On August 15, 2017, I had the privilege of interviewing Bill Sandbrook, President and CEO of U.S. Concrete (USCR), a producer of ready-mixed concrete and aggregate products for domestic construction projects. I am relatively new to this industry, so I prepared by listening to earlier interviews, reviewing USCR’s latest earnings results for Q2 2017, and listening to the earnings call for that report (I also read through the transcript of that call). Mr. Sandbrook was also gracious in providing for me an abbreviated education on the concrete industry. Interested readers should review a detailed investor presentation that U.S. Concrete posted on May 31, 2017. The material below summarizes and paraphrases Mr. Sandbrook’s responses to my questions except where otherwise noted.
The concrete business and metrics of success
Concrete is not the same everywhere: concrete depends on where you operate in the country. Quality, specifications, intensity, delivery, and availability of raw materials all differ. Rural areas are not the same as metro areas. These factors are all components of success for a ready-mix concrete producer. The market is unconsolidated and producers are numerous: a mix of family-owned operations and multi-nationals. Each company targets a different part of the market and different industries: sidewalks, basketball courts, roads, data centers, construction, etc… These mix of factors and targets also dictate company strategies and margin profiles.
USCR is the only publicly traded company that focuses on concrete and some vertical integration. Other companies focus on either aggregates (definition: inert granular materials such as sand, gravel, or crushed stone) or cement (definition: material used to bind sand into concrete). USCR is not your average ready-mix company. For example, a 9% EBITDA (definition: Earnings Before Interest, Taxes, Depreciation and Amortization) margin is typically considered good in the industry. In the last quarter, USCR achieved a 15.5% EBIDTA margin due to its consolidation strategy through acquisitions. The company has raised prices for 25 straight quarters and has achieved 26 straight quarters of year-over-year revenue growth.
U.S. Concrete (USCR) has driven on-going increases for its financial performance. Quarter-by-quarter, pricing, volume, and margins have risen.
Source: a detailed investor presentation that U.S. Concrete posted on May 31, 2017
USCR has built out a very robust and dense plant network in some of the most difficult areas to operate in the country. USCR has 17 plants in New York City and operations in the San Francisco Bay Area, Dallas, Texas and the Washington, DC metro area. USCR operates in unionized environments on both coasts and navigates strict work rules and high wages. High-rise buildings are bread and butter for USCR, and they deliver high margins. USCR also specializes in hard-to-perform, high profile infrastructure projects like the Oakland Bay Bridge. These are projects that a small local operator may not have the ability to service given they require a large footprint. There will never be another concrete plant permitted in San Francisco. USCR has an impenetrable franchise there. Moreover, all the high-rise construction must be earthquake proof and requires special formulations. Manhattan is also a solid franchise, almost like its own moat, given it is an island where bridge tolls can get prohibitively expensive for smaller operators.