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Wet Weather Rains On Vulcan's Second Quarter Results


Vulcan Materials Co. announced results for the second quarter ending June 30, 2015. The company is reporting:

  • Total revenues increased $104 million, or 13 percent, to $895 million.
  • Gross profit increased $60 million in total, or 34 percent, to $234 million.
  • Aggregates freight-adjusted revenues increased $75 million, or 15 percent, to $558 million.

The company's second quarter results reflect the continuation of strong margin expansion and improvement in its industry-leading unit profitability in aggregates, according to its report.

Noting extremely wet weather in many of its markets, second quarter revenues increased 13 percent and gross profit increased 34 percent from the prior year, with gross profit and gross profit margins improving in all segments. Same-store aggregates shipments rose 5 percent and same-store freight-adjusted aggregates pricing increased 6 percent from the prior year.

Underlying demand recovery and pricing momentum remain strong. Same-store incremental aggregates gross profits equaled 74 percent of incremental freight-adjusted revenues for the quarter – and 72 percent for the trailing 12 months. Although weather impacts in the second quarter and first half may result in full-year volumes below plan, pricing and margin improvements lead the company to reconfirm its full-year EBITDA guidance," the company said.

Tom Hill, president and chief executive officer, said, "The continuing recovery in construction activity across most of our markets was masked by extremely wet weather, particularly in April and May. Despite deferred shipments and operating cost challenges due to these weather conditions, our local teams delivered another quarter of significant margin improvements – a pattern of performance sustained since the gradual recovery in shipments began eight quarters ago. Customer confidence and the overall demand outlook continue to improve, and, as expected, pricing momentum continues to strengthen. Looking forward, we remain well positioned to serve our customers and to achieve strong earnings growth in 2015 and beyond."

Severe wet weather disrupted shipments across many of the company's key markets. Same-store shipment growth of 5.4 percent in the quarter fell below both plan and recent trends. A monthly break-down of shipping trends illustrates the weather impacts in the quarter. On a same-store basis, aggregates shipments in April and May (when record rainfall was reported in several of its markets) increased 5 percent and 2 percent, respectively, versus the prior year. In contrast, June same-store aggregates shipments increased 9 percent versus the prior year.

Despite weather limiting available construction days in several markets, the second quarter marked the eighth consecutive quarter of growth in trailing 12-month shipments. For the quarter just ended, trailing 12 -month shipments grew 9 percent over the prior year period on a same-store basis. Both public and private demand for aggregates continue to recover across most of our markets; however, current consumption levels remain well below historic trends.

Freight-adjusted average sales price for aggregates increased 6.4 percent on a same-store basis, or $0.71 per ton, versus the prior year's second quarter, with most markets realizing accelerating price improvement. Product mix muted the impact of reported price increases in some key markets, including Virginia, where large shipments of lower-priced fines product contributed to an approximately 1 percent decline in quarterly average selling price over the prior year. In most markets, announced price increases have been well accepted.

Customer service levels remain high, and as noted below, the company continues to invest to meeting rising customer requirements for product quantities and quality. Given these and other indicators, we expect overall aggregates pricing to continue to rise throughout the year, with a higher rate of increase in the second half.

Overall, aggregates operating costs approximated the prior year's second quarter. During the second quarter, several markets experienced higher than expected costs pertaining to repair and maintenance activities and overtime labor, with weather conditions also negatively impacting production efficiencies. Despite lower than planned shipments in the current quarter, the company moved ahead with stripping and other expenditures geared toward meeting rising customer demand.

Diesel related cost-savings mostly offset these higher costs in the quarter. Compared to last year's second quarter, cost of revenues for the aggregates segment benefitted by approximately $9 million from lower fuel expenditures. he company remains focused, with a multi-quarter view, on balancing the several factors impacting production quality, service quality and cost. Over the trailing twelve months, and excluding the impact of diesel price movements and newly acquired operations, aggregates unit cost of sales have declined by approximately 1 percent.

During the second quarter, the company's same-store unit margins continued to expand faster than unit pricing. Gross profit per ton increased $0.76, or 21 percent, from the prior year. On a trailing 12-month basis, same-store unit gross profit has increased 23 percent, while unit cash gross profit has increased 12 percent to $5.04 per ton – a new 12-month high despite cyclically low volumes. These results reflect the company's continued commitment to high customer service levels as well as plant-level cost controls and operating disciplines.

For the quarter, aggregates same-store freight-adjusted revenues increased $59 million, while same-store gross profit for the segment increased $44 million, a flow-through rate of 74 percent. Because quarterly results can be volatile due to seasonality and other factors, the company encourages investors to also consider longer-term trends. On a trailing-12-month basis, this flow-through rate has consistently exceeded the company's stated goal of 60 percent since volumes began to recover in the second half of 2013.