Vulcan Materials Company (NYSE:VMC) Q4 2023 Earnings Call Transcript
Vulcan Materials Company (NYSE:VMC) Q4 2023 Earnings Call Transcript February 16, 2024
Vulcan Materials Company isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Please unmute your conference line Mr. Warren as we are not able to hear you.
Mark Warren: Thank you, operator. Let me start over operator and we will get started on the earnings call here. Thank you, operator. Good morning, everyone. 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. 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 non-GAAP financial measures are defined and reconciled in our earnings release, our supplemental presentation, and other SEC filings.
During the Q&A, we ask that you limit your participation to one question. This will allow us to accommodate as many as possible during our time we have available. And with that, I'll turn the call over to Tom.
Tom Hill: Thank you, Mark, and thank all of you for your interest in Vulcan Materials company. Our teams delivered an outstanding year in 2023 and achieved two significant milestones. We generated over $2 billion in adjusted EBITDA and we surpassed $9 of aggregate cash gross profit per ton. We remained focused on continued growth, consistent execution and value creation for our shoulders. Our fourth quarter results again demonstrated the benefits of that focus and our aggregates-led business. We delivered a 27% year-over-year improvement in adjusted EBITDA. Margin expansion in each of our three primary product lines and another 90 basis points of sequential improvement in our trailing 12 months return on invested capital. In the Aggregates segment continued pricing momentum coupled with moderating inflationary costs resulted in $9.92 of aggregate cash gross profit per ton, a 21% improvement over prior year.
Our Vulcan Way of Selling evoke we have operating disciplines continued to contribute to our commercial and operational results. The fourth quarter performance marks 19 of 20 quarters over the past five years of sequential improvement in trailing 12 month aggregate unit profitability. A clear example of our consistent execution and the durability of our business. Aggregate shipments in the fourth quarter increased 2%, compared to a week prior year quarter that was impacted by abnormal wet and cold weather. Aggregates freight adjusted price improved 14% in the quarter, pushing the year-to-date average selling price to $19 per ton, $2.60 per ton increase over the prior year. Freight-adjusted unit cash cost of sales increased 7% compared to the prior year quarter.
This Marked a third consecutive quarter of trailing 12 month deceleration in year-over-year cost. As we move into 2024, we are determined to continue controlling what we can control most notably the expansion of our aggregates unit profitability. Price momentum remains healthy and we expect freight-adjusted aggregate price to grow from 10% to 12% for the full year. Inflationary cost pressures continue to moderate and we expect freight-adjusted unit cash cost to increase mid-single-digit in 2024 resulting in an attractive mid-teens improvement and cash gross profit per ton. On the demand side, we continue to expect a moderate decline in 2024 with aggregate shipments forecasted land within a range of flat to down 4% for the full year. Much like 2023, we see varying dynamics across different end uses.
So let me provide some commentary on each end use. I'll start with residential, which has quickly entered recovery mode single-family housing permits and starts return to growth in the second half of last year and momentum is accelerating across our footprint. We expect the strength in single-family construction activity be offset by weaker multifamily starts as they pull back from historically high levels. Overall, the underlying fundamentals for residential construction activity remained firmly in place. Vulcan markets have low housing inventory levels and favorable demographics driving the need for additional housing. We continue to see distinct trends across various categories of private non-residential construction, which we anticipate will result in a year-over-year decline in shipments to this end market.
Moderating Warehouse starts from recent historical high levels are expected to be biggest headwind to private non-residential construction. Light commercial activity is expect to remain weak as uncertainty in the macro economy and higher interest rates persist. Manufacturing activity however remains a catalyst for non-residential shipments and is concentrated in Vulcan States. We continue to ship on numerous large manufacturing projects, which we offer customers a differentiated solution with our advantage footprint and logistics capabilities. On the public side, the main backdrop is developing as expected. We began seeing modest growth in the second half of ‘23 and project accelerating demand into 2024. Trailing 12-month highway starts have now surpassed $100 billion.
2024 state budgets are at record levels and strong upcoming ladings are anticipated in many Vulcan States. We continue to see growth in both highways and infrastructure activities for the next several years. Coupling our anticipated unit profitability growth was the demand backdrop I just described at midpoint of our guidance we project delivering a fourth consecutive year of double-digit growth in adjusted EBITDA. I'm very proud of our teams what they have and will achieve. Now, I'll turn the call over to Mary Andrews for some additional commentary on our 2023 performance and some more details around our 2024 outlook. Andrews?
Mary Andrews Carlisle: Thanks, Tom and good morning. Our strong operational and strategic execution in 2023 set us up well to continue our long track record of growth through disciplined capital allocation and consistent execution. Over the last 10 years, we increased our revenues at an annual growth rate of 11%; grew our adjusted EBITDA at an annual growth rate of 16% percent; strengthened our free cash flow generation at an annual growth rate of 23%; and improved our return on invested capital by 1000 basis points. During 2023, we generated $1.5 billion of operating cash flows and received proceeds of over $700 million for the sales of non-core businesses and real estate. Having followed our long-standing capital allocation priorities of reinvesting in our franchise, investing in attractive growth opportunity and returning cash to shareholders through both dividends and share repurchases, we ended the year with over $900 million dollars of cash on hand and net debt to adjusted EBITDA leverage of 1.5 times.
Our balance sheet is a source of strength and provides us considerable financial flexibility to continue to grow. We will remain disciplined in optimizing our overall portfolio of assets. As evidenced by the fourth quarter disposition of our Texas Concrete business and sale of excess real estate in Northern Virginia. Our return on invested capital improved by 280 basis points over the last 12 months and we are focused on continued improvement. We also remain focused on continuing to drive value for the business through disciplined investments and SAG expenses that support our organic growth initiatives and innovation through technology. SAG expenses as a percentage of revenue remained at 7% in 2023. Overall, we expanded our adjusted EBITDA margin by 360 basis points and project further expansion in 2024.
Let me provide a few additional details around the 2024 guidance to supplement the demand, pricing, and Aggregates unit profitability outlook Tom highlighted earlier. We expect our downstream businesses to contribute approximately $275 million in cash gross profit reflective of asphalt earnings consistent with 2023 contributing approximately 70% of the total and concrete earnings adjusted for the divestiture of our Texas Concrete assets contributing approximately 30% to total. We expect SAG expenses between $550 million and $560 million, a modest low single-digit increase year-over-year. We project depreciation, depletion, amortization and accretion expenses of approximately $610 million, interest expense of approximately $155 million and an effective tax rate between 22% and 23%.
In 2024, we plan to reinvest in our franchise through operating and maintenance and internal growth capital expenditures of between $625 million and 675 million. We expect another year of attractive growth in adjusted EBITDA and strong cash generation in 2024, despite a shift in construction demand environment. We forecast adjusted EBITDA of between $2.15 billion and $2.3 billion for the full year. At the midpoint, this represent an 11% percent organic improvement over 2023. I'll now turn the call back over to Tom to provide a few closing remarks.
Tom Hill : Thank you, Mary Andrews. Vulcan’s culture and people are fundamental to our Success. Our employees work tirelessly each day to deliver value to our customers, our communities and shareholders and their meaningful contributions were highlighted with three unsolicited recognitions last year. Vulcan Materials was named one of the top 200 best companies to work for by US News and World Report. One of America's Most Responsible Companies in 2024 by Newsweek and was included in the American Opportunity Index, which measures how well large companies invest in the human talent to drive business performance and individual employee growth. I'm excited about what Vulcan Materials will achieve in 2024. We will remain focused on keeping our people safe, growing our business, capitalizing on our Vulcan Way of Selling and Vulcan Way of Operating Disciplines and continue to deliver value to our shoulders. Now Mary Andrews and I will be happy to take your questions.
See also Top 16 Aircraft Manufacturers In The World and 16 Best Beach Towns to Buy a House/Apartment in USA.
To continue reading the Q&A session, please click here.
