Summit Materials, a vertically integrated construction materials company, has announced results for the third quarter 2017.
For the three months ended September 30, 2017, the Company reported diluted net income per share of $0.72 on net income of $79.1 million, compared to diluted earnings per share of $0.60 on net income of $44.8 million in the prior year period. On an adjusted diluted basis, excluding tax-related adjustments, the Company reported adjusted diluted net income per share of $0.73 per share on net income of $82.0 million, compared to adjusted diluted earnings per share of $0.71 on adjusted net income of $73.5 million in the prior year period. In the third quarter, the Company recorded a significant benefit related to the valuation of its deferred tax assets that was substantially offset by a corresponding Tax Receivable Agreement (“TRA”) expense. Both of these items are excluded from adjusted net income. Operating income increased by 28.8% to $113.9 million in the third quarter 2017, versus $88.4 million in the prior year period.
“We delivered double-digit year-over-year growth in net revenue, operating income and net income during the third quarter, driven by a combination of increased organic sales volumes in our materials businesses, together with contributions from recently completed acquisitions,” stated Tom Hill, CEO of Summit Materials. “Adjusted EBITDA increased 18.1% year-over-year to $172.7 million, supported by organic growth in our Cement Segment and East Segment. Organic growth contributed nearly 30% of the year-over-year improvement in third quarter Adjusted EBITDA, as we continue to leverage efficiencies afforded by our vertically integrated, decentralized model.”
“Demand fundamentals remain strong in our core regional markets,” continued Hill. “Organic sales volumes of cement and aggregates increased 10.0% and 2.6%, respectively, in the third quarter 2017, when compared to the prior year period. Organic sales volumes of cement in our core northern Mississippi River markets increased significantly on a year-over-year basis in the third quarter, while organic aggregates sales volumes in both the East and West Segments increased versus the prior year period.”
“Our two cement plants located along the Mississippi River corridor are operating at capacity, given continued growth in cement demand throughout the region,” continued Hill. “On a year-to-date basis, cement prices have grown organically by 3.6%, consistent with expectations. Looking to 2018, we anticipate additional growth in cement prices along the Mississippi River corridor.”
“Organic prices on aggregates declined less than 1% in the third quarter, due mainly to sales mix related factors isolated to the West Segment,” continued Hill. “Excluding mix, we estimate organic aggregates prices increased nearly 3% in the third quarter, versus the prior year period.”
“We continue to deliver exceptional margin capture in our materials lines of business,” continued Hill. “During the third quarter, adjusted cash gross profit margin on aggregates increased 130 basis points to a record 73.0% while adjusted cash gross profit margin on cement increased 160 basis points to 50.6%. Temporary disruptions related to Harvey, a category 4 hurricane, impacted operations in Houston, our single largest ready-mix market by volume, resulting in lower overall margin capture in our products line of business in the third quarter.”
“Since our last update in August 2017, we closed on four additional materials-based acquisitions,” noted Hill. “Our acquisitions of Georgia Stone/McLanahan provide us with an entry point into the growing Georgia market, while the acquisition of Alan Ritchey Materials provides us an entry point into the Dallas market. Columbia Silica and Stockman are attractive bolt-on acquisitions that expand our existing footprint in South Carolina and Missouri, respectively. As before, we remain disciplined acquirors, transacting on quality aggregates reserves with high synergy potential. For the full-year 2017, we are maintaining our annualized acquired EBITDA target range of $50 million to $70 million.”
“From a regional perspective, we remain bullish on Texas, where we have existing positions in Houston, Midland/Odessa, Austin, North Dallas, together with Utah, Nevada, North/South Carolina, Virginia and Georgia. Over time, we believe each of these regions stand to benefit from a combination of increased state-level infrastructure investment, stable demand for new single-family homes and the subsequent build-out of low-rise commercial amenities,” noted Hill.
“For the full-year 2017, we expect Adjusted EBITDA to be in a range of $425 million to $435 million, down from the previous range of $440 million to $455 million,” stated Hill. “In the aftermath of Hurricanes Harvey and Irma, sales volumes in our Texas and southeastern U.S. markets temporarily declined below historical levels in September and, to a lesser degree, in October, the combined impact of which has led us to reduce our full-year Adjusted EBITDA guidance.”
“We ended the third quarter with significant available liquidity on our balance sheet with which to support a combination of organic and acquisition-related growth,” stated Brian Harris, CFO of Summit Materials. “As of September 30, 2017, we had $506 million in cash and availability under our revolving credit facility, up from $224 million in the prior year period.”
“Net leverage was 3.7x exiting the third quarter 2017, versus 4.3x in the prior year period,” continued Harris. “Looking ahead, we expect net leverage to be at approximately 3.5x by year-end 2017.”
“We are pleased with our year-to-date performance,” continued Hill. “Although historic volumes of rainfall resulting from the current hurricane season have impacted our full-year outlook, underlying demand conditions remain strong in our private and public end-markets, positioning us for continued profitable growth as we look ahead to 2018.”
Third Quarter 2017 | Financial Performance
Net revenue increased by 19.6% to $574.4 million in the third quarter 2017, versus $480.2 in the prior year period. The improvement in net revenue was primarily attributable to acquisition-related contributions, increased organic sales volumes of cement, aggregates and asphalt, together with increased organic selling prices on cement, ready-mix concrete and asphalt. Operating income increased by 28.8% to $113.9 million in the third quarter 2017, when compared to the prior year period. Adjusted EBITDA increased 18.1% year-over-year to $172.7 million, versus $146.2 million in the prior year period.
In connection with a normal periodic review of its deferred tax assets, the Company released $513.2 million of the valuation allowance against its deferred tax assets that is largely responsible for a $483.6 million income tax benefit realized in the third quarter 2017. Further, given an increase in the probability that deferred tax assets subject to the TRA would be realized, the Company recorded $489.2 million of TRA expense in the third quarter of 2017. The Company has accrued its full liability related to the TRA, which totaled $548.9 million as of September 30, 2017. This accrued liability is not classified as debt for the purposes of the Company’s net leverage calculation.
West Segment: Operating income increased 22.4% to $57.5 million in the third quarter 2017, when compared to the prior year period. Adjusted EBITDA increased by 20.3% to $76.6 million in the third quarter 2017, when compared to the prior year period. Adjusted EBITDA margin was 26.1% in the third quarter 2017, versus 27.0% in the prior year period. Year-over-year organic improvements in sales volumes of aggregates, ready-mix concrete and asphalt, together with acquisition-related EBITDA contributions, were partially offset by lower organic declines in average selling prices on aggregates.
East Segment: Operating income increased by 5.2% to $36.9 million in the third quarter 2017, when compared to the prior year period. Adjusted EBITDA increased by 9.4% to $56.4 million in the third quarter 2017, when compared to the prior year period. Adjusted EBITDA margin declined to 31.5% in the third quarter 2017, versus 33.3% in the prior year period. Year-over-year organic improvements in average selling prices on aggregates and ready-mix concrete and asphalt, improved organic sales volumes of aggregates and asphalt, together with acquisition-related EBITDA contributions, were offset by a sales volume decline in ready-mix concrete, due in part to weather-related factors.
Cement Segment: Operating income increased 7.1% to $35.1 million in the third quarter 2017, when compared to the prior year period. Adjusted EBITDA increased by 16.4% to $46.9 million in the third quarter 2017, when compared to the prior year period. Adjusted EBITDA margin increased to 46.3% in the third quarter 2017, versus 45.0% in the prior year period. A year-over-year increase in average selling prices, organic sales volumes, improved production efficiencies and cost reductions all contributed to improved results.
Third Quarter 2017 | Results by Line of Business
Aggregates Business: Aggregates net revenues increased by 15.7% to $90.6 million in the third quarter 2017, when compared to the prior year period. Aggregates adjusted cash gross profit margin increased to 73.0% in the third quarter 2017, versus 71.7% in the prior year period. Organic aggregates sales volumes increased 2.6% in the third quarter 2017, due mainly to increased demand in north Texas, Utah, Vancouver and additional markets in the southeast. Organic aggregates average selling prices declined 0.8% in the third quarter, mainly in the West Segment, where hurricane-related weather impacted business conditions.
Cement Business: Cement segment net revenues increased 13.1% to $101.3 million in the third quarter 2017, when compared to the prior year period. Cement adjusted cash gross profit margin was 50.6% in the third quarter 2017, versus 49.0% in the prior year period. Organic sales volumes and average selling prices on cement increased 10.0% and 3.2%, respectively, when compared to the prior year period. Strong regional demand in the Company’s northern markets drove organic volume growth in the third quarter, while continued organic growth in sales prices was attributable to previously announced annual price increase effective January 1, 2017.
Products Business: Net revenues increased 23.5% to $280.0 million in the third quarter 2017, when compared to the prior year period. Products adjusted cash gross profit margin declined to 26.1% in the third quarter 2017, versus 28.4% in the prior year period. Organic sales volumes of ready-mix concrete declined 3.1%, versus the prior year period, due to Hurricane-related disruptions in the Houston market. Organic sales volumes of asphalt increased 11.9%, versus the prior year period, given strength in the north Texas, Austin and Utah markets.
Acquisition Program Update
As of October 2017, the Company has completed fourteen acquisitions on a year-to-date basis, including four transactions that have closed since August 2017. Total investment spend across the fourteen acquisitions completed year-to-date 2017 was approximately $402 million, including approximately $94 million for the four acquisitions completed since August 2017.
Alan Ritchey Materials (Southern Oklahoma-Northeast Texas). Alan Ritchey Materials is an aggregates bolt-on acquisition to Summit’s existing business in the northeast Texas market. This acquisition complements Summit’s existing footprint in the region and provides increased exposure to the fast-growing north Dallas market, Alan Ritchey’s primary shipping destination. Summit closed on its acquisition of Alan Ritchey in August 2017.
Georgia Stone Products/McLanahan (Northeast Georgia). Georgia Stone Products is an aggregates bolt-on acquisition comprising two quarries in northeast Georgia. This transaction represents an expansion westwards into Georgia from Summit’s existing position in the Carolinas. Summit closed on this acquisition over August/September 2017.
Columbia Silica (Columbia, South Carolina). Columbia Silica is an aggregates bolt-on acquisition in central South Carolina. This acquisition is a strong complementary fit with the recent Glasscock acquisition also in South Carolina (acquired May 2017) and brings additional scale to Summit’s growing footprint in the region. Summit closed on its acquisition of Columbia Silica in September 2017.
Stockman Quarry (Central Missouri). Stockman is an aggregates bolt-on acquisition to our existing position in central Missouri. This transaction brings new market expansion to Summit’s existing Missouri business. Summit closed on its acquisition of Stockman in October 2017.
Liquidity and Capital Resources
At September 30, 2017, the Company had cash on hand of $287.1 million and borrowing capacity under its revolving credit facility of $218.9 million. The borrowing capacity on the revolving credit facility is fully available to the Company within the terms and covenant requirements of its credit agreement. As of September 30, 2017, the Company had $1.8 billion in debt outstanding.
Financial Guidance and Outlook
Due mainly to the combined effects of Hurricane Harvey, which impacted the Houston market beginning in late August 2017, and Hurricane Irma, which impacted regions of Virginia and South Carolina beginning in early September 2017, the Company is lowering its full-year 2017 Adjusted EBITDA guidance from a range of $440 million to $455 million to a range of $425 million to $435 million. The downwardly revised Adjusted EBITDA outlook includes the partial-year impact of the four acquisitions completed since August 2017. No additional potential acquisitions are included within the Company’s full-year 2017 Adjusted EBITDA guidance.
The Company is raising its full-year 2017 capital spending guidance from a range of $140 million to $160 million, to a range of $180 million to $190 million. The upwardly revised capital spending guidance includes incremental investments related to discretionary organic growth investments, land/reserve acquisitions, together with acquisition-related maintenance expenditures.
Webcast and Conference Call Information
Summit Materials will conduct a conference call today at 11:00 a.m. Eastern time (9:00 a.m. Mountain time) to review the Company’s third quarter 2017 financial results. A webcast of the conference call and accompanying presentation materials will be available in the Investors section of Summit’s website at investors.summit-materials.com. To listen to a live broadcast, go to the site at least 15 minutes prior to the scheduled start time in order to register, download, and install any necessary audio software.
To participate in the live teleconference:
Domestic Live: 1-877-407-0784International Live: 1-201-689-8560Conference ID: 86972581To listen to a replay of the teleconference, which will be available through November 30, 2017:
Domestic Replay: 1-844-512-2921 International Replay: 1-412-317-6671Conference ID: 13670383
