Granite sees nearly 20% quarterly revenue loss as it works on less profitable projects

Diving Brief:

  • Granite construction recorded a loss in the first quarter of 2022, one he said was expected as he shifts his portfolio away from less profitable areas. The company’s first-quarter profits fell $4 million to $50 million from nearly $54 million a year ago.
  • Granite attributed the loss in part to a $29 million revenue decline in its core group, the region where it works across what it calls “old risk portfolio” projects. The Watsonville, Calif.-based company builds a variety of public projects, including bridges, airports and the Florida I-4 Express lanes pictured above.
  • The company also announced on Wednesday revenue $548 million, down $18 million from $566 million last year, and $135.2 million less than the last trimester. Stock prices fell slightly to $28.74 per share on Thursday morning before climbing to $29.9 at market close, down from Wednesday but down 23.2% year-over-year.

Overview of the dive:

The granite is move away from megaprojects and public-private partnerships and to smaller contracts in areas where it sees the most activity, such as Utah and Arizona. Of the society back (jobs won but not started) was $3.9 billion – down 1.7% from $4.01 billion last quarter and down 5.7% from last quarter. last year – due to the losses of the Central group.

Despite lower revenue, Granite President and CEO Kyle Larkin said he was pleased with recent bidding activity and backlog distribution, and said the company is in well on its way to executing its strategic plan.

“Our new management team is in place and working hard to return Granite to the profitable company our shareholders expect and insist on,” Larkin said on an investor call Thursday. “We believe this transition has improved the quality of our Committed and Rewarded Projects, or CAPs, and our existing CAP portfolio positions us for increased profitability in 2022 and beyond.”

The company sold Granite Inliner, a trenchless pipe rehabilitation services company, to Inland Pipe Rehabilitation on March 16 for $159.7 million. Granite used part of the proceeds to repay part of a loan and repurchase shares. Its debt fell by $41 million in the first quarter to $299 million from $340 million a year earlier.

“We plan to use the proceeds from the sales to strengthen and grow our vertically integrated business, repay debt and return shareholder value through share buybacks,” Larkin said. said in a press release about the sale. “In March, we spent $18.5 million to purchase 611,000 shares and intend to continue to be opportunistic as we evaluate further share buybacks in 2022.”

Granite also expects to complete the divestiture of its water resources and mining services businesses by year-end, and plans to focus on its core competencies in civil construction and materials going forward. .

Look forward

Granite, which bills itself as “America’s infrastructure company,” said its muted forecast for 2022 was unchanged from its last release:

  • Low single-digit revenue growth from continuing operations.
  • Adjusted EBITDA margin from continuing operations in a range of 6% to 8%.
  • General and administrative expenses of continuing operations between 8% and 8.5% of sales.
  • Low to mid-twenties effective tax rate for continuing operations.
  • Capital expenditures of $100 million to $115 million.

Brent Thielman, analyst at DA Davidson, said in a report shared with Construction Dive that his advice remains to buy Granite shares.

“We continue to see attractive underlying values ​​relative to the current share price, with net cash building up throughout the year for the rollout,” he said. “The leverage of infrastructure is also attractive.”

Despite rising inflation, ongoing labor shortages and supply chain issues facing all American contractors, there are also positive signs ahead for the company. Revenue from Granite’s materials business increased from a year ago, Larkin said in the call, and the company was able to offset some inflation costs through the bulk order and by reflecting the increases.

Additionally, federal infrastructure law money is expected to show up seriously on contractors’ balance sheets in 2023 and will provide a boost for the next few years.

“While concerns about inflation persist in general, it looks like our markets continue to be healthy,” Larkin said. “We are optimistic that there will be continued improvement later in the year and more opportunities funded by the infrastructure bill that will allow us to continue building capital through 2023.

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