Vulcan Materials Company (VMC)

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Vulcan Materials Company (VMC)

Q2 2009 Earnings Call

August 04, 2009 11:00 AM ET


Donald M. James - Chairman and Chief Executive Officer

Daniel F. Sansone - Senior Vice President and Chief Financial Officer

Trey Grooms - Stephens Inc.


Jason Brown - KeyBanc Capital

Garik Shmois - Longbow Research

Kathryn Thompson - Thompson Research Group

Trey Grooms - Stephens Inc.

Paul Betz - BB&T Capital Markets

Todd Vencil - Davenport & Co. LLC

Michael Betts - JPMorgan

Clyde Lewis - Citigroup

Brent Thielman - DA Davidson & Co.



Good day ladies and gentlemen and welcome to the Second Quarter 2009 Vulcan Materials Earnings Conference Call. My name is Janaida, and I will be your operator for today. At this time all participants are on listen-only mode. We will conduct the question and answer session towards the end of this conference. (Operator Instructions). As a reminder this conference is being recorded for replay purposes. I would now like to turn the call over to Mr. Don James, Chairman and CEO. Please proceed, sir.

Donald M. James

Good morning and thank you for joining this conference call to discuss our second quarter results and our outlook for the remainder of 2009. I am Don James, Chairman and Chief Executive Officer of Vulcan Materials. We appreciate your interest in Vulcan and we hope our remarks and dialog will be helpful to you. A replay of this conference call will be available later today at our website. Joining me today is Dan Sansone, our Senior Vice President and Chief Financial Officer.

Before I begin let me remind you that certain matters discussed in this conference call contains forward-looking statements which are subject to risk and uncertainties. Descriptions of these risks and uncertainties are detailed in the company's SEC reports including our most recent report on Form 10-K.

Let me begin my prepared remarks by saying I believe our management teams are running their businesses well in an extremely tough economic environment. The challenges presented by the extraordinary weakness in the economy generally and in the private construction sector specifically have provided opportunities for us to position the company well for the eventual economic recovery.

The difficult, but necessary cost management actions we have taken to date along with our disciplined approach to pricing will enable us to generate solid cash flows in 2009 and participate fully in the overall economic recovery. For the first six months of 2009, our operating cash flows were 169 million, up from 134 million in the prior year. In addition, our completed equity offering and the related dividend reduction have strengthened our balance sheet, realigned our capital structure and improved our financial flexibility.

Our second quarter net earnings were 22 million or $0.20 per diluted share including earnings from continuing operations of $0.14 per diluted share. Aggregate shipments declined 31% compared with the prior year second quarter, reducing EBITDA of approximately 112 million from last year.

In the second quarter, the average freight adjusted units sales priced for aggregates increased 3% from the prior year second quarter reflecting wide variations across markets. In many markets, we realized price improvement from the prior year well above the 3% average, while markets in California and Florida reported year-over-year declines in average selling prices of approximately 5% on a comparable basis with the prior year.

Our plant managers continued to mitigate some of the cost pressures caused by significantly lower volumes. As a result of their actions they reduced cash fixed cost 17% from the prior year second quarter. These cost control measures demonstrate the greater production flexibility of an aggregates plant that's contrasted with continuous process manufacturing facility used in many other industries.

In the second quarter, the average unit cost for diesel fuel decreased 54% from the prior year and increased operating earnings approximately 23 million. Asphalt and ready-mixed concrete volumes declined to 30 and 35% respectively from the prior year second quarter due to the same economic factors affecting aggregates. Second quarter asphalt earnings improved from the prior year despite lower volumes, due to improved selling prices and a decline in the average cost for liquid asphalt. Concrete earnings in the second quarter were lower due mostly to the earnings impact of lower sales volumes. Selling, administrative and general expenses in the second quarter of 2009 decreased 5 million from the prior year's level.

Employment levels across the company are down 14% from the prior year. These cost reductions mostly offset 4 million of project costs related to the replacement of legacy IT systems and the related consolidation of certain administrative support functions.

In summary, our efforts in the second quarter to continue to tightly manage cost and maintain price discipline were affected. Excluding the earnings effect of lower aggregates volumes and the 74 million pre-tax gain referable to last year's sale of assets, EBITDA on the second quarter for all other elements with the company compared favorably with prior year. We are updating our outlook for the full year to reflect lower demand for aggregate from private non-residential and private infrastructure construction.

Our lower expectations result from analysis of various macro level data including leading indicators such as publish contract awards reported in the past two months for new private construction projects in the US. Specifically published contract awards in May and June for private non-residential buildings and private infrastructure in Vulcan-served states were significantly weaker than expected. Contract awards for private non-residential projects in the second quarter declined 63% from the prior year led by sharp declines in stores and office board. A year ago these two categories comprised over 50% of total square footage awarded for all non-residential buildings in the second quarter. In the current year second quarter they accounted for approximately one-third of the total while manufacturing, institutional and public buildings accounted for the rest.

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