Vulcan Materials Company — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2020; filed November 6, 2020. Amounts are in millions of dollars unless stated otherwise. Vulcan is a U.S.-focused producer of construction aggregates, asphalt mix, and ready-mixed concrete.
Financial performance
| Metric | Q3 2020 | Q3 2019 | First 9 months 2020 | First 9 months 2019 |
|---|---|---|---|---|
| Revenue | $1,309.9 | $1,418.8 | $3,681.7 | $3,743.0 |
| Gross profit | $380.5 | $400.6 | $978.7 | $962.8 |
| Gross margin | 29.0% | 28.2% | 26.6% | 25.7% |
| Operating earnings | $288.1 | $303.4 | $699.3 | $683.9 |
| Net earnings | $199.8 | $215.7 | $470.0 | $476.6 |
| Diluted EPS | $1.50 | $1.62 | $3.53 | $3.58 |
| Adjusted EBITDA | $403.5 | $406.8 | $1,012.3 | $971.6 |
Quarterly revenue fell 8%, reflecting lower shipments across major product lines: aggregates down 8%, asphalt mix down 13%, and ready-mixed concrete down 11%. Aggregates freight-adjusted price rose 2.4%; aggregates unit gross profit rose to $6.04 per ton from $5.87. For the first nine months, aggregates shipments fell 4%, while freight-adjusted price increased 3.2% and cash gross profit per ton increased 7% to $7.15.
Quarterly gross profit declined despite margin expansion, supported by pricing, cost controls, and lower fuel costs. Adjusted EBITDA margin expanded 2.1 percentage points year over year. For the first nine months, adjusted EBITDA increased about 4%, while net earnings declined; the company cited lower gains on asset and business sales, higher interest and tax expense, and currency effects among the period’s comparisons.
Cash flow, liquidity, and debt
- Operating cash flow: $777.9 for the first nine months, up from $646.1 a year earlier, primarily due to more favorable working-capital movements.
- Investing cash flow: $253.7 used; capital expenditures were $269.0, including $72.3 for internal growth projects.
- Financing cash flow: $286.0 provided, including proceeds from a $750.0 senior-notes issuance and retirement of $250.0 of notes; dividends paid were $135.2.
- Cash and restricted cash: $1,084.7 at September 30, 2020, versus $271.6 at December 31, 2019. The increase principally reflects debt issuance and financing activity.
- Debt: $3,286.5 reported debt, including $509.4 classified as current. Total debt was 35.7% of total capital. Management reported 2.5x debt to trailing-twelve-month adjusted EBITDA, or 1.7x on a net-debt basis.
- Available credit: A new five-year unsecured $1.0 billion revolver was established in September; $943.4 remained available after letters of credit, with no borrowings outstanding. The company reported compliance with debt covenants.
- About $500.4 of debt maturities were due in first-quarter 2021. Management said approximately $500 million of cash on hand was intended to repay the March 2021 floating-rate notes. Weighted-average debt maturity was 14 years; effective weighted-average term-debt interest rate was 4.1%.
Outlook, commentary, and notable items
Management provided 2020 adjusted EBITDA guidance of $1.285 billion to $1.315 billion, expecting full-year earnings growth despite lower shipments. The outlook assumes no major change in COVID-19 shelter-in-place restrictions and normal weather for the remainder of the year. The company planned to issue 2021 guidance with fourth-quarter results. Management cited improving demand visibility, a supportive pricing environment, recovering residential activity and state transportation revenues, while noting that private nonresidential construction remained weak. Expected 2020 capital expenditures were $300 million to $350 million.
COVID-19 and severe wet weather reduced quarterly volumes; wildfires and associated power outages also affected California operations. The company recorded $2.4 of COVID-related direct incremental costs in Q3 and $7.4 for the first nine months. Other Q3 discrete charges included $5.9 associated with divested operations. The first-nine-month results also included $1.3 of restructuring charges and a $2.1 net gain from non-routine business development. These items affect comparability; adjusted measures are non-GAAP.
Key risks include the uncertain duration and economic effects of COVID-19, construction-cycle and public-infrastructure funding exposure, weather and natural disasters, fuel and input costs, interest-rate and LIBOR transition risk, reserve permitting, environmental obligations, and legal proceedings. The company disclosed $37.0 of accrued environmental remediation costs and $258.9 of asset-retirement obligations. Several legal matters have uncertain or unestimable exposure, including the Passaic River Superfund matter, Texas Brine litigation, and Hewitt Landfill claims. For Passaic, the EPA estimated a $1.38 billion cost for its proposed river remedy; Vulcan said its allocation was undetermined and it was not currently obligated to fund that remedy.
Most important facts for investors to verify
- Whether the $1.285–$1.315 billion 2020 adjusted EBITDA outlook was achieved, and how its stated assumptions compared with actual weather and pandemic conditions.
- Whether shipment recovery and pricing gains continued, particularly in aggregates and private nonresidential construction.
- Cash generation, working-capital trends, and use of cash to repay the $500 million-plus first-quarter 2021 maturity.
- Changes in environmental and legal exposures, especially matters for which the company could not estimate a loss range.
- The impact of COVID-19, fuel and input costs, and LIBOR transition on margins, demand, and interest expense.