Vulcan Announces Third Quarter 2015 Results

BIRMINGHAM, Ala., Nov. 3, 2015 /PRNewswire/ -- Vulcan Materials Company (NYSE: VMC), the nation's largest producer of construction aggregates, today announced results for the third quarter ending September 30, 2015.

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The Company's third quarter results reflect continued strong revenue growth and margin expansion amidst the gradual recovery in construction activity across most of the Company's markets.  Third quarter revenues increased 19 percent and gross profit increased 39 percent from the prior year to $291 million, with gross profit and gross profit margins improving in each of the Aggregates, Asphalt and Concrete segments. In its core Aggregates segment, the Company delivered its ninth consecutive quarter of year-over-year improvements in both shipments and per-ton margins.  Same-store aggregates shipments rose 7 percent and same-store freight-adjusted aggregates pricing increased 8 percent from the prior year.  Same-store incremental aggregates gross profits equaled 72 percent of incremental freight-adjusted revenues for the quarter – and 73 percent for the trailing twelve months.  Although full-year shipments may fall below plan primarily due to weather impacts in the first half of the year, continued pricing and margin improvements lead the Company to reconfirm its full-year EBITDA guidance.  The remainder of this release provides additional detail regarding the Company's third quarter results and outlook for the remainder of the year.

Third Quarter Summary (compared with prior year's third quarter)

• Total revenues increased $165 million, or 19 percent, to $1.038 billion
• Gross profit increased $82 million in total, or 39 percent, to $291 million 
• Aggregates freight-adjusted revenues increased $97 million, or 18 percent, to $629 million
  • Total shipments increased 10 percent, or 4.8 million tons, to 52.6 million tons; same-store shipments increased 7 percent, or 3.5 million tons
  • Segment gross profit increased $63 million, or 33 percent, to $251 million
  • Incremental gross profit as a percent of freight-adjusted revenues was 65 percent; on a same-store basis, this metric was 72 percent
  • Average freight-adjusted sales price increased 8 percent
• Asphalt, Concrete and Calcium segment gross profit improved $19 million, collectively
• SAG remained in line with expectations, declining as a percentage of total revenues
• Adjusted EBIT was $214 million, an increase of $68 million, or 47 percent
• Adjusted EBITDA was $282 million, an increase of $66 million, or 31 percent
• Earnings from continuing operations were $0.93 per diluted share versus $0.51 per share in the third quarter of 2014.  Included in these results are:
  • $0.02 per diluted share in the current year's quarter for charges associated with acquisitions, divestitures and restructuring
  • $0.03 per diluted share in the prior year's quarter for charges associated with acquisitions, divestitures and restructuring
• Adjusted for these items, earnings from continuing operations were $0.95 per diluted share in the third quarter versus $0.54 per diluted share in the prior year

Tom Hill, President and Chief Executive Officer, said, "The ongoing, gradual recovery in construction activity and demand for our products continued in the third quarter.  In fact, many of our customers now face bottlenecks in completing jobs as scheduled, particularly where significant work was delayed by weather in the first half of the year.  The pricing environment also remains strong, as customers see improved backlogs and as construction materials suppliers increasingly focus on earning adequate returns on capital deployed.  Against this backdrop, our teams continue to execute well and to meet rising customer demands efficiently and effectively.  Despite cost pressures in certain areas, unit margins continued to rise across most geographic regions."

Segment Results

Aggregates

Aggregates shipments increased by 10 percent in total and 7 percent on a same-store basis versus the prior year.  The third quarter marked the ninth consecutive quarter of growth in trailing twelve month shipments; however, consumption levels remain well below long-term, mid-cycle levels.  The Company continues to see a gradual strengthening in both private and public construction in most of the markets it serves, although supply bottlenecks (e.g., availability of skilled trade labor) appear to impact the rate of growth in several areas.  Arizona, California, Florida, Georgia, South Carolina and Texas each saw shipment growth in the quarter of 10 percent or higher.  In contrast, Illinois saw shipments decline nearly 10 percent as large project work declined relative to the prior year's quarter.

Freight-adjusted average sales price for aggregates increased 8 percent on a same-store basis, or $0.86 per ton, versus the prior year's third quarter, with most markets realizing solid price improvement.  On a trailing twelve months basis, average selling prices increased 5 percent.  The increase in the rate of pricing growth over recent trend was expected given market conditions and pricing actions taken earlier in the year.  The Company expects positive pricing momentum to continue into the fourth quarter and 2016. 

Overall aggregates unit costs remained roughly in line with the prior year quarter as lower diesel expenditures largely offset higher costs in other areas.  Relative to the prior year, unit costs were impacted by unfavorable geographic mix due to relatively higher volumes in both remote-served markets and other markets with higher inherent operating costs.  Unit costs also were affected by increased expenditures for repair and maintenance activities, employee benefits and overtime labor.  Compared to last year's third quarter, cost of revenues for aggregates benefitted by approximately $12 million from lower diesel fuel expenditures.  The Company remains focused, with a multi-quarter view, on balancing the 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 remained essentially flat.

During the third quarter, aggregates same-store unit margins continued to expand.  Gross profit per ton increased $0.90, or 23 percent, from the prior year.  On a trailing-twelve-month basis, same-store unit gross profit has increased 25 percent, while unit cash gross profit has increased 14 percent to $5.27 per ton.

For the quarter, aggregates same-store freight-adjusted revenues increased $83 million, while same-store gross profit for the segment increased $60 million, a flow-through rate of 72 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-twelve-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.

Asphalt, Concrete and Calcium

In the third quarter, Asphalt segment gross profit was $30 million versus $15 million in the prior year.  This year-over-year improvement resulted from higher volumes, effective management of materials margins, and earnings from acquisitions completed since the first half of last year.  Same-store asphalt volumes increased 20 percent. 

Concrete segment gross profit was $10 million versus $5 million in the prior year's third quarter.  Last year's third quarter results included the Company's California concrete business that was divested via an asset swap in January 2015.  On a same-store basis, sales volumes were flat versus the prior year, while pricing and unit profitability improved and gross profit increased sharply versus the prior year. 

The Company's Calcium segment reported gross profit of $0.8 million, a decrease versus the $1.0 million reported in the prior year.

In total, the year-to-date gross profit contribution of these three segments has exceeded plan due to margin improvements resulting from both core operating disciplines and strategic repositioning of our asset portfolio.

Selling, Administrative and General (SAG), Other Operating Expense, and Effective Tax Rate

Overall SAG expenses remain in line with plan, declining by 70 basis points as a percentage of total revenues from the prior year.  In the third quarter, the Company experienced elevated SAG costs of $5 million primarily due to higher pension and other employee benefit costs as well as continued investment in sales force effectiveness and other strategic initiatives.  The Company expects that full-year pension and post-retirement related costs, a portion of which flow through SAG, will be approximately $11 million higher than the prior year.  Other employee benefits costs, such as those associated with enhancements to the employee profit sharing plan, also have risen. In contrast, direct SAG expenses for salaries and wages remained flat with the prior year. The Company intends to further leverage SAG expenses to revenues as volumes recover.

Other operating expense, generally consisting of various cost items not included in cost of revenues, was $8 million versus $3 million in the third quarter of 2014.  The year-over-year increase resulted mostly from environmental charges associated with former sites.  Over the past three years, other operating expenses, exclusive of significant items disclosed individually, have averaged approximately $3 million each quarter.

As a result of steps taken in the second quarter to streamline the Company's corporate legal entity structure, it now expects to use in the future a portion of a $60 million deferred tax asset related to a state-level NOL which has until now been considered unusable.  The resulting tax benefit in the third quarter was $4.7 million.  The Company currently estimates its effective tax rate for the full year to be 28 percent.

Credit Position and Capital Allocation

At the end of the third quarter, total debt outstanding was approximately $2 billion.  This amount includes $85 million of long-term, floating-rate bank borrowings under the Company's $750 million revolving credit facility.  As previously communicated, the Company intends to use additional long-term, floating-rate bank borrowings to refinance the $150 million note maturing in December.  In the absence of other actions, end of year total long-term debt will remain at approximately $2 billion, with $235 million of that amount in the form of floating-rate borrowings.  The Company's ratio of total debt to trailing twelve month Adjusted EBITDA was 2.6 at the end of the third quarter.  The quarter end cash balance was approximately $170 million.

The Company's capital deployment priorities remain unchanged from prior communications.  Capital expenditures for the 2015 calendar year remain on track with plan, although the Company may opt to pull-forward some 2016 spending in order to take advantage of certain procurement savings opportunities.  No material acquisitions or divestitures were closed in the third quarter.  However, the Company will continue to evaluate such opportunities as they arise.  Over time, and subject to the continued recovery of construction activity to more normalized levels, the Company expects to take a balanced approach to capital deployment, one incorporating strategic reinvestment, sustained financial strength and flexibility, and the return of capital to shareholders. 

The performance of the operations the Company has acquired since the beginning of 2014's third quarter continues to improve.  In total, these operations contributed approximately $13 million of EBITDA in the third quarter and $28 million year-to-date.  The full-year EBITDA contribution from these operations may fall short of the Company's original forecast due in part to the timing of capacity expansion investments at certain of the acquired aggregates operations.  The Company remains pleased with the financial return profile and strategic fit of these investments.

Outlook

Regarding the Company's outlook for the remainder of 2015, Mr. Hill stated, "Demand for our products continues to strengthen, and we are encouraged by the strong growth in aggregates pricing throughout our markets.  We are reaffirming our expectation for full year Adjusted EBITDA of $775 to $825 million, assuming normal weather patterns in the fourth quarter.  Consistent with our expectations throughout the year, these results are driven by strong growth in aggregates gross profit per ton, earnings improvement in our non-aggregates businesses and continuing leverage of our SAG expenses.       

"We expect the trends evident thus far in 2015 to extend into 2016.  The gradual recovery in demand continues across most of our markets. The pricing environment remains positive.  Our teams continue to convert incremental revenue into incremental gross profit at an impressive rate.  Our focus will remain on continuous, compounding improvement – both operational and financial."

Conference Call

Vulcan will host a conference call at 11:00 a.m. CST on November 3, 2015.  A webcast will be available via the Company's website at www.vulcanmaterials.com.  Investors and other interested parties in the U.S. may also access the teleconference live by calling 877-840-5321 approximately 10 minutes before the scheduled start.  International participants can dial 678-509-8772.  The conference ID is 65809933.  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.

FORWARD-LOOKING STATEMENT DISCLAIMER
This document contains forward-looking statements.  Statements that are not historical fact, including statements about Vulcan's beliefs and expectations, are forward-looking statements. Generally, these statements relate to future financial performance, results of operations, business plans or strategies, projected or anticipated revenues, expenses, earnings (including EBITDA and other measures), dividend policy, shipment volumes, pricing, levels of capital expenditures, intended cost reductions and cost savings, anticipated profit improvements and/or planned divestitures and asset sales.  These forward-looking statements are sometimes identified by the use of terms and phrases such as "believe," "should," "would," "expect," "project," "estimate," "anticipate," "intend," "plan," "will," "can," "may" or similar expressions elsewhere in this document.  These statements are subject to numerous risks, uncertainties, and assumptions, including but not limited to general business conditions, competitive factors, pricing, energy costs, and other risks and uncertainties discussed in the reports Vulcan periodically files with the SEC.

Forward-looking statements are not guarantees of future performance and actual results, developments, and business decisions may vary significantly from those expressed in or implied by the forward-looking statements.  The following risks related to Vulcan's business, among others, could cause actual results to differ materially from those described in the forward-looking statements: those associated with general economic and business conditions; the timing and amount of federal, state and local funding for infrastructure; changes in Vulcan's effective tax rate that can adversely impact results; the increasing reliance on information technology infrastructure for Vulcan's ticketing, procurement, financial statements and other processes could adversely affect operations in the event such infrastructure does not work as intended or experiences technical difficulties or is subjected to cyber attacks; the impact of the state of the global economy on Vulcan's businesses and financial condition and access to capital markets; changes in the level of spending for private residential and private nonresidential construction; the highly competitive nature of the construction materials industry; the impact of future regulatory or legislative actions; the outcome of pending legal proceedings; pricing of Vulcan's products; weather and other natural phenomena; energy costs; costs of hydrocarbon-based raw materials; healthcare costs; the amount of long-term debt and interest expense incurred by Vulcan; changes in interest rates; the impact of Vulcan's below investment grade debt rating on Vulcan's cost of capital; volatility in pension plan asset values and liabilities which may require cash contributions to the pension plans; the impact of environmental clean-up costs and other liabilities relating to previously divested businesses; Vulcan's ability to secure and permit aggregates reserves in strategically located areas; Vulcan's ability to successfully implement our new divisional structure and changes in our management team; Vulcan's ability to manage and successfully integrate acquisitions; the potential of goodwill or long-lived asset impairment; the potential impact of future legislation or regulations relating to climate change or greenhouse gas emissions or the definition of minerals; and other assumptions, risks and uncertainties detailed from time to time in the reports filed by Vulcan with the SEC. All forward-looking statements in this communication are qualified in their entirety by this cautionary statement.  Vulcan disclaims and does not undertake any obligation to update or revise any forward-looking statement in this document except as required by law.