Vulcan Materials Company (VMC)

VMC 
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Vulcan Materials (VMC)

Q3 2012 Earnings Call

November 08, 2012 11:00 am ET

Executives

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

Danny R. Shepherd - Chief Operating Officer and Executive Vice President

Daniel F. Sansone - Chief Financial Officer and Executive Vice President

Analysts

Robert C. Wetenhall - RBC Capital Markets, LLC, Research Division

Trey Grooms - Stephens Inc., Research Division

Garik S. Shmois - Longbow Research LLC

Kathryn I. Thompson - Thompson Research Group, LLC.

John F. Kasprzak - BB&T Capital Markets, Research Division

Adam Rudiger - Wells Fargo Securities, LLC, Research Division

Keith B. Hughes - SunTrust Robinson Humphrey, Inc., Research Division

L. Todd Vencil - Sterne Agee & Leach Inc., Research Division

Michael Betts - Jefferies & Company, Inc., Research Division

Stuart J. Benway - S&P Equity Research

Presentation

Operator

Welcome to the 2012 Vulcan Materials Company Quarter Earnings Conference Call. My name is Hilda, and I will be your operator for today's call. [Operator Instructions] I will now turn the call over to Mr. Don James, Chairman and CEO. Mr. James, you may begin.

Donald M. James

Good morning. And thank you for joining us to discuss our results for the third quarter of 2012. I'm Don James, Chairman and Chief Executive Officer of Vulcan Materials Company. Joining me today are Dan Sansone, our Executive Vice President and Chief Financial Officer; and Danny Shepherd, our Executive Vice President and Chief Operating Officer.

We have posted a short slide presentation to our website that we will reference during the call. These slides are also available to those of you on the webcast.

Before we begin, let me remind you that certain matters discussed in this conference call, as indicated on Slide 2 of our presentation, contain forward-looking statements, which are subject to risk and uncertainties. Descriptions of these risk and uncertainties are detailed in the company's SEC reports, including our most recent report on Form 10-K.

In addition, during this call, management will refer to certain non-GAAP financial measures. These measures are not prepared in accordance with U.S. Generally Accepted Accounting Principles. You can find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures and other related information in Vulcan's third quarter 2012 earnings release and in the Investor Relations section of Vulcan's website.

Turning now to Slide 3. I want to begin by briefly discussing a few highlights from the quarter. We continued to deliver earnings improvement during the quarter, with an adjusted EBITDA of $146 million, an increase of 9% over the third quarter of last year. We achieved these results despite a demand environment that remains highly challenging, as reflected in the weak volume we saw in the quarter.

Adjusted earnings from continuing operations were $0.14 per diluted share, a 27% (sic) [$0.27] per share improvement from a loss of $0.13 per diluted share in last year's third quarter. The earnings impact of lower Aggregate volumes was about $18 million of EBITDA or $0.10 per diluted share.

We also generated higher Aggregates profitability. Aggregates unit profitability as measured by cash gross profit per ton was a third quarter record and the fourth consecutive quarter of year-over-year improvement. Aggregates segment gross profit margin increased 340 basis points due to a 4% increase in Aggregates pricing and the benefits of our continued cost-reductions efforts. Cost reduction is an ongoing focus of our management team and all of our employees. In addition to lower unit cost of sales in our Aggregates business, we also realized our fourth consecutive quarterly decline in year-over-year SAG expenses.

As we look ahead, we are encouraged by the leading indicators for private sector construction. In addition, we're looking forward to more predictable funding provided by the new federal highway bill and the benefits from a greatly expanded TIFIA program within that bill.

Moving now to Slide 4. We are very pleased with the margin expansion we realized in the third quarter and year-to-date, particularly given the lack of top line growth. Our margin expansion will further enhance earnings leverage as volumes recover.

Employees throughout the company remain keenly focused on managing controllable costs. Thanks to their continued efforts, earnings leverage in our Aggregates business continues to grow as evidenced by the consistent increases in gross profit margins and adjusted EBITDA. We also benefited from stronger pricing in both the third quarter and the year-to-date periods.

Through the 9 months ended September 30 of this year, adjusted EBITDA, which excludes $18 million in real estate gains, was $321 million, up $64 million or 25%. Again, this was despite a 1% decline in Aggregate volumes.

SAG expenses for the third quarter were $65 million, down from $67 million for the third quarter last year. Excluding the effects of certain accounting charges tied primarily to employee benefit plans and resulting from the increase in the company's stock price, SAG expenses were reduced $10 million from the prior year's third quarter.

With that, I'd like to turn the call over to Danny Shepherd who will walk you through our segment results for the quarter, Danny?

Danny R. Shepherd

Thanks, Don. Turning to our segment results on Slide 5. As Don said earlier, Aggregate segment revenue remained sluggish as a result of weaker volumes. On a same-store basis, Aggregates declined 6%. But we are pleased in spite of the sluggishness in public construction, Aggregates' gross profit increased $12 million from the prior year's third quarter.

Aggregates' cash gross profit per ton was $4.75, a 10% improvement over the prior year. As Don mentioned, and I would like to further emphasize, the $4.75 per ton Aggregates cash gross profit is a record level of unit profitability for the third quarter. Also, gross profit margins expanded, as he said, by 340 basis points over prior year third quarter.

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