Vulcan Materials Q4 2021 Earnings Call Transcript

Quartr
Provided by Quartr
February 16, 2022

Key Takeaways

  • Vulcan delivered a $383 million adjusted EBITDA in Q4, up 23% year-over-year, marking the 14th consecutive quarter of unit margin expansion despite $46 million in energy-related inflation and tight labor markets.
  • The US Concrete acquisition is integrating smoothly, with operational and back-office synergies ahead of plan and a target of at least $50 million in annual run-rate cost savings by mid-2022.
  • For 2022 the company guides adjusted EBITDA of $1.72 billion to $1.82 billion (midpoint +22%), driven by a projected 6%–8% increase in aggregates pricing and 5%–7% growth in shipping volumes.
  • Demand is broadly positive with all four end-uses (residential, nonresidential, highways and infrastructure) expected to grow, while the Infrastructure Investment and Jobs Act is viewed as a longer-term tailwind beyond 2022.
AI Generated. May Contain Errors.
Earnings Conference Call
Vulcan Materials Q4 2021
00:00 / 00:00

There are 5 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to Vulcan Materials Company's 4th Quarter Earnings Call. My name is Catherine, and I will be your conference call coordinator today. During the Q and A portion of this call, we ask that you limit your participation to one question. This will allow everyone who wishes the opportunity to participate. Now, I will turn the call over to your host, Mr.

Operator

Mark Warren, Vice President of Investor Relations for Vulcan Materials. Mr. Warren, you may begin.

Speaker 1

Good morning, and thank you for your interest in Vulcan Materials. With me today are Tom Hill, Chairman and CEO and Suzanne Wood, Senior Vice President and Chief Financial Officer. Today's call is accompanied by a press release and a supplemental presentation posted to our website, boltomaterials.com. A coordinator, this call will be available for replay later today at our website. Please be reminded that today's discussion may include forward looking statements, which are subject to risks and uncertainties.

Speaker 1

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 any non GAAP financial measures are defined and reconciled in our earnings release, our supplemental presentation and other SEC filings. As the operator indicated, please limit your Q and A participation to one question. With that, I'll turn the call over to Tom.

Speaker 2

Thank you, Mark, and thanks to everyone for joining the call this morning. We appreciate your interest in Vulcan Materials Company This morning, Suzanne has decided to retire since September to spend some well reserved time with her family. I'll have more to say on this at the conclusion of our prepared remarks. Now, let's move to our 4th quarter performance, And Suzanne will cover the full year performance later on. I want to thank our team for its strong execution During the Q4, our financial results were ahead of expectations despite ongoing challenges from inflationary pressures, particularly in energy and labor constraints.

Speaker 2

Focusing on our operating disciplines and proactive pricing actions, We once again saw expansion in our industry leading unit profitability. At the same time, we made excellent progress on integrating U. S. Concrete into our business. This overall strong finish to the year allows us to carry considerable momentum into 2022.

Speaker 2

We generated $383,000,000 of adjusted EBITDA this quarter, An increase of 23% over 2021. Energy related inflation was the most significant impact to our business with $46,000,000 worth of higher costs, of which $17,000,000 related to diesel fuel, while the remainder related to liquid asphalt and natural gas. Labor pressures caused higher labor costs through overtime. In the face of these challenges, we were able still able to manage our control costs well. Aggregates cash unit cost of sales increased less than 1% as compared to the prior year's 4th quarter.

Speaker 2

This was an excellent operating performance. And I'd like to thank all of our operators and congratulate them on a job well done in 2021 and all the while delivering a world class seed performance. Our operating performance helped us improve aggregate Cash gross profit per ton by 6% to $7.41 This result includes an $8,000,000 acquisition related impact for selling acquired material after its markup to fair value. Importantly, this progress on cash unit margin expansion represents the 14th consecutive quarter of improvement. We achieved this by consistently executing on our 4 strategic disciplines, which help to drive volume growth, higher pricing and improved operating efficiencies.

Speaker 2

These strategic disciplines will help us take advantage of the favorable demand and price environment in 2022. Total aggregates volume, including U. S. Concrete, increased by 13% versus last year's quarter. On a same store basis, volume was up 7%.

Speaker 2

This reflects not only continued improvement in demand across All in the markets, but also favorable weather in November December. The aggregate pricing environment continues to strengthen across our footprint. Same store prices were up 3 7% in the quarter as compared to the prior year and mix adjusted prices increased by 4.2%. Year over year, mix adjusted pricing sequentially improved throughout the year, having started at 1.3% in the 1st quarter. The pricing actions taken to date, along with better demand visibility, set the stage for a favorable pricing environment in 2022.

Speaker 2

Asphalt gross profit was $4,000,000 in the quarter compared to $17,000,000 last year as a 35% increase in liquid asphalt cost created a $17,000,000 headwind for us. As we've discussed before, liquid asphalt costs We're at 3 year lows in 2020, and the significant fluctuation of these costs have made for a more difficult comp year over year. The good news is that our selling price for Gaspar mix increased 5% from prior year quarter. Through 2022, As pricing catches up, we will work to get back to Asphalt segment's long term averages in terms of margins. Concrete's gross profit grew from $9,000,000 to $22,000,000 in the 4th quarter.

Speaker 2

This increase was due to the acquisition combined with higher shipments and price growth in our legacy business. Results were negatively impacted by higher diesel prices and the availability of drivers. Before we move on to the overall demand environment, I'll comment briefly on U. S. Country.

Speaker 2

We continue to be excited about this acquisition and how it is our prospect. It naturally complements our existing aggregates business in California, Texas and Virginia and gives us access to new platforms in the Northeast. We moved immediately following the acquisition to begin securing cost savings and synergy opportunities. As I mentioned previously, the integration is going well and our progress accelerated during the 4th quarter with both from both operational and back office standpoint. I am pleased how the business and management teams have blended seamlessly during the 1st 4 months of ownership.

Speaker 2

We remain Confident in our ability to generate at least $50,000,000 of initial synergies initial cost synergies on a 12 month run paces beginning mid year. Now I'll touch briefly on the demand picture, which is increasingly positive. A key takeaway is that for the first time in many years, all four end uses are expected to grow. Residential end use has continued to show growth in starts in both single family and multi tenant housing and we expect starts to continue at these high levels. Nonresidential starts continue to strengthen for a broader range of categories.

Speaker 2

Improving non residential demand will be positive and help drive growth in our agris for our concrete businesses. On the public side, growth is expected in both highways and other infrastructure. The recently enacted Infrastructure Investment and Jobs Act will add to existing demand as well as elongating the cycle. Having said that, we do not expect this to have a significant impact in 2022. We are well positioned in the attractive growth markets we serve, and those markets are poised to benefit greatly from the registration in coming years.

Speaker 2

Before I turn the call over to Suzanne, I want to reiterate our confidence and our prospects for 2022, particularly with respect to demand visibility, pricing and our ability to control what we can control. We will be mindful of potential pressures from both inflationary trends and tight labor markets. We will continue to focus on operating excellence and our strategic sourcing disciplines to help offset some of these pressures. Now, I'll turn the call over to Suzanne for further comments. Suzanne?

Speaker 3

Thanks, Tom, and good morning to everyone. While we faced some challenges in 2021, it was a year of significant accomplishments, including completion of our acquisition. Our most notable financial achievements were the growth in our unit profitability and adjusted EBITDA. Full year aggregate cash gross profit per ton rose by 5%, while adjusted EBITDA increased by 10%. The ability to generate numbers like this while incurring $93,000,000 of higher energy related costs across the segment demonstrates the strength, flexibility and resiliency of our aggregates focused business model.

Speaker 3

It also points to the contributions of our 4 strategic disciplines, which help us make the most of any economic environment. Aggregates prices increased by 3% as compared to the prior year and we held our cash unit cost growth to less than 2% through efficiency improvements and general cost controls. This allowed us to offset inflationary pressures and improve our unit profitability. With respect to the balance sheet, we quickly reduced our net leverage to the top end of our target range, ending the year 2.5 times. Given our ability to generate strong cash flows, there is capacity and liquidity to invest in other opportunities, whether organic or inorganic, but as always, we will be disciplined in doing so.

Speaker 3

Certainly, we'll continue to prioritize sensible leverage and financial flexibility in order to support our capital allocation priorities and maintain our investment grade ratings. Our debt structure is sound with loan maturities that make sense for our business. Our capital allocation priorities remain unchanged and have led to an improving return on investment profile. On a trailing 12 month basis, our ROIC was 14.2%. While investing in growth and overcoming inflation and the pandemic, we have improved our ROIC by 160 basis points over the past for years.

Speaker 3

Now turning to our outlook, let me make

Operator

a few comments before turning the call back

Speaker 3

over to Tom. Following a strong performance in 2021, we expect 2022 to be another good year of earnings growth. In terms of our guidance, it incorporates the full year contribution of U. S. Concrete.

Speaker 3

Given the level of integration and change going on in our business, we are providing guidance on a consolidated basis. We expect adjusted EBITDA of between $1,720,000,000 $1,820,000,000 The midpoint of this range represents a 22% increase over 2021. We've outlined the more detailed guidance in the press release, but let me touch on a couple of key items. First, We project a high single digit growth in our aggregates cash gross profit per ton driven by an expected 6% to 8% increase in aggregates pricing and 5% to 7% increase in shipping volume. As mentioned on the Q3 call, volumes may be affected by labor constraints and therefore we try to be thoughtful about volume guidance range.

Speaker 3

If labor constraints continue in 2022, it's important to remember that the work is still there. It may just proceed at a slower pace, effectively extending the recovery and allowing us the opportunity to compound our unit margins. With respect to costs, they're expected to rise by mid single digits, but we will do all we can to control what we can control. In non aggregates, we anticipate cash gross profit of $300,000,000 to $325,000,000 approximately 75% of that coming from concrete. Most of the improvement will be driven by a full year of earnings from the acquisition of U.

Speaker 3

S. Concrete, but also from improvement in our asphalt and legacy concrete businesses. SG and Senses will range from $485,000,000 to $495,000,000 reflecting the inclusion of U. S. Concrete and anticipated synergies as described on our last call.

Speaker 3

And finally, we expect to invest between 600 and $650,000,000 in capital expenditures, including growth and capacity adding projects. This compares to $465,000,000 invested in 2021 and includes a full year of expenditures for U. S. Concrete. I'll turn the call back over to Tom now for closing remarks.

Speaker 2

Thank you, Suzanne. Before we go to Q and A, I want to comment

Speaker 4

On a supply chain issue.

Speaker 2

For 30 years, Vulcan Materials has cooled a milestone in the Playa de Carmel, Mexico on the land that we own. We are extremely proud of our history as a good corporate citizen and I am particularly proud of the 450 operators of that facility. We operate safely and have contributed thousands of hours in service to the surrounding communities and the environment. Since late 2018, we have been engaged in a NAFTA arbitration with Mexico in order to secure our rights to quarry future reserves. A hearing took place in 2021, and we expect a ruling in the second half of twenty twenty two.

Speaker 2

We have continued to engage with government officials to pursue an amiable resolution of that dispute. However, recently Mexico has taken additional actions to adversely affect our operations in Mexico. We are focused on taking care of our customers affected by these actions and we will continue to work with the Mexican authorities to reach a mutually agreeable and beneficial solution. Now looking at Vulcan in total. I want to again thank the entire Vulcan team for their hard work and dedication to servicing our customers.

Speaker 2

Our people are what makes Vulcan better every day. We have and will always operate Vulcan for the long term. This includes keeping our people safe and improving on our already world class safety record. The 3 key elements of our near term strategy that will deliver value for our shareholders are the following. 1, execute at a local level 2, drive unit margin expansion by focusing on our 4 strategic disciplines And 3, maximize synergies in the U.

Speaker 2

S. Concrete. I'm looking forward to working with our teams this year to accomplish our goals. Before I close, let me comment on the leadership changes I mentioned at the beginning of my comments. Effective March 1, Darren Hicks will serve as our Chief Human Resources Officer.

Speaker 2

Our culture and our people are key to our success. And Darren brings a wealth of experience to the new role. We are confident he is the right person to continue to help drive Vulcan forward into the future. And Of course, as I said, Suzanne is planning to retire later this year. Mary Andrews Carlisle will be replacing Suzanne effective September 1st.

Speaker 2

She is the ideal person to step into Suzanne's shoes. And we work closely with both Suzanne and me in the planning and execution of our strategy for a number of years now. Although we hate to see Suzanne go, we fully support her decision, and we are grateful for her commitment to ensure a smooth transition. And now, Suzanne and I will be happy to take questions.

Speaker 3

You can remove yourself from

Operator

the queue at any time. We'll go first to Noah Murkusco with Stephens. Your line is open.

Speaker 4

Good morning and congrats on a nice finish to the year. So, Tom and Suzanne, thanks for all that detail on the guide. Could you talk about how you're thinking about the puts and takes around the cadence of how this year is expected to unfold in 'twenty two?

Speaker 2

Sure. I think as we look at 'twenty two, it's important we look back because it sets the tone. So as it goes to 'twenty one, I'm really proud of our people's performance Really over the last 2 years, despite a pandemic, labor shortages, inflation, we were able to grow unit margins Mid single digit over the last 2 years, and that just tells me our strategic disciplines are working. Look, our teams turned in EBITDA growth of 10%. The last year despite $93,000,000 in ex energy costs, This is just a job well done.

Speaker 2

And if you look forward to 'twenty two, it's shaping up to be a really exciting year. You've got all 4 end uses to So the fundamentals for demand growth are really good, albeit there'll be some headwinds from labor, Supply chain issues, so if those if the supply chain issues and labor ease up, you probably got some upside on volume. We try to be thoughtful there, so we got to see that happen first. Pricing momentum built through the year in 'twenty one, and we've carried that momentum into 'twenty two. I think we'll see continued disciplined cost control like we saw last year even in the face of inflation.

Speaker 2

And that discipline allows us to grow aggregate unit margins by high single digit in 'twenty two. And so we'll see on top of that, I think we'll see both volume and unit margin growth in Concrete and Asphalt as we march through 'twenty two. Now, Remember, the Q1 is going to have some challenges. You still got the same energy comps you saw in Q3 and Q4 of last year, we probably will have a challenge of energy of some $35,000,000 weather was challenging in January, February. We had some COVID spikes that affected crews and labor in January.

Speaker 2

I think we'll continue to get past that And have a really strong and exciting 'twenty two.

Operator

The next question comes from Stanley Elliott with Stifel. Your line is open.

Speaker 4

Good morning everyone. Thank you all for taking the question. And Suzanne, best of luck. I know we talk plenty of times to hear you on these calls. But can you talk a little bit more about the confidence What you're seeing on the residential market, I mean

Speaker 2

some of the mortgage rates, some of those sorts of numbers seem

Speaker 1

to be maybe not probably

Speaker 4

deposit This is a theme from the flip side. Yes, certainly,

Speaker 2

I think there's an argument there's a lot

Speaker 4

of markets that are especially under built in part of your business. I'm curious what sort of conversations you're hearing and having with some of these builders on longer term Land issues and things like that that would give us a

Speaker 2

little more confidence, even beyond concern. Yes. Good morning, first of all. And I would tell you, I think res, we see strong growth in 2022. I think it's very widespread across almost all of our markets.

Speaker 2

Maybe some weakness in Chicago, Baltimore. You've got new subdivision construction continuing, so it's very aggregate intensive, which is great for us. I would tell you, it's going to be a bit slower it wrote a bit slower rate than what we saw in 'twenty one, which was, as we all know, was white hot. And as you called out, that's due to supply constraints, inflation and interest rates in land. So, all in all, a good segue.

Speaker 2

Now, if it's just stepping back and look at interest rates, Freddie Mac rate for 30 years, it's 3.7, that's still extremely low rate. So While not as fast as 'twenty one, it will see growth.

Operator

The next question comes from Catherine Thompson with Thompson Research. Your line is open.

Speaker 3

Hi. Thanks for taking my questions today. And Suzanne, Best of luck with your new chapter. Thank you. I wanted to for guidance I just want to look backwards in order to look forward to just for some clarifications, especially with USCR and the mix.

Speaker 3

First on the Concrete side, some puts and takes on the Concrete business and how New York and California for impact of Omicron shutdowns. And what does that mean going to 'twenty two? And then on the aggregate side, once again, with guidance, to discuss the delta between same store sales volumes versus those contributed by USCR Q4 and frame How that delta should be accounted for in 'twenty two guidance? Thank you.

Speaker 2

Yes. Thank you. Let's start with aggregates. And as we look back, we finished last year really strong. Q3 was up 8%, 5% on same store.

Speaker 2

Q4 was up 13%, 7% on the same store. You got to really look at those quarters to understand that. Remember, Q3 comp We're comping over 2020 where we had the most severe shelter in place. So it was a pretty easy comp. And then In Q4, we saw unseasonably good weather in November December.

Speaker 2

Now, when you turn to 'twenty two, as we said, The good news is fundamentals there. We're seeing growth in all four end uses. But you've got that's dampened by challenges from supply chain and labor And for our customers and particularly for our carriers, transportation may be a challenge. It's probably going to be a challenge in 'twenty two. So the gap And the volume is growth of 5% to 7%.

Speaker 2

Same store is really hard to call out because those businesses So now some integrated, so there's a lots of mix and the matching, but if I had to pull that out, I'd call it 2 to 4 range. We try to be thoughtful about that guidance because of all of the challenges we're seeing from labor and supply constraints. If supply chain and labor ease up, we've probably got upside volume in aggregates. On Concrete, if you remember, volumes were challenged in Concrete in 2021 due to in California, New York, because it was the most severe shelter in place. We got an office to shut down, so we got to the point where we couldn't get our customers couldn't get building permits.

Speaker 2

I think that as you look forward and then we had challenges with diesel and efficiencies because traffic came back in. But I really like how 'twenty two is shaping up for Concrete. Volume should be much improved. We've passed the air pocket of shelter in place in Northern California, Remember, you got non residential demand segment turns to growth in 2022, that's a big impact on concrete. DFW continues to be very good.

Speaker 2

So we'll see volume growth in 2022, but we'll also start to see margin Expansion as prices have moved past to wins. You couple all this with our California, Texas and Virginia, the Vulcan and USC businesses, Our function is 1. I think Concrete will be a much improved basis in 'twenty two.

Operator

The next question comes from Jerry Revich with Goldman Sachs. Your line is open.

Speaker 4

Yes. Hi. Good morning, everyone. And Suzanne, congratulations.

Speaker 2

Thank you. I'm wondering if

Speaker 4

we could just expand on the situation in Mexico. Sorry to hear you have to go through that after all the years of Safe operations there. Can you talk about what the contingency plans are for serving customers? Is it via rail from The Georgia area, and obviously, that comes at a higher cost. So I'm wondering, are we able to push through the higher cost in real time as we face this disruption?

Speaker 4

Thanks.

Speaker 2

Yes. First of all, we're not having to do that. I think let's Step back and look at Mexico. It's important to note that we have all the legal rights to operate in Mexico. We have all the appropriate permits in place.

Speaker 2

We're in negotiations to come to a resolution that benefits all the parties of interest. Mexico is interested in our properties for tourism, which We believe we'll coexist with our existing operations. In fact, we think that continue to operate there will hopefully benefit The overall volume for tourism, and we believe it will happen. So if you kind of put it in perspective, we shipped a little over 7,000,000 tons from to the U. S.

Speaker 2

From Mexico in 2021. Those tons are in our guidance and we continue Shipping from our yards, and we're now back shipping from Mexico to the U. S. So this thing will work out. We'll be fine.

Speaker 2

You Could supplement some by rail, but at this point, we're shipping and we're servicing our customers. I think you'll see the back of this, the big picture for all of this stuff and the opportunity in 'twenty two is a big opportunity we're talking about in volume and price. And so overall, Shep has shaken up to be a very good year. And we'll get our situation in nice

Operator

We'll go now to Anthony Pettinari from Citibank. Your line is open.

Speaker 4

Good morning. Good morning.

Speaker 2

Hey, and congratulations to Suzanne on

Speaker 4

the next chapter. Thank you. Tom, I'm just wondering in terms of infrastructure spending, if you could remind us the kind of the timing that you expect for that demand to flow through in 'twenty two or maybe more in 'twenty three? And then in terms of the appropriations bill, which seems Is the delay there, does it have the potential to meaningfully impact the timing of that infrastructure And when you would see that through aggregate sales, just any it would be helpful on that.

Speaker 2

Yes. I think first of all to Highway demand in 'twenty two, we'll see growth there. I think it will flow through and probably ramp up as The year goes along. States are flushed with capital as tax receipts are up across the board. And Remember those states still have COVID relief funds.

Speaker 2

And now that money is accelerating in lettings and good work. So food to demand Should grow throughout the year sequentially. We don't think we'll see any of the IIJA funds in 'twenty two, maybe a little bit at the end of the year, but it's really a 'twenty three, 'twenty four play. So let's step back and look at how The IIJA flows. Money flows 2 ways to this.

Speaker 2

First, Funds that which flow through regular federal programs prior to IIJA, like things like the PATH Act, are fully available to states Tax appropriations, once we get appropriations. 2nd, funds are new discretionary programs will flow later. Because you have to write in and enact the programs. This is why we say that that funding will take the new funding, the additional funding would take time to flow through, Which is why we predict we'll start to hit in 'twenty three, 'twenty four. So I think it's important to remember, 76% of IIJA funds will be distributed to states via formula.

Speaker 2

So, 2 thirds of those formula funds will go into Vulcan states. This is a big deal and a big advantage to all conservative states.

Operator

The next question comes from Derek Chamois with Loop Capital. Your line is open.

Speaker 2

Hi. Thank you. On the pricing guidance, obviously, we've seen budget increases here at

Speaker 1

the beginning of the year and throughout the Q1 being well

Speaker 2

If you could provide any color on how those discussions are going? And does the guidance at all rely on additional pricing Beyond what you've already announced and of course, let me throw my congratulations to Suzanne there as well.

Speaker 3

Thank you, Gerrick.

Speaker 2

Yes. Well, pricing, I think, is a really good story from the beginning of last year We've booked a lot of momentum as we talked about in 'twenty one and we carried that into 'twenty Look, we say it all the time, inflation and visibility, growing demand are excellent catalysts of price increases. And you saw us our guide to 6% to 8% price range. We have a lot of confidence in that. It's very widespread.

Speaker 2

It's through all markets. Now included in that, we don't have second half price increases. They're not in our guidance. They are possible. There are some upside.

Speaker 2

It's way too early to call that. We'll start having discussions here in the next few months about that. And I think we'll have a lot better feel for that as we get into the Q2. But at this point, 6 days great. As The world goes along, the demand continues to improve.

Speaker 2

There'll be opportunity for pricing, but I think we're confident in The midpoint of 7% or the range of 6% to 8% going into this and that leads us to high single digit margin growth With our operating abilities, we think that's a strong showing for 'twenty two.

Speaker 4

I recommend that 2022 is still contending with these inflationary costs. I think you said you're getting these single I'm just curious if that is kicking in where diesel and liquid asphalt are today or any relief there? And then when we think of 2023, is there any chance that we see some relief that incrementals on the aggregate side could be in that 60% target range.

Speaker 2

Thank you. Let's take good momentum first. I mean, we were very close to just below 60% in 'twenty one. I think we'll be around we will guide you to 60 in 22, which is kind of where we always guide you. I think that doing that in a Period where you've got is good jumps in diesel cost is a heck of an operating performance.

Speaker 2

And I'm proud of that performance in 'twenty one I'm confident we'll be able to do it in 'twenty two from to the target of 6 year incrementals. As you look at the operating side of the business and cost, I would tell you I could not be more proud of our Vulcan operators and their performance in 2020 2021 and going into 2022. As always, they were made sure that our people were healthy and safe. Then let's look at they just trust a lot like Champs. Just step back and think.

Speaker 2

Our total cost of sales was up 1.5% last year, Diesel up over $40,000,000 And that's with all goods and services were dramatically up, labor was up. And that's our operations strategic discipline at work. And I'm proud of those guys. We are carrying that momentum into 'twenty two. We are calling out maybe a little higher cost increases with mid single digit, Really driven by as you called out fuel, but you also got labor and you got inflation, just everything we use.

Speaker 2

But that still leads us to high single digit due to margins. And in a period of inflation while we got that is a very good performance. And that's what Boston is built for. That's what we talk about all the time. This is who we are.

Speaker 2

We've built to dampen headwinds, like you see, and take advantage of tailwinds with the extra volume and price. And We did it in 'twenty. We did it in 'twenty one. I have all the confidence in the world we'll our men and women will be able to do it in 'twenty two.

Operator

We'll now go to Mike Dahl with RBC Capital Markets. Your line is open.

Speaker 4

This is actually Chris Scott on for Mike. Thanks for taking my question. I was hoping to ask about your thoughts on the supply chain outlook this year. Obviously, it has implications on volumes and pricing. So I was wondering, you mentioned potential upside, if things start to improve, any chance you could Any way you can help quantify potential outcome there and just the extent supply conditions don't improve?

Speaker 4

What upside is there on the pricing as an offset? Just Your thoughts on how that evolves through the year?

Speaker 2

Yes. It is for us, and I'll take our operations and our customers, I'll take our procurement folks, and Call them out. They've done a great job. We've had very few internally. Now, getting Rock to customers, It was a challenge in 'twenty one.

Speaker 2

It will be a challenge in 'twenty two and that is from both rail and truck, that is labor. And it is challenging. The railroads are all having trouble. I think they say they're going to improve. I believe them.

Speaker 2

I think it will get better. It's still a challenge. And then you just look at projects out there and you've talked to our customers and it's everything from switchgear To types of pipe, to doorknobs, to windows, to plumbing parts. So it's just So widespread and it's I think it's too early to call anything better than what we've seen in our guidance. I think in our guidance we were thoughtful.

Speaker 2

Again, if things start to ease up, I think you've got opportunity there. As we look at price, I would call, I'd say that the price last year was a pretty sharp curve. I think that curve will be won't be as sharp as it is this year. I think you'll see more consistent pricing throughout the year In that 6% to 8% range, kind of starting in the Q1 and working all the way through. Again, if we have opportunities for second half prices and it's too early to call, Maybe that curve gets a little steeper, that slope gets a little steeper.

Speaker 2

We'll keep plugging at that, and we'll keep you posted.

Operator

The next question comes from Phil Ng with Jefferies. Your line is open.

Speaker 4

Hey, guys. Suzanne, thanks for all the help for the years. And Mary, congrats. I'm looking forward to working with you. Tom, I guess you kind of alluded to midyear price increases a few times on this call.

Speaker 4

I believe one of your bigger competitors have actually some commentary in their pricing letters for the first time that, hey, Signaling to the customers that you should probably expect 1 this year. So how do you guys kind of approach that? Have you started signaling to your investor I mean your customers on potentially a midyear price increase And any color on the pricing momentum you're seeing in California? How does that kind of stack up to you at the 5% to 8% you guided?

Speaker 2

I think that at this point, I think you guide to the 6% to 8%. I think we know we're this is February. So the middle of February, we're just starting to have conversations with fixed plant about midyear. It's really early in the process. Same thing with bid work, way too early to call.

Speaker 2

I think I'm confident in the 6% to 8%, but we'll see what happens. I would tell you that Pricing in California is consistent with the rest of our model. There's opportunity there. And our customers know the inflationary pressures we have, And they have them also. So it's and they're also looking at moving their pricing.

Speaker 2

So the whole sector is going up. Again, that visibility to growing demand gives people the confidence to take risk on price and then you've got the inflationary pressures, it's just a little easier conversation. But I think it's while we're beginning to have conversations about second half pricing, there may be opportunity there that's way too early at all.

Operator

We'll go now to Adam Spohheimer with Thompson Davis. Your line is open.

Speaker 4

Hey, good morning, guys. Congrats on a strong Q4. Hey, on

Speaker 3

the asphalt side, Tom, real quickly, can

Speaker 4

you comment on the outlook for volumes in California and Arizona this year.

Speaker 2

Yes. Good. Both of them improved. Arizona got hit last year, and it was Problem for us with volume in 2021, and it was really timing of projects, and it was supply chain. We got held down customers got held up with, I think, some big piping and other parts for utilities They just held up projects, but I would tell you both have opportunity for improved volume.

Speaker 2

And I think that Like the rest of the product line, as we march through the year sequentially and prices go up, after we get in the second half, we'll see margin growth. Now, first half Could be challenged because you probably got negative comp and liquid AC of about $15,000,000 in Q1, But we'll get past that. And as we saw, prices go up in Q4, 5%, they're moving up. And as we always do, we got that's a delay there. It's

Operator

We'll go now to Michael Cusz with Vertical Research. Your line is open.

Speaker 4

Good morning, Mark, Tom. Congrats, Suzanne, and a shout out to Mary and Darren as

Speaker 2

well. Yes. Thank you. Thank you.

Speaker 4

Tom, you mentioned in your prepared remarks that you're seeing some growth in non res. Maybe Share some views on, it's light starting to catch up to the visibility on heavy. And is that something that can continue to gain strength throughout the year given the Supply chain issues, is there any difference in supply chain issues on non res?

Speaker 2

Yes, a little bit. But for non res, Last couple of years have been pretty volatile. We spent 2020 falling. We spent 2021 recovering, and we'll see growth in 2022. 89 res Still strong in 'twenty two.

Speaker 2

I think we're seeing growth in traditional non RIS, which as we predicted is following subdivision growth, And that's coming on that will come on in 'twenty two. And we're starting to see green shoots in high rise projects. And importantly, remember, Non res is very important and very good for our concrete business, so our timing is good with that with the purchase of U. S. Concrete.

Speaker 2

It's a sector we're excited about. They too have supply chain issues. Yes, they're different from res. I think they're probably is a little less challenged, but it's a volatile situation, and we'll have to watch it as we go through the year.

Operator

Comes from David Greger with Longbow Research. Your line is open.

Speaker 4

Good morning, everyone. And I guess, I wanted to Tom, you had talked about the fact that you don't expect the IIJA business really come through meaningfully at least until 2023. In the meantime, in 2022, you've got all 4 of your main verticals firing here and it's creating a 6% to 8% price environment. What happens if those 4 verticals remain strong into 2023 and then you layer in on top of that incremental business What gives I mean, how do you find marketing from the 3 of your peers? Is this just parabolic or do you bring on incremental Channel capacity, I realize you probably have rock matching capacity, but it would be more of the channel capacity, I guess.

Speaker 4

But How do I think about how that resolves in 2023?

Speaker 2

I think what you see is continuing compounding unit margins. I think that what we said was that the IIJA Gives us a lot more security of extending the cycle. Because if you were to have an air pocket in the private side, you covered up with IIJA. I think we stick to our disciplines, and that's why those 4 strategic disciplines are so important that you continue to serve your customer and earn that price. Through commercial efforts, we take that twice in those in that to the bottom line, but continue Our operations disciplines in our cost control and our operating efficiencies use the procurement to make sure we get the goods and service We need to keep those operations running in terms of supply chain and labor challenges.

Speaker 2

And then, those logistics, it's tough to get Logistics is so important these days because there's just a shortage of labor in both rail and truck and us being a picture of that is really important to maximize Profitability. But you're right, it bodes well. If we believe the private side will continue, It bodes really well if that happens. I mean, if there's a little slippage or something happens that would challenge that, I think the magnitude of this extends the cycle Continuous growing our margins.

Operator

Next question comes from Courtney Yacobhanus with Morgan Stanley. Your line is open.

Speaker 3

Hi. Good morning, guys, and congrats Suzanne. I just wanted to follow-up

Speaker 4

on some of the

Speaker 3

discussion about the about the Infrastructure Investment and Jobs Act. So I think you mentioned you think it might take a little bit longer to hit in 'twenty three and 'twenty four. At this point, are you thinking it's a relatively even impact between the 2 years? Do you see it more weighted to 'twenty three and then just incremental costs in 'twenty four or Is this the other way around? And then, how are you thinking about it from a volume perspective versus a pricing perspective?

Speaker 4

Do you have more confidence We will

Speaker 3

see a significant increase in volumes. Or do you anticipate more of that coming through on the pricing side? I know I'm taking someone to ask you, you're hyperbolic pricing, but are we setting up for a situation where we could have 2 to 3 years of to sustain double digit person growth.

Speaker 2

Yes. So from a volume perspective and the cadence of the new funding, What we're saying is because and this is where I talked about the second new discretionary programs, they take time to flow through because You have to write regulations and ag programs and it just takes time. That's the reason we say, look, we'll have growth in 'twenty two from States increase in funding, the new federal fund increase in funding will start to flow through in 'twenty three as they As they enact those programs and they start then they get the lettings and then they keep the job to work the jobs to work with Shiprock. And I would expect a ramp up through 'twenty, maybe a little bit this year, probably doubtful, but you'll start See a ramp up in demand as we march through 'twenty three, 'twenty four to 'twenty five as those programs mature and those funds flow to work. Now with that, you've got embedded in that is you've got very you'll have very clear visibility The estate DOTs, the work that's coming, and that's growing demand.

Speaker 2

And that visibility to growing demand gives everyone confidence To take risk on jobs, to take risk on price. So it will be good for both volume and price, but I would expect Volume a gradual ramp up, 23%, 34%, 35% in pricing color.

Operator

This does conclude our question and answer session. I would now like to turn the call back over to Tom Hill for any closing remarks.

Speaker 2

Thank you, guys, for your time today. As always, we appreciate your interest in Vulcan. We hope that you keep you and your families Safe and happy. Suzanne and Barry Andrews and Mark and I will be out to see you in the coming days weeks. You guys have a great rest of the day.

Speaker 2

Thank you.

Speaker 3

Thanks so much.

Operator

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

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