BIRMINGHAM, Ala., July 25, 2019 /PRNewswire/ -- Vulcan Materials Company (NYSE: VMC), the nation's largest producer of construction aggregates, today announced results for the quarter ended June 30, 2019.
Net earnings were $198 million, up 24 percent, and Adjusted EBITDA was $372 million, up 15 percent compared to last year's second quarter. The double-digit growth was driven primarily by a 16 percent increase in Aggregates segment gross profit. For the quarter, aggregates shipments increased 4 percent year-over-year, and freight-adjusted aggregates pricing increased 5.9 percent (5.4 percent mix-adjusted). Same-store aggregates gross profit incremental flow-through rate for the trailing-twelve months was 65 percent.
Tom Hill, Chairman and Chief Executive Officer, said, "We continued to execute well. Our industry-leading unit profitability in aggregates increased from $5.16 to $5.74 per ton, an 11 percent increase compared to the prior year's second quarter. We remain keenly focused on creating long-term value by compounding our aggregates unit margins, while continuing to operate safely. Shipment growth in the second quarter was solid and consistent with full-year expectations. Importantly, price improvements were widespread. These results further highlight the strength of our aggregates-focused business, which serves Vulcan's attractive long-term growth markets.
"Our key markets are benefitting from robust growth in public construction demand, driven by highways. State-level transportation funding increases signed into law in recent years have led to new highway construction starts that are 21 percent higher than two years ago. This significant increase will support continued shipment growth into transportation-related end markets in the coming years. Shipments into private construction continue to grow as well. Aggregates pricing momentum continues to improve, consistent with our expectations. The continuing improvement in unit profitability is a direct result of our focus on operating disciplines and compounding pricing improvements. As a result, we reiterate our full-year expectations for 2019 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."
Highlights as of June 30, 2019 include:
Second quarter segment sales increased 11 percent, and gross profit increased 16 percent to $329 million. Unit margins increased $0.58 per ton, or 11 percent, to $5.74 per ton. This improvement resulted from solid growth in shipments, price improvements and execution of operating disciplines and efficiencies.
Second quarter aggregates shipments increased 4 percent (3 percent on a same-store basis) versus the prior year quarter. The solid underlying demand fundamentals of increased public funding for highways, along with employment and population growth, helped drive shipment strength across most of the Company's footprint, particularly in the Southeast and Mid-Atlantic. Wet weather delayed shipments across Illinois, Tennessee and Texas. California overcame another quarter of wet weather to realize shipment growth compared to the prior year. A healthy demand environment, led by transportation-related construction, is driving volume growth and price improvement.
All of the Company's key markets reported year-over-year price growth. For the quarter, freight-adjusted average sales price increased 5.9 percent versus the prior year's quarter. Mix-adjusted average sales price increased 5.4 percent. Positive trends in backlogged project work, along with demand visibility and customer confidence, support similar price improvement throughout the remainder of 2019.
Second quarter same-store unit cost of sales (freight-adjusted) increased less than 2 percent compared to the prior year quarter. Trailing-twelve month same-store incremental gross profit flow-through rate was 65 percent, which is slightly ahead of longer-term expectations of 60 percent. 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. The Company remains focused on compounding improvements in unit margins throughout the cycle through fixed cost leverage, price growth and operating efficiencies.
Asphalt, Concrete and Calcium
Asphalt segment gross profit was $28 million for the second quarter, an increase of $2 million from the prior year. Asphalt shipments increased 8 percent (5 percent same-store), and asphalt mix selling prices increased 8 percent, or $4.34 per ton, in the second quarter. The average unit cost for liquid asphalt was 16 percent higher than the prior year quarter. Liquid asphalt costs have remained relatively stable through the first half of the year and have allowed pricing gains to begin offsetting the higher unit costs for liquid asphalt.
Concrete segment gross profit was $13 million, approximating the prior year quarter. Shipments were 0.8 million cubic yards, down from 0.9 million cubic yards in the prior year. Average selling prices increased 5 percent and led to modest gains in material margins.
Calcium segment gross profit was $0.8 million, a slight increase versus the prior year quarter.
Capital Allocation and Financial Position
Capital expenditures in the second quarter included $64 million of core operating and maintenance capital to improve or replace existing property, plant and equipment. In addition, the Company invested $40 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 operations. Through the first six months of the year, core operating and maintenance capital investment totaled $131 million, and internal growth projects investment was $95 million. The Company's full-year expectations for 2019 remain unchanged at $250 million on maintenance capital and $200 million on internal growth projects.
During the quarter, the Company returned $41 million to shareholders through dividends, an 11 percent increase versus the prior year quarter. No shares were repurchased during the quarter. At quarter-end, total debt was $2.9 billion, or 2.4 times trailing-twelve month Adjusted EBITDA.
Selling, Administrative and General (SAG) Expenses
SAG expense in the quarter was $96 million versus $89 million in the prior year quarter. The year-over-year increase was due mainly to compensation related expense, including incentives that are tied to earnings expectations and the share price. Additionally, we have made investments in people and processes to accelerate the benefits derived from our sales and operational initiatives. On a trailing-twelve month basis, SAG expense as a percentage of total revenues was 7.6 percent, 30 basis points lower than the prior year period. The Company remains focused on further leveraging its overhead structure.
Regarding the Company's full-year outlook for 2019, Mr. Hill stated, "Overall demand growth in Vulcan markets remains healthy. Public demand growth, led by highways, continues to be robust across our footprint. Current shipments into private construction end markets continue to benefit from the ongoing economic recovery. Demand fundamentals, including population and employment growth, underpin long-term growth in residential and private nonresidential construction. We delivered good incremental earnings in the first half of this year. Unit profitability in Aggregates increased 11 percent during this period, and we are well positioned to carry that momentum forward through the remainder of the year. For the full year, we expect 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."
Vulcan will host a conference call at 10:00 a.m. CT on July 25, 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 800-458-4121, or 720-543-0206 if outside the U.S., approximately 10 minutes before the scheduled start. The conference ID is 3003613. 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: general economic and business conditions; Vulcan's dependence on the construction industry, which is subject to economic cycles; the timing and amount of federal, state and local funding for infrastructure; changes in the level of spending for private residential and private nonresidential construction; 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; 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; the effect of changes in tax laws, guidance and interpretations; 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 Vulcan does business and how Vulcan's products are distributed; 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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