Granite Construction shares rise on strong Q1

Shares of Granite Construction Inc (GVA.N) rose 16 percent Tuesday, a day after the civil contractor and construction materials producer posted a surprise quarterly profit.

Better-than-expected gross margins at the company's Granite East segment drove the quarterly results, analyst Todd Vencil of Davenport & Co said.

The company sees 2009 to be challenging for its Granite West segment as the competitive environment impacts its margins.

However, Granite West is also ramping up its bidding activity as stimulus-funded projects come out for bid, the company said. It expects to book several large projects this year.

"We are very optimistic about the opportunities we are targeting and the potential that work could have on our 2010 operating results," a company executive said on a conference call with analysts.

The Watsonville, California-based company expects 2009 revenue of $1.6 billion to $1.9 billion at its Granite West business, and $675 million to $775 million at Granite East.

At Granite East, the company has a contract with the Houston Metro to lead a construction team in the expansion of the city's light rail system. The project is valued at $1.3 billion, of which the company's portion is 34 percent, a Granite executive said.

On Monday, Granite reported first-quarter earnings of $8.9 million, or 23 cents a share. Analysts were expecting a loss of 8 cents, according to Reuters Estimates.

"The company was able to reduce costs, and turned in EBITDA (earnings before interest, tax, depreciation and amortization) and recurring earnings ahead of expectations," Morgan Stanley said in a note to clients.

Revenue slumped 24 percent to $347.4 million. General and administrative expenses fell 12 percent in the quarter.

Shares of the company were trading up 11 percent at $43.93 Tuesday afternoon on the New York Stock Exchange. They touched a high of $45.91 earlier.