Vulcan Materials Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2023

There are 12 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to Vulcan Materials Company's Second Quarter 2023 Earnings Call. My name is Angela, and I will be your conference call coordinator today. Now I will turn the call over to your host, Mr. Mark Warren, Vice President of Investor Relations for Vulcan Materials. Mr.

Operator

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 Mary Andrews Carlisle, Senior Vice Today's call is accompanied by a press release and a supplemental presentation posted at our website. 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 any non GAAP financial measures are defined and reconciled in our earnings release, our supplemental presentation and other SEC filings.

Speaker 1

As the operator said, in the interest of time, please limit your Q and A participation to one question. And with that, I'll turn the call over to Tom.

Speaker 2

Thank you, Mark. And thank all of you for your interest in Vulcan Materials today. Our results through the first half of twenty twenty three Highlight both the attractive fundamentals of our aggregates led business and Vulcan's commitment to compounding profitability Through our solid execution of our Vulcan with selling and Vulcan with operating strategic disciplines, I'm proud of our teams for delivering yet another quarter of improvement in our trailing 12 month aggregate cash gross profit per ton. That marks 20 of the last 22 quarters. This exceptional execution coupled with Better than expected demand environment gives us confidence in our ability to deliver between 1.9 And $2,000,000,000 in adjusted EBITDA this year.

Speaker 2

In the quarter, we generated $595,000,000 of adjusted EBITDA, Which is a 32% improvement over the prior year. Gross margin expanded by 4.80 basis points and importantly Each product line delivered year over year improvement. In the Aggregates segment, gross margin improved by 2.90 basis points. Cash gross profit per ton improved by 22% with healthy year over year price improvement and moderating year over year cost increases. Shipments declined a modest 1% in the quarter, but were varied across markets.

Speaker 2

On the one hand, we saw solid growth in our key Southeastern markets where we have the most attractive aggregates footprint. And we were pleased with the rebound of sales in California after a very wet Q1. On the other hand, weather continued to be a challenge in Texas and remember softer residential activity weighed on most markets. All geographies benefited from the continued strong underlying price environment. Our mix adjusted sales price improved 15% in the quarter.

Speaker 2

Attractive price growth should continue to drive improvement in our unit profitability as we progress through the Half of this year and into next year. In asphalt, cash gross profit nearly tripled From the prior year's $66,000,000 and cash unit profitability improved over $10 a ton. Volume growth of 16%, price improvement of 9% and lower liquid asphalt costs all contribute to the stable results. Gross margin improved almost 1200 basis points. Concrete cash Unit profitability improved by 24% in the quarter and this is despite lower volumes that were impacted by The slowdown in residential construction activity.

Speaker 2

Prior year Concrete segment benefited for the contribution of the now divested New York, New Jersey and Pennsylvania Concrete Operations. Now starting with residential, let me provide a few thoughts about each end market. Today, the impact of the slowdown in residential activity has not been as significant as most of us initially feared. Recent permits and starts were showing that some areas have reached the bottom and the sentiment among homebuilders Is much improved. These trends along with the solid underlying fundamentals for residential demand growth such as low inventories, Favorable demographic trends and employment growth in our markets suggest that single family demand will bottom in the second half of this year And then start with covering thereafter.

Speaker 2

In the private nonresidential construction Segment starts remain at healthy levels with particular strength in large manufacturing and industrial projects. Our strong Southeastern footprint and logistics innovation efforts are making us a supplier of choice on many of these projects. As an example, we have booked and are currently shipping to projects such as battery plants, electric vehicle manufacturing facilities, LNG facilities and large warehouse Parks. On the public side, demand is unfolding largely as we expected. Funding from the Infrastructure Investment and Jobs Act is beginning to flow through and the pipeline is building with trailing 12 month highway starts up over 20%.

Speaker 2

2024 state budgets are at very healthy levels. And internally, our bookings and backlog reflect This increased activity. The level of this year's shipments will depend upon how quickly this increased activity converts to shipments. We expect accelerating growth into next year and continued growth for the next several years. Trailing 12 month other infrastructure starts are also up over 20%.

Speaker 2

In addition to significant IIJA funding for water, Energy ports and shipments, strong state and local revenues support growth in non highway investments. Based on the improved private demand backdrop, our first half shipment and our first half shipments, we now expect aggregates volumes to decline between 1% to 4% in 2023 as compared to our initial expectations of a decline between 2% 6%. Of course, regardless of the demand environment, our focus is to consistently improve unit profitability And grow earnings in order to create value for our shareholders. We're well positioned to do exactly that this year and deliver 20% year over year improvement in both our cash gross profit per ton and adjusted EBITDA. And now I'll turn the call over to Mary Andrews for some additional commentary on our Q2 and update for 2023 outlooks.

Operator

Thanks, Tom, and good morning. Our strong operational performance through the 1st 6 months in this year exhibits the benefits of our strategic focus on enhancing our core. We have improved our adjusted EBITDA margin by 3.50 basis points year to date through a combination of gross margin expansion and disciplined SAG cost management. This operational execution and resulting cash generation have allowed us to deploy capital towards each of our long standing priorities, to improve our return on invested capital and to maintain the strength of our investment grade balance sheet. Over the last 12 months, we have invested 6 $177,000,000 in maintenance and growth capital, including strategic greenfield.

Operator

Additionally, We have improved our return on invested capital by 110 basis points on a trailing 12 month basis. And we have reduced our leverage on a net debt to adjusted EBITDA basis to 2 times at June 30, 2023 From 2.5 times at June 30, 2022. We are well positioned to execute on our strategic of further enhancing our core and also expanding our reach. Talent and technology are critical to achieve our business objectives And we continue to invest in both, while remaining focused on further leveraging our SAG cost. Thanks to our full year guidance.

Operator

As Tom mentioned, we now expect to generate between $1,900,000,000 $2,000,000,000 of adjusted EBITDA in 2023, A 17% to 23% improvement over the prior year. Our revised outlook results from the update to our aggregates volume Thank you. Thank you. Thank you. Thank you.

Operator

Thank you. Thank you. Thank you. Our next question comes from the line of We expect to generate approximately $295,000,000 of cash gross profit from our downstream businesses. With 50% to 55% of the total expected from asphalt and 45% to 50% of the total expected from concrete.

Operator

We continue to expect to spend between $600,000,000 $650,000,000 on maintenance and growth capital. Additionally, we expect to spend approximately $200,000,000 on opportunistic purchases of strategic reserves in California, North Carolina and Texas, Three important markets for Vulcan Materials. Because reserves are critical to our long term success, our land portfolio is extensive and a strategic focus for us. We take a disciplined approach to securing high quality reserves. The timing of which often depends on a combination of We manage the entire life cycle of our land to create maximum value for the business, for our shareholders and for our communities, putting land to work both before and after mining.

Operator

Our excess properties once completely mined and often reclaimed to their highest and best use can generate significant value, Such as the 2021 sale of previously mined property in Southern California that was reclaimed for commercial and retail development And sold for over $180,000,000 Of course, the timing of buying and selling land can be uneven, Our focus is on the strategic management of our land portfolio. All other aspects of the full year guidance as reaffirmed or updated in May Remain unchanged. I'll now turn the call back over to Tom for some closing remarks.

Speaker 2

Thank you, Mary Andrews. In closing, I want to thank and congratulate our teams on an outstanding performance in the first half of this year. And I want to challenge them to remain focused on our Vulcan Wave selling Evoqua, we have operating disciplines, so that we can continue to compound improvements and drive value for our shareholders. Most importantly, we will remain committed to each other to keep each other and to keeping each other safe. And now, Mary Andres and I will be glad to take questions.

Operator

The first question today comes from Trey Grooms with Stephens. Please go ahead.

Speaker 3

Hey, good morning, Mary Andrews and Mark. Nice work in the quarter.

Speaker 2

Thanks, Trey. Good to talk to you.

Speaker 3

Likewise. So, I guess I wanted to touch on the guide Specifically, the increase in your volume outlook for the year. And Tom, I know you touched on some Thanks, maybe from a high level, but could you maybe go into a little bit more detail on the primary drivers there, especially as you kind of look on the private side Res and private non res. And is that adjustment that you've made here for the full year based more on what you've seen in the results year State or an improvement in the outlook for the balance of the year? Thank you.

Speaker 2

I think the last part of that is I'd say both. We had a strong start and I think things are looking better than what we had thought at the beginning of the year. Volume in the quarter was only down 1%. It was a great recovery in California where we had the washout in the Q1. Texas was wet in the Q1, was wet in the Q2, Causing shipments to be down year over year.

Speaker 2

Interesting in the Q2, the Southeast was also wet. But after those wet days, we're seeing a faster recovery in these markets. I mean, the volumes go up, as soon as it dries out, volumes pop. And so That's good news for all of us. The private demand has been stronger than we Both single family and multifamily shipments have held up better than I think our original projections.

Speaker 2

Non res has also been better, as we said, driven by the heavy So that's why we raised our guidance to negative 1 to negative 4. Highways, I think finishes the year about where we thought low single digit. We got really backlogs and bookings are growing. So we're really building to 2024. But at the end of it, the private side was just Has been stronger, will be stronger than we originally anticipated.

Speaker 3

Got it. Thank you so much.

Operator

The next question comes from Garik Shbois with Loop Capital. Please go ahead.

Speaker 4

Hi, thanks. Just wanted to piggyback on Trey's question with respect to the volume I'm wondering if you could speak a little bit more just to the light non res side of the equation, recognizing that the Heavy piece has been strong. Are you seeing any change in trends there? And then also highways are it sounds like as This year, just curious if there's any visibility to what kind of growth we might anticipate into 2024?

Speaker 2

I'll I'll take non res first. As I said, it's been a lot better than we thought. It's really driven by, as you would expect, warehouses, Distribution center and now we've got the heavy industrial projects coming on, which have been very helpful. I would say a little bit of In some geographies and some sectors next year, as we've seen maybe some slowing in In Texas and warehouses. That said, if you look at that segment, the warehouse segment in some of our Stronger markets like Georgia, Florida, California, Arizona, we're still seeing growth in SORTs and warehouses in those markets.

Speaker 2

So a little bit mixed bag of warehouses. I'd say other really good news in non res is that we continue to see the big growth in the heavy industrial projects in our And these projects carry substantial volume needs. We have, I think, 11 of these Big projects that we've already booked, most of them we're already shipping on and they'll carry out through 2024. On top of that, we're currently bidding on a number of projects As you know, we won't ship till 2024, 2025. So in this sector, geography really does matter.

Speaker 2

So better growth in non res than I think we originally expected. I'm sorry, your second question was on highway demand. It's really a matter of timing. We're seeing a lot of growth in as we said growth in bidding. Funding as you know, the federal side, the state side, the local side is very good.

Speaker 2

Highway lettings continue to build our bookings and our backlogs And highways continues to build. And as you know, what we're bidding today, what we're looking today, we'll ship in 2024. So Again, low single digit in the sector in 'twenty three, but it's setting up very well for 'twenty four and 'twenty five and 'twenty six.

Operator

The next question comes from Stanley Elliott with Stifel. Please go ahead.

Speaker 2

Hi, Stanley. Good morning, Stanley.

Speaker 5

Hey, Tom, Maryann Deutsch. Good morning. Thank you for the question. Could you guys talk about the pricing environment? You mentioned pretty broad based momentum to the first half of the year.

Speaker 5

You did leave the pricing guidance unchanged. Is that regional mix? Is it maybe some timing? And to what level are you guys thinking about second price increases and maybe Even how that carries off into 2024?

Speaker 2

Yes, I'll tell you that the pricing in 'twenty three is unfolding as we thought it would. Prices were up 15% in the quarter, we expect to be up 15% that carry through the full year. But I think I'll step back and remember the sequencing pricing It was very different between 2022 and 2023. In 2023, as we told you, we went out much higher, much earlier than we did in 2022. We've gotten more price in 'twenty three.

Speaker 2

We got more price in 'twenty three and we've gotten it earlier. So if you kind of Good. A good reference would be Slide 5 in that deck. And if you looked at 'twenty two, the full year, year over year From January 1 to December 31, we went up $1.53 So from the beginning of this year till the end June for 'twenty three, we're already up $2.28 So it is compounding, it is much faster, much higher. 2nd half price increases, while they were mixed, will only help that.

Speaker 2

I'd tell you they're more they really are really a good setup for 2024 And we'll continue this momentum. And the reason why is the momentum is very good as you know, but demand is looking better. The Private side is better, the public side is growing. So all of us in the sector have very good visibility to A more positive land picture and our customers, I would tell you continue to be quite confident. So I feel good about the momentum.

Speaker 2

We're right now planning Our January 1 price increases, which will go out in a few months. And I would expect us again to go out higher earlier Then we did. One point to this though and I think it's really important is our ultimate goal is to take that price to the bottom line. And that's really important that we continue that unit margin expansion. We're up Low 20s in the we're in the Q1, low 20s in the second quarter.

Speaker 2

We expect that to continue for the next Few quarters and that is a really important number and we get there in the second half of the year a little Probably a little as a percentage wise, we got tougher comps on price, but easier comps on costs. So we continue that low 20s margin expansion.

Speaker 5

Great. Thanks so much, best of luck.

Speaker 2

Thank you.

Operator

The next question comes from Mike Dahl with RBC Capital Markets. Please go ahead.

Speaker 2

Good morning, Mike. Good morning.

Speaker 4

Good morning. Thanks for taking my question. So I had

Speaker 6

a question on the Down So it's nice to see the property and you're referencing now year end margin recovery mode you Check out the guide for this year. When I take a step back and look at kind of your legacy business combined with the previous U. S. Concrete The legacy business, it seems like there will be still like quite a bit more work or runway left on what normal For being downstream, so just wanted to get your thoughts on that in terms of timing. Should we be thinking that Yes, your combined businesses could be like $400,000,000 to $295,000,000 I'm not saying this year or next, but Is that the right normal to be thinking about or how should we frame that?

Speaker 2

Yes. I think we were very encouraged that this quarter we had Unit margin growth in all three product lines, we've battled out a little bit in asphalt for a year or 2. And then we had to catch up. We said we'd catch up this year in Concrete and we've got it in the Q2. I'll take the product lines kind of one at a time, really Strong quarter for asphalt.

Speaker 2

Gross margins were up they were at $66,000,000 they were $26,000,000 last year. Volumes were up 16% in spite of wet weather in Texas. California and Arizona asphalt volumes were really strong after tough, Tough first quarter because of rain. Prices were up 9% and our liquid costs were down. So Great quarter in Asphalt.

Speaker 2

We told you guys we would continue to grow this margin and we are so really encouraged by that. And That will only get better as you see the funding from IJA and local and state funding go to work In the public sector. Ready Mix, we had a really tough first quarter, slow start to the year. We got really blown up with weather. We recovered I thought the team there did a really nice job Recovering rapidly in the Q2 and it was really driven by unit margin expansion.

Speaker 2

So on same store basis, our volumes were down Actually 11%, combination of rain in Texas and the impact of single family demand, Prices were up 10% and unit margins were up 24%. So we said we get back to growth mode in ready mix. I think we are and I think we'll continue that Recovery, but I'm really proud of the ready mix team's recovery and the asphalt team's continued performance in those product lines.

Operator

Yes, Mike, just on a sort of Longer term horizon, I think in the ready mix business, we still think that low double digit gross margins Is where we need to be. And so if you look at we saw great recovery in the Q2. If you look at where we are in the trailing twelve, As you said, we still have runway ahead of us and that's the margin expansion that we're looking forward to going forward. And similarly in the asphalt business, we've sort of long said high single digit, maybe low double digit Long term gross margins in asphalt, we've hit 10% on a trailing 12 month basis. And I think with where we are right now with the pricing environment and the Pricing environment and the demand environment ahead of us, we can still see some expansion there as well, but would still think of Half single digit, low double digit over the long term.

Operator

The next question comes from Anthony Pettinari with Citi. Please go ahead.

Speaker 7

Good morning.

Speaker 2

Good morning.

Speaker 7

Hey, just following up on margins. I think you previously pointed to cash costs High single digits year over year this year. I'm just wondering is that still a fair expectation? And I think costs were up little bit more than that in 2Q, you talked about comps getting easier in the second half. Just any kind of further Detail in terms of the cadence from 3Q to 4Q and if there's any sort of good guys or bad guys from a cost perspective that we should Especially keep in mind for the second half.

Speaker 2

Yes. We're getting better at the area cost, but they're still high. They were up 99% in the quarter and you're really feeling the impact of the inflationary pressures on parts and services. As we said, comps get easier throughout the year. Our guidance is the high single, which would put us in kind of mid for the balance of the year.

Speaker 2

Parts and service costs continue to plague us. We also have challenges with parts delivery, which hurts our efficiencies. That also is getting better. We do have a good guy in the quarter of diesel, which was probably an impact around $25,000,000 And our operating efficiencies continue to improve and will help us offset some of this. So, we guided For the full year to high single digit, which would put us kind of mid in the back half of the year, but comping over a lot easier numbers.

Operator

Yes. And Anthony, I think most important as it has been a challenging couple of years with inflationary pressures certainly, but Aggregates is a price cost winner and our gross margin on a trailing 12 month basis returning to expansion in the second quarter. What was great to see, we've got a good runway ahead of us on that. And as Tom highlighted earlier, still But low 20% growth this year in our cash gross profit per ton.

Speaker 7

Okay. That's very helpful. And maybe just on labor, are you seeing any Change there, maybe not in terms of wage rate or dollar, but in terms of availability of labor that's Maybe helping you or hurting you this year?

Speaker 2

It's still tight. I think it is the labor market has gotten better from our perspective. I think we've also gotten better retention and how we handle that. So still a challenge, but much improved from where it was over the last couple of years.

Speaker 7

Okay. That's very helpful. I'll turn it over.

Speaker 2

Thank you.

Operator

The next question comes from Jerry Revich with Goldman Sachs. Please go ahead.

Speaker 8

Tom, Mary Andrews, I wonder if you just talk about how you're thinking about pricing For 2024, it feels like one of the big lessons learned for the industry from 2022 is to price for a higher level of inflation And inflation is lower, just get the benefits of that. How are you thinking about the magnitude of those, can you hear on price increase, Tom, You spoke about versus the historical 4% to 5% CAGR that you and the industry have delivered given The backdrop that we've seen over the past 18 months.

Speaker 2

So as I said, I think we got a lot of momentum going with this and this the Private side of demand on this being better is helping that everybody's got good visibility to The public side, I think that if you go out there and talk to the segment, to the Construction Materials and Construction Segment. People are feeling a lot better about the future than maybe we were 6 months ago. And you got to see more of the demand. So That positive sentiment, the momentum on pricing and better visibility to demand, all are good set up for price. As far as magnitude, we're working on that right now, but I would our strategy last year was to go out higher on January 1.

Speaker 2

I thought that worked very well and I think I wouldn't see a stream from that strategy as we look to 2024.

Speaker 8

Thanks.

Speaker 2

Thank you.

Operator

The next question comes from Tyler Brown with Raymond James. Please go ahead.

Speaker 9

Hey, good morning. Good morning. Hey, Mary Andrews. So I'm a little unclear on the CapEx. So I think CapEx is expected to be $600,000,000 $650,000,000 but does that include the $200,000,000 in land purchases or will that be on top of it?

Speaker 9

Maybe I'm missing it, but those maybe flow on the acquisition line on the cash flow statement, I'm just not sure. And then just Tom, any color on the M and A pipeline? Thanks.

Operator

Yes. So Tyler, to clarify, the $200,000,000 that we're planning to spend on strategic reserves is addition to the $600,000,000 to $650,000,000 it will show up as PP and E as it is land. But I think you're thinking about it right in terms of it being more of an opportunistic strategic acquisition type opportunity. And I'll let Tom hit M and A.

Speaker 2

Yes, I would simply describe the acquisition with the improving picture and Clarity to the privates demand and it probably look a little better than maybe we thought. I would expect that to improve the M and A pipeline. We've got we always have a couple we're working on, but strategic bolt ons, but I would think this will help the pipeline.

Operator

The next question comes from Tivna Tanners with Wolfe Research. Please go ahead.

Speaker 10

Yes. Hey, good morning. Wanted to follow-up on the strategic cash uses. So talking about property purchases, is this Because of opportunistic availability or is this a need to restore reserves? Just some color there.

Speaker 10

And similarly, just wondered if you would comment on the 1st share buyback since the pandemic and what that might illustrate for your future plans?

Speaker 2

I think we'll split that question. I'll take the land piece. You're exactly right. It is opportunistic. So a lot of times these are when they come up much like a bolt on acquisition.

Speaker 2

And that's both for buying reserves, but also both buying reserves and selling land are going to be lumpy by nature. You heard me, Andrews, I think it was in 2021 where we sold $180,000,000 worth of land. So It is, it comes when it comes. It's hard to plan. Sometimes you can, most of the time you can't.

Speaker 2

I would tell you I'm very pleased with reserves we got. They were primarily in California, Texas and North Carolina. So glad to get them good use of capital and pleased with the team's effort on that.

Operator

Yes. And in terms of share repurchases, returning excess cash to shareholders through repurchases has been part of our long standing Capital allocation priorities, we believe appropriately following reinvesting in the business through operating and maintenance CapEx, After growing the business and returning cash through the dividend, so with attractive cash generation and slower M and A in the first half of the year, We repurchased $50,000,000 of shares in the 2nd quarter and really our capital allocation decisions in the back half of the year will The next question is from Phil Ng with Jefferies. Please go ahead.

Speaker 3

Hi, Phil. Good morning.

Speaker 5

Hey, guys. Congrats on the strong quarter.

Speaker 2

Thank you.

Speaker 5

My question is your guidance for average volumes, you're calling for it to be down, call it, 1% to 4 And you only down modestly in 2Q. And with housing bottoming and you're calling out pretty good momentum on the infrastructure and heavy commercial side with Frankly, it's easier to comp than back half. It feels kind of conservative. Any one offset we should be mindful of? And when we look out to 2024, Tom, you're talking How you're seeing momentum building on infrastructure and heavy on the industrial side?

Speaker 5

Any color how to think about the growth profile in those two And markets when we kind of look at 2024? Thank you.

Speaker 2

Yes. I think, as you look at the kind of the upside downside to our guidance, The low side, the minus 4 would tell you that single family shipments would have to fall off worse than we've seen. I think we bottom We're seeing kind of the bottom in single family. And I think that it gets better for 2020 hopefully it gets better for 2024. On the high side, If to the minus 1, we'd have to see a little more volume.

Speaker 2

How we work, we have some of our projects, we have to start a little faster, it could happen. And that's why we got Arrange, what we do. I do think that the heavy piece in It's going to help us in the second half. I think it's going to be more help in 2024 on the heavy industrial. Is there

Speaker 5

a way to think about how that growth profile is going to look next year? I mean, low single digits for infra, is that like a mid to high single digit growth story next year?

Speaker 2

On other infrastructure you mean?

Speaker 5

Just infrastructure in general, right? I mean, Tom, you're talking about low single digit growth this year, right? So when we look out to 2024 with All the lettings have been bidding actively flowing through. Is that like a mid single digit

Speaker 2

growth or

Speaker 5

high single digit growth?

Speaker 2

I think it's too early to call. We just got to see more. I would address that we haven't talked about the non highway infrastructure It's also looking very good. Like highways, the local state and federal funding is extremely healthy and has IJ in it. Starks and the other non highway infrastructure were up.

Speaker 2

I think, probably 6 months was up 18% and trailing 3% is up 20%. Good for 2023, probably again low single digit, but much better for 2024.

Speaker 4

Okay. Thank you. Thank

Operator

you. The next question comes from Kathryn Thompson with Thompson Research Group. Please go ahead.

Speaker 11

Hey, good morning. This is actually Brian Byros on for Catherine. Thank you for taking my question. Sure. Just on the asphalt business, can you just touch a little bit more on the performance there, Maybe the volume growth specifically, just kind of what projects are you seeing come to market in that business, if it's more repair work or maybe it's more new work Coming down the pipeline.

Speaker 11

Thank you.

Speaker 2

As far as the paving is both, you're seeing both new and recovery. You do have And overlays, I was pleased with the volume growth because we had a lot of rain in Texas, which is a big asphalt. Flip side of that is California and Arizona probably had some catch up from the Q1, which we just didn't do much at all. I am very pleased with the pricing performance and the unit margin performance. So I think a really good start to the year in asphalt.

Speaker 2

We're back in unit margin growth mode And the growth in funding for highways is only going to help this product line.

Speaker 3

Thank you.

Speaker 2

Thank you.

Operator

The next question Question comes from Adam Thalhimer with Thompson Davis. Please go ahead.

Speaker 5

Hey, good morning guys. Great quarter.

Speaker 2

Thanks Adam.

Operator

Hey, thank you. Tom, I think you

Speaker 5

characterized the mid year price increases as mixed. Why was that? I think there was hope a month or 2 ago it might be better. And does that bode well for January increases next year?

Speaker 2

Yes. Remember, as I said, the sequencing from 2022 to 2023 was very different. We intentionally went out much higher, much earlier in 2023. So kind of as expected, the mid year was successful in some markets, it was successful in Some market segments, it'll have a little bit of an impact on 2023, but It's going to have a much larger impact on 2024 and that's simply a matter of timing from project pricing to shipment and also Maybe some backlogs. It does impact 2024.

Speaker 2

I don't think it slows any momentum for January 1 price increases. Again, that strategy of high early works really good in 'twenty three and we'll carry that strategy towards 'twenty four. But so that's I would tell you that is expected.

Speaker 5

Good. Thank you.

Speaker 2

Thank you.

Operator

The next question is from Keith Hughes with Truist. Please go ahead.

Speaker 2

Thank you. Hey, Katie. Just give us

Speaker 9

an

Speaker 4

update on the situation in Mexico with Macquarie there Do you process any sort of movement at

Speaker 2

all? So the short answer is the same, no news. We've got the NAFTA claim. We'll have the final hearing on the NAFTA tribunal this year. We should have a result of that in 2024.

Speaker 2

We feel very good about our position. We feel very good about our case. We feel very good about the Evidence, but we won't have a we'll finish the legal proceedings this year and have a final ruling in 2024.

Speaker 4

And what would be the best case scenario if you're successful on that?

Speaker 2

I think that we get a large check And because of the shutdown of our business, the magnitude of that we can't disclose Because we have a confidentiality agreement with the tribunal.

Speaker 4

Understand. Thank you.

Speaker 2

Thank you.

Operator

Next question comes from David MacGregor with Longbow Research. Please go ahead.

Speaker 4

Yes. Good morning, everyone. Tom, nice quarter. I wanted to maybe just ask a little bit on the guidance and you talked about the Q1 being wet In California, Texas in the Q2, what's your sort of best estimate of the carry forward tons into the second half due to the disruptive first half weather?

Speaker 2

I think you saw that in California, Arizona in the quarter. You probably will have some of that in the Q3. In Texas, as I said earlier, what I'm impressed with is We're seeing a lot speedy recovery after wet days in our markets, which tells me that our the firepower of Our contractors is getting much better. I'm sure it is because of the work that they got coming out of from all the public funding. So I think maybe a little bit in Texas, everybody else I think you don't see a lot of carry forward because they've been able to catch up pretty quick.

Speaker 2

Thanks very much. Thank you.

Operator

The next question comes from Michael Dudas with Vertical Research. Please go ahead. Good morning, School Research, please go ahead.

Speaker 4

Good morning, Mary Andrews, Mark, Tom.

Speaker 2

Good morning. Good morning.

Speaker 4

Tom, As you've provided some very helpful observations on expectations for second half year in the 'twenty four, but if you're going to isolate Either better than expected pricing, better than expected cost or better than expected volume as we maybe exit the 'twenty three and the 'twenty four, What would you point towards

Speaker 2

or maybe all the above? You're saying as we go from 23 to 24?

Speaker 4

Yes. As we get through the second half of the year as results come through, your expectation would have been getting to year end, let's say, the high end of your EBITDA range or would it be better pricing, better cost utilization and execution or better volumes?

Speaker 2

I would tell you we probably have the best shot at how we were coming on a little faster maybe we expected. The flip side of that is obviously that if you see a bigger slowdown on some slow a more slowdown on res, Which at this point, we don't think it's going to happen unless we'll take it one at a time. On pricing, I think we've got it about right, how we got it because we've got a little bit in the mid year, but it's going to flow through in 'twenty four. The cost piece, I think again, we've got to be mid single digits in the year and I think that Between efficiencies and comps, we get there. I guess at the end of the day, if I had to pick 1, I would probably pick the volume piece of that.

Speaker 2

Excellent. Thank you, Tom. Thank you.

Operator

The next question comes from Brent Thielman with D. A. Davidson. Please go ahead.

Speaker 4

Great. Thanks. Hey, Tom, nice to see the continued improvement in aggregates gross margin This quarter, I guess my question was more to the

Speaker 6

quarter and thinking about this going forward.

Speaker 4

With the East under some pressure

Speaker 6

Due to weather and

Speaker 4

some of those variables, was that actually a net negative to your reported profitability in that segment?

Speaker 2

I'm sorry, you said I couldn't understand what you were pointing out as a positive negative.

Operator

The East. We do have very attractive margins in our East Coast business. I think while there was Some wet weather, a lot of the strength in the private non res and these large industrial projects is in those areas. And so our volumes We're quite healthy in those markets.

Speaker 2

I also would tell you that I think the East what I was impressed with, we have wet weather in the East, The recovery time when those thunderstorms will blow through the next couple of days was impressive.

Operator

It appears we have no further questions at this time. I will now turn the program back over to Tom for any

Speaker 2

Well, thank you all for your interest and your time and your support of Wolfe Materials Company. We look forward to talking to you throughout the quarter and we hope that you and your families stay healthy and safe. Thank you.

Operator

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

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Earnings Conference Call
Vulcan Materials Q2 2023
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