Core road and bridge projects continued to fuel Granite Construction’s revenue and backlog growth in the third quarter, but the contractor is also targeting new approaches to federal and military contracts, rail projects and data center construction.
On a Thursday earnings call, CEO and President Kyle Larkin said federal transportation funding dollars continue to flow to active projects under the Infrastructure Investment and Jobs Act, despite Congress failing to pass a permanent renewal of the surface transportation bill last month.
“We are currently operating under a continuing resolution that provides a short-term extension of surface transportation programs, maintaining funding at IIJA levels, while work continues on fiscal year 2027 appropriations and a longer-term surface transportation reauthorization,” Larkin said on the call.
He added that a significant portion of the original IIJA funding has yet to be spent. Larkin expects those already approved funds “to support state and local transportation programs over the next several years.”
Granite reported third quarter revenue of $1.77 billion, a 23% increase over the same period last year. Net income dropped to $3.2 million from $102.9 million a year ago, due to a $162 million charge to settle previously outstanding convertible notes. Backlog came in at $7.5 billion, a company record and $1.1 billion higher than a year ago.
Beyond traditional infrastructure projects, however, the Watsonville, California-based firm said it expects faster growth across federal, rail and mission critical, or data center, projects.
Working for the feds
For example, Granite said its work for the federal government, including airfield and runway paving, roads, site infrastructure, civil work, supporting military campuses, water infrastructure and other facilities now accounted for about $1.3 billion in backlog.
“We’ve performed federal work from Guam to Alaska and across the continental United States,” Larkin said, adding that he expects “to bid on billions of dollars of opportunities over the next several years.”
Part of that focus will fall under new project delivery mechanisms designated in the 2026 National Defense Authorization Act. Those included progressive design-build, construction manager at risk and other flexible procurement approaches for military construction.
Indeed, over the last several years, Granite has shifted its focus from locking down multibillion-dollar megaprojects to smaller, more manageable work packages that carry less risk. Those come via “best value” style contracts that include the progressive design-build method.
With that transition now firmly in place, Larkin said the firm is well positioned to take advantage of the new procurement rules coming out of Washington and he expects federal work to represent 15% of the firm’s construction segment revenue this year.
Rail and data centers
On the rail front, Larkin said the segment currently represented less than 5% of the contractor’s business, but that he hoped to push that amount higher in 2027. One job that could help is a project with a Class 1 railroad client in Southern California.
The proposed development is a 4,500 acre integrated rail facility intended to expand intermodal capacity along a major east-west freight corridor and improve the movement of freight from the ports of Los Angeles and Long Beach, Larkin said. Granite is currently engaged in preconstruction activities on the project, which Larkin said is still in the permitting phase.
Mission critical projects, which include data centers, battery storage and space sector clients, currently account for $331 million of the contractor’s backlog. As a heavy civil contractor, Granite can leverage its experience in that area to these newer builds, Larkin said.
“These projects typically include mass grading, utilities, paving, retaining walls, curb and gutter, and broader civil site development,” said Larkin. “Our capabilities can also extend to early works, utility ready site development, water infrastructure, water well drilling, power infrastructure, campus scale civil development, and material supply.”
The company is targeting mission critical work to account for 10% of its construction revenue over the next several years.
Acquisitions ahead
Beyond these segments, Larkin also said the contractor intends to stay acquisitive, building on several deals, particularly in its materials segment, that it has made in recent years. Since 2023, the firm has deployed more than $1.4 billion on M&A, Larkin said, and hopes to get three more deals completed by the end of the year worth a combined $750 million.
“They're not done until they're done,” Larkin said. “We’re still looking at things and hoping to get some exciting opportunities that we can announce over the next weeks or coming months.”
