Construction and construction materials company Granite Construction (NYSE:GVA) beat Wall Street’s revenue expectations in Q4 CY2024, with sales up 4.7% year on year to $977.3 million. The company’s full-year revenue guidance of $4.3 billion at the midpoint came in 1.1% above analysts’ estimates. Its non-GAAP profit of $1.23 per share was in line with analysts’ consensus estimates.
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Granite Construction (GVA) Q4 CY2024 Highlights:
- Revenue: $977.3 million vs analyst estimates of $950.5 million (4.7% year-on-year growth, 2.8% beat)
- Adjusted EPS: $1.23 vs analyst estimates of $1.24 (in line)
- Adjusted EBITDA: $108.5 million vs analyst estimates of $119.9 million (11.1% margin, 9.4% miss)
- Management’s revenue guidance for the upcoming financial year 2025 is $4.3 billion at the midpoint, beating analyst estimates by 1.1% and implying 7.3% growth (vs 14.8% in FY2024)
- Operating Margin: 6.2%, up from 2.2% in the same quarter last year
- Free Cash Flow Margin: 14.8%, up from 12.6% in the same quarter last year
- Market Capitalization: $3.79 billion
"I want to thank our teams across the company for all of their hard work and dedication. 2024 was a record year for Granite,” 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 sales performance can indicate its overall 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 3.1% compounded annual growth rate over the last five years. This fell short of our benchmark for the industrials sector, but there are still things to like about Granite Construction.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Granite Construction’s annualized revenue growth of 10.2% over the last two years is above its five-year trend, suggesting its demand recently accelerated. 
This quarter, Granite Construction reported modest year-on-year revenue growth of 4.7% but beat Wall Street’s estimates by 2.8%.
Looking ahead, sell-side analysts expect revenue to grow 6% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and indicates its products and services will face some demand challenges. At least the company is tracking well in other measures of financial health.
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Operating Margin
Granite Construction was profitable over the last five years but held back by its large cost base. Its average operating margin of 1.2% was weak 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 operating margin rose by 10.1 percentage points over the last five years.
In Q4, Granite Construction generated an operating profit margin of 6.2%, up 4 percentage points year on year. Since its gross margin expanded more than its operating margin, we can infer that leverage on its cost of sales was the primary driver behind the recently higher efficiency.
Earnings Per Share
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.
Granite Construction’s full-year EPS flipped from negative to positive over the last five years. This is a good sign and shows it’s at an inflection point.
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 43.2% compounded annual growth rate over the last two years, higher than its 10.2% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
We can take a deeper look into Granite Construction’s earnings quality to better understand the drivers of its performance. Granite Construction’s operating margin has expanded by 4.1 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 Q4, Granite Construction reported EPS at $1.23, up from $0.82 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Granite Construction’s full-year EPS of $4.79 to grow 13.5%.
Key Takeaways from Granite Construction’s Q4 Results
We enjoyed seeing Granite Construction exceed analysts’ revenue expectations this quarter. We were also glad its full-year revenue guidance came in slightly higher than Wall Street’s estimates. On the other hand, its EPS was just in line. Zooming out, we think this was still a decent quarter. The stock remained flat at $86.74 immediately following the results.
Is Granite Construction an attractive investment opportunity right now? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
