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Vulcan's Aggregates Division Paces Strong Quarter


Vulcan Materials Co. announced results for the second quarter ended June 30. Second quarter net earnings were $160 million. Earnings from continuing operations of $160 million compared favorably to $112 million in the prior-year period.

The company reported 11 percent growth in gross profit led by a 13 percent increase in its core Aggregates segment. Aggregates shipments increased 15 percent (11 percent on a same-store basis) and aggregates average selling price, adjusted for mix, rose 3 percent over the prior year.

A 30 percent increase in diesel cost per gal. lowered Aggregates segment gross profit by $7 million. Despite this headwind, second quarter Aggregates segment gross profit increased to $283 million and cash gross profit, on a same-store basis, was $6.55 per ton.

Year-to-date, the flow-through rate on same-store incremental segment sales excluding freight and delivery was 43 percent, or 56 percent excluding the impact of higher diesel fuel costs.

Tom Hill, chairman and chief executive officer, said, "We remain on track with our full-year expectations. Vulcan-served markets are experiencing stronger growth in demand than other markets, and higher public funding for transportation infrastructure is now converting to higher shipments of aggregates. Apart from geographic mix impacts, our pricing momentum continues to strengthen, including in our backlogged work. Our operating disciplines remain strong, and margins should continue to improve as we turn the corner on costs related to last year's storms.

"We expect the strong aggregates shipment growth seen in the second quarter to continue for the balance of the year. We now project full year same-store shipment growth of between 7 and 9 percent, albeit at a lower-priced geographic mix. We reiterate our full-year expectations for 2018 earnings from continuing operations of between $4.00 and $4.65 per diluted share and Adjusted EBITDA of between $1.15 and $1.25 billion," Hill said.

In the second quarter:

  • Total revenues increased $169 million, or 16 percent, to $1.2 billion.
  • Gross profit was $323 million versus $290 million in the prior year.
  • Aggregates segment sales increased $139 million to $956 million and freight-adjusted revenues increased $99 million, or 16 percent, to $731 million.Shipments increased 7 million tons, or 15 percent, to 55 million tons.
  • Freight-adjusted sales price increased 1 percent to $13.29 per ton.
  • Segment gross profit increased $32 million, or 13 percent, to $283 million.
  • Asphalt, Concrete and Calcium segment gross profit was $40 million, collectively.
  • SAG was $89 million, or 7.4 as a percentage of total revenues.
  • Net earnings were $160 million versus $120 million in the prior year.
  • Adjusted EBIT was $239 million versus $211 million in the prior year.
  • Adjusted EBITDA was $325 million, an increase of $37 million, or 13 percent.
  • Earnings from continuing operations were $1.20 per diluted share versus $0.83 per diluted share.
  • Total revenues were $4.13 billion, an increase of $428 million, or 12 percent.
  • Gross profit was $1.03 billion, an increase of $48 million, or 5 percent.

Aggregates segment gross profit through the first half of the year remains on track with full-year expectations, despite higher than expected diesel cost. Second quarter Aggregates segment gross profit increased 13 percent to $283 million, or $5.16 per ton.

Second quarter aggregates shipments increased 15 percent (11 percent on a same-store basis) versus the prior-year quarter. Same-store daily shipment rates for aggregates were strong throughout the quarter, reflecting solid underlying demand, including sustained strength in public construction activity. Many of the company's markets are finally seeing the conversion of higher public funding for transportation into higher shipments of aggregates. "Despite the overall shipment growth reported for the second quarter, shipments in some markets, notably California, do not yet reflect the strength in highway construction activity we see building into 2019 and beyond," the company stated.

For the quarter, freight-adjusted average sales price for aggregates increased 1 percent versus the prior-year quarter, with the rate negatively impacted by relatively faster growth in relatively lower-priced markets.

Excluding this mix impact, aggregates price increased 3 percent. California, Georgia and Virginia realized mid-to-high single digit price growth while prices in Alabama, Arizona and Illinois decreased modestly versus the prior year. Reported freight-adjusted pricing in long-haul markets, where locally available aggregates are not available, was negatively impacted by higher distribution costs versus the prior year.

Over time, these higher distribution costs will be recovered in higher prices. Additionally, positive trends in backlogged project work along with demand visibility, customer confidence, rising diesel prices, and logistics constraints support continued upward pricing movements for the remainder of the year and into 2019.

Same-store unit cost of sales (freight-adjusted) increased 1 percent versus the prior year quarter as fixed cost leverage and other operating efficiencies mostly offset the 30 percent increase in the unit cost for diesel fuel.

Excluding the impact of higher diesel prices, same-store unit costs improved 1 percent compared to the prior year. Through June, the company also continued to experience higher than normal distribution costs due in part to last year's storm events. During the second quarter, the company completed the dredging of its coastal Texas port facilities and took possession of the second of its new, more efficient Panamax-class ships.

The company's Aggregates segment gross profit flow-through rate has begun to move towards longer-term expectations of 60 percent. Through the first half of 2018, same-store incremental gross profit was 43 percent of incremental segment sales excluding freight and delivery, and 56 percent excluding the impact of higher unit prices for diesel fuel – despite the negative impact of geographic mix on these period-over-period comparisons. Although quarterly gross profit flow-through rates can vary widely from quarter to quarter, the company expects continued improvement in the second half of the year.

Regarding the company's earnings outlook for 2018, Hill stated, "Our business is positioned for continued shipment growth, compounding pricing improvements, and further gains in unit profitability in the second half of the year and into 2019. Public construction demand is beginning to join the sustained recovery in private demand and Vulcan-served markets are benefitting disproportionally.

"As a result, we expect aggregates shipment growth for the balance of the year consistent with that experienced in the second quarter. We also expect aggregates pricing to strengthen throughout the remainder of the year and heading into 2019. Geographic and product mix may continue to impact reported average selling prices, but the underlying direction remains clear, strongly supported by our strategic and tactical focus on compounding pricing improvements. The rate at which we convert same-store incremental revenues into incremental gross profit in the Aggregates segment should improve further in the second half, particularly as we move past the storm-related costs of 2017. In total, we project full-year Aggregates segment gross profit in line with our beginning-of-year expectations, as stronger shipments work to offset higher diesel and other input costs," Hill concluded.