Q1 2025 Northwest Pipe Co Earnings Call
[music].
Greetings and welcome to the northwest Pipe Company first quarter 'twenty 25 earnings call. At this time, all participants are in a listen only mode.
A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
Speaker Change: It is now my pleasure to introduce Scott Montross, Chief Executive Officer. Thank you you may begin.
Speaker Change: Good morning, and welcome to northwest pipe Company's first quarter 2025 earnings Conference call. My name is Scott <unk>, President and CEO of the company and I'm joined today by Aaron Wilkins, Our Chief Financial Officer by now all of you should have access to our earnings press release, which was issued yesterday April 32.
Speaker Change: 25 at approximately four P M eastern time.
Speaker Change: This call is being webcast and it is available for replay.
Speaker Change: As we begin I'd like to remind everyone that statements made on this call regarding our expectations for the future are forward looking statements and actual results could differ materially. Please refer to our most recent Form 10-K for the year ended December 31, 2024, and in our other SEC filings for a discussion of.
Speaker Change: Such risk factors that could cause actual results to differ materially from our expectations.
Speaker Change: Make no obligation to update any forward looking statements. Thank.
Speaker Change: Thank you all for joining us today I'll begin with a review of our first quarter performance and outlook for 2025, Aaron will then walk you through our financials in greater detail.
Aaron Wilkins: We entered the year with solid momentum delivering strong operational execution that supported our strategic priorities net sales of $116 1 million were up two 6% over the prior year period, despite being affected by a significant amount of downtime related to weather early in the first quarter.
Aaron Wilkins: And trade policies implemented by the new administration that temporarily affected SPP revenue and shipments specifically in the March timeframe.
Aaron Wilkins: New trade policies also had the temporary effect of restraining our momentum in the nonresidential portion of our precast business, resulting in customer driven shipment delays on heightened macroeconomic uncertainty regardless of the headwinds we delivered solid profitability of 39 per diluted share this performance coupled.
With effective working capital management enabled us to generate positive free cash flow positioning us well for the remainder of 2025.
Aaron Wilkins: Further breakdown our segment level results revenue from our SPP segment was $78 4 million down 2% year over year and in line with typical seasonality.
Aaron Wilkins: Our performance reflected lower production levels related to the mix of projects. We produced in the first quarter the impact of nationwide weather events that led to unscheduled downtime at various SPP facilities and the temporary effect of new trade policies and the administration of those policies again this led to various <unk>.
Aaron Wilkins: Customer related shipping delays, especially in the month of March our SPP team has continued to execute on bids project scheduling and production even through a highly disruptive march with broader market uncertainty as.
Aaron Wilkins: As we projected with a light project bidding in the first quarter, our SPP backlog, including confirmed orders declined to $289 million as of March 31 from.
Aaron Wilkins: $310 million as of December 31, 2024, and $337 million as March 31, 2024, we have seen significant bidding volume improvement in the second quarter, leading to a substantial increase in our current intra quarter backlog, which is well over $300 million.
Aaron Wilkins: A large portion of the current backlog increase that we've experienced will be valuable as we progressed through 2025, helping to mitigate some of the cost pressures at our facility most effected by trade policy related issues.
Aaron Wilkins: We continue to anticipate 2025 bidding levels to be in line with 2024.
Aaron Wilkins: The decline in SPP net sales was partially offset by higher realized selling prices due primarily to a change in product mix.
Aaron Wilkins: Now turning to our free cash segment pre cast revenue increased 13, 4% year over year to $37 7 million. Our performance was driven by continued strong momentum on the residential side of our Geneva business were robust demand supported higher production and shipment levels, while overall volumes remain.
Aaron Wilkins: Healthy this strength was partially offset by softer performance in the nonresidential construction related portion of our business as broader macroeconomic uncertainty and elevated interest rates continued to weigh on commercial construction activity.
Aaron Wilkins: <unk> momentum index was down 7% in March from the previous month due to uncertainty around material pricing associated with trade policy as.
Aaron Wilkins: As well as interest rates associated with fiscal policy. However.
Aaron Wilkins: However, the Dodge momentum index was 30% higher than March of 2025 versus last year, indicating improving strength in the nonresidential construction market for mid year 2025 through 2026.
Aaron Wilkins: The commercial sector was up 32% versus the prior year period, while the institutional sectors were up only modestly on the pricing side, while the residential portion of our free cash business benefited from multiple price increases throughout 2024 with strong demand at Geneva. These gains were more than offset by slower demand.
Aaron Wilkins: And continued pricing pressure in our nonresidential precast business as of March 31, our pre cashed order book improved to $64 million near record territory from $61 million as of December 31, 2024, and $52 million as of March 31 2024.
Aaron Wilkins: The order book on the residential side of our free cash business at Geneva remained consistent at strong levels, whereas a fairly large portion of the increase in our order book was on nonresidential side of our free cash business, indicating strengthening momentum in 2025, our consolidated gross profit in the first quarter was $19 four.
Aaron Wilkins: Down three 8% year over year, resulting in a gross margin of 16, 7% compared to 17, 8% the prior year.
Aaron Wilkins: Our SPP gross margin of 15, 5% declined by approximately 230 basis points over last year due to lower production volumes and the associated reduction in overhead absorption related to the mix of projects, we produced as well as shipment delays related to the administration of new trade policies.
Aaron Wilkins: Our free cash gross margin of 19, 1% increased by approximately 135 basis points over last year, primarily due to changes in product mix margins in our residential construction business at Geneva improved year over year, reflecting strong demand and operational efficiency. However person.
Aaron Wilkins: Weakness in the nonresidential commercial construction side of our business driven in part by elevated interest rates resulted in some margin compression now turning to our organic growth product spreads strategy, we bid on over $14 million worth of projects outside of Texas in the first quarter in book over.
Aaron Wilkins: $2 $5 million worth of orders.
Aaron Wilkins: In an effort to enhance capacity utilization and maximize efficiencies at our precast plants. Additionally, we booked approximately half a million of park related projects at the Geneva plant in Utah, and finally as part of the third component of our product spread strategy, we will be expanding park and other pre cash related products.
Aaron Wilkins: Additional northwest pipe legacy locations by mid year 2025, our goal for 2025 remains to book over $12 million worth of park related projects outside of the state of Texas with further benefits to come in 2026 and beyond.
Aaron Wilkins: Additionally, we're continuing to invest in our footprint and equipment to drive capacity expansion and greater efficiencies in our free cash business and we are especially focused on investing in efficiency improvements at our legacy SPP plants.
Aaron Wilkins: Next I'd like to provide an update on our M&A strategy. In 2025, we are placing an increased strategic focus on actively pursuing acquisitions within the pre cash related space as we look to accelerate growth and enhance our competitive position.
Aaron Wilkins: The ideal candidate would allow us to enhance our manufacturing capacity and operational efficiency and broaden our geographic footprint and product offerings.
Aaron Wilkins: Next I'd like to summarize our outlook for the second quarter of 2025, and our SPP business. We anticipate revenue similar to the first quarter of 2025 with a steady sequential improvement in margins.
Aaron Wilkins: We entered 2025 with a strong SPP backlog and despite the like bidding environment in the first quarter. We continue to extend strong bidding activity in the second and third quarters with full year bidding levels aligning closely with 2024. Accordingly, we continue to expect another strong year for SPP.
Aaron Wilkins: In 2025 and.
Aaron Wilkins: And our free cash business, we ended the year with a robust order book the residential business remains strong and we are now seeing a steady improving nonresidential order book, indicating strength in 2025 and into 2026.
Aaron Wilkins: Growing strength in our order book, coupled with the anticipated higher production levels and better absorption.
Aaron Wilkins: Gives us confidence that the second quarter of 2025, we will show stronger pre cash revenue and margins versus the second quarter of 2024, we remain confident in the long term strength of our precast business driven by several key factors, including significant pent up demand.
Aaron Wilkins: Particularly in the residential housing.
Aaron Wilkins: Growing need for infrastructure investment in the U S and our expanding market position.
Aaron Wilkins: On a consolidated basis, we expect revenues for the second quarter of 2025 to be modestly down from the second quarter of 2024 due to a lower SPP revenue related to slower first quarter bidding and associated reduced production levels. However, we are expecting a sequential improvement in SPP margins in the.
Aaron Wilkins: Quarter of 2025.
Aaron Wilkins: On the free cash business, we are anticipating higher revenues and margins in the second quarter.
Aaron Wilkins: For the second half of the year, we expect revenues and margins for SPP to be similar to 2024 levels with free cash revenue also being similar to 2024 levels, but with improving margins.
Aaron Wilkins: Before I conclude I would like to highlight our upcoming corporate rebranding initiative to end WPS infrastructure. We believe this refreshed brand more accurately encompasses both of our operating segments and aligns with our overall mission to manufactured durable infrastructure.
Aaron Wilkins: <unk>, helping communities built safe reliable and sustainable systems that support daily life and long term growth we planned.
Aaron Wilkins: <unk> rebranded our upcoming annual meeting of stockholders in June and look forward to sharing further details at that time in.
Aaron Wilkins: In summary.
Aaron Wilkins: I am pleased with our traction during the first quarter amid significant broader market disruptions I'd like to thank our talented team at northwest pipe for their strong execution of our strategy in maintaining their commitment to safety. We look forward to benefiting from an improved bidding environment and free cash to order book throughout the remainder of 2020.
Aaron Wilkins: Five <unk>.
Aaron Wilkins: Looking ahead, our priorities are to one maintain a safe workplace, where our employees are proud to work to focus on margin over volume.
Aaron Wilkins: Three intensify our focus on strategic acquisition opportunities to grow the company for to implement cost reductions and efficiencies at all levels of the company and five in the absence of M&A opportunities return value to our shareholders through share repurchases I will now turn the call over to Aaron who will walk through.
Aaron Wilkins: Our financials in greater detail.
Aaron Wilkins: Thank you Scott and good morning, everyone I'll begin with our first quarter profitability.
Aaron Wilkins: Consolidated net income for the quarter was $4 million or <unk> 39 per diluted share compared to $5 2 million or <unk> 52 per diluted share in the first quarter of 2024.
Aaron Wilkins: Our first quarter consolidated net sales increased two 6% to $116 1 million compared to $113 $2 million in a year ago quarter.
Aaron Wilkins: Steel pressure pipe segment sales in the quarter decreased 2% to $78 4 million compared to $80 million in the first quarter of 2024.
Aaron Wilkins: The decline was driven by an 18% reduction in tons produced resulting from changes in project timing, partially offset by a 20% increase in selling price per ton due to changes in product mix.
Aaron Wilkins: Free cash segment sales in the first quarter increased 13, 4% to $37 7 million compared to $33 2 million a year ago.
Aaron Wilkins: Our performance was driven by a 21% increase in volume shipped as demand in our Geneva operations in Utah remained strong.
Aaron Wilkins: Additionally, our free cash sales were negatively impacted by a 6% decreased selling prices, resulting from changes in product mix.
Aaron Wilkins: As a reminder of the products we manufacture are unique.
Aaron Wilkins: Shipment volumes in the case of pre cast.
Aaron Wilkins: <unk> volumes in the case of steel pressure pipe and a corresponding average sales prices for both segments do not always provide comparable metrics between periods, which are highly dependent on the composition of each segment product mix.
Aaron Wilkins: First quarter consolidated gross profit decreased three 8% to $19 4 million or 16, 7% of sales compared to $20 1 million or 17, 8% of sales in the first quarter of 2024.
Aaron Wilkins: SPT gross profit decreased 14, 5% to $12 2 million or 15, 5% of segment sales compared to gross profit of $14 2 million or 17, 8% of segment sales in the first quarter of 2024, primarily due to decreased production volume as well as changes in product mix.
Aaron Wilkins: Free cash gross profit increased 22% to $7 2 million or 19, 1% of pre cast sales from $5 9 million or 17, 7% of segment sales in the first quarter of 2024, primarily due to changes in product mix.
Aaron Wilkins: Selling general and administrative expenses increased 26% to $13 8 million or 11, 9% of sales compared to 11 4 million in the first quarter of 2024 or 10, 1% of sales.
Aaron Wilkins: The increase was primarily due to a $1 6 million increase in incentive compensation as well as increases in wages and employee benefits.
Aaron Wilkins: For the full year of 2025, we continue to estimate our consolidated general selling general and administrative expenses to be in the range of <unk> $47 million to $50 million.
Aaron Wilkins: Depreciation and amortization expense in the first quarter of 2025 with $4 4 million consistent with a year ago quarter.
Aaron Wilkins: For the full year, we continue to expect depreciation and amortization expense to be approximately $18 million to $20 million.
Aaron Wilkins: Interest expense decreased to <unk> 6 million from $1 5 million in the first quarter of 2024, due primarily to a decrease in average daily borrowings.
Aaron Wilkins: For the full year 2025, we continue to expect interest expense of approximately $3 million.
Aaron Wilkins: Our first quarter income tax expense was $1 million, resulting in an effective income tax rate of 19, 8% primarily for tax windfalls recognized upon the vesting of equity awards, providing the discrete adjustment in the quarter for statute from statutory rates.
Aaron Wilkins: This compares to $2 million of tax expense in the prior year, our effective income tax rate of 27, 5%, which was impacted by non deductible permanent differences.
Aaron Wilkins: We continue to expect our tax rate for full year 2025, then the range of 24% to 26%.
Aaron Wilkins: Next I will transition to our financial condition.
Aaron Wilkins: For the first quarter, our net cash provided by operating activities was $4 8 million.
Aaron Wilkins: This compared to net cash used in operating activities of $26 1 million in the first quarter of 2024 due to a significant amount of cash to fund working capital requirement in the year ago quarter.
Aaron Wilkins: Our capital expenditures for the first quarter were $3 7 million compared to $4 5 million in the first quarter of 2024.
Aaron Wilkins: For the full year of 2025, we continue to expect Capex in the range of $19 million to $22 million, including about $5 million for various investment projects, most notably to support the precast products spread as well as initiatives to grow both our park and our Geneva businesses to $100 million topline in the near term.
Aaron Wilkins: Accordingly, we produced positive first quarter free cash flow of $1 1 million compared to negative $30 7 million in the year ago quarter.
Aaron Wilkins: For the full year 2025, we continue to anticipate free cash flow to range between 23 and $30 million.
Aaron Wilkins: As we previously emphasized and had cash generation remains a key focus for our leadership team as we continue to grow the company.
Aaron Wilkins: As of March 31, 2025, we had $25 $5 million of outstanding borrowings on our credit facility, leaving approximately $98 million in additional borrowing capacity on our credit line.
Aaron Wilkins: Our balance sheet remains healthy with ample liquidity.
Aaron Wilkins: Consistent with our capital allocation strategy and continued focus on enhancing shareholder returns, we repurchased approximately 122000 shares or $5 million worth of our common stock in the month of April under our rule <unk> one trading plan.
Aaron Wilkins: Considering the condition of our balance sheet. We believe it is appropriate to continue to take advantage of market opportunities for future share repurchases, while continuing to invest in organic and inorganic growth as opportunities present themselves.
Aaron Wilkins: Summary, we're incredibly pleased with our first quarter operating performance achieved in a highly dynamic and uncertain macroeconomic backdrop as well as prospects for full year 2025 and beyond.
Aaron Wilkins: We extend our thanks to our dedicated employees, who continued prioritization on safety and hard work has made our recent achievements possible and to our shareholders for their continued confidence and support.
Aaron Wilkins: I will now turn it over to the operator to begin the question and answer session.
Speaker Change: Thank you we will now conduct a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Aaron Wilkins: Mason tone will indicate your line is another question queue you.
Aaron Wilkins: You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before parts of this sparky once again Thats star one at this time, one moment, while we poll for our first question.
Aaron Wilkins: The first question comes from Brent Thielman with D. A Davidson. Please proceed.
Brent Thielman: Hey, great. Thanks, Good morning, Scott, Eric like the new name.
Speaker Change: Good morning, Brett.
Scott Montross: Yes, I guess Scott.
Scott Montross: I wanted to dive into that maybe understanding more of the specifics of the issues associated with <unk>.
Scott Montross: Why why you sort of think youre beyond that at this point.
Scott Montross: Beyond that at this point as we move into the second quarter.
Scott Montross: Yes, I think.
Brent Thielman: There's a couple of pieces to this thing Brent the you know the first quarter as we move through the first quarter. Obviously, we always have weather events rate in the first quarter, we've talked about that for years. I think this this first quarter may have been a little bit heavier with weather events.
Brent Thielman: In the quarter, because we had all 13 days down and collectively at our steel pressure pipe plants.
Mainly in Texas, and West, Virginia, and then we had about 14 days down in the free cash side of the business. So that was a little bit heavier and then we got into the March timeframe with the additional cost in new trade policies associated with the new administration. So so.
Brent Thielman: The what we got into is a situation, where we had we have orders on the books at the facility Thats most affected by the trade.
Brent Thielman: The trade policies.
Brent Thielman: And ultimately what we had to do is figure out how to work with our customers to unburden ourselves with the cost of those trade policies, especially on the SPP business and then ultimately what that did is when you add the additional cost to some of those jobs that we were doing at that facility.
Brent Thielman: What percent complete accounting Youre actually less complete than you thought you were.
Brent Thielman: And in that quarter and what it did is removed several hundred thousand dollars of of both revenue and a like amount of margin out of the quarter for SPP.
Brent Thielman: As we've gone as we go forward and how you're going to be a little careful how I talk about this because obviously we have competitors listening we're working with people to to figure out if we can get an exclusion on.
Brent Thielman: On those issues with the new trade policies at that facility.
Brent Thielman: And that's moving along the other piece of it is that.
Brent Thielman: A couple a couple of weeks ago, we got about $60 million worth of SPP orders.
Brent Thielman: In one week and ultimately a big chunk of that.
Brent Thielman: Is something that can go to the facility most affected by those trade policies and alleviates a whole bunch of the potential impact of the cost on that facility.
Brent Thielman: And thats going to put us in a pretty good position at the facility in Mexico as we go forward through the second half of the year anything that we think is going to be subject to those.
Brent Thielman: Additional costs associated with trade policies on orders that we plan to put a debt facility. We are moving those orders going forward to the Tracy facility. So I think after after the dust clears in the quarter, we're pretty much back on track on SPP, because ultimately we've got it set up.
Brent Thielman: So we've got orders on that facility that are or I guess conducive to us being back to relative normalcy at the facility in Mexico and were loading the other facilities up even more for steel pressure pipe.
Brent Thielman: The one the one thing I'll say to Brent about the quarter was we've had a we've had a building backlog on the on the.
Brent Thielman: Free cash business to write the backlog has grown to I think $64 million is probably near record territory.
Brent Thielman: And what I would say about that is the precast business on the residential side has remained strong and relatively steady and a lot of the growth that we saw on the order book and free cash was related to the non residential side of the business and we got into the March time frame and ultimately you had.
Brent Thielman: Whole bunch of customers going well below and they and they delayed taking shipments because they were trying to figure out what was going on so ultimately we missed about $1 million worth of revenue.
Brent Thielman: In our nonresidential side of our business in that in the quarter or two which is now reversed course in the April timeframe and the nonresidential side is definitely picking up. So we think we're pretty well positioned right now going forward to deal with any of the tariff stuff that we see.
Brent Thielman: Out there.
Speaker Change: Yes, Scott, maybe just as a follow up on the pre cast Brian.
Speaker Change: Sounds like you are seeing pretty good momentum on the non resi side notwithstanding some of the uncertainty out there and I think I just wanted to get a better sense of why kind of flattish outlook for revenue in the second half for free cash is that just you wanted to be conservative is that there are some other elements, maybe we need to understand.
Speaker Change: Yeah, I think that's a little bit of conservatism built in because obviously when youre looking out that far a lot of different things can happen. So the I think the big thing for us in the near the near term. That's close in is the way that the second quarter looks for pre cash. We're we're looking at our second quarter right now.
Speaker Change: Pretty big quarter for the free cash side of the business with improving margins.
Speaker Change: So we are we kind of say in the second half of the year is going to be like last year, which was which was pretty strong, but there is likely some upside to that.
Aaron Wilkins: Fair enough last one this might be more for Aaron.
Aaron Wilkins: I apologize if you discussed it but probably the bigger deviation for us with SG&A this quarter end.
Aaron Wilkins: I wanted to just get a sense what that was and then how quickly does that come back in in the next few quarters. If it does.
Aaron Wilkins: Yes, the SG&A was higher.
Aaron Wilkins: In the quarter, just due to seasonality in large part we.
Aaron Wilkins: <unk> accrue bonus expense through the duration or through the point that they are actually paid meaning that our first quarters are always hindered with.
Speaker Change: Yes, what I would call double expense.
Speaker Change: That would sound like something that would be comparable as you compared to the year ago quarter. However.
Speaker Change: The performance for 2024 was considerably better than the 2023 performance, meaning that we had a higher rate of expense.
Speaker Change: That is what kind of snagged the.
Speaker Change: The first quarter.
Speaker Change: With without higher higher level, a higher expense level, so that will come off as we come through the year.
Speaker Change: Do you think that that will be the highest expense level for SG&A that we see in 2025, So I still think that.
Speaker Change: Our range of 47% to 50 is pretty good for for the balance of this year.
Speaker Change: Great. Thanks, guys I'll pass it on.
Speaker Change: Thanks, Brad.
Speaker Change: The next question comes from Julio Romero with Sidoti. Please proceed.
Speaker Change: Thanks, Hey, good morning, Scott and Erin Hope all is well.
Speaker Change: Wanted to I wanted to.
Speaker Change: Follow up a little bit on what you said about on the precast side the trade the customer driven shipment delays you experienced in March just got it. Thank you said.
Speaker Change: That that reversed course in April but wanted to see if you could expand on what level of a rebound you saw in April and what Youre hearing from your customers about what level of uncertainty, it's all out there and how much more how.
Speaker Change: How much more shipments you think.
Speaker Change: Our delayed could be delayed.
Speaker Change: That stands today.
Speaker Change: Yes, like I said, Hulu I think Thats reversed course in April we're seeing.
Speaker Change: A relatively large second quarter and obviously some of it's based on the residential side of the business, which continues to gain strength, but all of the growth that we're seeing in our order book as of late is related to the nonresidential business. So I think that we're seeing customers now on the nonresidential side.
Speaker Change: In the April timeframe, taking their orders, where we're going to be substantially higher on revenue on the nonresidential side than we were in the March timeframe and that looks like it's just starting to build because when you look at the Dodge construction index and the construction starts were.
Speaker Change: We were relatively flat for the latest period.
Speaker Change: And again, it's uncertainty so it kind of it kind of FTSE, we're talking about here, but the momentum index that.
Speaker Change: Receded, a little bit in the March timeframe from February in 2025, we've seen pretty substantial.
Speaker Change: Growth in that sense 2024, it's actually up 30% versus where it was in March of last year.
Speaker Change: In about 32% of it is related to the commercial side of the business. So I think we're seeing a lot of the customers contractors sub contractors, just getting used to a more normalized situation as the dust clears with the with the trade cases and.
Speaker Change: We're expecting a big year on the free cash side.
Speaker Change: We're seeing the business rebound.
Speaker Change: In the second quarter, and we expect that to continue into the third and fourth quarters.
Speaker Change: The shipments are starting to go out and.
Speaker Change: It was something that we got a little bit concerned about it in the March timeframe, because the order book was building and shipments Werent going out now were seeing the order book still building in shipments going out so a very good sign on the nonresidential side for us.
Speaker Change: Got it that is helpful.
Speaker Change: A little bit about the retroactive tariffs that you experienced in the fourth quarter.
Speaker Change: If you could.
Speaker Change: Give us a finer point on how much was the negative impact from those retroactive tariff in the first quarter, how much is expected in the second quarter.
Speaker Change: And then maybe a separate question about.
Speaker Change: Any quantification of the newer tariff impact in the second quarter.
Speaker Change: Yes, I think.
Speaker Change: The right way to think about it we had about 800000 from the retroactive tariffs that are impacting our.
Speaker Change: The first couple of quarters at least of this year I would say Hulu that probably about 400000 of that was.
Speaker Change: Something that impacted.
Speaker Change: The first quarter, leaving another 400000 for the balance of the year.
Speaker Change: The.
Speaker Change: Other thing for us.
Speaker Change: <unk>, obviously because of the.
Speaker Change: The more surprising element of it was the new tariffs.
Speaker Change: Those tariffs had about.
Speaker Change: Little under 600000 of impact.
Speaker Change: And.
Speaker Change: The go forward on that and maybe it's got one to talk about this a little bit more to us.
Speaker Change: The.
Speaker Change: The elements of.
Speaker Change: The tariff and the customer acceptance of it will certainly be influential on how much expense, we incur in the future obviously, we're in a position where.
Speaker Change: Shipping into those.
Speaker Change: Markets from that plant.
Speaker Change: Certainly coming out of higher cost, we're trying to manage that cost in our profitability accordingly.
Speaker Change: So it's kind of hard to predict but.
Speaker Change: I think what I would say is that the the impact of those are.
Speaker Change: Certainly.
Speaker Change: Included in the projections or guidance that were in our guidance, but the foreshadowing that we're doing for the second quarter results. So you think you want to yes, I think obviously, we're working with our customers on those Julio too to pass those along.
Speaker Change: And we're seeing some success in that and ultimately that's what we intend to work on doing.
Speaker Change: From the facility most effected by those tariffs, which is our facility in Mexico, but like I said in the Big order week that we had a few weeks ago.
Speaker Change: There was a huge chunk of that $60 million worth of orders, that's actually going to go to that Mexico facility.
Speaker Change: And.
Speaker Change: It will not be burdened by those additional costs associated with the trade policies. So that really starts to take place in the second half of the year.
Speaker Change: So anything that we would have planned on doing it the Mexico facility.
Speaker Change: That would be subject to the new trade policies will be doing at the Tracy facilities going forward. Because we've had we have a pretty good backlog load going into Mexico that helped to alleviate that situation for us.
Speaker Change: So I think we're in pretty good shape with that.
Speaker Change: Got it that's good color last one if I could is just wanted to ask a little bit about your pre cast growth plans and.
Speaker Change: Your new product capability that at the Orange facility, if you could talk to that a little bit.
Speaker Change: And how much benefit is that built into your 2020 outlook from that new product capability.
Speaker Change: Yes, well the new product capability at the or implant there is really not much built into it for this year because that product won't be in play really until next year.
Speaker Change: But what I would say is the growth plans as you've I think Aaron talked about in the script.
Speaker Change: We plan on being at a 100 million dollar rates.
Speaker Change: Both the the residential side of it which is Geneva in the park side by the end of 2026, and what I would say on the residential side of the business is it.
Speaker Change: Growing pretty quickly right now so I think we may be a little bit ahead of schedule. There we could be getting closer to that this year I don't think we make it all the way to $100 million, but we're driving in that direction.
Speaker Change: The residential side of the business. The nonresidential side is just starting to pick up like we said with the order book, So that's going to lag a little bit but the plan is is that we have both of them at $100 million by the time, we get on to the end of 2026 and I think we can get there because we're pretty well positioned especially with the growth that <unk>.
Speaker Change: We are seeing in the order book on the nonresidential side and like we said $64 million near record level of order book.
Speaker Change: That increase is really related to the Geneva business, it's really related to the park business, which is a really positive sign. So we're expecting a year. This year that is going to be a bit bigger than we had last year on the free cash side.
Speaker Change: With improving margins.
Speaker Change: Perfect really helpful. Thanks very much.
Speaker Change: No problem.
Speaker Change: Once again, ladies and gentlemen to ask a question Thats Star one at this time. The next question comes from Ted Jackson with Northland Securities. Please proceed.
Ted Jackson: Thanks, very much hi, guys.
Speaker Change: Hey, Jed.
Speaker Change: Just a couple almost everything I had on my list got asked so just a couple of little ones.
Speaker Change: What is the.
Speaker Change: What was the percentage of steel in the Cogs.
Speaker Change: In the quarter percentage of steel is about 30%, let me just double check the number.
Speaker Change:
Speaker Change: Yeah, it's about 30%.
Speaker Change: Little under little under this this particular quarter like 2028%.
Speaker Change: Okay I appreciate that and then.
Speaker Change: The cost of steel is yes.
Speaker Change: Yes.
Speaker Change: With.
Speaker Change: New Trump administration, and everything happening with tenants.
Speaker Change: And I know that.
Speaker Change: Yes.
Speaker Change: Or you just kind of how things go through your financials and everything else, it's not necessarily something that.
Speaker Change: Stay on your margins.
Speaker Change: Yes.
Speaker Change: Gross profit would be a better term.
Speaker Change: But nonetheless, it takes up the cost of your product and so I guess the question is yes, we had a similar experience the last time.
Speaker Change: Bump in office and the things that we did.
Speaker Change: Generally speaking you know just basic economics.
Speaker Change: Its cost floor.
Speaker Change: And so when you look back at the last time, we had.
Speaker Change: Steel prices, probably won't play out for you all in terms of like.
Speaker Change: And for tonnage because I know that a lot of stuff you deal with government funding and stuff, but you have cost overruns, you see everything with us I mean at some level as they have some kind of an impact.
Speaker Change: Alright.
Speaker Change: Great.
Speaker Change: So that's my first question is kind of.
Speaker Change: Given that we just went through something like this similarly.
Speaker Change: 10 years ago, like how did that play out and how would you see that playing out.
Speaker Change: Good morning.
Speaker Change: Well the way I would answer that is when we when this happened.
Speaker Change: Some time ago with the first Trump administration, we start we saw steel prices run up significantly higher than than we see them now in my recollection, there was getting 1800 Bucks a ton.
Speaker Change: Where it was and now we're seeing steel prices that are more in the $950 per ton range.
Speaker Change: It's kind of stalled out a little bit it jumped up.
Speaker Change: I guess, probably from 800 or a high seven hundreds towards the end of the year to about 950 now, but it is kind of stalled out right now at about $950 a ton because I think capacity utilization in the industry is at about 74, 5%. So.
Speaker Change: Still relatively it's still relatively calm, but I would expect that youre going to see that continue to bump up as we go out into the future because when there is when there is that new trade policy and the cost of bringing steel in from foreign countries and in any given year Youre looking at between 20 and 30 million tonnes of steel.
Speaker Change: That comes in as imports to support the demand from the market in this country.
Speaker Change: That once you start grinding that down which is starting to happen right now that the steel prices are going to increase but we just haven't seen a lot of that yet I think it's probably going to be a little bit more muted than what we saw during the previous administration, but for us higher steel prices mean higher.
Speaker Change: Jacked prices mean higher gross profit dollars, especially on the steel pressure pipe business. So it's not it's not really a bad thing for us and right now it doesn't appear that it's running up so much. This is going to affect any of the jobs being done that are being planned out into the future and because we are seeing all of those.
Speaker Change: Going forward, we're really seeing a demand level this year that.
Speaker Change: Frankly is maybe maybe going to be a little bit higher than it was last year. Because I think we ended the year last year or just below 140000 tons of demand and right now we're projecting about 145000 tons of demand on steel pressure pipe, but I don't see the steel price running up to where it was in the <unk>.
Speaker Change: During the first time, which we were going through Covid and things like that and that caused a lot of different issues. I think it will go up a little bit more and it's just going to benefit us on our our project pricing and in our gross profit dollars for steel pressure pipe.
Speaker Change: So im sorry on a tons basis, you really don't see this as having any kind of material impact.
Speaker Change: No.
Speaker Change: No not not at this point.
Speaker Change: No.
Speaker Change: And then shifting over.
Speaker Change: Sure on the precast side.
Speaker Change: I love the outlook that you've given but I mean most.
Speaker Change: Are you you don't view there is any risk with regards to a reception with regards to more.
Speaker Change: This view.
Speaker Change: Second of all.
Speaker Change: Yes.
Speaker Change: Every call I've been on in the last couple of weeks that's been.
Speaker Change: Part and parcel with the guidance.
Speaker Change: With some.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: And I was just kind of again.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: It stands out.
Speaker Change: Yes, I think for US I mean, obviously, we're especially in our residential construction side of the business I mean, we're in the part of the country. That's happened to benefit from a significant net migration into the state.
Speaker Change: And ultimately there is a relatively significant shortage of housing. So so we don't really see that slowing down at this point.
Speaker Change: And I think that the the nonresidential side is kind of getting comfortable with the idea of okay well.
Speaker Change: We've got a fed funds rate.
Speaker Change: For three or four 4%.
Speaker Change: At this juncture and it's starting to kind of settle in that maybe housing rates or interest rates for mortgages are going to be six eight to seven and when you think about it that's not really that far out of the realm of where we've been in quite a long time so.
Speaker Change: So before you look back years ago during the seventies and early eighties, those mortgage rates were significantly higher than those so I think that there is there is a settling in thought process here that maybe this should be more of the norm and when you look at the recession.
Speaker Change: Stability of recession, I mean anything could happen, but it's certainly it's certainly not appearing on our business or our forecast at this point and it's not appearing in the the construction indexes.
Speaker Change: What we follow but you sure do hear a lot of discussion on it on the news show.
Speaker Change: For us we're we're we're expecting another really strong year ahead.
Speaker Change: I mean, we just don't we just don't see that slowdown at this point.
Speaker Change: Okay.
Speaker Change: And then my last one just as more of a maybe a little color.
Speaker Change: With regards to the Mexican plant to know.
Speaker Change: But.
Speaker Change: You mentioned it.
Speaker Change: Of your exposure is and some of the markets we serve in the U S.
Speaker Change: Can you provide some more color.
Speaker Change: First is that you've got.
Speaker Change: Allows you to keep the plant running.
Speaker Change: Handle the absorption costs, and then be able to.
Speaker Change: Sure.
Speaker Change: Areas that Mike.
Speaker Change: I have served.
Speaker Change: But had to deal with tariffs from other plants.
Speaker Change: What is the business I mean is that like is it like.
Speaker Change: I assume it's not.
Speaker Change: It's not you.
Speaker Change: U S order or is it the Canadian Mexican maybe just kind of a little color in terms of how that volunteer lab.
Speaker Change: Got it.
Speaker Change: Well there is two pieces to this <unk> first.
Speaker Change: Our our drive is to work with our customers to pass whatever whatever.
Speaker Change: The associated costs with the new trade policies are the answer to the second part of your question is yes, it's not a U S order.
Speaker Change: [laughter] okay.
Speaker Change: Okay, and then I'm going to leave it at that so thank you very much.
Speaker Change: Got it.
Dan: Thanks, Dan.
Scott Montross: At this time I would like to turn the floor back to Scott <unk> for closing remarks.
Scott Montross: Well, thanks, everybody for joining the call today, and I think despite a little bit rougher than normal first quarter with weather challenges in the administration's new trade policies and the headwinds created by both in the first quarter, we exited the first quarter pretty strong the SPP bidding really took off and like I said, a couple of weeks ago.
Scott Montross: We booked $60 million.
Scott Montross: Of work in and really one week.
Scott Montross: And as Ted pointed out a large portion of that will help alleviate the extra costs associated with a new trade policies and our plant thats most affected by those.
Scott Montross: And I think even more encouraging is that our inter quarter backlog has now jumped well up above $300 million again.
Our our pre cashed order book has grown to near record levels, most of which growth in the pre cashed order book has been nonresidential.
Scott Montross: Indicating a growing strength as we move through the second quarter in the residential side of our business.
Scott Montross: It remains very strong and continues to grow.
Scott Montross: What I would say is this year could very well be the first time. During this configuration of the company that we are hitting on all cylinders across our business segments. So obviously, we're expecting another very strong year for both segments and we thank you for joining our call and we'll talk again in August.
Scott Montross: Thank you.
Scott Montross: Thank you. This does concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a great day.
Scott Montross: Okay.
Scott Montross: [music].
Scott Montross: Okay.
Scott Montross: [music].
Scott Montross: Sure.
Scott Montross: [music].
