What happened
Shares of US Concrete (USCR) jumped more than 15% today after the company reported second-quarter 2018 earnings. The ready-mix concrete leader delivered another solid quarter of growth up and down the income statement, which was welcomed news following an unusually weak (and weather impacted) first-quarter performance. The ready-mix backlog reached an all-time high of 8.3 million cubic yards, signaling that infrastructure projects in the company's core metropolitan areas aren't slowing down anytime soon.
The only blemish during the recent quarter was a slight decrease in average sales price. However, chairman, president, and CEO Bill Sandbrook explained that's because lower-priced volumes in Texas comprised a greater amount of the company's overall mix than in recent periods, adding that ready-mix concrete prices continue to increase in most markets.
As of 10:57 a.m. EDT, the stock had settled to a 12.3% gain.
Image source: Getty Images.
So what
US Concrete has crushed its growth strategy in recent years. The long-term goal is to consolidate the highly fragmented ready-mix concrete industry in major metropolitan areas, which support higher selling prices thanks to a high concentration of very large infrastructure projects. While the business got off to a slow start in the first quarter of the year, it rebounded sharply in the second quarter. Over 80% of first-half 2018 operating income was generated in the most recent quarter.
Investors also learned that the company's push to diversify revenue by expanding its aggregate business (aggregate is the collection of rock and material fragments that comprise the bulk of cement) continues to alter the overall business mix. In fact, management expects the aggregate segment to account for 20% of total revenue once new acquisitions begin contributing for a full 12 months.
|
Metric |
First Half 2018 |
First Half 2017 |
Year-Over-Year Change |
|---|---|---|---|
|
Total revenue |
$731.9 million |
$640 million |
14.3% |
|
Ready-mix concrete, % of revenue |
87% |
91% |
N/A |
|
Aggregate, % of revenue |
11% |
6% |
N/A |
|
Operating income |
$38.1 million |
$51.6 million |
(26%) |
|
Net income |
$12.5 million |
$4.5 million |
175% |
|
Operating cash flow |
$47.9 million |
$53.1 million |
(9.8%) |
Source: Press release.
Now what
That said, while growth remains red hot, shareholders are still reeling from the nearly 40% drop in US Concrete shares in 2018. Months ago the company found itself in the crosshairs of a short seller report from Spruce Point Capital, which made several serious accusations regarding the legitimacy of the company's accounting. While shares remain well above the range identified in the report (between $6 and $25 per share), the allegations were enough to swipe away the company's premium valuation. Whether the accusations in the report are true or not, its existence has significantly increased volatility and risk for long-term investors.
