Vulcan Materials Co. announced results for the fourth quarter and year ended Dec. 31, 2018. Net earnings were $124 million and Adjusted EBITDA was $286 million in the fourth quarter. For the full year, net earnings were $516 million and Adjusted EBITDA was $1.132 billion (an increase of 15 percent) despite significantly higher energy costs.
Fourth quarter segment gross profit increased 24 percent to $256 million, or $5.16 per ton. As a percentage of segment sales, gross profit margin expanded from 26.8 percent in the prior year to 29.3 percent due to solid growth in shipments, compounding price improvements and cost control. For the full year, segment gross profit increased 16 percent to $992 million, or $4.93 per ton.
Full year, same-store incremental gross profit was 64 percent of incremental segment sales excluding freight and delivery, in-line with longer-term expectations of 60 percent. As a reminder, quarterly gross profit flow-through rates can vary widely from quarter to quarter; therefore, the company evaluates this metric on a trailing-12 month basis.
Fourth quarter aggregates shipments increased 8 percent (4 percent on a same-store basis) versus the prior-year quarter. Daily shipping rates in October and November were slowed by Hurricane Michael and wet weather in Texas and a number of Southeastern markets.
Strong shipment growth continued in Alabama, Arizona, Florida and Illinois. Shipment growth in Texas and Virginia rebounded after weather-related interruptions in September and October.
Full-year aggregates shipments increased 10 percent (6 percent on a same-store basis) led by double-digit growth in Alabama, Arizona, Florida, Illinois, Tennessee and Texas. Most other key markets realized flat-to-modest growth in full-year shipments as compared to the prior year. In Virginia, volumes declined 9 percent due mostly to wet weather experienced throughout the first half of the year.
For the quarter, freight-adjusted average sales price for aggregates increased 2 percent versus the prior year’s quarter, with the growth rate negatively affected by strong shipment growth in relatively lower-priced markets such as Alabama, Arizona and Illinois. Excluding mix impact, aggregates price increased 5 percent versus the prior year’s fourth quarter.
Throughout 2018, pricing momentum continued to improve as the year-over-year growth rate in average sales price increased each quarter. For the year, freight-adjusted aggregates pricing increased 1.4 percent. On a mix-adjusted basis, pricing increased 3.5 percent versus the prior year.
Positive trends in backlogged project work along with demand visibility, customer confidence and logistics constraints support continued upward pricing movements in 2019.
Fourth quarter same-store unit cost of sales (freight-adjusted) decreased compared to the prior year quarter as fixed cost leverage and other operating efficiencies more than offset a 17 percent increase in the unit cost for diesel fuel. For the year, same-store unit cost of sales (freight-adjusted) decreased 2 percent, more than offsetting a 25 percent increase in the unit cost for diesel fuel.
The company remains focused on compounding improvements in unit margins throughout the cycle through fixed cost leverage, price growth and operating efficiencies. Since the recovery began in the second half of 2013, gross profit per ton in aggregates has compounded at an average annual growth rate of 13 percent.
Tom Hill, chairman and chief executive officer, said, “Our fourth quarter results reflect a strong finish to the year. Solid shipment growth, compounding price improvements and strong operating efficiencies in our aggregates business contributed to double-digit growth in revenues and operating earnings. Aggregates pricing continued its upward momentum, and unit profitability expanded further despite higher costs for diesel fuel. This demonstrates the resiliency of our aggregates-centric business model. Our conversion of incremental aggregates sales into aggregates earnings was strong again in the fourth quarter – contributing to a same-store segment gross profit flow-through rate of 64 percent for the year.
“Our aggregates-focused business is well positioned for further gains in our industry-leading unit profitability in aggregates,” Hill stated. “Since the recovery began in the second half of 2013, our core operating and sales disciplines have contributed to 13 percent average annual growth in aggregates gross profit per ton. We expect double-digit earnings growth again in 2019, given the strength of our operational performance and continuing growth in public sector demand. Aggregates pricing momentum continues to improve. Mix-adjusted pricing in the fourth quarter increased 5 percent, and we expect price growth in 2019 at a similar rate.
“In our key markets across the United States, we are benefitting disproportionally from both strong growth in public construction demand and continued solid growth in private demand,” Hill concluded. “For 2019, we expect reported earnings from continuing operations of between $4.55 and $5.05 per diluted share and Adjusted EBITDA of between $1.250 and $1.330 billion.”