Profit revenue

Granite’s second-quarter profit, revenue decline as company continues strategic shift

Diving brief:

  • Infrastructure builder and materials producer Granite Construction saw profits and revenues fall from this time last year, although both measures jumped from the previous quarter. The company is burning through its portfolio of less profitable projects as expected, hurting its profit margin, the company’s president said on a second-quarter earnings call Thursday.
  • The Watsonville, Calif.-based entrepreneur lowered its 2022 EBITDA margin forecast from 6%-8% to 5.5%-6.5%, but its revenue projections and other metrics remained unchanged. Granite’s operating profit was $5.5 million in the second quarter, down from $34.8 million in the same period last year.
  • Granite’s backlog grew 7.1% from last quarter to $4.2 billion, with California leading its markets. Chairman and CEO Kyle Larkin said he expects to benefit from the Federal Infrastructure Investment and Jobs Act in the second half of the year, and also plans to close the least profitable projects in its old risk portfolio.

Overview of the dive:

The company’s second-quarter profit was $78 million, down 20.4% year-on-year but up 56% from the first quarter. Granite revenue for the second quarter was $768 million, down 8% from the same period last year and up 40% from last quarter. Its long-term debt fell to $288 million, down $52 million year-over-year.

Granite’s materials business benefited from rising aggregate and asphalt costs, but overall the company was still hurt by rising fuel and other materials prices, Larkin said.

The company took two strategic steps with its materials business in the second quarter. First he bought some virgin land aggregate operation in Grantsville, Utah, which it plans to use to supply building materials for its growing key market of Salt Lake City. The company also purchased a liquid asphalt terminal in Bakersfield, California to enable it to store asphalt and manage oil price volatility and supply chain issues.

The company plans to sell its two remaining water resources and mining services businesses. Larkin said he expects to close the sales by the end of the year.

Another difficulty faced by the company is the lack of workers for all roles.

“We are seeing a historically tight construction labor market become even more competitive as we emerge from the pandemic. The current job market is the toughest I’ve seen in our industry,” Larkin said. “These challenges exist at all levels, from artisans to project executives.”

To address this issue and to staff infrastructure bills, the company is focusing on worker experience and safety. In the second quarter, its injury rate — a key measure of worker morale and engagement — was the lowest in recent history, as was injury severity, Larkin said.

Look forward

Larkin also said on the earnings call that the strategy of focusing on key markets was working, although “we’re not where we want to be yet.”

Previously, Granite said it was moving away from megaprojects and public-private partnerships and toward smaller infrastructure deals in regions where it sees the most activity, such as California, Utah and Australia. Arizona. The company’s president said he expects the infrastructure law to increase the number of projects available in the near future.

“We didn’t see any benefit from the infrastructure bill in the second quarter,” Larkin said. “We believe the bill should lead to an increase in opportunity in late 2022 and then continue through 2023.”

On Thursday morning, Granite stock fell more than a percentage point from its market close of $30.4 on Wednesday, but fell to $29.96 per share by the end of the day. The company reported a loss of $0.05 per share for the second quarter