April 16, 2009 - : Granite Construction Inc. (GVA-NYSE) together with its subsidiaries, operates as a heavy civil construction contractor and a construction materials producer for public and private sector clients in the United States. The company operates in two segments, Granite West and Granite East.

The Granite East segment builds infrastructure projects, such as highways, dams, mass transit facilities, bridges, pipelines, canals, waterway locks and dams, and airport infrastructure. It also engages in the demolition, clearing, earthwork and grading, dewatering, drainage improvements, structural concrete, rail signalization, and concrete and asphalt paving activity. This segment's customers include state departments of transportation, local transit authorities, and federal agencies.

Granite Construction also engages in the purchase, development, and sale of real estate projects, as well as in the provision of real estate services. The company was founded in 1922 and is based in Watsonville, California with additional offices in Alaska, Arizona, Florida, Nevada, New York, Texas, Utah, and Washington.

Earnings will most likely take a hit this year as construction projects are stalled or scrapped. Funding has been tough for new sites. Look for earnings per share of $2.37 this year, well below the $3.21 last year. Then expect $2.68 in 2010. Next earnings announcement will be on May 4 for first quarter results. Analysts see negative 8 cents a share compared to 34 cents in the black last year in the first period. For the second quarter, they expect 64 cents, a little below the 68 cents of the second quarter last year.

Earnings volatility is part of owning a stock like GVA. Some years are lean, some are robust. Up until last year, the profit picture was steadily improving with earnings in 2004 of $1.39, then $2.02, followed by $2.21. 2007 saw $2.71, then jumped to $3.11 in 2008. That string has ended.

Management isn't hoping for the best. It's implementing programs to reduce Selling, General and Administrative expenses, started in the 4th quarter of last year. The company is also helped by lower costs of road-building materials and better execution in many of its projects.

Backlog orders are down 18% from 2007 levels, reflecting lower demand in California as well as more competition in the public sector bids as residential contractors seek highway projects to help keep crews fully employed. The California Department of Transportation was 9.6% of revenues in 2008. In the private sector, slack demand is hurting sales. The competitive advantage GVA has is its size. Larger than most other contractors, it will focus attention on big projects in the west where there are few qualified bidders.

The big bonus for GVA may be coming from the federal government in the form of the stimulus program with its focus on infrastructure repairs and projects. New highways will almost certainly be required along with the reparation of old ones. The same will be true for bridges. Once enacted, the program will have a considerable impact on the top and bottom lines of GVA for several years.

More numbers: Market cap is $1.42 billion. Forward P/E is 13.85. Price to Book is 1.9. Operating margin for the last 12 months was 8%; Profit margin was 4.58%. Total debt is $290.38 million. Current ratio is 1.76. Book Value per share is $20.57. Beta is .42. 52-week high was $50, low was $21.20. There are 38.25 million shares outstanding with a float of 37.64 million. Insiders own 2.3%. The annual dividend is 52 cents a share for a yield of 1.3%.

While the government's new program should benefit GVA, it's the residential sector that's a thorn. Demand for new homes as well as commercial projects is minimal. Over the stretch from 2003 to 2006, sales were growing at 12% to 14% annually. This year, analysts expect growth of negative 7.2% to $2.48 billion, down from $2.67 billion. Next year, they see $2.61 billion. Over the next 5 years, without the potential government projects figured in, revenues should average annually an increas of 3.5% while profits grow by 6% annually on average. With the government stimulus program and some wins on contracts by GVA, you can bump all those numbers higher.

Company Web site: www.graniteconstruction.com

- Ted Allrich