Granite Construction Q3 Earnings Call Highlights

Key Points

• Record third-quarter performance: Revenue rose 23% year over year to $1.8 billion, while gross profit and adjusted EBITDA increased 29% and $67 million, respectively. Granite also generated $404 million in year-to-date operating cash flow.
• Strong construction outlook: Construction revenue grew 27%, and committed-and-awarded projects backlog reached a record $7.5 billion. Granite raised the low end of its 2026 revenue guidance to $5.4 billion while citing federal, rail and mission-critical infrastructure as key growth markets.
• Long-term targets and margin pressures: Granite introduced 2029 targets for 10%–12% annual organic revenue growth, 14%–16% adjusted EBITDA margins and free cash flow equal to about 10% of revenue. Materials margins were pressured by higher energy costs, although pricing increases and automation investments are expected to support future performance.

Granite Construction NYSE: GVA reported record third-quarter revenue, gross profit and adjusted EBITDA, citing strong construction execution, a record committed-and-awarded projects backlog and contributions from recent acquisitions. The company also raised the low end of its 2026 revenue outlook and outlined financial targets through 2029.

Third-quarter revenue rose 23% from the prior-year period to $1.8 billion, while gross profit increased 29% to $336 million, Chief Financial Officer Staci Woolsey said during the company’s earnings call. Adjusted net income increased by $49 million to $173 million, and adjusted EBITDA rose $67 million to $283 million.

Year-to-date operating cash flow was $404 million, compared with $290 million in the prior-year period. Woolsey said Granite expects to achieve its 2026 operating cash flow target of about 11% of revenue, based on results through the first nine months and anticipated seasonal fourth-quarter collections.

Construction Growth and Record Project Backlog

Construction segment revenue climbed 27% year over year to $1.5 billion. Acquired businesses accounted for $64 million, or 6%, of the growth, while organic growth contributed $248 million, or 21%.

Construction gross profit margin increased 210 basis points year over year during the quarter and was up 80 basis points for the first nine months of 2026. Woolsey attributed the gains to disciplined project selection, risk management, execution improvements and efforts to reduce the frequency and severity of project fade.

Chief Executive Officer Kyle Larkin said Granite’s committed and awarded projects, or CAP, increased by $37 million sequentially to a record $7.5 billion as project wins outpaced revenue burn during the company’s busiest construction quarter.

“Maintaining CAP at this level reflects healthy end markets and provides future visibility,” Larkin said.

Federal CAP totaled about $1.3 billion at quarter-end, including $569 million tied to tactical infrastructure projects. Granite now expects those tactical projects to be completed in the third quarter of 2028, rather than the second quarter of 2027, because of current right-of-way availability. Larkin said the revised timing does not change the company’s expectations for the projects’ overall profitability or success.

Materials Results Affected by Energy Costs

Materials segment revenue increased $21 million year over year to $292 million, driven by acquired businesses. Aggregate volumes increased across both acquired and legacy operations, while asphalt volumes were flat from a year earlier.

Materials gross profit margin declined 420 basis points, while cash gross profit margin fell 100 basis points. Woolsey said higher energy costs were largely offset through surcharges, increasing reported revenue and covering the costs in absolute-dollar terms but reducing incremental margins.

The company said it achieved its targeted mid-single-digit aggregate price increases through the third quarter and expects demand conditions to support continued pricing momentum into 2027. During the question-and-answer session, Larkin said Granite expects aggregate pricing to rise in the mid-single digits or somewhat higher next year, while asphalt pricing is expected to increase at a low-single-digit rate.

Granite continues to invest in materials operations through acquisitions and capital projects designed to improve vertical integration, distribution capacity, plant efficiency and automation. The company expects roughly 45% of eligible aggregate facilities to be automated by the end of 2026. Larkin said the automation investments could produce about $1 per ton in benefits through better efficiency, lower costs and more consistent plant performance.

2029 Targets and Growth Markets

Granite introduced 2029 targets that call for organic revenue growth at a compound annual rate of 10% to 12%, excluding future acquisitions. The company is targeting adjusted EBITDA margins of 14% to 16%, operating cash flow equal to about 13% of revenue and free cash flow equal to about 10% of revenue. Its targets assume capital expenditures of about 3% of revenue and SG&A expenses of approximately 7.5% of revenue.

Larkin said the company expects core public transportation work to grow at a mid-single-digit rate through 2029, supported by public funding, customer relationships and market-share gains. He also identified federal, rail and mission-critical infrastructure as faster-growing opportunities.

• Federal: Granite expects federal work to account for about 15% of construction segment revenue in 2026. The company said it is pursuing airfield, naval, military, space and other infrastructure projects across its geographic footprint.
• Rail: Rail is currently less than 5% of Granite’s business. Larkin said it could approach 5% of construction segment revenue in 2027 and move closer to 10% in 2028 depending on the timing of a potential Southern California intermodal project that remains subject to permitting.
• Mission-critical infrastructure: CAP in data centers, battery storage, space-sector work and related projects totaled approximately $331 million at quarter-end. Granite expects less than 5% of 2026 construction revenue from this category but is targeting at least 10% of construction segment revenue from mission-critical work over the next several years.

The company also cited a change in federal procurement under the 2026 National Defense Authorization Act that permits collaborative contracting approaches, such as progressive design-build and construction manager at risk. Larkin said Granite believes its experience with collaborative contracting positions it to compete for those opportunities.

Guidance and Capital Allocation

Granite raised the low end of its 2026 revenue guidance to $5.4 billion from $5.3 billion, while maintaining the upper end at $5.5 billion. At the midpoint, the revised range implies approximately 15% organic revenue growth and 9% growth from acquired businesses, Woolsey said.

The company maintained its other 2026 assumptions, including adjusted EBITDA margin, SG&A, effective tax rate and capital expenditure guidance. Granite refined its outlook for 2027 organic revenue growth to 10% to 12%, compared with its prior expectation for growth above 10%.

Through the first nine months, Granite spent $90 million on capital expenditures and $184 million on business acquisitions, net of cash acquired. In the third quarter, it acquired the remaining 50% interest in a Nevada asphalt terminal and emulsion plant for $22 million, net of cash acquired.

The company also redeemed its remaining 3.75% convertible notes, paying $567 million in net cash and issuing 662,000 shares. Granite recorded $162 million in net non-operating charges associated with the redemption, which were excluded from adjusted net income and adjusted EBITDA. It repurchased 300,000 shares during the quarter to offset anticipated stock-compensation dilution.

About Granite Construction (NYSE:GVA)

Granite Construction Incorporated NYSE: GVA is an infrastructure construction company that provides engineering, construction and rehabilitation services for public and private-sector clients. The company's work supports transportation, water and other essential infrastructure projects across the United States.

Granite's transportation activities include the construction and maintenance of highways, roads, bridges, airports, rail systems and other transit facilities. Its water-related services include the development and improvement of water treatment and distribution systems, wastewater facilities, dams, pipelines and related infrastructure.

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