Business Overview
Northwest Pipe Company (NWPX) is a leading manufacturer of water-related infrastructure products, serving a diverse range of markets across North America. With a rich history spanning over five decades, the company has established itself as a trusted provider of innovative solutions for the growing water and wastewater infrastructure needs.
Founded in 1966, Northwest Pipe Company began as a small steel pipe fabrication business in Portland, Oregon. Over the years, the company has strategically expanded its product offerings and geographic footprint, solidifying its position as a major player in the water infrastructure industry. Today, the company operates two distinct business segments: Engineered Steel Pressure Pipe (SPP) and Precast Infrastructure and Engineered Systems (Precast).
Engineered Steel Pressure Pipe (SPP) Segment
The SPP segment is the company’s core business, manufacturing large-diameter, high-pressure steel pipeline systems primarily for drinking water, hydroelectric power, wastewater, and industrial plant applications. This product expansion, which began in the 1970s and 1980s, allowed Northwest Pipe to serve a growing customer base across the United States. With manufacturing facilities located across the United States and Mexico, the SPP segment has consistently demonstrated strong operational execution, capturing a significant share of the market.
In the third quarter of 2024, SPP net sales were $85.9 million, up 6.7% compared to the third quarter of 2023. This increase was driven by an 18% rise in tons produced, resulting from an improved bidding environment and changes in project timing, partially offset by a 9% decrease in selling price per ton due to lower raw materials costs. For the first nine months of 2024, SPP net sales were $255.5 million, up 15.4% year-over-year, primarily due to a 42% increase in tons produced, also from an improved bidding environment and project timing changes, partially offset by a 19% decrease in selling price per ton.
SPP gross profit was $16.6 million, or 19.4% of SPP net sales, in the third quarter of 2024, compared to $10.9 million, or 13.6% of SPP net sales, in the third quarter of 2023. The 52.4% increase was mainly attributable to the higher sales volume and changes in product mix. For the first nine months of 2024, SPP gross profit was $47.9 million, or 18.7% of SPP net sales, up 53.1% from the first nine months of 2023.
Precast Infrastructure and Engineered Systems Segment
The Precast segment manufactures a wide range of precast and reinforced concrete products, including stormwater and wastewater technology solutions, pump lift stations, and environmental and engineered systems. This segment’s growth can be traced back to the 1990s and 2000s when Northwest Pipe acquired several precast concrete product manufacturers, broadening its geographic reach and product portfolio. The Precast segment has experienced impressive growth in recent years, driven by robust demand in the residential construction market, particularly in the company’s key markets of Texas and Utah.
Precast net sales were $44.3 million in the third quarter of 2024, up 15.0% compared to the third quarter of 2023, driven by a 35% increase in volume shipped, partially offset by a 14% decrease in selling prices due to changes in product mix. For the first nine months of 2024, Precast net sales were $117.5 million, up 4.0% year-over-year, with a 30% increase in volume shipped, partially offset by a 20% decrease in selling prices.
Precast gross profit was $10.4 million, or 23.5% of Precast net sales, in the third quarter of 2024, compared to $8.4 million, or 21.9% of Precast net sales, in the third quarter of 2023, a 24.0% increase primarily due to the higher shipment volume. For the first nine months of 2024, Precast gross profit was $25.1 million, or 21.4% of Precast net sales, down 7.3% from the first nine months of 2023 due to changes in product mix.
Company History and Challenges
Throughout its history, Northwest Pipe has faced various challenges common to the manufacturing industry, such as navigating volatile commodity prices, managing supply chain disruptions, and maintaining operational efficiencies. The company has successfully weathered these challenges through disciplined cost management, continuous process improvements, and a steadfast commitment to safety and quality. Today, Northwest Pipe operates 13 manufacturing facilities across North America, serving customers with a diverse range of water infrastructure solutions.
Financials
Northwest Pipe Company’s financial performance over the past few years has been impressive, showcasing the company’s ability to navigate challenging market conditions. In 2023, the company reported net sales of $444.36 million, a 21.1% increase from the previous year’s figure of $357.67 million. This top-line growth was primarily driven by strong demand in both the SPP and Precast segments, as well as effective pricing strategies.
The company’s profitability has also been on an upward trajectory, with net income reaching $21.07 million in 2023, up from $15.16 million in 2020. This improvement in profitability can be attributed to the company’s focus on operational efficiency, cost management, and strategic investments in capacity expansion and product diversification.
For the most recent quarter (Q3 2024), Northwest Pipe Company reported revenue of $130.20 million, up 9.7% year-over-year. Net income for the quarter was $10.25 million, with operating cash flow of $22.74 million and free cash flow of $16.77 million. The increase in revenue was driven by an 18% increase in tons produced in the SPP segment due to improved market demand and a 35% increase in volume shipped in the Precast segment. This was partially offset by a 9% decrease in SPP selling price per ton due to lower raw material costs.
Liquidity
In terms of liquidity and solvency, Northwest Pipe Company maintains a healthy financial position. As of December 31, 2023, the company had a current ratio of 2.83, indicating a strong ability to meet its short-term obligations. Additionally, the company’s debt-to-equity ratio of 0.46 suggests a balanced capital structure, providing financial flexibility for future growth initiatives.
As of the most recent quarter, the company’s debt-to-equity ratio improved to 0.21, with $5.72 million in cash and approximately $63 million available under its $125 million Amended Credit Agreement. The current ratio stood at 3.20, with a quick ratio of 2.27, further demonstrating the company’s strong liquidity position.
Future Outlook
Looking ahead, Northwest Pipe Company remains optimistic about its growth prospects. The company’s order backlog for the SPP segment stood at $282 million as of September 30, 2024, reflecting the continued strength in the bidding environment and the long-term nature of the water infrastructure projects the company serves.
Furthermore, the Precast segment is expected to benefit from the ongoing residential construction boom, particularly in the company’s key markets, as well as the anticipated recovery in the non-residential construction sector as interest rates continue to decline. The company’s strategic investments in capacity expansion and product diversification are also poised to drive future growth and enhance its competitive positioning.
Northwest Pipe Company has provided guidance for the fourth quarter of 2024 and the full year. For Q4 2024, the company expects revenue and gross margins in the SPP business to be relatively strong, primarily related to the mix of projects booked and their impact on production volume. However, Precast revenue is expected to be down sequentially from the record third quarter, with relatively stable gross margins.
For the full year 2024, Northwest Pipe Company expects consolidated SG&A expenses to be in the range of approximately $47 million to $48 million, and depreciation and amortization expense to be approximately $19 million. The company anticipates its tax rate for the full year 2024 to be within the range of 20% to 21%. Free cash flows are expected to range between $19 million and $25 million, with total capital expenditures in the range of $20 million to $22 million for the full year 2024.
Despite the challenges posed by the COVID-19 pandemic and the volatile macroeconomic environment, Northwest Pipe Company has demonstrated its resilience and ability to adapt. The company’s diversified product portfolio, strong operational execution, and strategic initiatives have positioned it well to capitalize on the growing demand for water infrastructure solutions across North America.
Conclusion
In conclusion, Northwest Pipe Company is a well-established player in the water infrastructure industry, with a proven track record of delivering consistent financial performance and driving innovation. As the company continues to expand its reach and enhance its capabilities, it remains well-positioned to capitalize on the robust long-term trends in the water and wastewater sectors, creating value for its shareholders. The company’s strong performance in recent quarters, coupled with its positive outlook and strategic focus on both organic growth and potential M&A opportunities, underscores its potential for continued success in the evolving water infrastructure market.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.