Granite Construction Q4 2009 results: Revenue down 27%, net income down 40% but balance sheet strong

| Published on February 25, 2010

Watsonville, Calif. -based Granite Construction Inc. on Feb. 24 reported it’s fourth-quarter 2009 quarterly and full-year earnings, showing that the major construction company hasn’t escaped the recession unscathed but it’s still doing well despite the current tough economy. (Click here for the full press release on Granite Construction.)

“We delivered the goods on our projects in 2009 despite today’s macroeconomic challenges and extraordinarily competitive markets,” Granite President and Chief Executive Officer William G. Dorey said in a press release. “A number of factors contributed to our results, including excellent execution on our projects, resolution of project issues, bidding discipline and a focus on reducing our cost structure.

“Unfortunately, we also experienced a significant decline in revenue and backlog in the West as the weak private market led to increased competition for public-sector work and lower demand for construction materials,” Dorey continued.

Granite reported a net income of $73.5 million for the full year 2009, compared with $122.4 million for the full year 2008.

Diluted earnings per share were $1.90 for the full year 2009 compared with $3.18 per diluted share for the full year 2008.

For the fourth quarter of 2009, Granite reported net income of $16.0 million, or $0.41 per diluted share. This compares with net income of $31.9 million, or $0.83 per diluted share, for the fourth quarter of 2008.

A summary of the financial results follows:

Full-year 2009 Financial Results

Total Company

  • Revenues for the year totaled $2.0 billion, compared with $2.7 billion in 2008, reflecting the competitive environment in Granite West and delayed notices to proceed on three large Granite East projects awarded in 2009.
  • Gross profit margin was 18 percent, unchanged from a year ago reflecting excellent project execution.
  • Gross profit on the sale of construction materials was $14.4 million in 2009, compared with $41.9 million in 2008, primarily as a result of significantly lower sales volume.
  • General and administrative expenses were $224.9 million compared with $257.5 million in 2008. The decrease reflects $9.5 million in lower incentive compensation and salaries, a recovery of $4.6 million that provided a credit in our provision for doubtful accounts, and lower travel, relocation and occupancy costs.
  • Operating income was $129.2 million compared with $216.7 million in the prior year.
  • Other income was $9.7 million, compared with $16.7 million in 2008, due primarily to a 73 percent decrease in interest income resulting from lower investment interest yields on marketable securities.
  • Net income attributable to noncontrolling interests in joint ventures was $26.7 million compared with $43.3 million in 2008. The decrease is associated primarily with a large settlement on a joint venture project that occurred in 2008 related to outstanding revenue issues on a project in southern California.
  • At year end, cash and short-term marketable securities totaled $381.4 million, including $122.4 million in cash and cash equivalents associated with the company’s consolidated joint ventures.
  • Total contract backlog at December 31, 2009, was $1.4 billion compared with $1.7 billion at December 31, 2008.

Granite West

  • Granite West revenues totaled $1.4 billion compared with $2.0 billion for the prior year, reflecting intense competition for public works projects, less private-sector work, as well as reduced sales of construction materials.
  • Gross profit margin for the year was 17 percent compared with 18 percent last year.
  • Operating income decreased to $126.5 million for the same period compared with $206.0 million in 2008.

Granite East

  • Granite East revenues totaled $550.2 million compared with $695.0 million in the prior year.
  • Gross profit margin for the year was 20 percent, compared with 18 percent for the same period last year, driven primarily by a quality project portfolio, improved project execution and issue resolutions with project owners.
  • Operating income totaled $85.7 million compared with $94.2 million in 2008.
  • Fourth-quarter 2009 Financial Results

Total Company

  • Revenues for the quarter totaled $434.7 million, compared with $627.3 million in 2008, driven primarily by a reduction in Granite West revenue.
  • Gross profit margin increased to 21 percent, up from 19 percent in 2008, reflecting higher gross profit margins in both divisions.
  • Operating income for the quarter was $35.6 million compared with $58.4 million in the prior year.
  • Other income for the quarter was $3.7 million compared with $6.8 million last year. In 2008, the company recognized a pre-tax gain related to the sale of an investment in an affiliate, which was partially offset by a $10.9 million loss on available-for-sale securities.
  • General and administrative expenses decreased $4.0 million in the fourth quarter of 2009 to $55.1 million. The decrease reflects approximately $2.0 million in lower incentive compensation and salary expense.
  • During the fourth quarter of 2009, the company recorded a $9.5 million restructuring charge which includes $7.0 million associated with a reduction in force and an impairment of $2.5 million related to selected plant facilities in the Pacific Northwest.
  • Net income attributable to noncontrolling interests in joint ventures was $11.0 million compared with $12.3 million in 2008.

Granite West

  • Granite West revenues for the quarter totaled $301.6 million, compared with $463.2 million for the same period in 2008, reflecting decreases in public- and private-sector work, and sales of construction materials.
  • Gross profit margin for the fourth quarter was 18 percent, unchanged from a year ago.
  • Operating income for the quarter totaled $28.4 million compared with $51.3 million for the same period last year.
  • Granite East
  • Granite East revenues for the quarter totaled $132.8 million compared with $163.2 million for the same period last year.
  • Gross profit margin for the quarter increased to 26 percent, compared with 21 percent for the same period last year, due primarily to the settlement of outstanding revenue issues and the completion of a large project.
  • Operating income for the quarter increased $3.5 million to $30.5 million.

Dorey says that 2010 will prove to be very challenging.

“Backlog in the East increased, however, our backlog in the West is down substantially as we continue to face intense competitive pressure for the available public-sector work,” he said in a press release. “While we expect some benefit from large projects reaching the profit recognition threshold this year, the positive impact will not offset the lower margins we anticipate from our work in the West.”

Dorey notes that public works funding challenges will continue as many states and local agencies adjust their budgets to compensate for lower tax revenues.

“Based on current expectations, our earnings will be lower in 2010 than what we achieved in 2009,” Dorey said in a press release.

“Despite our current challenges, we are encouraged about the longer-term prospects for our business,” he continued. “We are increasing our business development efforts, strengthening our alliances with well-established partners and pursuing work in new markets, as well as in our traditional transportation-related markets. In addition to several conventional and solar-related energy projects, we are also pursuing substantially more federal government work.”

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