Earnings Call Transcript - ACA Q4 2021

Operator, Operator

Good morning ladies and gentlemen and welcome to the Arcosa Inc. fourth quarter and full year 2021 earnings conference call. My name is Katie and I will be your conference 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 fourth quarter and full year 2021 earnings call. With me today are Antonio Carillo, 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 slide presentation for this morning’s call are posted on 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 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-K, expected to be filed later today. I would now like to turn the call over to Antonio.

Antonio Carillo, President and CEO

Thank you Erin. Good morning and thank you for joining Arcosa’s fourth quarter conference call. I will start with a few key messages, starting on Page 4. Arcosa delivered strong fourth quarter and full year 2021 revenue and adjusted EBITDA growth in our focus areas of construction products and engineered structures, while managing the cyclical weakness in our wind towers and transportation business. We also generated significant operating cash flow in the fourth quarter, strengthening our balance sheet. For the full year, we reported adjusted EBITDA that matched last year’s record level. Our team executed well, successfully navigating inflationary pressures, weather disruptions, and the impact of the pandemic. In 2021, we achieved significant progress in expanding our construction products platform both organically and through two natural aggregates-led acquisitions. As a result, our construction products adjusted EBITDA increased 51% in the fourth quarter and 30% for the full year. We believe we’re well positioned for continued growth supported by favorable market fundamentals, our strong market position, and expected tailwinds from the increased infrastructure spending beginning later in the year. For 2022, our outlook forecasts improvement in adjusted EBITDA at the midpoint of our guidance range. We anticipate a double-digit increase in adjusted EBITDA for our portfolio of growth businesses. Partially offsetting this, we continue to see weakness in our cyclical businesses, wind tower and transportation products; however, we are seeing early indications of improvement for these businesses and when the recovery starts, we believe there will be pent-up demand that will have to be fulfilled. At the same time, the recovery in these businesses will likely start having a positive impact in 2023. In the short term, we will be focusing on completing the integration of our recent acquisitions prioritizing strategic investments to leverage our expanded platforms and simplifying the portfolio to reduce the complexity of Arcosa. Moving to Slide 7, Arcosa had made significant progress since 2018 to position the portfolio around our growth businesses, construction products and engineered structures. As you can see on this slide, we have made a number of strategic investments to create a more resilient company and improve the long-term growth potential of Arcosa. Most notably, our construction products platform now accounts for 57% of our total adjusted EBITDA, up from 33% at spin. At the same time, we have grown our utility structures business both organically and by adding three infrastructure-related product lines. Also contributing to the growth in engineered structures is the turnaround we performed on the storage tank business. With market-leading positions in barge, wind towers, and steel components, we are well positioned for market recovery to build on top of our growth business continuing expansion. Additionally, we believe the recently enacted $1 trillion infrastructure bill creates multi-year tailwinds for many of our businesses. I will now turn over the call to Gail to discuss our overall segment performance, and then I will return to update you on the outlook for our business.

Gail Peck, CFO

Thank you, Antonio. I’ll start on Slide 10 and briefly discuss Arcosa’s consolidated results. Fourth quarter revenues grew by 14%, driven by double-digit sales growth in construction products and engineered structures. Adjusted EBITDA for the fourth quarter improved by 17%, benefiting from solid top-line growth and enhanced profitability in our expanding businesses. Through proactive pricing strategies and careful steel inventory management, we have preserved our overall margins despite significant challenges in some of our cyclical businesses. Looking at the full year 2021 results on Slide 11, revenues increased by 5%, and we matched last year’s robust adjusted EBITDA despite an approximate $75 million headwind from our wind tower and transportation products sectors. As Antonio noted, we set out after our spin-off to create a more resilient, higher-margin portfolio, and our 2021 results demonstrate our progress. Moving to construction products on Slide 12, revenues surged by 42%, and adjusted EBITDA rose by 51% in the fourth quarter due to both acquisitions and organic growth. Segment EBITDA margin increased by 140 basis points year-over-year, driven by higher margins in our recycled and legacy natural aggregates businesses and the positive impact of the Southwest Rock acquisition completed in August. Volumes in our legacy natural aggregates business rose due to increased residential and infrastructure activity. Aside from central Texas, where we had a large highway project end and faced oil and gas-related challenges in west Texas, we experienced broad organic volume growth during the quarter and benefited from recent acquisitions. We saw significant pricing increases across our portfolio, supported by strong fundamentals. Volumes and pricing also rose sharply in our recycled aggregates operation, driven by healthy residential, industrial, and infrastructure demand. In specialty materials, revenues dipped slightly in the fourth quarter, as increased volumes were offset by a less favorable product mix. However, EBITDA and margins improved year-over-year. We were also pleased to see strong revenue trends in our other business. Overall, full year adjusted EBITDA grew by 30% following a 50% increase in 2020, thanks to attractive new platforms and margin improvement in our legacy natural aggregates business. Moving to engineered structures on Slide 13, fourth quarter revenues increased by 12%, and adjusted EBITDA rose by 21% to $28 million, resulting in a 12.1% margin, exceeding our fourth quarter guidance of 10%. Results surpassed our expectations, driven by utility structures and storage tanks, while we managed wind towers to breakeven EBITDA for the quarter, consistent with our guidance. Our utility structures business ended 2021 positively with significant revenue and margin growth in the fourth quarter. We benefited from improved efficiencies resulting from our production ramp in Mexico, a favorable product mix, and continued careful management of steel price inflation. Our team has done an excellent job enhancing overall profitability.

Antonio Carillo, President and CEO

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. In the fourth quarter, we achieved attractive year-over-year revenue and adjusted EBITDA improvement in our storage tanks business driven by a strong U.S. residential housing market for propane tanks and proactive pricing actions to manage steel price inflation. Turning to wind towers, we executed as planned during the fourth quarter, idling our Illinois facility to adjust costs for lower anticipated production in 2022. Order activity in the fourth quarter was muted as our customers continue to await a PTC extension. I’ll wrap up engineered structures with some comments on our full year results. In 2021, segment EBITDA increased 8%, outpacing revenue growth and overcoming a $22 million EBITDA headwind from wind towers. At the end of the year, the combined backlog for utility, wind, and related structures was approximately $438 million, up 31% from the end of last year. Turning to transportation products on Slide 14, both fourth quarter revenue and adjusted EBITDA declined year over year. Our results reflected a 39% reduction in barge revenues and lower absorption associated with reduced volumes. We received barge orders of $13 million with pricing reflective of soft market conditions. At the end of the quarter, our backlog was approximately $93 million, all scheduled for delivery in 2022. Turning to components, we were pleased to see a second consecutive quarter of year-over-year revenue improvement as the North American rail industry recovers. Our components business ended a two-year decline with revenues up slightly for the year on second-half improvement. Fourth quarter rail car orders for the industry once again exceeded bookings, providing further momentum for the recovery and expectations for higher rail car industry deliveries in 2022. For the full year, segment revenue was $306 million, down 34% year-over-year, and adjusted EBITDA was $24 million, down 69% compared to last year. We managed the difficult operating environment well and finished the year in line with our segment EBITDA guidance.

Gail Peck, CFO

Moving to Slide 15, we ended the year with net debt to adjusted EBITDA of 2.1 times, at the low end of our targeted range. During the quarter, we generated free cash flow of $65 million, matching adjusted EBITDA, and supporting $75 million of debt repayment. Working capital was a $36 million source of cash driven by a reduction in accounts receivable and inventory. Full year free cash flow was $81 million, lower than we anticipated going into the year due to higher working capital requirements. In 2022, working capital will be a component of our short-term incentive compensation program to sustain our year-end momentum and align with our cash-focused culture. While we continue to monitor inflationary impacts, we expect working capital to be a positive impact on cash flows in 2022. I’ll conclude with a few financial points on Slide 16. Our fourth quarter corporate expenses were consistent with our normal $13 million to $14 million quarterly cadence after adjusting for acquisition-related expenses and an $8.7 million legal settlement related to our previously disclosed matter regarding events that predated Arcosa’s spinoff. In 2022, we expect a similar quarterly cadence of corporate expenses. In the fourth quarter, we continued to make progress simplifying the portfolio, executing the previously announced sale of one of two asphalt operations acquired in the StonePoint acquisition as well as negotiating the sale of two non-operating facilities, one in barge and one in utility structures, that had both been idled since spin. We recorded a $2.9 million impairment on the utility structures facility in the quarter and the sale closed earlier this month. Capital expenditures in 2021 were $85 million, slightly below our guidance. For 2022, we see full-year capex of $120 million to $140 million, including $30 million to $50 million for growth projects primarily in construction products. Our growth capex includes an expansion of our plaster plant in specialty materials and two new greenfield natural aggregates sites, leveraging our existing platforms. We continue to see attractive organic opportunities to deploy capital and have a robust pipeline of investments.

Antonio Carillo, President and CEO

I will now turn the call back over to Antonio for more discussion on our 2022 outlook. Thank you Gail. Before commenting on our overall financial guidance for 2022, I would like to spend a few minutes unpacking some of the factors underpinning our outlook. We have a simple message: we have high expectations for our growth businesses in 2022 based on strong infrastructure-led fundamentals, and we’re becoming more positive about the outlook for our cyclical businesses. Although these businesses are expected to represent a small percentage of our overall EBITDA in 2022, they are poised to generate significant future earnings as their respective markets recover. Starting on Slide 18, I want to highlight the success we have had in allocating capital to our growth business, which includes construction products and engineered structures. Since we spun off in 2018, adjusted EBITDA in these businesses has grown from $90 million to $277 million in 2021, reflecting one, strategic acquisitions that have expanded our market share and growth opportunity; two, benefits from organic growth initiatives; and three, favorable market fundamentals. For 2022, we are guiding our growth businesses to achieve adjusted EBITDA of $310 million to $330 million, a 15% improvement at the midpoint. Key factors supporting our favorable outlook include continued surface transportation investment at the federal and state levels, growth in residential construction projects throughout our major markets, including Texas, Tennessee, and Arizona, and an improving non-residential market. Additionally, we have continued to build the pipeline of acquisitions in both our legacy and expanded footprint, and none of these opportunities are factored into our current guidance. With these strong fundamentals, we anticipate our natural and recycled aggregates volumes will increase about 15% in 2022. On an organic basis, we expect volume growth of 1% to 3% once we account for certain large projects rolling off in 2021. We have strong pricing momentum and forecast average selling prices to increase mid-single digits in most of the markets we serve. We continue to actively manage fuel and raw material inflationary pressures and we are planning for full-year adjusted EBITDA margins above 2021 levels. In engineered structures, we anticipate continued solid demand for utility, telecom, and traffic structures in 2022 with segment margins expected to benefit from increased manufacturing efficiency outside of our wind towers business. In 2022, we see low single-digit revenue growth for the segment and margins in our targeted 12% to 13% range despite a more challenging wind tower market. To meet rising demand for electricity and increased stress on infrastructure, utilities continue to invest in grid resilience and hardening initiatives, providing attractive growth opportunities for our utilities structures business. In addition, we are pleased with the production ramp-up in Mexico, benefiting from the increased availability of labor and lower turnover compared to the U.S. Overall, the outlook for utilities and related structures is very favorable. Finally, our storage tank business remains a bright spot driven by strong market fundamentals in the U.S. led by residential construction. Now turning to our cyclical businesses, including wind towers, barge, and rail components, these areas are expected to face challenges in 2022 with combined adjusted EBITDA expectations of $20 million to $25 million, down roughly $30 million year over year. We forecast that these businesses will account for less than 20% of their combined EBITDA levels in 2018, which we believe indicates a cyclical trough, especially given recent positive developments that may lead to potential upside beyond 2022. In our barge business, high plate prices have limited customer demand, but we have been encouraged by the rapid decline in hot roll-coiled steel prices and the recent stabilization of plate prices. Market forecasts suggest lower prices ahead, and we have successfully negotiated significant discounts to spot prices, leading us to believe that plate prices will soon decrease. With steel prices becoming more reasonable, market fundamentals for our dry barge replacement cycle remain strong, supported by high barge utilization rates, improving river rates, and a positive outlook for grain and soybean markets. The under-investment in the fleet since 2016, coupled with heavy scrapping, has led to an aging fleet, with market estimates predicting robust new construction needs through 2026. Our operations maintain continuity for our two open facilities, and we aim to reach a breakeven level of EBITDA in 2022, which we believe will mark the cyclical trough for this business. In the rail components sector, the increasing rail car loads and traffic are driving higher customer demand for our products. We view 2021 as the low point for our components business, expecting increased overall revenue and profitability in 2022. Our wind tower business continues to be affected by uncertainty regarding production tax credits, although we still see interest and support for a long-term extension. At the same time, the long-term outlook is very positive as the energy market shifts from fossil fuels to renewable sources, including wind power. For 2022, our backlog gives us a baseline of production with relatively low profitability while ensuring we have the necessary labor and operational capability to respond effectively when demand improves. Now let’s review our consolidated outlook for 2022. On Slide 20, we forecast 2022 revenue in the range of $2.1 billion to $2.2 billion and adjusted EBITDA in the range of $280 million to $305 million. On the top line, the midpoint of our forecast represents an increase of approximately 6% as we anticipate revenue growth in our focus markets, construction products and engineered structures, will be partially offset by softness in our wind towers and barge business. The midpoint of our adjusted EBITDA range represents an improvement from 2021 and we anticipate maintaining our profitability with adjusted EBITDA margins roughly flat year over year, despite the significant expected margin headwinds from our wind towers and barge businesses in 2022. This is a direct result of the strategic efforts to shift our portfolio towards higher margin opportunities as well as the steps we have taken over the past year to better align our cost structure with market conditions. Turning to Slide 21, ESG remains a fundamental component of our strategy, and we continue to make progress on our ESG journey. Over the past few months, we further expanded and diversified our board of directors with the appointments of Julie Piggott and Kimberly Lubel, both of whom bring a wealth of experience and insight into our businesses as we continue our efforts to enhance long-term shareholder value. In 2021, we achieved several ESG-related milestones, including the publication of our first-ever sustainability report in April, and this year we are on track for the release of our 2021 sustainability report in the second quarter. In closing, 2021 was a productive year for Arcosa with continued operational and strategic progress. As we enter 2022, we will focus on simplifying Arcosa, growing our construction products and engineered structures, and preparing our cyclical businesses to ramp up quickly when demand returns. We will do this while maintaining a disciplined capital allocation process to improve return on capital and deliver long-term shareholder value. Operator, I would like to open the call for questions.

Operator, Operator

Thank you. Our first question comes from Julio Romero with Sidoti & Company.

Julio Romero, Analyst

Hi, good morning Antonio and Gail. Thanks for taking the question.

Antonio Carillo, President and CEO

Good morning Julio.

Julio Romero, Analyst

I wanted to ask about the wind tower business. I know you were breakeven in the fourth quarter and did $27 million in 2021. Could you discuss the guidance of $7 million to $9 million for 2022 and the sequential profitability trend in wind towers throughout the year? Additionally, could you remind us of the lead times and how long it takes for an order to convert into revenue for that business?

Gail Peck, CFO

Good morning Julio, this is Gail. Yes, I’ll take the cadence question and maybe I’ll turn it back to Antonio for the orders and lead times. With respect to your question about the $7 million to $9 million of EBITDA guidance for wind towers, we did manage to breakeven, as you indicated, in the fourth quarter, and we expect to return to profitability in the first quarter, so you’ll see a relatively even ramp throughout the year. We did take a significant order in the third quarter of last year, which gives us continuity for the two plants that we have open today, and so you’ll see, as I said, a favorable cadence to the EBITDA for the year.

Antonio Carillo, President and CEO

Julio, on the second question, we shut down our facility in Illinois. We still have two plants, one in Oklahoma, one in Iowa. The Oklahoma one is very busy, the Iowa is busy but not full. It normally takes, you know, from the time a project starts to the time we deliver towers, somewhere between 12 to 18 months. I’m going to expand on the answer because I think as you saw in our comments, our prepared remarks, we said we’re becoming more positive around the business, the cyclical businesses, and the reason for that is even though we don’t have orders, it’s not like the phones are not ringing. There is a significant amount of work being done and a lot of, let’s say, quotes being asked for very large orders, very, very large orders are being asked for us to quote, so I think this business is set up to come back as soon as the PTC is enacted. We’re positive that there’s conversations happening. I think it’s now an independent bill that’s being discussed rather than part of a bigger bill. As I mentioned in my prepared remarks, with this energy transition from fossil fuel to renewables, it needs to happen soon because of the delivery time, so I’m actually excited about what I’m hearing in terms of quotes. If you remember, we also have anti-dumping against many nations in this business, so we are very well set up for when it comes back.

Julio Romero, Analyst

Understood, that’s helpful. I guess secondly on the cyclical businesses, you’re obviously prioritizing manufacturing flexibility and trying to be ready for a recovery. It sounds like based on the commentary, you have a better line of sight for recovery in wind towers as opposed to barge. Would that be fair?

Antonio Carillo, President and CEO

Six months ago, as we were finishing the second and third quarters, it was challenging to foresee any improvement since plate prices were still rising, and there was no talk about the PTC. For wind towers, we have a clear view of actionable orders. Some customers indicate they are awaiting the PTC, while others don't seem to wait for it, which leaves me uncertain. However, I feel very optimistic about the progress in wind towers. On the barge side, I sense we are starting to see improvement. Steel prices for hot roll have decreased significantly, although plate prices have remained steady on the weekly indexes. Nevertheless, forecasts suggest a decline, and as I mentioned, we've managed to secure a substantial discount on current prices, making me confident that plate prices will also drop. We are receiving multiple quotes that are below the prevailing prices, indicating we are nearing a price decrease. Additionally, there's a remarkable pent-up demand in the barge market, with ongoing customer inquiries. Dry cargo barge utilization is very high, and the fundamental conditions are in place for a recovery. Scrapping has been extensive—though it's tough to quantify, it has been notably high, suggesting that the fleet is primed for replacement.

Julio Romero, Analyst

That’s helpful. Thanks for taking the questions, and best of luck in ’22.

Antonio Carillo, President and CEO

Thank you.

Operator, Operator

Thank you. Our next question comes from Brent Thielman with DA Davidson.

Brent Thielman, Analyst

Great, thanks. Good morning. Antonio, on the construction products business on the aggregates side in particular, you did a good job on margins while some of your peers have seen more challenges just related to increases in cost for diesel and other inputs. I guess the question is can you sustain these levels of margin given those cost issues? Is there a catch-up to come that we just haven’t seen yet? How should we think about those issues going through 2022?

Antonio Carillo, President and CEO

That’s a really good question. I think our team has done a very good job managing costs. At the same time, we also had two large acquisitions in 2021 and there are synergies that we’re generating through those acquisitions, not only in terms of cost synergies but also in terms of process synergies. I think we have a really experienced team in our legacy aggregates; we’ve got a great team in both of the new acquisitions, and there are synergies we’re generating by, let’s say, taking best practices from all these sites, and that’s, I think, a little bit of what you’re seeing. Those best practice sharing and improvements in our synergies, everything from pricing discipline to volume discipline to focus on margins, there is a significant change in culture in some of these businesses as we refocus towards margin rather than just pure volume, and that’s going to continue in 2022 as we continue to not only integrate these businesses but, as we said, we have continued with a pipeline of opportunities for bolt-ons, and when we do bolt-ons, that’s part of what we’re trying to generate those synergies in terms of processes. So to answer your question, I think we have a good forecast for 2022 to continue to maintain and grow our margins.

Brent Thielman, Analyst

Okay, that’s helpful. Then Antonio, I guess with leverage now nearing the lower end of the target range, maybe just your current thoughts on moving to deploy the balance sheet again towards M&A, or do you still want to wait and digest last year’s big transactions?

Antonio Carillo, President and CEO

That’s a really good question. I believe the balance sheet presents a bit of a unique situation. We currently have a debt to EBITDA ratio of 2.1, but as I mentioned earlier, our cyclical businesses are only generating 20% of the EBITDA they produced in 2018. However, we are optimistic about those businesses recovering in the near future. Viewing the balance sheet from this perspective, we actually have more flexibility than what is indicated by the numbers. Our primary focus will continue to be integrating these aspects. We have a pipeline of smaller acquisitions, and I anticipate that we will make some of these acquisitions throughout 2022. Additionally, we aim to simplify Arcosa, as there are significant opportunities for improvement. This year our capital expenditures are higher than before, and as you noted, we are increasing our investments considerably. I firmly believe that the best returns on capital and the greatest benefit for our shareholders come from organic growth, which tends to yield higher returns than acquisitions. We have numerous opportunities to invest our capital in this area, so I expect to see us pursue some smaller acquisitions. Of course, the balance sheet does permit us to consider larger opportunities if they arise, and while it's not our main focus right now, we will evaluate any strategic opportunities that align well with our goals.

Brent Thielman, Analyst

Okay, great. Thank you Antonio and Gail.

Operator, Operator

Thank you. Our next question comes from Garik Shmois with Loop Capital.

Jeff Stevenson, Analyst

Hi, this is Jeff Stevenson on for Garik. Thanks for taking my questions today.

Gail Peck, CFO

Good morning.

Antonio Carillo, President and CEO

Thank you, good morning.

Jeff Stevenson, Analyst

Good morning. My first question is just how construction products bidding activity has been to start out the year, and then also, can you talk about the benefits of the new federal infrastructure package on construction products and when it could start to show up in volumes?

Antonio Carillo, President and CEO

Sure. The bidding has been strong during the first part of the year. I think we’ve seen a strong start for our business. You take away some of the weather that we’re having today with the ice and things like that, but overall very strong all over our footprint, I would say, so we’re feeling very positive about how we’re starting the year. In terms of the infrastructure package and the impact on our business, I would say that we don’t expect anything in the first part of the year. We said we would start seeing something in the second part of the year, probably 2023 growth. The beauty of it is it’s a several-year plan, so I think this gives us visibility and allows us to plan and allows us to do it in a multi-year thinking process, which is to me very important. It’s not only in construction products that we are seeing it. We see the infrastructure bill for our utility structures has been very important, for traffic structures, for telecom, even for our barge business and rail components. We have a broad exposure to the impacts of this infrastructure bill, so we’re very excited about that. I think it’s not an early 2022 impact, but you are going to start seeing it and I think it’s going to be a ramp-up towards higher impact as the quarters go by.

Jeff Stevenson, Analyst

Okay, that’s very helpful, Antonio. Then how much longer can barge orders be deferred with high steel prices? Are we getting close to an inflection when deferrals can’t be deferred much longer? Any more color there would be helpful.

Antonio Carillo, President and CEO

Yes, I think you're absolutely right. With the current steel prices, we are at a tipping point. We are very close to seeing a shift. A year ago, the forecast for steel was uncertain, but now it seems that in a matter of months, if the forecasts hold true, we could start seeing prices reach a level where people feel ready to make purchases. I can't specify exactly when that will happen, but I feel optimistic about the timing and that we are getting very close.

Gail Peck, CFO

This is Gail. I’d add we included some industry data in our webcast slides, so bottoms-up demand side would say looking at the outlook for commodities, looking at the condition of the current fleet, that construction needs to support this outlook need to be north of 700 deliveries per year, and you can see from some of the materials we’ve provided that there’s been under-investment in the fleet, in the dry barge fleet for really the last five years, significantly below those replacement levels. Obviously we need relief on the steel side, but the fundamentals support a very strong market in pent-up demand over these last few years.

Jeff Stevenson, Analyst

Great, thank you, and best of luck moving forward.

Operator, Operator

Thank you. Again as a reminder, please press star, one to join the queue. Again, that is star, one if you would like to ask a question. Our next question comes from Stefanos Christ with CJS Securities.

Stefanos Christ, Analyst

Good morning, thanks for taking my questions.

Antonio Carillo, President and CEO

Good morning.

Stefanos Christ, Analyst

Could you discuss organic growth in 2021 for construction products and what you anticipate for this year, 2022?

Antonio Carillo, President and CEO

Starting with 2021, excluding acquisitions, we experienced solid growth in our traditional businesses. A significant portion of the expected growth for 2022 is derived from the opening of two new projects, as Gail mentioned. One of these projects originated from an acquisition and was already under development, while the other was not. I will break this down into different areas. Overall, the new projects contribute to growth, and we are also expanding some of our existing mines. In terms of shoring, which encompasses all construction products, we are geographically diversifying by expanding in the western U.S. with a new depot established in early 2021 or late 2020, which is aiding our growth in shoring as well as broadening our customer base. Similarly, in specialty materials, we have numerous projects underway, focusing on enhancing our margins through cost reductions in energy and developing new products. Additionally, our plaster plant, which faced challenges during the pandemic, is recovering well and showing strong growth early this year and late in 2021. We have an expansion at our plaster plant that boasts excellent margins, and our market position is strong, with customers expressing enthusiasm due to the limited supply of this product. As I previously mentioned, organic growth offers significant returns on capital. We are concentrating on this and plan to allocate capital expenditures this year across all of our construction businesses.

Stefanos Christ, Analyst

Perfect, and that leads to my next question. I assume those greenfield projects are part of your capex spend. Are there any other projects we should be thinking about, other opportunities?

Antonio Carillo, President and CEO

I would say the positive aspect for our company is that we have more projects than available funding. Having a wide range of projects enables us to select the most promising ones. We currently have several projects under development. The reason we're not moving more aggressively is that I strongly believe in ensuring engineering is fully completed before proceeding. When we indicate that the cost for the plaster plant will be $20 million, it signifies a fixed price contract with a contractor, meaning we know the cost will be $20 million. In this inflationary environment, we need to be cautious about starting a plant and possibly incurring overruns, which would affect our returns. Therefore, we are diligently working to ensure that the projects we initiate have clearly defined costs, allowing us to make informed decisions. In summary, we have numerous projects that have yet to be approved by our board, and we will be evaluating our capital allocation, including capital expenditures, acquisitions, share repurchase, and dividends throughout the year.

Stefanos Christ, Analyst

I appreciate it, thank you.

Operator, Operator

Thank you. Again as a final reminder, please press star, one at this time if you would like to ask a question. Again, that is star, one if you would like to ask a question. Thank you. At this time, it appears we have no further questions. This does end today’s program. Thank you for joining us. Have a great day.