Dredging and coastal protection company Great Lakes Dredge & Dock (NASDAQ:GLDD) beat analysts' expectations in Q2 CY2024, with revenue up 28.2% year on year to $170.1 million. It made a GAAP profit of $0.11 per share, improving from its profit of $0.03 per share in the same quarter last year.
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Great Lakes Dredge & Dock (GLDD) Q2 CY2024 Highlights:
- Revenue: $170.1 million vs analyst estimates of $164.3 million (3.5% beat)
- EPS: $0.11 vs analyst estimates of $0.03 ($0.08 beat)
- Gross Margin (GAAP): 17.5%, up from 11.7% in the same quarter last year
- Adjusted EBITDA Margin: 15.2%, up from 9% in the same quarter last year
- Market Capitalization: $542.8 million
Lasse Petterson, President and Chief Executive Officer, commented, “Despite having three dredges in drydock, Great Lakes achieved solid results in the second quarter driven by strong project performance from our active dredges. We ended the second quarter with net income of $7.7 million and adjusted EBITDA of $25.8 million. At the end of the second quarter, our dredging backlog was $807.9 million with an additional $273.1 million in low bids and options pending award and our offshore wind backlog was $44.6 million with an additional $12.7 million in options pending. Post quarter end, Great Lakes was low bidder on additional work for approximately $181.6 million.
Founded as Lydon & Drews dredging company, Great Lakes Dredge & Dock (NASDAQ:GLDD) provides dredging services, land reclamation, and coastal protection projects in the United States and internationally.
Construction and Maintenance Services
Construction and maintenance services companies not only boast technical know-how in specialized areas but also may hold special licenses and permits. Those who work in more regulated areas can enjoy more predictable revenue streams - for example, fire escapes need to be inspected every five years–. More recently, services to address energy efficiency and labor availability are also creating incremental demand. But like the broader industrials sector, construction and maintenance services companies are at the whim of economic cycles as external factors like interest rates can greatly impact the new construction that drives incremental demand for these companies’ offerings.
Sales Growth
A company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one tends to grow for years. Great Lakes Dredge & Dock struggled to generate demand over the last five years as its sales were flat. This is a tough starting point for our analysis. 
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Great Lakes Dredge & Dock's recent history shows its demand has stayed suppressed as its revenue has declined by 3.9% annually over the last two years.
This quarter, Great Lakes Dredge & Dock reported remarkable year-on-year revenue growth of 28.2%, and its $170.1 million of revenue topped Wall Street estimates by 3.5%. Looking ahead, Wall Street expects sales to grow 15.5% over the next 12 months, a deceleration from this quarter.
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Operating Margin
Great Lakes Dredge & Dock was profitable over the last five years but held back by its large expense base. It demonstrated mediocre profitability for an industrials business, producing an average operating margin of 7.9%. This result isn't too surprising given its low gross margin as a starting point.
Analyzing the trend in its profitability, Great Lakes Dredge & Dock's annual operating margin decreased by 5.7 percentage points over the last five years. The company's performance was poor no matter how you look at it. It shows operating expenses were rising and it couldn't pass those costs onto its customers.
This quarter, Great Lakes Dredge & Dock generated an operating profit margin of 8.6%, up 7.8 percentage points year on year. This increase was solid, and since the company's operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as sales, marketing, R&D, and administrative overhead.
EPS
Analyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.
Great Lakes Dredge & Dock's EPS grew at an astounding 22.5% compounded annual growth rate over the last five years, higher than its flat revenue. However, this alone doesn't tell us much about its day-to-day operations because its operating margin didn't expand.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For Great Lakes Dredge & Dock, its two-year annual EPS declines of 3% show its recent history was to blame for its underperformance over the last five years. We hope Great Lakes Dredge & Dock can return to earnings growth in the future.
In Q2, Great Lakes Dredge & Dock reported EPS at $0.11, up from $0.03 in the same quarter last year. This print easily cleared analysts' estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Great Lakes Dredge & Dock to grow its earnings. Analysts are projecting its EPS of $0.65 in the last year to climb by 17.7% to $0.77.
Key Takeaways from Great Lakes Dredge & Dock's Q2 Results
We were impressed by how significantly Great Lakes Dredge & Dock blew past analysts' EPS expectations this quarter. We were also excited its revenue outperformed Wall Street's estimates. Zooming out, we think this was a fantastic quarter that should have shareholders cheering. The stock remained flat at $8.10 immediately after reporting.
So should you invest in Great Lakes Dredge & Dock right now? 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.