Wider-Than-Expected Loss at Granite
Granite Construction Incorporated (GVA) reported a loss of $22 million or 57 cents per share in the first quarter of 2013 compared with the prior-year loss of $11.8 million or 31 cents a share. The loss per share was wider than the Zacks Consensus Estimate of a loss per share of 26 cents.
Operational Updates
Revenues improved 22% to $378.7 million on a sequential basis attributed to strong backlog growth in the quarter, driven by large projects awarded to the company. The results were ahead of the Zacks Consensus Estimate of $346 million. Revenues in the reported quarter included $63.7 million from Kenny Construction Company which has been acquired by Granite.
Gross profit during the quarter increased 20% to $30 million from $25 million in the prior-year quarter. Gross margin, however, contracted 10 basis points to 7.9% in the quarter.
Selling, general and administrative expenses surged 28% to $57.7 million. A significant portion of the increase was led by the integration of Kenny. Adjusted operating loss was $27.6 million in the first quarter compared with $20 million in the prior-year quarter.
Segment Performance
Construction: Net sales at the segment spiked 50% to $177 million in the quarter, primarily due to the acquisition of Kenny. Gross profit for the segment also increased 54% to $13 million from $8.5 million in the year-ago quarter.
Large Project Construction: The segment reported sales of $171.7 million in the quarter compared to $163.9 million in the year-ago quarter. The segment’s gross profit grew 2% year over year to $22.7 million.
Construction Materials: Net sales in the reported quarter went up 16.4% year over year to $29.8 million. However, the Construction Materials segment posted a loss of $5.9 million in the reported quarter, flat compared to the prior-year quarter.
Real Estate: Revenues at the Real Estate segment was $0.12 million compared with $2.6 million in the year-ago quarter. However, segment’s gross profit grew nearly two-fold to $22.7 million in the quarter.
Backlog
Total contract backlog as of Mar 31, 2013, was $2.4 billion compared with $2.1 billion as of Mar 31, 2012. Backlog of 2013 included $733.0 million associated with the Tappan Zee Bridge project in New York.
Financial Update
Cash and cash equivalents were $260.7 million as of Mar 31, 2013 compared with $226.2 million as of Mar 31, 2012. Long-term debt amounted to $270 million as of Mar 31, 2013, compared with $208.5 million as of Mar 31, 2012. The debt-to-capitalization ratio expanded to 24.1% as of Mar 31, 2013 from 20.4% as of Mar 31, 2012. Cash flow used in operating activities was $54.6 million in the reported quarter compared with $22.8 million in the year-ago quarter.
Outlook
For the full year 2013, Granite anticipates growth by at least double digits in the top line of its business. The company also expects to generate strong cash flow, which will allow it to further implement strategic long-term plan. Also, recovery in the private construction market will help drive significant long-term operational and financial performance of Granite.
However, for the short-term, its vertically integrated business will face challenges due to capacity exceeding demand for both construction services and construction materials segments.
Granite forecasts construction segment revenues to be in the range of $1.25 billion to $1.4 billion for 2013, with a corresponding gross margin band of 8% to 10%. The company expects Large Project Construction segment revenues to be in the range of $850 million to $1.05 billion, with a gross margin between 12% and 14%. Construction Materials revenues are expected to be within $200 million and $230 million, with a gross profit margin range of 6% to 9%.
Selling, general and administrative expenses are expected to be between $210 million and $220 million. Granite expects capital expenditures for the year to be in the range of $40 million to $60 million. Cash flow from operations is likely to be in the band of $80 million and $120 million for the year.
Watsonville, CA-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 serves both public- and private-sector clients.
Granite Construction currently retains a short-term Zacks Rank #2 (Buy). Other companies in the building and heavy construction industry with favorable Zacks Ranks are China Communications Construction Company Limited (CCCGY), Primoris Services Corporation (PRIM) and Orion Marine Group, Inc (ORN). While China Communications Construction and Primoris Services carry a Zacks Rank #1 (Strong Buy), Orion Marine holds a Zacks Rank #2 (Buy).
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