Arcosa, Inc. (ACA)

Arcosa, Inc. is a provider of infrastructure-related products and solutions with leading brands serving construction, engineered structures, and transportation markets in North America. The company is strategically focused on driving organic and disciplined acquisition growth to capitalize on the fragmented nature of many of the industries in which it operates. Arcosa is well-aligned with key market trends such as the replacement and growth of aging transportation infrastructure, investments in grid-hardening and connecting renewables to the grid, and the expansion of data centers and rise in electricity consumption. The U.S. aggregates industry is a highly fragmented industry with more than 5,000 producers nationwide, and many opportunities for consolidation exist. The company's three segments serve critical infrastructure markets: Construction Products, Engineered Structures, and Transportation Products.

Arcosa holds a strong market position in the manufacturing of trench shields and shoring products for the U.S. construction industry. The company has a leading position in the U.S. market for the manufacture of inland barges and fiberglass barge covers, holding a majority share of the inland barge manufacturing market. In the Engineered Structures segment, Arcosa is a well-established manufacturer in the U.S. and Mexico of engineered steel utility structures and one of the leading manufacturers of structural wind towers in North America. The company competes with both domestic and foreign manufacturers on the basis of product quality, engineering expertise, customer service, and on-time delivery. Revenues from GE Vernova, a customer in the Engineered Structures segment, constituted 12.2% ¹ of consolidated revenues for the year ended December 31, 2025. The proximity of active quarries, stationary crushing locations, and strategic reserves to demand centers serves as a natural barrier to entry in the aggregates business.

Arcosa generates revenue through three principal business segments: Construction Products, Engineered Structures, and Transportation Products. The Construction Products segment produces and sells natural and recycled aggregates, specialty materials, asphalt mix, and construction site support equipment. The Engineered Structures segment manufactures and sells steel and concrete structures for infrastructure businesses, including utility structures, structural wind towers, traffic and lighting structures, and telecommunication structures. The Transportation Products segment manufactures and sells inland barges, fiberglass barge covers, winches, and marine hardware. Revenue is recognized when control over a product or service is transferred to a customer, with revenue for wind towers and certain utility structures recognized over time using an input approach based on costs incurred relative to total estimated costs.

The Construction Products segment produces and sells natural and recycled aggregates, specialty materials, asphalt mix, and construction site support equipment. In 2025, the company had shipments of approximately 42 million tons ² of aggregates, specialty materials and asphalt, of which over 80% was natural and recycled aggregates. The largest markets are Texas and New Jersey, which represent approximately 35% ³ and 20% ⁴ of 2025 segment revenues. The company operates 52 active natural aggregates mining properties and 11 active specialty materials mining properties as of December 31, 2025. The company controlled an estimated 1.3 billion tons ⁵ of mineral reserves as of December 31, 2025, with approximately 684 million tons or 55% ⁶ located on owned land and approximately 566 million tons or 45% ⁷ located on leased land. Mineral reserves represent approximately 35 years ⁸ at current production levels within the natural aggregates business and approximately 113 years ⁹ at current production levels within the specialty materials business. The company also controlled an estimated 364 million tons ¹⁰ of mineral resources as of December 31, 2025, exclusive of reported mineral reserves.

The Engineered Structures segment manufactures and sells steel and concrete structures for infrastructure businesses, including utility structures for electricity transmission and distribution, structural wind towers, traffic and lighting structures, and telecommunication structures. The segment has six manufacturing plants in the U.S. and Mexico dedicated to steel structures and two manufacturing plants in the U.S. dedicated to concrete structures. The company is currently in the process of converting an idled wind tower facility to utility structures, which is expected to be operational in the second-half of 2026. The Transportation Products segment manufactures and sells inland barges, fiberglass barge covers, winches, and marine hardware. The company has a leading position in the U.S. market for the manufacture of inland barges and fiberglass barge covers. In August 2024, the company completed the sale of its steel components business, which had revenues of $87.8 million ¹¹ in 2024. On February 24, 2026, the company announced an agreement to sell its inland barge and marine components business for a cash purchase price of approximately $450 million ¹², expected to close in the second quarter of 2026.

On October 1, 2024, the company completed the acquisition of the construction materials business of Stavola Holding Corporation and its affiliated entities for $1.2 billion ¹³ in cash. In April 2024, the company completed the acquisition of Ameron Pole Products, LLC for $180.0 million ¹⁴ in cash. In August 2024, the company completed the divestiture of its steel components business. On June 17, 2025, the company entered into Amendment No. 2 to the Credit Agreement, which established a new class of term loans (the 2025 Refinancing Term Loan) in an aggregate principal amount of $698.3 million ¹⁵. During the year ended December 31, 2025, the company prepaid $156.5 million ¹⁶ of the outstanding principal balance on the 2025 Refinancing Term Loan. In December 2024, the Board authorized a $50.0 million ¹⁷ share repurchase program effective January 1, 2025 through December 31, 2026. The company did not repurchase any shares during the year ended December 31, 2025, leaving the full amount of the $50.0 million ¹⁸ authorization available as of December 31, 2025.

Revenues for the year ended December 31, 2025 increased by 12.2% ¹⁹ to $2.9 billion ²⁰ compared to the year ended December 31, 2024. Operating profit for the year ended December 31, 2025 totaled $341.9 million ²¹, an increase of $144.3 million ²². Net income for the year ended December 31, 2025 was $208.4 million ²³ compared with $93.7 million ²⁴ for the year ended December 31, 2024. The effective tax rate for the year ended December 31, 2025 was 13.6% ²⁵ compared to 27.9% ²⁶ for the year ended December 31, 2024. Interest expense for the year ended December 31, 2025 totaled $108.8 million ²⁷, an increase of $37.9 million ²⁸. Selling, general, and administrative expenses decreased 4.0% ²⁹ and as a percentage of revenues were 10.7% ³⁰ for the year ended December 31, 2025, compared to 12.5% ³¹ in the prior year.

Within the Engineered Structures segment, the company is well-positioned to benefit from significant investment in utility infrastructure, with strong demand for transmission and distribution structures across the U.S. as much of the utility infrastructure has aged and needs replacement. The backlog for utility and related structures as of December 31, 2025 was $434.9 million ³², up 5% ³³ from the prior year, providing strong production visibility for 2026. Due to increased demand, the company is currently in the process of converting an idled wind tower facility to utility structures, which is expected to be operational in the second-half of 2026. The company is evaluating its Engineered Structures footprint for additional opportunities to increase capacity to meet elevated demand. The wind towers business received orders of $247 million ³⁴ during the second half of 2025, and the backlog for wind towers was $627.8 million ³⁵ as of December 31, 2025. The company expects to recognize 42% ³⁶ of the unsatisfied performance obligations for wind towers during 2026, 53% ³⁷ during 2027, and the remainder during 2028.

Within the Transportation Products segment, the backlog for inland barges as of December 31, 2025 was $296.9 million ³⁸, up 6% ³⁹ from the prior year, providing visibility for both hopper and tank barges well into the second half of 2026. During the fourth quarter, the company received orders of $81 million ⁴⁰ for both hopper and tank barges. Both fleets continue to age as new builds are relatively low, which indicates future pent up replacement demand. Approximately 40% ⁴¹ of the hopper fleet and 30% ⁴² of the tank fleet are more than 20 years old, and the replacement of these fleets is expected to drive healthy demand based on an assumed 25 to 30-year useful life. Within the Construction Products segment, market demand remains healthy overall when seasonal weather conditions have been normal, supported by increased infrastructure spending and private non-residential activity.

The company has been successful in managing inflationary cost pressures through proactive price increases. Selling, general, and administrative expenses as a percentage of revenues decreased to 10.7% ⁴³ for the year ended December 31, 2025, compared to 12.5% ⁴⁴ in the prior year. Cost of revenues as a percentage of revenues in the Construction Products segment decreased to 76.8% ⁴⁵ in the current period, compared to 78.2% ⁴⁶ in the prior period. In the Engineered Structures segment, cost of revenues as a percentage of revenues decreased to 77.8% ⁴⁷ in the current period, compared to 80.9% ⁴⁸ in the prior period, partially attributed to startup costs incurred in the prior period for the new wind tower facility. In the Transportation Products segment, cost of revenues as a percent of revenues decreased to 79.6% ⁴⁹ in the current year, compared to 82.2% ⁵⁰ in the prior year.

Capital expenditures for the year ended December 31, 2025 decreased to $165.6 million ⁵¹, compared to $189.7 million ⁵² for the year ended December 31, 2024. The company is currently in the process of converting an idled wind tower facility to utility structures, which is expected to be operational in the second-half of 2026. The company is evaluating its Engineered Structures footprint for additional opportunities to increase capacity to meet elevated demand. As of December 31, 2025, the company employed approximately 6,390 ⁵³ employees. The company completed its third biennial Employee Engagement Survey in 2025.

In December 2024, the Board authorized a $50.0 million ⁵⁴ share repurchase program effective January 1, 2025 through December 31, 2026. For the year ended December 31, 2025, the company did not repurchase any shares, leaving the full amount of the $50.0 million ⁵⁵ authorization available as of December 31, 2025. Dividends paid during the year ended December 31, 2025 were $10.0 million ⁵⁶, compared to $9.7 million ⁵⁷ for the year ended December 31, 2024. The company did not repurchase any shares of common stock under its share repurchase program during the year ended December 31, 2025, unchanged from the prior year.

The One Big Beautiful Bill Act (OBBBA), enacted on July 4, 2025, includes several provisions that roll-back, phase out, repeal, and/or add stricter eligibility requirements for several tax incentives applicable to wind and solar projects. The OBBBA terminates the IRA's AMP tax credits for wind towers sold after 2027. Under the OBBBA, wind farm projects that begin construction after July 4, 2026, and are not placed in service before the end of 2027, will not be eligible for the PTC. The pending expiration of these incentives may pull demand forward in the near term, but such expiration could in the longer term reduce the demand for Arcosa's products. The current U.S. administration has maintained and, in some cases, significantly expanded tariffs on foreign imports of steel and aluminum, and any adverse change in trade policy could increase costs and adversely affect margins and profitability. The U.S. Department of Commerce has initiated an investigation into imports of wind tower components, and it is possible an adverse determination could result in significant new tariffs on such imported products.

The outlook for single-family residential housing continues to be impacted by higher interest rates and home affordability, which has negatively impacted volumes. Housing permits in Texas were down approximately 8% ⁵⁸ in 2025 compared to the previous year. The outlook for infrastructure spending in Texas is stable with 2026 fiscal year planned Texas Department of Transportation lettings of approximately $10.9 billion ⁵⁹. The TxDOT annual update to its 10-year Unified Transportation Program approved in 2025 identified $101.5 billion ⁶⁰ of infrastructure projects, a 2.5% ⁶¹ decrease from the prior year's UTP update. The outlook for infrastructure spending in New Jersey is stable with a New Jersey Department of Transportation 2026 budget of $3.6 billion ⁶², reflecting an increase of 14.8% ⁶³ from prior year. The New Jersey Turnpike Authority approved a $2.8 billion ⁶⁴ budget for 2026, a 3.7% ⁶⁵ increase from prior year.

Management's message emphasizes the company's strategic focus on driving organic and disciplined acquisition growth to capitalize on the fragmented nature of many of the industries in which it operates. The company is well-aligned with key market trends such as the replacement and growth of aging transportation infrastructure, investments in grid-hardening and connecting renewables to the grid, and the expansion of data centers and rise in electricity consumption. Management highlights the successful integration of the Stavola acquisition, which expanded the aggregates platform into the New York-New Jersey Metropolitan Statistical Area, and the pending divestiture of the barge business, with the company intending to use the after-tax proceeds to further invest in the expansion of its core growth platforms and reduce outstanding debt. The company remains confident that further investment in wind energy is needed to meet the load growth demands in the U.S. and believes that the pending expiration of incentives may pull demand forward. Management emphasizes the company's commitment to safety through the ARC 100 initiative and the Arcosa ALIVE initiative focusing on Serious Injury and Fatality prevention.

Total revenues for the year ended December 31, 2025 were $2,883.4 million ⁶⁷, compared to $2,569.9 million ⁶⁸ for the year ended December 31, 2024. Net income was $208.4 million ⁶⁹ for 2025, compared to $93.7 million ⁷⁰ for 2024. Diluted EPS was $4.24 ⁷¹ for 2025, compared to $1.91 ⁷² for 2024. Operating profit was $341.9 million ⁷³ for 2025, compared to $197.6 million ⁷⁴ for 2024. Gross profit was $647.2 million ⁷⁵ for 2025, compared to $515.2 million ⁷⁶ for 2024. Net cash provided by operating activities was $341.1 million ⁷⁷ for 2025, compared to $502.0 million ⁷⁸ for 2024. Total debt (excluding debt issuance costs) as of December 31, 2025 was approximately $1.5 billion ⁷⁹, and the company had unused commitments of $700.0 million ⁸⁰ under its revolving credit facility. The effective tax rate for 2025 was 13.6% ⁸¹, compared to 27.9% ⁸² for 2024. The change in the effective tax rate is primarily due to lower state income taxes, higher AMP tax credits, and lower foreign taxes. The company recognized a loss of $14.7 million ⁸³ related to the steel components divestiture during 2025. In the Construction Products segment, operating profit increased 41.7% ⁸⁴ to $189.7 million ⁸⁵. In the Engineered Structures segment, operating profit increased 34.7% ⁸⁶ to $170.2 million ⁸⁷. In the Transportation Products segment, operating profit increased 52.6% ⁸⁸ to $46.1 million ⁸⁹.

The company faces significant risks from the cyclical nature of its industries, particularly in the barge and wind tower markets, which have previously experienced sharp cyclical downturns. The expiration, elimination, or modification of tax benefits such as the AMP tax credits for wind towers sold after 2027 and the PTC for wind farm projects not placed in service before the end of 2027 could reduce demand for wind towers and decrease tax benefits for which the company is eligible. Fluctuations in the price and supply of steel, the principal raw material used in manufacturing segments, pose a material risk, as the current U.S. administration has maintained and significantly expanded tariffs on foreign imports of steel and aluminum, which could increase costs and adversely affect margins. The company's indebtedness, with total debt of approximately $1.5 billion ⁶⁶ as of December 31, 2025, restricts its current and future operations and could limit its ability to respond to changes in its business. The company depends on government spending for infrastructure projects, and any disruption in government funding or changes in priorities could limit infrastructure projects available and decrease sales.