Construction Partners (ROAD) Doubles Down On Oklahoma’s Asphalt Supply Chain

On August 31, Construction Partners (NASDAQ:ROAD) completed its acquisition of Asphalt Express Enterprises, a liquid asphalt supply and hauling business located in Ardmore, Oklahoma. The acquisition resulted in the company gaining access to a rail-served industrial site, which it intends to transform into a liquid asphalt terminal that will serve Oklahoma and northern Texas.

While the transaction was relatively small in terms of dollar value, it illustrates the company's approach to securing raw material supply chains before they are desperately needed. Asphalt Express brought a fleet of trucks and trailers already operating across Oklahoma and northern Texas, along with the Ardmore site where the liquid asphalt is currently transported by rail.

Construction Partners aims to eventually house its own terminal at this location, allowing the company to control the raw material its hot-mix plants rely on, rather than purchasing it from outside suppliers. This strategy is also evident in its earlier acquisition of Ellsworth Construction, which expanded into the fast-growing Tulsa and Oklahoma City metro areas and added data center construction capabilities that complement its North Texas operations.

The acquisition of Asphalt Express contributed to strong financial performance in the company's fiscal third quarter. Revenue reached $999.4 million, a 28.2% increase from $779.3 million a year earlier. Adjusted EBITDA rose 23.8% to $163.0 million, and net income climbed to $59.6 million from $44.0 million. Adjusted earnings per diluted share increased to $1.08 from $0.81.

Gross and administrative expenses grew in dollar terms but decreased as a percentage of revenue, indicating efficiency gains as the company scales. At the end of June, the company's backlog hit a record $3.36 billion, an increase from $2.94 billion a year earlier and $3.14 billion three months prior. This growth in backlog has given management greater visibility to raise its full-year revenue outlook to $3.640 billion to $3.680 billion.

Despite challenges such as rising energy costs and heavy rainfall in various markets during May, which negatively impacted results, Construction Partners remains committed to its growth strategy. Management's approach involves combining organic growth with acquisitions that enhance scale and efficiency, supported by a strong balance sheet.

However, the quarter was marked by rising hedge fund ownership, now totaling 27 funds, and a short interest of 7.25% of the float, indicating continued skepticism among some investors. The stock trades at a forward price-to-earnings ratio of 26.32, suggesting that the market has not fully priced in the growth observed in the third quarter.

The company's deliberate and strategic acquisitions of supply chain assets, such as the Asphalt Express deal, are expected to contribute to its ongoing revenue growth and backlog expansion.