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Vulcan Aggregates Business Down in Third Quarter

Vulcan Materials Co. announced results for the third quarter ended Sept. 30, 2011. The company is reporting:
  • The average unit sales price increased in most product lines.
  • Freight-adjusted aggregates prices increased 1 percent.
  • Asphalt mix prices increased 10 percent.
  • Ready-mixed concrete prices increased 6 percent.
  • Aggregates shipments declined 2 percent.
  • Unit costs for diesel fuel and liquid asphalt increased 40 percent and 20 percent, respectively, reducing pretax earnings by $21 million.
  • Selling, administrative and general (SAG) expenses were $10 million lower than the prior year.
  • Earnings from continuing operations were $22 million, or $0.17 per diluted share, compared to $11 million, or $0.08 per diluted share, in the prior year.
  • EBITDA was $194 million versus $150 million in the prior year.

Aggregates segment earnings were $113 million versus $125 million in the prior year's third quarter due mostly to lower shipments and higher unit costs for diesel fuel. The year-over-year decrease in aggregates shipments was due primarily to construction being hampered by continued economic uncertainty.

Aggregates shipments increased versus the prior year's third quarter in California, North Carolina, and Maryland due primarily to stronger demand from public infrastructure projects. Aggregates shipments in California were up 26 percent versus the prior year's third quarter due mainly to large project work.

The average sales price for aggregates increased 1 percent from the prior year due to improvements across a number of markets. Overall, the earnings effect of a 2 percent decline in shipments reduced segment earnings $5 million and the earnings effect of higher pricing offset some of the impact of the higher unit cost of diesel fuel.

Commenting for the company, Don James, chairman and chief executive officer, said, "Business conditions remained challenging in the third quarter. The fragile economic recovery and absence of meaningful job growth continued to hamper construction activity while diesel fuel and liquid asphalt costs remained at elevated levels. However, we are pleased that continued improvement in product pricing in the third quarter helped offset these higher energy-related costs.

"In recent months, we have completed several actions that increased cash and liquidity and that should enhance our future operating performance,” James said. “We have closed two transactions that yielded $57 million in cash, increased our aggregates reserves position, and should increase our future EBITDA. Also in the quarter, we were awarded $24 million in an insurance arbitration associated with last year's legal settlement with the Illinois Department of Transportation. In addition, we terminated an in-the-money interest rate swap and received $23 million in cash for the future value of the swap. Termination of the swap had no material earnings impact in the third quarter as the cash received will be amortized to income between now and 2016. As a result of these actions, at the end of the third quarter, we had no short-term borrowings and had $152 million in cash, with another $20 million to be received in the fourth quarter.

In September, we completed the sale of certain non-strategic aggregates facilities,” James said. “This divestiture resulted in a pretax gain of approximately $40 million.

In the third quarter, we recognized earnings of approximately $24 million for an arbitration award related to the lawsuit settled last year with the Illinois Department of Transportation from the third and final insurer. Included in this total amount was approximately $3 million of current year legal fees and interest income. In the first quarter of this year, we recovered approximately $26 million in an arbitration with two other insurers.”

The company reported its outlook going forward:

  • Assuming normal weather patterns, aggregates volume in the fourth quarter should approximate the prior year.
  • Aggregates pricing in the fourth quarter should be higher than the prior year, offsetting slightly higher costs due in part to higher prices for energy.
  • In the fourth quarter, Asphalt mix volumes should be higher than the prior year due mostly to project work in California.
  • Higher pricing for asphalt mix in the fourth quarter should offset higher costs for liquid asphalt.
  • Fourth quarter ready-mixed concrete pricing should be higher versus the prior year while concrete volumes are expected to be lower.
  • SAG costs in the fourth quarter of 2011 are anticipated to be lower than in the prior year.

Commenting on the company's outlook, James stated, "In the current economic environment, we expect future demand for our products to be supported by contract awards for public spending on highway projects, specifically road-related construction, and a modest improvement in private nonresidential building construction. For the 12-month period ending Sept. 30, 2011, contract awards for highways, which include federal, state and local road and bridge projects, were down 3 percent in Vulcan-served states. However, contract awards for the more aggregates-intensive road-related projects were up 6 percent versus the prior year while bridges were down 19 percent. We believe this sharp contrast between road and bridge contract award activity is due in part to the types of projects funded with stimulus dollars as well as the increase in spending from regular funding programs by departments of transportation, which in the absence of a new multi-year federal highway bill, are currently more focused on maintaining existing capacity.