We expect Vulcan Materials Company (VMC) to beat expectations when it reports first-quarter 2014 results on May 6. Last quarter, the company delivered an astounding positive earnings surprise of 333.33%. Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Vulcan Materials is likely to beat earnings because it has the right combination of two key ingredients.
Positive Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +5.88%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.
Zacks Rank: Vulcan Materials carries a Zacks Rank #1 (Strong Buy) which, when combined with +5.88% ESP, makes us confident about a positive earnings beat.
Note that stocks with Zacks Rank #1, 2 or 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
What is Driving the Better-Than-Expected Earnings?
The construction aggregates producer’s second-half 2013 revenues and profits increased significantly from the first half as improving private construction activity and better weather conditions markedly raised volumes in all its segments. Volumes improved 8% in the second half.
Additionally, most of the volume and pricing increase was noted in the aggregates segment, which was sluggish in 2012 as well as in the first half of 2013. Strong volume and pricing growth coupled with aggressive cost control also significantly improved earnings and profitability in the second half.
Management expects aggregates demand and volumes to increase in 2014 led by private construction projects, though uncertainty exists in public construction market. Strong growth potential in Vulcan’s served markets (Arizona, California, Florida, Georgia and Texas) and the meaningful operating leverage that exists in the aggregates business are expected to drive earnings growth and cash generation in 2014 as volumes improve.
Moreover, margins are expected to improve further in 2014 driven by volume and pricing growth as well as solid cost control and operating efficiencies from the profit enhancement initiatives.
Other Stocks to Consider
Other stocks in building/construction sector that have both a positive Earnings ESP and a favorable Zacks Rank are:
Martin Marietta Materials Inc. (MLM), with Earnings ESP of +4.00% and a Zacks Rank #2 (Buy).
Texas Industries Inc. (TXI), with Earnings ESP of +7.14% and a Zacks Rank #3 (Hold).
D.R. Horton, Inc. (DHI), with Earnings ESP of +2.13% and a Zacks Rank #3.