Executive Summary / Key Takeaways

• Portfolio Transformation Delivered: Arcosa's 2024 strategic reset—headlined by the $1.2 billion Stavola acquisition and $110 million steel components divestiture—has fundamentally de-risked the business, reducing cyclicality and positioning Construction Products to generate approximately 62% of adjusted EBITDA, up dramatically from 2018 levels.

• Margin Inflection Is Real and Sustainable: Q3 2025's record 21.8% adjusted EBITDA margin (up 340 basis points year-over-year) demonstrates powerful operational leverage across all three segments, with Construction Products expanding margins 300 basis points and Engineered Structures 240 basis points, validating that scale benefits and pricing discipline are structural, not cyclical.

• Capital Allocation Flexibility Unlocked: Achieving the 2.4x net debt/EBITDA target two quarters ahead of schedule transforms Arcosa's strategic options. The company can now pursue a balanced approach of organic investments, M&A, and potential shareholder returns while maintaining a healthy balance sheet with $920 million in liquidity.

• End Market Tailwinds Are Durable, Not Transitory: Infrastructure spending, AI-driven data center power demand, grid hardening initiatives, and an aging barge fleet create multi-year demand visibility. Management's record backlogs in utility structures ($461.5 million) and barge orders (1.5x book-to-bill) provide production visibility into 2026 and beyond.

• Policy Uncertainty Is the Primary Risk: The One Big Beautiful Bill Act's phase-out of wind energy tax credits after 2027 and potential trade policy changes create near-term order urgency but introduce long-term demand uncertainty that could pressure the Engineered Structures segment's growth trajectory.

Setting the Scene: From Cyclical Conglomerate to Infrastructure Platform

Arcosa, Inc., incorporated in Delaware in 2018, manufactures infrastructure-related products across three segments: Construction Products (aggregates and specialty materials), Engineered Structures (utility poles and wind towers), and Transportation Products (inland barges). The company spent its first six years executing a deliberate strategy to allocate capital toward growth businesses, improve cyclical operations, and simplify its portfolio. That strategy reached its apex in 2024, transforming Arcosa from a diversified industrial into a focused infrastructure platform.

The 2024 transformation was surgical and decisive. In April, Arcosa acquired Ameron Pole Products for $180 million, establishing a premium position in lighting and traffic structures. In October, the $1.2 billion Stavola acquisition delivered an aggregates-led, vertically integrated operation in the New York-New Jersey MSA—the nation's largest metropolitan area with infrastructure-led demand characteristics. Concurrently, Arcosa divested its steel components business for $110 million, pruning non-core assets and reducing cyclical exposure. These moves were not cosmetic; they fundamentally altered the company's earnings quality and margin profile.

Arcosa sits at the intersection of three durable infrastructure trends. First, public infrastructure spending remains at historically elevated levels, particularly in Texas, Arcosa's largest aggregates market. Second, AI and data center expansion is driving unprecedented electricity demand, requiring massive transmission and distribution investments. Third, the U.S. inland barge fleet's average age approaches 20 years, creating a replacement cycle that extends well into the next decade. This positioning provides visibility into demand that transcends typical construction cycles, reducing earnings volatility and justifying higher valuation multiples.

Technology, Products, and Strategic Differentiation

Arcosa's competitive moat rests on manufacturing competencies that span steel and concrete structures, enabling cross-segment synergies in sourcing, production, and customer relationships. The Engineered Structures segment leverages similar manufacturing processes and steel sourcing for utility poles, wind towers, and telecom structures, creating cost advantages that pure-play competitors cannot replicate. This integration translates into 240-350 basis points of margin expansion as volumes increase, demonstrating operating leverage that is structural rather than temporary.

The Construction Products segment's emphasis on recycled aggregates and specialty materials provides a qualitative edge over traditional quarried materials. These sustainable products offer lower environmental impact and cost efficiency for infrastructure projects, aligning with increasingly stringent ESG requirements. While Vulcan Materials (VMC) and Martin Marietta (MLM) dominate raw aggregates scale, Arcosa's recycled focus targets a growing niche that commands premium pricing and generates higher returns on invested capital in urban markets like New York-New Jersey.

In Engineered Structures, Arcosa's ability to convert idled wind tower facilities into large utility pole production represents a unique operational flexibility. The Illinois facility conversion, expected operational in late 2026, will produce poles where Arcosa's "cost really shines" due to the enormous scale and flexibility of wind tower manufacturing equipment. This capability creates a barrier to entry for smaller competitors while enabling Arcosa to capture accelerating utility demand driven by grid hardening and data center electrification.

Financial Performance: Evidence of Strategy Execution

Q3 2025's results provide compelling evidence that Arcosa's transformation is delivering tangible financial results. Consolidated revenues increased 13.8% to $2.17 billion for the nine months ended September 30, 2025, while operating profit surged 70.3% to $262.9 million. The 340 basis points of adjusted EBITDA margin expansion to 21.8% reflects not just acquisition contribution but genuine operational improvement, as selling, general, and administrative expenses fell to 10.6% of revenues from 12.1% in the prior year period.

The Construction Products segment exemplifies the transformation's impact. Q3 revenues jumped 45.7% to $387.5 million, with adjusted segment EBITDA reaching a record $115.2 million at a 29.7% margin—300 basis points higher than the prior year. The Stavola acquisition contributed $102.6 million in revenue at an impressive 35.2% EBITDA margin for the twelve months ending September 30, 2025, validating the premium paid and demonstrating the accretive nature of the deal. Organic aggregates pricing increased 9% and volumes rose 18%, generating double-digit unit profitability gains that prove pricing power is sustainable.

Engineered Structures delivered 11.3% revenue growth and 29% adjusted EBITDA growth in Q3, expanding margins 240 basis points to 18.3%. The utility structures backlog reached a record $461.5 million, up 11% year-to-date, while wind towers secured $57 million in new 2026 orders. This performance shows the segment is successfully navigating policy uncertainty by shifting 2028 deliveries into 2026, improving near-term production visibility and smoothing revenue recognition.

Transportation Products, excluding the divested steel components business, generated 21.8% revenue growth and 40.2% operating profit growth in Q3. The barge business posted a 1.5x book-to-bill ratio with $148 million in new orders, increasing backlog 16% year-to-date to $325.9 million. This provides production visibility into the second half of 2026, a level of forward visibility that is unusual for this cyclical industry and demonstrates Arcosa's strengthened competitive position.

Segment Dynamics and Competitive Positioning

Construction Products now drives the Arcosa story. The segment's 62% contribution to consolidated adjusted EBITDA represents a dramatic shift from 2018 levels, reducing portfolio cyclicality and increasing exposure to infrastructure-led demand. While VMC and MLM maintain superior scale and margins in pure aggregates, Arcosa's vertically integrated model—combining natural aggregates, recycled materials, asphalt, and construction site support equipment—creates customer stickiness and cross-selling opportunities that pure-play competitors cannot match. The New York-New Jersey market position is particularly valuable, as it provides exposure to the nation's largest infrastructure spending pool with higher barriers to entry due to permitting and land constraints.

Engineered Structures competes directly with Valmont Industries (VMI) in utility and lighting structures, but Arcosa's wind tower capabilities provide a differentiation point. Valmont's focus on agricultural and infrastructure structures lacks the renewable energy exposure that Arcosa has cultivated. The New Mexico wind tower facility, now fully ramped, generated strong performance in Q3, while the Illinois facility conversion to large utility poles will capture accelerating transmission investment. Importantly, this positions Arcosa to benefit from both the renewable energy transition and grid modernization, two distinct but complementary growth drivers.

Transportation Products faces competition from Greenbrier Companies (GBX) and Trinity Industries (TRN) in barges, but Arcosa's focus on components and specialized equipment creates a different economic model. While GBX and TRN focus on leasing and new build manufacturing, Arcosa's barge business benefits from the aging fleet replacement cycle without the capital intensity of leasing operations. The segment's 190 basis points of margin expansion in Q3 demonstrates that operational improvements and mix shift toward higher-margin tank barges are delivering results, even as competitors struggle with cyclical demand fluctuations.

Outlook, Guidance, and Execution Risk

Management's tightened 2025 guidance—revenue of $2.86 to $2.91 billion and adjusted EBITDA of $575 to $585 million—implies 32% year-over-year EBITDA growth when normalized for the steel components divestiture. This is not conservative guidance; it represents confidence in both Stavola's accretive contribution and organic growth drivers. The midpoint suggests EBITDA margins will approach 20% for the full year, a remarkable achievement for a business that historically operated with higher cyclicality and lower returns.

The guidance assumptions embed several key judgments. First, management expects high single-digit aggregates pricing growth and high single-digit volume growth for the full year, despite Q1 and Q2 weather disruptions. This pricing power assumption is critical—if competitive pressure from VMC or MLM forces price concessions, margin expansion could stall. Second, the Engineered Structures outlook assumes wind tower orders will remain solid through 2026 as developers race to capture tax credits before the OBBBA phase-out. Third, Transportation Products assumes the barge replacement cycle continues, with tank barge inquiries particularly strong due to tighter industry capacity.

Execution risk centers on three variables. The Stavola integration must continue delivering 35%+ EBITDA margins as promised, particularly as the business faces seasonally weaker Q1 and Q4 periods in the Northeast. The Illinois facility conversion must come online on time and on budget in late 2026 to capture utility pole demand. Finally, the company must balance capital allocation between growth investments and potential shareholder returns without sacrificing the operational improvements that enabled the margin expansion.

Risks and Asymmetries

The One Big Beautiful Bill Act represents the most material policy risk. By terminating wind tower tax credits after 2027 and making projects starting construction after July 2026 ineligible for production tax credits, the legislation creates a cliff effect that could depress wind tower demand beyond 2026. While management argues wind energy is cost-competitive without subsidies, the loss of tax equity financing could slow project development and pressure pricing. This risk is mitigated by Arcosa's ability to shift production to utility poles, but a severe downturn in wind energy would still impact segment margins and capacity utilization.

Trade policy uncertainty creates secondary risk. Management acknowledges steel prices are "artificially high due to tariffs" but notes mills are "willing to negotiate prices," suggesting demand weakness. However, potential retaliatory measures from Mexico could affect the new galvanizing facility scheduled for Q1 2026 startup. While the company has demonstrated pricing power to offset input cost inflation, a full-blown trade war could compress margins across all segments.

Weather and seasonality remain persistent risks. The unseasonably cold and wet conditions that impacted Q1 and Q2 2025 results demonstrate Stavola's Northeast exposure adds new geographic risk. While management expects "high single-digit organic growth" in the second half, assuming normal weather patterns, climate volatility could continue disrupting construction activity and aggregates volumes.

Valuation Context

At $107.16 per share, Arcosa trades at an enterprise value of $6.68 billion, representing 12.3 times trailing EBITDA and 2.4 times revenue. This valuation sits at a discount to pure-play aggregates peers VMC (18.7x EBITDA, 5.5x revenue) and MLM (18.6x EBITDA, 6.5x revenue), reflecting Arcosa's diversified but less-scaled portfolio. However, it trades in line with engineered structures competitor VMI (14.5x EBITDA, 2.2x revenue) and at a premium to transportation-focused GBX (6.4x EBITDA, 0.9x revenue) and TRN (12.2x EBITDA, 3.7x revenue).

The valuation multiple implies the market is pricing in moderate growth but not the full potential of the transformed portfolio. Arcosa's 21.8% EBITDA margin now exceeds many industrial peers, yet its 12.3x EV/EBITDA multiple suggests skepticism about sustainability. The 16.7x price-to-free-cash-flow ratio appears reasonable given the 32% EBITDA growth guidance and improving cash conversion, with Q3 operating cash flow up 19% year-over-year and working capital turning into a $23 million source of cash despite 25% revenue growth.

The balance sheet supports the valuation. Net debt to adjusted EBITDA of 2.4x sits at the low end of management's 2.0x to 2.5x target range, providing $920 million in total liquidity with no material near-term maturities. This financial flexibility reduces risk and supports the company's ability to invest in growth or return capital through the $50 million share repurchase authorization that remains unutilized as of September 30, 2025.

Conclusion

Arcosa has completed a fundamental transformation from a cyclical industrial conglomerate into a focused infrastructure growth platform. The 2024 strategic moves—Stavola's accretive integration, non-core divestitures, and operational improvements—have delivered record margins, accelerated deleveraging, and created capital allocation flexibility that positions the company for its next growth phase. The portfolio's increased exposure to infrastructure-led markets, combined with manufacturing competencies that generate 240-350 basis points of margin expansion, creates a durable competitive advantage.

The investment thesis hinges on two critical variables: whether management can sustain the 20%+ EBITDA margins while scaling the business, and how effectively the company deploys its newly unlocked capital allocation flexibility. The policy-driven risks in wind energy and potential trade disruptions create near-term uncertainty, but the multi-year visibility in utility structures and barge replacement demand provides a stable foundation. For investors, Arcosa offers a rare combination of margin expansion, balance sheet strength, and exposure to secular infrastructure trends—at a valuation that does not yet reflect the full earnings power of the transformed business.