Earnings Call Transcript - ACA Q1 2022

Operator, Operator

Good morning, ladies and gentlemen, and welcome to Arcosa, Inc. First Quarter 2022 Earnings Conference Call. My name is Carlos, and I will be your conference call coordinator today. As a reminder, today’s call is being recorded. Now I would like to turn the call over to your host, Erin Drabek, Director of Investor Relations for Arcosa. Ms. Drabek, you may begin.

Erin Drabek, Director of Investor Relations

Good morning, everyone, and thank you for joining Arcosa’s first quarter 2022 Earnings Call. With me today are Antonio Carrillo, President and CEO; and Gail Peck, CFO. A question-and-answer session will follow their prepared remarks. A copy of yesterday’s press release and the slide presentation for this morning’s call are posted on our Investor Relations website, ir.arcosa.com. A replay of today’s call will be available for the next two weeks. Instructions for accessing the replay number are included in the press release. A replay of the webcast will be available for one year on our website under the News and Events tab. Today’s comments and presentation slides contain financial measures that have not been prepared in accordance with GAAP. Reconciliations of non-GAAP financial measures to the closest GAAP measure are included in the appendix of the slide presentation. In addition, today’s conference call contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Please refer to the company’s SEC filings for more information on these risks and uncertainties, including the press release we filed yesterday and our Form 10-Q, we expect to be filed later today. I would now like to turn the call over to Antonio.

Antonio Carrillo, President and CEO

Thank you, Erin. Good morning, everyone, and thank you for joining today’s call. Starting on Slide 4, I’ll begin with some first quarter highlights. Excluding our growth businesses, construction products and engineered structures, our quarter delivered strong first quarter results with adjusted EBITDA growth of 30% outpacing revenue growth. Our results were driven by healthy infrastructure-led fundamentals and proactive pricing actions supported by solid operational performance. Additionally, we benefited from the contributions of recent acquisitions in Construction Products where integration is progressing well. During the quarter, we effectively managed the headwinds in our cyclical businesses, and I would like to commend our team for their continued dedication and execution in a challenging market environment. On a positive note, our barge business received $105 million in new orders during the first quarter, benefiting from our ability to secure competitive steel pricing. While these orders come at a lower than historical margin, we see the activity as a positive sign reflecting pent-up replacement demand for hopper barges and extending our backlog into 2023. Earlier in the week, we were pleased to announce that we reached a definitive agreement to divest our storage tank business for $275 million in cash, significantly advancing our strategy to simplify our portfolio of businesses. We continue to have an attractive pipeline of organic and acquisition opportunities with key focus on construction products and engineered structures, and the divestiture enables us to accelerate these opportunities. Overall demand conditions across our growth businesses remain strong, and we continue to see indications of recovery within our cyclical businesses. At the same time, we’re focused on closely managing inflationary pressures. Global steel prices remain elevated and following the outbreak of the conflict in Ukraine, we now expect prices to remain elevated at least through the remainder of 2022. Even so, based on our strong start to the year, we’re raising the midpoint of our 2022 full-year adjusted EBITDA guidance and now expect annual growth in the range of 2% to 8%. Finally, I’m pleased to announce that Arcosa recently published our second annual sustainability report, which is now available on our website. This report provides a comprehensive view of the many ways we are incorporating ESG initiatives into our business and our vision for driving sustainable long-term growth. Turning to Slide 8, I’d like to provide some additional highlights on our divestiture announcement before we move into quarterly results. The sale of our storage tank business is consistent with our strategy to reduce the complexity and cyclicality of our overall portfolio, and we intend to redeploy the proceeds into our key growth businesses. This divestiture is an excellent example of improving our business and then preparing it for monetization when market conditions are supportive, enabling us to realize significant value through our competitive sales process. At spin, our storage tank business was underperforming, generating negative EBITDA in 2018. We set out to improve profitability through lean initiatives and a strategy to accelerate growth. Beginning in late 2020, covering the organization trends and a strong housing market led to significantly improved results for the business with 2021 adjusted EBITDA pacing ahead of normalized levels. To capture future growth opportunities, we believe the business requires additional capital, making it an opportune time for new ownership. We anticipate the transaction should close in the second half of the year, and we will update our full-year 2022 guidance at that time. Our pipeline of investment opportunities is robust and includes attractive acquisitions and organic initiatives that would not only strengthen our current product offerings but also expand our geographic footprint. From an organic standpoint, we are making solid progress in our growth projects, including the expansion of our specialty materials cluster plant as well as two new greenfield locations in natural aggregates. In addition, we are expanding our product line in the utility pole business. Earlier in the year, we started production of strong concrete poles in Alabama. Given the successful launch of that line, we recently approved a new $30 million strong concrete pole plant in Florida, which will start operations in 2023. The combination of these organic and inorganic opportunities coupled with the additional capital coming from the divestiture of the tank business should provide Arcosa with multiple pathways to further strengthen our business and accelerate growth.

Gail Peck, CFO

Thank you, Antonio, and good morning, everyone. I’ll start on Slide 11 and touch briefly on Arcosa’s consolidated results. First quarter revenues increased 22% driven by double-digit sales growth in Construction Products and Engineered Structures. Outpacing the increase in revenues, first quarter adjusted EBITDA improved 30%, led by solid top-line expansion and stronger profitability in our utility structures business. Overall, adjusted EBITDA margins increased 90 basis points to 13.7% in the first quarter. Turning to Construction Products on Slide 12. The segment performed in line with our expectations for the seasonally slower first quarter. Revenues grew 38% and adjusted segment EBITDA increased 26% due to both acquisition and organic contribution. The decrease in segment EBITDA margin compared to year-ago levels primarily reflected the inclusion of StonePoint Materials with margins below the segment average and operations more exposed to winter weather in the first quarter. We expect overall segment margins to improve in the seasonally stronger second and third quarters of this year, and we continue to anticipate higher full-year margins in 2022. Natural aggregates volumes were up significantly with the additions of StonePoint and Southwest Rock. On an organic basis, we generated low single-digit volume growth in line with our expectations adjusting for certain large projects rolling off in Central Texas. Favorable demand drove broad price increases across our markets with average organic pricing up mid-single digits, helping to offset inflationary cost pressures. Turning to recycled aggregates, volumes and pricing increased significantly in the first quarter reflecting healthy residential, industrial and infrastructure demand. In Specialty Materials, volumes and average selling prices were also up in the first quarter primarily driven by strong demand in building products and infrastructure end markets. We were pleased to see volumes in our plaster products line restored to pre-pandemic levels due to an ongoing recovery in flooring demand. Finally, our trench shoring business reported a 32% increase in revenues on higher steel prices and increased volumes. Order activity was strong during the quarter, providing solid production visibility. Moving to Engineered Structures on Slide 13. First quarter revenue increased 21% and adjusted EBITDA increased 38% to $36 million, resulting in a 14.5% margin ahead of our 12% to 13% targeted range. Benefiting from attractive market fundamentals and a favorable mix along with improved efficiencies associated with our production ramp in Mexico, our utility structures business began 2022 on a strong note with significant revenue margin growth in the first quarter. Our team has done a fantastic job improving overall profitability. Combined revenues in our traffic and telecom businesses were also up compared to last year on favorable demand drivers and are well positioned for further expansion in 2022. Order activity for utility and related structures was healthy with a book-to-bill above one time during the quarter. Our storage tank business also had a strong start to the year with revenues up 39%, led by pricing growth in our U.S. business. We maintained overall margins despite significant steel price inflation. Turning to wind towers, we executed slightly ahead of plan during the first quarter on significantly lower expected volumes compared to the prior year. Order activity in the first quarter was muted as our customers continue to await a PTC extension. At the end of the quarter, the combined backlog for utility wind and related structures was approximately $421 million, up 11% from the prior year period. Turning to Transportation Products on Slide 14. Although first quarter revenue and adjusted EBITDA declined year-over-year due to lower barge volume and pricing, our barge business performed better than we had anticipated. The upside relative to our expectations reflected an improved customer mix and associated production efficiencies as certain higher-margin barge orders scheduled for delivery later in the year moved into the first quarter. Revenues in our steel components business increased 20% in the first quarter on improving fundamentals in the North American railcar market. First quarter order volumes were significantly higher compared to last year’s trough levels, and this business should continue to benefit from improved operating leverage throughout the year. Our barge backlog increased to $151 million at the end of the quarter, up from $93 million at the start of the year. The orders we received during the quarter helped fill in our planned production scheduling for 2022.

Antonio Carrillo, President and CEO

Moving to Slide 15. We ended the quarter with net debt to adjusted EBITDA of two times at the low end of our targeted range. During the quarter, we generated roughly breakeven free cash flow, up about $20 million year-over-year. First quarter cash flow included approximately $20 million in proceeds received from the previously announced sale of a nonoperating facility in our utility structures business. While representing a use of cash, first quarter working capital improved from prior year levels, and we continue to expect it to be a source of cash in 2022. Capital expenditures were $26 million in the first quarter. For 2022, we continue to see full year CapEx of $120 million to $140 million, with the potential to reach the high end of the range based on several growth projects we have underway in construction products and engineered structures. As I indicated, we plan to update our revenue and adjusted EBITDA guidance for the divestiture as we move closer to the sale date. Thank you, Gail. As Gail discussed, our first quarter results provided a strong start to 2022, providing increased confidence in our outlook for the full year. While it is early in the year, we continue to see strong demand for our products in many of our key markets. We’re closely monitoring inflationary pressures and proactively raising prices to compensate for higher material and other input costs. At the same time, we’re staying in touch with our markets to watch for any signs of economic cooling as interest rates continue to increase. Please turn to Slide 17. The overall demand environment for construction products remains strong, reflecting continued positive fundamentals in our key markets. Through a disciplined and focused acquisition strategy, we have significantly expanded our geographic presence, which now includes numerous attractive markets where continued infrastructure investment is required to support local population growth. Our expanded portfolio of products, including natural and recycled aggregates and Specialty Materials positions our construction products platform to deliver solid top-line growth with improving margins through 2022. In addition to the federal infrastructure bill, which allocated $10 billion in new infrastructure funding for highways and other infrastructure projects is expected to provide a favorable tailwind for this business starting in late 2022 and continuing into 2023. The outlook for the growth business is within the Engineered Structures segment remains positive, reflecting favorable order activity for utility, telecom, and traffic structures. In 2022, we anticipate our Engineered Structures segment to continue to benefit from significant utility CapEx for grid hardening and reliability initiatives, continued roll infrastructure investment in Florida and other Southeast states, and the building of our 5G networks. Moving to Slide 18, in our Cyclical Businesses, we were pleased to see an uptick in our barge business. We secured $105 million of new orders in the first quarter primarily for hopper barges. As I mentioned before, although these new orders carry margins below historical averages, they nonetheless enable us to fill our planned barge capacity for this year and extend our backlog into 2023. With steel prices anticipated to remain elevated, we expect this extended backlog to allow flexibility for our plans to retain our workforce in anticipation of accelerating demand once conditions stabilize. We believe that these recent barge orders represent an early indication of underlying hopper barge replacement demand, reflecting an aging fleet and years of underinvestment in new barges. On wind, our long-term outlook remains positive, supported by the growing importance of renewable energy. The war in Ukraine and the policy moves towards reducing greenhouse gas emissions indicate a need for a clear and aggressive renewable energy policy. However, at the moment, customer demand for wind towers is low given the uncertainty surrounding the timing of a new production tax credit. We remain optimistic about our PTC extension; however, the timing continues to be uncertain. Following three years of declining North American railcar production, new railcar deliveries are forecasted to increase as much as 50% this year, a trend that should drive significant growth in our rail components business through 2022. Turning now to our updated outlook for 2022 on Slide 19. Excluding the impact of the planned divestiture of the storage tank business in the second half of the year, we are raising the lower end of our adjusted EBITDA guidance to $290 million up from $280 million previously. At the midpoint of our revised guidance range, we anticipate 5% growth in adjusted EBITDA for 2022 relative to 2021. The tightening of our adjusted EBITDA range reflects our strong first quarter as well as confidence in the outlook of our growth businesses and better visibility into our plant production volume within our cyclical businesses. Being able to continue to grow the company while some of our cyclical businesses are operating at or near the bottom of their cycle speaks of the resilience of our portfolio of businesses. On Slide 20, I would like to take a moment to discuss some of the highlights of our recently published sustainability report for 2021, which provides a comprehensive look at how we are incorporating ESG initiatives into our business and long-term strategic planning. First and foremost, we continue to make progress in building our safety culture. Our 2021 total recordable volume rate improved from the prior year and has declined 60% since 2019. At the same time, we further improved diversity and inclusion within our overall workforce with a focus on expanding roles and opportunities for women at Arcosa. From an environmental perspective, we achieved reductions in both water usage and water usage intensity while also reducing greenhouse gas emissions and greenhouse gas emissions intensity. We also reaffirmed our commitment to environmental responsibility by establishing an initial short-term Scope 1 and Scope 2 greenhouse gas emission intensity reduction goal. Let me end my remarks with some concluding comments. We are off to a strong start in 2022, and the outlook for the year remains favorable, supported by continued positive fundamentals in our growth businesses and improved production visibility in our cyclical businesses. The planned divestiture of our storage tank business is consistent with our long-term strategy to reduce the complexity of Arcosa and enhance shareholder value by allocating capital to those markets where we can generate long-term sustainable growth. Finally, we continue to make important progress in integrating ESG into our daily operations and long-term strategies. Operator, I would like to open the call for questions.

Operator, Operator

We will take our first question from Ian Zaffino with Oppenheimer. Your line is open.

Ian Zaffino, Analyst

Hi great. Thank you. A very nice quarter. Nice to see the midpoint of guidance being increased. I just wanted to kind of go through your philosophy on the storage tank sale. I know you want to reduce the non-cyclicality of the business, and I understand that. I think that’s great. But why was this the first call cyclical business to go? Maybe walk us through how this now happened and then your view on the remaining cyclical pieces of the business as far as maybe timing or just value recognition. Thanks.

Antonio Carrillo, President and CEO

Sure. Ian, this is Antonio. So, I’ve said several times in these calls that M&A, both buying and selling takes a life of its own based on conditions in the market and the conditions of each business. As I mentioned in my remarks, if you look at our documents from our first Investor Day before spin, in the energy segment at that time, the Engineered Structures today were one of our priorities. We have a lot of businesses that have to be fixed. And the storage tank business was one of them. We tend to forget that before spin or right at where we were spinning off, we sold two small businesses. One was an oil services business in Canada and another one was a small cryogenic business that we had in the U.S., both of them losing money. The tank business we just sold was losing money in 2018. So, we needed to fix the business before we thought about selling. As I mentioned in my remarks, the business improved throughout this period. We had a very strong 2021 given the conditions created. To continue to grow the business, we needed to deploy a lot of capital into it. At the same time, we were starting to look at divestitures and simplification. The conditions were right. We found what we think is a great buyer for the business and for our employees. The timing was just correct. So in the philosophy of how we think about it, I think it has to do with when we can monetize the business best for our investors. It doesn’t have to be necessarily the highest price at the peak of the cycle. I think in this case, we caught the peak because the business can do more, but it does require capital. Regarding the rest of the businesses, we’re going to evaluate a combination of price and also the impact on the overall portfolio of Arcosa. So it’s a combination of different factors. I think in this case, it’s something – the business is a great business. There’s nothing wrong with it. It’s a great business. It’s the original business where Trinity started the company, and it’s a fantastic business, nothing wrong with it. So I think – I’m not sure if I answered your question.

Ian Zaffino, Analyst

No, I thought that was very helpful. And I guess dovetailing on that question is, you’re sitting here with a nice amount of proceeds from it. I know you mentioned putting it into construction. But can you maybe give us a little bit more color on that? Does that mean we see all of the proceeds maybe plowed into that? Would it be larger than that where you would take on a little bit more leverage to buy something bigger? And maybe what multiples are you seeing or would you anticipate to pay in this market? Thanks.

Antonio Carrillo, President and CEO

Well, as you know, again, M&A has a life of its own. Also, we have something already very close, we would announce it at the same time. We are working with different projects. As I mentioned, our pipeline is relatively full, both in organic and inorganic opportunities. The first one I will mention is the organic side; we have three projects going on that we announced at the beginning of the year, including a new cluster plant and two greenfield locations in aggregate. In my remarks, I mentioned we just approved another $30 million for a concrete pole plant in Florida. So the good news is we have a lot of projects to deploy capital organically. On the inorganic side, it would be mainly in construction aggregates and recycled aggregates, our two main focuses. We have good opportunities, but based on the projects we have right now, I don’t foresee us doing something enormous that would take us beyond our targeted net debt to EBITDA. I think we have flexibility right now, and it would have to be something really important for us to go beyond our guided targets, based on several reasons. We still have cyclical businesses, even though they’re operating at the low part of the cycle, we want to be conservative. Second, there’s uncertainty around the approaching economic cycle. So we want to be conservative as we approach that.

Ian Zaffino, Analyst

Okay, great. Thank you very much for the color.

Brent Thielman, Analyst

Hi, thank you. Good morning.

Antonio Carrillo, President and CEO

Good morning.

Brent Thielman, Analyst

Hey Antonio, in the aggregates business, is it your expectation that margins can sort of return to prior year levels or better as we move into the construction season? Or are these higher costs for your diesel and other inputs going to prevent that in the short term?

Gail Peck, CFO

Hey Brent, good morning. This is Gail. Why don’t I take that and I’ll let Antonio add on. As I said in my comments, we did see our expected – we did see our first quarter construction margin lower than the prior year, but we do expect, and that is a seasonally slow quarter for us, to see margins, particularly in the seasonally stronger second and third quarters accelerate. We do anticipate higher margins for the segment year-over-year on a full-year basis. So we’ve been pleased with the ability to offset pricing pressures from inflationary pressures, whether it’s diesel or raw material inputs, with strong pricing leverage that we’ve had against what continues to be a very strong construction activity.

Antonio Carrillo, President and CEO

Yes. And I’ll add to Gail’s comments. I think since we bought StonePoint, it creates noise because it’s a lower-margin business; even there, the business conditions in the regions where they are, especially in the first quarter, were more exposed to cold weather, snow, and things like that. But also, they still have a portion of the asphalt business that we run, and it basically shuts down during the first quarter. So it creates a lot of noise, but we do expect improvement as we go through. Our team is very focused on price increases to compensate for inflation. Up to now, they’ve managed it very well, and we continue to expect margins to go up as we progress through the year. We saw it as we progressed through the quarter; we saw margin improvement. So what you see is a combination of January, February, and March, but if you dig deeper, you would see improvement as we went through it.

Brent Thielman, Analyst

Okay. Appreciate that. And then, I guess, second question is on the barge business. I’m encouraged to see some orders coming in here in the first quarter. Just wondering where inquiry levels are at, you continue to take new orders since the end of the quarter. It looks like your expectations haven’t changed for the business through the course of the year, but maybe just an update there?

Antonio Carrillo, President and CEO

Sure. Our previous conference call was held the day the war in Ukraine broke. At that time, every forecast had still dropping very significantly this year. With the war in Ukraine, I think it’s more on the supply side of raw materials that’s hitting the industry and prices remain high. What these orders do for us, which is very important, is that it allows us to plan longer planning periods so that we can keep our workforce and ensure that we keep our plants open and operating in good conditions. It also gives us some margin that we were not expecting. So it improves our numbers somewhat; but the most important piece is we continue to see significant pent-up demand, especially on the hopper side. Inquiries continue to be very strong. Every customer we talk to needs barges, scrapping continues to happen and scrap prices have gone up pretty significantly and staying high. Hopper barge scrapping has continued. This is creating all the investment on one side and scrapping on the other side is generating what we consider pent-up demand that’s going to come. So once this stabilizes a little bit, I believe we will see significant demand. When that will happen? There’s several things that need to occur. There needs to be more clarity around how this Ukrainian war gets resolved. The other thing that’s coming is significant plate capacity coming online later this year. We expect that will have a significant impact on supply-demand factors starting in 2023. These orders allow us to plan into early 2023 and will give us better capacity to make decisions at the end of the year. We do see additional orders in the next few months based on the inquiries we’re having both for hopper barges and the smaller tank barges, which are 10-Ks, mainly for the petrochemical industry. With oil prices where they are and gas prices where they are, the petrochemical industry in the U.S. is going to do fantastic, and they are going to require barges.

Brent Thielman, Analyst

Okay, thank you. I appreciate all the answers. Best of luck.

Garik Shmois, Analyst

Hi thanks. Congrats on the quarter. I wanted to follow up on aggregates and natural aggregates in particular just wondering if you could provide an outlook for volumes the rest of the year considering if you have the large project roll off in Central Texas; it weighed a little bit on Q1. Do you think that volumes can grow just considering that large project is, I guess, a short-term headwind?

Gail Peck, CFO

Good morning, Garik. This is Gail. Yes, I think our performance in Q1 from a volume perspective was right in line with our expectations. As we look to the full year on organic volumes, as we indicated on our call last quarter, we did give similar guidance with that same adjustment for the larger projects rolling off. We’re tracking very well against our full year of low single-digit volumes. What could change that? It’s a very healthy construction market right now. Of course, the weather could turn more favorable for us. Also, a general loosening of supply logistic constraints is hard to quantify in terms of what that might do to volumes, but it’s certainly present out there in the market. Our outlook for the year continues to be very, very favorable and in line with what we thought when we provided initial guidance last quarter.

Garik Shmois, Analyst

Got it. That’s helpful. One other follow-up on Engineered Structures and the margin performance. There, how much of the strength on a year-on-year basis was due to price cost timing? How much was mix? If you could just comment on how you expect the margins to trend in that business in this?

Gail Peck, CFO

I’ll take that one as well. Yes, we were, as I said in my comments, extremely pleased with the performance of our Engineered Structures segment in general and particularly our utility structures business. We did have – a mix can matter in a particular quarter. We did have a favorable mix and efficiencies associated with that. I mentioned our ramp-up in our Mexico facility is going very well. So we saw some margin benefit from that in the quarter. We do target a 12% to 13% margin for Engineered Structures based on Q1’s performance. We’re very focused on ensuring that full year be towards the higher end of that targeted 12% to 13% range.

Antonio Carrillo, President and CEO

Let me provide some additional context. Gail mentioned that the tank business for the quarter was flat in terms of margins. So most, or really all of the improvement in margin came from our Utility Structures and other Engineered Structures. When you talk to our team, they are very, very happy with the way the plant in Mexico has ramped up, but also with the performance of the U.S. plants. We are not close to where they need to be. There’s still a lot to do, and there’s still a lot of improvement that needs to happen; they’re implementing their lean initiatives throughout the company. So, I think there’s a lot of work to do and improvements to still capture in terms of margin. But demand is there. The important piece is that the demand is out there, and we continue to be able to pick and choose some of the projects where we believe we are in a better position to capture additional margin.

Garik Shmois, Analyst

Great. That’s helpful and best of luck.

Gail Peck, CFO

Thank you.

Julio Romero, Analyst

Hey good morning. Wanted to stay on construction products and ask about any progress update on the systems integration you have going on in the segment?

Antonio Carrillo, President and CEO

Sure. I think it’s going very well. We went live in a couple of our businesses in the last couple of months, and things are progressing very well. I would say as we said, it will take us the whole year. But I think the team is happy with the way things are working. That’s why as we divest this tank business, we said we would take some time. We’ve taken the time. Now we’re starting to look at our projects and M&A again, now that we feel more comfortable with the project ongoing. So overall, I’m very happy. The team is very happy. We have a great structure, defined the team and have split the company into four different regions, and have a full staff in each one. This is becoming a very important part of our strategy because pricing decisions within inflationary pressures and everything. I think we have a much better structure than we had a year ago to face this environment we’re encountering. So I’m very happy with where our team is and how the integration is going.

Julio Romero, Analyst

Very helpful. And then just thinking about where the portfolio is going forward, you obviously divested storage tanks; you’re putting money towards construction. You talked about a lot of projects to choose from within construction on the organic side. I guess, are you more inclined to prioritize organic spend versus acquisitions on the construction side going forward? And what kind of return on capital would you expect from some of those organic projects?

Antonio Carrillo, President and CEO

Sure. I mean, the answer is ideally, organic projects are always a higher return on capital than acquisitions. That’s always the best way to do it if you can find good projects where you can deploy capital. The key to the construction business is sometimes you have organic projects that have negative synergies; if you start a new greenfield location in a place, you might destroy that market. You have to be very careful with organic projects in construction products, but we do have a couple that we are working on. In construction, I think you will see us do some organic, but mostly inorganic. We’ve talked a lot about the multiples and bolt-on acquisitions that are not as high as large platform acquisitions. My expectation is that we should be able to do some bolt-on acquisitions in the near future and continue to evaluate additional platform acquisitions as time goes on. Some organic projects, you will see us do a lot of the organic projects on the engineered structure side; that’s mainly an organic growth business. That’s the way we are approaching it.

Julio Romero, Analyst

Great. Thanks very much for taking the questions.

Operator, Operator

And we will take our next question from Trey Grooms with Stephens. Your line is open.

Trey Grooms, Analyst

Yes. Good morning everyone and thanks for taking the question.

Antonio Carrillo, President and CEO

Thank you.

Trey Grooms, Analyst

So I guess sticking to the construction products theme here for a minute. Antonio, you pointed out increased demand for single-family homes and also kind of an improved infrastructure outlook. So I guess a few questions on that. First, on your end market mix for this business, can you give us or maybe remind us roughly how much of your business is driven by the residential versus non-res versus infrastructure just a ballpark on that?

Antonio Carrillo, President and CEO

Sure. We’ve said – and this is sometimes hard to know. I mean, I know everyone tells you exactly what it is, but it’s a rough estimate because many of our – if you remember, many of our aggregate mines where we sell to is to ready-mix companies, and so we don’t know exactly where it goes. But more or less, what we estimate is about 50% of our volumes go to infrastructure projects. About 25% is non-residential and about 25% is residential. Up to now, we’ve seen strength in all of them. We believe, based on what interest rate does, probably the residential market is the one that’s a little more uncertain. On the infrastructure side, I think we see a lot of strength, and then you have the infrastructure package coming behind it that should provide additional tailwind for that portion of our business, which is the large majority.

Trey Grooms, Analyst

Yes. That’s helpful. And so on the last point there, what do you think on the passage of the infrastructure bill will translate into demand for products in those two segments?

Antonio Carrillo, President and CEO

Yes. We mentioned in my remarks that we think at the end of the year, we should start seeing some of those projects that are more tied to that package start rolling in. The beauty of the package is it will provide several years of certain consistency. Not only that, but if the economy decelerates, then you have a safety net in terms of a bottom for the market. I think it’s going to be very good. I think it’s additional – I’m excited about our markets without that package. But if you add it on top of it, it’s really exciting to where we see our pros going and our business is going. I think you’re going to see it across the board.

Trey Grooms, Analyst

Perfect. Appreciate that. Thanks for taking the question. Congrats on the nice performance.

Antonio Carrillo, President and CEO

Thank you.

Daniel Wang, Analyst

Hi, thanks for taking my question. Just a quick question on the barge side. Can you remind us on the split within your inland barge business between dry hopper versus tank and how that compares to how it’s looked historically?

Gail Peck, CFO

Good morning, Dan. This is Gail. Based on where the market has been, I would say, first and foremost, it really depends on what’s going on in the market. If we think back a few years, I’d say the complexion of our backlog was largely tank; the liquid side of things that pulled us out of the last downturn. You’ve heard a lot of comments today and on recent calls about hopper barges. We see significant numbers of underinvestment in the hopper side. So, the pent-up demand in an anticipated replacement cycle could drive incremental hopper barge, albeit dependent on where steel prices are. If I look back historically, an economy where you had all areas going strong, you would have seen a more even split between tank and hopper barges. It’s really a function of what is unique to a particular cycle.

Antonio Carrillo, President and CEO

Yes. Let me just add that these are interesting businesses because they are driven by conditions that are unique to each one of the markets of the barges. So if petrochemical is very strong, you will see a lot of small tank barges. If exports are strong, you will see a lot of copper. If oil markets are strong, you will see tank barges going. When you look at some of our customers reported yesterday, over 90% of utilization in their fleet, which are the signs that tell you things are getting better.

Daniel Wang, Analyst

That’s perfect. And I guess in terms of steel prices as it relates to barge, how much further do prices need to come down before we see a return to more normalized profitability levels? Is there also any concern that the upcoming barge replacement wave could come at a lower margin if steel prices remain elevated for two – for an extended period?

Antonio Carrillo, President and CEO

It’s interesting because I think it’s not necessarily the steel prices. The problem is not steel prices; the problem is a forecast for steel prices. When steel prices are high, but the forecast is that they’re going to drop 50% in the next year, you wait. What needs to change is either the reality or the forecast at some point in time. That’s the key. If the forecast says, look, steel prices staying like this forever, I think everyone just swallows it, and we’ll make the economics work. But if I tell you, there is a bar that I can sell you for $3 million and next year, you can buy it for $1.5 million, you’re going to wait. That forecast was that it was going to start falling and that the prices would be half by the end of this year. Now, it’s moved to next year. So these orders are so important because it allows us time to – I don’t want to sell more barges at a discount to keep the plant going. I’m just selling enough to keep my people working because I need the people to be able to capture the uptick.

Daniel Wang, Analyst

All right. Appreciate it. I’ll pass it on.

Operator, Operator

We will next go to Stefanos Christ with CJS Securities. Your line is open.

Stefanos Christ, Analyst

Good morning and congrats on the quarter.

Antonio Carrillo, President and CEO

Thank you.

Stefanos Christ, Analyst

When we think about using the proceeds from the storage tanks for construction aggregates, do you think of that as bolstering your competitive position in your existing geographies? Or if you think about expanding into new markets?

Antonio Carrillo, President and CEO

Sure. First, when you look at the proceeds, there will be some tax leakage. After tax leakage, I think there’s a few things that we – if you look at the multiples, the multiples in bolt-ons are always lower. If we find the right bolt-ons, we’ll do a few bolt-ons. We’re also looking at expanding our geographies. We’ve been working – I think I’ve mentioned in this call a few times, we’ve had people working in different metropolitan areas across the country, figuring out which ones are the ones we want to be. We have projects in some of these that are actionable. It’s a combination of both expanding our local footprint right now and also expanding into other geographies. When you look at recycled aggregates, which is another area that we like, we are only really in two today. I want to continue to expand recycled aggregates. We believe that’s part of the future in terms of sustainability. I think you have – we believe it’s a complement to natural aggregates. It’s never going to substitute natural aggregates; that’s not the case. It’s a complement. So we need to continue to expand our recycled aggregates, which means other locations. I think it’s a combination of both. But of course, as I’ve mentioned, M&A takes time and takes timing and sometimes it’s out of our control.

Stefanos Christ, Analyst

Perfect. Thank you so much.

Operator, Operator

And this does conclude today’s program. Thank you for your participation. You may disconnect at any time.