Vulcan Materials Q2 Earnings in Line, Revenues Beat

Vulcan Materials Company's VMC second-quarter 2014 adjusted earnings (including cost acquisition and divestiture activity) of 37 cents per share were in line with the Zacks Consensus Estimate. Adjusted earnings increased 184.6% year over year.

Total revenue of $791.1 million beat the Zacks Consensus Estimate of $731 million by 8.2%. Total revenue increased 7% from the prior-year quarter owing to strong performance of Aggregate and Asphalt Mix. Total revenue in the second quarter comprised $756.3 million of net sales (up 8.7% year over year) and $34.9 million of delivery revenues.

Volume markedly improved in the second half of 2013 from the first half, driven by improved product demand owing to broad-based recovery in private construction activity, especially residential and better weather conditions than the first half. Difficult weather conditions had delayed shipments in the first quarter of 2014, slowing down volume trends slightly. However, in the second quarter of 2014, the company benefited from an increase in construction activity, which resulted in higher demand for Vulcan products.  

Gross profit surged 31.5% to $174.8 million in the quarter due to solid volume growth and operating leverage in the Aggregates segment.

Adjusted EBITDA was $173 million, up 23% from the prior-year quarter driven by a strong top line and solid cost control.

Segment Details

Aggregates

Revenues rose 19% year over year to $552.5 million (including inter-segment sales) in the quarter owing to both pricing and volume improvement. Aggregates shipments (volumes) rose 10.0% year over year in the quarter driven by growing demand for construction. Average sales price increased 3% due to improved demand in most markets.

Shipments continued to increase more than 15% in Virginia, North Carolina, Georgia, Illinois and Texas. However, shipments rose 11% and 12% in key markets of Florida and South Carolina, respectively. Unfavorable weather had hampered shipment in the prior quarter. However, with improvement in weather and demand, shipments increased as well.

Gross profit improved 27% in the quarter to $162 million due to favorable operating leverage, higher pricing and cost control.

Non-Aggregates

Revenues in the Concrete segment were $93.8 million in the second quarter of 2014, down 22% year over year, due to a 22.9% volume decline. Gross profit of $3 million improved from a loss of $6 million in the year-ago quarter due to pricing gains.

Revenues in the Asphalt Mix segment were $107.8 million in the reported quarter, up 7.9% year over year as volume increase made up for the pricing decline. While pricing declined 1.8%, volumes increased 3% in the quarter. Gross profit remained flat at $9 million in the quarter due to higher volumes.

Revenues in the Cement segment were $2.2 million, down 81.5% year over year. The Cement business, excluding the calcium product business, was sold in the first quarter of 2014 along with Florida concrete assets.  In the quarter, the segment posted a gross profit of $0.8 million, which was better than the year-ago quarter performance.

2014 Outlook

Aggregates: Private construction is expected to continue to lead volume growth in 2014. In fact, the company expects full year 2014 aggregates shipments to increase in the range range of 7% to 9%, much higher than the prior expected range of 4% to 7% increase. Aggregates prices are still expected to increase 3–5%.

The company expects segment margins to improve further in 2014 driven by volume and pricing growth as well as solid cost control and operating efficiencies from the profit enhancement initiatives.

Non-Aggregates: In the non-aggregates segments, the company continues to expect to earn $40 to $60 million in gross profit in 2014, compared to $14 million in 2013. Volume and price are expected to improve in concrete and asphalt segments, driven mostly by increased private construction activity.

Vulcan Materials carries a Zacks Rank #3 (Hold).

Key Picks from the Sector

Better-ranked stocks in the building/construction sector include PGT, Inc. PGTI, Quanex Building Products Corporation NX and Boise Cascade Company BCC. All these companies carry a Zacks Rank #2 (Buy).