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Vulcan Materials Comes Up Big in Fourth Quarter 2017


Vulcan Materials Co. announced results for the fourth quarter ended Dec. 31, 2017. Total revenues increased $105 million, or 12 percent, to $977 million. Gross profit was $243 million versus $240 million in the prior year. Aggregates segment sales increased $56 million to $770 million and freight-adjusted revenues increased $45 million, or 8 percent, to $596 million. The company also closed its previously announced acquisition of Aggregates USA in the fourth quarter.

For the full-year 2017, total revenues were $3.89 billion, an increase of $298 million, or 8 percent. Gross profit was $1.0 billion, in line with the prior year. Aggregates segment sales increased $134 million to $3.10 billion and freight-adjusted revenues increased $98 million, or 4 percent, to $2.39 billion.

Tom Hill, chairman and chief executive officer, said, "Fourth quarter aggregates shipments showed encouraging momentum. Same-store daily shipment rates were up 8 percent in November and 11 percent in December after being down 3 percent in storm-impacted October. Total aggregates shipments grew 7 percent and aggregates pricing, adjusted for mix, improved 2 percent. Aggregates production costs were negatively impacted by lingering effects from Hurricanes Harvey and Irma as well as by Tropical Storm Nate, rising diesel and distribution costs, and production inefficiencies at certain facilities. Our asphalt and concrete operations, including recent acquisitions in those lines of business, continued to perform well.

"We expect fourth quarter shipment growth to continue into 2018,” Hill continued. “Private demand in Vulcan-served markets continues to recover, and public demand appears to be firming up after a disappointing 2017. The pricing climate for our materials remains positive, supported by solid demand visibility, rising diesel prices, rising cement prices, and expanding contractor margins. For 2018, we expect same-store aggregates shipment growth of 4 to 6 percent and aggregates pricing growth of 3 to 5 percent, albeit with significant variability across individual markets.

"We also expect our margin performance to return to its longer-term trend of continuous, compounding improvements,” Hill said. “Weather-related cost pressures faced in 2017 should not repeat, and rising diesel and distribution costs should flow-through to pricing, although with a lag. Our record safety performance in 2017 underscores our confidence in the strength of our core operating disciplines. Tax reform and the acquisition of Aggregates USA will also support growth in earnings and cash flow. In total, we expect 2018 net earnings of between $4.00 and $4.65 per diluted share and Adjusted EBITDA of between $1.150 and $1.250 billion."

Fourth quarter aggregates shipments increased 7 percent (5 percent same-store basis) versus the prior year's quarter. Shipment trends rebounded in November and December after a sluggish, wet start to the quarter in October. Fourth quarter shipments improved markedly in California and across the Southeast, with most markets experiencing double-digit gains. In contrast, shipment rates continued to lag in Houston and other storm-impacted Gulf Coast markets, with fourth quarter shipments approximately 10 percent below the prior year in these areas.

For the quarter, freight-adjusted average sales price for aggregates increased to $12.95 per ton, a $0.16 or 1 percent gain versus the prior year, despite a negative geographic and product mix impact. Excluding mix impact, aggregates price increased 2 percent. Full-year average sales price for aggregates, adjusted for mix, increased 4 percent, in line with expectations.

Pricing remained particularly strong in California (up 7 percent) and Georgia (up 9 percent) supported by strong visibility to continued demand recovery. Texas, particularly coastal Texas, experienced relative pricing weakness as storms negatively impacted not only total demand but also freight costs and the mix of work.

Fourth quarter Aggregates segment gross profit was $208 million, or $4.52 per ton. These results were lower than the prior year in part due to a 23 percent increase in the cost for diesel fuel, the lingering effects from weather events in the current year's third and fourth quarters and certain expenses related to integrating acquired operations.

Distribution costs were higher due to storm-related ship-loading and barge movement inefficiencies, as well as the transition to new ships and increased transportation-related liability accruals. These items, along with the negative pricing mix noted above, negatively impacted segment gross profit by approximately $20 million in comparison to the prior year.

The company closed the acquisition of Aggregates USA on Dec. 29, 2017 for $610 million, net of proceeds from divestitures. This transaction complements and expands Vulcan's service offerings in Georgia, South Carolina and Florida with 3 granite quarries and 16 rail distribution yards.

The integration is proceeding as planned, although full synergy capture will require at least 18-24 months. For 2018, the company expects the acquired assets to contribute approximately 7 million tons of aggregates shipments and $50 million of EBITDA. The company expects the acquisition to be accretive to 2018 earnings.

Management expectations for 2018 include:

  • Same-store aggregates shipments growth of 4 to 6 percent.
  • Same-store aggregates freight-adjusted price increase of 3 to 5 percent.
  • Approximately 7 million tons of aggregates shipments from Aggregates USA operations.
  • High single-digit gross profit growth in Asphalt, Concrete and Calcium, collectively.
  • An effective tax rate of approximately 20 percent due to changes in federal tax law.

"The ultimate level and quarterly timing of shipments in 2018," concluded Mr. Hill, "will depend in part on the pace of starts and construction activity for larger, publicly-funded projects. However, we have better visibility than we did one year ago. We expect pricing to improve throughout the year, partly in response to rising diesel costs and other inflationary trends. With a return to approximately 5 percent same-store shipment growth, we anticipate a return to the incremental flow-through rates delivered by the company earlier in the recovery cycle."