Construction and construction materials company Granite Construction (NYSE:GVA) met Wall Street’s revenue expectations in Q3 CY2024, with sales up 14.2% year on year to $1.28 billion. The company’s full-year revenue guidance of $3.95 billion at the midpoint also came in 1.5% below analysts’ estimates. Its non-GAAP profit of $2.05 per share was 16.8% below analysts’ consensus estimates.

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"In the third quarter, we continued to build on our momentum with revenue growth and margin expansion,” said Kyle Larkin, Granite President and Chief Executive Officer.

Company Overview

Having played a role in the construction of the Hoover Dam, Granite Construction (NYSE:GVA) is a provider of infrastructure solutions for roads, bridges, and other projects.

Construction and Maintenance Services

Construction and maintenance services companies not only boast technical know-how in specialized areas but also may hold special licenses and permits. Those who work in more regulated areas can enjoy more predictable revenue streams - for example, fire escapes need to be inspected every five years–. More recently, services to address energy efficiency and labor availability are also creating incremental demand. But like the broader industrials sector, construction and maintenance services companies are at the whim of economic cycles as external factors like interest rates can greatly impact the new construction that drives incremental demand for these companies’ offerings.

Sales Growth

A company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, Granite Construction’s sales grew at a sluggish 2.8% compounded annual growth rate over the last five years. This shows it failed to expand in any major way, a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Granite Construction’s annualized revenue growth of 9.3% over the last two years is above its five-year trend, suggesting its demand recently accelerated.

This quarter, Granite Construction’s year-on-year revenue growth was 14.2%, and its $1.28 billion of revenue was in line with Wall Street’s estimates.

We also like to judge companies based on their projected revenue growth, but not enough Wall Street analysts cover the company for it to have reliable consensus estimates.

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Operating Margin

Granite Construction was roughly breakeven when averaging the last five years of quarterly operating profits, inadequate for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

On the plus side, Granite Construction’s annual operating margin rose by 10.4 percentage points over the last five years.

In Q3, Granite Construction generated an operating profit margin of 8.2%, up 1.6 percentage points year on year. The increase was encouraging, and since its operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as marketing, R&D, and administrative overhead.

Earnings Per Share

Analyzing revenue trends tells us about a company’s historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Granite Construction’s full-year EPS grew at an astounding 31.7% compounded annual growth rate over the last four years, better than the broader industrials sector.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

Granite Construction’s EPS grew at an astounding 55.2% compounded annual growth rate over the last two years, higher than its 9.3% annualized revenue growth. This tells us the company became more profitable as it expanded.

Diving into the nuances of Granite Construction’s earnings can give us a better understanding of its performance. Granite Construction’s operating margin has expanded by 2.8 percentage points over the last two years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q3, Granite Construction reported EPS at $2.05, up from $1.69 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Granite Construction’s full-year EPS of $4.38 to grow by 24.1%.

Key Takeaways from Granite Construction’s Q3 Results

We struggled to find many strong positives in these results as its EBITDA and EPS fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 4% to $78.78 immediately following the results.

Granite Construction’s earnings report left more to be desired. Let’s look forward to see if this quarter has created an opportunity to buy the stock. When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.