Summit Materials Optimistic Despite Losses in 2018


Summit Materials Inc. announced that for the three months ended Dec. 29, 2018, the company reported net loss attributable to Summit Inc. of $19.2 million, compared to net income attributable to Summit Inc. of $43.0 million in the comparable prior-year period. 

For the year ended Dec. 29, 2018, the company reported net income attributable to Summit Inc. of $33.9 million compared to net income attributable to Summit Inc. of $121.8 million in the comparable prior-year period.

Summit's net revenue increased 1.0 percent in the fourth quarter of 2018 compared to the comparable 2017 period, while net income and adjusted EBITDA decreased in 2018 as compared to 2017, as a result of the increases in input costs which exceeded its revenue gains. 

Summit's net revenue increased 9.0 percent in the year ended Dec. 29, 2018, as compared to 2017, primarily due to acquisitions, offset by decreases caused by less favorable weather conditions in 2018. 

Tom Hill, CEO of Summit Materials, stated, “Although we continued to face input cost headwinds in the fourth quarter, we were very pleased to see our organic average sales prices for aggregates increased by 6.5 percent in the fourth quarter as compared to a year ago. We have also announced our cement price increases for 2019 which will go into effect in the next few months. We continue to believe end market fundamentals remain intact for the construction industry, as well as cement specifically, going into 2019.” 

Summit noted that according to the USGS, aggregates pricing has increased in 70 of the last 75 years, with average price growth in the low single digits. Further the Portland Cement Association has reported that cement consumption is still below long-term trend lines, which suggests room for demand expansion in 2019. Hill commented, “we believe these long term industry trends support our expectation for improved average sales prices in 2019.”

Hill said that underlying demand conditions in most of its markets remain favorable and are expected to remain so into 2019. ”In Summit's public markets, state transportation funding measures in Texas, coupled with steady increases in federal subsidies, are contributing to increased lettings activity. Single-family housing starts and permits remain well below peak levels in Summit's major markets," he said.

During 2018, Summit completed 13 acquisitions for total invested capital of $300 million. Across these 13 transactions, Summit added more than 400 million tons of aggregates reserves to its portfolio.

Brian Harris, CFO of Summit Materials, stated, “Our 2019 Adjusted EBITDA guidance reflects an increase from our 2018 results, and we also expect to reduce the level of capital expenditures to approximately $160 million to $175 million, which we believe is more reflective of levels to be incurred in future years.” 

Summit expects to remain disciplined and selective on future acquisitions. As such, Summit expects to generate increased levels of cash flow from operations less capital expenditures in 2019 as compared to 2018, which it expects will allow it to reduce its leverage ratio by the end of 2019.

Aggregates net revenues increased by 20.9 percent to $93.1 million in the fourth quarter 2018, when compared to the prior-year period. Aggregates adjusted cash gross profit margin declined to 54.8 percent in the fourth quarter 2018, compared to 70.5 percent in the prior-year period, due to higher variable costs. 

Organic aggregates sales volumes decreased 1.9 percent in the fourth quarter 2018, when compared to the prior-year period. Organic average selling prices on aggregates increased 6.5 percent in the fourth quarter 2018 due to improvements in prices within both the West and East segments during the period.

Aggregates net revenues increased by 19.3 percent to $373.8 million during 2018, when compared to the prior-year period. Aggregates adjusted cash gross profit margin declined to 59.4 percent in 2018, compared to 65.3 percent in 2017 due to higher variable costs. 

Organic aggregates sales volumes decreased 0.1 percent in 2018, as compared to 2017. Summit had growth in organic aggregates sales volumes in the West Region, which were more than offset by a decline in organic aggregates sales volumes in the East Region. Organic average selling prices on aggregates increased 3.3 percent in 2018 due to improvements in prices within both the West and East segments during the year.

Cement segment net revenues declined 7.6 percent to $280.8 million during 2018, when compared to 2017. Cement adjusted cash gross profit margin decreased to 44.3 percent in 2018, compared to 47.1 percent in 2017, as productivity gains and a 0.6 percent increase in average sales prices were offset by a higher freight, storage and demurrage costs related to weather-affected cement inventories. 

Organic sales volume of cement declined 8.6 percent in 2018, when compared to 2017, due to high levels of precipitation that disrupted project work during the year, as well as increased competition. 

Cement segment net revenues declined 9.5 percent to $67.4 million in the fourth quarter 2018, when compared to the prior-year period. Cement adjusted cash gross profit margin decreased to 46.4 percent in the fourth quarter, compared to 49.9 percent in the prior-year period, as margins were impacted by the same factors noted above. 

Organic sales volume of cement declined 10.1 percent in the fourth quarter, when compared to the prior year period, due to high levels of precipitation and cold weather that disrupted project work during the quarter, as well as increased competition. Organic average selling prices on cement increased 0.1 percent in the fourth quarter, when compared to the prior-year period.