Vulcan Materials Company (VMC)

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Vulcan Materials Co. (VMC)

Q3 2009 Earnings Call

November 3, 2009 11:00 a.m. ET


Don James - Chairman and CEO

Dan Sansone - SVP and CFO


Timna Tanners - UBS

Jack Kasprzak - BB&T Capital Markets

John Baugh - Stifel Nicolaus

Mike Betts - JPMorgan

Kathryn Thompson - Thompson Research Group

Garik Shmois - Longbow Research

Keith Johnson - Morgan Keegan

Ted Grace - Avondale Partners

Trey Grooms - Stephens



Good day, ladies and gentlemen, and Welcome to the Third Quarter 2009 Vulcan Materials Earnings Conference Call. My name is [Leslie], I will be your coordinator for today's conference. At this time, all participants will be in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions). At this time I would like to turn the call over to your host for today's conference, Mr. Don James, Chairman and CEO. Please proceed, sir.

Don James

Good morning, Thank you for joining this conference call to discuss Vulcan's third quarter results and our outlook for the remainder of 2009. I am Don James, Chairman and Chief Executive Officer of Vulcan Materials Company. We certainly appreciate your interest in our company and we hope our remarks and our 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, Chief Financial Officer as well as Ron McAbee and Danny Shepherd, our Senior Vice President and our Senior Vice Presidents in our Construction Materials Group.

Before I begin let me remind you that certain matters discussed in this conference call contain forward-looking statements which are subject to risks 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.

I would like to begin my remarks by repeating a statement many of you have heard in prior quarters of this downturn and that is, we continue to enhance our position for significant earnings growth in an economic recovery because our employees continue to run our business in a disciplined and cost efficient manner. Throughout the recession, the company has rationalized production, reduced operating hours, streamlined the work force and effectively managed spending thereby offsetting some of the cost impact related to lower volumes.

Since aggregates demand peaked in 2005, sales volumes have declined almost 45% yet our cash earnings today on every turn of aggregate sold is over 48% greater than it was at the year of our peak demand.

Looking specifically at the third quarter, net earnings were $54 million or $0.43 per diluted share including $0.38 from continuing operations. Although sales volumes in the third quarter were 19% to 29% lower than the prior year for our key product lines overall growth profit margin was 20.9% matching last year's third quarter.

The average freight adjusted unit price for aggregates increased 2.4% in the third quarter reflecting wide variations across our markets. Aggregate shipments declined at 20% compared with the prior years third quarter reducing EBIDTA approximately $69 million from last year. Extremely wet weather in the quarter contributed to lower shipments in key markets in the Southeast and Mid-Atlantic states.

Our plant managers continue to mitigate some of the cost pressures caused by significantly lower volumes. They maintain production efficiency and reduced cash fixed cost 12% below last years third quarter. Shipments in the asphalt and ready-mixed concrete business declined at 19% and 29% respectively from the prior years third quarter due to the same economic factors affecting aggregates.

Third quarter asphalt earnings improved to slight lower volumes due to a decline in the cost for liquid asphalt and a return to more typical unit margins. Selling administrative and general expenses in the third quarter of 2009 increased $4 million from the prior year’s level. The year-over-year increase was due to project cost related to the replacement of our legacy IT system. And cost associated with reducing employment levels.

Employment levels across the company at the end of the third quarter are down 19% from a year ago. This reduction and employment across the company is result of a continued focus on adjusting our production levels in our cost structure to match the weak demand environment.

Through the first nine months of 2009 construction activity continued to weaken resulting in a 27% decline in our aggregates volume. This volume decline is reduced to EBIDTA approximately $265 million year-to-date more than offsetting the earnings benefit of effective cost management in a disciplined approach to pricing.

Despite the earnings effect from lower volumes year-to-date, operating cash flows were $355 million up from $278 million in the prior year. Additionally, by the end of the third quarter, we had reduced our total debt by about $700 million. In summary, our efforts to continue to tightly manage cost and maintain price discipline have offset some of the earnings effect due to lower sales volumes.

And we will continue to take the actions necessary to respond to a challenging construction environment. The factors contributing to a challenging outlook for construction activity or principally we continued weakness in private construction both residential and nonresidential, and the uncertainties surrounding the timing and the amount of a new federal multi-year highway program.

Year-to-date data for highway construction activity as well as new contract awards have been buoyed by the last months of safety loop and the beginning of stimulus-related funding. As of the end of August, the value of construction put in place for streets and highways in the US was up 3% from the prior year. Awards for new highway project for September were up 5% versus the prior year. Record setting awards from May to August when contract awards exceeded $6 billion each month reflecting good progress made by state transportation agencies and starting shovel ready projects intended to stimulate construction activity and create jobs.

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