QQQ   435.27 (-0.53%)
AAPL   181.42 (-0.66%)
MSFT   407.72 (+0.06%)
META   484.02 (-0.62%)
GOOGL   136.38 (-1.80%)
AMZN   173.16 (-0.22%)
TSLA   202.04 (+1.16%)
NVDA   776.63 (-1.32%)
NIO   5.44 (-6.05%)
AMD   176.54 (-0.82%)
BABA   74.60 (-3.96%)
T   16.96 (+0.77%)
F   12.30 (+2.50%)
MU   89.71 (-2.33%)
CGC   3.36 (-4.82%)
GE   155.62 (+1.06%)
DIS   110.81 (+1.27%)
AMC   5.00 (+3.95%)
PFE   27.06 (+0.59%)
PYPL   60.25 (+0.15%)
XOM   104.37 (+0.33%)
QQQ   435.27 (-0.53%)
AAPL   181.42 (-0.66%)
MSFT   407.72 (+0.06%)
META   484.02 (-0.62%)
GOOGL   136.38 (-1.80%)
AMZN   173.16 (-0.22%)
TSLA   202.04 (+1.16%)
NVDA   776.63 (-1.32%)
NIO   5.44 (-6.05%)
AMD   176.54 (-0.82%)
BABA   74.60 (-3.96%)
T   16.96 (+0.77%)
F   12.30 (+2.50%)
MU   89.71 (-2.33%)
CGC   3.36 (-4.82%)
GE   155.62 (+1.06%)
DIS   110.81 (+1.27%)
AMC   5.00 (+3.95%)
PFE   27.06 (+0.59%)
PYPL   60.25 (+0.15%)
XOM   104.37 (+0.33%)
QQQ   435.27 (-0.53%)
AAPL   181.42 (-0.66%)
MSFT   407.72 (+0.06%)
META   484.02 (-0.62%)
GOOGL   136.38 (-1.80%)
AMZN   173.16 (-0.22%)
TSLA   202.04 (+1.16%)
NVDA   776.63 (-1.32%)
NIO   5.44 (-6.05%)
AMD   176.54 (-0.82%)
BABA   74.60 (-3.96%)
T   16.96 (+0.77%)
F   12.30 (+2.50%)
MU   89.71 (-2.33%)
CGC   3.36 (-4.82%)
GE   155.62 (+1.06%)
DIS   110.81 (+1.27%)
AMC   5.00 (+3.95%)
PFE   27.06 (+0.59%)
PYPL   60.25 (+0.15%)
XOM   104.37 (+0.33%)
QQQ   435.27 (-0.53%)
AAPL   181.42 (-0.66%)
MSFT   407.72 (+0.06%)
META   484.02 (-0.62%)
GOOGL   136.38 (-1.80%)
AMZN   173.16 (-0.22%)
TSLA   202.04 (+1.16%)
NVDA   776.63 (-1.32%)
NIO   5.44 (-6.05%)
AMD   176.54 (-0.82%)
BABA   74.60 (-3.96%)
T   16.96 (+0.77%)
F   12.30 (+2.50%)
MU   89.71 (-2.33%)
CGC   3.36 (-4.82%)
GE   155.62 (+1.06%)
DIS   110.81 (+1.27%)
AMC   5.00 (+3.95%)
PFE   27.06 (+0.59%)
PYPL   60.25 (+0.15%)
XOM   104.37 (+0.33%)

Vulcan Materials Q1 2022 Earnings Call Transcript


Listen to Conference Call View Latest SEC 10-K Filing View Latest SEC 10-Q Filing

Participants

Corporate Executives

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

Analysts

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Vulcan Materials Company's First Quarter Earnings Call. My name is Chelsea 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 recording of 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 will now turn the call over to Tom.

J. Thomas Hill
Chairman of the Board, President and Chief Executive Officer at Vulcan Materials

Thank you, Mark. And thanks to everyone for joining the call this morning. As always, we appreciate your interest in Vulcan Materials and I hope that you and your families had a safe and healthy start of the year. Our teams executed well in the first quarter. They remain focused on capitalizing on pricing opportunities and mitigating cost pressures. Their efforts have and will continue to resolve and the expansion of our unit margins.

Our strategic disciplines are helping us to both take advantage of the tailwinds and dampen headwinds in a very dynamic environment. We delivered solid results in the first quarter. We generated $294 million of adjusted EBITDA, a 20% increase over the prior year. Despite accelerating inflation continued volatility in the energy markets and ongoing disruptions in supply chains. This quarter again demonstrates the resiliency of our aggregates business and our team's strong execution of our strategic disciplines.

Over the trailing 12 months, we have delivered 10% adjusted EBITDA growth in spite of $131 million of higher energy related costs. On a trailing 12 months, aggregates cash gross profit per ton has improved for 15 consecutive quarters, absent the impact of selling acquired inventory. In all business segments, the pricing environment is strong due to growing demand and ongoing inflation.

Momentum continued with year-over-year growth in aggregates mix adjusted price increases sequentially for the fifth straight quarter. Our combined commercial and operational execution contributed to higher cash gross profit in both aggregates and total non-aggregate segments. In the downstream businesses, volume, price and material margins improved in both product lines.

Turning now to the segments. Aggregates gross profit improved 9% to $243 million or $4.58 per ton. Demand is healthy across our footprint, and volume improved 14% or 7% on a same-store basis. Shipments were in line with expectations since the prior year's quarter was negatively impacted by the big February freeze. As anticipated, aggregates pricing showed strong momentum in the first quarter, with freight-adjusted pricing increasing 6% over the prior year's first quarter.

Mix-adjusted pricing improved 7%. We expect to see continued strength in pricing throughout the year and are confident about midyear price increases that will be particularly impactful to 2023. As expected, our costs were elevated in the quarter on a year-over-year basis since the inflationary impacts did not begin in earnest until the second quarter last year.

Over the trailing 12 months of continuously rising diesel and other inflationary impacts, our freight adjusted unit cash cost of sales has increased by 5%. In a challenging macro environment, this is a job well done, and I commend our operators for their hard work and for keeping each other safe and for delivering these results.

In the first quarter, cash gross profit was $6.53 per ton, excluding the impacts of selling acquired inventory and higher diesel costs, cash gross profit was $6.90 per ton, a 5% improvement over the prior year. Asphalt cash gross profit of $6 million was in line with the prior year. Pricing actions initiated last year to offset rising liquid asphalt input costs positively impacted the first quarter results. Average selling prices increased 13% versus last year and helped to improve unit materials margins.

The average price of liquid asphalt was over 30% higher than the prior year, a $14 million headwind to our first quarter results. While we expect liquid asphalt prices to continue to rise, we are encouraged by the significant sequential improvement that we've seen in pricing over the last couple of quarters, and we remain focused on improving our gross profit margin in asphalt.

Concrete cash gross profit grew from $12 million to $49 million in the first quarter, driven primarily by the addition of U.S. Concrete. Volume, price and material margins all improved as higher selling prices offset higher material costs, including internally supplied aggregates.

Now, let's shift to the demand environment, which remains positive. Private demand is expected to grow in 2022 across all major categories, both single and multifamily housing and both heavy and more traditional nonresidential. Public demand is improving, and as funding is put in place from the infrastructure investment and Jobs Act, future growth is expected in both highways and other infrastructure.

After double-digit growth in 2021, the residential end use is expected to grow, but at a more modest rate in 2022. Demand remains strong and starts are still positive. However, we are mindful of factors such as supply chain issues, rising interest rates and labor constraints. With the continued demand for additional housing, multifamily demand is accelerating.

Private nonresidential demand has returned to growth in 2022. While demand will continue to be influenced by aggregates intensive warehouse and distribution projects, other private segments like office, manufacturing and industrial are now contributing to the sustainable growth in this end market.

On a trailing 12-month basis, square footage for total nonresidential starts has grown for the last seven months and is now back to pre-COVID levels. Other external leading indicators like ABI and the Dodge Momentum Index, also point to our growth for 2022. On the public side, demand growth is expected in both highways and other infrastructure. The timing of the impact of the infrastructure investment and Jobs Act will depend upon the pace at which states allocate additional funds and a time horizon needed to move from design, to letting, to construction.

As we previously communicated, we anticipate the majority of the impact to be realized in 2023 and beyond. We are well positioned in attractive markets and are poised to benefit greatly from the legislation for years to come. With the solid demand backdrop and positive pricing environment, we remain confident in delivering significant earnings improvement in 2022. We are focused on leveraging our strategic disciplines to control what we can control, and to diminish the impacts of things outside of our control.

I will now 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. The macro challenges of the last 24 months have been well-documented and discussed. We continue to confront these challenges from a position of strength, led by our resilient aggregates business. Our commercial and operational execution are sound and supported by our strategic disciplines. Our balance sheet is strong. These factors combine to form our positive 2022 outlook.

As Tom already highlighted, our strategic disciplines help us to take advantage of tailwinds and dampen the impact of headwinds. We've done that over the last eight quarters, delivering a 4% compound annual growth rate in our trailing 12 months cash unit margins in the face of a number of challenges. The current pricing environment provides tremendous support for both our near-term and longer-term results, and we'll continue to leverage best practices and the collective knowledge of our talented teams to manage our overall costs. This is evident in our SAG cost, which, as a percentage of total revenues, declined 60 basis points versus the prior year's quarter. We continue to make progress on the integration of U.S. Concrete to further leverage our costs.

Now, with respect to the balance sheet, we took steps in the quarter to improve its structure. We extended the maturity of our $1.1 billion term loan to August 2026. The loan can be repaid in full or in part at any time, with no penalty. Simultaneously, we also extended the maturity of our revolving credit facility to September 2026.

Our net leverage is 2.6 times, that's just above the top end of our target range of 2 times to 2.5 times. Given our ability to generate strong cash flows, there is capacity to invest in other opportunities, whether organic or inorganic. Having said that, we do expect to move back within the target range by year-end.

As always, we'll remain disciplined, as we allocate capital with a view to improving shareholder returns and maintaining financial flexibility and our investment-grade ratings. We also remain focused on improving our return on investment. On a trailing 12 months basis, our ROIC at quarter end was 14%. And our adjusted EBITDA, over the same time horizon, has improved by 10%, and we expect continued growth in 2022.

In February, we communicated expectations for 2022 of delivering adjusted EBITDA between $1.72 billion and $1.82 billion. We reiterate this guidance. We expect the favorable pricing dynamics and our strong execution to lead to attractive growth in aggregates unit profitability, as well as improvement in our downstream businesses. Our expectation of investing between $600 million and $650 million in capital expenditures remains unchanged.

I'll now turn the call back over to Tom for closing remarks.

J. Thomas Hill
Chairman of the Board, President and Chief Executive Officer at Vulcan Materials

Thank you, Suzanne. In closing, I would like to remind you of three things. Our teams remain clearly focused on in order to deliver value for all of our stakeholders. One, executing at the local level; two, driving unit margin expansion by focusing on our strategic disciplines; and three, maximizing synergies from recent acquisitions. Our people are what makes Vulcan better every day. And I appreciate the hard work of our entire Vulcan team. I'm excited about what we will accomplish in 2022 and for years to come. And now Suzanne, I'll be happy to take the questions.


Questions and Answers

Operator

Thank you. [Operator Instructions] And our first question will come from Trey Grooms with Stephens. Your line is now open.

Trey Grooms
Analyst at Stephens

Hey, good morning, Tom and Suzanne. How are you?

J. Thomas Hill
Chairman of the Board, President and Chief Executive Officer at Vulcan Materials

We're very good.

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

Good morning.

Trey Grooms
Analyst at Stephens

Great. Tom, first off, I know you talked a little bit about the pricing environment and then -- clearly strong. And you have an expectation for price momentum to step up in '22. And I guess, if you kind of go back to what you said in February, I think the guidance called for 6% to 8% increase this year in price versus last year, which came in, I think, closer to 3%. So and you put up 6% in the quarter. So clearly, some nice acceleration there. But can you talk about the price momentum you're seeing today, expecting through the year? And how you're thinking about midyear increases relative to maybe, where you were a few months ago?

J. Thomas Hill
Chairman of the Board, President and Chief Executive Officer at Vulcan Materials

Sure. I thought the performance in the first quarter was a really good start to the year. As you said, we reported 6%, mix adjusted, we were at 7%. If you remember, in February, we predicted it to start off higher than -- at the low end of the range, but higher than the fourth quarter last year. And then, we grow it sequentially as we march through the year. That combination of visibility to demand and coming demand, you couple that with inflation, it's just a good catalyst for price growth. All of our January and April increases are now in place. At this point, I feel very confident about midyear price increases across the vast majority of our work.

Now, remember, midyear price increases will have some positive impact on 2022, but because of the delay in our work and our jobs, it's really more of a '23 play, and it sets us up really good for next year. So off to a really good start. I think we progress and continue to accelerate price as we go through the year and we're already starting to set ourselves up for 2023. So as you said, a really good pricing environment.

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

And Trey, I'll just add one thing just to remind everyone. When we're talking about pricing and guidance, we all price in the industry a little bit differently and talk about it a little bit differently. So as a reminder, our pricing that we quote to you is freight-adjusted, meaning that it's FOB, the quarry. And therefore, it excludes transportation to long-haul markets. So, in times of inflation and volatility, that can make a big difference in the top line price that's quoted. But what's really important here, and I'm sure we'll come on to talk about unit margins later, is how much of that price you're really able to take to the bottom line.

Trey Grooms
Analyst at Stephens

Perfect. Thank you for that. And I'm going to stick with the one question, but I do got to take my hats off to you on the profit per ton as well, good work on that side as well. Thank you.

J. Thomas Hill
Chairman of the Board, President and Chief Executive Officer at Vulcan Materials

Thanks, Trey.

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

Thanks.

Operator

Thank you. Our next question will come from Stanley Elliott with Stifel.

Stanley Elliott
Analyst at Stifel Nicolaus

Hey, good morning, everyone. Thank you for the question.

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

Good morning, Stanley.

Stanley Elliott
Analyst at Stifel Nicolaus

Actually, that was a nice segue for me. Tom, I was curious if you could talk a little bit more about the execution, controlling costs -- I mean, freight adjusted costs up 11%. Doing a really nice job on the unit margins. I would love to hear you guys talk a little bit more about what's happening behind the scenes?

J. Thomas Hill
Chairman of the Board, President and Chief Executive Officer at Vulcan Materials

Sure. As you -- as we've talked about, our aggregates business, we believe, will beat inflation. While we continue to do a good job on price, I think our operators have really improved efficiencies to help offset inflation and offset the huge $59 million 12-month spike we've experienced in diesel, in aggregates. And I think they're doing all the time, making sure they service our customers and keep us safe. So if you kind of look back over the last 12 months, we've held costs to 5% in the face of inflation and massive spikes in fuel and energy. I would tell you, I think that has been an excellent job from our operators, and I appreciate the job they're doing. And as always, they do it, keeping our folks healthy and safe. And to me, what this demonstrates throughout the whole aggregates business is that we're executing on our core strategic disciplines and they're making a difference of obviously, control and would control, but also, offsetting outside pressures that maybe, we had not expected when we started this journey.

Stanley Elliott
Analyst at Stifel Nicolaus

Thank you, buddy. Thanks a lot.

J. Thomas Hill
Chairman of the Board, President and Chief Executive Officer at Vulcan Materials

Thank you.

Operator

Thank you. Our next question will come from Jerry Revich with Goldman Sachs.

Jerry Revich
Analyst at The Goldman Sachs Group

Yes, hi, good morning, everyone.

Stanley Elliott
Analyst at Stifel Nicolaus

Good morning, Jerry.

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

Hey, good morning, Jerry.

Jerry Revich
Analyst at The Goldman Sachs Group

I'm wondering if you could just talk about the magnitude of inflation that you folks are seeing on labor and other inputs? And what do you expect the cadence of that to look like? In other words, when do we hit an easier comp from that standpoint? And I'm assuming the price realization is going to dovetailed nicely with that cadence, but maybe, I can get you to expand on price cost, if you don't mind?

J. Thomas Hill
Chairman of the Board, President and Chief Executive Officer at Vulcan Materials

Sure. I'll be glad to. It's like everybody else, it's everywhere. To call out labor probably, mid-single digit. Parts are up, hard to get parts, steel is up, rubber's up, everything is there. The headline has to be in fuel and in energy. If you just look at diesel, we predicted -- look at diesel and asphalt, what we said last quarter was probably, a $50 million headwind in the first half of the year. That's probably going to be 50% higher at this point. We said it probably gets easier in comps in Q3 and Q4, and we'd probably just comp over that. At this point, we still predict those now to be up in Q3 and Q4. So it's tough. It is there, it's real, but as you pointed out, I think we offset that with price, and we continue to improve our unit margins, which is our job. And I think that if you looked at our guidance, I think both Suzanne and I have confidence that we hit that guidance. And I think the first quarter was evidence of that.

Jerry Revich
Analyst at The Goldman Sachs Group

Okay. Thank you.

J. Thomas Hill
Chairman of the Board, President and Chief Executive Officer at Vulcan Materials

Thank you.

Operator

Thank you. Our next question will come from Kathryn Thompson with the Thompson Research Group.

Kathryn Thompson
Analyst at Thompson Research Group

So you have a good volume outlook and are seeing some areas that have not seen signs of life, including office. And you've yet to see the real momentum, on a state level, from public spending. And against this backdrop, there continue to be some supply chain snappers and your tight in cement across the U.S. We're even hearing some concerns about availability of certain types of rock heading into the peak construction season. How are -- first, from your perspective, how is the supply chain journey for you, as you manage your business now? And then, how you see it going forward for the remainder of '22 and really, into '23, too? Thank you.

J. Thomas Hill
Chairman of the Board, President and Chief Executive Officer at Vulcan Materials

Yes. So for us, I mean, it's impacted us a little bit, maybe, a little on efficiencies with parts for mobile equipment. Hopefully, that's improving, but we saw that for the first time in the first quarter. For our customers, I think it's a little bit different story. I thought that -- obviously, the first quarter was strong. But remember, we're comping over a pretty easy comp with the big freeze in February last year. So again, it's just Q1 easy comp.

The fundamentals in demand, I think, are really a good place and probably as good as we've seen in a long time, with all four end users should have shipments up in 2022. That said, as you pointed out, we've got labor and supply chain issues. Labor will affect our customers, just getting -- catching up on work more than getting it done, but it also hurts us in transportation. It hurts the rail transportation in any peak day with excellent weather, you just don't have enough trucks to deliver at peak demand. And so it kind of -- it spreads it out.

So as you pointed out, supply chain is just slowing some work. I think while that's being said, I think the good news is that work is not canceling. We're not seeing any jobs go away. And so it's -- while the demand is there, it's not going away. It's just -- it's pushing it to the right and extending the cycle, and that's not all bad. So, if we see some of these pressures ease, I think there's potential for more sooner, but we haven't seen that easing yet as we go into the season.

Kathryn Thompson
Analyst at Thompson Research Group

Thank you very much.

J. Thomas Hill
Chairman of the Board, President and Chief Executive Officer at Vulcan Materials

Thank you.

Operator

Thank you. Our next question will come from Keith Hughes with Truist Securities.

Keith Hughes
Analyst at Truist Securities

Thank you. Several impressive things as always, but particularly, asphalt, given some of the inflation seen in that sector with the flat year of your performance. I guess, my question is the next quarter or two, is there some leasing inflation you're going to lag that's going to put some pressure? Or do you think you're on the right side of cost now?

J. Thomas Hill
Chairman of the Board, President and Chief Executive Officer at Vulcan Materials

I think Q2 we'll see some pressures, as we've pointed out, because it's still harder comp. We hadn't seen the big jump in -- you started to see the inflation last year in Q2, but not the big jump in diesel and liquids. So Q2 has tougher comps, kind of in all product lines, driven by energy. From a specific asphalt perspective, I was very pleased with the jump we saw in prices up 13%. Remember that we said in our guidance, asphalt that we'd see gross profit grow driven by second half volumes and second half margin growth. I think that in the quarter, we saw liquid go up $130 or $14 million. And the fact that we were able to offset it with price is a really good omen looking forward to the rest of the year. I think we've caught it, and I think as we progress through the year, we start back growing those unit margins in asphalt.

Keith Hughes
Analyst at Truist Securities

Thank you.

J. Thomas Hill
Chairman of the Board, President and Chief Executive Officer at Vulcan Materials

Thank you.

Operator

Thank you. Our next question will come from Garik Shmois with Loop Capital.

Garik Shmois
Analyst at Loop Capital Markets

Hi, thanks and congrats on the quarter. I was just wondering if you can go into a little bit more detail just on the volume growth expectations for the rest of the year? Clearly, Q1 you're up against a fairly easy comparison, but anything we should consider as the demand environment continues to improve for you?

J. Thomas Hill
Chairman of the Board, President and Chief Executive Officer at Vulcan Materials

Yes. Again, I would stick to our guidance, which is 5 to 7 kind of on volume growth. That's 2 to 4 same-store. Again, great start. Again, easy comp, easy -- small quarter. I would call out this. I would stick to that guidance at this point until I see some end ease. As we heard earlier, you've got labor issues, you've got supply chain issues, you could have some end issues being tight. I don't think it dampens volume that much, but I don't see that easing at this point, so I would stick with our volume original growth until we see more.

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

And I think, like we said last quarter, I mean, if there is an easing, then we stand ready to benefit from that.

Garik Shmois
Analyst at Loop Capital Markets

Yes. Understood. Thank you.

J. Thomas Hill
Chairman of the Board, President and Chief Executive Officer at Vulcan Materials

Thank you.

Operator

Thank you. Our next question will come from David McGregor with Longbow Research.

David McGregor
Analyst at Longbow Research

Yes. Good morning, everyone. Congratulations on a great quarter.

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

Good morning. Thank you.

David McGregor
Analyst at Longbow Research

I guess, I wanted to ask you about your EBITDA guidance range, the $172 million to $182 million, and that's not changing. But obviously, a lot within that is changing. And just responding to Garik's question, you just talked about on in where you were in terms of beginning of your assumptions. Clearly, pricing is going to be a lot better. Can you just talk about how you're thinking about that cash cost inflation in that mid-single-digit number you gave us back in February?

J. Thomas Hill
Chairman of the Board, President and Chief Executive Officer at Vulcan Materials

Yes. So I think as I look at the year and just puts and takes to the year after 1 quarter and it's just the first quarter, I would say that's probably upside, maybe, to the high end of our pricing guidance. Maybe, upside on volume, although we haven't seen it yet. I think we'll have challenges. We knew we're going to have challenges on diesel. We got bigger challenges there than we had anticipated. We knew we're going to have a challenge on liquid asphalt. Again, that has climbed more than we thought it would and will continue to climb. So we put all that together, I would tell you that I have good confidence in our guidance and we need to see a little bit more before I would be willing to adjust it.

David McGregor
Analyst at Longbow Research

Thank you very much.

J. Thomas Hill
Chairman of the Board, President and Chief Executive Officer at Vulcan Materials

Sure.

Operator

Thank you. Our next question comes from Phil Ng with Jeffries.

Philip Ng
Analyst at Jeffries

Hey, guys. Congrats on a really strong quarter.

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

Thank you.

Philip Ng
Analyst at Jeffries

Tom and Suzanne, is there a good way to think about the midyear increase from a contribution standpoint? And if demand remains pretty good, you see this being more or not more, and appreciating that the full impact is really more of a 2023 event? Can you get closer to like double-digit pricing from an increase standpoint in the back half of this year? Sorry, a lot to unpack there.

J. Thomas Hill
Chairman of the Board, President and Chief Executive Officer at Vulcan Materials

No, that's okay. I think that if you step back and just look at the aggregates business, one of the really attractive attributes of aggregates is it's pricing and elasticity. And from Vulcan's perspective, its ability to compound unit margins over time. That's specifically why we're in the aggregates business, that's why we were leasing that business, that's why 90% of our gross profit is in aggregate.

Today, the environment for price growth is excellent. And it's really driven by the intersection of inflation, current demand and visibility to growing demand. You've seen us sequentially grow price over the last five quarters, and I'm confident we'll continue that trend. So we started off at 6 or 7 depending on how you call the price in the quarter. And I think each quarter will continue to grow that as we progress forward. I would, at this point, I would hope we would be at the higher end of that guidance at this point.

Now, if you really want to be good at this business, you got to take that price to the bottom line, which is why we work so hard on those strategic disciplines, and while it's not just about price, it's also about cost control and operating efficiencies. And so, the combination of those two at this point, even in the face of what we face with inflation, I think our troops are doing an excellent job both in servicing our customers, earning price, but also, operating in the most efficient manner possible under some pretty tough circumstances.

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

Yes, Phil. And I think you see that when you look at the guidance we called out at the beginning of the year, if you look at that cash gross profit per ton, the guidance ranges that we've given call for that to go up, high single digits year-over-year. And I'd say at any time, that's a good performance to be able to drive that to that level. But taking into consideration all the energy headwinds we've talked about and the inflation, despite the opportunity for some price increases, that's a performance I'd really be proud of.

Philip Ng
Analyst at Jeffries

For sure. I mean, given all the inflation you saw, the improvement in 1Q was pretty promising. I appreciate the color.

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

Yes.

J. Thomas Hill
Chairman of the Board, President and Chief Executive Officer at Vulcan Materials

Thank you.

Operator

Thank you. Our next question will come from Michael Dudas with Vertical Research.

Michael Dudas
Analyst at Vertical Research Partners

Hi, good morning Mark, Suzanne and Tom.

J. Thomas Hill
Chairman of the Board, 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.

Michael Dudas
Analyst at Vertical Research Partners

You could share your thoughts on how the U.S. concrete integration is going relative to plan? And what are the puts and takes you've seen over the first several months of having under the Wilton family? And is the New York kind of like the Northeast market? We hear about a lot of civil -- a lot of work coming through the various agencies in New York state. Are you seeing some of that for this year and going out and kind of the next couple?

J. Thomas Hill
Chairman of the Board, President and Chief Executive Officer at Vulcan Materials

Yes, we are. New York. I think -- two things are happening in New York, the public demand is growing, and there's some very big projects that are coming -- that are in the works. And now, we're starting to see nonres up there starting to pop. So good news in that market. If you step back and look at U.S. Concrete, at this point, we function as one business. The combined field teams operating as one team. I think as you heard me say last quarter, the timing is turning out to be excellent for two reasons. As we talked about nonresidential demand, which is so important to concrete is in growth mode, and there's a lot of work coming and on across our footprint. And then, pricing in all product lines, as we talked about, is really jumping in 2022. So it sets us up really well for that acquisition to create even more value for our shareholders.

Michael Dudas
Analyst at Vertical Research Partners

Thank you, Tom.

J. Thomas Hill
Chairman of the Board, President and Chief Executive Officer at Vulcan Materials

Sure.

Operator

Thank you. Our next question will come from Courtney Yakavonis with Morgan Stanley.

Courtney Yakavonis
Analyst at Morgan Stanley

Hi, good morning, guys.

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

Good morning.

Courtney Yakavonis
Analyst at Morgan Stanley

Just one clarification on the pricing comments. I know you've been talking a lot about the mid-years, but is your reiterated guidance include the upside from midyear at the high end? Or I think, last quarter, you characterized it as not including midyear in it. So just wanted to understand if that changed, given the elevated diesel and liquid asphalt headwind that you're now baking in? And then secondly, on the downstream side, you've given us some guidance for gross profit last quarter. Any change to how we should be thinking about those business lines?

J. Thomas Hill
Chairman of the Board, President and Chief Executive Officer at Vulcan Materials

Yes. So the pricing, I would point out, would still be in that 6 to 8, but probably, on the high end of it. And you got to remember that mid-year price increases will hit some of it in May, some of June, some of July. But because of the lag in our business, you'll get some benefit in '22, but it really sets you up most of that work is going to hit in '23. So -- while you'll see some benefit and push us, I would say, to the high end of that range, the big benefit is going to hit in '23, and that's great.

I think from a downstream perspective, we would tell you it's the same. No change in guidance. Again, what we said was $300 million to $325 million cash gross profit in the downstream. While we've seen inflationary pressures in both products, both concrete and asphalt, we're also seeing price and I would stick with our guidance and continue to grow our unit margins and volume, particularly second half loaded.

Courtney Yakavonis
Analyst at Morgan Stanley

Okay, great. Thank you.

J. Thomas Hill
Chairman of the Board, President and Chief Executive Officer at Vulcan Materials

Thank you.

Operator

Thank you. Our next question comes from Michael Feniger with Bank of America.

Michael Feniger
Analyst at Bank of America

Hey guys, thanks for taking my question. Just following up -- I mean, with the pricing now at the high end and what you started. So where do you exit? I mean, what kind of incrementals should we be thinking about for next year if you're looking at 10% to 12% pricing in 2023? Should this -- basically, this cash gross profit per ton, which is growing high single digit, how much does that accelerate should we be thinking about in 2023 and really, seeing about those incrementals around that business?

J. Thomas Hill
Chairman of the Board, President and Chief Executive Officer at Vulcan Materials

Yes. Well, too early to call pricing in 2023. Again, it's a nice setup with midyear price increases. And I would always point you in aggregates to 6% incremental same-store and I would..

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

60%

J. Thomas Hill
Chairman of the Board, President and Chief Executive Officer at Vulcan Materials

60, yes. 60%, same-store. And inflation puts pressure on that, particularly, spikes in diesel. But if you look at it over the long term, that's what I would guide you that 60%.

Michael Feniger
Analyst at Bank of America

Okay. And can gross margin in asphalt, ready mix, can that get back to 2020 levels next year? I know you're assuming that there is improvement in the second half this year. But with next year, if we get some moderation or just stabilization, some of these price increases, can we see those margins come back? Or do you think there's something structural that keeps those margins in the downstream businesses from getting back to those levels?

J. Thomas Hill
Chairman of the Board, President and Chief Executive Officer at Vulcan Materials

I would remind you that 2020 was special for asphalt because of the sharp fall in liquid prices. And so it was probably an outlier, whereas '21 was also an outlier the other way with a spike in liquid. It's somewhere in between those two. And I think we'll get back to more normalized -- I don't think we see any structural change in asphalt. I think you saw huge swings in liquid, which is abnormal, but we'll get back to more normalized margins in asphalt. And I think we're all in our path there with what you saw in the first quarter.

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

Yes. I want to just add here. I mean, it's -- look, we had a really good first quarter, and we're really excited about that. Our people worked very hard to deliver that and we're very appreciative to them for their efforts. And I think we certainly saw a good performance in price. We said we're confident in midyear price increases. And so while those are great to talk about, I just want to caution people. Let's not forget that there's a bit of another side to that equation. We've seen cost pressures, Tom. Tom talked about those in terms of energy and other inflation. So, when we reiterated our EBITDA guidance, we're really trying to take into effect both of those items.

Michael Feniger
Analyst at Bank of America

Thank you.

Operator

Thank you. Our next question will come from Adam Thalhimer with Thompson Davis.

Adam Thalhimer
Analyst at Thompson Davis & Co.

Hey, good morning, guys.

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

Good morning.

Adam Thalhimer
Analyst at Thompson Davis & Co.

Just on residential. Tom, you said -- I think you said residential decelerating growth this year. What are you hearing from some of your major homebuilding clients? And maybe, you can even kind of do a geographic walk for us? Thanks.

J. Thomas Hill
Chairman of the Board, President and Chief Executive Officer at Vulcan Materials

Yes, the geographic walk is pretty easy. It's widespread, it's everywhere from residential. And the housing market is just tight. I mean, in every market we operate in, maybe, the exception of Illinois, but every place -- even that one is not -- still got some tightness to it, but you can't find houses. I think residential demand continues to operate at a very high level. You still have supply chain issues. Again, demand is very good. Obviously, we'll see growth in 2022. I just don't think it's the white hot level that we saw in '21 in single family. Now, multifamily, permits and starts are up double digits. So it's really heating up. Overall, res continues both single-family and multifamily operates at a very high level and continues to be good. And I don't think it's slowing down. I think the growth rate maybe have slowed a little bit, but it would have been tough to keep up with that the rate we saw in '21.

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

Still at high levels.

J. Thomas Hill
Chairman of the Board, President and Chief Executive Officer at Vulcan Materials

Yes. So growth, just not -- maybe, not is not at the level of growth that we saw in '21, but really good news.

Adam Thalhimer
Analyst at Thompson Davis & Co.

Understood, thanks.

Operator

Thank you. Our next question will come from Brent Thielman with D.A. Davison.

Brent Thielman
Analyst at D.A. Davison & Co.

Tom, there's been some discussion about delays in certain infrastructure projects just because the cost sort of advance beyond the original estimates have to go back and kind of rebid it. Is that something you've seen become more pervasive across your markets? And any sense if that's had any effect at all in terms of selling some of the good momentum? I think that piece of your business should otherwise be doing?

J. Thomas Hill
Chairman of the Board, President and Chief Executive Officer at Vulcan Materials

I don't think -- I don't know that I've experienced the delays from inflation. I think when it comes to non-highway infrastructure, we should see growth in 2022. Starts in the last three months, were up 16%. New subdivision work helps this segment. And I think it's -- we're well positioned -- we are well positioned for some really big jobs that are coming in that sector, and some -- everything from lot repairs, to airports, to wind, farm work and rail and intermodal, I think it continues to grow in '22 and '23.

Brent Thielman
Analyst at D.A. Davison & Co.

Okay, thank you.

J. Thomas Hill
Chairman of the Board, President and Chief Executive Officer at Vulcan Materials

Thank you.

Operator

Thank you. Our last question will come from Mike Dahl with RBC Capital Markets.

Christopher Kalata
Analyst at RBC Capital Markets

Hi, it's actually Chris Kalata for Mike. Thanks for taking my question. Understand that you guys still feel comfortable with your prior kind of volume outlook, but I just want to get a sense of the flexibility around that, again, in terms of supply chain pressures and the limiting factor that is on your outlook. Have supply chains improved at all this quarter? And what's your outlook there for the remainder of the year?

J. Thomas Hill
Chairman of the Board, President and Chief Executive Officer at Vulcan Materials

No. I would tell you, supply chain is still tight. I haven't seen any improvement. Labor is still tright. It doesn't impact through as much in Q1, because the volumes aren't at a high level they are in Q2 and Q3 in the construction season. So, you just -- you're not operating at a high enough level to dampen it, which is what we're going to see in Q2, Q3. And it is supply chain from everything from windows, to doors, to doorknobs, to switch gear, to plumbing, to pipe. It's just everywhere.

And then, the labor piece, not only it dampens the construction companies, but also, dampens, as I talked about, transportation. Both rail -- railroads are operating below -- struggling as everybody knows to meet peak demand because they can't get crews. And then, as I said, any day, we're short on trucks in a peak shipping time. Again, I don't think it does away with demand, I just think it pushes it out and probably extends the cycle. So not all bad news, although we'd like to ship as much as we can every day. It's -- if we don't get to it in the next quarter, the next quarter, we'll get to it next year. So not all bad news. Hopefully, that will ease up some as we progress the year. And again, if that happens, we'll take advantage of it, and we'll adjust and we'll communicate to you. But right now, we just don't see it.

Christopher Kalata
Analyst at RBC Capital Markets

Understood. I appreciate the color.

J. Thomas Hill
Chairman of the Board, President and Chief Executive Officer at Vulcan Materials

Sure.

Operator

Thank you. Ladies and gentlemen, this does conclude today's question-and-answer portion. It is now my pleasure to turn the call back over to Mr. Tom Hill for any closing remarks.

J. Thomas Hill
Chairman of the Board, President and Chief Executive Officer at Vulcan Materials

Thank you, operator. Listen, thank all of you for your interest in Vulcan Materials and your time today. We hope that you and your families stay safe, and we look forward to talking to you throughout the quarter. Bye-bye.

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

Thanks, everyone.

Operator

[Operator Closing Remarks]

Alpha Street Logo

 


Featured Articles and Offers

Search Headlines:

More Earnings Resources from MarketBeat

Upcoming Earnings: