Operator:

Good morning. Welcome, everyone, to the Vulcan Materials Company Second Quarter 2024 Earnings Call. My name is Todd, and I will be your conference call coordinator today. Please be reminded that today's call is being recorded and will be available for replay later today at the company's website. [Operator Instructions] Now I will turn the call over to your host, Mr. Mark Warren, Vice President of Investor Relations for Vulcan Materials. Mr. Warren, you may begin.

Thomas Hill:

Thank you, Mark, and thank all of you for your interest in Vulcan Materials. Our results demonstrate how our teams have successfully navigated a challenging first half of the year. Unfavorable weather conditions in many key markets impacted our shipments and operating efficiencies. Our second quarter performance reinforces our consistent execution the durable characteristics of our aggregates-led business and the benefits of our continued focus on both enhancing our core and expanding our reach. Even in the face of lower aggregate shipments, and weather-driven inefficiencies, our teams delivered a seventh consecutive quarter of double-digit year-over-year improvement in aggregates unit profitability. In our trailing 12 months, average cash gross profit per ton has reached $9.96 per ton, marking consistent progress towards our $11 to $12 target. These achievements exhibit the benefits of our commitment to enhancing our core through our Vulcan selling and Vulcan way of operating disciplines. But our strategy is two-pronged, and we are also focused on expanding our reach. During the second quarter, we closed two strategic bolt-on acquisitions. These acquisitions enhance both our aggregate production and distribution capabilities and our downstream asphalt business in Alabama, Texas, two of our top 10 states. In the quarter, we generated $603 million of adjusted EBITDA and expanded our adjusted EBITDA margin by 170 basis points despite 5% lower area shipments. Shipments in the quarter were negatively impacted by a significant number of rain days in many markets, particularly in May across 70% of our geographies and in select key markets in April and June. The pricing environment remained positive and freight-adjusted average selling prices improved 12% on or $2.29 per ton versus the prior year. Freight adjusted unit cash cost of sales increased 13% or $1.13 per ton. Most importantly, cash gross profit per ton improved over $1 per ton or 12%. We remain consistently focused on improving unit profitability on every ton we sell to maximize earnings and aeration in any man environment. Let me share with you my thoughts on the current demand backdrop by discussing each end use. Single family starts again recovering in the second half of last year and continue to point growth in 2024, albeit at a slightly lower level than we had initially anticipated. The timing of starts converting to shipments continued affordability issues and persistent elevated interest rates are impacting both the pace of recovery and the likelihood of single-family growth fully offsetting weaker multifamily activity. Looking ahead, the underlying fundamentals of population growth and low inventories in Vulcan markets continue to support long-term growth in residential construction. In private nonresidential construction, the landscape continues to vary across categories, but is unfolding largely as we anticipated for 2024. Warehouse activity is the biggest headwind with some positive momentum in manufacturing activity in data centers. Light commercial activity is still relatively weak, but over time, we expect it to follow the positive trends in single-family housing and benefit from lower interest rates. On the public side, we continue to expect growth in 2024 as two consecutive years of record growth in contract awards flow into projects and aggregate shipments. The IIJ funding is benefiting both highways and other public infrastructure activity. Given the demand backdrop just discussed and the weather impacted first half shipments being down 6%, we now expect aggregate shipments to decline between 4% and 7% for the full year. Combined with solid pricing environment and double-digit profitability improvement, we still anticipate same-store adjusted EBITDA growth, margin expansion and attractive free cash flow generation in 2024. Now I'll turn the call over to Mary Andrews for some additional commentary on our results and revised outlook. Andrew?

Thomas Hill:

Thank you, Mary Andrews. I want to conclude by thanking our talented Vulcan team for their commitments to each other and to excellence. As they work each day, Rainer Schein, to operate safely and deliver value for our customers and our shareholders. I am confident that we have the right, two-pronged strategy of enhancing our core and expanding our reach. And I'm excited about the runway ahead of us on both fronts to drive attractive growth for Vulcan Materials. And now Marry Andrew and I will be happy to take your questions.

Stanley Elliott:

Good morning, everyone. Thank you all for taking the question. Tom, could you talk a little bit more about just the overall demand environment? I understand there's been pretty tough operating conditions kind of on a year-to-date basis, and probably even into July a little bit. Any sort of help in how we should think about the balance of the year, kind of where you see momentum and things like that?

Stanley Elliott:

Great, guys, thanks so much. And Beth, welcome to backyard.

Operator:

Thank you. Our next question will come from Garik Shmois with Loop Capital. Please go ahead.

Thomas Hill:

Sure. I think that if you kind of look at what's happened and take that into the second half, your point of demand doesn't go away. It's absolutely spot on. And you probably got some pent up there and it comes down to what the weather does to us. I think it's - looking back, if you'll explain the future that we were really impacted by rain in the first half, and I'll give you a couple of examples. In Q2, Nashville had 30 rain days, and it dramatically impacted shipments. Look, we lost half of our shipping days in that Middle Tennessee market, DFW had doubled the amount of rainfall. So we just have dried out and couldn't ship. The flip side of that is, you saw Atlanta weather pretty much normal and shipments were as expected. L.A. had weather normal and shipments were right on where we had planned. So weather has played a role it will impact Q3 as July was very wet. And now we're experiencing a tropical storm on the East Coast. So kind of a tough start to the third quarter. But as you said, the demand is still there. It's as we thought it was going to be. So these are temporary events and it doesn't go away. So, we get dry days we're shipping just fine.

Thomas Hill:

Operator, is there another question.

Anthony Pettinari:

Good morning.

Anthony Pettinari:

You raised the guide for cost inflation from mid-single digit to high single-digit should we think about that incremental cost inflation as just essentially all volume deleverage? And are there any other kind of puts or takes, either good or bad, that we should think about for the second half on costs, whether it's diesel or other items?

Anthony Pettinari:

Okay. That's helpful. I'll turn it over.

Operator:

We'll take our next question from Jerry Revich with Goldman Sachs. Please go ahead. Your line is open.

Mary Andrews Carlisle:

Good morning.

Thomas Hill:

Yes, I'll give you some color on price let Mary just talk about sequential. The pricing momentum continues in all markets and all product lines. We had a successful midyear pricing campaign. I think both by customer and by market, I'd call it as we thought it was going to be as anticipated. But remember, as we explained, those midyear prices will have a small impact on '24, but a much bigger impact on '25. So we've already begun to set the solid foundation for pricing for '25. As always, we would ultimately guide you the unit margin growth which was 12% despite weather and volumes down 5%. So I'm proud of operators hard work. Look, that kind of margin growth is tough to begin with. It's particularly difficult to earn when it's raining, you got bud in the mug. So really thanks to our team.

Anthony Pettinari:

Thank you

Operator:

Our next question from Kathryn Thompson with the Thompson Research Group. Please go ahead.

Kathryn Thompson:

Hi, good morning and thank you for taking my question today. Please provide some good detail on project on your work. It's not necessarily lost, but it's delayed. And you've also given some good color just on pricing and continuing that double-digit pace, perhaps pointing to shrink a little bit more on the pricing question because it's a particular focus given lighter volumes even though those volumes are delayed. . What type of impact are you seeing from product mix and geographic mix and really not as much looking backwards, but looking forward, in part because our channel checks are showing that you're starting to see a ramp-up of some larger infrastructure projects that were taking a while to build up. So any color that you can talk about in terms of product mix, geographic mix and how that may impact pricing on a go-forward basis? Thank you.

Kathryn Thompson:

Okay, great. Thank you very much.

Operator:

We'll take our next question from Angel Castillo with Morgan Stanley. Please go ahead. Your line is open.

Angel Castillo:

Hi, thanks. Good morning. Thanks for taking my question. Just to deliberate point, but I just wanted to maybe touch base on the price discussion a little bit more. To the extent that these meters that you've done, give you any kind of insight into preliminary views in 2025. Can you just talk about what kind of the shape of that is in terms of kind of the magnitude? Are we still talking about price increases next year in the kind of high single digits, low double digits range? And kind of along with that, just any sense of kind of customer sensitivity and kind of competitive discipline around price increases would be helpful?

Angel Castillo:

That's helpful. And if I may just kind of clarify on the pricing, just a quick one. But 10% to 12%, I thought that was kind of the guidance that you had laid out before midyear. So what kind of change so that it now includes midyear [indiscernible]. Can you just help us understand that?

Angel Castillo:

Got it. Thank you.

Operator:

Thank you. Our next question will come from Mike Dahl with RBC Capital Markets. Please go ahead.

Michael Dahl:

Hi, Tom, Mary Andrews. Thanks for taking my question. It just as maybe just to help clarify kind of the cadence because it sounds like even with July, understandably some things are moved around with whether it's not like August. It's probably been fantastic either. But when you're thinking about those puts and takes from the volume and also some of the price cost dynamics, can you put a finer point on within your guide, how you'd expect 3Q versus 4Q to play out?

Mary Andrews Carlisle:

Yes. And Mike, one other thing to keep in mind as you think about third quarter versus fourth quarter and the challenging start, Tom just mentioned from a weather perspective is that strictly from a seasonal basis, we have easier, relatively easier comps in the fourth quarter than we do in the third quarter. So if you think about where those volumes fall, that's something else to keep in mind as to how the back half might play out.

Thomas Hill:

Thank you.

Thomas Hill:

Hi Trey.

Thomas Hill:

Yes. As you said, you saw us close on two smaller, I call it very strategic bolt-on acquisitions, kind of 1 in North Alabama and 1 in Texas. I would tell you that we'll close on some more meaningful acquisitions in the near future and which we'll share with you when the time is right. But it's a busy season for acquisitions. .

Thomas Hill:

Thank you.

Unidentified Analyst:

This is Jon Allen on for David. I was just hoping you could provide some detail on what you're seeing for 2025 DOT budgets in key states for Vulcan and maybe [indiscernible] that's playing into your pricing outlook for 2025 and the ability to sustain double-digit pricing growth?

Unidentified Analyst:

Great, thanks.

Operator:

Our next question comes from Adam Thalhimer with Thompson Davis. Please go ahead.

Adam Thalhimer:

Hi, good morning, guys. I thought it was a nice quarter. Are you -- like Trey, I was also curious on M&A. And gosh, it feels like every international materials companies trying to grow U.S. materials exposure. Are you seeing increased competition for deals?

Adam Thalhimer:

Sounds good. Thank you, Tom.

Operator:

Thank you. Our next question comes from Phil Ng with Jefferies. Please go ahead.

Thomas Hill:

Go ahead -- from a macro perspective, I'd say similar that's always going to be different when I say different, you get different customers, different product lines, different geographies where you got it last year, maybe you didn't get it this year or vice versa. So I would call it out very similar.

Thomas Hill:

I think it's early to call. I think you continue to see growth in the public side. I think that we do know just because the funds are there and they're starting to flow into lettings. On the private side, I feel good that single-family will continue to grow. It's a little slower than what we anticipated. And it has some catch-up to do with lead indicators. And obviously, interest rates will help that. But we just don't have the inventory of houses in these markets to keep up with population growth. So I would expect the res to kind of slow and steady growth also I think the big question will be nonres. We've taken the hit on warehouses and distribution centers. The manufacturing is good, but interest rates will help that sector also. It's a matter of timing, I believe.

Thomas Hill:

Sure.

Michael Dudas:

Good morning, gentlemen. Mary Andrews.

Michael Dudas:

Tom, let me follow-up your final remark there to Phil. On the large private heavy non-res opportunities, can you talk about what your backlog looks like, how it looks on bidding relative to what it's been in the last six to 12 months? Are we seeing an acceleration of some of the larger type projects that are in your areas that you can certainly serve into over the next couple of years? Is that potentially a tailwind as we look through the second half of this year weather permitting in 2025?

Michael Dudas:

Thank you.

Operator:

We'll take our last question from Michael Feniger with Bank of America. Please go ahead. Your line is open.

Michael Feniger:

Hi, guys. Thanks for taking my question. Just, Tom, on the manufacturing side, it's been a tail on the private non-res based on your backlog pipeline, is that -- did you feel that, that means stable in '25? Because is there a risk that some of these manufacturing projects had been a tailwind kind of roll off and there's not enough to be backfilled. Just curious if you kind of address that how we head into '25? And just secondly, I know there was talks on the public infrastructure side, you highlighted the record growth in highway contract awards has really helped infrastructure this year. There's been some mixed data points in the last few months around that. Just curious if you feel like that's just more of a pause, and we see more of the funding sort of flow through to continue that trend into '25, '26?

Operator:

This does conclude today's program. Thank you for your participation, and you may now disconnect.

Operator:

Good morning, and welcome, everyone, to the Vulcan Materials Company First Quarter 2024 Earnings Call. My name is Jamie, and I will be your conference call coordinator today. Please be reminded that today's call is being recorded and will be available for replay later today at the company's website. [Operator Instructions]

Mark Warren:

Thank you, operator, and 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.

In the quarter, we generated $323 million of adjusted EBITDA and expanded our adjusted EBITDA margin. Importantly, several key trends continue:

Pricing momentum, cost deceleration, unit profitability expansion, robust cash generation, disciplined capital allocation and return on invested capital improvement.

Stanley Elliott:

Tom, nice start to the year, very clean quarter despite kind of some of the weather issues, I think a lot of people had and some of the comp issues. Can you talk about how the rest of the year plays out, thinking about this more like maybe from a demand standpoint? And then to any extent commentary you could share on April would be great.

Jonathan Bettenhausen:

I'm curious about your outlook on midyear pricing. You had conversations with your customers about midyear. And I'm also wondering how much of that is baked into your guide?

Mary Carlisle:

And one more thought on price. We always like to point out how important it is to remember that regardless of what the level of pricing is, the key is really how much price we're able to take to the bottom line. In the first quarter, we achieved 10% improvement in cash gross profit per ton and some Aggregates margin expansion even given the lower volume quarter due to the weather. Overall, gross margin also improved by 140 basis points and adjusted EBITDA margin expanded as well. So importantly, we expect this margin expansion to continue and to improve further through the balance of the year.

Anthony Pettinari:

I'm wondering if you could talk a little bit more about how costs have kind of been trending among your major cost categories. If you can touch on maybe some of the nonenergy categories. And then also just with higher diesel, how that's impacted conversations around price increases or just how you think about the full year from that context?

Operator:

We'll go now to Kathryn Thompson with Thompson Research Group.

James Hill:

Well, as always, we would tell you that it's Aggregates and we are an Aggregates company. We have the highest percentage of EBITDA in Aggregates of probably anybody in the sector, and that's what we do. Now we have strategic downstream. And as we always say, it's a portfolio, we look at it as a portfolio, and if one of those sectors or geographies doesn't earn appropriate return or somebody else would divest of it and plow that money back into our Aggregates business. So I think that nothing has changed as far as how we look at the world. And as we look at the growth part of M&A in greenfields, it will be Aggregates focused.

Trey Grooms:

I kind of want to follow up on the comment, Mary Andrews, you had earlier about cash gross profit per ton. Clearly, it was up 10% in the quarter. I think you were maybe initially looking for mid- to high single-digit improvement. So maybe a little better there. And then full year is mid -- I think looking for mid-teens type of improvement. So I guess the first one is kind of how we see that progress. I think it's going to accelerate somewhat as we go through the year, but any way to help us kind of think about that as we progress through the year to get to that mid-teens for the full year? And then maybe stepping back a little bit longer term. These are clearly better numbers of better performance than the historical kind of average of profitability improvement. How are you thinking about that longer term? Do you think it has the opportunity to kind of see a long-term better kind of consistent improvement versus kind of historicals?

Jerry Revich:

I'm wondering if you could just talk about how you expect the pricing cadence to play out this year over the past couple of years, third quarter versus second quarter, we saw a big $0.60 type step up in pricing. Is that feels like that's what you're assuming this year to get to the guidance. But maybe Mary Andrews, you could expand on how you expect the cadence to play out? And how much higher could that be if we do implement midyear price increases?

Jerry Revich:

Okay. And then in terms of just the exit rate with double-digit pricing growth exiting the year and potential midyears on top of it, I guess that suggests the starting point for '25 should be in the high single-digit pricing range just from a carryover effect. And I just want to make sure that that's consistent with how you folks are thinking about it.

Operator:

Next, we'll hear from Mike Dahl with RBC Capital Markets.

James Hill:

I don't think weather had anything to do with it. I think you may have read a little bit too much into the April month comment. You send the letters out in April, you spend May having those conversations and you finalize end of May, kind of beginning of June. So I don't see anything different in timing or sequencing versus what we did last year. Like I said, I think I'm encouraged by the conversations that we're having, and I think that we will implement a solid midyear price increases. But I wouldn't read anything into the comment on weather versus -- excuse me, comment on April versus how this goes. It's really kind of a process. We introduced it in April, have conversations in May and again, finalize it in June.

Operator:

We'll go now to Garik Shmois with Loop Capital.

James Hill:

Yes. As you saw, we had a small but strategic bolt-on kind of northeast of Birmingham up sort of Guntersville. It's about 2 million tons of Aggregates and just under 0.5 million tons of Asphalt. It fits us well. I think as you look at the full year, the next 12 months, M&A outlook is quite good. So more to come. And I'm having a lot of those conversations and very encouraged by it. I think it's always M&A will be Aggregates-led and conducted with discipline. But I think we feel very confident that this will be a busy M&A year for us.

David S. MacGregor:

I guess I wanted to kind of tap your many years of experience in this business with respect to the second half of this year in election years. And in an election year, do you find that projects kind of accelerate as people kind of focus on [indiscernible]? Or do you think things maybe slow down a little bit as people get a little more [indiscernible] and wait to see how the election plays out? I'm just trying to get a sense of how you're thinking about the risk around second half volumes in public sector spending.

Operator:

And next, we have Timna Tanners with Wolfe Research.

James Hill:

Yes. I will start with highways. We're seeing the IIJA money and the local funds flow into lettings. At this point, we'd stick with that mid-single-digit growth on the public side this year, which is both non-highway infrastructure and highways. And we see that kind of steady growth for years to come. We also are seeing additional state funding come into play. We've got 3 states with some big dollars. Tennessee added $3 billion, Florida I think added $4 billion and Georgia just added $1.5 billion to their funding. I think when it comes to public demand, slow and steady wins the race on this, and particularly when you're compounding your margins like we are, so I think a good healthy sector with steady growth for years to come. And I think the DOTs will continue to work hard to get those dollars into lettings.

Operator:

We'll go now to Tyler Brown with Raymond James.

James Hill:

Yes. I think that where we are on that, and you're talking about the process intelligence on those plants. As we said, we did that in our top 100 plants, which is about 7% of our -- roughly 7% of our production. The tools are all there. About 25%, 30% are actually -- of those plants are actually fully utilizing those tools. And there's a lot of work that has to go into that to get the screens right and everybody trained in those, we're seeing marked progress as we march through kind of this year, maybe the first part of next year, we'll get up to 100% of those. But -- and as we do, we'll see improvement. So where it's working. I think it's working well, maybe a little slower than I would have wanted it to go through as far as full implementation, but we're getting there. And I think we'll see that. As you said, we'll see progress to that show up in our numbers in '24 and in '25 and into '26, to be honest with you. So, so far, so good, and we'll keep plugging at it.

Adam Thalhimer:

Great quarter. On the demand side, I guess I wanted to hit that as well. There's a lot of angst out there about just private construction demand in general. Are you guys seeing any incremental weakness or strength there?

Philip Ng:

Congrats on a really strong quarter. I had a question. I mean, a competitor of yours has just closed on a deal in the Southeast, and they've already announced price increases for midyears in those markets and called out how pricing there is for us below their corporate average. I've always thought that the Southeast is actually a pretty good pricing market. Do you see that dynamic improving the backdrop on pricing, anything on the structure side of things? And then similarly, California, I think pricing still kind of below what that market probably should warrant just given the cost and demand profile. Any thoughts on the momentum modern pricing around California as well?

Operator:

And now we'll go to Angel Castillo with Morgan Stanley.

James Hill:

Yes. I think you're seeing improvement. We're seeing improvement in single-family, which is always helpful. And the most important thing is that you see growth in public demand, which is still visible and it is a very good foundation for pricing. I don't know that interest rates have had a big impact on pricing. Obviously, they'll have -- they've had impacts on demand and volumes. But I think -- so I think that -- and I don't think that the election year has had any impact on pricing dynamics. So I think that the fact that we've got strong, very visible public demand for a long time is good. I think you've got some improvement in res. All of that is helping the pricing dynamics. And I think we feel pretty good about a midyear at this point.

Michael Dudas:

So it's an interesting highlight on 67% of your of the IIJA dollars are going to the Vulcan states. So you can talk a little bit about what states does that matching up with some of the DOT budgets in some of your important states? And what it may be throughout the business, what regions or states maybe are lagging a bit that may have some opportunity to catch up as we move into the next several quarters?

Operator:

And at this time, that will conclude our question-and-answer session. I'd like to turn the call back over to Tom Hill, Chief Executive Officer, for any additional or closing comments.

Operator:

Once again, ladies and gentlemen, that will conclude today's call. Thank you for your participation. You may disconnect at this time.

Operator:

Please unmute your conference line Mr. Warren as we are not able to hear you.

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?

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.

Trey Grooms:

Good morning, Tom and Mary Andrews.

Trey Grooms:

Good morning. I was like you are looking for another year of double-digit growth ahead here for pricing. So, Tom, what’s driving the confidence there as we move into 2024 on the pricing outlook?

Mary Andrews Carlisle:

Yeah, Trey, I’ll just add that headline pricing is one thing but as we always like [Audio Gap]

Stanley Elliott :

Hey good morning, everyone. And congratulation at the quarter and the in the outlook. Last question was a perfect lead-in. I was curious if you guys could talk a little bit more about kind of what you're seeing on the cost side? Maybe how does this mid-single digit sort of cost inflation that you're expecting in the coming year come together? Any puts and takes there would be great.

Stanley Elliott :

Perfect. That's great. Thanks so much and best of luck.

Mary Andrews Carlisle:

Thanks.

Kathryn Thompson:

Hi, thank you for taking my question today. Two part on the – just some more color on the volume guide bridge and what you're seeing from an end market perspective? And how you had it in prepared commentary, but maybe a little bit more color just in terms of growth rates by end market and in previous calls, you were able to give some quantification of what mega projects are of your total expected sales. Just a clarification on the earlier question on pricing. Is – does the pricing guidance - does that include the thought for mid-year price increases? Or is it just carry over from previous pricing actions? Or is it a combination of both? Thank you.

Mary Andrews Carlisle:

Yeah, Catherine, I'll give you a couple of other things to think about regarding Q1 volume that may be helpful context. Last February was seasonally adjusted the strongest single month of shipments we had in 2023 and the strongest February in at least the last 10 years and also this year, simply given the way the calendar falls we will have approximately 10% fewer shipping days in March, which clearly we all know is the most important month of the quarter. Now the good news there is that's just timing what we take those days back up in April, but from a Q1 perspective, it will be impactful. So, overall volumes will be challenged in the first quarter. Pricing will be strong and it should fall within our guidance range. And I would expect that paired with the probable volume impacts to cause I'd expect maybe mid-to-high-single-digit growth and cash gross profit per ton in the first quarter still with the very attractive mid-teens improvement for the full year.

Operator:

And we'll take our next question from the line of Anthony Pettinari with Citi.

Tom Hill:

Yeah, sure. Anthony the balance sheet is really well positioned to fund all of our capital allocation priorities in 2024, particularly M&A growth. As we mentioned, we ended the year with over $900 million of cash and net leverage of one and a half times. So, we'll think about capital allocation in 2024, very consistently as we have in the past that there is a very attractive M&A pipeline and that's what we're focused on in terms of being able to deploy the capacity that we have and I’ll let Tom, do you want to make any more comments on those pipelines?

Anthony Pettinari:

Okay. That's helpful. I'll turn it over.

Operator:

And our next question comes from the line of Jerry Revich with Goldman Sachs. Please go ahead.

Mary Andrews Carlisle:

Good morning.

Tom Hill:

Well, I think what you're seeing is as I said early two things you are moderating inflationary pressures of the comparisons get a lot easier and I think we'll continue to see that. But also if you look at our operating parameters and you remember we put the automation and the insights of the technology including the top-100 plants over last year, you start to see those things go to work which helps us with throughput and throughput of critical sizes. So, I think that as we march through 2024, I think our costs should improve sequentially as we go through the quarter now, we will whether it can have a hiccup on that or one two big outages can have a hit on that. But it’s overall, I would expect our cost to continue to improve over the next four, five quarters.

Operator:

And our next question comes from the line of Philip Ng with Jefferies. Please go ahead.

Mary Andrews Carlisle:

Good morning.

Tom Hill:

Well, as I said, I think we're in a very, very good place from a pricing perspective based on the fundamentals that we're seeing and also the Vulcan Way of Selling those tools help us dramatically and did work. I think that we went we went early as we have and I think that will continue to January 1 which helps obviously helps. We think we were appropriate on our January 1 prices. We announced mid-years in a few markets already. I think over the next probably the next beginning - end of the quarter we will probably announce it mid years for the other markets, and obviously you spend April, May and June having those conversations, so that you're ready for July/August for mid-year price increase. So I think that what those - the fact that it's all in January and the fact that everybody expects to have conversations about mid-year price increases, I think is very important for our markets.

Tom Hill:

I feel good about pricing.

Tom Hill:

You bet.

Michael Feniger:

Yeah, thank you for taking my questions. Tom, to follow up on just the pricing can you just - the Cadence of pricing for this year you gave great color on the cadence of how you think cost plays out. Just on pricing, do you think about the end of the year? Are you still kind of in that 10% to 12% range? Are you below it because you start strong. Just kind of how we should think about that?

Michael Feniger:

Great. And Tom just to follow-up, on you gave great color on kind of the volume, your shipment growth with the different segments. Just when we think of Upstate fast-forward to 2025 and obviously, we'll see how to 2024 plays out. But if you - in a similar range in 2025 with the volume kind of guidance, and it's underpinned by growth in infrastructure, can you just help us understand how that informs pricing relative to maybe if it's being driven by residential or private construction markets how - having it underpinned by infrastructure. So that's kind of maybe shifts the pricing conversations?

Operator:

And we'll take our next question from the line of Mike Dahl with RBC Capital markets. Please go ahead.

Tom Hill:

I would look at the M&A is more traditional bolt-on I think would show which is very much in our footprint. So it has highest returns and deal sizes everything from small and mid-range. Maybe a little better - big some a little bigger than mid-range, but I think that as far as the timing is concerned I think ‘23 was abnormally, I guess, quiet and it was because there was so much insecurity about what we're going to fall off the cliff is there going to be a recession and so when you have all those unknowns, people tend to slow down both buyers and sellers and I think the fact you got that behind you, you'll see some catch up in 2024.

Tom Hill:

Well, I think, if you look at our assets, we look at our business as collection of assets. And if there were something more to someone besides us and it's not strategic then, we got be another owner and we will take that money and put it back in the aggregates business. And so, this is no different than what you've seen us do. And we exit businesses at times and we exit different product lines at times. And so, this will make sense strategically for us to sell the Texas Ready mix business.

Operator:

And we'll take our next question from the line of Keith Hughes with Truist. Please go ahead.

Mary Andrews Carlisle:

Good morning

Tom Hill:

Yeah, I think the asphalt performance in a 13% gross margin was a really good performance. Now, if you look back about three years ago, everybody was to ask me why I don't you sell that asphalt business and now everybody wants to buy more. So, that's just the asphalt business, but 13-ish percent is a good number. So it's performing well. We see flat at very high levels for 2024 and I would call that hot mix prices offsetting increasing liquid cost and increasing aggregate cost. So Asphalt is in a very good place and we like our story there. And I think that those teams are performing well. Ready mix, I'd call it virtually flat with the private side challenge - some challenged markets do know that affects the ready mix business, but it's not a bad performance based on some of the private challenge we had. But remember ready mix is 2% of EBITDA. So, I think under the circumstances both businesses do advance.

Keith Hughes :

Okay. Thank you.

Operator:

And we'll take our next question from the line of Garik Shmois with Loop Capital. Please go ahead.

Tom Hill:

Yeah, I think what you're seeing there is the Vulcan Way of Operating inefficiencies in those plants. And that's embedded in that is technology. It is training which is so important from a safety side but also from a plant availability and inspection of equipment. And then our throughputs – you are seeing our throughputs of crooks sizes start to improve. So it's a combination of easing inflationary pressures, comps kind of level out, but also those operating efficiencies are really, really important to making sure that we our job is to beat inflation, not just live with it.

Tom Hill:

Thank you.

Angel Castillo:

Hi, good morning. Thanks for taking my question and congrats on a nice quarter. Maybe understand I thought I heard you say I guess that given the kind of capital that you have, you still have the ability to kind of do organic inorganic and return capital to shareholders. So just wanted to expand on that a little bit. It sounds like on the M&A front you're looking at more bolt-ons. And if I did the math correctly just moving to the midpoint of your kind of leverage allows you to have at least another kind of $2 billion of what kind of capital that you can deploy which seems plenty for both M&A as well as other ways of kind of returning cash to shareholders. So maybe just could you talk about buyback intentions for the year? And then also willingness of potentially levering up above your range - historical range for the right opportunities and returning cash to shareholders?

Angel Castillo:

Very helpful. Thank you.

Operator:

And we'll take our next question from the line of Michael Dudas with Vertical Research. Please go ahead.

Tom Hill:

Good morning.

Michael Dudas:

I am curious about your thoughts. You've indicated a positive trend for civil public infrastructure and the records state on the transportation budgets, are they prepared and ready to pull through when you see some of the budget numbers in your important States? I'm also curious on how things in California because you hear it certainly CALTRANS has bumped up budget there, but certainly there could be some other issues there. So just a little bit of sense on the public side in your important states how you see the opportunities for bidding and project work going forward?

Michael Dudas:

Excellent. Thank you, Tom.

Operator:

And we'll take our last question from the line of Brent Stillman with D.A. Davidson. Please go ahead.

Tom Hill:

I'll take that one, first and then I’ll let Mary Andrews take the ready mix. I think it’s been fairly weak for us. Obviously opposite has been weak, but last year the right size was pretty weak. So kind of more of the same on that still challenged by interest rates. And Mike, I would tell you that my view of that is that the more traditional ex office building, more traditional like non-residential construction usually follows creation of subdivisions. And so we're back in growth mode, subdivision. So I would expect us some time, maybe ‘25 middle of ‘25 that starts to impact that sector of the light risk. So it probably has a brighter future than what we've seen in ‘23 and ’24. But it was kind of when I try to describe ‘24 is more of the same for ‘23.

Brent Stillman:

Okay. Thank you.

Operator:

We have no further questions at this time. I'll turn the call back over to Tom for any closing remarks.

Operator:

This concludes today's conference. Thank you for your participation. And you may now disconnect.

Operator:

Good morning. Welcome, everyone, to the Vulcan Materials Company Third Quarter 2023 Earnings Call. My name is Angela, and I will be your conference call coordinator today. [Operator Instructions] After the company's prepared remarks, there will be a question-and-answer session. Now, I will turn the call over to your host, Mr. Mark Warren, Vice President of Investor Relations for Vulcan Materials. Mr. Warren, you may begin.

Tom Hill:

Thank you, Mark, and thank all of you for joining our call this morning. In September, we officially surpassed our prior goal of $9 per ton cash gross profit on a trailing 12-month basis, and that was before reaching the 230 million tons on a same-store basis and despite macro challenges over the past four years that none of us likely anticipated back in the fall of 2019 when we initially set that target. This accomplishment perfectly demonstrates the durability of our aggregates-led business, and I'm really proud of how our teams continue to execute at a high level. Compounding profitability through the solid execution of our Vulcan Way of Selling and Vulcan Way of Operating Strategic Disciplines is at the core of who we are across our coast-to-coast footprint. Today, our teams are intensely focused on our new target of $11 to $12 of cash gross profit per ton. Cash gross profit per ton growth is key to increasing our free cash flow and continuing to create value for our shareholders. In the quarter, we generated $602 million of adjusted EBITDA, which is a 19% improvement over the prior year. Our aggregates, asphalt and concrete product lines all posted another quarter of year-over-year gross margin improvement. In the aggregates segment gross margin expanded by 200 basis points and cash gross profit per ton improved by 18% despite lower volumes. Shipments declined 2% in the quarter with variations across end uses and geographies. Residential weakness impacted the majority of our markets, while at the same time many of our markets are seeing improving momentum in highway shipments. Private non-residential construction activity related to large industrial and manufacturing projects continue to drive healthy volume growth, particularly in Georgia and the Carolinas. Remember, footprint matters in the aggregates business. Ours is unmatched in the Southeast, where private demand dynamics are currently strongest, and across the country in states where IIJA investments will be the most significant. Pricing momentum continued across our footprint, with all geographies achieving healthy year-over-year increases. Average selling prices improved 15% in the quarter and 3% sequentially, more than offsetting continued inflationary cost pressures. In asphalt, gross margin improved 660 basis points. Shipments increased 11% and across most geographies with particular strength in California. Average selling prices improved 2% and cash unit profitability improved over 50%, benefiting from lower liquid asphalt costs and solid manufacturing cost control. Concrete gross margins improved 120 basis points. Cash unit profitability improved by over 30%, despite lower volume that continued to be impacted by the slowdown in residential construction activity. Remember, prior year concrete segment earnings benefited from the contribution of the now divested New York, New Jersey and Pennsylvania concrete operations. Through the first nine months of the year, we have executed well and successfully navigated evolving macro dynamics. Let me comment briefly on what we are currently seeing in each end use. Starting with residential, we are encouraged by the recent growth in single-family permits and starts in many geographies over the last three months. On the other hand, after providing some support for overall residential demand, multi-family starts have now begun to pull back from historically high levels. Affordability and higher mortgage rates are likely to continue to have some impact on residential activity, but the underlying fundamentals remain firmly in place. Vulcan markets have low housing inventory levels and favorable demographics, driving the need for additional housing. In private non-residential construction, trends differ across categories. As expected, warehouse activity, the largest non-res category, has softened, but manufacturing activity remains at high levels and is concentrated in Vulcan states. We have booked and are shipping on numerous large manufacturing projects where we offer customers a differentiated solution with our advantaged footprint and logistics capabilities. On the public side, leading indicators remain supportive of continued growth in both highway and infrastructure. Trailing 12-month highway starts are up 18% and 2024 state budgets are at record levels. We continue to expect accelerating growth in public construction activity into next year and continued growth for the next several years. Our nimble sales and operating teams are well prepared to deliver value for our customers in any demand environment and to continue to improve unit profitability and drive value for our shareholders. Now, I'll turn the call over to Mary Andrews for some additional commentary on our third quarter performance and upgraded 2023 outlook. Mary Andrews?

Tom Hill:

Thank you, Mary Andrews. While we are still finalizing our operating plans for 2024, let me offer some early commentary on our expectations, and I'll start with the two things I'm most confident in regarding 2024. First, aggregates pricing momentum. For the last seven quarters, aggregate prices have exceeded historical norms, and the price environment remains quite positive. Our Vulcan Way of Selling is driving our commercial execution. We expect prices to improve at least high single-digit in 2024. Second, public demand. We are confident in growing public demand, supported by the recent growth in contract award activity and healthy state DOT budgets for 2024. We expect public construction activity to accelerate next year. Now, there's more uncertainty regarding the impact of the microeconomic environment on private demand that makes it, frankly, a little bit or too early to call. While current trends in single-family residential activity are positive, uncertainty remains as to how higher rates and affordability challenges may impact that sector overall and influence whether or not it returns to growth next year. In private non-residential demand, similar uncertainties exist as to how a higher rate environment could impact the sector overall. Additionally, if warehouse activity continues to pull back from the recent historical high levels, it may further mask the current strength in manufacturing activity and will be a key driver of the decline - the degree of decline in non-residential demand. We'll give you an update in February as to how we see these dynamics unfolding and what that means for aggregate shipments in 2024. I am confident that our teams are well equipped to deliver unit profitability growth in any macro environment, and they have a proven track record of doing so. Over the last 12 months, even in the face of a volatile macro backdrop and lower aggregate shipments, our aggregates cash gross profit per ton has expanded by 18% and our adjusted EBITDA has improved 17%. As we work to finish this year strong and finalize our plans for 2024 over the next couple of months, we remain focused on keeping our people safe, stay committed to our Vulcan Way of Selling and Vulcan Way of Operating Disciplines and continue to deliver value for our shareholders. And now, Mary Andrews and I will be happy to take your questions.

Trey Grooms:

Hi. Good morning, everyone. So Tom, I wanted to kind of follow up on the last bit of your commentary here. And I appreciate some of your high-level comments around demand and the end markets. But could you maybe give us enough color where we could try to triangulate maybe the possibilities, if it is possible to call at this point, of if volume could be in positive territory next year as you kind of look at those three or four end markets and understanding there's a lot of uncertainty here? But any additional color you could give us around that would be helpful.

Trey Grooms:

Got it. Okay. Thanks for those thoughts, Tom. I appreciate it. I'll pass it on.

Operator:

The next question comes from Tyler Brown with Raymond James. Please go ahead.

Tyler Brown:

Hi. Good morning.

Tyler Brown:

Hi. Good morning. Hi, I know there's obviously going to be a lot of chatter about volumes, but I kind of want to come back to this idea about unit revenues versus unit costs, because it feels like costs are just remaining stubbornly sticky. Volumes are stubbornly opaque. So despite both of those, though, you guys have expanded unit margins. So can you just talk about your confidence in the durability of expanding those margins into next year, kind of regardless of what the market throws at you? And Mary Andrews, just any thoughts on what unit cost inflation ex-fuel could? Thanks.

Mary Andrews Carlisle:

Yes. Tyler, and in terms of cost and evaluating next year, I think it's probably helpful to think about our recent trends on a trailing 12-month basis. You'll remember on a year-over-year basis, trailing 12-month, total cost, cash cost to sales, began rising in the first quarter last year. And we saw it ramp considerably that delta for five quarters before peaking in the first quarter of this year. It's since moderated for the last two quarters modestly. And we expect that trend to continue. We just think it's going to be gradual. So as we think into next year, I think what that means is higher than historical average cost increases in 2024, possibly even high single digits. But as you started with the pricing momentum that Tom described, we can still deliver attractive gross margin improvement and, definitely, unit profitability improvement next year.

Tom Hill:

Thank you.

Tom Hill:

Hi, Garik.

Tom Hill:

Yes. On price, first of all, I would say that it's high single digit, low double digit. The January price increases conversations gone very well. And as you pointed out, I think as we've seen for the last few years, we'll have mid-year price increase discussions with our customers. It's just part of the norm now. We'll - well, I guess we'll check back in in February with a little more color on that and have a lot clearer view of it. But again, I think as we look forward, it looks pretty good from a price perspective. On cost, as Mary Andrews said, it's - the place is just stubborn for us. And where we've looked past, had low single digit each year. This year - up until 2022, this year, we're at low double digit. But as Mary Andrews says, starting to fall off, but it's - I think it's slower than maybe I would have expected six months ago.

Operator:

The next question comes from Anthony Pettinari from Citigroup. Please go ahead.

Mary Andrews Carlisle:

Morning, Anthony.

Tom Hill:

Actually, I think just the opposite. We've seen them come on strong. At this point, I think we booked 11 of those very large projects and starting to ship those. It'll be more of a 2024 play. Those 11 that I'm thinking of make up about 12 million tons. As we look out, I think we are - probably over the next year, we'll bid another six, seven, eight of these big projects that would constitute another 14 million tons. So the large industrials are going to move the needle for us in 2024. Geography really helps here. There's Georgia, Tennessee, Alabama, Mississippi, where a lot of those are right in our footprint. So our geography has really helped us here. But from our perspective, they've gone probably a little faster than maybe we have anticipated. So - but remember, we are first coming out of the ground, so supply chain probably impacts us less than maybe others does.

Tom Hill:

Thank you.

Tom Hill:

Hi, Stanley.

Tom Hill:

Yes. Good question. And actually, it's going well. As you know, we always say it takes two years for the money to go to work. And if you remember, IIJA was past November of '21. So we are at a two-year mark, and we are starting to see it come on. It'll be a gradual growth rate over time. We will see growth in 2024. We see it in the awards. Trailing 12 months is up 17% on awards. But if you look at the - to your point, if you look at the state DOT capital budgets for 2024, they're actually really big. You probably won't see all of that in '24, but it'll sure sets us up well. For example, I think Alabama is up 29% capital budget. California is up 5%, but 50% over three years in California. So we are starting to see that money flow through. Florida will be up 20%. Tennessee's budget doubles. And Texas is up 21%. So this will be a multi-year play. They can't put all that money to work in 2024, but sure sets us up. Some of it will go to work in '24, but it sets us up also for '24 and '25. I think that, again, all this is really setting us up well for '24, '25 and '26.

Tom Hill:

Thank you.

Tom Hill:

Good morning, Kathryn.

Tom Hill:

Yes. Well, aggregates is always going to be the top of the list, and bolt-ons in our footprint will give us the best returns. As I look at the M&A market right now, from, say, six or eight months ago, it's actually picked up. I think over the next several months, over the next several quarters, we should see some strategic bolt-on acquisitions. And I think that we've got some really good opportunities there. I think we'll also, over the next two years, see a marked pickup in greenfield starts as we got some really good opportunities in adjacent markets to add some new facilities that we've been working on for the last five to 10 years. So I think both will pick up. As always, our biggest growth engine is going to be improving cash gross profit per ton in aggregates. And I think, as we've heard earlier in this conversation, while we've had a great year in '23, I think we'll also have a really strong year because of pricing momentum and our operating disciplines as we look out to 2024. So I'm very encouraged with growth on all fronts at this point.

Tom Hill:

Thank you.

Tom Hill:

Morning, Jerry.

Jerry Revich:

Hi, Tom, Mary Andrews. Good morning. I'm wondering if we could just talk about the opportunity that you folks have from the logistics services and other initiatives outside of price cost. You've had, over the past 10 years, 10% compounded CAGR and profitability. You've had some contribution outside of price cost from those initiatives. And can we just ask you for an update on how that's tracking and the opportunity set over the next couple of years?

Jerry Revich:

And the outlook from here, Tom? Any particular acceleration, because it seems like it's contributed to the unit profitability CAGR about 1 points to 2 points generally?

Jerry Revich:

Thanks.

Operator:

The next question comes from Mike Dahl with RBC Capital Markets. Please go ahead.

Mary Andrews Carlisle:

Morning.

Tom Hill:

Yes. So asphalt, it's been a great year. It was a really strong quarter. Volumes were up 11%, margins up 50%. And we really helped - first of all, we are in really good asphalt markets, but we're also obviously helped by liquid - fall in liquid and, on top of that, really good pricing momentum for hot mix. As we look to 2024, I'd say we are still doing the work. I think there's potentially some challenges from liquid pricing going up. I think demand will be okay, but I think we'll give you a lot more color in February. As I looked at ready-mix, as we called out kind of early in the year, where we struggled with unit margins because of inflation and energy last year, we got past that with price as we predicted. Volumes in the quarter were a little challenged on a same-store basis, and that's really driven by single-family construction. But prices were up 10% and unit margins were up over 30%. Next year, I think it's a little early to call, because of the volatility in the private side. We just got to see more. That said, I think we do have pretty good pricing momentum going into '24 on concrete.

Mike Dahl:

Great. Thank you.

Operator:

The next question comes from Timna Tanners with Wolfe Research. Please go ahead.

Timna Tanners:

Morning, guys. Thanks for all the great detail. I guess, I know I asked yet, I figured I'd touch on the Mexican quarry updates, because there was some news recently that the government offered you something north of $300 million, and that was not accepted. So just wondering what the latest there is, what you're holding out for. I know you've quoted some press reports of closer to over $1 billion, but just trying to get a sense of maybe any timing there or the latest in that process. Thanks.

Timna Tanners:

So them offering you something before the results of the NAFTA panel was just, what, to try to get around that ultimate result maybe? That seems strange.

Timna Tanners:

Understood. All right. Thanks again.

Operator:

The next question comes from Philip Ng with Jefferies. Please go ahead.

Philip Ng:

Hi, guys. You guys called out some cross currents in your non-res business, notably between manufacturing and warehouse. Can you help size up these two end markets for you from a percentage of your business or tons? And any nuances between the aggregates intensity of these two different end markets?

Mary Andrews Carlisle:

Yes. And Phil, in terms of composition of shipments, we don't necessarily track shipments to that level. But I think you could think about it in terms of contract awards. And so in private non-res, warehouses now make up probably close to 50% of the contract awards; and the industrial manufacturing, probably 10% to 15%.

Mary Andrews Carlisle:

Well, I think it's just too early for us to give you - to go there, really. We'll come back in February with more specifics. But as we've talked about, we definitely see good opportunities for continued unit profitability growth next year.

Philip Ng:

Okay. Thanks, Tom.

Operator:

The next question comes from Keith Hughes with Truist. Please go ahead.

Mary Andrews Carlisle:

Yes. So in the quarter - in the third quarter, diesel was really up and down, but was a net benefit. Thinking as we move forward, if diesel stays at the levels we saw in September, fourth quarter would probably be essentially a push. Looking into next year, we think on average, diesel will be higher year over year, but it's probably too early to call exactly what that will look like. As you know, for us, diesel can be a temporary challenge, but it's also an opportunity.

Tom Hill:

Yes. I think everything is sequentially staying up. We are in those negotiations. I think a little early to call that right now from - for the big movers. The one we think will be up will be energy. Both diesel and electricity will probably be up. But as far as the other inputs, I think that it's stayed a lot more stubborn than we would anticipated. I don't think we are - at this point, we call up probably high single for next year, but it's really too early to call as we're doing the operating plans and the negotiations with our suppliers at this point.

Tom Hill:

Thank you.

Tom Hill:

Morning, Mike.

Michael Dudas:

Good morning, Mary Andrews. Mark and Tom. For Tom and Mary Andrews, when you talked about you allocated capital towards the land acquisitions here this quarter, up to $200 million, you talked about 2023. Maybe you can share like how that progress is and what's the medium-, longer-term timing on some of the greenfield opportunities? Are there some that are closer rather than others? And on a big picture basis, how much is that kind of, if you think about, relative to investing the capital into those types of projects?

Michael Dudas:

Okay. And you would add - so there's capacity growth potential in those states or others as you're looking out medium to longer term as those markets continue to be attractive for you guys...

Michael Dudas:

Thank you, Mary Andrews, Tom.

David MacGregor:

Yes. Good morning, everyone, and thanks for taking my question.

Mary Andrews Carlisle:

Morning.

Tom Hill:

As far as delay - as far as people - projects getting pushed back, we saw a little bit of that in a couple of states I'd say nine months ago. We're not seeing that today at all. In fact, states are working hard to get projects out. Inflation has definitely had an impact on project costs, but we are still seeing growth in demand this year and we'll see growth in demand next year despite inflation. And as you heard me talk about earlier, budgets are up in a number of states, what I'd say, dramatically. So I think they understand that. I don't think I worry about projects being pushed back from a cost perspective. If it is delays to projects, it's really delays to getting into lettings because of capacity of DOTs growing into the funding. But again, I think all that taken in. We continue to see gradual growth in highway demand next year and the next year and the next year and the next year.

Tom Hill:

I'm sorry. I misunderstood you.

Tom Hill:

Yes. They're going up, and I think they're adjusting to it appropriately. But there's a lag there and they're playing a little bit of catch-up because of inflation.

Tom Hill:

Thank you.

Tom Hill:

Morning.

Michael Feniger:

Morning. Thanks for taking my questions. You gave some great color on 2024. Just to kind of put a finer point on it, when we think of the price versus cost spread you guys achieved in Q3, is that price versus cost spread expanding in 2024 or staying the same, given kind of the moving pieces you were indicating earlier?

Michael Feniger:

Appreciate that. And when we think of next year, how you kind of outlined potential movement in shipments when we think of the cadence to residential, public, light versus heavy? I'm just curious if you kind of help us understand how you think the cadence kind of plays out for next year. Is it - do you start strong? Or does it actually kind of get better through the year? You have kind of easier comps potentially in the second half. Just how we kind of think of these moving pieces, how that rolls through next year?

Michael Feniger:

Perfect. Thank you.

Operator:

The next question comes from Rohit Seth with Seaport Research Partners. Please go ahead.

Tom Hill:

Hi, Rohit.

Rohit Seth:

Good morning. My question is on the Vulcan Way of Operating. You guys had mentioned on past calls that you had made some investments over the past couple of years. I know you touched on the logistics side, but I think there's some plant-level stuff that you had in the works and we're looking forward to potentially being needle movers in 2024. Do you still think those are going to be needle movers next year? And if you can help us think about what to expect and if you can quantify any impact, that'd be great.

Rohit Seth:

All right. Thank you.

Operator:

It appears we have no further questions at this time. I will now turn the program back over to our presenters for any additional remarks.

Operator:

This does conclude today's program. Thank you for your participation. You may disconnect at any time.

Operator:

Good morning, ladies and gentlemen, and welcome to Vulcan Materials Company's Second Quarter 2023 Earnings Call. My name is Angela, and I will be your conference call coordinator today. [Operator Instructions] Now I will turn the call over to your host, Mr. Mark Warren, Vice President of Investor Relations for Vulcan Materials. Mr. Warren, you may begin.

Tom Hill:

Thank you, Mark, and thank all of you for your interest in Vulcan Materials today. Our results through the first half of 2023 highlight both the attractive fundamentals of our aggregates-led business and Vulcan's commitment to compounding profitability through our solid execution of our Vulcan web selling and both with operating strategic disciplines. I'm proud of our teams for delivering yet another quarter of improvement in our trailing 12-month aggregates cash gross profit per ton. That marks 20 of the last 22 quarters. This exceptional execution, coupled with better-than-expected demand environment gives us confidence in our ability to deliver between $1.9 billion and $2 billion in adjusted EBITDA this year. In the quarter, we generated $595 million of adjusted EBITDA, which is a 32% improvement over the prior year. Gross margin expanded by 480 basis points, and importantly, each product line delivered year-over-year improvement. In the Aggregates segment, gross margin improved by 290 basis points. Cash gross profit per ton improved by 22% with healthy year-over-year price improvement and moderating year-over-year cost increases. Shipments declined a modest 1% in the quarter, but were varied across markets. On one hand, we saw a solid growth in our key southeastern markets, where we have the most attractive Aggregates footprint. And we were pleased with the rebound of sales in California after a very wet first quarter. On the other hand, weather continued to be a challenge in Texas. And remember, softer residential activity wait on most markets. All geographies benefited from the continued strong underlying price environment. Our mix adjusted sales price improved 15% in the quarter. Attractive price growth should continue to drive improvement in our unit profitability as we progress through the back half of this year and into next year. In Asphalt, cash gross profit nearly tripled from the prior year to $66 million, and cash unit profitability improved over $10 a ton. Volume growth of 16%, price improvement of 9% and lower liquid asphalt costs all contribute to the stable results. Gross margin improved almost 1,200 basis points. Concrete cash unit profitability improved by 24% in the quarter, and this is despite lower volumes that were impacted by the slowdown in residential construction activity. Prior year Concrete segment benefited for the contribution of the now divested New York, New Jersey and Pennsylvania Concrete operations. Now starting with residential. Let me provide a few thoughts about each end market. To date, the impact of the slowdown in residential activity has not been as significant as most of us initially feared. Recent permits and starts were showing that some areas have reached the bottom, and the cinema among homebuilders is much improved. These trends along with the solid underlying fundamentals for residential demand growth such as low inventories, favorable demographic trends and employment growth in our market suggests that single-family demand will bottom in the second half of this year and be -- and then start recovering thereafter. In the private nonresidential construction segment, starts remained at healthy levels, with particular strength in large manufacturing and industrial projects. Our strong Southeastern footprint and logistics innovation efforts are making us a supplier of choice on many of these projects. As an example, we have booked and are currently shipping to projects such as battery plants, electric vehicle manufacturing facilities, LNG facilities and large warehouse parks. On the public side, demand is unfolding largely as we expected, Funding from the infrastructure investment and Jobs Act is beginning to flow through and the pipeline is building with trailing 12-month highway starts up over 20%. 2024 state budgets are at very healthy levels. And internally, our bookings and backlog reflect this increased activity. The level of this year's shipments will depend upon how quickly this increased activity converts to shipments. We expect accelerating growth into next year and continued growth for the next several years. Trailing 12-month other infrastructure starts are also over -- up over 20%. In addition to significant IIJA funding for water, energy, ports and shipments, strong state and local revenue support growth in non-highway investments. Based on the improved private demand backdrop, our first half shipment -- and our first half shipments, we now expect Aggregates volumes to decline between 1% to 4% in 2023 and as compared to our initial expectations of a decline between 2% and 6%. Of course, regardless of the demand environment, our focus is to consistently improve unit profitability and grow earnings that we create value for our shareholders. We're well positioned to do exactly that this year and deliver approximately 20% year-over-year improvement in both our cash gross profit per ton and adjusted EBITDA. And now I'll turn the call over to Mary Andrews for some additional commentary on our second quarter and an update for 2023 outlook.

Tom Hill:

Thank you, Mary Andrews. In closing, I want to thank and congratulate our teams on an outstanding performance in the first half of this year, and I want to challenge them to remain focused on our Vulcan web selling and Vulcan web operating disciplines so that we can continue to compound improvements and drive value for our shareholders. Most importantly, we will remain committed to each other and keeping each other safe. And now Mary Andrews and I will be glad to take the questions.

Trey Grooms:

Nice work in the quarter.

Trey Grooms:

So I guess I wanted to touch on the guide specifically the increase in your volume outlook for the year, I think, Tom, and I know you have some things maybe from a high level, but could you maybe go into a little bit more detail on the primary drivers there, especially as you kind of look on the private side, on res and private non-res, and is that adjustment that you've made here for the full year based more on what you've seen in the results year-to-date or an improvement in the outlook for the balance of the year?

Operator:

The next question comes from Garik Shmois with Loop Capital.

Tom Hill:

I'll take non-res first. As I said, it's been a lot better than we thought. It's really driven by as you would expect, warehouse, distribution center. And now we've got the heavy industrial projects coming on, which have been very helpful. I would say a little bit of risk in some geographies and some sectors next year as we've seen maybe some slow in starts in Texas and warehouses. That said, if you look at that segment, warehouse segment in some of our stronger markets like -- strong markets like Georgia, Florida, California, Arizona, we're still seeing growth in starts and warehouses in those markets. So a little bit mixed bag of warehouses. I'd say other really good news in non-res is that we continue to see the big growth in the heavy industrial projects in our footprint. And these projects carry substantial volume needs. We have, I think, 11 of these big projects that we've already booked, most of them were already shipping on, and they'll carry out through 2024. On top of that, we're currently bidding on a number of projects that, as you know, won't ship until '24, '25. So in this sector, geography really does matter. So better growth in non-res than I think we originally expected. I'm sorry, your second question was on how we demand. It's really a matter of timing. We're seeing a lot of growth in -- we're seeing growth in bidding. The funding, as you know, the federal side, the state side and the local side is very good. Highway lettings continue to build our bookings in our backlogs and highways continues to build. And as you know, what we're bidding today, and what we're looking today, we'll ship in '24. So again, low single digit in the sector in '23, but is setting up very well for '24 and '25 and '26.

Stanley Elliott:

Could you guys talk about the pricing environment? You mentioned pretty broad-based momentum to the first half of the year. You did leave the pricing guidance unchanged. Is that regional mix? Is it maybe some timing? And to what level are you guys thinking about second price increases and maybe even how that carries off into 2024?

Operator:

The next question comes from Mike Dahl with RBC Capital Markets.

Tom Hill:

Yes. I think we were very encouraged that this quarter, we had unit margin growth in all 3 product lines. We battled out a little bit in Asphalt for a year or 2. And then we had to catch up. We said we'd catch up this year in Concrete, and we've got it in the second quarter. I'll take the product lines kind of one at a time, really strong quarter for Asphalt. Gross margins were up -- were at $66 million. They were $26 million last year. Volumes were up 16% in spite of wet weather in Texas, California and Arizona Asphalt volumes were really strong after a tough first quarter because of rain. Prices were up 9%, and our liquid costs were down. So great quarter in Asphalt. We told you guys we would continue to grow this margin than we are. So really encouraged by that. And that will only get better as you see the funding from IIJA and local and state, plenty of go to work in the public sector. Ready-mix, we had a really tough first quarter, slow start to the year. We got really blowing up with weather. We covered -- I thought the team there did a really nice job, recovering rapidly in the second quarter, and it was really driven by unit margin expansion. So on a same-store basis, our volumes were down actually 11%. A combination of rain in Texas and the impact of single-family demand. Prices were up 10% and unit margins were up 24%. So -- we said we'd get back to growth mode and ready mix. I think we are, and I think we'll continue that recovery. But I'm really proud of the ready-mixed teams recovery and the Asphalt team's continued performance in those product lines.

Operator:

The next question comes from Anthony Pettinari with Citi.

Tom Hill:

Yes. We're getting better costs, but they're still high. They were up 9% in the quarter. And you really feeling the impact of the inflationary pressures on parts and services. As we said, comps get easier throughout the year, our guidance is the high single, which would put us in kind of mid for the balance of the year. Parts and service costs continue to plague as well. So we have issue of challenges with parts delivery, which hurts our efficiencies. That also is getting better. I think we do have a good guy in the quarter of diesel, which was probably an impact of around $25 million. And our operating efficiencies continue to improve and will help us offset some of this. So we guide you to -- for the full year to high single digit, which would put us kind of mid in the back half of the year, but we're comping over a lot easier numbers.

Anthony Pettinari:

Okay, that's very helpful. And maybe just on labor, are you seeing any change there, maybe not in terms of wage rate or dollar, but in terms of availability of labor that's maybe helping you or hurting you this year?

Operator:

The next question comes from Jerry Revich with Goldman Sachs.

Tom Hill:

So as I said, I think we've got a lot of momentum going with this, and this -- the private side demand on this being better is helping that. Everybody's got good visibility to the public side, I think that if you go out there and talk to the segment to the Construction Materials and Construction segment, people are feeling a lot better about the future than maybe we were 6 months ago. And you can see more of the demand. So that positive sentiment, the momentum on pricing and better visibility to demand, all a good setup for price. As far as magnitude, we're working on that right now, but I would -- our strategy last year was to go out higher on January 1. I thought that worked very well. And I think I wouldn't see a stream from that strategy as we look to 2024.

Tyler Brown:

So I'm a little unclear on the CapEx. So I think CapEx is expected to be $600 million, $650 million, but does that include the $200 million in land purchases? Or will that be on top of it? Maybe I'm missing it, but those maybe flow on the acquisition line on the cash flow statement. I'm just not sure. And then just, Tom, any color on the M&A pipeline?

Tom Hill:

Yes. I would simply describe the acquisition with the improving picture and clarity to the private demand and it probably looked a little better than maybe we thought. I would expect that to improve the M&A pipeline. We've got -- we always have a couple we're working on, but strategic bolt-ons. But I would think this will help the pipeline.

Timna Tanners:

Wanted to follow up on the strategic cash uses. So talking about property purchases, is this because of opportunistic availability? Or is this a need to reach ore reserves, just some color there? And similarly, just wondered if you would comment on the first share buyback since the pandemic and what that might illustrate for your future plans.

Mary Andrews Carlisle:

Yes. And in terms of share repurchases, returning excess cash to shareholders through repurchases has been part of our long-standing capital allocation priorities. We believe appropriately following reinvesting in the business, through operating and maintenance CapEx, after growing the business and returning cash through the dividend. So with attractive cash generation and slower M&A in the first half of the year. We repurchased $50 million of shares in the second quarter. And really, our capital allocation decisions in the back half of the year will just follow our same disciplined approach.

Phil Ng:

Congrats on the strong quarter. My question is your guidance for average volumes you're calling for it to be down, call it, 1% to 4%. And you want to down modestly in 2Q. And with housing bottoming and you're calling out pretty good momentum on the infrastructure and heavy commercial side with frankly easier comps in the back half, it feels kind of conservative. Any one-offs that we should be mindful of, and when we look out to 2024, time you're talking about how you're seeing momentum building on infrastructure and heavy on the industrial side. Any color on how to think about the growth profile in those 2 end markets when we kind of look at 2024?

Phil Ng:

Is there a way to think about how that growth profile is going to look next year? I mean, low single digits for Infra. Is that like a mid- to high single-digit growth story next year?

Phil Ng:

Just infrastructure in general, right? I mean, Tom, you talked about low single-digit growth this year, right? So when we look out to 2024 with all the lettings have been bidding actively flowing through, is that like a mid-single-digit growth or high single-digit growth?

Operator:

The next question comes from Kathryn Thompson with Thompson Research Group.

Tom Hill:

It's -- as far as the paving is both. You're seeing both new and recovery. You do have -- I mean, and overlays I was pleased with the volume growth because we had a lot of rain in Texas, which is a big asphalt. Flip side of that is California and Arizona probably had some catch-up from the first quarter, which we just didn't do much at all. I am very pleased with the pricing performance and the unit margin performance. So I think a really good start to the year in Asphalt. We're back in unit margin growth mode and the growth in funding for highways is only going to help this product line.

Adam Thalhimer:

Great quarter. Tom, I think you characterized the midyear price increases as mixed. What was that? I think there was hope a month or 2 ago, it might be better, and does that bode well for January increases next year?

Operator:

The next question is from Keith Hughes with Truist.

Tom Hill:

So the short answer is the same. No news. We've got the NAFTA claim. We'll have the final hearing on that -- on the NAFTA tribunal this year. We should have a result of that in 2024. We feel very good about our position. We feel very good about our case. We feel very good about the evidence, but we won't have -- we'll finish the legal proceedings this year and have a final ruling in '24.

Tom Hill:

I think that we get a large check and because of the shutdown of our business. The magnitude of that, we can't disclose because we have a confidential agreement with the tribune.

David MacGregor:

Tom, nice quarter. I wanted to maybe just ask a little bit on the guidance and you talked about the third quarter being in California, Texas in the second quarter. What's your sort of best estimate of the carryforward tons into the second half due to the disruptive first half weather?

Operator:

The next question comes from Michael Dudas with Vertical Research.

Tom Hill:

You're saying if we go from '23 to '24?

Tom Hill:

I would tell you we probably have the best shot at how we work coming on a little faster than maybe we expected is the flip side of that is obviously that if you see a bigger slowdown on -- some -- more slowdown on res, which at this point, we don't think is going to happen unless we'll take it one at a time. On pricing, I think we've got it about right, how we got it because we've got a little bit in the midyear, but it's going to flow through in '24. The cost piece, I think, again, we've got to be mid-single digits at the end of the year. And I think that between efficiencies and comps, we get there. I guess at the end of the day, if I had to pick one, I would probably pick the volume piece of that.

Brent Thielman:

Tom, nice to see the continued improvement in Aggregates gross margin this quarter. I guess my question was more to the quarter and thinking about this going forward. With the East under some pressure, due to weather and some of those variables, was that actually a net negative to your reported profitability in that segment?

Mary Andrews Carlisle:

The East. We do have very attractive margins in our East Coast business. I think while there was some wet weather A lot of the strength in the private non-res and these large industrial projects in those areas. And so our volumes were quite healthy in those markets.

Operator:

It appears we have no further questions at this time. I will now turn the program back over to Tom for any additional closing remarks.

Operator:

This does conclude today's program. Thank you for your participation. You may disconnect at any time.

Operator:

Good morning, ladies and gentlemen, and welcome to the Vulcan Materials Company's First Quarter 2023 Earnings Call. My name is Travis, and I will be your conference call coordinator today. [Operator Instructions]. Now, I would like to turn the call over to your host, Mr. Mark Warren, Vice President of Investor Relations for Vulcan Materials. Mr. Warren, you may begin, sir.

Tom Hill:

Thank you, Mark, and thanks all of you for joining our call this morning. Vulcan Materials is well-positioned to deliver attractive growth in 2023. We got off to a solid start in the first quarter and now expect to deliver between $1.85 billion and $1.95 billion in adjusted EBITDA this year, a 14% to 20% improvement versus the prior year. In the quarter, we generated $338 million of adjusted EBITDA, a 15% improvement over the prior year. Despite lower volumes in each of our major product lines, total gross profit improved 12% and gross margin expanded by 90 basis points. I'm pleased with our team's execution as they remain focused on our Vulcan of selling and Vulcan way of operating disciplines. The pricing environment is healthy. Year-over-year adjusted average price improved 19% in the quarter. Prices also improved in our downstream products by 15% in asphalt and 12% in concrete. As always, we are focused on capitalizing on pricing momentum and controlling costs to expand our margins. In the Aggregates segment, gross margin improved by 170 basis points. Shipments declined 2% versus a prior year with wide variations across markets. Some areas benefited from favorable weather and carryover shipments from the wet fourth quarter. Others like California and Texas were challenged by excessive rainfall. All geographies delivered double-digit price improvement. And importantly, our cash gross profit per ton improved by 23% in the quarter, surpassing $8 per ton on a trading 12-month basis. In asphalt, gross margins improved by 220 basis points despite higher natural gas and liquid asphalt cost and 11% lower volumes. Significant rainfall negatively impacted shipments in California and Arizona our largest asphalt markets. Prices improved by 15% and more than offset higher raw materials costs. Cash unit profitability in asphalt improved by 90% in the quarter. The concrete segments cash gross profit was negatively impacted by the 2022 divestiture of our New York, New Jersey, and Pennsylvania operations, as well as weather impacted volume in Texas and California, and the resulting cost challenges. Now shifting to the dynamic demand environment, which remains mixed, both in terms of end users and timing. We expect modest growth in overall public demand but contraction in private demand. While single-family housing starts continue to fall, some markets have begun to show early signs of decelerating declines. Multi-family housing starts have recently turned negative. However, they remained at high levels, particularly in Vulcan markets and continue to dampen some of the impact of single-family weakness. Affordability is the fundamental driver of the declines in single-family activity. Low inventories, favorable demographic trends and employment growth in our markets continue to support demand for new residential construction. While the pipeline of private, non-residential projects remain supportive of near-term demand starts have eased in recent months. A positive trend in non-residential construction activity is the increasingly broad base composition of starts. Industrial and manufacturing projects now count for more than 60% of starts. Recent trends in supply chain management, onshoring and clean energy investment are among the catalysts for this shift in the drivers of non-residential construction. Our geography and service capabilities enable us to capitalize on these large projects. We have booked and are currently shipping to a number of these projects in many of our key markets, such as battery plants, electric vehicle manufacturing facilities, LNG facilities and large warehouse parks. On the public side, momentum is building with trailing 12-month highway starts now exceeding $100 billion. The infrastructure investment in Jobs Act dollars are flowing. The impact of these historic levels of public construction awards on 2023 aggregate shipments will depend upon how quickly starts can turn into shipments. Other infrastructure starts are also growing with trailing 12 months starts up 23%, in addition to significant IIJA funding for water, energy, ports, and airports, strong state and municipal revenue support, non-highway infrastructure investment. Overall, 2023 demand for Aggregates continues to be dependent upon the depth of decline in residential construction activity and the timing of highway starts converting into aggregate shipments. Our durable Aggregates business and best-in-class execution position us well to successfully navigate any shifts in demand. Now, I'll turn the call over to Mary Andrews for some additional commentary on our first quarter performance and update 2023 outlook. Mary Andrews?

Tom Hill:

Thank you, Mary Andrews. In closing, I want to remind you of two things that we are focused on each and every day. First, keeping our people safe. Our people are the lifeblood of our business and our culture. Second, improving unit profitability and growing earnings regardless of the demand environment. Our Aggregates led business and our best-in-class execution positioned us well for driving long-term sustainable value for all of our stakeholders. And now, Mary Andrews and I'll be happy to take your questions.

Trey Grooms:

Nice work on the quarter and Aggregates pricing particularly strong. So hats off to you and the team for such strong execution there. And Tom, I was hoping maybe you could talk a little more specifically about the overall pricing environment and your thoughts on kind of the rest of the year as we look through the balance of the year for pricing.

Mary Andrews Carlisle:

Trey, one other thing on that note, on the margin side, we were pleased to for Aggregates gross margin to expand 170 basis points in the first quarter after being compressed each quarter year-over-year last year. As we took those rapidly rising costs through the P&L and our pricing efforts in 2022 that Tom talked about and has begun now into 2023, returned us to gross margin growth. And we would expect the year-over-year improvement to continue to accelerate as the year progresses.

Stanley Elliott:

Hey, good morning, everyone. Thank you for the question and congratulations on the strong start. Tom, you mentioned kind of some nuances developing within the end market because I think that's one thing that's different this year versus maybe some other cycles in the past. Would love to get your kind of thoughts around what's happening on the private non-res side since there's seems to be more moving parts as we're looking forward.

Operator:

Our next question comes from Anthony Pettinari, Citi.

Tom Hill:

Yes. I would tell you back half loaded simple answer to that question, the sector -- the highway sector is really the whole public sector, but particularly highways is set up for a really robust future. Funding is at all-time record levels. And importantly, all three areas of funding of government are at record levels. You got federal, state, and municipal all at all-time highs. And all of that is starting to flow into lettings. Give you a little color around lettings, which are really healthy in California. And the fourth quarter of last year, the first quarter of this year combined those lettings will be over $2 billion, which is an all-time high for two quarters in California. Moving to Texas is even better. And the first two quarters of 2023, the lettings will be at some almost $8 billion, again, all-time high. So highway contract awards as we said are now over $100 billion. And we still -- so we'll still see -- we'll see 2023 shipments. We predict in low-single-digit, and that is just -- that is indicative of how much time it takes for those big lettings to flow-through the shipment, so a solid 2023, but a much larger growth in 2024.

Tom Hill:

Hi, Jerry.

Jerry Revich:

Hi good morning, Tom, Mary Andrews, Mark, nice quarter. I wanted to ask a couple of things stood out in the quarter on the volume side, if we just think about normal seasonality off of your first quarter run rate, that suggests your volumes could actually be up year-over-year in the second quarter. And I'm just wondering is that consistent with the cadence that you're seeing in the business? And similar vein really strong gross margins for Aggregates in the quarter. Normally your margins are up 10 points, 2Q versus 1Q. And I'm wondering, is that the cadence we should be thinking about here as well? Thank you.

Mary Andrews Carlisle:

Yes. And Jerry, in terms of margins, yes, I think that the typical sequential improvement is what you should expect. And as I said on a year-over-year basis, we'll see significant acceleration quarter-to-quarter as we progress off that 170 basis points from the first quarter.

Mike Dahl:

Good morning. Thanks for taking my questions. Mary Andrews, with respect to the other parts of the guidance, I think last quarter, I'm not sure if this was formal guide, but you talked about cost inflation being up high-single-digits and the release said that cost and ags was tracking consistent with expectations. So I'm wondering kind of if that's still the expectation and then if it is, is it right to think about from a gross profit per ton standpoint, the new price on top of that might suggest something in kind of like a low-20s year-on-year increase percentage wise for gross profit per ton?

Mary Andrews Carlisle:

Yes. And Mike, just on the gross profit per ton and cash gross profit per ton improvement from the beginning, we thought that'd be much more consistent this year. And so that 23% you saw in the first quarter and the low-20s for the rest is a good assumption.

Tom Hill:

Good morning, Kathryn.

Tom Hill:

Yes. I think that so as far as pricing the rest of the year, we did not assume a second half price increase in our 15% guide. That said, we are -- have announced mid-year price increases in most in the vast majority of our markets. We feel like you got to earn that first. So we'll report on our progress on those mid-year efforts in August as far as bid work, we're pushing price day in and day out on our bid work, and that's just part of our Vulcan way of selling. As far as the -- you're spot on the large projects both on the public side, highways and non-highway, we're going to see a lot more large projects and a lot more money flowing. We are also, as you said, starting to see the big manufacturing industrial projects, which we think continue well into the future. All of that bodes extremely well for pricing because that gives us and our customers' visibility to coming demand. And those large projects both public and the big industrial ones tend to be there's more surety to those projects then once they announce them they're going to happen and so that also gives surety demand, which is a very good backdrop for pricing.

Tom Hill:

Hi, Keith.

Keith Hughes:

Hey, thank you very much. I guess switching to the discussion on non-residential, specifically on heavy there's a lot of positives out there right now. How far of visibility do you have on that business? In other words, could we be seeing several years of really strong heavy work to be done?

Keith Hughes:

And you're on that your light business that give that shorter cycle, your visibility is not nearly that long on light. Is that correct?

Operator:

Our next question comes from Brent Thielman, D.A. Davidson.

Mary Andrews Carlisle:

Good morning.

Tom Hill:

So if you look at it about half of our markets took a hit in res and about half were positive. So I'd tell you probably mid-single-digit. But as we said, the -- we'll feel the impact of the fall and starts permits and starts in single-family. We'll really feel that in the second half of the year. So pretty much as expected right now, I think it's a -- and plus weather in Arizona, Texas, and California masks some of that. So it's harder to see. But I -- we think that is more of a second half play as it -- as those starts have to go through the pipeline.

Tom Hill:

Hi, Phil.

Unidentified Analyst:

Hi, good morning. This is actually Colin [ph] on for Phil. I just wanted to touch on the geographic mix. I know pricing was aided by that favorable mix, but could you talk about how that mix might have helped gross margins and how we should think about that mix benefit going forward? Thank you.

Operator:

Our next question comes from Timna Tanners, Wolfe Research.

Timna Tanners:

Hey, good morning.

Timna Tanners:

Two things I haven't heard you address, and I would like to hear from, please. One is just the labor markets broadly. I know it's been a bigger issue for your customers, but would appreciate and updated thoughts there. And then it's been I think May will be a year anniversary since the Mexican operations were shut and there's been some noise down there, so I would love your take on that as well. Thanks.

Operator:

Our next question comes from Adam Thalhimer, Thompson Davis.

Mary Andrews Carlisle:

Good morning.

Tom Hill:

Nice.

Tom Hill:

Well, I mean, that would be a first time that's happened, so I would -- since I would doubt that, that while everybody's ringing their hands over it, I think we'll solve this problem and we'll continue with our infrastructure spending.

Tom Hill:

Well, I don't want to see one, but I don't think it's going to impact our infrastructure projects.

Tom Hill:

Hey Michael.

Michael Dudas:

Hey, good morning, gentlemen, Mary Andrews. Andrews, just can share your thoughts on how operating free cash flow went through the Q1 and how it looks for the rest of the year. And then maybe Tom, you could discuss the M&A pipeline and will we best guess do we see any visible activity by year-end with what's happening in the marketplace? Thank you.

Tom Hill:

On M&A, it remains; I guess we have a number of smaller bolt-ons in the pipeline along with a number of Greenfields that we're working on. I would tell you kind of normal from the smaller bolt-on and Greenfield perspective, as far as large projects are large M&A, those tend to be lumpy. When they come along, we'll be in the game and we'll take advantage. And as always, we'll be disciplined and all of this about what markets we're in, what synergies are unique to us and what we pay for it. So -- and we look forward to reporting that as they come about.

Tom Hill:

Hi, Garik.

Garik Shmois:

Hey, good morning. Nice quarter. Wanted to ask on the highway outlook, you're counting on demand showing up later this year. Curious just has the lag between project starts and when volumes occur, has that changed at all? Just given the size of the projects in the pipeline?

Operator:

Our next question comes from David MacGregor, Longbow Research.

Mary Andrews Carlisle:

Good morning.

Tom Hill:

Thank you.

Tom Hill:

I think as we talk about rock is still short on all coast and it's driven primarily by bottlenecks on railroads. I think the railroads are working hard to improve and they're making progress, but there's still gaps there. And I don't know that I see it as risk for 2023. It has its challenges but I think we'll work us with our partners in the railroad work through those challenges and be fine in 2023.

Tom Hill:

Hey, Michael.

Michael Feniger:

Good morning, guys. Thanks for taking my questions. Just two. So the first one, the pricing obviously very strong with 18.5% and your full-year range of 15%, so does pricing kind of finish the year -- actually the year below that range do you think we still are in that double-digit territory. I'm just trying to think of that pricing cadence. And then the second question, just the operating leverage and Aggregates, I think you typically target like a 60% flow-through is -- are there periods where that can be above that level? I guess I'm just trying to think out mid-year price increases, potentially sticking diesel rolling over. Could we see flow-through above that target range for certain periods? Thank you.

Operator:

Our final question comes from Dillon Cumming, Morgan Stanley.

Tom Hill:

I would put it this way. So far what we're seeing in non-res is really solid some shifting towards heavy industrial and manufacturing. But we've not seen any impact on our markets yet on non-residential. Now that being said, we're watchful and we're watching it, but so far, so good in non-res for 2023. But to your point, I think everybody's watching that, but we haven't seen any impact at this point.

Tom Hill:

We appreciate your interest and your time this morning. We appreciate your interest in Vulcan Materials. We look forward to seeing you throughout the quarter to update you on our progress. We hope that you and your families remain healthy and safe and we'll talk to you throughout the quarter. Thanks.

Operator:

Good morning, ladies and gentlemen, and welcome to Vulcan Materials Company's Fourth Quarter Earnings Call. My name is Gretchen, and I will be your conference call coordinator today. [Operator Instructions] Now I would like to turn the call over to your host, Mr. Mark Warren, Vice President of Investor Relations for Vulcan Materials. Mr. Warren, you may begin.

Thomas Hill:

Thank you, Mark, and thanks to all of you for joining our call this morning. We appreciate your interest in Vulcan Materials Company. In 2022, our teams hands down excelled in confronting macro challenges, and they demonstrated the resiliency of our aggregates-led business. Let's start with the fourth quarter, which really showcased our commitment to controlling what we can control. We generated $375 million of adjusted EBITDA in the quarter, and I was particularly proud of our team for delivering 11% year-over-year growth in aggregates cash gross profit per ton despite a 6% decline in aggregates shipments. Abnormally wet and cold weather across our footprint disrupted construction activity and shipments across all segments, and we also began feeling the impact of single-family residential decline. Pricing momentum continued with 15% growth in aggregates mix adjusted price in the fourth quarter. Our people continue to drive performance through good execution, which is grounded in our Vulcan way of selling and the Vulcan way of operating disciplines. Gross profit in both aggregates and asphalt segments increased versus the prior year's fourth quarter despite lower volumes, and pricing momentum, more than offset inflationary cost increases. In concrete, a 15% decline in volume, driven mostly by extremely wet and cold weather in Texas created operational challenges that eroded pricing gains in that segment. For the full year, adjusted EBITDA improved 12% with all segments posting year-over-year growth in gross profit. Aggregates segment gross profit improved 9%, a noteworthy performance with the headwinds of generationally high inflation and the unexpected and arbitrary shutdown of our valuable Mexico operations in May of 2022. Aggregates volume increased 6% and average selling prices improved 10%, accelerating as the year progressed. Importantly, our aggregates cash gross profit per ton improved over 5%, and also accelerated throughout the year, even in a challenging operating environment. In the first quarter, we held our own while inflation ramped up, more steadily than expected. Then in the second quarter, cash gross profit per ton grew modestly versus the second quarter of 2021, as we responded quickly with additional pricing action. In the third quarter, cash gross profit per ton increased 9% as pricing momentum accelerated and operating efficiencies offset some of the inflationary pressures. And as I mentioned earlier in the fourth quarter, cash gross profit per ton improved a notable 11%, even as volumes declined. In our asphalt segment, the second half of 2022 marked an inflection point on price and cost dynamics. In the third quarter, robust pricing improvement began outpacing the sharply-rising liquid asphalt costs. For the full year, pricing increased by 21% to more than offset the 36% increase in liquid asphalt costs. And volumes grew by 7% with particular strength in Arizona and California, our two largest asphalt markets. Ultimately, gross profit improved to $57 million versus the prior year's $21 million. In the Concrete segment, full-year gross profit of $89 million increased 64% compared to the prior year due to a full year's contribution from the U.S. concrete assets, in addition to improved earnings in our legacy Northern Virginia and Northern California Concrete Businesses. Inflationary pressures, including diesel and the availability of both cement and drivers had a significant impact on performance in the Concrete segment. Now, let's shift to the new year, first focusing on demand. The demand environment for 2023 is mixed, both in terms of end users and timing. We expect modest growth in overall public demand but contraction in private demand. Now, I'll comment briefly on each end-use. Residential construction activity is showing the impact of rising construction costs, home prices and mortgage rates on single-family housing. Single-family starts and permits have continued to decline but to a lesser degree in Vulcan-served states and the country as a whole. Currently, multifamily remains positive with a strong pipeline of projects under construction. Housing will certainly be the primary drag on private construction in 2023, but we expect it to quickly return to growth. It is important to remember that the demographics and employment growth in our markets continue to support household formation and the growing need for additional houses in the future. Overall, private nonresidential demand remains at healthy levels. Manufacturing and other heavy industrial projects continue to provide opportunities, but we are monitoring leading indicators such as more recent ABI measures, moderation in the Dodge Momentum Index, and survey data indicating declining loan demand and lending tightening. On the public side, we expect positive momentum throughout 2023 and beyond as states and municipalities move forward with much-needed infrastructure investment. Highway and infrastructure starts are both positive. In highways, start strengthened significantly in the second half of 2022, growing at 25% on a trailing 12-month basis at the end of the year. The Infrastructure Investment and Jobs Act funding is now reflected in proposed state fiscal year 2023, 2024 budgets across our footprint. The multiyear outlook for public infrastructure is solid. We continue to believe that the increased funding will began impacting aggregates shipments modestly as we move through 2023 and more meaningfully in 2024. In addition to IIJA funding, state tax receipts in Vulcan states are the highest they've been in the past 10 years. Strong state and municipal revenue support non-highway infrastructure investment as public entities continue to play catch up from the last decade of housing growth that has driven a fundamental need for infrastructure investment. Also the considerable funding from IIJA for investment in water, energy, ports, and airports will provide future demand growth. Overall 2023 demand for aggregates will be dependent upon the depth and the duration of the declines in residential construction activity, the impact of rising interest rates on private nonresidential construction activity as the year progresses, and the timing of highway starts converting to aggregates demand. Considering these dynamics, we currently expect our aggregate shipments to decline between 2%and 6% in 2023. Pricing momentum and operational execution will drive our 2023 performance. We expect aggregate pricing to increase between 11% and 13%. Most importantly, we will continue to improve our industry-leading aggregates cash gross profit per ton and deliver solid earnings growth in 2023. Now, I will turn the call over to Mary Andrews for some additional commentary on our 2022 performance and some more details around our 2023 guidance. Mary Andrews?

Thomas Hill:

Thank you, Mary Andrews. Before we move to Q&A, I want to thank our entire Vulcan team for a successful year in 2022. And I have great confidence in our ability to continue to execute in 2023, even with the uncertainty in the macro environment. As always, we will be keenly focused on keeping our people safe, driving value for our customers, and capitalizing on the profitability expansion opportunities supported by the Vulcan way of selling and the Vulcan way of operating disciplines. Vulcan is uniquely positioned to create long-term sustainable value with the right products, in the right markets, with the right focus from the right people. And now, Mary Andrews and I will be happy to take your questions.

Mark Warren:

Good morning, Stanley.

Thomas Hill:

Yes. Sure. If you -- looking into '23, we saw some pretty good bounce-back in January from the bad weather we've had in the fourth quarter. So solid shipments, that being said, with the exception of California, which everybody knows we had floods. But the markets look pretty good. The -- if you look at the leading indicators this year, maybe not as clear as they usually are, so we tried to be thoughtful as we looked at demand throughout the year. And I think a lot of it boils down to timing. When do we see the decrease in single-family really get to shipments? You probably saw a little bit of that in the fourth quarter, but I think the full impact gets us, we realize that kind of end of the first quarter, beginning of the second quarter. So single-family probably gets hit about down 20%. And then for non-res, it's really again about timing with -- while the leading indicators for non-res look pretty good starts. Longer-term indicators of commercial loans and ABI could lead to challenges in the second half of the year. So we would call that segment flat for 2023. And then it's always timing for highway funding and lettings doing the shipments will be critical. We think that segment -- the public segment is up low-single digits. So as we step back and look at this, we tried to be thoughtful about the dynamics that impact the shipments and the timing of that demand. And while we can't control demand, we can control how we run our business and our unit margins. And I think we've proven we're very good at that. We think we'll grow that mid-teens. So regardless of the dynamics affecting, shipments will grow our earnings.

Mark Warren:

Thank you.

Operator:

Our next question comes from Trey Grooms from Stephens Inc.

Thomas Hill:

Good morning, Trey.

Trey Grooms:

Hi. So yes, I want to echo good work on the profitability. And it looks like on the guide, it implies an acceleration there on that improvement on cash gross profit per unit. And I guess the moving pieces there if you could maybe cut into those a little bit. We've got -- pricing is obviously playing a role. And as we kind of look at the cadence there through the year, maybe you could talk about that as well with maybe what's baked in with a midyear increase? And how we think about the cadence of that profitability improvement as we look through the year?

Mary Andrews Carlisle:

Yes. And Trey, we do expect solid unit profitability growth throughout the year. And of course, we don't give quarterly guidance. But I will try to give you some additional and hopefully helpful context, may be more related to volume. And if you think in terms of cadence, we definitely will have tougher seasonal comps in the first half. Looking back at 2022, three of the six months in the first half of 2022 implied 12-month shipments at a higher level than our full year 2022, and only one of six months in the back half shows particularly seasonally strong shipments. And of course, Q4 with the weather impact. We'll provide an easier comp in 2023. So all in, I think, more challenging year-over-year in the first half from a volume perspective, and the comps at least moderate as you move through the second half.

Thomas Hill:

Sure. So let me just step back and talk about pricing in aggregates. If you remember, about [40%] of our work is fixed plant, and we price that once or twice a year. We had discussions in October, November for January 1 price increases. I thought those went very well. Those are in place. And we'll just have to see what happens as we progress through the year and what the market calls for in the individual markets of how that's priced. But the other 60% of your business is bid work and we're bidding jobs as we speak. That's something -- it's something you earn every day, and it's a continuous improvement effort. And so, what we're bidding now will ship in the third or fourth quarter. So all in, we're very confident on our pricing guidance, but some of that's got to be earned as we progress through the year and earned every day with our customers.

Thomas Hill:

Thank you.

Thomas Hill:

Good morning, Kathryn.

Kathryn Thompson:

Good morning. Thanks for taking my question today. Tagging on just with the pricing question, but really pulling the string more in terms of the balance of price and cost. Given there's been so much volatility in '21 and '22, could you clarify the confidence that you have in unit margin growth into '23 in light of the historic volatility just with that price cost? It would be helpful too if you focus it on the aggregate side, but also given the divestiture of your Northeast concrete assets, giving any color for expectations for unit margins? Or just any type of profitability color on that segment would be helpful. Thank you.

Mary Andrews Carlisle:

Yes. Tom highlighted the consistency. And I think if we look over the last three years, we've grown our cash gross profit per ton in 11 of 12 quarters. And as we expect to continue to do that in 2023 and to accelerate. And I think another important reminder about both the level of unit margin expansion in 2022 and also a contributing factor to the contraction in aggregate gross margin percentage is that we had a considerable headwind year-over-year since we report inventory using LIFO as we believe it results in a better matching of costs with revenues. So in periods of increasing costs like we saw in 2022, LIFO will result in higher cost of revenues than under FIFO. And pretax, in 2022, we took an incremental $54 million of costs through the P&L instead of putting it on the balance sheet, if we had used FIFO method in both periods. So I think we really showed strong unit margin in 2022 with some considerable cost challenges.

Kathryn Thompson:

Okay, great. All right, thank you very much.

Operator:

Our next question comes from Anthony Pettinari from Citi.

Thomas Hill:

Good morning.

Thomas Hill:

Yes. On the divestitures, I don't see the impact on volumes as I think we'll continue to service those Ready-Mix plants on Mexico or acquisitions that we made partially in -- for partial year in '22, they're built into the guidance.

Operator:

Our next question comes from Jerry Revich from Goldman Sachs.

Mary Andrews Carlisle:

Good Morning.

Thomas Hill:

Yes. I think that's built into our guidance in that mid-teen unit margin growth. And as I said a little bit earlier, I think the cadence of that is your comps and pricing are easier in the first half than the second half. And but you're -- but the flip is true on costs. Your comps are going to be easier in the second half on cost. So I think we're pretty consistent at how we -- at our ability to grow unit margin as we progress through the year. And I've also -- like I said, we've been very consistent about being able to do that. So I don't see that being choppy.

Thomas Hill:

As always, visibility to growing public demand is a good thing for price. And I think we are -- our folks are quite disciplined on how they earn price. So let's get through '23, but we'll be ready to tackle our challenges and maximize unit profitability as we go into '24 and make sure we fall back on those disciplines of the Vulcan way of selling and the Vulcan way of operating.

Thomas Hill:

Thank you.

Operator:

Our next question comes from Michael Feniger, Bank of America.

Thomas Hill:

So Mary, why don't you take '22 and I'll take '23?

Thomas Hill:

Yes. I think what we have in the plan right now is probably high single-digit. It's a combination of inflation, fuel, and labor. We'll feel -- as I said, we'll feel a bigger impact in the first half just due to the inflationary pressures that we felt kind of escalate as we went through the year. That being said, I think all of that is partially offset with operating efficiencies and improvements generated by the Vulcan way of operations. I think our folks are all over that. And how we do that, many of the details we illustrated in our September Investor Day. But I do have pretty good confidence that they can keep some of that at bay just by improving the key metrics that of throughput and downtime and preventive maintenance that really drive your cost.

Michael Feniger:

Great. And when you look at the portfolio, Tom, you divested some concrete assets in the Northeast. I'm just curious, is there any further portfolio moves we could see going forward? Like how do you kind of view the Asian assets after kind of a couple of challenging quarters with a lot of moving parts that impacted the year? First, you can kind of comment on how you feel the health of those -- that part of your portfolio long term. Thank you.

Operator:

Our next question comes from Mike Dahl from RBC Capital Markets.

Mary Andrews Carlisle:

Good morning.

Thomas Hill:

Look, I think it is as good of an infrastructure tailwind as we've ever seen in decades. That being said, as you heard me say before, highway work comes slower than anybody anticipates it to, but it's coming. So overall highway funding is way up. The sector is in great shape as is the entire public sector. State DOT funding is extremely healthy. And then you've got IIJ revenues that are going to be reflected in fiscal year '23, '24 proposed budgets. Our top states are sustaining robust lettings. And that IIJ funding will hit lettings in '23. And it will really impact 23/24 as we move forward. I'll give you a couple of examples. If you think about Arizona, they'll let 45 projects in the first half of this year. If you go and move to California, the total dollars -- project dollars in '23 will be a record coupled with record highway lettings that we saw in November, December. Texas is at $10 billion budget, and they'll have $7.4 billion of lettings in the second half of their fiscal year, which is March through August. And then on the more to come list, that's what's there that we know is coming. But on the more to come list, in Florida, you got Governor DeSantis proposed a 33% increase in the FDOT program that would impact lettings in the -- particularly second potentially in the second half of the year or first half of next year. He's also -- this initial $7 billion that he's wanting to accelerate for some 20 projects, congestion projects. Tennessee's governor proposed to double the '23 '24 TDOT budget. So for this year, it's a matter of timing and how fast do lettings get to project shipping. But I want to step back and say it's nothing but timing. This sector is in very good shape and as good shape as we've ever seen it and growing.

Thomas Hill:

Sure.

Tyler Brown:

Hi, good morning

Tyler Brown:

Hi Tom, I actually wanted to go back to the Analyst Day and talk about the progress on your logistics excellence I think the next-gen plant operations. I'm just kind of curious how those initiatives are rolling out? And are they expected to be a material driver in expanding margins in '23? Or are those more on the come in, say, beyond '23 into '24?

Tyler Brown:

Thank you.

Phil Ng:

Hi, Tom. Just piggybacking on Mike's question earlier on the public side of things. The low single-digit growth does seem a little more muted than your two public peers are guiding for this year. Curious if it's a function of maybe you guys are a little more levered to bigger projects, so that's more timing related. And I guess it would be really helpful to kind of give us a perspective as to how you think public will grow as we exit 2023 and perhaps more importantly 2024 when you get the full impact of IIJA.

Phil Ng:

I mean would it be fair, Tom, looking out to 2024, we see like mid-single-digit plus growth in public? Or is that still too optimistic at this point?

Phil Ng:

Okay. I appreciate the color.

Garik Shmois:

Hi. Thanks for taking my question. I wanted to ask on the non-res side of the ledger, the outlook for flat volumes this year. Just wondering if you can maybe break out what you're seeing in your markets and your backlogs on the heavier nonres side, so things like LNG, manufacturing warehouses, things of that nature versus lever commercial?

Garik Shmois:

Understood. Thank you.

Operator:

Our next question comes from Keith Hughes from Truist.

Thomas Hill:

A little bit -- though the first half of the year, energy costs will be up because of costs. We think it remains at elevated levels. But in the first part of the year, there's no question that everything, including energy, will be up because we saw such a quick rise of inflation throughout the year. So the comps get easier in cost as we go through the year just because the cost rose last year. But for energy in the first half, yes, will be -- it will be a headwind for us.

Thomas Hill:

I would take it in pieces. I think that most of it is up mid to high single digits, and that's everything from electricity to parts, to the labor, just kind of all of it is up. It's just going to get hit harder in the first six months of the second six months.