Vulcan Materials CO annual report, FY2021

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Vulcan Materials Company — FY2021 Form 10-K

Reporting period: Fiscal year ended December 31, 2021; filed February 25, 2022. This is an annual report, not a standalone fourth-quarter report, so the filing does not provide a clear standalone Q4 summary in the supplied text.

Business context

Vulcan is the largest U.S. construction-aggregates supplier and also produces asphalt mix, ready-mixed concrete, calcium products, and paving services. Aggregates are its core business. The August 2021 acquisition of U.S. Concrete expanded its aggregates and concrete footprint; 2021 comparisons therefore include only a partial year of acquired results.

Financial performance and liquidity

  • Revenue: $5.552 billion, up 14% from $4.857 billion in 2020.
  • Profitability: Gross profit was $1.373 billion, up 7%; gross margin declined to 24.7% from 26.4%. Operating earnings rose 13% to $1.011 billion. Net earnings attributable to Vulcan increased 15% to $670.8 million; diluted EPS was $5.02 versus $4.39. Continuing-operations diluted EPS was $5.05 versus $4.41.
  • Adjusted measures: Adjusted EBITDA was $1.451 billion, up 10%; adjusted continuing-operations diluted EPS was $5.04 versus $4.68. These are non-GAAP measures.
  • Aggregates: Shipments rose 7% to 222.9 million tons (5% same-store); freight-adjusted price increased 3% to $14.87 per ton. Segment gross profit rose 12% to $1.296 billion, or $5.81 per ton; cash gross profit was $7.43 per ton.
  • Other segments: Asphalt gross profit fell to $21.2 million from $75.2 million, principally due to higher liquid-asphalt and natural-gas costs. Concrete gross profit increased to $54.3 million from $44.2 million, with U.S. Concrete contributions more than offsetting weakness in legacy Virginia operations. Calcium gross profit was $2.2 million, down from $2.9 million.
  • Cash flow and investment: Operating cash flow was $1.012 billion, down from $1.070 billion, primarily reflecting working-capital changes. Investing cash outflow was $1.874 billion, including $1.639 billion of acquisition spending and $451.3 million of capital expenditures. Financing cash outflow was $94.3 million. Cash and restricted cash ended the year at $241.5 million.
  • Debt and liquidity: Total debt was $3.880 billion, versus $3.288 billion; total debt to Adjusted EBITDA was 2.7x and net debt to Adjusted EBITDA 2.5x. Available liquidity was $1.175 billion, including $241.5 million cash and $940.4 million of undrawn line capacity. Weighted-average debt maturity was 11.3 years and effective weighted-average interest rate 3.68%. The company reported investment-grade ratings and compliance with debt covenants.
  • Shareholder returns: Dividends totaled $196.4 million, or $1.48 per share, versus $180.2 million, or $1.36 per share. No shares were repurchased in 2021.

Material changes and unusual items

  • U.S. Concrete was acquired on August 26 for $1.635 billion net of acquired cash. It contributed $466.3 million in 2021 revenue and a $19.7 million net loss attributable to Vulcan for the post-acquisition period. Preliminary purchase accounting recorded $524.6 million goodwill; allocation was not finalized.
  • A reclaimed Southern California quarry sale generated a $114.7 million pretax gain, contributing to total gains on asset and business sales of $120.1 million, versus $4.0 million in 2020.
  • Other 2021 items included $39.0 million of non-routine business-development charges, $13.4 million of COVID-19 costs, $15.0 million of restructuring charges, $12.1 million of pension-settlement charges, $9.4 million of acquisition-financing interest, and a $13.7 million tax charge related to Alabama NOL valuation allowance.
  • Interest expense increased to $149.3 million from $136.0 million, partly due to financing the U.S. Concrete acquisition. The effective tax rate rose to 22.9% from 20.9%.

Outlook, commentary, and risks

Management expected 2022 net earnings attributable to Vulcan of $800–$890 million and Adjusted EBITDA of $1.720–$1.820 billion. It forecast 5%–7% total aggregates shipment growth, a 6%–8% freight-adjusted price increase, and high-single-digit growth in aggregates cash gross profit per ton. Planned 2022 capital expenditures were $600–$650 million. Management expected favorable pricing and operating discipline to offset inflation, while labor shortages and supply-chain disruptions could constrain volumes. The Infrastructure Investment and Jobs Act was viewed positively, but management did not expect a significant effect in 2022.

  • Key exposures include construction-cycle sensitivity, weather, inflation in fuel and other inputs, labor and transportation constraints, infrastructure-funding timing, permitting and reserve access, environmental regulation, climate-related physical and transition risks, cyber risk, and acquisition integration.
  • Mexico-related operating risk is notable: the government issued a short-term customs permit for the deep-water port instead of the customary three-year permit. Vulcan was pursuing negotiations and a NAFTA arbitration decision was expected in the second half of 2022.
  • Material legal and environmental matters include Texas Brine litigation and Hewitt Landfill remediation and contribution claims; the company stated it could not reasonably estimate potential additional losses for certain claims. For the Lower Passaic River matter, Vulcan reached an agreement in principle with EPA/DOJ in February 2022, with its share expected to be within an immaterial amount already recorded, subject to a consent decree.
  • The financial statements received an unqualified audit opinion. Management and the auditor reported effective internal control over financial reporting, but U.S. Concrete—about 10% of year-end assets and 8% of 2021 revenue—was excluded from the controls assessment while integration continued.

Most important facts for investors to verify

  • How much of 2021 growth and the 2022 outlook reflects acquired U.S. Concrete operations versus same-store performance, and whether integration delivers expected returns.
  • Whether aggregates pricing and unit profitability offset ongoing fuel, labor, and other cost inflation, and whether asphalt margins recover as management anticipated.
  • Execution and timing of infrastructure-funded projects, including the expected pace of demand and the effect of labor and supply-chain constraints.
  • Debt reduction, leverage relative to management’s 2.0x–2.5x target, and liquidity after acquisition spending and planned capital expenditures.
  • Developments in Mexico permits and arbitration, Texas Brine litigation, and Hewitt Landfill remediation exposure; certain potential losses remain unquantifiable in the filing.