Tutor Perini sees ‘great potential for the project’, but settlement cuts profits

The trick for an infrastructure contractor today isn’t necessarily finding enough work to make a living. It’s also resolving disputes with owners and getting paid for the work when it’s done.

This is one of the conclusions that can be drawn Tutor Perini Q2 Financial Results Conference Call last week. The Los Angeles-based contractor reported revenue of $1.1 billion, up 10% from the same period in 2023, and a profit of $812,000, compared with a loss of $37.5 million a year earlier. A backlog of $10.42 billion was down 4% from the $10.86 billion the company had at the end of the second half of 2023.

The company’s earnings were hurt by $12.4 million due to an unfavorable adjustment resulting from the settlement of two Northeast highway projects that have already been completed, as well as the impact on earnings per share from previous stock-based compensation.

Ron Tutor, the company’s outgoing CEO, who will step down in January, expressed dissatisfaction with the company’s performance.

“While we are disappointed with our earnings per share, I think we have explained the unanticipated events that caused the reduction,” he told investment analysts on an Aug. 1 conference call discussing second-quarter results.

Lots of work, little competition

Tutor added that the company still sees many opportunities to bid for megaprojects worth hundreds of millions or billions of dollars, often with little competition.

“This limited competition is the result of a supply-demand imbalance,” Tutor said. “Quite frankly, there are so many large project opportunities and a small group of contractors with the physical and financial resources to prequalify, successfully bid, secure and execute these projects.”

The tutor said that this dynamic will be beneficial for the company and will allow it to increase its profit margin because it dictates the terms of contracts such as financing of the works by the owner in advance.

“Our position is very simple,” Tutor said. “We will not accept oppressive conditions in any job. And over the last two years…we have managed to get them to recognize the need to mobilize on the theory that we are working with their dollars, not our dollars.”

Big projects, big disputes

Tutor Perini’s findings show that while there are many options for contractors large enough to bid on multi-billion dollar projects, contracts awarded using traditional bidding methods often involve years of litigation that can hang over contractors’ heads long after the work is completed.

This has certainly been the case for Tutor Perini in recent years, with the company achieving mixed results in resolving disputes over previous contracts, sometimes with positive results and sometimes, like in the second quarter, also negative.

Actually, in the company’s 10-Q filing The Securities and Exchange Commission (SEC) statement that accompanied the results said that while the second quarter saw a negative impact from the previous order, the company expects to receive cash from the same settlement in the next quarter.

“For example, cash inflows related to the aforementioned settlement regarding two completed highway projects on the Civil section in the northeastern part of the country are expected to have a material positive impact on the Company’s cash flow from operations in the third quarter,” the company said in a report.

Asked by analysts how big the payout would be, Gary Smalley, CEO of Tutor Perini, who will replace Tutor, said it was “beyond negligible.”

New winnings

The company’s approach stands in stark contrast to that of Granite Construction, the Californian equivalent of Tutor Perini, which has taken a different tack. Granite’s management team he stressed in his latest second-quarter call how they execute smaller assignments using progressive, “best value” contract execution methods to reduce assignment disputes and lower risk.

Still, Tutor said the company has plenty of time to bid on new opportunities while also collecting cash from settlements on previous orders. Those opportunities include the $1 billion-plus Inglewood Transit Connector in Southern California, for which a consortium led by Tutor Perini as prime contractor selected as the best value proposition in July.

While the project has not yet been officially awarded, Tutor said the consortium is actively negotiating with the city of Inglewood on a final price and contract term. The city council is expected to consider awarding the contract in the fall.

The company’s most important successes in the second quarter include: