Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Northwest Pipe Co (NWPX, Financial) reported a consolidated net sales increase of 11.3% year-over-year to $129.5 million, the strongest quarterly level since early 2013.
- The Steel Pressure Pipe (SPP) segment achieved record quarterly revenue of $89.5 million, a 15.9% increase year-over-year.
- The company's consolidated gross profit for the second quarter increased 14.8% year-over-year to $25.8 million, setting a new record.
- Northwest Pipe Co (NWPX) successfully managed working capital, resulting in strong cash flow generation during the quarter.
- The SPP backlog improved to $348 million as of June 30, 2024, up from $337 million as of March 31, 2024, and $343 million as of June 30, 2023.
Negative Points
- The Precast segment faced a $4.3 million negative impact on sales due to severe weather events in Texas, affecting production, shipping, and order intake.
- Steel prices declined throughout the second quarter, stabilizing at around $650 per ton, which impacted realized selling prices.
- The Precast segment's gross margin decreased to 22.1% from 25.3% in the second quarter of 2023, primarily due to weather-related disruptions.
- Interest expense increased to $1.8 million from $1.2 million in the second quarter of 2023, due to higher average daily borrowings and interest rates.
- The current interest rate environment continues to create headwinds for the commercial nonresidential side of the Precast business.
Q & A Highlights
Q: Can you talk about your confidence that the Steel Pressure Pipe (SPP) segment strength can be sustained in the second half of 2024 and beyond?
A: The steel pressure pipe market continues to be very strong, and we are just starting to see the IIJA money trickle in, which will bolster the market further. We don't expect the mass of the IIJA funding to hit until late 2025 or 2026, indicating a period of sustained strength ahead.
Q: How should we think about the medium-term sustainability of the SPP segment, given its historical volatility?
A: The market has consolidated significantly, reducing volatility. Even in smaller bidding years like 2023, we managed decent margins. We expect to go into 2025 with a strong backlog, and the IIJA funding will further boost demand. The consolidation in the market has changed the landscape, making it less volatile and more sustainable in the medium term.
Q: Regarding the $4.3 million negative impact on Precast sales due to weather, will this be realized in Q3?
A: We expect a pickup in Q3, although weather remains a variable. The order book is growing, and confidence in the nonresidential business is returning. We anticipate a stronger second half of the year for the Precast business.
Q: Can you elaborate on the expected improvement in Precast margins in the second half of the year?
A: Both Geneva and Park margins are improving. The Park side will become a bigger piece of the picture as it recovers from weather impacts and interest rate environment issues. We expect a strong second half of the year in Precast.
Q: Is the new RCP plant at Geneva a structural change to margins or a capacity add?
A: It's both. The new plant will have a better conversion cost profile and higher production capability, leading to higher margins and better overhead absorption.
Q: With the current healthy environment for SPP, do you see an opportunity to continue improving margins in the forthcoming years?
A: Yes, we expect upward momentum on gross margins due to the strong market and high backlog. We anticipate margins that start with a 2 in the coming years as IIJA funding boosts demand.
Q: Can you provide an update on the M&A pipeline?
A: We are actively evaluating opportunities and expect some action by 2025. We are focusing on cash flow and reducing our credit facility to position ourselves for future acquisitions.
Q: How do you see the overall market for steel pressure pipe evolving with the IIJA funding?
A: The market should grow larger than the current $450 million to $600 million range. We expect significant growth in the coming years, driven by IIJA funding and increased capacity utilization.
Q: What are your key takeaways for the second half of 2024?
A: We expect a strong year for both SPP and Precast. Our growth strategy is working, and we are well-positioned for future infrastructure projects. The business diversification strategy has been effective, and we anticipate continued strong performance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
