Granite Construction Incorporated (GVA) reported earnings of $2.7 million or 7 cents per share in the second quarter of 2013 compared with $1.9 million or 5 cents a share in the prior-year quarter. The results lagged the Zacks Consensus Estimate of 32 cents.
Operational Updates
Granite’s net sales improved 2% year over year to $550.2 million. The results however missed the Zacks Consensus Estimate of $652 million. Revenues benefited from the synergies of the Kenny acquisition.
Gross profit during the quarter slipped 1.3% to $51.2 million from $51.9 million in the prior-year quarter. Gross margin contracted 30 basis points (bps) year over year to 9.3%.
Selling, general and administrative expenses increased 12% year over year to $46 million. A significant portion of the increase was led by the integration of Kenny. Adjusted operating gain was $4.7 million compared with $10 million in the prior-year quarter.
Segment Performance
Construction: Net sales grew 25.9% year over year to $308.6 million in the quarter, primarily attributable to the acquisition of Kenny and improved western markets, partly offset by the weakness in California. Gross profit increased 40% to $25 million from $17.9 million in the year-ago quarter. Gross margin was 8.2%, about 90 basis points higher than the prior-year quarter.
Large Project Construction: The segment reported sales of $181 million in the quarter compared to $228.9 million in the year-ago quarter. The segment’s gross profit fell 21.7% year over year to $22 million. Gross margin of 12.2% was in line with the year-ago quarter.
Construction Materials: Net sales in the reported quarter went down 5% year over year to $60 million. Consequently, gross profit fall 3.6% year over year to $56 million. Gross margin declined 130 bps year over year to 6.6%.
Real Estate: Revenues at the Real Estate segment was $0.04 million compared with $2.3 million in the year-ago quarter. Gross profit plummeted 99.8% to $0.01 million.
Backlog
Total contract backlog as of Jun 30, 2013, was $2.79 billion compared with $1.95 billion as of Jun 30, 2012. Backlog included $426.2 million associated with the IH-35E project in Texas and the I-440 project in North Carolina.
Financial Update
Cash and cash equivalents were $247.8 million as of Jun 30, 2013 compared with $237.9 million as of Jun 30, 2012. Long-term debt amounted to $270 million as of Jun 30, 2013, compared with $209 million as of Jun 30, 2012. The debt-to-capitalization ratio expanded to 24.4% as of Jun 30, 2013 from 20.5% as of Jun 30, 2012. Cash flow used in operating activities was $51.6 million in the reported quarter compared with $34.6 million in the year-ago quarter.
Outlook
For full-year 2013, Granite anticipates growth by at least double digits in the top line of its business. Granite reaffirmed construction segment revenues forecast in the range of $1.25–$1.4 billion for 2013, with a corresponding gross margin band of 8–10%. The company however revised the Large Project Construction segment revenues range to $850–$950 million from its previous band of $850–$1.05 billion. Construction Materials revenues were also confirmed within $200–$230 million, with a gross margin range of 6%–9%.
Selling, general and administrative expenses were reiterated in the range of $210–$220 million. Cash flow from operations were revised to the new band of $70–$100 million for the year from the previous range of $80–$120 million.
Watsonville, Calif.-based Granite Construction is one of the largest infrastructure contractors and construction materials producers. Granite’s project teams represent some of the best in the industry serving owners in the transportation, power, federal, tunneling, underground, and industrial, mining and water resources markets, which serve both public and private-sector clients.
Granite Construction currently retains a short-term Zacks Rank #3 (Hold).
Peer Performance
Chicago Bridge & Iron Company N.V. (CBI) reported second-quarter adjusted earnings of $112.3 million or $1.04 per share, in line with the Zacks Consensus Estimate. However, adjusted net income was up 38.6% year over year on the back of strong project activities and robust backlog during the quarter.
MasTec, Inc.’s (MTZ) adjusted earnings increased 21% to 47 cents per share in the second quarter of 2013 from the earnings of 39 cents a share in the year-ago quarter. The results were ahead of the Zacks Consensus Estimate of 43 cents as well as management’s previous guidance of 42 cents a share.
EMCOR Group Inc. (EME) second-quarter 2013 adjusted earnings dipped 4% to 48 cents from 50 cents in the year ago quarter falling short of Zacks Consensus Estimate of 53 cents.
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