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Vulcan's Aggregates Segment Paces Strong Second Quarter


Vulcan Materials Co. announced results for the quarter ended June 30. Net earnings were $198 million, up 24%, and Adjusted EBITDA was $372 million, up 15% compared to last year's second quarter.   

The double-digit growth was driven primarily by a 16% increase in Aggregates segment gross profit. For the quarter, aggregates shipments increased 4 percent year-over-year, and freight-adjusted aggregates pricing increased 5.9% (5.4% mix-adjusted). Same-store aggregates gross profit incremental flow-through rate for the trailing-12 months was 65%. 

Chairman and Chief Executive Officer Tom Hill said, "We continued to execute well. Our industry-leading unit profitability in aggregates increased from $5.16 to $5.74 per ton, an 11% increase compared to the prior year's second quarter. We remain keenly focused on creating long-term value by compounding our aggregates unit margins, while continuing to operate safely. Shipment growth in the second quarter was solid and consistent with full-year expectations.  Importantly, price improvements were widespread. These results further highlight the strength of our aggregates-focused business, which serves Vulcan's attractive long-term growth markets. 

"Our key markets are benefitting from robust growth in public construction demand, driven by highways," Hill said. "State-level transportation funding increases signed into law in recent years have led to new highway construction starts that are 21% higher than two years ago. This significant increase will support continued shipment growth into transportation-related end markets in the coming years. Shipments into private construction continue to grow as well. Aggregates pricing momentum continues to improve, consistent with our expectations. The continuing improvement in unit profitability is a direct result of our focus on operating disciplines and compounding pricing improvements.  As a result, we reiterate our full-year expectations for 2019 earnings from continuing operations of between $4.55 and $5.05 per diluted share and Adjusted EBITDA of between $1.250 and $1.330 billion." 

Second quarter Aggregates segment sales increased 11%, and gross profit increased 16% to $329 million. Unit margins increased $0.58 per ton, or 11%, to $5.74 per ton. This improvement resulted from solid growth in shipments, price improvements and execution of operating disciplines and efficiencies.

Second quarter aggregates shipments increased 4% (3% on a same-store basis) versus the prio- year quarter. The solid underlying demand fundamentals of increased public funding for highways, along with employment and population growth, helped drive shipment strength across most of the company's footprint, particularly in the Southeast and Mid-Atlantic.  

Wet weather delayed shipments across Illinois, Tennessee and Texas. California overcame another quarter of wet weather to realize shipment growth compared to the prior year. A healthy demand environment, led by transportation-related construction, is driving volume growth and price improvement.

All of the company's key markets reported year-over-year price growth. For the quarter, freight-adjusted average sales price increased 5.9% versus the prior year's quarter. Mix-adjusted average sales price increased 5.4%. Positive trends in backlogged project work, along with demand visibility and customer confidence, support similar price improvement throughout the remainder of 2019.

Second quarter same-store unit cost of sales (freight-adjusted) increased less than 2% compared to the prior year quarter. Trailing 12-month same-store incremental gross profit flow-through rate was 65%, which is slightly ahead of longer-term expectations of 60%.  

Quarterly gross profit flow-through rates can vary widely from quarter to quarter; therefore, the company evaluates this metric on a trailing 12-month basis. The company remains focused on compounding improvements in unit margins throughout the cycle through fixed cost leverage, price growth and operating efficiencies.

Asphalt segment gross profit was $28 million for the second quarter, an increase of $2 million from the prior year. Asphalt shipments increased 8% (5% same-store), and asphalt mix selling prices increased 8%, or $4.34 per ton, in the second quarter. The average unit cost for liquid asphalt was 16% higher than the prior-year quarter. Liquid asphalt costs have remained relatively stable through the first half of the year and have allowed pricing gains to begin offsetting the higher unit costs for liquid asphalt.

Concrete segment gross profit was $13 million, approximating the prior year quarter. Shipments were 0.8 million cu. yd., down from 0.9 million cu. yd. in the prior year. Average selling prices increased 5% and led to modest gains in material margins. 

Calcium segment gross profit was $0.8 million, a slight increase versus the prior-year quarter.