What happened
Shares of U.S. Concrete (USCR) gained over 36% last month, according to data from S&P Global Market Intelligence. The industrial materials leader set a new year-to-date high in September thanks in part to shifting investor attitudes. While the U.S. and global economies are cooling down, fears over an imminent recession with a rough landing have been mitigated by relatively favorable economic data published in recent months.
To be fair, that's what cement and concrete companies have been saying for several quarters. Case in point: U.S. Concrete exited the first half of 2019 with a strong project backlog and high expectations for the second half of the year. Wet weather, not economics, has been the only thing weighing on the business lately.
Image source: Getty Images.
So what
As a commodity-driven business in a cyclical industry, U.S. Concrete has had a difficult time convincing investors that it can maintain an acceptable rate of growth. The company peaked at a market valuation of $1.4 billion in early 2018 before tumbling to a market cap of just $500 million later that year. The small-cap industrial stock has since clawed its way back to a market cap of over $800 million on strong operating results and healthy market fundamentals.
It hasn't been easy. U.S. Concrete encountered record rainfall in Texas during the second quarter, the wettest Q2 in New York in over 10 years, and the wettest Q2 in Northern California in over 20 years. To state the obvious, wet weather can significantly delay ready-mix concrete pours since the materials need adequate time to set.
Despite historically wet weather in core markets, U.S. Concrete performed relatively well during the first half of 2019.
|
Metric |
First Half 2019 |
First Half 2018 |
Change (YoY) |
|---|---|---|---|
|
Revenue |
$700 million |
$732 million |
(4%) |
|
Gross margin |
19.3% |
19.7% |
(40 basis points) |
|
Operating income |
$13.9 million |
$38.2 million |
(63%) |
|
Operating cash flow |
$40.6 million |
$47.9 million |
(15%) |
|
Ready-mix concrete, Average selling price (ASP) |
$138.97 per cubic yard |
$134.79 per cubic yard |
3% |
|
Aggregate products, ASP |
$11.96 per ton |
$11.03 per ton |
8% |
Data source: SEC filing. YoY = Year over Year.
On the second-quarter 2019 earnings conference call, management told investors that July and early August were marked by excellent weather conditions. But that wasn't enough to offset the delays from rainy days. Management lowered full-year 2019 revenue guidance to a midpoint of $1.54 billion, down from a previous midpoint of $1.58 billion.
Now what
Investors are starting to warm up to U.S. Concrete. The company had certain projects delayed in the first half of 2019, but the revenue is only delayed, not lost. Selling prices for ready-mix concrete and aggregate materials continue to rise. And a slowing U.S. economy hasn't weighed on construction projects yet.
That said, the business has room to increase profitability and strengthen its balance sheet. Investors will learn more about progress on those fronts when U.S. Concrete announces third-quarter 2019 operating results in the next month.
