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Stock market today: Global markets mixed after Wall St rebound led by Big Tech
Dividend Aristocrat Fastenal Goes on Sale: Buy It While It’s Down
How major US stock indexes fared Thursday, 4/11/2024
Blackstone’s $10 Billion Bet on Property Prices Going Up
Closing prices for crude oil, gold and other commodities
PriceSmart Could Be the Smartest Buy of the Year
S&P 500   5,199.06
DOW   38,459.08
QQQ   445.37
Fastenal, CarMax fall; Alpine Immune Sciences, Arvinas rise, Thursday, 4/11/2024
Stock market today: Global markets mixed after Wall St rebound led by Big Tech
Dividend Aristocrat Fastenal Goes on Sale: Buy It While It’s Down
How major US stock indexes fared Thursday, 4/11/2024
Blackstone’s $10 Billion Bet on Property Prices Going Up
Closing prices for crude oil, gold and other commodities
PriceSmart Could Be the Smartest Buy of the Year
S&P 500   5,199.06
DOW   38,459.08
QQQ   445.37
Fastenal, CarMax fall; Alpine Immune Sciences, Arvinas rise, Thursday, 4/11/2024
Stock market today: Global markets mixed after Wall St rebound led by Big Tech
Dividend Aristocrat Fastenal Goes on Sale: Buy It While It’s Down
How major US stock indexes fared Thursday, 4/11/2024
Blackstone’s $10 Billion Bet on Property Prices Going Up
Closing prices for crude oil, gold and other commodities
PriceSmart Could Be the Smartest Buy of the Year

Vulcan Materials Q1 2023 Earnings Call Transcript


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

Participants

Corporate Executives

  • Mark Warren
    Vice President, Investor Relations
  • J. Thomas Hill
    Chairman of the Board, President, and Chief Executive Officer
  • Mary Andrews Carlisle
    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 2023 Earnings Call. My name is Travis [Phonetic] and I will be your conference call coordinator today. During the Q&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'd like to turn the call over to your host, Mr. Mark Warren, Vice President of Investor Relations for Vulcan Materials. Mr. Warren, you may begin, sir.

Mark 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 Mary Andrews Carlisle, 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. Additionally, 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. In the interest of time, please limit your Q&A participation to one question. This will allow for more questions during our time together.

With that, I will 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, all of you, for joining our call this morning. Vulcan Materials is well-positioned to deliver attractive growth in 2023. We got off to a solid start in the first quarter and now expect to deliver between $1.85 billion and $1.95 billion in adjusted EBITDA this year, a 14% to 20% improvement versus the prior year. In the quarter, we generated $338 million of adjusted EBITDA, a 15% percent improvement over the prior year. Despite lower volumes in each of our major product lines, total gross profit improved 12%, and gross margin expanded by 90 basis points. I'm pleased with our team's execution as they remain focused on our Vulcan way of selling and Vulcan way of operating disciplines. The pricing environment is healthy. Year-over-year, adjusted average price improved 19% in the quarter. Prices also improved in our downstream products by 15% in asphalt and 12% in concrete. As always, we are focused on capitalizing on pricing momentum and controlling costs to expand our margins.

In the aggregates segment, gross margin improved by 170 basis points. Shipments declined 2% versus the prior year with wide variations across markets. Some areas benefited from favorable weather and carryover shipments from the wet fourth quarter. Others like California and Texas were challenged by excessive rainfall. All geographies delivered double-digit price improvement. And importantly, our cash gross profit per ton improved by 23% in the quarter, surpassing $8 per ton on a trailing 12-month basis. In asphalt, gross margins improved by 220 basis points despite higher natural gas and liquid asphalt costs, and 11% lower volumes. Significant rainfall negatively impacted shipments in California and Arizona, our largest asphalt markets. Prices improved by 15% and more than offset higher raw materials costs. Cash unit profitability in asphalt improved by 9% in the quarter.

The concrete segment's cash gross profit was negatively impacted by the 2022 divestiture of our New York, New Jersey, and Pennsylvania operations, as well as weather-impacted volume in Texas and California, and the resulting cost challenges.

Now shifting to the dynamic demand environment, which remains mixed both in terms of end uses and timing. We continue to expect modest growth in overall public demand but contraction in private demand. While single-family housing starts continue to fall, some markets have begun to show early signs of decelerating declines. Multi-family housing starts have recently turned negative, however, they remain at high levels, particularly in Vulcan markets, and continued to dampen some of the impact of single-family weakness.

Affordability is the fundamental driver of declines in single-family activity. Low inventories, favorable demographic trends, and employment growth in our markets continue to support demand for new residential construction. While the pipeline of private nonresidential projects remain supportive of near-term demand, starts have eased in recent months. A positive trend nonresidential construction activity is the increasingly broad-based composition of starts. Industrial and manufacturing projects now account for more than 60% of stores. Recent trends in supply chain management, onshoring, and clean energy investments are among the catalysts for this shift in the drivers of nonresidential construction. Our geography and service capabilities enable us to capitalize on these large projects. We have booked and are currently shipping to a number of these projects in many of our key markets, such as battery plants, electric vehicle manufacturing facilities, LNG facilities, and large warehouse parks.

On the public side, momentum is building with trailing 12-month highway starts now exceeding $100 billion. The infrastructure investment in jobs ex-dollars are flowing. The impact of these historic levels of public construction awards on 2023 aggregate shipments will depend upon how quickly starts can turn to shipments. Other infrastructure starts are also growing with trailing 12-month starts up 23%. In addition to significant IIJ funding for water, energy, ports, and airports, strong state and municipal revenue support non-highway infrastructure investment. Overall, 2023 demand for aggregates continues to be [Indecipherable] upon the depth of the decline in residential construction activity and the timing of highway starts converting into aggregate shipments. Our durable aggregates business and best-in-class execution position us well to successfully navigate any shifts in demand.

Now I'll turn the call over to Mary Andrews for some additional commentary on our first quarter performance and update 2023 outlook. Mary Andrews?

Mary Andrews Carlisle
Senior Vice President And Chief Financial Officer at Vulcan Materials

Thanks, Tom, and good morning. In the first quarter, our adjusted EBITDA margin expanded 140 basis points, with solid operational execution and disciplined SAG cost management. Our SAG expenses as a percentage of revenue improved by 60 basis points in the quarter and moved below 7% on a trailing 12-month basis. We remain focused on continuing to leverage our SAG cost base while making strategic investments in talent and technology to support our business needs. Net debt-to-adjusted-EBITDA was 2.2 times at quarter end, squarely within our stated target range of 2 times to 2.5 times. Our investment-grade balance sheet gives us flexibility and optionality to continue investing in both organic and inorganic opportunities.

During the quarter, we invested $113 million in capital expenditures and continue to expect to spend between $600 million and $650 million for the full year. As we allocate capital, we are focused on improving our return on invested capital. On a trailing 12-month basis, our return on invested capital improved sequentially by 20 basis points from year end to 13.7%.

Tom shared with you our increased adjusted EBITDA outlook for 2023. On the heels of a strong 2022 in which adjusted EBITDA improved by 12%, we now expect to exceed that growth in 2023 with 14% to 20% improvement. Based on the success of our aggregates pricing efforts in the first quarter, which yielded a 10% sequential improvement and 19% mix-adjusted year-over-year improvement, we now expect prices to improve approximately 15% for the full year. Coupling the strong pricing momentum with our industry-leading operational execution, we expect to deliver even stronger year-over-year improvement in cash gross profit per ton than our original guidance. All other aspects of the full year guidance we communicated in February remain unchanged.

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

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

Thank you, Mary Andrews. In closing, I want to remind you of two things that we are focused on each and every day. First, keeping our people safe. Our people are the lifeblood of our business and our culture. Second, improving unit profitability and growing earnings regardless of the remaining environment. Our aggregates-led business and our best-in-class execution positioned us well for driving long-term sustainable value for all of our stakeholders.

And now, Mary Andrews and I will be happy to take your questions.

Questions and Answers

Operator

[Operator Instructions] Our first question comes from Trey Grooms, Stephens.

Trey Grooms
Analyst at Stephens

Hey, good morning, Tom, Mary Andrews, and Mark. Hope everybody is well.

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

Hi, Trey.

Mary Andrews Carlisle
Senior Vice President And Chief Financial Officer at Vulcan Materials

Good morning, Trey.

Trey Grooms
Analyst at Stephens

Nice work on the quarter and aggregates pricing particularly strong. So, hats off to you and the team for such strong execution there. And Tom, I was hoping maybe you could talk a little more specifically about the overall pricing environment and your thoughts on kind of the rest of the year as we look through the balance of the year for pricing.

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

Sure, Trey. As you saw, prices above 19% mix-adjusted for the quarter, so a great start. Our genuine price increases were successful and they're really broad-based. So, I appreciate our team's hard work on earning price. And based on that success, you saw us raise the guidance to 15% for the full year. Trey, as we said, the pricing comps will get a lot tougher in the second half of the year. So, a good start to the year, but as always, work to be done to earn price. And we feel really good about the 15%. But remember, you still have to take that price to the bottom-line, which is what happened in the first quarter where we improved our unit margins by some 23%. And that kind of unit margin expansion is generally consistent well within in our guidance. And that's just the Vulcan way of offsetting and the Vulcan way of selling at work.

Mary Andrews Carlisle
Senior Vice President And Chief Financial Officer at Vulcan Materials

Trey, one other thing on that note, on the margin side, we were pleased to -- for aggregates' gross margin to expand 170 basis points in the first quarter after being compressed each quarter year-over-year last year, as we took those rapidly rising costs through the P&L. And our pricing efforts in 2022 that Tom talked about and have begun now into 2023 returned us to gross margin growth. And we would expect the year-over-year improvement continue to accelerate as the year progresses.

Operator

Our next question comes from Stanley Elliott, Stifel.

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

Hey, good morning, everyone. Thanks for the question and congratulations on the strong start. Tom, you mentioned kind of some nuances developing within the end market. I think that's one thing that's different this year versus maybe some other cycles in the past. Would love to get your kind of thoughts around what's happening on the private non-res side since there seems to be more moving parts as we're looking forward.

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

Good morning, Stanley. Yeah, you're right. Non-res construction shipments continues to be really healthy and we saw that evidenced in the first quarter. We would continue to expect the nonresidential sector to maintain the really high levels that we came off of last year. And it's really driven by warehouses, distribution, and now manufacturing and industrial. If I had to risk and reward that sector, I would put the risks in that sector would include maybe some slowing in warehouses. We have not seen that yet, but we're watching it. And the other question I would have is does, like non-res, the follow subdivision, does it start to slow? Again, we haven't seen that yet, but watching it.

Now the flip side -- the potential upside to shipments in nonresidential construction, for me, would include the number of massive industrial and manufacturing projects that are on the horizon or just starting to shift. To give you some color around that, we have now have some 20 -- or, excuse me, some 12 major industrial projects, most of which are in our backlogs, that total 8.5 million tons. Now some of those are multiyear projects. All that's not going to go in '23. So, I would describe non-res right now is very healthy, so far so good for a healthy nonresidential demand in 2023.

Operator

Our next question comes from Anthony Pettinari, Citi.

Anthony Pettinari
Analyst at Citigroup Global Markets

Hi, good morning.

Mary Andrews Carlisle
Senior Vice President And Chief Financial Officer at Vulcan Materials

Good morning, Anthony.

Anthony Pettinari
Analyst at Citigroup Global Markets

Hey. I think previously you talked about ag shipments to public projects expected to be up maybe low-single-digits in 2023 with IIJ maybe flowing through in the back half. And I was wondering if you had any sort of updated thoughts on the cadence of those public volumes over the remaining quarters of the year, or maybe between the first half and the second half, how we should think about the flow-through, especially with IIJ projects?

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

Yeah. I would tell you back-half loaded, simple answer to that question. The sector -- the highway sector is really -- the whole public sector, but particularly highways, is set up for a really robust future. Funding is at all-time record levels. And importantly, all three areas of funding of government are at record levels. You've got federal, state, and municipal all at all-time highs. And all of that is starting to flow into lettings. To give you a little color around lettings which are really healthy, in California in the fourth quarter of last year and first quarter of this year, combined, those letting will be over $2 billion, which is an all-time high for two quarters in California. Moving to Texas, it's even better. In the first, two quarters of 2023, the lettings will be at some almost $8 billion, again all-time high. So, highway contract awards is, as we said, are now over $100 billion. And we still -- so, we still see -- we'll see 23 shipments, we predict in low-single-digit. And that is just -- that is indicative of how much time it takes for those big lettings to flow through shipments. So, a solid '23, but a much larger growth in '24.

Operator

Our next question comes from Jerry Revich, Goldman Sachs.

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

Hi, Jerry.

Mary Andrews Carlisle
Senior Vice President And Chief Financial Officer at Vulcan Materials

Good morning.

Jerry Revich
Analyst at The Goldman Sachs Group

Hi. Good morning, Tom, Mary Andrews, Mark. Nice quarter. I wanted to ask a couple of things, is that in the quarter on the volume side, if we just think about normal seasonality off of your first quarter run rate, that suggests your volumes could actually be up year-over-year in the second quarter and I'm just wondering is that consistent with the cadence that you're seeing in the business? And similar vein, really strong gross margins for aggregates in the quarter. Normally, your margins are up 10 points 2Q versus 1Q and I'm wondering is that the cadence we should be thinking about here as well. Thank you.

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

Yeah. I'll take the bar, but let Mary Andrews handle the margin. I think the volumes were in the quarter, we were down 2% and weather had a big play on that. Weather in California, Texas, and Arizona were a drag on us. But the weather in the East and Southeast were really positive. And in the East and Southeast, we probably had some volume that pushed from the fourth quarter last year, which had really wet weather into the first quarter of this year. As far as our outlook, it really hasn't changed. The 2 -- negative 2 to 6. We've got challenges in single-family, which are going to be more second-half loaded. Non-res, as you heard me say, is really solid. And highways, it's coming on, but it takes a little time. I think for me, the timing is going to be key of how fast those highway shipments go from lettings to shipments. But in all of this, I think it is a backdrop, we've got the Vulcan way of selling and the Vulcan way of operating, which gives me confidence that we'll continue to improve our performance regardless of demand challenges which you've seen us do quarter-in and quarter-out over the last few years.

Mary Andrews Carlisle
Senior Vice President And Chief Financial Officer at Vulcan Materials

Yeah. And Jerry, in terms of margins, yeah, I think the -- a typical sequential improvement is what we should expect. And as I've said on a year-over-year basis, we'll see significant acceleration quarter-to-quarter as we progress off that 170 basis points from the first quarter.

Operator

Our next question comes from Mike Dahl, RBC Capital.

Michael Dahl
Analyst at RBC Capital Markets

Good morning. Thanks for taking my questions. Mary Andrews, with respect to the other parts of the guidance, I think last quarter, I'm not sure if it's this formal guidance, but you talked about cost inflation being up high-single-digits and maybe you said that the cost in ag was tracking consistent with expectations. So, I'm wondering kind of if that's still the expectation. And then if it is, is it right to think about from a gross profit per ton standpoint, the new price on top of that might suggest something in kind of like low-20% year-on-year increase percentage-wise for gross profit per ton?

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

Yeah. Quickly, you're correct on your assumption on gross profit per ton improvements. If I step back and look at cost, we're still facing the impact of stubborn inflation in parts and services. If you looked in the first quarter, weather on the West had negatively impacted the first quarter cost. As -- but remember, as we progress through the year, our comps on costs get a whole lot easier. So, we're still guiding to the high-single-digit cost inflation. And I would describe that as probably higher-than-expected parts and services, and also delays in delivery as costs in those just because it keeps equipment down. That's offset some by probably better-than-expected diesel costs. We'll -- but all that being said, we'll continue to work on our operating efficiencies to the Vulcan way of operating. But at this point, I think we're still very comfortable with that high-single-digit guide.

Mary Andrews Carlisle
Senior Vice President And Chief Financial Officer at Vulcan Materials

Yeah. And Mike, just on the gross profit per ton and -- the cash gross profit per ton improvement from the beginning, we thought that'd be much more consistent this year, and so that 23% we saw in the first quarter in the low-20%s for the rest is a good assumption.

Operator

Our next question comes from Kathryn Thompson, Thompson Research Group.

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

Good morning, Kathryn.

Kathryn Thompson
Analyst at Thompson Research Group

Good morning. Great quarter. I just have a clarification. Based on our channel checks, we're seeing, as you already described, pretty robust demand in your -- and even possibly some tightness in materials in some key markets or multiple markets throughout the U.S. as we entered the construction season. In light of the strong, I think the commentary, you had in the quarter, this has opened up the possibility for additional pricing actions midyear. And then also along with that, more of a mid- to long-term view when you look at reshoring population shift and government supported funding for IIJ, Inflation Reduction Act, and the CHIPS Act, how does this play into your mid- to long-term view on pricing? Thanks so much.

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

Yeah. I think that, as far as pricing in the rest of the year, we did not assume a second-half price increase in our 15% guide. That said, we are -- have announced midyear price increases in most -- in the vast majority of our markets. We feel like you've got to earn that first. So, we'll report on our progress on those midyear efforts. In August as far as bid work, we're pushing price day-in and day-out on our bid work, and that's just part of Vulcan way of selling. As far as the -- you're spot-on on the large projects, both on the public side, highways, and non-highway, we're going to see a lot more large projects and a lot more money flowing. We're also, as you said, starting to see the big manufacturing and industrial projects which we think continue well into the future. All of that bodes extremely well for pricing because that gives us and our customers visibility to coming demand. And those large projects, both public and the big industrial ones tend to be -- there's more surety those projects that once they announce them, they're going to happen. And so, that also gives surety demand which is a very good backdrop for pricing.

Operator

Our next question comes from Keith Hughes, Truist Securities.

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

Hi, Keith.

Keith Hughes
Analyst at Truist Securities

Hey. Thank you very much. I guess, switching to the discussion on nonresidential, specifically on heavy. It's a lot of positives out there right now. How far of visibility do you have on that business? In other words, will we be seeing several years of really strong heavy work to be done?

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

Yes. That -- you are going to see number of years both in manufacturing, industrial, and in the big energy projects along the coast. There is a healthy pipeline of that both in, A, their budgeting, their bidding, or their engineering. And so, I -- like you said, I believe we'll see years of this, and I think it will really bode well both for volumes and price.

Keith Hughes
Analyst at Truist Securities

And on that light business, given a shorter cycle, your visibility is not nearly that long on light, is that correct?

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

That's correct.

Operator

Our next question comes from Brent Thielman, DA Davidson.

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

Hey.

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

Good morning, Brent.

Mary Andrews Carlisle
Senior Vice President And Chief Financial Officer at Vulcan Materials

Good morning.

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

Hey, good morning. Hey, Tom, I was just curious on the balance. What was the hit from the residential sector this quarter, because with volume only down 2% including weather, just on the surface, does it -- it doesn't look quite that much?

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

So, if you look at it, about half of our markets took a hit in res and about half were positive. So, I'd tell you, by mid-single-digit. But as we said, the -- we'll feel the impact of the fall and starts, permits and starts, in single-family. We'll really feel that in the second half of the year. So, pretty much as expected right now. I think it's a -- and plus weather in Arizona, Texas, and California masked some of that, so it's harder to see. But I -- we think that is more of a second-half play as those starts have to go through the pipeline.

Operator

The next question comes from Phil Ng. Jefferies.

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

Hi, Phil.

Mary Andrews Carlisle
Senior Vice President And Chief Financial Officer at Vulcan Materials

Good morning, Phil.

Colin
Analyst at Jefferies Financial Group

Hi. Good morning. This is actually Collin on for Phil. I just wanted to touch on the geographic mix. I know pricing was aided by that favorable mix. But could you talk about how that mix might have helped gross margins and how we should think about that mix benefit going forward? Thank you.

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

I don't think it's going to -- I don't think it has a big play on gross margin. It was only 1% on on price. So, it really did not -- it really didn't have an impact on -- much impact on price or on margins.

Operator

Our next question comes from Timna Tanners, Wolfe Research.

Mary Andrews Carlisle
Senior Vice President And Chief Financial Officer at Vulcan Materials

Good morning, Timna.

Timna Tanners
Analyst at Wolfe Research

Two things I haven't heard you address, and I would like to hear from, please. One is just, with the labor markets broadly, I know it's been a bigger issue for your customers, but would appreciate an updated thought there. And then it's been, I think May will be a year anniversary since the Mexican operations were shut and there has been some noise down there, so would love your take on that as well. Thanks.

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

Yeah. I would describe the labor market is easing. I think it's a combination of -- the labor market is easing and I think we've gotten better with retention over the last year, done a lot of work on that. So, it is still an issue, probably still a bigger issue for our customers, but not like it was 12 months ago or 18 months ago. On Mexico, really not a lot of change. We remain a legally shut down and the proceedings with the NAFTA Tribunal continue. We would hope to get a ruling on that sometime in 2024.

Operator

Our next question comes from Adam Thalhimer, Thompson Davis.

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

Hey, Adam.

Mary Andrews Carlisle
Senior Vice President And Chief Financial Officer at Vulcan Materials

Good morning.

Adam Thalhimer
Analyst at Thompson Davis & Co.

Hey, good morning, guys. Great quarter. Hi, I'm starting to get questions from clients on the debt ceiling. If we.don't get an increase, do you think there is a risk to federal infrastructure support?

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

Well, I mean, that would be the first time that's happened. So, I would doubt that while everybody is wringing their hands over that, I think we'll solve this problem and we'll continue with our infrastructure spending.

Adam Thalhimer
Analyst at Thompson Davis & Co.

Yeah. I mean, prior government shutdowns haven't been a big deal, have they?

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

Well, I don't want to see one, but I don't think it's going to impact our infrastructure projects.

Operator

Our next question comes from Michael Dudas, Vertical Research.

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

Hey, Michael.

Mary Andrews Carlisle
Senior Vice President And Chief Financial Officer at Vulcan Materials

Good morning.

Michael S. Dudas
Analyst at Vertical Research Partners

Good morning, gentlemen and Mary Andrews. Mary Andrew, just can you share your thoughts how operating free cash went through Q1 and how it looks for the rest of the year? And then maybe, how you can discuss the M&A pipeline and really [Indecipherable] do we see any visible activity by year end with what's happening in the marketplace? Thank you.

Mary Andrews Carlisle
Senior Vice President And Chief Financial Officer at Vulcan Materials

Yeah. So, we were pleased with our free cash flow. It's obviously a very cash-generative business. Over the trailing 12 months, our free cash flow conversion has stayed over 90%. So, we are pleased with that result and we'll be -- take our consistent disciplined approach as we think about how to allocate that capital among our waterfall priorities.

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

On M&A, it remains -- I guess, we have a number of smaller bolt-ons in the pipeline along with a number of greenfields that we're working on. I would tell you kind of normal from the smaller bolt-on and greenfield perspective. As far as large projects or large M&A, those tend to be lumpy. When they come along, we'll be in the game and we'll take advantage. And as always, we'll be disciplined in all of this about what markets we're in, what synergies are unique to us, and what we pay for it. So -- and we look forward to reporting that as they come about.

Operator

Our next question comes from Garik Shmois, Loop Capital.

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

Hey, Garik.

Mary Andrews Carlisle
Senior Vice President And Chief Financial Officer at Vulcan Materials

Good morning, Garik.

Garik Shmois
Analyst at Loop Capital

Hey, good morning. Nice quarter. Wanted to ask on the highway outlook, you're counting on demand showing up later this year. Curious, just how is the lag between project starts and when volumes occurred, has that changed at all just given the size of the projects in the pipeline?

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

I think it's a little bit. We would always call that nine to 12 months. But larger projects can take longer just because of more complex engineering, more complex permitting, and more complex planning around those. And when they run into a snag, it stops a big chunk of work. Our whole -- pushes it back. I would not change the the nine to 12 rule of thumb except for every once a while now you will come across a multi-million-ton highway project that can get pushed out past that limit. But. I think the nine to 12 is still a good rule of thumb.

Operator

Our next question comes from David MacGregor, Longbow Research.

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

Hi, David.

Mary Andrews Carlisle
Senior Vice President And Chief Financial Officer at Vulcan Materials

Good morning.

David MacGregor
Analyst at Longbow Research

Hey, Tom, Mary Andrews. Congratulations on a strong quarter. Phenomenal performance.

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

Thank you.

David MacGregor
Analyst at Longbow Research

Yeah. I guess, I'd be interested in just any update you've got on transportation. I know, you've got some long-haul tonnage there. You're talking about strengths down along the coast. How is that changing for the better? Do you view that as a potential risk? And have you been able to lock up capacity, and if so, for how far forward?

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

I think, as we talk about rock is still short on all coast, and it's driven primarily by bottlenecks on railroads. I think the railroads are working hard to improve and they're making progress, but there's still gaps there. And I don't know that I see it as risk for 2023. It has its challenges. But I think we'll work our partners and we'll work through those challenges and be fine in 2023.

Operator

Our next question comes from Michael Feniger, Bank of America.

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

Hi, Michael.

Mary Andrews Carlisle
Senior Vice President And Chief Financial Officer at Vulcan Materials

Good morning.

Michael Feniger
Analyst at Bank of America

Good morning, guys. Thanks for taking my questions. Just two. So, the first one, the pricing, obviously, is very strong, at 18.5%, and your full-year range of 15%. So, does pricing kind of finish the year, actually the year below that range? Do you think we're still in the double-digit territory? I'm just trying to figure that pricing cadence. Then the second question, just the operating leverage in aggregate. I think you typically target like a 60% flow-through. Are there periods where that can be above that level? I guess, I'm just trying to think out midyear price increases, potential sticking, diesel rolling over. Could we see flow-through above that target range for certain periods? Thank you.

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

You can. First of all, on the flow-through piece of this, you can see that above, and you can see it below. Inflation, your big inflationary jumps put pressure on that, as we said, as does fuel. I think if you look at this year, I would be a little bit cautious because you're still going to have some really sticky inflationary pressures on parts and services. I think as what we've said is that as we progress through the year, the percentage price increase won't stay up at the 20% range because you're comping over such a sequentially high march through 2022 in price. The flip side of that is in cost. As we said, you're seeing really high year-over-year cost at this point, they should ease as we go through the year because the inflationary comps ease as we go. That -- all that fill, and together, we think we're pretty consistent in that 20% range improvement in unit margins.

Operator

Our final question comes from Dillon Cumming, Morgan Stanley.

Dillon Cumming
Analyst at Morgan Stanley

Hey, good morning. Thanks for the question. Just wanted to ask if you could put a finer point on some of the non-res commentary? I think there are just some concerns out there with regards to the entire financing environment, how that can impact both the light and heavy non-res kind of side of the equation. Just curious if you're hearing something around that from customers and looking kind of latest update what I'm thinking there is?

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

I would put it this way. So far, what we're seeing in non-res is really solid. Some shifting towards heavy industrial and manufacturing. But we've not seen any impact on our markets yet on nonresidential. Now that being said, we're watchful, and we're watching it, but so far, so good in non-res for 2023. But to your point, I think everybody is watching that. But we haven't seen any impact at this point.

Operator

I would now like to turn the call back over to Tom Hill for any closing remarks.

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

We appreciate your interest and your time this morning. We appreciate your interest in Vulcan Materials. We look forward to seeing you throughout the quarter to update you on our progress. We hope that you and your families remain healthy and safe. And we'll talk to you the next quarter. Thanks.

Operator

[Operator Closing Remarks]

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