Arcosa's Turnaround: Is the New Business Really Better?

The story here is about a company deliberately shedding its old skin. Arcosa sold its barge business for about $450 million to reduce risk and focus squarely on construction and utility projects. That's the core shift. It's not just a financial move; it's a bet that the new mix is more profitable and less vulnerable to wild swings in shipping and energy markets.

The numbers from the final quarter show the payoff. Revenue grew 8%, which is solid. But the real kick is in the profits: Adjusted EBITDA surged 13%. That gap-where profits are expanding faster than sales-is the hallmark of a business getting leaner and moving into higher-margin work. The company's CEO, Antonio Carrillo, put it simply: the new growth is coming from the Stavola acquisition and utility structures. And he's not just talking; he points to a concrete backlog of $1.2 billion for those utility and wind projects to back it up.

So, what changed on the ground? The parking lot for barge orders is quieter, but the construction sites and utility projects are humming. The financial results show the new mix is working: stronger margins, faster profit growth, and a balance sheet getting healthier. For a company trying to prove it's a better, more predictable business, that's the kind of common-sense progress that matters.

The Smell Test: Is the Demand Real?

The numbers from the final quarter show the new business is busy. But the real test is whether that activity is translating into real, durable demand. The answer, based on what customers are actually paying for, looks positive.

The barge business, which is being sold, was still a strong performer last quarter. It took in approximately $148 million in new orders for hopper and tank barges. That's a solid book-to-bill ratio of 1.5, meaning it's taking in more orders than it's shipping out. More importantly, the backlog for that segment is up 16% year-to-date, providing production visibility well into 2026. In other words, the old engine was still running hot as the company prepared to exit the market.

The new growth engines are where the real momentum is. The combined backlog for utility and wind projects hit a record $1.2 billion. That's not just future sales on paper; it's work already paid for and scheduled. The CEO pointed to robust order activity, with wind tower orders of $57 million taken just last quarter, and some deliveries shifted forward from 2028 into 2026. That kind of near-term visibility is the kind of concrete demand that fuels a turnaround.

The market is betting big on this demand continuing. The CEO expects 2025 profits to grow about 32%, a significant jump that will require keeping this momentum going. The company's own guidance for the year supports that view, with revenue expected in the $2.8 billion to $3 billion range and adjusted EBITDA between $545 million and $595 million. For that forecast to hit, the $1.2 billion backlog needs to convert to sales, and the utility sector's focus on grid expansion needs to hold.

The bottom line is that the demand smell test passes. Both the legacy barge business and the new utility/construction segments are showing strong order activity and growing backlogs. That's the kind of real-world utility that drives sustainable growth. Now the company has to execute on turning that backlog into profit.

Cash Flow and the Balance Sheet: Can They Keep the Lights On?

The profit numbers look good on paper, but the real test is what's left in the bank after paying for the business. Last quarter, Arcosa generated $248 million in cash from operations, which is strong. But after spending $53 million on equipment, only $58.6 million in free cash flow remained. That's a big drop from the prior year's nearly $200 million. The company is investing heavily to support its growth, which is expected, but it means the new, higher-margin businesses need to start generating cash faster to cover those outlays.

The balance sheet, however, tells a clearer story of improvement. After the strategic sale of its barge business, the company's debt load has come down significantly. It ended the year with a net leverage of 2.9 times adjusted EBITDA, a half-turn better than the previous quarter. That's a tangible benefit from the divestiture. The barge unit was a cash hog, so selling it should free up capital for the new, hopefully more efficient, businesses to use.

The bottom line is that the financial health is getting cleaner, but the cash engine is still getting revved up. The company is in a better position to weather a downturn now, with less debt and a leaner portfolio. Yet, the jump in capital expenditure and the drop in free cash flow show the new growth requires upfront spending. For the turnaround to be sustainable, the $1.2 billion backlog in utility and wind projects needs to convert to sales and, more importantly, to cash, at a faster pace than the current burn rate. The lights are on, but the company needs to keep the new, more profitable engines running to pay for their own fuel.

What to Watch: The Next Steps and the Risks

The turnaround is underway, but the real test is hitting the raised profit target for 2025. The company is guiding for adjusted EBITDA between $545 million and $595 million this year. That's a significant jump from last year's $447 million. If they miss that mark, it will be a clear signal that the new business mix isn't as strong or as profitable as hoped. The key will be execution on the $1.2 billion backlog in utility and wind projects, turning that promise into cash.

A major risk is that the remaining businesses are still tied to construction and infrastructure spending, which can slow down during an economic downturn. The company's own results show this vulnerability: organic segment revenues in construction products declined 4% last quarter due to lower freight revenue and weather disruptions. That's a reminder that even a more focused company isn't immune to the cycles of its core markets.

Watch the pace of debt reduction and how well the Stavola acquisition fits into the new plan. The deal added a major new asset, but it also introduces more seasonality and is expected to dilute margins by about 200 basis points in the first quarter. The integration is a work in progress, and any missteps there could undermine the promised margin expansion. The company has already paid down its revolver, which is a positive step, but the net leverage of 2.9 times is still a number to watch as it works to pay down more debt.

The bottom line is that the new Arcosa is a cleaner, leaner company with a stronger backlog. But the path forward requires hitting ambitious profit targets, managing integration risks, and navigating the cyclical nature of its chosen markets. For now, the setup is better than before, but the proof is in the 2025 numbers.