Arcosa, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; unaudited, consolidated U.S. GAAP results. Amounts are in millions except per-share data. Arcosa supplies infrastructure-related products across Construction Products, Engineered Structures, and Transportation Products.
Financial performance
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Revenue | $515.1 | $498.5 | $955.5 | $986.7 |
| Operating profit | $31.3 | $47.8 | $54.2 | $92.9 |
| Net income | $20.8 | $33.3 | $36.7 | $64.9 |
| Diluted EPS | $0.43 | $0.68 | $0.75 | $1.33 |
| Operating margin | 6.1% | 9.6% | 5.7% | 9.4% |
| Net margin | 4.0% | 6.7% | 3.8% | 6.6% |
- Q2 revenue increased 3.3%, but operating profit fell 34.5% and net income declined 37.5%. First-half revenue decreased 3.2%, operating profit fell 41.7%, and net income declined 43.5%.
- Segment results were mixed. Q2 Construction Products revenue rose 38.0% to $204.5, while operating profit fell 26.3% to $17.9. Engineered Structures revenue grew 8.8% to $242.5 and operating profit rose 39.2% to $29.1. Transportation Products revenue fell 46.8% to $68.2 and operating profit dropped 91.8% to $1.3.
- Cash flow, first half: Operating cash flow was $51.1, down from $120.3, with a $52.3 net use of cash from changes in current assets and liabilities, mainly higher receivables and inventories. Investing cash outflow was $419.1, including $388.7 for acquisitions and $41.5 of capital expenditures. Financing cash inflow was $372.5, primarily reflecting the $400.0 senior-note issuance. Cash increased $4.5 to $100.3.
- Debt and liquidity at June 30: Total debt was $653.9, compared with $254.5 at year-end 2020; cash was $100.3. The company had $371.5 available under its revolving facility after $100.0 of borrowings and $28.5 of letters of credit. It reported compliance with financial covenants. In August, it borrowed an additional $100.0 under the revolver for the Southwest Rock acquisition.
- Current assets were $784.0 and current liabilities $353.0. The company declared dividends of $0.05 per share for Q2 and repurchased 71,712 shares for $4.4 in the first half.
Material changes and notable items
- StonePoint, acquired April 9 for $374.8, contributed $39.2 of revenue and an operating loss of $3.3 from acquisition through June 30. The preliminary purchase-price allocation included $227.1 of mineral reserves and $12.6 of goodwill; the allocation remained subject to refinement. Acquired-inventory fair-value charges were $4.7.
- On August 4, after quarter-end, Arcosa acquired Southwest Rock for approximately $150 and funded it with cash and $100.0 of revolver borrowings.
- Q2 Engineered Structures results included $7.7 of revenue from a one-time resolution of a 2019 wind-tower customer dispute. First-half results also benefited from a $3.9 gain on sale of a non-operating facility.
- Construction Products operating profit was affected by Winter Storm Uri, adverse weather and lower cost absorption; management estimated Q2 adverse-weather impact at $3–$4. Transportation Products continued to suffer from low barge and rail-component volumes and reduced capacity utilization.
- Interest expense was $6.6 in Q2 versus $2.8 a year earlier, and $8.7 for the first half versus $6.1. The April issuance of $400.0 of 4.375% senior unsecured notes due 2029 financed StonePoint.
Outlook, risks and contingencies
- Management expected 2021 capital expenditures of approximately $110–$120, including about $90 of maintenance spending and $20–$30 of growth investment. It estimated quarterly corporate costs of $13–$14 for the remainder of 2021, excluding non-recurring items, and acquisition/integration costs of about $2 in each of Q3 and Q4.
- Management cited improved construction demand, strong utility-structure and storage-tank inquiries, and favorable demand conditions in acquired traffic and telecom structures. Engineered Structures backlog was $378.8 for utility/wind/related structures and storage tanks combined; most was expected to ship in 2021. Inland-barge backlog was $139.4, down from $258.7 a year earlier, with 66% expected to ship in 2021.
- Management expected lower 2021 wind-tower production amid the transition from full Production Tax Credit support. It reduced barge capacity and planned to idle its Madisonville facility in Q3. Higher steel prices were weighing on dry-barge orders; steel, fuel, weather, demand cycles, customer order timing, and COVID-19-related disruption remain risks.
- The company said cash, available liquidity, and operating cash flow should be sufficient for foreseeable operating and capital needs, while noting uncertainty around COVID-19 effects. COVID-related incremental health and safety costs were estimated at less than $1 per quarter.
- For ordinary claims, reasonably possible losses were estimated at $0.6–$0.7 and accrued contingencies totaled $1.4, including $1.1 for environmental matters. In the T&B product-warranty litigation, the company reported that the court had dismissed claims, an appeal was pending, and no loss accrual was recorded because a loss was not considered probable and a possible loss was not reasonably estimable.
Most important facts for investors to verify
- Whether the sharp operating-profit and cash-flow declines persist after acquisition costs, adverse weather, and working-capital investment.
- StonePoint’s final purchase-price allocation, ongoing contribution, and integration costs, as well as the financial impact of the post-quarter Southwest Rock acquisition and added borrowing.
- Whether Transportation Products demand and capacity utilization recover, and whether steel-price pressure and wind-tax-credit transition affect future orders and margins.
- Liquidity and covenant headroom after subsequent borrowing, alongside the timing of acquisition spending, capital expenditures, and working-capital needs.
- Developments in the T&B appeal and environmental or other contingencies; the filing states that outcomes and potential liabilities may remain uncertain.