Vulcan Materials Company (VMC)
Q1 2009 Earnings Call
May 06, 2009 10:00 am ET
Don James - Chairman and CEO
Dan Sansone - CFO
Garik Shmois - Longbow Research
Jason Brown - KeyBanc
Kathryn Thompson - Thompson Research Group
Trey Grooms - Stephans, Inc.
Mike Betts - JPMorgan
Timna Tanners - UBS
Adam Thalhimer - BB&T Capital Markets
Brent Thielman - DA Davidson
Aynsley Lammin - Citigroup
Previous Statements by VMC
» Vulcan Materials Co. Q3 2009 Earnings Conference Call
» Vulcan Materials Q2 2009 Earnings Transcript
» Vulcan Materials Q4 2008 Earnings Call Transcript
Good morning. Thank you for joining this conference call to discuss our first quarter results and our outlook for the remainder of 2009. As the announcer said, 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 today. 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 and Mac Badgett; Ron McAbee; and Danny Shepherd, our Senior Vice Presidents who run our Construction Materials businesses.
Before I begin, let me remind that you certain matters discussed in this conference call contain forward-looking statements which are subject to risks and uncertainties. Description of these risks and uncertainties are detailed in the company's SEC reports, including our most recent report on Form 10-K.
Our first quarter was characterized by an extremely weak construction economy and extremely weak demand for construction materials. The current downturn in demand for aggregates began in the second quarter of 2006. We have since seen 12 consecutive quarters of lower shipments.
As I have previously stated, we have reduced operating rates throughout the company to levels that match current demand. We have taken actions to reduce costs and improve productivity. We also have sharply reduced both production levels and inventory levels. Earnings from continuing operations were a loss of $0.29 per diluted share, including $0.58 per diluted share referable to lower aggregates volumes versus the prior year's first quarter.
Cash earnings in the first quarter were $70 million versus $112 million in the prior year. EBITDA was $97 million versus $160 million last year. First quarter earnings in our aggregate segments were lower compared to last year. Aggregate shipments declined 30% versus the prior year's first quarter, reducing EBITDA approximately $84 million.
In the first quarter, the average freight adjusted unit sales price for aggregates increased 2% from the prior year's first quarter, adding $7 million to EBITDA. We experienced wide variations in the level of price increases across our markets. Many markets realized price improvements from the prior year above the 2% average while markets in the far west reported year-over-year declines in their average selling price.
Excluding these far western markets, aggregates pricing improved 4% from the prior year's first quarter. During the first quarter, our plant managers mitigated much of the cost pressures caused by significantly lower volumes. As a result of their actions, unit variable production costs were flat with the prior year and cash fixed costs decreased 21%. These cost control measures demonstrate the greater production flexibility of an aggregates plant versus continuous process manufacturing facilities used in many other industries.
In the first quarter, the average unit cost for diesel fuel decreased 47% from the prior year, and increased operating earnings by approximately $13 million. In contrast to typical seasonal operating plans, we reduced production in inventory levels of aggregates during the first quarter of 2009. These decisions penalized first quarter earnings but improved cash generation and better positioned us for improving operating performance as we move forward in the latter parts of the year.
Earnings from our asphalt and concrete segment were lower than the prior year's first quarter, reflecting improved asphalt earnings, offset by lower concrete earnings. We initiated pricing actions in the fourth quarter of last year to recover the rapid escalation in the cost of liquid asphalt and have offset the margin erosion we experienced last year in our asphalt product line.
Asphalt volumes declined 27% from the prior year's first quarter, and asphalt mix prices increased 13% from the prior year. Asphalt material margins in the first quarter recovered to more normal levels, reflecting recent moderation in the cost of liquid asphalt. The average unit price we paid for liquid asphalt in the first quarter decreased 10% from the prior year's first quarter.
Selling, administrative and general expenses in the first quarter of 2009 decreased $13 million from the prior year. Employment levels across the company are down 14% from the prior year, driving reductions in salaries, fringes and other employee-related expenses. Performance-based compensation accruals were lower versus the prior year. These cost reductions more than offset $3 million of project costs related to the replacement of legacy IT systems and their related consolidation of certain administrative support functions.
In summary, I believe our management teams are running their businesses well in an extremely tough economic environment. As we look forward to the remainder of 2009, reduced levels of contract awards reported during the first quarter point toward lower residential construction activity, albeit from an already low base. Private, non-residential construction activity also has been declining, and is expected to weaken further throughout the rest of 2009.