reduced bidding opportunities to replace backlog as well as hurt margins on new projects.

Sterling shares, which were one of the top losers on Nasdaq on Monday, were down 16 percent at $17.77. They had earlier touched a low of $17.22.

REVENUE DIPS

For the fourth quarter, Sterling reported net income attributable to common stockholders of $762,000, or 3 cents a share, compared with $3.8 million, or 28 cents a share, a year ago.

According to Thomson Reuters I/B/E/S, excluding items, the company earned 17 cents a share, missing analysts' expectations of 23 cents a share.

Sterling recorded $1.2 million in expenses related to the acquisition of Utah-based Ralph L. Wadsworth Construction Co (RLW) and a provision for loss of $1.0 million on a lawsuit in the quarter.

Revenue fell 34 percent to $71.7 million. Analysts on average were expecting $100.3 million.

Revenue was hurt by increased competition and weakness in Texas, where the company reported the lowest revenue for the market since the first quarter of 2005, Sterling said.

Wunderlich Securities' Rossi, however, said the acquisition of RLW will make money for Sterling in 2010, though the big improvement will come in 2011.

The analyst expects Sterling's earnings in 2011 and 2012 to rebound sharply from where it is going to be this year.

Rossi, who has a "buy" rating on the stock, expects orders to improve for the company through the latter part of the year. (Additional reporting by Bhaswati Mukhopadhyay; Editing by Anne Pallivathuckal and Maju Samuel)

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