WATSONVILLE, Calif.–Granite Construction Incorporated (NYSE: GVA) today reported net income of $20.5 million ($0.43 per diluted share) for the quarter ended September 30, 2019, compared to net income of $55.7 million ($1.17 per diluted share) for the quarter ended September 30, 2018. On a year-to-date basis, net loss was $111.9 million, ($2.39 per diluted share) compared to net income of $35.9 million ($0.84 per diluted share) last year.
“During the third quarter, strong core operational performance was dampened by a negative contribution from the Heavy Civil operating group primarily driven by disputed work,” said James H. Roberts, President and Chief Executive Officer at Granite Construction Incorporated. “Our core businesses capitalized on good weather this quarter combined with well-funded infrastructure markets. As we restore balance in Heavy Civil, a critical piece of the puzzle is resolution of ongoing disputes which continue to have a distorted impact on our cash flows and earnings. We have completed our strategic review of this business unit and have taken immediate action including:
- Changed operational management to align Heavy Civil operating group with construction and materials operations;
- Targeting revenue of no more than 15 percent of overall company revenue for this portfolio;
- Aggressively pursuing dispute avoidance and resolution;
- Implementing refined estimating and risk mitigation approach to project pricing; and
- Pursuing projects solely in markets with strategic, competitive advantages
“A critical component of our current and future success is consistent performance on projects at scale, in this case projects typically in a range of about $100 million to $500 million, with particular emphasis on best-value procurements with more defined design and appropriate risk-sharing. With that said, the vast majority of Granite’s robust project pipeline is comprised of projects well below this level, reflecting our deliberate focus on de-risking our portfolio. Steady funding and buoyant market conditions have resulted in strong bookings, driving more than 44 percent growth in our CAP to $4.7 billion.”
Third quarter 2019 and 2018 results include after-tax, acquisition-related expenses of $7.1 million and $12.2 million, respectively3. Excluding the impact of acquisition-related expenses, third quarter 2019 adjusted net income was $27.5 million1 and 2018 adjusted net income was $67.9 million1, with adjusted income per diluted share of $0.581 and $1.431, respectively.
Selling, general & administrative (“SG&A”) expenses were $73.4 million for the three months ended September 30, 2019, compared to $70.8 million last year. For the first nine months of 2019, SG&A expenses were $224.6 million, compared to $193.3 million during the same prior-year period. The year-to-date increase is primarily attributable to businesses acquired in 2018.
Cash and marketable securities increased to a total $232.6 million as of September 30, 2019 compared to $206.0 million as of June 30, 2019.
The Company’s effective tax rate in the third quarter was 13.7 percent.
Third Quarter and Year-To-Date 2019 Segment Results
- Third quarter 2019 revenue was $598.6 million, compared to $610.8 million in last year’s quarter. Year-to-date 2019 revenue decreased 9.0 percent to $1.3 billion compared to $1.5 billion last year. The year-to-date revenue was impacted by inclement weather that spanned the first part of the year.
- Third quarter 2019 gross profit was $13.6 million, which included $69.3 million of Heavy Civil operating group losses. Third quarter 2018 gross profit of $71.0 million included $8.2 million of Heavy Civil operating group losses. Year-to-date gross loss was $(65.0) million, compared to a gross profit of $138.4 million last year. Challenges related to projects in our Heavy Civil operating group have negatively affected 2019 results, while the remaining construction and materials business in this segment performed at exceptional levels.
- Segment CAP totaled nearly $3.7 billion as of September 30, 2019, including $1.0 billion of construction management/general contractor (CMGC) and alternative procurement projects.
- Third quarter 2019 revenue was $135.9 million compared to $124.3 million in last year’s quarter. Year-to-date 2019 revenue was $348.0 million, compared to $216.0 million last year. The year-to-date revenue increases were primarily related to 2018 acquisitions, partially dampened by inclement weather experienced across our operations through May.
- Third quarter 2019 gross profit was $15.0 million compared to $24.1 million last year, with gross profit margin slightly lower at 11.1 percent. Year-to-date gross profit was $34.4 million, compared to $41.1 million last year. Year-to-date gross profit margin was 9.9 percent, down from 19.0 percent in 2018, which included non-recurring emergency work in the prior year. In the current year, gross profit was negatively impacted by a business acquired with the Layne Christensen Company acquisition that we recently divested.
- Segment CAP totaled $244.9 million as of September 30, 2019.
- Third quarter 2019 revenue was $224.5 million, compared to $190.8 million in last year’s quarter. Year-to-date 2019 revenue was $540.2 million, compared to $461.1 million last year. The revenue increases reflect robust private-market work in our site preparation, power and mining services end markets. On a year-to-date basis, the increase also included the impact related to an acquisition in 2018.
- Third quarter 2019 gross profit was $38.3 million compared to $28.1 million last year, with gross profit margin of 17.1 percent up from 14.7 percent last year. Year-to-date gross profit was $75.4 million, compared to $65.3 million last year, with gross profit margin relatively flat at 14.0 percent.
- Segment CAP totaled $746.6 million as of September 30, 2019.
- Third quarter 2019 revenue was $129.1 million, compared to $129.6 million in last year’s quarter. Year-to-date 2019 revenue was $268.4 million, compared to $276.3 million last year. The modest year-to-date decline is attributable to inclement weather across the western United States through May.
- Third quarter 2019 gross profit was $24.5 million, compared to $21.3 million last year, with gross profit margin of 19.0 percent, up from 16.4 percent in 2018. Year-to-date gross profit was $34.7 million, compared to $36.3 million last year, with gross profit margin of 12.9 percent, down slightly from 13.1 percent in 2018, as wet weather persisted through May and slowed plant productivity in the first half of 2019.
Outlook and Guidance
“The alignment of operational capabilities with strategic opportunities at scale will match and be integrated into how we approach our entire portfolio, with all of our businesses using and operating with and from the same playbook,” Roberts said. “These actions set us on a more defined path for future success. Granite has written its nearly century-long history by consistently balancing resources, opportunities, and risks. The actions we are taking are expected to restore balance and eliminate distractions, enabling our talented teams to execute end-market growth strategies and create more value for all of our stakeholders.
“Current operational momentum, robust market dynamics and our strong CAP combined with favorable weather patterns the rest of this year should allow our businesses to deliver positive results well into the fourth quarter. As we look ahead, these positive dynamics have us well positioned for 2020.”
While not providing guidance for the remainder of the year, our preliminary expectations for 2020 are:
- Mid-single digit consolidated revenue growth
- Adjusted EBITDA margin1 of 6.5 percent to 8.5 percent
|(1)||Adjusted net income (loss), adjusted diluted income (loss) per share, earnings before interest, taxes, depreciation, and amortization (“EBITDA”), adjusted EBITDA, and adjusted EBITDA margin are non-GAAP measures. Please refer to the description and reconciliation of non-GAAP measures in the attached tables.|
|(2)||CAP is comprised of unearned revenue and other awards, as well as CMGC and alternative procurement projects.|
|(3)||Acquisition-related expenses include acquisition, integration, acquired intangible amortization expenses, acquisition-related depreciation and synergy costs.|
Granite will conduct a conference call today, October 25, 2019, at 8:00 a.m. Pacific Time/11:00 a.m. Eastern Time to discuss the results of the quarter ended September 30, 2019. The Company invites investors to listen to a live audio webcast on its Investor Relations website, https://investor.graniteconstruction.com. The live call is available by calling 1-800-353-6461; international callers may dial 1-334-323-0501. An archive of the webcast will be available on the website approximately one hour after the call. A replay will be available after the live call through November 1, 2019, by calling 1-888-203-1112, replay access code 2883572; international callers may dial 1-719-457-0820.
Granite is America’s Infrastructure Company™. Incorporated since 1922, Granite (NYSE:GVA) is one of the largest diversified construction and construction materials companies in the United States as well as a full-suite provider in the transportation, water infrastructure and mineral exploration markets. Granite’s Code of Conduct and strong Core Values guide the Company and its more than 7,000 employees to uphold the highest ethical standards. In addition to being one of the World’s Most Ethical Companies for ten consecutive years, Granite is an industry leader in safety and an award-winning firm in quality and sustainability. For more information, visit graniteconstruction.com, and connect with Granite on LinkedIn, Twitter, Facebook and Instagram.
Any statements contained in this news release that are not based on historical facts, including statements regarding future events, occurrences, circumstances, activities, performance, growth, demand, strategic plans, outcomes, guidance, backlog, Committed and Awarded Projects (CAP), 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, growth, demand, strategic plans, outcomes, guidance, backlog, CAP, 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.
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