Weather & Inflation Likely to Impact Vulcan (VMC) Q3 Earnings

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Vulcan Materials CompanyVMC is set to release third-quarter 2018 results on Oct 30, before the opening bell. In the last reported quarter, the company's earnings missed the Zacks Consensus Estimate by 10.2%.

How are Estimates Faring?

Let's take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release. For the quarter to be reported, the Zacks Consensus Estimate is pegged at $1.36, trending downward from $1.59 over the past 30 days. Nonetheless, this reflects a gain of 30.8% from $1.04 reported in the year-ago quarter. Revenues are expected to be $1.22 billion, up 11.7% year over year.

Vulcan Materials Company Price and EPS Surprise

Vulcan Materials Company Price and EPS Surprise | Vulcan Materials Company Quote

Factors That Might Influence Q3 Results

Hurricane Florence and abnormally wet weather in Texas are expected to mar Vulcan's third-quarter results. Notably, in September, Texas saw record rainfall in key markets such as Dallas, San Antonio and Houston, which will likely have a negative impact on operations. Although weather is expected to exert considerable pressure on overall results, aggregate and cement shipments are anticipated to see modest growth in Texas and North Carolina, as these two states are experiencing higher demand.

Meanwhile, slow housing market as a result of rising mortgage rates and higher home prices is also expected to impact the company's top line to some extent.

That said, this recent housing slowdown is expected to be insulated with higher public infrastructure. Vulcan's systematic inorganic strategy for expansion also bodes well. The company strengthened its portfolio through acquisitions and divestitures that are expected to drive growth in the quarter under review.

Coming to its segments, the Zacks Consensus Estimate for Aggregates segment sales (accounting for more than 79.7% of the total revenues) is pegged at $1,020 million, reflecting an increase from $859 million a year ago and $956 million in the last reported quarter. Also, for the third quarter, revenues are likely to grow 21.1% year over year and 8.5% sequentially for the asphalt segment, per the Zacks Consensus Estimate. Concrete segment revenues are projected to rise 7.8% year over year and 15.9% sequentially in the to-be-reported quarter. Also, Calcium segment revenues are likely to be up 16.8% year over year and 0.9% sequentially in the to-be-reported quarter.

Meanwhile, the company uses large amounts of electricity, diesel fuel, liquid asphalt and other petroleum-based resources as raw materials. Currently, apart from rising transportation costs, the company is experiencing higher diesel and liquid asphalt expenses. As of second-quarter 2018, diesel prices increased 28% year over year and 59% since June 2016. Also, liquid asphalt prices jumped 22% year over year, putting pressure on Asphalt margins. These headwinds could impact the company's profitability. Notably, its gross margin declined 120 basis points year over year in the second quarter. The trend is likely to continue in the to-be-reported quarter as well.

Quantitative Model Prediction

Our proven model does not show that Vulcan is likely to beat earnings estimates in the to-be-reported quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

You may uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

The company has an Earnings ESP of 0.00% and a Zacks Rank #5 (Strong Sell), which does not make us confident of an earnings beat. It is to be noted that we caution against stocks with a Zacks Rank #4 (Sell) or 5 going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Notably, Vulcan, which shares space with Martin Marietta Materials, Inc. MLM and Summit Materials, Inc. SUM , surpassed the Zacks Consensus Estimate in three of the trailing four quarters, recording an average positive surprise of 25.5%.

A Stock With Favorable Combination

Here is one construction stock that you may want to consider, as our model shows that it has the right combination of elements to post an earnings beat in the upcoming release:

MasTec, Inc. MTZ has an Earnings ESP of +2.2% and a Zacks Rank #2. The company is slated to report quarterly results on Nov 1. You can see the complete list of today's Zacks #1 Rank stocks here .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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