Fourth-quarter 2019 growth at Vulcan spurs 2020 optimism

Hill

Higher segment earnings in aggregate and asphalt helped Vulcan Materials Co. drive 15 percent year-over-year growth in the company’s fourth-quarter 2019 earnings from continuing operations.

Solid shipment growth (4 percent) and compounding price improvements (5.5 percent) helped improve aggregate earnings. Asphalt earnings, on the other hand, increased due to double-digit revenue growth and improving unit margins, according to Vulcan.

Vulcan’s full year 2019 revenues were $4.9 billion, a 12 percent increase compared to 2018, while net earnings were up 20 percent, compared to the prior year, to $618 million.

In addition, adjusted earnings before interest, tax, depreciation and amortization (EBITDA) improved 12 percent to $1.27 billion. At year end, Vulcan’s total debt was $2.8 billion, equivalent to 2.2 times trailing 12-month adjusted EBITDA.

“2019 marks another year of strong earnings growth and cash generation,” says Tom Hill, chairman and CEO at Vulcan Materials. “We are particularly proud of our people who worked hard to achieve these results while ensuring another year of world-class safety performance. Widespread improvements in pricing helped drive 8 percent growth in our industry-leading unit profitability and double-digit growth in adjusted EBITDA, a strong result despite some higher than expected costs in the fourth quarter. Industry leadership in safety and pace-setting unit margins are both evidence of our strong and healthy business. Going forward, our compounding unit margins and our disciplined capital allocation position us to increase our cash flows and improve our return on invested capital again in 2020.”

Aggregate

Fourth-quarter segment sales of aggregate increased 10 percent while gross profit improved 7 percent to $275 million, equating to $5.32 per ton. According to Vulcan, these improvements stem from growth in shipments, which increased 4 percent compared to the prior year quarter, as well as improved pricing.

Southeast and Southwest markets, specifically, reported strong shipment growth, including double-digit growth in Florida and along the Gulf Coast, according to Vulcan. In addition, all of the company’s key markets reported year-over-year price growth.

For fourth-quarter 2019, freight-adjusted average sales price increased 5.5 percent – or 4.8 percent on a mix-adjusted basis – compared to fourth-quarter 2018. According to Vulcan, positive trends in booking pace, demand visibility and customer confidence support the company’s expectations for continue price improvement.

However, fourth-quarter 2019 profitability was negatively impacted by higher repairs and maintenance costs, geographic volume mix including higher sales volumes in rail-served remote markets, and lower tipping fees for clean fill, according to Vulcan.

For the full year 2019, aggregate segment sales increased 14 percent, spurred by 7 percent (6 percent same store) volume growth and 5.6 percent price growth (5.2 percent on mix-adjusted basis). Gross profit, meanwhile, increased 16 percent while unit profitability improved 8 percent to $5.32 per ton. Cash gross profit for the year was $6.74 per ton.

2020 outlook

According to Vulcan, the company expects aggregate shipments to improve 2 to 4 percent in 2020; aggregate freight-adjusted price increase of 4 to 6 percent; and 10 to 15 percent collective growth in asphalt, concrete and calcium gross profit.

“In 2020, we expect another year of strong earnings growth,” Hill says. “Vulcan-served markets should continue to benefit from public construction demand, led by higher levels of highway funding in our key states. We anticipate residential construction in our markets to continue strengthening after experiencing some softness in certain markets during the second half of 2019. Private nonresidential construction activity should also improve as leading indicators point to positive growth in 2020. Demand fundamentals, including population and employment growth, continue to support longer-term growth in residential and nonresidential construction. We are seeing a positive pricing environment driven by shipment momentum in private demand and visibility of public demand. Our focus remains the same – compounding our unit margins through all parts of the cycle and improving our returns on capital.”