Vulcan Materials Q1 2024 Earnings Call Transcript

Sure. Looking at the quarter itself, I'd call the quarter -- volumes of the quarter as expected, [Indecipherable]. We had less shipping days in March, but about the same amount of shipping days in the quarter overall. January was a slow start, really, due to wet weather and cold weather. February, March I call a bit better on a daily shipping basis. So Q1, [Indecipherable] considered as expected. As we look forward to the rest of the year I don't see any real change in our thinking on demand. We would still guide to the flat to down four and the dynamics are very similar to what we said last quarter. Headwinds in non residential, some challenges in multifamily. We've got recovering single family construction and growing public demand.

I think that our position, our superior position in Southeast really helps the footprint, makes a difference in that Southeastern market is probably the healthiest market in the country. I think our Vulcan way of selling disciplines and tools are very helpful with this. So at this point, I'd call it confident [Indecipherable] outlook. As far as going into the second quarter I call it this way when the sun comes out we're shipping very well.

Thanks team.

Yeah. I'd start off with saying that I think the fundamentals in pricing remain very good and very healthy. As you saw, we had a solid start in Q1, with prices a little north of 10%. That was really across every market and so it's a really good start and supports our full year guidance. Mid year price increases are not in our guidance at this point. We're having those mid year price discussions right now, so it's a little too early to call. Remember that mid years will be good for 2024, but they're going to be even better for '25. So our teams are working really hard on this, and I think I'm sure they'll deliver. The most important thing, though, I think, is that the fundamentals for pricing remain very healthy, and so I think when it comes to midyear's, we'll revisit pricing guidance in August and give you an update.

And one more thought on price. We always like to point out how important it is to remember that regardless of what the level of pricing is the key is really how much price we're able to take to the bottom line. In the first quarter, we achieved 10% improvement in cash gross profit per ton, and some aggregates margin expansion even given the lower volume quarter due to the weather. Overall gross margin also improved by 140 basis points, and adjusted EBITDA margin expanded as well. So importantly we expect this margin expansion to continue and to improve further through the balance of the year.

Thank you.

Yeah, I think the first quarter for cost is always tricky as volumes and weather definitely had an impact on cost in the first quarter. That said, I think we're still comfortable with the cost guidance of up mid single digit for the full year. As always, we would get you to look at cost on a trailing 12 month basis because it's going to be choppy on quarter to quarter, and if you look back on a trailing 12 month basis over the last year, cost increases have fallen from I'd say mid teens to single digit. So as we said in the prepared remarks, we've seen four quarters of decelerating cost and as we march through this year, we should see those increases decline as we march through the year. Next quarter better, next quarter better, next quarter better. As we saw over the last four quarters, so I think we're on a good path to that mid single digit cost for the full year.

As far as different piece of this, diesel was probably a slight tailwind in the quarter. What stays up is parts and services remain elevated, but our comps are getting easier and I think that we also through the Vulcan way of operating, we're improving our operating efficiencies and will continue over the next two years with that to offset those inflated parts and services. So I think we're in a good place and I think with the teams are working through this and I'm pleased with this[Phonetic].

And in terms of diesel Anthony, we do assume in our plan that it'll move somewhat higher through the rest of the year and you're right while diesel prices for us, well, they're always hard to predict and that they can really be a good thing in this business since we have the ability to catch it with pricing as it goes up and also take advantage of it when it goes down.

Thank you.

Good morning, Kathryn.

Good Morning.

Well, as always, we would tell you that it's Aggregates and we are an Aggregates company. We have the highest percentage of EBITDA and Aggravates of probably anybody in the sector, and that's what we do. Now we have strategic downstream and as we always say, it's a portfolio. We look at it as a portfolio and if one of those sectors or geographies doesn't earn appropriate return or somebody else would invest[Phonetic] of it and plough that money back into our Aggregates business. So I think that nothing's changed as far as how we look at the world. And as we look at the growth part of M&A in Greenfields it will be Aggregates focused.

Thank you.

Hi, Trey.

Good morning.

Yeah. Let me take your last question first about long term. This is why we have developed the Vulcan way of selling and Vulcan way of operating disciplines. I think they secure our ability to improve cash gross profit per ton which we've done trademark basis every quarter except for one flat for five years. That's pretty good consistency, even with some of the dynamics that are out there. So I think that overall in history -- versus history we're in a better place for higher improvements in cash gross profit per ton and that's not by accident, that's by design and we've been working on that now for years, and it is working.

And those tools are only getting better or we're getting better implementing them. I think as far as this year is concerned, as we talked about, as we progress through the year, you've got cost increases decelerating and as inflation comps get easier and our operating efficiencies get better so that's one piece of that. And then I think as we march through the year, we have the ability to continue to raise prices both in what we do on project work, but also a fixed plan so you put all that together. I think as we progress through the year, we have the opportunity to continue to march our unit margins improvement through the year.

Sure.

Hi, Jerry.

Good morning.

Yeah, sure. I would expect a cadence of Jerry, likely some sequential growth in the second quarter, more in the third quarter as you referenced, and then we would typically see less in the fourth quarter due[Phonetic] mostly to seasonality and the magnitude of the mid years, which, as Tom referenced earlier, It's just too early to call at this point, but that's what would influence that third quarter sequential improvement into what level that gets and where we fall out overall.

Yeah. I think when it comes to mid years we're going to call that when we earn it and I think we feel good about midyears, and I think those conversations are going fine. As I said, they mean a lot for '25. I do think it's a bit early to call what '25 is going to start out at. We got to get mid years under our belt and take a look at what we're going to do in first part of '25, but I do think that I feel good about the mid years and I think it is a good omen for 2025 pricing.

Sure.

Hi, Mike.

I don't think weather had anything to do with. I think you may have read a little bit too much into the April month comment. You send the letters out in April, you spend May having those conversations and you finalize them end of May, kind of beginning of June. So I don't see anything different in timing or sequencing versus what we did last year. Like I said I think I'm encouraged by the conversations that we're having and I think that we will implement a solid mid year price increases, but I wouldn't read anything into the comment on whether versus -- comment on April versus how this goes. It's really kind of a process we introduced in April, have conversations in May and again finalize it in June.

And one other thought on pricing for the rest of the year is that we've had positive momentum over the last twelve months in our bid work and that should also be a good catalyst for us from where we ended Q1 to where we expect to be for the full year, in addition to whatever's realized on mid year increases.

Sure.

Yeah, as you saw, we had a small but strategic bolt on kind of Northeast of Birmingham up towards Gunnersville. It's about 2 million tons of Aggregates and just under 0.5 million tons of Asphalt. It fits us well. I think as you look at the full year, in the next 12 months, M&A outlook is quite good. So more to come. And I am having a lot of those conversations and very encouraged by it. I think it's always M&A will be Aggregates-led and conducted with discipline. But I think we feel very confident that this will be a busy M&A year for us.

Thank you.

I don't see -- I will take it in pieces. Overall, I don't see any impact with the election year on our demand. I think that our guidance is -- has taken the factors into account. I don't think election year moves the needle on that. I think on the public side, it is really the DOTs trying to get highways dollars into lettings and into projects. And I think that's happening. And I think we call that, as you know, mid-single digit on the private side, I think, as we said, we've got some challenges on -- on non-res and multi. And I think that single-family is recovering with health. So that's how I look at it with not much impact from the election year.

Thank you.

Good morning Timna.

Good morning.

Yes. I will start with highways. We're seeing the IIJA[Phonetic] money and the local funds flow into lettings. At this point, we'd stick with that mid-single-digit growth on the public side this year, which is both non-highway infrastructure and highways. And we see that kind of steady growth for years to come. We also are seeing additional state funding come into play. We've got three states with some big dollars. Tennessee added $3 billion, Florida I think added $4 billion, and Georgia just added $1.5 billion to their funding. I think when it comes to public demand, slow and steady wins the race on this, and particularly when you're compounding your margins like we are so I think a good healthy sector with steady growth for years to come and I think the DOTs will continue to work hard to get those dollars into lettings.

And Timna, you also mentioned data centers, which have really provided some good opportunities for us in some markets. I can think of some projects we booked recently in Virginia, Alabama, Georgia. And it's obviously a subject that's getting a lot of press. But I do think it's important to remember that the square footage according to Dodge[Phonetic] for data centers is only a low single-digit percentage of total non-res start[Phonetic]. So as you know, there are a lot of different categories and dynamics and private non-res, so data centers may not move the needle overall. But overall, for us, in non-res right -- so far, it's playing out as we expected with kind of all those different dynamics.

Thank you.

Hi, Tyler.

Good morning.

Yes. I think that where we are on that, and you're talking about the process intelligence on those plants. As we said, the -- we did that in our top 100 plants, which is about 7% of our -- roughly 7% of our production. The tools are all there. About 25%, 30% are actually -- those plants are actually fully utilizing those tools. And there's a lot of work that has to go into that to get the screens right and everybody trained in those, we're seeing marked progress as we march through kind of this year, maybe the first part of next year, we'll get up to 100% of those. But -- and as we do, we'll see improvement. So where it's working. I think it's working well, maybe a little slower than I would have wanted it to go through as far as full implementation, but we're getting there. And I think we'll see that -- as you said, we'll see -- we'll see progress of that show up in our numbers in '24 and '25 and into '26, to be honest with you. So, so far, so good, and we'll keep plugging at it.

Thank you.

HI, Adam.

Good morning.

Thank you.

Thank you.

Well, I think it depends on which part of it you're talking about, and I'll take them a piece at a time. We're seeing -- on the non-res side, you've got weakness in warehouses and kind of traditional light non-res. That being said, the warehouses, we -- if you look at starts, they are -- the fall is decelerating. It's getting better as you look at starts on a short-term basis. So hopefully, that will get better. You've got strength in large manufacturing projects, which we've got 11 of those big projects, and we're shipping on them now and I think more to come. So it's too early to call whether it's getting better or getting worse, but that's kind of how we call it for -- on the non-res side. On highways -- excuse me, on housing, I would tell you the weakness is in multifamily and continues that I think it doesn't last too long, we'll be past that, I think, '25. And then single-family res is recovering, and I think we're covering with some momentum.

Thank you.

Hi, Phil.

Good morning Phil.

Yes, I think we've got to be thoughtful when we call out pricing on individual markets. But that being said, the Southeast is very good pricing, some of the best we have. And I think that if you look at the western part of the United States, I think we're seeing marked improvement in pricing, and we'll continue -- that momentum will continue.

Good Morning.

Good morning.

Yes. I think you're seeing improvement. We're seeing improvement in single-family, which is always helpful. And the most important thing is that you see growth in public demand, which is still visible and it is a very good foundation for pricing. I don't know that interest rates have had a big impact on pricing. Obviously, they'll have -- they've had impacts on demand and volumes. But I think -- so I think that -- and I don't think that the election year has had any impact on pricing dynamics. So I think that the fact that we've got strong, very visible public demand for a long time is good. I think you've got some improvement in res. All of that is helping the pricing dynamics. And I think we feel pretty good about a midyear at this point.

Thank you.

Good morning.

Good morning.

Well, I think a big part of that is you've got the big DOTs, Caltrans and TxDOT and Georgia DOT and Virginia. Obviously, Tennessee, obviously, have excellent funding, both state and local. I think that probably the most -- the best -- DOT is best at getting money through at this point because they started earlier with their own funding with Texas. Georgia had some struggles, but I think is catching up with that. So I think Caltrans is doing a good job getting their money in. Illinois, I think, has struggled getting some of their funding out. So that's how I call it. But I think they're all plugging at it, and I think they're all getting better at it. It is coming through with improvement in lettings. I think that all of them are going through the '25 budgeting right now, a little too early to call, but I don't see them going down. I would expect most of them to go up. So as we said, I think that it's a long road. I think it's steady growth in public, and it's not just highways, it's also the infrastructure, which is ports and airports and water and sewage and that will be substantial growth, I think, this year and for years to come.

Thank you.

Thank all of you for your time this morning and your interest in support of Vulcan Materials Company. We hope you and your families are healthy and safe and stay that way through the quarter and we look forward to talking to you over the next few months. Thanks.