Granite Construction (GVA) Up on Q2 Earnings, Outlook Intact - Analyst Blog

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Shares of Granite Construction Incorporated ( GVA ) gained 1% since the company reported earnings per share of 34 cents in the second quarter of 2014 on Aug 1, increasing more than eight fold from the 4 cents earned in the year-ago quarter. Overall enhanced project execution in both the Construction and Large Project Construction segments, combined with better volumes and efficiency gains in the Construction Materials segment led to the improved profit performance. Earnings per share also outperformed the Zacks Consensus Estimate of 24 cents.


Granite Construction Incorporated - Earnings Surprise | FindTheBest



Operational Updates



Granite Construction's net sales increased 6.5% year over year to $586 million but missed the Zacks Consensus Estimate of $638 million by a wide margin. Increase in Large Project Construction segment and Construction Material segment's sales were offset by declines in the Construction and Real Estate segments.

Cost of sales edged up 1% to $503 million in the quarter. Gross profit went up 66% to $82 million from $49.5 million in the prior-year quarter. Gross margin expanded 510 basis points (bps) year over year to 14.1%. This was mainly driven by improved performance in the Large Project Construction and Construction Materials segments. 

Selling, general and administrative (SG&A) expenses increased 9% year over year to $51 million. Timing of pre-bid costs along with increased continuous improvement investment led to the increase in SG&A expenses.

Granite Construction reported an adjusted operating profit of $31 million versus an operating profit of $2.8 million in the prior-year quarter.

Segment Performance

Construction: Net sales dipped 13% year over year to $269 million, primarily due to a change in the mix of power projects, project timing and weaker-than-anticipated public market activity in the Northwest. Gross profit increased 3% to $24.8 million from the year-ago quarter. Gross margin was 9.2%, up 140 bps from the prior-year quarter driven by improved performance across certain markets in the West.

Large Project Construction: The segment reported sales of $244 million, up 35% from $181 million in the year-ago quarter, attributable to job progression in the quarter.  It reported gross profit of $50.8 million in the quarter, up 135% from $21.5 million in the last-year quarter. Consequently, gross margin improved substantially to 20.8% from 11.9% in the year-ago quarter. 

Construction Materials: Net sales in the reported quarter went up 20% year over year to $72 million. Increase in volumes related to private sector activity and mixed trends in the public markets led to the increase. The segment reported gross profit of $6.8 million, a 72% improvement from $3.9 million in the prior-year quarter. Gross margin was 20.8% compared with 11.9% in the prior-year quarter.

Backlog

Total contract backlog increased to $2.6 billion as of Jun 30, 2014, flat with the Mar 31, 2014 figure but down from $2.8 billion as of Jun 30, 2013.

Financial Update

As of Jun 30 2014, cash and cash equivalents amounted to $146 million versus $229 million as of Dec 31, 2013. As of Mar 31, 2014, long-term debt remained flat at $270 million compared with Dec 31, 2013. The debt-to-capitalization ratio was at 25.5% as of Jun 30, 2014 compared with 25.7% as of Dec 30, 2013. Cash flow used in operating activities for the first half of fiscal 2014 was $72 million compared with $51.6 million in the prior-year quarter.

Guidance

For 2014, Granite Construction maintained its revenue guidance in the range of $2.4 to $2.8 billion. Gross profit is expected to improve significantly over 2013 levels. Consolidated EBITDA margin is projected in the range of 5% to 7%.

Our Take

Granite Construction's strong backlog and robust bidding activity bodes well for its future performance. Project funding and financing have improved and private constructions are also showing signs of growth. Furthermore, diversification opportunities underground, in power and tunnel position the company for growth. 

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 #3 (Hold). Some better-ranked stocks in the sector include Quanex Building Products Corporation ( NX ) and PGT, Inc. ( PGTI ). Both of these stocks carry a Zacks Rank #2 (Buy).

Peer Performance

Among Granite Construction's peers, Chicago Bridge & Iron ( CBI ) posted second-quarter 2014 adjusted earnings of $1.36 per share, surpassing the Zacks Consensus Estimate of $1.27 per share by 7.1%. The adjusted earnings marked an increase of 30.8% from $1.04 a share reported in the prior-year quarter. On a GAAP basis, earnings per share increased 33.7% year over year to $1.31.


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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 , NX , PGTI , GVA

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