Sterling Q2 EPS Jumps 41%

Key Points

• Sterling Infrastructure exceeded analyst expectations in Q2 2025, reporting revenue of $614.5 million and adjusted EPS (non-GAAP) of $2.69.

• Gross margin (GAAP) expanded to 23.3% in Q2 2025, reflecting successful pivoting to higher-margin projects, particularly in E-Infrastructure.

• Management raised full-year 2025 guidance, citing a strong backlog and solid operating performance.

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Sterling Infrastructure (NASDAQ:STRL), a specialized construction firm focused on transportation, e‑infrastructure, and building solutions, reported financial results on August 4, 2025. The most notable result was adjusted (non-GAAP) earnings per share of $2.69, ahead of the analyst consensus of $2.25. Revenue (GAAP) reached $614.5 million, compared to the estimate of $554.35 million. This marks a significant outperformance on both the top and bottom lines. Management described the quarter as a record period, with especially robust growth in profitability measures, thanks to steady execution on the company’s strategic priorities. The results also prompted a raised outlook, as backlog momentum and improved segment margins offer good visibility for the months ahead.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

Business Overview and Strategic Focus

Sterling Infrastructure offers infrastructure construction and specialty contracting services across three primary areas: E-Infrastructure Solutions, Transportation Solutions, and Building Solutions. Its projects include complex civil construction for data centers, manufacturing facilities, highways, bridges, and residential and commercial buildings. The company is known for targeting project types that require technical expertise and project management, rather than undifferentiated commodity construction work.

In recent years, Sterling has shifted away from low-bid, low-margin highway contracts. Instead, it now prioritizes higher-margin and more technically complex projects, such as airport and commercial developments, piling and shoring, and large e-infrastructure jobs. This move helps lift profitability. Growth through acquisitions is also a key plank of its strategy, enabling expansion into new markets and services. Success relies on continuing to steer its revenue mix toward projects and segments that offer differentiated margins, while maintaining strong backlog and prudent risk management.

Quarter Highlights: Financial Performance and Segment Trends

Sterling exceeded expectations in nearly every reported metric, with adjusted earnings per share jumping 41%. Notably, gross margin (GAAP) improved by 4.0 percentage points to 23.3%, demonstrating the success of the company’s shift toward higher-margin work. Net income attributable to common stockholders advanced by almost 37%, underpinned by momentum in both the E-Infrastructure and Transportation segments.

Strong profitability in E-Infrastructure Solutions helped anchor the results. This segment focuses on building critical infrastructure for data centers, manufacturing plants, and logistics facilities. Revenue in E-Infrastructure climbed 29% year over year to reach about half the company’s total, and its adjusted operating margin improved to 28.3%. Management credited this to the growing presence of large, complex projects, especially in the data center market, and noted continued strong demand in e-commerce and industrial construction.

Transportation Solutions, which includes highway, bridge, and transit construction, reported a 24% rise in revenue and a 78% rise in adjusted operating income. The segment has deliberately reduced its exposure to low-bid public highway contracts, which historically carried slim margins. This business mix shift resulted in the adjusted operating margin moving up to 14.4%. The company noted the completion of some legacy highway projects in Texas and reported growing activity in higher-margin alternative delivery, aviation, and rail work in its Rocky Mountain and Arizona markets.

Results in Building Solutions were soft. This segment covers residential and commercial construction, including concrete and specialty contracting services. Segment revenue dipped by 1%, and adjusted operating income fell 28%. The margin narrowed to 9.2% for Building Solutions, with management citing ongoing weakness in the residential housing market because of affordability issues and high financing costs. While recent acquisitions helped offset some of the declines, the segment continues to face slow demand conditions.

Backlog at quarter-end increased 24% from the prior year quarter, excluding the company’s RHB joint venture, reaching $2.01 billion. The combined backlog, which includes high-probability contract awards not yet signed, stood at $2.25 billion as of June 30, 2025, providing strong future revenue visibility. The book-to-burn ratio, a measure of how much new work is being booked for every dollar of revenue recognized, was 1.4x on a backlog basis for the six months ended June 30, 2025, indicating more projects are being secured than completed in the period. This is a positive signal for future growth.

Sterling’s robust cash generation remained a highlight, with operating cash flow steady at $170.3 million. The company’s cash and equivalents (GAAP) rose to $699.4 million as of June 30, 2025, and its net cash position provided flexibility for ongoing acquisitions and reinvestment. Share buybacks continued, with $43.8 million repurchased year to date. STRL does not currently pay a dividend.

Looking Ahead: Guidance and Considerations

On the back of these results and a strengthened backlog, management updated its full-year 2025 guidance. The company now anticipates revenue in the range of $2.10 billion to $2.15 billion and adjusted diluted EPS between $9.21 and $9.47. This new forecast reflects double-digit revenue and adjusted earnings growth from the previous year’s results and is above Sterling’s prior outlook, demonstrating increased confidence in the pipeline of high-margin work, especially in E-Infrastructure Solutions. The guidance does not include any earnings contribution from the recently announced acquisition of CEC Facilities Group, which focuses on electrical contracting for high-growth sectors like semiconductors and data centers.

Management emphasized that demand for data centers, onshoring manufacturing projects, and e-commerce logistics facilities remains strong, supporting multi-year growth opportunities. In Transportation Solutions, the company expects continued progress in shifting away from commoditized highway work, which should keep segment margins elevated even as segment growth moderates. Building Solutions is likely to remain weak in the short term, though acquisitions and strong regional demand could mitigate further declines. For investors looking ahead, it will be important to monitor trends in government infrastructure spending, as several state departments of transportation account for a large share of segment revenue. Other areas to watch include competitive pressures in bidding for complex projects, input cost trends, and how well Sterling executes the integration of future acquisitions. STRL does not currently pay a dividend.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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JesterAI is a Foolish AI, based on a variety of Large Language Models (LLMs) and proprietary Motley Fool systems. All articles published by JesterAI are reviewed by our editorial team, and The Motley Fool takes ultimate responsibility for the content of this article. JesterAI cannot own stocks and so it has no positions in any stocks mentioned. The Motley Fool has positions in and recommends Sterling Infrastructure. The Motley Fool has a disclosure policy.