Granite Reports Third Quarter 2016 Results

Granite Construction Incorporated (NYSE:GVA) today reported net income of $37.1 million for the quarter ended September 30, 2016, compared to net income of $30.8 million in the third quarter of 2015. Earnings per diluted share in the quarter were $0.92, compared to $0.77 in the prior-year period.

“Granite teams continued to perform well in the heart of the construction season, with particular strength from our Construction segment fueling third quarter improvement from last year,” said James H. Roberts, President and Chief Executive Officer of Granite Construction Incorporated. “We continue to benefit across the business with steady demand from private and public markets, pushing total backlog to an all-time high of $3.8 billion, and driving Construction segment backlog up more than 27 percent from last year to $1.1 billion,” Roberts continued.

“Across our businesses, execution at a high level has been a critical component of steady revenue and profit improvement. Our Large Project teams continue to focus on efficient project starts, improved design management, and opportunities for improved performance on our nearly $2.7 billion portfolio of large projects,” Roberts said. “And the Construction Materials segment continues to perform well, reflected in continued, improved margin performance. Total production volume in the quarter and year-to-date remained in line with last year, though materials demand shifted to increased internal consumption. As a result, much of the revenue and profit benefit of vertical integration has been captured by our Construction segment.”

Third Quarter and First Nine Months 2016 Results

Total Company

  • Third quarter consolidated revenue increased 7.0 percent to $803.9 million compared with $751.4 million in the third quarter of 2015. In the first nine months of 2016, consolidated revenue increased 6.2 percent from last year to $1.8 billion.
  • Gross profit in the third quarter increased 12.1 percent to $107.7 million compared with $96.1 million last year. On a year-to-date basis, gross profit increased 10.5 percent to $220.1 million.
  • Gross profit margin in the quarter was 13.4 percent compared with 12.8 percent in 2015. For the first nine months of 2016, gross profit margin of 11.9 percent reflects a more than 40 basis-point improvement from last year.
  • Total Company backlog was $3.8 billion, up 21.9 percent year-over-year. Construction segment backlog increased 27.2 percent year-over-year to $1.1 billion, with Large Project Construction backlog of nearly $2.7 billion, up 19.8 percent.
  • Third quarter selling, general and administrative (SG&A) expenses increased 19.7 percent to $54.2 million. For the first nine months of 2016, SG&A totaled $159.0 million, up 10.6 percent year-over-year, with the increase primarily related to salary and compensation expenses.
  • Cash and marketable securities totaled $258.0 million, as of September 30, 2016. Driven by specific project needs and a shift in equipment purchase timing to support efficient project starts and execution on record backlog, capital expenditures totaled $67.9 million in the first nine months of 2016, an increase of $41.7 million year-over-year.

Third Quarter Segment Results

Construction

  • Construction revenue in the third quarter increased 8.8 percent to $464.6 million, compared with $427.0 million last year.
  • Gross profit in the third quarter increased 18.3 percent to $71.5 million compared to $60.5 million last year.
  • Gross profit margin of 15.4 percent, up from 14.2 percent a year ago, was driven by strong performance throughout the West and solid private, non-residential demand.

Large Project Construction

  • Large Project Construction revenue in the third quarter increased 14.9 percent to $249.3 million, compared with $217.1 million last year.
  • Gross profit in the third quarter increased 8.6 percent to $23.5 million compared to $21.7 million last year.
  • Gross profit margin was 9.4 percent compared with 10.0 percent in 2015. We continue to address impacts from design, weather, project execution, and owner-related issues.

Construction Materials

  • Construction Materials revenue in the third quarter decreased 16.2 percent to $89.9 million, compared with $107.3 million last year, driven primarily by a shift to greater internal consumption of materials.
  • Third quarter gross profit declined 9.6 percent to $12.6 million compared to $14.0 million last year.
  • Gross profit margin increased to 14.0 percent, up more than 100 basis points from last year. Operational performance remains strong, with solid levels of committed volume reflecting steady demand.

Outlook and Guidance

“In all areas of our business, our teams are persistent in their focus on Continuous Improvement, capturing near-term opportunities, and investing strategically for long-term growth,” said Roberts. “We continue to anticipate increased infrastructure investment in 2017 and beyond, including tangible benefits from the five-year Fixing America’s Surface Transportation (“FAST”) Act, passed last December, as well as increased state and local spending.

“Granite teams continue to deliver on their commitments for growth and improved execution. We remain in an excellent position to close the year safely and strongly, and to prepare efficiently for growth in 2017 and beyond,” Roberts said.

The Company’s current expectations for 2016 remain:

  • Mid-single digit consolidated revenue growth
  • Consolidated EBITDA margin1 of 6% to 8%

Conference Call

Granite will conduct a conference call today, October 28, 2016, at 8 a.m. Pacific Time/11 a.m. Eastern Time to discuss the results of the quarter ended September 30, 2016. The Company invites investors to listen to a live audio webcast on its Investor Relations website, http://investor.graniteconstruction.com. An archive of the webcast will be available on the website approximately one hour after the call. The live call also is available by calling 1-877-328-5503; international callers may dial 1-412-317-5472. A replay will be available after the live call through November 4, 2016 by calling 1-877-344-7529, replay access code 10094621; international callers may dial 1-412-317-0088.

About Granite

Through its offices and subsidiaries nationwide, Granite Construction Incorporated (NYSE: GVA) is one of the nation’s largest infrastructure contractors and construction materials producers. Granite specializes in complex infrastructure projects, including transportation, industrial and federal contracting, and is a proven leader in alternative procurement project delivery. Granite is an award-winning firm in safety, quality and environmental stewardship, and has been honored as one of the World’s Most Ethical Companies by Ethisphere Institute for seven consecutive years. Granite is listed on the New York Stock Exchange and is part of the S&P MidCap 400 Index, the MSCI KLD 400 Social Index and the Russell 2000 Index. For more information, visit graniteconstruction.com.

1 Please refer to the description and non-GAAP reconciliation in the attached tables.

Forward-looking Statements

Any statements contained in this news release that are not based on historical facts, including statements regarding future events, occurrences, circumstances, activities, performance, outcomes and results, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by words such as “future,” “outlook,” “assumes,” “believes,” “expects,” “estimates,” “anticipates,” “intends,” “plans,” “appears,” “may,” “will,” “should,” “could,” “would,” “continue,” and the negatives thereof or other comparable terminology or by the context in which they are made. These forward-looking statements are estimates reflecting the best judgment of senior management and reflect our current expectations regarding future events, occurrences, circumstances, activities, performance, outcomes and results. These expectations may or may not be realized. Some of these expectations may be based on beliefs, assumptions or estimates that may prove to be incorrect. In addition, our business and operations involve numerous risks and uncertainties, many of which are beyond our control, which could result in our expectations not being realized or otherwise materially affect our business, financial condition, results of operations, cash flows and liquidity. Such risks and uncertainties include, but are not limited to, those described in greater detail in our filings with the Securities and Exchange Commission, particularly those specifically described in our Annual Report on Form 10-K and quarterly reports on Form 10-Q.

Due to the inherent risks and uncertainties associated with our forward-looking statements, the reader is cautioned not to place undue reliance on them. The reader is also cautioned that the forward-looking statements contained herein speak only as of the date of this news release and, except as required by law; we undertake no obligation to revise or update any forward-looking statements for any reason.

GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited - in thousands, except share and per share data)
September 30,December 31,September 30,
201620152015
ASSETS
Current assets
Cash and cash equivalents $ 150,225 $ 252,836 $ 221,785
Short-term marketable securities 54,863 25,043 17,607
Receivables, net 512,752 340,822 456,688
Costs and estimated earnings in excess of billings 80,032 59,070 56,971
Inventories 61,015 55,553 60,289
Equity in construction joint ventures 263,180 224,689 219,652
Other current assets 28,047 26,985 30,351
Total current assets 1,150,114 984,998 1,063,343
Property and equipment, net 407,327 385,129 385,036
Long-term marketable securities 52,908 80,652 70,646
Investments in affiliates 34,356 33,182 33,077
Goodwill 53,799 53,799 53,799
Deferred income taxes, net 5,223 4,329 17,626
Other noncurrent assets 81,540 84,789 73,022
Total assets $ 1,785,267 $ 1,626,878 $ 1,696,549
LIABILITIES AND EQUITY
Current liabilities
Current maturities of long-term debt $ 14,795 $ 14,800 $ 22
Accounts payable 223,612 157,571 196,885
Billings in excess of costs and estimated earnings 116,151 92,515 122,409
Accrued expenses and other current liabilities 237,534 200,935 229,923
Total current liabilities 592,092 465,821 549,239
Long-term debt 240,715 244,323

269,594

Other long-term liabilities 46,270 46,613

41,211

Commitments and contingencies
Equity
Preferred stock, $0.01 par value, authorized 3,000,000 shares, none outstanding
Common stock, $0.01 par value, authorized 150,000,000 shares; issued and outstanding: 39,601,569 shares as of September 30, 2016, 39,412,877 shares as of December 31, 2015 and 39,380,053 shares as of September 30, 2015 396 394 394
Additional paid-in capital 148,485 140,912 139,071
Accumulated other comprehensive loss (1,524 ) (1,500 ) (1,097 )
Retained earnings 723,789 699,431 675,927
Total Granite Construction Incorporated shareholders’ equity 871,146 839,237 814,295
Non-controlling interests 35,044 30,884 22,210
Total equity 906,190 870,121 836,505
Total liabilities and equity $ 1,785,267 $ 1,626,878 $ 1,696,549
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - in thousands, except per share data)
Three Months Ended September 30,Nine Months Ended September 30,
2016201520162015
Revenue
Construction $ 464,624 $ 427,018 $ 1,005,457 $ 921,143
Large Project Construction 249,345 217,084 642,116 590,282
Construction Materials 89,936 107,274 200,363 229,442
Total revenue 803,905 751,376 1,847,936 1,740,867
Cost of revenue
Construction 393,094 366,547 857,938 801,193
Large Project Construction 225,826 195,430 591,438 536,613
Construction Materials 77,311 93,316 178,440 203,849
Total cost of revenue 696,231 655,293 1,627,816 1,541,655
Gross profit 107,674 96,083 220,120 199,212
Selling, general and administrative expenses 54,194 45,262 159,032 143,811

Gain on sales of property and equipment, net

(398 ) (804 ) (2,364 ) (2,090 )
Operating income 53,878 51,625 63,452 57,491
Other (income) expense
Interest income (790 ) (591 ) (2,424 ) (1,561 )
Interest expense 3,034 3,485 9,270 10,966
Equity in income of affiliates (2,424 ) (1,155 ) (4,583 ) (1,762 )
Other (income) expense, net (732 ) 27 (5,287 ) (1,409 )
Total other (income) expense (912 ) 1,766 (3,024 ) 6,234
Income before provision for income taxes 54,790 49,859 66,476 51,257
Provision for income taxes 16,703 17,679 20,442 18,148
Net income 38,087 32,180 46,034 33,109
Amount attributable to non-controlling interests (982 ) (1,421 ) (5,987 ) (1,297 )
Net income attributable to Granite Construction Incorporated $ 37,105 $ 30,759 $ 40,047 $ 31,812
Net income per share attributable to common shareholders:
Basic $ 0.94 $ 0.78 $ 1.01 $ 0.81
Diluted $ 0.92 $ 0.77 $ 1.00 $ 0.80
Weighted average shares of common stock
Basic 39,599 39,378 39,539 39,317
Diluted 40,313 39,897 40,205 39,863
GRANITE CONSTRUCTION INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)
Nine Months Ended September 30,20162015
Operating activities
Net income $ 46,034 $ 33,109
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation, depletion and amortization 46,637 48,517
Gain on sales of property and equipment, net (2,364 ) (2,090 )
Change in deferred income taxes (87 ) 14,967
Stock-based compensation 11,013 6,962
Equity in net income from unconsolidated joint ventures (15,903 ) (29,465 )
Gain on real estate entity (2,452 )
Net income from affiliates (4,583 ) (1,762 )
Changes in assets and liabilities: (98,595 ) (78,367 )
Net cash used in operating activities (20,300 ) (8,129 )
Investing activities
Purchases of marketable securities (84,758 ) (54,961 )
Maturities of marketable securities 30,000 26,700
Proceeds from called marketable securities 50,000 45,000
Purchases of property and equipment (67,889 ) (26,144 )
Proceeds from sales of property and equipment 5,790 3,439
Distributions from affiliates 2,233 305
Collection of notes receivable 3,880 542
Other investing activities, net (33 ) (249 )
Net cash used in investing activities (60,777 ) (5,368 )
Financing activities
Long-term debt principal repayments (3,750 ) (306 )
Cash dividends paid (15,415 ) (15,326 )
Repurchases of common stock (4,946 ) (3,325 )
Contributions from (distributions to) non-controlling partners, net 1,522 (1,740 )

Other financing activities

1,055 18
Net cash used in financing activities (21,534 ) (20,679 )
Decrease in cash and cash equivalents (102,611 ) (34,176 )
Cash and cash equivalents at beginning of period 252,836 255,961
Cash and cash equivalents at end of period $ 150,225 $ 221,785
GRANITE CONSTRUCTION INCORPORATED
Business Segment Information
(Unaudited - dollars in thousands)
Three Months Ended September 30,Nine Months Ended September 30,
Large ProjectConstructionLarge ProjectConstruction
ConstructionConstructionMaterialsConstructionConstructionMaterials
2016
Revenue $ 464,624 $ 249,345 $ 89,936 $ 1,005,457 $ 642,116 $ 200,363
Gross profit 71,530 23,519 12,625 147,519 50,678 21,923
Gross profit as a percent of revenue 15.4 % 9.4 % 14.0 % 14.7 % 7.9 % 10.9 %
2015
Revenue $ 427,018 $ 217,084 $ 107,274 $ 921,143 $ 590,282 $ 229,442
Gross profit 60,471 21,654 13,958 119,950 53,669 25,593
Gross profit as a percent of revenue 14.2 % 10.0 % 13.0 % 13.0 % 9.1 % 11.2 %
GRANITE CONSTRUCTION INCORPORATED
Contract Backlog by Segment
(Unaudited - dollars in thousands)
Contract Backlog by SegmentSeptember 30, 2016June 30, 2016September 30, 2015
Construction $ 1,102,147 29.3 % $ 1,144,965 30.5 % $ 866,567 28.1 %
Large Project Construction 2,662,399 70.7 % 2,606,019 69.5 % 2,222,085 71.9 %
Total $ 3,764,546 100.0 % $ 3,750,984 100.0 % $ 3,088,652 100.0 %
GRANITE CONSTRUCTION INCORPORATED
EBITDA(1)
(Unaudited - dollars in thousands)
Three Months Ended September 30,Nine Months Ended September 30,
2016201520162015
Net income attributable to Granite Construction Incorporated $ 37,105 $ 30,759 $ 40,047 $ 31,812
Depreciation, depletion and amortization expense(2) 17,135 17,186 46,637 48,517
Provision for income taxes 16,703 17,679 20,442 18,148
Interest expense, net of interest income 2,244 2,894 6,846 9,405
EBITDA $ 73,187 $ 68,518 $ 113,972 $ 107,882
Consolidated EBITDA Margin(3)9.1%9.1%6.2%6.2%
Note:

(1)We define EBITDA as GAAP net income attributable to Granite Construction Incorporated, adjusted for interest, taxes, depreciation, depletion and amortization. We believe this non-GAAP financial measure and the associated margin are useful in evaluating operating performance and are regularly used by security analysts, institutional investors and other interested parties in reviewing the Company. However, the reader is cautioned that any non-GAAP financial measures provided by the Company are provided in addition to, and not as alternatives for, the Company's reported results prepared in accordance with GAAP. The methods used by the Company to calculate its non-GAAP financial measures may differ significantly from methods used by other companies to compute similar measures. As a result, any non-GAAP financial measures provided by the Company may not be comparable to similar measures provided by other companies.

(2)Amount includes the sum of depreciation, depletion and amortization which are classified as Cost of Revenue and Selling, General and Administrative expenses in the condensed consolidated statements of operations of Granite Construction Incorporated.

(3)Represents EBITDA divided by consolidated revenue. Consolidated revenue was $803,905 and $1,847,936 for three and nine months ended September 30, 2016, respectively and $751,376 and $1,740,867 for the three and nine months ended September 30, 2015, respectively.

Contacts:

Granite Construction Incorporated
Ron Botoff, 831-728-7532

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