Granite Beats on Earnings, Lags Revs - Analyst Blog

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Granite Construction Incorporated ( GVA ) reported adjusted fourth-quarter 2013 earnings of 2 cents per share and loss per share of 17 cents for full-year 2013. Both the results outperformed the Zacks Consensus Estimate of a loss per share of 3 cents in the fourth quarter and loss per share of 24 cents for full-year 2013.

Including the impact of restructuring and impairment charges related to its 2010 Enterprise Improvement, the company reported a loss per share of 74 cents in the fourth quarter compared with earnings per share of 46 cents in the prior-year quarter. In 2013, the company reported a loss per share of 94 cents compared with earnings per share of $1.17 in 2012.

Operational Updates

Granite's net sales increased 18% year over year to $598 million but missed the Zacks Consensus Estimate of $623 million. In 2013, revenues increased 9% year over year to $2.27 billion, falling short of the Zacks Consensus Estimate of $2.29 billion.

Cost of sales went up 22% to $548 million in the quarter. Consequently, gross profit dropped 12% to $50 million from $57 million in the prior-year quarter. Gross margin contracted 300 basis points (bps) year over year to 8.3% as lower gross profit in the Large Project Construction and Construction segments offset an increase in gross profit of Construction Materials segment.

Selling, general and administrative expenses declined 12% year over year to $50 million. This was due to decrease in pre-bid costs, incentive compensation and the non recurrence of fourth-quarter 2012 acquisition costs related to Kenny. Granite Construction reported an operating loss of $0.7 million versus $0.5 million in the prior-year quarter.

Segment Performance

Construction: Net sales grew 25% year over year to $295 million, primarily attributable to the Kenny acquisition. Gross profit edged up 1% to $18.4 million from the year-ago quarter. Gross margin was 6.2%, down 150 bps from the prior-year quarter as weaker performance in certain Western markets offset the positive impact of the Kenny acquisition.

Large Project Construction: The segment reported sales of $238 million against $214 million in the year-ago quarter. It reported gross profit of $30 million in the fourth quarter, down from $40 million in the last-year quarter. Consequently, gross margin contracted 630 bps year over year to 12.4%.

Construction Materials: Net sales in the reported quarter went up 18% year over year to $65 million. The segment reported gross profit of $1.7 million compared with gross loss of $1.5 million in the prior-year quarter. Gross loss margin was 2.6% compared with a loss of 2.7% in the prior-year quarter driven by overall improved performance.

Backlog

Total contract backlog increased to $2.5 billion as of Dec 31, 2013 compared with $1.7 billion as of Dec 31, 2012. The increase reflects the addition of the Tappan Zee Bridge project in New York, the IH-35E highway reconstruction project in Texas, the I-40/440 project in North Carolina, as well as an overall increase in the Construction segment backlog.

Financial Update

As of Dec 31, 2013, cash and cash equivalents amounted to $229 million versus $322 million as of Dec 31, 2012. As of Dec 31, 2013, long-term debt remained flat at $270 million compared with Dec 31, 2012. The debt-to-capitalization ratio also remained flat at 26% as of Dec 31, 2013 compared with Dec 30, 2012. Cash flow from operating activities for 2013 was $5.4 million compared with $92 million in the prior year.

Granite Construction's backlog , project funding and financing have improved and private constructions are also showing signs of growth. Furthermore, diversification opportunities underground, in power and tunnel also position Granite Construction for growth. Its backlog at 2013 end reflects a diverse, healthy portfolio of projects which bodes well for the company. In 2014, the company expects to bid on more than $13 billion of large projects. The company foresees an additional $20 billion in large projects beyond 2014.

Watsonville, Calif.-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 holds a short-term Zacks Rank #5 (Strong Sell). A better-ranked stock in the building and heavy construction industry is Orion Marine Group, Inc ( ORN ), carrying a Zacks Rank #2 (Buy).

Peer Performance

Among Granite Construction's peers, Chicago Bridge & Iron Company N.V. ( CBI ) posted fourth-quarter adjusted earnings of $1.91 per share (excluding the one-time items), well exceeding the Zacks Consensus Estimate of $1.17 per share and its year-ago quarter's earnings of 95 cents.

Another peer, Tutor Perini Corporation ( TPC ), reported a 3% year-over-year increase in its fourth-quarter adjusted earnings to 68 cents per share, ahead of the Zacks Consensus Estimate of 61 cents.



CHICAGO BRIDGE (CBI): Free Stock Analysis Report

GRANITE CONSTRU (GVA): Free Stock Analysis Report

ORION MARINE GP (ORN): Free Stock Analysis Report

TUTOR PERINI CP (TPC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: CBI , GVA , ORN , TPC

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