Great Lakes Dredge & Dock, the stalwart of American dredging, has always been a company of quiet efficiency, its massive dredges carving out vital waterways and coastlines with the precision of a surgeon. But within the calm waters of their recent earnings calls, a subtle ripple has emerged, one that could signal a seismic shift in their strategy and unleash a wave of profitability unlike any seen before.

Analysts, laser-focused on the headline-grabbing offshore wind market and the impressive performance of the new Galveston Island dredge, have largely missed a crucial development – the quiet resurgence of Great Lakes' traditional dredging business. While the focus has been on diversification and the bold gamble on offshore wind, a silent transformation has been taking place within the core dredging operations. This transformation, hinted at in veiled language during the calls, suggests a strategic move towards higher-margin capital projects, a move that could dramatically alter Great Lakes' profitability trajectory.

The first clue lies in the language used to describe the bid market. Lasse Petterson, President and CEO of Great Lakes, repeatedly emphasizes a 'return to normalcy' in the traditional dredging sector. He highlights a 'robust' bid market driven by a record Army Corps of Engineers budget and specifically points to a significant increase in bidding activity for port deepening projects in the Gulf, alongside coastal protection and beach projects on the East Coast. These are not the hallmarks of a company clinging to a fading business model; this is the language of opportunity, of a company confident in its ability to secure high-value, long-term projects.

The numbers tell an even more compelling story. In the Q1 2024 earnings call, Petterson proudly proclaims it as the 'best EBITDA quarter since the fourth quarter of 2021,' a period when the company was riding high on a wave of capital dredging contracts. While the new Galveston Island dredge certainly contributed to this strong performance, the scale of the improvement points to something more significant at play.

Furthermore, Scott Kornblau, CFO of Great Lakes, reveals that their dredging backlog at the end of Q1 stood at a robust $879 million, with a staggering 77% attributed to capital projects. This is a dramatic shift from previous years, where maintenance dredging often dominated the backlog. It suggests a deliberate and successful effort to prioritize higher-margin, long-duration projects, a move likely driven by the company's sharpened focus on cost management and operational efficiency.

Capital vs. Maintenance Dredging Backlog (Hypothetical)

This chart illustrates the hypothetical shift in Great Lakes' dredging backlog composition, emphasizing the increasing focus on capital projects.

Now, let's put some numbers to this hypothesis. If we assume that Great Lakes maintains this 77% capital project backlog throughout 2024, and that these projects generate their historical gross margins of roughly 20%, we can project a potential gross profit exceeding $130 million from traditional dredging alone. This would represent a significant jump from the $77.6 million generated in 2023, even after accounting for the company's planned dry-dockings.

This potential surge in traditional dredging profits would come at a crucial time for Great Lakes, as it grapples with the uncertainties of the nascent offshore wind market. While the Acadia, their revolutionary rock installation vessel, holds immense promise, the recent turmoil in the offshore wind sector has injected a dose of uncertainty into its future utilization. The potential for a revitalized and highly profitable traditional dredging business would provide Great Lakes with a crucial buffer, allowing them to navigate the volatility of the offshore wind market without sacrificing profitability.

"Fun Fact: Great Lakes dredged the Panama Canal in 1913, helping to shape one of the most important waterways in global trade."

This silent transformation within Great Lakes Dredge & Dock is not a mere ripple, but a potential tidal wave in the making. While the company's bold diversification strategy captures headlines, it's the quiet resurgence of their traditional dredging business, driven by a strategic shift towards higher-margin projects, that could truly unleash a tsunami of profit. Investors, tempted to focus on the allure of offshore wind, would be wise to heed the quiet rumble beneath the surface, for it is there that the true wealth of Great Lakes may lie.