Vulcan Materials Company (NYSE: VMC), the nation's largest producer of construction aggregates, today announced results for the quarter ended September 30, 2020.
Net earnings were $200 million compared to $216 million in the prior year's comparable quarter. Third quarter Adjusted EBITDA was $403 million versus $407 million in the prior year. Adjusted EBITDA margins expanded by 210 basis points despite an 8 percent decline in total revenues. This margin expansion was driven by effective cost control throughout the organization and price growth in each major product line.
Tom Hill, Chairman and Chief Executive Officer, said, 'Building on strong performance from the first half of the year, our operational execution produced another quarter of unit margin expansion in the third quarter. Unit profitability gains were widespread across our footprint, and our team remained focused on driving those improvements. The continued impact of the COVID-19 pandemic on construction activity, along with severe wet weather, led to lower shipment levels in the quarter. However, our resilient and best-in-class aggregates business overcame these disruptive conditions, which enabled us to expand cash gross profit per ton, drive higher cash flows, and improve returns on invested capital.'
Mr. Hill continued, 'Year-to-date, cash gross profit per ton has increased 7 percent, despite a 4 percent decline in shipments. The flexibility of our operating plans and our aggregates-focused business model have enabled us to continue to perform at a high level while also positioning us for earnings growth in the future as demand recovers. The pricing environment remains supportive, and we are encouraged by the sequential improvement in demand visibility. Residential construction has rebounded quickly which should bode well for private nonresidential construction as it has been the weakest end market since the pandemic began. State transportation revenues continue to recover to pre-pandemic levels, and the one-year extension of federal highway funding will support future highway construction. Continued recovery in these fundamentals would point to construction activity stabilizing over the course of 2021. As we consider the remainder of 2020, we now believe we have sufficient near-term visibility to provide guidance for the full year. We expect that our 2020 Adjusted EBITDA will range between $1.285 billion to $1.315 billion.'
Segment Results
Aggregates
Third quarter gross profit margin expanded 70 basis points despite a decrease in segment sales. Gross profit was $338 million compared to $357 million in the prior year. Unit profitability increased 3 percent to $6.04 per ton due to widespread growth in pricing and effective cost control.
Third quarter aggregates shipments were 8 percent lower than the prior year's third quarter due to economic uncertainty caused by the pandemic, severe wet weather and wildfires in key markets. Last year's third quarter included very few severe weather events, helping drive strong volume growth. Despite lower shipments in most markets, virtually all of the Company's markets improved their respective unit profitability compared to the prior year's third quarter. Shipments declined in most of our markets reflecting weaker demand resulting from the pandemic. Shipments along the Atlantic Coast, in the Southeast and Texas were impacted by severe weather. Shipments in California were impacted by wildfires and resulting power outages which interrupted the supply of cement for ready-mix concrete production and limited construction activity.
On a mix-adjusted basis, most of the Company's markets reported year-over-year price growth. For the quarter, mix-adjusted sales price increased 2.9 percent (reported freight-adjusted sales price increased 2.4 percent). Year-to-date, mix-adjusted pricing has increased 3.5 percent (reported freight-adjusted sales price increased 3.2 percent) despite a 4 percent decline in shipments.
Freight-adjusted unit cost of sales increased 2 percent, and cash costs were flat versus the prior year's third quarter. Effective operating efficiencies and lower diesel fuel costs helped mitigate the cost impact of lower sales volumes. The Aggregates segment earnings impact from lower diesel fuel was $9 million in the quarter.
Asphalt, Concrete and Calcium
Asphalt segment gross profit was $30 million, an improvement of $3 million from the prior year's third quarter. The year-over-year improvement was driven by higher material margins (sales price less unit cost of raw materials). Although asphalt volumes in the third quarter declined 13 percent compared to the prior year, results benefited from slightly higher prices and effective cost containment, including lower liquid asphalt costs. Shipments in the current year's quarter were impacted by wildfires in California, the Company's largest asphalt market, and the completion of certain large projects last year in the Tennessee market.
Concrete segment gross profit was $12 million compared with $15 million in the prior year's third quarter. Shipments decreased 11 percent versus the prior year, and average selling prices increased 3 percent compared to the prior year. Third quarter shipments were impacted by wet weather in Virginia, the Company's largest concrete market, and wildfires in Northern California.
Calcium segment gross profit was $0.2 million versus $0.8 million in the prior year quarter.
Selling, Administrative and General (SAG) and Other Operating Expense
SAG expense declined 6 percent to $84 million in the quarter due mostly to continued execution of cost reduction initiatives and general cost control. On a trailing twelve-month basis, SAG expense as a percentage of total revenues is 7.3 percent. The Company remains focused on further leveraging its overhead cost structure.
Other operating expense of $10 million included $6 million in charges associated with divested operations. The prior year did not include a similar charge.
Financial Position, Liquidity and Capital Allocation
Capital expenditures in the third quarter were $52 million and $229 million year-to-date. The Company expects to spend between $300 million and $350 million on capital this year, most of which is for core operating and maintenance projects. The Company continues to review its plans and will adjust as needed, while being thoughtful about preserving liquidity.
Year-to-date September 30, the Company returned $135 million to shareholders through dividends, a 10 percent increase versus the prior year. Year-to-date, the Company repurchased $26 million in common stock.
At quarter-end, total debt to trailing-twelve month Adjusted EBITDA was 2.5 times or 1.7 times on a net debt basis reflecting $1.1 billion of cash on hand - of which approximately $500 million will be used to pay off certain maturities due March 2021. The Company's weighted-average debt maturity was 14 years, and the effective weighted-average interest rate was 4.1 percent.
On a trailing twelve-month basis, return on invested capital increased to 14.2 percent and operating cash flows were $1.1 billion, up 23 percent versus the comparable previous trailing twelve months. Solid earnings growth coupled with disciplined capital management led to these results.
Outlook
Mr. Hill stated, 'Going into 2020, we expected shipment growth; however, in March, that trajectory was disrupted by COVID-19 and the resulting shelter-in-place ordinances. Since then, the economic uncertainty and the evolving nature of the pandemic have continued to weigh on construction activity. We are encouraged by the recent sequential improvement in leading indicators that foreshadow future construction activity, and now believe that we have sufficient near-term visibility to provide full-year guidance. We expect full-year 2020 Adjusted EBITDA of $1.285 billion to $1.315 billion. This full year outlook reflects year-over-year earnings growth despite lower shipments. It assumes no major changes in COVID shelter-in-place restrictions and also assumes a normal weather pattern for the balance of the year. As we look ahead to 2021, the pricing environment remains positive and we continue to work hard to add value for our customers. We expect to provide full-year guidance when we report fourth quarter earnings in February.'
Reflecting on the Company's execution, Mr. Hill went on to say, 'While demand is subject to market fluctuations outside of our control, we remain focused on the factors we can control, such as our pricing and cost actions, both of which help to compound our unit margins. Our year-to-date results demonstrate our capabilities to drive continued improvement in challenging circumstances. Actions taken across our more than 360 locations have ensured an effective response to the economic disruption resulting from COVID-19. Our operating plans are underpinned by our four strategic disciplines (Commercial and Operational Excellence, Logistics Innovation and Strategic Sourcing), a healthy balance sheet, strong liquidity, and the engagement of our people.'
Vulcan Materials Company, a member of the S&P 500 Index with headquarters in Birmingham, Alabama, is the nation's largest producer of construction aggregates - primarily crushed stone, sand and gravel - and a major producer of aggregates-based construction materials, including asphalt and ready-mixed concrete. For additional information about Vulcan, go to www.vulcanmaterials.com.
FORWARD-LOOKING STATEMENT DISCLAIMER
This document contains forward-looking statements. Statements that are not historical fact, including statements about Vulcan's beliefs and expectations, are forward-looking statements. Generally, these statements relate to future financial performance, results of operations, business plans or strategies, projected or anticipated revenues, expenses, earnings (including EBITDA and other measures), dividend policy, shipment volumes, pricing, levels of capital expenditures, intended cost reductions and cost savings, anticipated profit improvements and/or planned divestitures and asset sales. These forward-looking statements are sometimes identified by the use of terms and phrases such as 'believe,' 'should,' 'would,' 'expect,' 'project,' 'estimate,' 'anticipate,' 'intend,' 'plan,' 'will,' 'can,' 'may' or similar expressions elsewhere in this document. These statements are subject to numerous risks, uncertainties, and assumptions, including but not limited to general business conditions, competitive factors, pricing, energy costs, and other risks and uncertainties discussed in the reports Vulcan periodically files with the SEC.
Forward-looking statements are not guarantees of future performance and actual results, developments, and business decisions may vary significantly from those expressed in or implied by the forward-looking statements. The following risks related to Vulcan's business, among others, could cause actual results to differ materially from those described in the forward-looking statements: general economic and business conditions; a pandemic, epidemic or other public health emergency, such as the recent outbreak of COVID-19; Vulcan's 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 Vulcan's 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 Vulcan's 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 Vulcan's 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 incurred by Vulcan; 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; Vulcan's ability to secure and permit aggregates reserves in strategically located areas; Vulcan's 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 Vulcan does business and how Vulcan's products are distributed and other assumptions, risks and uncertainties detailed from time to time in the reports filed by Vulcan with the SEC. All forward-looking statements in this communication are qualified in their entirety by this cautionary statement. Vulcan disclaims and does not undertake any obligation to update or revise any forward-looking statement in this document except as required by law.
Contact:
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VULCAN MATERIALS COMPANY 
