Vulcan Materials Company — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. Vulcan is the largest U.S. construction-aggregates supplier and also produces asphalt mix, ready-mixed concrete and calcium products. Results are annual; selected fourth-quarter figures are included below.
Financial performance
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Revenue | $4.929 billion | $4.383 billion | +12% |
| Gross profit / margin | $1.256 billion / 25.5% | $1.101 billion / 25.1% | +14%; margin +0.4 pts |
| Operating earnings | $877.5 million | $747.7 million | +17% |
| Continuing-operations earnings | $622.5 million | $517.8 million | +20% |
| Net earnings / diluted EPS | $617.7 million / $4.63 | $515.8 million / $3.85 | +20% net earnings |
| Adjusted EBITDA | $1.270 billion | $1.132 billion | +12% |
| Cash from operating activities | $984.1 million | $832.8 million | +$151.3 million |
| Capital expenditures | $404.3 million | $475.2 million | -$70.9 million |
Operating cash flow less capital expenditures was approximately $600 million, calculated from the reported figures. Cash and cash equivalents were $271.6 million, plus $2.9 million restricted cash. Working capital was $843.8 million. Total debt was $2.784 billion, down from $2.912 billion; debt was 2.2 times Adjusted EBITDA, with a 14-year weighted-average maturity and 4.36% weighted-average effective interest rate. The $750 million revolving credit facility had $697.4 million available, net of letters of credit.
Aggregates drove growth: shipments rose 7% to 215.5 million tons, freight-adjusted price rose 5.6% to $13.99 per ton, and gross profit increased 16% to $1.147 billion. Aggregates gross profit per ton increased 8% to $5.32. Asphalt gross profit rose 12% to $63.0 million, while concrete gross profit fell 14% to $43.2 million, primarily reflecting lower shipments and fixed-cost leverage. Calcium gross profit was $3.1 million.
Fourth-quarter 2019 revenue was $1.186 billion, gross profit $293.1 million, continuing-operations earnings $142.6 million, net earnings $141.1 million and diluted net EPS $1.06. The comparable fourth-quarter 2018 amounts were $1.088 billion, $275.3 million, $124.3 million, $124.0 million and $0.93, respectively.
Changes, outlook and management commentary
- Revenue growth reflected higher aggregates shipments and prices, as well as acquisitions and expanded downstream operations. Same-store aggregates shipments increased 6%; same-store freight-adjusted pricing increased 6%.
- Management cited robust public construction demand and higher highway funding in key markets. Residential activity softened in some markets in the second half of 2019; management expected residential and private nonresidential activity to improve in 2020.
- 2020 guidance: aggregates shipments growth of 2%–4%; freight-adjusted price increase of 4%–6%; combined Asphalt, Concrete and Calcium gross-profit growth of 10%–15%; continuing-operations diluted EPS of $5.20–$5.80; net earnings of $695–$775 million; Adjusted EBITDA of $1.385–$1.485 billion. Expected maintenance capital spending was approximately $275 million, with $200 million for internal growth projects.
- FY2019 included pretax gains of $13.4 million on business/property sales and donation, and charges including $10.8 million for property donation, $3.0 million for divested operations, $1.7 million for non-routine business development and $6.5 million for restructuring. Adjusted diluted continuing-operations EPS was $4.70 versus $4.05 in 2018; these are non-GAAP measures.
- Operating cash flow benefited from higher earnings and lower pension contributions than in 2018; working-capital movements were a significant use of cash. Dividends paid were $164.0 million, and share repurchases were $2.6 million, compared with $134.0 million repurchased in 2018.
Risks, contingencies and unusual items
- Results depend on cyclical construction activity, infrastructure funding, local pricing and volume, weather, and costs or availability of fuel, electricity, liquid asphalt and transportation. Environmental, zoning and permitting requirements can constrain quarry expansion and access to reserves.
- Hewitt Landfill remediation is a significant estimation matter and was identified by the auditor as a critical audit matter. Vulcan reported $37.3 million of cumulative expense through 2019; responsibility and potential additional costs relating to the site and nearby groundwater contamination remain uncertain.
- Other unresolved legacy matters include Texas Brine litigation, Lower Passaic River remediation claims and New York water-district cases. Management said some potential losses could not be reasonably estimated; outcomes could materially affect a particular period.
- Vulcan accrued $41.4 million for environmental remediation liabilities in total, including $11.0 million related to the former Chemicals business. It also disclosed $210.3 million of asset-retirement obligations and $686.6 million of surety bonds; no material claims had been made against the bonds.
- The company intends to refinance $250 million of floating-rate notes due in 2020 and has the facility capacity to do so, but refinancing remains an execution consideration. LIBOR transition affected certain debt and facility references. Debt covenants were reported in compliance.
- Adoption of the lease-accounting standard in 2019 added $408.2 million of net operating-lease assets and $418.0 million of lease liabilities; comparative periods were not restated. Deloitte issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether 2020 shipment, pricing, earnings and EBITDA guidance was achieved, and how much growth came from same-store operations versus acquisitions.
- Cash conversion, capital requirements and leverage, including the refinancing of 2020 maturities and continued access to the revolving credit facility.
- Aggregates cost inflation and unit-margin trends, and whether the weaker concrete volumes and higher asphalt input costs persisted.
- Developments in the Hewitt Landfill matter and other legacy litigation, including any change in estimated exposure or insurance recovery.
- How infrastructure appropriations, private construction activity, weather and environmental/permitting constraints affected demand and operating capacity.