Granite posts Q2 loss amid record backlog
- Following first-quarter losses it blamed on winter weather, Granite Construction continued to bleed red ink in the second quarter of 2023, posting a $17 million loss on revenue of $899 million Thursday. The loss compared to net income of $19 million for the same period in 2022, and the company pinned it to a $12 million charge for litigation and a $51 million non-cash charge for refinancing outstanding debt.
- The firm’s backlog ballooned to $5.4 billion, a record for the company and a $1.2 billion jump, or 29% increase, from a year ago. That rise was due primarily to a 43.9% increase in the Watsonville, California-based contractor’s home state project wins.
- Despite that momentum, the firm narrowed its full-year guidance to $3.35 billion to $3.45 billion in revenue, down from its initial outlook for $3.6 billion on the high end.
Granite CEO Kyle Larkin said on a Thursday earnings call that the backlog increase came on the back of the California DOT awarding $3.4 billion in work in the first six months of 2023 — its highest amount in the last five years.
“Over the past year, the dynamics of the state’s funding have continued to improve, aided by the federal infrastructure bill, and our California group has capitalized on the numerous opportunities available,” Larkin said.
While the backlog momentum provided a positive for the firm, Granite halved the amount of emergency work that it had anticipated taking on this year due to last winter’s storms. It cut those expected awards down from $100 million to $50 million, due to the state electing not to spend the full amount of its not-to-exceed contracts.
Granite also continues to be haunted by what it calls its old risk portfolio, or legacy megaprojects in its heavy civil group. For example, the firm’s gross profit was negatively impacted to the tune of $21 million due to unanticipated cost increases on the $410 million Interstate 64 High Rise Bridge project in Virginia, a contract it won in 2017 via a joint venture with Centreville, Virginia-based Parsons and Annapolis Junction, Maryland-based Corman Construction.
The company has been trying to close out those types of large, design-build mega projects, which are challenging to accurately assign risk and profits to, given their longer time ranges and complexity.
On the I-64 job, for example, Larkin said Granite crews hit concrete under a layer of asphalt that wasn’t in the original plans, as well as an unmarked waterline. Originally slated to be finished in 2021, the project is now scheduled for completion in October.
Despite those headwinds, Larkin said the broader macroeconomic picture continues to favor Granite and its peers in the civil construction space due to the $1.2 trillion Infrastructure Investment and Jobs Act.
“When we started talking about the IIJA, we said that we thought it would start slowly and ramp up over a number of years. We are seeing that play out in our markets,” Larkin said. “The opportunities afforded by the IIJA continue to grow as agencies work through the process of bringing more projects to bid. While the results of our construction segment were negatively impacted by our efforts to close out the I-64 project, we remain confident that our direction is clear, our momentum is building and our plan is working.”