The slowly unfolding era of U.S. electrical grid expansion is not yet translating into higher profit margins for major publicly held electrical contractors, which continue to consolidate via acquisitions. Project and utility spending delays contribute to the uncertainty.

The biggest deal of the year in electrical construction contracting—Quanta Services' $1.5-billion mostly cash acquisition of California-based Cupertino Electric in July—will expand the Houston-based company's scope and services and add incrementally to earnings per share, it said. The deal brings to Quanta Cupertino's skilled workforce and a platform for low-voltage projects.

The purchase helps Quanta—which is number one on ENR's Top 600 Specialty Contractors—position itself as an all-purpose electrical power distribution and transmission solution provider, CEO Earl C. "Duke" Austin told investment analysts on an earnings conference call Aug. 2. The firm's business model is a portfolio of services, Austin reminded the analysts, that enables slower growth in one segment to be made up for by faster growth in another. Its business segments include renewable energy and underground utility infrastructure work.

Investment analysts live by numbers, however.

Quanta Services' (PWR-NYSE) revenue in the six months that ended June 30 was $10.63 billion compared to $9.48 billion in the same period of 2023, while net income attributable to common stock was $306.5 million, compared to $260.9 million last year.

For the second quarter, Quanta Services recorded net income of $188.2 million on $5.6 billion in revenue, compared to $166 million and $5.05 million in the prior year. Gross profit for the quarter was $811 million, compared to $724 million the year prior, and adjusted earnings before interest, taxes, depreciation and amortization for the first quarter came in at $523.2 million, or 9.4% of revenue. 

Those numbers are respectable in construction contracting, where margins are at the low end of the spectrum compared to some other industries.

Quanta has been able to keep steadily improving results despite some setbacks.

For example, Native American tribes and others are continuing efforts in federal court to block parts of Quanta Services biggest project—construction of the $11-billion SunZia power transmission line through Arizona. The route was federally approved in 2015 but last year work was paused in the state by a federal lawsuit. Quanta Services and its Blattner unit are key contractors. The tribes are appealing a district court ruling in April that would allow the blocked work to move forward.

Asked about the impact of that pause, Austin said Quanta is booking transmission work and the company's chief financial officer, Jayshree Desai, said that except for adjustments for the Cupertino Electric acquisition, Quanta's 2024 earnings guidance for investors remains unchanged. 

In a Sept. 11 note to investors, Justin Hauke, senior analyst at market analyst Baird Equity Research, said the firm "reiterates its outperform rating" on Quanta, terming it "a great long-term growth story."

He said investor meetings "continue to highlight [its] unprecedented demand visibility as electrification investments accelerate. The utility industry is adapting to new load growth drivers and industry regulators and politicians increasingly are coalescing around necessary solutions." Hauke added that Quanta's "broader solutions capabilities are unmatched versus peers, with recent M&A/investments adding additional capabilities and driving return on invested capital higher."

Hauke also noted that, despite other market challenges, "Interestingly, management is not citing labor capacity as a constraint, given [the firm's] unique training capabilities and investments [also] unmatched by peers."

Delayed Utility Spending

But the anticipated avalanche of new transmission projects, driven partly by new data centers and use of electric-powered vehicles, has yet to materialize.

Although U.S. shareholder-owned electric utilities are expected to spend a combined $168.2 billion on capital investments in 2025, there remain question marks about the pace of their transmission and distribution spending due to rising construction costs and how the looming U.S. election could alter federal energy and electric vehicle policy.

Another huge contractor that is a player in electrical power transmission and distribution, Coral Gables, Fla.-based Mastec Inc. (MYZ-NYSE), has seen potentially profitable projects paused or halted.

Jorge Mas, Mastec CEO, said in a May earnings conference call that the contractor's revenue for the first quarter of 2024 was held back by some delayed plans.

"As a reminder," Mas told investment analysts in a previous call, "we talked extensively about the signs of weakness we were seeing in electrical distribution spending. While some of the pressure continues, we're pleased that our diversification strategy and strength in other markets have allowed us to perform above the expectations."

Last year the company's profit margins weren't all that was hoped for. Yet Mastec still ranked by revenue as number four on ENR's ranking of the Top 400 Contractors.

"Power delivery longer term, we know it’s a double-digit business," Mas explained in an August conference call. "Our goal is to be in the high single-digits this year."

In telecom, one of the company's business segments, Mas said, "historically we’ve been in that 12% margin or better over a period of time. We think during the cycle we get back there. We’ll be just at about double-digits for the year within our plans in 2024."

But he conceded, "Look, we came off a really tough year in 2023. We knew that. We’re confident about our ability to show a lot of improvement in 2024, but we’re not celebrating 2024 here, right? We know it’s kind of a building year for us."