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WATSONVILLE – Limited private development and public funding challenges continue to cut into profits and competition remains stiff, according to the head of Granite Construction, which reported Thursday increased first quarter revenues and a smaller net loss compared to a year ago.
First quarter revenue was up 16 percent from a year ago and net loss for the quarter was $9 million compared to a net loss of $41 million a year ago. Net loss per diluted share was 24 cents compared to $1.09, a year ago.
There has been some improvement, said Jim Roberts, chief executive officer and president. On a conference call with investors and analysts, Roberts said the construction season was getting off to a strong start and bidding activity was “robust.”
Overall, however, private work is still “anemic” and federal funding remains uncertain. Despite severe budget problems in California, transportation appears to have carved out its own secure “special fund,” which is positive for the industry, he said.
“So we’re actually quite happy with the condition of the transportation program in California,” Roberts told analysts. “We could have a continued strong transportation program even while we are fighting the general budget deficit in the state of California for the next 12 months. I would say transportation is holding up quite well in California.”
The company reported several new contract awards for large projects adding about $335 million to the backlog. Bids on military projects in Guam were not successful but the company plans to try to win awards in upcoming related projects. Granite also reported that it was progressing in the relatively new renewable energy construction market.
Despite lower prices in construction materials, the company was able to maintain a flat loss compared to last year due to operational cuts.
“We’ve lowered our cost basis,” Roberts said. “We’re just doing an excellent job running our business.”
At the federal level, the transportation budget is generally flat for the rest of the year, but there is ongoing debate about the future of transportation funding. Last month, Congress eliminated funding for high speed and inner city rail and rescinded millions of unspent earmarked funds. The move will have an impact on unused earmarked funds in many states for future projects. While the president approved an increase in $50 billion in highway funding, Paul Ryan, chairman of the House Budget Committee, R-Wis., has called for a 30 percent cut in transportation funding.
“This discord between the Senate, House and administration will need to be resolved if we are going to see a bill passed later this year,” said Roberts who called it “a significant uphill battle.”
Laurel Krzeminski, chief financial officer said Granite’s financial position and liquidity remain strong with $370.1 million in cash and marketable securities and a backlog of contracts valued at $2 billion.
“As it relates to our guidance, it’s essential to understand that it’s still early in our construction season,” Krzeminski said. “A lot of the smaller projects that we’ll build this year are just now coming out to bid. Overall, we do expect to see improvement in our results in 2011 … as our cost reduction efforts take hold and we begin to recognize profitability on several large projects.”
Analyst Avi Fisher of BMO Capital Markets questioned the company’s conservative outlook for the spring quarter.
“When you look at the bid sheets, the average number of bidders is declining. The difference between the engineers’ estimates is declining. It seems like the environment is getting better.”
Roberts said the company was providing a conservative forecast although the bidding environment was “robust.”
While more bidding activity is a good sign, Roberts said bidding is still very competitive and there was no way to say whether it would remain positive. “I’m just happy the way it is right now and we’re doing quite well,” he said.
Granite Construction Inc.
WHAT: Granite Construction Inc. is the holding company for Granite Construction Co., one of the largest heavy civil construction contractors that serves both public and private sector clients in the U.S.
HEADQUARTERS: 585 W. Beach St., Watsonville.
BACKGROUND: Founded in 1922, the company incorporated in 1990.
LEADERSHIP: James H. Roberts, chief executive officer and president.
EMPLOYEES: At year end, Granite employed about 1,500 salaried employees and
about 800 hourly employees. On average during the year, the company employs about 2,400 hourly workers.
INFORMATION: (831) 724-1011; http://www.graniteconstruction.com
STOCK PRICE: Thursday, shares trading on the New York Stock Exchange as GVA,
climbed $1.25 to close at $27.64. In the last year, shares have traded between $21.22 and $33.99.
FINANCIALS: First quarter 2011 revenues were $256.7 million compared to $220.7 million a year ago. Net loss for the quarter was $9 million, or a loss of 24 cents per share, compared to net loss of $41 million, or a loss of $1.09 cents per share, a year ago.
GUIDANCE: The company forecast Q1 revenues of $1 billion-$1.2 billion in its construction division, $650 million to $850 million in large projects work and $170 million to $200 million in materials sales.
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