Vulcan Materials reported that aggregates shipments declined approximately 3 percent in the first quarter of 2011, reflecting varied market conditions in its markets. Net earnings were a loss of $55 million, or $0.42 per diluted share. The quarter's results include income of $0.08 per diluted share from discontinued operations as well as $0.12 per diluted share for the insurance arbitration award to the company for recovery of settlement costs and legal costs related to the lawsuit settled last year with the Illinois Department of Transportation.
First quarter aggregates earnings were lower than the prior year due mostly to lower shipments, according to the company. A number of Vulcan-served markets, most notably in California, the mid-Atlantic and the Southeast experienced unusually wet weather in March. Despite the inclement March weather, its Virginia, Tennessee and Georgia aggregates businesses increased shipments versus the prior year's first quarter, due primarily to stronger demand from public infrastructure projects. Markets that experienced declines in shipments include South Carolina, Florida and along the Gulf Coast.
Average unit selling prices for both ready-mixed concrete and asphalt mix increased 4 percent, contributing to higher unit materials margins in both product lines. However unit cost for diesel fuel and liquid asphalt increased 34 percent and 12 percent respectively, reducing pretax earnings by $10 million. Most of this earnings effect was offset by production efficiency gains in aggregates and higher pricing for asphalt mix.
Commenting for the company, Don James, Vulcan's chairman and chief executive officer, stated, "We are pleased with the improvements in first quarter production efficiencies in our aggregates business which offset most of the earnings effects of sharply higher diesel fuel costs. We are also encouraged with the pricing momentum in both our asphalt and concrete businesses. Shipments in all our businesses remained challenged in the first quarter. After a solid start in January and February, extremely wet weather hampered aggregates, asphalt and concrete shipments in March in many of our key markets. We continue to expect volume and earnings growth for the full year in 2011."
The average selling price for aggregates was in line with the prior year, according to James. "Adjusted for freight to remote distribution yards and mix, the overall average selling price was slightly above last year's level," he said. "The adjusted selling price in Florida increased from the prior year's level. A number of other markets reported unit selling prices at or above the prior year's first quarter price. However, some geographic and end-use markets that have experienced the steepest overall declines in demand reported lower average prices when compared with the prior year. Reflecting production efficiencies and effective cost control measures, aggregates unit costs of sales were in line with the first quarter of 2010 despite sharply higher costs for diesel. Overall, segment earnings in aggregates were $11 million versus $15 million in the prior year's first quarter."
Segment earnings in asphalt were a loss of $0.2 million compared with earnings of $1 million in the prior year's first quarter. Selling prices for asphalt mix increased approximately 4 percent, offsetting most of the earnings effect of higher liquid asphalt costs. Asphalt volumes decreased 2 percent from the prior year's first quarter due primarily to wet weather in March. Unit materials margins in the first quarter were higher than the prior year and were in line with the improved levels achieved in the second half of 2010.
The concrete segment reported a loss of $14 million, an improvement from the prior year's first quarter. Unit materials margins in ready-mixed concrete improved from the prior year's first quarter due mostly to higher pricing. Concrete prices increased 4 percent from the prior year's first quarter. Cement segment earnings in the first quarter were a loss of $3 million due mostly to a scheduled maintenance event in the current year first quarter.
Commenting on the company's outlook for the remainder of 2011, James stated, "While economic improvement and growth in construction activity across our footprint have not materialized equally, we expect aggregates shipments and pricing to increase from the prior year, leading to earnings growth in 2011. Looking more specifically at our construction end-markets, public construction activity, particularly highways, should continue to provide solid support for aggregates demand. In April, Congress passed and the President signed legislation to fund government programs through the remainder of the current fiscal year ending September 30, 2011. That legislation maintains core federal-aid highway funding at fiscal year 2010 levels.
"During the three months ended March 2011, total contract awards for highway construction in Vulcan-served states, including awards for federal, state and local projects, were in line with the prior year as compared to a decline for all other states," James said. "According to the Federal Highway Administration, approximately $6.0 billion, or 36 percent, of the total stimulus funds apportioned for highways in Vulcan-served states remains to be spent. This absolute level of funding is more than twice the $2.8 billion remaining for other states."James noted that private construction activity remains at low levels, however, some indications of stability are developing. "Single-family housing starts bottomed late in 2009 and multi-family starts have shown strength in recent months – both positive indicators for residential construction activity," he said. "Our current outlook for residential construction activity assumes continued growth in 2011, albeit from a small base. While private nonresidential construction remains weak, the rate of decline in contract awards has slowed considerably. Trailing twelve-month contract awards for construction activity referable to the manufacturing sector have been strong while modest growth in retail and office construction was realized in contract awards for the trailing three months ended March 2011 versus the prior year. A number of external forecasts are calling for private nonresidential construction activity to bottom in 2011 and these increases in contract award activity provide some support to those views. The start of a sustained recovery in this end-market will be influenced by employment growth, capacity utilization, and business investment and lending activity."