Arcosa Inc. announced results for the third quarter ended Sept. 30. The company is reporting revenues of $603.9 million, up 8% and net income of $32.0 million, up 35%, Construction Products revenues increased 7% to $244.2 million primarily due to strong organic pricing, partially offset by lower overall volumes. Wet weather and cement availability that constrained its ready mix customers and delayed projects in certain markets contributed to the volume decline. A deceleration in new single-family residential construction activity also impacted volumes in its natural aggregates business. Inflationary cost pressures related to higher diesel, cement and process fuels increased cost of revenues by approximately $9 million.
“We delivered another quarter of double-digit Adjusted EBITDA growth, meeting our overall expectations for the third quarter,” said Antonio Carrillo, president and chief executive officer. “Demand conditions in our growth businesses remained favorable, and we continued to execute well in our cyclically challenged businesses. During the quarter, we took proactive pricing actions across our portfolio of businesses to counter inflationary pressures leading to higher overall margins and free cash flow compared to last year.
“Our third quarter performance was led by Engineered Structures, generating an impressive 42% increase in Adjusted Segment EBITDA with a 360 basis point expansion in segment margins. Consistent grid modernization and electrification demand drivers within utility structures along with strategic pricing measures to combat high steel prices improved year-over-year profitability within the segment.
“During the quarter, overall construction activity was healthy, and the outlook for public infrastructure and non-residential spending remains very positive. Pricing momentum continued to be strong in the third quarter, offsetting inflationary cost pressures, leading to margins consistent with the second quarter. In certain markets, wet weather and limitations on cement availability delayed projects and constrained volumes. In addition, a deceleration in single-family residential activity, which aligned with the sharp rise in mortgage rates during the quarter, impacted our natural aggregates volumes. As a result, Adjusted Segment EBITDA for Construction Products came in relatively flat compared to last year.
“Our cyclical businesses performed in-line with our expectations. As anticipated, improved profitability in our steel components businesses serving the North American railcar market was offset by lower profitability in our barge and wind towers businesses. Order inquiries in our barge business increased consistent with the positive outlook for a dry barge replacement cycle, though the actual level of orders received during the quarter remained constrained by high steel prices.
“The passage of the Inflation Reduction Act in August, which included a long-term extension of the Production Tax Credit that expired at the end of 2021, is a significant catalyst for our wind towers business. However, the lapse in the PTC has created a near-term lull in projects as the wind industry supply chain takes time to recalibrate. As a result, we anticipate 2023 will be a transition year while we prepare for an expected strong multi-year rebound in volumes beginning in 2024.”
Carrillo concluded, “On Oct. 3, we completed the divestiture of our storage tanks business for $275 million, representing an important milestone that reflects our ongoing commitment to portfolio simplification. The divestiture is an excellent example of improving a business and preparing it for monetization when market conditions are supportive, enabling Arcosa to realize significant value to ultimately reinvest in our growth businesses. We continue to make solid progress on the organic growth projects we have underway in Construction Products and Engineered Structures and look forward to their positive contributions in 2023 and beyond.”