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Vulcan (VMC) to Report Q4 Earnings: What's in the Offing?

Zacks Equity Research

Vulcan Materials Company VMC is set to release fourth-quarter 2018 results on Feb 14, before the opening bell. In the last reported quarter, the company’s earnings and revenues surpassed the Zacks Consensus Estimate by 2.9% and 1.5%, respectively. In fact, the stock has a strong record of earnings surprises, having surpassed the Zacks Consensus Estimate in five of the trailing seven quarters.

Meanwhile, in the third quarter, the nation's largest producer of construction aggregates’ top and bottom lines grew 14.6% and 34.6%, respectively, given above-average increase in demand across the markets served by the company.

How are Estimates Faring?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release. The Zacks Consensus Estimate for the quarter to be reported is pegged at 87 cents, trending downward from 92 cents over the past 60 days. Nonetheless, this reflects a gain of 17.6% from 74 cents reported in the year-ago quarter. Revenues are expected to be $1.08 billion, up 10.2% year over year.

Vulcan Materials Company Price and EPS Surprise

 

Vulcan Materials Company Price and EPS Surprise | Vulcan Materials Company Quote

Factors That Might Influence Upcoming Results

Extreme weather conditions have been an issue for the most part of 2018 and are likely to have remained a headwind in the fourth quarter as well. Texas experienced abnormally wet weather in 2018, which is likely to impact the upcoming results. Subsequently, the company reduced 2018 adjusted EBITDA and EPS expectations.

Meanwhile, slow housing market as a result of rising mortgage rates and higher home prices is expected to impact the company’s top line to some extent.

That said, this recent housing slowdown is expected to be insulated with higher public infrastructure. The company has been witnessing strong aggregate shipments and pricing, underpinned by growing public demand and operational discipline. Notably, publicly-funded construction accounts for significant part (approximately 45-55%) of Vulcan’s total aggregate shipments.

Its systematic inorganic strategy for expansion bodes well. The company strengthened its portfolio through acquisitions and divestitures, which are expected to drive growth in the quarter to be reported.

Aggregate shipments (volumes) were up 10% year over year (6% on a same-store basis) in the third quarter, reflecting solid underlying demand, except in a few markets that were impacted by severe weather. Despite weather-related woes in key markets and a 28% increase in diesel cost per gallon, Aggregates segment’s gross profit was up 18% year over year in the quarter.

For the fourth quarter, Vulcan anticipates shipment growth to be in line with the third-quarter level along with an increase in pricing. It also expects aggregates' unit profitability to continue improving.

Coming to its segments, the Zacks Consensus Estimate for Aggregates segment sales (accounting for 73% of the total revenues) is pegged at $869 million, reflecting an increase from $770 million a year ago but a decrease from $984 million in the last reported quarter. Also, for the fourth quarter, revenues are likely to grow 14.3% year over year but decline 20.7% sequentially to $184 million for the asphalt segment. Concrete segment revenues are projected to rise 4.6% year over year and 10.8% sequentially to $113 million in the to-be-reported quarter. Also, Calcium segment revenues are likely to be up 7.8% year over year and 8.4% sequentially to $2.07 million.

Meanwhile, the company uses large amounts of electricity, diesel fuel, liquid asphalt and other petroleum-based resources as raw materials. Currently, apart from rising transportation costs, the company is experiencing higher diesel and liquid asphalt expenses. During the third quarter of 2018, margin improvement was dampened by a 28% increase in the unit cost of diesel fuel and weather-related operating inefficiencies. Again, asphalt gross profit margin declined 390 basis points year over year, as a 29% increase in unit cost of liquid asphalt more than offset the benefits of favorable pricing and volumes.

Quantitative Model Prediction

Our proven model does not show that Vulcan is likely to beat earnings estimates in the to-be-reported quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The company has an Earnings ESP of -3.63% and a Zacks Rank #3, which does not make us confident of an earnings beat in the to-be-reported quarter. It is to be noted that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks With Favorable Combination

Here are a few construction stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat in the upcoming release:

Martin Marietta Materials, Inc. MLM has an Earnings ESP of +2.05% and a Zacks Rank #3.

Forterra, Inc. FRTA has an Earnings ESP of +8.99% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Toll Brothers Inc. TOL has an Earnings ESP of +1.91% and holds a Zacks Rank #3.

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