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Vulcan Materials: Vulcan Announces Third Quarter 2015 Results

The following excerpt is from the company's SEC filing.

Gross Profit Increases 39 Percent to $291 Million

Aggregates Pricing Up 8 Percent

– Vulcan Materials Company (NYSE:VMC), the nation’s largest producer of construction aggregates, today announced results for the third quarter ending September 30, 2015.

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 mil lion, 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

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November 3, 2015


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 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.

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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.

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.

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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...