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Arcosa Sees Spike in Construction Materials Business

Arcosa Inc. reported that total revenues increased 15% to $498.5 million in the second quarter. Construction materials revenues increased 28% to $148.2 million in the second quarter, driven primarily by the acquisition of Cherry Industries. "In our legacy construction aggregates businesses, natural aggregates revenues were higher due to a robust increase in volume, partially offset by weakness in our plants serving oil and gas markets," the company stated.

The company's specialty materials businesses reported lower revenues, primarily due to reduced volumes in its lightweight aggregates business attributed to COVID 19-related construction delays. Revenues in its trench-shoring business decreased by 28%, also as a result of lower volumes as customers reduced capital expenditures during the pandemic.

The $297 million Cherry acquisition that was completed in January 2020 continues to perform well, according to the company. The business has exceeded its financial expectations, integration is on track and they remain excited to continue growing Cherry's natural and recycled aggregates platforms.

“As we navigate the COVID-19 crisis, our highest priority remains the health and safety of our employees and the communities in which we operate,” noted Antonio Carrillo, president and chief executive officer. “I am deeply impressed by the relentless dedication and effort that our Arcosa team demonstrates every day to keep our operations safe as we deliver critical infrastructure products and services. I am also appreciative of the commitment that our employees have shown to our local communities and small businesses, as we work together supporting the path to recovery.”

Commenting on second quarter performance, Carrillo said, “Our record second quarter results show the strong fundamentals of our infrastructure-related portfolio, along with excellent execution during the pandemic. All three of our segments delivered year-over-year revenue growth, and Adjusted EBITDA outpaced revenue growth.

“Construction Products generated record EBITDA in the second quarter, as our strategy to grow this segment has shifted our overall portfolio towards a more stable set of end markets, and our operating teams executed well. We produced these strong results even with softness in our shoring and lightweight aggregates business, both of which were negatively impacted by COVID-related slowdowns.”

Carrillo continued, “I am also very pleased with our free cash flow generation as we continue to build a ‘cash culture’ across the company. Strong cash flow and low leverage give us flexibility to continue selectively investing in our growth strategy. Since March, we have invested approximately $60 million to acquire three complementary product lines for our utility structures business. We have added traffic, telecom, and concrete structures at attractive valuations, and we expect these markets to continue growing due to strong infrastructure-related demand in our key regions. Additionally, we expect to achieve growth and cost synergies as we integrate them into our North American footprint.

“Looking forward, the path to sustained economic recovery remains uncertain, and order and inquiry activity during the second quarter was mixed. Demand for utility structures continued to be very healthy and lead times remain extended, and wind tower inquiries are progressing for 2021 production. On the other hand, new orders in barge and rail components were weak, as our customers reduced capital spending in the midst of lower equipment utilization. While construction activity has remained healthy in the first half of the year, we continue to monitor\ federal and state transportation budgets to determine how the crisis may impact future construction spending.”

Carrillo concluded, “We have delivered exceptional results in the first half of 2020, and finished the second quarter with a strong balance sheet and an attractive organic and acquisition pipeline. Although the U.S. economy may be in for an extended period of COVID-related uncertainty, we plan to use this period to continue repositioning our company. In the 18 months since our spin-off, we have made significant progress advancing our long-term vision.”