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spk10: Please stand by, we're about to begin. Good morning, ladies and gentlemen, and welcome to the ARCOSA Inc. First Quarter 2024 Earnings Conference Call. My name is Jamie, and I will be your conference call coordinator today. As a reminder, today's call is being recorded. I'd now like to turn the call over to your host, Aaron Drabeck, Director of Investor Relations for ARCOSA. Ms. Drabeck, you may begin.
spk09: Good morning, everyone, and thank you for joining ARCOSA's first quarter 2024 earnings call. With me today are Antonio Carrillo, President and CEO, and Gail Peck, CFO. A question and answer session will follow their prepared remarks. A copy of yesterday's press release and the slide presentation for this morning's call are posted on our investor relations website, ir.arcosa.com. A replay of today's call will be available for the next two weeks. Instructions for accessing the replay number are included in the press release. A replay of the webcast will be available for one year on our website under the news and events tab. Today's comments and presentation slides contain financial measures that have not been prepared in accordance with GAAP. Reconciliations of non-GAAP financial measures to the closest GAAP measure are included in the appendix of the slide presentation. In addition, today's conference call contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Please refer to the company's SEC filings for more information on these risks and uncertainties, including the press release we filed yesterday and our form 10Q expected to be filed later today. I would now like to turn the call over to Antonio.
spk03: Thank you Erin and good morning everyone. I will begin with some overall comments on our solid start to the year and Gail will provide additional details about our segment financial results. I will then discuss our outlook before we open the call for questions. Turning to slide four. Our first quarter operating and financial results exceeded our expectations. We executed well on several fronts and are pleased with the progress we're making, ramping up our cyclical businesses, improving our operating performance, and integrating recent acquisitions. Although we were broadly impacted by unfavorable weather in January, results improved significantly through the quarter, highlighting the earnings power of our portfolio of businesses. In the balance of the quarter, we achieved double digit adjusted EBITDA growth and higher overall margin on an organic basis. Overall, total first quarter revenues increased 9% year over year, reflecting solid organic performance across all business segments, as well as contributions from acquisitions completed over the past year. Consolidated adjusted EBITDA increased 7%, normalizing for the 22 million land sale gain in the same period last year. Finally, we reported significantly higher operating cash flow that helped fund key growth initiatives. Let me discuss a few key takeaways from the first quarter. Construction products benefited from strong pricing momentum, which offset modest decline in organic aggregate volumes. The acquisitions that we completed in 2023 in Florida, Arizona, and Texas also contributed to segment growth. Within specialty materials, the new plaster plant is doing well, and we are pleased to report another quarter of higher year-over-year performance. Engineer structures executed according to plan in the first quarter. Order activity in utility structures remains healthy, and we continue to discuss new wind tower orders with our customers, adding a small order to the backlog in the first quarter. While currently diluted to margin, the ramp up of our New Mexico wind tower facility and our Florida concrete pool plant are progressing well. Transportation products growth was driven by higher barge revenues and improved segment margin. the barge business continued to exhibit healthy demand with orders for both hopper and tank barges during the first quarter representing a 1.5 book to build. As previously announced, we closed 180 million acquisition of Ameron pole products on April 9th. In our press release yesterday, we provided increased revenue and adjusted EBITDA guidance for 2024, reflecting the addition of Ameron and better than expected first quarter results. Of note, The midpoint of our revised adjusted EBITDA guidance reflects a 23% increase over comparable results in 2023. I will provide more details in my comments about the outlook. Turning to slide eight. Investments both organic and inorganic across our portfolio have transformed the company and are contributing to our long-term growth. Today, we are less cyclical than in the past with construction products accounting for about 60% of our adjusted EBITDA nearly double the 33% it contributed in 2018. Moving to slide nine. The acquisition of Ameron is an excellent strategic fit for ARCOSA expanding our portfolio offerings in traffic and telecom structures and establishing our foothold in the attractive concrete and steel lighting pole market. Additionally, we expect it to be an important margin accretive contributor to engineer structures as well as ARCOSA overall. We have a proven track record of prudently deploying our capital at attractive valuations to drive sustainable long-term growth. Amer is another example of this discipline. In summary, we're pleased with our first quarter results and the progress on our strategic priorities as we continue to successfully grow our businesses. I will now turn over the call to Gail to discuss our financial results. Gail?
spk02: Thank you, Antonio. I'll begin on slide 12 to discuss our first quarter segment results. Turning to construction products, It's important to highlight the slow start we had to the quarter with a significant number of rain days, particularly in Texas, and frigid temperatures in the Midwest during the month of January. In the balance of the quarter, we performed well and achieved strong, organic, adjusted EBITDA growth and higher margins. For this segment, first quarter revenues increased 6% year-over-year. On a freight-adjusted basis, revenues increased 9%. with growth split evenly between organic and acquisition contributions. Excluding the $22 million gain on the sale of depleted land in the prior period, first quarter adjusted segment EBITDA increased 10% year over year, primarily due to the accretive impact of recent acquisitions and the operating improvements in our specialty materials business. Normalizing for the large land sale gain, freight adjusted segment EBITDA margin was up slightly year over year, building on significant margin expansion achieved in the first quarter of last year. Turning to our aggregates business, which includes both natural and recycled aggregates, average organic pricing was up high single digits in the first quarter with strong pricing gains across our footprint. In addition, the contribution from acquisitions was accretive to overall average selling prices. First quarter volumes, were down low single digits on an organic basis and up slightly in total. Volumes were impacted by January weather and lower volumes in the Houston recycling market, which experienced elevated demand in the first half of 2023 due to a temporary shortage of natural limestone. First quarter adjusted EBITDA increased low double digits year over year, normalizing for the land sale gain in the prior period, driven by recent acquisitions as well as modest organic growth. Acquisitions were accretive to margin during the quarter and organic margin was roughly flat, as higher pricing was partially offset by weather and mix-related impacts. Within specialty materials, freight adjusted revenues increased significantly, driven by double-digit overall price increases and higher volumes in plaster. Operational improvements in this business resulted in higher adjusted EBITDA and roughly 40 basis points of margin improvement for the segments. Our single asphalt operation weighed on first quarter results, generating a loss and reducing segment margins. Weather impacts magnified a seasonal low for this business. Finally, revenues in our trench shoring business increased on higher organic volumes and contribution from the Houston acquisition that closed at the end of the first quarter of 2023. Adjusted EBITDA increased modestly year over year, but margin was diluted to the segment. Moving to engineered structures, slide 13. During the first quarter, revenues increased 12% due to higher utility structure and wind tower volumes, partially offset by lower pricing for utility structures driven by product mix. In line with our expectations, adjusted segment EBITDA decreased 10%, primarily driven by lower utility structures margin from the shift in product mix, which we expect to improve in the second half of the year. First quarter 2024 margin for our utility structures business was flat with the fourth quarter 2023 margin. We also incurred startup costs for our new concrete utility pole plant that was completed in December, as well as for the New Mexico wind tower plant that is on track to deliver its first towers in the second quarter. These costs were partially offset by higher advanced manufacturing production tax credits for our wind towers business, driven by the increase in volume. Order activity in utility structures was healthy with a book to bill above one, and we received a small wind tower order for 2024 delivery. We ended the quarter with a backlog for utility wind and related structures of $1.4 billion, substantially unchanged from the start of the year. This quarter, we recognized an additional $7 million gain on the storage tanks divestiture that was completed in 2022 related to the settlement of certain contingencies. This gain has been excluded from adjusted segment EBITDA. Turning to transportation products, on slide 14, segment revenues were up 10% driven by higher volume and improved pricing in our barge business. Revenues in our steel components business declined due to a modest decrease in volumes supporting new rail cars, partially offset by increased volumes supporting the rail car maintenance market. Adjusted segment EBITDA increased 32% and margin expanded by 270 basis points to 16.1% on higher barge volumes and improved margin in both businesses. We ended the quarter with a total barge backlog of $294 million and we expect to deliver approximately 73% during 2024. I'll conclude on slide 15 with some comments on our cash flow and balance sheet positions. We generated $81 million of operating cash flow for the quarter, up $53 million year over year, primarily due to lower working capital requirements. First quarter capital expenditures were $54 million, up $10 million from the prior year, reflecting progress on the organic projects and construction products and engineered structures. This translated into first quarter free cash flow of $30 million, up from $7 million in the prior period. We are revising our full year CapEx guidance to $190 million to $205 million, an increase of $15 million to both ends of the range to include Ameron, as well as the pace of first quarter CapEx. Our range now anticipates $65 million to $70 million of growth CapEx in 2023. We ended the quarter with net debt to adjusted EBITDA of 1.2 times, and available liquidity of $555 million. Proforma net debt to adjusted EBITDA following the completion of the Ameron acquisition in April is 1.7 times below our long-term target range of 2 to 2.5 times. With Proforma available liquidity of $375 million and no material near-term debt maturities, our healthy balance sheet and ample liquidity continue to provide flexibility for our capital allocation strategy. I will now turn the call back over to Antonio for an update on our 2024 outlook.
spk03: Thank you, Gail. I'm excited to build upon the success of the past year and the momentum from the first quarter. In addition to the organic capital projects underway, M&A is an important growth driver for our COSA, and we have a healthy pipeline of potential acquisitions. Turning to slide 17. We are increasing our guidance for 2024 as a result of the contribution from Ameron, along with the better than expected first quarter results. We're increasing our 2024 revenue guidance to a range of $2.58 billion to $2.78 billion. We're increasing our 2024 adjusted EBITDA guidance to a range of $410 million to $440 million, which at the midpoint is up 6% from our prior guidance. We continue to expect our cadence of EBITDA growth to be more second-half weighted. Turning next to slide 18 to review our growth businesses. We expect the momentum we experienced in the first quarter to continue, reflective of healthy industry demand and better overall pricing. For construction products, ongoing increased infrastructure spending, heavy manufacturing, data centers, and multifamily housing construction in some markets are driving demand. In contrast, near-term demand for new single-family housing is still weak, but medium-term outlook is supported by expected population migration into our key markets. For engineered structures, demand for utility and related structures remains strong, driven by increased CAPEX programs for grid improvement initiatives and alternative energy sources coupled with healthy DOT spending in the Southeast. We continue to have strong backlog visibility in this business. Moving next to our cyclical businesses, starting with wind towers on slide 19. The overall demand outlook is favorable as 2024 represents what we expect to be the start of a multi-year up cycle for wind towers. As I mentioned last quarter, we expect to ramp up wind tower capacity over the next couple of years to support growing demand. At the New Belen, New Mexico plant, we recently completed the first tower section and will begin delivering towers in the second quarter of this year. Additionally, during the first quarter, we booked a $10 million order for delivery this year. Interest in onshore wind projects remains high and we have ongoing discussions with our customers. We have a healthy wind tower backlog of nearly $1 billion and are focused on selling our capacity for 2025 and beyond. Turning to slide 20. The demand outlook for inland barges is healthy and with improving prospects. During the first quarter, we received additional orders for both hopper and tank barges totaling 120 million. Our backlog at the end of the first quarter was up 16% from the beginning of the year and now extends into 2025. Importantly, we see significant growth potential for new hopper barge demand due to several years of underinvestment resulting in an aging fleet. Following two consecutive quarters of new tank barge orders, we're cautiously optimistic about the future of liquid fleet demand. For the last couple of years, given the low tank barge demand, we have been producing mostly hopper barges in both of our active operating plants. This is not the ideal production mix, since one of the plants is better suited for tank barge production. With the increase in tank barge orders and a better outlook we will be realigning the production mix in our plants so they can focus on producing barges that maximize efficiency and margins. We expect some impact on margin in the second quarter while we align production, but this change should help us improve our margins once the realignment is done. Before opening the call for questions, the last topic I want to cover today is sustainability on page 21. As always, our goal is to grow and operate in an even more efficient, sustainable, and impactful manner. Last week, we published our 2023 sustainability report. This is our fourth annual report and builds on our emissions tracking, environmental metrics, disclosures, and conservation initiatives. To that end, some of our most recent advances include a 17% reduction in greenhouse gas emission intensity compared to our 2020 baseline and tracking ahead of our 2026 goal. improved water intensity efficiency with a 22% reduction year over year, and on the employee safety side, lost work days due to injuries declined more than 60% compared to our prior year. The 2023 report also highlights many of our community-focused initiatives as well as some of our problems that contribute to a more sustainable future. We encourage you to read the report which can be found on our website. In closing, we had a solid start to the new year and after a slow January, we have built positive momentum. Across our businesses, we remain focused on operational execution, portfolio optimization, and allocating capital to our growth businesses both organically and through acquisitions. We expect healthy market fundamentals to continue to drive solid results in our growth businesses, while our cyclical businesses are poised to benefit from increased production and greater operating leverage. with strong demand for our products and a fantastic team. I'm more optimistic than ever in the future of Arcosa. Operator, let's open the line for questions.
spk10: Thank you. At this time, if you would like to ask a question, please press star 1 on your telephone keypad. If you find that your question has been answered, you may remove yourself by pressing star 2. Once again, that is star 1 if you would like to ask a question and star 2 to remove yourself. We'll go first to Ian Ziffano with Oppenheimer.
spk08: Hi, Grace. Thank you very much. Great quarter, and thanks for the outlook. Can you guys maybe talk about a little bit more about what's going on in New Mexico right now as far as what's basically baked into guidance there as far as deliveries or shipments, and then also At what point do you start to eat through all the cost absorption and become profitable in that factory and that facility? And then any other discussions about any orders that you might see in addition to that? I know you had a smaller one, but I think we're all expecting kind of a bigger one as well. Maybe kind of thoughts on that as well or some color. Thanks.
spk03: Yes. Yeah, this is Antonio and I have a very fresh, I was there last week and we had the ceremony with the Secretary of Energy cutting the ribbon for our first section coming out of the plant. So the plant is looking great. We are very excited about not only the facility, the new technology we're installing there and the people we're hiring. Our team there is very, very happy with the quality of the employees and the amount of employees we're hiring there. Everything seems to be going well. Of course, as we discussed before, we have close to 150 people now at the plant, so that's a significant cost that we are incurring every month. But it's going very well. We mentioned before, we always said mid-year we would deliver the first tower. In my remarks I said in the second quarter we're going to do it, so we're moving along as planned, on schedule and on budget in the plant, which is important. Throughout the year, you will see the plants starting to improve from first a loss, then to a slight profit, and eventually we should get sometime late year, early next year. Our expectation today is that in the fourth quarter, it should be profitable and accretive to margins for the segment.
spk08: Okay, thank you.
spk03: In terms of orders, let me just, you know, it was a small order. As we mentioned a couple of conference calls ago, We're building also some test wind towers for another customer. Discussions are open with both our large customers to continue to expand the business. I would say that, like everything, I always mention on this business, this business is not that you get a few orders here and there. We got one this time and you might see a few others. But our goal is really to get a larger order to fill the capacity We have four plants, including New Mexico. One is idle, including New Mexico and the other two plants. They're still operating at a relatively low capacity, so we have a lot of capacity to sell. And the industry is poised to grow tremendously. So we've met with developers, we've met with all the interested parties, and we're still very, very optimistic that throughout 2025 and maybe for 2026 we'll be able to sell that capacity. And remember, the tax credit has increased. It's very long until 2032, so we have a very long line of sight for this business.
spk08: Okay, thanks. And then just on the rail component side, I know that you got a favorable anti-dumping ruling over there. I think there was some pretty large tariffs on the Chinese and then also some of the Mexicans to a lesser degree. um what are you seeing there has that helped your demand in that business is there any kind of like funky inventory in the channel going on where um some of the dumpers have you know then dumped their inventory into the channel you got to work through that how we think you have that business and then just also the long-term kind of viability inside your portfolio of that business doesn't make sense etc thanks sure
spk03: So let me talk about what we're seeing. As always with these cases, when you announce you're running a case, a lot of imports happen and the inventory gets built in the pipeline, etc. But to be honest, we're seeing very positive things in that business. The market we have lost while we did the anti-dumping is we have lost completely the maintenance market for rail components, for couplers specifically. And what we're seeing today is even though the industry for new railcar production has not been, let's say, doing very well, especially some of our customers' volumes have not been very high. The maintenance piece is doing very, very well. In the first quarter, we had a significant portion of our revenues coming from the maintenance market. We've signed several agreements with railroads for maintenance, and not only railroads, a lot of less source. It's still just starting, but we're seeing really positive things coming out of the anti-dumping. Again, what we've always said, we don't want any benefits, any preference. We just want a level playing field, and I think the anti-dumping created that. In terms of the long-term, so I think as the inventory, the industry through the inventory, that trend should continue and that maintenance piece should continue to improve. And once this happens, we'll think about the long-term perspective of the business. As we've always said, we're always looking at opportunities. M&A has its life by its own, so we're always evaluating the fit and the, let's say, the long-term fit for the company and how we can reallocate capital. So we continue to explore those opportunities.
spk08: All right. Thank you very much.
spk10: Great quarter again.
spk03: Thank you, Ian.
spk10: We'll go now to Brent Thielman with DA Davidson.
spk07: Hey, thanks. Good morning. Good quarter as well. Antonio, could you just talk about maybe the plans for the Ameron pole products business? Do you intend to put some capital into it? And does this give you sort of the scale you want or need outside of utility and wind structures? Or is there more you'd like to do around this segment in general?
spk03: Yes, Brent, it's a great question and I'll be honest, if you look at the list of the targets that we put together in 2018 and 2019 of how to grow the businesses, Ameron was there for us to, we were really wanting to get Ameron since 2018 and 19. We have reached out to the buyer and they were not interested and eventually I think we participate in the process and we're able to get this fantastic asset for our company. It really complements our products. We have very little to none overlap in product lines, which is what we were looking for. They have a lot of technology capabilities and experience on concrete poles much more than we do. As you know, we're opening our second concrete pole plant in Florida. We have one in Alabama. and these guys bring a lot of competencies in that market, so that's something we're looking for. On the other hand, we bring a lot of steel capabilities that they were just getting into the steel pole market, and we can complement that. So we expect a lot of synergies on the technical side, on the technology side. They have a great team. We're very happy to have the team come to ARCOSA. I think when you talk to the team, they are excited to be part of a company where they are now in a business that's very important. We're going to pay attention. We're going to allocate capital. We're going to help them grow. And they were a little bit like we were when we were part of Trinity, where we were not being the growth engine for the company. They were a little bit like that within their previous owner. So we're excited to see that. We're excited to learn all the ideas that they have for growth and the cross-selling and cross-opportunities for the business. So we're very excited. Gail mentioned a little bit of CapEx. Don't believe that the majority of the CapEx increases is for Ameron. We have about $5 million of the CapEx increase going to them, but it's not a big amount. Their plans were in really good shape.
spk07: Okay. Appreciate that, Antonio. I guess just sticking on that segment, I mean, it sounds like you'll have a nice acceleration in wind revenue, wind deliveries this year. What's the view for, I guess, the traditional kind of utility structures business in terms of the growth outlook for this year? Are there any air pockets and then How do you think about it in the coming years in terms of a growth rate overall for this business, the segment?
spk03: Sure. The utility structures, as we mentioned for the last couple of quarters, we had a product mix and customer mix that's hurting our margins. We're working through that. That's why we've said that the second half of the year should go back to more normalized and growth margins. If you look at the long-term perspective of the business, It's very, very good. I would say every time you look at a forecast for the utility segment, it's higher than the previous forecast. The book to bill is over one. There's always noise in the delivery times and things like that. But overall, we're extremely optimistic about the future of the business. And what you see in the industry in general, I mean, the whole electric industry, the power industry, It's incredible what's happening over the last year, the change in trends in the expected low demand for the country. From everything coming from industry, factories, near-shoring, data centers, you will need a lot of power and you will need a lot of transmission lines to supply those new plants and that new load connected with the power sources. I'm very optimistic about it. There will be noise, ups and downs. So it's not going to be a straight line. The only thing that you have to notice, this business is very sensitive to steel prices. So sometimes there is noise in our revenue line that reduces our margin because steel prices went up. And as you know, we have passed through those steel prices to our customers. So... There's going to be some noise. We are very optimistic about our second half of the year, and especially in the long-term growth of the business, and we are investing in the business. Going back to the question on more acquisitions, this is mostly an organic growth business. We don't see a lot of M&A in this business. It's mostly organic what we're investing in. Okay. Very good. Thank you.
spk10: We'll go now to Gary Schmois with Loop Capital Markets.
spk05: Oh, hi. Thanks. Congratulations on the quarter. I wanted to ask just on the guidance. Part of the raise was a stronger first quarter. Part of it was the Ameron acquisition. But I'm wondering if just in general, has your outlook for the remainder of the year changed at all?
spk03: no i think everything seems to be going going in line with what we expected at the beginning of the year as you know we're just getting started is the first quarter uh what i mentioned in my remarks is we're very excited about the momentum we saw through the quarter so january was really bad for us not only in construction materials but it would freeze shut down several of our plants we had curtailment in gas in several plants So some employees couldn't get to work. So we had a really tough January. But we saw February and March really pick up and have very good results. So we're excited on the momentum we're picking. For the rest, everything seems to be going in line with what we expected at the beginning of the year.
spk05: Okay. Just wanted to follow up just on the production shift on the barge side that's going to happen in the second quarter. I think you mentioned indicated that there there could be some some modest headwinds uh to the second quarter i was wondering if maybe you could provide a little bit more context around that and you know would you anticipate uh the mix headwinds to be recovered by the end of the year or re-anticipate that to be a little bit longer yeah it's it's it's a second quarter uh it's isolated to second quarter maybe the beginning of the third quarter
spk03: But what I want to say is this is good news. So we have not received tank barge orders in a long time. And over the last couple of years, sorry, couple of quarters, we have received really sizable, not huge, but sizable orders for tank barges. And not only did we receive orders, but the tone we're seeing from our customers, which a year ago were saying, well, I don't need anything. all of them are coming and saying, look, we see all this replacement coming in the near future, and there's not going to be enough capacity to supply the replacement of tank barges. So I want to get ahead of the curve and start getting my fleet in order. There's also a significant headwind for the barge operators right now, tank barge operators, because of the maintenance situation. There's a significant number of barges that have to be maintained and recertified over the next year. So that's creating significant, let's say, shortage of barges in the short term. So I think if you put all of those things, the outlook for the tank barge business has improved for us, and that's allowing us to shift production. Some of these new tank barges, we're going to put them in a plant that is really good and very efficient in making tank barges, and leave the hopper barges in the other plant And once we do that, I think we're going to see a much better production, let's say, rhythm in the plants, and the efficiency should go up, and then we will be able to maximize our margins. So it's really good news what we're seeing, and it's really good news that we're able to now have the orders to realign our plants. We will get a little bit of a headwind in the short term, but that's okay.
spk05: Understood. No, thanks for all that, and I'll pass it on.
spk10: We'll turn now to Trey Grooms with Stevens.
spk01: Hey, good morning, and congrats on the quarter as well. Nice work. Could you guys maybe talk about your, you know, as you kind of look out there to the construction product business, could you talk about the demand expectations there? I mean, have you seen I need to touch a little bit on it, Antonio, but as far as the end markets are concerned, have you seen any, any shifts at all? Um, you know, in the private markets, especially, um, you know, from, you know, kind of this higher for longer narrative that, that we've been hearing, uh, in any changes there that you've seen at all, or is it still kind of steady as she goes?
spk03: Right. I, you know, I mentioned in my comments, I think there's a, um, Remember, we are a little detached from all the projects, meaning we sell a lot FOB to our plants. What we're seeing from our customers is the concept of larger projects finally hitting the ground seems to be happening. So anecdotally, we see a lot of more larger projects tied to the infrastructure spending being finally awarded. We are continuing to see a lot of heavy manufacturing in certain regions. We're hearing a lot more of the data center situation that's coming. And multi-unit housing is also continuing to grow in certain regions. What we continue to see is kind of different regions have a different situation in the housing market. And it's still not where it needs to be. I think the potential is there, but we're still seeing, you see mortgage rates still very, very high, et cetera. So I think the housing piece continues to weigh on the total business for us. Gail also mentioned during the quarter, we have the only asphalt business that we have losing money. It's a very regional business, subscales, It doesn't fit our footprint. We really like the asphalt market, but this one really doesn't fit, so we're working to fix that. But overall, we're happy where we see the demand. Pricing continues to be the positive force for us. As Cale mentioned, volumes were a little down in the total business organically, but when you add the acquisitions, they were a little up. I think we don't expect the volume to be the driver of the business this year, It's more a pricing situation, and hopefully the second half gets better volumes.
spk01: Okay. That's helpful. Thanks for that, Culler. And that's a good segue into my next question. You know, with the demand picture you have, and I'd say pricing has been tracking, you know, better than what we've seen historically for aggregates specifically. And, you know, you've seen a lot of folks in the industry and some of your uh public competitors as well on the aggregate side you know widely indicating uh mid-year pricing increases again this year uh what are your thoughts around that are you guys starting to you know think about additional price actions uh in the year or kind of how are you seeing that play out Antonio yes if we we are I think we know what I always mention is we're no different than our competitors I think throughout the year what we
spk03: try to do. As you know, inflation continues to be an issue, so we have to continue to adjust our pricing to compensate. And again, the focus, if you remember one of my comments, I think in the last call, we've changed our compensation system for all our businesses, but specifically for construction. They're tied to margins. Part of their compensation is tied to margins. So our goal over the next year is to continue to raise margins and focus on pricing and And ideally, once you get your pricing up, when volume comes back, we'll have, let's say, the double impact of that combination. So, yes, we expect to continue raising prices throughout the year.
spk01: Great. Thank you. I've got one last kind of follow-up here just for clarity. You know, on specialty materials, you mentioned in the press release that you expect better plant efficiency and workforce stability. can you kind of talk about the timing and what kind of benefit you might be looking at for CP margins as far as the balance of the year? Thank you.
spk03: Let me give you the plant. If you remember in the second or third quarter last year, we had a pretty significant. We started the plant. The plant went through significant issues. We also had you know labor issues there we had a plant manager problem so it went through a complicated portion mid-year last year since then the plant has finally we finished the plant we interconnected the the whole system and we the plant is ramping up and the production is going up I think it's third quarter that we have improved improved production and this is second quarter where we have improved margins. So the trend is very, very good. We have a nice, stable workforce. The plant is running very well. I was there a month ago, and the plant is beautiful. Demand is there. We have very strong demand for the products. And as this ramps up, we expect better results for this business and eventually to be, you know, as we've always said, this business has lower margins than the the aggregates business, but eventually we expect it to get to the 20% margins that we should be getting for this business.
spk02: And good morning. Trey, I might add, I had in my comments, you asked about the margin potential. I did indicate in my comments that it was 40 basis points accretive to the segment margin year-over-year change in the first quarter. that's up a little bit from what we experienced in the fourth quarter. So as Antonio said, very pleased with the progress that we're seeing there.
spk01: Great. Thank you, Gail. I did miss that comment. Well, that's all great color. Thank you so much, and look forward to seeing you guys next month at the Investor Day.
spk10: Thank you.
spk01: Thank you.
spk10: We'll go now to Julio Romero with Sedodian Company.
spk06: Hi, good morning. This is Alex on for Julio. Thanks for taking questions and congrats on the quarter. Thank you. First question you mentioned, you know, you've managed to smooth out some of the cyclical aspects of the business. Are you any closer to simplification initiatives? I think you've talked about that previously.
spk03: Yes, as I mentioned, you know, we're always evaluating the timing and where the businesses are at a certain point for being able to simplify the business. It's also the ability to redeploy the capital. So it's a combination of both things. And those things, you know, you have to match them out very well. I don't want to give timing on that. It's just something we're working and we're always evaluating and we're always discussing with our board. So it's It's on the table. It's a discussion that we have frequently, and these processes take time. So it's something that continues to be a priority for us. It's never perfect when you want it, and it happens sometimes when you don't expect it.
spk06: Thank you for the context. I know we've discussed barge a fair amount, but one follow-up. As you turn your focus to barge orders for 2025, Can you speak to how you're balancing, you know, discipline selection of barge bids versus, you know, kind of first ensuring a solid baseline for backlog and then, you know, selecting after the fact?
spk03: Sure. No, no, no. That's, I think, if you look at what we've done over the last couple of years, even without tank barge orders, I think we've stayed very disciplined. And you see the margins picking up because we've stayed disciplined around the margins we want to sell. And the reason we want to do that is when you look at the fundamental aspect of the industry, there has been an underinvestment for many, many years now, especially on the hopper side. And we know our customers need them. And we know the capacity we have is valuable. And we're going to continue to focus on margins and building profitable barges over the next several years. The industry demand is coming. Hopper barge, let's say, deficit is larger than tank barge, but tank barge I mentioned is also changing. So the beauty of the backlog we have right now, I mentioned it now extends into 2025. Hopper barge, believe it or not, Hopper barge backlog is now shorter than tank barge backlog. So it allows us time to work with the customers on the orders, to work with the customers on their needs, And the other thing is, I think customers have started getting, you know, two years ago, the war with Ukraine started and steel prices changed dramatically. And I think we've all gotten used to the high steel prices now. So we're getting less pushback from customers. I think as time goes by, you can push your orders a little bit and a little more. But at some point in time, if you're in the business of moving stuff on the river, you need to change your barges. So I think we're getting to that point and We're very positive on the barge business right now.
spk06: Very helpful context. Thank you. And last one for me, could you just talk a little bit about some of the potential impacts that you think a change in administration might have on ARCOSA's portfolio?
spk03: I think infrastructure spending is needed no matter what, no matter who's in the administration when you look at the age of the infrastructure and the state of the infrastructure. We're basically an infrastructure company. I don't think this nearshoring and reshoring is changing in any way in the country. that's going to need significant investments just to support it, and we're tied to those long-term trends. AI, when you read any report of what AI is doing to the load in the U.S., and very specifically in Texas and some of our markets, the investments that are going to be needed just to support data centers, et cetera, is incredible. So I'm very optimistic that no matter which administration comes in, we are in a really strong position and really good industries that are needed in the country. I think that's the main message I want to give you. I think infrastructure should be something that is needed no matter who's running the government.
spk06: Thank you, Antonio. Very helpful.
spk10: And ladies and gentlemen, that will conclude today's question and answer session. I'd like to turn the call back over to Erin Draback for any additional or closing comments.
spk09: Thank you for joining us today, and we look forward to talking to you again next quarter.
spk10: Thank you. Once again, ladies and gentlemen, that will conclude today's call. Thank you for your participation. You may disconnect at this time.
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