Vulcan Materials Company Price & Performance (VMC)

Good morning, everyone. With me today are Tom Hill, Chairman and CEO and Mary Andrews Carlyle, Senior Vice President and Chief Financial Officer. Officer. Today's call is accompanied by a press release and a supplemental presentation posted to our website bulkandmaterials.com Vulcan. Please be reminded that today's discussion may include forward looking statements, which are subject to risks and uncertainties. These risks, along with other legal disclaimers, are described in detail in the company's earnings release and in other filings with the Securities and Exchange Commission. Reconciliations of non GAAP financial measures are defined and reconciled in our earnings release supplemental presentation and other SEC filings. During the Q and A, we ask that you limit your participation to one question This will allow us to accommodate as many as possible during our time we have available. And with that, I'll turn the call over to Tom. Thank you, Mark, and thank all of you for your interest in Vulcan Materials today. 2024 was another year of successful execution.

Our two pronged growth strategy of enhancing our core and expanding our reach is working. We improved our industry leading aggregate cash gross profit per ton by 12% and deployed over $2,000,000,000 towards value creating higher SLED acquisitions. These acquisitions expanded our presence into new attractive growth areas. And strengthened our existing franchise In three of our top 10 revenue states. We finished the year strong We plan to capitalize on our solid momentum and deliver attractive earnings growth again in 2025. Before discussing our outlook in more detail, I want to provide you some key highlights from our fourth quarter performance. Our teams delivered $550,000,000 of adjusted EBITDA in the fourth quarter, a 16% improvement over the prior year. Importantly, adjusted EBITDA margin improved on a year over year basis for an eighth consecutive quarter. In the Aggregates segment, cash gross profit per ton expanded 16% to $11.5 in the quarter through a combination of continued pricing momentum and moderating year over year unit cash cost of sales. Aggregate freight adjusted price improved 11% in the quarter [indiscernible] with full year results, Price improvement remained geographically widespread. Our shipments were more mixed in the quarter across geographies and end uses.

Shipments were 3% lower than the prior year. Growing public shipments and strong demand in and East Tennessee helped to particularly offset headwinds in private construction activity. With less disruption from weather, and our consistent focus on maximizing efficiencies, through our Vulcan Wave operating efforts. Freight adjusted unit cash cost of sales increased 5% compared to the prior year. This was a meaningful improvement compared to previous quarters and a testament to the execution of our operating teams. This continued execution will be a focus for us in 2025. The pricing environment remains healthy and we expect freight adjusted agus price to grow between 57% in 2025. Now this includes and over 100 basis point negative mix impact from recent acquisitions. Inflationary cost pressures continue to moderate. We're making progress on our evolving operating process intelligence adoption. We expect freight adjusted aggregates unit cash costs to [indiscernible] low to mid single digits in 2025. Leading to another year of double digit year over year expansion in our aggregate unit profitability. We expect 2025 aggregate shipments to increase between 35% compared to last year. This growth outlook is driven by recent acquisitions, Coupled with expectation of stable demand for our legacy business.

I expect that continued growth in public construction activity will offset ongoing or modest contraction in private activity. Over the last year, trailing twelve months highway starts have increased by another $7,000,000,000 to $122,000,000,000 blown highway input cost inflation and continued eye IJA related spending support ongoing growth in highway shipments in 2025 and beyond. Additionally, dollars 45,000,000,000 of funding initiatives were passed at the state and local level in recent election in the recent election cycle, to spur additional transportation investment in Volcan states.

Affordability and elevated interest rates remain headwinds for residential construction activity. Increasing single family starts over the past twelve months support modest growth in single family housing in 2025. But multifamily starts data and elevated vacancy rates point to another year of declining demand in multifamily multifamily housing Because of demographics in Vulcan Vulcan support a consistent need for additional housing, the timing of additional interest rates reductions and overall improvement in affordability will dictate when residential construction activity returns to growth. Likewise, a return to growth in will also be a matter of timing. While we expect lower private non residential demand in 2025, We currently anticipate that starts will bottom by mid-twenty twenty five it may begin to recover by the second half of the year boding well for 2026 activity. Recent trends in both warehouse starts and data centers have been encouraging. Trailing twelve month warehouse starts the largest category in private non residential construction have continued to flatten out mid pre pandemic levels after a precipitous drop from historic highs, throughout 2023. Current planned data centers activity. In our markets remains robust. And according to CoStar data, approximately 7% of proposed data center activity is within 20 miles of a Vulcan facility.

As I said earlier, the focus of our teams is execution. Controlling what we control, Against the demand backdrop, I just described, we expect to deliver between $2,350,000,000 and $2,550,000,000 of adjusted EBITDA in 2025. Now I'll turn the call over to Mary Andrews to provide some additional and more details around our 2025 outlook.

Thanks, Sam, and good morning. I commented a year ago that our balance sheet was a source of and provided us considerable financial flexibility to continue to grow. In 2024, we deployed approximately $2,300,000,000 towards also reinvested in our existing franchise and furthered our Greenfield efforts with $638,000,000 of operating and maintenance and internal growth capital. And we returned $313,000,000 to shareholders through dividends and share repurchases. At year end, our net debt to adjusted EBITDA leverage was 2.3 times. $50,000,000 in the fourth quarter, we issued $2,000,000,000 of note across five ten and thirty year tenors to fund our 2024 acquisition activity. Recently, we provided notice of our intent to redeem the $400,000,000 of 2025 notes with cash on hand. Effective 03/28/2025. Given another year of solid cash generation in 2024, we we remain well positioned to continue our long track record through disciplined capital allocation and consistent execution. In 2024, our teams executed well in a challenging volume environment. To expand adjusted EBITDA margin by 190 basis points and deliver $2,100,000,000 of adjusted EBITDA for the full year. Aggregates cash gross profit per ton grew by 12% to $10.61 demonstrating the durable compounding nature of the aggregate our continued progress toward our $11 to $12 per ton gold.

SAG expenses for the full year were We remain focused on continuing to drive value for the business through disciplined investments in SAG expenses, to support our organic growth initiatives, and innovation through technology. SAG expenses as a percentage of revenue were 7.2% in 2024. Our return on invested capital at year end was six largely consistent with the prior year. The increase in invested capital was driven by fourth quarter which provided very little earnings contribution given the closing date. Absent that timing impact, return on invested capital improved 40 basis points. Pairing strong momentum into 2025, we anticipate another year of attractive margin expansion earnings growth. Tom highlighted our views around demand, pricing and aggregates unit profitability. So let me provide a few additional details around the 2025 guidance. We estimate that recent acquisitions will contribute approximately $150,000,000 of adjusted EBITDA in 2025.

We expect our downstream businesses to contribute approximately $360,000,000 in cash gross profit with an estimated two thirds of the contribution from the Asphalt segment and one third from the Concrete segment. These expectations reflect expansion and cash unit profitability in both segments the contribution of recent acquisitions. We forecast $560,000,000 We project depreciation depletion, amortization and accretion expenses of approximately $800,000,000 interest expense of approximately $245,000,000 and an effective tax rate between '22 In 2025, we plan to reinvest in our franchise between seven fifty Included in this plan is approximately $125,000,000 of spending on three sizable plant rebuild projects, are underway. In addition to capital for recently acquired businesses. Overall, we expect 2025 to mark another year of expansion in adjusted EBITDA margin, attractive growth in adjusted EBITDA, and strong cash generation. I'll now turn the call back over to Tom to provide a few closing remarks. Thank you, Mary Andrews.

I want to take a moment to thank the men and women of Vulcan Materials for your consistent and enduring commitment to excellence. Most importantly, you kept one other safe and look out for your brothers and sisters across the company and communities in which we live, [indiscernible] Particularly in the face of persistent inclement and sometimes severe weather. And I am so proud of your consistent execution of the Walgreen operating and the Volker way of selling strategic discipline. You proved your mettle Vulcan increased cash gross profit per ton every quarter for the second year in a row. I'm excited about what we will achieve in 2025. [indiscernible] we remain focused on controlling what we can control and delivering value for our customers now, Mary Andrews and I will be happy to take your questions. [indiscernible] We will take our first question from Trey Grooms with Stephens. Mr. Grimshaw, you might be on mute. Your line is open.

Hey, I'm sorry. Sorry about that. Good morning, Tom. Good morning, Tom, Mary Andrews and Mark.

Yes, well done on the strong finish to the year. Thank you. I wanted to ask on aggregates [indiscernible] It seems like some markets have seen a shift from January to April as far as just the timing. Can you talk about a little bit about that and maybe just the success of January increases that you've seen and how we should be thinking about maybe the cadence of pricing this year? Sure, Trey. So Q4 and the year in the total year last year, went with pricing up 11%. So that allows us to carry really good pricing momentum into this year.

As you saw, our guide is five to seven but that's also negatively impacted over 100 basis points by the acquisitions. I'm not worried about those. We'll get those back up to our averages quickly. But our January 1 price increases, you couple that with our booking and backlog I think it supports our guide, as did I thought our January results our 25 results.

The timing of price increases, I think, will be very similar to last year. Whether it was in bid work or asphalt or ready mixed pricing. Price increases, the vast majority of our price increases took effect January 1.

I think should we would guide you to think we'll be in the range quarter on quarter throughout the year. Now remember, mix can impact a single quarter. It can impact it up or down. But mix adjusted, I think we should be consistently in that 5% to 7% range. Yes. And Trey, I would add that most importantly, we expect that the consistent pricing improvement coupled with moderating costs that we talked about in the prepared remarks will yield low double digit improvement in cash flow profit per ton consistently each quarter as well. Extending what we've now strung together a nine quarter run on double digit improvement And really, the underlying performance of the aggregates business is going to be the biggest driver of our 2025 EBITDA growth which we expect is going to improve by about 12% on an organic basis. [indiscernible] really expecting a strong performance from the Ag segment. [indiscernible] Well, So keep up the good work and I'll pass it on. Thank you. Thanks, Trudy.

We will take our next question from Steven Fisher with UBS.

Thanks. Good morning. I think you mentioned on the aggregates volumes side sort of organic steady pace. So I'm assuming that means about sort of flat organic volumes expectation. Is that correct? And feel free to correct me on that. But I'm just curious about the cadence of how that plays out during the year.

We've been observing this slowdown in overall non res construction. You mentioned the private side kind of being a little weak to start off. So just curious what you've assumed for the cadence of that organic trend in the first half of the year versus the second half? Do you have actual declines maybe in the first half before maybe easier comps and then growth in the second half?

Yes, I think you completely understand it. It is growing public offsetting some challenged private If you look back at '24 we really never got out of the weather problem. The easiest comp to your point is Q3.

If you look at January, February, we got a slow start. Some of that is cold and wet weather But remember, it's just January and February. So not too worried about that. I think regardless of the challenges, our Vulcan teams will perform. I think I have complete confidence our full year guide But as you said, back half loaded, probably with some easier comps coupled with probably some help from single family and NAREZ construction in the second half.

We will take our next question from Catherine Thompson with Thompson Research Group.

Hi, thank you for taking the good morning. Thank you for taking my question today. So your volume guidance in the quarter was very close to ours pricing exactly in line, but what jumps out at me is and correct me if I'm wrong with this, but your gross margins came in at a record Q4 level Could you you've articulated in the past the bulk of way of operations, but if you could parse out a little bit more for this quarter and how we should think about next year in terms of that margin of kind of the why behind that record.

For Q4 the components and how that plays into the longer term strategy, including for the share.

Sure. Our cost increase in the fourth quarter was must improve the prior three quarters, three reasons why. One was weather was not a negative Two, volumes were not as negative and three, our working with operating technology and tools and disciplines are improving our efficiencies.

And as we look to 2025, we believe we'll continue to mature the bulk way of operating, which will continue to enhance our operating efficiencies. We would guide you to the kind of low to mid single digit increases in 2025. That is a substantial improvement over over the past couple of years. But really kind of that closer to what we've seen in history. So I think what you're seeing is the bulk way of operating at work and offsetting some of the the headwinds we would see.

And Catherine, on gross margin, we saw improvement on a year over year basis each quarter in 2024. That's what I would expect for you to see in 2025. I think in terms of kind of the cadence of gross margin, I would think about it [indiscernible] Q1, highest in Q2 or Q3. We did have an outstanding fourth quarter and plan to carry that momentum into 2025.

Thank you.

Thank you. Our next question is coming from Anthony Pettinari with Citi.

Hi, this is This is Ashish Sornan on for Anthony. Thanks for taking my question. I just wanted to ask around administrative policy. Have you seen any kind of pressure on on the pace of IAA rollout or the project starts from from any of the policy decisions or executive orders we've seen? And then on tariffs, what kind of impact your business? We could expect Vulcan potentially?

So I don't think we see any impact from policy on the public demand. It's IJ, what you're seeing is the growth in public going to work. And remember that money is protected through dedicated long term funding. So nothing's going to happen to it. Looking forward, we would think this government will support traditional aggregate intensive public work legislation. So probably a positive from that perspective on tariffs. On agri tariffs directly, we see very little impact on everything else and we've looked at steel and rubber. I'm not sure anyone can tell you what's going to happen, but I don't think it's a big impact to us. And the other flip side of that is I'm confident that both materials teams will navigate whatever comes at us. Look, we've seen a pandemic, we've seen volumes down, we've seen retroinflation, and our teams consistently grow unit margins and earnings and that's exactly why we develop book and we're selling operating so that we can consistently grow our unit profitability regardless of any outside challenges. So the government, I think, supports infrastructure and I don't think we'll handle whatever comes out from the peers.

Great. Thanks. I'll turn it over. Thank you. We will take our next question from Jerry Revich with Goldman Sachs.

Hey, Jerry. Good morning, everyone.

Hi. Mary and Julie, I just wanted to pull the thread on the cost per performance. If we back out the period cost absorption, your variable costs per ton were essentially flat in the quarter. So I'm wondering if you could just expand on what part of your cost structure is actually inflationary now and if we just straight line the performance into the first quarter with normal seasonality, that would imply cost per tonne ore by flat year over year in the first quarter, which I just want to make sure that's right considering the pricing outlook relative to that is pretty attractive. I think I'll take that one. I think I would not call costs flat. I would call them up mid to single digit and I think pretty consistently through the year. Now remember, quarter to quarter cost is going to be choppy. It's just a nature of these. So really kind of need to look at it on a trailing twelve month basis. Fourth quarter was encouraging, but we got to string that together. If you look at inflation, I don't think there's any deflation on anything out there that I can think of.

As we guide to '25, I would tell you diesel up slightly. Wages mid single digit, electricity up high single digit, and all of that partially offset by improved operating efficiencies. So [indiscernible] I would not guide you to [indiscernible] to flat, I think you would stay in that longer term that low to mid single digit cost [indiscernible] Nice performance. Thank you.

Thank you.

We will take our next question from Angel Castillo with Morgan Stanley.

Hi, good morning and thanks for taking my question. Just wanted to go back to the comments on private non resi. You talked about potential for kind of starts to maybe bottom in the middle of the year and maybe even rebound second half.

Can you just maybe help us understand, I guess, what you're seeing or hearing whether it's from your customers or terms of quoting activity and maybe just kind of what gives you confidence on that kind of a cadence Yes. So I think let me be clear. I think we do see non residential construction shipments are still down in 2025. I think the good news is we're starting to see some churn in that performance. Data centers will be a bright spot and most of the planned data centers in our footprint.

And while warehouses has been a big drag, and will be addressed still a drag in the near future, I think that's changing. And if you looked at a number of our markets, on a trailing three month basis, we've seen that turn positive. Not everywhere, but it started to turn. So and then then, so I think you're starting to see some green shoots. I think you're starting to see some some things turn. A lot of money sitting on the sidelines, Light traditional non res is still a drag, but that's going to follow a sub division. So that's going to take a while. So while non residential construction will be negative in 2025, we think it should gradually get better as we progress through the year, which kind of sets more positive outlook at this point very preliminary for 2026.

Anything in the quoting activity that You're saying?

Yes. So we're there's that's interesting. I'm glad you asked that. For the last six months, we've quoted a lot of non res work that is still sitting on the sidelines. So we think there's pent up demand there, but I think people want to see more. They're hoping interest rates go down and but that's good news because at some point in time that money will go to work.

Very helpful. Thank you.

Thank you.

We will take our next question from Phil Nain with Jefferies.

Hey, guys. Tom, congrats on another strong quarter. I had a few questions around the the pricing commentary. You talked about 100 basis points drag on pricing mix from these recent deals. Can you give us a sense how much lower is ASP for some of these deals versus the corporate average? And how quickly you think you can narrow that over time?

So substantially lower, I mean, and I'm not going to quote numbers on that, but if it had over 100 basis points on the whole company, it is lower. We've already started that work. I think we were successful with January price increases in those markets and we'll continue that as we progress through the next few quarters and years. I don't think it takes us long to get it back up to where a more reasonable Vulcan market would look like. Okay.

And then separately from a pricing standpoint, if account for the 100 basis points, you're still talking about really good pricing, but perhaps a little softer than the high single digit framework you gave us Last quarter, Any puts and takes you want to give us a little more color because it doesn't sound like timing is a real issue for you Jan versus April. Like your competitors. So just give us some puts and takes on perhaps what you're seeing in the marketplace on pricing?

I think we were pretty consistent throughout our geographies on price increases. Same thing within users. I think you got to remember while you're a little lower than double digit maybe same store high single digit, You also are not looking at double digit cost increases. You're looking at mid to low. So we continue that trend of of taking money to the bottom line, which is the most important thing we can do is grow our unit margins by double digits You've seen us do that over the last couple of years and I think you'll see us do that That's what our guide is for 2025 and I think we feel pretty good about it. Okay.

Thank you. We will take our next question from Mike Dahl with RBC.

Hi. Thanks for taking my question. Susan, you obviously put a lot of capital to work with the acquisitions. They did come with some mix of downstream businesses. Can you help us understand kind of how you view the downstream [indiscernible] that are likely to stay within the portfolio? And then what is or is not incorporated into the guide with respect to that?

So the acquisitions are pretty new. They were very [indiscernible] with good management team, good assets, Like anything else, we're going to look at this as a set of assets. And if it fits us, we'll run it. If it earns appropriate return that suits us, we'll run it. If it's is more valuable someone else, then we'll divest of that. And we'll take those proceeds and put them back in the agris business.

And in terms of the guide, Mike, the guide assume we own the businesses, like we do. Maybe for a little helpful context for you, we commented in the prepared remarks that there's $150,000,000 of EBITDA contribution from the acquisitions, that's about 60% in the aggregate segment and about 40% of that would be contributing to the downstream businesses.

Okay, great. Thank you.

Thank you.

We'll take our next question from Adam Thalhanger with Thompson Davis.

Hey, good morning guys. Congrats on the Q4 beat.

Andrew, do you have the well, I was also curious about the downstream portion because that was a pretty big increase year over year. So that looks like it's from acquisitions I was curious if you have the The 360s cash gross profit, do you have that on a reported basis? [indiscernible] I'm going to let's stick with the $3.60 for now and we can talk offline about some more specific But maybe what would be helpful to you is the improvement the cash gross profit contribution from the downstream businesses, about 75% of that overall improvement is acquisitions. We also see improvement in the underlying business in both segments. And that's about 25% of the improvement year over year.

That helps. Okay.

We will take our next question Yes. Hey, good morning. Wanted to ask how are you looking at 2025 that they could build from what you just accomplished? And then if I could sneak in a question on Mexico, any update on the Calica quarry respiration efforts with the USMCA Thank you.

Yes. So I think there's still a very healthy pipeline of M and A. There's a number of projects we're working on. It'll take some time, but I think we'll continue to be successful with that as we go through 2025. On Mexico, I think the short answer there is no real news there. We're still waiting on the the tribunal to make a decision. We feel very good about our case. And think we will win that and we'll we'll they make a decision, we'll let you guys know. Are anticipating that sometime this year.

Okay. Thank you.

Thank you. We will take our next question from Gaurav Smoits with Loop Capital.

Great.

Thanks for taking my question. Question. We spoke to the pricing cadence being similar this year as [indiscernible] you see there potentially and what the timeframe could be Yes. So, they are not included in our guide. But we will absolutely announce midyear price increases We will announce those probably towards the end of the first quarter, so we have time to have those conversations. Again, as I always remind you, mid year's will have a bigger impact on 2026 than they will in 2025. But you will see it's too early to call how successful those will be, but we'll for sure going to announce them. We'll have conversation with customers and we'll see where we go from there. Great. Do you have by chance how much 2024 mid years are impacting 2025?

Well, that's a really hard to parse out. They definitely had an impact I think we're pleased with part of the things that they do is help you give notice to your customers, so they have more time to react, which allows us to do more successful for a January one. So some of it is amplitude, the price and [indiscernible] But it definitely helps both.

Understood. Thanks for that and best of luck.

Thank you.

We will take our next question from Keith Hughes with Truist.

Thank you, I think I'll ask a short term one other question that everybody asked me. [indiscernible] still had delays year over year, some of the storm activity? So short term and January, February has been very cold. We're going to see that this week with with cold and snow. So not a great start, but we When we we put a plan together we expect weather impact at some point in time of the year. We expect to get lucky in some quarters But we've tried to look at more normalized weather as we make prediction in our guidance I think as we pointed out, Q3 was particularly challenged last year, hopefully that will be easy comp in the middle of the season. So hopefully that will help us. [indiscernible] Exactly. And one other question on the Southern California acquisition.

Is that particularly the downstream, does that mix end well with current operations at Vulcan or is that operate more as a standalone entity?

So if you look at the overall, it fits us very well. Particularly on agrips perspective, we know don't have a lot of downstream ready mix in those markets, but it also has some asphalt that fits. So part of it fits in aggregate and asphalt as far as us being there then the ready mix, they have an excellent position in those markets, but we were not in the ready mix business in those markets.

We will take our next question from Brent Thalmann with D. A. Davidson. [indiscernible] Tom, I had a question more on maybe the direct impacts to tariffs on your business and then Mexico is not really in the conversation. We're thinking more along the West Coast and what Vulcan's response is going to be to the extent that tariffs are implemented on some of your assets shipping down from Canada?

Well, I think our we'll follow the letter of the law We've looked at that It is a pretty negligible impact for us. And whatever it is, we'll handle handle in the business. But I wouldn't It doesn't move the needle.

Okay. Thank you.

We will take our next question from Michael Dudas with Vertical Research. [indiscernible] With the very solid pricing, it looks like for 2025, even though it's decelerated from 'twenty four, Do you sense this is even like say your organic volumes are flat and it kind of flattish on the overall market. Maybe a more normalized level pricing relative to the history spend or is there still room for upside on going forward. Thank you.

Yes. I think that there's always upside on price. You got to earn that with your customers. Obviously, growing demand always helps that.

And we haven't seen growing demand now for a few years. Which puts some pressure on price, but I think if you look at the bulk and we're selling and the way we service our customers, I think we earn price and I think we're doing that and Vulcan see that our performance in 'twenty four and our guide in 'twenty five. Will take our next question from David MacGregor with Longbow Research.

Good morning, David. Yes, good morning, everyone. Thanks good morning, Tom. Congratulations on a really strong quarter. I wanted to ask you about pricing and the Vulcan we are selling. And clearly, this process has been very successful and delivered some very visible results. But your markets evolve and I'm thinking for example of your ready mix and fixed plant customers who in many instances are now paying more for their limestone than they are for the cement I guess secondly, your Vulcan wave operating process is giving you better incremental unit costs. Does the profitability algorithm sort of adjust at point to rely on slightly smaller price increases in favor of larger unit gains that are achieved maybe in the way of market share gains from competitors who are continuing to push hard on price increases?

Yes. Let me be clear. I wish we had cement pricing. We don't aggregate much lower than cement price but also that cost is much lower I think that as you look forward, I think the I would go back to the strategic initiatives of Bulkwood selling and bulk of operating. Bulk loop selling allows you much in-depth much better in-depth look into what's going on in the market. And gives your salespeople the tools to price better and also gives them logistics [indiscernible] tools to better service your customers. I think on the bulk way of operating, it allows for better training and better operators and how we inspect our equipment and reduce downtime and also the technology allows for better throughput and throughput of critical sizes. You put those two together, and I think both of them have a lot better chance of beating history both the both the sales piece and operating piece which leads you to better opportunities on unit margin growth that again will be history and you've seen us do that Over the last nine quarters, a double digit improvement. So that's not happening by accident and it doesn't happen by accident going forward again, if you that's over timeframes when volumes have actually gone This year, we're calling flat But when volumes come back, you would have even better opportunity to improve your unit margins, both on the price side and on the cost side. [indiscernible] Thank you.

Thank you. It appears we have no further questions in the queue. I will turn the program back over to our presenters for any Yes. Thank you for your time and your interest in Vulcan Materials today. We appreciate the relationship we hope that you and your families stay safe, particularly with all the weather we're having.

This does conclude today's program. Thank you for your participation. You may disconnect at any time.