Granit is posting growth in sales and is waiting for federal infrastructure funding

Diving letter:

  • Granite Construction, based in Watsonville, Calif., Announced last week an increase in revenue and backlog for the second quarter of 2021 compared to the same period last year. However, the company saw a slight decrease in its sequential backlog from the previous quarter, a trend it attributed to the deliberate shedding of older, riskier jobs in its strong civilian group.
  • The company posted revenue of $ 964.2 million for the second quarter of 2021, up 5.3% from $ 915.8 million for the same period in 2020. The backlog of $ 4.4 billion Dollar was 7% higher than the $ 4.1 billion a year ago, but sequentially by $ 6.6 million less than the first quarter of $ 4.45 billion.
  • Going forward, the company reiterated its fiscal forecast for the year with low to mid single-digit revenue growth and margins of 5.5% to 7.5%.

Dive Insight:

Kyle Larkin, CEO of Granite, said the slight sequential decline in backlog was due to the company’s new focus on smaller, lower-risk projects, as opposed to the $ 500 million and larger design-build mega-projects it used to be pursued in his heavy civil division.

Accounting irregularities in that department caused the company to reschedule its finances earlier this year while also providing $ 66 million to settle litigation with investors.

“The risks inherent in these megaprojects in terms of planning time, size and partners are no longer acceptable as part of our strategy,” said Larkin during a conference call with financial analysts. “We are now pursuing best-value procurement projects such as CM / GC projects as well as bid-build projects and smaller, less complex design-build projects where the risks are well understood and priced into the offer.”

This approach reflects a broader trend among large public contractors to reduce the risk of their project portfolios.

Watch and wait

While the Granite appeal came a day after the U.S. Senate voted for a bipartisan infrastructure package worth $ 1.2 trillion, the new $ 550 billion bill.

That, in turn, means that the company expects the Fixing America’s Surface Transportation (FAST) Act, which funds highway construction, to be renewed again in 2021, as it was in late 2020.

“While we hope that an agreement will be reached in the near future, we believe that a deal will most likely not be closed until the fourth quarter, which will require further rolling resolution of the FAST Act at the end of the third quarter.” “Said Larkin. “A federal law will only serve to further strengthen the environment, with significant effects felt in mid-to-late 2022 and then through 2023 and beyond.”

In general, Larkin said the supply environment for both private and public projects is buoyant, with state and local funding returning to pre-pandemic levels. “We were really concerned about government funding last year, but that didn’t live up to our concerns,” said Larkin.

Higher prices

Brent Thielman, senior research analyst at investment bank DA Davidson, said Granite’s experience of a resurgence in state and community activity reflected a broader trend in the industry.

“It definitely paints a better picture for this segment, especially when compared to what we’ve seen over the past three or four quarters,” said Thielman. “That’s pretty much in line with a lot of the other companies I am describing.”

Granite experienced a surprising surge in business in its water segment during the unprecedented drought in the western United States due to the demand for more water wells.

“That really supported our well drilling business,” said Larkin.

When asked by analysts if he was concerned that labor and material shortages could negatively affect the company, he said no. Instead, Granite was able to pass the higher oil and diesel costs on to its customers while selling more aggregates and asphalt from its materials business at higher prices.

On the employee side, the company has benefited from longstanding relationships with employees and unions in the states in which it operates.

“We have really strong relationships with our union partners in the west,” said Larkin. “And many of our craftsmen have been with the company for years.”

Thielman said this type of resilience to logistical challenges has been the hallmark of many public contractors this year.

“The public companies are usually larger and have more sophisticated platforms that can cope with personnel and logistical constraints,” said Thielman. “For these types of companies, their results and overall outlook are pretty solid right now. They are seeing an increase in commercial work.”

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