Core Insights - The U.S. infrastructure market is experiencing growth due to federal and state funding initiatives aimed at enhancing public infrastructure and sustainability, benefiting companies like Sterling Infrastructure, Inc. and Granite Construction Incorporated [1][2] - A recent Federal Reserve rate cut is expected to further stimulate investments in large-scale projects, enhancing the market environment for these companies [2] Company Analysis: Sterling Infrastructure, Inc. (STRL) - Sterling has a market capitalization of approximately $11 billion and is shifting focus towards large mission-critical projects, such as data centers and manufacturing, due to weakness in the housing market [4] - The E-Infrastructure Solutions segment, which contributes 51% to total revenues, saw a year-over-year revenue growth of 24.2% in the first half of 2025, with a backlog increase of 44% to $1.2 billion [5] - The company expects E-Infrastructure Solutions revenue growth of 18% to 20% year-over-year in 2025, with adjusted operating profit margins projected in the mid-to-high 20% range [5] - Recent acquisition of CEC Facilities Group is expected to enhance Sterling's capabilities in mission-critical electrical and mechanical services [6] Company Analysis: Granite Construction Incorporated (GVA) - Granite has a market capitalization of approximately $4.7 billion and is executing a strategic plan aimed at driving construction margins and enhancing organic growth [7] - Revenues in Granite's Construction and Materials segments grew by 2.6% and 13.2% year-over-year, respectively, with Committed and Awarded Projects reaching a record $6.1 billion [9] - Recent acquisitions, including Warren Paving and Papich Construction, are expected to contribute approximately $425 million in annual revenues with an adjusted EBITDA margin of about 18% [10] - Granite's financial performance is supported by a solid project backlog and recent acquisitions, although earnings estimates have remained flat [22] Stock Performance & Valuation - Sterling's stock has outperformed Granite's and the broader construction sector over the past three months, trading at a premium valuation compared to Granite [12][14] - The Zacks Consensus Estimate for STRL's 2025 EPS indicates a year-over-year growth of 56.9%, while GVA's estimates imply improvements of 26.6% [18][20] - Sterling's trailing 12-month ROE of 29.1% exceeds Granite's average, indicating higher efficiency in generating shareholder returns [20] Investment Recommendation - Sterling is positioned as a stronger investment choice due to its accelerating growth, operational leverage, and upward earnings estimate momentum [23] - Granite, while stable, shows slower growth and limited near-term catalysts, reflected in its Zacks Rank of 3 (Hold) [22]

Group 1 - Granite Construction is recognized as one of the leading civil works contractors in the United States, a statement that holds true without the need for extensive research [1] Group 2 - The article emphasizes the importance of focusing on undercovered opportunities and momentum-driven sectors in investment strategies [2]

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Core Points - Granite's Board of Directors has declared a quarterly cash dividend of $0.13 per common share [1] - The dividend is scheduled to be payable on October 15, 2025, to shareholders of record as of September 30, 2025 [1] - Granite is recognized as one of the largest diversified construction and construction materials companies in the United States, incorporated since 1922 [1]

Core Insights - Granite has appointed J. Timothy Romer to its Board of Directors, effective September 8, 2025, enhancing its leadership team [1] - Mr. Romer brings nearly four decades of experience in finance and infrastructure, which will support Granite's strategic growth initiatives [1] - His career includes significant leadership roles at top-tier financial institutions, specifically 30 years in senior positions at Goldman Sachs and Merrill Lynch [1]

Core Viewpoint - Granite Construction (GVA) has been upgraded to a Zacks Rank 2 (Buy), indicating a positive outlook on its earnings estimates, which is a significant factor influencing stock prices [1][3]. Earnings Estimates and Stock Price Movement - The Zacks rating system emphasizes the correlation between changes in earnings estimates and stock price movements, particularly influenced by institutional investors who adjust their valuations based on these estimates [4][6]. - For Granite Construction, the recent increase in earnings estimates suggests an improvement in the company's underlying business, likely leading to higher stock prices as investors respond to this trend [5][8]. Zacks Rank System - The Zacks Rank system categorizes stocks into five groups based on earnings estimates, with a strong historical performance, particularly for Zacks Rank 1 stocks, which have averaged a +25% annual return since 1988 [7]. - The upgrade of Granite Construction to Zacks Rank 2 places it in the top 20% of Zacks-covered stocks, indicating a strong potential for market-beating returns in the near term [10].

Group 1 - Granite Construction (GVA) is one of 88 companies in the Construction group, currently ranked 13 within the Zacks Sector Rank [2] - The Zacks Rank system focuses on earnings estimates and revisions, with Granite Construction holding a Zacks Rank of 2 (Buy) [3] - The Zacks Consensus Estimate for GVA's full-year earnings has increased by 2.7% in the past quarter, indicating improved analyst sentiment [4] Group 2 - Year-to-date, Granite Construction has gained approximately 20.9%, outperforming the average gain of 6.3% in the Construction group [4] - Granite Construction belongs to the Building Products - Heavy Construction industry, which is ranked 1 in the Zacks Industry Rank, but GVA is slightly underperforming its industry with an average gain of 31.1% [6] - Another notable stock in the Construction sector is Sterling Infrastructure (STRL), which has increased by 79.7% year-to-date and has a Zacks Rank of 2 (Buy) [5][7]

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Financial statements for June 30, 2025, show total assets at **$3.11 billion**, Q2 revenue at **$1.13 billion**, and net income significantly increased [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2025, total assets increased to **$3.11 billion**, liabilities rose to **$2.0 billion**, and total equity reached **$1.11 billion** Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $322,017 | $578,330 | | Receivables, net | $704,988 | $511,742 | | Total current assets | $1,691,615 | $1,716,663 | | Total assets | $3,105,991 | $3,025,655 | | **Liabilities & Equity** | | | | Total current liabilities | $1,076,151 | $1,031,959 | | Long-term debt | $733,039 | $737,939 | | Total liabilities | $1,991,636 | $1,946,292 | | Total equity | $1,114,355 | $1,079,363 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q2 2025 revenue increased **4.0%** to **$1.13 billion**, gross profit grew **20.9%**, and net income attributable to Granite nearly doubled to **$71.7 million** Q2 and Six Months Ended June 30, 2025 vs 2024 (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $1,125,964 | $1,082,486 | $1,825,511 | $1,754,761 | | Gross Profit | $199,099 | $164,711 | $282,948 | $218,996 | | Operating Income | $103,565 | $85,821 | $63,814 | $42,521 | | Net Income Attributable to Granite | $71,700 | $36,895 | $38,044 | $5,912 | | Diluted EPS | $1.42 | $0.76 | $0.84 | $0.13 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For H1 2025, operating cash flow was **$5.4 million**, investing activities used **$207.3 million**, and cash equivalents decreased by **$256.3 million** Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $5,438 | $22,084 | | Net cash used in investing activities | $(207,255) | $(50,122) | | Net cash used in financing activities | $(54,496) | $(22,879) | | **Net decrease in cash and cash equivalents** | **$(256,313)** | **$(50,917)** | | Cash and cash equivalents at end of period | $322,017 | $366,746 | [Notes to the Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) Notes detail acquisitions of **$540 million** and **$170 million**, funded by a new **$600 million** revolver and **$675 million** term loans - Subsequent to the quarter end, on August 5, 2025, Granite completed two major acquisitions: Warren Paving for **$540.0 million** and Papich Construction for **$170.0 million**[25](index=25&type=chunk)[26](index=26&type=chunk) - To fund the acquisitions and for general purposes, the company entered into a new Fifth Amended and Restated Credit Agreement on August 5, 2025, which provides for a **$600.0 million** revolving credit facility and up to **$675.0 million** in term loans[24](index=24&type=chunk)[27](index=27&type=chunk) Impact of Revisions in Estimates on Gross Profit (Six Months Ended June 30, 2025, in millions) | Type of Revision | Number of Projects | Impact on Gross Profit | | :--- | :--- | :--- | | Upward Changes | 3 | $22.9 | | Downward Changes | 2 | $(21.1) | Segment Operating Income (Six Months Ended June 30, in thousands) | Segment | 2025 | 2024 | | :--- | :--- | :--- | | Construction | $130,982 | $105,006 | | Materials | $31,407 | $17,074 | | **Total from reportable segments** | **$162,389** | **$122,080** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Strong performance from public funding, **4.0%** revenue growth, **15.5%** gross margin, and **$6.1 billion** in Committed and Awarded Projects [Current Economic Environment and Outlook](index=30&type=section&id=Current%20Economic%20Environment%20and%20Outlook) Positive outlook supported by **$1.2 trillion** IIJA funding and a strong **$6.1 billion** Committed and Awarded Projects balance - The federal **$1.2 trillion** Infrastructure Investment and Jobs Act (IIJA) has increased federal highway, bridge, and transit funding to its highest level in over six decades, driving an increase in project lettings[114](index=114&type=chunk) - The company's Committed and Awarded Projects (CAP) balance reached a strong **$6.1 billion** at the end of Q2 2025, supported by a positive public funding environment and strength in private markets[118](index=118&type=chunk) [Results of Operations](index=32&type=section&id=Results%20of%20Operations) Q2 2025 revenue increased **4.0%** to **$1.13 billion**, with gross profit margin improving to **17.7%** due to better execution and higher volumes Revenue by Segment (Six Months Ended June 30, in thousands) | Segment | 2025 | % of Total | 2024 | % of Total | | :--- | :--- | :--- | :--- | :--- | | Construction | $1,552,044 | 85.0% | $1,513,167 | 86.2% | | Materials | $273,467 | 15.0% | $241,594 | 13.8% | | **Total** | **$1,825,511** | **100.0%** | **$1,754,761** | **100.0%** | Gross Profit by Segment (Six Months Ended June 30) | Segment | Gross Profit 2025 (in thousands) | Margin 2025 | Gross Profit 2024 (in thousands) | Margin 2024 | | :--- | :--- | :--- | :--- | :--- | | Construction | $239,104 | 15.4% | $192,200 | 12.7% | | Materials | $43,844 | 16.0% | $26,796 | 11.1% | | **Total** | **$282,948** | **15.5%** | **$218,996** | **12.5%** | - SG&A expenses for the six months ended June 30, 2025 increased by **$43.8 million** compared to 2024, primarily due to an **$18.1 million** increase in stock-based compensation and **$15.4 million** in higher salaries and related expenses[136](index=136&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity sources include **$483.4 million** in cash and a new credit agreement for **$600 million** revolver and **$675 million** term loans - On August 5, 2025, the company entered into a new A&R Credit Agreement, providing a **$600.0 million** revolver and a **$600.0 million** initial term loan, plus an additional **$75.0 million** delayed draw term loan[148](index=148&type=chunk) - Total cash, cash equivalents, and marketable securities stood at **$483.4 million** as of June 30, 2025, down from **$585.6 million** at year-end 2024[149](index=149&type=chunk) - Anticipated capital expenditures for 2025 are projected to be between **$140 million** and **$160 million**, including approximately **$50 million** for strategic materials investments[152](index=152&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=40&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material change in market risk exposure, except for investment portfolio diversification as detailed in Note 9 - As of June 30, 2025, there has been no material change in the company's exposure to market risk from what was disclosed in the 2024 Annual Report, with the exception of diversification of its investment portfolio[167](index=167&type=chunk) [Item 4. Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting - The CEO and CFO concluded that as of June 30, 2025, the company's disclosure controls and procedures were effective[168](index=168&type=chunk) - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, internal controls[169](index=169&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) Legal proceedings information is incorporated by reference from Note 17, with immaterial liabilities recorded as of June 30, 2025 - The company is involved in various legal proceedings in the ordinary course of business. Liabilities recorded for these proceedings were immaterial as of June 30, 2025[101](index=101&type=chunk)[170](index=170&type=chunk) [Item 1A. Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors previously disclosed in the company's Annual Report on Form 10-K - There have been no material changes in the risk factors previously disclosed in the company's Annual Report[171](index=171&type=chunk) [Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities](index=41&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%2C%20Use%20of%20Proceeds%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) In Q2 2025, the company repurchased **2,518 shares** at **$88.86** per share, with **$189.5 million** remaining for authorization Share Repurchases in Q2 2025 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2025 | 202 | $76.33 | | May 2025 | 473 | $86.34 | | June 2025 | 1,843 | $90.88 | | **Total** | **2,518** | **$88.86** | - As of June 30, 2025, approximately **$189.5 million** remained available for repurchase under the Board's **$300.0 million** authorization from February 2022[173](index=173&type=chunk)

Financial Data and Key Metrics Changes - In Q2 2025, revenue increased by $43 million or 4%, gross profit increased by $34 million or 21%, adjusted net income improved by $9 million or 12%, and adjusted EBITDA improved by $22 million or 17% [22][27] - Year-to-date operating cash flow reached $5 million, aligning with the 2025 target [22][26] Business Line Data and Key Metrics Changes - In the construction segment, revenue increased by $19 million or 2% year-over-year to $937 million, driven by acquisitions and a strong backlog [22][19] - The construction segment's gross profit improved by $18 million to $154 million, with a gross profit margin of 16%, reflecting a 170 basis point increase due to improved execution [23] - In the materials segment, aggregate volumes increased by 11% for the quarter and 13% year-to-date, leading to improved cash gross profit margins [25][24] Market Data and Key Metrics Changes - The public market environment continues to drive growth, with strong transportation funding in California increasing budgeted allocations by 9% over the previous fiscal year [19][20] - The Southeast market is experiencing growth due to increased public funding and private investment, particularly in infrastructure [12][13] Company Strategy and Development Direction - The company is focused on raising construction margins and driving organic growth through strategic acquisitions, particularly in materials [6][7] - The recent acquisitions of Warm Paving and Pabich Construction are expected to enhance the company's vertical integration and expand its geographic reach [10][16] - The company aims to maintain a disciplined approach to M&A, targeting materials-focused companies to support its strategic plan [8][29] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong performance for the second half of the year, anticipating revenue growth acceleration as projects progress [20][36] - The company expects to achieve gross margin expansion of greater than 1% during 2025, supported by improved project performance [20][28] Other Important Information - The company amended its credit facility to support future M&A opportunities, with total debt outstanding approximately $1.35 billion [26][27] - Revised revenue guidance for 2025 is now between $4.35 billion and $4.55 billion, reflecting contributions from recent acquisitions [27][28] Q&A Session Summary Question: Comments on construction segment growth and project pace - Management noted that revenue growth is tied to project starts and finishes, with expectations for acceleration in the second half of the year due to a record backlog [36] Question: Insights on materials profit margin expansion - Management highlighted volume improvements in both asphalt and aggregate, with expectations for continued margin expansion [38][39] Question: Details on Pabich Construction's strengths - Pabich is primarily a public works contractor, complementing the company's existing footprint in California and expected to enhance overall business performance [42][44] Question: Comparison of cap trends between regions - Management indicated that the record cap is consistent across the entire footprint, with strong market support from federal funding [47][49] Question: Quality of assets from Warren Paving acquisition - Warren Paving is a high-performing business with a strong materials focus, expected to provide significant opportunities for growth in the Southeast [53][56] Question: Clarification on 2027 targets and acquisition impacts - Management confirmed that 2027 targets include organic growth expectations and potential contributions from future acquisitions, with a focus on maintaining a strong balance sheet [59][61]

Acquisitions and Financial Performance - Granite acquired Warren Paving and Papich Construction for a combined $710 million[8] - The acquisitions are expected to contribute approximately $425 million in annual revenue with an Adjusted EBITDA margin of approximately 18%[8] - Granite's Materials segment aggregate sales volumes are expected to increase approximately 27% annually due to the acquisitions[8] - Granite's aggregates reserves and resources are expected to increase by approximately 30% due to the acquisitions[8] - Q2 2025 total revenue was $1,126 million, an increase of $43 million year-over-year[34] - Adjusted EBITDA for Q2 2025 was $152 million, with an Adjusted EBITDA margin of 135%, representing a 150 basis points increase year-over-year[34] Market and Operational Highlights - Warren Paving has estimated aggregates reserves and resources of over 400 million tons[11, 14] - Papich Construction has estimated aggregates reserves and resources of over 40 million tons[21] - Mississippi and Louisiana are expected to receive a combined $30 billion in data center investments[19] Guidance and Targets - The company updated its 2025 revenue guidance to $435 billion - $455 billion[40] - The company is targeting a 65%-85% free cash flow margin in 2027[40]