EUR 850.00 For Business Accounts Only

Morningstar | U.S. Concrete will deliver healthy top-line growth, but its product mix will limit margin expansion.

A toxic mix of heavy debt and depressed construction activity forced U.S. Concrete to file for bankruptcy in 2010. But after shedding the low-margin precast business and maintaining more conservative leverage, today’s U.S. Concrete is better positioned.U.S. Concrete sells about 55%-60% of its concrete to the nonresidential commercial sector, slightly higher than the nationwide share. Highly cyclical, nonresidential commercial construction tends to be very material-intensive per dollar. We forecast accelerating nonresidential spending in the near term, after which we expect growth to slow to 4% in nominal terms. That would be lower than the historical nominal average of about 5%-6% annually, as we expect many key sectors to make more efficient use of construction spending.Roughly 25%-30% of concrete goes to the residential sector, slightly below the nationwide share. Our residential forecast is more bullish, as we expect housing starts to reach 1.9 million by 2021. However, lower material intensity diminishes some upside for ready-mixed demand.The remaining 15% of concrete goes to the public-works sector, lower than the nationwide share of about 30%. On a national level, we expect public-sector infrastructure spending by about 6% per year on average. That would mark an acceleration in growth from the 3.5% during 2002-16, as historical funding has led to worsening conditions. Federal funding power has weakened over time, as improving vehicle mileage and inflation have diminished the buying power of the $0.18 per gallon gasoline tax, unchanged since 1993. The FAST Act, passed in December 2015, provides some stability and near-term funding certainty but doesn't solve the still-weakening gas tax.The outlook for road spending differs considerably from state to state. Differences in population growth, road conditions, funding mechanisms, and overall state fiscal health influence spending. U.S. Concrete's largest markets by revenue--Texas, Northern California, and the New York metro area--have significant road spending needs and strong finances to support high growth.