Vulcan Materials Company — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are against Q1 2022 unless noted. Vulcan is a U.S.-focused construction materials producer, with aggregates as its primary business and additional asphalt, ready-mixed concrete, and calcium operations. Results are seasonal, and Q1 performance is not necessarily indicative of full-year results.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $1,649.0 million | $1,540.7 million | +7% |
| Gross profit / margin | $302.0 million / 18.3% | $268.8 million / 17.4% | +12%; +0.9 percentage points |
| Operating earnings | $187.2 million | $147.0 million | +27% |
| Net earnings attributable to Vulcan | $120.7 million | $91.8 million | +31% |
| Diluted EPS | $0.90 | $0.69 | Up $0.21 |
| Operating cash flow | $221.3 million | $175.6 million | +$45.7 million |
| Adjusted EBITDA | $337.6 million | $293.9 million | +15% |
Continuing-operations diluted EPS was $0.92, versus $0.70. Adjusted diluted EPS from continuing operations, a non-GAAP measure, was $0.95 versus $0.73. Net earnings included a $2.1 million after-tax loss from discontinued operations in Q1 2023.
Segments and operating drivers
- Aggregates: Sales rose 15% to $1,294.3 million and gross profit rose 25% to $302.8 million. Shipments fell 2% to 51.7 million tons, while freight-adjusted price increased 20.3% to $18.67 per ton. Gross profit per ton rose 28% to $5.85.
- Asphalt: Gross profit was $0.8 million, improving from a $2.9 million loss. Pricing increased 14.6%, while shipments fell 11%.
- Concrete: Gross profit was a $2.4 million loss, down $30.6 million year over year. Lower shipments reflected the sale of Northeast concrete operations, adverse weather, and weaker residential activity.
- Other: Asphalt, Concrete, and Calcium together recorded a $0.8 million gross loss, versus $26.0 million of combined gross profit in Q1 2022. Selling, administrative and general expense declined to $117.3 million, or 7.1% of revenue, from 7.7%.
Interest expense, net, increased to $49.0 million from $35.9 million. The effective tax rate on continuing operations declined to 11.9% from 16.6%; the filing attributes the lower tax expense to a benefit related to a prior-year business disposition, partly offset by higher pretax earnings.
Cash flow, debt, and liquidity
- Operating activities provided $221.3 million. Investing activities used $61.7 million, including $193.6 million of property, plant and equipment purchases and $130.0 million of proceeds from a note receivable tied to the 2022 concrete divestiture. Financing activities used $181.1 million. Cash and restricted cash ended at $140.0 million.
- The MD&A reports Q1 capital expenditures of $112.8 million, including $33.5 million for growth projects; the cash-flow statement reports $193.6 million of property, plant and equipment purchases. These are different reported figures, and the supplied filing text does not clearly reconcile their definitions.
- Total debt was $3,877.4 million; cash and restricted cash were $140.0 million. Total debt to trailing-twelve-month Adjusted EBITDA was 2.3x and net debt leverage was 2.2x. The company reported compliance with debt covenants.
- There was no short-term debt outstanding at quarter-end. The $1.6 billion revolving credit facility had $1,516.8 million of available capacity, with $83.2 million supporting standby letters of credit.
- In March, Vulcan issued $550 million of 5.80% senior notes due 2026 and used the proceeds, with cash on hand, to repay its $550 million delayed-draw term loan. It entered into swaps that convert the notes’ fixed rate to floating SOFR-based payments.
Outlook, commentary, and risks
Management raised its 2023 outlook, citing first-quarter pricing momentum and execution. It expects Adjusted EBITDA of $1.85–$1.95 billion, net earnings attributable to Vulcan of $815–$895 million, and aggregates freight-adjusted price growth of approximately 15%. Full-year capital expenditures are expected to be $600–$650 million. Management said demand indicators remain mixed; shipments depend in part on residential construction trends and the timing of highway starts. The company reaffirmed a long-term leverage target of 2.0x–2.5x total debt to trailing-twelve-month Adjusted EBITDA.
- Inflation, labor shortages, truck-driver constraints, supply-chain and transportation capacity, and weather can affect costs, production, and shipments. Management noted that inflation and improved demand visibility may also support pricing.
- Mexican authorities shut down Calica’s remaining operations in May 2022 and suspended a customs permit. Vulcan is pursuing a NAFTA arbitration claim; a decision is not expected before 2024, and recovery, if any, cannot be quantified. The shutdown also led to a $9.8 million projected 2023 tax-loss deferred asset valuation allowance.
- Environmental and litigation matters include Superfund and former Chemicals-business claims. The company says certain potential exposures cannot presently be estimated; it recorded $36.8 million in environmental remediation accruals at March 31, 2023. The filing describes recent proceedings involving the Passaic River, Texas Brine, New York water providers, New Jersey natural-resource claims, and the Hewitt Landfill.
- The company reported no material changes to the risk factors in its 2022 Form 10-K. Its disclosure controls were assessed as effective; replacement of its ready-mixed-concrete quote-to-cash software was expected to be completed in Q4 2023.
Important facts for investors to verify
- Whether aggregates pricing gains can continue to offset inflation and any further volume weakness.
- How concrete profitability and shipment trends develop after the Northeast divestiture and amid residential-market softness.
- The basis for the $112.8 million capital-expenditure figure versus $193.6 million of cash-flow-statement property and equipment purchases, and the expected full-year spend.
- Developments in the Calica shutdown and arbitration, including any effects on operations, tax assets, or potential recovery.
- Progress and potential financial exposure from the disclosed environmental and legal matters, particularly where losses are not currently estimable.
- Delivery against the raised full-year earnings outlook and the company’s leverage target, considering higher interest expense and mixed demand indicators.