VULCAN MATERIALS COMPANY GENERAL COMMENTS
Overview
We provide the basic materials for the infrastructure needed to maintain and expand theU.S. economy. We operate primarily in theU.S. and are the nation's largest supplier of construction aggregates (primarily crushed stone, sand and gravel) and a major producer of asphalt mix and ready-mixed concrete. Our strategy and competitive advantage are based on our strength in aggregates which are used in most types of construction and in the production of asphalt mix and ready-mixed concrete. Demand for our products is dependent on construction activity and correlates positively with changes in population growth, household formation and employment. End uses include public construction (e.g., highways, bridges, buildings, airports, schools, prisons, sewer and waste disposal systems, water supply systems, dams, reservoirs and other public construction projects), private nonresidential construction (e.g., manufacturing, retail, offices, industrial and institutional) and private residential construction (e.g., single-family houses, duplexes, apartment buildings and condominiums). Aggregates have a very high weight-to-value ratio and, in most cases, must be produced near where they are used; if not, transportation can cost more than the materials, rendering them uncompetitive compared to locally produced materials. Exceptions to this typical market structure include areas along theU.S. Gulf Coast and the Eastern Seaboard where there are limited supplies of locally available, high-quality aggregates. We serve these markets from quarries that have access to cost-effective long-haul transportation - shipping by barge and rail - and from our quarry onMexico's Yucatan Peninsula with our fleet of Panamax-class, self-unloading ships.
There are limited substitutes for quality aggregates. Due to zoning and permitting regulation and high transportation costs relative to the value of the product, the location of reserves is a critical factor to our long-term success.
No material part of our business depends upon any single customer whose loss would have a significant adverse effect on our business. In 2019, our five largest customers accounted for 7.7% of our total revenues (excluding internal sales), and no single customer accounted for more than 1.9% of our total revenues. Although approximately 45% to 55% of our aggregates shipments have historically been used in publicly-funded construction, such as highways, airports and government buildings, a relatively small portion of our sales are made directly to federal, state, county or municipal governments/agencies. Therefore, although reductions in state and federal funding can curtail publicly-funded construction, the vast majority of our business is not directly subject to renegotiation of profits or termination of contracts with local, state or federal governments. In addition, our sales to government entities span several hundred entities coast-to-coast, ensuring that negative changes to various government budgets would have a muted impact across such a diversified set of government customers. While aggregates is our focus and primary business, we believe vertical integration between aggregates and downstream products, such as asphalt mix and ready-mixed concrete, can be managed effectively in certain markets to generate attractive financial returns and enhance financial returns in our core Aggregates segment. We produce and sell asphalt mix and/or ready-mixed concrete primarily in ourAlabama ,Arizona ,California, Maryland ,New Mexico ,Tennessee ,Texas ,Virginia andWashington D.C. markets. Aggregates comprise approximately 95% of asphalt mix by weight and 80% of ready-mixed concrete by weight. In both of these downstream businesses, aggregates are primarily supplied from our operations.
Seasonality and cyclical nature of our business
Almost all of our products are produced and consumed outdoors. Seasonal changes
and other weather-related conditions can affect the production and sales volume
of our products. Therefore, the financial results for any quarter do not
necessarily indicate the results expected for the year. Normally, the highest
sales and earnings are in the third quarter and the lowest are in the first
quarter. Furthermore, our sales and earnings are sensitive to national, regional
and local economic conditions, demographic and population fluctuations, and
particularly to cyclical swings in construction spending, primarily in the
private sector.
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EXECUTIVE SUMMARY
Financial highlights for second Quarter 2020
Compared to second quarter of 2019: ?
?Total revenues decreased
?Gross profit increased
?Aggregates segment sales increased
?Aggregates segment freight-adjusted revenues increased
?Shipments decreased 2%, or 1.1 million tons, to 56.2 million tons
?Freight-adjusted sales price increased 3.1%, or
?Segment gross profit increased
?Asphalt, Concrete and Calcium segment gross profit increased
?Selling, administrative and general (SAG) expenses decreased
?Operating earnings increased
?Earnings from continuing operations were
?Adjusted earnings from continuing operations were
?Net earnings were
?Adjusted EBITDA was
?Returned capital to shareholders via dividends (
Our second quarter results demonstrate the resiliency of our best in class aggregates-led business and reflect the proactive response by our employees to the current novel coronavirus (COVID-19) pandemic. Our operational execution was integral to widespread gains in unit profitability, despite some disruptions to construction activity during the quarter. We are proud of our employees' ability to quickly adapt to the necessary additional safety protocols we have put in place in this environment, while maintaining their focus on operating safely and positioning Vulcan for continued success. Second quarter revenues were$1,322.6 million and net earnings were$209.9 million . Earnings from continuing operations were$211.0 million , or$1.58 per diluted share, an increase of 7% from the prior year's second quarter. Adjusted EBITDA was$407.8 million , an increase of 10%. The year-over-year earnings improvement was driven primarily by effective cost control and price growth in aggregates. Second quarter segment earnings improved in each major product line. Despite a 2% decline in aggregates shipments, mix-adjusted pricing improved 3.3%, and freight-adjusted unit cost of sales decreased 1%. As a result, aggregates unit gross profit increased 9% to$6.25 per ton. Certain leading indicators of demand have shown signs of improvement, and our quote activity remains robust. However, our visibility beyond the near-term remains restricted due to the evolving effects of the pandemic. The recent surge in new COVID-19 cases could impact the progress made so far if new restrictions on economic activity are put in place. We believe this uncertainty could continue to weigh on construction activity in the second half of the year, making it difficult to predict the level and timing of shipments. We are continuously reviewing our operating plans to ensure an effective response to demand shifts. Whatever the demand, we remain confident in our ability to successfully navigate the changing environment. Capital expenditures in the second quarter were$67.9 million ($176.9 million year-to-date). We continue to expect to spend between$275 and$325 million on capital this year, most of which is for core operating and maintenance projects. Given that the economic outlook is evolving quickly, we will continue to review our plans and adjust as needed, being thoughtful about preserving liquidity. During the quarter, we returned$45.0 million to shareholders through dividends, a 10% increase versus the prior year's quarter. We did not repurchase any shares in the quarter (temporarily suspended due to the COVID-19 pandemic).
At quarter-end, total debt to trailing-twelve month Adjusted EBITDA was 2.5
times (1.9 times on a net debt basis reflecting
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OuTLOOK
Although the economic environment is showing signs of improvement, the pandemic's effect on the demand for our products and the broader economy remains unclear. As a result, we are not reinstating earnings guidance at this time.
While demand is subject to market fluctuations outside of our control, we remain focused on those things we can control such as our cost and pricing disciplines, both of which help to compound our unit margins. Our year-to-date results demonstrate those capabilities. On a trailing-twelve month basis our cash gross profit in aggregates is nearly$7 per ton. Our operating plans are underpinned by our four strategic initiatives (Commercial and Operational Excellence, Logistics Innovation and Strategic Sourcing), a healthy balance sheet, strong liquidity, and the engagement of our people. Additionally, we currently do not anticipate any material impairment charges, increases in allowances for credit losses, increases in deferred tax asset valuation allowances, restructuring charges or other expenses, violations of debt covenants, or changes in accounting judgments that are reasonably likely to have a material impact on our financial statements. For support functions, we previously implemented remote work arrangements and restricted business travel effective mid-March. To date, these arrangements have not materially affected our ability to maintain our business operations, including the operation of financial reporting systems, internal control over financial reporting, and disclosure controls and procedures. 29
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RESULTS OF OPERATIONS
Total revenues are primarily derived from our product sales of aggregates, asphalt mix and ready-mixed concrete, and include freight & delivery costs that we pass along to our customers to deliver these products. We also generate service revenues from our asphalt construction paving business and services related to our aggregates business. We present separately our discontinued operations, which consist of our former Chemicals business.
The following table highlights significant components of our consolidated operating results including EBITDA and Adjusted EBITDA.
consolidated operating ResultS highlights
Three Months Ended Six Months Ended
June 30 June 30
in millions, except unit and per
unit data 2020 2019 2020 2019
Total revenues $ 1,322.6 $ 1,327.7 $ 2,371.8 $ 2,324.2
Cost of revenues 926.1 957.2 1,773.6 1,762.0
Gross profit $ 396.5 $ 370.5 $ 598.2 $ 562.2
Gross profit margin 30.0% 27.9% 25.2% 24.2%
Selling, administrative and
general (SAG) $ 91.2 $ 95.7 $ 177.6 $ 186.0
SAG as a percentage of total
revenues 6.9% 7.2% 7.4% 8.0%
Operating earnings $ 298.9 $ 276.1 $ 411.2 $ 380.5
Interest expense, net $ 34.0 $ 33.0 $ 64.7 $ 66.0
Earnings from continuing
operations
before income taxes $ 272.3 $ 245.5 $ 344.5 $ 320.1
Income tax expense $ 61.4 $ 47.6 $ 73.5 $ 58.3
Effective tax rate from
continuing operations 22.5% 19.4% 21.3% 18.2%
Earnings from continuing
operations $ 211.0 $ 197.9 $ 271.0 $ 261.8
Loss on discontinued operations,
net of income taxes (1.1) (0.3) (0.8) (0.9)
Net earnings $ 209.9 $ 197.6 $ 270.2 $ 260.9
Diluted earnings (loss) per
share
Continuing operations $ 1.58 $ 1.48 $ 2.03 $ 1.97
Discontinued operations 0.00 0.00 0.00 (0.01)
Diluted net earnings per share
2.03$ 1.96 EBITDA 1$ 405.7 $ 372.0 $ 604.2 $ 568.8 Adjusted EBITDA 1$ 407.8 $ 372.0 $ 608.8 $ 564.7 Average Sales Price and Unit Shipments Aggregates Tons (thousands) 56,195 57,310 101,243 102,947 Freight-adjusted sales price$ 14.50 $ 14.07 $ 14.45 $ 13.94 Asphalt Mix Tons (thousands) 3,403 3,595 5,460 5,617 Average sales price$ 57.46 $ 58.31 $ 57.86 $ 57.45 Ready-mixed concrete Cubic yards (thousands) 786 815 1,520 1,484 Average sales price$ 127.35 $ 126.12 $ 127.62 $ 125.14 Calcium Tons (thousands) 71 73 144 141 Average sales price$ 26.55 $ 27.50 $ 27.06 $ 27.89
1 Non-GAAP measures are defined and reconciled within this Item 2 under the
caption Reconciliation of Non-GAAP Measures.
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Second quarter 2020 Compared to second Quarter 2019
Second quarter 2020 total revenues were$1,322.6 million , down slightly from the second quarter of 2019. Shipments decreased in aggregates (-2%), asphalt mix (-5%) and ready-mixed concrete (-4%). Conversely, gross profit increased in the Aggregates (+$21.9 million or +7%), Asphalt (+$2.9 million or +10%) and Concrete (+$1.3 million or +10%) segments. A 47% decline in the unit cost of diesel fuel decreased costs by$16.3 million from the prior year's second quarter with most ($14.4 million ) of this cost decline reflected in the Aggregates segment. Net earnings for the second quarter of 2020 were$209.9 million , or$1.58 per diluted share, compared to$197.6 million , or$1.48 per diluted share, in the second quarter of 2019. Each period's results were impacted by discrete items, as follows:
Net earnings for the second quarter of 2020 include:
?pretax charges of
?pretax gains of
?pretax charges of
?pretax charges of
Net earnings for the second quarter of 2019 include:
?no discrete items
Adjusted for these discrete items, earnings from continuing operations (Adjusted Diluted EPS) was$1.60 per diluted share for the second quarter of 2020 compared to$1.48 per diluted share in the second quarter of 2019. Continuing Operations - Changes in earnings from continuing operations before income taxes for the second quarter of 2020 versus the second quarter of 2019 are summarized below:
earnings from continuing operations before income taxes
in millions Second quarter 2019$ 245.5 Higher aggregates gross profit 21.9 Higher asphalt gross profit 2.9 Higher concrete gross profit 1.3 Lower calcium gross profit (0.2) Lower selling, administrative and general expenses 4.5
Lower gain on sale of property, plant & equipment and businesses (3.7) Higher interest expense, net
(0.9)
Lower foreign currency translation losses 0.4
All other 0.6
Second quarter 2020 $ 272.3
Second quarter Aggregates segment sales increased 1% to $1,070.6 million and
gross profit increased 7% to $351.2 million . Unit margins increased $0.51 per
ton, or 9%, to $6.25 per ton. These improvements resulted from wide-spread
growth in pricing and effective cost control.
Second quarter aggregates shipments decreased 2% versus the prior year's second
quarter. Shipping patterns varied widely across our footprint as a result of
economic uncertainty and wet weather but were generally supported by healthy
backlogs and our essential business status in our markets. Key markets in the
Southeast and coastal Texas were negatively affected by wet weather while
shipments in California were reduced by tighter restrictions on
shelter-in-place. Shipments were higher in Georgia , Illinois , Tennessee and
Texas . On a mix-adjusted basis, all of our key markets reported year-over-year
price growth. For the quarter, freight-adjusted average sales price increased 3%
versus the prior year's quarter, inclusive of 30 basis points of unfavorable
mix.
Second quarter freight-adjusted unit cost of sales decreased 1% versus the prior
year's second quarter. Effective operating efficiencies helped mitigate the cost
impact of lower sales volumes and a reduction in inventory. Actions taken across
our more than 360 locations reduced cash spending and controlled inventories in
areas most impacted by shelter-in-place orders. The associated cost of reducing
inventory offset the majority of a $14.4 million earnings benefit from lower
diesel fuel costs.
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-------------------------------------------------------------------------------- Unit profitability improvements were wide-spread across our footprint. Aggregates segment cash gross profit per ton increased 9% from the prior year's second quarter to$7.69 per ton. Trailing-twelve month same-store incremental gross profit flow-through rate was 52%, below our long-term expectations of 60%. Quarterly gross profit flow-through rates can vary widely from quarter to quarter; therefore, we evaluate this metric on a trailing-twelve month basis. Asphalt segment gross profit was$30.5 million for the second quarter, an improvement of$2.9 million from the prior year. The year-over-year improvement was driven by higher material margins (sales price less cost of raw materials). Compared to the prior year's second quarter, the average unit cost for liquid asphalt was 17% lower and asphalt mix material margins increased 14%. Although total asphalt mix shipments declined 5% versus the prior year,California , our largest asphalt market, reported year-over-year earnings growth. Concrete segment gross profit was$14.2 million , 10% higher than the prior year's second quarter. Ready-mixed concrete shipments of 0.8 million cubic yards decreased 4%. The average sales price increased 1.0% while ready-mixed concrete material margins increased 4%.
Calcium segment gross profit was
SAG expenses declined 5% to$91.2 million in the quarter due mostly to continued execution of cost reduction initiatives, lower incentive compensation costs and general cost control in response to COVID-19. This year-over-year decline resulted in a 0.3 percentage point (30 basis points) improvement as a percentage of total revenues to 6.9%. On a trailing-twelve month basis, SAG expenses as a percentage of total revenues stands at 7.3%. We remain focused on further leveraging our overhead cost structure.
Gain on sale of property, plant & equipment and businesses was a loss of
Other operating expense, which has an approximate run-rate of$12 million a year (exclusive of discrete items), is composed primarily of idle facilities expense, environmental remediation costs, property abandonments, gain (loss) on settlement of AROs and rental income. Total other operating expense and significant items included in the total were:
?
?
?
?
?
?
Other nonoperating income of$7.4 million for the second quarter of 2020 was favorable by$4.9 million from the second quarter of 2019. This favorable variance resulted primarily from two items: 1) a$0.5 million foreign currency translation gain versus a$0.1 million gain in the prior year's quarter resulting from a partial recovery of the first quarter 2020 rapid devaluation of the Mexican peso, and 2) the mark-to-market gain on our Rabbi Trust investments of$4.1 million versus a gain of$1.0 million in the prior year's quarter due to a partial recovery in equity market values from the first quarter declines.
Net interest expense was
Income tax expense from continuing operations was$61.4 million in the second quarter of 2020 compared to$47.6 million in the second quarter of 2019. The increase in tax expense was primarily related to an increase in earnings along with a decrease in share-based compensation excess tax benefits quarter over quarter. Earnings from continuing operations were$1.58 per diluted share in the second quarter of 2020 compared to$1.48 per diluted share in the second quarter of 2019. Discontinued Operations - Second quarter pretax loss from discontinued operations was$1.4 million in 2020 compared with a loss of$0.7 million in 2019. Both periods include charges/credits related to general and product liability costs, including legal defense costs, and environmental remediation costs associated with our former Chemicals business. For additional details, see Note 1 to the condensed consolidated financial statements under the caption Discontinued Operations. 32
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year-to-date
Total revenues for the first six months of 2020 were$2,371.8 million , up 2% from the first six months of 2019. Shipments decreased in aggregates (-2%) and asphalt mix (-3%) while they increased in ready-mixed concrete (+2%). Gross profit increased in the Aggregates (+$30.4 million or +6%), Asphalt (+$3.7 million or +15%) and Concrete (+$2.0 million or +9%) segments. A 29% decline in the unit cost of diesel fuel decreased costs by$19.2 million from the first half of 2019 with most ($17.0 million ) of this cost decline reflected in the Aggregates segment. Net earnings for the six months of 2020 were$270.2 million , or$2.03 per diluted share, compared to$260.9 million , or$1.96 per diluted share, in the first six months of 2019. Each period's results were impacted by discrete items, as follows:
Net earnings for the first six months of 2020 include:
?pretax charges of
?pretax gains of
?pretax charges of
?pretax charges of
Net earnings for the first six months of 2019 include:
?pretax gains of
Adjusted for these discrete items, earnings from continuing operations (Adjusted Diluted EPS) was$2.06 per diluted share for the first half of 2020 compared to$1.94 per diluted share in the first half of 2019. Continuing Operations - Changes in earnings from continuing operations before income taxes for year-to-dateJune 30, 2020 versus year-to-dateJune 30, 2019 are summarized below:
earnings from continuing operations before income taxes
in millions Year-to-date June 30, 2019$ 320.1 Higher aggregates gross profit 30.4 Higher asphalt gross profit 3.7 Higher concrete gross profit 2.0 Lower calcium gross profit 0.0 Lower selling, administrative and general expenses 8.3
Lower gain on sale of property, plant & equipment and businesses (10.0) Lower interest expense, net
1.2
Higher foreign currency translation losses (6.3)
All other (4.9)
Year-to-date June 30, 2020 $ 344.5
First half 2020 Aggregates segment sales of $1,938.8 million were up 2% while
aggregates shipments decreased 2%, or 1.7 million tons, compared to the prior
year. Freight-adjusted average sales price for aggregates increased 3.7%, or
$0.51 per ton, versus the first half of 2019. Excluding mix impact, aggregates
price increased 3.8%.
Aggregates segment gross profit was $545.3 million ($5.39 per ton) versus $514.9
million ($5.00 per ton) in the first half of 2019. As a percentage of segment
sales excluding freight & delivery, gross profit margin increased 1.2 percentage
points (120 basis points) due primarily to the wide-spread growth in pricing and
effective cost control. First half 2020 freight-adjusted unit cost of sales
increased 1%, or $0.12 per ton, versus the prior year. Cash gross profit per ton
increased 8% from the prior year's first half to $6.95 per ton. The average unit
cost of diesel fuel decreased 29% versus the first half of 2019, increasing
Aggregates segment gross profit by $17.0 million or $0.17 per ton.
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Asphalt segment gross profit of $28.0 million was up $3.7 million from the first
six months of 2019. Asphalt mix shipments declined 3% while selling prices
increased 0.7%, or $0.41 per ton. Compared to the prior year's first half, the
average unit cost for liquid asphalt was down 13% - a significant factor in the
12% increase in our asphalt mix material margins.
Concrete segment gross profit was
Our Calcium segment's gross profit of
SAG expenses were$177.6 million versus$186.0 million in the prior year's first half reflecting a 0.5 percentage point (50 basis point) decrease as a percentage of total revenues. Gain on sale of property, plant & equipment and businesses was$0.7 million in the first half of 2020 versus$10.7 million in the first half of 2019. The 2019 amount includes the aforementioned pretax gains of$4.1 million related to the sale of businesses. Other operating expense, which has an approximate run-rate of$12 million a year (exclusive of discrete items), is composed primarily of idle facilities expense, environmental remediation costs, property abandonments, gain (loss) on settlement of AROs and rental income. Total other operating expense and significant items included in the total were:
?
?
?
?
?
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Other nonoperating income (expense) was a net expense of$2.0 million for the first half of 2020, unfavorable by$7.6 million from the first half of 2019. This unfavorable variance resulted primarily from two items: 1)$5.8 million of foreign currency translation losses resulting from the rapid devaluation of the Mexican peso in the current year versus a$0.4 million gain in the prior year's first half, and 2) the mark-to-market loss on our Rabbi Trust investments of$1.0 million due to declines in equity market values versus a gain of$2.8 million in the prior year's first half (see Note 5 to the condensed consolidated financial statements). Net interest expense was$64.7 million in the first half of 2020 compared to$66.0 million in the first half of 2019. The current year's interest expense includes$1.0 million related to the ineffective portion of a cash flow hedge loss. Income tax expense from continuing operations was$73.5 million in the first half of 2020 compared to$58.3 million in the first half of 2019. The increase in tax expense was primarily related to an increase in earnings along with a decrease in share-based compensation excess tax benefits as compared to the same period in 2019.
Earnings from continuing operations were
Discontinued Operations - First half pretax loss from discontinued operations was$1.1 million in 2020 compared with a loss of$1.3 million in 2019. Both periods include charges/credits related to general and product liability costs, including legal defense costs, and environmental remediation costs associated with our former Chemicals business. For additional details, see Note 1 to the condensed consolidated financial statements under the caption Discontinued Operations. 34
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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
SAME-STORE
We have provided certain information on a same-store basis. When discussing our financial results in comparison to prior periods, we may exclude the operating results of recently acquired/divested businesses that do not have comparable results in the periods being discussed. These recently acquired/divested businesses are disclosed in Note 16 "Acquisitions and Divestitures." This approach allows us to evaluate the performance of our operations on a comparable basis. We believe that measuring performance on a same-store basis is useful to investors because it enables evaluation of how our operations are performing period over period without the effects of acquisition and divestiture activity. Our same-store information may not be comparable to similar measures used by other companies.
AGGREGATES SEGMENT FREIGHT-ADJUSTED REVENUES
Aggregates segment freight-adjusted revenues is not a Generally Accepted
Accounting Principle (GAAP) measure. We present this metric as it is consistent
with the basis by which we review our operating results. We believe that this
presentation is consistent with our competitors and meaningful to our investors
as it excludes revenues associated with freight & delivery, which are
pass-through activities. It also excludes immaterial other revenues related to
services, such as landfill tipping fees, that are derived from our aggregates
business. Additionally, we use this metric as the basis for calculating the
average sales price of our aggregates products. Reconciliation of this metric to
its nearest GAAP measure is presented below:
Three Months Ended Six Months Ended
June 30 June 30
in millions, except per ton data 2020 2019 2020 2019
Aggregates segment
Segment sales $ 1,070.6 $ 1,062.1 $ 1,938.8 $ 1,897.0
Less
Freight & delivery revenues 1 240.9 241.4 446.6 436.5
Other revenues 15.0 14.3 29.5 25.4
Freight-adjusted revenues $ 814.7 $ 806.4 $ 1,462.7 $ 1,435.1
Unit shipments - tons 56.2 57.3 101.2 102.9
Freight-adjusted sales price $ 14.50 $ 14.07 $ 14.45 $ 13.94
1 At the segment level, freight & delivery revenues include intersegment
freight & delivery (which are eliminated at the consolidated level) and
freight to remote distribution sites.
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Aggregates segment incremental gross profit
Aggregates segment incremental gross profit flow-through rate is not a GAAP measure and represents the year-over-year change in gross profit divided by the year-over-year change in segment sales excluding freight & delivery (revenues and costs). We evaluate this metric on a trailing-twelve month basis as quarterly gross profit flow-through rates can vary widely from quarter to quarter. We present this metric as it is consistent with the basis by which we review our operating results. We believe that this presentation is consistent with our competitors and meaningful to our investors as it excludes revenues associated with freight & delivery, which are pass-through activities. Reconciliation of this metric to its nearest GAAP measure is presented below:
margin in accordance with gaap
Three Months Ended Trailing-Twelve Months
June 30 June 30
dollars in millions 2020 2019 2020 2019
Aggregates segment
Gross profit $ 351.2 $ 329.2 $ 1,177.0 $ 1,075.1
Segment sales $ 1,070.6 $ 1,062.1 $ 4,032.1 $ 3,754.8
Gross profit margin 32.8% 31.0% 29.2% 28.6%
Incremental gross profit margin 257.1% 36.8%
FLOW-THROUGH RATE (non-gaap)
Three Months Ended Trailing-Twelve Months
June 30 June 30
dollars in millions 2020 2019 2020 2019
Aggregates segment
Gross profit $ 351.2 $ 329.2 $ 1,177.0 $ 1,075.1
Less: Contribution from acquisitions
(same-store) 0.1 0.0 1.0 0.3
Same-store gross profit $ 351.1 $ 329.2 $ 1,176.0 $ 1,074.8
Segment sales $ 1,070.6 $ 1,062.1 $ 4,032.1 $ 3,754.8
Less: Freight & delivery revenues 1 240.9 241.4 931.2 861.1
Segment sales excluding freight &
delivery $ 829.7 $ 820.7 $ 3,100.9 $ 2,893.7
Less: Contribution from acquisitions
(same-store) 0.5 0.0 12.1 (2.9)
Same-store segment sales excluding
freight & delivery $ 829.2 $ 820.7 $ 3,088.8 $ 2,896.6
Gross profit margin excluding freight
& delivery 42.3% 40.1% 38.0% 37.2%
Same-store gross profit margin
excluding
freight & delivery 42.3% 40.1% 38.1% 37.2%
Incremental gross profit flow-through
rate 243.6% 49.2%
Same-store incremental gross profit
flow-through rate 257.5% 51.6%
1 At the segment level, freight & delivery revenues include intersegment
freight & delivery (which are eliminated at the consolidated level) and
freight to remote distribution sites.
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cash gross profit
GAAP does not define "cash gross profit" and it should not be considered as an
alternative to earnings measures defined by GAAP. We and the investment
community use this metric to assess the operating performance of our business.
Additionally, we present this metric as we believe that it closely correlates to
long-term shareholder value. We do not use this metric as a measure to allocate
resources. Cash gross profit adds back noncash charges for depreciation,
depletion, accretion and amortization to gross profit. Aggregates segment cash
gross profit per ton is computed by dividing Aggregates segment cash gross
profit by tons shipped. Reconciliation of this metric to its nearest GAAP
measure is presented below:
Three Months Ended Six Months Ended
June 30 June 30
in millions, except per ton data 2020 2019 2020 2019
Aggregates segment
Gross profit $ 351.2 $ 329.2 $ 545.3 $ 514.9
Depreciation, depletion, accretion and
amortization 80.7 75.8 157.9 148.3
Aggregates segment cash gross profit
703.2$ 663.2 Unit shipments - tons 56.2 57.3 101.2 102.9 Aggregates segment gross profit per ton$ 6.25 $ 5.74 $ 5.39 $ 5.00 Aggregates segment cash gross profit per ton$ 7.69 $ 7.07 $ 6.95 $ 6.44 Asphalt segment Gross profit$ 30.5 $ 27.6 $ 28.0 $ 24.3 Depreciation, depletion, accretion and amortization 8.7 8.9 17.4 17.4
Asphalt segment cash gross profit
45.4$ 41.7 Concrete segment Gross profit$ 14.2 $ 12.9 $ 23.4 $ 21.5 Depreciation, depletion, accretion and amortization 4.0 3.3 8.1 6.3
Concrete segment cash gross profit
31.5$ 27.8 Calcium segment Gross profit$ 0.7 $ 0.8 $ 1.5 $ 1.5 Depreciation, depletion, accretion and amortization 0.0 0.1 0.1 0.1
Calcium segment cash gross profit
1.6$ 1.6 ? 37
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EBITDA and adjusted ebitda
GAAP does not define "Earnings Before Interest, Taxes, Depreciation and
Amortization" (EBITDA) and it should not be considered as an alternative to
earnings measures defined by GAAP. We use this metric to assess the operating
performance of our business and as a basis for strategic planning and
forecasting as we believe that it closely correlates to long-term shareholder
value. We do not use this metric as a measure to allocate resources. We adjust
EBITDA for certain items to provide a more consistent comparison of earnings
performance from period to period. Reconciliation of this metric to its nearest
GAAP measure is presented below (numbers may not foot due to rounding):
Three Months Ended Six Months Ended
June 30 June 30
in millions 2020 2019 2020 2019
Net earnings $ 209.9 $ 197.6 $ 270.2 $ 260.9
Income tax expense 61.4 47.6 73.5 58.3
Interest expense, net of interest
income 34.0 33.0 64.7 66.0
Loss on discontinued operations, net
of tax 1.0 0.3 0.8 1.0
EBIT 306.3 278.5 409.2 386.1
Depreciation, depletion, accretion and
amortization 99.5 93.5 195.0 182.7
EBITDA $ 405.7 $ 372.0 $ 604.2 $ 568.8
Gain on sale of businesses $ 0.0 $ 0.0 $ 0.0 $ (4.1)
Charges associated with divested
operations 0.8 0.0 0.8 0.0
Business development 1 (3.5) 0.0 (2.5) 0.0
COVID-19 direct incremental costs 4.4 0.0 5.0 0.0
Restructuring charges 0.5 0.0 1.3 0.0
Adjusted EBITDA $ 407.8 $ 372.0 $ 608.8 $ 564.7
Depreciation, depletion, accretion and
amortization (99.5) (93.5) (195.0) (182.7)
Adjusted EBIT $ 308.3 $ 278.5 $ 413.9 $ 382.0
1 Represents non-routine charges or gains associated with acquisitions
including the cost impact of purchase accounting inventory valuations.
Adjusted Diluted EPS from continuing Operations
Similar to our presentation of Adjusted EBITDA, we present Adjusted diluted
earnings per share (EPS) from continuing operations to provide a more consistent
comparison of earnings performance from period to period. This metric is not
defined by GAAP and should not be considered as an alternative to earnings
measures defined by GAAP. Reconciliation of this metric to its nearest GAAP
measure is presented below:
Three Months Ended Six Months Ended
June 30 June 30
2020 2019 2020 2019
Diluted Earnings Per Share
Net earnings $ 1.58 $ 1.48 $ 2.03 $ 1.96
Less: Discontinued operations loss 0.00 0.00 0.00 (0.01)
Diluted EPS from continuing operations
2.03$ 1.97 Items included in Adjusted EBITDA above$ 0.02 $ 0.00 $ 0.03 $ (0.03) Adjusted diluted EPS from continuing operations$ 1.60 $ 1.48 $ 2.06 $ 1.94 38
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LIQUIDITY AND FINANCIAL RESOURCES
Our primary sources of liquidity are cash provided by our operating activities and a substantial, committed bank line of credit. In an effort to strengthen our liquidity position while navigating the COVID-19 pandemic, we have taken a number of proactive steps since the first quarter of 2020. InApril 2020 , we entered into a$750.0 million delayed draw term loan (of which$500.0 million remains available for future borrowings) and inMay 2020 , we issued$750.0 of 3.50% senior notes due 2030 - each to enhance our already strong liquidity and financial flexibility. Additional sources of capital include access to the capital markets, the sale of surplus real estate, and dispositions of nonstrategic operating assets. We believe these financial resources are sufficient to fund our business requirements for 2020, including: ?contractual obligations ?capital expenditures ?debt service obligations ?dividend payments
?potential share repurchases (temporarily suspended due to the COVID-19 pandemic)
?potential acquisitions
Our balanced approach to capital deployment remains unchanged. We intend to balance reinvestment in our business, growth through acquisitions and return of capital to shareholders, while sustaining financial strength and flexibility.
We actively manage our capital structure and resources in order to balance the cost of capital and the risk of financial stress. We seek to meet these objectives by adhering to the following principles:
?maintain substantial bank line of credit borrowing capacity
?proactively manage our debt maturity schedule such that repayment/refinancing risk in any single year is low
?maintain an appropriate balance of fixed-rate and floating-rate debt
?minimize financial and other covenants that limit our operating and financial flexibility
As the impact of the COVID-19 pandemic on the economy and our operations evolves, we will continue to assess our liquidity sources and needs and take appropriate actions.
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Cash
Included in our
cash from operating activities
Six Months Ended
June 30
in millions 2020 2019
Net earnings $ 270.2 $ 260.9
Depreciation, depletion, accretion and amortization (DDA&A) 195.0 182.7
Noncash operating lease expense 18.0
17.5
Contributions to pension plans (4.4)
(4.6)
Other operating cash flows, net 1 (53.2)
(154.6)
Net cash provided by operating activities$ 425.6
1 Primarily reflects changes to working capital balances.
Net cash provided by operating activities was
Days sales outstanding, a measurement of the time it takes to collect receivables, were 42.9 days atJune 30, 2020 compared to 45.1 days atJune 30, 2019 . All customer accounts are actively managed and no losses in excess of amounts reserved are currently expected; attention is being paid to the potential negative impact of the COVID-19 pandemic on our customers' ability to pay their amounts owed to us.
cash from investing activities
Net cash used for investing activities was$219.5 million during the first six months of 2020, a$3.2 million increase compared to the same period of 2019. During the first half of 2020, we invested$223.1 million in our existing operations compared to$225.8 million in the prior year period. Of this$223.1 million ,$61.9 million was invested in internal growth projects to enhance our distribution capabilities, develop new production sites and enhance existing production facilities and other growth opportunities.
cash from financing activities
Net cash provided by financing activities in the first six months of 2020 was$336.6 million , compared to the use of cash of$103.5 million in the same period of 2019. The current year includes a) cash proceeds of$739.2 million from the issuance of new debt, b) cash paid to retire the$250.0 million floating rate notes due 2020 and c)$19.9 million of cash paid to settle interest rate locks. The prior year includes a net$4.0 million draw on our bank line of credit. Additionally, we increased the capital returned to our shareholders by$34.3 million via higher dividends of$8.2 million ($0.68 per share compared to$0.62 per share) and higher share repurchases of$26.1 million (214,338 shares repurchased @$121.92 average price per share compared to none in first half of 2019). 40
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debt
Certain debt measures are presented below:
June 30 December 31 June 30
dollars in millions 2020 2019 2019
Debt
Current maturities of long-term debt $ 500.0 $ 0.0 $ 0.0
Short-term debt 0.0 0.0 137.0
Long-term debt 2,785.6 2,784.3 2,781.8
Total debt $ 3,285.6 $ 2,784.3 $ 2,918.8
Capital
Total debt $ 3,285.6 $ 2,784.3 $ 2,918.8
Equity 5,764.2 5,621.9 5,371.4
Total capital $ 9,049.8 $ 8,406.2 $ 8,290.2
Total Debt as a Percentage of Total Capital 36.3% 33.1% 35.2%
Weighted-average Effective Interest Rates
Delayed draw term loan 1 1.63% n/a n/a
Line of credit 1 1.25% 1.25% 1.25%
Term debt 4.12% 4.36% 4.49%
Fixed versus Floating Interest Rate Debt
Fixed-rate debt 85.1% 73.7% 70.3%
Floating-rate debt 14.9% 26.3% 29.7%
1 Reflects the margin above LIBOR for LIBOR-based borrowings; we also paid
upfront fees that are amortized to interest expense and pay fees for unused
borrowing capacity and standby letters of credit.
line of credit and delayed draw term loan
Our unsecured$750.0 million line of credit maturesDecember 2021 . Covenants, borrowings, cost ranges and other details are described in Note 7 to the condensed consolidated financial statements. As ofJune 30, 2020 , we were in compliance with the line of credit covenants, the credit margin for LIBOR borrowings was 1.25%, the credit margin for base rate borrowings was 0.25%, and the commitment fee for the unused amount was 0.15%. InApril 2020 , we executed a$750,000,000 364-day delayed draw term loan that provides for up to two draws throughOctober 2020 and repaymentApril 2021 . Borrowings may be repaid prior to maturity, but once repaid may not be borrowed again. During the second quarter, we borrowed and repaid$250,000,000 leaving$500,000,000 available for future borrowings. Covenants, borrowings, cost ranges and other details are described in Note 7 to the condensed consolidated financial statements. As ofJune 30, 2020 , we were in compliance with the delayed draw term loan covenants, the credit margin for LIBOR borrowings was 1.625%, the credit margin for base rate borrowings was 0.625%, and the commitment fee for the unused amount was 0.175%.
As of
?none was borrowed
?
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TERM DEBT
All of our$3,355.3 million (face value) of term debt is unsecured.$3,346.2 million of such debt is governed by three essentially identical indentures that contain customary investment-grade type covenants. The primary covenant in all three indentures limits the amount of secured debt we may incur without ratably securing such debt. As ofJune 30, 2020 , we were in compliance with all term debt covenants. InMay 2020 , we issued$750.0 million of 3.50% senior notes due 2030 for total proceeds of$741.4 million (net of discounts and transaction costs).$250.0 million of the proceeds were used to retire the$250.0 million floating rate notes dueJune 2020 , and the remainder of the proceeds, together with cash on hand, will be used to retire the$500.0 million floating rate notes dueMarch 2021 .
CURRENT MATURITIES of long-term debt
The$500.0 million of current maturities of long-term debt as ofJune 30, 2020 includes all long-term debt that we intend to pay within twelve months, and is due as follows: Current in millions Maturities
Third quarter 2020$0.0 Fourth quarter 2020 0.0 First quarter 2021 500.0 Second quarter 2021 0.0 debt ratings
Our debt ratings and outlooks as of
Rating/Outlook Date Description
Senior Unsecured Term Debt
Fitch BBB-/stable 5/7/2020 outlook revised
Moody's Baa3/stable 4/23/2020 outlook revised
Standard & Poor's BBB+/stable 2/28/2020 rating revised
LIBOR TRANSITION
The London Interbank Offered Rate (LIBOR) is an indicative measure of the
average rate at which major global banks could borrow from one another and is
used extensively globally as a reference rate for financial contracts (e.g.,
corporate bonds and loans) and commercial contracts (e.g., real estate leases).
The United Kingdom's Financial Conduct Authority , which regulates LIBOR,
announced in July 2017 that it intends to cease requiring banks to submit LIBOR
rates after 2021.
The expected discontinuation of LIBOR has led to the formation of working groups
in the U.S. and elsewhere to recommend alternative reference rates. The U.S.
working group is the Alternative Reference Rates Committee (ARRC) convened by
the Federal Reserve Board and the Federal Reserve Bank of New York . The ARRC has
selected the Secured Overnight Financing Rate (SOFR) as the preferred
alternative to LIBOR.
As of June 30, 2020 , we had three material debt instruments with LIBOR as a
reference rate, each of which matures before the end of 2021: 1) $500.0 million
floating-rate notes due March 2021 , 2) $750.0 million line of credit (none
outstanding at June 30, 2020 ) due December 2021 , and 3) $750.0 million delayed
draw term loan due April 2021 . At this time, we cannot predict the future impact
of a departure from LIBOR as a reference rate; however, if future rates based
upon the successor reference rate (or a new method of calculating LIBOR) are
higher than LIBOR rates as currently determined, our interest expense would
increase.
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Equity
The number of our common stock issuances and purchases for the year-to-date periods ended are as follows:
June 30 December 31 June 30
in thousands 2020 2019 2019
Common stock shares at January 1 ,
issued and outstanding 132,371 131,762 131,762
Common Stock Issuances
Share-based compensation plans 289 628 469
Common Stock Purchases
Purchased and retired (214) (19) 0
Common stock shares at end of period,
issued and outstanding 132,446 132,371 132,231
On February 10, 2017 , our Board of Directors authorized us to purchase 8,243,243
shares of our common stock to refresh the number of shares we were authorized to
purchase to 10,000,000. As of June 30, 2020 , there were 8,064,851 shares
remaining under the authorization. Depending upon market, business, legal and
other conditions, we may purchase shares from time to time through open market
(including plans designed to comply with Rule 10b5-1 of the Securities Exchange
Act of 1934) and/or privately negotiated transactions. The authorization has no
time limit, does not obligate us to purchase any specific number of shares, and
may be suspended or discontinued at any time.
The detail of our common stock purchases (all of which were open market purchases) for the year-to-date periods ended are as follows:
June 30 December 31 June 30
in thousands, except average cost 2020 2019 2019
Shares Purchased and Retired
Number 214 19 0
Total purchase price $ 26,132 $ 2,602 $ 0
Average cost per share $ 121.92 $ 139.90 $ 0.00 There were no shares held in treasury as of
off-balance sheet arrangements
We have no off-balance sheet arrangements, such as financing or unconsolidated variable interest entities, that either have or are reasonably likely to have a current or future material effect on our:
?results of operations and financial position
?capital expenditures
?liquidity and capital resources
Standby Letters of Credit
For a discussion of our standby letters of credit, see Note 7 to the condensed consolidated financial statements.
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Cash Contractual Obligations
Our obligation to make future payments under contracts is presented in our most recent Annual Report on Form 10-K.
As a result of our second quarter 2020 execution of a delayed draw term loan and
issuance of additional debt as described in Note 7 to the condensed consolidated
financial statements, our obligations to make future payments under contracts
increased as follows:
Payments Due by Year
in millions 2020 2021-2022 2023-2024 Thereafter Total
Cash Contractual Obligations
Delayed draw term loan
Principal payments $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Interest payments and fees 1.5 0.0 0.0 0.0 1.5
Bank line of credit
Principal payments 0.0 0.0 0.0 0.0 0.0
Interest payments and fees 0.0 0.0 0.0 0.0 0.0
Term debt
Principal payments 0.0 8.9 0.0 750.0 758.9
Interest payments 9.1 50.6 52.5 144.4 256.6
Total $ 10.6 $ 59.5 $ 52.5 $ 894.4 $ 1,017.0 CRITICAL ACCOUNTING POLICIES
We follow certain significant accounting policies when preparing our
consolidated financial statements. A summary of these policies is included in
our Annual Report on Form 10-K for the year ended
We prepare these financial statements to conform with accounting principles generally accepted inthe United States of America . These principles require us to make estimates and judgments that affect our reported amounts of assets, liabilities, revenues and expenses, and the related disclosures of contingent assets and contingent liabilities at the date of the financial statements. We base our estimates on historical experience, current conditions and various other assumptions we believe reasonable under existing circumstances and evaluate these estimates and judgments on an ongoing basis. The results of these estimates form the basis for our judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Our actual results may materially differ from these estimates. We believe that the accounting policies described in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of our Form 10-K require the most significant judgments and estimates used in the preparation of our consolidated financial statements, so we consider these to be our critical accounting policies. There have been no changes to our critical accounting policies during the three months endedJune 30, 2020 .
new Accounting standards
For a discussion of the accounting standards recently adopted or pending adoption and the effect such accounting changes will have on our results of operations, financial position or liquidity, see Note 17 to the condensed consolidated financial statements.
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FORWARD-LOOKING STATEMENTS
Certain matters discussed in this report, 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:
?general economic and business conditions
?a pandemic, epidemic or other public health emergency, such as the recent outbreak of COVID-19
?our dependence on the construction industry, which is subject to economic cycles
?the timing and amount of federal, state and local funding for infrastructure
?changes in the level of spending for private residential and private nonresidential construction
?changes in our effective tax rate
?the increasing reliance on information technology infrastructure, including the risks that the infrastructure does not work as intended, experiences technical difficulties or is subjected to cyber-attacks
?the impact of the state of the global economy on our businesses and financial condition and access to capital markets
?the highly competitive nature of the construction industry
?the impact of future regulatory or legislative actions, including those relating to climate change, wetlands, greenhouse gas emissions, the definition of minerals, tax policy or international trade
?the outcome of pending legal proceedings
?pricing of our products
?weather and other natural phenomena, including the impact of climate change and availability of water
?energy costs
?costs of hydrocarbon-based raw materials
?healthcare costs
?the amount of long-term debt and interest expense we incur
?changes in interest rates
?the impact of a discontinuation of the London Interbank Offered Rate (LIBOR)
?volatility in pension plan asset values and liabilities, which may require cash contributions to the pension plans
?the impact of environmental cleanup costs and other liabilities relating to existing and/or divested businesses
?our ability to secure and permit aggregates reserves in strategically located areas
?our ability to manage and successfully integrate acquisitions
?the effect of changes in tax laws, guidance and interpretations
?significant downturn in the construction industry may result in the impairment of goodwill or long-lived assets
?changes in technologies, which could disrupt the way we do business and how our products are distributed
?other assumptions, risks and uncertainties detailed from time to time in our
periodic reports filed with the
All forward-looking statements are made as of the date of filing or publication. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law. Investors are cautioned not to rely unduly on such forward-looking statements when evaluating the information presented in our filings, and are advised to consult any of our future disclosures in filings made with theSecurities and Exchange Commission (SEC) and our press releases with regard to our business and consolidated financial position, results of operations and cash flows. 45
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INVESTOR information
We make available on our website, www.vulcanmaterials.com, free of charge, copies of our:
?Annual Report on Form 10-K
?Quarterly Reports on Form 10-Q
?Current Reports on Form 8-K
Our website also includes amendments to those reports filed with or furnished to theSecurities and Exchange Commission (SEC) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as well as all Forms 3, 4 and 5 filed with theSEC by our executive officers and directors, as soon as the filings are made publicly available by theSEC on its EDGAR database (www.sec.gov). In addition to accessing copies of our reports online, you may request a copy of our Annual Report on Form 10-K, including financial statements, by writing to Denson N. Franklin III, Senior Vice President, General Counsel and Secretary,Vulcan Materials Company ,1200 Urban Center Drive ,Birmingham, Alabama 35242.
We have a:
?Business Conduct Policy applicable to all employees and directors
?Code of Ethics for the CEO and Senior Financial Officers
Copies of the Business Conduct Policy and the Code of Ethics are available on our website under the heading "Corporate Governance." If we make any amendment to, or waiver of, any provision of the Code of Ethics, we will disclose such information on our website as well as through filings with theSEC .
Our Board of Directors has also adopted:
?Corporate Governance Guidelines
?Charters for its Audit, Compensation, Executive, Finance, Governance and Safety, Health & Environmental Affairs Committees
These documents meet all applicable
The Charters of the Audit, Compensation and Governance Committees are available on our website under the heading, "Corporate Governance," or you may request a copy of any of these documents by writing to Denson N. Franklin III, Senior Vice President, General Counsel and Secretary,Vulcan Materials Company ,1200 Urban Center Drive ,Birmingham, Alabama 35242.
Information included on our website is not incorporated into, or otherwise made a part of, this report.
?
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ITEM 3
© Edgar Online, source
