Arcosa, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Arcosa supplies infrastructure-related products in North America through Construction Products, Engineered Structures, and Transportation Products.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $440.4 million | $488.2 million |
| Operating profit | $22.9 million | $45.1 million |
| Net income | $15.9 million | $31.6 million |
| Diluted EPS | $0.32 | $0.65 |
| Operating cash flow | $0.4 million | $41.5 million |
| Capital expenditures | $19.9 million | $21.1 million |
- Revenue declined 9.8%; operating profit fell 49.2%. Operating margin was approximately 5.2%, versus 9.2% a year earlier. SG&A rose to 12.8% of revenue from 10.6%.
- Construction Products revenue rose 2.5% to $153.2 million; operating profit fell 6.0% to $15.8 million. Engineered Structures revenue declined 7.3% to $207.0 million and operating profit fell 29.7% to $17.5 million. Transportation Products revenue fell 31.5% to $80.2 million and operating profit fell 71.3% to $4.1 million.
- Cash and equivalents were $81.9 million at quarter-end, down from $95.8 million at December 31, 2020. Current assets were $697.8 million and current liabilities $312.2 million.
- Debt was $255.9 million at quarter-end, including $100.0 million drawn on the revolving facility and $148.1 million remaining on the term loan. The company had $371.3 million available under its $500 million revolver after letters of credit. It reported compliance with financial covenants.
- Operating cash flow was pressured by a $46.7 million net use of cash from changes in current assets and liabilities, primarily increased receivables. Cash declined by $13.9 million during the quarter.
Changes and notable items
- Revenue and profit contracted year over year, particularly in Transportation Products, amid lower barge and steel-component deliveries. Construction Products revenue increased, but storm impacts and higher depreciation reduced segment profit.
- Winter Storm Uri disrupted production for more than a week. Management estimated a $4–$5 million reduction in total operating profit, primarily in Construction Products; that segment’s estimated impact was $3–$4 million.
- Engineered Structures operating profit benefited from a $3.9 million gain on sale of a non-operating facility, partially offsetting lower wind-tower volumes, utility-structure inefficiencies, and storm disruption.
- On April 6, 2021, after quarter-end, Arcosa issued $400 million of 4.375% senior notes due 2029. On April 9, it completed the approximately $375 million StonePoint aggregates acquisition, funded with note proceeds. These are subsequent events, not reflected in March 31 debt and results.
- Q1 backlog was $379.5 million for utility, wind, and related structures, $30.7 million for storage tanks, and $133.2 million for inland barges. Inland-barge backlog was 62% below the prior-year level.
Outlook, risks, and contingencies
- Management expected 2021 capital expenditures of $110–$120 million, including approximately $90 million for maintenance. It forecast quarterly corporate costs of $13–$14 million for the remainder of 2021, excluding non-recurring acquisition and integration costs.
- Construction demand had been more resilient than anticipated, particularly in Texas, though specialty materials and shoring demand remained below pre-pandemic levels. Management cited strong utility-structure order activity but expected lower 2021 wind-tower production as the industry transitions from full Production Tax Credit support.
- Management expected lower barge production in 2021; steel-price increases had weakened near-term dry-barge orders, while liquid-barge inquiries remained very low. Arcosa reduced capacity and planned to idle its Madisonville, Louisiana facility in Q3 2021. Steel-component demand remained depressed.
- COVID-19 impacts remained uncertain, including potential effects on demand, supply chains, operations, and customer payments. Incremental health and safety costs were estimated at $1–$2 million per quarter. Management believed available cash, liquidity, and operating cash flow would fund foreseeable requirements.
- Arcosa reported $9.7 million of deferred CARES Act payroll taxes at quarter-end, with $4.9 million expected to be paid in 2021 and the balance in 2022.
- For ordinary claims and lawsuits, the company reported $1.1 million of accruals and a reasonably possible loss range of $0.3–$0.4 million. Environmental reserves were $1.1 million. In the Thomas & Betts appeal, management said a loss was not considered probable and could not be reasonably estimated.
- The company declared a $0.05-per-share quarterly dividend. Its $50 million share-repurchase authorization remained unused for program repurchases during the quarter; reported share surrenders were for employee tax withholding.
Key facts for investors to verify
- Whether operating cash flow improves as receivables and other working-capital demands unwind.
- StonePoint’s final purchase accounting, integration, financing costs, and contribution to Construction Products.
- Execution against weaker barge backlog, planned capacity reductions, and the Madisonville facility idling.
- Actual COVID-19 and weather-related costs, and the pace of recovery in wind towers, storage tanks, and steel components.
- Progress on the Thomas & Betts appeal and any changes in litigation or environmental exposures.