Q3 2025 Earnings Call Contradictions: Wind Tower Production, Engineered Structures Growth, and Aggregates Pricing in Focus

Date of Call: October 31, 2025

Financials Results

• Revenue: Q3 revenue increased 27% (both figures excluding divested steel components); full-year 2025 revenue guidance tightened to $2.86B–$2.91B
• Gross Margin: Adjusted EBITDA margin 21.8%, up 340 bps year‑over‑year; Construction Products segment margin 29.7%, up 300 bps year‑over‑year

Guidance:

• Revenue for full-year 2025 narrowed to $2.86B–$2.91B.
• Adjusted EBITDA guidance $575M–$585M (midpoint $580M, implying ~32% YOY growth excluding divested steel components).
• CapEx expected $145M–$155M for full year 2025.
• Aggregates: full-year pricing expected high single‑digit; organic Q3 pricing mid‑single digits; pricing expected to trend at high end of historical averages into 2026.
• Volumes: now expect high single‑digit full‑year volume growth; modest Q4 growth assumed (normal weather).
• Balance sheet: ended Q3 at 2.4x net debt/adjusted EBITDA and expect to remain within 2.0–2.5x with a mix of debt reduction, bolt‑on M&A and targeted organic investments.

Business Commentary:

* Record Financial Performance: - Arcosa reported a 27% increase in revenue and a 51% growth in adjusted EBITDA for Q3 2025, excluding the divested steel components business. - The significant growth was driven by the accretive contribution of the $1.2 billion Stavola acquisition and strong performance across all three business segments.

• Construction Products Segment Growth:
• The Construction Products segment reported a record $150 million in adjusted segment EBITDA and a 300 basis points margin expansion.

• Growth was led by the Stavola acquisition, which delivered $105 million in adjusted EBITDA with a 35.2% margin, and higher ASPs and volumes in the aggregates business.

• Engineered Structures Segment Performance:

• Engineered Structures achieved a 29% increase in adjusted segment EBITDA and improved margins by 240 basis points.

• The segment benefited from higher revenues and operating improvements in the utility structures business, supported by a record backlog and strong customer demand.

• Transportation Products Segment Orders:

• Transportation Products segment saw orders totaling $148 million for both hopper and tank barges, reflecting a book-to-bill of 1.5.
• The strong order activity improved production visibility for 2026, with backlog at the end of the quarter showing a 16% year-to-date increase.

Sentiment Analysis:

Overall Tone: Positive

• "Q3 was a record quarter" with "revenue increased 27% and adjusted EBITDA grew 51%"; management raised the midpoint of adjusted EBITDA guidance to $580M (~32% YOY), reported free cash flow acceleration and debt reduction to 2.4x, and highlighted record segment backlogs and strong order activity across wind, utility structures and barges.

Q&A:

• Question from Trey Grooms (Stephens Inc., Research Division): Congrats on the great quarter. Could you dive in more around the puts and takes around the full year revenue and EBITDA guidance adjustments or just tightening those ranges a bit? Any more color you could give us on those puts and takes, please?
  Response: Guidance tightened due to strong YTD results; revenue guidance marginally stepped down driven by weaker organic construction volumes, EBITDA midpoint raised to $580M (~32% YOY excluding steel components), and Q4 expected seasonally lower with full-quarter organic comparables.

• Question from Trey Grooms (Stephens Inc., Research Division): On the Construction business, you mentioned inefficiencies and production downtime at a few legacy aggregates locations—will that continue into Q4 or is it largely behind you?
  Response: Management: largely behind us—unplanned equipment repairs have been addressed and the issues should not persist into Q4.

• Question from Trey Grooms (Stephens Inc., Research Division): For Engineered Structures, can you talk about the drivers of the margin improvement and how sustainable those margins are going forward?
  Response: Margin expansion driven by higher volumes and operating improvements in utility structures and wind ramp completion; sustainable with steady production, continued capacity additions and further operating improvements.

• Question from Julio Romero (Sidoti & Company, LLC): You remain on track for high single‑digit pricing growth in aggregates for 2025—what are your high‑level thoughts on pricing into 2026 (not asking for guidance)?
  Response: Management is optimistic: pricing should remain passable to customers given improving volumes and infrastructure demand, expected to trend at the high side of historical averages into 2026.

• Question from Julio Romero (Sidoti & Company, LLC): Congrats on reaching target leverage early—how are you thinking about capital allocation going forward between debt reduction and growth initiatives?
  Response: Balanced approach: target moving lower within the 2.0–2.5x range while pursuing bolt‑on M&A and selective organic investments (e.g., Illinois conversion, Mexico galvanizing) when accretive.

• Question from Ian Zaffino (Oppenheimer & Co. Inc., Research Division): What is the outlook for incremental wind orders and why did you accelerate backlog into earlier years?
  Response: Backlog acceleration was to capture tax‑credit driven demand and customer timing; new orders were received and additional orders are expected but timing remains uncertain over the coming months.

• Question from Ian Zaffino (Oppenheimer & Co. Inc., Research Division): Given the nongrowth segments are performing well, are you considering reallocating capital more aggressively into growth businesses and away from nongrowth ones?
  Response: With leverage target achieved, management will evaluate further portfolio simplification and moves into growth over time, but will proceed deliberately as opportunities arise.

• Question from Jean Paul Ramirez (D.A. Davidson & Co., Research Division): Are you anticipating additional wind orders beyond what you've discussed and do you need additional orders for a stable wind contribution in 2026?
  Response: Optimistic about additional orders; currently have good visibility across three facilities for 2026 but coverage is not yet 100%, and more clarity should emerge in coming weeks/months.

• Question from Jean Paul Ramirez (D.A. Davidson & Co., Research Division): Can you provide an update on timing of capacity investments in Engineered Structures and when they will contribute to growth?
  Response: Capacity investments expected to be ramped by year‑end and to contribute positively starting in 2027.

• Question from Jean Paul Ramirez (D.A. Davidson & Co., Research Division): Are you filling that new capacity?
  Response: Yes; management is working with customers to fill capacity driven by accelerating utility demand.

• Question from Garik Shmois (Loop Capital Markets LLC, Research Division): On barges, are you seeing an inflection in hopper orders as well as tank, is the replacement cycle sustainable, and what margins are you seeing on new orders?
  Response: Management sees a sustainable, multi‑year replacement cycle for both hopper and tank barges, is pricing to preserve healthy margins (not discounting to fill capacity), and has stronger than normal visibility into 2026 backlog.

• Question from Garik Shmois (Loop Capital Markets LLC, Research Division): On aggregates organic volumes—where is the inflection occurring geographically or by end market (infrastructure, nonresidential, etc.)?
  Response: Organic volume inflection driven by infrastructure and nonresidential (Texas infrastructure, reshoring, power projects, data centers) and Stavola's infrastructure exposure (NY/NJ); residential remains weak but could recover in late 2026.

Contradiction Point 1

Wind Tower Production and Orders

It involves discrepancies in the company's expectations and plans regarding wind tower production and orders, which could impact revenue and operational planning.

What is the outlook for incremental wind tower orders? How was the backlog acceleration decision made? - Ian Zaffino (Oppenheimer & Co. Inc., Research Division)

2025Q3: We're still early in discussions with customers. Historically, the wind industry accelerates before tax credits end, and we've shifted some backlog to 2026 to capture current incentives. New orders are received, and our production visibility is good for 2026 and 2027. - Antonio Carrillo(CEO)

Could you clarify the Wind Tower business's current capacity to accept new orders and your strategy for managing new orders and capacity utilization? - Isaac Arthur Sellhausen (Oppenheimer & Co. Inc.)

2025Q2: We have 3 plants operating with capacity utilization of about 60%, with flexibility to increase production if needed. With policy clarity, customers are optimistic about the next few years for wind, and we're excited to support the industry. We're working on new orders and see potential for more clarity in the future. - Antonio Carrillo(CEO)

Contradiction Point 2

Revenue Growth Expectations in Engineered Structures

It involves differing expectations regarding revenue growth in the Engineered Structures segment, which is crucial for understanding the company's growth strategy and financial performance.

When will capacity investments in Engineered Structures be made and when will they begin contributing to growth? - Jean Paul Ramirez (D.A. Davidson & Co., Research Division)

2025Q3: Capacity investments are underway, with production expected to ramp up by the end of the year. This will contribute positively to growth in 2027 as we meet customer demand for utility structures. - Antonio Carrillo(CEO)

How should we think about Aggregates' gross profit per ton growth in H2? Is there a long-term target for this metric? - Garik Simha Shmois (Loop Capital Markets LLC)

2025Q2: We expect to continue strong gross profit per ton growth in the back half, benefiting from Stavola acquisitions. While we haven't set a specific target, maintaining growth in GP per ton is key, driven by pricing discipline and cost control. - Gail M. Peck(CFO)

Contradiction Point 3

Wind Tower Production and Backlog

It involves changes in expectations regarding wind tower production and backlog, which directly impacts revenue projections and market positioning for the company.

What is the outlook for incremental wind tower orders? How was the decision to accelerate the backlog made? - Ian Zaffino (Oppenheimer & Co. Inc., Research Division)

2025Q3: We're still early in discussions with customers. Historically, the wind industry accelerates before tax credits end, and we've shifted some backlog to 2026 to capture current incentives. New orders are received, and our production visibility is good for 2026 and 2027. - Antonio Carrillo(CEO)

Can you clarify the wind tower's contribution to sales and profit this quarter, excluding the impact of steel prices on the utility segment? - Julio Romero (Sidoti & Company)

2025Q1: The wind tower business in the quarter grew 32% year-over-year, with strong backlog visibility. We have a record number of wind tower units on order, with over $1.1 billion in backlog. - Gail Peck(CFO)

Contradiction Point 4

Aggregates Pricing and Demand

It involves differing perspectives on aggregate pricing and demand trends, which are crucial for revenue forecasting and strategic decision-making in the aggregates segment.

Can you discuss the pricing outlook for aggregates in '26? - Julio Romero (Sidoti & Company, LLC)

2025Q3: We're optimistic about pricing as demand improves, especially in infrastructure. The volume recovery is a critical aspect of pricing, and we expect to continue passing through pricing increases to customers. - Antonio Carrillo(CEO)

How will organic and Stavola's impacts affect aggregate pricing growth for the rest of the year? - Garik Shmois (Loop Capital Markets)

2025Q1: Aggregates pricing is expected to grow mid-single digits for the full year. The January 1 price increases were in line with expectations. Local market conditions drive future pricing adjustments. - Gail Peck(CFO)

Contradiction Point 5

Wind Energy Orders and Production Visibility

It involves conflicting statements about the outlook for wind energy orders and production visibility, which could impact investor expectations regarding the company's growth in this segment.

What is the outlook for incremental wind tower orders? How was the backlog acceleration decision made? - Ian Zaffino (Oppenheimer & Co. Inc., Research Division)

2025Q3: We're still early in discussions with customers. Historically, the wind industry accelerates before tax credits end, and we've shifted some backlog to 2026 to capture current incentives. New orders are received, and our production visibility is good for 2026 and 2027. - Antonio Carrillo(CEO)

What is the customer sentiment on wind energy? How has the administration impacted customer sentiment? - Unidentified Analyst (Stephens)

2024Q4: Demand for renewable energy, particularly wind, remains strong. The current administration's impact on sentiment is neutral as the focus is on load growth. Customer expectations include flat orders in 2026, with growth anticipated thereafter. Backlog provides strong visibility for 2025. - Antonio Carrillo(CEO)