Shares of Granite Construction Incorporated GVA fell around 2.5% since the company reported its second-quarter 2015 results on Jul 30. Granite Construction’s earnings per share declined 31% year over year to 24 cents. The bottom line also missed the Zacks Consensus Estimate of 42 cents by a wide margin of 43%.
Operational Updates
Granite Construction’s net sales decreased 2.8% year over year to $569 million. Revenues fell short of the Zacks Consensus Estimate of $624 million.
Cost of sales remained flat year over year at $503.5 million in the quarter. Gross profit slumped 20% to $65.8 million from $82.4 million in the prior-year quarter. Gross margin contracted 250 basis points (bps) year over year to 11.6%.
Selling, general and administrative (SG&A) expenses decreased 3.9% year over year to $49 million. Granite Construction reported adjusted operating profit of $16.7 million, plunging 46.8% from $31.3 million in the prior-year quarter.
Segment Performance
Construction: Net sales increased 13.5% year over year to $305.6 million. Gross profit increased nearly two-fold year over year to $40 million, driven by better project execution and an improving bidding environment.
Large Project Construction: The segment reported sales of $182.9 million, down 25% from $244 million in the year-ago quarter. Gross profit for the quarter came in at $14.8 million, declining significantly from $50.8 million in the same period last year. The business was impacted by severe wet weather and slow startup of new projects during the quarter.
Construction Materials: Net sales in the reported quarter improved 11.6% year over year to $80.7 million. The segment reported gross profit of $10.9 million compared to $6.8 million in the prior-year quarter, driven by operational efficiencies along with stronger volume and pricing across geographies.
Financial Update
Granite Construction ended the quarter with cash and cash equivalents of $188 million compared with $146.5 million in the year-ago quarter. As of Jun 30, 2015, long-term debt remained flat at $270 million with the amount as on Jun 30, 2014. Cash flow used in operating activities was $56.7 million during the first half of 2015 compared with $72.4 million in the prior-year period. Total contract backlog increased 17% year over year to $3 billion in the reported quarter.
Outlook
Granite Construction retained its 2015 guidance and expects consolidated revenue growth in the mid-single digits and consolidated EBITDA margin of 6% to 8%.
Granite Construction is poised to benefit from modest economic improvement. The company remains focused on opportunities to leverage pent-up demand as the funding environment is progressing. While Congress is holding up long-term highway bill, the company is actively ramping up the execution of its strategic plan based on its optimism on the bill.
Our Take
Granite Construction’s sound backlog and several additional awards 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 Zacks Rank #3 (Hold). Better-ranked stocks in the sector include Dycom Industries Inc. DY, Chicago Bridge & Iron Company N.V. CBI and EMCOR Group Inc. EME. While Dycom holds a Zacks Rank #1 (Strong Buy), Chicago Bridge & Iron Company and EMCOR Group carry a Zacks Rank #2 (Buy).
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