Vulcan Materials Q2 report: Average unit sales price up in all major product lines

| Published on August 3, 2011

Vulcan Materials Co. noted in its second quarter ended June 30, 2011 — released on Aug. 3 — that  average unit sales price increased in all major product lines.

Second Quarter Summary and Comparisons with the Prior Year

  • The average unit sales price increased in all major product lines.
    • Freight-adjusted aggregates prices increased 2.5 percent, reflecting improved pricing across many markets;
    • Asphalt mix prices increased 8 percent, leading to improved unit materials margin despite higher liquid asphalt costs;
    • Ready-mixed concrete prices increased 8 percent with resultant improvement in unit materials margin; and
    • Cement prices increased 2 percent.
  • Aggregates shipments declined 9 percent, reflecting the impact of severe storms in April across many of the company’s markets. Markets in California, Virginia, and Maryland realized increased shipments due primarily to strength in infrastructure projects.
  • Unit costs for diesel fuel and liquid asphalt increased 43 percent and 17 percent, respectively, reducing pretax earnings by $19 million.
  • Selling, administrative, and general (SAG) expenses were $7 million lower than the prior year.
  • Earnings from continuing operations were a loss of $7 million, or $0.05 per diluted share, compared to a loss of $23 million, or $0.18 per diluted share, in the prior year.
    • The current year’s loss includes a $0.12 per diluted share charge related to the company’s tender offer and debt retirement in June;
    • The prior year’s loss includes a $0.21 per diluted share charge due to the settlement of a lawsuit in Illinois; and
    • Excluding these specific charges, earnings from continuing operations were $9 million, or $0.07 per diluted share, compared to $5 million, or $0.03 per diluted share in the prior year.

Commenting for the company, Don James, chairman and CEO, stated, “Business conditions remained challenging in the second quarter due to weaker-than-expected demand, as well as to April’s severe weather, flooding throughout the quarter in our river markets, and a significant increase in diesel fuel costs. However, we are encouraged by the improved pricing in the second quarter in each of our segments. Cost control remains a priority — whether it’s lowering plant costs or reducing SAG expenses. In the second quarter, SAG costs decreased 9 percent from the prior year, and our aggregates operations continued to enhance production efficiency. These trends in pricing and cost control are consistent with our expectations.”

Second Quarter Operating Results and Commentary

Aggregates segment earnings were $103 million versus $122 million in the prior year’s second quarter due to lower shipments. A number of Vulcan-served markets, most notably markets in the southeast and along the Mississippi River, experienced disruptions in construction activity due to flooding and unusually severe weather. However, aggregates shipments increased versus the prior year’s second quarter in California, Virginia, and Maryland due primarily to stronger demand from public infrastructure projects. More specifically, aggregates shipments in California were up more than 20 percent versus the prior year’s second quarter due to some large project work. The average sales price for aggregates increased 2.5 percent from the prior year due to improvements in many markets. The earnings effect of higher pricing offset the impact of a sharp increase in the unit cost of diesel fuel.

Asphalt mix segment earnings were $8 million in the second quarter versus $7 million in the prior year’s second quarter. Average sales price for asphalt mix increased approximately 8 percent, more than offsetting the earnings effect of higher liquid asphalt costs and leading to higher unit materials margin versus the prior year. Asphalt mix volume increased 3 percent from the prior year’s second quarter.

The Concrete segment reported a loss of $9 million versus a loss of $6 million in the prior year’s second quarter. Ready-mixed concrete average sales price increased 8 percent from the prior year’s second quarter leading to improved unit materials margin. However, the improved materials margin effect was more than offset by a 12-percent decline in volume. Cement segment earnings in the second quarter were a loss of $1 million, flat with the prior year.

SAG expenses in the second quarter were $7 million lower than the prior year’s level. This year-over-year decrease resulted from lower spending in most major categories, including the company’s legacy IT replacement project.

Net interest expense in the second quarter was $71 million versus $44 million in the prior year due specifically to $26.5 million of charges incurred in connection with the tender offer and debt retirement completed in June. These charges are due primarily to the difference between the purchase price and par value of the senior unsecured notes purchased in the tender offer and the noncash write-off of previously deferred issuance costs related to the debt retired in June.

All results are unaudited.

Outlook Highlights and Commentary


  • Aggregates segment earnings are expected to increase in 2011 versus the prior year.
    • Second half aggregates volume is expected to be 2 to 6 percent greater than in the second half of 2010, due in part to large project work in California, Virginia, and Georgia;
    • Full year aggregates pricing is anticipated to be 1 to 3 percent higher, reflecting continued improvement across many markets; and
    • Focus on production efficiency gains and cost control measures will continue.
  • Improved materials margin in asphalt mix should lead to growth in 2011 segment earnings.
  • Concrete segment earnings are expected to improve somewhat in 2011 due to better pricing.
  • The Cement segment is expected to report a modestly higher loss in 2011 than in 2010.
  • SAG costs in the second half of 2011 are anticipated to be lower than in the prior year’s second half with full year expenses of approximately $305 million versus $328 million in the prior year.
  • Planned 2011 capital spending of $100 million compares to the previous estimate of $125 million and the $86 million spent in 2010.
  • Highway construction activity in 2011 is supported by strong growth in contract awards in 2010 and early 2011 and increased stimulus spending in key Vulcan states that were slower to start work on stimulus-funded projects.
  • Private construction activity remains hampered by uncertainty regarding the economic recovery.
    • Multi-family construction is increasing due to growth in population and households, while single-family construction remains soft due to a weak job market and continuation of the problems that led to the downturn in the housing market; and
    • Nonresidential construction is expected to bottom in 2011.

Commenting on the company’s outlook for the remainder of the year, Mr. James stated, “Trailing 12-month contract awards for highways in Vulcan-served states, including awards for federal, state, and local projects, were up 5 percent in 2010. In 2011, contract awards for highways in our states, after growing modestly in the first quarter, declined in the second quarter due mainly to the uncertainty regarding reauthorization of the federal highway program. Anticipated large project work in certain key markets provides additional support for our outlook for growth in aggregates shipments in the second half of 2011.

“Private construction remains at low levels with indications of improvement in certain categories. In residential construction, single-family housing starts have shown few signs of breaking out of the flat-to-downward trend of recent months. Multi-family starts, on the other hand, have increased sharply since late last year. In Vulcan-served states, multi-family starts have increased 24 percent versus 4 percent in other states — evidence that favorable demographics can provide support for construction activity even with weak economic conditions. Overall, we now expect shipments into residential construction to approximate the prior year.

“While private nonresidential construction remains weak, the rate of decline in contract awards has slowed considerably. Trailing 12-month contract awards for the manufacturing sector have been strong since late last year, while awards for the retail and office sectors have increased modestly in 2011. Contract awards for the institutional and government sectors have continued to decline in 2011. Overall, the start of a sustained recovery in nonresidential construction will be influenced by employment growth, capacity utilization, and business investment and lending activity.

“While we are maintaining our aggregates volume growth expectations of 2 to 6 percent for the second half of 2011, we are reducing our full-year volume forecast to flat to down 2 percent. Because of uncertainty regarding reauthorization of the federal highway program and lingering softness in single-family residential and nonresidential construction, we anticipate that most of the approximately 4-million-ton aggregates volume shortfall in the second quarter will not be recovered in the second half.

“We are seeing some indications of relative stability in demand that should benefit pricing for our products going forward. However, the earnings effect of the increase in aggregates pricing is expected to be offset by the energy-related cost pressures expected throughout the remainder of the year.

“In asphalt mix, the average sales price continues to improve leading to higher unit materials margin despite the higher cost of liquid asphalt. We expect this trend to continue throughout the remainder of 2011. Overall, we expect asphalt earnings to increase from the prior year, reflecting a modest increase in volume as well as improved unit materials margin.

“In concrete, volume is expected to decrease from the prior year due to continuing softness in private construction, particularly single-family construction. However, we expect the loss reported in 2010 to narrow somewhat due mostly to higher pricing as a result of relatively more stable demand.”

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