Sterling Infrastructure (NASDAQ:STRL) reported a record second quarter, with revenue climbing 90% year-over-year, but investors reacted negatively to a margin outlook that suggests softer profitability ahead. Shares slipped 4.7% in after-hours trading on Monday, giving back a 2.5% gain from the regular session, and last changed hands at $582.90.
The company's revenue for the quarter reached $1.17 billion, up from $614.5 million a year earlier. Adjusted earnings per share more than doubled to $5.80, and adjusted EBITDA rose 104% to $256.7 million. The adjusted EBITDA margin expanded to 22.0% from 20.4%.
However, the full-year guidance update raised the revenue midpoint by 8.7% but only lifted the adjusted EBITDA midpoint by 5.3%. This implies an incremental adjusted EBITDA margin of just 14% on the additional revenue, a figure notably below the company's current 22% margin. This discrepancy points to margin dilution, likely stemming from the recent Stone Ridge acquisition, which management has guided to a mid-teens margin.
Organic growth was a highlight, contributing approximately 55% of the quarterly revenue increase. Acquisitions accounted for the remaining 45%, totaling $250.8 million in revenue. Organic revenue rose about 49% year-over-year. The E-Infrastructure segment was the primary driver, generating $905.0 million in revenue, up 192% and representing 78% of total revenue, compared to 51% a year ago. However, its adjusted operating margin fell by 4.2 percentage points.
Transportation revenue declined 20% to $156.7 million, but its adjusted operating margin improved by 5.1 points to 19.5%. Building segment revenue was roughly flat at $106.5 million, with a margin of 9.9%. Overall adjusted operating margin rose two points to 21.6%, helped by the transportation gains.
Management raised its full-year revenue guidance to a range of $4.00-$4.15 billion from $3.70-$3.80 billion, and adjusted EPS to $19.70-$20.30 from $18.40-$19.05. The adjusted EBITDA forecast was lifted to $891-$916 million from $843-$873 million. The revised midpoint implies a 14% incremental margin on the additional $325 million in revenue, translating to $45.5 million in extra adjusted EBITDA.
Backlog remains robust, with signed backlog at $4.33 billion, up 50% organically. Total backlog stands at $5.62 billion, including $1.28 billion in unsigned awards. CEO Joe Cutillo noted that demand across end markets remains strong.
The stock has been volatile recently, dropping 9.7% in the week ended July 31, then rebounding Monday before the after-hours decline. Investors will look for more details on the conference call scheduled for Tuesday at 9:00 a.m. ET, focusing on backlog conversion, E-Infrastructure margins, and Stone Ridge integration. Peer Everus Construction Group (NYSE:ECG) will report earnings after the close Tuesday, offering further sector context.
