Vulcan Materials Company — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Amounts are in U.S. dollars; financial figures are in millions unless stated otherwise.
Business context
Vulcan is a major U.S. supplier of construction aggregates, asphalt mix, ready-mixed concrete and paving services. Results reflect the August 2021 acquisition of U.S. Concrete, so year-over-year revenue and shipment comparisons include acquired operations and are not fully like-for-like. The business is seasonal and exposed to construction cycles, weather, transportation and input costs.
Financial results and key metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $1,954.3 | $1,361.0 | $3,495.0 | $2,429.4 |
| Gross profit | $446.2 | $398.4 | $714.9 | $627.6 |
| Gross margin | 22.8% | 29.3% | 20.5% | 25.8% |
| Operating earnings | $307.6 | $287.5 | $454.5 | $537.0 |
| Net earnings attributable to Vulcan | $187.3 | $195.3 | $279.1 | $356.0 |
| Diluted EPS, continuing operations | $1.50 | $1.47 | $2.20 | $2.69 |
| Adjusted EBITDA | $450.2 | $406.0 | $744.1 | $650.3 |
| Operating cash flow | Not presented by quarter | $325.5 | $397.9 |
- Q2 revenue grew 44%, largely reflecting U.S. Concrete and higher shipments and prices. Aggregates shipments rose 9% to 63.8 million tons; freight-adjusted price increased 8.8% to $16.25 per ton. Same-store shipments rose 2%.
- Q2 gross profit increased 12%, but gross margin fell year over year. Management cited sharply higher costs, including a 102% increase in diesel unit cost, and the mix effect of acquired operations. Aggregates gross profit per ton decreased 1% to $6.31; cash gross profit per ton was $7.99.
- Q2 net earnings attributable to Vulcan declined 4%, despite higher continuing-operations diluted EPS. Discontinued operations recorded a $13.1 after-tax loss in Q2, including a litigation charge.
- For the first half, operating earnings and reported EPS were lower in part because the 2021 period included a $114.7 pretax gain on a property sale. Adjusted EBITDA increased 14% to $744.1, while adjusted continuing-operations diluted EPS was $2.25 versus $2.26.
- Cash from operations fell $72.4 year over year, with working-capital changes a principal factor. Capital expenditures were $290.6 in the first half; cash used for investing was $468.7, including $188.1 for acquisitions. Dividends paid were $106.3.
Debt and liquidity
- At June 30, cash and restricted cash totaled $123.7. Total debt was $4,050.2, including $176.0 of short-term borrowings; net debt was $3,926.5.
- Total debt to trailing-twelve-month Adjusted EBITDA was 2.6x and net debt to Adjusted EBITDA was 2.5x, versus 2.0x and 1.3x, respectively, at June 30, 2021. Management’s long-term target for total debt leverage is 2.0x–2.5x.
- Available borrowing capacity under the $1.0 billion credit line was $745.9. The company reported compliance with debt covenants. Weighted-average debt maturity was 11.4 years.
- Receivables collection indicators worsened: days sales outstanding were 46.5 days versus 41.7 a year earlier, and receivables over 90 days were $39.1 versus $10.0. Management said accounts are actively managed and no losses above reserves are currently expected.
Outlook, commentary and material risks
- Full-year 2022 guidance: net earnings attributable to Vulcan of $680–$760; Adjusted EBITDA of $1.60–$1.70 billion; aggregates freight-adjusted price growth of 9%–11%; and mid-single-digit growth in aggregates cash gross profit per ton. Management expects $280–$300 of cash gross profit from Asphalt, Concrete and Calcium combined, with Concrete contributing about 80%.
- Other 2022 expectations include SAG expense of $495–$505, interest expense of approximately $165, DDA&A of approximately $565, and capital expenditures of $600–$650.
- Mexico operations were shut down by Mexican government action on May 5, and the subsidiary’s customs permit was suspended on May 13. The closure caused an estimated $20 Q2 impact; the outlook includes a potential $80–$100 full-year EBITDA impact if operations cannot resume for the balance of 2022. A NAFTA tribunal granted provisional measures in July 2022; the arbitration decision is not expected before 2023, and any recovery is uncertain and not quantifiable.
- Management cited energy and other input-cost inflation, supply-chain constraints, labor shortages—particularly truck drivers—and transportation availability. Other risks include construction cyclicality, public infrastructure funding, weather, interest rates, environmental obligations, litigation and international operations.
- Discontinued-operations litigation and environmental costs remain uncertain. The company recorded a $15.3 pretax litigation charge in Q2; the first-half discontinued-operations loss was $14.9 after tax. Environmental remediation accruals totaled $34.7. For certain matters, including potential future Hewitt Landfill remediation and the State of Louisiana Texas Brine claims, the company said it could not reasonably estimate a loss range.
- For the Lower Passaic River matter, Vulcan and other parties reached an agreement in principle with EPA/DOJ; any Vulcan settlement share would be within the immaterial loss previously recorded, subject to a negotiated and court-approved consent decree.
Important facts for investors to verify
- Whether and when Mexico operations resume, and how the shutdown affects shipments, earnings and the arbitration outcome.
- Progress toward full-year guidance, especially realized aggregates pricing versus fuel, labor and other cost inflation.
- Cash conversion and receivables aging, given lower first-half operating cash flow and higher overdue receivables.
- Leverage, liquidity and capital spending relative to management’s target range and planned shareholder returns.
- Developments, accruals and possible cash exposure in discontinued-operations litigation and environmental matters, including claims for which loss estimates are not currently available.