Granite Construction Incorporated (NYSE:GVA) today reported net income of $14.1 million for the quarter ended June 30, 2017, compared to net income of $14.2 million in the second quarter of 2016. Earnings per diluted share in the quarter was $0.35, flat compared to the prior-year period.
"This is a very exciting time for our business. Our growth expectations for 2017 and 2018 have increased, and our outlook continues to improve across our business," said James H. Roberts, President and Chief Executive Officer of Granite Construction Incorporated.
"Our businesses continue to win new work across the portfolio, with broad project wins driving Company backlog above $4 billion for the first time in our Company's 95-year history. For the fifth consecutive quarter, Construction segment backlog finished above the $1-billion mark," Roberts continued.
"We are particularly pleased with consistently strong margin performance in the Construction segment and improving margins in the Construction Materials segment. We expect strong growth in both segments in the second half of 2017 and through 2018.
"Granite teams recovered well from challenging winter and spring weather, with solid safety performance across the business in alignment with operations that accelerated through the end of the second quarter. We also continued acceleration to completion on a number of under-performing, mature projects in our Large Project Construction segment portfolio. This will allow our teams to complete these projects in 2017 and 2018, but, as we saw in the first quarter, it created an increased near-term drag on our results," Roberts said.
Second Quarter 2017 Results
Total Company
- Second quarter consolidated revenue increased 26.2 percent to $762.9 million compared with $604.6 million in the second quarter of 2016. On a year-to-date basis, consolidated revenue increased 17.9 percent to $1.23 billion in the first half of 2017.
- Gross profit increased 1.9 percent to $74.6 million compared with $73.2 million last year. On a year-to-date basis, gross profit decreased 11.3 percent to $99.7 million in the first half of 2017.
- Gross profit margin was 9.8 percent compared with 12.1 percent in 2016. For the first half of 2017, gross profit margin was 8.1 percent compared with 10.8 percent last year.
- Total Company backlog was $4.06 billion, up 8.4 percent year-over-year. Construction segment backlog increased 10.6 percent year-over-year to $1.27 billion. Large Project Construction segment backlog increased 7.4 percent from last year to $2.80 billion.
- Second quarter selling, general and administrative (SG&A) expenses increased to $51.4 million, compared to $48.7 million last year. For the first half of 2017, SG&A expenses were $113.2 million, compared to $104.8 million last year.
- Our balance sheet remains strong with cash and marketable securities of $285.9 million, as of June 30, 2017, an increase of $47.0 million from June 30, 2016.
Second Quarter Segment Results
Construction
- Construction revenue increased 29.6 percent to $429.3 million, compared with $331.3 million last year.
- Gross profit increased 27.4 percent to $62.5 million compared to $49.1 million last year.
- Gross profit margin of 14.6 percent was down slightly from 14.8 percent a year ago.
- Despite continued wet weather through early-April, operations recovered and accelerated through the second quarter.
Large Project Construction
- Large Project Construction revenue increased 29.0 percent to $254.5 million, compared with $197.3 million last year.
- Gross profit decreased to $0.5 million compared to $13.7 million last year, as project write-downs totaled $23.8 million compared to $14.6 million in the second quarter of 2016. In addition, there were no project write-ups in this year’s quarter compared to $9.8 million in the second quarter of 2016.
- Gross profit margin was 0.2 percent compared with 6.9 percent in 2016.
- In the second quarter, accelerated activity on certain mature projects represented a significant amount of segment revenue as it did in the first quarter. We continue to negotiate resolutions for design, weather, project execution, and owner-related issues, while we focus on closing out several of our challenging projects in late-2017 and through 2018.
- Three new projects were added to segment backlog in the quarter. In alignment with increased project selectivity, these projects join an evolving project portfolio -- Granite's leadership role on projects is growing, as we focus on project selection, partner selection, project duration, and owner dynamics, all with an eye on significantly higher return expectations.
Construction Materials
- Construction Materials revenue was $79.2 million compared to last year at $75.9 million.
- Second quarter gross profit expanded to $11.6 million compared to $10.5 million last year.
- Gross profit margin of 14.6 percent increased from 13.8 percent a year ago.
- The gross profit and margin improvement was attributable to steady demand across geographies in the West.
Outlook and Guidance
"Market conditions are changing across geographies and across end markets, and our business leaders have been tasked with raising their expectations in response to improved demand. We see significant expansion in our markets, and it is incumbent upon us as a leader in our industry, to raise our expectations for returns in all three segments of our business," said Roberts. "Our outlook for growth continues to improve. As we enter the heart of our construction season, Granite teams are focused on solid safety performance and consistent execution of record backlog. We are extremely well positioned to benefit from steady private-market demand, as well as a significant uptick in key public transportation markets that is beginning this year and should continue for the foreseeable future."
The Company’s expectations for 2017 are:
- Mid- to high-teens consolidated revenue growth
- Consolidated EBITDA margin1 of 6.0% to 6.5%
1 Please refer to the description and non-GAAP reconciliation in the attached tables.
Conference Call
Granite will conduct a conference call today, August 1, 2017, at 8 a.m. Pacific Time/11 a.m. Eastern Time to discuss the results of the quarter ended June 30, 2017. 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 August 8, 2017, by calling 1-877-344-7529, replay access code 10110574; 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 eight 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.
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) | ||||||||||||
June 30, | December 31, | June 30, | ||||||||||
| 2017 | 2016 | 2016 | ||||||||||
| ASSETS | ||||||||||||
| Current assets | ||||||||||||
| Cash and cash equivalents | $ | 178,068 | $ | 189,326 | $ | 161,218 | ||||||
| Short-term marketable securities | 47,821 | 64,884 | 34,959 | |||||||||
| Receivables, net | 484,245 | 419,345 | 431,127 | |||||||||
| Costs and estimated earnings in excess of billings | 99,883 | 73,102 | 86,025 | |||||||||
| Inventories | 65,495 | 55,245 | 64,711 | |||||||||
| Equity in construction joint ventures | 230,448 | 247,182 | 245,509 | |||||||||
| Other current assets | 43,597 | 39,908 | 31,949 | |||||||||
| Total current assets | 1,149,557 | 1,088,992 | 1,055,498 | |||||||||
| Property and equipment, net | 414,079 | 406,650 | 409,860 | |||||||||
| Long-term marketable securities | 59,990 | 62,895 | 42,653 | |||||||||
| Investments in affiliates | 37,170 | 35,668 | 34,517 | |||||||||
| Goodwill | 53,799 | 53,799 | 53,799 | |||||||||
| Deferred income taxes, net | — | — | 5,407 | |||||||||
| Other noncurrent assets | 88,550 | 85,449 | 84,095 | |||||||||
| Total assets | $ | 1,803,145 | $ | 1,733,453 | $ | 1,685,829 | ||||||
| LIABILITIES AND EQUITY | ||||||||||||
| Current liabilities | ||||||||||||
| Current maturities of long-term debt | $ | 14,796 | $ | 14,796 | $ | 14,795 | ||||||
| Accounts payable | 252,527 | 199,029 | 210,923 | |||||||||
| Billings in excess of costs and estimated earnings | 114,180 | 97,522 | 90,484 | |||||||||
| Accrued expenses and other current liabilities | 231,048 | 218,587 | 212,986 | |||||||||
| Total current liabilities | 612,551 | 529,934 | 529,188 | |||||||||
| Long-term debt | 227,114 | 229,498 | 241,907 | |||||||||
| Deferred income taxes, net | 5,420 | 5,441 | — | |||||||||
| Other long-term liabilities | 47,983 | 45,989 | 45,719 | |||||||||
| 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: 39,837,295 shares as of June 30, 2017, 39,621,140 shares as of December 31, 2016 and 39,597,469 shares as of June 30, 2016 | 398 | 396 | 396 | |||||||||
| Additional paid-in capital | 155,476 | 150,337 | 145,156 | |||||||||
| Accumulated other comprehensive income (loss) | 71 | (371 | ) | (1,811 | ) | |||||||
| Retained earnings | 715,451 | 735,626 | 692,740 | |||||||||
| Total Granite Construction Incorporated shareholders’ equity | 871,396 | 885,988 | 836,481 | |||||||||
| Non-controlling interests | 38,681 | 36,603 | 32,534 | |||||||||
| Total equity | 910,077 | 922,591 | 869,015 | |||||||||
| Total liabilities and equity | $ | 1,803,145 | $ | 1,733,453 | $ | 1,685,829 | ||||||
| GRANITE CONSTRUCTION INCORPORATED | ||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
| (Unaudited - in thousands, except per share data) | ||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Revenue | ||||||||||||||||
| Construction | $ | 429,269 | $ | 331,346 | $ | 656,118 | $ | 540,833 | ||||||||
| Large Project Construction | 254,463 | 197,322 | 461,496 | 392,771 | ||||||||||||
| Construction Materials | 79,181 | 75,911 | 113,699 | 110,427 | ||||||||||||
| Total revenue | 762,913 | 604,579 | 1,231,313 | 1,044,031 | ||||||||||||
| Cost of revenue | ||||||||||||||||
| Construction | 366,765 | 282,290 | 565,665 | 464,844 | ||||||||||||
| Large Project Construction | 253,968 | 183,668 | 458,446 | 365,612 | ||||||||||||
| Construction Materials | 67,610 | 65,420 | 107,506 | 101,129 | ||||||||||||
| Total cost of revenue | 688,343 | 531,378 | 1,131,617 | 931,585 | ||||||||||||
| Gross profit | 74,570 | 73,201 | 99,696 | 112,446 | ||||||||||||
| Selling, general and administrative expenses | 51,388 | 48,705 | 113,225 | 104,838 | ||||||||||||
| Gain on sales of property and equipment | (807 | ) | (1,366 | ) | (1,077 | ) | (1,966 | ) | ||||||||
| Operating income (loss) | 23,989 | 25,862 | (12,452 | ) | 9,574 | |||||||||||
| Other (income) expense | ||||||||||||||||
| Interest income | (1,164 | ) | (798 | ) | (2,215 | ) | (1,634 | ) | ||||||||
| Interest expense | 2,694 | 3,187 | 5,437 | 6,236 | ||||||||||||
| Equity in income of affiliates | (1,259 | ) | (717 | ) | (2,175 | ) | (2,159 | ) | ||||||||
| Other income, net | (642 | ) | (3,183 | ) | (1,512 | ) | (4,555 | ) | ||||||||
| Total other income | (371 | ) | (1,511 | ) | (465 | ) | (2,112 | ) | ||||||||
| Income (loss) before provision for (benefit from) income taxes | 24,360 | 27,373 | (11,987 | ) | 11,686 | |||||||||||
| Provision for (benefit from) income taxes | 8,088 | 8,847 | (4,408 | ) | 2,923 | |||||||||||
| Net income (loss) | 16,272 | 18,526 | (7,579 | ) | 8,763 | |||||||||||
| Amount attributable to non-controlling interests | (2,139 | ) | (4,327 | ) | (2,078 | ) | (5,005 | ) | ||||||||
| Net income (loss) attributable to Granite Construction Incorporated | $ | 14,133 | $ | 14,199 | $ | (9,657 | ) | $ | 3,758 | |||||||
| Net income (loss) per share attributable to common shareholders: | ||||||||||||||||
| Basic | $ | 0.35 | $ | 0.36 | $ | (0.24 | ) | $ | 0.10 | |||||||
| Diluted | $ | 0.35 | $ | 0.35 | $ | (0.24 | ) | $ | 0.09 | |||||||
| Weighted average shares of common stock | ||||||||||||||||
| Basic | 39,827 | 39,584 | 39,738 | 39,509 | ||||||||||||
| Diluted | 40,393 | 40,302 | 39,738 | 40,140 | ||||||||||||
| GRANITE CONSTRUCTION INCORPORATED | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| (Unaudited - in thousands) | ||||||||
| Six Months Ended June 30, | 2017 | 2016 | ||||||
| Operating activities | ||||||||
| Net (loss) income | $ | (7,579 | ) | $ | 8,763 | |||
| Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: | ||||||||
| Depreciation, depletion and amortization | 31,148 | 29,502 | ||||||
| Gain on sales of property and equipment | (1,077 | ) | (1,966 | ) | ||||
| Stock-based compensation | 11,224 | 8,563 | ||||||
| Equity in net loss (income) from unconsolidated joint ventures | 8,249 | (5,688 | ) | |||||
| Gain on real estate entity | — | (2,452 | ) | |||||
| Changes in assets and liabilities: | (19,279 | ) | (89,835 | ) | ||||
| Net cash provided by (used in) operating activities | 22,686 | (53,113 | ) | |||||
| Investing activities | ||||||||
| Purchases of marketable securities | (49,816 | ) | (29,894 | ) | ||||
| Maturities of marketable securities | 70,000 | 20,000 | ||||||
| Proceeds from called marketable securities | — | 35,000 | ||||||
| Purchases of property and equipment | (37,518 | ) | (48,837 | ) | ||||
| Proceeds from sales of property and equipment | 2,585 | 2,510 | ||||||
| Other investing activities, net | 23 | (128 | ) | |||||
| Net cash used in investing activities | (14,726 | ) | (21,349 | ) | ||||
| Financing activities | ||||||||
| Long-term debt principal repayments | (2,500 | ) | (2,500 | ) | ||||
| Cash dividends paid | (10,327 | ) | (10,267 | ) | ||||
| Repurchases of common stock | (6,568 | ) | (4,845 | ) | ||||
| Other financing activities, net | 177 | 456 | ||||||
| Net cash used in financing activities | (19,218 | ) | (17,156 | ) | ||||
| Decrease in cash and cash equivalents | (11,258 | ) | (91,618 | ) | ||||
| Cash and cash equivalents at beginning of period | 189,326 | 252,836 | ||||||
| Cash and cash equivalents at end of period | $ | 178,068 | $ | 161,218 | ||||
| GRANITE CONSTRUCTION INCORPORATED | ||||||||||||||||||||||||
| Business Segment Information | ||||||||||||||||||||||||
| (Unaudited - dollars in thousands) | ||||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||
| Large Project | Construction | Large Project | Construction | |||||||||||||||||||||
| Construction | Construction | Materials | Construction | Construction | Materials | |||||||||||||||||||
| 2017 | ||||||||||||||||||||||||
| Revenue | $ | 429,269 | $ | 254,463 | $ | 79,181 | $ | 656,118 | $ | 461,496 | $ | 113,699 | ||||||||||||
| Gross profit | 62,504 | 495 | 11,571 | 90,453 | 3,050 | 6,193 | ||||||||||||||||||
| Gross profit as a percent of revenue | 14.6 | % | 0.2 | % | 14.6 | % | 13.8 | % | 0.7 | % | 5.4 | % | ||||||||||||
| 2016 | ||||||||||||||||||||||||
| Revenue | $ | 331,346 | $ | 197,322 | $ | 75,911 | $ | 540,833 | $ | 392,771 | $ | 110,427 | ||||||||||||
| Gross profit | 49,056 | 13,654 | 10,491 | 75,989 | 27,159 | 9,298 | ||||||||||||||||||
| Gross profit as a percent of revenue | 14.8 | % | 6.9 | % | 13.8 | % | 14.1 | % | 6.9 | % | 8.4 | % | ||||||||||||
| GRANITE CONSTRUCTION INCORPORATED | |||||||||||||||||||||
| Contract Backlog by Segment | |||||||||||||||||||||
| (Unaudited - dollars in thousands) | |||||||||||||||||||||
| Contract Backlog by Segment | June 30, 2017 | March 31, 2017 | June 30, 2016 | ||||||||||||||||||
| Construction | $ | 1,266,504 | 31.2 | % | $ | 1,175,474 | 34.2 | % | $ | 1,144,965 | 30.5 | % | |||||||||
| Large Project Construction | 2,797,894 | 68.8 | % | 2,259,721 | 65.8 | % | 2,606,019 | 69.5 | % | ||||||||||||
| Total | $ | 4,064,398 | 100.0 | % | $ | 3,435,195 | 100.0 | % | $ | 3,750,984 | 100.0 | % | |||||||||
| GRANITE CONSTRUCTION INCORPORATED | |||||||||||||||
| EBITDA(1) | |||||||||||||||
| (Unaudited - dollars in thousands) | |||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Net income (loss) attributable to Granite Construction Incorporated | $ | 14,133 | $ | 14,199 | $ | (9,657 | ) | $ | 3,758 | ||||||
| Depreciation, depletion and amortization expense(2) | 16,499 | 15,766 | 31,148 | 29,502 | |||||||||||
| Provision for (benefit from) income taxes | 8,088 | 8,847 | (4,408 | ) | 2,923 | ||||||||||
| Interest expense, net of interest income | 1,530 | 2,389 | 3,222 | 4,602 | |||||||||||
| EBITDA | $ | 40,250 | $ | 41,201 | $ | 20,305 | $ | 40,785 | |||||||
| Consolidated EBITDA Margin(3) | 5.3 | % | 6.8 | % | 1.6 | % | 3.9 | % | |||||||
| 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 securities 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 $762,913 and $1,231,313 for three and six months ended June 30, 2017, respectively, and $604,579 and $1,044,031 for the three and six months ended June 30, 2016, respectively. | |||||||||||||||
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Contacts:
Ron Botoff, 831-728-7532
