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Medium Profitability

Bird Blows Up

#Construction #Engineering
ProHub Comment

This is a structured profitability case requiring the candidate to diagnose why profits fell despite revenue growth. The key insight is identifying the margin compression in the New Roads segment due to higher raw material costs and inadequate pricing, combined with a strategic shift in business mix toward lower-margin new roads work. The case tests both analytical decomposition (revenues vs. costs vs. mix) and creative problem-solving for cost reduction.

Estimated Time 15 minutes
Difficulty Medium
Source Queen's
50 / 100
Bird Construction released their quarterly reports yesterday and analysts were shocked that despite recovering industrial demand, profits had fallen substantially. The resulting sell-off of their shares wiped out nearly $50 million of value. With their stock options at risk of falling out of the money, the executives have turned to you for help. What will you do?

Clarifying Information

  1. Total revenues in 2011: $140 million. Total revenues in 2012: $165 million. Total revenues in 2013: $220 million
  2. Revenues in the Road Work segment rose overall across all three years
  3. Miscellaneous work makes up a negligible portion of revenues and profits, so it is not worthwhile investigating
  4. There are three other companies in the industry and jobs are allocated through a competitive bidding process
  5. Bidding is handled through a separate department from general finance at Bird and this department is evaluated on the number of bids that they successfully win
  6. Assume rent on machinery is proportional to labour time and this cannot be changed
  7. New roads take on average three times as much time and materials to build per kilometer as maintenance
  8. New roads use a different mixture for the asphalt than maintenance as the mixture gives the roads the dark look people expect out of a new road.