Granite Construction Inc (GVA) (Q1 2024) Earnings Call Transcript Highlights: Robust Start with ...

• Revenue: Increased by $112 million or 20% year-over-year.

• Gross Profit: Increased by $22 million or 68% compared to the same period last year.

• Adjusted Net Loss: Improved by $5 million.

• Adjusted EBITDA: Improved by $18 million.

• Operating Cash Flow: Improved by $101 million.

• Construction Segment Revenue: Increased by $92 million or 18% to $595 million.

• Construction Segment Gross Profit Margin: 9.5%, improved due to decreased negative net revisions and estimates.

• Materials Segment Revenue: Increased by $20 million to $77 million.

• Materials Segment Gross Profit: Increased by $2 million despite a gross loss of $3 million.

• Total Debt: Decreased by $102 million due to full paydown of the revolver.

• Adjusted EBITDA Margin Guidance for 2024: Raised from 9-11% to 9.5-11.5%.

• Warning! GuruFocus has detected 7 Warning Sign with GVA.

Release Date: May 02, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Granite Construction Inc (NYSE:GVA) reported a strong start to 2024 with significant growth in revenue, adjusted EBITDA, and operating cash flow compared to 2023.

• The company has successfully reorganized its operations to better align with its construction and materials segments, which is expected to drive top and bottom line growth.

• Granite Construction Inc (NYSE:GVA) has a robust Committed and Awarded Projects (CAP) of $5.5 billion, supporting strong market conditions and growth opportunities.

• The Materials segment benefited from price increases and higher volumes, with strategic investments planned to continue enhancing productivity and efficiency.

• Granite Construction Inc (NYSE:GVA) is actively pursuing mergers and acquisitions to expand into new geographies and enhance shareholder value.

Negative Points

• Despite overall growth, the Construction segment's revenue decreased by 18% year-over-year due to higher CAP and weather conditions.

• The company reported a gross loss in the Materials segment, although there was an improvement compared to the previous year.

• Seasonal impacts still pose challenges to financial performance, particularly evident in the Materials segment's first-quarter results.

• Granite Construction Inc (NYSE:GVA) faces ongoing risks related to material cost inflation, which could affect future profitability despite current measures to mitigate these effects.

• The competitive bidding environment could intensify, potentially impacting the company's ability to win new projects and maintain desired profit margins.

Q & A Highlights

Q: Could you discuss the performance of the new portfolio of work versus the old portfolio in the construction segment? A: (Kyle Larkin, President and CEO) - The new portfolio is performing well, showing strong top and bottom line growth compared to 2023, without the drag from older, less profitable projects. This improvement is attributed to a high-quality CAP that has been built up, benefiting the company as it moves into 2024.

Q: What impact are the investments in the materials business group having on productivity and efficiencies? A: (Kyle Larkin, President and CEO) - Investments in automation and reserve expansion are starting to pay off, with the first fully automated plant operational in Arizona and another set to come online in Bakersfield. These investments are expected to drive significant improvements in productivity and efficiency moving forward.

Q: Can you discuss price and volume factors in the materials segment for this year? A: (Kyle Larkin, President and CEO) - Aggregate volume is expected to remain flat but healthy compared to 2023, with a 10% price increase on aggregates and 5% on asphalt. The company continues to monitor the market for further pricing adjustments.

Q: How is the project bid environment evolving, particularly in terms of competition and CAP? A: (Kyle Larkin, President and CEO) - The CAP has remained consistent, with a $400 million increase year over year. The market activity has been robust, with more work being bid on and won compared to last year, and margins on new work have also increased.

Q: What level of material cost inflation are you factoring into your bids today? A: (Kyle Larkin, President and CEO) - Inflationary costs are covered through subcontractors and suppliers on the construction side, with escalators and de-escalators included in contracts. On the materials side, pricing adjustments and an energy escalator implemented in 2022 help manage costs related to natural gas and diesel.

Q: How do you see the margin cadence for 2024 compared to typical seasonality, given the changes in the business? A: (Kyle Larkin, President and CEO) - The company expects less volatility in EBITDA margins due to a de-risked portfolio and more consistent financial performance, moving away from the impact of megaprojects and focusing on providing steady results.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.