What Happened:
- Granite Construction revealed Q1 losses of $23 million on revenues of $560 million. The company attributed its financial performance to the extreme winter storms that hit the West Coast. The storms caused delays and shifted $100 million worth of work to the rest of the year, resulting in a revenue dip of 14% compared to the first quarter of 2022.
- The impact of the storms was felt company-wide. According to CEO Kyle Larkin, many of the company’s home markets were affected by the storms, especially in Nevada, Utah, Arizona, and California, which saw historic levels of precipitation.
The Impact of the Extreme Weather:
During a conference call with investment analysts, Larkin explained how winter weather caused a delay in work completion, resulting in the delay of $100 million worth of work to the rest of the year. Despite the revenue dip, the company’s backlog increased by 31% to $5.1 billion, which is a new company record. Larkin attributed the backlog growth to the booking of new job contracts, rather than old work staying on its books for longer than anticipated.
Granite Construction’s backlog, along with its Q1 performance, prompted the company to maintain its full-year fiscal guidance, projecting a revenue of $3.4 billion to $3.6 billion and adjusted margins of 7.5% to 9%.
The Benefits of Extreme Weather:
Despite the challenges caused by the winter storms, Granite Construction picked up $100 million worth of emergency repair work in California for slope repairs, roadway reconstruction, and drainage cleanouts. Because it was an “not to exceed” emergency contract, the work does not count towards the company’s backlog. The company’s backlog, therefore, is closer to $5.2 billion.
Winning at Small Ball:
Granite Construction’s strategy of pivoting towards smaller projects that can be completed quickly with minimal risk proved to be successful. The company committed or awarded projects worth a record backlog, including smaller contained highway projects such as a $99 million road widening project in Texas, which was announced on Monday.
Ghosts of Older Projects:
Granite Construction’s “Old Risk Portfolio” is still affecting the company. The portfolio previously caused an accounting scandal in its Heavy Civil Group and forced the company to take an $11 million write-down on the $411 million I-64 High Rise Bridge joint venture it won in 2017 in Virginia in order to maintain the project’s schedule.
Despite these challenges, Larkin is optimistic about the outlook for non-residential construction. He believes that funding from the $1.2 trillion Infrastructure Investment and Jobs Act, combined with a stabilization of material prices, will drive the next phase of construction.
FAQs
What caused Granite Construction’s Q1 loss and revenue dip?
Granite Construction attributed its Q1 loss and revenue dip to the extreme storms that battered the West Coast during the winter months. The company shifted $100 million worth of work to the rest of the year due to the resulting delays caused by the storms.
What is Granite Construction’s backlog?
Granite Construction’s backlog grew by 31% to $5.1 billion, a new company record. CEO Kyle Larkin credits the backlog growth to the booking of new job contracts, which includes a record backlog of smaller, contained highway projects that can be completed quickly with minimal risk.
What is Granite Construction’s focus moving forward?
Granite Construction’s strategy is to pivot towards smaller projects that can be completed quickly with minimal risk. The company committed or awarded a record backlog of smaller contained highway projects that include a $99 million road widening project in Texas. The company is focused on “winning at small ball.”
What challenges is Granite Construction currently facing?
Granite Construction’s “Old Risk Portfolio” continues to impact the company. The portfolio resulted in an accounting scandal in its Heavy Civil Group and a subsequent $11 million write-down on a $411 million joint venture in Virginia. The company is still bearing the brunt of the impact caused by this portfolio.
What is the outlook for nonresidential construction?
Despite the challenges faced by Granite Construction, the future outlook for non-residential construction is positive. CEO Kyle Larkin is optimistic about funding from the Infrastructure Investment and Jobs Act and material prices stabilizing after a turbulent 2022.
