Vulcan Materials Co. announced results for the third quarter ending Sept. 30, 2015. The company’s third quarter results reflect “continued strong revenue growth and margin expansion amidst the gradual recovery in construction activity across most of the company’s markets,” it said.
Total revenues increased $165 million, or 19 percent, to $1.038 billion, while gross profit increased $82 million in total, or 39 percent, to $291 million, with gross profit and gross profit margins improving in each of the Aggregates, Asphalt and Concrete segments. In its core Aggregates segment, the company delivered its ninth consecutive quarter of year-over-year improvements in both shipments and per-ton margins, according to the company.
Same-store aggregates shipments rose 7 percent and same-store freight-adjusted aggregates pricing increased 8 percent from the prior year. Same-store incremental aggregates gross profits equaled 72 percent of incremental freight-adjusted revenues for the quarter and 73 percent for the trailing 12 months.
Although full-year shipments may fall below plan primarily due to weather impacts in the first half of the year, continued pricing and margin improvements lead the company to reconfirm its full-year EBITDA guidance. The remainder of this release provides additional detail regarding the company’s third quarter results and outlook for the remainder of the year.
Tom Hill, president and chief executive officer, said, “The ongoing, gradual recovery in construction activity and demand for our products continued in the third quarter. In fact, many of our customers now face bottlenecks in completing jobs as scheduled, particularly where significant work was delayed by weather in the first half of the year. The pricing environment also remains strong, as customers see improved backlogs and as construction materials suppliers increasingly focus on earning adequate returns on capital deployed. Against this backdrop, our teams continue to execute well and to meet rising customer demands efficiently and effectively. Despite cost pressures in certain areas, unit margins continued to rise across most geographic regions.”
Aggregates shipments increased by 10 percent in total and 7 percent on a same-store basis versus the prior year. The third quarter marked the ninth consecutive quarter of growth in trailing 12-month shipments; however, consumption levels remain well below long-term, mid-cycle levels.
The company continues to see a gradual strengthening in both private and public construction in most of the markets it serves, although supply bottlenecks (e.g., availability of skilled trade labor) appear to impact the rate of growth in several areas. Arizona, California, Florida, Georgia, South Carolina and Texas each saw shipment growth in the quarter of 10 percent or higher. In contrast, Illinois saw shipments decline nearly 10 percent as large project work declined relative to the prior year’s quarter.
Freight-adjusted average sales price for aggregates increased 8 percent on a same-store basis, or $0.86 per ton, versus the prior year’s third quarter, with most markets realizing solid price improvement. On a trailing 12-months basis, average selling prices increased 5 percent. The increase in the rate of pricing growth over recent trend was expected given market conditions and pricing actions taken earlier in the year. The company expects positive pricing momentum to continue into the fourth quarter and 2016.
Overall aggregates unit costs remained roughly in line with the prior year quarter as lower diesel expenditures largely offset higher costs in other areas. Relative to the prior year, unit costs were impacted by unfavorable geographic mix due to relatively higher volumes in both remote-served markets and other markets with higher inherent operating costs.
Unit costs also were affected by increased expenditures for repair and maintenance activities, employee benefits and overtime labor. Compared to last year’s third quarter, cost of revenues for aggregates benefitted by approximately $12 million from lower diesel fuel expenditures. The company remains focused, with a multi-quarter view, on balancing the factors impacting production quality, service quality and cost. Over the trailing 12 months and excluding the impact of diesel price movements and newly acquired operations, aggregates unit cost of sales have remained essentially flat.
During the third quarter, aggregates same-store unit margins continued to expand. Gross profit per ton increased $0.90, or 23 percent, from the prior year. On a trailing-12-month basis, same-store unit gross profit has increased 25 percent, while unit cash gross profit has increased 14 percent to $5.27 per ton.
For the quarter, aggregates same-store freight-adjusted revenues increased $83 million, while same-store gross profit for the segment increased $60 million, a flow-through rate of 72 percent. Because quarterly results can be volatile due to seasonality and other factors, the company encourages investors to also consider longer-term trends. On a trailing-12-month basis, this flow-through rate has consistently exceeded the company’s stated goal of 60 percent since volumes began to recover in the second half of 2013.
In the third quarter, Asphalt segment gross profit was $30 million versus $15 million in the prior year. This year-over-year improvement resulted from higher volumes, effective management of materials margins, and earnings from acquisitions completed since the first half of last year. Same-store asphalt volumes increased 20 percent.
Concrete segment gross profit was $10 million versus $5 million in the prior year’s third quarter. Last year’s third quarter results included the company’s California concrete business that was divested via an asset swap in January 2015. On a same-store basis, sales volumes were flat versus the prior year, while pricing and unit profitability improved and gross profit increased sharply versus the prior year.
Regarding the company’s outlook for the remainder of 2015, Hill stated, “Demand for our products continues to strengthen, and we are encouraged by the strong growth in aggregates pricing throughout our markets. We are reaffirming our expectation for full year Adjusted EBITDA of $775 to $825 million, assuming normal weather patterns in the fourth quarter. Consistent with our expectations throughout the year, these results are driven by strong growth in aggregates gross profit per ton, earnings improvement in our non-aggregates businesses and continuing leverage of our SAG expenses.
“We expect the trends evident thus far in 2015 to extend into 2016,” Hill concluded. “The gradual recovery in demand continues across most of our markets. The pricing environment remains positive. Our teams continue to convert incremental revenue into incremental gross profit at an impressive rate. Our focus will remain on continuous, compounding improvement both operational and financial.”