Dive Brief:
- It looks like one road builder is finally getting traction with its new business model. Watsonville, California-based Granite Construction, which has eschewed multibillion-dollar megaprojects for smaller, more predictable jobs, reported $26 million in net profits for the fourth quarter of 2023 on $933.7 million in revenue. Both metrics were 18% higher than a year ago.
- For all of 2024, Granite reported $3.51 billion in revenue, a 6% gain. 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 make up lost ground from earlier in the year, when weather delays and legacy projects stymied its path back to profitability.
- Despite two charges from remaining older jobs putting a blemish on its fourth quarter results, executives took a victory lap on the firm’s conference call with investment analysts. “We said we were going to replace legacy projects dragging 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.”
Dive Insight:
The company’s backlog also increased by $1.1 billion versus a year ago, a 23.6% gain, to $5.5 billion. On a sequential basis — i.e. between the third and fourth quarters — backlog slipped by $39 million, however.
Kyle Larkin, Granite’s president and CEO, said the company was “getting back to our roots as an organization,” especially following the firm’s $278 million acquisition of two asphalt producers in Memphis in December, which will allow it to expand further in the region. It will also help it build out its “home markets” strategy, in which it bids on paving jobs in areas where it can supply materials from local plants it owns.
“We’re excited about it,” Larkin said. “We hadn’t done a vertically integrated deal since 2008, and it was really important for us to get back to doing the types of businesses and deals that we were comfortable with and how we grew the organization historically over time.”
Larkin emphasized that the firm is investing more in technology at its aggregate plants. For example, at its recently completed Swan plant in Tucson, Arizona, automation is helping it produce aggregates at a lower cost by minimizing night and weekend shifts, thereby reducing workforce challenges, Larkin said. It is also working to automate its Solari plant in Bakersfield, California, a project it said would be complete this quarter.
IIJA’s secondary impacts
Larkin highlighted the halo effect of public funding to incentivize additional private investment in markets benefitting from the Infrastructure Investment and Jobs Act.
“The level of federal and state funding through our geographies has created a market we have not seen since the short-lived housing bubble in 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.”
That add-on funding momentum is also giving a boost in areas that otherwise might struggle. In Granite’s home state of California, for instance, despite a projected budget deficit of $73 billion, spending on transportation and roadworks increased in 2023.
Within the state’s transportation budget, funding for capital outlay projects and local assistance expenditure allocations, which Larkin said are primary indicators for bidding opportunities for Granite, rose from $8.3 billion to $8.5 billion in the last year.
That funding resulted in a 38% increase in Caltrans project awards from 2022 to 2023, Larkin said, with transportation funding set to increase again for the fiscal year ending in June 2025 to $8.9 billion, despite the state’s broader fiscal challenges.
“We believe that the robust level of funding will continue to present opportunities for revenue growth for years into the future,” Larkin said.
Ghosts of projects past
As it has worked to pivot away from large, multi-year contracts that are challenging to put accurate estimates on, Granite is still feeling the sting of past, sprawling jobs. For example, it took a $19 million hit to gross profit during the quarter due to a dispute on its Tappan Zee Bridge project in New York, and a $7 million charge for its lingering I-64 High Rise Bridge project in Virginia.
Larkin noted how eager the company was to put that kind of work behind it, especially as its pivot to smaller jobs has started to pay off.
“It’s frustrating that our really 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.”