01—Abstract
Summary
Summary of the 10-K filed February 27, 2015. Cited figures are marked; the original filing is the authoritative source.
Vulcan Materials Company (VMC), the nation's largest producer of construction aggregates and a major producer of asphalt mix and ready-mixed concrete, reported improved results for 2014.
Total revenues rose $223.5 milliona, or 8%, to $2,994.2 million, and gross profit increased $160.7 million, or 38%, to $587.6 million. Net earnings were $204.9 million, or $1.54 per diluted share, compared with $24.4 million, or $0.19 per diluted share in 2013. Results were helped by a $227.9 million pretax gain on the March 2014 sale of its Florida cement and concrete businesses for net pretax cash proceeds of $721.4 million.
Adjusted EBITDA was $599.7 millionb, up from $468.3 million. The Aggregates segment drove the operating improvement. Its gross profit rose $130.8 million to $544.1 million, shipments increased 11% to 162.4 million tons, and freight-adjusted selling price rose 2%.
Management stated that aggregates demand is in the early stages of recovery and remains well below normalized levels, and it expects private end-use demand to rise 14%c to 18% and public end-use demand to rise 3% to 5% during 2015. The company also noted that it is operating at 50-60% capacity, which it views as leverage for further margin gains. Balance sheet activity was significant in 2014.
Long-term debt fell from $2,522.2 million to $1,855.4 milliond after the company purchased $506.4 million principal amount of notes through a tender offer, and total debt as a percentage of total capital declined to 32.4% from 39.0%. Free cash flow was $35.4 million, down from $81.1 million, as operating cash flow decreased to $260.3 million, largely because of a 2013 volumetric production payment that provided $153.1 million of proceeds.
The company's debt ratings remain below investment grade, with Moody's at Ba3 and S&P at BB+ on senior unsecured debt. The Board declared a first-quarter 2015 dividend of $0.10 per share, up from $0.06.
02—Key points
Key Highlights
- Total revenues increased $223.5 million, or 8%, to $2,994.2 million, and gross profit increased 38% to $587.6 million, with gross profit margin at 19.6%.
- Net earnings were $204.9 million, or $1.54 per diluted share, versus $24.4 million, or $0.19 per diluted share, in 2013, and included a $227.9 million pretax gain on the sale of Florida cement and concrete businesses.
- Aggregates segment gross profit rose $130.8 million, or 32%, to $544.1 million on 11% higher shipments; cash gross profit per ton increased 9% to $4.75.
- Adjusted EBITDA was $599.7 million, up $131.4 million from 2013, and free cash flow declined to $35.4 million from $81.1 million.
- Long-term debt was reduced to $1,855.4 million from $2,522.2 million after $506.4 million of notes were purchased via tender offer, lowering total debt to total capital to 32.4% from 39.0%.
- Management expects private end-use aggregates demand to increase 14% to 18% and public end-use demand to increase 3% to 5% in 2015.
- The Board declared a first-quarter 2015 dividend of $0.10 per share, a four-cent increase over the prior quarter; the company's debt ratings remain non-investment grade.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, Vulcan Materials kept $0.07.
- Revenue$2.99B100.0%
- Cost of revenue−$2.41B80.4%
- Gross profit$587.6M19.6%
- Operating costs−$49.4M1.7%
- Operating income$538.1M18.0%
- Interest, other & tax−$333.2M11.1%
- Net income$204.9M6.8%
04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 27, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $2.99B$2.77B | +8.1% |
| Cost of Revenue | $2.41B$2.34B | +2.7% |
| Gross Profit | $587.58M$426.88M | +37.6% |
| SG&A Expenses | $272.29M$259.43M | +5.0% |
| Operating Income | $538.14M$190.40M | +182.6% |
| Interest Expense | $243.37M$202.59M | +20.1% |
| Net Income | $204.92M$24.38M | +740.5% |
| EPS (Basic) | $1.56$0.19 | +721.1% |
| EPS (Diluted) | $1.54$0.19 | +710.5% |
| Shares Outstanding (Basic) | 131.46M130.27M | +0.9% |
| Shares Outstanding (Diluted) | 132.99M131.47M | +1.2% |
05—Questions
Frequently Asked Questions
What drove the improvement in 2014 earnings?
Higher aggregates volumes and better unit margins drove most of the improvement. Aggregates shipments rose 11%, and the freight-adjusted sales price increased 2%. The company also recorded a $217.4 million pretax gain on real estate and business sales, including the Florida cement and concrete divestiture, and gross profit increased $160.7 million.
Why did operating cash flow and free cash flow decline in 2014?
Net cash provided by operating activities fell $96.2 million to $260.3 million. The decrease is attributed to a 2013 transaction in which the company sold a percentage of future aggregates production for net cash proceeds of $153.1 million, which did not recur in 2014. Free cash flow fell to $35.4 million from $81.1 million, and purchases of property, plant and equipment were $224.9 million.
How did the company change its debt position in 2014?
In March 2014, the company purchased $506.4 million of outstanding notes through a tender offer, funded by the Florida divestiture proceeds, at a combined charge of $72.9 million recorded in interest expense. Long-term debt decreased to $1,855.4 million from $2,522.2 million at year-end 2013, and the company reported no borrowings under its $500.0 million line of credit at December 31, 2014.
What is management's outlook for demand in 2015?
Management described aggregates demand as in the early stages of recovery and well below normalized levels. It expects private end-use demand to rise 14% to 18% and public end-use demand to rise 3% to 5% during 2015, and it anticipates a gradual recovery lasting several more years. Management also expects mid-to-high single digit price gains associated with cyclical recoveries to begin to take hold in 2015.
What are the main risks highlighted in the filing?
Key risks include the highly competitive and fragmented aggregates industry, dependence on weather and construction spending levels, high fixed costs that make earnings sensitive to volume, substantial debt with non-investment grade credit ratings, potential goodwill impairment of $3,094.8 million, and significant pending litigation, including the Texas Brine sinkhole matter and the Lower Passaic River Superfund matter, for which the company cannot reasonably estimate its liability.
06—Continue