The trick as an infrastructure contractor today isn’t necessarily finding enough work to make a living. It’s also hashing out disputes with your owners and getting paid for the job once you’re done.
That’s one takeaway from Tutor Perini’s second quarter earnings call last week. The Los Angeles-based contractor reported revenue of $1.1 billion, a 10% climb from the same period in 2023, and a profit of $812,000, compared to a loss of $37.5 million a year ago. Backlog of $10.42 billion dropped 4% compared to the $10.86 billion the company had at the end of 2023’s second half.
The firm’s profits were negatively impacted to the tune of $12.4 million from an unfavorable adjustment due to a settlement on two highway projects in the Northeast that were already completed, as well as per-share earnings impacts from previous stock compensation awards.
Ron Tutor
Courtesy of Tutor Perini
Ron Tutor, the firm’s outgoing CEO who will step down in January, noted his own dissatisfaction with the company’s results.
“Although disappointed in our earnings per share, I think we explained the events that were unanticipated that caused the reduction,” he told investment analysts on an Aug. 1 conference call to discuss second quarter numbers.
Lots of jobs, little competition
At the same time, Tutor said the firm is still seeing plenty of opportunity to bid on megaprojects worth hundreds of millions or billions of dollars, often with scant competition.
“This limited competition is the result of a supply-demand imbalance,” Tutor said. “Frankly, there are so many major project opportunities and a small pool of contractors with both the physical and financial resources to pre-qualify, successfully bid, bond and execute these projects.”
Tutor said that dynamic would bode well for the company, and allow it to expand its profit margins as it dictates terms on deals, such as upfront owner financing of jobs.
“Our position is very simple,” Tutor said. “We won’t accept onerous terms on any job. And in the last two years … we’ve been able to force them to recognize the need for mobilization on the theory we work off their dollars, and not our dollars.”
Big projects, large disputes
Tutor Perini’s results show that while there’s lots of opportunity for contractors big enough to bid on multibillion dollar projects, jobs contracted by traditional bid-build methods often result in years of litigation that can hang over contractors heads’ years after work is completed.
That’s certainly been the case for Tutor Perini in recent years, which has had up-and-down results as it has settled disputes on past contracts, sometimes with positive results and sometimes, as in the second quarter, with negative ones.
Indeed, in the company’s 10-Q filing with the Securities and Exchange Commission that accompanied its results, it said that while it had a negative impact from the past job in the second quarter, it anticipated collecting cash from the same settlement next quarter.
“For example, the cash collections associated with the above-mentioned settlement on two completed Civil segment highway projects in the Northeast are expected to have a significant positive impact on the Company’s third-quarter cash generated from operations,” the company’s report read.
Asked by analysts how big that payout would be, Gary Smalley, Tutor Perini’s president who will succeed Tutor, said “it was more than inconsequential.”
New wins
The firm’s approach stands in stark contrast to that of Granite Construction, Tutor Perini’s California-based peer, which has taken an alternate tack. Granite’s executives emphasized on its recent second quarter call how they are pursuing smaller jobs that use “best value” progressive contract delivery methods to limit disputes on jobs and lower their risks.
Still, Tutor said there was plenty of runway ahead for the firm to bid on new opportunities, while collecting cash from settlements on past jobs. Those opportunities include the $1 billion-plus Inglewood Transit Connector in Southern California, for which a consortium with Tutor Perini as the lead contractor was selected as the best value proposer in July.
While not yet officially awarded the project, Tutor said the consortium is actively negotiating with the City of Inglewood on the job’s final price and contract term. It expects an award to be considered by the city council this fall.
The company’s most significant wins in the second quarter included:
