Vulcan Materials Company — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013. Vulcan is a U.S. producer of construction aggregates and also operates concrete, asphalt mix, and cement businesses. Results are seasonal; the company says the first quarter is normally its weakest and is not necessarily indicative of full-year results.
Key financial results
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Total revenue | $538.2 million | $535.9 million |
| Gross profit | $17.7 million; 3.3% margin | $22.0 million; 4.1% margin |
| Operating loss | $50.1 million | $46.3 million |
| Net loss | $54.8 million; $0.42 per diluted share | $52.1 million; $0.40 per diluted share |
| Adjusted EBITDA | $26.2 million | $47.5 million |
| Operating cash flow | $(12.9) million | $29.1 million |
| Free cash flow | $(39.7) million | $10.3 million |
At March 31, cash was $188.1 million, current assets were $927.4 million and current liabilities were $469.9 million. Total debt was $2.666 billion, including $140.6 million of current maturities; debt was 41.8% of total capital. The $500 million secured credit facility had no borrowings, with $56.9 million supporting letters of credit. Approximately 99.5% of debt was fixed-rate. The company reported a 7.71% weighted-average effective interest rate on long-term debt excluding the credit line.
Changes and operating performance
- Total revenue rose about 0.4%, but gross profit declined about 20% and adjusted EBITDA about 45%. Higher costs and lower aggregates volumes offset price increases.
- Aggregates pricing increased 5%; segment gross profit fell to $24.8 million from $34.0 million. Ready-mixed concrete shipments rose 6%, cement shipments 14%, and asphalt mix shipments fell 4%. Concrete remained loss-making, though its gross loss improved; asphalt mix returned to gross profit.
- Management attributed lower aggregates shipments partly to wetter winter weather and a strong weather- and project-driven comparison in Q1 2012. Repair and maintenance costs were $4.0 million higher year over year.
- Net loss included a $3.2 million pretax gain on property/business sales and $1.5 million of restructuring charges. Prior-year results included $10.1 million of exchange-offer costs, a $6.0 million disposal gain, and a $3.7 million gain from settling a Florida DOT contract dispute.
Outlook, liquidity, and risks
- Management said operations performed as expected and it remained on track for earnings improvement in 2013, citing recovery in residential and private nonresidential construction, improving housing starts, and greater stability from the federal highway bill. No quantified full-year earnings or volume guidance is provided.
- The company’s planned asset-sales initiative targets approximately $500 million of net proceeds; it reported $174.4 million achieved to date, including $5.8 million in Q1 2013. Timing and proceeds are uncertain.
- Q1 investing cash use was $67.3 million, including $60.2 million to acquire two aggregates facilities. The company also paid $10.0 million to retire a medium-term note. About $140.5 million of debt maturities were due in Q2 2013; management expected to use existing cash, operating cash flow, or the credit line.
- In March, Vulcan amended its credit facility, reducing capacity from $600 million to $500 million and extending the term to March 2018. Management stated available liquidity resources were sufficient for expected needs.
- Contingencies include former Chemicals-business product-liability and environmental matters. For the Lower Passaic River Superfund investigation, the EPA’s draft alternatives estimated remediation costs of $0.9 billion to $3.5 billion, but Vulcan said its own liability could not yet be reasonably estimated. The company had accrued immaterial amounts for specified interim actions.
- Other disclosed risks include construction cycles, weather, infrastructure funding, energy and raw-material costs, below-investment-grade debt ratings, pension assumptions, asset-sale execution, acquisitions, and potential impairment. Moody’s long-term rating was Ba3/negative; S&P’s was BB/stable.
Most important facts for investors to verify
- Aggregates shipment comparisons are reported inconsistently: the executive summary says down 5%, while the detailed results say down 6%; verify the underlying volume data and explanation.
- Track whether demand and pricing gains can offset costs and restore gross profit and cash generation, particularly as the company enters its seasonally stronger periods.
- Confirm repayment or refinancing of the approximately $140.5 million Q2 2013 maturity and continued availability of the secured credit facility.
- Monitor progress, timing, and net proceeds against the $500 million asset-sale target and the use of proceeds.
- Follow developments in Passaic River and former Chemicals-business litigation and remediation; the filing does not provide a clear estimate of Vulcan’s ultimate exposure.
- Assess the sustainability of earnings improvement expectations, which management presented qualitatively rather than as quantified guidance.