Vulcan Materials has announced results for the third quarter ended September 30, 2017.
Hurricanes Harvey and Irma negatively affected more than half of the Company's operational footprint in the third quarter. Important Southeastern markets, particularly Florida and Georgia, as well as coastal markets in Texas and along the central Gulf Coast were disrupted. Prolonged extreme weather conditions limited both revenue growth and profitability. Aggregates shipments increased 1 percent and pricing improved 3 percent versus the prior year's third quarter. Overall, both gross profit and operating earnings improved slightly compared to the prior year.
Tom Hill, Chairman and Chief Executive Officer, said, "Storms disrupted the third quarter shipment pattern in a number of our stronger growth markets. Absent the impact of these storms, our daily shipping pace would have been at least 7 percent higher than the prior year during August and September, and in line with expectations. We are still experiencing some lingering effects from these storms on plant efficiency and shipment levels, which will take some time to work through. Underlying demand, however, remains solid, the pricing environment remains positive and our unit profitability in aggregates continues to strengthen. On a same-store basis, our third quarter gross profit per ton was essentially flat while our cash gross profit per ton set a third quarter record despite the severe weather. I am very encouraged by these trends, which should provide good momentum into 2018.
"Our business remains on track with our longer-term goals and expectations. Growth in new construction starts in our markets continues to outpace the rest of the U.S. Recent acquisitions are performing well and should make meaningful contributions to our earnings growth in 2018 and beyond. We remain confident in the sustained, multi-year recovery in materials demand across our markets and in the further compounding improvements to our unit profitability. However, given the shortfall in shipments to date and due to certain lingering effects of third quarter weather events on fourth quarter shipments, pricing and costs, we now expect full year aggregates shipments to approximate the prior year, with full year Adjusted EBITDA of approximately $1 billion."
Third Quarter Summary (compared with prior year's third quarter)
- Total revenues increased $87 million, or 9 percent, to $1.09 billion
- Gross profit was $306 million versus $304 million in the prior year
- Aggregates segment sales increased $37 million to $859 million and freight-adjusted revenues increased $27 million, or 4 percent, to $669 million
- Shipments increased 0.7 million tons, or 1 percent, to 50.9 million tons
- Freight-adjusted sales price increased $0.37 per ton, or 3 percent
- Segment gross profit was $259 million versus $262 million in the prior year
- Asphalt, Concrete and Calcium segment gross profit improved $4 million, collectively
- SAG was $73 million, down $3 million, or 90 basis points as a percentage of total revenues
- Net earnings were $109 million versus $142 million in the prior year
- Adjusted EBIT was $232 million, an increase of $3 million, or 1 percent
- Adjusted EBITDA was $312 million, an increase of $11 million, or 4 percent
- Earnings from continuing operations were $0.82 per diluted share versus $1.07 per diluted share. Current year results include charges of $0.22 per share for early debt retirement in July
- Adjusted earnings from continuing operations were $1.04 per diluted share versus $1.02 per diluted share in the prior year
Trailing-Twelve-Month Summary (compared with prior twelve-month period)
- Total revenues were $3.79 billion, an increase of $209 million, or 6 percent
- Gross profit was $997 million, a decrease of $18 million, or 2 percent
- Aggregates segment sales increased $82 million to $3.04 billion and freight-adjusted revenues increased $60 million, or 3 percent, to $2.35 billion
- Shipments decreased 2.7 million tons, or 1 percent, to 180.3 million tons
- Freight-adjusted sales price increased $0.52 per ton, or 4 percent
- Segment gross profit decreased $33 million, or 4 percent, to $861 million
- Asphalt, Concrete and Calcium segment gross profit improved $15 million, collectively
- SAG was $318 million, in line with full year expectations
- Net earnings were $386 million, a decrease of $10 million
- Adjusted EBIT was $679 million, a decrease of 2 percent
- Adjusted EBITDA was $979 million, in line with the prior twelve months
- Earnings from continuing operations were $2.77 per diluted share versus $3.00 per diluted share
- Adjusted earnings from continuing operations were $2.97 per diluted share versus $3.08 per diluted share
Segment Results
Aggregates
Aggregates shipments increased 1 percent versus the prior year's quarter. Shipment trends in aggregates were disrupted by hurricanes across the Company's Florida, Georgia, Gulf Coast, North Carolina, South Carolina and coastal Texas markets. Markets outside of these areas, combined to grow mid-single digit versus the prior year's third quarter – more in line with trends and expectations.
Broad pricing momentum continued across the Company's footprint with most markets realizing price growth in the third quarter. For the quarter, same-store freight-adjusted average sales price for aggregates increased 3 percent versus the prior year, or $0.42 per ton, despite a negative geographic and product mix impact. Excluding mix impact, aggregates price increased 4 percent. The overall pricing climate remains favorable as visibility to a sustained recovery improves and as construction materials producers stay focused on earning adequate returns on capital.
Third quarter Aggregates segment gross profit was $259 million, or $5.09 per ton. These results were slightly lower than the prior year as a result of weather events in the current year's third quarter. Weather-related disruptions impaired shipments and drove inefficiencies that limited revenue growth and earnings improvement. Product mix, partly due to aggregates needs immediately after the hurricanes, negatively impacted price growth by approximately 100 basis points. An 18 percent increase in the unit cost of diesel fuel and costs related to the transition to two new, more efficient ships to transport aggregates from our quarry in Mexico negatively impacted segment gross profit by $7 million in comparison to the prior year.
Asphalt, Concrete and Calcium
Our non-aggregates segments' third quarter gross profit was $46 million, a 9 percent increase over the prior year period.
Asphalt segment gross profit decreased $2 million to $31 million. Shipments were 3.1 million tons in total and 2.8 million tons on a same-store basis. Shipments in the prior year were 2.9 million tons. An 18 percent increase in liquid asphalt unit cost negatively affected materials margins.
Concrete segment gross profit was $14 million in the quarter compared to $9 million in the prior year period. Shipments increased 20 percent versus the prior year. On a same-store basis, volumes increased 8 percent, as volumes in Virginia (the Company's largest concrete market) drove most of the year-over-year increase. Materials margins and unit gross profit in concrete also improved versus the prior year.
Calcium segment gross profit was $0.7 million versus $0.8 million in the prior year.
On a trailing-twelve-month basis, total gross profit in our non-aggregates segments was $136 million, a 12 percent increase from the prior year's comparable period.
Growth, Capital Allocation, and Financial Position
As of September 30, year-to-date capital expenditures were $367 million. This amount included $137 million invested in internal growth projects to enhance the Company's aggregates distribution network to markets without local aggregates reserves, as well as development of new sites and other growth investment projects. Core capital investments to replace existing property, plant and equipment made up the remaining $230 million, and are expected to be approximately $300 million for the full year.
The Company remains active in the pursuit of bolt-on acquisitions and other value-creating growth investments. Since January, the Company has closed acquisitions totaling $212 million. These acquisitions complement our existing positions in certain California, Illinois, New Mexico and Tennessee markets.
The Company expects to close the Aggregates USA acquisition during the fourth quarter of this year.
At the end of the third quarter, total debt was $2.8 billion and cash was approximately $700 million. Retirement of notes due in June and December of 2018 was completed in July for $566 million using part of the proceeds from the $1 billion of new notes issued in June. The remainder of the proceeds will be used to help fund acquisitions and other growth investments including the Aggregates USA acquisition. One-time charges related to this early debt retirement were $46 million, or $0.22 per diluted share. Full year pretax interest expense will be approximately $190 million, including the one-time charges incurred in the third quarter for the early debt retirement.
Selling, Administrative and General (SAG) and Other Operating Expense
SAG expenses in the quarter were $73 million. Trailing-twelve-month SAG expenses were $318 million, in line with full-year expectations.
Other operating expense was $4 million in the third quarter and included non-routine business development charges of $9 million, an asset purchase agreement termination fee received totaling $8 million, and approximately $3 million of recurring expenses not included in cost of revenues. The first two items were removed from adjusted earnings for the quarter.
Demand and Earnings Outlook
Regarding the Company's earnings outlook for 2017, Mr. Hill stated, "We are excited about the growth opportunities ahead of us. Leading indicators, such as growth in the pre-construction pipeline and in construction starts in our markets, as well as growth in our own order backlogs, point toward a return to growth in 2018 and beyond. Private demand continues to grow and public demand is firming up after relative weakness during the last 18 months.
"Our confidence in the longer term outlook for our business remains strong. Our industry-leading core profitability in aggregates keeps improving and positions us well for future earnings growth. We have the financial strength to continue making smart growth investments that fit us best and we are committed to continuous improvement in safety, customer service and operational efficiencies."
Conference Call
Vulcan will host a conference call at 9:00 a.m. CDT on November 2, 2017. A webcast will be available via the Company's website at www.vulcanmaterials.com. Investors and other interested parties may access the teleconference live by calling 323-794-2423 or 800-289-0438 approximately 10 minutes before the scheduled start. The conference ID is 7396647. The conference call will be recorded and available for replay at the Company's website approximately two hours after the call.
Vulcan Materials Company, a member of the S&P 500 Index, is the nation's largest producer of construction aggregates, and a major producer of other construction materials.
