Construction and construction materials company Granite Construction (NYSE: GVA) missed Wall Street’s revenue expectations in Q2 CY2025 as sales rose 4% year on year to $1.13 billion. On the other hand, the company’s full-year revenue guidance of $4.45 billion at the midpoint came in 3.5% above analysts’ estimates. Its non-GAAP profit of $1.93 per share was 13.9% above analysts’ consensus estimates.

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"In the second quarter, we capitalized on the strong bidding opportunities we are seeing in both the public and private markets and increased our CAP to $6.1 billion, which is a new record,” 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.

Revenue Growth

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, Granite Construction’s 4.1% annualized revenue growth over the last five years was sluggish. This wasn’t a great result compared to the rest of the industrials sector, but there are still things to like about Granite Construction.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Granite Construction’s annualized revenue growth of 11.9% 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% year on year to $1.13 billion, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 7.6% over the next 12 months, a deceleration versus the last two years. Still, this projection is above the sector average and suggests the market sees some success for its newer products and services.

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Operating Margin

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Granite Construction was profitable over the last five years but held back by its large cost base. Its average operating margin of 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 9.2 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q2, Granite Construction generated an operating margin profit margin of 9.2%, up 1.3 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 EPS grew at an astounding 37.6% compounded annual growth rate over the last five years, higher than its 4.1% 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 to better understand the drivers of its performance. As we mentioned earlier, Granite Construction’s operating margin expanded by 9.2 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Granite Construction, its two-year annual EPS growth of 42% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q2, Granite Construction reported adjusted EPS at $1.93, up from $1.73 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 Q2 Results

We were impressed by Granite Construction’s optimistic full-year revenue guidance, which blew past analysts’ expectations. We were also glad its EBITDA outperformed Wall Street’s estimates. On the other hand, its revenue missed. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 8% to $100.89 immediately following the results.

Sure, Granite Construction had a solid quarter, but if we look at the bigger picture, is this stock a buy? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.