August 3, 2009
FOR IMMEDIATE RELEASE
Investor Contact: Mark Warren (205) 298-3220
Media Contact: David Donaldson (205) 298-3220
VULCAN ANNOUNCES SECOND QUARTER RESULTS
Company positioned for significant participation in U.S. economic recovery
BIRMINGHAM, Ala., Aug. 3 /PRNewswire-FirstCall/ -- Vulcan Materials Company (NYSE: VMC), the nation’s largest producer of construction aggregates, announced results today for the second quarter ended June 30, 2009.
Second Quarter Summary and Comparisons with the Prior Year
| | · | Net earnings were $22 million, or $0.20 per diluted share, including $0.14 per diluted share from continuing operations. |
| | · | A change in the estimated annual effective tax rate reduced earnings $0.06 per diluted share. |
| | · | Aggregates shipments declined 31 percent, reducing earnings $0.64 per diluted share. |
| | · | Aggregates pricing increased 3 percent. |
| | · | Aggregates cash fixed costs decreased 17 percent. |
| | · | Asphalt unit margins continued to recover. |
| | · | EBITDA was $168 million versus $265 million in the prior year. Cash earnings were $118 million versus $199 million in the prior year. Both comparisons exclude the effects in 2008 referable to the gain on sale of required divestitures as part of the Florida Rock acquisition. |
| | · | Year-to-date cash provided by operating activities was $169 million compared with $134 million in the prior year. |
| | · | Net proceeds of approximately $520 million from the public equity offering of early June were used to reduce short-term borrowing. |
Commenting for the Company, Don James, Vulcan’s Chairman and Chief Executive Officer, stated, “While our current results reflect the volume effect of the prolonged recession, we are encouraged by the increased level of bid activity by state transportation departments as well as the significant increase in highway construction contract awards reported in May and June. The increased level of bid activity and contracts awarded demonstrate that funding provided by the federal economic stimulus plan, or American Recovery and Reinvestment Act (ARRA), is working its way into the economy. We expect construction activity referable to these contract awards to begin in the second half of 2009 and to provide a meaningful contribution to overall aggregates demand in 2010.
“We remain focused on managing costs and generating cash, which will enhance our ability to increase earnings as the economy recovers and construction activity improves. In early June, we further strengthened our balance sheet and enhanced our financial flexibility by completing a successful public equity offering. Net proceeds of $520 million from the offering were used to reduce short-term bank borrowings, thereby freeing up a like amount of liquidity under our lines of credit.”
Second Quarter Operating Results Commentary
Second quarter earnings for aggregates declined as the impact of sharply lower shipments more than offset the earnings benefit from improved prices, lower unit costs for diesel fuel and cost control measures. Aggregates shipments declined 31 percent from the prior year due to weak demand and wet weather. The decrease in aggregates volumes reduced second quarter EBITDA by approximately $112 million versus the prior year. The increase in the average selling price for aggregates reflects wide variations across Vulcan-served markets. Many major markets realized price improvement from the prior year well above the 3 percent average, while certain markets in the far West and Florida reported year-over-year declines in average selling price.
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By rationalizing production, reducing operating hours, streamlining the workforce and effectively managing spending, the Company offset some of the cost impact related to lower volumes. Aggregates cash fixed costs were reduced 17 percent from the prior year’s second quarter. The unit cost for diesel fuel decreased 54 percent from the prior year’s second quarter, increasing earnings $0.12 per diluted share.
Asphalt earnings in the second quarter were higher than last year’s second quarter as material margins recovered to more normal levels, reflecting moderation in the cost of liquid asphalt, which more than offset the earnings effect of a 30 percent decline in asphalt volumes. Concrete earnings decreased from the prior year’s second quarter due primarily to lower volumes.
Cement earnings showed a slight loss in the second quarter due to the effects of weaker sales volumes, slightly offset by lower energy costs.
Selling, administrative and general expenses in the second quarter decreased $5 million from the prior year. Cost-saving actions implemented across the Company to align spending levels with weak product demand more than offset $4 million in project costs related to the replacement of legacy IT systems. Additionally, the prior year’s second quarter included expenses of $6 million for the fair market value of donated real estate.
During the second quarter, we revised our estimated annual effective tax rate to 6.4 percent, significantly lower than the 23.2 percent estimated in the first quarter. An adjustment to the current quarter’s income tax provision was required so that the year-to-date provision reflects the expected annual tax rate. A substantial amount of the tax benefit recognized for the loss reported in the first quarter of 2009 was reversed during the second quarter to reflect the revised annual rate. This adjustment reduced earnings $0.06 per diluted share, during the second quarter of 2009, resulting in an effective tax rate of 38.2 percent, as compared with 31.0 percent in the second quarter of 2008.
All results are unaudited.
Outlook Highlights and Commentary
Commenting on the Company’s outlook for 2009, Mr. James stated, “The current year remains challenging due to weak private construction activity. Despite these challenges, we believe the cost management actions we have taken, along with our disciplined approach to pricing, and the improved liquidity and financial flexibility we have achieved, will enable us to participate fully in the economic recovery.
“Plant operating costs and overhead are being tightly managed as we continue to adjust our cost structure to match the weak demand environment. Additionally, lower unit costs for diesel fuel and liquid asphalt should continue to benefit earnings in 2009.
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“We expect higher selling prices for our products in 2009 to partially offset the earnings effects of lower volumes. For the full year 2009, we expect aggregates pricing to improve 3 to 4 percent. The average selling price for asphalt mix in 2009 should also increase from 2008.
“Our revised outlook for 2009 aggregates demand is due primarily to further weakness expected in private construction. U.S. contract awards in the most recent two months for private nonresidential and private infrastructure construction have weakened, lowering our expectation for aggregates demand from this end use in the second half of the year. Specifically, published contract awards for private nonresidential buildings reported during the second quarter declined more than 60 percent in Vulcan-served states when compared with the prior year’s second quarter. Contract awards for private infrastructure-related projects declined more than 80 percent. As a result, we now expect 2009 full year aggregates shipments to decline 21 to 24 percent from 2008 levels.
“We expect the further weakness in private construction awards to be offset somewhat by incremental demand in the second half of 2009 from highway construction activity related primarily to economic stimulus projects. State departments of transportation and local governments continue to make good progress obligating stimulus dollars for transportation projects. In July, the Federal Highway Administration reported that 64 percent of the $26.8 billion of ARRA highway funds has been obligated by state departments of transportation, up from $13 billion at the end of May. Additionally, the number of transportation projects bid and the frequency of bid lettings have increased in recent months, contributing to a 61 percent increase in the value of transportation contract awards in June in Vulcan-served states. Overall, our outlook for stimulus-related demand remains unchanged for the second half of 2009 and beyond.
“As a result, we now expect second half earnings of $0.60 to $0.85 per diluted share, including $0.55 to $0.80 per diluted share from continuing operations. In the second half of 2008, earnings were $0.63 per share, excluding the noncash charge for impairment of the goodwill associated with the cement segment. Full year earnings are expected to be $0.51 to $0.76 per diluted share, including $0.40 to $0.65 per diluted share from continuing operations.
“Debt reduction and achieving target debt ratios remain a priority use of cash flows. With the proceeds of the recent equity offering and the previously announced reduction in the quarterly dividend, we expect to reduce total debt by approximately $700 million during 2009. For the full year 2009, we expect capital spending to be approximately $175 million, down sharply from the $354 million spent in 2008.
“Looking ahead to 2010, Vulcan should benefit from our aggregates-focused strategy that is complemented by our asphalt and concrete operations in certain markets. Our preliminary estimates for growth in demand for our products from stimulus-related construction activity, as well as some improvement in residential construction, point toward growth in earnings. Our available production capacity and improved cost structure position Vulcan to participate efficiently and effectively in the supply of material for economic stimulus projects. Key Vulcan-served states such as California, Florida and Texas will receive the largest percentage of highway funding under the stimulus plan and are likely targets for above-average funding for other stimulus spending for infrastructure because of their high growth and large population base.”
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Conference Call
Vulcan will host a conference call at 10:00 a.m. CDT on August 4, 2009. Investors and other interested parties in the U.S. may access the teleconference live by calling 888.680.0865 approximately 10 minutes before the scheduled start. International participants can dial 617.213.4853. The access code is 82537459. A live webcast will be available via the Internet through Vulcan's home page at www.vulcanmaterials.com. The conference call will be recorded and available for replay approximately two hours after the call through August 11, 2009.
Vulcan Materials Company, a member of the S&P 500 Index, is the nation's largest producer of construction aggregates, a major producer of asphalt mix and concrete and a leading producer of cement in Florida.
Certain matters discussed in this release, including expectations regarding future performance, contain forward-looking statements that are subject to assumptions, risks and uncertainties that could cause actual results to differ materially from those projected. These assumptions, risks and uncertainties include, but are not limited to, those associated with general economic and business conditions; changes in interest rates; the timing and amount of federal, state and local funding for infrastructure; changes in the level of spending for residential and private nonresidential construction; the highly competitive nature of the construction materials industry; the impact of future regulatory or legislative actions; the outcome of pending legal proceedings; pricing; weather and other natural phenomena; energy costs; costs of hydrocarbon-based raw materials; increasing healthcare costs; the amount of long-term debt and interest expense; possible increase in the cash contributions to pension plans; the timing and amount of any future payments to be received under the 5CP earn-out contained in the agreement for the divestiture of the Company's Chemicals business; the Company’s ability to secure and permit aggregates reserves in strategically located areas; the Company’s ability to manage and successfully integrate acquisitions; the impact of the global financial crisis on our business and financial condition and access to the capital markets; and other assumptions, risks and uncertainties detailed from time to time in the Company’s SEC reports, including the report on Form 10-K for the year. Forward-looking statements speak only as of the date hereof, and Vulcan assumes no obligation to publicly update such statements.
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Table A
| Vulcan Materials Company | | | | | | | | | | | | |
| and Subsidiary Companies | | | | | | | | | | | | |
| | | (Amounts and shares in thousands, | |
| | | except per share data) | |
| | | | | | | | | | | | | |
| | | Three Months Ended | | | Six Months Ended | |
| Consolidated Statements of Earnings | | June 30 | | | June 30 | |
| (Condensed and unaudited) | | 2009 | | | 2008 | | | 2009 | | | 2008 | |
| | | | | | | | | | | | | |
| Net sales | | $ | 681,380 | | | $ | 965,957 | | | $ | 1,249,275 | | | $ | 1,737,718 | |
| Delivery revenues | | | 40,479 | | | | 55,594 | | | | 72,878 | | | | 101,172 | |
| Total revenues | | | 721,859 | | | | 1,021,551 | | | | 1,322,153 | | | | 1,838,890 | |
| | | | | | | | | | | | | | | | | |
| Cost of goods sold | | | 535,546 | | | | 720,731 | | | | 1,025,834 | | | | 1,338,042 | |
| Delivery costs | | | 40,479 | | | | 55,594 | | | | 72,878 | | | | 101,172 | |
| Cost of revenues | | | 576,025 | | | | 776,325 | | | | 1,098,712 | | | | 1,439,214 | |
| | | | | | | | | | | | | | | | | |
| Gross profit | | | 145,834 | | | | 245,226 | | | | 223,441 | | | | 399,676 | |
| Selling, administrative and general expenses | | | 79,353 | | | | 84,781 | | | | 159,070 | | | | 177,357 | |
| Gain on sale of property, plant & equipment | | | | | | | | | | | | | | | | |
| and businesses, net | | | 654 | | | | 80,498 | | | | 3,157 | | | | 84,443 | |
| Other operating (income) expense, net | | | 1,451 | | | | 2,474 | | | | 3,170 | | | | 1,534 | |
| Operating earnings | | | 65,684 | | | | 238,469 | | | | 64,358 | | | | 305,228 | |
| | | | | | | | | | | | | | | | | |
| Other income (expense), net | | | 2,895 | | | | 3,444 | | | | 1,820 | | | | 792 | |
| Interest income | | | 687 | | | | 997 | | | | 1,482 | | | | 1,669 | |
| Interest expense | | | 44,073 | | | | 38,193 | | | | 87,992 | | | | 81,652 | |
| Earnings (loss) from continuing operations | | | | | | | | | | | | | | | | |
| before income taxes | | | 25,193 | | | | 204,717 | | | | (20,332 | ) | | | 226,037 | |
| Provision (benefit) for income taxes | | | 9,632 | | | | 63,492 | | | | (3,638 | ) | | | 70,327 | |
| Earnings (loss) from continuing operations | | | 15,561 | | | | 141,225 | | | | (16,694 | ) | | | 155,710 | |
| Earnings (loss) on discontinued operations, net of tax | | | 6,651 | | | | (470 | ) | | | 6,125 | | | | (1,022 | ) |
| Net earnings (loss) | | $ | 22,212 | | | $ | 140,755 | | | $ | (10,569 | ) | | $ | 154,688 | |
| Basic earnings (loss) per share: | | | | | | | | | | | | | | | | |
| Continuing operations | | $ | 0.14 | | | $ | 1.28 | | | $ | (0.15 | ) | | $ | 1.42 | |
| Discontinued operations | | | 0.06 | | | | - | | | | 0.06 | | | | - | |
| Net earnings (loss) per share | | $ | 0.20 | | | $ | 1.28 | | | $ | (0.09 | ) | | $ | 1.42 | |
| | | | | | | | | | | | | | | | | |
| Diluted earnings (loss) per share: | | | | | | | | | | | | | | | | |
| Continuing operations | | $ | 0.14 | | | $ | 1.27 | | | $ | (0.15 | ) | | $ | 1.41 | |
| Discontinued operations | | | 0.06 | | | | - | | | | 0.06 | | | | (0.01 | ) |
| Net earnings (loss) per share | | $ | 0.20 | | | $ | 1.27 | | | $ | (0.09 | ) | | $ | 1.40 | |
| | | | | | | | | | | | | | | | | |
| Weighted-average common shares | | | | | | | | | | | | | | | | |
| outstanding: | | | | | | | | | | | | | | | | |
| Basic | | | 113,477 | | | | 109,922 | | | | 112,045 | | | | 109,286 | |
| Assuming dilution | | | 113,829 | | | | 111,117 | | | | 112,045 | | | | 110,515 | |
| Cash dividends declared per share | | | | | | | | | | | | | | | | |
| of common stock | | $ | 0.49 | | | $ | 0.49 | | | $ | 0.98 | | | $ | 0.98 | |
| Depreciation, depletion, accretion and | | | | | | | | | | | | | | | | |
| amortization from continuing operations | | $ | 99,600 | | | $ | 96,919 | | | $ | 198,915 | | | $ | 192,775 | |
| Effective tax rate from continuing operations | | | 38.2 | % | | | 31.0 | % | | | 17.9 | % | | | 31.1 | % |
