Vulcan Materials Company — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless otherwise noted. Vulcan is a major U.S. construction-aggregates producer, with asphalt, concrete and calcium businesses. Results are seasonal, and the company cautions that one quarter is not necessarily indicative of full-year performance. Comparisons are materially affected by the August 2021 acquisition of U.S. Concrete.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change / context |
|---|---|---|---|
| Revenue | $1,540.7 million | $1,068.3 million | Up 44% |
| Gross profit / margin | $268.8 million / 17.4% | $229.3 million / 21.5% | Profit up 17%; margin down 4.1 percentage points |
| Operating earnings | $147.0 million | $249.5 million | Down 41% |
| Net earnings attributable to Vulcan | $91.8 million | $160.6 million | Down 43% |
| Diluted EPS | $0.69 | $1.20 | Continuing-operations EPS was $0.70 versus $1.21 |
| Adjusted diluted EPS from continuing operations | $0.73 | $0.69 | Non-GAAP; up $0.04 |
| Adjusted EBITDA | $293.9 million | $244.3 million | Non-GAAP; up 20% |
| Operating cash flow | $175.6 million | $169.3 million | Up $6.3 million |
| Capital expenditures | $160.4 million cash purchases | $100.7 million | MD&A cites $122.7 million of Q1 capital expenditures, including $34.4 million for growth; filing does not reconcile these presentations clearly in the cited discussion |
Reported earnings benefited from stronger underlying aggregates and concrete gross profit, but the comparison was heavily affected by the prior-year $114.7 million pretax gain on sale of a reclaimed California quarry. Q1 2022 also included $2.5 million of non-routine business-development charges and $1.8 million of restructuring charges. Diesel costs rose 62%, adding $20.8 million year over year, while higher liquid asphalt costs also pressured results.
Aggregates shipments rose 14% to 53.0 million tons; same-store shipments increased 7%. Freight-adjusted aggregates price rose 5.8% to $15.52 per ton. Aggregates gross profit increased 9% to $242.8 million, while gross profit per ton declined 5% to $4.58; same-store gross profit per ton rose 3.5% to $4.99. Concrete gross profit was $28.2 million, up from $7.8 million, reflecting primarily the acquired U.S. Concrete operations. Asphalt gross profit remained a loss, at $2.9 million.
Cash, debt and liquidity
- Cash and cash equivalents were $123.1 million at March 31, 2022; cash plus restricted cash was $133.0 million. Operating cash flow was $175.6 million, investing cash outflow was $302.5 million and financing cash inflow was $18.4 million. Cash and restricted cash decreased $108.5 million during the quarter.
- Investing cash use included $160.4 million for property, plant and equipment and $148.2 million paid for first-quarter acquisitions. The company acquired five Texas aggregates facilities for total consideration of $193.5 million, including $45.3 million payable to the seller.
- Total debt was $3,978.4 million, including $100.0 million of short-term borrowings. Total debt to trailing-twelve-month Adjusted EBITDA was 2.7x, or 2.6x net of cash, versus 2.0x and 1.4x, respectively, a year earlier. Management’s stated long-term leverage target is 2.0x–2.5x total debt to Adjusted EBITDA.
- Available capacity under the $1.0 billion revolving credit facility was $830.4 million, after borrowings and letters of credit. The company reported compliance with debt covenants. It extended the revolving line and delayed-draw term loan maturities to 2026.
- Current assets were $1,662.6 million and current liabilities $892.7 million. Receivables were $917.9 million net; days sales outstanding rose to 44.8 from 40.1 a year earlier, and receivables over 90 days increased to $43.4 million from $13.9 million. Management stated it expects no losses beyond reserves.
Outlook, commentary and risks
Vulcan reiterated its 2022 Adjusted EBITDA outlook of $1.72 billion–$1.82 billion and said it expected double-digit earnings growth. Management cited demand visibility, pricing opportunities and cost-reduction initiatives, and expects favorable aggregates pricing and execution to support attractive growth in aggregates unit profitability. Planned 2022 capital expenditures are $600 million–$650 million. These are forward-looking statements, not guarantees.
Management described inflation, energy-market volatility, supply-chain disruption, labor shortages and transportation availability as operating challenges. Construction demand is exposed to economic cycles, weather, public infrastructure funding and private residential and nonresidential activity. Other disclosed risks include energy and raw-material costs, interest rates, environmental obligations, permitting and reserve access, acquisition integration, cyber risks and international operations.
Legal and environmental matters include Superfund and remediation claims, legacy Chemicals-business litigation, and a NAFTA arbitration involving Mexico. Vulcan and other parties reached an agreement in principle with the EPA/DOJ concerning the Lower Passaic River; Vulcan stated its proposed share would be within an immaterial amount already recorded if a consent decree is approved. The company could not reasonably estimate potential losses for several other matters, including specified Louisiana and California groundwater proceedings. A decision in the NAFTA arbitration was expected in the second half of 2022, but any recovery could not be quantified. Mexico issued Vulcan’s customary three-year customs permit in March 2022; further government actions could still impede operations.
Other notable items: the prior-year comparison includes the California quarry-sale gain and a $13.7 million tax charge for an Alabama net-operating-loss valuation allowance. The 2022 quarter included an increase in receivables, a $100.0 million net draw on the credit line and dividends of $53.2 million ($0.40 per share). No shares were repurchased during the quarter. Management said disclosure controls were effective as of March 31, 2022; integration of U.S. Concrete’s financial controls was ongoing.
Most important facts for investors to verify
- How much of reported revenue and concrete growth reflects U.S. Concrete, and how comparable are same-store trends?
- Whether aggregates price increases continue to outpace fuel, labor, freight and other cost inflation, supporting unit profitability and the reaffirmed EBITDA outlook.
- Whether cash generation and working-capital collections improve, particularly given the increase in aged receivables and planned capital spending.
- Progress toward the stated leverage target, including the effect of acquisition spending, dividends and any further borrowing.
- Developments in the Passaic River settlement, other unquantified environmental and legacy legal matters, and Mexico-related operating and arbitration risks.