Northwest Pipe Co. (NWPX), a leading manufacturer of water-related infrastructure products, reported its financial results for the first quarter of 2024. The company's performance was mixed, with its steel pressure pipe (SPP) business surpassing expectations, while the precast segment came in softer than anticipated.
Financials
For the full year 2023, Northwest Pipe reported annual net income of $21,072,000, annual revenue of $444,964,000, annual operating cash flow of $53,455,000, and annual free cash flow of $35,164,000.
In the first quarter of 2024, the company's net sales increased 14.2% year-over-year to $113.2 million, representing the strongest revenue first quarter in the company's history. This was driven by a 25.9% increase in SPP segment sales to $80 million, partially offset by a 6.6% decline in precast segment sales to $33.2 million.
Steel Pressure Pipe (SPP) Segment
The SPP segment's performance primarily reflected higher production levels due to changes in project timing related to a strong pipeline of bidding opportunities in the early to mid-first quarter, as well as an improved bidding environment following a relatively small bidding year in 2023. Steel prices remained fairly high by historical standards, fluctuating between $10 to $20 per ton up or down on a weekly basis, with lead times staying relatively short at 3 to 6 weeks.
Precast Segment
In the precast segment, revenue declined due to very slow first quarter shipments in the nonresidential construction-related precast business at Park, resulting from fairly light bookings in the fourth quarter of 2023 due mainly to customer caution related to the current interest rate environment. However, the company's first quarter bookings at Park rebounded to a strong level, coming in at over $22 million. The residential business at Geneva continued to be strong, with strengthening order books and robust production and shipment levels.
Gross Profit and Margins
Consolidated gross profit increased 21.5% year-over-year to $20.1 million, resulting in a gross margin of 17.8%, up from 16.7% in the first quarter of 2023. The SPP segment's gross margin of 17.8% was strong, increasing by approximately 560 basis points over the prior year period and 280 basis points over the prior quarter, primarily due to higher production volume and significant strength in first quarter bidding activity. The precast segment's gross margin of 17.7% was down compared to 24.7% in the first quarter of 2023, as depressed shipments on the nonresidential construction side resulted in reduced first quarter revenue at the Park facilities and associated lower overhead absorption.
Operating Expenses
Selling, general, and administrative expenses decreased 3.6% to $11.4 million or 10.1% of sales, primarily due to $0.5 million in lower incentive compensation expense. The company expects its consolidated selling, general, and administrative expenses to be in the range of approximately $45 million to $47 million for the full year of 2024.
Outlook
Looking ahead, the company expects its SPP segment to maintain relatively stable revenue and margins in the second quarter of 2024, similar to the first quarter. For the precast segment, the company anticipates significant improvement in both revenue and margins for the second quarter of 2024 and a strong remainder of the year, as the slow first quarter is generally the case for this segment.
Strategic Priorities
The company's top strategic priority for 2024 remains growth of the business through its organic product spread strategy and M&A opportunities. On the organic front, the company continues to execute on Level 1 of its strategy by building out capacity utilization at its Texas-based precast plants, while also progressing on Level 2 by producing Park precast products out of its existing Northwest Pipe locations.
M&A and Share Repurchases
In terms of M&A, the company is actively evaluating precast-related opportunities, with a focus on high-quality candidates that are accretive to earnings per share and possess strong organic growth and margin potential, solid asset efficiency, and a consistent positive cash flow profile. Until an acquisition is executed, the company may opt to be opportunistic in repurchasing shares of its common stock, subject to its liquidity and other capital needs.
During the first quarter of 2024, the company repurchased approximately 127,000 shares for a total of $3.7 million. Since the initial authorization of its share repurchase program in November 2023, the company has bought back a total of approximately $5 million worth of its shares as of April 30, 2024.
Liquidity
The company's financial condition remains strong, with net cash used in operating activities of $26.1 million in the first quarter of 2024, compared to net cash provided by operating activities of $26.3 million in the first quarter of 2023. This change was primarily due to changes in working capital, which were partially offset by increased net income adjusted for non-cash items. The company continues to expect full-year 2024 free cash flow to range between $19 million and $25 million.
Capital expenditures totaled $4.6 million in the first quarter of 2024, and the company anticipates its total CapEx to be in the range of $19 million to $22 million for the full year 2024. As of March 31, 2024, the company had $89.9 million of outstanding borrowings on its credit facility, leaving approximately $34 million in additional borrowing capacity.
Conclusion
In summary, Northwest Pipe's first quarter of 2024 was a solid start to the year, with the company's diversification strategy continuing to take shape. The SPP segment's strong performance, coupled with the company's expectations for a rebound in the precast business, position Northwest Pipe well to capitalize on improving market conditions throughout the remainder of 2024 and beyond.