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Vulcan’s Fourth-Quarter Profit Soars


Vulcan Materials CompanyVulcan Materials reported that in the fourth quarter of 2013, net sales increased $78 million, or 14 percent, versus the prior year’s fourth quarter, as volumes continued to improve. Gross profit improved $38 million, or 48 percent, primarily on the strength of the volume growth and operating leverage in aggregates. Aggregates gross profit and profit margin increased $30 million and 390 basis points, respectively. Shipments increased 7 percent. Pricing increased 3.5 percent.

Don James, chairman and chief executive officer, said, “Demand for our products continues to benefit from a recovery in private construction activity, particularly residential construction. As a result, each of our operating segments reported earnings improvement in the fourth quarter. In particular, our Aggregates segment performed very well – reflecting the strong earnings leverage to volume growth. Higher aggregates pricing and shipments coupled with lower unit cost of sales led to a 37 percent improvement in segment earnings and a 390 basis point improvement in aggregates gross profit margin.”

Aggregates segment revenues were $470 million and gross profit was $112 million, an increase of 14 percent and 37 percent, respectively, versus the prior year. Cash gross profit was $4.62 per ton of aggregates, an increase of 12 percent versus the prior year’s fourth quarter and 30 percent above the level at prior peak volumes in 2005.

Many of the company’s key markets realized double-digit volume growth versus the prior year, most notably Arizona, California, Florida, Georgia, North Carolina and Texas. Similarly, the average sales price for aggregates increased from the prior year in most of the company’s key markets, led by growth in Alabama, California, Florida, Texas, and along the Gulf Coast.

Shipments in each of its non-aggregates segments increased versus the prior year, leading to an earnings improvement of $8 million in total. Concrete segment gross profit improved $3 million, due mostly to a 15 percent increase in unit shipments. Asphalt mix segment gross profit increased slightly from the prior year’s fourth quarter. Cement segment gross profit improved $4 million versus the prior year, due to increased volumes and lower operating costs.

For the full year, gross profit increased $93 million and gross profit margin improved 230 basis points with each operating segment reporting higher earnings. Aggregates segment gross profit increased $61 million and gross profit margins improved 140 basis points. Aggregates volume increased 3.5 percent. Aggregates pricing increased 3.4 percent.

Regarding the company’s full year results, James stated, “Growth in the private end markets, particularly residential, continued to drive increased construction activity and demand for our products in 2013. As expected, we realized strong volume growth across all our segments in the second half of 2013. Through our disciplined approach to pricing and cost control, we leveraged volume growth to achieve significant improvements in earnings and profitability. We improved the unit profitability in aggregates, expanded our gross profit margin, and improved earnings from continuing operations by $0.58 per diluted share.

“Our cash generation from operating activities increased sharply in 2013 due in part to improved earnings,” James said. “As we look ahead to 2014, the operating leverage in our aggregates business sets the stage for even stronger earnings growth and cash generation as volumes continue to grow.

“Upon closing of the previously announced sale of our Florida cement and concrete operations for $720 million, which is expected to occur in the first quarter of 2014, we will have delivered on our commitments made two years ago to enhance profitability, divest non-strategic assets and reduce debt,” James continued. “Since that time, we will have increased Adjusted EBITDA by more than $110 million, generated more than $1 billion from the sales of non-strategic assets and future sales production agreements, and reduced total debt approximately $800 million. In addition, we have continued to strengthen our core aggregates business through the acquisition of reserves and quarries in California, Georgia, Texas and Virginia.”

Regarding the company’s outlook, James said that external industry forecasts suggest a recovery in U.S. construction activity is underway. “And we concur,” James said. “In 2014, we expect U.S. aggregates demand in each of the major end markets – residential, non-residential buildings, highways and other public infrastructure – to increase over the prior year for the first time since 2004. Even better, we expect growth in Vulcan-served markets to outperform other markets, led by continued improvement in private construction activity.

“Additionally, we continue to track a number of large-scale transportation and industrial projects in our markets, which we are well positioned to supply,” James said. “While the timing of these large projects can be difficult to forecast, we expect these projects to play a meaningful role in our full year volumes again in 2014. As a result, we expect aggregates shipments in 2014 to increase 4 to 7 percent from the prior year. We expect this year-over-year volume growth to occur across most of our key markets and provide positive momentum for broad-based price growth. Overall, we expect the average freight-adjusted selling price to increase 3 to 5 percent, with the timing and rate of price increases varying across our markets. This top-line growth in aggregates coupled with tight management of our production costs should result in further margin expansion in aggregates.

“Our confidence in a sustained multi-year recovery in demand for aggregates continues to grow,” James said. “Our markets are recovering off trough levels of demand and appear to be outpacing other markets. To support this level of future shipments for 2014 and beyond and to improve further our production costs and operating efficiencies, we anticipate increasing our capital spending in 2014 to approximately $220 million.

“We are excited about our future as the leading aggregates supplier in the U.S.,” James concluded. “We have enhanced our leading reserve position in attractive, high-growth markets in California, Florida, Georgia, Texas and Virginia, and our earnings leverage to volume growth is better today than at the prior peak. The changes we have made in our organizational structure and our technology platforms will allow us to achieve additional leverage as volumes recover. We remain committed to improving our operating results, further strengthening our balance sheet, unlocking capital for more productive uses, and continuing to create value for our shareholders.”