Q1 2024 Arcosa Inc Earnings Call

Participants

Erin Drabek; Director, Investor Relations; Arcosa Inc

Antonio Carrillo; President, Chief Executive Officer, Director; Arcosa

Gail Peck; Chief Financial Officer; Arcosa Inc

Ian Zaffino; Analyst; Oppenheimer

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Arcosa, Inc., first-quarter 2024 earnings conference call. My name is Jamie, and I will be your conference call coordinator today. As a reminder, today's call is being recorded.
I'd now like to turn the call over to your host, Erink Drabek, Director of Investor Relations for Arcosa. Ms. Drabek, you may begin.

Erin Drabek

Good morning, everyone, and thank you for joining Arco's this first quarter 2020 for earnings call. With me today are Antonio Carrillo, President and CEO; and Gail Peck, CFO. A question-and-answer session will follow their prepared remarks. A copy of yesterday's press release and the slide presentation for this morning's call are posted on our Investor Relations website, ir.arcosa.com. A replay of today's call will be available for the next two weeks, and instructions for accessing the replay number are included in the press release. A replay of the webcast will be available for one year on our website under the News and Events tab.
Today's comments and presentation slides contain financial measures that have not been prepared in accordance with GAAP. Reconciliations of non-GAAP financial measures to the closest GAAP measure are included in the appendix of the slide presentation.
In addition, today's conference call contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Please refer to the company's SEC filings for more information on these risks and uncertainties, including the press release we filed yesterday and our Form 10-Q expected to be filed later today.
I would now like to turn the call over to Antonio.

Antonio Carrillo

Thank you, Erin, and good morning, everyone. I will begin with some overall comments on our solid start to the year and Gail will provide additional details about our segment financial results. I will then discuss our outlook before we open the call for questions.
Turning to slide 4, our first-quarter operating and financial results exceeded our expectations. We executed well on several fronts and are pleased with the progress we're making, ramping up our cyclical businesses, improving our operating performance and integrating recent acquisitions although we were broadly impacted by unfavorable weather in January, results improved significantly significantly through the quarter, highlighting the earnings power of our portfolio of businesses in the balance of the quarter we achieved double digit adjusted EBITDA growth and higher overall margin on an organic basis. Overall, total first quarter revenues increased 9% year over year, reflecting solid organic performance across all business segments as well as contributions from acquisitions completed over the past year. Consolidated adjusted EBITDA increased 7%, normalizing for the $22 million land sale gain in the same period last year.
Finally, we reported significantly higher operating cash flow that helped fund key growth initiatives. With me discuss a few key takeaways from the first quarter. Construction products benefited from strong price momentum, which offset modest decline in organic aggregates volumes. The acquisition that we acquisitions that we completed in 2023 in Florida, Arizona, and Texas also contributed to segment growth within Specialty Materials. The new plaster plant is doing well, and we're pleased to report another quarter of higher year-over-year performance. Engineered Structures executed according to plan in the first quarter order activity in utility structures remains healthy, and we continue to disclose new wind tower orders with our customers adding a small order to the backlog in the first quarter, while currently dilutive to margin. The ramp-up of our New Mexico wind power facility in our fully accomplished full plant are progressing well. Transportation products' growth was driven by higher barge revenues and improved segment margins. The barge business continued to exhibit healthy demand with orders for both hopper and tank barges during the first quarter, representing a 1.5 book-to-bill.
As previously announced, we closed the $180 million acquisition of Ameron pull products from April ninth. In our press release yesterday, we provided increased revenue and adjusted EBITDA guidance for 2024, reflecting the addition of Ameron and better than expected first quarter results. Of note, the midpoint of our revised adjusted EBITDA guidance reflects a 23% increase over comparable results in 2023. I will provide provide more and more details in my comments about the outlook.
Turning to slide 8, investments. Both organic and inorganic across our portfolio have transformed the company and are contributing to our long-term growth. Today, we are less cyclical than in the past with construction products accounting for about 60% of our adjusted EBITDA nearly doubled to 33% that we contributed in 2018.
Moving to slide 9. The acquisition of Ameron has had an excellent strategic fit for Arcosa, expanding our portfolio offerings in traffic and telecom structures and establishing our foothold in the attractive concrete and steel lighting pole market. Additionally, we expect it to be an important margin accretive contributor to engineered structures as well as our course, overall, we have a proven track record of prudently deploying our capital at attractive valuations to drive sustainable long-term growth. Ameron is another example of this discipline.
In summary, we're pleased with our first-quarter results and the progress on our strategic priorities as we continue to successfully grow our businesses.
I will now turn over the call to Gail to discuss our financial results scale.

Gail Peck

Thank you, Antonio. I'll begin on slide 12 to discuss our first-quarter segment results. Turning to construction products, it's important to highlight the slow start. We had to the quarter with a significant number of rain days, particularly in Texas and frigid temperatures in the Midwest during the month of January. In the balance of the quarter, we performed well and achieved strong organic adjusted EBITDA growth and higher margins for the segment. First-quarter revenues increased 6% year over year. On a freight adjusted basis, revenues increased 9% with growth split evenly between organic and acquisition contributions. Excluding the $22 million gain on the sale of depleted land in the prior period, first-quarter adjusted segment EBITDA increased 10% year over year, primarily due to the accretive impact of recent acquisitions and the operating improvements in our specialty materials business. Normalizing for the large land sale gain, freight adjusted segment EBITDA margin was up slightly year over year, building on significant margin expansion achieved in the first quarter of last year.
Turning to our aggregates business, which includes both natural and recycled aggregates. Average organic pricing was up high-single digits in the first quarter with strong pricing gains across our footprint. In addition, the contribution from acquisitions was accretive to overall average selling prices, first quarter volumes were down low single digits on an organic basis and up slightly in total. Volumes were impacted by January, weather and lower volumes in the Houston recycling market, which experienced elevated demand in the first half of 2023 due to a temporary shortage of natural limestone. First-quarter adjusted EBITDA increased low double digits year over year, normalizing for the land sale gain in the prior period, driven by recent acquisitions as well as modest organic growth. Acquisitions were accretive to margin during the quarter and organic margin was roughly flat as higher pricing was partially offset by weather and mix-related impacts.
Within specialty materials, freight adjusted revenues increased significantly, driven by double digit overall price increases and higher volumes and plaster operational improvements in this business resulted in higher adjusted EBITDA and roughly 40 basis points of margin improvement for the segments. Our single asphalt operation weighed on first quarter results generating a loss and reducing segment margins. Weather impacts magnified a seasonal low for this business.
Finally, revenues in our trench shoring business increased on higher organic volumes and contribution from the Houston acquisition that closed at the end of the first quarter of 2023. Adjusted EBITDA increased modestly year over year, but margin was dilutive to the segments.
Moving to engineered structures on slide 13. During the first quarter, revenues increased 12% due to higher utility structure in wind tower volumes, partially offset by lower pricing for utility structures driven by product mix in line with our expectations.
Adjusted segment EBITDA decreased 10%, primarily driven by lower utility structures margin from the shift in product mix, which we expect to improve in the second half of the year. First-quarter 2024 margin for our utility structures business was flat with the fourth-quarter 2023 margins. We also incurred start-up costs for our new concrete utility pole plant that was completed in December as well as for the New Mexico wind tower plant that is on track to deliver its first towers in the second quarter. These costs were partially offset by higher advanced manufacturing production tax credits for our wind towers business, driven by the increase in volumes. Order activity in utility structures was held was healthy with a book-to-bill above one, and we received a small wind tower order for 2020 for delivery.
We ended the quarter with a backlog for utility wind and related structures of $1.4 billion, substantially unchanged from the start of the year. This quarter, we recognized an additional $7 million gain on the storage tanks divestiture that was completed in 2022 related to the settlement of certain contingencies. This gain has been excluded from adjusted segment EBITDA.
Turning to transportation products on slide 14, segment revenues were up 10%, driven by higher volume and improved pricing in our barge business. Revenues in our steel components business declined due to a modest decrease in volumes supporting new railcars, partially offset by increased volumes supporting the railcar maintenance market. Adjusted adjusted segment EBITDA increased 32% and margin expanded by 270 basis points to 16.1% on higher barge volumes and improved margin in both businesses. We ended the quarter with a total barge backlog of $294 million, and we expect to deliver approximately 73% during 2024.
I'll conclude conclude on slide 15 with some comments on our cash flow and balance sheet positions. We generated $81 million of operating cash flow for the quarter, up $53 million year over year, primarily due to lower working capital requirements. First quarter capital expenditures were $54 million, up $10 million from the prior year, reflecting progress on organic projects in construction products and engineered structures. This translated into first quarter free cash flow of $30 million, up from $7 million in the prior period. We are revising our full year CapEx guidance to $190 million to $205 million, an increase of $15 million to both ends of the range to include Oman as well as the pace of first quarter CapEx. Our right, our range now anticipates $65 million to $70 million of growth CapEx in 2023.
We ended the quarter with net debt to adjusted EBITDA of 1.2 times and available liquidity of $555 million, pro forma net debt to adjusted EBITDA following the completion of the Ameron acquisition in April is 1.7 times below our long-term target range of 2 to 2.5 times with pro forma available liquidity of $375 million and no material near-term debt maturities. Our healthy balance sheet and ample liquidity continue to provide flexibility for our capital allocation strategy.
I will now turn the call back over to Antonio for an update on our 2024 outlook. Antonio?

Antonio Carrillo

Thank you, Gail. I'm excited to build upon the success of the past year and the momentum from the first quarter. In addition to the organic capital projects under way, M&A is an important growth driver for Arcosa, and we have a healthy pipeline of potential acquisitions.
Turning to slide 17, we are increasing our guidance for 2024 as a result of the contribution from armor, along with the better than expected first quarter results. We're increasing our 2024 revenue guidance to a range of $2.58 billion to $2.78 billion. We're increasing our 2024 adjusted EBITDA guidance to a range of $410 million to $440 million, which at the midpoint is up 6% from our prior guidance. We continue to expect expect our cadence of EBITDA growth to be more second-half weighted.
Turning next to slide 18 to review our growth businesses. We expect the momentum we experienced in the first quarter to continue reflective of healthy industry demand and better overall pricing for construction products, ongoing increased infrastructure spending, heavy manufacturing data centers and multifamily housing construction in some markets are driving demand. In contrast, near-term demand for new single-family housing is still weak, but medium-term outlook is supported by expected population migration into our key markets for engineered structures. Demand for utility and related structures remains strong. Driven by increased CapEx program for grid improvement initiatives and alternative energy sources, coupled with healthy DOT spending in the Southeast. We continue to have strong backlog visibility in this business.
Moving next to our cyclical businesses, starting with wind towers on slide 19, the overall demand outlook is favorable as 2024 represents what we expect to be the start of a multiyear up-cycle for wind towers. As I mentioned last quarter, we expect to ramp up wind tower capacity over the next couple of years to support growing demand at the New Berlin New Mexico plant. We recently completed the first tower section and will begin delivering towers in the second quarter of this year. Additionally, during the first quarter, we booked a $10 million order for delivery this year. Interest in onshore wind projects remains high, and we have ongoing discussions with our customers. We have a healthy wind tower backlog of nearly $1 billion and are focused on selling or selling our capacity for 2025 and beyond.
Turning to slide 20, the demand outlook for inland barges is healthy and with improving prospects during the first quarter, we received additional orders for both hopper and tank barges totaling $120 million. Our backlog at the end of the first quarter was up 16% from the beginning of the year and now extends into 2025. Importantly, we see significant growth potential for new hopper barge demand due to several years of underinvestment resulting in an aging fleet.
Furthermore, following two consecutive quarters of new tank barge orders, we're cautiously optimistic about the future of liquid fleet demand for the last couple of years. Given the low tank barge demand. We have been producing mostly hopper barges in both of our active operating plants. This is not the ideal production mix is one of the plants is better suited for tank barge production with the increasing tank barge, the orders and a better outlook. We will be realigning the production mix in our plants so they can focus on producing barges that maximize efficiency and margin. We expect some margin some impact on margin in the second quarter while we align production. But this change should help us improve our margins once the realignment is done before opening the call for questions.
The last topic I want to cover today is sustainability on page 21. As always, our goal is to grow and operate in an even more efficient, sustainable and impactful manner. Last week, we published our 2023 sustainability report. This is our fourth annual report and builds on our emissions tracking environmental metrics, disclosures and conservation initiatives that in some of our most recent advances include a 17% reduction in greenhouse gas emission intensity compared to our 2020 baseline and tracking ahead of our 2026 goals, improved water intensity efficiency with a 22% reduction year over year.
And on the employee safety side, lost word base due to injuries declined more than 60% compared to our prior year. The 2023 report also highlights many of our community-focused initiatives as well as some of our products that contribute to a more sustainable future. We encourage you to read the report, which can be found on our website.
In closing, we had a solid start to the new year and after a slow January, we have built positive momentum across our businesses. We remain focused on operational execution, portfolio optimization and allocating capital to our growth businesses, both organically and through acquisitions. We expect healthy market fundamentals to continue to drive solid results in our core businesses. While our cyclical businesses are poised to benefit from increased production and greater operating leverage with strong demand for our products and a fantastic team. I'm more optimistic than ever in the future of Arcosa.
Operator, let's open the line for questions.

Question and Answer Session

Operator

(Operator instructions) Ian Zaffino, Oppenheimer.

Ian Zaffino

Thank you very much. A great quarter and thanks for the outlook on. Can you guys maybe talk about a little bit more about what's going on in New Mexico right now as far as what what's basically baked into guidance there as far as deliveries or shipments? And then also at what point do you start to get you through other cost absorption and become profitable on a mat on factory in that facility? And then any other discussions about any orders that you might see in addition to that, I know you had a smaller one, but they were all expecting kind of a bigger one as well on maybe kind of thoughts on that as well or some color. Thanks.

Antonio Carrillo

Yes, Ian, this is Tony, and I will have a very fresh. I was there last week we have the ceremony with the Secretary of Energy according the reason for our first section coming out of the plan. So on the plant is looking great. We are very excited about not only the facility, the new technology we're installing there and the people we're hiring our team there is very, very happy with the quality of the employees and the amount of employees we're hiring there. So everything seems to be going well, of course, as we discussed before, we have over close to 150 people now at the plant. So that's a significant cost that we are in current every month, but it's going very well. We mentioned we have mentioned before, we always said midyear, we would deliver the first hour in this. My remarks I said in the second quarter, we're going to do it. So we're moving along as planned on schedule and on budget in the plant, which is important throughout the year, you will see the plant starting to improve from first a loss then to a slight profit. And eventually we should get sometime late year, early next year. But our expectation today is that in the fourth quarter it should be profitable and accretive to margins as for the segments.
Okay. And in terms of orders. Let me just say it was a small order. As we mentioned a couple of conference calls ago. We are building also some tests to test the wind towers for another customer discussions are open with both our large customers to continue to expand the business. And I would say that it like everything I always mention on this business, this business is not that you get a few orders here and there we got one this time on it. You might see a few others, but our goal is really to get a larger order to fill the capacity. We have four plants, including New Mexico. One is idle, including New Mexico and the other two plants are still operating at a relatively low capacity so we have a lot of capacity to sell and the industry is poised to grow tremendously. So and we've met with developers with met with with or without all the interested parties. And we're still very, very optimistic that throughout 25 and maybe for 26 will be we'll be able to sell that capacity. And remember, the tax credit has low it's very low until 2032. So we have a very long, a line of sight for this for this business.
Okay, thanks.

Ian Zaffino

And then just on the rail component side, I know that you got a favorable antidumping ruling over there on I think there were some pretty large carriers in the Chinese and then also to the Mexicans to a lesser degree on what are you seeing there? Has that helped your demand in that business? Is there any kind of like funky inventory in the channel going on?
Well, on some of the dumpers and then come through inventory into China. You got to work through that, how we think about that business. And then just also the long term kind of viability inside your portfolio of that business doesn't make sense, et cetera?

Antonio Carrillo

Sure. So let me talk about the what we're seeing as always. With these cases, when you announced, you're running a case there are a lot of imports happen and the inventory gets built in the pipeline, et cetera. But to be honest, we're seeing very positive things in that business in the market we have lost. Why we did the antidumping is we had lost completely the maintenance market for rail components for copper specifically. And what we're seeing today is even though the industry for new railcar production has not been, let's say, doing very well. Especially some of our customers' volumes has not been very high if the maintenance piece is doing very, very well in the first quarter, we had a significant portion of our of our revenues coming from the maintenance market. We've signed several agreements with railroads for maintenance and not only railroads a lot of lessors. So it still is just starting, but we're seeing really positive things coming out of the anti-dumping. Again, what we've always said, we don't want any benefits. We any preference. We just want a level playing field and I think the anti-dumping created that in terms of the long term. So I think as the inventory in the industry through the inventory, that trend should continue and that maintenance piece should continue to improve. And once this happens, I will think about the long-term perspective of the business. I as we've always said, we're always looking at opportunities. M&a has its life by tone. So we're always evaluating the fit and the and the the, let's say, the long-term fit for the for the Company and how we can reallocate capital. So we continue to explore those opportunities.
All right.

Gail Peck

Thanks very much.

Antonio Carrillo

Great quarter and thank you.

Yes.

Operator

We'll go now to Brent Thielman with D.A. Davidson.

Antonio Carrillo

Hey, thanks. Good morning.

Good quarter as well as Antonio. Could you just talk about maybe the plans for the Amrun and Oil Products business? Do you intend to put some capital into it? And does this give you sort of the scale you want or need outside of utility and wind structures? Or is there more you'd like to do around this segment in general?

Antonio Carrillo

Yes, Brent, it's a great question, and I'll be honest, if you look at the if you look at the list of the three targets that we put together in 2018 and 2019 of how to grow the businesses? And or was there a way for us to we're really wanting to get Ameron since 2018 and 19 and we have reached out to the buyer and they were not interested in eventually. I think we participated in a process and we're able to get this fantastic asset for a for our company. It really complements our products. We have very little to non overlapping product lines, which is what we were looking for, and they have a lot of technology capabilities and experience on concrete poles, much more than we do. As you know, we are opening our second concrete pole plant in Florida. We have one in Alabama, and these guys bring a lot of competencies in that market. So that's something we're looking for. On the other hand, we bring a lot of steel capabilities that they were just getting into the steel pole market and we can complement that. So why we expect a lot of synergies on the technical side on the technology side, they have a great team. We're very happy to have the team come to Arcosa. I think when you talk to the team, they are excited to be part of a company or they are now in a business that's very important. We're going to pay attention. We're going to allocate capital. We're going to help them grow. And they were a little bit like we were when we were part of trading where we were not being the growth, the growth engine for the company, they were a little bit like that within their private previous owner. So we're excited to see that we're excited to learn all the ideas that they have for growth and the cross-selling and cross opportunities for the business. So we're very excited.
Gail mentioned a little bit of CapEx. I don't believe that the majority of the CapEx increases, if there is for a for Amarin, we have about 5 million of the CapEx increase going to them it, but it's not a big amount. The plants were in really good shape.
Okay. I appreciate that internally.

And I guess just sticking on that segment, I mean, it sounds like you'll have a nice acceleration in wind revenue when deliveries this year? And what's the view for, I guess, the traditional kind of utility structures business in terms of the growth outlook for this year? Are there any air pockets? And then how do you think about it into the coming years in terms of a growth rate overall for this business segment?

Antonio Carrillo

Sure, sure. So the deal structures. As we mentioned for the last couple of quarters, we had a product mix and customer mix up hurting our margins. We're working through that. And that's why we've said that the second half of the year should go back to more normalized gross margins. If you look at the long-term perspective of the business, it's very, very good. I would say every time you look at our forecast for the utility segment is higher than the previous forecast. The OEM, the book-to-bill is over one and there's always noise in the delivery times and things like that. But overall, we are extremely, extremely optimistic about the future of the business and that and what you see in the industry in general, I mean, the whole electric industry. The power industry is incredible. What's happening over the last year, the change in trends in the expected low demand for the country. It's from everything coming from industry factories reached new showing data centers, you will need a lot of power and you need a lot of transmission lines to supply those new plants and those that new load with them connected with the with the power sources. So I'm very optimistic about it. There will be noise ups and downs in it. So it is not going to be a straight line building that you have to load as this business is very it's sensitive to steel prices. So there's sometimes there is noise in our revenue line that could that reduces our margin because steel prices went up. And as you know, we have put pass through those those steel prices to our customers. So it there's going to be some launch. We are very optimistic about our second half of the year and especially in the long-term growth of the business, and we are investing in the business.
So going back to your the question on more acquisitions. This is mostly inorganic growth businesses and we don't see a lot of M&A in this business is mostly organic, what we're investing in.

Okay.

Antonio Carrillo

Very good. Thank you.

We'll go now to Garik Shmois with Loop Capital Markets or hydraulics or Congratulations on your quarter and wanted to ask just on the guidance, you know, a good part of the raise was a stronger first quarter and part of it was the Ameron acquisition. But I'm wondering if you could just in general, has your outlook for the remainder of the year?
It changed at all.

Antonio Carrillo

So I think everything seems to be going going in line with what we expected at the beginning of the year. As you know, we're just getting started is the first quarter. A what I mentioned in my remarks is we're very excited about the momentum we saw through the quarter. So January was really bad for us, not only in construction materials. But if we shut down several of our plants, we have curtailment in gas in several plants. So it was it was it would some employees couldn't get to work. So we have a really tough January, but we saw February and March really pick up and have very good results. So we're excited on the momentum we're picking for the rest, everything seems to be going in line with what we expected at the beginning of the year.
Okay.

And just wanted to follow up just on the on production, a shift on the barge side that's going to happen in the second quarter that you indicated that there could be some some modest headwinds to the second quarter. Wondering if maybe you could provide a little bit more context around that.
And would you anticipate the mix headwinds to be recovered by the end of the year? Or are we anticipate that to be a little bit longer.

Antonio Carrillo

It's the second quarter. It's isolated to second quarter, maybe the beginning of the third quarter. But it's what I wanted to say is this is good news. So we have not received it tank barge orders in a long time. And over the last couple of years, couple of or sorry, couple of quarters we have received really sizable, not huge, but sizable orders for tank barges. And more of note, not only did we receive orders, but the tone we're seeing from our customers, which a year ago were saying will they don't need anything, all of them are coming and saying, look, we see all this replacement coming in the near future, and there's not going to be enough capacity to supply the replacement of tank barges. So I want to get ahead of the curve and start getting my fleet in order. There's also significant a headwind for the barge operators right now. Tank barge operators because of the maintenance situation, there's a significant number of barges that have to be maintained on recertified over the next year. So that's creating significant, let's say, shortage of barges in the short term. So I think you put all of those things. The the outlook for the tank barge business has improved for us, and that's allowing us to shift production some of these new tank barges, we're going to put them in a plant that makes really good and very efficient in making tank barges and leave the the hopper barges in the other plants. And once we do that, I think we're going to see a much a much better production, I would say, rhythm in the plants and the efficiency should go up and then we will be able to maximize our margins. So it's really good news. What we're seeing, and it's really good news that we're able to.
I'd now have the orders to realign our plants. We will get some a little bit of a headwind in the short term. But that's that's okay.

Understood.

Thanks for all that.

Ian Zaffino

And I'll pass it on.

Operator

We'll turn now to Trey Grooms with Stephens.

A good morning and congrats on the quarter as well. Nice work. Could you guys maybe talk about your as you kind of look out there to the construction product business. Could could you talk about the demand expectations there? And have you seen I mean, you touched a little bit on it, Antonio, but as far as the end markets are concerned, have you seen any any shifts at all in the private markets, especially we know from kind of this higher for longer narrative that we've been hearing any changes there that you've seen at all or is it still kind of steady as she goes?

Antonio Carrillo

I you know, I mentioned in my comments, I think there is a aim. And remember, we are a little detached from the from the from all the projects, meaning we sell a lot FOB to our plants. What we're seeing from our customers is the concept of larger projects finally hitting the ground is seems to be happening. So anecdotally, we see a lot of more larger projects tied to the infrastructure spending. It being finally awarded, we are continuing to see a lot of heavy manufacturing in certain regions. We're hearing a lot more of the data center situation that that's coming on and multi mode. Multi unit housing is also continuing to grow in certain regions. We continue to see a ton of different regions have a different situation, the housing market, and it's still not it's still not where it needs to be. I think the potential is there, but we're still seeing you see more mortgage rates still very, very high, et cetera. So I think the housing piece continues to weigh on the total total business for us.
Gale also mentioned during the quarter, we have the only asphalt business that we have a losing money. It's a very regional business. Subscale doesn't fit our footprint. We really like the asphalt market, but this one really doesn't fit. So we're working to fix that. And but overall, we're happy with where we see the demand. Pricing continues to be a positive force for us. As you as Gale mentioned, volumes were a little down in the total business organically, but when you add the acquisitions, they were a little up, I think, which we don't expect the volume to be the driver of the business this year. It's more a pricing situation and hopefully the second half gets better volumes.

Okay. That's helpful. Thanks for that color. And that's a good segue into my next question with what's the demand picture you have and I'd say pricing has been tracking, you know, better than what we've seen historically for aggregates specifically, and you've seen a lot of folks in the industry and some of you public competitors as well on the aggregate side, widely indicating midyear pricing increases again this year. What are your thoughts around that? And are you guys starting to thinking about additional price actions in the year or kind of cut, how are you seeing that play out Ternium?

Antonio Carrillo

Yes, we are. I think what I always mention is we're no different than our competitors. I think throughout the year. What we tried to do, as you know, inflation continues to be an issue. So we have to continue to adjust our pricing to compensate. And again, the focus if you remember one of my comments, I think in the last call, we've changed our compensation system for all our businesses. But specifically for construction, they're tied to margins or part of their compensation is tied to margins. So our goal over the next year is to continue to raise margins and focus on pricing. And ideally, once you get your pricing up when volume comes back, we'll have a, let's say, double impact of that combination. So yes, we expect to continue raising prices throughout the year.
Great. Thank you.

I've got one last kind of follow-up here. Just just for clarity on specialty materials. You mentioned in the press release that you expect excuse me that you expect better plant efficiency and workforce stability. Can you kind of talk about why timing those and what kind of benefit you might be looking at for see peak margins as far as the balance of the year?

Antonio Carrillo

Yes, let me give you the best plant. If you remember in the second or second or third quarter last year, we had a pretty significant We ramped. We started the plant, the plant went through significant issues. We also had labor issues there. We had a plant manager problem. So it went through a complicated portion midyear last year. Since then, the plant has finally we finished the plant, we interconnected the whole system and we the plant is ramping up and the production is going up, I think is sort of third quarter that we have improved improved production and this is second quarter where we have improved the margins. So the trend is very, very good. We have a nice, stable workforce. We have a the plant is running very well. It was there a month ago and it looks the plant is beautiful. Demand is there. We have a very strong demand for the products. And as this ramps up, we expect a better better results for this business and eventually to be applied, as we've only said, this business has lower margins than than the the aggregates business, but eventually we expect it to get to the 20% margins that we should be getting for this business in Grapevine.

Gail Peck

If I might add, I had it in my comments. You asked about the margin potential. I did. I did indicate in my comments that it was 40 basis points accretive to the segment margin year over year change in the first quarter and that's up a little bit from what we experienced in the fourth quarter. So very, as Antonio said, very pleased with the progress that we're that we're seeing there.

Antonio Carrillo

Great.

Thank you Gayla. I did miss that comment, but that's all great color. Thank you so much and look forward to seeing you guys next month at the Investor Day.

Antonio Carrillo

Thank you.

Operator

We'll go now to Julio Romero with Sidoti & Company.

Hi, good morning. This is Alex on for Julio. Thanks for taking questions and congrats on the quarter.

Antonio Carrillo

Thank you.

First question, you mentioned you've managed to smooth out some of the cyclical aspects of the business. Are you any closer to simplification initiatives? I think you've talked about that previously.

Gail Peck

Yes.

Antonio Carrillo

As I mentioned we're always evaluating the timing and the where the business are at a certain point for for being able to simplify the business. And it's also a the ability to redeploy the capital. So it's a combination of both things and those things you have to match them out of very well. And I don't want to give timing on that is just something we're working. We're always evaluating, and we're always discussing with our Board. So it's it's on the table. It's a discussion that we have frequently and this process takes time. So it's something that continues to be a priority for us. It's just it's never perfect when you want it, then it happens sometimes when you and when you don't expect.

Thank you for the context I know you've discussed, you know, barge a fair amount, but one the one follow-up. As you turn your focus to barge orders for 2025, can you speak to how you're balancing new disciplined selection of barge bids versus kind of first ensuring a solid baseline from backlog and then select day after the fact.

Antonio Carrillo

Sure. No, no, no, that's that's that's that's I think if you look at what we've done over the last couple couple of years, even without tank barge orders, I think we've stayed very disciplined and you see the margins picking up because we've stayed disciplined around the margins we want to sell. And the reason the reason we went to do that is when you look at the fundamental aspect of the industry. There has been an underinvestment for many, many years now, especially on the hopper side. And we know our customers need. So and we know the capacity we have is valuable and we're going to continue to focus on margins and building profitable barges over the next several years. The industry demand is coming hopper barge, a, let's say, deficit is larger than tank barge per tank barge I mentioned is also changing. So the beauty of the backlog we have right now, I mentioned it now extends into 2025 hopper barge, believe it or not hopper barge backlog is now shorter than our tank barge backlog. So it allows us time to work with the customers on the orders to work on with the customers on their needs.
And the other thing is I think the customers have started getting, you know, two years ago, they were with Ukraine started and steel prices changed dramatically. And I think we've all gotten used to this high steel prices now. So we're getting less pushback from from from customers. I think as time goes by you can push your orders a little bit and a little more, but at some point in time you have if you're in the business of moving stuff on the river, you need to change your barges. So I think we're getting to that point and we're very, very positive on the barge business right now.

Very helpful context. Thank you. And last one for me. And could you just talk a little bit about some of the potential impacts that you think a change in administration might have on our cause is portfolio?

Antonio Carrillo

Well, you know, I think, Jim, I think infrastructure spending is needed no matter what no matter who's in the administration when you look at the age of the infrastructure and the state of the infrastructure and we're basically an infrastructure company. And when you look at the I don't think this this near-shoring and reshoring is changing in any way in the country. So that's going to need significant investments just to support it. And we're tied to those long-term trends, AI, it when you read any report of what AI is doing to the load in the U.S. and very specific impacts us on some of our markets. The investments that are going to be needed just to support a data centers, et cetera, is incredible. So I'm very optimistic that no matter which administration comes in. We are in a really strong position and a really, really good industries that are needed in the country. And I think that's that's the main message I want to give you, I think infrastructure should be something that is something that is needed no matter who's in who was running the government.

Thank you, Antonio.
Very helpful.

Operator

And ladies and gentlemen, that will conclude today's question and answer session. I'd like to turn the call back over to Andrew back for any additional or closing comments.

Erin Drabek

Thank you for joining today, and we look forward to talking to you again next quarter. Thank you.

Operator

Once again, ladies and gentlemen, that will conclude today's call and thank you for your participation. You may disconnect at this time.