Granite Construction (NYSE:GVA) Misses Q1 Sales Targets

Construction and construction materials company Granite Construction (NYSE:GVA) missed Wall Street’s revenue expectations in Q1 CY2025 as sales rose 4.1% year on year to $699.5 million. On the other hand, the company’s outlook for the full year was close to analysts’ estimates with revenue guided to $4.3 billion at the midpoint. Its non-GAAP profit of $0.01 per share was significantly above analysts’ consensus estimates.

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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.

Sales Growth

A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, Granite Construction’s sales grew at a sluggish 3.5% compounded annual growth rate over the last five years. This wasn’t a great result compared to the rest of 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 12.2% over the last two years is above its five-year trend, suggesting its demand recently accelerated.

This quarter, Granite Construction’s revenue grew by 4.1% year on year to $699.5 million, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 7.7% over the next 12 months, a deceleration versus the last two years. Still, this projection is above the sector average and indicates the market is forecasting some success for its newer products and services.

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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 1.4% 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 10.2 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, Granite Construction generated an operating profit margin of negative 5.7%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in 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 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 48.5% compounded annual growth rate over the last two years, higher than its 12.2% 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. While we mentioned earlier that Granite Construction’s operating margin was flat this quarter, a two-year view shows its margin has expanded by 2 percentage points. 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 Q1, Granite Construction reported EPS at $0.01, up from negative $0.21 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data.

Key Takeaways from Granite Construction’s Q1 Results

We liked that Granite Construction beat analysts’ EBITDA and EPS expectations this quarter. On the other hand, its revenue slightly missed. Overall, we think this was a solid quarter with some key areas of upside. The areas below expectations seem to be driving the move, and shares traded down 1.7% to $79.89 immediately after reporting.

Big picture, is Granite Construction a buy here and now? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.