Vulcan Materials Company — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Vulcan is a U.S.-focused producer of construction aggregates, asphalt mix and ready-mixed concrete, with related paving services. Financial amounts are in U.S. dollars; millions unless noted.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $2,185.8 | $2,088.3 | $5,947.6 | $5,583.3 |
| Gross profit / margin | $591.0 / 27.0% | $492.9 / 23.6% | $1,476.3 / 24.8% | $1,207.8 / 21.6% |
| Operating earnings | $418.9 | $305.4 | $1,057.3 | $759.9 |
| Net earnings attributable to Vulcan | $276.5 | $177.1 | $705.8 | $456.2 |
| Diluted EPS | $2.07 | $1.33 | $5.28 | $3.42 |
| Adjusted EBITDA (non-GAAP) | $602.2 | $507.0 | $1,535.1 | $1,251.0 |
- Aggregates: Q3 shipments fell 2% to 63.9 million tons, while freight-adjusted price rose 14.9% to $19.29 per ton. Gross profit increased 17% to $508.4 million; gross profit per ton rose 19% to $7.95. For nine months, shipments declined 2%, but freight-adjusted price rose 16.5% and gross profit per ton increased 23% to $7.32.
- Other segments: Q3 asphalt gross profit rose to $55.9 million from $29.5 million, helped by higher shipments and lower liquid asphalt costs. Concrete gross profit was $26.0 million versus $26.5 million; comparisons reflect the 2022 divestiture of Northeast concrete operations. Nine-month concrete gross profit declined $34.0 million for the same reason.
- Cash flow: Nine-month operating cash flow was $1,055.2 million, up from $748.3 million. Investing cash outflow was $509.2 million, including $666.3 million of property, plant and equipment purchases and $130.0 million of sale proceeds. Financing cash outflow was $362.5 million. Cash and restricted cash ended at $345.0 million.
Balance sheet, debt and liquidity
- At September 30, cash and cash equivalents were $340.0 million, restricted cash $5.0 million, and total assets $14,620.5 million.
- Reported debt was $3,874.8 million, including $3,874.3 million of long-term debt and no short-term debt. Debt was unsecured; Vulcan reported compliance with debt covenants. The $1.6 billion revolving credit facility had $1,516.8 million available, net of standby letters of credit.
- Total debt to trailing-twelve-month Adjusted EBITDA was 2.0x and net debt to Adjusted EBITDA was 1.8x; management’s long-term leverage target is 2.0x–2.5x total debt to Adjusted EBITDA. Weighted-average debt maturity was 10.2 years.
- Capital expenditures were $411.1 million through September, including $138.4 million for growth projects. Vulcan also spent $172.9 million on strategic-reserve land purchases during the period.
Changes, outlook and notable items
- Management raised full-year 2023 Adjusted EBITDA guidance to $1.95–$2.00 billion. It expects $600–$650 million of maintenance and growth capital expenditures for 2023 and anticipates another year of earnings growth and strong cash generation in 2024, without providing a quantified 2024 forecast.
- Management cited supportive public infrastructure activity, including projects related to the Infrastructure Investment and Jobs Act, industrial-related nonresidential projects, and a positive pricing environment. It expects single-family recovery and industrial projects to partly offset continued softness in multifamily and some nonresidential markets.
- Q3 results included a $28.3 million pretax impairment charge on Texas concrete assets classified as held for sale; the contemplated disposition remained subject to regulatory approvals and customary closing conditions. Assets held for sale totaled $495.1 million, with $10.1 million of related liabilities.
- Inflation, labor shortages—particularly truck drivers—transport capacity constraints, weather, construction cyclicality and economic conditions may affect costs, volumes and operations. Management noted that inflation and demand visibility may also support price increases.
- Calica operations in Mexico remained shut down following Mexican government actions in May 2022. Vulcan reported a NAFTA arbitration hearing on its ancillary claim in August 2023 and expected a tribunal decision during the first half of 2024; outcome and any recovery are uncertain.
- Legal and environmental exposures include discontinued Chemicals-business matters and environmental remediation. Environmental remediation accruals were $41.0 million; asset retirement obligations were $315.5 million. Vulcan stated that some potential losses cannot currently be reasonably estimated. Standby letters of credit totaled $83.2 million.
- Other unusual comparisons include prior-year impairment charges tied to the Northeast concrete divestiture and real-estate sale gains in both periods. Nine-month interest expense rose to $142.2 million from $120.8 million. The effective tax rate on continuing operations declined to 21.4% from 25.8% for the nine-month periods.
Most important facts for investors to verify
- Whether aggregates pricing and unit profitability can continue to offset cost inflation and lower shipment volumes.
- Delivery of the $1.95–$2.00 billion 2023 Adjusted EBITDA outlook and the expected 2024 growth and cash generation.
- Completion terms, timing and final proceeds for the proposed Texas concrete divestiture, including any further impairment or tax effects.
- Developments and potential financial consequences of the Calica shutdown and NAFTA arbitration, as well as material litigation and environmental matters.
- Capital spending, strategic land purchases, shareholder returns and leverage relative to management’s stated target.
Adjusted EBITDA and adjusted EPS are non-GAAP measures; reported GAAP earnings and cash flows are shown separately above. Interim results are not necessarily indicative of full-year results.