Granite Construction Inc (GVA) 2011 Q1 法說會逐字稿

Good morning. My name is Shirah. I will be your conference operator today. At this time, I would like to welcome everyone to the Granite Construction first-quarter earnings conference call.

(Operator Instructions)

Thank you. Ms. Jacque Fourchy, Director of Investor Relations, you may begin, ma'am.

Good morning, and thank you for joining us today. Sorry for the delay. We wanted to ensure that everybody got on the line. Today, I am here with Jim Roberts, our President and Chief Executive Officer; Laurel Krzeminski, our Vice President and Chief Financial Officer; and Mike Donnino, our Senior Vice President and Group Manager.

Before we get started, like to remind you that this conference call will contain forward-looking statements that should be considered in conjunction with the cautionary statements contained in our earnings release and in the Company's most recent SEC filings. Forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from these statements. Granite assumes no obligation to update any of these forward-looking statements or other information. Please see our filings with the SEC, including our most recent annual report on form 10-K, for discussion of specific risk factors.

With that, I will turn the call over to Jim Roberts, Granite's President and CEO. Jim ?

Thank you, Jacque and good morning, everyone. On today's call I will provide you with a brief overview of our first quarter financial results, and an update on our current business environment. Laurel will then provide further details on our results by business segment and our outlook for 2011. Looking at the first quarter, market conditions continue to remain challenging. While some of our markets are tougher than others, the overall bidding environment continues to be competitive as a result of public funding challenges and limited private development activity.

With that being said, we are pleased to see that the bidding environment continues to be very active. We are entering the start of the construction season, and are estimating teams are very busy bidding work across the country. Not withstanding, the competitive climate continues to effect our hit ratio and margin expectations although we have experienced improvement in our construction segment over the last year. We do, however, remaining encouraged by the number of projects we are tracking and the overall bidding opportunities in our traditional markets as well as in some of our new markets.

I am pleased that despite the competitive environment, our teams are successfully winning new work and building backlog in several regions across the country. Overall, we are seeing a substantial increase in our hit rate over last year, which we are very excited about. In California during the first quarter, we were awarded two highway projects, totaling approximately $110 million, as well as a $42 million rail relocation project. More recently, we were awarded a $72 million project in Nevada, which we expect to book in second-quarter backlog.

We have also been conditionally awarded a $167 million toll road project in Texas known as the Chisholm Trail project. Pending contract execution, we expect to book the project and backlog by no later than the third quarter. In addition to our traditional book of business, we continue to build a resume in the renewable energy sector with the recent commissioning of a 318 kilowatt system in our Indio California materials facility, using concentrated photovoltaic solar power systems.

We have also installed an additional 159 kilowatt system at our Swan materials facility in Arizona. In addition, we recently installed a 2-megawatt CPV system at the University of Arizona Solar Technology Park, and have started construction on a 1 megawatt facility in our Coalinga, California materials facility, using thin film solar power technology. These installations are representative of our commitment to the environment by reducing energy emissions in our construction materials business, as well as diversifying our business model.

As we have mentioned, we believe the renewable energy market is an attractive space for growth and diversification, that will allow us to use our core competencies as a contractor, as well as leverage our leading market presence in areas abundant with renewable resources. We expect these projects to generate acceptable rates of return on invested capital, and provide Granite with valuable experience as a renewable energy contractor and developer.

Let's now talk briefly about federal transportation funding. The Federal Highway program and corresponding budgets have been extended through the end of the federal government fiscal year in September. While cuts have been made to the budget funding for the core highway programs remained largely flat from the prior fiscal year. In the continuing resolution passed last month, Congress eliminated any new funding for high-speed and intercity rail and rescinded $400 million in unused obligation authority, corresponding to the funds reviewed by the state of Florida.

The bill also rescinded over $3 billion of unused obligation authority and earmarks that have remained unspent from as far back as 1998. While the elimination of unobligated funds does not directly impact current funding of state programs, it does impact the unused portion that many states may use to plan for and fund future projects. In February, President Obama unveiled his fiscal year 2012 proposed budget. He concurrently proposed a six-year, $556 billion reauthorization of the Federal Highway program, that includes an increase of approximately $50 billion for highways in 2012, over the current levels.

In the House, Budget Committee Chairman Paul Ryan has proposed budget guidelines for fiscal 2012, which calls for a 31% cut to transportation funding in the coming fiscal year. This discord between a Senate House and administration will need to be resolved if we are going to see a bill passed later this year. Although the House and Senate transportation leadership remain confident in their public statements that a bill will get passed this year, it will be a significant uphill battle to do so in the face of such contrasting views.

Looking ahead, while the near-term outlook for transportation funding remains very uncertain, I am confident in the steps we have taken to position Granite to make most of our current opportunities in what continues to be a very tough environment. We have significantly lowered our overall cost structure over last year, and our employees are dedicated to continuing our efforts to increase our efficiencies in all areas of our business, including SG&A, construction, and construction materials.

And now I would like to turn the call over to Laurel who will review the first quarter results. Laurel?

Thank you, Jim, and good morning, everyone. Looking first at the total Company for the quarter. Net loss per diluted share was $0.24 compared with the prior years net loss per diluted share of $1.09. Revenues were $257 million, compared with $221 million in 2010. The gross profit margin for the quarter was 12%, compared with 3% in the first quarter of last year. Construction segment revenue for the quarter increased 14% to $93 million, from $81 million a year ago. The gross profit margin for the first quarter of 2011 was 6%, compared with 2% last year.

For the quarter, large project construction revenues increased 30% to $138 million, compared with $106 million a year ago. Gross profit margin was 23% compared with 9% a year ago. As a function of timing, first quarter 2011 gross profit includes the impact of reaching the profit recognition threshold on the Queens Board Tunnel project. Finally, revenues for the construction materials segment declined slightly to $24 million in the first quarter of 2011 compared with $26 million in the first quarter of 2010. The gross loss on material sales was $7 million, essentially flat with the loss in 2010.

Selling, general and administrative expenses decreased 22% to $43 million in the first quarter of 2011, compared with $55 million a year ago. Of the decrease, salaries and related expenses decreased $8.7 million in the quarter, primarily as a result of our enterprise improvement plan. Other general and administrative expenses decreased $2 million, driven by our ongoing efforts to reduce our cost structure and discretionary spending.

Granite's financial position and liquidity remains strong. Our cash and marketable securities totaled $370 million at the end of the first quarter, which includes $108 million associated with consolidated joint ventures. The tax rate in the first quarter of 2011 was 41.9%, compared to 16.8% in the first quarter of 2010. This unusually high rate was primarily due to a favorable tax settlement with the Internal Revenue Service. Looking ahead, we expect our tax rate at year end to be more in line with historical rates in the range of 27% to 30%.

Turning to guidance. We currently expect revenue for the construction segment to be in the range of $1 billion to $1.2 billion, with the corresponding gross profit margin in the range of 9% to 11%. We expect revenues in a large project construction segment to be in the range of $650 million to $850 million, with a corresponding gross profit margin in the range of 13% to 15%. Construction materials revenues expected to be in the range of $170 million to $200 million, with the corresponding gross profit margin in the range of 7% to 9%.

Non-controlling interest for the total Company is expected to be approximately $15 million to $20 million for the year. As it relates to our guidance, it's essential to understand and still very early in our construction season. A lot of the smaller projects that we will build this year are just now coming out to bid. Overall, we do expect to see an improvement in our results in 2011 compared to 2010, as our cost reduction efforts take hold and we begin to recognize profitability on several large projects. With that, I will now turn the call back over to Jim.

Thank you, Laurel. So in summary, we feel very strongly that we are positioning ourselves to not only compete in this current challenging environment, but we are also preparing ourselves for substantial growth in the market rebounds, to catch up for the lack of current investment of the US infrastructure.

I would like to emphasize how proud appreciative I am for the loyalty, commitment and tireless effort of our employees across the country who are helping all of us make Granite a stronger company. They continue to meet the challenges that the industry is facing, and they are performing at exemplary levels. I would also like to thank our investors for your commitment to Granite. Together, we are building a stronger company that is withstanding these difficult times, while also preparing for the future.

With that, I will turn the call over to the moderator and we will be happy to take your questions.

(Operator Instructions) Your first question comes from the line of Jack Kasprzak with BB&T.

Thanks. Good morning, everyone.

Good morning, Jack.

Hi, first question. With regard to the large project segment and your guidance, does that have the potential for the full year to be conservative based on timing of some more large projects, even given the very strong first-quarter performance?

Jack, I think that the large projects are pretty well planned out for the year. And I would say that if in any single portion of our guidance, that would be the most finely tuned of any of them. So yes, there could be upside, but I am not going to say that the upside would be to more recognition. It would be for other reasons relative to how we do against our budgets. But we are pretty well dialed in on our schedule, and we do know when recognition will occur.

Got it. Thank you. And just on SG&A, the quarterly run rate in the first quarter, is that a pretty good run rate for the year, or might you expect further improvements in terms of dollar amounts even as we move into the seasonally strong periods?

You know, what we said last time I think is pretty accurate. We are going to run somewhere around $20 million to $25 million below last year's level. And I think that's what we're trying to provide for guidance instead of taking a run rate necessarily for the first quarter.

Got it. Okay, great. Thanks very much.

Thanks, Jack.

Your next question comes from the line of Avi Fisher from BMO Capital Markets.

Can you talk a little bit about the bidding environment out west? In contrast that your language, you seem to be pretty conservative with it. Other contractors are pretty conservative on and yet when you look at the bid sheets, the average numbers of bidders are declining. The difference between the engineer estimates are declining. It seems like the environments are getting better, and your bookings would indicate such.

Well good morning, Avi. And thanks for that question. I think that we are conservative in the way we approach our philosophy looking forward. I would say that the bidding environment is robust. There are lots of bids out there, which is a good sign and our hit rate is up, which is another good sign. And -- but I would not go too far and suggest that it has changed dramatically. It is still very competitive. And we are very satisfied with our hit rate and our margins to date, but I would not go to suggest that it is substantially going to stay improved for a long period of time. I am just happy the way it is right now, and we are doing quite well.

And that's all driven by -- what you are talking about is mostly the public work, right? I'm also hearing there is very little private work. But that's slightly improving, but not much.

I would not suggest that the private work has moved a lot. It is still -- we use the terminology of anemic. It really hasn't taken off. It is not something that we would anticipate to take off in 2011.

And then just as a brief follow up, your materials gross profit was flat -- the loss was flat year over year, despite what looked like a substantial decline in CalTran's unit pricing. Can you talk about how you maintained the flat loss despite what seems to be weak pricing?

Well I think the key ingredient to all of our business units and why you are seeing results that I would suggest are improved is that we've lowered our cost basis, Avi. We are more efficient in the way we're approaching our materials just in time inventory, we have made some cutbacks, some of the plants we had online last year that were not producing are not online right now. We are just doing a much better job of managing the business. And I want to commend our people in the field that are running the materials business. They are doing an excellent job.

Thanks for your time.

You bet.

Your next question comes from the line of John Rogers with D.A. Davidson.

Hi, good morning.

Good morning, John.

Just in terms of the construction segment bookings, you mentioned, Jim, your hit rate was better -- and I guess it cuts both ways. It depends on how you are bidding it, too. It was a lot better than we have seen lately. And it sounds as if you are guiding for margins that are similar to what we saw in 2010. Is that a fair representation of what you are seeing in pricing? Even though the market is -- seems like there is more work out there, or are you just reaching further for it geographically?

Well, I don't think we are reaching for it further geographically at all in the construction segment. Our construction segment is right around our home bases of where our [vertical integrated] businesses reside. So the key ingredient here for us is really focusing on jobs. We have a better shot at winning on bid day and optimizing the returns instead of taking a shotgun approach to bidding everything. And that was a philosophy that we really changed in the third, fourth quarter of last year and say, let's just focus on the jobs we have a better shot at getting. And it's paying off. It is working.

Okay. So seasonally, you often see a pretty big uptick in that market in the second quarter and beginning of the third quarter. I mean, there is no sense that work got pulled forward this year or anything. Should we still see that kind of an uptick in opportunities? I don't know whether you will win them.

I was going to say, I sure hope it continues on the fashion that it's going, John. I'd say that the bidding environment is robust. It really is. There's lots of bids out there. There's no shortage of opportunities in our construction segment at this time.

Okay. And just lastly, and this may be in the queue. I am just curious with commodity pricing, are you holding much gold?

I don't have the inventory in front of me. I don't know. We do have some, but I would not say it is substantial.

Okay. Great. Think you.

You bet. Thank you, John.

Your next question comes from the line of Kalpesh Patel with Jefferies Incorporated.

Hello, good morning.

Good morning.

In terms of the large projects business, which obviously had great results this quarter, you said that your guidance in that business is the most on target to achieve those numbers. Can you walk us through the timetables for the other major projects and when you expect them to achieve profits, because I think the first question seems conservative, and it definitely does seem conservative when we run those guidance numbers through our model.

Okay. And let me just back up and clarify what I meant by the most tunes of all of our forecasts and large projects, because these are jobs we already have. We are already building. And we forecast them in detail as we progress through the project, so we are pretty comfortable as to where those jobs will hit as the year progresses. The one thing on large projects is that most likely most of the projects that we would be awarded later on this year would not meet product for recognition or the 25% threshold, so they would probably not be part of this year's margin recognition. So that might change some of the margin percentages. That is why when you say conservative, it might be that we could get revenue, but we couldn't get margin expectation.

Some of the projects that we do anticipate to reach proper recognition later this year. The Mountain View corridor project in Utah, we do expect that to reach recognition in either Q2 or Q3. The Houston metro project in -- at the end of the year this year, sometime in Q3 or Q4. World Trade Center project either in Q4 of this year or early next year. The SR 520, which is the job up in Washington It would also would potentially meet recognition in late 2011. And then we have a whole bunch of construction projects as well, but that's really the major portion of the large projects that would or could meet recognition later this year.

Okay. Thank you. That's very helpful. In terms of Guam, I think you had two proposals outstanding. And I just wanted to get an update on those and if you have more that are in the bidding process.

I think last time we talked we did have two outstanding. We did get the results on one. We were not the low bidder on one project at Andersen Air Force Base. We were fairly competitive, so that's a good sign. The other one is on the main zoo project that we are preparing best and final offers for now. We should know within the next 30 days on that project, and we are also preparing some additional bids as we speak as well. So we have not been low bidder on any work yet. We are competitive, and we are continuing to bid.

Okay. And just one last question. Can you update us on California and the budget there and the political climate and the bond issues that we should be monitoring?

Well, California I mean, is very complicated. You look at the overall budget environment. Obviously, with a $25 billion budget deficit, the general overall budget is going to be struggling to come into play in the next several months. But when it comes to transportation all by itself, we were very successful over the last 12 months to pull the transportation funding out of the general fund and move it into a special fund. And that special fund has actually been approved through a two thirds legislative vote to actually allow the increased tax bases to flow into that special fund. So we are actually quite happy with the condition of the transportation program in California. And talking with some of the people that are right in the middle of that in California, they are feeling pretty darn good that we could have a continued strong transportation program even while we are fighting the general budget deficit in the state of California for the next 12 months. So I would say transportation is holding up quite well in California.

That's great to hear. Congratulations. Thanks for your time.

Thank you.

Your next question comes from the line of Nick [Copalla] from Thomas Research Group.

Hi. How are you doing.

We are doing good, Nick. Good morning.

I wanted to ask a little bit about pricing of instruction materials and whether or not you have -- you think you will have the ability to put price to offset diesel costs?

Well, let's talk about diesel or any kind of a crude elated project. First of all, we do anticipate passing any changes in the price of diesel on to the customer. We have been doing so, so far this year, and it has been quite successful. As far as diesel, we also use natural gas, a lot of natural gas in our plants. From an energy related product, it does follow the overall crude pricing as well, and then we look at other crude products such as liquid asphalt. We are a very big user of that. But the majority of our products we price into our bids. We put escalations in our bid, or we actually do put some fixed forward pricing in our bids. We do have some call options and swaps in place to really -- from a defensive strategy to minimize our exposure to any significant pricing swings. So, diesel really has not been a major issue relative to protecting the company or getting the increased cost in our bids.

All right. That's great. Thank you.

You bet.

Your next question comes from the line of Todd Vencil from Davenport.

Thanks much. Good morning.

Good morning, Todd.

Jim, I don't think I missed it, and I apologize if I did, but how did you guys manage to hit 25% on QBT 6 to 9 months earlier than you thought a couple months ago?

Well, let me make sure that I clarify how QBT came into recognition. But we had done, we knew that we would exceed the 25% complete phase of the project in the first half of this year. What we had originally talked about was delaying recognition until a later point in time when were further along in the project. But when we reviewed our accounting policies, it became very clear that on a bid/build job like this, again, it is not a design/build job. On a bid/build job at the 25% complete threshold, we do recognize earnings at that time. That's really what we did. We just complied with our internal policies relative to accounting.

And this is Laurel. Just to add, this decision doesn't just impact the quarter, but at the end of the day, at the end of the year, it's not going to have any impact.

Got it. That makes sense.

It would've hit in the year anyway.

It just moved up a couple of quarters because of our accounting policies.

Got it. So you weren't any further ahead on the construction than you thought you would be, or at least that wasn't what caused the swing. It was just a change where the threshold was decided to be.

That's correct, Todd.

Got it. And then a lot of my questions have been knocked out but I did want to circle back around. You may have answered this but given that your hit rate has gone up and you guys have been booking nicely, can you talk about what your gross margins in your backlog look like and if that is any different than you would have thought before or as they had previously been?

Well, I think the key ingredient there was, like I said before, targeting the right jobs and making sure that we put a lot of efforts into being innovative on bid day and focusing in a lot of detail of how we focus on the terminology of how to build a better mousetrap. We do that with jobs that we think are in our neighborhoods that we are very competitive in. And when you look at the backlog margin, you can see in our guidance, that will determine the construction of backlog margin, because that stuff turns during the year, so you can tell, I think we said that it was in the -- what was the guidance we gave?

$1.2 billion and 9% to 11%.

That really is the backlog margin that you are seeing in construction. That turns on an annual basis.

Got it. Perfect. Thanks a lot.

The inside, Todd, on that is it still yet to be determined and depend on the next few months on how that bidding environment goes. So that work does turnover, as Jim said.

The other thing -- [key that we've taught] --we've got a high hit ratio today or a better hit ratio. I would even like to see it higher. At the same time, it depends on how the market changes in the next several months. We are pretty excited about the market place today, but as you know, it's a very volatile environment. It could get better, could get worse.

Understood. Thanks a lot.

Thanks, Todd.

Your next question comes from the line of Min Cho from FBR Capital Markets.

Good morning.

Good morning.

This is a question back on Guam again. So it looks like you are still waiting for one more award in the next 30 days or so, but some of your peers have suggested that business continues to be delayed or pushed out a little bit. I just wanted to know if you are still as positive about the opportunities in 2011 in Guam?

Well I think that reasonably speaking, we -- it has been pushed out. And some of the work that we anticipated to actually be let last year was delayed now to the middle of this year. So, yes I would say that 2011 probably will not provide a lot of recognition opportunities for Granite, but they are still moving forward with a plan. And for us, we are in it for the long-term. And so whether or not the bids are awarded this year or next year, I am really not concerned about it. I do believe that based on all the intelligence we have, that the complete build out is on target for a 2016 move, and the work is going to be built. Whether it is this year, next year, or the following year, our plans are to be there.

Okay. So you are really not assuming too much of that in your guidance right now?

No.

Okay. Also, in the use of cash in the past, you talked about trying to stay focused more organic growth and increasing productivity internally. Are you seeing any additional acquisition opportunities?

I would say that we have not been focusing on acquisition opportunities at this time. I would say that there could be a time in the near future, strategically, that we would look at them, but I would continue to say that 2011 has been an inward look to focus on our organic business and really increase efficiencies just like we've said the last couple quarters, and we are going to stick to our program for 2011.

Okay, great. Think you. Good luck.

You bet. Thank you very much.

(Operator Instructions) Your next question comes from the line of Brian Rafn from Morgan Dempsey capital.

Good morning, Jim, good morning Mike, Laurel, Jacque. Give me a sense, Jim, when you talk about the hit rate on some of your project pipeline. Can you put a percentage on it, or can you give us a sense as to where that is, high or low, historically?

Well, I would say that we are substantially higher than last year at this time. When I say that, and I would say probably five to 10 points higher on a percentage basis than we were at this point in time last year. But I would say, Brian, that every market is substantially different. As we noted in our opening discussion, California has done quite well in the first quarter in getting bookings. So, specifically, California I would say is doing very well.

Okay. Having owned Granite since 1994, historically, the first quarter except for some of the exceptional years you guys have where you have weather and everything go right, you've always had kind of a small loss. Would you say that you are seeing a normalized condition historically if you go back 10, 15 years were the local and regional contractors bid aggressively, bid off their backlogs, and then you are a bit more selective relative to margin?

Well, I would hope that that was happening. I think that it really depends, Brian, on the robustness of the programs continuing through the remainder of the year. We have always seen our competitors in the first quarter of the year really build backlog. The question really comes in this environment is how much backlog do they need to be satisfied? We certainly don't know that today. And so I would say that the quarter is similar to historicals, but I am not going to suggest that that is going to change what is going to be happening or we are going to have something typical going forward. I would hope so, but I just don't know today.

Yes, okay. You also said, Jim, we are focusing on jobs organically with a better shot. Is that type of project, is it geographic location? Is it location to your supply chain of quarries and asphalt plants. When you say better shot, put a little more detail on it.

Brian, you just nailed it. It is exactly all of the above. It is projects that we know are very competitive. We know the owner. Geographically it is adjacent to our facilities. We have the expertise in-house. We have done that kind of work before. And we know we are competitive on it. All of those things together that you named and a couple of the ones I named are what make us focus on those kind of projects.

Okay. You also have said over the last, say, 4 or 5 quarters focusing on the mobility of your crews and estimators. Has that mobility transferred at all to actually capturing business?

I would say my answer would be yes, but I think we can even do better. We are gaining momentum for mobility of our employee base. I will tell you specifically from estimators, we have people estimating that one part of the country that are estimating projects in another part of the country because we have a better shot at procuring that work. So from an estimating standpoint, I think we've done a very, very good job. I think we've still got some work to do to actually move our construction forces throughout the country, but we are doing substantially better than I have seen in a long time.

Okay. Are you seeing any more encroachment, given the, as you say, the anemic private side, a lot of competition on the public side, are you seeing any large regional, super regional contractors moving up and actually getting into that design build area, being qualified to do that?

You know, we have some. I think what we are seeing is the regional players teaming with a large national player and then getting some of that expertise, and then every once in a while you see them up on their own, attacking that market, but really more so in just being on somebody else's team.

Okay, okay. What are you seeing relative -- being robust, how many -- on bid day, how many contractors are you seeing on RFP's or proposals? Are you seeing dozens or half a dozen -- give me a sense of number?

I would say that -- was it a year and a half ago, I remember sitting on this call. Bill Dorey and I and Mike, and we were chatting about this with everybody. We were talking 10 to 15, even some cases over 15 bidders. We are not seeing that today. So I would say in almost all locations, you will get less than 10 bidders. Every once in a while you will get 12 or 15 on a job that seems to be really popular for one reason or another, but most all cases it's less than 10 bidders.

What type of -- and correct me if I'm wrong. Are you guys making solar power installations to your quarries and asphalt mix plants? Is there some usage of that for power?

Oh, absolutely, Brian. In fact, we got an entire program on board today to reduce our emissions in our plant facilities by 2012. And the solar facilities that we have installed are actually utilized to provide power to our aggregate and asphalt facilities and then any excess power is actually put back into the grid.

Okay, okay. What kind of roll out -- if you look at the entire supply chain of your asphalt plants and quarries -- I mean, can you do half of them? Can you do a quarter? Is there some target? Is it selective, depending on what type of yearly environment you are as a construction engineering firm? How do you roll that out?

Well, I think the rollout has been pretty broad nature. And note that the place where we are getting the value of solar facilities is mostly in the Southwest where we have high sun usage, obviously. So from an overall portfolio for Granite, our facilities in the northwest are going to have a difficult time putting that into play. But we do have a goal to reduce our overall emissions by 7% by the end of 2012 in our materials facility, so that's the beginning of what we are trying to accomplish on being a more environmentally sustainable company.

Okay. On the military side, like the Guam projects, is the magna carta that low bid always wins, or are there other issues with quality and that with the USDOD?

Well, I think that low bid certainly has a leg up on everybody come even in the technical environment of a design/build job or a alternate procurement job, but that is not the only ingredient relative to how they award those jobs. But low bid will certainly have probably a major play in who gets the jobs.

Just one more thing. On the highway bill, would it be your sense that you would, as a management team at Granite, want to get a new highway 6-year bill in, regardless of whether you got higher funding than SAFETEA-LU just to get it done, or would you be willing to hold out more duration and time with extensions to get a larger dollar amount?

We would be willing to hold out longer to get a larger dollar amount.

Okay. Sounds good. Hang in there, guys. Doing a good job.

Thank you, Brian.

We have a follow-up question from the line of Avi Fisher with BMO Capital Markets.

Excuse me. Thanks were taking my follow-up. Just two quick questions. If I am doing my calculations right, it looks like large project bookings were minimal in the quarter. Is that accurate? And I have a note that you booked the SR 101, so I end just trying to put what might be moving and grooving there.

Well, I think you are right. As I mentioned to the discussion, the Chisholm Trail project has not been awarded yet, but we were a little better in the first quarter. So that was $167 million project, so I think you are correct from the awards in the first quarter, they did not flow into the large project segment.

So expect to pull forward into Q2.

Avi, SR 101 wasn't a large project by our definition.

And then the other quick follow-up. If I back -- I apologize (inaudible) -- If I back out this quarter's gross profit, imply it for the next nine months, it looks like your guiding to about 10% to 14% margins in the large projects for the rest of the nine months, but when you mentioned all these projects that are supposed to hit profit recognition, I'd expect it would be higher. I am just trying to foot why -- what seems to be something incongruous there.

I think, Avi, the key ingredient there is how many large projects we start between now and the end of the year. That will create revenue with no margin recognition. So we do the best we can on our guidance to try to move into play a certain amount of new work with 0% margin.

So, you booked a significant amount of work in the back half of 2010, about $800 million. Mountain View, Eastside, the Utah freeway. I thought some of those were mentioned in profit recognition. I guess you did. You mentioned the Houston metro, World Trade Center, SR 520. So, is that the push and pull?

Yes, those are the ones that I did mention that we would recognize this year or at least plan to recognize, but remember every new job we get between now and then and start, most likely will not reach 25% complete. In fact, won't, if it's a large project. So therefore, it will lower the overall percentage of recognition for the year.

Okay. Just the puts and pulls of new projects not getting profit, and more mature projects gaining a profit.

Absolutely.

All right. Thank you.

Thank you, Avi.

Your next question comes from the line of Morris Ajzenman from Griffin Securities.

Good morning, guys. A question pertaining to gross margins. We've been through a terrible time the last few years, and we reflect to the result. Going forward, have things changed where if you look out towards the next peak of the cycle and average return of the cycle, have you changed what you think the gross margins can be [attained] by each of your three divisions? Just discuss how you see things unfolding as the enviroments change, that you have different goals, vis-a-vis gross margins, ultimately.

Well, okay. In the short-term, I think our goals are less than what we think they would be in the long term. We do expect the market to come back to the kind of margins that we saw prior to the last 2 years. So we do think mid teens and high teens in the materials market is definitely available after we get through some of the trough of the economic environment we are in today. We've always said the guidance on large projects is in the mid teens, and we would expect the construction segment to get back up to a similar level over time. It has already been there. The question, obviously, has continued to be when the market will rebound and get back up to the levels of expectation.

Basically, then your belief is we are going through just a tough cyclical downturn here, and this doesn't change the [cyclical] growth rates or the opportunities that you see out there.

That's correct.

Thank you.

Thank you.

(Operator Instructions) Your next question comes from the line of Michael Corelli from Barry Vogel.

I just had a couple of numbers questions for you. What do you project for capital expenditures for this year ?

Currently, we are in the $50 million range for the overall capital expenditure budget.

Okay. And I noticed your BPA was a reasonable amount in the quarter. Should we expect that to continue to be the case for the year?

Yes, it should be pretty consistent.

So consistently down?

Yes.

Okay. And also, I believe you have some assets that you are trying to sell. Is there any progress happening there, and any thoughts about when we should expect timing of some assets to be sold and cash to come into the company?

Well, we are continuing to look at what we call underperforming assets that we would sell. We do have them marketed right now. I don't see them being substantial in nature , and so we do forecast out what our expected gains on sales are. And they would be pretty negligible relative to the overall size of the business for

Is that just for '11 and then they would be substantial later on?

Well, they could be. I think that we have listed internally a whole series of underperforming assets that we talked about in the Q4 last year. We are continuing to market those assets, but I think it will take time to market all of them. When you add all of that up over the next couple years, they could be pretty substantial, especially in the Granite land company portfolio but I don't expect them to be substantial in the near term.

Thank you.

Thank you.

We have a follow-up question from the line of Kalpesh Patel from Jefferies Incorporated.

Hello.

Yes, sir.

Thanks for taking my follow-up. You mentioned the thing in your opening remarks. Other geographies that are doing well or are showing opportunity, could you be more specific about that outside of California, which is obviously very good right now for you?

Well, I would -- not to get too specific because we typically don't get too specific. The West -- I would say that the West is rebounding fairly well overall, and we certainly think the Northeast is a healthy market as well. So those are the environments that we are really focusing a lot of our efforts on today.

So the West outside of California and the Northeast?

Correct.

Okay, thank you. Good luck.

Thank you very much.

We have a follow up question from a line of Brian Rafn from Morgan Dempsey Capital.

(technical difficulties) $50 million, you guys did about $94 million in '08. It looks like about $87 million in '09, dropped to $37 million. Is there a capital budget overhang if you progress the next couple of years with lower CapEx, that at some point the bulldozers and backhoes and that, they - obviously, the lifespan of those are finite. Is the austerity in lowering the CapEx a little, does that catch up with you some year where you are going to have a fairly substantial CapEx budget?

Well, think the answer to that is yes and no. If we were to stay with a capital and business model that was exactly the same as it used to be, the answer would be yes. But I think that we are looking at maybe changing our internal business model a little bit where we certainly want to be an owner and investor in equipment that gets utilized consistently throughout our business units. But if it is not going to be utilized at a high rate, we certainly may go out and lease or rent certain pieces of equipment that in the past we may have owned. So I would not suggest that we have a huge backlog today of investment to make. Also, a big part of our investments that we are making today are in our infrastructure of our IT systems as well, which will create huge value for us in the long run. So I don't see a huge backlog going forward. On another note, Brian, we continue to invest in our materials facilities. Some of the big numbers you saw in previous years were major investments in materials facilities that we had planned for a long time. And those plans were built out. Although we do have some more plans for some in the future, some of the ones that we just completed were larger than some of the ones we've got planned for the future.

Okay. Relative to plan for the future, is that also including being vertically integrated east of the Mississippi River with quarries and that type of thing?

You know, that's always been an option on our plan. Strategically, that could be an option going forward. We've got several different options for our growth plan, and we are working on those internally right now.

Okay. One final one. You guys have always talked over the years about bench strength. Inevitably, the sun comes out again, the private work does rebuild. The branch turn business comes back. What's going to be your ability to ramp back up with welders and bulldoze drivers and estimaters. Does that skillset loss, does that skillset move regionally? What is your sense? Does it put more onerous training on you guys to then rebuild up the skillset of untrained people?

Well, I think, Brian, in today's environment there is a workforce that is just waiting for a larger environment to occur, because there's people out of work today. There's a substantial unemployment rate in the construction industry, so there's a lot of capacity that needs to be soaked up before we get into any problems relative to the workforce.

Okay. Thanks, guys.

Thanks, Brian.

I'd now like to turn the conference back over to Jim. Please go ahead, sir.

Okay. Thank you for your questions. As always, we really do appreciate your interest in Granite. If you have any additional questions, please don't hesitate to call us, and everybody have a great day. Thank you.

Thank you for your participation in today's conference. You may now disconnect.