Vulcan Materials Q4 2021 Earnings Call Transcript

Participants

Corporate Executives

• Mark D. Warren, Vice President, Investor Relations
• Thomas Hill, Chairman, President and Chief Executive Officer
• Suzanne H. Wood, Senior Vice President and Chief Financial Officer

Analysts

• Noah Merkousko, Stephens
• Stanley Elliott, Stifel, Nicolaus & Company, Inc.
• Kathryn Thompson, Thompson Research Group
• Jerry Revich, Goldman Sachs & Co.
• Anthony Pettinari, Citigroup Global Markets
• Garik Shmois, Loop Capital Markets
• Michael Feniger, Bank of America Co.
• Chris Wright, RBC Capital Markets
• Philip Ng, Jefferies Financial Group Inc.
• Adam Thalhimer, Thompson Davis & Co.
• Michael Dudas, Vertical Research Partners
• David MacGregor, Longbow Research
• Courtney Yakavonis, Morgan Stanley

Presentation

[Operator]

Good morning, ladies and gentlemen, and welcome to Vulcan Materials Company's Fourth Quarter Earnings Call. My name is Catherine and I will be your conference call coordinator today. [Operator Instructions] Now, I will turn the call over to your host, Mr. Mark Warren, Vice President of Investor Relations for Vulcan Materials. Mr. Warren, you may begin.

[Mark D. Warren, Vice President, Investor Relations at Vulcan Materials]

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 vulcanmaterials.com. A according to 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. 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&A participation to one question.

With that, I'll turn the call over to Tom.

[Thomas Hill, Chairman, President and Chief Executive Officer at Vulcan Materials]

Thank you, Mark, and thanks to everyone for joining the call this morning. We appreciate your interest in Vulcan Materials Company and hope that you and your families continue to be safe and healthy. As you will have seen from the press release this morning, Suzanne is decided to retire in September to spend some well reserve 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 fourth quarter performance and Suzanne will cover the full year performance later on. I want to thank our team for its strong execution during the fourth quarter. Our financial results were ahead of expectations despite ongoing challenges from inflationary pressures, particularly in energy and labor constraints. 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.

We generated $383 million of adjusted EBITDA this quarter, an increase of 23% over 2021. Energy-related inflation was the most significant impact to our business with $36 million worth of higher costs, of which $17 million related to diesel fuel, while the remainder related to liquid asphalt and natural gas. Labor pressures caused higher labor costs due to over time. In the face of these challenges, we were able -- still able to manage our controllable costs well. Aggregates cash unit cost of sales increased less than 1% as compared to the prior year's fourth quarter. 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 safety performance.

Our operating performance helped us improve aggregates cash gross profit per ton by 6% to $7.41. This result includes an $8 million acquisition-related impact for selling acquired material after its mark-up 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 four strategic disciplines, which helped to drive volume growth, higher pricing and improved operating efficiencies. These strategic disciplines will help us take advantage of the favorable demand and pricing 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%. This reflects, not only continued improvement in demand across all end markets, but also favorable weather in November and December. The aggregates 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 improve throughout the year having started at 1.3% in the first quarter.

The pricing actions taken to date along with better demand visibility set the stage for a favorable pricing environment in 2022. Asphalt gross profit was $4 million in the quarter compared to $17 million last year as a 35% increase in liquid asphalt cost created a $17 million headwind for us. As we discussed before, liquid asphalt costs were at three-year lows in 2020 and a significant fluctuation of these costs have made for a more difficult comp year-over-year. The good news is that our selling price for asphalt mix increased 5% from the prior year quarter. Through 2022 as pricing catches up we will work to get back to asphalt segments long term averages in terms of margins.

Concrete's gross profit grew from $9 million to $22 million in the fourth quarter. 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. Concrete. We continue to be excited about this acquisition and how it expands our footprint. 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 fourth quarter with both -- from both operational and back office standpoint. I am pleased with how the business and management teams have blended seamlessly during the first four months of ownership. We remain confident in our ability to generate at least $50 million of initial synergies -- of initial cost synergies on a 12-month run basis beginning mid-year.

Now, I'll touch briefly on the demand picture, which is increasingly positive. The key takeaway is that for the first time in many years all four end-users are expected to grow. The residential end use has continued to show growth in starts in both single family and multifamily housing and we expect starts to continue at these higher levels. Non-residential starts continue to strengthen over a broader range of categories, improving non-residential demand will be positive and help drive growth in our aggregates and our concrete businesses.

On the public side, growth is expected in both highways and other infrastructure. The recently enacted infrastructure investment in Jobs Act will add to existing demand as well as a long getting cycle. Having said that, we do not expect it 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 legislation in coming years.

Before I turn the call over to Suzanne, I want to reiterate our confidence in 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 our 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?

[Suzanne H. Wood, Senior Vice President and Chief Financial Officer at Vulcan Materials]

Thanks, Tom, and good morning to everyone. While we faced some challenges in 2021, it was a year of significant accomplishments, including the completion of our acquisition. Our most notable financial achievements were the growth and our unit profitability and adjusted EBITDA. Full year aggregates cash gross profit per ton rose by 5%, while adjusted EBITDA increased by 10%.

The ability to generate numbers like this while incurring $93 million of higher energy-related costs across the segment demonstrates the strength, flexibility and resiliency of our aggregates focus business model. It also points to the contributions of our four 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 at 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. 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 long maturities that makes 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 three years.

Now, turning to our outlook, let me make a few comments before turning the call back 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. 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 $1.72 billion and $1.82 billion. The midpoint of this range represents a 22% increase over 2021. We've outlined a 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 I mentioned on the third quarter call, volumes may be affected by labor constraints, and therefore, we've tried to be thoughtful about the volume guidance range. 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 are 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 million to $325 million with 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.S. Concrete, but also from improvement in our asphalt and legacy concrete businesses. SAG expenses will range from $485 million to $495 million, reflecting the inclusion of U.S. Concrete and anticipated synergies as described on our last call. And finally, we expect to invest between $600 million and $650 million in capital expenditures, including growth and capacity adding projects. This compares to $465 million 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.

[Thomas Hill, Chairman, President and Chief Executive Officer at Vulcan Materials]

Thank you, Suzanne. Before we go to Q&A, I want to comment on a supply chain issue. For 30 years, Vulcan Materials has quarried limestone Playa del Carmen, 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 that facility. They operating 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 future reserves. A hearing took place in 2021 and we expect a ruling in the second half of 2022. We have continued to engage with government officials to pursue an amiable resolution of that dispute. However, recently, Mexico has taken additional actions that adversely affected 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. 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 three key elements of our near-term strategy that will deliver value for our shareholders are the following. One, execute at a local level; two, drive unit margin expansion by focusing on our four strategic disciplines; and three, maximize synergies with U.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. Our culture and our people are key to our success and there 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 1. She is the ideal person to step into Suzanne shoes. Having worked 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 your questions.

Questions and Answers

[Operator]

[Operator Instructions] We'll go first to Noah Merkousko with Stephens. Your line is open.

[Noah Merkousko, Analyst at Stephens]

Good morning, everyone, and congrats on a nice finish to the year.

[Thomas Hill, Chairman, President and Chief Executive Officer at Vulcan Materials]

Thank you.

[Noah Merkousko, Analyst at Stephens]

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 '22?

[Thomas Hill, Chairman, President and Chief Executive Officer at Vulcan Materials]

Sure. I think as we look at '22 it's important we look back because it sets the tone. Goes to '21. I'm really proud of our people's performance over -- really over the last two years, despite -- if you think about despite a pandemic, labor shortages, inflation, we were able to grow margins mid single-digit over the last two 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 million in extra energy costs. This is just a job well done. And if you look forward to '22 it's shaping up to be a really exciting year. We've got all four end uses should experienced growth. 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, but we tried to be thoughtful there.

So we got to see that happen first. Pricing momentum build through the year in '21 and we've carried that momentum into '22. I think we'll see continued disciplined cost control like we saw last year, even in the face of inflation, and that discipline allows us to grow aggregate unit margins by high single-digit in '22. And so we'll see, on top of that, I think will see both volume and unit margin growth in concrete and asphalt as we march through '22. Now, remember, the first quarter is going to have some challenges. You still got the same energy comps you saw in Q3 and Q4 of last year, we probably ought to have a challenge of energy of some $35 million. Weather was challenging in January, February. You had some COVID spikes that affected crews and labor in January. But I think we quickly get past that and have a really strong and exciting '22.

[Operator]

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

[Stanley Elliott, Analyst at Stifel, Nicolaus & Company, Inc.]

Good morning, everyone, and thank you all for taking the question. And Suzanne best of luck and I hope plenty of time to hear you on these calls. But can you talk a little bit more about the confidence that you're seeing on the residential market. I mean, some of the mortgage rate, some of those sorts of numbers seem to be maybe not quite as positive as we've seen. But on the flip side, certainly I think there is an argument. There is a lot of markets that are structurally going to built in part of your footprint, but 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 little more confidence even beyond '22.

[Thomas Hill, Chairman, President and Chief Executive Officer at Vulcan Materials]

Yeah. Good morning. First of all, and I would tell you, I think, res we see strong growth in '22. I think it's very widespread across almost all of our markets, maybe some weakness in Chicago, Baltimore. You've got new subdivision construction continuing. So it's very aggregate intensive which is great for us. Now, I would tell you it's going to be a bit slower. It grow at a bit slower rate than what we saw in '21, 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 say. Now, if you just step back and look at interest rates, Freddie Mac rate for 30 years at 3.7 that's still extremely low rate. So at -- while not as fast as '21 it will see growth.

[Operator]

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

[Kathryn Thompson, Analyst at Thompson Research Group]

Hi, thanks for taking my questions today. And Suzanne, best of luck with your new chapter.

[Suzanne H. Wood, Senior Vice President and Chief Financial Officer at Vulcan Materials]

Thank you.

[Kathryn Thompson, Analyst at Thompson Research Group]

I wanted for guidance for '22 I just want to look backwards in order to look forward just for some clarifications, especially with USCR in the mix. First on the concrete side, some puts and takes on the concrete business and how New York and California ops were impacted by Omicron shutdowns and what does that mean going to '22. And then on the aggregate side, once again the guidance bridging the delta between same-store sales volumes versus those contributed by USCR in Q4 and frame how that delta should be accounted for in '22 guidance. Thank you.

[Thomas Hill, Chairman, President and Chief Executive Officer at Vulcan Materials]

Yeah. 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, Q4 was up 13%, 7% on same-store, but you got to really look at those quarters to understand that. Remember Q3 comp was 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 and December. Now, when you turn to '22, as we said, the good news is the fundamentals are there. We're seeing growth in all four end uses. But you got -- that's dampened by challenges from supply chain and labor and for our customers and in particularly for our carriers. Transportation maybe a challenge. It's probably going to be a challenge in '22. So, the gap in the volume is growth of 5% to 7%. Same-store is really hard to call out because those businesses are now so integrated. So there's a lots of mix I imagine. But if I had to call that out I'd call it 2% to 4% range. We tried to be thoughtful about that guidance because of all of the challenges we're seeing from labor and supply constraints. But if the supply chain and labor ease up we've probably got upside to volume in aggregates.

On concrete, if you remember volumes were challenged in concrete in 2021 due to -- in California and New York because they with the most severe shelter in place and the government ask to shut down. So when we got to a point where we couldn't get -- our customers can get building permits, I think that as you look forward -- and then we had challenges with diesel and efficiencies because traffic back in. But I really like how '22 is shaping up for concrete. Volumes should be much improved. We passed the air pocket of shelter in place all in California, New York. Remember you got non-residential demand segment turns --is turned to growth in 2022. That's a big impact on concrete. DFW continues to be very good. So we will see volume growth in 2022, but we'll also start to see margin expansion as prices have moved pass headwinds. You couple all of this with our California, Texas and Virginia of the Vulcan USC businesses, our function is one I think concrete will be a much improved business in '22.

[Operator]

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

[Jerry Revich, Analyst at Goldman Sachs & Co.]

Yes, hi, good morning, everyone. And Suzanne congratulations.

[Thomas Hill, Chairman, President and Chief Executive Officer at Vulcan Materials]

Good morning.

[Suzanne H. Wood, Senior Vice President and Chief Financial Officer at Vulcan Materials]

Thank you.

[Jerry Revich, Analyst at Goldman Sachs & Co.]

I'm wondering if you 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 their 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 costs in real-time as we face this disruption? Thanks.

[Thomas Hill, Chairman, President and Chief Executive Officer at Vulcan Materials]

Yeah. 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, we are in negotiations become to a resolution that benefits all the parties of interest. Mexico is interested in our properties for tourism, which we believe will coexist with our -- with -- of our existing operations. In fact, we think that continue to operate there will ultimately benefit the overall volume for tourism and we believe this will happen. So, if you kind of put it in perspective, we shipped a little over 7 million tons from -- to the U.S. 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. It will be fine if you could supplement some by rail, but at this point we're shipping and we're servicing our customers. I think you really step back in this and the big picture for all of this stuff and the opportunity in '22 is a big opportunity we're talking about in volume and price. And so overall shaping up to be a very good year and we'll get our situation in Mexico.

[Operator]

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

[Anthony Pettinari, Analyst at Citigroup Global Markets]

Good morning.

[Thomas Hill, Chairman, President and Chief Executive Officer at Vulcan Materials]

Good morning.

[Suzanne H. Wood, Senior Vice President and Chief Financial Officer at Vulcan Materials]

Good morning.

[Anthony Pettinari, Analyst at Citigroup Global Markets]

And congratulations to Suzanne on the next chapter.

[Suzanne H. Wood, Senior Vice President and Chief Financial Officer at Vulcan Materials]

Thank you.

[Anthony Pettinari, Analyst at Citigroup Global Markets]

Tom, I was 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 '22 and maybe more in '23. And then in terms of the appropriations bill, which seems like it's been stalled, is the delay there, does have the potential to meaningfully impact the timing of that infrastructure spending and when you would see that through aggregate sales just any thoughts on that.

[Thomas Hill, Chairman, President and Chief Executive Officer at Vulcan Materials]

Yeah. I think, first of all, to highway demand in '22, we'll see growth there. I think it will flow through and probably ramp up as the year goes along. States are flush with capital. Tax receipts are up across the board. And remember those states still have COVID relief funds, and now that money is accelerating in lettings and bid work. So '22 demand should grow throughout the year sequentially. We don't think we'll see any of the funds in '22, maybe a little bit in the year, but it's really a '23, '24 play. So let's step back and look at how IIJA flows. Money flows two two ways through this. First funds that which flow through regular federal programs prior to IIJA like -- things like the FAST Act are fully available to states passed appropriations once we get appropriations. Second funds our new discretionary programs will follow later, because you have to write the -- you have to write in and act the programs. This is why we say that funding will take -- the new funding, the additional funding would take time to fall through, which is why we predict will start to hit in '23, '24. But I think some important to remember 76% of IIJA funds will be distributed states via formula. So, two-thirds of those formula funds will go into Vulcan states. This is a big deal and a big advantage to Vulcan served states.

[Operator]

The next question comes from Garik Shmois with Loop Capital. Your line is open.

[Garik Shmois, Analyst at Loop Capital Markets]

Hi, thank you. On the pricing guidance, obviously, it seems like the increases here at the beginning of the year and throughout the first quarter being well accepted. But if you could provide any color on how those discussions are going and does the guidance at all rely an additional pricing beyond what you've already announced. And of course let me throw my congratulations to Suzanne there as well.

[Suzanne H. Wood, Senior Vice President and Chief Financial Officer at Vulcan Materials]

Thank you, Garik.

[Thomas Hill, Chairman, President and Chief Executive Officer at Vulcan Materials]

Yeah. Pricing I think is a really good story from the beginning of last year is -- we've built a lot of momentum as we talked about in '21 and we've carried that into '22. Look we said all-time inflation and visibility to growing demand are excellent catalysts for price increases. And you saw us our guide to 6% to 8% of price range. We have a lot of confidence in that. It's very widespread is 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. It's way to recall that. We'll start having discussions here in the next few months about that. And I think we have a lot better feel for that as we get into the second quarter. But at this point six days great. As the world goes along the demand continues to improve. There'll be opportunity for pricing. But I think we're confident in the the midpoint of 7% or the range of 6% to 8% going into this. And that's -- that leads us to high single-digit unit margin growth with our operating abilities and we think that's a strong showing for '22.

[Operator]

The next question comes from Michael Feniger with Bank of America. Your line is open.

[Michael Feniger, Analyst at Bank of America]

Hey, everyone. Thanks for taking my questions. I recognize that 2022 still contending with these inflationary costs. I think you said you're embedding mid single-digits. I'm just curious if that is picking in where diesel and liquid asphalt our today or any relief there. And then when we think of 2023, is there any chance that we see some relief the incrementals on the aggregate side could be in that 60% target range? Thank you.

[Thomas Hill, Chairman, President and Chief Executive Officer at Vulcan Materials]

Let's take a remote first. I mean we were very close to -- just below 60% in '21. I think we will 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 bigger jumps in diesel cost is a heck of an operating performance. I'm proud of that performance in '21 and are confident we'll be able to do it in '22 from to get to the target of 60% of incrementals. As you look at the operating side of the business in cost, I would tell you, I could not be more proud of our Vulcan operators and with their performance in '20 and '21 and going into '22. As always, they were make sure that our people were healthy and safe. Then let's look at they just crush rock like champs. And just step back and think.

Our total cost of sales was only up 1.5% last year with diesel up over $40 million 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, those men and women. We're carrying that momentum into '22. We're calling out maybe a little higher cost increases with mid single-digit really driven by, as you call it out fuel, but you also got labor and you got inflation just everything we use, but that still leaves us to high single-digit unit margins and in a period of inflation we've got that is a very good performance. And that's what Vulcan is built for. That's what we talk about all the time. This is who we are. We've built to dampen headwinds like you see and take advantage of tailwinds with the extra volume and price and we did in '20, we did it in '21, I have all countries of the world will -- these our men and women will be able to do it in '22.

[Operator]

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

[Chris Wright, Analyst at RBC Capital Markets]

Hi. This is actually Chris Wright on for Mike. Thanks for taking my question. I was hoping to ask about kind of your thoughts on the supply chain outlook. This year obviously has implications on volumes and pricing. So I was wondering, you mentioned potential upside if things start to improve, any sense you could anyway to help quantify the potential upside there and to extend supply conditions don't improve what upside is there on the pricing as an offset. So just your thoughts on how that evolves through the year.

[Thomas Hill, Chairman, President and Chief Executive Officer at Vulcan Materials]

Yeah. It is for us and I'll pick our operations, then our customers. Our procurement folks, I'll call them out, they did a great job. We've had very few internally. Now getting right to customers it was a challenge in '21, it will be a challenge in '22 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. I think it will get better, but it's still a challenge. And then you just look at projects out there and you talk to our customers and it's everything from switchgear to types of pipe to door knobs 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. Again if things start to ease up, I think you've got opportunity there. As that -- as we look at price, I would call our cadence of price last year it was a pretty sharp curve. I think that curve will be -- will 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 start in the first quarter, and working all the way through. Again if we have opportunities for second half prices and it's too early to call, maybe that gets -- curve gets a little steeper or that slope gets a little steeper. We'll keep plugging into that and we'll keep you posted.

[Operator]

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

[Philip Ng, Analyst at Jefferies Financial Group]

Hey, guys, Suzanne, thanks for all the help through the years, and Mary, congrats. I'm looking forward to working with you. Tom, I guess you kind of alluded to mid-year price increases a few times on this call. I believe you're -- 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 one this year. So how do you guys kind of approach that? Had you started signaling to your investor, I mean, your customers on potentially a mid-year price increase for aggregates? And any color on the pricing momentum you're seeing in California. How does that kind of stack up to I think the 5% to 8% you guided? Thanks a lot.

[Thomas Hill, Chairman, President and Chief Executive Officer at Vulcan Materials]

I think that at this point, I think you guide to the 6% to 8%. I think we know we are -- this is February. This is a middle of February. We're just starting to have conversations with fixed plant -- about mid-year. It's really early in the process. Same thing with bid work way too early to call. 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 is 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. So the whole sector is going up. Again that visibility of growing demand gives people the confidence 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 have is -- beginning to have conversations about second half pricing and there's -- there may be opportunity there. It's way too early to call.

[Operator]

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

[Adam Thalhimer, Analyst at Thompson Davis & Co.]

Hey, good morning, guys. Congrats on the strong Q4. Hey, on the asphalt side, Tom, real quickly, can you comment on the outlook for volumes in California and Arizona this year?

[Thomas Hill, Chairman, President and Chief Executive Officer at Vulcan Materials]

Yeah. Good. Both of them improved. Arizona got hit last year and it was a problem for us with volume in '21 and it was really timing on projects and it was supply chain. We got held -- our customers got held up with I think some big piping in other parts for utilities they just held our projects. But I would tell you both have opportunity for improved volume. And I think that like the rest of the product line as we march through the year sequentially and prices go up, aggregate in the second half, we will see margin growth. Now, the first half is going to be challenge, because you probably got a big negative comp in liquid AC of about $15 million 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 transient and we'll catch it.

[Operator]

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

[Michael Dudas, Analyst at Vertical Research Partners]

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

[Suzanne H. Wood, Senior Vice President and Chief Financial Officer at Vulcan Materials]

Yeah. Thank you.

[Michael Dudas, Analyst at Vertical Research Partners]

Tom you mentioned in your prepared remarks that you're seeing some growth in non-res maybe share some views on is 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 or any difference in supply chain issues on non-res?

[Thomas Hill, Chairman, President and Chief Executive Officer at Vulcan Materials]

Yeah, a little bit, but it's -- non-resi last couple of years has been pretty volatile. We spent 2020 falling, we spent '21 recovering and we will see growth in '22. Heavy non-res is still strong in '22. I think we're seeing growth in traditional non-res which as we predicted as following subdivision growth and that's coming on and that will come on in '22 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. It's a sector we are excited about. They too have supply chain issues. Yes, they're different from res. I think they're probably a little less challenged, but it's a volatile situation to work. Watch it as we go through the year.

[Operator]

The next question comes from David MacGregor with Longbow Research. Your line is open.

[David MacGregor, Analyst at Longbow Research]

Yes, good morning, everyone. And Suzanne...

[Thomas Hill, Chairman, President and Chief Executive Officer at Vulcan Materials]

Good morning.

[Suzanne H. Wood, Senior Vice President and Chief Financial Officer at Vulcan Materials]

Good morning.

[David MacGregor, Analyst at Longbow Research]

Good luck for what comes next. Yeah, good morning.

[Suzanne H. Wood, Senior Vice President and Chief Financial Officer at Vulcan Materials]

Yeah, thank you.

[David MacGregor, Analyst at Longbow Research]

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 got all four of your main verticals firing here and its creating a 6% to 8% price environment. What happens if those four verticals remains strong into 2023 and then you layer in on top of that the incremental business associated with the IIJA, what gives? I mean, how do you find market equilibrium here? Prices just parabolic or do you bring on incremental channel capacity? I realize you probably have rock crushing capacity, but it would be more the channel capacity, I guess, but how do I think about how that results into 2023.

[Thomas Hill, Chairman, President and Chief Executive Officer at Vulcan Materials]

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. So if you were to have an air pocket in the private side, you covered up with IIJA. But I think we stick to our disciplines and that's why those four strategic disciplines are so important that you continue to service to your customer earn that price. Through commercial efforts we take that price in those -- and 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 services we need to keep those operations running in terms of supply chain and labor challenges, and then there is 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 that's been fishes of that is really important to maximize profitability. But you're right it bodes well if the -- we believe the private side will continue. It bodes really well if that happens. But even if there is a little slippage or some happens that would challenge that I think the magnitude of this extended cycle and continuous growing our margins.

[Operator]

The next question comes from Courtney Yakavonis with Morgan Stanley. Your line is open.

[Courtney Yakavonis, Analyst at Morgan Stanley]

Hi, good morning, guys, and congrats, Suzanne.

[Suzanne H. Wood, Senior Vice President and Chief Financial Officer at Vulcan Materials]

Thank you, Courtney.

[Courtney Yakavonis, Analyst at Morgan Stanley]

I just wanted to follow up on some of the discussion about the infrastructure investment and Jobs Act. So I think you had mentioned you think you might take a little bit longer to hit in '23 and '24. At this point, are you thinking its relatively even impact between the two years? Do you see it more weighted to '23 and then just incremental follow through in '24 or is it the other way around? And then how are you thinking about it from a volume perspective versus the pricing perspective? Do you have more confidence that we'll see a significant increase in volumes or do you anticipate more of it coming through on the pricing side? I think someone had asked earlier about hyperbolic pricing, but are we setting up for a situation where we could have two to three years of sustained double-digit pricing growth.

[Thomas Hill, Chairman, President and Chief Executive Officer at Vulcan Materials]

Yeah. So, on -- from a volume perspective and the cadence of the new funding what we're seeing is because, and this is where I talking about the second new discretionary programs, they take time to flow through, because you have to write regulations in ag programs and that just takes time. That's the reason we say, look, we'll have growth in '22 from states increase in funding, the new federal increase in funding will start to flow through in '23 as they enact those programs and they start -- then they get the lettings and then they put the job, the work, the jobs work and we ship rock. And I would expect a ramp up through 20 -- maybe a little bit this year probably doubtful, but you'll start to see a ramp up in demand as we march through '23, '24, '25 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 will have very clear visibility to be a state DoTs to work that's coming and that's growing demand and that visibility to growing demand gives everyone confidence to take risk on jobs and take risk on price. So it will be good for both volume and price. But I would expect from volume a gradual ramp up '23, '24, '25 and pricing to follow.

[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.

[Thomas Hill, Chairman, President and Chief Executive Officer at Vulcan Materials]

Thank you guys for your time today. We, as always, we appreciate your interest in Vulcan. We hope that you keep you and your families safe and happy. Suzanne and Mary Andrews and Mark and I will be hope to see you in the coming days and weeks. You guys have a great rest of the day. Thank you. [Operator Closing Remarks]