Earnings Call Transcript - ACA Q4 2020

Operator, Operator

Good morning, ladies and gentlemen, and welcome to the Arcosa Inc. Fourth Quarter 2020 Earnings Conference Call. My name is Gretchen, 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 Gail Peck, SVP, Finance and Treasurer for Arcosa. Please Ms. Peck, you may begin.

Gail Peck, SVP, Finance and Treasurer

Good morning, everyone. Thank you for joining our fourth quarter and full year 2020 earnings call. With me today are Antonio Carrillo, President and CEO; and Scott Beasley, 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 at our Investor Relations website www.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 & Events tab. Today’s comments and presentation slides contain financial measures that have not been prepared in accordance with Generally Accepted Accounting Principles. Reconciliations of non-GAAP financial measures to the closest GAAP measure are included in the appendix of the slide presentation. Let me also remind you that 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 earnings press release we filed yesterday and our Form 10-K expected to be filed later today. I would now like to turn the call over to Antonio.

Antonio Carrillo, President and CEO

Thank you, Gail. Good morning and thank you for joining us to discuss Arcosa's fourth quarter and 2020 results and the outlook for 2021. Let me start with a few key messages on slide 4. First and foremost, we managed effectively through very difficult business conditions in 2020 and succeeded in posting record revenue and EBITDA for the year along with strong free cash flow generation. This performance underscores the resilience of our business model and the strength of our portfolio of products, which we continue to reposition around core infrastructure products. These results could not have been possible without the tremendous effort of the Arcosa team. The entire organization came together to enable us to stay operational throughout the worst days of the pandemic, while adhering to strict health and safety protocols. It is important to look back at the COVID case statistics across the country from October to January and to realize that the fourth quarter, we operated in an environment with extremely high case counts and significant absenteeism due to quarantine protocols. There is no question that COVID-19 had an impact on our business. But we're getting through it together and we're able to continue to grow organically and via acquisitions despite the challenges of 2020. Second, we continue to make progress building a strong cash culture. Our 2020 free cash flow of $178 million marks another year of well over 100% conversion. Third, we took an additional step towards repositioning Arcosa around more stable infrastructure products. We did this through continued organic investments and acquisitions in our key growth businesses; Construction Products and Engineered Structures. As a result, we added to our resiliency and our portfolio is significantly less cyclical than we were when we became an independent company in 2018. For 2021, we are planning for a modest decline in year-over-year EBITDA from our current portfolio of businesses excluding any upside from potential acquisitions. The underlying assumptions are for continued strength in our Construction Products and Engineered Structures business. We also see lower wind tower deliveries and a slow year in the barge business resulting from low utilization rates in liquid barges and high steel prices impacting dry cargo barges. We plan to continue to use our strong balance sheet to invest in organic growth initiatives and in acquisitions in our growth markets. At the same time, we're focused on managing our operating expenses and our capital expenditures particularly in the businesses that are seeing pressure. Shifting to slide 9. You can see an overview of our fourth quarter results. Our EBITDA increased 6%, outpacing revenue growth for the quarter. We benefited from higher margins at Cherry and improvements in our legacy aggregates business. Please turn to slide 10. For the full year, we achieved another year of double-digit revenue and EBITDA growth, while expanding margins. Our impressive 2020 performance was driven by accretive acquisitions and operational improvements in Construction Products and strong performance in our barge business. I will now turn over the call to Scott to discuss our segment performance and then I will return to update you on our outlook for the business.

Scott Beasley, CFO

Thank you, Antonio and good morning, everyone. I'll start on slide 11 and review our segment results from the fourth quarter and the full year. In the fourth quarter, Construction Products revenue grew 46% to $149.1 million and adjusted EBITDA increased 73% to $31 million. Segment EBITDA margin of 20.8% was up over 300 basis points from last year's fourth quarter, continuing a strong trend of margin improvement that we maintained all year. A few highlights from the quarter. Volumes in our legacy natural aggregates business were up significantly, driven by higher infrastructure-related work in Texas and the benefit of several bolt-on acquisitions. We continued our trend of lower cost per ton through a combination of operating efficiencies, lower maintenance costs and lower fuel costs. Similar to the last several quarters, our mix shift resulted in lower ASP, but gross profit per ton was up nicely from that mix shift and an improved cost structure. Our two recycled aggregates platforms Cherry in Houston and Strata in Dallas performed well during the quarter, with healthy infrastructure and residential construction activity in those two key Texas MSAs. Additionally, two of our businesses that were the most impacted by COVID, specialty materials and trench shoring products both showed signs of stabilizing in the fourth quarter after being impacted by slowdowns in the second and third quarters. Lightweight aggregates volumes were up versus the fourth quarter of 2019. Shoring products volumes were lower, but EBITDA was flat as we were able to improve margins through cost reductions. We still have several markets that were weaker than in Q4 of 2019 most notably, oil and gas, but we are optimistic that recent increases in oil prices and the small pickup in drilling activity could yield benefits later in 2021. Overall, our full year Construction Products growth was a 2020 highlight for Arcosa. We achieved 50% adjusted EBITDA growth through a combination of well-performing acquisitions and margin expansion in our legacy businesses from pricing growth and operating improvements. Our full year segment margin of 23.3% was up almost 250 basis points even with COVID-related downturns in several businesses. The growth of our Construction Products segment has helped improve the resilience of our overall portfolio and will continue to be a focus of our capital deployment both organically and through acquisitions. Turning to Engineered Structures on slide 12. Revenue in Q4 was down slightly to $209 million and adjusted EBITDA was down 16% to $23.3 million. Our revenue decline was in line with our expectations as we idled one of our wind tower plants in the fourth quarter to retool for larger wind towers. That project has progressed well and we are ramping back up towards full production. Our 11.1% EBITDA margin in the quarter was below our expected 12% to 13% range because of operating challenges in our utility structures business as we had roughly $2.5 million of start-up expenses at our reopened facility in Mexico and COVID-related impacts in several facilities. We are on a path to return to a 12% to 13% EBITDA margin for the full year in 2021 with progressive improvement throughout the year as we ramp up our new plant. Demand across transmission, wind towers, telecom and traffic structures has remained strong with healthy levels of inquiries across all of those product lines. Additionally, our storage tank product lines in the United States and Mexico had very strong quarters led by healthy demand for residential and commercial propane tanks in Q4. For the full year of 2020, revenue in the segment was up 5% to $878 million and EBITDA margin was at the high end of our 12% to 13% guidance range. So it was an overall positive year for these businesses. We expanded our product lines, grew revenue and reduced working capital significantly. Moving to transportation products on slide 13. Both revenue and adjusted EBITDA were lower than the fourth quarter of 2019 as we strategically extended our barge backlog to gain time for the barge market to recover. In the fourth quarter, we also incurred a non-cash impairment charge of $4.5 million related to scrapping unusable barge manufacturing equipment that was purchased as part of a 2018 acquisition. For the full year, revenue was flat and adjusted EBITDA was up 22% to $78 million, despite weak demand from rail components all year. We have reduced our capacity and cost structure in each of these businesses, but may have to take additional actions if barge demand does not improve. While we expect 2021 to be a down year in barge and roughly flat in rail components, the Transportation Products segment was a great source of cash to fund other growth projects across Arcosa in 2020 and we expect it to be a healthy cash generator in 2021 as well. Turning to Page 14. Our free cash flow of $178 million was another highlight of our 2020 performance. It was the second straight year of free cash flow conversion well over 100% of net income and demonstrates our continued progress building a cash culture. We made progress on receivables, payables and inventory throughout the year and reduced our working capital by roughly 20 days from the end of 2019. This excellent free cash flow has helped us fund disciplined growth, while maintaining a healthy balance sheet. We ended Q4 with a 0.5 net debt-to-EBITDA ratio, which gives us significant capacity to continue funding our growth strategy. I'll finish with a few financial points on page 15. Our Q4 2020 corporate expenses were consistent with our normal run rate of $13 million to $14 million per quarter, after adding back $1.6 million of acquisition-related expenses, primarily from the Strata acquisition. We expect a similar level of $13 million to $14 million per quarter of corporate expenses in 2021. We had an other net loss of $3.8 million in the quarter, related to a reconciliation between U.S. and Mexico tax rates on foreign currency fluctuation throughout the year. This was offset by a lower tax rate, so the net impact on EPS was insignificant. We finished the year with a tax rate of approximately 23% and expect a tax rate of 23% to 25% in 2021. Finally, we finished 2020 with capital expenditures of $82 million. We expect to increase that to a range of $100 million to $110 million in 2021, made up of roughly $80 million for maintenance CapEx, plus $20 million to $30 million of organic projects, primarily growth projects in Aggregates and Engineered Structures. Two final notes on 2021. As we mentioned in yesterday's release, the February 2021 winter storm in Texas and the broader Southern United States will impact our Q1 performance, as we lost more than one week of production across a significant part of our operating footprint. The storms also created production issues in some steel mills and we are still evaluating the potential delays in our supply chain that this could create. In terms of our plants and operations, we did not suffer major damage and have restored operations in most of our footprint. Second, we expect Q1 to be the lowest quarter of the year for us, as we deal with normal seasonality in our Construction Products businesses, plus the ramp-up we have described in Engineered Structures. We estimate that approximately 18% to 19% of our full year EBITDA will be in the first quarter. I will now turn the call back over to Antonio for more on our 2021 outlook.

Antonio Carrillo, President and CEO

Thank you, Scott. Before we go into our guidance and outlook I would like to take a moment to review with you our long-term strategy. If you remember, since we became an independent company, we defined Construction Products and Engineered Structures as the businesses where we were going to allocate capital for growth. The growth capital would come from the rest of the Arcosa businesses. Over the last couple of years we have been able to allocate capital generated internally to reposition the portfolio completely. As you can see on slide 17, Arcosa is a completely different company than it was in 2018. As our aggregates and specialty materials revenue has more than doubled in the last few years, Arcosa has become a more resilient less cyclical company. As we look ahead into 2021, this strategy will not change. We will continue to allocate capital to Construction Products and Engineered Structures by generating cash in the rest of the businesses. We think 2021 will be a year where Arcosa repositioning becomes even more apparent. As you will see in our guidance in 2021, we expect a good year for our growth businesses Construction Products and Engineered Structures. On the other hand, we believe our barge business will still generate good cash flow and EBITDA, but less than 2020. What this means is that, instead of using cash flow coming from barge to support our growth, we will use our strong balance sheet. But this temporary delay in barge replacement will not slow down the transformation of Arcosa. Now let's review our outlook on page 18. Our 2021 guidance is for revenue of $1.78 billion to $1.9 billion and EBITDA of $250 million to $270 million. While the upper end of the range represents stable year-over-year performance, this is really a story of growth for most of our business lines. The primary headwind is our barge business. Before COVID, the fundamentals of the business showed the potential of a good recovery in the industry and we were actively booking strong orders. Once the pandemic started, consumption of oil and oil derivatives collapsed and liquid barge utilization dropped. On the dry cargo side, fundamentals during the last year have continued to improve. However, high steel prices are preventing customer inquiries from converting into orders. Both the liquid and dry cargo replacement cycles remain fundamentally strong and we believe the slowdown will just make the cycle stronger. Therefore, 2021 will be a year where we focus on maintaining our manufacturing flexibility to be able to serve our customers once demand picks up. As a result, our guidance incorporates Transportation segment adjusted EBITDA of $35 million to $40 million in 2021 down from $78 million in 2020. Now to the business conditions. First our Construction Products segment continues to benefit from healthy demand. Our operations are located in high-growth markets where demand has held strong throughout the pandemic. Most notably, Texas represents 60% of the segment's volumes. While we have observed softness in non-residential activity, infrastructure spending has been stable and residential construction has provided a boost in demand. We're encouraged by the pickup in demand at some of our specialty materials business that were more impacted by COVID as construction delays have subsided and customers have looked to replenish low inventory levels. While there is some COVID-related uncertainty on the balance, demand has improved. The potential for a new long-term highway bill with spending above FAST Act levels or a federal infrastructure bill would be additive to our segment outlook. However, there is generally a lag for this type of stimulus to impact our results. We continue to be pleased with the addition of our recycled aggregate offering Cherry, which serves Houston; and the recently acquired Strata Materials which serves DFW. We believe having the ability to offer our customers complementary sets of natural and recycled aggregates is a strategic advantage as environmentally friendly construction takes on greater prominence. We're working to expand into other geographic markets and replicate our current success. In addition to growth, we have been able to improve margins. The margin expansion resulted from the addition of higher-margin acquisitions and operating improvements we have made across the group and highlights the excellent strategic fit and successful integration of our acquisitions. On that topic, our acquisition pipeline is robust and we continue to engage with aggregates and specialty materials companies that will expand our geographic presence and our portfolio of product offerings. Shifting to Engineered Structures. We have officially changed the name from Energy Equipment recognizing the diversified offerings in this segment following the acquisitions made in 2020. Our outlook for this business segment is positive overall as demand remains strong for utility structures in light of the long-term investing in renewables grid hardening and other reliability initiatives. Also the traffic and telecom structure business we acquired last year have attractive long-term fundamentals supported by increased investment in the 5G rollout and healthy VOT spending in southeast markets that we serve. We're excited about the opportunity to expand this offering in other areas of our manufacturing footprint. Additionally, our storage tank production lines are seeing strong demand as they benefit from de-urbanization and strong residential construction. Turning to wind. We're pleased to see a one-year extension of the PTC approved in December providing the industry another year of partial credit through 2025. While we do not expect an impact on short-term demand from this extension, it is still good news for the industry and should provide some additional medium-term demand. As we mentioned in the past we expect wind tower volumes to be down in 2021 as the industry transitions away from 100% PTC. However, we are encouraged by recent improvements in inquiry activity and have received additional orders during the first quarter of 2021. We have always had a positive long-term outlook for wind energy. And given the priorities of the new administration, our outlook is even more positive than it was a few months ago. Renewable energy is here to stay and will become even more important and Arcosa is in a great position to grow with this trend. Now turning to Transportation. This is a segment that faces the greatest headwinds in 2021 owing largely to the COVID-led downturn in our barge business that we discussed before. However, we remain confident in our recovery as COVID cases go down and vaccines increase. While we do not expect significant demand improvements in 2021, long-term fundamentals and replacement needs remain unchanged. Therefore, short-term weakness means stronger replacement needs in the medium and long term. Shifting to components. Demand continues to be impacted by soft railcar markets. But forecast suggests 2021 will mark a bottom and the rate of decline has slowed. Our Rail Components business has continued to expand markets into the industrial sector and should see a rebound later in the year as the rail market improves. Turning to slide 19. You will see that taken together the fundamentals of all of our product offerings remain solid for the medium and long term and we see potential upside that could offset softness in some areas. As we reflect on 2020, three things are clear. First, we continue to operate successfully despite a challenging operating environment and I'm extremely proud of how the Arcosa team performed during 2020. Second, we deployed capital into our growth business via organic initiatives and attractively priced acquisitions. With these initiatives, we expanded our footprint and product lines and have created new growth platforms for Arcosa. Third, our strategic repositioning into high growth less cyclical businesses has continued to take shape and add value. The main focus of our growth has been our Construction Products business, which has almost doubled its EBITDA since the time of our separation. As you can see from our 2020 results, this repositioning has made Arcosa far more resilient to economic cycles than we were just a few years ago. In 2021, we will continue to allocate capital in line with our long-term plan to grow in attractive markets where we can have competitive advantages, reduce the complexity and cyclicality of our business, improve our long-term returns and integrate ESG into our business. To that end, following up on the detailed ESG update we published last August, we plan to publish our full year sustainability report in the first half of 2021, which will integrate the TCFD framework and supporting SASB metrics. Operator, I would like to open the call to questions.

Operator, Operator

Our first question comes from Brent Thielman from D.A. Davidson. Your line is open. Please go ahead.

Brent Thielman, Analyst

Great. Thank you. Antonio or Scott, does the guidance imply you effectively don't see any kind of meaningful back half rebound in either barge or wind-related, I guess, earnings or revenue? And if not, is that still possible, if we were to see orders accelerate here in the first half?

Scott Beasley, CFO

Sure, Brent. This is Scott. I'll take that question. So let me give you a little color on the cadence of 2021 and then get to your back half question. In Construction Products, we expect it to follow a normal seasonal trend where Q1 would be the lowest meaningful step-up in Q2 and Q3, and then a bit of a step down in Q4. That's likely to be even more pronounced this year because of the February winter storm in Texas, but it will follow the normal seasonal pattern. In Engineered Structures, we do expect a bit of a ramp-up throughout the year as we increase production out of the newly reopened facility. So Q1 would be the lowest followed by a step-up in Q2 through Q4. We do have some unsold capacity in the fourth quarter, but we're encouraged by our inquiry levels across all the product lines and don't expect a problem filling out that capacity. And then in Transportation Products, Q1 likely will be the lowest because of our production schedule, but then relatively flat Q2 through Q4. We – there's the possibility of upside in the back half if demand conditions improve significantly. That would require a meaningful step down in steel prices in the pretty short term, because of the lead time required to sell barges and then get them in the production schedule. So that's all incorporated in our guidance range. And the top end of the guidance range probably would suggest a quicker rebound in barge.

Antonio Carrillo, President and CEO

Just to expand a little bit. I mentioned in my script that we got some orders for wind towers in the first quarter and these are for this year. So there is still time for additional orders to materialize. Our assumption is that there's not much happening this year in terms of additional barge and wind tower orders. There is still some time but I think we're building a model that shows our best expectations for the moment.

Brent Thielman, Analyst

Okay. Great. And then I guess the follow-up is on barge. Just thinking about the business overall, I mean it would appear to me some of the fundamental drivers behind it are looking like they're improving and I would think that helps your customers at least over time. So I guess the question is do we need to wait out these elevated steel prices before we see some sort of recovery in orders? Just be curious what your customers are telling you.

Antonio Carrillo, President and CEO

Yes. I think that's the important piece of the conversation that you're just touching on. I think that's the key message. The key message we're seeing from our customers, especially on the dry cargo side, there is a significant need for new barges. The replacement cycle seems strong. Agricultural prices have gone up. Transportation margins have gone up. The prices of commodities have gone up. The size of the crop was very large. So the fundamentals of the barge recovery cycle especially on the dry side are very strong. Steel prices as you know in 2020, everyone in the pandemic freaked out basically and slowed down production of steel. Then the rebound came faster than anyone expected, especially in automotive and some other industries. That created a huge demand for steel and prices just went through the roof. That's compounded with all this weather events that's hitting the steel mill. So prices should stabilize sometime later this year probably in the summer or late summer. And as that happens, I think we'll be able to sell some additional barges because they are needed. On the liquid side, the prices of oil have continued to improve and that should be really good for the industry. There are other things happening that should help barge. The pipelines, for example, the cancellation of the pipeline could mean that there is more oil being moved in barges etc. So I think once volumes come back that's the important piece. Prices have come back, but volumes continue to be below 2019 levels. Once volumes come back, barge utilization should go up and then the replacement cycle starts. So that's why we mentioned in my script that our key for 2021 is to stay flexible. We're going to take all the actions needed to reduce our cost structure, but we're going to try to stay flexible to respond to the additional demand when it comes back because we believe it's going to come back.

Brent Thielman, Analyst

Thank you.

Operator, Operator

The next question comes from Ian Zaffino from Oppenheimer. Your line is open. Please go ahead.

Ian Zaffino, Analyst

Hey guys, thank you very much for taking my question. Question would be on the growth CapEx. You touched upon it a little bit. Can you give us a little bit more color on that? Where is that going to be going? Why are you doing it? And what should we really be expecting from that investment? And I have a follow-up. Thanks.

Antonio Carrillo, President and CEO

Sure. Thank you, Ian. Let me give you some color on where we're seeing the growth CapEx. And the good news for Arcosa is that we have more projects than money to invest in terms of organic CapEx. We're being disciplined as we've always said in the capital allocation. And having several projects to invest means we can choose the best ones. And these projects we're investing in, if you remember last year we bought a small telecom business and we bought also a concrete pole business to support our Engineered Structures product offerings. As we said at that time, our goal is to expand those small businesses across some of our footprint. And a lot of the CapEx we're investing in 2021 will go towards that so expanding our footprint for those new product offerings across our coast. We're also investing some in our Construction segment specialty materials on our plaster plant. We are doing some investments there. But those are the two biggest projects where we're investing. As we've said, the two growth areas for Arcosa are Engineered Structures and Construction Products and that's where the capital is going.

Ian Zaffino, Analyst

Okay great. And then as a follow-up I know you have a lot of exposure to Texas in aggregates. You're trying to get the infrastructure bill winding its way through. Can you remind us as far as Texas expenditures, how much of these projects is driven by state-level spend versus federal level spend, or what tends to be the mix? I'm just trying to get a sense of if we start to see incremental federal dollars how much of an uptick would that translate into to your Texas exposure?

Scott Beasley, CFO

Sure. Ian, this is Scott. Thanks for the question. So in Texas, Texas actually has a lower amount of federal reimbursement than the national average. So it's more reliant on state spending. And that's good because the state fiscal health is very strong plus you have the upside from a potential federal infrastructure bill. For example, Texas lettings were up in 2020 versus 2019, which was one of the stronger states. The American Road and Transportation Builders Association forecast for 2021 has Texas as a stable and growing state. And then recently the state Department of Transportation reconfirmed its 10-year, $75 billion Unified Transportation Program. So, all signs at the state level are positive in Texas. And then we could see some potential upside from a federal bill although, that would likely be a nine to 12-month lag time. So, more likely a 2022 impact for us.

Ian Zaffino, Analyst

Got you. Okay. Thank you very much. Good quarter. Thanks for all the color and guidance. Thank you.

Antonio Carrillo, President and CEO

Thanks, Ian.

Operator, Operator

The next question comes from Stefanos Crist from CJS Securities. Your line is open. Please go ahead.

Stefanos Crist, Analyst

Antonio and Scott, good morning.

Antonio Carrillo, President and CEO

Good morning.

Scott Beasley, CFO

Good morning.

Stefanos Crist, Analyst

So the Construction Products segment isn't performing really well. Can you give us a sense of the organic growth in the Aggregates business?

Scott Beasley, CFO

Sure, Stef, this is Scott. So the organic growth was very strong in Aggregates. We said volumes up significantly so high single-digits. A lot of that was organic through improved infrastructure-related work in Central and North Texas. And then part of that growth was with several bolt-on acquisitions really more like organic where we've added single mines to expand our geographic footprint in the Texas Triangle. So, very healthy organic rate plus some nice bolt-on acquisitions.

Antonio Carrillo, President and CEO

It's important to note that when comparing the fourth quarter of 2019 to the fourth quarter of 2020, we had a strong oil presence in West Texas and Oklahoma. We began to see significant volumes in 2019, but those volumes decreased considerably in 2020. This variation can sometimes obscure the actual volumes. If you look beyond our oil exposure, our volumes were actually stronger.

Stefanos Crist, Analyst

That's great. Thank you. And just as a follow-up. Antonio, you mentioned 5G in the Engineering Structures. Can you give us a little more detail on that? Is that a current percentage of revenue? And where do you see that being in the next three to five years?

Antonio Carrillo, President and CEO

We acquired a small company in 2020 that specializes in large sales structures primarily in Oklahoma. This year, we are allocating capital to expand these offerings to other regions. We are still in the learning phase and exploring this product line. I believe there are significant opportunities ahead. Our management team is strong, and we are investing resources to grow this business. However, I cannot guarantee a substantial increase in the near term. The main message I want to convey is our enthusiasm for the potential of this venture and our belief in the opportunities available for expansion. For now, we are essentially just beginning.

Stefanos Crist, Analyst

Great. Thanks for taking my questions.

Operator, Operator

The next question comes from Justin Bergner from G.Research. Your line is open. Please go ahead.

Justin Bergner, Analyst

Good morning, Antonio. Good morning, Scott.

Antonio Carrillo, President and CEO

Good morning.

Scott Beasley, CFO

Good morning.

Justin Bergner, Analyst

I guess to start just thinking about the guidance should I think about the entire revenue decline as coming from the barge business or maybe even greater than 100% of the revenue decline, given you have some inorganic contribution in the other businesses and sort of similarly for the EBITDA?

Scott Beasley, CFO

Sure Justin. I'll take that. I think you're right. In terms of the revenue guidance, essentially all of the decline, maybe even more than 100% of the decline, we've guided to will be in Transportation Products. Almost all of that is in barge just given the magnitude of the drop that we've talked about in barge. Construction Products we see healthy revenue and EBITDA growth. And then Engineered Structures likely given the organic projects that we've talked about plus some of the growth of the acquisitions we did in telecom and traffic, revenue flat to slightly up and then we'd expect EBITDA in the same range that we had this year where a number of the organic growth projects would offset some potential headwinds in wind towers. So, you're right that the decline both in revenue and EBITDA is almost all in Transportation Products.

Justin Bergner, Analyst

Okay, great. And the 12% to 13% adjusted EBITDA margin range that you're guiding for in Engineered Structures, I realized that's just a 2021 range. But what would cause that to inflect higher or lower as we look out into later 2021 and in 2022 and beyond?

Antonio Carrillo, President and CEO

Yes, Justin, this is Antonio. I want to provide some insights on that. The business has performed quite well, showing significant improvement over the last few years. There are two major factors to consider. First, concerning wind towers, their performance is influenced by both volume and market conditions. In recent years, we've been quite aggressive in ensuring that these wind towers compete fairly with those from other countries. There have been substantial numbers of towers entering the US market, exploiting certain tariffs, and effectively dumping them here. Ensuring that the US competes on equal terms with other nations has helped and will continue to enhance margins. We believe that the market conditions are favorable for this to happen. As the wind industry grows in importance, which we expect in the coming years, demand should increase, assisting us in maintaining strong margins for wind towers. This presents positive prospects for margin improvement in that area over the next few years. On the utility side, I believe volumes are solid and demand remains strong, which is beneficial for us. Internally, we need to keep working to enhance this. Last year, we expanded capacity in Mexico and are currently in the ramp-up phase. Our utility structures business was among the most impacted by COVID, facing challenges such as the number of cases and the complexities of ramping up in another country with new equipment and restricted travel for technicians, which has been particularly tough for Arcosa. However, as we progress with our ramp-up, I see this as also promising for our future margins. Therefore, we have a blend of strong external markets and the need to execute well, which should lead us to meet the current guidance that Scott provided. I believe there is also good potential for margin growth as we continue to improve our execution.

Justin Bergner, Analyst

Okay, great. And then maybe just lastly. The EBITDA hit from the weather in Texas are we just talking about like a couple of million, or is it going to be more pronounced than that? Just trying to think about how that might affect the guidance range you provided today.

Scott Beasley, CFO

Sure Justin. This is Scott. The positive aspect is that the first quarter is typically the slowest for Construction Products. Therefore, taking a week out of production during this period will have the least impact compared to other quarters. However, we did lose a full week in Texas and a significant part of our operations, which will likely result in a loss of several million dollars. Although we've restored operations and faced no major damages, the week of lost production will affect Q1. Generally, this volume isn't made up later, and there are additional supply chain bottlenecks where contractors can increase labor. Consequently, construction activity may just be deferred to the following quarter or even next year. We have several questions about whether this will be recovered in Q1 or in Q2, but typically, the effects of significant weather events don’t resolve that way.

Antonio Carrillo, President and CEO

Certainly. When you shut down a plant, you face two challenges. You lose revenue, but you also lose the ability to absorb your cost structure. This means it's not just a decline in revenue; it also affects your margins. Regarding the guidance cadence mentioned, we are aware of the storm impacts in Texas. We have ramp-ups occurring in our Illinois plant for wind towers and in our Mexico plant for transmission towers. Additionally, there are potential steel delays due to significant issues at some steel mills caused by the storms. While we expect the first quarter to be somewhat challenging, we are very optimistic about the outcomes in the second, third, and fourth quarters.

Justin Bergner, Analyst

Great. Thanks for taking my questions.

Operator, Operator

Unidentified Analyst: Yes. Hi, good morning.

Antonio Carrillo, President and CEO

Good morning.

Scott Beasley, CFO

Good morning.

Unidentified Analyst, Analyst

Could you maybe speak to demand trends for storage tanks in Mexico? I know that's something that was improving sequentially in the third quarter. I think you called it steady in the prepared remarks. So just hoping to get some additional color to see if that's still improving or maybe more in line with third-quarter demand?

Antonio Carrillo, President and CEO

Sure. We have a diverse range of storage tanks in Mexico, from small barbecue cylinders to large spheres found in refineries and petrochemical plants, each showing different trends currently. With the cold weather, demand for small propylene tanks has surged both in the US and Mexico, which typically occurs in the winter months but has been particularly strong this year. We've seen excellent performance in small propane tanks in both countries. On the larger tanks, the US market is doing well with good demand, but in Mexico, economic conditions and lack of investment have impacted the demand for large storage tanks. We do have some promising projects for large tanks designed for on-site construction at refineries and petrochemical plants scheduled for 2021. However, the bulk of our revenue continues to come from small propylene tanks, which are performing very well.

Unidentified Analyst, Analyst

Okay. And I guess for my follow-up, could you give us an update on the container-specific barges you talked about last quarter? And an idea of the potential incremental sales as a result?

Antonio Carrillo, President and CEO

Yes. So we – I'm glad you asked about that. We – the two – we're building two container barges right now. We've been very active in going out to customers and showing them the potential. The container barges will be done probably late in the spring this year and we'll start testing them with customers. We have a few customers that have been very intrigued by them and we will be testing them. I don't think you should expect incremental revenue this year from them. This is a year of innovation and testing. But I'm very optimistic about the potential of those barges. Some customers have been very intrigued by them. So I think it's something that – as you know containers are a huge mode of transportation across the US and there's very little happening in the river. So building a container-specific barge I think the economics look really positive. And we hope it's successful.

Unidentified Analyst, Analyst

Great. Thanks for taking the questions and best of luck in 2021.

Antonio Carrillo, President and CEO

Thank you.

Gail Peck, SVP, Finance and Treasurer

Thank you, Gretchen. And thank you everyone for joining us today. We look forward to speaking with you again next quarter.

Operator, Operator

This does conclude today's program. Thank you for your participation. You may disconnect at any time.