Granite Reports Fourth Quarter And Fiscal 2012 Results

Granite Construction Incorporated (NYSE: GVA) today reported a net income of $45.3 million for 2012, compared to $51.2 million the prior year. Diluted earnings per share (EPS) for the year was $1.15 compared to $1.31 in 2011.

For the fourth quarter of 2012, Granite reported a net income of $18.0 million, compared to $18.8 million for the fourth quarter of 2011. Diluted EPS for the quarter ended December 31, 2012 was $0.46 compared to $0.48 in the prior year period.

“Our fourth quarter results highlight the strength of our Large Project portfolio as well as the challenging market conditions our Construction and Construction Materials businesses continued to face in the West,” said James H. Roberts, President and CEO of Granite Construction Incorporated. “We remain focused on our strategic growth plan and are pleased with the progress we have made to diversify our business portfolio, grow the Large Projects segment and optimize our overall asset base.”

Fiscal Year 2012 Highlights:

Total Company
  • Revenues for the year were $2.1 billion, compared with $2.0 billion recorded in 2011.
  • Gross profit margin was 11.3 percent compared with 12.3 percent in 2011 due to lower gross profit in both the Construction and Construction Materials segments partially offset by an increase in margins in the Large Project segment.
  • SG&A expenses for the year were $185.1 million, compared with $162.3 million last year. The increase reflects $5.4 million associated with large project bid costs, $4.4 million associated with the acquisition of Kenny Construction and $2.0 million related to earnings in the Company’s deferred compensation plan.
  • Gain on sales of property and equipment was $27.4 million in 2012, compared with $15.8 million in 2011. The increase is associated with an $18.0 million gain on the sale of a quarry investment.
  • Operating income was $80.8 million in 2012, compared with $99.3 million in 2011.
  • Total other income (expense) for the year was $0.2 million, compared with $(9.8) million in 2011. Other income for 2012 included a $7.4 million gain related to the sale of gold, a by-product of aggregate production, partially offset by a $2.8 million non-cash impairment loss on an investment in a solar-related business.
  • Net income attributable to non-controlling interests was $14.6 million, compared with $14.9 million the prior period.
  • Total contract backlog at December 31, 2012, was $1.7 billion compared with $2.0 billion a year ago. 2012 backlog includes $357 million attributable to the Kenny acquisition and does not include Granite’s approximate $733 million portion of the Tappan Zee Bridge project in New York or the IH-35E highway reconstruction project in Texas of which Granite’s portion is approximately $297 million.

Construction
  • Construction revenues for the year were $1.0 billion, in line with 2011.
  • Gross profit margin was 7.9 percent compared with 11.9 percent a year ago reflecting challenging market conditions, as well as increased costs to complete certain projects due to lower productivity than anticipated.

Large Project Construction
  • Large Project Construction revenue for the year increased 19 percent to $863.2 million due largely to the progress on projects awarded in late 2010 and early 2011.
  • Gross profit margin was 17.2 percent compared with 14.4 percent in 2011 reflecting successful execution on several large projects across the country offset by a downward forecast adjustment on a project in Washington.

Construction Materials
  • Construction Materials revenue was $230.6 million compared with $220.6 million last year.
  • Gross profit in 2012 was $7.6 million, compared with $16.6 million in 2011. The decline in gross profit is primarily attributable to slow economic conditions at certain California locations.

Fourth Quarter 2012 Highlights

Total Company
  • Revenue for the quarter totaled $504.8 million compared with $539.5 million for the fourth quarter of 2011.
  • Gross profit margin for the fourth quarter of 2012 was 11.3 percent compared with 14.7 percent in 2011. The decrease is primarily due to lower gross profit in both the Construction and Construction Materials segments partially offset by an increase in margins in the Large Project segment.
  • Selling, general and administrative expenses for the fourth quarter increased $14.8 million to $57.3 million reflecting $4.7 million in costs associated with the pursuit of large projects and $4.4 million in acquisition-related costs.
  • Operating income was $21.7 million, compared with $40.1 million in the prior year.
  • Net income attributable to noncontrolling interests was $0.4 million compared with $6.0 million in 2011.

Construction
  • Construction revenue for the fourth quarter 2012 was $235.3 million, compared with $259.2 million for the fourth quarter of 2011.
  • Gross profit margin was 7.7 percent, compared with 14.3 percent a year ago reflecting competitive market conditions, wet weather in the West in November and December, and increased costs to complete certain projects due to lower productivity than anticipated.

Large Project Construction
  • Large Project Construction revenue was $214.6 million, compared with $211.6 million.
  • Gross profit margin for the quarter was 18.7 percent, compared with 16.4 percent for the same period last year. The increase reflects successful execution on several large projects across the country, partially offset by a downward forecast adjustment on a project Washington.

Construction Materials
  • Construction Materials revenue for the quarter was $54.9 million, compared with $55.5 million in the fourth quarter of 2011.
  • Gross loss on the sale of construction materials was $1.5 million, compared with gross profit of $5.9 million in the prior period. The fourth quarter of 2012 was impacted by slow economic conditions at certain California locations.

Outlook

“Overall, I am pleased with the direction of our company, led by the implementation of our well-developed strategic plan. We are well prepared to capture the benefits of our acquisition of Kenny and intend to continue to pursue our growth plan through geographic and end market diversification in 2013,” said Roberts.

“While we are optimistic that we will see some benefit from the residential building market towards the end of the year, we expect that our Construction and Construction Materials businesses will continue to face challenging market conditions throughout most of 2013. Our outlook for Large Projects, however, remains very positive. We anticipate strong backlog growth in our Large Projects segment in light of the strong pipeline of opportunities across the country. We have several large projects in various stages of completion in 2013 and will be starting work on the Tappan Zee and IH-35E projects, both of which should recognize profit in 2014.”

Conference Call

Granite will conduct a conference call today, February 28, 2013 at 8 a.m. Pacific time/11 a.m. Eastern time to discuss the results of the quarter and year ended December 31, 2012. Access to a live audio webcast is available at www.graniteconstruction.com. The live conference call may be accessed by calling (877) 643-7158. The conference ID for the live call is 99198804. The call will be recorded and will be available for replay approximately two hours after the live audio webcast through March 7, 2013 by calling (855) 859-2056. The conference ID for the replay is 99198804.

About Granite

Granite is one of the nation’s leading infrastructure contractors and is member of the S&P 400 Midcap Index, the FTSE KLD 400 Social Index and the Russell 2000 Index. Through its wholly owned subsidiaries, Granite is one of the nation’s largest diversified heavy civil contractors and construction materials producers serving public- and private-sector clients nationwide. In addition, Granite has one of the oldest and most robust ethics and compliance programs in the industry. The Company has been recognized by Ethisphere Institute as one of the World’s Most Ethical Companies for three straight years. For more information, please visit graniteconstruction.com.

Forward-looking Statements

Any statements contained in this news release that are not based on historical facts, including statements regarding future events, occurrences, circumstances, activities, performance, outcomes and results, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by words such as “future,” “outlook,” “assumes,” “believes,” “expects,” “estimates,” “anticipates,” “intends,” “plans,” “appears,” “may,” “will,” “should,” “could,” “would,” “continue,” and the negatives thereof or other comparable terminology or by the context in which they are made. These forward-looking statements are estimates reflecting the best judgment of senior management and reflect our current expectations regarding future events, occurrences, circumstances, activities, performance, outcomes and results. These expectations may or may not be realized. Some of these expectations may be based on beliefs, assumptions or estimates that may prove to be incorrect. In addition, our business and operations involve numerous risks and uncertainties, many of which are beyond our control, which could result in our expectations not being realized or otherwise materially affect our business, financial condition, results of operations, cash flows and liquidity. Such risks and uncertainties include, but are not limited to, those described in greater detail in our filings with the Securities and Exchange Commission, particularly those specifically described in our Annual Report on Form 10-K and quarterly reports on Form 10-Q.

Due to the inherent risks and uncertainties associated with our forward-looking statements, the reader is cautioned not to place undue reliance on them. The reader is also cautioned that the forward-looking statements contained herein speak only as of the date of this news release and, except as required by law, we undertake no obligation to revise or update any forward-looking statements for any reason.
 
GRANITE CONSTRUCTION INCORPORATED CONSOLIDATED BALANCE SHEETS (Unaudited - in thousands, except share and per share data)
         
December 31,   2012   2011
ASSETS    
Current assets
Cash and cash equivalents $ 321,990 $ 256,990
Short-term marketable securities 56,088 70,408
Receivables, net 325,529 251,838
Costs and estimated earnings in excess of billings 34,116 37,703
Inventories 59,785 50,975
Real estate held for development and sale 50,223 67,037
Deferred income taxes 36,687 38,571
Equity in construction joint ventures 105,805 101,029
Other current assets     31,834     35,171
Total current assets 1,022,057 909,722
Property and equipment, net 481,478 447,140
Long-term marketable securities 55,342 79,250
Investments in affiliates 30,799 31,071
Goodwill 55,419 9,900
Other noncurrent assets     84,392     70,716
Total assets   $ 1,729,487   $ 1,547,799
LIABILITIES AND EQUITY
Current liabilities
Current maturities of long-term debt $ 8,353 $ 9,102
Current maturities of non-recourse debt 10,707 23,071
Accounts payable 202,541 158,660
Billings in excess of costs and estimated earnings 139,692 90,845
Accrued expenses and other current liabilities     169,979     166,790
Total current liabilities 531,272 448,468
Long-term debt 270,148 208,501
Long-term non-recourse debt 922 9,912
Other long-term liabilities 47,124 49,221
Deferred income taxes 8,163 4,034
Equity
Preferred stock, $0.01 par value, authorized 3,000,000 shares, none outstanding
Common stock, $0.01 par value, authorized 150,000,000 shares; issued and outstanding 38,730,665 shares as of December 31, 2012 and 38,682,771 shares as of December 31, 2011 387 387
Additional paid-in capital 117,422 111,514
Retained earnings     712,144     687,296
Total Granite Construction Incorporated shareholders’ equity 829,953 799,197
Noncontrolling interests     41,905     28,466
Total equity     871,858     827,663
Total liabilities and equity   $ 1,729,487   $ 1,547,799

                 
GRANITE CONSTRUCTION INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited - in thousands, except per share data)
                 
  Three Months Ended

December 31,
  Years Ended

December 31,
    2012   2011   2012   2011
Revenue    
Construction $ 235,303 $ 259,221 $ 984,106 $ 1,043,614
Large project construction 214,572 211,565 863,217 725,043
Construction materials 54,888 55,500 230,642 220,583
Real estate     18       13,262       5,072       20,291  
Total revenue     504,781       539,548       2,083,037       2,009,531  
Cost of revenue
Construction 217,155 222,197 906,143 919,108
Large project construction 174,456 176,970 714,799 620,935
Construction materials 56,349 49,613 223,070 203,942
Real estate     13       11,642       4,266       17,583  
Total cost of revenue     447,973       460,422       1,848,278       1,761,568  
Gross profit 56,808 79,126 234,759 247,963
Selling, general and administrative expenses 57,298 42,536 185,099 162,302
Restructuring (gains) charges, net (1,200 ) 670 (3,728 ) 2,181
Gain on sales of property and equipment     20,954       4,217       27,447       15,789  
Operating income 21,664 40,137 80,835 99,269
Other income (expense)
Interest income 486 583 2,626 2,878
Interest expense (2,033 ) (2,709 ) (10,603 ) (10,362 )
Equity in income of affiliates 1,608 750 1,988 2,193
Other income (expense), net     2,316       (2,594 )     6,183       (4,545 )
Total other income (expense)     2,377       (3,970 )     194       (9,836 )
Income before provision for income taxes 24,041 36,167 81,029 89,433
Provision for income taxes     5,667       11,375       21,109       23,348  
Net income 18,374 24,792 59,920 66,085
Amount attributable to noncontrolling interests     (387 )     (6,038 )     (14,637 )     (14,924 )
Net income attributable to Granite Construction Incorporated   $ 17,987     $ 18,754     $ 45,283     $ 51,161  
 
Net income per share attributable to common shareholders:
Basic $ 0.46 $ 0.48 $ 1.17 $ 1.32
Diluted $ 0.46 $ 0.48 $ 1.15 $ 1.31
Weighted average shares of common stock:
Basic 38,534 38,191 38,447 38,117
Diluted     39,207       38,607       39,076       38,473  

 
GRANITE CONSTRUCTION INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited - in thousands)
         
Years Ended December 31,   2012   2011
Operating activities    
Net income $ 59,920 $ 66,085
Adjustments to reconcile net income to net cash provided by operating activities:
Non-cash restructuring, net (3,093 ) 1,678

Other non-cash impairment charges
3,238 5,067
Depreciation, depletion and amortization 56,101 60,546
Gain on sales of property and equipment (27,447 ) (15,789 )
Change in deferred income tax 6,013 8,566
Stock-based compensation 11,475 12,155
Changes in assets and liabilities, net of the effects of acquisition     (14,417 )     (45,963 )
Net cash provided by operating activities     91,790       92,345  
Investing activities
Purchases of marketable securities (124,596 ) (155,122 )
Maturities of marketable securities 90,100 110,875
Proceeds from sale of marketable securities 75,000 33,268
Additions to property and equipment (37,622 ) (45,035 )
Proceeds from sales of property and equipment 34,392 27,959
Acquisition of business, net of cash acquired (79,640 )
Other investing activities, net     (188 )     327  
Net cash used in investing activities     (42,554 )     (27,728 )
Financing activities
Proceeds from long-term debt 70,495 2,122
Long-term debt principal payments (11,751 ) (16,907 )
Cash dividends paid (20,117 ) (20,117 )
Purchase of common stock (4,853 ) (4,029 )
Distributions to noncontrolling partners, net (15,988 ) (21,062 )
Other financing activities, net     (2,022 )     344  
Net cash provided by (used in) financing activities     15,764       (59,649 )
Increase in cash and cash equivalents 65,000 4,968
Cash and cash equivalents at beginning of period     256,990       252,022  
Cash and cash equivalents at end of period   $ 321,990     $ 256,990  

 
GRANITE CONSTRUCTION INCORPORATED Business Segment Information (Unaudited - dollars in thousands)
                                 
  Three Months Ended December 31,   Years Ended December 31,
    Construction  

Large Project Construction
 

Construction Materials
  Real Estate   Construction  

Large Project Construction

 

Construction Materials
  Real Estate
         
2012
Revenue $ 235,303 $ 214,572 $ 54,888 $ 18 $ 984,106 $ 863,217 $ 230,642 $ 5,072
Gross profit (loss) 18,148 40,116 (1,461 )

5
77,963 148,418 7,572 806
Gross profit (loss) as a percent of revenue 7.7 % 18.7 % (2.7 )%

27.8
% 7.9 % 17.2 % 3.3 % 15.9 %
 
2011
Revenue $ 259,221 $ 211,565 $ 55,500 $ 13,262 $ 1,043,614 $ 725,043 $ 220,583 $ 20,291
Gross profit 37,024 34,595 5,887 1,620 124,506 104,108 16,641 2,708
Gross profit as a percent of revenue     14.3 %     16.4 %     10.6 %     12.2 %     11.9 %     14.4 %     7.5 %     13.3 %

 
GRANITE CONSTRUCTION INCORPORATED Contract Backlog by Segment (Unaudited - dollars in thousands)
                 
Contract Backlog by Segment   December 31, 2012   December 31, 2011
Construction   $ 629,898   36.9 %   $ 513,624   25.4 %
Large project construction     1,077,417   63.1 %     1,508,830   74.6 %
Total   $ 1,707,315   100.0 %   $ 2,022,454   100.0 %

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