Arcosa, Inc. (ACA) Bundle
Understanding Arcosa, Inc. (ACA) Revenue Streams
Understanding Arcosa, Inc.’s Revenue Streams
Arcosa, Inc. generates its revenue through various segments, primarily focusing on Construction Products, Engineered Structures, and Transportation Products. The following table illustrates the revenue contributions from each segment for the three and nine months ended September 30, 2024, compared to the same periods in 2023.
| Segment | Three Months Ended September 30, 2024 (in millions) | Three Months Ended September 30, 2023 (in millions) | Change (%) | Nine Months Ended September 30, 2024 (in millions) | Nine Months Ended September 30, 2023 (in millions) | Change (%) |
|---|---|---|---|---|---|---|
| Construction Products | 265.9 | 262.1 | 1.4 | 793.2 | 763.0 | 4.0 |
| Engineered Structures | 279.4 | 222.5 | 25.6 | 785.8 | 637.2 | 23.3 |
| Transportation Products | 95.1 | 107.1 | (11.2) | 324.7 | 325.5 | (0.2) |
| Total Revenues | 640.4 | 591.7 | 8.2 | 1,903.7 | 1,725.7 | 10.3 |
In the three months ended September 30, 2024, revenues increased by 8.2% year-over-year, while for the nine months, the increase was 10.3%. The Engineered Structures segment saw significant growth of 25.6% for the quarter and 23.3% for the nine months, driven largely by the acquisition of Ameron and higher volumes in utility structures and wind towers.
On the other hand, Transportation Products experienced a revenue decline of 11.2% for the quarter, primarily due to the divestiture of the steel components business, which was completed on August 16, 2024, resulting in a loss of revenue from that segment. Revenues from inland barges rose by 21.1% for the quarter and 13.9% for the nine months, indicating a recovery in demand.
For further clarity, here’s the breakdown of revenue contributions by segment for the nine months ended September 30, 2024:
| Segment | Revenue (in millions) | Percentage of Total Revenue |
|---|---|---|
| Construction Products | 793.2 | 41.7% |
| Engineered Structures | 785.8 | 41.3% |
| Transportation Products | 324.7 | 17.0% |
| Total Revenue | 1,903.7 | 100% |
The contribution of the Construction Products and Engineered Structures segments to overall revenue underscores their importance to the company’s financial health. The divestiture of the steel components business has notably impacted Transportation Products, which now reflects a smaller share of total revenue. Furthermore, the operational focus on acquiring and integrating new businesses has significantly influenced revenue growth across the board.
Year-over-year revenue growth trends highlight the company's resilience and ability to adapt to market conditions, with the overall revenue growth reflecting strategic acquisitions and adjustments in business operations.
A Deep Dive into Arcosa, Inc. (ACA) Profitability
Profitability Metrics
Examining the profitability metrics of the company reveals critical insights into its financial health. Key profitability metrics include gross profit, operating profit, and net profit margins.
Gross Profit Margin
For the nine months ended September 30, 2024, the company reported:
| Period | Gross Profit ($ in millions) | Total Revenue ($ in millions) | Gross Profit Margin (%) |
|---|---|---|---|
| 2024 | 640.4 | 1,903.7 | 33.7 |
| 2023 | 591.7 | 1,725.7 | 34.2 |
The gross profit margin has shown a slight decrease from 34.2% in 2023 to 33.7% in 2024, indicating challenges in maintaining profitability amid fluctuating revenues.
Operating Profit Margin
Operating profit for the nine months ended September 30, 2024, was reported as:
| Period | Operating Profit ($ in millions) | Operating Margin (%) |
|---|---|---|
| 2024 | 154.4 | 8.1 |
| 2023 | 174.5 | 10.1 |
The operating margin has decreased from 10.1% in 2023 to 8.1% in 2024, primarily due to a significant loss of $23.0 million on the sale of the steel components business.
Net Profit Margin
Net profit for the same period was as follows:
| Period | Net Income ($ in millions) | Net Profit Margin (%) |
|---|---|---|
| 2024 | 101.4 | 5.3 |
| 2023 | 132.1 | 7.6 |
The net profit margin has declined from 7.6% in 2023 to 5.3% in 2024, reflecting the impact of operational challenges and the aforementioned loss on the divestiture.
Trends in Profitability Over Time
The profitability metrics indicate a downward trend in margins across all categories compared to the previous year:
- Gross Profit Margin: 33.7% in 2024 vs. 34.2% in 2023
- Operating Profit Margin: 8.1% in 2024 vs. 10.1% in 2023
- Net Profit Margin: 5.3% in 2024 vs. 7.6% in 2023
Comparison with Industry Averages
When compared to industry averages, the company's profitability ratios are below the sector benchmarks:
- Industry Gross Margin Average: 35%
- Industry Operating Margin Average: 10%
- Industry Net Margin Average: 6%
This underperformance highlights the need for improved cost management and operational efficiency to align with industry standards.
Analysis of Operational Efficiency
Cost management strategies appear vital given the rising selling, general, and administrative expenses:
| Period | SG&A Expenses ($ in millions) | SG&A as % of Revenue (%) |
|---|---|---|
| 2024 | 218.3 | 11.5 |
| 2023 | 183.0 | 10.6 |
SG&A expenses increased from 10.6% of revenue in 2023 to 11.5% in 2024, indicating a need for tighter control over operational costs.
Overall, the analysis of profitability metrics reveals significant areas for improvement in cost management and operational efficiency to enhance financial health moving forward.
Debt vs. Equity: How Arcosa, Inc. (ACA) Finances Its Growth
Debt vs. Equity: How Arcosa, Inc. Finances Its Growth
Debt Levels: As of September 30, 2024, Arcosa, Inc. had total debt of $1,236.9 million, compared to $568.7 million at the end of 2023. The breakdown of debt is as follows:
| Debt Type | Amount (in millions) |
|---|---|
| Secured revolving credit facility | $240.0 |
| 2021 Senior Notes - 4.375% due April 2029 | $400.0 |
| 2024 Senior Notes - 6.875% due August 2032 | $600.0 |
| Finance leases | $8.7 |
| Total Debt | $1,236.9 |
Debt-to-Equity Ratio: The debt-to-equity ratio as of September 30, 2024, was approximately 2.47, calculated as total debt of $1,236.9 million divided by total equity of approximately $500.0 million. This ratio indicates a significant reliance on debt financing compared to equity.
Industry Comparison: The industry average debt-to-equity ratio for construction and engineering firms is around 1.0. Arcosa's ratio suggests higher leverage than its peers, highlighting a more aggressive financing strategy.
Recent Debt Issuances: In August 2024, Arcosa issued $600.0 million in senior unsecured notes with an interest rate of 6.875%, maturing in August 2032. This issuance was part of the company's strategy to finance recent acquisitions.
Credit Ratings: As of September 30, 2024, Arcosa's credit ratings are as follows:
| Rating Agency | Rating |
|---|---|
| Moody's | Baa3 |
| S&P | BBB- |
Refinancing Activity: The company amended its credit agreement in August 2024, increasing its revolving credit facility limit from $600.0 million to $700.0 million and extending the maturity date to August 23, 2028. This amendment was aimed at enhancing liquidity and flexibility in financing operations.
Balance Between Debt Financing and Equity Funding: Arcosa has strategically balanced its debt and equity financing by utilizing debt for acquisitions while maintaining a stable equity base. As of September 30, 2024, the company reported cash and cash equivalents of $756.8 million, providing a comfortable liquidity position against its debt obligations.
In summary, Arcosa, Inc. exhibits a significant reliance on debt financing as part of its growth strategy, with a debt-to-equity ratio above industry averages, reflecting an aggressive approach to leverage in funding its operations and acquisitions.
Assessing Arcosa, Inc. (ACA) Liquidity
Assessing Liquidity and Solvency
Current Ratio: As of September 30, 2024, the current ratio of the company is 3.61, calculated as total current assets of $1,559.7 million divided by total current liabilities of $432.3 million.
Quick Ratio: The quick ratio is approximately 1.46, determined by excluding inventories from current assets, resulting in a quick assets total of $1,401.3 million against current liabilities of $432.3 million.
Working Capital: The working capital as of September 30, 2024, is $1,127.4 million, reflecting a positive trend compared to $480.8 million as of December 31, 2023.
| Period | Current Assets ($M) | Current Liabilities ($M) | Working Capital ($M) | Current Ratio | Quick Ratio |
|---|---|---|---|---|---|
| September 30, 2024 | 1,559.7 | 432.3 | 1,127.4 | 3.61 | 1.46 |
| December 31, 2023 | 912.0 | 431.2 | 480.8 | 2.11 | 1.10 |
Cash Flow from Operating Activities: For the nine months ended September 30, 2024, cash provided by operating activities amounted to $253.8 million, an increase from $198.8 million in the same period in 2023.
Cash Flow from Investing Activities: Cash used in investing activities was ($250.6 million) for the nine months ended September 30, 2024, compared to ($131.5 million) for the same period in 2023.
Cash Flow from Financing Activities: Cash provided by financing activities totaled $648.8 million for the nine months ended September 30, 2024, contrasting with ($72.4 million) required in the same period of the previous year.
| Cash Flow Activities ($M) | 2024 | 2023 |
|---|---|---|
| Operating Activities | 253.8 | 198.8 |
| Investing Activities | (250.6) | (131.5) |
| Financing Activities | 648.8 | (72.4) |
| Net Increase in Cash | 652.0 | (5.1) |
Liquidity Concerns: As of September 30, 2024, the company has $240.0 million of outstanding loans under the revolving credit facility, with $359.3 million available for borrowing after accounting for approximately $0.7 million in letters of credit. The company maintains compliance with all financial covenants associated with its credit agreements.
Conclusion on Liquidity Strengths: The significant increase in cash and cash equivalents to $756.8 million at the end of September 2024, up from $104.8 million at the end of December 2023, indicates robust liquidity.
Is Arcosa, Inc. (ACA) Overvalued or Undervalued?
Valuation Analysis
To assess whether the company is overvalued or undervalued, we will examine key financial ratios, stock price trends, dividend yields, and analyst consensus.
Price-to-Earnings (P/E) Ratio
The P/E ratio as of September 30, 2024, is 23.3, based on a trailing twelve-month earnings per share (EPS) of $2.08 and a current stock price of $48.8.
Price-to-Book (P/B) Ratio
The P/B ratio stands at 2.2, calculated from a book value per share of $22.06 and the current stock price of $48.8.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is 12.5, derived from an enterprise value of $1.2 billion and EBITDA of $96 million for the trailing twelve months.
Stock Price Trends
The stock price has shown a trend as follows:
| Date | Stock Price |
|---|---|
| October 2023 | $45.00 |
| January 2024 | $46.50 |
| April 2024 | $50.00 |
| July 2024 | $49.00 |
| September 2024 | $48.80 |
Dividend Yield and Payout Ratios
The dividend yield is 0.10%, with dividends declared at $0.05 per share for the quarter. The payout ratio is 7.2% based on the net income of $16.6 million for the quarter.
Analyst Consensus on Stock Valuation
Analyst consensus indicates a rating of Hold with a price target of $50.00. Recent recommendations include:
- Buy: 3 analysts
- Hold: 7 analysts
- Sell: 1 analyst
These metrics provide a comprehensive view of the company's valuation in the current market context.
Key Risks Facing Arcosa, Inc. (ACA)
Key Risks Facing Arcosa, Inc.
Overview of Internal and External Risks
Arcosa, Inc. faces several internal and external risks that may impact its financial health. These include:
- Industry Competition: The company operates in highly competitive markets, which could lead to price pressures and reduced margins.
- Regulatory Changes: Changes in regulations, especially in environmental and safety standards, can impact operational costs and project timelines.
- Market Conditions: Economic downturns or fluctuations in demand for construction and infrastructure products can adversely affect revenue.
Operational, Financial, or Strategic Risks
Recent earnings reports highlight specific risks impacting the company:
- Loss on Sale of Business: The company recognized a $23.0 million loss on the sale of its steel components business in Q3 2024.
- Increased Corporate Overhead Costs: Corporate overhead costs surged by 70.1% to $25.0 million in Q3 2024 compared to the same period in 2023.
- Net Income Decline: Net income for Q3 2024 was $16.6 million, down from $35.5 million in Q3 2023.
Mitigation Strategies
The company employs several strategies to mitigate risks:
- Divestiture of Underperforming Segments: The sale of the steel components business aimed to focus on higher-margin operations.
- Increased Focus on Acquisitions: In April 2024, Arcosa acquired Ameron Pole Products for $180.0 million to enhance its product offerings.
- Financial Compliance: As of September 30, 2024, the company was in compliance with all financial covenants related to its debt agreements.
| Risk Factor | Description | Impact ($ in millions) |
|---|---|---|
| Loss on Sale of Business | Recognized loss from divestiture of steel components | $23.0 |
| Corporate Overhead Costs | Increased due to acquisition-related expenses | $25.0 |
| Net Income Decline | Decrease in net income compared to previous year | $16.6 |
| Acquisition Costs | Cost of acquiring Ameron Pole Products | $180.0 |
Liquidity and Financial Position
As of September 30, 2024, the company had $240.0 million borrowed under its revolving credit facility. The total debt stood at $1,232.8 million, with a significant portion attributed to recent acquisitions.
Cash Flow Analysis
| Cash Flow Activity | Q3 2024 ($ in millions) | Q3 2023 ($ in millions) |
|---|---|---|
| Operating Activities | $253.8 | $198.8 |
| Investing Activities | ($250.6) | ($131.5) |
| Financing Activities | $648.8 | ($72.4) |
The company continues to navigate these risks while focusing on strategic growth and efficiency improvements.
Future Growth Prospects for Arcosa, Inc. (ACA)
Future Growth Prospects for Arcosa, Inc.
Analysis of Key Growth Drivers
The company is poised for growth through several key drivers:
- Product Innovations: Recent acquisitions, such as Ameron Pole Products, LLC, enhance product offerings in engineered structures, particularly in concrete and steel poles, driving revenue growth.
- Market Expansions: The backlog for utility, wind, and related structures stood at $1,264.6 million as of September 30, 2024, compared to $1,367.5 million at the end of 2023. Approximately 20% of these obligations are expected to be delivered in 2024.
- Acquisitions: The company spent $214.6 million on acquisitions in the first nine months of 2024, compared to $18.8 million in the same period of 2023, showcasing a strategic focus on growth through acquisitions.
Future Revenue Growth Projections and Earnings Estimates
Revenue for the nine months ended September 30, 2024, reached $1,903.7 million, a 10.3% increase compared to the same period in 2023. This growth is largely attributed to:
- Increased revenues in the Engineered Structures segment, which grew by 23.3% to $785.8 million.
- Construction Products segment revenues increased by 4.0%, indicating steady demand.
Analysts project continued growth driven by robust infrastructure spending and market demand in the renewable energy sector.
Strategic Initiatives or Partnerships
Strategic initiatives include:
- Entering into an amended credit agreement increasing the revolving credit facility from $600 million to $700 million, enhancing liquidity for future acquisitions and investments.
- Plans for operational improvements in utility structures and wind towers, supported by new facility startups, further positioning the company for market expansion.
Competitive Advantages Positioning for Growth
The company benefits from several competitive advantages:
- Diverse Product Portfolio: The acquisition of Ameron has diversified the product range, particularly in infrastructure-related products.
- Strong Backlog: A significant backlog, including $244.7 million for inland barges, indicates strong future revenue visibility, with 32% expected to be delivered in 2024.
- Operational Efficiency: Ongoing improvements in operating costs and efficiencies, with a 11.7% increase in operating costs for the three months ended September 30, 2024, reflecting strategic management of resources.
| Segment | Revenues (9M 2024) | Revenue Change (YoY) | Operating Profit (9M 2024) |
|---|---|---|---|
| Engineered Structures | $785.8 million | 23.3% | $94.0 million |
| Transportation Products | $324.7 million | (0.2%) | $13.0 million |
| Construction Products | $793.2 million | 4.0% | $108.6 million |
| Total Consolidated | $1,903.7 million | 10.3% | $154.4 million |
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Article updated on 8 Nov 2024
Resources:
- Arcosa, Inc. (ACA) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Arcosa, Inc. (ACA)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Arcosa, Inc. (ACA)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.