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Price growth, cost control drive Vulcan through third-quarter 2020

By |  November 5, 2020

Logo: Vulcan Materials Company

Aggregate production was down at Vulcan Materials Co. in the third quarter, as was revenue and gross profit tied to the company’s aggregate business.

Still, the nation’s largest aggregate producer continues to find ways to be profitable. Vulcan’s unit profitability increased 3 percent to $6.04 per ton due to widespread growth in pricing and effective cost control, the company says.

“Building on strong performance from the first half of the year, our operational execution produced another quarter of unit margin expansion in the third quarter,” says Tom Hill, chairman and CEO of Vulcan. “Unit profitability gains were widespread across our footprint, and our team remained focused on driving those improvements.”

Headshot: Tom Hill, Vulcan Materials

Hill

In its third-quarter report, Vulcan notes that it produced 55.9 million tons of aggregate. That mark is down about 5 million tons from the prior year’s third quarter. Quarterly revenue tied to aggregate was also down 9.2 percent to $1.04 billion, and gross profit in aggregate slipped 9.4 percent to $337.8 million.

Additionally, third-quarter aggregate shipments were 8 percent lower than the prior year’s third quarter due to economic uncertainty caused by the pandemic, severe wet weather and wildfires in key markets. Last year’s third quarter included very few severe weather events, Vulcan says, helping to drive strong volume growth.

“The continued impact of the COVID-19 pandemic on construction activity, along with severe wet weather, led to lower shipment levels in the quarter,” Hill says. “However, our resilient and best-in-class aggregates business overcame these disruptive conditions, which enabled us to expand cash gross profit per ton, drive higher cash flows, and improve returns on invested capital.”

Companywide highlights

Vulcan’s companywide quarterly net earnings were $200 million, comparing to $216 million in the prior year’s comparable quarter. Third-quarter adjusted EBITDA (earnings before interest, tax, depreciation and amortization) was $403 million versus $407 million in the prior year.

On the year, Vulcan’s cash gross profit per ton increased 7 percent – despite a 4 percent decline in shipments, the company says.

“The flexibility of our operating plans and our aggregates-focused business model have enabled us to continue to perform at a high level while also positioning us for earnings growth in the future as demand recovers,” Hill says. “The pricing environment remains supportive, and we are encouraged by the sequential improvement in demand visibility.”

Residential construction has rebounded quickly, Hill adds. This should bode well for private nonresidential construction, as he says it has been the weakest end market since the pandemic began.

“State transportation revenues continue to recover to pre-pandemic levels, and the one-year extension of federal highway funding will support future highway construction,” Hill says. “Continued recovery in these fundamentals would point to construction activity stabilizing over the course of 2021.”

Vulcan outlook

Vulcan expected shipment growth entering 2020, but COVID-19 disrupted that trajectory in March with the resulting shelter-in-place ordinances. Since then, the economic uncertainty and evolving nature of the pandemic continued to weigh on construction activity, Vulcan says.

“As we look ahead to 2021, the pricing environment remains positive and we continue to work hard to add value for our customers,” Hill says. “We expect to provide full-year guidance when we report fourth-quarter earnings in February.”

Vulcan also continues to focus on factors it can control.

“While demand is subject to market fluctuations outside of our control, we remain focused on the factors we can control, such as our pricing and cost actions, both of which help to compound our unit margins,” Hill says. “Our year-to-date results demonstrate our capabilities to drive continued improvement in challenging circumstances.”


Featured image: Vulcan Materials Co.

Kevin Yanik

About the Author:

Kevin Yanik is the editor-in-chief of Pit & Quarry magazine. Yanik can be reached at 216-706-3724 or kyanik@northcoastmedia.net.

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