Vulcan Materials Company’s (VMC) third-quarter 2014 adjusted earnings (excluding acquisition/divestiture-related expenses) of 54 cents per share beat the Zacks Consensus Estimate of 51 cents by 5.8%. Adjusted earnings increased 68.8% year over year on the back of solid aggregates volume growth, improved margins and unit profitability.
Total revenue of $873.6 million beat the Zacks Consensus Estimate of $804 million by 8.7%. Total revenue increased 7.4% from the prior-year quarter owing to strong performance of the aggregate unit and improving results in the other segments. Total revenue in the third quarter comprised $795.1 million of net sales (up 6.5% year over year) and $78.5 million of freight and delivery revenues.
Gross profit improved 31.5% to $209 million in the quarter due to solid volume growth and operating leverage in the aggregates segment. Adjusted gross margin of 26.3% increased 500 basis points (bps) in the quarter.
Adjusted EBITDA was $215 million, up 26% from the prior-year quarter driven by a strong top line and solid cost control.
Segment Details
Aggregates
Revenues rose 15% year over year to $689 million (excluding inter-segment sales) in the quarter owing to higher shipments and pricing. The company witnessed strong trends in private construction — both residential and non-residential.
Aggregates shipments (volumes) rose 12% year over year in the quarter due to overall strength in end markets.
Shipments increased 31% and 21% in Illinois and Texas, respectively, on the back of large project work. Virginia, North Carolina, Georgia, Florida witnessed 10% to 15% increase in volume. Construction activity continues to improve in Vulcan’s served markets, which propelled solid volume growth.
Freight adjusted average sales price increased 2% due to widespread improvements across all markets.
Gross profit improved 25.5% in the quarter to $188 million due to favorable operating leverage and widespread pricing gains. Gross margin improved 320 bps in the quarter.
During third quarter 2014, Vulcan completed six acquisitions worth $318 million.
Non-Aggregates
Revenues in the Concrete segment were $99 million in the third quarter of 2014, down 23.7% year over year due to volume decline.
Gross profit of $5.5 million improved from a loss of $3.9 million in the year-ago quarter due to pricing gains and sale of the Florida concrete business.
Revenues in the Asphalt Mix segment were $136.4 million in the reported quarter, up 4.7% year over year as volume increase made up for pricing decline. Gross profit was up 7.4% to $14.6 million in the quarter due to higher volumes.
Revenues in the Cement segment were $2.3 million, down 91% year over year. In the quarter, the segment posted a gross profit of about $1 million, up from a loss of $0.5 million in the prior year quarter.
Financial Update
The company reported cash and cash equivalents of $91.9 million as of Sep 30, 2014 compared with $227.7 million as of Jun 30, 2014.
2014 Outlook
Aggregates: The company expects full-year 2014 aggregates shipments to increase at the higher end of the expected range of 7% to 9%, assuming normal weather in the fourth quarter of 2014.
Management noted that non-residential construction and housing has continued to improve in 2014 and is expected to show further strength through the rest of the year and 2015. Management expects Vulcan-served markets to perform well.
Aggregates prices are expected to increase at the lower end of the guided range of 3%–5%.
Non-Aggregates: In the non-aggregates segments, the company expects to earn $40 million to $45 million in gross profit in 2014 versus the prior expectation of $40 million–$50 million.
Management continues to expect selling, administrative and general (SA&G) expenses to remain flat year over year. Vulcan maintained its 2014 capital expenditure guidance at $240 million.
Vulcan Materials sports a Zacks Rank #1 (Strong Buy).
Key Picks from the Sector
Investors can also consider stocks like Trex Co. Inc. (TREX), NVR, Inc. (NVR), and Restoration Hardware Holdings, Inc. (RH). All these companies carry a Zacks Rank #2 (Buy).
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