Vulcan Materials Company — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. Vulcan is a major U.S. construction-materials supplier, with aggregates as its core business and additional asphalt, ready-mixed concrete, and calcium operations. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance
| Metric | Q1 2018 | Q1 2017 | Change |
|---|---|---|---|
| Revenue | $854.5 | $787.3 | +9% |
| Gross profit / margin | $159.3 / 18.6% | $158.2 / 20.1% | Profit +1%; margin down |
| Operating earnings | $81.2 | $70.4 | +15% |
| Continuing-operations earnings | $53.4 | $43.5 | +23% |
| Net earnings | $53.0 | $44.9 | +18% |
| Diluted EPS | $0.39 net; $0.40 continuing operations | $0.33 net; $0.32 continuing operations | Higher |
| Adjusted EBITDA | $167.8 | $149.3 | +12% |
| Operating cash flow | $93.0 | $94.2 | Down $1.2 |
- Aggregates segment sales rose 8% to $699.7 million; shipments increased 6% to 40.5 million tons, while same-store shipments rose 1%. Freight-adjusted price increased less than 1% overall and 3% excluding mix effects. Aggregates gross profit grew 7% to $148.2 million.
- Asphalt gross profit fell to $0.2 million from $8.5 million, reflecting weather-delayed work, higher liquid asphalt costs, lower material margins, and acquisition timing. Concrete gross profit was $10.3 million, roughly flat; Calcium gross profit was $0.5 million, down from $0.7 million.
- Consolidated gross margin declined despite higher revenue. Management cited the greater weight of freight and delivery, higher costs, and weaker Asphalt results. Selling, administrative and general expense decreased $4.0 million to $78.3 million.
- Capital expenditures were $128.7 million. Operating cash flow less capital expenditures was approximately negative $35.7 million. Investing cash outflow was $192.0 million; financing cash outflow was $1.1 million. Cash and restricted cash declined $100.1 million during the quarter to $46.5 million.
- Operating cash flow included a $100.0 million discretionary pension contribution. Cash taxes paid were negative $105.7 million, reflecting a net refund/payment position as reported.
Balance sheet, debt and liquidity
- At March 31, cash and cash equivalents were $38.1 million and restricted cash was $8.4 million. Current assets were $1.01 billion versus current liabilities of $583.3 million.
- Total debt was approximately $2.98 billion, including $200 million of short-term line-of-credit borrowing; debt was $2.85 billion at December 31, 2017. Debt represented 37.7% of total capital, versus 36.5% at year-end.
- The $750 million unsecured credit facility matures in 2021. Available borrowing capacity was $506.8 million after $200 million drawn and $43.2 million supporting letters of credit. The company reported compliance with debt covenants.
- Q1 refinancing included issuing $850 million of notes, repaying term loans and line-of-credit borrowings, and extending debt maturities. Management said the portfolio’s weighted-average life had increased to approximately 16 years and its weighted-average interest rate had declined to 4.0% since year-end 2016. Early debt retirements generated a $7.4 million interest expense charge.
- The quarterly dividend was $0.28 per share, up from $0.25. The company repurchased approximately 492,000 shares for $57.8 million during the quarter.
Outlook, management commentary and risks
- Management reaffirmed 2018 continuing-operations diluted EPS guidance of $4.00–$4.65 and Adjusted EBITDA guidance of $1.15–$1.25 billion. It also projected approximately $250 million of maintenance and operating capital expenditures and $350 million of internal growth capital expenditures.
- Management cited improving construction demand indicators, shipment patterns and pricing momentum, while noting unusually cold and wet weather, higher-than-expected energy costs, rail-service and other logistics constraints, and delayed paving activity. Deferred work was expected to recover later in the year.
- The company projected a 20% full-year effective tax rate and approximately $75 million of 2018 cash taxes before specified credits, refinancing effects and refunds. Tax accounting under the 2017 Tax Cuts and Jobs Act remained incomplete.
- Texas Brine litigation remains unresolved following a judge’s allocation of comparative fault of 15% to Vulcan, 35% to Texas Brine and 50% to Occidental in pipeline-related proceedings. Vulcan said it could not reasonably estimate liability for open cases; some settlements were insurer-funded.
- At the Lower Passaic River Superfund site, the EPA estimated a proposed dredging remedy at $1.38 billion. Vulcan said the parties’ funding shares are undetermined, it is not currently obligated to fund the remedy, and it had recorded an immaterial loss. At the Hewitt Landfill, the company had accrued $15.2 million for source-control work; further potential remediation costs were not yet estimable.
- Other disclosed risks include construction and infrastructure spending, weather, fuel and raw-material costs, interest rates, pension funding, environmental liabilities, permitting and reserves, acquisitions, tax-law changes, and cybersecurity. The filing reported no material change to previously disclosed risk factors.
Most important facts for investors to verify
- Whether the reaffirmed full-year earnings and EBITDA guidance is supported by demand, pricing, and the expected recovery of weather-delayed work.
- Whether margin pressure in Asphalt and the consolidated gross margin improves as costs, logistics and seasonal volumes develop.
- Cash generation after the pension contribution and capital spending, alongside debt levels, facility availability and refinancing costs.
- Developments in Texas Brine and environmental matters, including potential liability, insurance coverage and remediation estimates.
- The final accounting effects of tax-law changes and any resulting impact on the effective tax rate, cash taxes or deferred taxes.