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    GVA
    Earnings call· Jun 2026(Q2 FY26)

    GRANITE CONSTRUCTION Q2 FY26 earnings call GVA

    Jul 30, 2026 Source

    Executive summary

    Granite Construction Q2 FY26 — Record CAP and Raised Revenue Guidance

    Granite Construction delivered a strong Q2 FY26, driven by record Committed and Awarded Projects (CAP) and robust project execution. The company raised its full-year revenue guidance and organic growth expectations for FY27, supported by a healthy market and strategic initiatives in federal, rail, and data center markets. Despite weather and production cost headwinds in the Materials segment, demand and pricing remain strong, and the company anticipates continued M&A activity.

    Highlights

    5

    • Committed and Awarded Projects (CAP) reached a record $7.4 billion, increasing $250 million sequentially.

    • Revenue increased 29% year-over-year to $1.5 billion.

    • Adjusted EBITDA increased $34 million to $186 million.

    • Year-to-date operating cash flow was $142 million, a significant increase from $5 million in the prior year.

    • Data center-related CAP grew from $65 million a year ago to $223 million.

    Concerns

    3

    • Materials segment gross profit margin decreased 800 basis points due to severe weather and higher production costs.

    • Severe weather in the Southeast had an estimated $10 million impact on the Materials segment.

    • Plant setup for redevelopment in the Materials segment resulted in an approximate $5 million margin impact.

    Guidance & targets

    8
    CategoryTargetConfidence
    Full-year 2026 Revenue
    $5.3 billion to $5.5 billion
    high materiality
    High
    Full-year 2027 Organic Revenue Growth
    above 10%
    high materiality
    High
    Annual Operating Cash Flow Target as % of Revenue
    11%
    medium materiality
    High
    Full-year 2026 Adjusted EBITDA Margin
    unchanged
    medium materiality
    High
    Full-year 2026 SG&A Expense as % of Revenue
    unchanged
    medium materiality
    High
    Full-year 2026 Adjusted Effective Tax Rate
    unchanged
    medium materiality
    High
    Full-year 2026 Capital Expenditures
    unchanged
    medium materiality
    High
    M&A Spend
    $200 million to $400 million
    medium materiality
    Medium

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Construction
    Revenue growth included $98 million (11%) from acquired businesses and $172 million (18%) organic growth. Driven by record CAP and strong project execution. Performing ahead of expectations.
    		$1.2 billion29%—Gross profit margin increased slightly year-over-year
    Materials
    Acquired businesses, led by Warren Paving, contributed to revenue growth. Organic volume increases were stronger than expected. Margin decline due to severe weather in the Southeast and higher production costs from development activities. Orders are ahead of prior year, and pricing is in line with expectations.
    Acquired business contribution: $60 millionTotal aggregate and asphalt revenue increase: $111 millionInternal asphalt sales increase: $42 million or 73%
    		$248 million$60 million—Gross profit margin decreased 800 basis points; Cash gross profit margin decreased 310 basis points

    Operational metrics

    11
    Adjusted Net Income
    $101 millionup $15 million
    Q2 FY26

    Compared to the same period in the prior year.

    Adjusted EBITDA
    $186 millionup $34 million
    Q2 FY26

    Compared to the same period in the prior year.

    Acquired Revenue Growth
    approximately 10%
    FY26

    Contribution to full-year revenue guidance.

    Adjusted Diluted Shares Outstanding Reduction
    approximately 2 million shares
    future

    Expected reduction from settling convertible notes with cash rather than shares.

    Convertible Notes Nonoperating Charges
    $363 million
    Q2 FY26

    Excluded from adjusted net income and adjusted EBITDA.

    Remaining Debt Discount
    $270 million
    Q3 FY26

    To be recognized as interest expense in the third quarter.

    Materials Segment Weather Impact
    around $10 million
    Q2 FY26

    Impact from severe weather in the Southeast.

    Materials Segment Plant Redevelopment Impact
    about $5 million
    Q2 FY26

    Impact on margins from plant setup for redevelopment.

    Aggregate Price Increases
    mid-single-digit
    Q2 FY26

    Realizing targeted price increases.

    M&A Spend
    $200 million to $400 million
    FY26

    Expected spend for additional acquisitions by year-end.

    M&A Spend Range
    $300 million to $800 million
    future years

    Historical range of M&A spend, indicating potential future levels.

    Industry KPIs

    4
    MetricValueDetails
    Total backlog$7.4 billionUSD
    End market pipelineData center-related CAP $223 millionUSD
    Acquisition contributionKenny Seng Construction
    Same store organic revenue growth18%%

    Orderbook & backlog

    3
    Committed and Awarded Projects (CAP)$7.4 billionQ2 FY26

    up $250 million sequentially

    provides strong visibility into future revenue

    Data center-related CAP$223 millionQ2 FY26

    up from $65 million a year ago

    expected to remain an important contributor to CAP growth in 2026 and 2027

    Kenny Seng Construction CAP$150 millionQ2 FY26

    for the quarter

    Deals & partnerships

    1
    Kenny Seng ConstructionAcquisition to strengthen market position and expand geographic footprint.

    Almost a full quarter with Kenny Seng in Q2, integration has gone very well.

    Capital programs

    1
    Strategic Capital Improvement Projectsunderway

    Benefit: improve production efficiency, lower operating costs and strengthen competitive position

    Includes automation, planned investments, and reserves expansion in the Materials segment.

    Risks & headwinds

    3
    Severe weather in the SoutheastQ2 FY26

    around $10 million impact

    Mitigation: Tons will shift to the right, full-year targets expected to be met.

    Higher production costs / plant redevelopmentQ2 FY26

    about $5 million margin impact

    Mitigation: Not expected to see similar drag in Q3 or Q4.

    Oil prices / Energy costs volatilityongoing

    net dollars perspective, a little bit more positive than negative

    Mitigation: Fixed-forward contracts, physical storage, financial hedges, energy surcharges, public works escalators for certain commodities.

    What to watch in Q3 FY26

    5

    Materials segment margin recovery

    next quarter
    CurrentGross profit margin decreased 800 bps; Cash gross profit margin decreased 310 bps
    TargetImprovement towards full-year targets

    Why it matters

    To assess if Q2 headwinds (weather, redevelopment costs) were temporary and if the segment can achieve its margin goals.

    Yes, yes. Thanks, Brent. First, I'll start with some things I think are really positive. In the quarter, demand was strong, as we mentioned, both internal and external, which is good both in the external market. Obviously, we're still seeing a lot of public infrastructure demand data centers in certain markets, manufacturing. And our teams are executing well on the pull-through strategy. So I think that's -- I'm really pleased in the quarter. Our pricing is still at mid-single digits on the ag, so that's holding. So from a pricing/demand perspective, we feel really good. It is unfortunate we did have -- we also [indiscernible] weather in the Southeast. We'll put in the ballpark of around $10 million in the quarter. So that obviously has a drag on our margins. But we feel good about the outlook for the full year. Those tons will shift to the right, and we expect to be where we want to be by the time that we wrap up 2026.

    Q&A highlights

    5

    What are the expectations for Materials segment margin recovery in the second half, given Q2 impacts from weather and other factors?

    Management expects tons impacted by weather to shift to the right, leading to full-year targets being met. Demand is strong, and mid-single-digit aggregate price increases are holding. The $10 million weather impact and $5 million plant redevelopment impact are primarily first-half issues.

    “It is unfortunate we did have -- we also [indiscernible] weather in the Southeast. We'll put in the ballpark of around $10 million in the quarter. So that obviously has a drag on our margins. But we feel good about the outlook for the full year.”

    asked by Brent Thielman · answered by Kyle Larkin

    2 min read6 chapters

    Detailed Narrative

    01

    Record CAP and Market Strength

    Granite reported a record $7.4 billion in Committed and Awarded Projects (CAP), a sequential increase of $250 million, driven by a healthy bidding environment and the Kenny Seng Construction acquisition. The company benefits from publicly funded transportation infrastructure, with IIJA funds still available. The proposed BUILD America 250 Act (BA250), while still in draft, is viewed positively for its focus on formula-based programs and bridge investments, aligning with Granite's capabilities and supporting sustained high funding levels for infrastructure.

    02

    Strategic End Market Expansion

    Granite is strategically expanding into new end markets to complement its traditional strengths. This includes growing its federal business, increasing participation in rail and transit infrastructure, and establishing a meaningful presence in data center site development. These initiatives leverage the company's geographically diverse home markets and collaborative contracting methods, aiming to build a higher-quality project portfolio and reduce volatility.

    03

    Dedicated Data Center Division Growth

    The company launched a dedicated data center division earlier this year, which has significantly increased data center-related CAP from $65 million a year ago to $223 million. This division supports clients across Granite's footprint, pursuing and delivering projects safely, at speed, and with quality. Management expects this end market to remain a significant contributor to CAP growth in 2026 and 2027, with a long-term goal for data centers to represent 10% or more of annual revenue.

    04

    Materials Segment Performance and Investments

    The Materials segment demonstrated strength and resilience, with aggregate and asphalt volumes increasing year-over-year, both organically and from acquired businesses. Demand remains healthy, supporting targeted mid-single-digit aggregate price increases. Despite severe weather in the Southeast and higher production costs from development activities impacting Q2 margins, the company continues to invest in strategic capital improvement projects, including automation and reserves expansion, to improve efficiency and strengthen its competitive position.

    05

    Strengthening Capital Structure and Flexibility

    Granite made significant strides in strengthening its capital structure, securing inaugural credit ratings and successfully completing a $600 million senior unsecured note offering. The proceeds were primarily used to settle 3.75% convertible notes, minimizing dilution by reducing adjusted diluted shares outstanding by approximately 2 million. These actions enhance financial flexibility, expanding access to capital for growth, acquisitions, and capital allocation strategies, including opportunistic share repurchases.

    06

    Active M&A Strategy

    The company maintains a robust M&A pipeline, with the acquisition of Kenny Seng Construction closing this quarter. Management expects to complete additional transactions in Q3 and Q4 2026, with an anticipated spend of $200 million to $400 million by year-end. M&A remains a key component of the long-term growth strategy, focusing on strengthening market position, expanding geographic footprint, and creating shareholder value, with future annual spend potentially ranging from $300 million to $800 million.

    AI-generated summary of the company’s earnings call. Not investment advice.