STRL Q2 Deep Dive: Data Center Expansion and Margin Gains Drive Upbeat Outlook

Civil infrastructure construction company Sterling Infrastructure (NASDAQ:STRL) reported Q2 CY2025 results topping the market’s revenue expectations, with sales up 5.4% year on year to $614.5 million. The company expects the full year’s revenue to be around $2.13 billion, close to analysts’ estimates. Its non-GAAP profit of $2.51 per share was 11.4% above analysts’ consensus estimates.

Is now the time to buy STRL? Find out in our full research report (it’s free).

StockStory’s Take

Sterling delivered Q2 results that surpassed Wall Street’s revenue and non-GAAP profit expectations, driven by strong demand in its E-Infrastructure Solutions and Transportation segments. Management attributed the quarter’s performance to rapid growth in mission-critical data center projects, a favorable shift toward higher-margin services, and strong execution in project management. CEO Joseph Cutillo highlighted a 29% increase in E-Infrastructure revenue and noted, “Data centers are now 62% of our total backlog and E-Infrastructure.” The company’s ability to execute large, complex projects ahead of schedule was a recurring theme in management’s remarks.

Looking forward, Sterling’s guidance reflects confidence in continued demand for data centers, manufacturing facilities, and e-commerce distribution projects. Management is optimistic about margin expansion opportunities as project complexity grows and expects to leverage the pending CEC Facilities Group acquisition to deliver integrated, end-to-end solutions. Cutillo stated, “We are getting pulled into new geographies by our customers, including Texas, and believe that the pending CEC acquisition will only accelerate our footprint expansion.” The company’s outlook is also supported by a growing backlog and multiyear customer commitments.

Key Insights from Management’s Remarks

Management credited the quarter’s outperformance to strength in data center construction, productivity gains from large projects, and favorable service mix shifts.

• Data center project surge: E-Infrastructure revenue growth was led by major data center projects, with management reporting that these contracts now comprise 62% of the segment’s backlog. The company’s ability to deliver on time or ahead of schedule was cited as critical to winning new business, especially as projects become increasingly complex and larger in scale.
• Expanding geographic reach: Sterling is actively pursuing expansion into Texas and, over the longer term, the Northwest, following customer demand for infrastructure in new regions. Management highlighted both organic growth and the potential for acquisitions to accelerate this strategy.
• Margin expansion from project complexity: As data center and manufacturing projects grow in size and complexity, management expects to sustain or improve margins due to higher productivity and the company’s expertise in managing risk and execution. Larger projects allow Sterling to leverage efficiencies across phases, which supports improved profitability.
• E-commerce distribution momentum: Management described a significant recovery in e-commerce distribution projects, with backlog up nearly 700% and several large, multi-phase warehouse contracts expected to begin in the second half of the year. These projects are larger and more lucrative than in previous cycles, providing incremental tailwinds for both revenue and margins.
• Building Solutions headwinds: The Building Solutions segment faced ongoing softness due to housing affordability issues, but management has responded by focusing on pricing discipline and variable labor strategies. While the segment is down, Sterling’s diversified portfolio and flexible cost structure have helped offset these challenges.

Drivers of Future Performance

Sterling’s outlook is anchored by sustained data center demand, margin gains from complex project execution, and strategic expansion efforts.

• Data center and e-commerce strength: Management expects continued growth in data center and e-commerce distribution projects, underpinned by multi-year customer investment plans and an expanding project pipeline. The company is targeting high-teens to 20% revenue growth in E-Infrastructure, with mid- to high-20% adjusted operating margins, reflecting the shift toward larger, higher-margin contracts.
• Strategic acquisitions and market entry: The pending acquisition of CEC Facilities Group is expected to accelerate Sterling’s expansion into Texas and strengthen its ability to offer integrated electrical and mechanical solutions. Management also signaled ongoing interest in additional acquisitions, particularly to support geographic and service line growth in the Southeast and Northwest.
• Risks from housing and market cycles: While E-Infrastructure and Transportation are poised for growth, Building Solutions remains challenged by affordability issues and soft demand. Management is mitigating these headwinds with variable labor and pricing discipline but acknowledges that broader macroeconomic conditions, especially interest rates, could impact recovery timing in this segment.

Catalysts in Upcoming Quarters

In the upcoming quarters, our analysts will be watching (1) Sterling’s ability to secure and execute large data center and e-commerce projects in new markets such as Texas, (2) progress on closing and integrating the CEC Facilities Group acquisition, and (3) whether margin expansion in E-Infrastructure and Transportation can offset ongoing softness in Building Solutions. The evolution of the project pipeline and any further acquisition activity will also be important markers.

Sterling currently trades at $304.51, up from $272.50 just before the earnings. Is the company at an inflection point that warrants a buy or sell? Find out in our full research report (it’s free).

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