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Dive brief:
- Granite Construction posted lower revenue with increased revenue and a record portfolio for the third quarter, while its troubled work on the I-64 freeway in Virginia and a deal on the iconic Salesforce Tower in San Francisco weighed on operations, giving investors a variety of financial results.
- The Watsonville, Calif.-based contractor reported net income, or bottom line profit, of $57.6 million, down 17 percent from a year ago. It increased its top line revenue by 11% to $1.12 billion, compared with just over $1 billion in the same period last year.
- Granite increased its money portfolio to $5.58 billion, a record for the company and a 37% jump from the $4.01 billion it posted a year ago. Investors pushed the stock up 18% during a positive trading session on Tuesday.
Diving knowledge:
After pushing the completion of its $410 million I-64 High Bridge project in Virginia until October on its second quarter conference call, Granite said the project would be finished by the end of the year.
The project, which Granite won in 2017 through a joint venture with Parsons and Corman Construction, has faced numerous delays, including crews hitting concrete and an unmapped water main.
In the third quarter, the project took another $4 million negative impact on the contractor’s gross profit margin after additional delays and design conflicts arose.
“While it’s less impactful than previous quarters, we can’t finish this job soon enough,” Granite CEO Kyle Larkin said on a conference call with Wall Street analysts.
The company also received an $8 million revaluation related to its subsidiary Layne Christensen’s work on the iconic Salesforce Tower in San Francisco, stemming from problems found in the foundation’s structural concrete in 2014 and subsequent litigation . The company said it was taking the charge after a $12 million write-down on the project in the second quarter.
Both projects represent the type of multi-hundred-million-dollar “megaprojects” that Granite has been trying to finish in its portfolio of legacy risks.
Instead of pursuing high-profile design-bid projects that have set deadlines where costs can change dramatically, he has targeted smaller jobs under a “best value” construction manager general contractor model where he can work collaboratively with owners on smaller work packages. analyzed over time.
That change, Larkin said, has resulted in Granite booking higher-profit jobs with fewer hassles and disputes. For example, in the company’s construction segment, gross profit as a percentage of revenue rose to 14.5% in the quarter, compared to 11.5% a year ago.
While the company did not change its financial guidance, still forecasting revenue of $3.35 billion to $3.45 billion by 2023, Larkin said it has largely completed the pivot from large to small.
As a result, the company will look to expand into new markets in the future, including its materials business, where it sells asphalt and aggregates to other contractors, while also supplying its own projects. This unit also increased gross profit, due to higher material prices, by 17.2%, compared to 13.6% a year ago.
“We see more opportunities to strengthen our current home markets and expand into new geographies,” Larkin said. “While much of the focus of the past two years has been on internal transformation, we are now growing and plan to pursue opportunities to drive growth and expand our footprint in both our materials and construction segments.”
Privately financed construction projects have faced pressures from high interest rates and rising costs this year, but Larkin said his public clients continued to roll out projects, particularly those driven by the Investment and Employment in Infrastructure of 1.2 trillion dollars.
“As we move into 2024, I believe IIJA funding will continue to expand supply opportunities in 2024 in all of our key markets and we are well positioned to take advantage of these opportunities,” Larkin said.
