Great Lakes Dredge & Dock (GLDD)

Dredging and coastal protection company Great Lakes Dredge & Dock (NASDAQ:GLDD) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, with sales up 22.3% year on year to $242.9 million. Its GAAP profit of $0.49 per share was 86.7% above analysts’ consensus estimates.

Company Overview

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 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.

Competitors in the dredging and related services industry include Orion Group (NYSE:ORN), Sterling Construction Company (NASDAQ:STRL), and Dycom Industries (NYSE:DY)

A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, Great Lakes Dredge & Dock’s 1.8% annualized revenue growth over the last five years was sluggish. This was below our standards and is a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Great Lakes Dredge & Dock’s annualized revenue growth of 14.8% over the last two years is above its five-year trend, suggesting its demand recently accelerated.

This quarter, Great Lakes Dredge & Dock reported robust year-on-year revenue growth of 22.3%, and its $242.9 million of revenue topped Wall Street estimates by 17.5%.

Looking ahead, sell-side analysts expect revenue to decline by 3.1% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and implies its products and services will see some demand headwinds.

Great Lakes Dredge & Dock has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 16.8% gross margin over the last five years. Said differently, Great Lakes Dredge & Dock had to pay a chunky $83.16 to its suppliers for every $100 in revenue.

Great Lakes Dredge & Dock produced a 28.6% gross profit margin in Q1, up 5.7 percentage points year on year. Great Lakes Dredge & Dock’s full-year margin has also been trending up over the past 12 months, increasing by 5.2 percentage points. If this move continues, it could suggest a less competitive environment where the company has better pricing power and leverage from its growing sales on the fixed portion of its cost of goods sold (such as manufacturing expenses).

Great Lakes Dredge & Dock has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 8%, higher than the broader industrials sector.

Analyzing the trend in its profitability, Great Lakes Dredge & Dock’s operating margin rose by 3 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, Great Lakes Dredge & Dock generated an operating profit margin of 20.6%, up 4.7 percentage points year on year. Since its gross margin expanded more than its operating margin, we can infer that leverage on its cost of sales was the primary driver behind the recently higher efficiency.

Revenue trends explain a company’s historical growth, but the long-term change in 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 flat EPS over the last five years was below its 1.8% annualized revenue growth. However, its operating margin actually expanded during this time, telling us that non-fundamental factors such as interest expenses and taxes affected its ultimate earnings.

Diving into the nuances of Great Lakes Dredge & Dock’s earnings can give us a better understanding of its performance. A five-year view shows Great Lakes Dredge & Dock has diluted its shareholders, growing its share count by 4.1%. This dilution overshadowed its increased operating efficiency and has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we 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 growth of 84.3% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.

In Q1, Great Lakes Dredge & Dock reported EPS at $0.49, up from $0.31 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’s full-year EPS of $1.02 to shrink by 31.9%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Great Lakes Dredge & Dock’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 11%, meaning it lit $11.02 of cash on fire for every $100 in revenue.

Taking a step back, we can see that Great Lakes Dredge & Dock’s margin dropped by 16.4 percentage points during that time. Almost any movement in the wrong direction is undesirable because it is already burning cash. If the trend continues, it could signal it’s becoming a more capital-intensive business.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Great Lakes Dredge & Dock historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 7.9%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. On average, Great Lakes Dredge & Dock’s ROIC decreased by 4 percentage points annually over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Great Lakes Dredge & Dock reported $11.34 million of cash and $413.9 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $153.1 million of EBITDA over the last 12 months, we view Great Lakes Dredge & Dock’s 2.6× net-debt-to-EBITDA ratio as safe. We also see its $18.44 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Great Lakes Dredge & Dock blew past analysts’ revenue, EPS, and EBITDA expectations this quarter. Zooming out, we think this quarter featured some important positives. The stock traded up 13.5% to $10.84 immediately after reporting.

Updated: June 14, 2025 at 11:05 PM EDT

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

Great Lakes Dredge & Dock’s business quality ultimately falls short of our standards. For starters, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its expanding operating margin shows the business has become more efficient, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its projected EPS for the next year is lacking.

Great Lakes Dredge & Dock’s P/E ratio based on the next 12 months is 16.5x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $15 on the company (compared to the current share price of $11.47).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.