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Will Weather Woes & Higher Cost Mar Vulcan (VMC) Q1 Earnings?

Zacks Equity Research

Vulcan Materials Company VMC is set to release first-quarter 2019 results on May 2, before the opening bell. In the last reported quarter, the company’s earnings and revenues surpassed the Zacks Consensus Estimate by 13.8% and 1%, respectively. In fact, the stock has a strong record of earnings surprises, having surpassed the Zacks Consensus Estimate in five of the trailing six quarters.

In the fourth quarter, the nation's largest producer of construction aggregates’ top and bottom lines grew 11.3% and 33.8%, respectively, given above-average increase in public as well as private construction 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 has declined from 36 cents to 33 cents over the past 30 days. This indicates a 25% decline from 44 cents reported in the year-ago quarter. Nonetheless, revenues are expected to be $910 million, up 6.5% 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

Strong aggregate shipments and pricing, underpinned by growing public demand and operational discipline, will likely aid Vulcan to post higher revenues in the first quarter. Notably, Vulcan’s Aggregates business (including crushed stone, sand and gravel, and sand and other aggregates), which contributed 80.2% to total 2018 revenues, is one of the major growth drivers for the company in the to-be-reported quarter as well. Increased construction spending in the United States in recent times is expected to aid its top line, as publicly-funded construction accounts for significant part (approximately 45-55%) of Vulcan’s total aggregate shipments.

Its completed acquisitions are also expected to drive growth in the quarter to be reported.

However, extreme weather conditions, which have been a pressing concern for most part of 2018 for the company, are likely to have remained a headwind in the first quarter as well. Difficult weather conditions in geographies like the West (i.e. California) and Midwest will likely have an impact on top-line growth for aggregates producers like Martin Marietta Materials, Inc. MLM, Summit Materials, Inc. SUM and Eagle Materials Inc. EXP, whose businesses are reliant on outdoor construction activity.

Meanwhile, slowdown in residential construction is also expected to impact the company’s top line. That said, declining mortgage rates since the beginning of 2019 and moderating prices have been helping the housing industry to register higher sales, which will offset the negatives to some extent.

Segment-wise, the Zacks Consensus Estimate for Aggregates segment sales (accounting for 80% of the total revenues) is pegged at $741 million, suggesting an increase from $700 million a year ago but a decrease from $874 million in the last reported quarter. Also, first-quarter revenues are likely to grow 12.5% year over year but decline 37.1% sequentially to $184 million for the asphalt segment. Concrete segment revenues are projected to decline 3.9% year over year but increase 4.3% sequentially to $97 million in the to-be-reported quarter. Calcium segment revenues are likely to be up 2.1% year over year and 0.5% sequentially to $1.98 million.

However, the company’s earnings are expected to be impacted by lower margins, given rising transportation costs, and higher diesel and liquid asphalt expenses.

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 can see the complete list of today’s Zacks #1 Rank stocks here.

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 -3.29% 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.

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