Vulcan Materials Company — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless noted. Vulcan is a U.S.-focused construction materials producer, with aggregates as its primary business and asphalt, ready-mixed concrete and calcium operations.
Financial performance
- Revenue: $1.068 billion, up 2%. Aggregates segment sales rose 3% to $894.9 million; asphalt rose 5% to $147.2 million, while concrete declined 14% to $81.4 million. Consolidated revenue includes freight and delivery charges.
- Profit and margins: Gross profit was $229.3 million, up 14%; gross margin increased to 21.5% from 19.2%. Operating earnings were $249.5 million versus $112.3 million. Net earnings were $160.6 million, or $1.20 diluted EPS, compared with $60.3 million, or $0.45.
- Underlying results: Adjusted diluted EPS from continuing operations was $0.69, compared with $0.47. Adjusted EBITDA was $244.3 million, up from $201.0 million. GAAP operating earnings and net income benefited substantially from the quarry sale gain described below.
- Aggregates: Shipments rose 3% to 46.4 million tons; freight-adjusted price increased 1.9% to $14.67 per ton. Segment gross profit increased 15% to $223.6 million, with gross profit per ton rising to $4.82 from $4.31.
- Cash flow and investment: Operating cash flow was $169.3 million versus $82.5 million. Capital expenditures were $100.7 million, implying operating cash flow less capital expenditures of approximately $68.6 million. Investing cash flow was positive $85.9 million, principally reflecting asset-sale proceeds.
- Liquidity and debt: Cash and cash equivalents were $722.3 million, plus $168.6 million of restricted cash, for total cash and restricted cash of $890.9 million. Total debt was $2.788 billion; net debt was $1.897 billion. Total debt/TTM adjusted EBITDA was 2.0x and net debt/TTM adjusted EBITDA 1.4x. The $1.0 billion revolving credit facility had $943.7 million available and no borrowings; Vulcan reported compliance with its covenants.
- Capital returns: Dividends were $49.1 million, or $0.37 per share. No shares were repurchased during the quarter.
Material changes and unusual items
- A Southern California reclaimed quarry sale generated a $114.7 million pretax gain ($85.4 million after tax, or $0.64 per diluted share) and $182.3 million in net proceeds. The gain explains much of the increase in reported operating earnings; management’s adjusted results exclude it.
- Vulcan repaid approximately $500 million of debt maturities in March. Total debt declined from $3.288 billion at December 31, 2020, while cash and restricted cash also decreased, partly due to the repayment and dividends.
- Q1 included a $13.7 million tax charge to increase the valuation allowance on Alabama net operating losses following a state apportionment-law change. The reported effective tax rate rose to 27.3% from 16.9%.
- Severe February winter weather affected the start of the construction season. Aggregates and asphalt shipments increased, but ready-mixed concrete shipments fell 16%; asphalt and concrete segment gross profit also declined.
Outlook, commentary and risks
- Management cited strength in single-family residential construction, improving highway activity and construction employment, and demand from industrial projects. It said pricing remained positive and raised its earnings outlook for the remainder of 2021.
- 2021 expectations: aggregates shipments up 1%–4%; adjusted continuing-operations EPS of $4.85–$5.30; adjusted net earnings of $650–$710 million; adjusted EBITDA of $1.380–$1.460 billion; effective tax rate of approximately 23%–24%. These adjusted earnings and EBITDA ranges exclude the quarry-sale gain. Planned capital expenditures are $450–$475 million.
- Management noted that results are seasonal and weather-sensitive, and Q1 performance is not necessarily indicative of full-year results. COVID-19, construction cycles, public infrastructure funding, private construction demand, pricing, fuel and other input costs, interest rates, permitting and reserves, and environmental regulation are among the disclosed risks.
- Legal and environmental matters include Superfund and remediation claims, Texas Brine litigation, New York water district cases, and the Hewitt Landfill matter. The company said it could not reasonably estimate potential losses for certain claims; it reported $36.5 million of accrued environmental remediation costs. The NAFTA arbitration concerning Mexican operations was expected to conclude in the second half of 2022; any recovery is uncertain and cannot be quantified.
- Vulcan reported no material change in risk factors, effective disclosure controls, and no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of full-year earnings and cash generation depends on operating performance rather than the nonrecurring quarry-sale gain.
- Whether aggregates shipment growth, pricing and unit-margin improvements support the 2021 guidance, especially after weather-related disruptions.
- Whether the Alabama NOL valuation allowance or effective tax rate changes further, given the law change and expiring NOL carryforwards.
- Progress and potential financial exposure in the disclosed environmental and legal proceedings, particularly matters for which losses are not estimable.
- Cash availability and debt metrics, taking account of restricted cash, upcoming maturities, planned capital spending and the revolving-credit facility’s covenant limits.