01—Abstract
Summary
Summary of the 10-K filed February 26, 2019. Cited figures are marked; the original filing is the authoritative source.
Vulcan Materials Company (VMC), a New Jersey corporation, is the nation's largest supplier of construction aggregates (crushed stone, sand and gravel) and a major producer of asphalt mix and ready-mixed concrete.
As of December 31, 2018, it operated 351 active aggregates facilities, 67 asphalt facilities and 46 concrete facilities, and held 16.3 billion tons of permitted proven and probable aggregates reserves. Aggregates accounted for 74% of 2018 total revenues and 90% of gross profit. In 2018, total revenues rose to $4,382.9 milliona from $3,890.3 million, gross profit rose to $1,100.9 million, and operating earnings increased to $747.7 million.
Net earnings declined to $515.8 millionb ($3.85 per diluted share) from $601.2 million, mainly because 2017 included $297.0 million of net discrete tax benefits, including $268.2 million tied to the Tax Cuts and Jobs Act. Adjusted EBITDA was $1,131.7 million, and net cash provided by operating activities was $832.8 million. Management cited a 25% increase in diesel fuel costs and several severe weather events as headwinds, while aggregates freight-adjusted pricing rose 1% and shipments rose 10%.
Asphalt segment gross profit fell 38% to $56.5 millionc, which management attributed to higher liquid asphalt costs. Total debt was $2,912.4 million at year end, or 2.6 times 2018 Adjusted EBITDA.
For 2019, management expects net earnings of $610 million to $670 milliond, aggregates shipment growth of 3% to 5%, and an aggregates freight-adjusted price increase of 5% to 7%. The filing also describes a NAFTA arbitration against Mexico, registered with ICSID in January 2019, and ongoing Louisiana Texas Brine litigation, which the company classifies within discontinued operations.
02—Key points
Key Highlights
- Aggregates is the core business: 74% of 2018 revenues and 90% of gross profit, supported by 16.3 billion tons of proven and probable reserves.
- 2018 revenues increased to $4,382.9 million (from $3,890.3 million), and operating earnings rose to $747.7 million (from $639.0 million).
- Net earnings fell to $515.8 million ($3.85 per diluted share) from $601.2 million, largely because 2017 included $297.0 million of net discrete tax benefits.
- Aggregates shipments rose 10% to 201.4 million tons, while freight-adjusted selling price rose 1%; Asphalt segment gross profit fell 38% to $56.5 million on higher liquid asphalt costs.
- Adjusted EBITDA was $1,131.7 million, and total debt was $2,912.4 million, or 2.6 times 2018 Adjusted EBITDA.
- Management guides 2019 net earnings of $610 million to $670 million, with aggregates shipments up 3% to 5% and freight-adjusted pricing up 5% to 7%.
- A NAFTA arbitration against Mexico over the Yucatan quarry was registered with ICSID in January 2019, and the company expects it to take at least two years.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Vulcan Materials kept $0.12.
- Revenue$4.38B100.0%
- Cost of revenue−$3.28B74.9%
- Gross profit$1.10B25.1%
- Operating costs−$353.2M8.1%
- Operating income$747.7M17.1%
- Interest, other & tax−$231.9M5.3%
- Net income$515.8M11.8%
Where FY2018 revenue went
$4.38B- Cost of revenue: $3.28B, 75% of revenue
- Net income: $515.8M, 12% of revenue
- SG&A: $333.4M, 7.6% of revenue
- Interest, other & tax: $231.9M, 5.3% of revenue
Kept 12% as net incomeNet income $515.8M · 12%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 26, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $4.38B$3.89B | +12.7% |
| Cost of Revenue | $3.28B$2.90B | +13.3% |
| Gross Profit | $1.10B$993.51M | +10.8% |
| SG&A Expenses | $333.37M$324.97M | +2.6% |
| Operating Income | $747.71M$639.04M | +17.0% |
| Interest Expense | $137.98M$295.52M | −53.3% |
| Net Income | $515.80M$601.18M | −14.2% |
| EPS (Basic) | $3.90$4.54 | −14.1% |
| EPS (Diluted) | $3.85$4.46 | −13.7% |
| Shares Outstanding (Basic) | 132.39M132.51M | −0.1% |
| Shares Outstanding (Diluted) | 133.93M134.88M | −0.7% |
05—Questions
Frequently Asked Questions
What drove the decline in net earnings in 2018?
Net earnings were $515.8 million in 2018 versus $601.2 million in 2017. The 2017 result included $297.0 million of net discrete tax benefits, including $268.2 million from the Tax Cuts and Jobs Act. Operating earnings rose to $747.7 million, and the 2018 effective tax rate was 16.9%, compared with a negative 64.2% in 2017.
How is Vulcan's business divided across segments?
Vulcan reports four segments. Aggregates represented 74% of 2018 total revenues and 90% of gross profit. Asphalt represented 17% of revenues and 5% of gross profit, Concrete 9% and 5%, and Calcium less than 1% of each. Aggregates gross profit was $991.9 million, and the Asphalt segment's gross profit fell 38% to $56.5 million.
What does management expect for 2019?
Management expects aggregates shipments to grow 3% to 5% and freight-adjusted aggregates prices to rise 5% to 7%. It guides net earnings of $610 million to $670 million, earnings from continuing operations of $4.55 to $5.05 per diluted share, Adjusted EBITDA of $1.25 billion to $1.33 billion, and an effective tax rate of approximately 20%.
What are the main risks flagged in the filing?
The filing highlights cyclical construction demand, the timing of federal, state and local infrastructure funding, and weather. It also cites rising diesel and liquid asphalt costs, competition, and the difficulty of permitting new aggregates reserves. Litigation includes the Lower Passaic River Superfund matter, the Texas Brine sinkhole cases and the Hewitt Landfill matter, and the company has a NAFTA arbitration against Mexico.
How leveraged is the company and how is it managing its debt?
Total debt was $2,912.4 million at December 31, 2018, which is 35.9% of total capital. The weighted-average term of the debt portfolio was extended to approximately 15 years through 2017 and early 2018 refinancing. The $750 million line of credit had $133.0 million borrowed and $572.0 million of available capacity.
06—Continue