Yahoo Finance Vulcan Materials Company (NYSE:VMC) Q1 2024 Earnings Call Transcript
Vulcan Materials Company (NYSE:VMC) Q1 2024 Earnings Call Transcript May 2, 2024
Vulcan Materials Company beats earnings expectations. Reported EPS is $0.8, expectations were $0.745. VMC isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning and welcome, everyone, to the Vulcan Materials Company First Quarter 2024 Earnings Call. My name is Jamie, and I will be your conference call coordinator today. Please be reminded that today's call is being recorded and will be available for replay later today at that company's website. All lines have been placed in a listen-only mode. After the company's prepared remarks, there will be a question-and-answer session. Now, I will turn the call over to your host, Mark Warren, Vice President of Investor Relations for Vulcan Materials. Mr. Warren, you may begin.
Mark Warren: Thank you, operator, and good morning, everyone. With me today are Tom Hill, Chairman and CEO; and Mary Andrews Carlisle, Senior Vice President and Chief Financial Officer. Today's call is accompanied by a press release and a supplemental presentation posted to our website, vulcanmaterials.com. Please be reminded that today's discussion may include forward-looking statements, which are subject to risks and uncertainties. These risks, along with other legal disclaimers, are described in detail in the Company's earnings release and in other filings with the Securities and Exchange Commission. Reconciliations of non-GAAP financial measures are defined and reconciled in our earnings release, our supplemental presentation, and other SEC filings. During the Q&A, we ask that you limit your participation to one question. This will allow us to accommodate as many as possible during our time we have available. And with that, I'll turn the call over to Tom.
Thomas Hill: Thank you, Mark, and thank all of you for joining our Vulcan Materials earnings call this morning. Our first quarter results moved us towards delivering on a fourth consecutive year of double-digit adjusted EBITDA growth. Although the weather was unusually cold and wet across many geographies for much of the quarter, our teams executed well and improved our Aggregates cash gross profit per ton by 10%. Their commitment to our Vulcan Way of Selling and Vulcan Way of Operating Disciplines is driving solid results. In the quarter, we generated $323 million of adjusted EBITDA and expanded our adjusted EBITDA margin. Importantly, several key trends continue: pricing momentum, cost deceleration, unit profitability expansion, robust cash generation, disciplined capital allocation and return on invested capital improvement.
In the Aggregates segment, year-over-year shipments declined by 7%, but the durability of our Aggregates business and the consistency of our execution stood out in a weather impacted quarter. We again improved our trailing 12 months Aggregates cash gross profit per ton, pushing it to $9.66 per ton and making further progress toward our current $11 to $12 target. The pricing environment remains positive and year-over-year Aggregates cash cost of sales continues to moderate. Aggregates freight and adjusted price improved 10% in the quarter and increased $1.25 per ton sequentially from the fourth quarter, a clear illustration of the success of January increases and the continuous execution of our Vulcan Way of Selling disciplines. Our first quarter cash cost of sales performance resulted in a fourth consecutive quarter of trailing 12 months cost deceleration and improving sequentially by another 230 basis points.
Our relentless focus on improving efficiencies in our plants through our Vulcan Way of Operating Disciplines remains a key driver of managing costs, expanding unit profitability and ultimately generating attractive free cash flow. There is a healthy pipeline of opportunities to deploy this free cash flow for both attractive acquisitions and complementary strategic greenfield development. These targeted opportunities are at varying stages. But as an example, earlier this week, we closed on a bolt-on Aggregates and Asphalt acquisition in Alabama, a top 10 state. I'm proud of how our teams continue to execute our two-pronged growth strategy. They are focused on expanding our reach in addition to enhancing our core with consistent expansion of unit profitability by controlling what we can control, even in a dynamic macro environment and demand environment.
On the demand side, I want to provide a few comments about each end use, starting with private demand and then moving to public. Momentum in single-family continues to accelerate across our footprint and points to growth in 2024. However, we continue to expect weaker multifamily residential construction to largely offset the single-family approval this year. Overall, affordability and elevated interest rates remains a challenge, but the underlying fundamentals of population growth and low inventories in Vulcan markets support recovery in residential construction. An improving residential backdrop is also a positive sign for future activity in certain categories of non-residential construction. And recent data has shown some signs of stabilization in overall starts.
However, the landscape continues to vary across categories. As expected, continued moderation in warehouse starts will be the biggest headwind to private and non-residential demand this year. Currently, light commercial activity remains weak, but over time, we expected to follow the positive trends in single-family housing. We continue to see and capitalize on opportunities in the manufacturing category. Our unmatched Southeastern footprint and unique logistics capabilities positions us well to service these large aggregate intensive projects. Our footprint is also an advantage on the public side with over two-thirds of federal highway spending allocated to Vulcan states. Additionally, other public infrastructure activity, which benefits from IIJA funding is growing faster in Vulcan states than the country as a whole.
A sustained elevated level of highway starts of over $100 billion, coupled with record 2024 state budgets, supports healthy growth in highway and infrastructure demand both in 2024 and for the next several years. Now I'll turn the call over to Mary Andrews for some additional commentary on our first quarter. Mary Andrews?
Mary Andrews Carlisle: Thanks, Tom, and good morning. Tom discussed our solid Aggregates results in the quarter and shared some important ongoing trends. In addition to providing a few more details about our first quarter results, I'd like to first expound upon four of the trends Tom highlighted earlier in his remarks, unit profitability expansion, robust cash generation, disciplined capital allocation and return on invested capital improvement. For the last four quarters, we have consistently expanded our trailing 12-month unit profitability in all three of our operating segments. Increasing cash unit profitability by nearly $1.50 per ton in Aggregates, almost $6 per ton in Asphalt and nearly $5 per cubic yard in Concrete. Our trailing 12 months gross margin has also steadily improved in each product line.
This organic growth is underpinned by our daily focus on execution and driving results through our Vulcan Way of Selling and Vulcan Way of Operating Disciplines. Better unit profitability yields better free cash flow. Our free cash flow conversion over the last five years has averaged over 90%, enabling us to strategically allocate capital to reinvest in our franchise, grow our business and return cash to shareholders. During the quarter, we invested $103 million in capital expenditures and returned $81 million to shareholders through dividends and share repurchases. We continue to expect to spend between $625 million and $675 million on capital expenditures for the full-year. Our current balance sheet positions us well to continue to deploy capital to each of our priorities.
At the end of the first quarter, our net debt to adjusted EBITDA leverage was 1.5x, with $300 million of cash on hand, following the March 1 redemption of our 2026 senior notes at par for $550 million. Our liquidity position and financial flexibility are competitive strengths as we look to continue to grow and create value for our shareholders. Over the last 12 months, we've achieved a 260 basis points improvement in return on invested capital. Invested capital has increased less than 1%, while adjusted EBITDA has improved 20%. Adjusted EBITDA margin has also improved by 350 basis points through consistent operational execution and disciplined SAG cost management. SAG expenses in the quarter were in line with our expectations, and we continue to expect to spend between $550 million and $560 million for the full-year.
Most importantly, we reaffirm our expectations of delivering adjusted EBITDA between $2.15 billion and $2.3 billion for the full-year. At the mid-point, a double-digit year-over-year improvement for a fourth consecutive year. I'll now turn the call back over to Tom to provide a few closing remarks.
Thomas Hill: Thank you, Mary Andrews. At Vulcan, our number one priority will always be our people, keeping them safe and fostering our Vulcan culture. They are the foundation of our great company. As a team, we are focused on the daily execution of our Vulcan Way of Selling and Vulcan Way of Operating Disciplines to ensure attractive cash generation in any macro backdrop. We will be strategic and disciplined in allocating capital to continue to grow our business and deliver value for our shareholders. And now, Mary Andrews, now will be happy to take your questions.
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