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Granite Construction Reports Q2 Loss


Granite Construction reported a net loss of $6.7 million for the second quarter compared with net income of $17.9 million for the second quarter 2009

Granite Construction reported a net loss of $6.7 million for the second quarter compared with net income of $17.9 million for the second quarter 2009.

"Our 2010 construction season is in full swing despite a slow start in the second quarter," said Granite President and CEO William G. Dorey. "Although we were unable to build as much work as we would have liked in April and May, our June results were encouraging. However, as expected, gross margins are considerably lower as we build projects bid in this highly competitive environment.

"Large Project Construction segment results for the second quarter include initial work on the Queens Bored Tunnel and Houston Metro projects. Both of these projects are not expected to reach the profit recognition threshold until 2011. The profit associated with these two projects should lead to Large Project earnings growth next year."

Revenue totaled $454.2 million compared with $461.1 million in 2009. Gross profit margin was 11%, down from 18% in 2009, driven primarily by the lack of private-sector work and too much capacity for the available work in the market. Operating income for the quarter was $2.1 million compared with $30.4 million in the prior year. Selling, general and administrative expenses for the second quarter were $51.4 million compared with $56.3 million for the same period last year, driven by a continuing effort to reduce the company's overall cost structure.

Net income attributable to noncontrolling interests was $4.1 million compared with $4.7 million in 2009. Total contract backlog at June 30, 2010 was $1.6 billion, essentially flat compared with backlog at June 30, 2009. Second quarter 2010 backlog does not include approximately $210 million associated with three projects awarded to date in the third quarter of 2010.

Construction revenue for the quarter totaled $237.9 million compared with $277.5 million for the same period in 2009. Gross profit margin for that sector in the second quarter was 10% compared with 19% a year ago. The decrease is due to the lack of profitability associated with border fence work in 2010 as compared with 2009, as well as lower margin backlog due to the competitive markets and a slow start to the construction season in the West.

Large Project Construction revenue for the quarter totaled $153.3 million compared with $125.8 million for the same period last year. Its gross profit margin for the quarter decreased to 14% compared with 18% for the same period last year, reflecting an increase in revenue on projects that have yet to reach the profit recognition threshold.

Construction Materials revenue for the quarter totaled $61.1 million compared with $57.3 million for the same period last year. Gross profit on the sale of construction materials was $4.5 million in 2010 compared with $9.6 million in 2009. The decline reflects an increase in fixed costs related to new plants that came on line in late 2009 without a corresponding increase in sales.

"This year is proving to be very challenging, particularly in the West," said Dorey. "Although the public works bidding activity in the construction segment has been strong, the competitive climate is driving margins associated with that work substantially lower than in previous years. Based on our current outlook, we are updating our guidance for each of our segments. Revenue for the construction segment is now expected to be between $950 million and $1.15 billion with a corresponding gross profit margin between 11% and 12%.

Revenue for the Large Project Construction segment is expected to be between $650.0 million and $750.0 million with a corresponding gross profit margin between 10 and 11 percent. Construction materials segment revenue is expected to be between $175 million and $225 million with a corresponding gross profit margin between 9% and 10%. Net income attributable to noncontrolling interests is expected to be approximately $19 million for the year. The tax rate for 2010 is currently forecasted to be 6%.

"Additionally, we continue to focus considerable effort on optimizing our cost structure and lowering expenses across the company. In 2010, our goal is to reduce SG&A by 10% compared with 2009 through reductions in headcount, discretionary spending and lower compensation expense," said Dorey.