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Since the start of 2025, the United States construction sector has been navigating through choppy waters, hit by several unfavorable market factors, including a still-high mortgage rate scenario and an unhinged interest rate environment. With the 30-year mortgage rate lingering between 6.9% and 6.7% (during the January-March 2025 period), reaching as high as 7.04% for the week ending on Jan. 16, 2025, the residential construction market is likely to have remained soft, mainly for the multi-family starts. However, on the favorable side of the coin, increased public construction activity and improved demand trends for energy transition projects are expected to have partially offset the declining trend of the sector during the quarter.
While discussing the sector’s performance trends during the first quarter, five stocks, including TopBuild Corp. BLD, KBR, Inc. KBR, Louisiana-Pacific Corporation LPX, Mayville Engineering Company, Inc. MEC and Great Lakes Dredge & Dock Corporation GLDD, can be highlighted as they are set to report their first-quarter 2025 earnings tomorrow. The earnings expectations of this diversified bundle of stocks represent the broader sector’s performance to a reasonable extent.
Through a broader view of the Construction sector, per the latest Earnings Trends report (as of April 30), 78.6% of the companies out of the 345 S&P 500 members had released their earnings. Having the sector’s market capitalization of 69.4%, these companies, in total, reported a 14.3% decline in the bottom line, with the top line inching down 0.7%. Of the companies that have reported, 54.5% beat on earnings while 63.6% topped the revenue estimates. (See the Zacks Earnings Calendar to stay ahead of market-making news.)
Per the recent Earnings Trends report, construction sector earnings are expected to tumble 12.2% year over year in the first quarter of 2025 against 0.9% growth in the prior quarter. Revenues are anticipated to decline 2.8% against the growth of 1.6% in the fourth quarter of 2024.
The United States is witnessing a boost from increased infrastructure spending through several federally supported initiatives, including the Infrastructure Investment and Jobs Act (IIJA) and the Inflation Reduction Act (IRA). These governmental initiatives are proving incremental for companies engaging in public construction, engineering and low-carbon projects, resulting in a growing backlog. Continued strength in environmental remediation, national security and nuclear fuel markets is adding to the uptrend.
The public spending environment is likely to have been favorable for firms indulging in these businesses or related activities, namely KBR and Great Lakes Dredge.
Apart from the external factors, various company-specific capabilities, including strategic inorganic activities, efficient service delivery, ensuring operational efficiencies through cost-cutting efforts, product diversification and efforts of tapping into untouched markets and grabbing onto the opportunities are likely to have been boding well. The in-house capabilities of the companies, under the broader construction sector, are likely to have allowed them to develop distinctive competencies to navigate through the ongoing uncertain market.
The uncertainties surrounding the homebuilding market not only affect the homebuilders but also the related companies, whose sales and growth directly depend on housing starts, along with repair and remodeling activities. As mentioned above, firms like TopBuild, Louisiana-Pacific and Mayville Engineering derive their revenues from the housing market.
With this uncertainty and the underlying lingering inflation, the construction sector is likely to have witnessed a downtick in its quarterly expectations.
Amid a basket of stocks, to identify one with the potential to beat earnings estimates, the following Zacks methodology can be exercised. The Zacks model suggests that a company needs to have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — to increase the odds of an earnings beat. You can uncover the best stocks before they’re reported with our Earnings ESP Filter. You can see the complete list of today’s Zacks Rank #1 stocks here.
Here are five bundled stocks that are set to report their first-quarter 2025 earnings on May 6.
KBR: This global engineering, construction and services firm has an Earnings ESP of 0.00% and a Zacks Rank of 3. The company has reported better-than-expected earnings in each of the trailing four quarters, the average surprise being 6.5%.
KBR, Inc. price-eps-surprise | KBR, Inc. Quote
The Zacks Consensus Estimate for KBR’s first-quarter 2025 revenues and earnings per share (EPS) is pegged at $2.07 billion and 88 cents, indicating growth of 13.6% and 14.3%, respectively, from the year-ago figures.
Great Lakes: This Texas-based dredging contractor has an Earnings ESP of 0.00% and a Zacks Rank of 3. The company reported better-than-expected earnings in three of the trailing four quarters and missed on the remaining one occasion, the average surprise being 173.4%.
Great Lakes Dredge & Dock Corporation price-eps-surprise | Great Lakes Dredge & Dock Corporation Quote
The Zacks Consensus Estimate for Great Lakes’ first-quarter 2025 revenues and EPS is pegged at $209.9 million and 25 cents, implying growth of 5.7% and a decline of 19.4%, respectively, from the year-ago figures.
Mayville Engineering: This US-based manufacturer offering value-added services has an Earnings ESP of 0.00% and a Zacks Rank of 3. The company reported better-than-expected earnings in two of the trailing four quarters and missed on the remaining two occasions, the average surprise being 184.9%.
Mayville Engineering Company, Inc. price-eps-surprise | Mayville Engineering Company, Inc. Quote
The Zacks Consensus Estimate for Mayville Engineering’s first-quarter 2025 revenues and earnings are pegged at $132.4 million and one cent, indicating declines of 17.9% and 93.8%, respectively, from the year-ago figures.
TopBuild: This Florida-based installer and distributor of insulation and other building products has an Earnings ESP of +0.71% and a Zacks Rank #4 (Sell). The company reported better-than-expected earnings in three of the trailing four quarters and missed on the remaining occasion, the average surprise being 0.7%.
TopBuild Corp. price-eps-surprise | TopBuild Corp. Quote
The Zacks Consensus Estimate for TopBuild’s first-quarter 2025 revenues and EPS is pegged at $1.24 billion and $4.43, representing declines of 3% and 7.9%, respectively, from the year-ago figures.
Louisiana-Pacific: This Nashville-based building materials manufacturer has an Earnings ESP of -2.44% and a Zacks Rank of 4. The company reported better-than-expected earnings in each of the trailing four quarters, with the average being 29.2%.
Louisiana-Pacific Corporation price-eps-surprise | Louisiana-Pacific Corporation Quote
The Zacks Consensus Estimate for Louisiana-Pacific’s first-quarter 2025 revenues and EPS is pegged at $692.9 million and $1.13, representing declines of 4.3% and 26.1%, respectively, from the year-ago figures.
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This article originally published on Zacks Investment Research (zacks.com).
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