Vulcan Materials Company — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019; financial statements are unaudited. Vulcan is a U.S.-focused construction materials producer, with aggregates as its core business and asphalt mix, ready-mixed concrete, and calcium operations. Results are seasonal, typically strongest in the third quarter, and depend on construction activity and weather.
Financial performance
Amounts in millions of dollars, except per-share, per-ton, and percentage data.
| Metric | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 |
|---|---|---|---|---|
| Revenue | $1,418.8 | $1,240.2 | $3,743.0 | $3,294.8 |
| Gross profit | $400.6 | $343.1 | $962.8 | $825.7 |
| Gross margin | 28.2% | 27.7% | 25.7% | 25.1% |
| Operating earnings | $303.4 | $249.2 | $683.9 | $561.2 |
| Earnings from continuing operations | $218.1 | $179.9 | $479.9 | $393.6 |
| Net earnings | $215.7 | $179.2 | $476.6 | $391.8 |
| Diluted EPS, continuing operations | $1.63 | $1.34 | $3.60 | $2.94 |
| Adjusted EBITDA (non-GAAP) | $406.8 | $353.5 | $971.6 | $846.2 |
| Operating cash flow | Not provided quarterly | Not provided quarterly | $646.1 | $572.6 |
- Q3 revenue increased 14%; operating earnings rose 22% and net earnings rose 20% year over year. Adjusted EBITDA increased 15%.
- Aggregates drove growth: Q3 shipments rose 8% to 60.9 million tons, freight-adjusted price rose 5.6% to $14.10 per ton, and segment gross profit increased 18% to $357.2 million. Aggregates gross profit per ton improved to $5.87 from $5.41.
- For the first nine months, aggregates shipments rose 8% and freight-adjusted price rose 5.7%. Asphalt shipments increased, but higher liquid-asphalt costs weighed on year-to-date asphalt earnings. Ready-mixed concrete shipments declined 5% year to date.
- Q3 interest expense was $32.2 million, down from $33.5 million; nine-month interest expense was $98.2 million, down from $104.6 million. The 2018 comparison included $7.4 million of debt-refinancing charges.
Cash, debt, and liquidity
- At September 30, 2019, cash and cash equivalents were $90.4 million, plus $0.7 million restricted cash. Current assets were $1,324.2 million and current liabilities $535.3 million.
- Long-term debt reported at $2,783.1 million; short-term debt was zero. Total debt was $2,783.1 million, down from $2,912.4 million at December 31, 2018. Debt was 33.4% of total capital, and management reported debt at 2.2 times trailing-twelve-month Adjusted EBITDA.
- The $750 million unsecured credit facility had $696.8 million of available capacity; no borrowings were outstanding and $53.3 million supported standby letters of credit. The company reported compliance with credit-facility and term-debt covenants.
- Nine-month investing cash outflow was $303.3 million, including $306.9 million of property and equipment purchases. Financing cash outflow was $296.2 million, including $122.9 million of dividends. Operating cash flow increased year over year, partly reflecting the prior-year $100 million discretionary pension contribution.
Outlook, commentary, and notable items
- Management reaffirmed 2019 guidance of $4.55–$5.05 diluted EPS from continuing operations and $1.25–$1.33 billion Adjusted EBITDA. Full-year capital expenditure expectations remained $250 million for maintenance and $200 million for internal growth projects.
- Management said aggregates shipments had exceeded the upper end of expectations and expected aggregates profitability above its original outlook, offset by non-aggregates gross profit expected below original expectations but in line with 2018.
- For 2020, management preliminarily anticipated low-to-mid-single-digit aggregates shipment growth, continued pricing improvement, and another year of strong earnings growth, led by aggregates unit margins. These are forward-looking expectations, not guarantees.
- Q3 included $6.5 million of managerial restructuring charges and $0.4 million of non-routine business-development charges. Nine-month results also included a $4.1 million pretax gain from business dispositions. Former Chemicals operations generated a $3.3 million after-tax loss in the first nine months.
- Adoption of the lease accounting standard in 2019 brought operating lease right-of-use assets and liabilities onto the balance sheet; lease liabilities totaled $421.4 million at quarter end. This changed balance-sheet presentation and is not equivalent to new borrowing.
- Material uncertainties include environmental and legacy-business litigation. For the Lower Passaic River, the EPA’s proposed bank-to-bank remedy is estimated by the EPA at $1.38 billion; Vulcan disputes the remedy, says it is not currently obligated to fund remediation, and previously recorded an immaterial loss. The company could not estimate losses for certain open Texas Brine, Hewitt Landfill, and New York water-district matters. A NAFTA arbitration claim is pending, with any recovery unquantifiable.
- The company reported a proposed $193,750 EPA penalty to settle alleged Clean Water Act violations at one aggregates site and said it expected to negotiate a settlement. Management did not believe it would materially adversely affect the business. No material changes to the previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether aggregates pricing, shipments, and unit margins sustain the growth underlying 2019 guidance and the preliminary 2020 outlook.
- How higher asphalt input costs, weaker year-to-date concrete volumes, weather, and construction-market conditions affect subsequent results.
- Actual full-year earnings and capital spending versus guidance, and the cash-flow effects of working capital, dividends, and investment plans.
- Debt refinancing needs, particularly the $250 million floating-rate notes due in 2020, as well as covenant headroom and credit availability.
- Developments, potential liabilities, and insurance coverage for the disclosed environmental and legacy-business matters; several exposures remain difficult or impossible for the company to estimate.