Dive brief:
- It looks like a road builder is finally gaining traction with its new business model. Watsonville, Calif.-based Granite Construction, which has eschewed multibillion-dollar megaprojects for smaller, more predictable jobs, reported $26 million in net profit for Q4 2023 with revenue of $933.7 million. Both metrics were 18% higher than a year ago.
- For all of 2024, Granite posted revenue of $3.51 billion, a gain of 6%. Full-year profits, while remaining positive, were 48% lower than 12 months earlier at $43.6 million. Better momentum in the second half of 2023 allowed the contractor to regain ground lost earlier in the year, when time slows down i legacy projects got in the way return to profitability.
- Despite the two remaining senior job charges weighing on fourth-quarter results, executives took a victory lap on the company’s conference call with investment analysts. “We said we’re going to replace legacy projects that drag down profitability with lower-risk, higher-margin projects,” said Lisa Curtis, Granite’s chief financial officer. “We did what we said we were going to do.”
Diving knowledge:
The company’s letter book also increased by $1.1 billion from a year ago, a gain of 23.6%, to $5.5 billion. However, sequentially, that is, between the third and fourth quarters, the backlog was reduced by $39 million.
Kyle Larkin, Granite’s president and CEO, said the company was “getting back to our roots as an organization,” especially after the $278 million acquisition of two asphalt producers in Memphis in December, which will allow it to expand even further in the region. It will also help you develop your “home markets” strategy, where you bid for paving jobs in areas where you can source materials from the local plants you have.
“We’re excited,” Larkin said. “We hadn’t done a vertically integrated deal since 2008, and it was very important for us to get back to doing the types of deals and deals that we’re comfortable with and how we’ve grown the organization historically over time.”
Larkin emphasized that the company is investing more in technology at its aggregates plants. For example, in his the recently completed Swan plant in Tucson, Arizona, automation helps it produce aggregate at a lower cost by minimizing night and weekend shifts, thereby reducing workforce challenges, Larkin said. It is also being worked on to automate its Solari plant in BakersfieldCalifornia, a project he said would be completed this quarter.
Secondary impacts of the IIJA
Larkin highlighted the halo effect of public funding to spur additional private investment in markets that benefit from the Jobs and Infrastructure Investment Act.
“The level of federal and state funding across our geographies has created a market we haven’t seen since the short-lived housing bubble of the mid-2000s,” Larkin said. “This strong public market is complemented by a private market in which various industries are increasing investment in their infrastructure.”
This boost of additional funding is also providing a boost in areas that might otherwise struggle. In Granite’s home state of California, for example, despite a projected budget deficit of $73 billion, spending on transportation and road construction increased in 2023.
Within the state’s transportation budget, funding for capital spending projects and local assistance spending allocations, which Larkin said are leading indicators of bidding opportunities for Granite, increased from $8.3 billion dollars to $8.5 billion last year.
That funding represented a 38 percent increase in Caltrans project awards from 2022 to 2023, Larkin said, and transportation funding will increase again for the fiscal year ending in June 2025 to $8.9 billion. dollars, despite the state’s broader fiscal challenges.
“We believe the strong level of funding will continue to present opportunities for revenue growth for years to come,” Larkin said.
Ghosts of past projects
As it has worked to move away from large, multi-year contracts that are difficult to accurately estimate, Granite is still the linchpin of past, scattered jobs. For example, it had a $19 million gross profit in the quarter due to a dispute over its Tappan Zee Bridge project in New York and a $7 million charge on its lingering I-64 bridge project High Rise Bridge in Virginia.
Larkin noted the company’s eagerness to put that kind of work on the back burner, especially as its pivot to smaller jobs has begun to pay off.
“It is frustrating that our very strong fourth quarter was tempered by negative impacts on the legacy Tappan Zee and I-64 High Rise Bridge projects,” Larkin said. “Across the company, our teams had an outstanding fourth quarter.”
