Granite Execs See Light at End of Turnaround Tunnel

Granite Construction executives believe they see the end of a three-year-plus effort to work through profit-thin or money-losing large infrastructure projects and instead limit risk and boost profits by competing for smaller jobs—including those awarded on a best-value basis or performed via a construction manager-general contractor arrangement.

But that time is not here yet, at least not when it comes to overall profit.

For the first half of 2022, the New York Stock Exchange traded company reported a net loss from overall continuing operations of $18 million, compared to a $36-million loss in the same period last year. Revenue was down slightly, $1.1 billion compared to $1.2 billion in the first half of 2021, it said on July 28.

But with $21 million from the sale of some company assets, Granite was able to show an improved company-wide net income of $4.2 million, compared to a loss of $11.7 million for the same period last year.

Some good news is that the company believes by next year there will only be $50 million more of work it wishes to "burn through" on the profit-challenged big legacy project portfolio.

"We’re close," said Kyle Larkin, Granite's CEO. In response to a question during a conference call for investment analysts, he added: "These are getting completed and next year will be down to $50 million."

The company continues to "see measurable progress" in its construction and materials units, Larkin also said.

Granite has set a company profitability goal for 2024 of between 9% and 11%. Its revised profitability target for 2022 is now 5.5%-6.5%

Lisa Curtis, Granite chief financial officer, said the company was "pleased with the progress but unfortunately the improvement in profits was overshadowed by losses in the ORP [Old Risk Portfolio] which is why we remain laser-focused on completing projects in the ORP."

Granite (GVA-NYSE) reports that it still has plenty of cash and continues to employ some cash in stock buybacks and possible acquisitions.

In 2019, before a change in the executive suite, the company decided to stop pursuing additional large design-build infrastructure work, often done in joint ventures. It also now steers clear of public-private partnership projects.

Instead, the Watsonville, Calif.-based company is emphasizing bids on smaller projects in familiar markets—California, Utah and Alaska, among others. Some are for just a few million in revenue, such as a $17.7-million flood control project for the Santa Clara Valley Water District in San Jose, Calif. Others, such as a $55-million road widening project in Knik-Fairview, Alaska, are worth much more.

New contracts are supposed to meet criteria for profitability and play off Granite's long-time strength as a materials supplier as well as a contractor.

The company also specifically seeks out work to be performed under a construction manager-general contractor arrangement, a project delivery style that has been catching on with several state transportation departments. It is similar to construction manager-at-risk contracts that are familiar in building construction.

Deputy Editor Richard Korman helps run ENR's business and legal news and investigations, selects ENR's commentary and oversees editorial content on ENR.com. In 2023 the American Society of Business Publication Editors awarded Richard the Stephen Barr Award, the highest honor for a single feature story or investigation, for his story on the aftermath of a terrible auto crash in Kentucky in 2019, and in 2015 the American Business Media awarded him the Timothy White Award for investigations of surety fraud and workplace bullying. A member of Investigative Reporters and Editors, Richard has been a fellow on drone safety with the McGraw Center for Business Journalism at the Craig Newmark Graduate School of Journalism at CUNY. Richard's freelance writing has appeared in the Seattle Times, the New York Times, Business Week and the websites of The Atlantic and Salon.com. He admires construction projects that finish on time and budget, compensate all team members fairly and record zero fatalities or serious injuries.