Orion (NYSE:ORN) Reports Sales Below Analyst Estimates In Q4 Earnings

Marine infrastructure company Orion (NYSE:ORN) fell short of the market’s revenue expectations in Q4 CY2024, but sales rose 7.6% year on year to $216.9 million. The company’s full-year revenue guidance of $825 million at the midpoint came in 3% below analysts’ estimates. Its non-GAAP profit of $0.16 per share was 12.7% below analysts’ consensus estimates.

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“2024 ended on a high note with our team delivering improved performance through the disciplined execution of our strategic objectives. We remain focused on smart, profitable revenue growth and better earnings. For the full year, revenue was up almost 12% to $796.4 million, gross profit improved 48% to $91 million, and Adjusted EBITDA increased 76%,” said Travis Boone, Chief Executive Officer of Orion Group Holdings.

Company Overview

Established in 1994, Orion (NYSE:ORN) provides construction services for marine infrastructure and industrial projects.

Construction and Maintenance Services

Construction and maintenance services companies not only boast technical know-how in specialized areas but also may hold special licenses and permits. Those who work in more regulated areas can enjoy more predictable revenue streams - for example, fire escapes need to be inspected every five years–. More recently, services to address energy efficiency and labor availability are also creating incremental demand. But like the broader industrials sector, construction and maintenance services companies are at the whim of economic cycles as external factors like interest rates can greatly impact the new construction that drives incremental demand for these companies’ offerings.

Sales Growth

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Orion grew its sales at a sluggish 2.4% compounded annual growth rate. This was below our standards and is a poor baseline for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Orion’s annualized revenue growth of 3.2% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak.

This quarter, Orion’s revenue grew by 7.6% year on year to $216.9 million, missing Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 6.8% over the next 12 months. Although this projection implies its newer products and services will catalyze better top-line performance, it is still below the sector average.

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Operating Margin

Orion was roughly breakeven when averaging the last five years of quarterly operating profits, one of the worst outcomes in the industrials sector. This result isn’t too surprising given its low gross margin as a starting point.

Looking at the trend in its profitability, Orion’s operating margin decreased by 1.3 percentage points over the last five years. This raises an eyebrow about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. . Orion’s performance was poor no matter how you look at it - it shows costs were rising and that it couldn’t pass them onto its customers.

This quarter, Orion generated an operating profit margin of 4.4%, up 1.6 percentage points year on year. Since its gross margin expanded more than its operating margin, we can infer that leverage on its cost of sales was the primary driver behind the recently higher efficiency.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Orion’s EPS grew at an astounding 107,483% compounded annual growth rate over the last five years, higher than its 2.4% annualized revenue growth. However, we take this with a grain of salt because its operating margin didn’t expand and it didn’t repurchase its shares, meaning the delta came from reduced interest expenses or taxes.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Orion, its two-year annual EPS growth of 47.4% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q4, Orion reported EPS at $0.16, up from $0.08 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Orion to perform poorly. Analysts forecast its full-year EPS of $0.04 will hit $0.32.

Key Takeaways from Orion’s Q4 Results

We enjoyed seeing Orion beat analysts’ EBITDA expectations this quarter. On the other hand, its revenue and EPS missed significantly, and its full-year revenue, EPS, and EBITDA guidance fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 4.3% to $6.19 immediately after reporting.

Orion didn’t show it’s best hand this quarter, but does that create an opportunity to buy the stock right now? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.