Vancouver-based Northwest Pipe Co. emerged from 2018 with a record-high backlog of project orders and expects plenty of bidding opportunities to continue to boost its revenue in 2019, CEO Scott Montross told stock analysts Thursday in the company’s fourth quarter investor conference call.
Montross discussed upcoming projects in Texas, California and North Dakota during the half-hour call, and updated investors on the integration of Ameron Water Transmission Group, which the company acquired last year.
The call also touched on the basics of the company’s fourth-quarter 2018 results, which were released on Wednesday and reported sales of 57.5 billion, a 61.5 percent year-over-year increase from the fourth quarter of 2017. But Montross spent the majority of the call offering a detailed evaluation of the company’s position in the welded steel pipe industry and outlining its expectations for 2019.
“As of Dec. 31, our backlog including confirmed orders was $252 million — an all-time record — compared to $201 million in the third quarter (of 2018) and $88 million in the fourth quarter of 2017,” he said.
The growth of the backlog was propelled by a large number of bidding opportunities in the fourth quarter, he said, including new opportunities created by the merger with Ameron. Northwest Pipe has seen a trend of relatively slow first quarters in the past few years, Montross said, but he expected the current quarter to break that pattern due to the current level of demand in the industry.
Montross outlined a number of ongoing industry projects that are expected to drive demand for piping in 2019 and beyond. Many of those projects are in Texas, such as the Bois D’arc Reservoir project, which selected Northwest Pipe last year to build part of its raw water line.
The Surface Water Supply Project near Houston has put 90,000 tons of pipe work out to bid, he said, and Northwest Pipe was the successful bidder for more than 15,000 tons of that work. The project is expected to put out another 35,000 tons worth of bids this year and next. The Bois D’arc project is also expected to put out bids this year for its finished water line.
The other big market is California, Montross said, where San Diego is expected to begin bidding on a $1.7 billion water program this year, followed by Santa Clara with its own project in 2020.
Northwest Pipe also hopes to bid on a planned 140-mile water supply project in North Dakota in the next 12 months, Montross said, although the project has slowed down because it’s competing for funding with a flood diversion project.
Many of the projects have multiyear timelines, so Northwest Pipe expects the bidding environment to remain favorable beyond 2019, Montross said. In the coming year, the company plans to focus on further integrating Ameron and driving cost reductions and efficiencies.
One of the investors asked about the company’s gross profit performance from month to month in the fourth quarter, and whether prices for piping have kept up with prices for raw steel. Montross replied that the pricing has kept up, and said he expected the company’s margins to continue to grow due to the rise in prices for more recent projects.
“We’ve grown this backlog to $252 million,” he said, “so you continue to work your way through a backlog that, quite frankly, as you look at it chronologically, has an improving margin over time.”
A stock analyst asked about the impact of local weather on projects and Montross said weather in Texas and California has had a “reasonable impact” on the company’s revenue.
The analyst asked how the expected bidding opportunities for 2019 compared to 2018, and another analyst suggested that 2019’s opportunities were about 80 percent of what they were the year before. Montross replied that the estimate was correct, but stressed that 2018 was an exceptional bidding year.
“(2019) is not a significant drop off from what we’d consider to be a very strong market,” he said.
In response to a final question about the company’s head count, Montross said that Northwest Pipe employs slightly more than 700 people. He said 228 of those joined after the Ameron acquisition, and the remainder are legacy Northwest Pipe employees.
Following the conference call, investment company D.A. Davidson released an updated forecast for Northwest Pipe’s stock, raising its stock price target from $28 to $30 and retained its “buy” rating, citing the company’s large backlog and fourth quarter growth, as well as its acquisition of Ameron. That acquisition, Davidson said, made Northwest Pipe “the pre-eminent producer” of pipes with a diameter greater than 48 inches on the West Coast.
“We continue to believe that, with consistency in the current bidding environment, (Northwest Pipe) can eventually return to (greater than 20 percent) gross margins achieved in prior cycles,” the investment company wrote in its forecast update.
Davidson’s update ended with a note of caution about the potential impacts of seasonal weather patterns and construction market cycles on the demand for pipe products, and also noted that the availability and price volatility of raw metals can have a substantial impact on companies like Northwest Pipe.
