Vulcan Materials Company (VMC)

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Vulcan Materials Co. (VMC)

Q4 2009 Earnings Call

February 9, 2010 11:00 AM ET


Donald James - Chairman and CEO

Daniel Sansone - Senior Vice President, CFO


Jack Kasprzak - BB&T Capital Markets

Jerry Revich - Goldman Sachs

Timna Tanners - UBS

Kathryn Thompson - Thompson Research Group

Adam Rodrigo – Wells Fargo

Garik Shmois - Longbow Research

Ted Grace - Avondale Partners

Todd Vencil - Davenport & Co.



Good day, ladies and gentlemen, and Welcome to the Third Quarter 2009 Vulcan Materials Fourth Quarter 2009 Earnings Conference Call. My name is Yvette and I will be your coordinator for today's conference. (Operator Instructions).

I would like to turn the call over to Mr. Don James, Chairman, and CEO. Please proceed sir.

Donald James

Good morning. Thank you for joining this conference call to discuss our fourth quarter and full year 2009 results and our outlook for 2010. I am Don James, Chairman and Chief Executive Officer of Vulcan Materials. We certainly 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.

With me today is Dan Sansone, our Senior Vice President and Chief Financial Officer and Ron McAbee and Danny Shepherd, 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 discussing our fourth quarter and full year results and then give some comments about why we think 2010 could be another year of solid cash generation.

The fourth quarter of 2009 presented a very tough operating environment due to a combination of the weak construction economy and significantly adverse weather in most of our markets.

As a result, sales volumes in the fourth quarter were sharply lower than the prior year. Nevertheless we achieved EBITDA of $99 million and cash earnings of $67 million in the quarter.

Fourth quarter net earnings from continuing operations were a loss of $13 million or $0.10 per diluted share. Aggregate shipments declined 23% compared to the prior year’s fourth quarter, which reduced our EBITDA approximately $69 million from last year.

Extremely wet weather in the quarter contributed to lower shipments in key markets in the Mid-Atlantic States in and Southeast in the Mid-west and in the Southwest.

Ten of the 12 major metropolitan areas served by Vulcan experienced more than twice the number of wet workdays of a year ago. The most notable effects where in Charlotte, Washington DC, Chicago, Atlanta, Birmingham and San Antonio.

Additionally, aggregate shipments were negatively affected by the uncertainty regarding the timing and duration of an extension of the Federal highway program, which expired September 30, 2009.

Construction activity on stimulus funded highway projects varied widely in 2009 across the country and in certain key Vulcan states stimulus pending lagged the rest of the country.

The average unit sales price for aggregates increased 5% in the fourth quarter reflecting price improvement in most of the Vulcan served markets. Markets on the lower end of the range or price increases were California where the average selling price improved 1% and Texas and Florida were pricing declined 1% and 3% respectively.

Price improvement from the prior year’s fourth quarter benefited somewhat from a more favorable product mix reflecting proportionally greater levels of aggregates used for highway construction particularly pavement improvement.

Our managers continue to mitigate some of the cost pressures caused by these significantly lower volumes. They maintained production efficiency and reduced cash fixed cost, an additional 8% below last year’s fourth quarter.

Shipment in asphalt and ready mix concrete declined 12 and 31% respectively from the prior year’s fourth quarter due to the same economic factors affecting aggregates. Fourth quarter segment earnings were lower than the prior year due to lower volumes and to lower material margins in both products.

Selling administrative and general expenses in the fourth quarter declined $6 million from the prior year. This year-over-year decline in overhead cost is due primarily to reductions in employee related expenses, which more than offset a year-over-year increase in project cost of $2.6 million related to the replacement of our legacy IT system.

Additionally, the current year’s fourth quarter included the expenses of $8.5 million for the fair market value of donated real estate. The prior year’s fourth quarter result included $5.1 million for similar transactions. Excluding the affects of donated real estate SAG expenses declined a 11% versus the prior year’s fourth quarter.

The difference between the fair value of the donated real estate and the carrying value which was $7.6 million in the fourth quarter of 2009 and $5.1 million in the fourth quarter of the prior year are recorded as a gain on sale of property plant and equipment.

Employment levels across the company at the end of the fourth quarter are down 11% from the prior year. This reduction in employment across the company is a result of a continued focus on adjusting our production levels and our cost structure to match the weak demand environment as well as to the early effects associated with the rollout of our new shared services IT platform.

Before making some comments on our outlook for 2010, let me highlight some aspects of our full year results, that maybe of interest. In 2009, our efforts to tightly manage cost and to maintain price discipline offset some of the earnings effect from lower sales volumes.

Full year net earnings were $30 million, while our cash earnings were $369 million from continuing operations and an additional $12 million from discontinued operations.

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