Granite Construction (NYSE: GVA) reported Q3 EPS of $0.58, $0.86 worse than the analyst estimate of $1.44. Revenue for the quarter came in at $1.09 billion versus the consensus estimate of $1.17 billion.

Highlights

Third Quarter Results

• Record quarterly revenue of $1.1 billion, up 3.1 percent year-over-year
• Net income of $20.5 million; adjusted net income of $27.5 million1
• Strong core operational results impacted by Heavy Civil operating group performance
• Strategic review of Heavy Civil operating group complete
• Committed and Awarded Projects2 (CAP) totaled $4.7 billion, up 44.5 percent year-over-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.”

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

For earnings history and earnings-related data on Granite Construction (GVA) click here.