GVA Q1 Earnings Call: Margin Gains and Portfolio Shifts Offset Revenue Miss

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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StockStory’s Take

Granite Construction’s first quarter results reflected a blend of margin improvement and continued project portfolio transformation, with management attributing the quarter’s performance to improved project execution and a focus on higher-quality work. CEO Kyle Larkin noted that adverse weather slowed some activity in March, yet the company achieved higher construction segment margins and grew its backlog (CAP), supported by federal infrastructure funding and strong bidding momentum. Management also highlighted progress in its Materials segment, emphasizing investments in automation and plant upgrades as key contributors to profit gains and operational resilience.

Looking forward, management reaffirmed its full-year outlook, underpinned by expectations for a robust public sector pipeline and a healthy mix of upcoming projects. Larkin pointed to ongoing support from the Infrastructure Investment and Jobs Act (IIJA), suggesting that “opportunities funded by the bill continue to increase because of the timing delay between allocations to states and funding for specific projects.” While management acknowledged uncertainties around tariffs and equipment costs, they expressed confidence in their ability to mitigate these headwinds and sustain growth through a disciplined approach to bidding, risk management, and targeted M&A.

Key Insights from Management’s Remarks

Granite Construction’s management focused on strategic execution improvements and investments in core capabilities as key drivers of the quarter’s performance and margin gains.

• Construction margin execution: Improved project execution and a higher-quality backlog drove margin expansion in the Construction segment, despite weather-related disruptions in Western markets. Management cited better bidding discipline and a deliberate shift away from long-term, high-risk projects.
• Materials segment transformation: Significant investments in Materials, including automation and new plant additions, led to higher aggregate prices and improved cash gross profit margins. Management realigned operational leadership and centralized functions to enhance efficiency and profitability.
• Federal infrastructure funding impact: The company’s backlog benefited from public sector demand, particularly from the IIJA. Management expects these funding sources to support project opportunities and backlog growth beyond 2026, due to delays between allocations and project starts.
• M&A and vertical integration: Granite is prioritizing acquisitions of materials-focused, vertically integrated companies to reinforce its home markets. Management stated the target of completing two to three deals in 2025 remains unchanged, with integration of recent Southeast acquisitions progressing well.
• Tariff and cost management: While tariffs and equipment cost inflation remain risks, management reported limited direct impact so far. The company is taking proactive measures, such as early capital expenditure approvals and commodity price hedging, to mitigate potential cost increases.

Drivers of Future Performance

Management’s outlook for the remainder of the year is anchored by anticipated public infrastructure investment, targeted Materials segment growth, and ongoing margin improvement initiatives.

• Public infrastructure project pipeline: Continued federal and state infrastructure funding is expected to drive demand for both Construction and Materials segments, with management citing bipartisan support for future legislation beyond current bills.
• Margin expansion through execution: The company aims to further improve construction margins through disciplined project selection and operational enhancements. Materials segment profit growth is expected from price increases and process automation.
• M&A as a growth lever: Accretive acquisitions, especially in materials and vertically integrated businesses, are viewed as key to expanding market presence and supporting long-term revenue and margin growth.

Top Analyst Questions

• Brent Thielman (D.A. Davidson): Asked about the active bidding environment and the sustainability of backlog growth; management highlighted strong public sector demand and ongoing success in capturing higher-margin work.
• Brent Thielman (D.A. Davidson): Inquired about drivers of improved construction margins despite limited segment growth; CEO Larkin attributed gains to project execution and a shift toward less risky projects.
• Steven Ramsey (Thompson Research Group): Questioned the mix of project types in the backlog and the implications for business risk; management explained the benefits of a healthy mix between short-cycle and multi-year projects.
• Steven Ramsey (Thompson Research Group): Asked about Materials segment revenue as a percentage of total sales and expectations for future growth; management expects the Materials business to comprise a growing share of overall revenue due to ongoing investment.
• Jerry Revich (Goldman Sachs): Sought clarity on cash gross profit margin improvement in Materials and peer comparisons; management pointed to geography, product mix, and pricing discipline as key factors, with further margin expansion targeted in 2025.

Catalysts in Upcoming Quarters

In upcoming quarters, the StockStory team will focus on (1) tracking margin trends in both Construction and Materials segments as project execution and price initiatives take hold, (2) monitoring progress on targeted M&A, particularly any materials-focused acquisitions that could reshape the business mix, and (3) assessing the impact of public infrastructure funding, including the timing and flow of IIJA-related projects. Any changes in tariff exposure or significant weather disruptions will also be key factors influencing Granite Construction’s operational and financial trajectory.

Granite Construction currently trades at a forward EV-to-EBITDA ratio of 8×. Is the company at an inflection point that warrants a buy or sell? Find out in our free research report.

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