August 2, 2010
FOR IMMEDIATE RELEASE
Investor Contact: Mark Warren (205) 298-3220
Media Contact: David Donaldson (205) 298-3220
VULCAN ANNOUNCES SECOND QUARTER RESULTS
Birmingham, Alabama – August 2, 2010 – Vulcan Materials Company (NYSE:VMC), the nation’s largest producer of construction aggregates, announced results today for the second quarter ended June 30, 2010.
Second Quarter Summary and Comparisons with the Prior Year
| | · | Unit shipments in each major product line increased from the prior year. |
| | · | Aggregates shipments increased 6 percent with broad geographic improvement, increasing pretax earnings $15 million, or $0.08 per diluted share. |
| | · | Average price for aggregates decreased 2 percent with wide variations across markets, reducing pretax earnings $10 million, or $0.05 per diluted share. |
| | · | Unit cost for diesel fuel increased 38 percent, reducing pretax earnings $8 million, or $0.04 per diluted share. |
| | · | Unit cost for liquid asphalt increased 26 percent, reducing pretax earnings $9 million, or $0.04 per diluted share. |
| | · | The previously announced settlement of a lawsuit in Illinois reduced operating earnings by $41 million, or $0.21 per diluted share. |
| | · | Charges associated with severe flooding in the Nashville, Tennessee area reduced aggregates segment earnings $3 million, or $0.02 per diluted share. |
| | · | Earnings from continuing operations were a loss of $23 million, or $0.18 per diluted share. |
Commenting for the Company, Don James, Vulcan’s Chairman and Chief Executive Officer, stated, “Our second quarter volume growth is encouraging as we look ahead to the second half of 2010 and continuing recovery in demand. The upward trend in aggregates shipments that started in March and continued throughout the second quarter led to the first year-over-year quarterly increase in shipments in four years. The earnings effect of higher volumes was more than offset by charges for settlement of the lawsuit in Illinois, the flooding in Nashville, higher unit costs for liquid asphalt and diesel fuel and lower product pricing. Improvement in the overall economy as well as higher levels of contract awards for highway construction and single-family housing starts provided the catalyst for growth in demand for our products in the second quarter.
“The flow of contract awards for highway construction, a leading indicator of future construction activity, has been improving since March of 2009 when stimulus-related funds became available to each state. During the first six months of 2010, total contract awards for highway construction in Vulcan-served states, including awards for federal, state and local projects, increased 11 percent from the prior year. Through June 2010, the Federal Highway Administration reported that only 38 percent of the $26 billion of total stimulus funds obligated for highways had been spent – which bodes well for increased construction activity from federal stimulus spending for the remainder of 2010 and 2011.”
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Second Quarter Operating Results Commentary
Second quarter aggregates earnings were $122 million versus $127 million in the prior year. Aggregates shipments increased 6 percent from the prior year’s second quarter. Many Vulcan-served markets realized solid increases in shipments and earnings versus the prior year’s second quarter due primarily to stronger demand from public highway projects and improvement in single-family housing starts. The earnings effect from higher aggregates shipments was more than offset by the effects of a 2 percent decrease in aggregates prices, a 38 percent increase in the unit cost for diesel fuel and $3 million of charges associated with flooding in the Nashville, Tennessee area in May.
Aggregates pricing continues to reflect wide variations across Vulcan-served markets. Markets in Florida, and to a lesser extent the Far West, have remained challenging due to increased competitive pressures. Additionally, a number of long-haul markets served by rail, barge and ship reported lower freight-adjusted prices. Higher energy costs related to these modes of long-haul transportation were not recovered in second quarter selling prices to customers. The average second quarter selling price for aggregates in markets not mentioned above approximated prior year levels. Aggregates gross profit in these markets increased as expected based on the increased levels of shipments.
Segment earnings in asphalt were $14 million lower than the prior year due primarily to a 26 percent increase in the unit cost for liquid asphalt and lower selling prices. Selling prices for asphalt mix generally lag increasing liquid asphalt costs and were further held in check due to competitive pressures. Asphalt volumes increased 2 percent from the prior year’s second quarter.
Concrete segment earnings declined $3 million from the prior year’s second quarter as the earnings effects from slightly higher shipments of ready-mixed concrete and lower costs were more than offset by a decrease in the average selling price. Cement segment earnings in the second quarter were slightly lower than the prior year as lower average unit selling prices offset higher sales volumes.
In May, the Company reached final settlement in a lawsuit filed in 2001 against the Company by the Illinois Department of Transportation. As a result, a $41 million charge was recorded in the second quarter. The Company believes that the settlement is covered by insurance policies and is taking appropriate actions, including one or more arbitrations, to recover the amount paid in settlement above a self-insured retention of $2 million, as well as a portion of its defense costs, from its insurers. The ultimate amount and timing of such recoveries, which will be recorded as income when realized, cannot be predicted with certainty.
Selling, administrative and general expense in the second quarter was $83 million versus $79 million in the prior year’s second quarter. Included in the current year’s second quarter was $1.5 million of legal expenses related to the lawsuit in Illinois.
All results are unaudited.
Outlook Highlights and Commentary
Commenting on the Company’s outlook, Mr. James stated, “Key drivers of the demand for our products are improving. First, from the perspective of the overall economy, most GDP forecasts for the U.S. indicate further growth in the overall economy in 2010. In past economic cycles, demand for aggregates has improved as GDP has grown during the initial years of economic recovery. Additionally, state and local tax revenues have historically rebounded after GDP recovers. Since the second quarter of 2009, the gross state product of all Vulcan-served states has shown positive growth – an indication economic recovery is underway.
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“Initially, Vulcan-served states lagged the rest of the country in obligating and awarding stimulus-related highway projects. From March to the end of December 2009, contract awards for highways in Vulcan-served states were up 9 percent versus 17 percent for the remaining states. In the six months ended June 2010, contract awards for highways were up 11 percent in Vulcan-served states versus down 1 percent for other states. The above-average increase during the six months ended June 2010 provides encouragement that highway construction activity in our states should improve in 2010 and beyond.
“Our forecast for aggregates demand in the second half of 2010 continues to reflect an increase in residential construction, albeit from low levels, and continued weakness in private nonresidential building construction. Residential construction contract awards in the second quarter increased 6 percent from the prior year in Vulcan-served states. This year-over-year increase follows a 41 percent increase in Vulcan-served states in the first quarter. As a result, most key states for Vulcan now reflect positive growth in trailing twelve month single-family housing starts. In private nonresidential construction, the rate of decline in contract awards has slowed in recent months. The start of a recovery in this end market will be influenced by employment growth, business investment and lending activity. In the second half of 2010 we expect aggregates volumes to be flat to up 5 percent from the prior year’s levels.
“Overall, pricing for aggregates remains solid despite the year-over-year decline reported in the second quarter. A number of Vulcan-served markets are still realizing year-over-year price growth while in certain other markets, pricing remains under competitive pressures or is being affected by recent increases in long-haul transportation costs. As a result, we expect aggregates pricing in the second half of 2010 to approximate the prior year’s levels.
“In our asphalt business, we expect sales volumes and segment earnings in the second half of 2010 to approximate last year’s levels, a significant improvement from the current year’s first half. In concrete, we expect sales volumes in the second half of 2010 to increase from the prior year’s second half but pricing to decline due to competitive pressures. In our cement business, we expect second half earnings to be a slight loss versus the breakeven results reported in the prior year.
“Our available production capacity positions Vulcan to participate efficiently and effectively in the $50 to $60 billion of stimulus-related construction. We expect approximately 75 percent of stimulus-related demand for our products to occur during 2010 and 2011. By the second half of 2011, we expect continued growth in the overall economy and an improving job market to begin driving an increase in private nonresidential construction activity, accelerating the earnings leverage of the Company.”
Conference Call
Vulcan will host a conference call at 10:00 a.m. CDT on August 3, 2010. Investors and other interested parties in the U.S. may access the teleconference live by calling 866.510.0705 approximately 10 minutes before the scheduled start. International participants can dial 617.597.5363. The access code is 27279331. 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 10, 2010.
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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 private residential and 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 for our products; weather and other natural phenomena; energy costs; costs of hydrocarbon-based raw materials; healthcare costs; the amount of long-term debt and interest expense incurred by the Company; volatility in pension plan asset values which may require cash contributions to the 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 impact of environmental clean-up costs and other liabilities relating to previously divested businesses; 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 economic recession on our business and financial condition and access to the capital markets; the potential impact of future legislation or regulations relating to climate change or greenhouse gas emissions; 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.
Supplemental information referable to the Condensed Consolidated Statements of Cash Flows for the six months ended June 30 is summarized below:
EBITDA is an acronym for Earnings Before Interest, Taxes, Depreciation and Amortization. Cash earnings adjusts EBITDA for net interest and current taxes. These financial metrics are often used by the investment community as indicators of a company’s ability to incur and service debt. They are not defined by Generally Accepted Accounting Principles (GAAP); thus, they should not be considered as an alternative to net cash provided by operating activities, operating earnings, or any other liquidity or performance measure defined by GAAP.
These metrics are presented for the convenience of investment professionals that use such metrics in their analysis and to provide our shareholders with an understanding of the metrics we use to assess performance and to monitor our cash and liquidity positions. We internally use EBITDA, cash earnings and other such measures to assess the operating performance of our various business units and the consolidated company. We do not use these metrics as a measure to allocate resources internally.
