Vulcan Materials Company — 2022 Third-Quarter 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Vulcan is a U.S.-focused construction materials supplier, led by aggregates, with asphalt, ready-mixed concrete and calcium businesses. Comparisons below are with the corresponding 2021 periods; results reflect the August 2021 U.S. Concrete acquisition.
Financial performance
| Metric | Third quarter 2022 | Third quarter 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $2,088.3 million | $1,516.5 million | $5,583.3 million | $3,945.9 million |
| Gross profit | $492.9 million | $394.1 million | $1,207.8 million | $1,021.7 million |
| Gross margin | 23.6% | 26.0% | 21.6% | 25.9% |
| Operating earnings | $305.4 million | $262.4 million | $759.9 million | $799.4 million |
| Net earnings attributable to Vulcan | $177.1 million | $176.9 million | $456.2 million | $532.9 million |
| Diluted EPS | $1.33 | $1.32 | $3.42 | $3.99 |
| Adjusted diluted EPS from continuing operations | $1.78 | $1.54 | $4.03 | $3.80 |
| Adjusted EBITDA | $507.0 million | $417.7 million | $1,251.0 million | $1,068.0 million |
Quarterly revenue rose 38% and nine-month revenue rose 41%. Growth included acquired operations and stronger pricing and volumes. In aggregates, third-quarter shipments increased 9% to 65.4 million tons; freight-adjusted price rose 12.5% to $16.79 per ton. Aggregates gross profit increased 17% to $436.1 million, while gross profit per ton rose to $6.67. Higher fuel and other input costs weighed on margins: diesel costs increased 82% year over year in the quarter and 98% for the nine months.
Quarterly operating earnings benefited from higher segment gross profit and a real-estate sale gain, but included $67.8 million of impairment charges. For the nine months, lower operating earnings and net income reflected the prior-year $114.7 million quarry-sale gain, current-year impairments, higher expenses and other items. The company reported a $16.1 million after-tax loss from discontinued operations for the nine months, including a $15.3 million litigation charge related to its former Chemicals business.
Cash flow, debt and liquidity
- Operating cash flow: $748.3 million for the first nine months, versus $724.8 million in 2021. Working-capital changes were a significant cash use; the filing reports a $295.5 million outflow from changes in assets and liabilities before acquisition and disposition effects.
- Investing cash flow: $940.7 million used, including $528.0 million cash paid for 2022 acquisitions and $450.4 million for property, plant and equipment. Capital expenditures were $377.6 million year to date on the company’s stated basis, including $157.1 million for growth projects.
- Financing and shareholder returns: $97.8 million provided by financing activities. Dividends paid totaled $159.5 million, or $1.20 per share, for the nine months.
- Cash and debt at September 30: Cash and restricted cash totaled $146.9 million. Total debt was $4,186.7 million and net debt was $4,039.8 million. Debt represented 37.8% of total capital; total debt to trailing-twelve-month Adjusted EBITDA was 2.6x and net debt was 2.5x. Weighted-average debt maturity was 11.3 years.
- Available liquidity: The amended $1.6 billion credit line had $1.21 billion available, after $312 million drawn and $78 million supporting letters of credit. The company also had a $1.6 billion commercial paper program, with $550 million outstanding classified as long-term debt. The company reported covenant compliance.
Material changes and unusual items
- The quarter included a $23.5 million pretax gain on the sale of excess Southern California real estate, partly offset by $50.9 million goodwill impairment and $16.9 million long-lived asset impairment tied to a planned sale of concrete operations in New York, New Jersey and Pennsylvania.
- Vulcan expects that divestiture to close in the fourth quarter of 2022, subject to regulatory approval and customary conditions. The related held-for-sale balance sheet amounts were $291.1 million of assets and $111.1 million of liabilities at September 30.
- In May, Mexican officials shut down Calica’s remaining operations and suspended its customs permit. Vulcan’s 2022 outlook incorporates an estimated $80 million to $100 million EBITDA impact. The company recorded a $9.6 million tax charge for a valuation allowance against Calica net operating losses.
- Quarterly interest expense, net, increased to $46.1 million from $36.8 million. For the nine months, it increased to $120.8 million from $111.6 million.
Outlook, commentary and risks
Management raised its full-year 2022 Adjusted EBITDA outlook to $1.640 billion–$1.680 billion. It expects 2022 capital expenditures of $600 million–$650 million. Management cited strong pricing, operational execution, healthy underlying demand and shipment growth; it also said 2023 public construction and a recovery in private nonresidential awards could help offset weaker single-family residential demand. These are forward-looking statements, not guarantees.
Key operating pressures include inflation, diesel and other input costs, labor and truck-driver shortages, transportation availability, supply-chain constraints and weather-sensitive construction demand. The filing also identifies economic and construction cycles, interest rates, acquisition integration, environmental and regulatory matters, and international operations as risks.
Material contingencies include the NAFTA arbitration over Mexico’s treatment of Calica, with no assured outcome or quantified potential recovery; claims relating to the Louisiana sinkhole and former Chemicals business; and environmental remediation matters. Vulcan states that certain potential losses cannot currently be reasonably estimated. It accrued $35.5 million for environmental remediation costs at September 30. The company said its disclosure controls were effective; integration of U.S. Concrete controls was expected to be completed in the fourth quarter of 2022.
Most important facts for investors to verify
- Whether aggregates pricing continues to outpace cost inflation, particularly diesel, and whether margins and per-ton profitability hold up.
- Actual progress and financial effects of the planned concrete divestiture, including the impairment and sale proceeds.
- The duration and financial consequences of the Calica shutdown, including developments in the arbitration, customs permit and tax valuation allowance.
- Cash conversion and working-capital trends, alongside capital spending, acquisition outlays, debt costs and leverage.
- Whether the 2022 EBITDA outlook and management’s demand and pricing assumptions for 2023 are achieved amid residential weakness and capacity constraints.
- Developments in litigation and environmental matters where the company says outcomes or potential losses remain uncertain.
Adjusted EBITDA and adjusted EPS are non-GAAP measures; comparisons and outlook use management-defined adjustments.