Summit Materials Inc. announced results for the second quarter 2018. For the three months ended June 30, the company reported basic earnings per share of $0.32 on net income attributable to Summit Inc. of $35.5 million, compared to basic earnings per share of $0.46 on net income attributable to Summit Inc. of $50.0 million in the prior-year period.
“While net revenue increased 14.8 pecent on a year-over-basis in the second quarter 2018, supported by organic volume growth in our aggregates and products lines of business, Adjusted EBITDA was flat on a year-over-year basis, given lower contributions from our cement segment and Houston operations, together with inflation in our variable costs,” stated Tom Hill, CEO of Summit Materials. “With a finite number of days remaining in the construction season, we have reduced the midpoint of our 2018 Adjusted EBITDA guidance by 7 percent.
“Organic sales volumes in our cement segment were impacted by a combination of high precipitation levels during April and May, together with competitive pressures in the markets we serve,” stated Hill. “Our Houston operations were impacted by a slower start to the construction season than had been anticipated. Looking to the second half of the year, we expect a strengthening in both our cement segment and Houston operations, given accelerating demand in our residential, low-rise commercial and public end-markets.
“The pace of cost inflation in raw materials, freight, labor and fuel exceeded our expectations in the first half of 2018,” continued Hill. “Although we anticipated some measure of cost inflation entering the year, the effective date of our announced price increases lagged behind the impact of higher costs incurred by our business. Importantly, our average selling prices on both materials and products have gained traction entering the third quarter, which we expect will offset these higher variable costs in the second half of the year.
“Demand conditions in most of our markets are strong and are expected to remain so into 2019 and beyond,” continued Hill. “Within our private markets, we are seeing sustained growth in new single-family home construction, given low inventories and positive demographic trends, while in our public markets, state transportation funding measures in Texas, coupled with steady increases in federal subsidies, are contributing to increased lettings activity. In July 2018, aggregates shipments per day increased 5 percent versus the prior-year period and 13 percent versus June 2018.”
Aggregates net revenues increased by 23.1 percent to $103.7 million in the second quarter 2018, when compared to the prior-year period. Aggregates adjusted cash gross profit margin declined to 64.8 percent in the second quarter, versus 68.3percent in the prior-year period, given higher variable costs.
Organic aggregates sales volumes increased 2.3 percent in the second quarter 2018, when compared to the prior-year period. Excluding contributions from the company’s project-dependent sandbusiness in Vancouver, organic aggregates sales volumes increased 4.3 pecent in the second quarter 2018.
Organic growth in aggregates sales volumes was due mainly to higher volumes in the East Region, which more than offset a decline in sales volumes in the West Region, which was impacted by adverse weather conditions during the period. Organic average selling prices on aggregates increased 3.6 percent in the second quarter 2018 due to year-over-year improvements in prices within both the West and East segments during the period.
Cement segment net revenues declined 2.8 percent to $81.8 million in the second quarter 2018, when compared to the prior-year period. Cement adjusted cash gross profit margin declined to 46.5 percent in the second quarter, versus 57.4 percent in the prior-year period, due to higher freight, storage and demurrage costs related to weather-affected cement inventories.
Organic sales volume of cement declined 4.8 percent in the second quarter, when compared to the prior year period, due mainly to high levels of precipitation that disrupted project work during the period, together with competitive pressures in the market. Organic average selling prices on cement increased 1.9 percent in the second quarter, when compared to the prior year period.
“Since May 2018, we have completed four materials-based acquisitions for total invested capital of $75 million,” said Hill. “Recent acquisitions have served to further establish our leadership in well-structured, materials-based markets in Texas, Kansas, Missouri and Virginia. On a year-to-date basis, we have completed 11 acquisitions for total invested capital of $228 million. Across these 1 transactions, we have added more than 300 million tons of aggregates reserves to our portfolio. The acquisition pipeline remains active as we look ahead to the remainder of the year, with multiple transactions currently in various stages of diligence.”
The acquisitions are:
- Olathe Assets (Kansas). The Olathe Assets comprise two quarries, two asphalt plants and two construction and landfill sites. These assets expand the company’s existing operations into the southwestern Kansas City metropolitan area. Summit closed on the acquisition of the Olathe Assets in July 2018.
- Buckingham Slate (Virginia). Buckingham is an aggregates acquisition that expands the company’s market position and reserve base in central Virginia. Summit closed on the acquisition of Buckingham Slate in June 2018.
- Buildex (Missouri). Buildex is a lightweight aggregates business based in western Missouri that provides a complementary product offering to the company’s existing portfolio in the region. Summit closed on the acquisition of Buildex in July 2018.
- XIT (Texas). XIT is an aggregates company that provides further vertical integration of the company’s operations in north Texas. Summit closed on its acquisition of XIT in July 2018.