Q1 2022 Arcosa Inc Earnings Call
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Good morning, ladies and gentlemen, and welcome to our Kosta.
Our coastal Inc. First quarter 2022 earnings conference call. My name is cordless and I will be your conference call coordinator today as a reminder, today's call is being recorded now.
Now I would like to turn the call over to your host Aaron Dray back director of Investor Relations for Arcos that straight back you may begin.
Good morning, everyone and thank you for joining Arco's first quarter 2022 earnings call with me today are Antonio Carrillo, President and CEO and Gail Peck CFO , a question and answer session will follow their prepared remark.
A copy of yesterday's press release and the slide presentation for this morning's call are posted on our Investor Relations website.
The arcos that dot com.
A 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 replay of the webcast will be available for one year on our website under the news and events tab.
Today's comments and presentation slides contain financial measures that have not been prepared in accordance with GAAP.
Reconciliations of non-GAAP financial measures to the closest GAAP measure are included in the appendix of the slide presentation.
In addition, today's conference call contains forward looking statements as defined by the private Securities Litigation Reform Act of 1995.
Forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from such forward looking statements. Please refer to the company's SEC filings for more information on these risks and uncertainties, including the press release, we filed yesterday and our Form 10-Q , we expect to be filed later.
Today.
I would now like to turn the call over to Antonio.
Thank you Aaron.
Good morning, everyone and thank you for joining today's call.
Starting on slide four I'll begin with some first quarter highlights.
Led by our growth business is construction products and engineered structures are costar delivered strong first quarter results with adjusted EBITDA growth of 30% outpacing revenue growth.
Our results were driven by healthy infrastructure led fundamentals and proactive pricing actions supported by solid operational performance.
Certainly we benefited from the contributions of recent acquisitions in construction products, where integration is progressing well.
During the quarter, we effectively manage it.
Headwinds in our cyclical businesses and I would like to commend our team for their continued dedication and execution in a challenging market environment.
On a positive note our barge business received $105 million in new orders during the first quarter benefiting from our ability to secure competitive steel pricing.
All these orders come at a lower than historical margin, we see the activity as positive sign reflecting pent up replacement demand for hopper barges and extend our backlog into 2023.
Earlier in the week.
We were pleased to announce that we reached a definitive agreement.
To divest our storage tank business for 270 $275 million in cash Cigna.
Significantly advancing our strategy to simplify our portfolio of businesses.
We continue to have an attractive pipeline of organic and acquisition opportunities with key focus on construction products and engineered structures and the divestiture enables us to accelerate these opportunities.
Overall demand conditions across our growth businesses remained strong and we continue to see indications of recovery within our cyclical businesses at the same time, we're focused on closely managing inflationary pressures.
Global steel prices remain elevated and following the outbreak of the conflict in Ukraine. We now expect prices to remain elevated at least through the remainder of 2022.
Even so based on our strong start to the year, we're raising the midpoint of our 2022 full year adjusted EBITDA guidance and now expect annual growth in the range of 2% to 8%.
Finally, I'm pleased to announce that our of course, our recently published our second annual sustainability report, which is now available on our website.
This report provides a comprehensive view of the many ways in which our closeness incorporating ESG initiatives into our business and our vision for driving sustainable long term growth.
Turning to slide eight.
To provide some additional highlights on our divestiture announcement before we move into quarterly results.
The sale of our storage tank business consistent with our strategy to reduce the complexity complexity of the cyclicality of our overall portfolio and we intend to redeploy the proceeds into our key growth businesses.
This divestiture is an excellent example of improving our business and then preparing it for monetization when the market conditions are supportive, enabling us to realize significant value through a competitive sale process.
At spin our storage tank business was underperforming generating negative EBITDA in 2018, we.
We set out to improve the profitability through lean initiatives and our strategy to accelerate growth.
Beginning in late 2020, Covid, the urbanization trends and a strong housing market led to significantly improved results for the business with 2021, adjusted or beat the pacing ahead of normalized levels.
To capture future growth opportunities, we believe the business requires additional capital.
It is an opportune time for new ownership.
We anticipate the transaction should close in the second half of the year and we will update our full year 2022 guidance at the time.
Our pipeline of investment opportunities is robust and includes attractive acquisitions and organic initiatives that would not only strengthening our current broke offerings, but also expand our geographic footprint.
From from an organic standpoint, we are making solid progress in our growth projects.
Including the expansion of our specialty materials plaster plant as well as two new greenfield locations in natural aggregates.
In addition, we are expanding our product lines in the utility pole business and earlier in the year. We started production of spun concrete bolt in Alabama.
Given the successful launch of that line. We recently approved a new 30 million spun concrete pole plant in Florida, which will start operations in 2023.
The combination of these organic and inorganic opportunities coupled with the additional capital coming from the divestiture of the tank business should provide our casa with multiple pathways to further strengthening our business and accelerate growth.
Finally on slide slide nine are of course that has made significant progress since 2018, creating a less cyclical and more resilient company, we attractive infrastructure capital is supporting long term growth.
The sale of our storage tank business enhances our capacity to continue expanding our focused growth areas.
I will now update.
Provide detail on our financial results for the first quarter and I will return to discuss our updated outlook Gail.
Thank you Antonio and good morning, everyone.
I'll start on slide 11, and touch briefly on our Coke is consolidated result.
First quarter revenues increased 22% driven by double digit sales growth in construction products and engineered structures.
Pacing the increase in revenues first quarter adjusted EBITDA improved 30% led by solid top line expansion and stronger profitability in our utility structures business overall, adjusted EBITDA margins increased 90 basis points to 13, 7% in the first quarter.
Turning to construction products on slide 12, the SEC.
<unk> performed in line with our expectations for the seasonally slower first quarter revenues grew 38% and adjusted segment EBITDA increased 26% due to both acquisition and organic contribution to.
The decrease in segment EBITDA margin compared to year ago levels, primarily reflected the inclusion of stone point materials with margins below the segment average and operations more exposed to winter weather in the first quarter we.
We expect overall segment margins to improve in the seasonally stronger second and third quarters of this year and we continue to anticipate higher full year margins in 2020 two.
Natural aggregates volumes were up significantly with the additions at some point in the southwest drop.
On an organic basis, we generated low single digit volume growth in line with our expectation that adjusting for certain large projects rolling off and central Texas.
Favorable demand drove broad price increases across our market with average organic pricing up mid single digits, helping to offset inflationary cost pressures.
Turning to recycled aggregates volume and pricing increased significantly in the first quarter, reflecting healthy residential industrial and infrastructure demand.
Specialty materials volumes and average selling prices were also up in the first quarter, primarily driven by strong demand in building products and infrastructure end markets. We were pleased to see volumes and our plaster products line restore to pre pandemic levels.
Due to an ongoing recovery in flooring demand.
Finally, our trench shoring business reported a 32% increase in revenues on higher steel prices and increased volume order activity was strong during the quarter, providing solid production visibility.
Moving to engineered structures on slide 13, first quarter revenue increased 21% and adjusted EBITDA increased 38% to $36 million, resulting in a 14, 5% margin ahead of our 12% to 13% targeted range.
Benefiting from attractive market fundamentals and a favorable mix along with improved efficiencies associated with our production ramp in Mexico. Our utilities structures business began 2022 on a strong note with significant revenue and margin growth in the first quarter. Our team has done a fantastic job improving overall profitability.
Yeah.
Combined revenues in our traffic and telecom businesses were also up compared to last year on favorable demand drivers and are well positioned for further expansion in 2022.
Order activity for utility and related structures with healthy with a book to bill above one times during the quarter.
Our storage tank business also had a strong start to the year with revenues up 39% led by pricing growth in our U S business, we maintained overall margins despite significant steel price deflation.
Turning to wind towers, we executed slightly ahead of plan during the first quarter on significantly lower expected volumes compared to the prior year order activity in the first quarter was muted as our customers continue to await a PTC extension.
At the end of the quarter, the combined backlog for utility wind and related structures was approximately $421 million up 11% from the prior year period.
Turning to transportation products on slide 14.
Although first quarter revenue and adjusted EBITDA declined year over year due to lower barge volume and pricing our barge business performed better than we had anticipated.
The upside relative to our expectations reflected an improved customer mix and associated production efficiencies as certain higher margin barge orders scheduled for delivery later in the year moved into the first quarter.
Revenues in our steel components business increased 20% in the first quarter on improving fundamentals in the North American railcar market first quarter order volumes were significantly higher compared to last year's trough level and this business should continue to benefit from improved operating leverage throughout the year.
Our bar, our barge backlog increased 100 and $251 million at the end of the quarter up from $93 million at the start of the year. The orders we received during the quarter helped fill it in our plan production scheduling for 2022.
Moving to slide 15, we ended the quarter with net debt to adjusted EBITDA of two times at the low end of our targeted range during the quarter, we generated roughly breakeven free cash flow up about $20 million year over year first quarter cash flow included approximately $20 million and proceeds received from the previously.
The announced sale of a non operating facility in our utility structures business.
While representing a use of cash first quarter working capital improved from prior year levels and we continue to expect it to be a source of cash in 2022.
Capital expenditures were $26 million in the first quarter for 'twenty 'twenty. Two we continue to see full year capex of $120 million to $140 million with the potential to reach the high end of the range based on several growth projects, we have underway and construction products and engineered structures.
As Antonio indicated we plan to update our revenue and adjusted EBITDA guidance for the divestiture as we move closer to the Saturday.
I will now turn the call back over to Antonio for more discussion on our 2022 outlook.
Thank you Gail.
As Dale discussed our first quarter results provided a strong start to 2022, providing increased confidence in our outlook for the full year.
While it is early in the year, we continued to see strong demands for our products in many of our key markets. We're closely monitoring the inflationary pressures and proactively raising prices to compensate for higher material and other input costs.
The same time, we're staying in touch with our markets to watch for any signs of economic cooling as interest rates continue to increase.
Please turn to slide 17, the overall demand environment for construction both remained strong reflecting continued positive fundamentals in our key markets.
Through a disciplined and focused acquisition strategy, we have significantly expanded our geographic presence, which now includes numerous attractive markets where continued infrastructure investment is required to support local population growth.
Our expanded port for portfolio of products, including natural and recycled aggregates and specialty materials.
<unk> is our construction products platform to deliver solid top line growth with improving margins through 2022.
In addition to the federal infrastructure, Bill, which allocates allocated 110 billion of new infrastructure funding for highways and other infrastructure projects is expected to provide a favorable tailwind for this business starting in late 2022 and continuing into 2023.
The outlook for the girls business is within the engineered structural segment remains positive.
Favorable order activity for utility telecom and traffic structures.
In 2022, we anticipate our engineered structures.
<unk> to continue to benefit from significant utility capex for grid hardening and reliability initiatives continued road infrastructure investment in Florida, Another southeast states and the build out of <unk> networks.
Moving to slide 18 in our cyclical businesses.
We were pleased to see an uptick in our barge business, where we secured $105 million of new orders in the first quarter.
Primarily for Hopper barges as I mentioned before although these new orders carry margins below historical averages. They nonetheless enabled us to fill our planned barge capacity for this year and extend our backlog into 2023.
With steel prices are anticipated to remain elevated we expect these extended backlog to allow flexibility for our plans to retain our workforce in anticipation of accelerating demand once conditions stabilize.
We believe that these recent barge orders represented narrowly but importantly indication of underlying hopper barge replacement demand, reflecting an ageing fleet and years of under investment need new barges.
When when our long term outlook remains positive supported by rising importance of renewable energy.
The war in Ukraine, and the policy moves towards reducing greenhouse gas emissions indicates a need for our clear and aggressive renewable energy policy. However, at the moment customer demand for wind towers, as though given the uncertainty surrounding the timing of our new production tax rate.
We remain optimistic about the PTC extension, however, timing continues to be uncertain.
Following three years of declining North American railcar production, new railcar deliveries are forecasted to increase as much as 50% of this year.
And that should drive significant growth in our rail components business through 2022.
Turning now to our updated outlook for 2022 on slide 19.
Excluding the impact of planned divestiture of storage tank business in the second half of the year, we are raising the lower end of our adjusted EBITDA guidance to $290 million up from 280 previously.
The midpoint of our revised guidance range, we anticipate 5% growth in adjusted EBITDA for 2022 from 'twenty to 'twenty one.
The tightening of our adjusted EBITDA range reflects our strong first quarter as well as confidence in the outlook for our growth businesses and have better visibility to our planned production volume within our cyclical businesses.
Being able to continue to grow the company, while some of our cyclical businesses are operating at or near the bottom of their cycle speaks speaks of the resilience of our portfolio of businesses.
On slide 20, I would like to take a moment to discuss some of the highlights of our recent recently published sustainability report for 2021, which provides a comprehensive look at how we are incorporating ESG initiatives into our business and long term strategic planning.
First and foremost we continue to make progress in building our safety culture, our 'twenty to 'twenty. One total recordable incident rate improved from prior year has declined 60% since 2019.
At the same time, we further improve diversity and inclusion within our overall workforce with focus on expanding roles and opportunities for women that are closer.
From an environmental perspective, we achieved reductions in both what are uses water usage and water usage intensity, while also reducing greenhouse gas emissions and greenhouse gas emissions intensity.
We also reaffirmed our commitment to environmental responsibility by establishing an initial short term scope, one and scope two greenhouse gas emission intensity reduction goal.
Let me end my remarks, with some concluding comments, we're off to a strong start in 2022 and the outlook for the year remains favorable supported by continued positive fundamentals in our growth businesses unimproved promotion visibility in our cyclical businesses.
The planned divestiture of our storage tank business is consistent with our long term strategy to reduce the complexity of our costar and enhance shareholder value by allocating capital to those markets, where we can generate long term sustainable growth. Finally, we continued to make important progress integrating ESG into our daily operations and long term strategies, operator, I would like to open the call for question.
Yes.
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We will take our first question from Ian Zaffino with Oppenheimer. Your line is open.
Hi, great. Thank you Brian .
Very nice quarter nice to see a COVID-19 .
Or any guidance being increased.
Or is it kind of.
Go through your maybe your philosophy on the storage tanks out I know you want to reduce the non cyclicality of the business and I understand that I think that's great.
But why was this the first call it cyclical business to go.
Maybe walk us through how this happened and then your view on the remaining cyclical pieces of the business as far as maybe timing or just.
<unk> value kind of bucket.
Sure Ian this is Antonio and so.
No.
Said several times in these calls that the M&A, both buying and selling it takes a life of its own based on conditions in the markets or in the conditions of each business.
And as I mentioned in my remarks.
If you look at our documents from a our first investor they would before the spin.
In the energy business in the energy segment at that time, the engineered structures today.
One of our priorities said fixed businesses, we had a lot of businesses that have to be fixed and the storage tanker business was one of them.
We tend to forget about before spin or right at where we were spinning we sold two businesses very small business. One was an oil services business in Canada and another one lesson small cryogenic business that we had in the U S. Both of them losing money.
The business the tank business, we just sold was losing money in 2018.
So we needed to fix the business before we thought about selling it.
As I mentioned in my remarks, the business improved.
Throughout this period.
We had a very strong 2021, given the conditions Covid created.
To continue to grow the business, we need to deploy a lot of capital into it.
At the same time, we were starting to look at Oh, the divestitures on simplification and the conditions were right normally find a we found a great. What we think is a great buyer for the business and for our employees and the timing was just correct no.
So.
In the philosophy of how we think about it I think it has to do with it.
When we can monetize the business.
First for our investors.
It doesn't have to be necessarily the highest price.
Of the of the cycle I think in this case, we caught the peak because.
The business can do more but you need capital.
But in the rest of the businesses, we're going to evaluate you know combination of price and.
And also the impact to the overall portfolio of our calls on them. So it's a I think it's a combination of different factors I think in this case is something like the business a great business. It's there's nothing wrong with it. It's a it's a great business that is the original business, where Trinity started the company in a it's a.
Fantastic because there's nothing wrong with it so I think I'm not sure if I answered your question.
No and I thought that was very helpful. And you know I guess dovetailing on that question is you know you are sitting here with a nice amount of proceeds from it I know you mentioned, putting it into construction, but can you maybe give us a little bit more color on that does that mean that you all of the proceeds maybe.
Into that would it be larger than that where you would take on a little bit more leverage them to buy something bigger and maybe what multiples are you seeing or would you anticipate to pay.
You know in this market.
Well as you know.
Yep.
Again, M&A has a life of its own so.
We had something always very close we will announce it at the same time. So we are working with different different projects as I mentioned, our pipeline is relatively full both in organic and inorganic opportunities.
The first one I would mention on the organic side, we have three projects going on that we are we announced at the beginning of the year no new plaster plant and two greenfield locations in aggregates.
In my remarks, I mentioned that we just approved another $30 million for a.
Concrete ball plant in Florida. So the good news is we have a lot of projects to deploy capital organically and then on the inorganic side it would be mainly on the construction aggregates and recycled aggregates are our two main focus we have good opportunities.
Based on the progress we have right now I don't foresee us doing something enormous.
Yeah that would take us beyond our guidance, we have given them that are on our.
Targeted.
Net debt to EBITDA, Yeah, I think we have the flexibility right now.
It would have to be something really really important for us to go beyond our our guided targets even in in terms of net debt to EBITDA for several reasons, we still have cyclical businesses, even though they are operating at the low low part of the cycle. We want the we conservative secondly, there is some certainty around the economy.
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That's approaching so we want to be conservative as we approach that over a certain period no.
Okay, great. Thank you very much and the color.
Hi.
And we will take our next question.
From Brent Thielman with D. A Davidson your line is open.
Thank you and good morning.
Good morning.
Hey, Antonio in the aggregates business is it is it your expectation that margins can sort of returned to prior year levels or better.
Into the construction season or are these higher cost or.
For diesel and other inputs kind of prevent that in the short term.
Hey, Brian Good morning. This is Kate why don't I take that and I'll, let Antonio add on and as I said in my comments, Yeah. We did see our expected we did see our first quarter.
Construction margin lower than the prior year, but we do expect and that is a seasonally slow quarter for US is as you know and we would expect to see margins.
Particularly in the seasonally stronger second and third quarter and accelerate and we do anticipate higher margins for the segment year over year on a full year basis.
Yeah, we've we've been pleased with the ability to offset pricing pressures excuse me inflationary pressures, whether it's diesel.
Raw material inputs are with strong pricing leverage that we've had against that what continues to be and where and you know as Antonio said were watching for for signs there on the economy that continues to be very strong construction activity, yes, and that allowed us to gail's comments I think.
It seems we bought stone point it creates noise because it's it's a lower margin business given they're there.
There is the business.
Business conditions in the regions, where they are.
Especially the first quarter and the first quarter, there were more exposed to the cold weather to snow and things like that but also the they still have a portion of the asphalt business that we run basically shuts down during the first quarter. So.
It creates a lot of noise, but we do expect improvement as we go through and our team is very focused on price increases to compensate for inflation. So I think up to now they've been able to manage it very well and we continue to expect margins to go up as we progress through the year and we saw it as we progress through the quarter we sold.
Margin improvement. So what you see is a combination of January February and March as you dig deeper you would see improvement as we went through it.
Okay. I appreciate that and then I guess second question is on the barge business I'm encouraging to see some orders coming in.
Here in the first quarter, just wondering you know what.
Our inquiry levels are at you.
Continuing to take new orders since the end of the quarter.
Yeah. It looks like your expectations really haven't changed for the business through the course of the year.
So maybe just an update there.
Sure you know.
In our previous conference call was scaled the day they were the war in Ukraine broke.
And you know at that time every forecast still dropping very significantly this year.
And with the war in Ukraine.
I think it's more on the supply side of raw materials, that's heating the industry and prices remain high.
And so what what really what these Florida is new for US, which is very important it allows us to plan.
Planning period, so that we can keep our workforce to make sure that we keep our plants open and operating and are in good condition. So that it also gives us a margin that we were not expecting so it improves our numbers some but the most important piece is we continue to see significant pent up demand, especially on the corporate side.
Lotteries continued to be very strong every customer we talk to needs barge needs barges scrapping continues to happen with scrap prices have gone up a pretty significant he if he comes games stayed high hopper barge and scrapping has continued.
So that is creating on the investment on one side on scrapping on the other side is creating what we consider the pent up demand that's going to come so once that stabilizes a little bit I think we're going to see significant demand.
When is that going to happen there are several things that need to happen there needs to be some more clarity around how this a Ukrainian war gets resolved. The other thing that's coming there's significant capacity on planes coming online later this year and and that's going to house, we expect significant impact in the demand and supply.
The main factors starting in 2023.
So these soldiers allow us to plan into the air.
Early 2023, and will give us better capacity to make decisions at the end of the year, we do see additional.
Orders in the next few months based on the inquiries, we're having both a hopper barges and the smaller tank barges, which are 10 case, what we call mainly for petrochemical industry with oil prices, where they are on gas prices, where they are the petrochemical industry in the U S is going to do fantastic and they're going to require a barge.
Okay. Thank you I appreciate all the answers best of luck.
Okay.
We'll take our next question from carriage Schimmel, yes.
With loop capital your line is open.
Oh I think so congrats on the quarter one of the follow up.
Natural aggregates or in particular, just wondering if you could provide an outlook for volumes.
For the year, considering if you have.
Large project roll off in Central Texas wait a little bit on Q1.
Do you think that volumes can grow this particular deal.
Large project as well.
That's a short term headwind.
Hey, good morning, Gary.
This is Gail Yeah, I think our performance in Q1 from a volume perspective, whether it was right in line with our expectations.
So as we look to the full year on organic volumes as we had indicated on our call last quarter. We did give similar guidance with that same adjustment for the larger projects rolling off.
We're seeing them, so so tracking very very well against our full year.
Oh single digit volumes, you know what could change that you know, it's a very healthy construction market right now of course, the weather could move more favorable on our side.
Also a general loosening of of you know supply logistic constraints. It it's hard to put a number on what that might be doing to volumes, but it certainly present out there in the market. So I think if we could see some some loosening there and you know have some havent good weather on our side.
Our outlook for the air continues to be very very favorable and in line with what our thoughts were when we provided initial guidance last quarter.
Got it that's helpful. One other follow up on the engineered structures and the margin performance.
There how much of that.
The strength.
On a year on year basis.
Price cost timing, how much was mix.
Then if you could just comment on how you expect margins to trend in that business.
Yeah.
I'll I'll take that one as well yeah. We we were as I said in my comments.
STREAMWAY pleased with the performance of our engineer.
Engineered structures segment in general and particularly our utility structures business.
We did have you know mix can matter in a particular quarter, we did have a favorable mix and you know efficiencies.
It is associated with that I mentioned on our ramp up in our Mexico facility is going very well. So we saw some.
The margin benefit to that in the quarter, you know, we do target of 12% to 13% margin for engineered structures.
Based on on Q1 performance and you know, we're very focused on having that full year be towards the higher end of that that targeted 12% to 13% range. Let me provide some additional Dale mentioned I think the tank business.
For the quarter was flat in terms of the margins.
So most of the or really all of the improvement in margin came from our utility structures and on the other engineered structures.
And.
When you talk to our team they are very very happy with the way the plant in Mexico has ramped up but also in the way the U S plants are performing well.
We are not even close to where they need to be there's still a lot to do and there's still a lot of improvements that need to happen are there implementing the lean initiatives all over the company. So I think there's there's a lot of work to do on improvements due to still capture in terms of margin, but demand is there. The important piece is that the demand is out there.
And we are we are able to continue to pick and choose some of the places where we believe we are in better position to capture additional margin.
Great that's helpful I'm comfortable.
Thank you.
Yeah.
We will take our next question from Julio Romero with Sidoti and company. Your line is now open.
Hey, good morning.
I wanted to stay on construction products and.
Ask about any progress update on the systems integration you have going on in the segment.
Sure I think it's going very well.
Yeah, we wouldnt lie in a couple of our business in the last couple of months and.
Things are progressing very well.
I would say as we said we would take us to the whole year, but I think the team is happy with the way. The we think that things are working I think they're happy with the way the projects going.
And that's why you know as we as we divested it staffing business. We said we would take some time we've taken the time now we're starting to look at our projects at MMA again.
Now that we feel more comfortable with the play you're going on so overall very happy the team is very happy we have a great structure. We have defined the theme was that split.
The company into four different regions.
And they have a full staff in each one so this is becoming a very important part of our strategy because you know pricing decisions within its inflationary pressures and everything I think we have a much better structures than we had a year ago due to face. This environment, we're facing so very happy with where our team is.
Unworthy integration is going.
Very helpful and then.
Just thinking about where the portfolio is going forward.
You, obviously divested storage tanks, you're putting money towards construction.
And you talked about a lot of projects to choose from within construction on the organic side.
I guess.
Are you more inclined to prioritize organic spend versus.
Versus acquisitions on the construction side going forward and.
What kind of return on capital would you expect from some of those organic projects.
I mean, they the.
The answer is ideally organic projects are always higher return on capital than acquisitions no. That's.
That's always the best way to do it if you can find good projects, where you can deploy capital.
They they keep to the the construction.
Business is you know sometimes you have to go through construction.
Organic projects that.
Hum negative synergies. If you are starting you start a new greenfield location in a place you might destroy the market. So you have to be very careful with organic projects can be organic in construction with those but we do have a coupled up we are working on.
Ed.
In the construction side I think you will see us do some organic but mostly inorganic we've talked a lot about the multiples in bolt on acquisitions that are not as high as a large platform acquisitions.
My expectation is that we should be able to do some bolt on acquisitions in the near future and continue to evaluate additional platform acquisitions.
Time goes on.
Jim.
And in some organic projects, where you will see us do a lot of the organic projects. Some of the engineered structure side that that's mainly inorganic growth business. That's the way we are approaching it.
Yeah.
Great. Thanks, very much for taking the questions.
And we'll take our next question from Trey Grooms with Stephens. Your line is open.
Yes, good morning, everyone and thanks for taking the question.
Thank you.
So I guess.
Looking to the construction products theme here for a minute Antonio you you pointed out.
Creased demand for single family homes.
And also kind of.
And improved infrastructure outlook, so I guess, a few questions on that first on.
On your end market mix for this business can you give us or maybe remind us roughly how much of your business is driven by.
The residential versus non res versus infrastructure.
Just a ballpark on that.
Sure.
Said and this is sometimes hard to hard to know I mean, I know everyone tells you exactly what it is but it's it's a rough estimate because many of our busy if you remember many of our aggregates mines, where we sell toys to ready mix companies and so we don't know exactly where it goes but more or less what we estimate is about 50% of our.
Volumes go to do infrastructure projects about 20, 25% as nonresidential and about 25% is residential.
Great.
Up to now we've seen strength in all of them.
We believe based depending on what interest rates, probably the residential market is the one that might be a little more.
Uncertain.
The infrastructure side I think we have a we see a lot of strength and then you have the infrastructure package coming behind it that should provide additional tailwind for that for that portion of our business, which is the large majority of them.
That's helpful and so.
So on the.
Last point there.
So what what do you think on the passage of J a.
<unk> increased funding there.
You know looking at both the construction products.
But also engineered structures.
When do you think that that will start to translate into demand for our products in those two segments.
Yeah, We mentioned in my remarks that we think at the end of the year, we should start seeing some of those projects that are more tied to that package started rolling in the beauty of the package is not only that it will start rolling in this year or late this year, hopefully, but but that it has a long long it's alone.
A package so it will provide several years of certain consistency and not only that the economy Decelerates or then you have it's almost like a safety net in terms of a a bottom of the market. So I think it's a it's going to be very good.
I think it's additional I'm excited about our markets without that the package, but if you add it on top of it. It's it's it's it's it's really exciting where we see our boes going in our business is growing I think when you look at the the infrastructure Bill you take water out most of our problems you can tie something.
That infrastructure build to one of our product lines. So.
I think youre going to see that grow the board.
Perfect.
I appreciate that thanks for taking the question congrats on the nice performance.
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We'll take our next question from Daniel Wang with Baring Burke Your line is open.
Hey, Thanks for taking my question.
Just a quick question on the barge side can you remind us.
On the split within your inland barge business between dry hopper versus tank.
That compares versus how its looked historically.
Yeah.
Good morning, Gary and this is Gail and you know based on where the market has been yeah, I guess I'd say first and foremost it really depends on what's going on in the market in <unk>.
And if we think back a few years, it's been I would say the complexion of our backlog with largely tank and it was really that the liquid side of things that pulled us out of the last downturn and you've heard a lot of comments today and on recent calls about hopper barges that we are seeing them. You know what has been a significant number of years of underinvestment.
The hopper side, so pent up demand and and anticipated replacement cycle that could drive incremental hopper barge, albeit you know.
Depending on where where steel prices are so.
If I look back historically and an economy, where you had.
All areas growing very strongly you would've seen them more even split between tank and hopper barges. So I think it really is a function of.
You know what is what is unique to a particular cycle.
Alright perfect.
Yes.
Let me just start I think yeah.
But I think the last comment that Gail made is this.
Interesting businesses, because they are driven by conditions that are unique to each one of the markets will be of the barges. So petrochemicals is very strong you will see a lot of smaller tank barges if green stars.
Sports are strong you will see a little helper if oil markets are strong you will see tank barge is going so when you look at some of our customers Kirby reported yesterday over 90% of utilization in their in their fleet, which is those are the signs that tell you things are getting better than them.
So that's that's perfect.
And I guess in terms of.
Steel prices as it relates to barge how much further do prices need to come down before we see a return to more normalized profitability levels.
I guess is there also any concerned that.
The upcoming barge replacement wave could come at a lower margin if steel prices steel prices remain elevated for two for an extended period of time.
You know it's interesting because I.
Hi.
I think it's it's not necessarily the steel prices I think we are.
Steel prices are of course, the the factor, but the way I see steel prices. The program is not still prices the program as a forecast for steel prices snow because it when steel prices are high but the forecast is that theyre going to drop 50%, 50% in the next year.
You wait.
So what needs to change either the reality or the forecast at some point in time and that's I think that's the key.
If the forecast says look still prices staying like this forever I think everyone. Just swallows. It then we will make the economics work, but if you if if I tell you theres a barge that I can tell you for $3 million and makes you you can buy it for a million and a half youre going to wait.
So that's the piece that the Ukrainian a war.
Delayed so that forecast was that it was going to start falling the prices would be by the end of this year now it's moved to next year. So that's why these orders are so important because it allows us time to I don't want to sell more barges at a discount to keep the plant going I'm, just selling enough to keep my people working because.
Because I need the people to be able to capture the uptick.
All right really appreciate it I'll pass it on.
Thank you.
Yeah.
And once again, if you'd like to ask a question. Please press star one on your Touchtone phone. We will next go to Stephano Crist with C. J S Securities. Your line is open.
Good morning, and congrats on the quarter.
Thank you.
Well when we think about using the proceeds from the storage tank for construction aggregates do you think of that as bolstering your competitive position in your existing geographies or do you think about expanding into new markets.
Sure.
When you look at the proceeds there would be some tax leakage. So after tax leakage.
I think there's a few things that we then.
If you look at the multiples the the the the the multiples in bolt ons are always are lower so if we find the right bolt ons, we'll do a few bolt ons, but we're also looking at expanding our geographies.
We've been working I think I've mentioned in this call a few times, we have people working in different metropolitan areas across the country, feeling figuring out which ones are the ones. We are that has the fundamentals where we want to be.
And we have projects in some of these that are actionable in some of these geographies. So.
So it's a combination of both expanding our local footprint right now and also.
And also expanding into other geographies.
When you look at recycled aggregates, which is another area that we like.
There are we are only really in two areas.
Today.
I want to continue to expand recycled aggregates eats a we believe that's part of the future in terms of.
Sustainability I think you have we believe it's a compliment to natural aggregates is never going to substitute. It is not that is going to be eliminate natural language. That's not the case. It's a complement so we need to continue to expand our recycled aggregates and that would mean all the other locations. So I think it's a combination of both.
And but of course as I've mentioned M&A takes a big Simon takes a timing and sometimes it's out of our control them.
Perfect. Thank you so much.
Yeah.
And this does conclude today's program.
Thank you for your participation you may disconnect at any time.
Okay.
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Yeah.
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