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Granite Construction, a 102-year-old California construction company, has been making strides and is taking that change all the way to the bank.
The Watsonville, Calif.-based company said its shift toward more collaborative and “better value” project delivery methods, such as progressive design and construction manager/general contractor offerings, is paying off their results.
Unlike more traditional approaches such as bid creation, these contract structures allow for more flexibility and check-ins between contractors and owners along the way, reducing the overall risk of unknown outcomes for complex jobs, the company said on its earnings for the second quarter. call thursday
Kyle Larkin
Permission granted by Granite Construction
“The collaborative delivery methods used on the best value projects…position us better for success by allowing us to work with our customers early to identify and mitigate risks,” said Kyle Larkin, CEO from Granite, during the call. “Larger best value projects are often separated into smaller work packages that are reviewed through multiple project workshops. This provides more opportunities to identify, assess and address risks than large bid projects.”
Numbers Q2
This approach helped Granite earn higher revenuesolid profits and backlog abundance in the second quarter.
The company said it had $1.08 billion in revenue for the period, up 20.5% from the second quarter of 2023. Backlog was $5.6 billion, up $139 million, or 2.5% compared to a year ago. The firm also ended the quarter solidly in the black, with $36.9 million in net income compared to a loss of $17 million in the same period last year.
He attributed this positive momentum to booking more jobs with collaborative delivery methods. For example, 42% of its execution portfolio now falls into what it describes as best value: those using progressive or non-traditional bidding processes.
The end result, Granite said, is that his crews can sit down at a table in the construction trailer with owners to resolve issues, rather than in a courtroom, an outcome that’s all too common on many long, complex jobs. . For these reasons, alternative delivery methods they are increasingly common in large publicly funded projects.
“We have a track record of successful best value projects and generally find that these projects are built more efficiently and with far fewer claims compared to other procurement methods,” Larkin said.
Another acquisition of materials
The company has also continued to develop its materials business, where it supplies aggregates and asphalt to its own jobs and those of other contractors. Granite announced that it has agreed to buy Dickerson & Bowen, an asphalt and aggregates supplier in Brookhaven, Miss., that has annual revenue of $80 million to $100 million.
While Granite did not disclose the price of the deal, Lisa Curtis, the company’s outgoing chief financial officer who in May announced his pending retirement, said the company would finance the transaction with cash. Then the purchase of Dickerson & Bowen Acquisition by the granite of two more materials companies in 2023 in Memphis for $278 million.
Since then, Granite has also restructured its business from an operational perspective. It has simplified its business focus into two divisions, one focused on construction and the other on materials, rather than multiple geographic units spanning both areas.
Larkin said the new approach of focusing on progressive delivery methods while operationally splitting the businesses is providing the company with renewed momentum. This has been happening in a still strong bidding environment fueled by the $1.2 trillion Infrastructure Investment and Jobs Act passed in 2021.
“Our [backlog] of $5.6 billion is a testament to the strong public and private market environment supported by the IIJA, healthy state budgets in our geographies and our experienced teams, who have won work in our home markets,” he said Larkin. “I think there are opportunities available in the coming months to continue to build [backlog] during the rest of 2024 and 2025″.
Higher prices, lower volumes
If there was a weak spot in Granite’s results, it came in the renewed focus on its materials business. While the division was able to raise its prices (it charged 5% and 10% more, as previously promised, on asphalt and aggregates, respectively), Curtis said that pricing power was produce with lower sales volumes.
Investment analysts on the call picked up on that decline and asked if it was part of a broader trend in which construction equipment rental companies have also seen a slowdown, particularly in the West.
Larkin said that wasn’t the case, at least not for Granite’s core market for publicly funded infrastructure jobs.
“We see that demand continues to be very strong, and I think you can definitely see that in ours [backlog]Larkin said. “Perhaps what you’re seeing from the rental companies, it might be more on the private side, certainly, maybe tied to residential, which is not a market that we’re really correlated with.”
In fact, since interest rates started to rise in 2022, construction has seen a bifurcated market where publicly funded civil construction has remained robust, while privately backed projects in the residential and commercial sectors have struggled.
A different company
In the second half of 2024, Larkin and Curtis reflected on how the company has changed since the pair took up their current roles in 2021 as Granite arose from an accounting scandal.
Curtis, bidding farewell to analysts on the company’s latest earnings call, said “Granite is a transformed company” and endorsed his successor, Staci Woolsey, the company’s chief accounting officer, who will take on the CFO role when Curtis leaves in September.
Larkin reiterated the fundamental reset of the century-old company with its new approach to project delivery and business structure, and said the future is bright for Granite.
“The good news for us is that we’re not the same company we were,” Larkin said. “While we have execution risk in our business, it’s not the risk we saw one, two or three years ago.”
