Vulcan Materials Co. announced results for the third quarter ended Sept. 30, 2018. Third quarter earnings from continuing operations were $180 million, or $1.34 per diluted share. Net earnings increased 65 percent to $179 million and Adjusted EBITDA increased 13 percent from the prior year’s third quarter to $353 million.
- Total revenues increased $145 million, or 13 percent, to $1.2 billion.
- Gross profit was $343 million versus $304 million in the prior year.
- Aggregates segment sales increased $125 million to $984 million.
- Shipments increased 5 million tons, or 10 percent, to 56 million tons.
- Freight-adjusted sales price increased 2 percent to $13.35 per ton.
- Segment gross profit increased $46 million, or 18 percent, to $304 million.
- Asphalt, Concrete and Calcium segment gross profit was $39 million, collectively.
Tom Hill, chairman and chief executive officer, said, “Our operating disciplines and execution were very good under difficult conditions that included weather challenges and higher diesel costs. Severe weather impacted our ability to serve customers in a number of key markets, but it didn’t stop us from improving our unit profitability and realizing double-digit earnings growth in our core aggregates business. Aggregates pricing continued to march higher in the third quarter and unit costs declined, resulting in same-store earnings flow-through of more than 60 percent.”
On a same-store basis, gross profit for the company’s core Aggregates segment increased 15 percent to $295 million. This same-store gain was driven by a 6 percent increase in shipments and an 8 percent increase in gross profit per ton, to $5.45.
The improvement in unit profitability was supported by both higher selling prices and lower operating costs. The gross profit flow-through rate on same-store incremental segment sales excluding freight and delivery was 65 percent in the third quarter. The company estimates that weather conditions impacted third quarter earnings by approximately $27 million, as compared to $30 million in the prior year’s third quarter.
“We remain focused on executing at a high level and capitalizing on the above-average demand growth in our markets,” Hill said. “The aggregates shipment growth rate seen in the third quarter should continue for the balance of the year. Aggregates pricing continues to show upward momentum and the rate of price growth will continue to improve during the fourth quarter given additional pricing actions implemented earlier this year in certain markets.
“Looking ahead to 2019, our business is positioned for continued shipment growth, compounding pricing improvements, and further gains in unit profitability in 2019,” Hill continued. “Vulcan-served markets are benefitting disproportionally from both growing public construction demand and continued growth in private demand, led by residential demand growth in our markets. We expect our aggregates shipment and price momentum to continue in 2019 leading to mid-single-digit growth in both.”
In its aggregates segment, growth in gross profit accelerated again in the third quarter despite severe weather in key markets and a 28 percent increase in diesel cost per gallon. Third quarter segment gross profit increased 18 percent to $304 million, or $5.41 per ton.
Segment gross profit flow-through rate continues to move towards longer-term expectations of 60 percent. During the third quarter, same-store incremental gross profit was 65 percent of incremental segment sales excluding freight and delivery, and 52 percent year-to-date. Although quarterly gross profit flow-through rates can vary widely from quarter to quarter, the company expects continued flow-through improvement in the fourth quarter.
Third quarter aggregates shipments increased 10 percent (6 percent on a same-store basis) versus the prior-year quarter. Shipments in most markets outside those impacted by severe weather realized solid growth versus the prior year. Shipment growth in North Carolina and Virginia was interrupted due to the impact of Hurricane Florence and same-store shipment growth in most Texas markets was limited due to extremely wet weather in September.
For the quarter, freight-adjusted average sales price for aggregates increased 2 percent versus the prior-year quarter, with the growth rate negatively affected by weather-impacted shipments in higher-priced markets such as North Carolina and Virginia as well as strong shipment growth in relatively lower-priced markets such as Alabama, Arizona and Illinois. Excluding this mix impact, aggregates price increased 3 percent. Positive trends in backlogged project work along with demand visibility, customer confidence, rising diesel prices, and logistics constraints support continued upward pricing movements for the remainder of the year and into 2019.
Same-store unit cost of sales (freight-adjusted) decreased 2 percent versus the prior-year quarter as fixed cost leverage and other operating efficiencies more than offset the 28 percent increase in the unit cost for diesel fuel and weather-related operating inefficiencies.
The company said it has invested $53 million in internal growth capital projects. Current projects underway include securing new aggregates reserves, developing new production sites, enhancing the company’s distribution capabilities, and selectively expanding asphalt and concrete production capabilities. The company now plans for $300 million in internal growth capital expenditures during 2018.
Regarding the company’s outlook, Hill stated, “Our execution in the third quarter overcame weather challenges in key markets and delivered strong incremental earnings. We are focused on finishing 2018 strong and carrying that momentum forward. Despite Hurricane Michael’s impact on shipments in the Gulf Coast and Southeastern markets in early October and continued wet weather in Texas, aggregates shipment growth for the fourth quarter should approximate the same-store growth experienced in the third quarter. The underlying direction of price remains clear, strongly supported by our strategic and tactical focus on compounding pricing improvements. We expect aggregates pricing to continue strengthening throughout the remainder of the year and into 2019. Our preliminary outlook for 2019 includes mid-single digit growth in both aggregates volume and price.