​​​​​Dive Brief:

• Citing extreme weather that blasted the West Coast throughout the winter months, Granite Construction reported a $23 million loss for the first quarter on revenues of $560 million. The company maintained its full-year fiscal guidance, despite numbers coming in below analysts’ expectations.
• The loss was smaller than the $27 million deficit the Watsonville, California, contractor posted for the same period last year, but revenue was down 14% compared to $654 million in the first three months of 2022. Despite those slumps, backlog grew 31% to $5.1 billion, a company record. 
• Kyle Larkin, the firm’s president and CEO, said multiple storms during one of the wettest winters in the West in recent memory impacted operations companywide. “‘Atmospheric river’ became a familiar term of art, and these storms hitting one after another traveled across the country, bringing extreme weather with them,” Larkin said. “Many of our home markets were in the path of these storms, with historic precipitation across Nevada, Utah and Arizona, and even more intense impacts in California.”

Dive Insight:

On a conference call with investment analysts, Larkin said that due to delays tied to the weather, about $100 million worth of work was shifted from the first quarter to the rest of the year. But he also made the point that the firm’s surging backlog was due to booking new jobs, and not the result of old work staying on its books longer than anticipated. 

A continuing rise in backlog across the industry has caused some industry observers to question whether new construction work is still being generated amid increasing economic headwinds, or if previously booked jobs were just stagnating. Larkin said for Granite, the latter was not the case. 

“The big kind of change is that our teams have done a really nice job of picking up more work,” Larkin said. “It’s not the fundamental shift just associated with the weather in Q1.”

Due in part to that strong backlog, the firm reiterated its projected numbers for all of 2023, including revenue of $3.4 billion to $3.6 billion, and adjusted margins of 7.5% to 9%.

Storm benefits

Even as the winter weather stymied its jobs already in progress, Granite also saw a nominal benefit from the storms, picking up an additional $100 million in emergency repair work in California related to slope repairs, roadway reconstruction and drainage cleanouts. 

Larkin emphasized that while about $18 million of first quarter revenue came from that emergency work, due to the nature of those jobs as “not to exceed” contracts where expenses can vary, the company didn’t count the remaining $82 million in its outstanding backlog. 

“They’re not included,” Larkin said. “If you put the two together, our [backlog] is closer to $5.2 billion.”

Winning at small ball

Larkin said the company’s pivot, away from megaprojects worth $500 million or more to smaller jobs that can be completed faster with less risk, was starting to pay off as evidenced by the firm’s record backlog, which the company refers to as committed or awarded projects, or CAP. 

“We went out and very methodically and strategically said… ‘We're going to move away from high risk, design-build type projects and really focus on 100% design-bid-build,’” Larkin said. “We’ve proven we’ve been able to do that.”

For instance, the company announced several smaller, contained highway projects in recent months, including a $99 million road widening project in Texas it unveiled Monday. 

Ghosts of older projects

As much as Larkin emphasized the company’s shift, however, the ghosts of what Granite refers to as its “Old Risk Portfolio,” which was the subject of an accounting scandal in its Heavy Civil Group, are still haunting the company. 

Granite said it took an $11 million write-down to its gross profit on the $411 million, I-64 High Rise Bridge joint venture it won in 2017 in Virginia in order to maintain that project’s schedule.  

Despite those stumbles, Larkin said the outlook for nonresidential construction remained upbeat, as material prices have stabilized from their 2022 highs and funding has continued to flow from the $1.2 trillion Infrastructure Investment and Jobs Act. 

“The impact of the IIJA is still in the early stages as agencies work through the process of bringing more projects to bid,” Larkin said. “This is a really good sign for Granite and the entire industry.”