Vulcan Materials Company

Good morning, ladies and gentlemen, and welcome to the Vulcan Materials Company third quarter earnings conference call. My name is Maria, and I'll be your conference call coordinator today. During the Q&A portion of this call, we ask that you please limit your participation to one question plus a follow-up. This will allow everyone who wishes the opportunity to participate. 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.

Thank you, Operator. With me today are Tom Hill, Chairman and CEO, and Suzanne Wood, Senior Vice President and Chief Financial Officer. Today's call is accompanied by a press release and a supplemental presentation posted to our website, bulkandmaterials.com. A recording of this call will be available for replay later today at our website. Please be reminded that comments regarding the company's results and projections may include forward-looking statements which are subject to risks and uncertainties. These risks, along with other legal disclaimers, are described in detail in the company's earnings release and in other filings with the Securities and Exchange Commission. Reconciliations of any non-GAAP financial measures and other information are available in both our earnings release and at the end of our supplemental presentation. As the operator indicated, please limit your Q&A participation to one question plus a follow-up. This will help maximize participation during our time together. With that, I will now turn the call over to Tom.

Thank you, Mark, and thanks to everyone for joining the call today. We appreciate your interest in Vulcan Materials Company. We hope you and your families are well and will continue to be safe and healthy. I want to begin today's call by thanking our employees for their ongoing flexibility in the face of uncertainty and change. and their commitment to our customers and their dedication to Vulcan and to each other. Despite the difficulties caused by the pandemic, our company continues to thrive as a direct result of their efforts. Turning now to the third quarter, our financial results can be summed up very simply. Our teams delivered another quarter of aggregate unit margin expansion through improved pricing, disciplined operating performances, and solid execution. Our aggregate cash gross profit per ton increased by 5% despite an 8% volume decline. Volume was obviously impacted by the pandemic, but also by severe wet weather across the Atlantic coast, the southeast in Texas, and wildfires on the west coast. We expanded our unit margins by remaining focused on what we could control and by making sure that we were well positioned to respond to a rapidly changing environment. We've talked about our four strategic disciplines for a number of quarters now, and we believe that they have been a critical part of our success this year. Our commercial excellence and our operational disciplines have been particularly helpful. On the commercial side, our aggregate mixed adjusted sales price increased by approximately 3% in the quarter. On a year-to-date basis, mixed adjusted pricing increased by 3.5% despite a 4% decline in volume. Operationally, year over year, our cash unit cost of sales was flat both for the quarter and year-to-date. Cost control, operating efficiencies, and a tailwind from diesel mitigated the impact of lower aggregate volume. Our four strategic disciplines continue to drive improvement in our unit margins. This is evidenced by our 7% year-to-date improvement in cash gross profit per ton. Suzanne will review the quarter and year-to-date results in more detail shortly, but first I want to address the demand trends that we're seeing. Certain leading indicators are showing signs of improvement, both sequentially and year over year. However, the pace of recovery and the timing of shipments is not certain. Residential construction continues to be the most resilient of our market segments. Starts and permits have rebounded, particularly in our footprint. Single-family housing is leading the way, and we are especially well-positioned in our markets to take advantage of this trend. Private non-residential construction continues to be the most variable in use. Following the drop in the spring, construction starts have remained weak as compared to last year. However, we are encouraged by improvement in certain leading indicators, which could point to future growth. Dodge data states that warehouses and distribution centers now the largest non-residential starts category, continue to see growth. As the leading supplier in the majority of our markets, we are well positioned to serve all types of non-residential business, regardless of the category. According to Dodge, Vulcan served states are expected to account for approximately 90% of the growth in warehouses and distribution centers over the next two years. In addition, non-residential demand for commercial buildings like gas stations and grocery stores has historically followed the build-out of new housing subdivisions. We could expect this type of traditional non-residential construction to follow the growth we're experiencing in residential demand. As we think about these current trends, it's important to keep in mind that unlike the Great Recession of 2008, Non-residential construction going into the pandemic was not overbuilt. The uncertainty surrounding the pandemic has weighed more heavily on this segment. With respect to public highway construction, most Volcanserved states have flat to increasing DOT budgets for their fiscal year 2021 versus 2020. This, coupled with a one-year extension of the FAST Act, bodes well for highway demand. Now that state DOTs have greater clarity around highway revenues, lettings are returning to higher pre-COVID levels and are projected to continue to be consistent with state DOT budgets in 2021. Timing of shipments to highway projects may start a little slow early in 2021 due to states' conservative approaches to lettings earlier this year. but will pick up as the year progresses. As a more recent data point, aggregate shipments in the month of October were down 5% due to one less shipping day. While one month doesn't constitute a trend, we were still pleased with the outcome and attribute this performance to better weather and pin up demand from the third quarter. As we consider the remainder of 2020, We now believe we have sufficient near-term visibility to provide guidance for the full year. We expect that our 2020 adjusted EBITDA will range between $1.285 billion to $1.315 billion. This guidance range is predicated on no major changes in COVID-19 shelter-in-place restrictions. It also assumes our normal weather pattern. With respect to 2021, we are in the midst of our budget season and still have work to do. Visibility continues to improve. Therefore, we expect to be able to provide 2021 guidance in February. The key point to remember here is, while the pandemic has created uncertainty, our view of the underlying fundamentals of our business remains unchanged. Our aggregate-focused business is sound, resilient, and adaptable to changing market conditions. We have a history of good operational execution, and this increases our confidence and our ability to compound unit margins. We're in the right geographies. Our balance sheet and liquidity position are a great source of strength and flexibility and will support our operational initiatives and our growth plans. Going forward, We will remain focused on the things that we can control, keeping our employees safe and healthy, taking good care of our customers, and ensuring strong execution on our operating disciplines. We have confidence in our future success. And now I'll hand the call over to Suzanne for additional comments. Suzanne?