Q1 2020 Earnings Call
During your conference.
[music].
Good morning, ladies and gentlemen, and welcome to the Arcos that incorporated first quarter 2020 earnings conference call.
My name is sneaky and I will be your conference call coordinator today.
As a reminder, basically being recorded.
Now I would like to try to go over to your host scaled back.
Thank you may begin.
Good morning, everyone. Thank you for joining our first quarter 2020 earnings calls with me today, Our Antonio Korea, President and CEO and Scott be easily see Oh, a question answer session will follow their prepared remarks today.
Copy of yesterday's press release in the slide presentation for this morning's call approach at our Investor Relations website, Www Dot <unk>, our dot our coker dotcom.
Replay of today's call will be available for the next two week instructions for accessing the replay number are included in the press release a.
A replay of the webcast will be available for one year on our website under the news and events cat.
Today's comments a presentation slides contain financial measures that have not been prepared in accordance with generally accepted accounting principles.
Reconciliations of non-GAAP financial measures to the closest GAAP measure are included in the appendix slide presentation.
Let me also remind you that today's conference call contains forward looking statements as defined by the private Securities Litigation Reform Act 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 FCC filings for more information.
These risks and uncertainties, including our form 10-K.
Earnings Press release, we filed yesterday and our form 10-Q for the first quarter expected to be filed later today I would now like to turn the call over to Antonio.
Thank you again.
Thank you for joining todays call to disclose our goes as first quarter results on business outlook.
We will provide you with the current conditions within our markets.
Highlights over first quarter performance.
Later, this goes or business line expectations, when Scott will update you on the first quarter final.
Please move to slide four.
There are several key messages I would like to take away from today's call first.
It was business continues to operate well within the Golden 19 environment, we haven't been designated essential business another facility celebration.
We have implemented business continuity plan some have adopted Brooklyn people think they health and safety of our employees and the community, which we operate these sobriety everything they would like to recognize all the work teams who are how we'd be in effectively vspro because it would put in place.
Third our goal is finite Spotify national poor performance shows the earnings power. We had another strong balance sheet provides a good flexibility lease on certain time and the capacity for significant growth opportunities where future.
Well, we expect lower demand for some of her brother blades in some of those we continue to see strong fundamentals and have substantial back also provides good visibility.
On page five you can find the agenda for todays call.
Let's start by discussing our priority is doing to go would they be health crisis on slide seven.
First and foremost or don't priority the health of the safety of our 6300 employees somebody commuting, which we operate.
Does that then we immediately put in place safeguards.
Well it is consistent with CDC Guy, but we also implemented work from home brought the goes where office stop and are making plans were how we returned to our offices. Once these older I started safe to do so.
That's an essential supplier to the nation's infrastructure sectors. We have continued operating the plant to meet our customers' needs in every business unless you can see below first quarter results, we have loved missed the beef.
Oh, so liquidity position them financial flexibility are now even greater competitive advantages and they were only just a few months ago.
I know from experience, having strong balance sheet escaped the successfully navigating through an economic downturn.
Scorpion, releasing more detail, but from a high level, we have about 200 million of gosh below 274 million in revolver availability.
Net debt it wont be however on an annual it'd be that are we expect they expect strong free cash flow.
Additionally, we have begun matches to reduce operating and corporate goals and have postponed monetization capital expenditures to ensure we are prepared for a potential extend its slow though.
Our goes a strong balance sheet provides us with the resources to make strategic acquisition, so that discipline basis.
The prices should they become available.
Now, let's turn to slide nine for look at the company is wide results.
For the first quarter the company performed extremely well with revenues of 488 million up 19% year over year.
All three business days contributed to these growth.
Adjusted EBITDA was 76 million was up 29%, reflecting the considerable operating leverage we continue to achieve.
Adjusting for <unk> for a bad debt recovery of 3 million last year within the energy equipment or business line contributed to the profit growth we construct from both being the largest contributor to this quarter's revenue on a beat their growth.
The segment benefited from the recent acquisition of Cherry, which is performing ahead of plan.
Importantly, both value destruction.
<unk> I large businesses, so kills the order intake in the first quarter.
Scribbling give you more details when they do video business lines, and then I will return to provide you a diesel market color and this goes our outlook Scott.
Thank you Antonio and good morning, everyone.
I'll start on slide 10 of the presentation and walk through our results from the quarter, and then discuss our financial strength and capital allocation plans in more depth.
Starting with construction products revenue grew 41% to $149 million and adjusted EBITDA increased 49% to $32.1 million.
EBITDA margins increased to 21.5% more than 100 basis points better than last year's first quarter.
The legacy businesses performed well during the quarter in the jury acquisition exceeded our expectations.
Volumes in our legacy business were higher for both our natural aggregates and specialty lightweight aggregates businesses as Dallas Fort worth in Texas end markets remained robust throughout the quarter.
Additionally, the Cherry acquisition exceeded our expectations the Houston construction market remains solid and the team did an excellent job executing during the integration.
The only weak spot in the segment was continued softness in our west, Texas, and Oklahoma aggregate plants, serving oil and gas infrastructure, but that exposure as a small part of our revenue in the segment and the segment still posted strong revenue and margin improvements even with the exposure.
Moving to energy equipment on slide 11 revenue grew 7% to $223 million, an adjusted EBITDA was roughly flat once we adjust for a onetime bad debt recovery in 2019.
Higher volumes in both wind towers and utility structures drove our increased revenue, which was even more impressive given that lower pass through steel prices were pricing headwind for utility structures in the quarter.
The wind towers team continued to execute well and delivered a higher unit count in the first quarter of 2019, including the successful delivery of a run of a larger tower type.
Pricing as expected.
Was lower in the quarter than last year's first quarter, but in line with the expectations that we laid out heading into the year.
Utility structures continues to be a very strong performing product line, we delivered higher volumes with improved margins.
Our storage tank business declined year over year on lower shipments of residential and commercial propane tanks.
Adjusted EBITDA on the first quarter was $33.6 million, which was inline with our expectations 2019, EBITDA was helped by $2.9 million of onetime bad debt recovery.
In 2020, we had a 1.3 million dollar loss unimpaired assets as we transition to plant from supporting railcar component work do utility structures.
Overall, the energy equipment segment continued its progress on lean improvements and recorded an excellent financial and operational quarter.
Turning to slide 13 transportation products had 20% growth in revenues and 55% growth in adjusted EBITDA.
<unk> revenues and profitability grew significantly versus the first quarter of 2019.
And the barge business margins expanded significantly versus last year's first quarter, we had improved pricing in the backlog and we did not have the startup costs for reopening our Louisiana plant that we incurred in 2019.
The operating team did an outstanding job hitting our production schedule.
In addition to strong execution in the quarter order activity continued to be healthy we received $90 million of new orders in the quarter, bringing the total backlog to $348 million approximately 90% of which will deliver in 2020 that backlog gives us excellent visibility for the rest of the year.
The rail components business continues to be week in revenue dropped by $20 million from last year's first quarter.
We've had to take additional actions at our facilities to respond to lower demand for new railcars, and we will continue to build out our non railcar product lines, using our forging and foundry capabilities.
I'll now turn to slide 14 to discuss our liquidity and balance sheet highlights.
The strong free cash flow profile of our businesses has contributed to the $475 million of liquidity that we had at the end of the quarter made up of $201 million of cash and an additional $274 million of committed revolver capacity.
Free cash flow of $20 million was in line with our expectations heading into the year.
It was below our five quarter average primarily because we were working through a number of advanced payments that we received in the fourth quarter of 2019.
During the quarter, we borrowed $100 million on our revolving credit facility as a precautionary measure, but we have not yet seen any material increases in our overdue accounts receivable or credit risks that concern us.
Turning to slide 15, one of the attractive investment characteristics about our company as our low leverage which will enable us to manage through challenging economic scenarios as well as pursue disciplined growth when the time is right.
Since our spin off in late 2018, we've completed two major construction products acquisitions, primarily using cash from operations and we ended the quarter with approximately 0.5 net debt to EBITDA.
We've also taken aggressive actions to conserve cash during this period of uncertainty and have adjusted our capital allocation outlook for 2020, which you see on slide 16.
First we have delayed non essential capex and now expect to invest in a range of 75 million to $85 million this year down $20 million from our previous guidance.
That range includes approximately $65 million of maintenance Capex, plus a select set of growth projects that still meet our return criteria and a more uncertain environment.
The bulk of our gross Capex will continue to be in utility structures and reserve acquisitions in our aggregates and specialty materials businesses.
In addition to reducing our Capex. We've also taken steps to reduce our SGN a spending in order to keep our total SGN a costs in line with revenue.
Finally, we've implemented a number of working capital initiatives to reduce our working capital requirements across receivables inventory and payables.
We will also be disciplined in our acquisition strategy.
In addition to Jerry we completed a $25 million complimentary acquisition of a traffic structures business in Florida to expand into this adjacent product line.
We are attracted to the infrastructure related market drivers of the business as well as the manufacturing synergies with our other product lines within energy equipment.
We expect to be able to expand this new product line into other geographies using our manufacturing expertise and footprint across North America.
Finishing up with return of capital to shareholders. We currently plan to maintain our dividend at roughly $10 million per year, and we still have $34 million remaining on our share repurchase authorization.
We'll now turn the call back over to Antonio.
Thank you Scott.
The first quarter, a business experienced only minor disruption from core with maybe.
When we do expect the resulting economic downturn the impact some of our brothers lights, and we have already seen some indications.
We continue to be encouraged by the momentum we have in many of our businesses. However, they are very fluid that on certain economic environment has caused us to suspend early earnings guidance, we intend to share. Our goes this outlook with you today. So you can understand what the we're currently experiencing in each of the business lines.
Given the uncertainty on the depth and length of this low them in the economy I will drive to be as transparent as they can with information available today.
Turning to the base 19, let's start with construction product.
Construction performed very well in the first quarter in most states construction these costs either an essential services such demand so low held up well.
Turning to the new Cherry acquisition and the through cycle aggregates business have performed ahead of black.
We have seen some softness in the control construction sites support business since most of that customers are rental companies, who have begun to go back on the late or the lake upticks in this environment.
Steve This present, Glenn only accounted for blow presenter group revenue on a pro forma basis, which includes cherry.
Well it construction pros business performed well in the first quarter, we had been supplying projects that were already underway.
As we move forward, we expect we go to the money because structural sectors, especially in the residential market.
As this business lineup rates with shorter lead times and does not have the benefit of backlog is much harder to forecast in this environment.
Also the second and third quarter side of the busiest for these business lines. So the effect on there's no that is particularly challenging to predict.
On a positive note there's spoke of a stimulus bill I'm additional potential increase in state the infrastructure spending which will benefit our gross in the medium or long term.
Turning to slide 19 lives is gross energetic we've been segment.
Where we have much better visibility given its backlog, which stands at 505 million that gives the confidence in our twentytwenty performance expectations.
The 1000 utility business will be the structure business units have combined backlog of 476 million, which represents over 75% of the revenues those businesses generated even 2019.
While there are some outside factors one related to go with 19 that are pressuring the wind tower business such as the expiration of the production tax credit. Our Bioglue covers most of Twentytwenty on the main potentially impact would be some on field spots in our production schedule in the fourth quarter.
The market for utility structures remains active and the growth drivers our long term in nature. These end markets continues to show strong demand a limited supply and our blended 20 growth outlook remains in fact based on what we know today.
Where we are seeing some softness of the energy we've been segment this into storage tank Brode line, which contributed to 211 millions of revenue 29.
Here, we have more limited by the based on the nature of the business.
We do expect them economic downturn will have an impact since this business has some exposure to the new housing and oil and gas oil and gas markets, but both the U.S. and Mexico.
The other hand, it's important to note that the large stock market, which has the most exposure to oil and gas dynamics represents less than 5% of group revenue.
Please turn to slide.
Drug transportation Bros. Custom mix conditions, our barge business is providing significant growth broken bones business is delaying is dealing with a very challenging market conditions.
With respect to the components as we have said in the past bricco with demand for new railcars is estimated by industry sources to declined by 30% in Brentwood and the number of idle cars in storage continues to increase.
So expectations for the industry have gotten worse.
We have plan on us.
We have blended less significant slowdown so the incremental impact is marginally negative to our previous expectations. However, we continue to take actions to rightsize our costs.
At the same time, we're working successfully on adding or other non railroads.
On the other hand, our barge business had strong order activity in the first quarter with 90 million in orders overall market fundamentals remain mostly people with an aging fleet for both liquid and dry barges.
The average age continues to increase and the significant declining steel prices store historic lows good encourage additional order activity.
While the recent sub declining oil prices is important of concern that we are watching our backlog of 348 million provides us with good a good line of sight for this business.
We also continued to see strong demand in our marine components business, which serves both the new and replacement markets.
On balance our outlook for Transportations is for revenues to grow at least 15% for Twentytwenty based on the confidence we have in our solid backlogs offsetting the declining components.
Now, let's discuss the assumptions embedded in the current outlook. Please turn to slide 21.
First please note that go with 19 situations extremely fluid. So these slides lease how some of the assumptions we have to help you understand how we're thinking about the next few months overall, we expect to continue to operate as an essential business.
We do expect the country to emerge from look down but at the same time. Most reports show. The virus continues to good continued to be disruptive force on pillar sexiness violent.
So we will be we would remain vigilant and focused on probably all established broke the holds for the foreseeable future.
Our biggest risk could be the production delays, resulting from plant shutdowns potentially either our own our customers or our suppliers.
Separately, we're working with each business unit either to reduce costs in line with our revenue expectations.
We plan to continuously evaluate each business in real time, if conditions should change growth will be adjusted to reflect the market conditions were seen.
Our corporate gross already lean, but we are taking additional actions to reduce gross gross even further.
From my experience in leading businesses through times over in greater uncertainty I have learned that is critical to get ahead of the cost curve.
Before the downturn materialize also operating flexibility ski as the news and outlooks changes every day, we must be bread to our quickly I can confidently say we are.
Although the guiding principle, we will apply doing this uncertain time is to stay true to our values and do the right thing for our employees are communities and other stakeholders. Finally, a strong balance sheet is a make or break factor in the challenging business environment and we're committing to keeping our is healthy.
We plan to remain active on the M&A from being a disciplined manner on an opportunistic basis.
No leverage ample liquidity give me confidence that we will emerge a stronger leaner company.
Turning to slide 23.
Easy continues to be up regularly deferrals going forward. During this time, we have had the opportunity to develop new ways of supporting our local communities at the same time, we remain committed to developing our baselines and setting goals for the company. We plan to bullish our first thing there is the report for 22.
Please turn to slide 24.
While the current impact of gold mine 19 may delay so initiative.
Creates some uncertainty it has not changed our long term plan, which is to grow in attractive markets review that complexity and cyclicality of our business improve our long term returns on invested capital and integrate easy into everything we do we continue to advise on these initiatives everyday we're working towards making or close to a leaner more efficient.
The company.
We will open today, both two questions.
At this time, maybe we'd like to make a question. Please press the star and one on your Touchtone phone.
Your your question that anytime by pricing.
Once again to ask a question. Please press star one touchtone phone.
Okay.
Our first a question from Brent Thielman with D.A. Davidson. Please go ahead.
Thank you congratulations on great quarter.
Thank you.
The the margins and transportation products really strong. Despite the fact that rail is sort of working against you and I assume that's going to continue.
Going forward, but just given the inland barge backlog in the embedded pricing within that.
Thank you can maintain these sort of margin levels through this year.
Hey, Brett Thanks for the question this is Scott.
The answer is yes for the full year there'll be some unevenness through the quarters as mixed changes quarter to quarter, but the really strong margins in the first quarter largely from better pricing in the barge backlog no startup costs and then excellent operational execution, we would expect.
To be.
Relatively consistent for the full year Q2 looks like because of mix and barge might be a little lower but then it would pick back up in Q3 and four.
Okay, and then I guess my follow up is.
And.
Utility and when the book to Bill a little slower this quarter, but it's still pretty good backlog here is.
Are you seeing delays in bid processes are decisions to move.
This forward does that because the code at or does that ultimately move some things that you Q3 Q in terms of.
Bid activity is just curious kind of what you're seeing there.
Brent This Antonio I they are different businesses. So let me talk about each one individually.
Wind towers as I've said I think we have a good backlog covers most of fourth quarter.
And that we are seeing order inquiries from several of our customers. We expect to receive some orders before the end of the year. So so I think I think it slowed down a little bit because theres some disruption in the installation of wind towers with all this issue going around it's a very busy year.
Based on the exploration with back spread Theres, a significant amount of movement in the field, so being styling et cetera, but I do expect.
Orders to come in as we've said the margin so on the orders in without are lower than we had in the past. So so it's important to remember that.
On the I mean, as I've said in the past its a project is going to be come on we are seeing that the project based business, where our customers will come in as they have projects were the first half is going to 21 lets be them those rather than a blanket order for five years like we used to having the past its okay. That's how we operate in most of our business and we're not afraid of it we.
We are encouraged by it and we're going to be dealing with that.
These structures is a very different business and we continue to see very strong order activity.
Inquiries continues to be strong I would tell you both on the win and on the utility structure. The biggest question we were getting during the quarter, especially at the end of March beginning late April were the uncertainty was the highest point. The biggest question. We will get was not about delays, but are you going to continue to be able to delivery. This.
That was the biggest question we were getting these people were worried we could not deliver so that is I think that those will be there will be the.
Environment would have been.
That's helpful. Thank you very much.
Next question comes from Bascome majors.
Please go ahead.
Yes, thanks for taking my questions guys.
I was hoping we could revisit.
The outlook for aggregates and maybe the construction product segment as a whole.
You commented that.
So seasonally strong business in the summer, which can be disproportionately impacted by the shut downs.
Not a backlog business, but.
Is there anyway to frame some of the stress test scenarios, you've done just trying to think about.
The kind of worst case scenarios in your minds that might be in play here as we went to kind of under right.
Risk Award.
And one of your largest EBITDA generators. Thank you.
Sure. Thank you about them, let me give you sense.
The the business has really three businesses inside those specialty materials the aggregate some on the the shoring business the showing businesses. The one that weeks, where we've seen now more slowdown on the reason for that is that they are very different shorting business, we sell up rental company. So as I mentioned in my role.
Mark on for them is capex. Unlike embryos company like we are doing everyone. In this uncertain times. These conserving cash and we've seen some delays or no cancellations is really more delays of of orders on right now what our customers are telling you'll see a were delaying the orders for the third quarter or for that.
Fourth quarter.
The the on the aggregate speeds and that's what we're seeing so the reason we the uncertainty around this business and I would tell you around the construction segments, especially.
When you ask our customers or industry actions when do you expect them Im some people expect a pickup in the third quarter. Some pickup is when people expect the pickup in the fourth quarter. The reality is that I don't think anyone really Nols.
How deep him how slow this is going to be and Thats was the reason, we do or guidance.
Because we don't know the reality is that we though no. We are working at today, we're continuing to work on projects that we're already working before before even in the second order. We started the second quarter pretty strong we're not seeing in the aggregate speece any delays yet any any signs of stress we're seeing some of that.
Projects, especially in California, and Washington that we're construction at BBB stop there is few states where construction activity did stop on those are the stays where we felt a little pain and we're feeling a little pain.
But you know worst case scenario is it.
The virus goes back on and for whatever reason, we go into lump them and construction activity ceases to be an essential business I mean, thats, a really extreme case I would I know thats not what we have the our expectations. What we have is that like every other slowdown construction slows down.
With the economy, we adjust our cost we are we're main priority on the aggregate size going to maintain pricing, which is one of the characteristics of these business and just adjust our cost and move forward and I look for opportunities no. That's that's that's our mindset at the moment.
So is there any way to frame the degree of revenue downside that you guys are kind of working within your planning purposes.
Yes, I think.
Bascome, if you look at previous recessions and I think most people would say we're heading into some sort of recession now.
You've seen a big variability where.
Something small is 5% to 10% revenue decline to something like the nine or 10, it was a bigger revenue decline.
So I think it depends on how long the slowdown last and how deep.
It goes but I think looking at those previous periods, you can kind of book and what that might look like.
Yes. Thank you for a thank you for everyones with that.
And as we look to 21 I realize that's a really long way away right now but.
Just trying to think through.
Your thought process on the backlog businesses, which are clearly backstop to do quite well today, but also have some cyclicality were that could change in the future. Just I don't know if you want to hit kind of your high level thoughts on.
Where do you think.
Structural mid term demand could go in wind towers utility structures and barge.
Yes. So so let me start with those three I think those three are the big ones with with backlogs started with wind power. So I think fundamentally I'm a big believer in renewable power will continue to be.
One of the sources of energy that we'll continue to be in demand.
I think as we move forward.
[music].
That is going to continue to trend that will not stop.
As you go into into the future review.
Running ahead of the when you look at the utilities that are.
Giving guidance or talking about the results further projects a lot of them are talking about.
As storage.
Plans on things like that so I think going forward storage and renewals will be a story of a combined story that will continue to go.
Hit it together no and we're optimistic in the long term the industry. Historically has worked on backs grades that those are going away.
And but now even with the with natural gas is at $2, which now I know, there's the lower the.
The industry's competitive I think that technology has evolved and continues to evolve really fast. So I am encouraged about it it's something that we will have some uncertainty 21, 21, probably blunt dual but the industry fundamentals are there for us in the loan.
You did structure is different that that business a.
For all everything Thats happening even for the renewable energy and four for electric cars on for everything we're doing electronically the Greek hardening needs to happen in the investment in infrastructure in in.
Transmission needs to get stronger and Thats, what were seeing in the market. It's a long term.
Hello during the month factor that we believe is going to stay here with us for several years. The other bdcs that that's why we have a relatively small market share there and we have opportunities to expand our AR.
Product lines and that's what we're doing Scott talked about the acquisition within in the first quarter on that on highway signage and and it's a lot of synergies with our pro blend a low same same designed some engineering very similar processes. So we want to continue to expand than we have opportunities to grow the market as this business has strong from the.
Rentals.
Unsightly, a large I mentioned my remarks that the both the liquid and I'm on dry cargo barges more this the dry cargo have aging fleets.
Those fleets have to be replaced its a replacement market I don't see any driver right now that encouraged me to that that the fleet is going to grow that's not what we're assuming but simply if you look at the replacement values. It gives you a since that we have hopefully unless you don't dynamics, we're financing on something like that which is something that.
Customers Luca.
Change there needs to be a replacement in both the dry and liquid markets I'm of the same time steel prices, which are a very low point right. Now I mean, there we're buying still have have the price that we were buying a year ago, a group who could help us get some some additional business.
But also a.
Demand demand this is.
This is going to be driven by you don't agree cultural prices I know this.
And relationship with China, which is an important piece, but overall, we're positive on the barge based on the age and steel prices. We're positive on transmission Theres, a little more uncertainty when but we will have a win business into into 21 and it will be profit.
Thank you guys.
Our next question comes from Stefanos Christ CJ Securities. Please go ahead. Your line is open.
Good morning, and congrats on the quarter.
Thank you.
First could you could you break out the growth in aggregate between organic and what was also contributed from Jerry.
Sure seven us so.
On the legacy business volumes were up.
Pricing was relatively flat.
And then the only downside was the oil and gas exposure. So you put that altogether roughly flat.
Almost all of the total growth was in the Cherry acquisition debt.
Operated very well during the quarter, the integrations going smoothly and it added a lot to our results in the first quarter.
Perfect. Thanks, and then so you guys also on a lot of orders in bars 90 million.
Could you maybe give us some color on how that's progressing in the Q2.
Oh, yes, I'll take that those so we.
We have received orders in Q2.
But very few.
So so we are.
Right now we are going through.
Basically what we're doing right now is going back to our customers with new steel pricing.
To give you a sense when steel pricing is that occurred level compared to a year ago.
It will be barge, it's maybe 75 to $100000 in price reductions. So so that's what we're doing right now as steel prices stabilize a little bit that's what we're going back to our customers, but there. We have received a few orders not much we do receive orders in our components business the.
Barge components business continues to be relatively well.
Same barge preview.
Thank you so much and congrats again.
Thanks, Stephanie.
Our next question comes from Ian Zaffino with Oppenheimer. Please go ahead.
Hi, guys. Thank you.
Very good news, you're keeping the dividend and also toddler.
As I mentioned that you spoke about M&A as well.
What do you sort of thinking here on the M&A on I guess in targets out there that are coming on shaky financial terms, where maybe you could find.
Good acquisition is that sort of like what you're seeing or just any color on comedy environment.
The stable targets you might have.
Yes, yes, this antonio the.
Yes, like everything else, new I think over the last several weeks there was a reset in the mindset of everywhere.
And.
We have to be working and we have talked about having a relatively full pipeline and Scott mentioned the three areas. The aggregate special committee with us on the the expansion of our utilities and around that business.
And.
I think with this slowdown first we have to make sure that we get some more clarity on how deep on how how long this will be mill.
On but we will know that the reality is we're going to be navigating diesel certain ses and we just have to get comfortable with that.
A we have a good balance sheet, we're going to be disciplined, but we do believe that theres going to be opportunities for people who.
There have not such a strong balance sheet order business are not performing well theyre not operating well or they run into some specific problems and I do believe we're going to find opportunities I think it's a time were.
Strong balance sheet is going to be probably the most important thing for any company to have a we have a good one and that we're going to be looking for opportunities now.
That doesn't mean that if we find something that we believe is reasonably priced we will do it. It's we have to lead that hope they're open because I.
I think we have opportunities for the company for the future that we want to take advantage.
Okay. Thank you and then also as far as the business.
So is that each individual business where is this.
The company.
The greater company itself.
It's such an individual business. So when you look at the the guidelines that the government provided.
Each one of our business is essential for different reasons, but all of them falling the essential got bakery and also important these that is the the there say.
Our business in Mexico have the same situation. So we have continued to a breakeven builders are disparity between both going because whats essential we continue to operate on both sides of the board there have been say have been essential up to this point.
Okay, great. Thank you very much.
We'll take our next question from Blake Hirschman Stevens. Please go ahead.
Hi, good morning, guys.
Morning.
I was.
I'm curious as to whether you guys might.
Talk about what April trends have looked like.
Just across the segments topline.
Or just the margin.
Yes, I'll give you some overall color stay away from specific numbers, but and energy and transportation April has gone. According to plan, we've talked about our outlook being intact. There and then on construction products, where we don't have a backlog we.
I am to have been strong when the markets that we operate in have held up well in April.
Largely from projects that were already started when.
When the pandemic picked up steam in March so that's one of the questions of it it should be a strong April we've seen a strong April but.
There is uncertainty around the rest of Q2 in Q3 as to the degree that those projects are replaced by new projects.
Got it and if you look at the.
Construction products piece.
I guess either in past cycles or kind of as you would expect.
For this line of what kind of Decrementals would you expect to see there I mean, assuming.
That the topline jobs.
5% to 10% or maybe even closer to like a 20%.
Just kind of some Ralph.
But for how we should think about the decrementals there would be helpful.
Yes, I'll give you some color on margin declines in kind of what we see in the businesses in energy and barge those are more variable cost structure. So we should be able to hold margins relatively consistent by right sizing that footprint you do have some decline but.
At least severe rail components and construction those are our highest incremental and decremental margin businesses. So we'd expect more margin increases on the upside, which we've seen and good cycles, but more margin pressure on the downside of demand declines because of the higher fixed cost structure. So.
If.
If you're talking about orders of magnitude drop.
You described there will be margin pressure on the downside.
Blake on this until they just to give you a little or color on the construction site.
April.
The as well as I mentioned that piece Thats meeting here is the.
The shoring business. The construction sites report, that's where we've seen some pushback in backlog to the third and fourth quarter not huge it's a business that I assess I said, it's about 12% of our revenue and construction, but its civil business segment margin business. We're excited about we like it but it's where we've seen a little more pushback on the cup.
Hello States, Watsonville, California, where we have operations, a how slow down construction, so that's where we've seen some some slowdown mills.
Got it makes sense and then just lastly.
Wes.
The covet and Pacsun.
Just.
The broader.
Next that Thats had I mean do you think there's any.
Kind of momentum for extending the the when tax credit beyond the end of this year.
This is Scott, yes from our understanding of discussions and Washington that was part of some discussions around stimulus bills.
It was it was not included in the final bill, but those conversations are ongoing and we'll we'll monitor that closely even without production tax credit as Antonio said, we think the when business is.
Competitive economically and has a lot of positive drivers both from a corporate CSG and in other state mandates. So PTC extension would be a nice benefit but not required for for that business to be seller.
Alright, Thanks, a lot I'll hop back in Q.
We have no further questions at this time.
I'll now turn to program back to Gail Peck.
Thank you Nicky.
Thank you everyone for joining us today, we look forward to speaking with you again next quarter.
This does conclude todays program.
Thank you for your participation you may disconnect your lines at any time.
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