Q4 2020 Arcosa Inc Earnings Call
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Good morning, ladies and gentlemen, and welcome to Arcos, The Inc. Fourth quarter 'twenty 'twenty earnings Conference call. My name is Gretchen and I will be your car.
Call coordinator today as a reminder, today's call is being recorded now I would like to turn the call over to your host Gail Peck, SVP finance and treasurer for <unk>.
MS Peck you may begin.
Good morning, everyone. Thank you for joining our fourth quarter and full year 2020 earnings call with me today are Antonio Carrillo, President and CEO and Scott Beasley CFO, a question and answer session will follow their prepared remarks, a copy of yesterday's press release in the slide presentation for this morning's call.
<unk> are posted at our Investor Relations website, Www Dot I, our dot our cars the dot 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 the webcast will be available for one year on our website under the news and events.
The top.
Today's comments and presentation slides contain financial measures that we have 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 of the slide presentation.
I also remind you that todays 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 earnings press release, we filed yesterday and our form 10-K expected to be filed later today.
I'd now like to turn the call over to Antonio.
Thank you Gail.
Morning, and thank you for joining us to discuss our closest fourth quarter on 'twenty to 'twenty result on the outlook for 2021.
Let me start with a few key messages on slide four.
First and foremost we manage effectively through very difficult business conditions in 'twenty 'twenty and succeeded in posting record revenue on the beat that for the year, along with strong free cash flow generation.
Of these performance underscores the resilience of our business model on the strength of our portfolio of.
Products, which we continue the repositioning around core infrastructure problems.
These results could not have been possible without the tremendous effort of the of course the team.
The entire organization came together to enable us to stay operational throughout the world of days of the pandemic, while adhering to strict health and safety protocols.
It is important the look back of the Covid case statistics across the country from October to January and to realize that the fourth quarter. We operated in an environment that was extremely extremely high case counts on significant absenteeism due to quarantine protocols the.
There is no question that COVID-19 had an impact on our business, but we're getting through it together and we're able to continue to grow organically and via acquisitions. Despite the challenges of plenty of twin.
Second we continue to make progress building a strong cash culture, our 'twenty 'twenty free cash flow of 178 million marks another year of well over 100% conversion.
Third we took additional steps towards repositioning Arkansas around more stable infrastructure approach with the this through continued organic the invest in the investments and acquisitions in our key growth businesses.
Construction products on the engineered structures as a result, we added the resiliency of our portfolio of significantly less cyclical than we were when we became an independent company in 2018.
For 'twenty 'twenty, one we're planning for a modest decline in year over year EBITDA from our current portfolio of businesses, excluding any upside from potential acquisitions.
The underlying assumption of Saar for continued strength in our construction products on engineered structure of business.
We also see lower wind power delivery of some slowing on a slow year in barge business, resulting from low utilization rates in liquid barges on high steel prices impacting dry cargo barges.
We plan to continue to use our strong balance sheet to invest in organic growth initiatives and acquisitions in our growth markets at the same time, we're focused on managing our operating expenses that are on capital expenditures, particularly in the businesses that are seeing pressure.
Shifting to slide nine you can see an overview of our fourth quarter results are of beat the increased 6% outpacing revenue growth for the quarter, we benefited from higher margins of Cherry unimproved the improvements in our legacy aggregates business.
Please turn to slide 10 for the full year, we achieved another year of double digit revenue on the beat the growth while expanding margins are impressive 2020 performance was driven by accretive acquisitions on operational improvements in construction products and strong performance in our barge business.
I will now turn over the call to Scott those calls of our segment performance and then I will return to update you on the outlook for the business Scott.
Thank you Antonio and good morning, everyone.
I'll start on slide 11, and review our segment results from the fourth quarter and the full year.
In the fourth quarter construction products revenue grew 46% to $149 $1 million and adjusted EBITDA increased 73% to $31 million.
Segment EBITDA margin of 28% was up over 300 basis points from last year's fourth quarter, continuing the strong trend of margin improvement that we maintained all year.
Few highlights from the quarter.
Volumes in our legacy natural aggregates business were up significantly driven by higher infrastructure related work in Texas and the benefit of several bolt on acquisitions. We continued our trend of lower cost per ton through a combination of operating efficiencies lower maintenance costs and lower fuel costs.
Similar to the last several quarters, our mix shift resulted in lower asps.
The gross profit per ton of was up nicely from that mix shift and an improved cost structure.
Our two recycled aggregates the platforms Cherry on Houston, and strata and Dallas performed well during the quarter with healthy infrastructure and residential construction activity in those two key Texas Msas.
Additionally, two of our businesses that were the most impacted by Covid specialty materials and trench shoring products. Both showed signs of stabilizing in the fourth quarter after being impacted by slowdowns in the second and third quarters.
Lightweight aggregates volumes were up versus the fourth quarter of 2019 shoring products volumes were lower but EBITDA was flat as we were able to improve margins through cost reductions.
We still have several markets that were weaker than in Q4 of 2019, most notably oil and gas, but we are optimistic that recent increases in oil prices and the small pickup in drilling activity could yield benefits later in 2021.
Overall, our full year construction products growth was the 2020 highlight for our Casa we achieved 50% adjusted EBITDA growth through a combination of well performing the acquisitions and margin expansion in our legacy businesses from pricing growth and operating improvements.
Our full year segment margin of 23, 3% was up almost 250 basis points, even with Covid related downturns in several businesses.
The growth of our construction product segment has helped improve the resilience of our overall portfolio and we will continue to be of focus of our capital deployment, both organically and through acquisitions.
Turning to engineered structures on slide 12 revenue in Q4 was down slightly to $209 million and adjusted EBITDA was down 16% to $23 $3 million.
Our revenue decline was in line with our expectations as we idled one of our wind power plants in the fourth quarter to retool for larger wind towers that project has progressed well and we are ramping back up towards full production.
Our 11, 1% EBITDA margin in the quarter was below our expected, 12% to 13% range because of operating challenges in our utility structures business as we had roughly $2 $5 million of startup expenses at our reopened facility in Mexico, and Covid related impacts in several facilities.
We are on a path to return to a 12%, 13% EBITDA margin for the full year in 2021 with progressive improvement throughout the year as we ramp up our new plant.
Demand across transmission wind towers telecom and traffic structures has remained strong with healthy levels of inquiries across all of those product lines.
Additionally, our storage tank product lines in the United States, and Mexico had very strong quarters led by healthy demand for residential and commercial propane tanks in Q4.
For the full year of 2020 revenue in the segment was up 5% to $878 million and EBITDA margin was at the high end of our 12% to 13% guidance range. So it was an overall positive year for these businesses, we expanded our product lines grew revenue and reduced working capital significantly.
Moving to transportation products on slide 13, both revenue and adjusted EBITDA were lower than the fourth quarter of 2019, as we strategically extended our barge backlog the game time for the barge market to recover and.
In the fourth quarter, we also incurred a noncash impairment charge of $4 $5 million related the scrapping unusable barge manufacturing equipment that was purchased as part of the 2018 acquisition.
For the full year revenue was flat and adjusted EBITDA was up 22% to $78 million despite weak demand from rail components all year.
We have reduced our capacity and cost structure in each of these businesses, but may have to take additional actions of barge demand does not improve.
While we expect 2021 to be a down year on barge and roughly flat in rail components. The transportation products segment was a great source of cash to fund other growth projects across our costs in 2020, and we expect it to be of healthy cash generator in 2021 as well.
Turning to page 14, our free cash flow of $178 million was another highlight of our 2020 performance. It was the second straight year of free cash flow conversion well over 100% of net income and demonstrates our continued progress building of cash culture. We.
We made progress on receivables payables and inventory throughout the year and reduced our working capital by roughly 20 days from the end of 2019.
This excellent free cash flow has helped us fund disciplined growth, while maintaining a healthy balance sheet.
We ended Q4 with the 0.5 net debt to EBITDA ratio, which gives us significant capacity to continue funding our growth strategy.
I'll finish with a few financial points on page 15.
Q4, 2020, corporate expenses were consistent with our normal run rate of $13 million to $14 million per quarter. After adding back $1 6 million of acquisition related expenses, primarily from the stride acquisition.
We expect a similar level of 13% to $14 million per quarter of corporate expenses in 2021.
We had on other net loss of $3 8 million in the quarter related to a reconciliation between the U S and Mexico tax rates on foreign currency fluctuation throughout the year. This was offset by a lower tax rate. So the net impact on EPS was insignificant.
We finished the year with the tax rate of approximately 23% and expect the tax rate of 23% to 25% in 2021.
Finally, we finished 2020 with capital expenditures of $82 million, we expect to increase that to a range of $100 million to $110 million in 2021 made up of roughly $80 million for maintenance Capex, plus $20 million to $30 million of organic projects, primarily growth projects and aggregates in engineered structures.
Two final notes on 2021.
As we mentioned in yesterday's release, the February 2021 Winter storm in Texas, and the broader southern United States will impact our Q1 performance as we lost more than one week of production across a significant part of our operating footprint. The storms also created production issues and some steel mills.
And we are still evaluating the potential delays in our supply chain that this could create in terms of our plants and operations. We did not suffer major damage and have restored operations in most of our footprint.
Second we expect Q1 to be the lowest quarter of the year for us as we deal with normal seasonality in our construction products businesses plus the ramp up we have described in engineered structures, we estimate that approximately 18% to 19% of our full year EBITDA will be in the first quarter.
I will now turn the call back over to Antonio for more on our 2021 outlook. Thank.
Thank you Scott before we go into our guidance and outlook I would like to take a moment to review with you our long term strategy.
If you remember since we became an independent company, we defined the construction products on the engineered structures as the businesses, where we were going to allocate the capital for growth.
The growth capital would come from the rest of the orchestra businesses over the last couple of years, we have been able to allocate the capital generated internally the reposition the portfolio completely as you can see on slide 17 are of course is a completely different company than it was in 2018.
As of our aggregate some specialty materials revenue has more than doubled in the last few years, our costar has become a more resilient and less cyclical company.
As we look ahead into 2021, the strategy will not change we will continue to allocate capital to construction products on engineered structures by generating cash in the rest of the businesses. We think 2021 will be a year where of course of repositioning of repositioning becomes even more apparent.
As you will see in our guidance in 2021, we expect a good year for our growth businesses of construction products on engineered structures on the other hand, we believe our barge business will still generate good cash flow on EBITDA, but less than 2020.
What this means is that instead of using cash flow coming from March to support our growth. We will use our strong balance sheet with these temporary delay embarks replacement will the will not slow down the transformation of our calls.
Now, let's review our outlook on page 18.
Our 2021 guidance is for revenue of $1 78 to $1 9 billion on the EBITDA of $250 million to $270 million.
While the upper end of the range represents stable year on year over year of performance. This is really the story of growth for most of our business lines. The primary headwind as our barge business.
Before COVID-19 the fundamentals of the business showed the potential of a good recovery in the industry and we were actively booking strong orders once the pandemic started consolidation of consumption of oil and oil derivatives collapsed and liquid barge utilization dropped on the dry cargo side fundamentals during the last year have continued to improve.
However, high steel prices are preventing customer inquiries from converting into orders.
Most of the liquid and dry cargo replacement cycles remain fundamentally strong and we believe the slowdown will just make the cycle stronger. Therefore, 'twenty 'twenty, one will be a year, where we focus on maintaining our manufacturing flexibility to be able to serve our customers one demands once demand picks up.
As a result of our guidance incorporates transportation segment, adjusted EBITDA of $35 million to $40 million in 2021 day.
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Now to the business conditions first our construction product segment continues to benefit from healthy demand on.
The operations are located in the high growth markets, where demand has had strong has held strong throughout the pandemic, most notably Texas represented 60% of the segments volumes, while we have observed softness in non residential activity infrastructure spending has been stable on residential construction has provided a boost in the month were incurred.
Just by the pickup in the mine at some of our specialty materials business that were more impacted by Covid as construction delays have subsided and customers have looked to replenish low inventory levels. While there is some COVID-19 related uncertainty on the balance demand has improved.
The potential for a new long term highway bill with the spending above fast debt levels or of federal infrastructure Bill would be additive to our segment outlook. However, there is generally of lag for this type of stimulus to impact our results.
We continue to be pleased with the addition of a recycled aggregate offering carries with which our Houston on the recently acquired Australia on materials, which serves the FW.
We believe having the ability to offer our customers complementary sets of natural and recycled aggregates is of strategic advantage as environmentally friendly construction takes on greater prominence we're working to expand into other geographic markets and replicate our current success.
In addition to growth we have been able to improve margins. The margin expansion resulted from the addition of higher margin acquisitions on operating improvements we have made across the group on highlights the excellent strategic fit and successful integration of our acquisitions.
On that topic, our acquisition pipeline is robust and we continue to engage with aggregates and specialty materials companies that will expand our geographic presence on their portfolio of product offerings.
Shifting to engineered engineered structures, we have officially changed the name from energy equipment, recognizing the diversified offerings in the segment. Following the acquisitions made in 2020, our outlook for this business segment is positive overall as demand remains strong for utility structures in light of the.
Long term in investing in renewables grid hardening and other reliability initiatives also the traffic on telecom structure of business. We acquired last year have attractive long term fundamentals supported by increased investment in the five day rollout unhealthy VLT spending in the southeast markets that we serve we're excited about the opportunity to.
Spanned the suffering in other areas of our manufacturing footprint.
Additionally, our storage tank production lines are seeing strong demand as they benefit from the euro monetization on the strong residential construction.
Turning to win we're pleased to see a one year <unk>.
<unk> of the PTC approved in December providing the industry another year of partial credit from 'twenty to 'twenty five.
While we do not expect on impact on short term demand from this extension. It is still good news for the industry and should provide some additional medium term demand.
As we mentioned in the past, we expect winter our volumes to be down in 2021 as the industry transitions away from a 100% PTC. However, we are encouraged by recent improvements in inquiry activity and have received additional orders during the first quarter of 2021, we have always had a positive long term outlook for wind energy and given the pilot.
So of the new administration of our outlook has been more positive than it was a few months ago renewable energy is here to stay and will become even more important and there are cautiously in a great position to grow with the strength.
Now turning to transportation.
It is the segment that faces the greatest headwinds in 2021, owing largely to the COVID-19 downturn in our barge business that we discussed before however, we remain confident in a recovery of Covid cases go down on vaccines increased while we do not expect significant demand improvements in 2021 long term fundamentals of replacement need.
<unk> remain unchanged, therefore short term weakness means stronger replacement needs in the medium and long term share.
Shifting to components demand continues to be impacted by soft railcar markets.
The forecast suggest 2021 will mark the bottom and the rate of the client has slowed our rail components business has continued to expand markets into the industrial sector and should see a rebound later the in the year of the rail markets improves.
Turning to slide 19, you will see that taken together the fundamentals of of all of our product offerings remained solid for the medium and long term and we see potential upside that could offset softness in some areas.
As we reflect on 2023 things are clear first we continue to operate successfully despite the challenging operating environment that I'm extremely proud of how are they of course the team performed during 2020.
Second we deployed capital into our growth business via organic initiatives and attractively priced acquisitions with these initiatives, we expanded our footprint and product lines and have created new growth platforms for our culture.
Our strategic repositioning into high growth less cyclical businesses have continued to take shape on that value of the main focus of our growth has been on our construction products business, which has almost double the share beat that is the time of our separation as you can see from our 2020 of results. The these repositioning has made our cause of far more resilient to economic size.
And we were just a few years ago.
In 2021, we will continue to allocate capital in line with our long term plan to grow in attractive markets, where we can have competitive advantages reduce the complexity and the cyclicality of our business improve our long term returns and integrate ESG into our business.
To that end followed following up on the detail. The as you update we published last August we plan to publish our fourth full year sustainability report in the first half of 2021, which will integrate the DC of the framework and supporting SaaS the metrics operator, I would like to open the call to questions.
At this time, if you'd like to ask a question. Please press the star and one on your Touchtone phone you may remove yourself from the queue at any time by pressing the pound key.
Once again that is star one to ask a question. We ask that you. Please limit yourself to one question and one follow up question.
We will pause for a moment to allow questions to queue.
Our first question comes from Brent Brent Thielman from D. A Davidson. Your line is open. Please go ahead.
Yeah.
Great. Thank you.
Tony on where Scott does the guidance imply you're effectively don't see any kind of meaningful back cash rebound in either barge of wind related.
I guess, earning the revenue and if not is that still possible. If we were to see orders accelerate here in the first half.
Yeah.
Sure Brent This is Scott I'll take that question. So let me give you a little cadence color on the cadence of 2021, and then and then get to your back half question.
In construction products, we expect it to follow a normal seasonal trend, where Q1 would be the lowest meaningful step up in Q2, and three and then a bit of a step down in Q4, that's likely to be even more pronounced this year because of the February winter storm in Texas, but it'll follow the normal seasonal pattern.
In engineered structures, we do expect a bit of of ramp up throughout the year as we.
Increased production out of the newly reopened facilities. So Q1 would be the lowest followed by a step up in Q2 through four.
We do have some unsold capacity in the in the fourth quarter, but we're encouraged by our inquiry levels across all of the product lines and don't expect.
A problem filling out debt capacity and then of transportation products.
Q1 likely will be the lowest because of our production schedule, but then relatively flat Q2 through four.
We there.
There is the possibility of of.
You know upside on the back half of demand conditions improved significantly that would require a meaningful step down on steel prices in the pretty short term because of the lead time required to sell barges and then get them in the production schedule. So that's all incorporated in our guidance range and the top end of the guidance range probably.
Good.
Suggest a quicker rebound in barger.
Just to expand a little bit the I've mentioned in my script that we got some orders for wind towers in the first quarter and these are for this year.
So there's still time for additional orders to materialize. Our assumption is that the there is there's not much happening this year in terms of additional of barge and on the wind tower orders. There is still some time, but I think we're building a model that shows our best expectations for the moment.
Okay, Great and then I guess the follow up is on barge.
Just thinking about the business overall I mean, it would appear to me some of the fundamental drivers behind it are looking.
They are improving and I would think that helps your customers at least over time. So I guess the question is do we need to wait out these elevated through steel prices.
Before we see some sort of recovery in orders just be curious of your customers are telling you.
Yes, I think that's the important piece of the conversation.
That's the.
Just touching on and I think that's the key message of key message, we're seeing from our customers, especially on the dry cargo side.
There is a significant need for new barges the risk placement cycles seems strong.
Every culture of prices have gone up transportation margins have gone up the.
The prices of commodities have gone up the size of the crop was very large so so the fundamentals of the barge recovery cycle, especially on the dry side are very strong steel prices as you know.
The 2020, everyone in the pandemic.
The freaked out basically in the slow down production of steel than the rebound came faster than anyone expected, especially on the automotive on some other industries that created a huge huge demand for steel and price is just went through the roof.
That is compounded with the all these weather events.
Hitting the steel mills so.
Rice of should start to stabilize sometime.
Sometime later this year, probably in the summer late summer and as that happens I think we'll be able to sell some additional of bar just because they are needed on the liquid side.
The price of oil have continued to improve and that should be really good for the industry. The resolve of the things happening that should help bartsch.
On the pipeline for example, the cancellation of the pipeline could mean that there is more oil being moved to the Embarq just it et cetera. So I think once volumes come back that's the board of important piece price have come back the volumes continued to be below 2019 levels once volumes come back barge utilization should go up.
And then the replacement cycle starts. So that's why we mentioned in my script that are key for 2021 of stay flexible.
We're going to take all the actions needed to reduce our cost structure of what we're doing to try to stay flexible to respond to the additional demand when it comes back because we believe it's going to come back.
Thank you.
The next question comes from Ian Zaffino from Oppenheimer.
Your line is open. Please go ahead.
Hey, guys.
Thank you very very much for taking my question.
Question would be on the growth Capex.
You touched upon it a little bit can you give us a little bit more color on that.
Where is that going to be going why you're doing it.
Should we really be expecting from that investment and I have a follow up thanks.
Sure. Thank you Ian let me, let me give you some color of where were seeing the growth capex.
The the let's say the color on this growth Capex is that the good news for us.
Our core sales that we have more projects than them and then money to invest in terms of organic capex.
We're being disciplined as we've always said on the capital allocation I'm, having several projects to invest means we can choose the best ones.
These projects were investing in if you remember last year, we bought the a small telecom business and we bought a ultra the concrete bolt business and.
To support a range of engineered structure product offerings.
As we said at that time, our goal is to expand those those small business across some of our footprint and a lot of the Capex. We're investing in 2021 will go towards debt to expanding our footprint for those new product offerings across across our culture. We're also investing some in our construction segment of the specialty materials.
So on our plaster plant, we are doing some investments there.
But those are the two biggest projects, where we're investing as we've said the two growth areas, where our goals are engineered structure of construction growth and Thats, where the capital is going.
Okay, Great and then as a follow up.
I know you of a lot of exposure the taxes in aggregates.
It's like the infrastructure of winding its way through.
Can you remind us.
As far as Texas expenditures, how much of these projects driven by state level of spend versus federal level of spend or what tends to be the mix I'm.
I'm, just trying to get a sense of it.
We start the key incremental federal dollars.
How much of an uptick would that translate into.
Some of your Texas exposure.
Sure and this is Scott thanks for the question.
No.
In Texas, Texas actually has a lower amount of federal reimbursement than the national average so it's more reliant on state spending and that's good because of the state fiscal health is very strong plus you have the upside from potential federal infrastructure. Bill for example, Texas Lettings were up in <unk>.
Thousand 'twenty versus 2019, which.
It was one of the strong it was one of the stronger States. The American Road in Transportation Builders Association forecast for 2021 has Texas as a stable and growing state and then recently the the state D O T.
Firmed, its 10 year $75 billion unified transportation program. So all signs at the state level are positive in Texas, and then we could see some potential upside from a federal bill although that would likely be.
The nine to 12 month lag time, so more likely at 2022 impact for us.
Gotcha, Okay. Thank you very much on quarter on thanks for all of the color on the guidance.
Thanks Ian.
The next question comes from Stefan of Greece.
From CJS Securities. Your line is open.
Please go ahead.
Antonio on Scott Good morning.
Good morning.
So the construction products segment as the performing really well can you give us a sense of the organic growth in the aggregates business.
Sure Steph this is Scott.
The organic growth was very strong in aggregates, we said volumes up significantly so so high single digits.
A lot of that was was.
Organic through improved infrastructure related work in central and North Texas.
And then part of that growth was with several bolt on acquisitions that really of more like organic where we've added single mines to expand our geographic footprint and the Texas triangle, So very healthy organic growth plus some nice bolt on acquisitions.
The other piece that the simple.
One of them to remember Stefan losses in 2019, if you compare the quarter of fourth quarter of <unk> 19 versus the fourth quarter of 'twenty.
We have good of oil exposure in the West, Texas, and Oklahoma, where we still have significant volumes there in 19.
In 'twenty.
It's come down significantly so those numbers, sometimes say it create some cloudiness across the volumes of our volumes were actually stronger too.
The intrigued him very.
I'm excited about the potential of the business on.
And I think there's great opportunities for us to expense. So that's the way it's think about it right now it's just the we're we're just getting started on them.
Great. Thank you for taking my questions.
Once again on a star.
One to ask a question on next question comes from Justin Burner from D. Reset. Your line is open. Please go ahead.
Good morning, Antonio of the morning Scott.
Good morning.
I guess to start just thinking about the guidance.
Should I think about the entire of revenue decline.
As coming from the barge business or maybe even greater than of 100 per cent of the revenue declined giving you have some some inorganic contribution the other businesses.
And sort of similarly.
For the EBITDA.
Sure just it up I will take that I think I think you're right in terms of the revenue guidance.
Essentially all of the decline maybe even.
More than 100 per cent of the decline we've got it too will be in transportation products.
Almost all of that is in bars, just given the magnitude of of.
The dropped the we've talked about and barge construction products, we see healthy revenue and EBITDA growth and engineered structures.
Likely given the organic projects that we've talked about plus some of the the growth of the acquisitions, we did in telecom in traffic.
Revenue flat to slightly up and then.
We would expect EBITDA on the same range that we had this year.
The number of the organic growth projects would offset the potential headwinds in winter. So you're right that the the decline both on revenue and EBITDA is almost all on transportation products.
Okay, great and the 12% to 13% adjusted EBITDA margin range that your guidance for an engineered structures I realize that just of 2021 range, but what would cause that.
To inflict higher or lower you know as we look out.
The C. Later of 2021 and she does it shouldn't be on.
Yes, so the.
Just in the Salt O'neill.
Like to give you some color on that I think.
The business has performed really well if you see how we've done over the last few.
A few years.
It's the improved pretty significantly.
There has to be.
Things that one is when.
Winter hours is driven I would say by volume on by by the conditions of the market and.
In the last.
Few years, we've been very I would say aggressive in terms of the.
Focusing that those will need to compete on a level level playing field with the other countries. There were significant the number of hours coming into the U S market, taking advantage of some steel.
Dar of some kind.
Basically dumping dollars into the us market.
So one thing has to the.
Has helped the the margin on will have the margin in the future I think is making sure that the U S compete head to head on a level playing field with other countries and we think that's the conditions are here the.
That will happen.
Also has the of the wind industry becomes more important that sort of.
Expectations over the next few years the man's should improve on that should also help us on and that should help us keep good margins in windpower. So that's to me positive tailwind four margin improvement over the next few years on the wind site on the utility decided I think volumes are good I think.
The man the spray robust.
I think that's all of our side I think thats on internal thing that we have to continue to work of we have expanded capacity in Mexico last year.
We're going through the ramp up.
Or you can the structure of business has been probably the most affected by Covid in terms of the number of cases on.
Ramping up of facility.
Of the country.
With new equipment with technicians, not being able to travel on those things have been probably the toughest piece for our quarter. So I think as we were up ramp up our business.
I think that's also positive for our margins in the in the in the future. So I think you have a combination of outside markets that are robust and we have to execute and that should take us.
According to the guidance that Scott gave you, but I think there is good potential to continue to grow those margins in the future as we execute better.
Okay great.
And then maybe just lastly, the EBITDA hit from the the weather in Texas or are we just talking about like a couple million.
Or is it going to be more pronounced than that.
Just trying to think about how that might affect the guidance range of you provided.
Sure. Justin This is Scott I think the the good news is the Q1 is the slowest quarter of the year in construction products and so taking a week out of production in the first quarter should have would have the lowest impact of any of the quarters, but we did lose a whole week across Texas.
Other than a good chunk of of the footprints so it will likely.
Several million dollars plus we've.
We've restored operations, we had no major damage, but losing the week of production across most of the footprint will will impact Q1 and typically.
That volume is not caught up there are other bottlenecks in the supply chain that contractors can add labor of the construction activity just gets pushed into the next quarter and then in the next year. So we've got the number of questions about whether that's that gets caught up within the quarter or on queue to an typically that's not how the impact of major weather.
Their events happened.
Yes, and the and when Justin sorry, just to complement it when you slowed out when you shutdown of plan do you have a double hit you have of hate basically you lose revenue on those things, but you also lose the absorption of your cost structure. So it's normally not only a reduction in revenue bottles of it in pursuit of margin the.
The first quarter that Scott gave on the in terms of the cadence of of the of the guidance.
We see of course of the impact of the storms and takes US we have to ramp up is happening in our <unk>, Illinois plan for our when we have the ramp up in our plant in Mexico 444 transmission towers and there is some potential for the still delays that Scott mentioned.
Some steel mills have had significant problems with the with the with the storms. So I think we're confident that the first quarter is going to be a little.
Rocky, but beyond that we're very optimistic about the second third and fourth quarter.
Great. Thank you for taking my question.
The last question comes from the.
Any on company.
Please go ahead.
Yes, hi, good morning.
Good morning, good morning.
Could you maybe speak to.
The band trends for storage tanks in Mexico, I know, that's something that was improving sequentially on the third quarter.
Thank you call. The study on the prepared remarks of just was hoping to get some additional color. This evening is that still improving or maybe more on line with third quarter of demand.
Sure Let me give you some color because.
We have a pretty wide range of of of storage tanks in Mexico. So I'll give you. So we make everything from of barbecued cylinder to a huge sphere that you've seen in the refineries or petrochemical plants. So each one of them has their own of different the trends right now as you can imagine with the cold weather and.
The the demand force a small story appropriate banks has increased dramatically both in the U S. On Mexico. It's normally normally happens during the winter months, but this year has been specially the strong and we've had a really good year in the U S. On really good to hear in terms of small propane tanks in Mexico. So so that's.
That's really good deals on the larger side of the U S is doing well we have the demand for large tanks in Mexico as you know the the economy's not doing well in the investment is not happening. So large storage tanks are not not that strong we do have good.
The projects for the for the the ones that are built the on site.
Huge things you've seen refineries in on.
Petrochemical times, we have a few of those that are really good projects for 2021, but overall the majority of our revenue comes from small propane tanks. That's.
So I'm very very well.
Okay, and I guess from a follow up could you give us an update on the containers specific barges you talked about last quarter and an idea of of the potential incremental sales as a result.
Yeah. So we.
I'm glad you asked of out that we.
The the two.
We're building two container barges right now.
We've been very active in going visiting customers on showing them the potential the container of barges will be done probably late in the spring.
This year and we'll we'll we'll start testing them with customers. We have a few customers that have been very intrigued by them on we will be testing them. I don't think you should expect the incremental revenue of this year from them. This is a year of innovation on testing.
But I am very optimistic about the potential of those barges on some customers have been very intrigued by them. So.
I think it's it's it's something that as you know containers or a huge mode of transportation across the U S and there's very little happening on the river.
So so building a container specific bartsch.
Thank the economics look really positive on we hope we hope it's successful.
Great. Thanks for taking the questions and best of luck of 21.
Thank you.
That is all the time, we have the question.
And the program back alright.
Any additional of closing.
Right.
Thank you Gretchen and thank you everyone for joining US today, we look forward to speaking with you again next corner.
This does conclude today's program. Thank you for your participation you may disconnect day anytime.
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