Granite Construction Incorporated GVA reported a 35% year-over-year decline in fourth-quarter fiscal 2014 earnings to 39 cents per share. Earnings also missed the Zacks Consensus Estimate of 69 cents by a wide margin of 43%. Shares of Granite Construction dipped 5.3% following the announcement of fourth-quarter results on Feb 27. Including one-time items, earnings for the quarter stood at 43 cents versus a loss per share of 74 cents in the prior-year quarter.
Operational Updates
Granite Construction’s net sales dipped 1.4% year over year to $590 million, way short of the Zacks Consensus Estimate of $728 million. Increase in Construction Material segment’s sales were offset by declines in the Construction and Large Project Construction segments.
Cost of sales declined 7% to $510 million in the quarter. Gross profit went up 60% to $80 million from $50 million in the prior-year quarter. Gross margin expanded 520 basis points (bps) year over year to 13.5% on the back of improved performance across all the segments, led by the Construction segment.
Selling, general and administrative (SG&A) expenses increased 11% year over year to $56 million. Granite Construction reported adjusted operating profit of $23 million versus a loss of $0.7 million in the prior-year quarter.
Segment Performance
Construction: Net sales increased 6% year over year to $313 million, primarily due to improved performance in certain Western markets, which helped offset a late-year weather impact in California. Gross profit increased 96% year over year to $36 million driven by improved performance and diversification in Western markets.
Large Project Construction: The segment reported sales of $214 million, down 10% from $239 million in the year-ago quarter due to job progression in the quarter. Results were also impacted by delayed project awards and unfavorable weather. Gross profit for the quarter came in at $40.3 million, a 36% improvement from $30 million in the last-year quarter. The improvement can be attributed to project portfolio progression, dispute resolution and improved execution.
Construction Materials: Net sales in the reported quarter went down 3% year over year to $63 million due to wet weather conditions in the West during the later part of the year. The segment reported gross profit of $3.4 million, a 101% improvement from $1.7 million in the prior-year quarter driven by better pricing and operational efficiencies.
Backlog
Total contract backlog increased 7.6% year over year to $2.7 billion, as of fiscal 2014-end. The increase reflects the addition of the I-4 Ultimate project in Florida, excluding the Pennsylvania Rapid Bridge Replacement Project, which is expected to add about $360 million to backlog in the first quarter of fiscal 2015.
Fiscal 2014 Performance
Granite Construction reported adjusted earnings per share of 2 cents in fiscal 2014 as against a loss per share of 17 cents in the prior fiscal. Earnings fell way behind the Zacks Consensus Estimate of 85 cents. Including one-time items, earnings stood at 64 cents in fiscal 2014 versus loss per share of 94 cents in fiscal 2013. Revenues edged up 0.4% to $2.28 billion, missing the Zacks Consensus Estimate of $2.41 billion.
Financial Update
As of fiscal 2014-end, cash and cash equivalents amounted to $256 million versus $229 million as of fiscal 2013-end. As of Dec 31, 2014, long-term debt remained flat at $270 million compared with Dec 31, 2013. The debt-to-capitalization ratio was at 25.8% as of Dec 31, 2014 compared with 26.2% as of Dec 30, 2013. Cash flow provided by operating activities for 2014 was $43 million compared with $5.4 million in the prior year.
Our Take
Granite Construction’s sound backlog and several additional awards, pending for the first quarter, bode well for its future performance. A new long-term highway bill is essential to ensure longer-term funding that can meet the increasing demand for critical infrastructure projects across the country.
Watsonville, CA-based Granite Construction is a leading infrastructure contractor and construction materials producing company. Its project teams represent the best in the industry; serving both public and private-sector clients in transportation, power, federal, tunneling, underground, industrial/mining and water resources markets.
Granite Construction currently carries a short-term Zacks Rank #4 (Sell). A better-ranked stock in the sector includes Dycom Industries Inc. DY, carrying a Zacks Rank #1 (Strong Buy).
Peer Performance
Among Granite Construction’s peers, Great Lakes Dredge & Dock Corporation GLDD reported fourth-quarter 2014 earnings of 33 cents per share compared with 8 cents earned in the year ago quarter . Earnings beat the Zacks Consensus Estimate of 12 cents.
Chicago Bridge & Iron CBI reported adjusted earnings of $1.47 per share for fourth-quarter 2014, modestly surpassing the Zacks Consensus Estimate of $1.43 by 2.8%. However, the bottom line suffered a 23% decline over the year-ago tally of $1.91 per share.
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