Orion Marine Group, Inc., a leading heavy civil marine contractor serving the infrastructure sector, today is providing its investors an update on the Company’s outlook and end markets.
While the Company is pleased with the recovery of backlog from the lows reached in 2011 and with recent legislative activity in Washington, dredge utilization remains below historical norms as Corps lettings continue to be choppy. As a result, margin improvement is unlikely in the foreseeable future. However, the Company has begun the initial phases on a number of the large jobs booked earlier in the year which should help drive an increase in work volume.
In the back half of 2011, the Company implemented a program to adjust bid margins in order to build backlog. This program yielded good results and the Company has seen significant increases in the backlog of projects involving construction services. As noted before, the Company continues to closely monitor margins on a job by job basis and will adjust to meet the market while maintaining sufficient backlog. The Company continues to track a high level of bid opportunities. During the second quarter the Company bid on $310 million worth of opportunities and was successful on $52 million, representing a win rate of approximately 17%, which is slightly lower than the prior quarter as the Company strategically pushed up bid margins on certain projects, which was met with limited success. It is important to recognize that while bid margins on projects involving construction services have yet to show noticeable improvement, the Company has not seen any further deterioration in bid margin levels or any increase in irrational bidding.
Tropical Storm Debby delayed some of the Company’s ongoing projects in Florida where multiple projects are underway. However, the Company does not expect these delays to make a material adverse impact to its results for the second quarter.
The Company has still not seen a material increase in lettings from the Army Corps of Engineers since the beginning of 2012. The lack of Corps lettings continues to effect the utilization of the Company’s dredging assets. The Company still expects the Corps to liquidate its budget before the end of the federal government’s fiscal year. The Company is cautiously optimistic that the Corps will return to a more normalized pace of project lettings as it progresses through the summer months. On the legislative front, the Corps budget for the fiscal year beginning October 1, 2012, which is part of the broader Energy and Water Appropriations Bill, passed in the House in early June and now awaits Senate action. Additionally, the President signed a Transportation Bill into law at the end of June that included language to dedicate 80% of fines stemming from the Deepwater Horizon incident towards coastal rehabilitation in the five Gulf Coast States. This legislation also included language urging action on the discrepancy between Harbor Maintenance Tax expenditures and the revenue the tax brings in each fiscal year; however, no binding mandate has resulted to date for properly appropriating revenue raised.
While the Company would have preferred to see a longer term program, it was pleased to see a two year, $105 billion Transportation Bill passed in the final days of the second quarter. The Company reminds investors that the new Transportation Bill is not expected to significantly add to its project tracking database, but could be a factor in the easing of pricing pressure in the future from non-traditional competitors.
Local port authorities continue to pursue expansion and development of their port facilities in preparation for the larger ships that will transit through the Panama Canal beginning in 2014 – 2015. Additionally, several ports across the country have received a share of the most recent round of TIGER (Transportation Investment Generating Economic Recovery) Grants from the federal government to help fund improvements to their facilities. Port authorities along the Gulf and East Coasts also continued to see solid volumes of both break bulk and containerized cargos through the first half of 2012, indicating that these facilities will continue to need to invest in the maintenance and expansion of their existing facilities.
Continued capital expenditures by many of the Company’s private customers have helped to bolster a relatively strong market for both larger private jobs and maintenance call out work. The Company continues to see high levels of bid activity in the private sector and is optimistic about this sector’s direction.
About Orion Marine Group
Orion Marine Group, Inc. provides a broad range of marine construction and specialty services on, over and under the water along the Gulf Coast, the Atlantic Seaboard, the West Coast, Canada, and the Caribbean Basin and acts as a single source turn-key solution for its customers’ marine contracting needs. Its heavy civil marine construction services include marine transportation facility construction, marine pipeline construction, marine environmental structures, dredging, and specialty services. Its specialty services include salvage, demolition, diving, surveying, towing and underwater inspection, excavation and repair. The Company is headquartered in Houston, Texas and has a near 100-year legacy of successful operations.
Dredging Today Staff, July 12, 2012