Vulcan Materials Company (VMC), the largest producer of construction aggregates in the U.S., recently announced several transactions related to debt reduction, asset sales and promising investments, thereby building up its overall credit portfolio.
In order to enhance the optimization of its resources, the company sold off excess land in California and a small quarry in rural Virginia. Alongside, the company sold off a portion of the future produce of four of its aggregate quarries in South Carolina, to Plum Creek Timber Company, Inc. (PCL) for $75 million. Vulcan retains full ownership of the quarries in South Carolina. These transactions will result in pre tax gain of $120 million, of which the company expects to record $47 million by the fourth quarter of 2012.
In addition, the company acquired 2 active quarries and an additional reserve, worth 80 million. These acquisitions are expected to strengthen the company’s position in the aggregate markets of Texas and Georgia. Also, the company reduced its debt by $135 million during the fourth quarter of 2012.
All of the transactions have been a part of the company’s initiatives announced in February 2012. The company announced two initiatives, a Profit Enhancement Plan (PEP) and planned asset sales in order to improve its earnings and cash flows, pay off debts, and thereby strengthen its overall credit profile.
The PEP plan is designed to reduce costs as well as enhance profitability by streamlining management structure over the next 18 months. The plan is expected to improve earnings before interest, taxes, depreciation and amortization (:EBITDA) by $100 million annually by 2014 at current volumes.
Under the planned assets sale, the company intends to divest its non-core assets (ready-mix concrete and cement operations, non-strategic aggregates assets, and real estate) in order to focus on the higher growth Aggregates business. These sales are expected to generate after-tax net proceeds of $500 million by mid-2013 and improve the company’s liquidity position and earnings. Though these initiatives will hurt the company’s earnings in the near term, they will be accretive to its earnings growth profile in the long term as demand improves with the overall market recovery.
Vulcan Materials Company carries a Zacks Rank #3 (Hold). Vulcan is expected to benefit from the growing housing market demand thus leading to higher demand for its products. On the other hand, Eagle Materials Inc. (EXP) carries a Zacks Rank #1 (Strong Buy) and Texas Industries Inc. (TXI) carries a Zacks Rank #2 (Buy).
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