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Vulcan, Plum Creek Seal Quarry Deal

Zacks Equity Research

Construction material producer, Vulcan Materials Company (VMC), has agreed to sell some interests in the future productions of the four quarries in Atlanta, Ga., to Plum Creek Timber Company (PCL) for $154 million. The quarries are capable of producing 255 million tons of crushed stone over approximately 25 years.

As per the deal, Vulcan will control the production at the facility and Plum Creek will earn a percentage of the royalty. Therefore, Vulcan will be able to save taxes while maintaining full ownership and operational control on these quarries. The deal also provides enough capital to the company to make strategic investments in its aggregate business. Plum Creek and Vulcan share the same long-term goals regarding the construction aggregate sector. The deal is expected to be beneficial for both as it will increase the efficiency of these quarries.

The housing market has steadily made a comeback from the severe and widespread downturn. However, the housing momentum seen in 2012 and in the first half of 2013 seems to have moderated somewhat with the recent spike in mortgage rates, tight credit availability and a limited supply of land and labor.

Homebuilders are speeding up land investments. Companies like The Ryland Group Inc. (RYL), Calif.-based homebuilder KB Home (KB) and D.R. Horton Inc. (DHI) heavily invested in land acquisition and site development in the first half of 2013.

Vulcan’s first-quarter adjusted net loss of 49 cents per share, reported in August, was wider than both the Zacks Consensus Estimate loss and the prior-year quarter’s loss. Total revenue was also quite sluggish due to lower aggregates volume. Vulcan reaffirmed its 2013 aggregates volume growth guidance despite first-quarter shortfall on expectations of growth in the second half.

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