Vulcan Materials Company — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Vulcan is a U.S.-focused producer of construction aggregates, asphalt mix and ready-mixed concrete, with aggregates as its core business.
Financial performance
Unless noted otherwise, amounts are in millions of dollars. Quarter and six-month comparisons are against the same periods in 2022.
- Q2 revenue: $2,112.9, up 8%; gross profit was $583.3, up 31%, and gross margin rose to 27.6% from 22.8%.
- Q2 earnings: Operating earnings were $451.1, up 47%. Net earnings attributable to Vulcan were $308.6, versus $187.3; diluted EPS was $2.31, including $2.33 from continuing operations.
- Q2 segments: Aggregates revenue was $1,578.4 and gross profit $498.6, with shipments down 1% and freight-adjusted price up 15% to $18.69 per ton. Asphalt gross profit rose to $56.6 from $13.6. Concrete gross profit was $27.0, down from $30.0; lower shipments reflected, in part, the prior divestiture of northeastern operations.
- First-half results: Revenue was $3,761.8, up 8%; gross profit was $885.3, up 24%. Net earnings attributable to Vulcan were $429.3 versus $279.1; diluted EPS was $3.21 versus $2.09.
- Cash flow: First-half operating cash flow was $507.5, compared with $325.5. Cash purchases of property, plant and equipment were $354.6; investing cash outflow was $203.2, including $130.0 in proceeds from a note receivable collection. Financing cash outflow was $297.6, including $114.4 of dividends and $49.9 of share repurchases.
- Debt and liquidity: June 30 cash and restricted cash totaled $168.2; total debt was $3,873.7, all but $0.5 classified as long-term. Total and net debt to trailing-twelve-month Adjusted EBITDA were 2.1x and 2.0x, respectively. The $1.6 billion credit facility had $1,516.8 of available capacity, and the company reported compliance with debt covenants.
- Other metrics: Interest expense, net, was $46.7 in Q2 and $95.7 for the first half, both higher year over year. Trailing-twelve-month return on invested capital was 14.7%, versus 13.6% a year earlier.
Changes versus prior periods
- Growth was led by pricing and aggregates profitability: Q2 aggregates freight-adjusted price increased 15%, while shipments declined 1%. First-half aggregates price increased 17.4% as shipments declined 1%.
- Higher asphalt earnings reflected increased shipments and prices and lower liquid asphalt costs. Concrete results were affected by the sale of operations in New Jersey, New York and Pennsylvania in November 2022, as well as softer residential activity.
- Q2 results included a $15.2 pretax gain on an Illinois real estate sale. Higher net interest expense partly offset operating improvement.
- First-half capital returns increased: dividends were $114.4, and Vulcan repurchased 241,363 shares for $49.9. Total debt was lower than at June 30, 2022, while cash from operations was higher.
Outlook, commentary and risks
- Management raised 2023 Adjusted EBITDA guidance to $1.9–$2.0 billion, citing shipment trends and asphalt momentum. It expects aggregates shipments to decline 1%–4% from 2022’s 236.3 million tons and net earnings attributable to Vulcan of $855–$935 million.
- Management expects 2023 capital spending of $600–$650 million for maintenance and growth, plus approximately $200 million for opportunistic strategic-reserve land purchases in California, North Carolina and Texas.
- Management cited healthy private nonresidential construction, better-than-expected residential activity, and shipments supported by large industrial projects. Inflation, labor shortages—particularly truck drivers—and transportation constraints remain operational pressures; weather and construction cycles can affect results.
- Calica operations in Mexico remain shut down following government action in May 2022. The company is pursuing a NAFTA arbitration claim; a tribunal decision is not expected before 2024, and recovery is uncertain and not quantifiable.
- Other disclosed exposures include environmental remediation and legacy Chemicals-business litigation. The company states some potential losses cannot currently be estimated; it considers the ultimate resolution of environmental claims not expected to materially affect consolidated results, financial position or cash flows, while period-specific effects could be material.
- Q2 included a $4.9 pretax loss from discontinued operations, versus $17.6 a year earlier. The filing also reports a Calica deferred-tax-asset valuation allowance and ongoing inflation and capacity constraints. Guidance and Adjusted EBITDA are non-GAAP measures.
Important facts for investors to verify
- Whether aggregates pricing and unit profitability can continue to offset modestly lower shipment volumes and rising costs.
- Progress against the $1.9–$2.0 billion Adjusted EBITDA outlook, shipment assumptions, and planned capital and land spending.
- Interest-rate exposure and debt costs, including the floating-rate exposure created by swaps on the $550 million of 2026 notes.
- Developments in the Mexico arbitration and the company’s environmental and legacy litigation exposures, including matters for which losses are not estimable.
- How the Illinois property-sale gain and other adjustments affect comparisons between GAAP results and non-GAAP measures.