Vulcan Materials Company (VMC)

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Vulcan Materials (VMC)

Q2 2011 Earnings Call

August 03, 2011 11:00 am ET


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

Unknown Executive -

Daniel Sansone - Chief Financial Officer and Executive Vice President


Scott Levine - JP Morgan Chase & Co

Brent Thielman - D.A. Davidson & Co.

Tom Austin - RBC Capital Markets, LLC

Michael Betts - Jefferies & Company, Inc.

Ted Grace - Susquehanna Financial Group, LLLP

Adam Rudiger - Wells Fargo Securities, LLC

Todd Vencil - Davenport & Company, LLC

Joshua Borstein - Longbow Research LLC

John Kasprzak - BB&T Capital Markets



Good day, ladies and gentlemen, and welcome to the Second Quarter 2011 Vulcan Materials Company Earnings Conference Call. My name is Marissa, and I'll be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to your host for today's call, Mr. Don James, the Chairman and Chief Executive Officer. Please go ahead.

Donald James

Good morning. Thank you for joining our conference call to discuss Vulcan's second quarter results. I'm Don James, Chairman and Chief Executive Officer of Vulcan. 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 will 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.

Let me open my remarks with some comments about our second quarter operating results. We are encouraged by the broad-based improvement in pricing versus the prior year's second quarter. The average unit sales price increased in all major product lines and across many of our markets. Freight-adjusted aggregate prices increased 2.5%. Asphalt and ready-mixed concrete prices each increased 8% and cement prices increased 2%. In the second quarter, we achieved improved aggregate prices across a number of our markets. There was also less regional variation around the 2.5% change in the company's average sales price, suggesting more stability going forward.

Our Asphalt mix segment realized price improvements that more than offset the increased cost of liquid asphalt, thus achieving an 11% increase in the margin per ton of asphalt mix sold.

Our Concrete segment realized higher prices across most of our geographic footprint. Collectively for the quarter, the high pricing across all major product lines mostly offset the earnings effect of lower volumes. Our ongoing efforts to run our plants as efficiently as possible and to reduce our SAG expenses offset some of the impact of higher diesel fuel cost and lowered our SAG expenses 9% versus the prior year.

Second quarter segment earnings in aggregates were $103 million compared to $122 million last year. The earnings effect of the 9% decline in volume was approximately $23 million, accounting for more than the year-over-year decline in segment earnings. Segment earnings were further reduced by a 43% increase in diesel fuel cost per gallon. However, the earnings impact of higher diesel cost was more than offset by the improvement in pricing and production efficiency gains.

Earnings in our Asphalt segment were $8 million, an increase from the prior year's second quarter. Asphalt mix sales prices were higher in the second quarter, both sequentially as well as year-over-year. As a result, unit margins increased versus the prior year despite the 17% increase in liquid asphalt cost.

Our Concrete segment reported a loss of $9 million versus a loss of $6 million in the prior year. Improved pricing for concrete led to higher unit materials margins, but the earnings effect of this was more than offset by the impact of the 12% decline in volume and the 43% increase in the per-gallon cost of diesel fuel.

The Cement segment second quarter loss of $1 million was flat with the prior year as the earnings impact of lower sales volume was offset by the effects of lower cost and higher prices. SAG expenses in the second quarter were $76 million versus $83 million in the prior year. The $7 million reduction reflects lower spending in most major categories, including lower spending for our Legacy IT replacement project.

In June, we announced and completed the set of comprehensive actions that recapitalized our balance sheet and improved our debt maturity profile for the next 5 years. These actions included a $1.1 billion bond offering, a tender offer for $275 million of senior unsecured debt due in 2012 and '13, the retirement of a $450 million term loan due in 2015, and the paydown of $275 million outstanding on our revolving credit facility. As a result, the only significant debt maturities through the end of 2014 are the remaining outstanding amounts of $135 million for the notes due in December of 2012 and $150 million for notes due in June of 2013. This comprehensive set of actions resulted in a second quarter pretax charge of $26.5 million that was recorded as interest expense in the quarter.

This $26.5 million pretax charge reduced second quarter net earnings by $0.12 per diluted share. We also recorded a significant specific charge in the second quarter of 2010. That charge of $41 million pretax or $0.21 per diluted share was for the settlement of a lawsuit in Illinois. Excluding these 2 charges, diluted earnings per share from continuing operations improved to $0.07 for the second quarter of 2011 compared to $0.03 for the second quarter of 2012.

Turning now to our outlook. We expect earnings growth in the second half of 2011, driven by earnings improvements in all of our businesses, particularly aggregates as well as SAG savings. We continue to expect aggregate prices to increase 1% to 3% for full year 2011. As for aggregate shipments, we're maintaining our assumption for the second half of 2011 of 2% to 6% growth year-over-year. This will result in full year volumes that could be flat to down 2% versus the prior year. Our expectations for an increase in second half aggregates volumes is supported by the timing of certain large projects in a number of key markets, including California, Virginia, Maryland and Georgia. Additionally, we're assuming the 4-million-ton decrease in shipments in the second quarter won't be recovered in the second half of 2011. We expect weakness in single-family residential construction and uncertainty surrounding the timing and the amount of a new federal highway bill to more than offset demand pushed out in the second half of the year because of April's severe weather across many of our markets and the flooding throughout the quarter in our River markets.

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