Granite Construction Incorporated (GVA)

GVA 
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Granite Construction Incorporated (GVA)

Q3 2012 Earnings Call

November 07, 2012 11:00 am ET

Executives

Jacque Fourchy

James H. Roberts - Chief Executive Officer, President, Director, Member of Executive Committee and Member of Strategic Planning Committee

Laurel J. Krzeminski - Chief Financial Officer, Principal Accounting Officer and Vice President

Analysts

John F. Kasprzak - BB&T Capital Markets, Research Division

John Rogers - D.A. Davidson & Co., Research Division

Nicholas A. Coppola - Thompson Research Group, LLC.

Sameer Rathod - Macquarie Research

Gregory M. Macosko - Lord, Abbett & Co. LLC

Min Cho - FBR Capital Markets & Co., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Granite Construction Incorporated Third Quarter 2012 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Ms. Jacque Fourchy, Director of Investor Relations.

Jacque Fourchy

Good morning, and welcome to Granite's third quarter call. I am here today with our President and CEO, Jim Roberts; our Vice President and CFO, Laurel Krzeminski.

Following this call, each of us will be available throughout the day to answer any follow-up questions you may have. And also as a reminder, any forward-looking statements that are made this morning are subject to risks and uncertainties that could cause actual results to differ materially from these statements and which are further described in our most recent SEC filings. Granite assumes no obligation to update any of these forward-looking statements or other information.

With that, I will turn the call over to Jim.

James H. Roberts

Thank you, Jacque, and good morning, everyone.

On today's call, I will provide you with an overview of the third quarter, as well as an update on our current markets. Laurel will review the financial results for the quarter and discuss the adjustments we have made to our 2012 guidance based on our outlook for the remainder of the year.

As you can see from this morning's earnings release, Granite's third quarter results reflect a continuation of the strong performance and momentum we have been seeing from our Large Project segment, offset by ongoing competitive headwinds in the Construction segment.

From a seasonality standpoint, the third quarter is typically our driest quarter of the year, particularly for our business units in the West, and it was the case for us again this year. Although we were busy in all segments of our business, the competitive bidding pressures and continued delayed bid dates has impacted our ability to build backlog. Bid lists for the smaller sized public-sector Construction projects remained longer than we would like to see.

As we mentioned last quarter, we are starting to see a slight pickup in residential and nonresidential work in certain markets. However, we do not expect a measurable impact until late 2013 and into 2014.

I will point out that we have historically seen a positive impact from a pickup in the private sector in our Construction Materials business first, followed by improving margins in the Construction segment. I would expect to see the same type of pattern in the future.

In response to the current environment, in addition to our core business, our teams are also successfully pursuing work and leveraging our capabilities in markets such us federal, power, oil and gas, water and mining. The work we are performing in these markets is mostly our conventional heavy civil-type work.

Not only does Granite have the capabilities and resources to take advantage of these opportunities, we are also well positioned geographically to serve our customers from coast to coast. In addition, we are actively pursuing acquisition opportunities that will enhance our positions in one or more of these markets.

As is the case with the Construction segment, our Construction Materials business in the West continues to be impacted by a weak residential market. With the exception of several projects in the third quarter that helped drive revenues, our overall demand remains low. We continue to seek out opportunities to maximize the value of our portfolio, both through controlling costs and through rigorous analysis of our fixed assets to ensure they are meeting our performance expectations.

In contrast, I'm very pleased with the ongoing strong performance of our Large Projects across the country. Solid estimates coupled with excellent execution drove improved gross margins on several projects during the quarter.

Additionally, Large Project bidding opportunities in 2013 remained very promising, with several projects on schedule to bid in the first half of the year. As we noted last quarter, we were shortlisted on several major projects. In New York and Texas, the Tappan Zee Bridge and Dallas Horseshoe projects are still pending. The I-35 East project, also in Texas, will bid later this month, while the California High-Speed Rail will now bid in January. The Bayonne Bridge and the Goethals Bridge projects in New York are also expected to bid in 2013.

The funding and procurement process for these types of mega projects is very complicated and it is not unusual for these projects to experience delays. While we are pleased with last quarter's passage of the 27-month $105 billion Surface Transportation Bill, Congress' inability to pass a budget has triggered a continuing resolution, in essence, freezing transportation funding at flat levels through March of 2013. Although this is disappointing news for our industry, it is not unexpected given the funding uncertainties we have been dealing with at the federal level.

On a positive note, we are optimistic about the opportunities that will be provided by the expanded TIFIA credit assistance program, and believe it could have a very positive impact on our business over the long-term, particularly as it relates to Large Projects.

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