We have maintained a Neutral rating on
Vulcan Materials Company
(
VMC
) following appraisal of first quarter 2012 results.
The company posted a loss of 42 cents per share in the first
quarter of 2012, narrower than a loss of 62 cents per share in the
same quarter of 2011 (excluding special items) and the Zacks
Consensus Estimate of a loss of 44 cents share. Improved top line
and gross margins led to the curtailed loss in the quarter.
Total revenue in the quarter rose 10% to $535.9 million driven
by meaningful gains in every segment, especially the Aggregates
business. Favorable weather conditions and continued market
recovery also benefited the top line in the quarter. Revenues were
higher than the Zacks Consensus Estimate of $487 million.
Consolidated gross margins improved 600 basis points in the quarter
due to top-line growth and improved productivity and cost
savings.
Overall, we like the company's strong market standing, steady
volume growth and expanded cost savings initiatives. We believe
these positives will help the company to reap the benefits once the
overall macro economy improves.
We are encouraged by the company's better-than-forecast results,
in particular the impressive performance at the Aggregates segment,
which is slowly gaining momentum. The segment is witnessing
consistent volume growth driven by improving demand. The segment's
net sales increased $73 million and gross profit was up $53 million
in the trailing six months ended March 31, 2012 versus the
prior-year comparable period. Management also projects a much
improved earnings in this segment in 2012.
In February 2012, the company announced two cost-saving
initiatives, a Profit Enhancement Plan (PEP) and planned asset
sales, in order to improve earnings and cash flows, pay off debts
and thereby strengthen its overall credit profile. Though the
company will be hurt by theses initiatives in the near term, the
earnings growth profile will improve over the long term on the back
of a broader market recovery.
Vulcan serves both the private and public sectors. Public
construction projects, such as bridges, dams and roads, are
responsible for more than half of Vulcan's businesses. In 2011,
publicly funded construction accounted for approximately 55% of
total aggregates shipments. Generally public sector spending is
much more stable than the private sector because the public
construction projects, such as bridges, dams and roads, are less
affected by general economic cycles.
The private sector however is a laggard, showing signs of a
tepid recovery. Slow private spending in conjunction with rising
costs of energy and other raw materials as well as the company's
high debt load keeps us on the sidelines.
VULCAN MATLS CO (VMC): Free Stock Analysis
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