Vulcan Materials Company — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Vulcan is a U.S.-focused supplier of construction aggregates, asphalt mix, ready-mixed concrete and calcium products. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance and key metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $1,361.0 | $1,322.6 | $2,429.4 | $2,371.8 |
| Gross profit / margin | $398.4 / 29.3% | $396.5 / 30.0% | $627.6 / 25.8% | $598.2 / 25.2% |
| Operating earnings | $287.5 | $298.9 | $537.0 | $411.2 |
| Continuing-operations earnings | $196.8 | $211.0 | $358.4 | $271.0 |
| Net earnings | $195.3 | $209.9 | $356.0 | $270.2 |
| Diluted EPS, continuing operations | $1.47 | $1.58 | $2.69 | $2.03 |
| Adjusted diluted EPS, continuing operations | $1.57 | $1.60 | $2.26 | $2.06 |
| Adjusted EBITDA | $406.0 | $407.8 | $650.3 | $608.8 |
- Q2 operating trends: Aggregates shipments rose 4% to 58.5 million tons; freight-adjusted price increased 3.0% to $14.93 per ton. Aggregates gross profit rose 6% to $373.8 million. Asphalt and concrete gross profit fell by a combined $20.8 million, reflecting higher input costs, weather and lower shipments.
- Costs and margins: Energy inflation reduced Q2 earnings by $25.3 million, including $15.2 million from diesel and $10.1 million from liquid asphalt. Q2 selling, administrative and general expense rose 10% to $100.7 million, increasing to 7.4% of revenue from 6.9%.
- Cash flow: Six-month operating cash flow was $397.9 million versus $425.6 million, with the decline primarily attributed to unfavorable working-capital changes. Investing cash outflow was $1.5 million, including $192.2 million of capital spending and $190.7 million of property-sale proceeds. Financing cash outflow was $626.0 million, including repayment of $500.0 million of notes and $98.2 million of dividends.
- Liquidity and debt: June 30 cash and restricted cash totaled $968.4 million, of which $110.9 million was restricted. Total debt was $2.785 billion and net debt was $1.817 billion. Total debt/TTM adjusted EBITDA was 2.0x; net debt/TTM adjusted EBITDA was 1.3x. The company reported $942.7 million of available capacity under its $1.0 billion revolving credit facility and compliance with debt covenants.
- Capital and returns: Capital expenditure guidance was $450–$475 million for 2021. The quarterly dividend was $0.37 per share; no shares were repurchased in the first half.
Material changes versus the prior comparable period
- Q2 revenue increased 3%, but operating earnings declined 4%, continuing-operations diluted EPS declined to $1.47 from $1.58, and net earnings fell 7%. Higher aggregates profit was more than offset by weaker downstream segment results, higher overhead and interest expense.
- For the first half, reported operating earnings and net earnings increased substantially, but the comparison includes a $114.7 million pretax gain on the sale of a reclaimed Southern California quarry. Adjusted diluted EPS from continuing operations increased to $2.26 from $2.06; adjusted EBITDA rose to $650.3 million from $608.8 million.
- Debt declined from $3.288 billion at December 31, 2020, mainly following repayment of the $500 million floating-rate notes due in March 2021. Cash and restricted cash was $968.4 million versus $1.198 billion at year-end.
Outlook, commentary, risks and unusual items
- Management reiterated 2021 adjusted EBITDA guidance of $1.380–$1.460 billion and said it remained on track for another year of earnings growth. It cited pricing actions and operating efficiencies as measures to address cost inflation.
- Vulcan agreed to acquire U.S. Concrete for $74 per share in cash, representing stated equity value of approximately $1.294 billion. Closing was expected in the second half of 2021, subject to shareholder approval, regulatory clearance and customary conditions. A $1.6 billion delayed-draw term loan facility was arranged to fund the proposed transaction; it was undrawn at June 30. Q2 included $9.4 million of acquisition-financing interest expense.
- Other notable first-half items included a $13.7 million charge to increase the Alabama net operating loss valuation allowance, related to a state tax-law change, and $5.9 million of non-routine business-development charges. Q2 also included $1.3 million of COVID-related costs.
- Management cited COVID-19 uncertainty, construction cycles, labor and supply-chain constraints, transportation availability, energy and asphalt costs, weather, interest rates and regulatory changes as risks. Results are seasonal and weather-sensitive; the company noted that interim results are not necessarily indicative of full-year performance.
- Contingencies include environmental matters and litigation related to the former Chemicals business. The company said the ultimate liability for several proceedings cannot currently be reasonably estimated. In the Passaic River matter, the EPA/DOJ settlement demand remained subject to negotiation; Vulcan said its potential share under the allocator’s recommendation would be within an immaterial amount previously recorded. For the Texas Brine matter, appeals continued and the company could not estimate liability for remaining claims.
- Management reported no material changes to the risk factors from its 2020 Form 10-K, no material changes to internal controls during Q2, and effective disclosure controls as of June 30, 2021.
Important facts for investors to verify
- Whether U.S. Concrete acquisition approvals, closing timing, financing and integration costs align with the stated plan.
- Whether aggregates pricing and efficiency gains offset continuing diesel, asphalt, labor, supply-chain and transportation inflation.
- Whether 2021 adjusted EBITDA and capital expenditure guidance remain achievable, particularly given seasonal and weather-related variability.
- The cash-flow and earnings effects of working-capital movements and the nonrecurring quarry-sale gain; compare adjusted measures with GAAP results.
- Developments in Alabama NOL utilization and valuation allowance, and in environmental and legal contingencies where the possible loss is not currently estimable.