U.S. Concrete: A Missed Opportunity
When I described U.S. Concrete (USCR) as a strong play on the U.S. economy, I noted I would wait for a dip in the stock before picking a spot to buy. That opportunity came a lot faster than I expected as USCR dipped down on rising volume to the top of its previous trading range. The stock rebounded the very next day and appeared to confirm support at the top of the trading range. However, I never pulled the trigger.
The dip happened to coincide with the approach of record-breaking Hurricane Harvey. Harvey made landfall on the northward shores of Texas and ravaged Houston, America’s fourth largest city. I scrambled to understand the connection. USCR’s Texas operations are mainly located in the Dallas-Ft. Worth area, far enough away from the disaster area. USCR has one facility in Houston: Custom-Crete that serves the Dallas-Ft. Worth metro area, Houston, Austin, and San Antonio. The Houston operations alone did not seem large enough to cause the sell-off.
By the time it occurred to me that a bounce was confirmed and underway, the stock surged to a new all-time high with a startling 9.9% run-up on very high volume. USCR ended the week at another all-time high.
U.S. Concrete (USCR) bounced near perfectly off support at the top of its previous trading range. USCR now sits at a fresh all-time high.
Source: FreeStockCharts.com
The apparent driver of the large move was the upward revision in the U.S. second quarter GDP report. Not only did annualized growth increase from 2.6% to 3.0%, but also growth in non-residential fixed investment leapt from 5.2% to 6.9%. This category includes the kind of construction that requires concrete. Yet, I harbor doubts that increased expectations for construction significantly relevant to U.S. concrete are the heart of the revision.
For example, here is how the BEA explained the decline from Q1’s 7.2% to Q2’s 5.2% growth (at the time) in non-residential fixed investment: “The deceleration in nonresidential fixed investment primarily reflected decelerations in structures (mainly mining exploration, shafts, and wells) and in intellectual property products that were partly offset by an acceleration in equipment.” USCR specifically has low exposure to the commodity industries of Texas (and Oklahoma): according to USCR’s investor presentation “~ 1.3% of total company revenue comes from indirect oil exposure.” Moreover, when the first advance estimate was issued on July 28th, USCR GAINED a little over a point on the day.
Given the drivers appear tenuous to me, I am not going to chase the current run-up. I will just have to absorb another one of those important lessons in decisively following-up with investing and trading strategies that are backed up by my analysis!
Disclosure: no positions
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ST. CROIX — U.S. Concrete, Inc. (NASDAQ: USCR) acquired Heavy Materials, LLC (“Heavy”) and the assets of Spartan Concrete Products, LLC (“Spartan”), two strategically integrated businesses located in the U.S. Virgin Islands serving key Caribbean markets with strong demand and consistent performance, a press release U.S. Concrete issued this morning has revealed
U.S. Concrete acquired Heavy from owners Douglas Gurlea, Shane Brunt and Tommy Brunt IV. Heavy is a primary producer of ready-mixed concrete and aggregates in the territory through four ready-mixed concrete batch plants, a fleet of 32 mixer trucks, and two quarries with total aggregates reserves of approximately 40 million tons, according to the release. On September 30, Heavy Material acquired Devcon International’s V.I. Cement and Building Products for $10.7 million in cash. V.I. Cement has a rock quarry and a ready-mix concrete plant here and a rock quarry and block manufacturing plant on St. Thomas.
Heavy also leases an industrial waterfront property that it utilizes as a marine terminal and sales yard. Heavy is a key aggregates supplier to Spartan, a leading local ready-mixed concrete producer, operating one batch plant and a fleet of 16 mixer trucks.
Spartan concrete was owned by St. Croix multimillionaire Warren Mosler until its sale to U.S. Concrete.
The combined operations of Heavy and Spartan creates a stronger vertically integrated platform to serve an extensive base of customers throughout the U.S. Virgin Islands and several other islands throughout the Caribbean, the release says. The end-market exposure of the combined operations is generally balanced across commercial, infrastructure and residential project activity, it added.
“These acquisitions are highly aligned with our strategic goal to establish leadership positions in resilient, attractive markets and further enhance our mix of vertically integrated operations,” said William J. Sandbrook, U.S. Concrete President and CEO. “We plan to create a more efficient operating dynamic in the U.S. Virgin Islands and the Caribbean by combining the efforts of these two separately owned businesses into one cohesive unit. Additionally, the combined operations provide a highly strategic platform to capitalize on leading market positions and growing regional demand to serve as the supplier of choice. We are thrilled to welcome Heavy and Spartan to the U.S. Concrete family of companies.”
About U.S. Concrete, Inc.
U.S. Concrete, Inc. (the “Company” or “U.S. Concrete”) serves the construction industry in several major markets in the United States through its two business segments: ready-mixed concrete and aggregate products. The Company has 144 standard ready-mixed concrete plants, 16 volumetric ready-mixed concrete facilities, and 14 producing aggregates facilities. During 2014, U.S. Concrete sold approximately 5.7 million cubic yards of ready-mixed concrete and approximately 4.7 million tons of aggregates. For more information on U.S. Concrete, visit www.us-concrete.com.
A key question is how much damage, if any, did USCR sustain to its Virgin Islands operations. Either way, the operations are a pretty small portion of USCR's overall business. Same with the operations near Houston. My original analysis here: drduru.com/.../us-concrete-strong-play-us-economy-interview-bill-sandbrook/
Thanks, @[Lawrence Michaels](user:52564). But why did you post a full press release as a comment? A simple link would have sufficed.