I don’t follow the stock personally, but it remain a holding for our Canadian Edge newsletter, from which the following 8/27 update is lifted:

After a record 2012, leading general contractor Bird Construction Inc (TSX: BDT, OTC: BIRDF) continues to suffer a lackluster 2013. The company reported dismal results for the second quarter, including profits of just CAD0.3 million, down almost 97 percent from a year ago. The hit to revenue wasn’t nearly as bad: Sales came in at CAD312.3 million, a decline of 9 percent versus the year-ago period.

On an earnings-per-share basis, Bird’s performance fell short of analyst expectations by a whopping 85.1 percent, though its revenue did manage to beat the consensus by 5.4 percent. The current mix of analyst sentiment stands at one “buy,” seven “holds,” and no “sells.” The consensus 12-month target price is CAD12.64, which suggests a return potential of 11 percent from the current share price.

Interestingly, Raymond James analyst Frederic Bastien, who upgraded the stock to “outperform” last quarter, near what was then a 52-week low, has since cut his rating to “market perform,” which is equivalent to a “hold.” He also lowered his target price to CAD12 from CAD14. Meanwhile, Scotia Capital raised its rating to “sector perform,” which is equivalent to a “hold,” from “sector underperform,” though its target price remained at CAD12.

The good news is that a majority of the company’s woes are attributable to one fixed-price construction project, which management estimates is now 85 percent finished and will be complete by the end of the fourth quarter. Although management was mum on which of its three main categories the project falls under (i.e., industrial, commercial, or institutional), it did note that aside from execution issues, the project was also negatively impacted by work stoppages that occurred during labor contract negotiations. These strikes were a setback for the project’s schedule and increased the cost of the project overall.

However, management believes the second-quarter CAD8.4 million charge (CAD6.4 million on an after-tax basis) relating to the project and other execution issues now accounts for its full expected loss through year-end. So although management is assuming the project will not generate any profits during the third and fourth quarter, it shouldn’t dampen future earnings to the same extent it’s done during the first half of the year.

But even absent this charge, the company is still experiencing a decline in revenues, due in part to a falloff in mining activity in Eastern Canada and a drop in construction from industrial clients operating in the energy-rich province of Alberta. Because of the latter, construction revenue fell 9 percent, to CAD312.3 million, though this was partially offset by higher revenue from its commercial operations.

Furthermore, the company’s general and administrative expenses continued to rise, up 6.1 percent sequentially and 6.8 percent year over year, to CAD15.6 million, as a result of the company’s CAD12.4 million cash acquisition of Nason Contracting Group Ltd in mid-January.

Fortunately, Bird’s performance should improve. At the end of the quarter, the company had a total project backlog of CAD1.06 billion, up 2.9 percent sequentially, with CAD644 million expected to be executed by year-end. That leaves a balance of CAD421 million to carry forward into 2014. And subsequent to quarter-end, Bird secured another CAD100 million in contracts for civil and building construction projects for industrial clients in Northern Alberta, with revenue expected to be recognized by mid-2015.

Though declines in commodities prices have caused clients in the resources sector to hold off on certain projects, management remains sanguine about opportunities to win contracts for small- and medium-sized projects. Furthermore, the company expects activity in the oil sands will spur business for its industrial segment, while the commercial market is picking up in various parts of Canada. At the same time, the mining sector is expected to remain weak, while government clients in the institutional space will likely pare spending to rein in budget deficits.

Nevertheless, analysts forecast revenue will rise 7.7 percent in 2014, to CAD1.4 billion, while earnings per share are expected to jump 87.2 percent, to CAD0.994.

Since hitting a high of CAD15.08 in late January, Bird’s shares have been on an extended decline, which was initially precipitated by news of the loss of a major contract in Canada’s oil sands, then later by two consecutive quarters of disappointing earnings. The stock is down 24.6 percent from its 52-week high and presently trades near its low for the year.

Bird’s shares currently have a forward yield of 6.7 percent. The company boosted its payout by 5.5 percent in March, for a monthly dividend of CAD0.0633, or CAD0.7596 for the full year.

Although Bird’s drawn down its cash hoard over the past two quarters, the CAD483.8 million company still has a total of CAD115.5 million in cash and short-term investments, which more than comfortably cover its roughly CAD32.3 million in annual dividend payouts, should it have an extraordinarily bad year. And management expects its cash position to rebound during the second half of the year, similar in trend, though not in magnitude, to what occurred during the last two quarters of 2012.

Additionally, at quarter’s end, Bird had just CAD42.8 million in long-term debt on its balance sheet, down CAD5.3 million from year-end due to principal repayments, with another CAD13.6 million coming due over the next year.

Bird Construction remains a buy below USD14.50 in the Conservative Holdings Portfolio.