Sterling (STRL) Q3 2026 earnings review
Sterling raises its 2026 outlook, but electrical work squeezes margins
Sterling, a builder of data center sites, electrical systems, and highways, grew much faster even as its gross margin dipped. Sales from businesses owned a year ago rose 70%, and chief executive Joe Cutillo lifted the full-year revenue plan by $603 million after CEC's electrical sales quadrupled. By our math, the new annual plan has total revenue growth slowing to 48% in the fourth quarter as the electrical acquisition passes its one-year mark.
| Sales from businesses owned a year ago | +70% up from +50% last quarter |
|---|---|
| Total revenue | $1.56B +127% from a year ago |
| Profit per share, excluding one-offs | $7.58 +118% from a year ago |
| Full-year revenue outlook | Raised $603M middle of the range: 88% growth |
⚖️ Verdict: 🟢 Bullish
The story got better because underlying growth accelerated from 50% to 70% while total scoped work reached nearly $8 billion. Moving road crews to data center sites also lifted highway margins by 4 percentage points. One caution: fast growth in lower-margin electrical work pushed gross margin down to 24.1%, and the company quietly removed its full-year gross margin target from the presentation.
The question now is whether electrical margins can climb fast enough to stop pulling down the company's overall gross margin. Either larger data center jobs and prefabrication lift electrical profitability by 3 to 5 percentage points as promised, or rapid electrical growth keeps squeezing gross margin and tying up cash in unpaid bills. Fourth-quarter gross margin and the quarterly filing's contract-revision footnote will tell.
🐂 Bull Case
Electrical and Site Work Accelerate Together
Sterling's E-Infrastructure Solutions segment prepares land and installs electrical systems for large data centers and factories. Chief executive Joe Cutillo said "Demand for CEC’s electrical services remains extremely strong, and the business is scaling to capitalize on this opportunity." Both parts of the division grew faster this quarter than they did in the first half.
- Sales from businesses owned a year ago: up 70%, compared with 50% growth last quarter
- Site preparation revenue: up 133% from a year ago
- CEC electrical revenue: $425.6 million, up 305% from a year ago assuming full ownership in both periods
This matters because the electrical acquisition is not merely adding bought revenue. Customers are hiring the combined business for both site preparation and electrical work, so Cutillo stated "We now believe that CEC has the potential to generate over $1 billion in revenue in 2026."
What to watch: fourth-quarter underlying sales growth once CEC has been owned for a full year. A rate above 40% would show that joint site and electrical wins keep driving growth after the acquisition comparison normalizes.
Total Scoped Work Reaches Nearly $8 Billion
Sterling tracks three tiers of future work: signed backlog under executed contracts, unsigned awards waiting for final signatures, and next phases in design on active campuses. Bears worried that signed backlog would fall from last quarter because contract signings are lumpy. Cutillo countered that "Together, our signed backlog, unsigned awards, and next phases in design on our current projects represent nearly $8 billion of scoped work, up approximately 90% year-over-year."
- Signed backlog: $4.14 billion (including $94 million of estimated master service agreement orders), up 61% from a year ago but down 4.4% from last quarter
- Unsigned awards: $2.00 billion, up from $1.28 billion last quarter
- Combined backlog book-to-burn ratio (new awards divided by revenue): 1.4x, versus 0.9x for signed contracts alone
The slight dip in signed backlog reflects paperwork timing rather than slowing demand, because unsigned awards jumped by $720 million in the same three months. Customer-owned land on active sites also gives the builder more than five years of future work.
What to watch: how much of the $2.00 billion in unsigned awards converts into signed backlog in the fourth quarter. A rebound in signed backlog above $4.5 billion would confirm the third-quarter dip was just contract timing.
Shifting Highway Crews to Data Centers Lifts Margins
Transportation Solutions builds highways, bridges, and airports, and management is winding down low-margin Texas highway bidding to move crews into E-Infrastructure. Segment revenue slipped 3.1% from a year ago to $165.2 million "reflecting the reallocation of resources toward E-Infrastructure Solutions work", the company said. Segment operating profit excluding one-offs rose 22.2% to $32.6 million as its operating margin jumped 4.1 percentage points to 19.7%.
Cutillo said the margin jump came from "reflecting disciplined transportation project selection". By bidding only on higher-return jobs and moving equipment to data center sites, Sterling earns more profit from a smaller road-building business while easing labor bottlenecks in its fastest-growing division.
What to watch: full-year Transportation operating margin excluding one-offs when fourth-quarter results arrive. Holding near 18% for the year would show that smaller, selective civil projects permanently earn higher returns.
🐻 Bear Case
Electrical Growth Squeezes Gross Margin and Hides the Target
Sterling highlighted record profit and said CEC's operating margin improved from both last quarter and a year ago. However, CEC earns lower margins than site preparation, so its rapid growth is pulling down the company's overall gross margin (revenue minus direct construction costs). Three months ago, the full-year outlook called for a 25.0% to 25.5% gross margin, which required at least 25.7% in the second half by our math.
- Third-quarter gross margin: 24.1%, down 0.6 percentage points from 24.7% a year ago as direct construction costs rose to 75.9% of revenue
- E-Infrastructure operating margin excluding one-offs: 23.2%, down 3.6 percentage points from 26.8% a year ago
- General and administrative overhead: fell 1.5 percentage points to 3.9% of revenue, lifting total operating margin to 19.6%
Sterling stated the Ebitda margin dip was "driven by the higher contribution from CEC, which we owned for one month of the prior-year third quarter". Rather than cutting the full-year gross margin target a second time, the company removed the line from its modeling table entirely. Lower overhead costs protected operating profit this quarter, but gross margin missed the path needed for the prior annual target.
What to watch: fourth-quarter gross margin and any disclosed standalone margin for CEC. A gross margin below 24% would show that electrical mix dilution still outweighs internal efficiency gains.
Data Center Concentration Deepens while Housing Slumps
Sterling relies more heavily on large technology and industrial capital spending each quarter because its other two divisions are shrinking. E-Infrastructure Solutions generated 83% of total revenue in the third quarter, up from 60% a year ago, and mission-critical data centers, semiconductor plants, and factories make up 95% of its nearly $7 billion work pool.
Meanwhile, Building Solutions, which pours concrete foundations for homes and commercial buildings, saw revenue fall 5.4% to $96.0 million and operating profit excluding one-offs drop 38.7% to $7.7 million. Cutillo expects conditions to stay tough through 2026 "as housing affordability continues to weigh on demand". If major technology customers slow their data center building, Sterling has no growing housing or highway division to cushion the blow.
What to watch: Building Solutions revenue and E-Infrastructure's share of total backlog at year-end. Further declines in housing foundations alongside 80%-plus revenue concentration in E-Infrastructure would keep the company exposed to a single capital-spending cycle.
Risks this quarter didn't answer
Five standing concerns from prior quarters could not be tested because the release and slide deck omitted the figures or the quarterly filing is not yet available.
- CEC standalone operating margin: stated as improved from last quarter and a year ago, but no percentage was given to test against last quarter's 11.4%.
- Revenue from prior-period contract estimate revisions: added $83.1 million in the second quarter; the third-quarter filing's footnote will show if profit still leans on retroactive adjustments.
- Backlog gross margin: omitted for a fourth straight quarter, hiding the exact margin mix of the $4.14 billion contract book.
- Electrician and crew headcount: total staff reached about 7,000, up from 6,200 last quarter, but management gave no breakdown of skilled trades.
- Federal highway funding renewal: the current federal cycle ended in September 2026, and the release gave no update on how a successor bill affects Transportation.
💲 Other KPIs
Accounts receivable — bills sent to customers but not yet paid — rose 59.1% from last quarter and 147.2% from a year ago, outpacing the 33.9% quarterly revenue increase. Because working capital absorbed $203.7 million over nine months, third-quarter free cash flow (operating cash flow minus capital spending) fell 16.8% from a year ago to $53.3 million by our math.
Cash minus total debt declined from $181.0 million last quarter as the infrastructure builder spent $72.0 million on share buybacks and funded working capital. On July 2, the US contractor expanded its revolving credit line to $1.5 billion through July 2031 and used it to pay off its $296.4 million term loan, leaving $95.3 million of total debt.
By our math, Sterling bought back $72.0 million of its own stock in the third quarter, more than double the $35.3 million spent across the entire first half. That leaves $267 million on its buyback plan through November 2027, though diluted share count still edged up 0.4% from a year ago to 31.07 million.
🔮 Guidance
Raised. Management lifted the middle of the full-year range by $603 million to $4.68 billion, or 87.9% growth. By our math, that leaves $1.12 billion for the fourth quarter, slowing growth to 48.3% as the CEC purchase passes its one-year mark. This is the third raise this year (+$625M, +$325M, +$603M); if last year's 4.5% beat after the third quarter holds, revenue would reach $4.89 billion.
Raised. The company increased the middle of its full-year per-share profit target by $1.83 to $21.83, or 100.6% growth from a year ago. With $16.96 already earned in the first nine months, the plan leaves $4.87 for the fourth quarter by our math, which is 58.1% above last year's fourth quarter.
Raised. The middle of the reported profit per share range moved up $1.74 to $19.29, representing 105.7% growth for the year. By our math, subtracting the $15.01 earned through September leaves $4.28 per share for the fourth quarter, up 52.3% from $2.81 a year ago.
Raised. The outlook for net profit excluding one-offs rose by $57.5 million at the middle of the range to $679 million, or 101.6% annual growth. By our math, that leaves $151.6 million for the fourth quarter, up 57.9% from a year ago.
Raised. Sterling boosted its reported net income plan by $54.5 million at the middle of the range to $600 million, or 106.8% growth. By our math, that implies $133.3 million in the final quarter, up 52.1% from a year earlier.
Raised. The middle of the range moved up $72 million to $975.5 million, or 93.6% growth from 2025. By our math, the plan leaves $214.3 million for the fourth quarter, a 50.9% increase from a year ago and a 19.1% margin on implied fourth-quarter sales.
Raised. The company lifted its reported Ebitda forecast by $69 million at the middle of the range to $910.5 million, or 92.9% growth. By our math, that leaves $200.9 million for the fourth quarter, up 42.9% from a year ago.
❓ Key Questions
Why did you drop the full-year gross margin outlook?
The modeling table previously included a 25.0% to 25.5% full-year gross margin target. After third-quarter gross margin slipped to 24.1%, that line disappeared from the presentation, leaving investors without a floor for project-level profitability.
What was CEC's standalone operating margin this quarter?
Management said CEC's operating margin improved from last quarter and a year ago, but gave no number. Knowing how far it moved above last quarter's 11.4% is essential to test the promised 3 to 5 percentage point improvement.
How much revenue came from prior-period contract revisions?
Changes in estimates on work completed in earlier quarters added $83.1 million to second-quarter revenue. Until the third-quarter filing arrives, readers cannot tell how much of this quarter's profit beat came from retroactive contract adjustments.
Why did unpaid customer bills jump 59% from last quarter?
Accounts receivable rose by $455 million in three months to $1.23 billion, far faster than revenue, which pushed third-quarter free cash flow down 17% from a year ago. Management has not explained whether CEC's billing terms require more working capital.