What happened
Shares of U.S. Concrete (USCR) rose nearly 41% in the first six months of 2019, according to data provided by S&P Global Market Intelligence. The infrastructure stock's surge was catalyzed by strong operating results and continued momentum in the broader economy, which instills confidence in investors hoping major construction projects continue their solid pace.
The first-half performance was certainly welcome news following a 58% decline in shares in 2018. However, the stock has still lost 18% in the last three years. Investors are also right to wonder what will happen to the business during the next economic slowdown -- Will it be forced to give up the gains?
Image source: Getty Images.
So what
Although Wall Street has worried that the infrastructure company's epic run since emerging from bankruptcy about a decade ago -- perfectly timed with a record economic expansion -- will soon come to an inevitable conclusion, U.S. Concrete has demonstrated an impressive ability to grow its business in the face of various headwinds.
For example, wet weather was one of the biggest obstacles in 2018. It caused the company to pay idle drivers, which weighed on operating margin. But despite a rain-soaked year of operations, U.S. Concrete reported record revenue and operating income while noting that cash from operations jumped 29% year over year.
Meanwhile, the first quarter of 2019 marked the 33rd consecutive quarter in which revenue outpaced the year-ago period. The streak was kept alive thanks to strong results from the relatively new aggregate segment (aggregate is the solid-material component of concrete), which helped to offset flatlining growth in the ready-mix concrete segment.
Management thinks the good times will continue for the foreseeable future. On the first-quarter 2019 earnings conference call, CEO Bill Sandbrook said the company's backlog at the end of March was 8.1 million cubic yards of concrete. That's basically unchanged from the end of January 2018 and represents roughly 10 months of projects.
Now what
There's little reason for investors to doubt management at this point. U.S. Concrete has consistently hit the mark and delivered steady growth. That said, the business will need to confront its relatively high debt balance before too long. Doing so will require diverting cash flow away from growth activities and acquisitions and toward debt repayment. If the business waits too long, it could be in a difficult financial position when the economy slows.
