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    GRANITE CONSTRUCTION (GVA)

    GVA Q1 2025: Record $5.7B Backlog Fuels 1% Margin Boost

    Reported on May 16, 2025 (Before Market Open)
    Pre-Earnings Price$81.29Last close (Apr 30, 2025)
    Post-Earnings Price$79.62Open (May 1, 2025)
    Price Change
    $-1.67(-2.05%)
    • Record CAP Growth and High-Quality Pipeline: Executives highlighted a record CAP level in Q1 driven by strong public spending (e.g., the IIJA) and robust bidding, suggesting an expanding order backlog with higher margin projects.
    • Enhanced Profitability Through Margin Improvement: Management confirmed robust margin performance in the Construction segment, with margins already exceeding prior periods and expectations for at least a 1% improvement over 2024 through better execution and operational efficiency.
    • Growth Opportunities via Federal Business and Strategic M&A: The leadership noted a strong federal market presence—with successful, long-standing operations in key markets like Guam and Texas—and effective integration of M&A deals, particularly in the Southeast, positioning the company for continued growth.
    • Tariff-related cost increases: Management acknowledged that rising tariffs are leading to equipment cost increases, parts and repair cost hikes, which could pressure margins if these costs are not fully mitigated through preauthorization of CapEx orders.
    • Seasonal weather disruptions: Wet weather in March negatively impacted project progression and revenue recognition in certain regions, suggesting that further seasonal disruptions could delay revenue and undermine execution.
    • Volatile project mix in CAP: Although the CAP reached a record high, the mix between faster-burning bid build projects and longer-cycle best value projects creates uncertainty about sustained high margins, especially in a softening private market environment.
    MetricYoY ChangeReason

    Total Revenue

    +4% YoY (from $672.275 million in Q1 2024 to $699.547 million in Q1 2025)

    Modest revenue growth reflects a continuation of robust project backlogs and steady market conditions from previous periods, although the increase is smaller than prior fiscal year gains driven by strong CAP balances and acquisitions.

    Gross Profit

    +54% YoY (from $54.285 million in Q1 2024 to $83.849 million in Q1 2025)

    Gross profit expanded significantly, with margins improving from roughly 8.1% to about 12%, indicating enhanced operational efficiency and pricing power—building on earlier period improvements in project execution and revenue mix.

    Operating Income

    8% improvement (loss narrowed from a $43.300 million loss in Q1 2024 to a $39.751 million loss in Q1 2025)

    Operating income shows moderated losses due to stronger gross margins despite continued operational challenges, as increased revenue and efficiency are partly offset by higher overheads, echoing trends observed in previous periods where cost pressures and acquisitions had mixed impacts.

    Selling, General and Administrative Expenses

    +32% YoY (from $87.993 million in Q1 2024 to $115.911 million in Q1 2025)

    SG&A expenses surged, largely driven by higher stock-based compensation, increased salaries, and incentive compensation. These rising costs continue the trend seen in FY 2024 where acquisitions and labor-related expenses pressured margins.

    Net Income (Loss)

    Slight improvement (loss decreased by 3.8% from -$29.442 million to -$28.327 million; however, net income attributable to the parent worsened by 8.6%)

    Net income improved marginally as enhanced gross profit partially offset increased costs; however, the deterioration in parent company net income indicates that non-operating factors and cost pressures—like higher SG&A—are dampening overall performance compared with previous periods.

    Net Cash Provided by Operating Activities

    -85% YoY (from $24.073 million in Q1 2024 to $3.647 million in Q1 2025)

    A dramatic 85% decline in operating cash flow suggests deteriorating working capital efficiency or adverse timing shifts in cash collections and disbursements. This sharp drop, contrasting with the modest operational improvements, raises potential liquidity concerns when compared with previous periods.

    MetricPeriodPrevious GuidanceCurrent GuidanceChange

    Revenue

    FY 2025

    Expected to grow to a range of $4.2B to $4.4B

    Expected to be between $4.2B and $4.4B

    no change

    Adjusted EBITDA Margin

    FY 2025

    Expected to be in the range of 11% to 12%

    Projected to be 11% to 12%

    no change

    Operating Cash Flow Margin

    FY 2025

    Targeted at 9% of revenue

    Targeted at 9% of revenue

    no change

    Construction Segment Margin Improvement

    FY 2025

    no prior guidance

    Expected to achieve over 1% improvement vs 2024

    no prior guidance

    Materials Segment Cash Gross Profit Margin

    FY 2025

    no prior guidance

    Anticipated to increase by 300 basis points

    no prior guidance

    M&A Activity

    FY 2025

    no prior guidance

    Targeted completion of 2 to 3 deals

    no prior guidance

    TopicPrevious MentionsCurrent PeriodTrend

    CAP Pipeline Quality

    Consistently emphasized in Q2, Q3, and Q4 (e.g., Q2 described as “derisked” with higher-quality projects ; Q3 noted strong CAP growth and improved margins ; Q4 stressed the “highest quality CAP” and project mix improvements )

    Record CAP balance of $5.7 billion with emphasis on higher margins, a balanced mix of bid‐build and best value projects, and robust public market support

    Continued strong focus on quality with incremental improvements and confidence in long‑term pipeline strength

    Conversion Risks

    Addressed consistently in previous periods (Q2 highlighted risk reduction through improved project selection , Q3 noted delays being managed , Q4 highlighted improved execution )

    Mitigation through locking in pricing and risk‐aversion by shifting away from long-term design-build projects

    Persistent emphasis on risk management with refinements and proactive measures

    Margin Expansion and Operational Efficiency

    Repeated focus in Q2 (improved margins through pricing and digitalization ), Q3 (expectations for higher adjusted EBITDA margins and efficiency initiatives ), and Q4 (detailed initiatives in both Construction and Materials segments with reorganizations and automation )

    Significant margin gains in Construction with improved gross profit and cash margins, supported by operational excellence and centralized management functions

    Sustained commitment to operational excellence with evolving strategies but a consistent upward trend in margins and efficiency

    M&A Strategy and Integration Risks

    Featured in every period: Q2 emphasized acquisitions to boost vertically integrated operations with successful integrations ; Q3 highlighted a “strengthen and expand” approach with selective deal sizes ; Q4 reiterated a focus on bolt-ons and geographic expansion with reorganized management functions

    Targeting 2–3 materials-focused deals in 2025 with confidence in integration, citing the success of Southeast acquisitions

    Steady and disciplined approach with effective integration practices, reinforcing strategic growth while minimizing risks

    Federal Business Opportunities and Public Funding Dependency

    Emphasized in previous calls: Q2 indirectly through mentions of strong public market environments and state funding ; Q3 detailed 75% revenue from public funding and long-term IIJA benefits ; Q4 discussed the strong role of the IIJA and high public funding dependency (≈75%)

    Continued optimism with detailed mentions of success in federal projects (e.g., Guam and Texas) and bipartisan support for federal spending under IIJA

    Unwavering reliance on federal funding and public sector opportunities, now coupled with specific regional highlights

    Weather-Related and Seasonal Disruption Risks

    Recurring concerns: Q2 noted weather’s impact on margins and cash flow variations ; Q3 observed weather sensitivity affecting revenue guidance and project timing ; Q4 mentioned variance in Q1/Q4 due to weather in the West

    Seasonal challenges remain with weather in March slowing project progress but overall strong performance; Q1 noted improvement in April

    Consistent awareness of weather risks with proactive monitoring and mitigation, reflecting a stable but cautious sentiment

    Tariff-Related Cost Increases and Supply Chain Pressures

    Not mentioned in Q2, Q3, or Q4 earnings calls

    Introduced as a new concern in Q1 with expectations of increased equipment, parts, and repair costs due to tariffs, though with established mitigation practices

    New emphasis emerging in Q1 2025, suggesting growing macroeconomic pressures that are being closely monitored

    Materials Segment Dynamics: Pricing Power vs. Volume Pressure

    Discussed in detail in Q2 (targeted price increases offset by flat/slightly down volumes ), Q3 (robust price hikes and recovering private market volumes despite flat aggregate volumes ), and Q4 (continued price increases, margin expansion, and backlog growth )

    Balanced dynamics with strong pricing power (high single-digit increases for aggregates, low for asphalt, 300 bp margin expansion) but stable, flat volumes, alongside ongoing investments

    Steady strategic focus on leveraging pricing gains to counter volume pressures, maintaining margin growth despite volume challenges

    Shift from Home Market Focus to Federal Market Engagement

    Previously, emphasis was on home markets: Q2 stressed leveraging established home market relationships and best value projects , and Q3 reiterated all markets being “home” with a focus on core relationships

    Emerging dual focus in Q1 as federal opportunities (e.g., Guam, Texas) gain prominence while home markets remain important

    Subtle strategic evolution where federal market engagement is increasingly integrated alongside traditional home market focus

    1. CAP Trajectory
      Q: What is the outlook for CAP growth?
      A: Management noted a strong bidding environment has driven CAP to a record $5.7B and expects continued growth fueled by sustained public investments and robust project wins.

    2. Construction Margins
      Q: Why did margins improve despite slower revenue?
      A: Improved execution and a higher quality project mix boosted construction margins by over 1% year-over-year, even with some seasonal weather impacts.

    3. CAP Quality
      Q: How is the CAP mix evolving?
      A: The split between bid build and best value projects remains balanced; bid build contracts cycle faster while best value projects, though fewer, are larger and offer extended work periods.

    4. Materials Revenue Ratio
      Q: Will Materials revenue hold near 17–18%?
      A: With ongoing investments and strategic realignment, management expects Materials to remain around 17–18% of construction revenue over the coming year.

    5. Federal & Regional Growth
      Q: What about federal business and regional acquisitions?
      A: Federal opportunities, especially in Guam, are performing well, while acquisitions in the Southeast are integrating successfully, strengthening the overall platform.

    6. Aggregates Profitability
      Q: What is driving higher aggregates profit margins?
      A: Focused pricing discipline, increased automation, and cost efficiencies have delivered a 300 bps improvement in cash gross profit margins for aggregates.

    7. April Performance
      Q: How did April compare to earlier months?
      A: After a seasonal slowdown in March, April showed a strong pickup with performance returning to expected strength, underscoring resilience in the business.

    8. Tariff Impacts
      Q: Are tariffs affecting equipment costs?
      A: While some equipment and repair cost increases are expected from tariffs, management is proactively preordering to mitigate these impacts, keeping CapEx plans on track.

    Research analysts covering GRANITE CONSTRUCTION.