Vulcan Materials Co. announced significantly improved results for the first quarter ended March 31, 2012. Net sales increased $44 million, or 10 percent, from the prior year and gross profit increased $29 million, reflecting sales growth in every segment and the favorable earnings effect of improved productivity and cost reduction.
Unit shipments increased in every major product line from the prior year, including a 10 percent increase in aggregates shipments. Aggregates segment revenues increased $24 million reflecting higher shipments. Aggregates gross profit improved $23 million, reflecting the higher shipments, as well as lower unit cost of sales due to improved productivity. All key labor and energy efficiency metrics for aggregates improved for the quarter, and more than offset an 11 percent increase in the unit cost of diesel fuel.
Gross profit from non-aggregates segments improved by $6 million, reflecting cost reduction initiatives.
First quarter aggregates segment gross profit increased $23 million from the prior year reflecting growth in shipments across almost all geographic markets. Aggregates shipments increased 10 percent from the prior year and, coupled with lower unit cost of sales, led to a sharp increase in aggregates gross profit margin.
Vulcan's aggregates businesses in California and Virginia continued to achieve strong volume gains from the prior year. The company's aggregates businesses in eight other states also achieved double-digit volume gains over the prior year's first quarter, most notably key states of Florida, Texas and Alabama. These increases were due mainly to large infrastructure project work – primarily highways – some improvement in private construction activity and favorable weather conditions.
The average sales price for aggregates decreased 1 percent from the prior year's first quarter due mostly to a less favorable product mix. All key labor productivity and energy efficiency metrics improved from the prior year, more than offsetting an 11 percent increase in the unit cost for diesel fuel.
Selling, administrative and general expenses in the first quarter were $13 million lower than the prior year due mainly to cost reduction initiatives undertaken in 2011.
Included in the first quarter 2012 results were charges related to the unsolicited offer by Martin Marietta Materials, Inc. and a gain on the sale of real estate in California. Included in the prior year's first quarter was an insurance arbitration award related to a lawsuit. Excluding these items, EBITDA increased to $46 million in 2012 from $5 million in the prior year's first quarter.
Adjusting for the aforementioned items, earnings from continuing operations were a loss of $0.42 per diluted share as compared to a loss of $0.62 per diluted share in the same period last year.
Don James, chairman and chief executive officer, stated, “Our aggregates business delivered another quarter of strong improvement and the non-aggregates businesses continued to make progress. These results reflect the continued recovery of our markets and the benefits of the company's powerful earnings leverage. In particular, higher aggregates shipments and lower unit cost of sales drove a 640 basis point improvement in aggregates segment gross profit, as a percentage of segment revenues, and an 11 percent increase in cash earnings per ton. Demand for our products was solid during the quarter due primarily to public infrastructure projects and some recovery in private sector construction work. Results in the quarter were aided by favorable weather conditions. Our focus on improving earnings through price and cost leadership, and the continued execution of our Profit Enhancement Plan and Planned Asset Sales, position us to further benefit from a recovery in demand in 2012.”
Asphalt mix segment gross profit was a loss of less than $1 million, approximating the prior year's break-even earnings. The average sales price for asphalt mix increased approximately 6 percent, offsetting most of the earnings effect of a 16 percent increase in liquid asphalt cost. Asphalt mix volumes increased 3 percent from the prior year's first quarter.
For the first quarter of 2012, concrete segment gross profit was a loss of $12 million versus a loss of $14 million in the prior year. Ready-mixed concrete volumes increased 12 percent from the prior year. The average sales price increased 1 percent from the prior year, contributing to improved unit materials margin. Cement segment gross profit was $1 million, an improvement of $4 million from the prior year due to increased volumes and lower operating costs.
EBITDA and earnings for the first quarter of 2012 included $10 million of costs related to the unsolicited offer by Martin Marietta as well as a $6 million gain on the sale of real estate in California. In the first quarter of 2011, the company received approximately $25.5 million in an insurance arbitration award for the recovery of settlement and legal costs related to a lawsuit settled in 2010. Excluding these items, EBITDA improved $41 million and earnings from continuing operations improved $0.20 per diluted share.
During the quarter, Vulcan made steady progress on the Profit Enhancement Plan announced in February, which is being led by Danny Shepherd, executive vice president-construction materials, and John McPherson, senior vice president-strategy and business development.
Reflecting strong leadership and broad organizational engagement, the company is on track to improve Vulcan's profitability (as measured by EBITDA) by $100 million annually at current volumes. As previously reported, $25 million is expected to be achieved in 2012, $75 million in 2013 and the full $100 million in 2014. These enhancements would be in addition to the $55 million in run-rate overhead reductions achieved through actions in 2011.
In addition, Vulcan continues to implement the Planned Asset Sales announced in February and the company is pleased with the level of interest and activity surrounding the process. Sales will be made from a broad portfolio of assets that are not central to the company's strategy. The company continues to expect net proceeds of approximately $500 million from the sale of assets by mid-2013.
For 2012, the company continues to expect earnings in each segment to improve versus the prior year due to continued growth in volumes, higher pricing and reduced costs. Total aggregates shipments are now expected to increase approximately 2 to 4 percent. Aggregates freight-adjusted pricing is now expected to increase by 1 to 3 percent. In addition, costs in the aggregates segment should be lower than in 2011 due to improved productivity, restructuring of overhead support functions and implementation of the Profit Enhancement Plan. As a result, aggregates segment earnings are expected to improve substantially from 2011.
Asphalt mix segment earnings are expected to increase due to higher pricing and modest growth in volumes. Ready-mixed concrete pricing should continue to improve and shipments should increase modestly from the prior year, contributing to an improvement in earnings. Cement earnings should approach break-even levels in 2012.
Energy-related costs, specifically unit costs for diesel fuel and liquid asphalt, are now expected to increase 5 to 10 percent from 2011 levels.
James stated, “We remain focused on executing our initiatives, which will generate higher levels of earnings and cash flow, further improve our operating leverage, reduce overhead costs and strengthen our credit profile – all of which will enable Vulcan to restore a meaningful dividend as rapidly as possible. In summary, we are very encouraged by the continued signs of recovery we are seeing in the construction sector of the U.S. economy and in our businesses. We believe that Vulcan has tremendous upside potential as the economy improves and we continue reaping the benefits of strategic investments we have made in our ERP system and through our Profit Enhancement Plan.”