BIRMINGHAM, Ala., Feb. 14, 2019 /PRNewswire/ -- Vulcan Materials Company (NYSE: VMC), the nation's largest producer of construction aggregates, today announced results for the fourth quarter and year ended December 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.
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. 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. 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."
Fourth quarter and full-year highlights include the following:
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-twelve 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.
Asphalt, Concrete and Calcium
Asphalt segment gross profit of $7 million for the fourth quarter was $16 million lower than the prior year's quarter due to lower material margins. Although asphalt mix selling prices increased 7 percent in the fourth quarter, or $3.74 per ton, a 54 percent increase in unit costs for liquid asphalt more than offset the price improvement. Full year segment gross profit was $56 million versus $91 million in the prior year. For the full year, higher liquid asphalt costs negatively affected segment earnings by $54 million. Pricing gains are beginning to offset higher liquid asphalt costs, but their impact will be gradual during 2019.
Concrete segment gross profit improved slightly for the quarter versus the prior year's fourth quarter. Same-store shipments decreased 7 percent year-over-year. Shipment growth in California partially offset lower shipments in Virginia (the Company's largest concrete market) and Texas due in part to wet weather. Same-store average price increases of 3 percent led to a 5 percent gain in same-store material margins. Full year segment gross profit increased 10 percent to $50 million.
Calcium segment gross profit was $0.5 million approximating the prior year's fourth quarter. Full year segment gross profit increased 10 percent to $2.7 million.
Capital Allocation and Financial Position
For the full year, capital expenditures were $469 million. This amount included $222 million of core operating and maintenance capital investments to improve or replace existing property, plant and equipment. In addition, the Company invested $247 million in internal growth projects to secure new aggregates reserves, develop new production sites, enhance the Company's distribution capabilities, and support the targeted growth of its asphalt and concrete operations. During 2019, the Company expects to spend approximately $250 million on maintenance capital and $200 million for internal growth projects that are largely underway.
The Company remains active in the pursuit of bolt-on acquisitions and other value-creating growth investments. The Company closed four acquisitions during 2018 for cash consideration of $221 million. These acquisitions complement our existing positions and expand our capabilities in Alabama, California, and Texas markets.
Full year pretax interest expense, net was $137 million versus $291 million in the prior year. The prior year included pretax charges of $153 million associated with debt refinancing activity.
During the year, the Company returned $282 million to shareholders, compared to $193 million in the prior year, through dividends and share repurchases. At year end, total debt was $2.9 billion, or 2.6 times full year Adjusted EBITDA compared to 2.9 times at the prior year end.
For 2018, net earnings were $516 million, and the business generated approximately $925 million of after-tax cash flows from earnings (defined as Adjusted EBITDA less working capital change (excluding cash and debt), operating and maintenance capital, and cash taxes).
The Company's capital allocation and investment-grade rating priorities remain unchanged.
Selling, Administrative and General (SAG) Expenses and Taxes
SAG expenses in the quarter were $84 million, slightly lower than the prior year. For the full year, SAG expense was $333 million, or 7.6 percent as a percentage of total revenues, down from 8.4 percent in 2017. The Company remains focused on further leveraging its overhead cost structure.
Tax expense for the year was $105 million (effective tax rate of 16.9 percent) compared to the prior year tax benefit of $232 million. The prior year's fourth quarter tax benefit included $268 million of net benefit associated with the Tax Cuts and Jobs Act enacted in December 2017 and $29 million of benefit tied to state-level net operating loss carryforwards.
Demand and Earnings Outlook
Regarding the Company's outlook Mr. Hill stated, "We delivered strong incremental earnings in 2018 and are well positioned to carry that momentum forward this year. We expect solid growth in private demand and strong growth in public demand. Above-average demand growth in Vulcan markets compared to the rest of the U.S. further supports our positive outlook for shipment growth. The underlying direction of unit profitability remains clear, strongly supported by our strategic and tactical focus on compounding pricing improvements. We expect double-digit earnings growth in 2019."
Management expectations for 2019 include:
- Aggregates shipments growth of 3 to 5 percent
- Aggregates freight-adjusted price increase of 5 to 7 percent
- Fifteen to twenty percent growth in Asphalt, Concrete and Calcium gross profit, collectively
- SAG expenses of approximately $355 million
- Adjusted EBITDA of $1.250 to $1.330 billion
- Interest expense of approximately $130 million
- Depreciation, depletion, accretion and amortization expense of approximately $360 million
- An effective tax rate of approximately 20 percent
- Earnings from continuing operations of $4.55 to $5.05 per diluted share
Vulcan will host a conference call at 10:00 a.m. CT on February 14, 2019. A webcast will be available via the Company's website at www.vulcanmaterials.com . Investors and other interested parties may access the teleconference live by calling 800-347-6311, or 720-543-0197 if outside the U.S. approximately 10 minutes before the scheduled start. The conference ID is 7323197. The conference call will be recorded and available for replay at the Company's website approximately two hours after the call.
Vulcan Materials Company, a member of the S&P 500 Index with headquarters in Birmingham, Alabama, is the nation's largest producer of construction aggregates – primarily crushed stone, sand and gravel – and a major producer of aggregates-based construction materials, including asphalt mix and ready-mixed concrete. For additional information about Vulcan, go to www.vulcanmaterials.com .
FORWARD-LOOKING STATEMENT DISCLAIMER
This document contains forward-looking statements. Statements that are not historical fact, including statements about Vulcan's beliefs and expectations, are forward-looking statements. Generally, these statements relate to future financial performance, results of operations, business plans or strategies, projected or anticipated revenues, expenses, earnings (including EBITDA and other measures), dividend policy, shipment volumes, pricing, levels of capital expenditures, intended cost reductions and cost savings, anticipated profit improvements and/or planned divestitures and asset sales. These forward-looking statements are sometimes identified by the use of terms and phrases such as "believe," "should," "would," "expect," "project," "estimate," "anticipate," "intend," "plan," "will," "can," "may" or similar expressions elsewhere in this document. These statements are subject to numerous risks, uncertainties, and assumptions, including but not limited to general business conditions, competitive factors, pricing, energy costs, and other risks and uncertainties discussed in the reports Vulcan periodically files with the SEC.
Forward-looking statements are not guarantees of future performance and actual results, developments, and business decisions may vary significantly from those expressed in or implied by the forward-looking statements. The following risks related to Vulcan's business, among others, could cause actual results to differ materially from those described in the forward-looking statements: those associated with general economic and business conditions; the timing and amount of federal, state and local funding for infrastructure; changes in Vulcan's effective tax rate; the increasing reliance on information technology infrastructure for Vulcan's ticketing, procurement, financial statements and other processes could adversely affect operations in the event that the infrastructure does not work as intended, experiences technical difficulties or is subjected to cyber-attacks; the impact of the state of the global economy on Vulcan's businesses and financial condition and access to capital markets; changes in the level of spending for private residential and private nonresidential construction; the highly competitive nature of the construction materials industry; the impact of future regulatory or legislative actions, including those relating to climate change, wetlands, greenhouse gas emissions, the definition of minerals, tax policy or international trade; the outcome of pending legal proceedings; pricing of Vulcan's products; weather and other natural phenomena, including the impact of climate change; energy costs; costs of hydrocarbon-based raw materials; healthcare costs; the amount of long-term debt and interest expense incurred by Vulcan; changes in interest rates; volatility in pension plan asset values and liabilities, which may require cash contributions to the pension plans; the impact of environmental cleanup costs and other liabilities relating to existing and/or divested businesses; Vulcan's ability to secure and permit aggregates reserves in strategically located areas; Vulcan's ability to manage and successfully integrate acquisitions; significant downturn in the construction industry may result in the impairment of goodwill or long-lived assets; changes in technologies, which could disrupt the way we do business and how our products are distributed; the effect of changes in tax laws, guidance and interpretations, including those related to the Tax Cuts and Jobs Act that was enacted in December 2017; and other assumptions, risks and uncertainties detailed from time to time in the reports filed by Vulcan with the SEC. All forward-looking statements in this communication are qualified in their entirety by this cautionary statement. Vulcan disclaims and does not undertake any obligation to update or revise any forward-looking statement in this document except as required by law.
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