Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Vulcan Materials Co (VMC, Financial) achieved a seventh consecutive quarter of double-digit year-over-year improvement in aggregates unit profitability.
- The company generated $603 million of adjusted EBITDA and expanded its adjusted EBITDA margin by 170 basis points despite a 5% decline in aggregates shipments.
- Freight-adjusted average selling prices improved by 12% or $2.29 per ton compared to the previous year.
- Vulcan Materials Co (VMC) closed two strategic bolt-on acquisitions in Alabama and Texas, enhancing both aggregates production and distribution capabilities.
- The company returned $111 million to shareholders through quarterly dividends and common stock repurchases.
Negative Points
- Unfavorable weather conditions significantly impacted shipments and operating efficiencies, particularly in key markets like Nashville and Dallas-Fort Worth.
- Aggregate shipments are expected to decline between 4% and 7% for the full year due to weather-related disruptions.
- Unit freight-adjusted cash cost of sales increased by 13% or $1.13 per ton, driven by weather-driven inefficiencies.
- The growth in single-family housing demand is slower than initially anticipated, impacting overall volume expectations.
- The company raised its guidance for cost inflation from mid-single digits to high single digits, reflecting volume deleverage and weather-related inefficiencies.
Q & A Highlights
Q: Tom, could you talk a little bit more about just the overall demand environment? I understand there's been pretty tough operating conditions kind of on a year-to-date basis and probably even into July a little bit. Any sort of help in how we should think about the balance of the year, kind of where you see momentum and things like that.
A: Yeah. Good morning, Stanley. I think, Stanley, all of the data and the leading indicators would support demand as we originally expected back in February, with the exception of single-family demand growth. The growth in single family is a little slower than we would have expected maybe four or five months ago, and we'll talk about that a little bit later. But as we look at the current volume guidance, as you said, we had a very wet July that influenced those numbers and will definitely have a negative impact on Q3. Where we ultimately fall in that volume range of a negative 4% to negative 7% will really come down to the number of dry shipping days we have left in the last five months of the year. So I'd frame it underlying demand as expected, except a little bit slower growth in single family, weather has not been our friend. We'll see how the second half goes. I think the good news is we continue to expand unit margins by double digit. And I think our folks have taken a difficult hand in the first half and turn it to a winner, and I'm proud of their performance.
Q: Just wanted to follow up on that point with respect to the second half volume outlook. I was wondering if you could go into maybe a little bit more detail on how to think about the pent-up demand opportunity. I think you did speak to weather influencing you can get all the projects done. But is this the case of projects being delayed and not canceled, and just maybe a little bit more color on how you expect the second half of the year to play out from demand standpoint? Thanks.
A: Sure. I think that if you kind of look at what's happened and take that into the second half, your point of demand doesn't go away. It's absolutely spot on. And you probably got some pent up there and it comes down to what the weather does to us. I think it's -- looking back, if you'll explain the future that we were really impacted by rain in the first half, and I'll give you a couple of examples. In Q2, Nashville had 30 rain days, and it dramatically impacted shipments. Look, we lost half of our shipping days in that Middle Tennessee market, DFW had doubled the amount of rainfall. So we just never dried out and couldn't ship. The flip side of that is, you saw Atlanta weather pretty much normal and shipments were as expected. LA had weather normal and shipments were right on where we had planned. So weather has played a role it will impact Q3 as July was very wet. And now we're experiencing a tropical storm on the East Coast. So kind of a tough start to the third quarter. But as you said, the demand is still there. It's as we thought it was going to be. So these are temporary events and it doesn't go away. So as we get dry days we're shipping just fine.
Q: You raised the guide for cost inflation from mid-single digit to high single digit. Should we think about that incremental cost inflation as just essentially all volume deleverage? And are there any other kind of puts or takes, either good or bad, that we should think about for the second half on costs, whether it's diesel or other items?
A: Yeah. I think you're insightful about the volume impact. It definitely has an impact on us. you saw our first half of 11%. I'd also tell you that it has been -- inflation was as we expected. Weather was a big difference in that and don't underestimate the efficiency impact of trying to run wet sticky material versus dry rock, which just flows a lot better. We think we can cost some of that cost back in the second half, so we can get back to the high single digit for the full year versus the 11% where we are. And I think all of that allows us to continue that double-digit unit margin growth.
Q: Pricing for aggregates was really strong in the quarter, up nicely sequentially. Can you just talk about the confidence around midyear that you focus in place, guidance did not assume major pricing and it feels like you've got momentum just from contracts rolling. So I'm wondering if you could just give us an update on how you expect the tailwind just from natural contracts rolling to play out in the third quarter compared to last year and then the incremental opportunity from midyears?
A: Yeah. I'll give you some color on price and let Mary Andrews talk about sequential. The pricing momentum continues in all markets and all product lines. We had a successful midyear pricing campaign. I think both by customer and by market, I'd call it as we thought it was going to be as anticipated. But remember, as we explained, those midyear prices will have a small impact on '24 but a much bigger impact on '25. So we've already begun to set the solid foundation for pricing for '25. As always, we would ultimately guide you the unit margin growth, which was 12% despite weather and volumes down 5%. So I'm proud of operators hard work. Look, that kind of margin growth is tough to begin with. It's particularly difficult to earn when it's raining, you got mud and the muck. So really thanks to our team.
Q: Please provide some good detail on project on your work. It's not necessarily lost, but it's delayed. And you've also given some good color just on pricing and continuing that double-digit pace. Perhaps pointing to shrink a little bit more on the pricing question because it's a particular focus given lighter volumes even though those volumes are delayed. What type of impact are you seeing from product mix and geographic mix and really not as much looking backwards, but looking forward, in part because our channel checks are showing that you're starting to see a ramp-up of some larger infrastructure projects that were taking a while to build up. So any color that you can talk about in terms of product mix, geographic mix and how that may impact pricing on a go-forward basis?
A: Yeah. So I think you're correct with the ramp-up of infrastructure and public work, you'll see more base in fines, which is a little bit less lower prices. That being said, it's also lower cost and you need that mix to balance your plants, otherwise you get out of whack. I think that being said, while we'll have some impact on price, I don't expect it to have an impact on your margins. So why it's maybe not -- basic material may not be as high as price as a concrete outer asphalt rock, it also comes with a cost benefit. So I would expect us to continue our present pace of elevated unit margins regardless of mix.
Q: Just a deliberate point, but I just
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
