Dive Brief:
- Multinational London-based construction firm Balfour Beatty announced its full-year 2019 earnings results this week and reported underlying profit from operations was up 8% over last year. But officials also told analysts that the firm's U.S. civil operations were not profitable due to project delays.
- The company's total underlying U.S. revenue grew by about 13% year over year to 3.7 billion pounds (U.S. $4.6 billion), resulting in underlying profit from operations of 52 million pounds. The building division generated almost 85% of Balfour Beatty's U.S. revenue last year but its progress was partially offset by the civil business. The value of the company's U.S. order book as of the end of 2019 was 6.5 billion pounds, an increase of 25% since the end of 2018.
- During a Q&A session with analysts, CEO Leo Quinn said the U.S. civil unit has approximately 18 very large contracts that have fallen behind schedule, leading to reduced profitability and profit recognition. Quinn said that the company has taken "corrective actions" and that the division should see improved performance in the coming year.
Dive Insight:
On the earnings call, Quinn said that it was too soon for the company to gauge how the COVID-19 outbreak will impact operations but, as of the date of the earnings report, the vast majority of its projects were unaffected. Quinn said 76% of its contracts in the United Kingdom and 85% of its contracts in the U.S. had force majeure clauses that would extend schedule time if necessary but that those provisions do not entitle the company to additional money.
The company, according to The Guardian, is also holding off on plans for a 200 million-pound stock buyback, opting to hold on to as much cash as possible until the full impact of the coronavirus pandemic can be quantified. In the earnings press release, Balfour Beatty said it would continue to review its capital structure as it relates to the outbreak.
Despite 2019 being a challenging year for its civil business, the company reported that the Texas DOT awarded it a $1.7 billion contract in the Dallas area as part of a joint venture with Fluor Corp. Balfour Beatty's share of that contract is 45%. Balfour Beatty is currently working on other infrastructure projects in the U.S., including the Green Line light-rail project in Boston and the Caltrain electrification project between San Francisco and San Jose, California.
Recent awards in the company's building division include the $780 million Broward County, Florida convention center expansion and 800-room hotel; $370 million for the mixed-use Block 216 project in Portland, Oregon; and a $305 million contract for Phase 2 of The Wharf project in Washington, D.C.
The company said its positive performance in 2019 was reflective of its five-year-old Build to Last initiative, which focuses on lean project delivery.
The company also announced that the value of its U.S. military housing portfolio took a 79 million-pound hit amid an investigation into how its management division, Balfour Beatty Properties, handled the procurement process for work orders. The company manages more than 43,000 Army, Navy and Air Force family housing developments.
