Arcosa Inc

NYSE:ACA

Earnings Call Transcript 2020-Q4

[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, Senior Vice President, Finance & 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 statement 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 & Chief Executive Officer]

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 that was extremely -- 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 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 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 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 benefit 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?

[Scott Beasley, Chief Financial Officer]

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 & Chief Executive Officer]

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 take -- 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 -- had strong -- 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 at 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 have 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 Instructions] Our first question comes from Brent Thielman from D.A. Davidson. Your line is open. Please go ahead.

[Brent Thielman, D.A. Davidson]

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, Chief Financial Officer]

Sure, Brent. This is Scott. I'll take that question. So let me give you a little a cadence – 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 increased 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 & Chief Executive Officer]

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, D.A. Davidson]

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 through steel prices before we see some sort of recovery in orders? Just be curious what your customers are telling you.

[Antonio Carrillo, President & Chief Executive Officer]

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 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, 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 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's other things happening that are -- should help barge. The pipelines for example the cancellation of the pipeline could mean that there is more oil being moved in barges et cetera.

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 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, D.A. Davidson]

Thank you.

[Operator]

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

[Ian Zaffino, Oppenheimer]

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 & Chief Executive Officer]

Sure. Thank you, Ian. Let me give you some color on where we're seeing the growth CapEx. And the -- let's say the color on this growth CapEx is that, 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 poll business to support our Engineered Structures product offerings. As we said at that time our goal is to expand those small business 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, Oppenheimer]

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, Chief Financial Officer]

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 -- it 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 DoT 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, Oppenheimer]

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

[Antonio Carrillo, President & Chief Executive Officer]

Thanks, Ian.

[Operator]

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

[Stefanos Crist, CJS Securities]

Antonio and Scott, good morning.

[Antonio Carrillo, President & Chief Executive Officer]

Good morning.

[Scott Beasley, Chief Financial Officer]

Good morning.

[Stefanos Crist, CJS Securities]

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, Chief Financial Officer]

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 & Chief Executive Officer]

The other piece that's important to remember Stefanos is in 2019 if you compare the quarter -- fourth quarter of 2019 versus the fourth quarter of 2020 our -- we have good oil exposure in West Texas and Oklahoma. And we started to have significant volumes there in 2019 while in 2020, it's come down significantly. So those numbers sometimes create some cloudiness across the volumes. Our volumes were actually stronger to -- if you look beyond that oil exposure.

[Stefanos Crist, CJS Securities]

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 & Chief Executive Officer]

Well, for us Stefanos, we bought a small company in 2020, that company made very specific large sales structures and very regionally in Oklahoma. So part of the capital that we're deploying this year is to expand those offerings in other parts of our footprint. We are in the learning stage, I would tell you. We are getting our feet wet on this product line. I think there's great opportunities. We are -- we have a really good management team and we are, let's say, throwing resource of this business to expand it.

I don't want to promise you a significant number over the next three to six months or a year. But I think the message I'd like for you to take is that we are very intrigued and very excited about the potential of the business. And I think there's great opportunities for us to expand. So that's -- it's -- think about it right now as just -- we're just getting started.

[Stefanos Crist, CJS Securities]

Great. Thanks for taking my questions.

[Operator]

[Operator Instructions] Our next question comes from Justin Bergner from G.Research. Your line is open. Please go ahead.

[Justin Bergner, G. Research]

Good morning, Antonio. Good morning, Scott.

[Antonio Carrillo, President & Chief Executive Officer]

Good morning.

[Scott Beasley, Chief Financial Officer]

Good morning.

[Justin Bergner, G. Research]

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, Chief Financial Officer]

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, G. Research]

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 & Chief Executive Officer]

Yes. So, Justin this is Antonio. I would like to give you some color on that. I think the business has performed really well. If you see how we've done over the last few years, it's improved pretty significantly. There's two big things there. One is wind towers. And wind towers is driven I would say by volume and by the conditions of the market. And in the last few years we've been very I would say aggressive in terms of focusing that those wind towers need to compete on a level-playing field with other countries. There were significant number of towers coming into the US market taking advantage of some still tariffs and trying -- and basically dumping towers into the US market.

So, one thing has to -- that has helped the margin and will help the margin in the future I think is making sure that the US competes head-to-head on a level-playing field with other countries. And we think that the conditions are here that that will happen.

Also as the wind industry becomes more important that's our expectations over the next few years, demand should improve and that should also help us and that should help us keep good margins in wind tower. So, that's to me positive tailwinds for margin improvement over the next few years on the wind side.

On the utility side, I think volumes are good. I think demand is pretty robust. I think that's on our side. I think that's an internal thing that we have to continue to work. We have expanded capacity in Mexico last year. We're going through the ramp-up. Our utility structures business has been probably the most affected by COVID in terms of number of cases and ramping up a facility in another country with new equipment, with technicians not being able to travel and those things have been probably the toughest piece for Arcosa.

So, I think as we ramp up our business I think that's also positive for our margins in the future. So, I think you have a combination of outside markets that are robust and we have to execute. And that should take us to a current guidance that Scott gave you. But I think there's good potential to continue to grow those margins in the future as we execute better.

[Justin Bergner, G. Research]

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, Chief Financial Officer]

Sure Justin. This is Scott. I think the good news is that Q1 is the slowest quarter of the year in Construction Products. And so taking a week out of production in the first quarter should have -- would have the lowest impact of any of the quarters. But we did lose a whole week across Texas and a good chunk of the footprint. So it will likely be several million dollars plus.

We've restored operations we had no major damage but losing a week of production across most of the footprint will impact Q1. And typically that volume is not caught up. There are other bottlenecks in the supply chain that contractors can add labor. The construction activity just gets pushed into the next quarter and then in the next year. So we've got a number of questions about whether that's -- that gets caught up within the quarter or in Q2 and typically that's not how the impact of major weather events happens.

[Antonio Carrillo, President & Chief Executive Officer]

Yeah. And Ian, one - Justin, sorry, just to complement. When you slow down -- when you shut down a plant, you have a double hit. You have a hit. Basically you lose revenue and those things but you also lose the absorption of your cost structure. So it's normally not only a reduction in revenue, but also it impacts your margin.

The first quarter that Scott gave on the -- in terms of the cadence of the guidance, we see of course the impact of the storms in Texas. We have two ramp-ups happening in our Illinois plant for our wind towers. We have the ramp-up in our plant in Mexico for transmission towers.

And there is some potential for the steel delays that Scott mentioned. Some steel mills have had significant problems with the storms. So, I think we're confident that the first quarter is going to be a little rocky. But beyond that, we're very optimistic about the second third and fourth quarter.

[Justin Bergner, G. Research]

Great. Thanks taking my questions.

[Operator]

Our last question comes from Leo Romero from City & Company. [ph]. Your line is open. Please go ahead.

[Unidentified Analyst]

Yes. Hi, good morning.

[Antonio Carrillo, President & Chief Executive Officer]

Good morning.

[Scott Beasley, Chief Financial Officer]

Good morning.

[Unidentified 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 is that's still improving or maybe more in line with third quarter demand?

[Antonio Carrillo, President & Chief Executive Officer]

Sure. Let me give you some color, because we have a pretty wide range of storage tanks in Mexico. So I'll give you -- so we make everything from a barbecue cylinder to a huge sphere that you see in refineries or petrochemical plants. So, each one of them has their own different trends right now.

As you can imagine, with the cold weather, the demand for small storage propylene tanks have increased dramatically both in the US and Mexico. No, it's normally -- it normally happens during the winter months. But this year has been especially strong and we've had a really good year in the US and really good year in terms of small propane tanks in Mexico. So that's really good news.

On the larger side, the US is doing well. We have good demand for large tanks. In Mexico as you know the economy is not doing well and investment is not happening. So large storage tanks are not that strong. We do have good let's say projects for the ones that are built on site those huge things you see in refineries and petrochemical plants. We have a few of those that are really good projects for 2021. But overall the majority of our revenue comes from small propylene tanker and that's done very, very well.

[Unidentified 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 & Chief Executive Officer]

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 go investing 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. And 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]

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

[Antonio Carrillo, President & Chief Executive Officer]

Thank you.

[Operator]

That is all the time we have for questions today. I will turn the program back over to Gail Peck for any additional or closing remarks.

[Gail Peck, Senior Vice President, Finance & Treasurer]

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

[Operator]

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