Vulcan Materials Q2 2021 Earnings Call Transcript

Quartr
Provided by Quartr
August 4, 2021

There are 13 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to Vulcan Materials Company's 2nd Quarter Earnings Conference Call. My name is Christie, 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

Thank you, operator, and good morning, everyone. Thank you for joining our earnings call today. 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 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.

Speaker 1

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. This will help maximize our time together. With that, I'll now 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 and hope that you and your families continue to be safe and healthy. I want to begin today's call by taking a moment to congratulate our team for their solid execution during the first half of the year. Our performance through the 1st two quarters further demonstrates the strength of our aggregates led business. We expect the momentum we generated in the first half of the year to carry through the second half and we reiterate Our full year 2021 adjusted EBITDA guidance range of $1,380,000,000 To $1,460,000,000 For the first half of the year, our adjusted EBITDA increased by 7% And our average cash gross profit per ton expanded by 5% through a combination of volume growth, Higher pricing and improved operating efficiencies.

Speaker 2

Adjusted EBITDA for the 2nd quarter was $406,000,000 Essentially unchanged versus the same quarter last year. We achieved this result despite A $25,000,000 headwind from much higher diesel and liquid asphalt costs. Diesel costs rose by $15,000,000 in the quarter. Liquid asphalt costs were $10,000,000 higher than the same period last year and together with wet weather Negatively impacted the profitability of our non aggregate segments. Even after considering the energy headwind, Our average cash gross profit per ton grew by 2% in the quarter due to our team's consistent execution Our 4 strategic disciplines.

Speaker 2

With a 4% increase in aggregates volume in the 2nd quarter and the market's current visibility to demand, The pricing environment continues to improve. Freight adjusted aggregates pricing increased 3% in the quarter And the rate of growth improved sequentially throughout the quarter. Adjusted for mix, freight adjusted price improved 2.6%, Twice the growth rate realized in the Q1. Along with improved volume and pricing, operating efficiencies And cost control helped to offset inflationary pressures. Our total cash cost of sales Increased by 4% in the quarter versus the prior year.

Speaker 2

Excluding the diesel headwinds, cash cost of sales Grew by less than 1%. During the second half of the year, we will remain diligent and focused On controlling what we can control and on driving further improvements in our profitability. This solid aggregates performance Help to offset reduced profitability in the non aggregates segment. Our 2nd quarter non aggregates gross profit declined year over year due primarily To the higher liquid asphalt costs, which I mentioned earlier and lower volumes in both asphalt and concrete, Wet weather impacted asphalt shipments, while a shift in timing of projects, particularly in Virginia, resulted in lower than anticipated concrete shipments. Turning now to the demand picture.

Speaker 2

It has improved across our major end markets as well as geographies. The residential end use has shown continued strength with solid starts in single family housing. We've also seen an uptick in multifamily housing starts. Now with respect to the non residential outlook, improvement continues in a number of leading indicators and we have begun to see month over month Improvement in starts. The strongest non residential sector continues to be the work related to e commerce and technology infrastructure, But lighter traditional non residential demand is also recovering.

Speaker 2

The level of highway starts remained healthy in the first half of 2021 as states got back to normal funding and budget levels. On the broader subject of federal highway and infrastructure spending, We're encouraged by the progress made toward a highway bill with substantially higher funding over the FAST Act levels. We've also seen an acceleration of starts in public infrastructure such as water and sewer treatment systems, airports and storm and flood control. Before turning the call over to Suzanne, I want to briefly touch on our growth strategy and the recently announced agreement to acquire U. S.

Speaker 2

Concrete. We have 3 paths to growth and it's important to strike the right balance between these 3 in order to drive higher returns. Those paths are organic growth, greenfields and M and A. We always start with organic growth Because it offers the most attractive and compelling value proposition on a risk adjusted basis. We have a unique And irreplaceable asset base spread across the most attractive geographies in the U.

Speaker 2

S. Our 4 strategic disciplines Are designed to accelerate our organic growth and the benefits are clear as we expand our unit profitability. We also have a long and successful history of developing and opening new aggregate locations, particularly in growth quarters Where acquisition opportunities may be limited. We like the flexibility that Greenfields provide in regards to timing and pace of capital spending. Our 3rd growth engine is M and A.

Speaker 2

U. S. Concrete is a great strategic fit for Vulcan As it naturally complements our existing aggregates business, it also brings new geographic exposure to the company, Expanding and diversifying our already strong footprint into the Northeast. Along with my colleagues at both Vulcan and U. S.

Speaker 2

Concrete, I'm very excited about the potential for this combination. It will allow us to further drive sustainable long term shareholder value. And I look forward to welcoming the U. S. Concrete team to the Vulcan family.

Speaker 2

Now I'll turn the call over to Suzanne for further comments.

Speaker 3

Thanks, Tom, and good morning to everyone. I'd like to begin by highlighting a few key areas to consider this quarter. Our aggregates price realization, Unit profitability, return on invested capital and balance sheet strength. 1st, Our ability to consistently deliver compounding price improvements is an important driver of our unit margins. The current pricing environment is positive due to improving demand visibility and inflationary pressures.

Speaker 3

We've seen attractive sequential improvement in pricing through the first half of the year and we expect the momentum to carry over to the second half. Clearly, these compounding price improvements along with good operational execution are having a positive impact On our unit profitability, this quarter marked the 12th straight quarter of improvement And our trailing 12 month cash gross profit per ton. For the trailing 12 months, cash gross profit per ton With $7.26 and for the quarter, it was $7.83 per ton, moving ever closer to our current goal Of $9 per ton. The next area of focus is our return on invested capital. We are pleased with our Improving returns and on a trailing 12 month basis, return on invested capital was 14.8%, an increase of 60 basis points compared to the prior year period.

Speaker 3

This improvement was comprised of an essentially unchanged invested capital base And a 4% increase in trailing 12 month adjusted EBITDA. And finally, We will continue to prioritize our balance sheet strength to create the flexibility and optionality necessary To support our capital allocation strategy, at June 30, our net debt to EBITDA was 1.3 times, Reflecting $968,000,000 of cash on hand. Our debt has a weighted average maturity of 15 years With no significant maturities in the near term, it's important to note that even after the anticipated Close of the U. S. Concrete acquisition, our balance sheet will be in good standing, and we remain committed to maintaining our investment grade rating.

Speaker 3

Before turning the call back over to Tom, I do want to touch briefly on 2 housekeeping matters. First, you will have noted an increase in our interest Concurrent with the announced pending acquisition of U. S. Concrete in June, We obtained a bridge facility commitment to support the deal. Subsequently, we executed a 1.6 $1,000,000,000 delayed draw term loan, which will be used to fund the acquisition along with cash on hand.

Speaker 3

As a result, financing costs of $9,000,000 for the bridge commitment was recognized as expense in the 2nd quarter. The final matter to mention is our effective tax rate. And as a reminder, at the end of Q1, we increased our expectation of the full year rate To between 23% 24%. That guidance is still applicable. And with that, I'll turn the call back over to Tom for closing remarks.

Speaker 2

Thanks, Suzanne. Before we go to Q and A, I want to again thank the entire Vulcan team for their hard work And their dedication to serving our customers. Our people are what makes Vulcan better every day. I would be remiss if I didn't comment on the current COVID environment and the recent announcements by the CDC in response to the surge And the delta variant, we will continue to closely monitor the spread of the virus, ensuring the health and safety of our employees and their families. We will continue to operate Vulcan for the long term.

Speaker 2

This means keeping our people safe and healthy, Staying focused on strong local execution, driving unit margin expansion and improving our financial returns. And now we'll be happy to take your questions.

Operator

Thank you. The floor is now open for questions. And your first question comes from Trey Grooms of Stephens.

Speaker 4

Hey, good morning everyone.

Speaker 3

Good morning.

Speaker 2

Good morning, Trey.

Speaker 4

So Tom, your aggregates business Clearly performed well given some of the headwinds. Obviously, asphalt is facing Some challenges right now on the cost front, but as we look into the back half of the year, can you help us unpack Some of the puts and takes around the guidance, specifically around these different segments. Thank you.

Speaker 2

Sure. As you heard us say, we're confident in the full year guidance of $1,380,000,000 to $1,460,000,000 Which remember we raised that 90 days ago. As you said, probably with a little bit different puts and takes, We probably won't make up or won't be able to make up the shortfall in other aggregates, which is really asphalt. As we're playing catch up on liquid cost, now I would say to that Asphalt prices are going up and we'll see increased prices and probably improve margins in the second half, But probably not enough to offset all the liquid headwinds. That being said, aggregate volumes appear to be improving with demand improving in all In uses, so I'd call it asphalt being offset by shipping on the higher side of our volume midpoint.

Speaker 2

So, you know, aggregates, we're on the optimistic side of volume. Prices and aggregates, we reiterate the 2% to 4% range, Although we're seeing prices improving sequentially, from a cost perspective, we would still say that Over the 12 months, we'll be low single digits, so good operating disciplines, unit margin in the mid single digit range, Non aggregates a little lower, but improving, which brings me to, I'd say, confidence in that $1,380,000,000 to 1.46 $1,000,000,000

Speaker 4

guidance. Great, perfect. That's great color. Thanks for the thoughts, Tom, and take care. Thank you.

Speaker 2

Thanks, Trey. Thank you.

Operator

Your next question is from Stanley Elliott of Stifel.

Speaker 5

Hey, good morning everyone. Thank you all for taking the question And nice work in a very tough environment. Tom, can you talk a little bit more about what you're seeing in the price side of the equation? You mentioned sequentially improving. You've got the demand commentary, which looks encouraging into the back half of the year and into next year.

Speaker 5

Just curious to see what's happening on the ground in terms of the pricing dynamics. Thank you. Sure.

Speaker 2

And good morning, Stanley. Yes, when you have we have visibility to growing demand like we have right now and you couple that with Pressures from fuel and other replacement pressures, we know that prices will accelerate. They're probably accelerating a little faster than maybe we anticipated 90 days ago and it's probably a little brighter. At this point, I think we'd be premature to adjust our 2021 pricing outlook, but I think it bodes very well For pricing in 2022. As we said, in the Q1 call, as we called out, the rate of price Increases continues to escalate sequentially over time.

Speaker 2

We saw that in the quarter. We've talked about, I mean, if you mix adjust price in the 2nd quarter, it doubled Over the Q1 and then if you look within the Q2, prices increased sequentially month to month. I think that we'll see continue to see that sequential rate growth pattern throughout 2021. And I would expect that sequential improvement to continue in 2022, although maybe a little higher amplitude And here's why. We started talking about to our customers about second half price increases in May.

Speaker 2

On bid work, which is about 6% of our work, we have definitely increased price increases over the last 60 days on new jobs. Now remember there's a lag between that bid work. They won't ship for roughly 6 to 9 months. When it comes to fixed plants, we've had discussions and are having discussions about second half price increases and we've realized those in a few markets. But in our conversations with customers, they've been very positive, again, all supported by that clear visibility to growing demand and inflationary pressure.

Speaker 2

So While we see some benefit to 2021, this is definitely going to be a 2022 impact Because those jobs that we bid now or bid over the last couple of months are definitely going to benefit 2022 And we'll see a bigger impact on fixed plant prices in 2022. Again, I think I would expect to see that rate of Price increases continue to climb sequentially this year and that pattern to continue to into 2022. So this is just a really good Environment for pricing.

Speaker 5

Great, guys. Thank you very much. Best

Speaker 2

of luck. Thanks.

Operator

Thank you. Your next question is from Anthony Pettinari of Citigroup.

Speaker 2

Hi, good morning.

Speaker 6

Good morning. Tom, is the decision to acquire U. S. Concrete A function of a more optimistic view on volumes over the next 3 to 5 years may be consistent with what we're hearing from DC on infrastructure. You've talked about the attractiveness of the assets.

Speaker 6

I'm just wondering why now is sort of the right time to pursue the acquisition. Has market structure gotten better? Are you More optimistic on end market demand. Just wondering if you

Speaker 7

can give

Speaker 6

any more color there?

Speaker 2

Well, as you know, usually when one of those happens, it's a long And it takes a long term to make what those happen. So as you know, we've been talking for a while and thinking about it for a while and working with U. S. Concrete. I think if you step back with it, obviously market demand looks good for the short term.

Speaker 2

But again, when you do one of these, it's both short term and long term. And for both companies, shareholders, I think it was a good deal. If you step back and look at the geography works, both in California and Texas and in Virginia, and it introduces us to some really good positions In attractive new markets in New York and New Jersey, the aggregates their aggregates and ready mix assets are very attractive. I think it's a well run company. Their cultures work very much like ours.

Speaker 2

And I think the Deal is progressing nicely and we look forward to getting their team into the Vulcan family. We know them. They're talented And we think this thing is very complementary and the fact that the short term markets look very good is another benefit.

Speaker 6

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

Operator

Thank you. Your next question is from Jerry Revich of Goldman Sachs.

Speaker 8

This is Jatin Kumar on behalf of Cherry Revell. The balance sheet is projected to be in great shape post The U. S. Concrete acquisition, how would you characterize the M and A pipeline and the opportunity set for them?

Speaker 2

Yes. I think that the M and A pipeline continues to be good and is active. I'd say A lot more smaller targets, more bolt ons. We have the balance sheet to be able to do what we want to do or need to do there. But as always, I think You have to be disciplined about those and what markets do you want to be in and what synergies are unique to us, don't overpay And when you get them, make sure you integrate them fast and accurately.

Speaker 2

So there's a lot out there, but we'll be disciplined how we and we have the firepower, but we'll be disciplined how we look at them. Thank you. Thank you. Your next question

Operator

is from Keith Hughes of Truist.

Speaker 9

Thank you. You referred earlier in

Speaker 10

the call to $15,000,000 of diesel inflation. I think that was the 2nd quarter number. If you could talk about what that think that will look like in the 3rd, I assume it's probably going to go up some given where diesel has moved. And then maybe even in the 4th, how it's going to affect the rest of the year?

Speaker 2

Yes. I think we saw $15,000,000 impact on diesel, 16 for the quarter, 16.5%. So it was really Q2 impact, I think the Q2 will be the hardest hit for the year by diesel. And if you remember, Last year's diesel in the 2nd quarter, maybe I think was under $1 So just if you look at comparables, this will be the toughest hit. Who knows what's going to happen with diesel prices, but our best outlook would tell you the impact of the $20 to $25 range in the second That being said, I think we're comfortable with our operating efficiencies to be able to only have Low single digit cost climb for the full year, which right now we're under 1%.

Speaker 3

Yes. I think that was $20,000,000 to $25,000,000 in the second half.

Speaker 8

Okay. Thank you. And if I

Speaker 10

could sneak one more on U. S. Concrete, any kind of narrower timeframe when you think the deal will close?

Speaker 2

Second half at this point, I mean it's going along well, but those are hard to predict. So I just tell you second half.

Speaker 8

Okay. Thank you.

Operator

Thank you. Your next question is from Kathryn Thompson of Thompson Research Group.

Speaker 3

Hi. Thank you for taking my question today. Could you clarify how much of price controls versus pricing play and tear out expectations? And are you seeing Are there certain geographic areas where you're seeing greater relative strength over there, greater opportunities in light of both price and on cost controls? Thank you.

Speaker 2

I'm sorry, Catherine, I couldn't hear the first part of that question.

Speaker 3

Yes. Could you clarify how much of price controls Versus pricing have played into your expectations, not just for 2021, but into 2022? And what geographic markets are you seeing greater relative upside? And are there greater opportunities for Pricing there, but also other operational efficiencies that maybe didn't present themselves to the same degree earlier this year.

Speaker 2

Yes, I think that if you step back and look at all of this, the pricing environment is as good as we've seen it in a while. Now you've got temporary inflationary pressures with diesel, but that is good for pricing because It allows you to have the ability to raise prices, particularly with the demand environment being what it is. And I think with good cost control, I think we're confident with that mid single digit, unit margin improvement. From a pricing from a geographic Perspective, it's really widespread. We raised bid prices across our footprint Over the last 2 months, I think that the second half fixed plant price increases, a few places in the Southeast, But that will really be a more of a 2022 play with hopefully higher amplitude on pricing and maybe earlier in the year.

Speaker 2

So you got temporary pressures from inflation, but really a good setup from for prices moving forward. And I think that we've got a pretty good proven record on cost control to offset inflationary pressures, and we'll catch up with diesel even on cost control.

Speaker 3

Yes, Catherine, I would just add to that, that look, when you look at the performance in the second quarter and also in the first half, Certainly very good from a pricing perspective, as Tom said, which was expected. But despite the diesel headwinds, we also had a very good Cash cost performance as well. Cash cost of sales was up 4% in the quarter, but if you back diesel out of that, Which rose significantly and rapidly. Our expenses were less than 1% rise year over year. So Yes, we certainly experienced some inflation in other parts of the business and other input Products besides diesel, but again, we had sufficient operating efficiencies and cost control To hold those cash costs to within less than 1%.

Speaker 3

And so if you have the combination of Good pricing discipline and those rises we've talked about and we have good control over Costs, which is one thing that we should be able to fully control, then you get the good results in cash gross profit Per ton that we talked about. In Tom's comments, he called out that cash gross profit per ton was up 2%. If you exclude diesel from that, it's up 5%. So again, a very good Performance and it just shows when you focus on the things that you can control what can be accomplished. In fact, If you look at the progression of cash gross profit per ton and you look at it on a trailing 12 month basis ended with the 2nd quarter In 2019, and you compare that to the trailing 12 months ended the Q2 in 2021, so that's kind of 24 month Period there.

Speaker 3

It's up 5%. So that's something that we will we're always focused on. We always like to talk about that

Speaker 2

Thank you.

Operator

Your next question is from Mike Dahl of RBC Capital Markets.

Speaker 11

Good morning. Thanks for taking my questions. So my first question, clearly there's still some moving pieces around kind of the legislative agenda as it relates to the Standalone infrastructure bill and potential reconciliation, but it does seem like things are kind of Taking shape in a more tangible form. So just wanted to ask for your thoughts on as you've read through The text and the amendments, how you're thinking about the potential support from the infrastructure bill? And How might we see these tailwinds manifest in terms of both timing and magnitude in your view?

Speaker 2

Yes. I would tell you that we're excited about it. I mean, this is a multi generational opportunity for highway funding And one that our country sorely needs. So this is exciting for us not just for the company, but also for the country. We're confident that Congress passes on an infrastructure package to include a long term reauthorization of the FAST Act.

Speaker 2

It would be a roughly 60% increase from the FAST Act. At this point, all signs point to those Significant increases in core highway funding. We think the Senate should pass their bill in the next week, which is incredibly exciting. And then I think we're confident that Congress passes the bill this year. Now it always I would Caveat that, it always takes 1 to 2 years to see funding pass into shipments.

Speaker 2

Usually we normally say 2 years, but I think state DOTs have really matured into their substantially increased funding and are much Have much greater ability to step up work faster than what we saw over the last 3 years when the states dramatically increase state funding.

Speaker 3

And I think yes, I'd just add to that one more. Of course, the Prospect of the passage of a bill, as Tom said, it's very exciting. I mean, from our perspective, It also provides an opportunity, we think, to kind of extend the cycle, giving us A longer period of time to continue to compound price, which then flows into compounding unit margins, back to my earlier point.

Speaker 11

Great. Okay. That's good to hear. And

Speaker 8

my second question,

Speaker 11

I guess, Tom, you made a comment about Just the expected second half close and things going well with U. S. Concrete. When you say things going well, I just wanted to I'd ask if you could elaborate a bit more. Is that going well in terms of your conversations management to management, field team to field team or Integration wise or is that a comment specific to your conversations with the DOJ and any update you can give on the review process?

Speaker 2

I mean, short answer is all of the above. We've had conversations management team to management team. We've Looked at what we have to do integration, obviously that's limited until we close. They've got to run their business independently of ours and vice versa. We're getting to know each other better, getting to know capabilities better.

Speaker 2

How do you overlay that and how do you move quickly but accurately? And then the DOJ process, I think is going at this point quite well and we feel confident that we'll close it this year.

Speaker 11

Sounds good. Thank you. Thank you.

Operator

Thank you. Your next question is from Garik Shmois of Loop Capital.

Speaker 10

Great. Thanks for having me on. I was wondering if you could provide some more color just on the timing headwinds you saw that impacted the Concrete segment. Do you think it's specific And I'm wondering if there's any potential delays in other parts of your business perhaps due to inflation or labor constraints That might be coming down the pike here in the second half of the year.

Speaker 2

Yes. Good morning, Gary. The short term impact was timing of jobs. It had us impacts about $4,000,000 in the second quarter. That was really some big jobs in Northern Virginia.

Speaker 2

They'll ship, we think, second half of this year and the volume should return. I think it's Candidly a good time to be in the ready mix business, while again, while you have the short term challenges of diesel, you're seeing ready mix prices Moving with great momentum in many markets around the country, we'll see 2 to 3 price increases this year alone As will ours. So, while you've got this quarter, maybe next, some short term headwinds from fuel, pricing is moving Rapidly and I think that's a really good sign for the ready mix business along with those The demand and end uses is improving at same as aggregates.

Speaker 10

Okay. And just to be clear, you're not really seeing any delays in other areas just because of Labor inflation or material inflation or supply chain constraints that might be backing up?

Speaker 2

No. The jobs that we saw in the second quarter were just Timing on the jobs, it wasn't inflation supply or labor constraints.

Speaker 7

Great. Thanks for that. Thank you.

Operator

Thank you. Your next question is from Adam Thalhimer of Thompson Davis.

Speaker 7

Hey, good morning guys. Good morning, Tom. I'm just curious on the U. S. Another one on the U.

Speaker 7

S. Concrete deal. Just curious How you are framing this to investors who are worried that you're increasing downstream exposure?

Speaker 2

Well, I think that if you look at our history, Number 1, we've gone from 95% to 85% of our EBITDA coming from aggregates. When this closes, 85% of our EBITDA will From Aggregates. I think more importantly, you got to look at how the two companies match up. The geographies work Tremly well. California, Texas, Virginia, we match up very well.

Speaker 2

The if you look at their technical capabilities, They're a very good operator in ready mix concrete. We think they can help us. We think we can help them with our Ability to expand unit margins, collective ability to expand unit margins and aggregate. So we help each other. We think the culture fits ours very well.

Speaker 2

And you also got to remember there's 12,500,000 tons of aggregate in U. S. Concrete and so it is also Which is very complementary in places we aren't or product lines that we aren't. So it's very complementary to us. So And as I said, the management team fits very well.

Speaker 2

We know them well. They know us well. We started talking. We always talk to each other because we know each other very well. But In our conversations and pre closing and to start to figure out how we put the companies together, it's going extremely well.

Speaker 2

So I think if you talk to anybody on the collective teams, we're all excited about this and see lots of opportunities. Thanks, Tom. Sure.

Operator

Thank you. Your next question is from Phil Ng of Jefferies.

Speaker 6

Hi, this is actually Colin on for Phil. Thank you for taking my question. Can you parse out how your different end markets performed to contribute to that 4% year over year increase Aggregate shipments and then maybe dive a little bit more into trends in the non res end market and how that business is tracking versus 2019 levels?

Speaker 2

Sure. I think if you look across our footprint, it's pretty consistent. Non res is improving. Non res starts on a trailing 6 month or trailing 3 month basis have now turned positive. We continue to see strength as you would imagine the heavy non res, the warehouse and distribution centers.

Speaker 2

But now we're seeing growth in Things like government buildings, institutional buildings, healthcare, private schools and churches and we're just starting to see green shoots on Stores that follow new subdivisions. So, I'd call non res out across our footprint pretty much as improving. Residential, it's going great. Single family starts on a trailing 12 month basis were up 31% in our markets. Inventory is extremely low.

Speaker 2

This is almost all new subdivision work, which is more and more aggregate intensive. So demand growth in this sector will continue to grow and still not overbuilt. Now you're seeing multifamily improvement Permits for both multifamily and single family would support continued growth. So it's just strong on the res side. Highways, Good.

Speaker 2

We're confident. We've returned back to normal. I can talk about that more later. I think what's exciting, which is a little bit of a shift that we're seeing now, We're seeing growth in non highway infrastructure. And this is we started to see this in kind of the end of 'nineteen, beginning of They got shut down with the pandemic, but on a trailing 12 month or 6 month 3 month, it's very good.

Speaker 2

And It's more in the sector of water, sewage and you remember that the housing growth is also driving The non highway infrastructure. So all in all, you've got non res returning and has made the turn, the other 3 are now growing.

Speaker 6

Great. Thank you for the color. Sure.

Operator

Thank you. Your next question is from Josh Wilson of Raymond James.

Speaker 7

Good morning. Thanks for taking my question. Good morning. Just to make sure we tie out all the moving parts in the second half, can you update the Gross profit guidance, I think before you had said, that the non aggregates gross profit collectively would be up mid to high single. Where are you thinking that shakes out now?

Speaker 3

Yes. I'll speak to that. In terms of Our cash gross profit per ton, that's usually the measure that we call out. We had for the full year, we had talked about that Being sort of mid roughly mid single digits and we don't see a reason to

Speaker 2

Yes. I think if you look at and this is more of a longer term view of this as always because cost can be So variable within a quarter, but year to date, we're at 5%. I think we tell you that as we march through the year probably We'll absorb the inflationary pressures and we'll end the year at mid single digit from a cash gross profit per ton.

Speaker 7

Got it. And with the heavy non resi that's been the driver for so long, are any geographies seeing any Moderation there at all or even if it's in like quoting activity?

Speaker 2

No, it's still going well. And what's interesting about that is Because it's big and flat, it's very agri intensive, but their ability to go from bid to turning dirt and shipping rock is Probably as fast faster than any segment we're seeing. I mean, they're really quick at it. So, I don't see any slowdown in it. The good news is, as we said, the light side is starting to see Some growth in even stores, which are kind of the last one to fall in here is starting to follow the subdivision with Green Shoots.

Speaker 7

Great. Good luck with the next quarter.

Speaker 2

Thank you.

Operator

Thank you. Your next question is from Brent Thielman of D. A. Davidson.

Speaker 12

Hey, thank you. Good morning.

Speaker 3

Good morning.

Speaker 12

Tom, can you talk about the California public and private bid environment, just given you That's when your higher priced markets, you're getting a good chunk of revenue from USCR there.

Speaker 2

Yes, I would tell you very good news. The residential market continues to improve a little bit better in Southern California, the Northern California, which was the hardest hit with the shutdown. Non res again excuse me, res is healthy. The non res is improving Again, probably a little faster in Southern than Northern California, but both on the mend. Caltrans is a great story.

Speaker 2

Caltrans came out this week And upped their outlook for lettings in 2022 by over 50%. So great news from Caltrans. They have really matured into their funding fast. They got a lot of needs and they're going to put that money to work. So Both for our aggregates business, our asphalt business, our concrete business and future aggregates and concrete business from U.

Speaker 2

S. Concrete, Good signs, good omens and good news.

Speaker 12

John, that's their fiscal 2022, is that right?

Speaker 2

Yes. So that starts July correct. Caltrans, that's fiscal year 2022. So that starts, I believe July 1 started July 1.

Speaker 12

Very helpful. Thank you. Best of luck.

Speaker 11

Thank you.

Operator

Thank you. Your next question is from Michael Dudas of Vertical Research.

Speaker 9

Good morning, Tom.

Speaker 3

Good morning.

Speaker 9

So just back to U. S. Concrete, your expectations on Your return profile on the investment over the next several years, what were your expectations or how they frame relative to other investment Maybe you can tie that back to once the deal closes and the balance sheet gets restructured, your go forward targets on Whether certain type of debt levels, priorities on cap allocation and will there be any More allocation one way or the other given how well you think the concrete can bring the cash into the business.

Speaker 2

I wouldn't see a big shift in capital when you put the 2 together, Either up or down, obviously, I don't I think again, I wouldn't see a shift in priorities in putting the 2 together. I think it gives us a lot of more flexibility on moving capital around and how we allocate it and mix and then matching. Again, I think we got to get it closed and we can give you a lot better view of returns and how that's going to look and give us let us Put the teams together and really close, but I would tell you at this point, I am more optimistic than I was when Before we started talking to them and feel very good about it and that's how what happens when we put the 2 together and how we Help each other, but also the short term, the markets look to be improved. Do you think just from

Speaker 9

your early indications that Just Concrete was Well capitalized in its current asset base?

Speaker 2

I think they're fine. I think it's a well run business. I think that team has done a good job. I think like all of us they've got places where they feel better than others. We would tell you the same thing about ours, but I don't think Again, I don't see any big shift with this and I think that team has done a good job with allocating capital as well as running the business, servicing their customers

Operator

Thank you. We have no further questions at this time.

Speaker 2

I will

Operator

turn the call back over to Tom for any additional or closing remarks.

Speaker 2

Thank you for your interest in Vulcan Materials. We look forward to talking to you next quarter or throughout the next few days weeks months. As always, the world is Changing and we hope that all of you stay healthy and safe and keep your families healthy. Look forward to

Speaker 8

talking to you. Bye bye.

Speaker 3

Thanks.

Operator

Thank you. This does conclude today's conference call. You may now disconnect.

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Earnings Conference Call
Vulcan Materials Q2 2021
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