Vulcan Materials Company — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Vulcan supplies construction aggregates and produces asphalt mix and ready-mixed concrete, primarily in the United States. Comparisons are affected by the August 26 acquisition of U.S. Concrete; its results are included only from the acquisition date.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $1,516.5m | $1,309.9m | $3,945.9m | $3,681.7m |
| Gross profit | $394.1m | $380.5m | $1,021.7m | $978.7m |
| Gross margin | 26.0% | 29.0% | 25.9% | 26.6% |
| Operating earnings | $262.4m | $288.1m | $799.4m | $699.3m |
| Net earnings attributable to Vulcan | $176.9m | $199.8m | $532.9m | $470.0m |
| Diluted EPS from continuing operations | $1.33 | $1.51 | $4.01 | $3.54 |
| Adjusted diluted EPS from continuing operations | $1.54 | $1.56 | $3.80 | $3.62 |
| Adjusted EBITDA | $417.7m | $403.5m | $1,068.0m | $1,012.3m |
- Q3 revenue rose 16%, but operating earnings fell 9% and reported continuing-operations diluted EPS declined. Higher aggregates gross profit was offset by weaker asphalt results, increased selling and administrative costs, acquisition-related expenses and other operating charges.
- Aggregates shipments rose 8% in Q3 and freight-adjusted price per ton increased 3.4%. Aggregates gross profit increased 10% to $372.3m. Asphalt gross profit fell 77% to $7.1m, reflecting higher liquid asphalt and energy costs and weather-related volume weakness.
- For the first nine months, revenue increased 7% and net earnings attributable to Vulcan rose 13%. Results included a $114.7m pretax gain on a Southern California quarry sale; the gain materially benefited reported year-to-date results.
Cash flow, debt and liquidity
- Nine-month operating cash flow was $724.8m, down from $777.9m, primarily due to less favorable working-capital changes. Capital expenditures were $318.6m; cash used in investing activities was $1,760.6m, including $1,634.5m for U.S. Concrete.
- Cash and restricted cash totaled $136.4m at September 30, 2021, compared with $1,084.7m a year earlier. Total debt was $3,886.3m, versus $3,286.5m a year earlier. Total debt to trailing-twelve-month Adjusted EBITDA was 2.8x and net debt leverage was 2.7x; management’s target leverage range is 2.0x–2.5x.
- Vulcan had $941.7m of available capacity under its $1.0bn revolving credit line and reported compliance with debt covenants. The company drew a $1.6bn delayed-draw term loan to fund the acquisition and had $1.1bn outstanding at quarter-end.
Outlook, risks and unusual items
- Management raised its 2021 Adjusted EBITDA outlook to $1.430bn–$1.460bn, including U.S. Concrete and excluding the $114.7m quarry-sale gain. It expects capital expenditures of $450m–$475m and full-year net interest expense of approximately $145m.
- Management cited improving demand, continued favorable pricing and the potential for significant federal infrastructure investment, while noting that inflation and labor constraints remain challenging. COVID-related disruption, supply-chain bottlenecks, transportation availability, fuel and other input costs, and weather may affect results.
- Discrete Q3 charges included $24.7m for non-routine business development, $5.9m for COVID-19 costs and $3.5m for managerial restructuring. The company also recorded $21.1m of acquisition-related expenses in the quarter.
- Environmental and other litigation includes the Passaic River Superfund matter, Louisiana sinkhole-related claims, New York water district cases and Hewitt Landfill remediation and contribution claims. For several matters, Vulcan said it cannot reasonably estimate potential losses; it believes the ultimate resolution of environmental claims will not materially affect consolidated results, financial position or cash flows.
- Management identified construction-cycle exposure, infrastructure funding, energy and raw-material costs, weather, interest rates and LIBOR transition, legal and environmental liabilities, and acquisition integration among forward-looking risks. Disclosure controls were deemed effective; integration of U.S. Concrete’s financial controls was ongoing.
Key facts for investors to verify
- How much reported growth and future EBITDA contribution come from U.S. Concrete versus same-store performance, and how integration progresses.
- Whether aggregates pricing and volume growth can offset fuel, asphalt, labor and other cost inflation—and whether asphalt profitability recovers.
- Progress toward the stated 2.0x–2.5x leverage target, given quarter-end leverage above that range and reduced cash balances.
- Whether the $1.430bn–$1.460bn Adjusted EBITDA outlook is achieved, including the effects of acquisition integration and any excluded or unusual items.
- Developments in the unquantified environmental and legal matters, and the financial impact of the transition from LIBOR for floating-rate borrowings.