Doing business with the government can be a good thing. Lots of businesses have done well thanks to lucrative government contracts. Sometimes, though, government-related delays can hurt you. Quanta Services (PWR), which installs and maintains infrastructure for electric and gas utilities and telecommunications providers, took a hit across the chin in the first quarter of the year thanks to red tape issues. Quanta Services revenue in the first quarter of 2011 came to $849 million, up 13 percent from the same period a year earlier.
But the company reported a $17.6 million loss during the first three months of 2011 compared with a $23.7 million profit from a year ago due to higher costs and delays getting government permits from several projects off the ground.
"During the first quarter, our operations were negatively impacted by four major project delays caused by government permitting issues," says company Chairman and CEO John R. Colson.
Government regulations played a role as well, Colson said. "We experienced excessive project costs resulting from the unusually burdensome application of certain regulations, compounded by adverse weather conditions."
"Looking forward, we believe that several of the regulatory challenges will be overcome in the second half of the year, bringing increased activity to our electric power and telecommunications segments," Colson adds.
Quanta expects revenues for the second quarter of 2011 to range between $925 million and $975 million and diluted earnings per share to finish the year between 14 cents and 16 cents.
The company expected to bring in between $4.1 billion and $4.4 billion for the full year.
Quanta Services is dependent upon investments in infrastructure, which in turn is dependent upon economic recovery. That's good news for the company since the economy is on the mend even if at a sluggish pace. The problem is that competition is not only tough, it comes in all shapes and sizes.
"The industry in which Quanta operates is served by numerous small owner-operated private companies, some public companies and several large regional companies. In addition, relatively few barriers prevent entry into some of the industries," Zacks Investment Research reports, adding it has assigned Quanta a short-term buy recommendation.
Deutsche Bank recently downgraded the company to hold from buy.
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