By Therese Dunphy, Editor in Chief

California

At press time, a judge seemed unlikely to accept Duarte’s legal efforts to prevent plans for Vulcan’s 80-acre mine development along its border with Azusa. Norwalk Superior Court Judge Thomas McKnew tentatively ruled against Duarte’s argument to nullify an environmental review document prepared for the mining project by Azusa. Whittier Daily News reports that McKnew said Duarte’s argument that Azusa failed to correctly review alternative mine plans was worth exploring. He specifically noted that there isn’t much case law regarding how alternative plans had to be compared and said he could use some clarity on the topic. The judge also concluded that Azusa made an honest effort to account for the impacts of moving the mining operation. Azusa’s city attorney said she was happy with the judge’s tentative ruling.

Connecticut

Neighbors of a sand and gravel pit are threatening legal action against the town of Simsbury over increased activity at a Sand Hill Road sand and gravel pit following its purchase by a new owner. The town’s director of community planning told The Hartford Courant that the pit has been in operation since before the town’s zoning regulations were adopted in 1933, and it is considered “pre-existing” — although non-conforming — with current regulations. Neighbors say that dirt and materials are being trucked into the site, and they want all activity stopped until the site’s usage is reviewed. A town selectman described the town as “stuck in the middle between neighbors who want to live there and an owner who has a legal right to use his property.”

Idaho

In a report published in the Idaho Business Review, the Idaho Mining Association said its members employed more than 2,800 people and generated nearly $96 million in tax, license, and royalty revenues for state and local governments last year. Its members had a payroll of $251 million and paid $216 million to purchase goods and services from Idaho vendors.

Kentucky

Bray Marine and Greater Cincinnati Marine (GCM) merged to form C&B Marine. According to the SNL Daily Coal Report, Bray specialized in fleeting and coal-cleaning operations, while GCM had sand and gravel operations and hopper and deck barges. Assets for the new company include 16 towboats, 50 barges, multiple deck floats for clamshell unloading, and several port and dock facilities.

New York

A proposed asphalt plant is causing debate among residents in Gravesville, according to a report from WKTV.com. Material Sand and Gravel wants to locate the plant at its sand and gravel site. While some residents voiced concerns about a negative impact on health and the bucolic character of the hamlet, current Material Sand and Gravel employees marched in support of the plant and noted that it would bring jobs and economic growth to the area.

New York

Holcim (US) Inc. told state officials that it will end production at its plant in Catskill. The Business Review reports that the plant’s terminal will stay open to continue to ship products to customers. “The mothballing of Catskill is a direct result of continuing economic challenges in the region,” Holcim President and CEO Bernard Terver told the journal. He said the shutdown would proceed in a manner that kept its operating permits and equipment available for potential future use, but there is no timeline for reopening the facility. The company reports that 103 salaried and hourly positions will be eliminated as a result of the plant closure.

Ohio

A new TRIP report, “Future Mobility in Ohio: Meeting the State’s Need for Safe and Efficient Mobility,” shows that 9 percent of Ohio’s major roads are rated in poor condition and an additional 17 percent are in mediocre condition. In addition, 10 percent of the state’s bridges are structurally deficient and 14 percent are functionally obsolete. The research group estimates that Ohio roadways that lack some desirable safety features, have inadequate capacity to meet travel demands, or have poor pavement conditions cost the state’s drivers approximately $6.5 billion annually in the form of the financial cost of traffic crashes, additional vehicle operating costs due to driving on deteriorated roads, and time and fuel lost due to congestion-related delays. The full report is available at www.tripnet.org

South Carolina

Approximately 140 Sumter County residents signed a petition against a mine plan submitted by Bill Carter to the Sumter City-County Board of Zoning. According to The Item, Carter is seeking approval to mine 4.99 acres of his property along Frierson Road in Dalzell. Despite criticism from residents who voiced concerns about safety and property values, the mine was given unanimous approval by the Sumter City-County Board of Zoning Appeals. The path is now clear for the mine to be built.

Tennessee

Shelby County Commissioners rejected a proposed sand and gravel mining project in the county’s northeast corner following testimony from residents concerned about heavy trucks on the area’s narrow roads. The Commercial Appeal reports that three commissioners voted against Memphis Stone & Gravel Co.’s application, while another six abstained. “We are a 100-year-old local business, and this is our last major resource available in Shelby County,” said Alan Parks, the company’s vice president. “In our view, we think that we can make this project safe and be in compliance with the land-use ordinance just like we have for almost four decades at our existing site nearby.” Previously, one commissioner suggested several measures to make the company responsible for road widening and other safety improvements in the area (in addition to improvements the company had already agreed to), but commissioners voted against his amendments.

Washington

At press time, Miles Sand and Gravel was one of three finalists in the corporate business category for annual awards given by the Thurston County Economic Development Council. “We are thrilled to be a finalist,” Lisa Kittilsby, co-owner of the company, told the Nisqually Valley News. “Our company is family-owned and is currently operated by fourth-generation owners. We love being part of the community. It’s quite an honor to be nominated.”

Province News

A controversial plan to develop a gravel mine in southwest Edmonton could reach city council this spring. The Edmonton Journal reports that Kanata Metis Cultural Enterprises Ltd. is seeking permission to mine gravel on a 79-acre portion of its property along the North Saskatchewan River. Qualico, the previous property owner, also sought permission to mine the site and faced intense public opposition, including a meeting attended by approximately 800 opponents. On a positive note, the manager of the city’s current planning branch told the newspaper that city councilors might want to hear about the plans for jobs and housing the mine is intended to create. He also noted that there are two sides to the environmental issue because the operation would reduce or eliminate the need for hundreds or thousands of loads of gravel being hauled great distances.

Province News

Rocky View County councilors, in the province of Alberta, voted unanimously to hire a gravel company — Copper Stone Crushing Ltd. — for a bid of $764,000. According to the Cochrane Times, the company will provide contract crushing and stockpiling of more than 240,000 tons of gravel in the county’s five gravel pits. That material will be used for road maintenance and construction programs.

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John Neuner is the managing director at Harris Williams & Co. He can be reached at 804-648-0072 or jneuner@harriswilliams.com.

While the index is off about 25 percent from the beginning of the year as compared to an increase of 11 percent in the overall S&P 500, the AggMan Index seems to have found a valuation floor with investors. Having hit a 12-month low in late August, the AggMan Index has shown modest increases throughout the past two months as investors are more focused on future activity than the continued weakness in current earnings, as we saw reported in the third quarter. This bend towards the future was evident over the past few weeks as several companies saw their stock prices rise despite lower financial performance. For example, Martin Marietta reported earnings of $52 million, or $1.13 per share, down from $55.5 million, or $1.23 per share a year earlier. However, Martin Marietta’s revenue increased over 4 percent to $509 million from a year earlier, but was lower than estimates of $515 million. Similarly, Vulcan’s third quarter earnings came in lower than expected, achieving 10 cents per diluted share versus expectations of 18 cents. Despite these results, both companies saw an increase of 5 to 10 percent in the days following their earnings release as investors continue to hear signs of optimism in 2011. As highlighted in releases across the industry, companies continue to see pressure on pricing, but volumes have started to show positive year-over-year comparisons. Furthermore, the index is benefiting from signs of spending at the state level, and companies in the index are highlighting these positive points. While Vulcan missed on earnings, the company was careful to point out the infrastructure spending that is set to happen in its key states. Additionally, HeidelbergCement, which slightly beat expectations, pointed out that Texas and California have only recently started to expand their infrastructure investments. As previously noted, the AggMan Index seems to have found a floor in recent months, but the index will continue to experience volatility until a clearer picture of the future is more certain.

Potential tax code changes may drive year-end deals

October was another quiet month for deals. There appears to be a push to close deals by year-end as many are concerned about changes in the tax code next year. As such, a slight uptick in activity is anticipated in the fourth quarter. The trend of corporate divestitures and small bolt-on transactions continued in October.

Recent transactions

Cemex has agreed to acquire the remaining 50.01-percent interest in Ready Mix USA, LLC from its joint venture partner, Ready Mix USA, Inc., for approximately $380 million. The purchase price includes $17 million of debt, with closing expected to take place in September 2011. The transaction was triggered by joint-venture partner Ready Mix USA exercising a put option to sell its interest in the partnership to Cemex. The joint venture was established in 2005 and includes cement, aggregates, ready mix, and block assets in the southeastern United States.

George H. Reddin is a principal in FMI’s Investment Banking practice. He can be reached at 919-785-9286 or at greddin@fminet.com.

Mount Construction Co., Inc. of Berlin, N.J., and Carpenter Brothers Materials, LLC of Telford, Pa., acquired a quarry and hot-mix asphalt plant in Montgomery County and renamed the operation as Harleysville Materials, LLC. The company’s products include red stones for construction, decorative, landscaping, and construction aggregates. The company was founded in 2010 and is based in Harleysville, Pa.

Argus Capital Partners LLC acquired the assets of Calucem, Inc. from Mid Europa Partners LLP. Calucem, Inc. manufactures calcium aluminate cements and quick setting cements. Calucem, Inc. was founded in 1998 and is headquartered in Allentown, Pa., with additional offices in Mannheim, Germany, and Singapore. Calucem, Inc. was formerly a subsidiary of HeidelbergCement AG.

Boral USA, through one of its subsidiaries, completed its acquisition of the remaining interest of MonierLifetile LLC from the Monier Group, whose principal place of business is located in Germany. Prior to this acquisition, Boral owned a 50-percent interest in MonierLifetile. Headquartered in Irvine, Calif., MonierLifetile is the largest manufacturer of premium-quality concrete roof tile in the country.

In other news, U.S. Concrete Inc. announced that its shares resumed trading on Oct. 15, 2010. The shares are quoted on the Over the Counter Bulletin Board (OTCBB) under the symbol USCR.

Is the worst behind us?

By George H. Reddin

George H. Reddin is a principal at FMI’s Investment Banking practice. He can be reached at 919-785-9286 or at greddin@fminet.com.

The construction materials peer group fared poorly in the first quarter of 2010 when compared to the first quarter of 2009. Revenues were down for all the companies except Holcim, which benefited from a more significant exposure to the growth in emerging markets. International-focused companies like Holcim and Heidelberg benefited from business activities in emerging markets, while companies concentrated in North America saw the most significant decreases in revenue. A rainy and cold first quarter also contributed to these poor results. Overall, the peer group had a median revenue decrease of just over 10 percent when compared to the same period in 2009 (see Figure 1).

Figure 1 * CRH report is for the first two months of 2010. ** Texas Industries is for the quarter ended Feb. 28, 2010.

On the bright side, product shipments for Cemex and Vulcan increased in March and April when compared to the same period in 2009, the first increase since 2006. This, together with a greater outlook for leading indicators of future demand such as contract awards for residential and highway construction, suggests an improved outlook for the balance of 2010, with most of this improvement expected in the second half of 2010.

Figure 2 * CRH has not reported for the first quarter of 2010. ** Texas Industries is for the quarter ended Feb. 28, 2010.

Earnings for the peer group followed revenue for the most part with a median decline in EBITDA of 15.5 percent when compared to the prior year in 2009 (see Figure 2). Holcim, benefiting from its presence in emerging markets, showed a 28.6-percent increase in EBITDA, while the balance of the peer group showed decreases.

Figure 3 * CRH has not reported for the first quarter of 2010. ** Texas Industries is for the quarter ended Feb. 28, 2010.

Balance sheet management was emphasized over the last year as companies sought to refinance debt and raise capital. Significant increases in debt associated with major acquisitions during 2003-2007, coupled with a near collapse of the credit markets in the latter half of 2008, had these companies focused on their leverage. Figures 3 and 4 present total debt/EBITDA (Figure 3) and EBITDA/interest expense (Figure 4) coverage ratios at the end of the first quarter in 2010 versus the same period in 2009.

Figure 4 * CRH has not reported for the first quarter of 2010. ** Texas Industries is for the quarter ended Feb. 28, 2010. Note: Granite and Texas Industries had negative EBITDA.

As shown, the results are mixed. While improvements have been made on overall levels of debt and liquidity, decreases in EBITDA have resulted in a mixed bag in the coverage ratios. We expect continued diligence to balance sheet issues.

The construction materials peer group saw an average increase of more than 40 percent in its total enterprise value/revenue valuations (see Figure 5) at the end of the first quarter versus the same period in 2009. During the same time, the S&P 500 and Dow Jones Industries increased by 46.6 percent and 42.7 percent, respectively.

The industry hopes that the worst is behind it and, with increased forecasted demand and improved credit markets, there is an improved outlook for the balance of 2010. Economic indicators and demand dynamics present an opportunity for modest optimism. That said, this optimism remains fragile.

Recent deals

Since the last report, Summit Materials, LLC acquired a majority stake in Continental Cement Co., LLC on May 27, 2010. The financial terms of the deal were not disclosed. Continental’s new state-of-the-art cement manufacturing and waste processing facilities are located in Hannibal, Mo., 100 miles north of St. Louis. With distribution terminals in St. Louis, Mo., and Bettendorf, Iowa, Continental supplies cement to customers in Missouri, Iowa, and Illinois.

Asphalt paving company Hardrives Inc., in St. Cloud, Minn., acquired Lakeland-based Tower Asphalt Inc. for an undisclosed amount. Tower Asphalt and Hardrives Inc. are competitors on highway projects for counties and cities in the Twin Cities and for the Minnesota DOT.

Titan America sold its Cumberland quarry in Salem, Ky. The quarry has more than a billion tons of reserves on the Cumberland River and barges aggregates to various locations along the Mississippi River, including New Orleans and neighboring markets.

In an agreement that has yet to be finalized, Meadow Vista, Calif.-based Chevreaux Aggregates Inc. would be sold to a partnership consisting of Sacramento-based Teichert Materials and Rocklin-based Western Care Construction Co. The partnership, Green Vista Holdings, has the option to purchase Chevreaux Aggregates and is currently conducting due diligence. Teichert has been responsible for managing the plant. AM

John Neuner is the managing director at Harris Williams & Co. He can be reached at 804-648-0072 or jneuner@harriswilliams.com.

The AggMan Index posted another solid month of gains as the overall economy continues to show positive signs of recovery, which will hopefully trickle into positive future activity for the construction material industry. For the month, the index increased 8.9 percent to 118.4 and saw a second straight monthly gain in the 8-percent range. While slightly below its year-end value, the index is at its highest point since Jan. 19, 2010, but the valuations appear to be riding the wave of the overall market versus reacting to specific news in the industry. Over the past few weeks, many of the companies in the index have reported earnings that continue to show the pressures on industry profitability. Despite the lower earnings reports, the index managed to outpace the broader market over the past 30 days by about 5 percent. However, the overall S&P 500 is up 8.4 percent year to date (as compared to a decline of 3.1 percent for the AggMan Index), and the S&P 500 is at its highest point since Sept. 26, 2008 (as compared to the AggMan Index that was at 150.6 on this date and has declined more than 21 percent during this period). While the construction material sector is looking to the future for improved performance, many in the S&P 500 have already started to post solid performance with 75.9 percent of the 269 companies reporting beating revenue estimates by an average of 13.1 percent over the same period the prior year. Similarly, 74.1 percent of these S&P 500 companies posted an average increase in operating profit of 97.2 percent. Hopefully, the performance of the S&P 500 companies is representative of the broader markets and economic recovery, and the solid increase in performance will find its way to the materials sector in the near future.

Not Out of the Woods Yet, but Progress Continues

George H. Reddin is a principal in FMI’s Investment Banking practice. He can be reached at 919-785-9286 or at greddin@fminet.com.

Holcim, Vulcan, Martin Marietta, Granite Construction, Cemex, and Eagle Materials all reported increased losses for the first quarter of 2010 compared to the same period in 2009. A more complete analysis of the first quarter results will be available in the next issue. Additionally, there was continued progress on capital raising and balance sheet restructuring, and another acquisition by a financial buyer.

Summit Materials, LLC continued its acquisition campaign by acquiring Cornejo & Sons, Inc. in Wichita, Kan. Cornejo & Sons, Inc. specializes in concrete and asphalt paving, ready-mix concrete, sand and gravel extraction, demolition, and warehousing. This marks Summit’s third acquisition in the last six months.

VantaCore Partners LP raised $100 million of equity funding from Trilantic Capital Partners and a $15 million acquisition facility from PNC Financial Services Group, Inc. VantaCore’s current investments include Southern Aggregates LLC in Louisiana, McIntosh Construction, Inc. and Winn Materials, Inc., both located in Clarksville, Tenn.

U.S. Concrete, Inc. sought bankruptcy protection from creditors with a plan to reduce its debt by about $272 million. The restructuring proposal would have its bondholders swap notes for the reorganized company’s equity. Current shareholders would get warrants to buy up to 15 percent of the new company’s stock.

North American Limestone Corp., through its wholly owned subsidiary Ohio River Trading Co., has entered into an agreement with Iron Mountain Trap Rock Co., a wholly owned subsidiary of Fred Weber, Inc., to provide operational resources and services at the company’s Cherry Grove Crushed Stone quarry in Todd County, Ky.

Anglo American and private equity-backed Marwyn Materials Limited have held discussions regarding Anglo Mining selling an interest in its Tarmac building materials arm. Tarmac operates quarries and cement manufacturing facilities in the U.K. Marwyn Materials, an acquisitions vehicle incorporated in 2007, is headed by Peter Tom, the former chairperson of Aggregate Industries, and Simon Vivian, a one-time executive of the British industrials group Hanson.

Although overall reported earnings are down in the first quarter and the number of announced acquisitions is modest, there is still a sense that deal activity is picking up as buyers gear up for expected improved results for 2011 and beyond.

In the photograph, (left to right), Bill Canary, Executive Director, Alabama Business Council; Governor Bob Riley; Mike Kirkland, Vulcan Materials Co., North Alabama Sales Manager; Mike Bailey, President, Alabama Technology Network.

Source: The Herald-Gazette