CRH plc (CRH) Earnings Call Transcript & Summary

Good day, and welcome to the CRH conference call. My name is Krista, and I will be your operator today. [Operator Instructions] At this time, I'd like to turn the conference over to Jim Mintern, CRH Chief Executive Officer, to begin the conference. Please go ahead, sir.

Hello, everyone. Jim Mintern here, CEO of CRH, and you're all very welcome to our presentation and conference call following our announced agreement to acquire Arcosa this morning, a significant investment for CRH and an acceleration of our growth strategy. Joining me on the call is Aylwyn Bryan, our CFO; Randy Lake, our COO; and Danilo Juvane, Head of Investor Relations. Over the next 15 minutes or so, we will provide you with an overview of the proposed transaction. And afterwards, we will be available to take any questions that you may have. Before we get started, I'll hand over to Danilo for some brief opening remarks.

Thanks, Jim, and hello, everyone. I'd like to draw your attention to Slide 2 shown here on the screen. During our presentation, we'll be making some forward-looking statements related to our future plans and expectations. These are subject to certain risks and uncertainties, and actual results and outcomes could differ materially due to factors outlined on this slide. For more details, please refer to our annual report and other SEC filings, which are available on our website. We will also present projected financial information, which is based on management's current estimates and assumptions and has been prepared for illustrative purposes. I will now hand you back to Jim, Aylwyn and Randy.

Thanks, Danilo. First, on Slide 3, a high-level overview of the proposed acquisition, which represents a compelling growth and value creation opportunity for CRH and will reinforce our position as the #1 infrastructure player in North America. Arcosa is a leading provider of building materials and critical infrastructure products in the United States. With 35 million tons of annual high-quality aggregates, it will strengthen our position as the leader in U.S. aggregates with over 265 million tons of combined annualized production. Under our ownership, it will enhance our connected customer offering in attractive markets aligned with growing infrastructure megatrends. It is highly complementary and an excellent strategic fit with CRH advancing our aggregates-led connected portfolio strategy. Arcosa has high-quality assets and an experienced management team with a proven track record of execution and a strong cultural alignment with CRH. We expect the acquisition to deliver strong growth and compelling value to CRH shareholders. It is consistent with our disciplined approach to capital deployment, fully aligned with our strategic ambitions and reinforces our position as a leading compounder of capital. I will now ask Aylwyn to take you through the transaction in further detail.

Thanks, Jim, and hello, everybody. Turning to Slide 4. Our proposed acquisition of Arcosa for a cash consideration of $150 per share reflects a total enterprise value of $8.5 billion. This represents an EV-to-EBITDA multiple of 11.5x based on the midpoint of our Cosa 2026 adjusted EBITDA guidance and including currently expected run rate cost synergies of approximately $175 million. We intend to fund the transaction with available cash and committed debt financing. It is expected to be accretive to earnings, margins and cash flow in the first 12 months post completion excluding one-off transaction costs. On a pro forma 2026 basis, the transaction is expected to result in a net debt to adjusted EBITDA ratio of approximately 2.4x. We expect this to normalize towards our long-term average of approximately 2x in the 12 months post completion, and we remain committed to maintaining our strong investment-grade credit rating, which we've held for over 20 years. The transaction is subject to Arcosa stockholder approval, regulatory approvals and customary closing conditions, and we expect it to close in the first quarter of 2027.

Thanks, Aylwyn. On Slide 5, you can see a high-level overview of Arcosa. At the midpoint of its 2026 guidance, it is expected to generate $2.65 billion of revenue and $565 million of adjusted EBITDA, representing a margin of over 21%. Arcosa comprises 2 infrastructure-related businesses. Construction products representing approximately 60% of the adjusted EBITDA and engineered structures representing the remaining 40%. Construction Products is a high-quality connected aggregates-led materials business serving 13 of the 50 largest MSAs in the United States with leading positions in Texas, the Southeast and other high-growth regions. Engineered Structures is a leading U.S. manufacturer of critical infrastructure products in the high-growth energy transmission market. The business is supported by robust long-term demand underpinned by grid modernization, electrification and data center construction. I will now ask Randy to provide some further color on each of the businesses.

Thanks, Jim, and hello, everyone. First, to Construction Products on Slide 6, a scaled aggregates platform in high-growth markets. With approximately 1.3 billion tons of aggregate reserves, it's fully aligned with our core strategy of strengthening our aggregates and cementitious businesses, 2 of our key growth platforms, which we highlighted during our Investor Day last year. As you can see on the map, it has an attractive footprint of aggregates, asphalt and specialty materials, concentrated in Texas, the Southeast and other high-growth markets in the United States. It will also provide us with increased aggregates exposure in some of the fastest-growing MSAs in the United States, including Dallas, Fort Worth and Phoenix. Combined with our existing business, there are significant opportunities to self-supply and create value through our connected portfolio. It will also complement and expand our capabilities in engineered concrete. Additionally, it's a leading U.S. provider of recycled aggregates and stabilized sand, representing 2 attractive growth platforms for CRH. Overall, to reinforce our position as the leading aggregates producer with over 265 million tons of annualized production in the United States and over 400 million tons globally. Turning to Slide 7 and Engineered Structures, which will strengthen our capabilities in the fast-growing U.S. energy infrastructure market. It's highly complementary to our connected customer offering across our aggregates, cementitious and critical infrastructure businesses and increases our exposure to growing infrastructure mega trends, supported by essential nondiscretionary investment. For example, as a result of the structural deficit and power supply, U.S. utilities are expected to invest approximately $1.4 trillion in grid infrastructure through 2030. It further extends and complements our existing participation in energy transmission, 1 of the fastest-growing and most in-demand segments of the utility value chain. It will also deepen relationships with our shared customer base through a combination of long-term alliances with utility customers in a high-quality backlog, approximating its 2026 forecasted revenue, the business benefits from long-term demand visibility. And as you can see on the map, it has an extensive manufacturing footprint with 18 manufacturing facilities across the United States and Mexico and benefits from a top 3 market position with leading brands, including Myer utility structures. Turning to Slide 8 and the synergy and value creation opportunities we've identified so far. With over 1,200 acquisitions completed throughout our history, we have a proven ability to acquire and integrate businesses at scale. And for this acquisition, we're uniquely positioned to deliver significant value creation for shareholders, leveraging on our match scale, connected portfolio and leading performance capabilities. We currently expect approximately $175 million of run rate cost synergies to be achieved by year 3. And here, we've outlined the expected phasing with $60 million anticipated in the first year of ownership. We've identified significant opportunities for operational improvements, leveraging our expertise and technical capabilities from across our business to optimize plant performance and improve production efficiencies. It will also be very beneficial from a logistics and network optimization perspective, enabling us to be more efficient in how we service our customers. There are also opportunities across our global procurement network, leveraging our scale, purchasing power and supply arrangements for materials, equipment and services. And from an integration standpoint, there are opportunities to self-supply our existing road and critical infrastructure businesses as well as optimizing our administrative and support function. So in summary, the transaction represents strong synergy and value creation potential, and we're excited about the opportunity.

Thanks, Randy. Turning to Slide 9. I'd like to take a moment to highlight how the proposed acquisition of Arcosa aligns with our growth algorithm, which we outlined during last year's Investor Day. As the leading infrastructure player in North America, we are uniquely positioned to capitalize on 3 large and growing megatrends: transportation, water and reindustrialization, which we believe will support significant growth and value creation for our business going forward. The acquisition of Arcosa will enhance our exposure and capabilities in each of these areas. Next, the CRH win in way the force multiplier that enables us to fully capitalize on these growing infrastructure megatrends. Through our winning way, we execute our superior strategy with discipline and focus, driving leading performance across 4,000 locations through a culture of continuous improvement. As responsible stewards of our shareholder capital, we leverage our proven growth capabilities to build leadership positions of scale in attractive high-growth markets. All of this is supported by 4 key enablers: customer centricity, empowered teams, unmatched scale and our connected portfolio of businesses. In summary, the acquisition of Arcosa together with the benefits of our winning way will reinforce our position as the leading compounder of capital in our industry. Turning now to Slide 10. And as we previously communicated, over the next 5 years, we expect to have at our disposal financial capacity of approximately $40 billion, reflecting our strong growth profile, the level of cash we are generating and the strength of our balance sheet. We expect to allocate approximately 70% of this to growth investments, and the acquisition of Arcosa accelerates our progress in this regard while also demonstrating our disciplined approach to capital allocation. The acquisition of Arcosa is fully aligned with the delivery of our 2030 financial targets, annual revenue growth of between 7% and 9% and adjusted EBITDA margin of 22% to 24% by 2030 and average adjusted free cash flow conversion of over 100%. Before I turn over to Q&A, I will leave you with a few key takeaways from our presentation this morning. Arcosa is a leading U.S. provider of building materials and critical infrastructure products. With 35 million tons of annual high-quality aggregates production, it will strengthen our position as the leading aggregates producer with over 265 million tonnes of annualized production in the United States. The proposed acquisition of Arcosa will enhance our connected customer offering in attractive high-growth markets aligned with growing infrastructure mega trends. In summary, this represents a compelling growth and value creation opportunity for CRH. It is enabled by our unmatched scale and cash generation capabilities, which provides us with the opportunity to deploy capital at scale and to further strengthen our leading positions across 4 connected growth platforms. Overall, the acquisition is a strong endorsement of our superior strategy, connected portfolio and the optionality we have for capital deployment. So that concludes our presentation today. I will now hand you back to the moderator to coordinate the Q&A session of our call.

[Operator Instructions] Your first question comes from Adrian Horta with JPMorgan.

Congrats on the transaction, and thank you for all the details provided in the presentation. Just 2 questions, couple of questions here. The first 1 is within all this that you explained, what is the factor that is actually the most from this transaction? And the second question is, how do you see the strategic fit of the Engineered Structure business of Arcosa within CRH?

Adrian, yes, listen, what excites us, our culture is a high-quality business, Adrian. First, it's got a really attractive growth profile, and it's highly complementary to our existing business. And it's reinforcing our position as the #1 infrastructure player in North America. Now, when you look into it, this is 1 of the largest U.S. aggregates acquisitions in the last 20 years, and it's really further strengthening our position as the leading U.S. and indeed a global aggregates producer. It takes us to about 265 million tons in North America and over 400 million tons globally. And particularly on this transaction, what's kind of exciting is that as bringing us from an ag perspective into kind of 2 new high-growth MSAs in the Dallas-Fort Worth and Phoenix. We already have existing footprints there, but now going in there with ags is really super complementary to our connected portfolio. . I think the deal is kind of fully aligned with our strategy we set out in last year's Investor Day, which is kind of the focus on markets and regions with strong growing infrastructure megatrends and acquiring leading regional positions in high-growth markets all in all the time kind of focusing on enhancing our connected portfolio. The deal this morning is going to give us strong growth and value creation potential, but attractive synergy opportunities. And we expect the transaction will be earnings margin and cash flow accretive 12 months post completion. When we look at it from a multiple perspective, post the year 3 synergy rate of about 175 , it's about 11.5x our synergized multiple, which is pretty much in line with our current trading multiple. Now I think the second question was around the engineered structure, maybe how it fits. I might ask Randy maybe to come back in the second part of this, just to talk about some of the underlying drivers in that particular business, but it's highly complementary to our connected customer offering across both our cementitious and our critical infrastructure businesses, and it's increasing our exposure to those growing infrastructure megatrends. We've actually been deploying capital in this space for the last 2 to 3 years. What it actually does is increases our connected product offering to actually the same customer base, the large utility companies. If you think about it, our existing U.S. IPG infrastructure business, the energy and motor business is already supplying into this customer base. And last year's biggest acquisition, EcoMaterial is on all these utility sites also. So it's really pulling together our kind of connected product offering to that same customer base. But maybe, Randy, you might just talk about some of the underlying drivers we see in this space.

Yes. I mean, when we step back and look at Arcosa, first of all, in this space, they're a top 3 player in what we called out is as possibly a very fast and growing transmission market. I think as Jim highlighted, it really does complement the capabilities that we currently have in that space. And if you think about not just the grid modernization, the electrification that's taken place, the data center construction, all 3 of those things are really supporting the underlying drive for long-term growth in that sector. . And I think I mentioned in the opening remarks, the U.S. is expected -- the utilities in the U.S. are expected to invest $1.4 trillion through 2030 in terms of the underlying modernization in transmission and distribution. And I think another interesting point is over 70% of the U.S. grid is greater than 25 years old. So it's not just the additional capacity expansion. It's also modernization of the existing network. And I think Jim -- lastly, Jim called it out, which is very important in terms of that relationship that we currently already have with the utilities, the work that Arcosa has done in terms of long-term customer alliances. And if you look at their backlog, the high quality level of that backlog gives you a lot of confidence in the mid- to long term in terms of the need and the underlying investment.

Your next question comes from the line of Anthony Pettinari with Citi.

Jim, given you have a bit of geographical overlap in Texas and maybe kind of New York, New Jersey. I'm just wondering how you'd compare CRH's existing business with Arcosa's in maybe those 2 regions? And do you anticipate there could be any kind of divestitures or any kind of changes to make the deal go through?

Anthony, yes, listen, Texas, as we would have said, is the biggest state in CRH, right? We have a tremendous connected footprint there already. As I said, what's particularly interesting on the Arcosa deal is that it's bringing us ags, which we didn't have into the DFW MSA, so that's -- and really connecting what is a very strong footprint there already for us. So that's particularly exciting about it. The transaction itself is going to be subject to kind of customer closing conditions, including, firstly, Arcosa shareholder and then regulatory approvals. And we expected to close in Q1 2027, but we don't anticipate any issues.

Your next question comes from the line of Michael Feniger with Bank of America.

Gentlemen, just I know you touched on it. I realize with Engineered Structures, it's exposed to megatrends with utility and grid caps. Can you just explain to us, I mean, there's -- I think there's wind in there as well at 10% of our codes at 10% to 12%. Is that something you intend to keep? Do you have to invest more in this business? Is it higher capital intensity than the material side? And is the synergies -- is it complementary just because of the customer base? Or is it also just certain products you can cross-sell? Just help us understand a little bit more how the overall portfolio of engineered structures kind of fits in with CRH today.

Sure, Michael. Maybe a couple of questions there. Firstly, maybe I'll take the first 1 in terms of the wind side of it. You're right, the wind is a little less than 10% of Arcosa's business today. I think we can all agree on the kind of the opportunity and the need to continue to invest in the power generation network across the U.S. And in fact, wind today is still the cheapest and the quickest and fastest form to deploy in terms of power generation from that perspective. . It also has -- if you're familiar with Arcosa, the plants themselves are incredibly flexible in terms of the options you give, right? And when we see the demand that we have on the power generation side, we have the optionality also to pivot into that to meet the we have today a very significant kind of market dislocation between the demand side and the supply side. In terms of the synergy side of it, maybe I'll kick it off and maybe ask Randy to come in on some of the details side of it. But -- we have a long history of acquisitions in CRH, right? And I think we've proven the ability to acquire and to integrate businesses at scale, 38 acquisitions last year in 2025. We're continuously be able to leverage our unmatched scale, the connected portfolio and our kind of performance capabilities. Clearly, Arcosa is a public company acquisition. But in addition, there's very strong kind of operational synergies also. But maybe, Randy, do you want to give a bit more color on those?

Yes. I mean just to build on that, obviously, there's a history there in terms of our ability to integrate at scale. And I look at this deal is really kind of right down the middle in terms of what we're very, very good at and what we deliver in terms of synergies. And you would expect it to be in the areas that Jim called out. So certainly, we see kind of underlying opportunities and performance and production efficiencies. I think that the maximizing the logistics network will be a critical element of that. We called out Texas. It's our largest state. It's kind of plug and play in terms of cell supply. A lot of opportunity in and around just making sure that we're optimizing the logistical components of the deal there. Our scale is going to certainly bring advantages from a procurement standpoint, and so we would anticipate significant opportunity there. And I think we laid it out in such a way that makes sense, $60 million in terms of the first 12 months and then $175 million by the end of year 3. I think also what we've learned over time, and I think we've done very well is kind of dedicating resources and teams working side by side with the operating folks to drive the implementation of some of these practices as well as making sure that we're tracking and delivering on what we've laid out today in terms of synergies.

Your next question comes from the line of Angel Castillo with Morgan Stanley.

You've already touched on a number of these points, but just wanted to maybe unpack the engineered structures, maybe the strategic significance a little bit more -- in a little bit more detail. Just maybe any way to kind of quantify the potential for revenue synergies here, given some of the overlap and perhaps customers? And then also just on the backlog visibility, 1 of the things the notable aspects of -- for instance, some of the work that you do in data centers is how you can go kind of work with the customer a little bit earlier on than the traditional kind of aggregates model. So can you just talk about the connectivity of the portfolio? And how maybe having more backlog visibility maybe impact the rest of your business, broadly?

Yes, sure. Angel, good to hear from you. I think in terms of the Engineered Structures business, as we said today, it's kind of building on where we've been deploying capital recently in the last number of years and really tapping into that megatrend of infrastructure build-out, right, across the kind of faster-growing regions of the U.S. So we're already supplying into that customer base through our IPG energy infrastructure work, but also to the eco material who is actually physically on all the utility company sites as well and providing services. So it's a very interesting connection from that perspective to increase, I guess, a kind of share of wallet with a high-quality, fast-growing customer base, utility customer base. And when you look at the demand projections that are out there, you're looking at kind of very high single-digit top line growth rates in terms of underlying volume demand over the next kind of 5 to 7 years in this particular space. So very good revenue kind of synergies abilities. We are now active, I think, at this stage, over nearly 150 data centers across the U.S., right? We really kind of punch above our weight in terms of our share because of that connected product solution. It's not just about providing kind of 1 particular product like aggregates or concrete, but you're absolutely right, we're often in the very first with this exact kind of energy and water infrastructure on the subterranean services that are going into these sites. Then, particularly as well in terms of soil stabilization, a very interesting aspect of this Arcosa acquisition. They have a very nice kind of niche high-growth area in soil stabilization, which is going to be super complementary to the whole build-out of data centers. And then, you bring in the rest of the connected portfolio in terms to the bag or gets concrete, auto paving, et cetera. So again, it is acquiring high-quality connected infrastructure assets in fast-growing states, right? And that's what's particularly attractive for us and why we're excited about the transaction this morning.

Your next question comes from the line of Trey Grooms with Stephens. .

So you guys talked quite a bit about clearly the engineered structures and utility, et cetera. You touched for a second on wind. But you mentioned, Jim, plant optionality. And Arcosa is currently increasing capacity within their utility structures business, converting wind facility to utility structures. This is -- and clearly, utility has been a high-growth area for Arcosa. And I think once this plant conversion takes place, wind contribution to EBITDA for Arcosa is pretty insignificant. So my question is with some of the changes on the horizon that we're seeing in wind, do you expect to kind of continue to deemphasize wind overall? Or do you think as we kind of get into '27 and into '28, maybe the landscape becomes a little more clear, that there would be more stability in that part of the business where you could see maybe putting a little bit of growth capital into that. Just how you're thinking about the wind business once some of this plant optionality is already taking place?

Yes. Absolutely, Trey. Good to hear from you. Yes, you're right, right? I mean, post the conversion of the ongoing Tulsa facility in Oklahoma, wind is going to be a pretty small part of even the Arcosa footprint, right, from that perspective. As I said, kind of in the introduction question as well, it is an area that, right now today is the fastest and the cheapest way to deploy power generation onshore from a U.S. perspective. So that will be interesting to see that how that plays out over the next number of years. What gives us comfort around it is that optionality and the speed at which you're able to convert those facilities. And obviously, the excellent in-house technical expertise within Arcosa, but they've done this time and time before as well, so it's kind of a very small piece of the Arcosa footprint as we go forward, but there's optionality around us.

Okay. That's good. And 1 other one. We've touched on the cost synergies and some of the other things. But specifically around the -- on the construction business for Construction Products business for Arcosa, you mentioned there is a little bit of overlap and some things like this. But do you see more as you think about revenue synergy opportunities? Do you think that would be more kind of on the engineered structures, utility side of the house? Or do you see some opportunity on construction as well?

Yes. It's a good question. I'd say, yes, on engineered structures for sure, but you actually see significant opportunities in the material space as well. If you look at just the commonality of customers who actually consume and use our product and the way that we go to market in terms of the connected portfolio, we see opportunities to increase share and growth in those particular customers. So we see as much, probably even more opportunity in that traditional material space as we do with the engineering products.

And we have time for 1 more question, and that question comes from Kathryn Thompson with Thompson Research Group.

And really kind of a 2-part question. First, this is the -- 1 of the largest deals in the industry in recent years, certainly transformative. The only prior thing that was as big as you switching your primary listing. So what does this say about the scale of the M&A opportunities in the market? And then just a follow-up on that. And we had a great opportunity last week to see your largest quarry in the system in just outside of Austin. And I do note that Arcosa's assets has a quarry on the other side, so it nicely complements that market. But could you break out True Blue aggregates versus recycled and other materials? How much of your heavy mature? But first focusing primarily on the M&A opportunities out there.

Kathryn, good to hear from you. Yes, listen, just the deal this morning to put it in context for us. it's a little over 10% of the market cap of CRH, right? But we have a strong tradition in -- from an M&A perspective. In fact, we've done over 1,200 acquisitions in our history. I think when you look at the kind of structure of the business today in the United States, firstly, really due to the kind of fragmented nature of it, most of the deals we do are kind of primarily bolt-ons. If you look at the 38 deals last year, the majority of them, I think, over 30 came from kind of local bolt-ons across the businesses. But for us, it's not really about the size of any particular transaction. It's more about the scale and the value creation opportunity that we have. Now, we called out in the Investor Day last year, given that scale, we have up to $40 billion of financial capacity out to 2030, but that leaves us uniquely positioned to capitalize on opportunities like Arcosa. We have a strong pipeline still in terms of M&A, right? And we've got good opportunities where to deploy capital at scale and really to build on our leading positions across our connected portfolios. We called it out in terms of the platforms of growth, our kind of water infrastructure and energy infrastructure. We've got very good optionality in terms of where we deploy capital. And I kind of always said what comes with optionality is discipline, right, isn't that, where you allocate that capital. And that's a very important point of it as well. I think it all comes together in terms of reinforcing our position as kind of the leading compounder of capital in this space in the U.S. In terms of the second one, and I think on the sort of property conference, just in terms of the Arcosa, over 90% of the aggregate number we gave this morning is coming from virgin aggregates and the remainder is coming from recycled ags. Thank you very much, Kathryn. Well, that's all we have time for today, and thank you all for your attention. And as always, if you have any follow-up questions, please feel free to contact our Investor Relations team. We look forward to updating you again in July when we will report our results for the second quarter of 2026. Thank you. Have a good day and stay safe. .

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.