Vulcan Materials Company (VMC)

VMC 
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Vulcan Materials (VMC)

Q4 2010 Earnings Call

February 03, 2011 11:00 am ET

Executives

Daniel Sansone - Chief Financial Officer and Senior Vice President

Donald James - Chairman of the Board, Chief Executive Officer and Chairman of Executive Committee

Analysts

Jerry Revich - Goldman Sachs Group Inc.

Brent Thielman - D.A. Davidson & Co.

Timna Tanners - UBS Investment Bank

Kathryn Thompson - Avondale Partners

Trey Grooms - Stephens Inc.

Todd Vencil - Davenport & Company, LLC

Ted Grace - Goldman Sachs

Adam Rudiger - Wachovia Capital Markets

Garik Shmois - Longbow Research LLC

John Kasprzak - BB&T Capital Markets

Aynsley Lammin - Citigroup Inc

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Vulcan Materials Fourth Quarter and Full Year Earnings Conference Call. My name is Jennifer, and I will be your operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today, Don James, Chairman and CEO. Please proceed.

Donald James

Good morning. Thank you for joining this conference call to discuss Vulcan's fourth quarter and full year 2010 results. I'm Don James, Chairman and Chief Executive Officer. Joining me today is Dan Sansone, our Executive Vice President and Chief Financial Officer; and Danny Shepherd, our Executive Vice President, Construction Materials.

Before we 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 for these risks and uncertainties are detailed in the company's SEC reports, including our most recent report on Form 10-K.

We start 2011 with optimism that the decline in demand for our products bottomed in 2010, and that growth in shipments is ahead of us. We have worked diligently throughout this long downturn to position the company for earnings growth when demand recovers. Improved stability and economic factors that drive demand for our products will bring the strength of Vulcan's fundamentals back into focus.

As a result of these efforts, our cash earnings for each ton of aggregate sold in 2010 was $4.15 per ton, 26% higher than it was at the peak of demand back in 2005. The attractive industry characteristics of our primary product, Aggregates, and the determined efforts of our employees have allowed us to maintain this level of profitability in 2010 despite a significant and prolonged decline in shipments during the past four years due to the economic recession.

In 2010, the year-over-year decline slowed significantly from the prior three years. During the period from 2007 through 2009, aggregate shipments, adjusted to include major acquisitions and divestitures, declined 11% in 2007, 21% in 2008 and 26% in 2009. In 2010 , aggregate shipments declined 2% from the prior year, reflecting varied market demand conditions across our footprint.

Fourth quarter aggregate shipments in several of our key markets exemplified these varied market demand conditions. In Florida, demand remained relatively weak during the fourth quarter, while California exhibited some modest growth in shipments versus the prior year. In Texas, aggregate shipments in the fourth quarter increased more than 30% from the prior year, while in our markets in North Carolina, shipments declined more than 30%. Finally, Tennessee and Illinois, two states that quickly obligated and awarded their stimulus-funded highway projects, both realized growth in aggregate shipments versus the prior year's fourth quarter.

While overall, aggregate shipments in the fourth quarter were flat compared to the prior year, we experienced unfavorable mix variances versus the prior year, accounting for the majority of the 4% decline in reported freight adjusted selling prices. The remaining decline in the average freight adjusted selling prices in the fourth quarter was mostly attributable to competitive price pressures in Florida and California. The earnings effect of lower freight adjusted selling prices in the fourth quarter of 2010 was $15 million. This earnings effect was offset somewhat by higher earnings in our Transportation businesses that support our Aggregates businesses by moving aggregates from producing quarries to sales yards in regions where local aggregates aren't available.

The average unit price paid for diesel fuel in the fourth quarter increased 19% from the prior year, reducing earnings approximately $4 million. Excluding energy-related costs, aggregates unit cost of sales in the fourth quarter were favorable compared to the prior year, reflecting the effective cost control efforts by our employees.

Overall, segment earnings for aggregates in the fourth quarter were $58 million versus $70 million in the prior year. Segment earnings in 2010 included $7 million of certain adjustments in charges in the quarter. In our Asphalt segment, earnings were $8 million versus $10 million last year. Selling prices for asphalt mix increased 2% offsetting a portion of the earnings effect of a 14% increase in liquid asphalt costs. Sequentially, unit material margins in the fourth quarter increased slightly from the third quarter. This is our second consecutive quarter of improving asphalt mix margins. In our Concrete segment, earnings effect of lower average selling prices more than offset 5% higher shipments and lower unit cash cost of sales versus the prior year's fourth quarter. Cement shipment in the fourth quarter increased 43% from the prior year due to higher internal consumption by our concrete operations.

Overall, for the quarter, our EBITDA was $65 million, our cash earnings were $46 million and our net earnings were a loss of $47 million. For the full year, EBITDA was $371 million, our cash earnings were $228 million and net earnings were a loss of $96 million.

Full year earnings results include a pretax charge of $22 million. This net amount includes a $43 million charge for the settlement of the IDOT lawsuit, as well as $21 million of certain adjustments and charges recorded in the fourth quarter. These charges were somewhat offset by a $39 million gain reported in the first quarter.

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