Vulcan Materials Q2 2024 Earnings Call Transcript

Yeah, good morning, Stanley. I think, Stanley, all of the data and the leading indicators would support demand as we originally expected back in February, with the exception of single family demand growth, the growth in single family is a little slower than we would have expected maybe four or five months ago, and we'll talk about that a little bit later. But as we look at the current volume guidance, as you said, we had a very wet July that influenced those numbers and will definitely have a negative impact on Q3. Where we ultimately fall in that volume range of a negative 4% negative 7% will really come down to the number of dry shipping days we have left in the last five months of the year.

So I'd frame it underlying demand as expected, except a little bit slower growth in single family, weather has not been our friend. We'll see how the second half goes. I think the good news is we continue to expand unit margins by double digit. And I think our folks have taken a difficult hand in the first half and turn it to a winner, and I'm proud of their performance.

Thank you.

Sure. I think that if you kind of look at what's happened and make that into the second half, your point of demand doesn't go away. It's absolutely spot on. And you probably got some pent up there and it comes down to what the weather does to us. I think it's -- looking back, if you'll explain the future that we were really impacted by rain in the first half, and I'll give you a couple of examples.

In Q2, Nashville had 30 rain days, and it dramatically impacted shipments. Look, we lost half of our shipping days in that Middle Tennessee market, DFW had doubled the amount of rainfall. So we just have dried out and could ship. The flip side of that is, you saw Atlanta weather pretty much normal and shipments were as expected. L.A. had weather normal and shipments were right on where we had planned. So weather has played a role it will impact Q3 as [Indecipherable] was very wet. And now we're experiencing a tropical storm on the East Coast. So kind of a tough start to the third quarter. But as you said, the demand is still there. It's as we thought it was going to be. So these are temporary events and it doesn't go away. So we get dry days we're shipping just fine.

Yeah. I think you're insightful about the volume impact. It definitely has an impact on us, you saw our first half of 11%. I'd also tell you that it has been -- inflation was as we expected. Weather was a big difference in that and don't underestimate the efficiency impact of trying to run wet sticky material versus dry rock, which just flows a lot better. We think we can cost some of that cost back in the second half, so we can get back to the high single digit for the full year versus the 11% where we are. And I think all of that allows us to continue that double-digit unit margin growth.

Thank you.

Hi, Jerry.

Good morning.

Yeah, I'll give you some color on price and let Mary just talk about sequential. The pricing momentum continues in all markets and all product lines. We had a successful midyear pricing campaign. I think both by customer and by market, I'd call it as we thought it was going to be as anticipated. But remember, as we explained, those midyear prices will have a small impact on '24 but a much bigger impact on '25. So we've already begun to set the solid foundation for pricing for '25. As always, we would ultimately guide you the unit margin growth which was 12% despite weather and volumes down 5%. So I'm proud of operators hard work. Look, that kind of margin growth is tough to begin with. It's particularly difficult to earn when it's raining, you got mud in the mug. So really thanks to our team.

And Jerry, in terms of sequential growth, candidly, I would have expected a bit less sequential improvement in Q2 than what we realized really due to mix and timing. We still expect some modest additional sequential improvement in the back half given the impact of the midyear that Tom just discussed, paired with a higher jumping off point from a Q2 where we already captured some of the expected sequential improvement. I guess, as Tom said to me, what's really important is the solid underlying price environment, our continued expectation of realizing price increases in that 10% to 12% range the full year. And of course, ultimately, what you can take to the bottom line, like Tom just highlighted.

Thank you.

Yeah. So I think you're correct with the ramp-up of -- of infrastructure and public work, you'll see more base in fines, which is a little bit less lower prices. That being said, it's also lower cost and you need that mix to balance your plants, otherwise you get out of whack. I think that being said, while we'll have some impact on price, I don't expect it to have an impact on your margins.

So while it's maybe not -- base material may not be as highest price as a concrete or asphalt rock, it also comes with a cost benefit. So I would expect us to continue our present pace of elevated unit margins regardless of mix.

Thank you.

Good morning.

I think we feel like the price run continues. We feel good about what we're bidding today. As I said, those mid-years, while they have a little bit of impact on second half of this year, they're going to have a much bigger impact in the first half of next year. So that leads us to also helps you when you saw having your price increase conversations in October for beginning of the year. I think it's too early to make a call on the level of pricing for 2025. But as I said, I think the conversations that happened for mid-year price increases are encouraging for 2025.

Well, I think, as I said, the mid-year help a little bit, but it doesn't get you out of that 10% to 12%. What it does is it sets you up for 2025.

Thank you.

Hey, Mike.

Yeah. I think that, first of all, the third quarter has already been impacted. July was extremely wet and particularly in our southeastern markets. And now you've got troubling storm blowing up the East Coast. So it's going to -- you're starting off to a little bit of a rough start in Q3. I think as we said, the fundamentals of the underlying demand are still there. You've got some pent-up demand that all due [Phonetic] when sun comes out, we'll ship well. You have asphalt producers, they're telling us get ready because when it is dry out, we got to go. And so we'll be ready for them. I would call it -- and the fourth quarter is always tough to call because it's also weather dependent, and the season, hopefully, will stretch.

I do think that when you have a year where you have so much moisture it may push the season a little bit, so you may get a little extra bump out of Q4 that you wouldn't have in a normal weather year, which is because people want to get those projects done. And it comes down between the negative 4 to negative 7, what's -- how many shipping days do you have and when you have those shipping days. So a little bit of a rocky start with July and kind of this week with that trouble storm, but again, the demand is there. And when some comes out, we're shipping fine, as I talked about with L.A. and Atlanta.

Yeah. And Mike, one other thing to keep in mind as you think about third quarter versus fourth quarter and the challenging start, Tom just mentioned from a weather perspective is that strictly from a seasonal basis, we have easier, relatively easier comps in the fourth quarter than we do in the third quarter. So if you think about where those volumes fall, that's something else to keep in mind as to how the back half might play out.

Thank you.

Hey, Trey.

Yeah. As you said, you saw us close on two smaller, I call it very strategic bolt-on acquisitions, kind of one in North Alabama and one in Texas. I would tell you that we'll close on some more meaningful acquisitions in the near future and which we'll share with you when the time is right. But it's a busy season for acquisitions.

Thank you.

This is Joe Nolan [Phonetic] on for David. I was just hoping you could provide some detail on what you're seeing for 2025 DOT budgets in key states for Vulcan and maybe just how that's playing into your pricing outlook for 2025 and the ability to sustain double-digit pricing growth.

Yeah. So I think that as we look at public demand out there, and just in general, the highway market. We're seeing the IJAA and state and local funds flow through to highway lettings right now. Overall, demand growth is similar to expectations. Steady growth in public demand. We've got a lot more funding in critical states. You saw Tennessee, Georgia, Florida, all raise funds. George is up $1.5 billion. Tennessee had a three, Florida had a four. All of which -- we'll see that fund flow in the lettings in '25, '26 and '27. So six of our larger states are at record level funding. Texas, California are also at record levels. And all of this supports I'd say, growth and public demand for the next three or four years. So we should slow and steady wins the race here.

Great, thanks.

Hi, Adam.

Thank you.

I don't think much changed. Same bidders are out there. There's a lot going on. You also got to remember, you got pent-up demand from nothing going on last year as everybody was worried about a recession. So we'll get a look at all those opportunities. We pass a lot on a lot of them. I think it comes down to M&A, it's about discipline, what markets do you want to be in what synergies are you, what are you willing to pay for it and make sure you can get a return on what you're paying and then once you buy it, integrate it accurately and rapidly.

Thank you.

Yeah, go ahead -- from a macro perspective, I'd say similar that's always going to be different when I say different, you get different customers, different product lines, different geographies where you got it last year, maybe you didn't get it this year or vice versa. So I would call it out very similar.

I think it's early to call. I think you continue to see growth in the public side. I think that we do know just because the funds are there and they're starting to flow into lettings. On the private side, I feel good that single-family will continue to grow. It's a little slower than what we anticipated. And it has some catch-up to do with lead indicators. And obviously, interest rates will help that. But we just don't have the inventory of houses in these markets to keep up with population growth.

So I would expect the res to kind of slow and steady growth also I think the big question will be nonres. We've taken the hit on warehouses and distribution centers. The manufacturing is good, but interest rates will help that sector also. It's a matter of timing, I believe.

Sure.

Good morning.

Good morning.

Yeah. It is definitely a tailwind. It is helping us with backlog a number of those big projects and big manufacturing projects. We're shipping on them now when the rain fits. And I think that will help us in '25. And I think there's more behind that. You've got with 12 projects in our footprint, you've got a number of data centers and then you continue to see growth in the reshoring of manufacturing facilities. So it is a tailwind for us. I don't think it's a big enough tailwind yet to take on what happened with warehouses and distribution centers, but definitely helpful.

Operator, do we have another question?

Good morning.

Yeah. I'll take the highway on first. I think that's just a matter of timing. The fund is sort of too big there. You got a lot more coming, as I talked about, the additional state funding and six of our top 10 states plus IIJA. On the public side, I think that I wouldn't get too worked up about a moment in time. As I said, I think slow and steady wins the race there, and I think it will be slow and steady for the next three or four years. So I think that's solid. There will be some hotter moments and cooler moments, but overall, I think it will continue steady growth.

On the manufacturing, we've got a healthy backlog, I think, and we're shipping on some of that backlog, but I don't see a big dip in the pipeline there. I think we continue to have other projects come up. And I think that's probably a strong point, particularly for Vulcan with the footprint we have.

In closing, I'd like to thank you for your time and interest in Vulcan Materials Company. Our thoughts go out to our employees, our neighbors who have been or will be in the path to top storm. We hope they stay safe. We look forward to speaking with you through the quarter and thank you again for your time this morning.