Vulcan Materials Company — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Vulcan is a U.S.-focused construction materials producer, led by aggregates, with asphalt, ready-mixed concrete and calcium businesses. Results are unaudited; dollar amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $1,322.6 | $1,327.7 | $2,371.8 | $2,324.2 |
| Gross profit / margin | $396.5 / 30.0% | $370.5 / 27.9% | $598.2 / 25.2% | $562.2 / 24.2% |
| Operating earnings | $298.9 | $276.1 | $411.2 | $380.5 |
| Net earnings | $209.9 | $197.6 | $270.2 | $260.9 |
| Diluted EPS | $1.58 | $1.48 | $2.03 | $1.96 |
| Adjusted EBITDA | $407.8 | $372.0 | $608.8 | $564.7 |
- Q2 revenue declined less than 1%, while gross profit rose 7%, operating earnings rose 8% and net earnings rose 6%. Six-month revenue increased 2% and net earnings increased 4%.
- Q2 aggregate shipments fell 2% to 56.2 million tons, but freight-adjusted aggregate price rose 3.1%; aggregate gross profit increased 7% and unit gross profit rose 9% to $6.25 per ton. For the first half, aggregate shipments fell 2% and freight-adjusted price increased 3.7%.
- Q2 consolidated gross margin expanded 2.1 percentage points. Management cited aggregate pricing and cost control; lower diesel costs also benefited results, partly offset by inventory-reduction costs.
- Six-month cash from operations was $425.6, versus $301.9 a year earlier, primarily reflecting more favorable working-capital changes. Investing activities used $219.5; property and equipment purchases were $223.1. Financing activities provided $336.6.
Liquidity, debt and capital
- At June 30, cash and cash equivalents were $816.8; total debt was $3,285.6, including $500.0 of current maturities due in the first quarter of 2021. Management reported total-debt leverage of 2.5 times trailing-twelve-month Adjusted EBITDA, or 1.9 times on a net-debt basis.
- Available borrowing capacity was $1,195.9, after $54.1 of capacity was reserved for standby letters of credit. The company reported compliance with its credit-facility and debt covenants.
- In May, Vulcan issued $750.0 of 3.50% senior notes due 2030. Proceeds helped repay $250.0 of floating-rate notes due June 2020; the remaining proceeds and cash were intended to retire $500.0 of floating-rate notes due March 2021.
- Q2 capital expenditures were $67.9; first-half capital expenditures were $176.9 as reported by management. The company expected full-year spending of $275–$325.
- Q2 dividends were $45.0, or $0.34 per share. No shares were repurchased during the quarter; repurchases were temporarily suspended due to COVID-19. First-half repurchases totaled $26.1.
Outlook, risks and unusual items
- Vulcan did not reinstate earnings guidance, citing limited visibility into the pandemic’s effects on demand and construction activity. Management said quote activity remained robust and some demand indicators were improving, but cautioned that renewed restrictions could weigh on second-half shipments.
- Management described the business as resilient and said it would focus on pricing, cost control, liquidity and adjusting operating plans as demand changes. It stated it did not then anticipate material impairments, restructuring charges, covenant violations or other specified material financial-statement impacts.
- COVID-19 had not materially affected results to date, according to the filing, but caused $4.4 of Q2 and $5.0 of first-half direct incremental costs. Q2 shipments were affected by wet weather and restrictions in some markets. The filing identifies pandemic-related disruption, construction cycles, infrastructure funding, weather, fuel and raw-material costs, interest rates, permitting and legal matters as risks.
- Q2 results included $0.8 of charges associated with divested operations, a $3.5 gain associated with non-routine business development, $4.4 of COVID-19 costs and $0.5 of restructuring charges. First-half results also included a $2.5 non-routine business-development gain and $1.3 of restructuring charges. These are reflected in company-reported adjusted measures.
- Significant legal and environmental matters include the Lower Passaic River Superfund proceedings, Texas Brine/sinkhole litigation, New York water-district cases and the Hewitt Landfill matter. The company said some potential losses could not be reasonably estimated; it reported $33.6 of accrued environmental remediation costs and $263.7 of asset retirement obligations.
- The company’s LIBOR-referencing instruments and facilities include debt or facilities maturing by 2021. It said the financial effect of transition to a replacement reference rate could not then be predicted. Deferred losses on interest-rate hedges also affect future interest expense.
Most important facts for investors to verify
- Whether construction volumes and pricing held up as pandemic restrictions, weather and regional demand changed after quarter-end.
- Whether cash generation and working capital remained supportive, and whether planned $275–$325 million of 2020 capital spending was maintained.
- How the $500 million maturity due in Q1 2021 was ultimately repaid or refinanced, and whether leverage, liquidity and covenant headroom changed.
- Whether legal, environmental and reclamation exposures changed materially, particularly where the filing says a loss range cannot be estimated.
- How reported GAAP earnings compare with Adjusted EBITDA and adjusted EPS, which are non-GAAP measures, and whether the unusual items recur.