Vulcan Materials 10-Q 2023-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

‎VULCAN MATERIALS COMPANY‎(Exact name of registrant as specified in its charter)

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part I financial information

FINANCIAL STATEMENTS

VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED STATEMENTS OF ‎COMPREHENSIVE INCOME

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL COMMENTS

Overview

We provide the basic materials for the infrastructure needed to maintain and expand the U.S. economy. We operate primarily in the U.S. and are the nation's largest supplier of construction aggregates (primarily crushed stone, sand and gravel), a major producer of asphalt mix and ready-mixed concrete, and a supplier of asphalt construction paving services. 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 the U.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 quarries in Quintana Roo, Mexico (see Note 8, NAFTA Arbitration) and Puerto Cortés, Honduras (acquired in 2022) with our fleet of Panamax-class, self-unloading ships. Additionally, as a result of our 2021 acquisition of U.S. Concrete, we serve markets in California and Hawaii from our quarry in British Columbia, Canada by means of a long-term marine shipping agreement with CSL Americas.

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 2022, our five largest customers accounted for 7% of our total revenues, and no single customer accounted for more than 2% of our total revenues. Although approximately 40% 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 our Alabama, Arizona, California, Maryland, New Mexico, Oklahoma, Tennessee, Texas, Virginia, the U.S. Virgin Islands and Washington 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.

EXECUTIVE SUMMARY

Financial highlights for THIRD Quarter 2023

Compared to third quarter of 2022:

Total revenues increased $97.5 million, or 5%, to $2,185.8 million

Gross profit increased $98.1 million, or 20%, to $591.0 million

Aggregates segment sales increased $135.6 million, or 9%, to $1,626.1 million

Aggregates segment freight-adjusted revenues increased $136.3 million, or 12%, to $1,233.5 million

Shipments decreased 2%, or 1.4 million tons, to 63.9 million tons

Freight-adjusted sales price increased 14.9%, or $2.50 per ton to $19.29

Aggregates segment gross profit increased $72.3 million, or 17%, to $508.4 million

Unit profitability (as measured by gross profit per ton) increased 19% to $7.95 per ton

Asphalt, Concrete and Calcium segment gross profit increased $25.8 million, or 45%, to $82.6 million, collectively

Selling, administrative and general (SAG) expenses increased $8.6 million (10 basis points as a percentage of total revenues)

Operating earnings increased $113.5 million, or 37%, to $418.9 million

Earnings attributable to Vulcan from continuing operations were $2.09 per diluted share compared to $1.33 per diluted share

Adjusted earnings attributable to Vulcan from continuing operations were $2.29 per diluted share compared to $1.78 per diluted share

Net earnings attributable to Vulcan increased $99.4 million, or 55%, to $276.5 million

Adjusted EBITDA increased $95.2 million, or 19%, to $602.2 million

Returned capital to shareholders via dividends of $57.2 million at $0.43 per share versus $53.2 million at $0.40 per share

Through the first nine months of 2023, net earnings attributable to Vulcan increased 55%, Adjusted EBITDA increased 23% and margin expanded 340 basis points. Aggregates gross profit per ton has increased 23% to $7.32, and cash gross profit per ton has improved 21% to $9.31. These strong results demonstrate the compounding benefits of our strategic disciplines and the durability of our aggregates-led business. We remain focused on finishing the year strong and carrying solid momentum into next year. As a result, we now expect our full-year Adjusted EBITDA to be $1,950 million to $2,000 million for 2023.

Capital expenditures in the third quarter were $140.9 million, including $60.5 million for growth projects (year-to-date $411.1 million and $138.4 million, respectively). We expect to spend $600 million to $650 million for maintenance and growth projects in 2023. Additionally, as planned, we began deploying capital for opportunistic land purchases of strategic reserves in California, North Carolina and Texas during the third quarter; expenditures in the quarter were $172.9 million.

We returned $57.2 million to shareholders through dividends, a 7% increase versus the prior year’s third quarter.

As of September 30, 2023, the ratio of total debt to trailing-twelve months Adjusted EBITDA was 2.0 times (1.8 times on a net debt basis). We remain committed to our stated long-term target leverage range of 2.0 to 2

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK

We are exposed to certain market risks arising from transactions that are entered into in the normal course of business. To manage these market risks, we may use derivative financial instruments. We do not enter into derivative financial instruments for trading or speculative purposes.

As discussed in the Liquidity and Financial Resources section of Part I, Item 2, we actively manage our capital structure and resources to balance the cost of capital and risk of financial stress. Such activity includes balancing the cost and risk of interest expense. In addition to floating-rate borrowings, we at times use interest rate swaps to manage the mix of fixed-rate and floating-rate debt.

In March 2023, we issued $550.0 million of 5.80% fixed-rate debt maturing in March 2026. Concurrently, we entered into fixed-to-floating interest rate swap agreements designated as fair value hedges in the amount of $550.0 million. Under these swap agreements, we receive a fixed interest rate of 5.80% (matches the fixed rate we pay on the $550.0 million of debt) and pay daily compound SOFR plus 0.241%. The changes in the fair value of these swaps designated as fair value hedges are recorded in interest expense consistent with the change in fair value of the hedged fixed-rate debt. At September 30, 2023, we recognized a net liability of $2.1 million equal to the fair value of this swap and a corresponding decrease in the fair value of the hedged fixed-rate debt.

At September 30, 2023, the estimated fair value of our long-term debt including current maturities was $3,598.1 million compared to a face value of $3,941.6 million. The estimated fair value was determined by averaging several asking price quotes for the publicly traded notes and assuming par value for the remainder of the debt. The fair value estimate is based on information available as of the balance sheet date. The effect of a decline in interest rates of one percentage point would increase the fair value of our debt by approximately $0.2 million.

We are exposed to certain economic risks related to the costs of our pension and other postretirement benefit plans. These economic risks include changes in the discount rate for high-quality bonds and the expected return on plan assets. The impact of a change in these assumptions on our annual pension and other postretirement benefits costs is discussed in our most recent Annual Report on Form 10-K.

controls and procedures

disclosure controls and procedures

We maintain a system of controls and procedures designed to ensure that information required to be disclosed in reports we file with the SEC is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms. These disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a - 15(e) or 15d - 15(e)), include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer, with the participation of other management officials, evaluated the effectiveness of the design and operation of the disclosure controls and procedures as of September 30, 2023. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2023.

We are in the process of replacing our legacy quote to cash software system for our ready-mixed concrete operations. We expect the full implementation of this system to be completed by the fourth quarter of 2023.

No other changes were made during the third quarter of 2023 to our internal controls over financial reporting, nor have there been other factors that materially affect these controls.

part Ii other information

ITEM 1

legal proceedings

Certain legal proceedings in which we are involved are discussed in Note 12 to the consolidated financial statements and Part I, Item 3 of our Annual Report on Form 10-K for the year ended December 31, 2022 and in Note 8 to the condensed consolidated financial statements and Part II. Item 1 of our Quarterly Report on Form 10-Q for the quarters ended March 31, 2023 and June 30, 2023. See Note 8 to the condensed consolidated financial statements of this Form 10-Q for a discussion of certain recent developments concerning our legal proceedings.

risk factors

There were no material changes to the risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022.

ITEM 2

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Purchases of our equity securities during the quarter ended September 30, 2023 are summarized below.

We did not have any unregistered sales of equity securities during the third quarter of 2023.

ITEM 4

MINE SAfETY DISCLOSURES

The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 of this report.

OTHER INFORMATION

SECURITIES TRADING PLANS of SeCTION 16 OFFICERS AND DIRECTORS

During the three months ended September 30, 2023, none of our Section 16 officers or directors adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement as defined in Item 408(a) of Regulation S-K.

exhibits

Our SEC file number for documents filed with the SEC pursuant to the Securities Exchange Act of 1934, as amended, is 001-33841.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.