Vulcan Materials Co. announced results for the third quarter ended Sept. 30, 2016. Total revenues decreased $30 million, or 3 percent, to $1,008 million. Gross profit increased $13 million, or 4 percent, to $304 million.
The company said its third-quarter results reflect continued strong earnings growth and margin expansion despite lower shipment levels. Slower than expected large project starts and extremely wet weather impacted shipments in several key markets throughout the quarter.
Compared with the prior year’s third quarter, aggregates shipments declined 2.3 million tons, or 4 percent, while aggregates pricing increased $0.79 per ton, or 7 percent. Third-quarter aggregates gross profit grew 4 percent, despite slightly lower segment sales. Net earnings for the third quarter increased 13 percent and Adjusted EBITDA increased 6 percent versus the prior year as gross profit margins improved in the Aggregates and Asphalt segments.
For the trailing 12 months, net earnings were $371 million and Adjusted EBITDA was $981 million, which represent gains of 118 percent and 28 percent, respectively, over the comparable prior period. Aggregates shipments for this period grew 5 percent, and pricing increased 8 percent. Incremental aggregates gross profit equaled 80 percent of incremental freight-adjusted revenues. Aggregates gross profit as a percentage of freight-adjusted revenues expanded to 39 percent from 34 percent.
Tom Hill, chairman and chief executive officer, said, “Core profitability in our business continues to strengthen, despite recent volume headwinds in certain markets. So far this year, weather patterns and the timing of large project activity have led to higher month-to-month and state-to-state variability in our shipments, somewhat masking the continuing recovery in demand for construction materials across our footprint. However, our unit margins continue to improve. Per-ton gross profit in our Aggregates segment grew by 9 percent in the third quarter despite lower shipments and uneven production schedules. Year-to-date per-ton gross profit has improved by 22 percent. As a result, we remain on track to reach the low end of our 2016 profit plan despite shipments well below beginning-of-year expectations. Consistent with communications during our late September investor event in Atlanta, we expect full-year 2016 Adjusted EBITDA of $1 billion, a 20 percent increase over the prior year. Longer-term project pipelines are healthy, and the foundations for sustained, multi-year volume and pricing growth remain in place.”
As noted in late September at the company’s Aggregates Day, a noticeable slow-down in trailing 12-month construction starts in March, the timing of certain large projects and weather patterns led to highly variable third quarter shipment results across Vulcan-served markets.
Arizona, Florida, Georgia and North Carolina saw shipment increases of between 12 and 21 percent in the third quarter. In contrast, California, Illinois and Texas experienced shipment declines of between 16 and 21 percent versus the prior year’s third quarter. Weather and other factors impacted shipments most severely during the month of August, with the daily rate of total shipments declining 8 percent from 2015 levels. During August, daily shipment rates in Texas fell more than 30 percent relative to the prior year, shipments in Illinois fell more than 20 percent and shipments in Louisiana fell almost 40 percent.
For the 12 months ended September 30, shipments rose 5 percent over the comparable prior period. Despite these recent gains, demand for aggregates remains well below levels consistent with demographic growth in the U.S. The company believes conditions remain in place for a sustained, multi-year recovery in demand for aggregates, although quarter-to-quarter trends may vary significantly.
For the quarter, freight-adjusted average sales price for aggregates increased 7 percent, or $0.79 per ton, versus the prior year. On a trailing 12-months basis, pricing in all of the company’s major markets has increased versus the prior year’s comparable period. The overall pricing climate remains favorable as visibility to a sustained recovery improves and as construction materials producers stay focused on earning adequate returns on capital.
Third quarter unit cost of sales in the Aggregates segment increased 5 percent versus the prior year’s third quarter. Excluding the benefits of lower unit costs for diesel fuel, unit costs were approximately 6 percent higher in the quarter, due to reduced fixed cost absorption and other cost effects of lower volumes. For the trailing 12 months, unit cost of sales, excluding the impact of lower diesel costs, was essentially flat.
Aggregates segment unit margins continued to increase, including in key markets challenged by recent weakness in shipping rates. Gross profit per ton increased $0.44, or 9 percent, from the prior year’s third quarter. On a trailing 12 months basis, unit gross profit has increased 25 percent, to $4.89 per ton, while unit cash gross profit has increased 19 percent to $6.17 per ton.