Ron Tutor, who’s been in the construction industry for 61 years, has noticed a shift in business during the last two. Namely, instead of paying for materials and other expenses for his clients’ projects up front and then seeking reimbursement, he’s been able to get them to foot the bill from Day 1.
“We tell them, we don’t finance our work, they do,” said Tutor, who is the chairman and outgoing CEO of Los Angeles-based megaproject contractor Tutor Perini, on the firm’s first quarter earnings call last week. “We demand and get mobilization payments, which means, on a typical $1 billion-dollar job, if we demand 8% to 10% upfront, it means they pay us $80 million to $100 million the day we set foot on the job.”
It’s a trend he’s noticed in the last 18 to 24 months, and one he expects to continue due to a dearth of contractors willing to bid on the complex, time-intensive jobs his company specializes in. Those are exactly the kinds of projects spurred by the Infrastructure Investment and Jobs Act, and also the type of multiyear undertakings for which costs and schedules are notoriously difficult to predict from the outset.
For those reasons, other major contractors, such as Watsonville, California-based Granite Construction, have eschewed billion-dollar megaprojects in recent years in favor of smaller, one-off jobs that are easier to forecast and complete in a shorter time frame.
Tutor said that the fact that other companies are bowing out of the megaproject arena is now playing into his firm’s favor. The ability to demand cash at groundbreaking is just an offshoot of the larger trend.
“That’s the change in our industry from the old days when we worked on our money and they would put in no money upfront,” said Tutor, who joined his father’s construction company in 1963 and plans to step away from his CEO role in 2025. “But with the diminished competition, we find ourselves able to much better negotiate terms than previously.”
Increased profits, revenue
Tutor was discussing Tutor Perini’s first quarter 2024 earnings, where it posted net income of $15.8 million, compared to a $49.2 million loss a year earlier. The profits came on $1.05 billion in revenue, a 35% jump from the $776.3 million it saw 12 months earlier.
Tutor’s backlog also grew to $10 billion, up 26% compared to the $7.9 billion it had in March 2023. That gain was bolstered by project wins that included:
Tutor said he expects more wins where those came from.
“We still anticipate that our backlog will grow significantly later this year and in 2025, as we bid and win our share of the major volume of available project opportunities we have discussed in recent quarters, which are supported by the bipartisan infrastructure bill, as well as strong state and local funding,” Tutor said during the call.
Guidance unchanged
Despite the strong results and a return to profitability, Tutor Perini decided to affirm, rather than increase, guidance going forward. When asked by analysts why it didn’t up its outlook, Tutor said it was again due to the challenges of predicting what will happen with its megaprojects in the future, many of which have resulted in legal disputes in the past — another hallmark of complex, long-term construction work.
Indeed, of the $98.3 million in operating cash flow that the company reported for the quarter, more than half — $50 million — came from collections related to settlements of past legal issues and other dispute resolutions.
“The reason we’re hedging and the reason we’re taking the positions that we are, we have collected a significant amount of money,” Tutor told analysts. “But it’s also forced us to litigate through to conclusion and we settled major cases. So there’s always a variable and an uncertainty.”
Debt refinancing
Other developments in the quarter included a refinancing that allowed the firm to issue $400 million in senior notes at a rate of 11.875% — new debt — in order to pay down $500 million in old debt that was coming due in 2025.
The swap means it will pay off its old loans, which had a 6.875% interest rate, with more expensive money, as interest rates have increased since 2022.
But addressing the issue also means the firm’s credit remains in good standing, and it was able to extend its revolving credit facility, which businesses use for working capital to meet day-to-day needs, until 2027, or an additional two years. The new, $400 million loan isn’t due until 2029, which means the company could refinance again at more attractive rates, should they come down.
“Importantly, as previously announced, we recently completed a successful debt refinancing, which strengthened our balance sheet,” Tutor said.
