Vulcan Materials Company

Good morning, ladies and gentlemen, and welcome to Vulcan Material Company's first quarter earnings conference call. My name is Christy, and I will be your conference call coordinator today. During the Q&A portion of this call, we ask that you limit your participation to one question. 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.

Good morning. Thank you for joining our earnings call today. 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, VulcanMaterials.com. A recording of this call will be available for replay later today at our website. Please be reminded that today's discussion may include forward-looking statements which are subject to risks and uncertainties. These risks, along with other 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 are defined and reconciled in our earnings release, our supplemental presentation, and other SEC filings. As the operator indicated, please limit your Q&A participation to one question. This will help maximize participation during our time together. With that, I'll now turn the call over to Tom.

Thank you, Mark, and good morning to everyone. We appreciate your interest in Vulcan Materials and hope that you and your families continue to be safe and healthy. I want to begin by saying that our performance in the first quarter was a very promising start to the year. Demand in our markets continues to improve, and our team executed well as evidenced by our financial results. Adjusted EBITDA, which excludes the gain on sale from our reclaimed quarry in California, was $244 million, up 22% compared to last year. This strong growth was driven in part by a 3% increase in aggregate shipments. Despite weather impacts across Texas and parts of the southeast in February, we experienced a pickup in shipments. and March proved to be a strong month. Residential starts continue to accelerate and highway starts also increase due to improved lettings in the third and fourth quarters of last year. We've experienced an increase in both the number of jobs and the shipping speed in the heavy non-residential space, which is also the most aggregate intensive. And finally, Some of the jobs that had been postponed last year have started. With year-over-year improvement across our footprint, pricing was the second driver of our EBITDA growth. Freight adjusted aggregate pricing increased by 2% in the quarter. Adjusted for mix, the increase was 1.3%. This was as expected since we were shipping work that had been bid in the middle of the pandemic when there was uncertainty and a lack of demand visibility. As our 2021 price increases gain traction, we will see pricing improvement throughout the year. The third driver of EBITDA growth and the one most within our control was our exceptional cost performance in the quarter. Aggregate total cost of sales per ton was 2% lower than last year's first quarter. and cash cost of sales per ton declined by 3%. Cost control like this is an accomplishment and requires considerable discipline from our operators. The team focused hard on operational execution and as a result, all of our operating parameters and the quarries improved year over year. We were pleased with the meaningful impact from our four strategic disciplines which will continue to mature. The most compelling metric continues to be our strong unit margin gains across the footprint. Aggregates cash gross profit per ton increased by 9%. This demonstrates the attractive operational earnings power of our aggregate business when demand is combined with strong execution on our four strategic disciplines. Overall, our operating results this quarter helped drive a 90 basis point improvement in our return on invested capital. Suzanne will provide further comments on this and other aspects of our financial performance. Let's now turn to our view of the end markets, and then we'll cover how that influenced our outlook for the full year. Broadly speaking, the demand environment improved considerably over the last few months. Construction starts, as measured by Dodge, got better along with other leading indicators like the Dodge Momentum Index and ABI. Construction employment levels continue to improve as well. Residential construction remains the strongest in market. There is pent up demand for houses and new subdivisions are being built with more to come. The market fundamentals of low interest rates and reduced supply are still in place. which foreshadows continued growth. Housing starts are growing faster in bulk-conserved markets. The outlook for our non-residential end markets remains limited. However, our quote activity has increased and leading indicators are improving which suggests that a turnaround is happening. The strongest non-residential sector relates to e-commerce and technology and encompasses data centers, warehouses, and distribution facilities. According to Dodge, 90% of the growth in this sector will occur in bulk-conserved markets. The majority of non-res starts currently fits within this category, but we believe a strong residential market combined with an increasingly open economy will drive additional demand in other non-residential sectors. With respect to highways, state budgets and lettings are progressing as anticipated. We are seeing the improvement in lettings from the second half of 2020 now turn into shipments. The COVID-19 relief funds have provided a backstop for any lost transportation revenues for highways. Our country's leadership continues to work on an infrastructure package. Both parties have proposed substantial increases in highway funding, and this is a priority for both the Democrats and the Republicans. To summarize, Our view of in-markets, demand is improving. We see evidence of this both on the ground with our customers and in the data from leading indicators. As a result, we've upgraded our aggregate volume guidance for 2021 to a range of 1% to 4% growth compared to 2020, excluding the gain on the sale of the California property We now expect full-year adjusted EBITDA of between $1.38 billion and $1.46 billion. As we look forward to consider opportunities, we have three paths to growth with higher returns. Those paths are organic growth, M&A, and greenfields. I'll take each in turn. First, organic growth is a critical part of any strategy because it offers the most attractive and compelling value proposition on a risk adjusted basis. We have the best geographic footprint in the industry and the best operators in the industry, but we are not satisfied. Our four strategic disciplines are designed to accelerate this organic growth strategy and the benefits are clear as we grow our unit profitability. Second, We regularly review an active list of M&A targets. Last year, the M&A market basically shut down, but it's reopened this year. We have a long history of making both large and small acquisitions when they are a good strategic fit. Since 2014, we've completed more than two dozen value enhancing acquisitions in some of the fastest growing markets in the country. And finally, We had a long and successful history of developing and opening new aggregate locations. This allows us to pinpoint the location of aggregate reserves in growth quarters where there is no acquisition opportunity. Additional benefits include more control over timing of capital investment and not paying a premium for the assets. We like having a balance between organic and inorganic growth. It provides a high degree of flexibility and is an important part of our capital allocation process and our ability to increase our return on invested capital. I'll now turn the call over to Suzanne for further comments.

Thanks, Tom, and good morning to everyone. I'd like to start by highlighting four key areas to consider this quarter. Our aggregates unit profitability expansion, return on invested capital, balance sheet strength, and the California Land Sale. First, unit profitability. Our aggregate gross profit per ton increased by 12% to $4.82. We believe this is important because improving the operational profitability of existing locations generally comes with limited capital investment as compared to other growth engines. When the improvements are both sustainable and widespread across the footprint, significant value is created. Our strategic disciplines are making an impact, and we have a good track record of execution. Over the past three years, our compound annual growth rate for gross profit per ton was 7%. The second key area is return on invested capital. As Tom mentioned, the 90 basis point improvement in the quarter pushed our return to 14.8% for the trailing 12 months ended March 31. While a higher returns profile is always good, the way in which the improvement is achieved is also important. As an example, the first quarter's ROIC gain was comprised of a 1% increase in invested capital and a 7% increase in adjusted EBITDA. This further highlights the importance of the unit profitability discussed earlier. Over the past three years, our trailing 12 months ROIC has improved by 280 basis points, driven by a 4% compound annual growth rate in invested capital, and an 11% compound annual growth rate in adjusted EBITDA. The third area is the balance sheet. Our balance sheet strength has created significant optionality and flexibility as we consider our capital allocation priorities, our balanced approach to growth and shareholder returns. Our net debt to adjusted EBITDA ratio is 1.4 times and we have nearly $900 million of cash on the balance sheet. Our debt has a weighted average maturity of 15 years with no significant maturities in the near term. And as always, we will continue to operate the business for the long term. We will not rush decisions to invest just because extra capital is available. The last of the four key areas I wanted to highlight was the sale of the Reclaimed Quarry in Southern California. The sale generated $182 million of net proceeds and a pre-tax gain of $115 million. One of the strengths of our aggregates-focused business are the multiple opportunities to create value and the life cycle of this quarry demonstrates that well. Now, so far on the call, we focused entirely on the aggregates business, so let's shift briefly to non-aggregates. Gross profit in those segments collectively was $5.6 million in the quarter, or $2 million less than last year. The severe weather mentioned earlier affected both asphalt volumes in Alabama, Tennessee, and Texas, and concrete volumes in Virginia. Before I turn the call back over to Tom, I'll touch briefly on two more topics, diesel fuel costs and a change in our effective tax rate. With respect to the cost of diesel, it really wasn't much of a factor in the quarter because the unit price of diesel was relatively unchanged from last year's first quarter. For the full year, we now anticipate that the cost of diesel fuel will be a headwind of approximately $25 million reflecting higher prices since the start of the year. The last time we spoke with you, we expected that our effective tax rate for 2021 would be 21%. We now expect the full year rate to be between 23% and 24% following a 27% rate in the first quarter. The higher rate in Q1 and the revised expectation for the full year resulted from Alabama's recent change in the law, which modified the methodology by which a company apportions income to the state. This change had the effect of reducing our ability to fully utilize certain net operating loss carry forwards in Alabama, and as a result, We recorded a $14 million charge in the first quarter. And with that, I'll turn the call back over to Tom for closing comments.

Thank you, Suzanne. Before we go to Q&A, I want to again thank our employees for their hard work, for keeping each other safe, and for their dedication to servicing our customers, embracing our strategic disciplines, and making Vulcan better every day. We will continue to operate Vulcan for the long term. This means staying focused on our strong local execution, driving unit margin expansion, maintaining a strong financial position, and improving our returns. Now, we'll be happy to take your questions.

Thank you. At this time, if you would like to ask a question, press star, then the number one on your telephone keypad. Again, as a reminder, we ask that you limit yourself to one question. And your first question is from Stanley Elliott of Stifel.

Hey, good morning, everyone. Thank you guys for taking the call. Can you talk a little bit about what's happening on the cost structure? I mean, going back to the aggregates day, you guys had a framework for volumes in EBITDA. Where you're tracking kind of the midpoint of the guide would imply that you're at least a year ahead of what you would talk about on the cost side. I don't know if that's just the last year of pricing with COVID being the anomaly or something else that's driving it, but it is certainly nice to see. Thank you.

Yeah, good morning. You know, it was an excellent operating quarter. The cost of cash costs was down 3% on flat production volumes. And what we're seeing is our operating disciplines at work. Most importantly, we kept our folks safe. But there was just good fundamental management. improvements in our key operating parameters. Things like throughput, plant availability, yield, or labor and energy efficiencies. For example, I'll give you an example there. 31 of our top 50 plants showed improvement in plant availability. And that's a big lever when it comes to cost. So my hat goes off to operators. Congratulations on a great start to the year. And we appreciate all the hard work, but it's a lot of smart work, too.

Yeah, and Stanley, I just add to that, you know, one of the themes of the Investor Day when we had it was that, you know, as Tom said, we're going to focus on what we can control because you don't always have control over volumes. And we certainly saw that in the last year with, you know, the pandemic and the uncertainty. So we've really, you know, pushed and our operators have embraced These operational efficiency initiatives and that discipline that Tom talked about and that's really what you see coming through in the quarter because you should always have some measure of control over your cost.

Thank you. Your next question is from Catherine Thompson of Thompson Research.

Morning, Catherine. Hi. Good morning, and thank you for taking my question today. Twelve years ago today, Tom, Suzanne, we started TRG, and you guys were our very first earnings call as a company. Wow, outstanding. Switching to our DNA, which is infrastructure and public construction focused, Just one year after COVID began, how would you describe state DOT health outlook? And tying to that, your thoughts on the infrastructure bill and the extension of the fat stack and what this means for Vulcan going forward?

Yeah, so I would describe the state DOT budgets and lettings as simply back to normal. If you remember, we saw a slowdown in lettings in the third quarter when revenues fell in Q2 of last year. then lettings ramp back up in October and have stayed up. So the 2021 DOT budgets and lettings basically return to normal. You saw gas tax revenues return. You got the 10 billion of aid from the first COVID-19 relief packages. So basically 2021 back to normal. As we look forward to 2022, which in most states starts July 1, It appears, now they haven't finalized the budget, but it appears the budgets, again, will be back to normal or as planned with overall growth. I would point out that four of our five top states will see funding growth, we think, in fiscal year 2022. So back to normal. On the highway bill, on the federal highway bill, I think for me the good news is that our nation's infrastructure problem and potential solutions are on the front page of the paper every day. I think it's too early to say how much funding will be up, but regardless of whose plan you like, both plans show a considerable increase in funding for roads and bridges. And also, remember that in any definition of infrastructure, if it's new construction, aggregates is going to be in the foundation. So it'll help us, whether it's roads and bridges or other forms of infrastructure. So the bottom line is, is that I think we're likely to see an infrastructure package get done by the end of the year with substantially increasing funding. And again, going back to your first question, don't forget that the state funding is up and will continue to get better. So, you know, looks like a bright future from a infrastructure perspective.

Thank you. Thank you. Your next question is from Jerry Revick of Goldman Sachs.

Morning, Jerry.

Good morning.

Good morning, everyone. This is Jatin Khanna on behalf of Jerry Ravitch. We are hearing in other industries that concerns over drastically higher capital gains taxes are driving private players to the market this year. Are you seeing that dynamic play out? And can you also update us on your M&A pipeline overall?

I'm sorry, I think your question was about capital gains taxes. The connection wasn't great.

Yeah, so we're hearing in other industries that concerns over drastically higher capital gains taxes are driving private sellers to the market this year. Are you seeing that dynamic play out? And I also ask that, can you update us on your M&A pipeline over there?

Sure. I'll let Tom comment on the update on the M&A pipeline, but with respect to Whether or not capital gains tax and the potential changes proposed by the Biden administration are driving sellers to the market, I mean, that's something that you often hear come up as tax law potentially changes and as there's a pickup in M&A activity. In our view, I mean, it's possible. I certainly wouldn't say that it would have no impact But in our experience, we typically see the driver, I mean, particularly in some of the, you know, small bolt-on acquisitions as being sort of generational changes with, you know, ownership, you know, as, you know, certain of the business leaders that have been running, you know, some of these smaller to bid-sized businesses, you know, decide that they want to, have a look at succession planning. Are their children going to be involved in the business, et cetera? We see that as the more typical driver of a potential seller into the M&A market.

Yeah, I don't think it will have a big impact on M&A. I mean, M&A has picked up, but I don't think that's the catalyst.

Thank you. Your next question is from Garrett Chamoy of Loop Capital.

Hey, good morning. Thanks for taking my question. I just want to understand the guidance raised a little bit better. How much of the guidance is related to the 1Q strength, you know, maybe relative to your initial plan? And then you did pick up your volume outlook, but you also took up the view of diesel costs. So should we, you know, think of those two netting out the rest of the year? So I guess just trying to understand, you know, what's incremental in the overall EBITDA guidance this year relative to the 1Q performance?

Well, I think the volume, addressed volume, it was up, obviously, 3%. It was driven by the southeast and mid-Atlantic. I think that at the end of the day, work's just returning faster than we had expected. You heard us say on our February call that the big unknown in 2021 would be how quickly the jobs start back up. Good news, it started faster than anticipated. really in the non-residential and highway sector. And those were the big unknowns for us. So as we got a little more clarity to that and how fast jobs are starting and what our backlogs look like, it gave us confidence that we could up our volume guidance. So that was, it was just the work, we knew the work was there, it was how fast was it going to come back. And it just came back faster than we expected. I think if you look at the cost guidance, and there right now we would say low single digit built in our projection. That includes, I think what you're seeing there is the inflationary pressures. Obviously we call it out fuel. I think we've been around $10 million or so. We're now at $25 million and that's simply the price of diesel went up. So the goal with costs is always flat costs. And I know our operators have a passion to do that. We think we can beat inflation, but right now I think that's our best estimate on costs to be low single digit.

Yeah, Garrick, I'll just add something with respect to the volume guidance. As Tom said when we last spoke to you in February, it really was around the fact that we wanted a bit more visibility around starts and what was coming in the market because we Thank you for joining us. We have a number of leading indicators we looked at that are all turning in the positive direction. And just as examples, we look at construction, unemployment. We look at ABI, the index, as kind of a trend indicator, even though it can be volatile month to month. We are a big believer in Dodge starts on a total dollars basis. That's growing again in our market. And we also look at the Dodge Momentum Index, which is sort of an indicator for non-res. So when you put all that together, including our own internal metrics, it gave us the confidence to look at what happened in the first quarter and take that forward based on some of those indicators that I mentioned.

Thank you. Your next question is from Mike Dahl of RBC Capital Markets.

Good morning. Thank you for taking my question. Suzanne, I actually just wanted to follow up on the volume questions and maybe Tom as well. You know, I understand that 1Q is seasonally a relatively small quarter for you, but given the strength to start the year, you know, some easier comps over the next couple of quarters and your comments about the momentum, and the business. You know, the low end of that volume guide actually still seems fairly conservative. Can you just walk through kind of why wouldn't volume be even stronger at this point given what you're talking about and maybe some of the puts and takes you could elaborate on?

Sure. No, it's a very good question. I mean, you've heard us say this lots of times. I mean, we always try to be Thank you very much. That's typically the smallest quarter. It's seasonally affected. And when you look out toward third quarter, you do have the severe weather events that could potentially have some impact. So we want to be a bit cautious about that. On the higher side of the volume, the plus 4%, again, if If we see the starts and other work opportunities, job opportunities out there come to pass, I mean, we could definitely be at that level. So it's really around non-res and just exactly how quickly that comes back. So could we be a bit better, you know? I guess possibly, but I think that for now, based on what we know and what we see and all those internal and external indicators, we are comfortable with the one to four range. I think we've thoughtfully considered everything we know, and I think it's exactly the right place for us to be, you know, as we sit here on May the 4th. And as we look forward, you know, in second quarter, look, we'll have a look and see where we are then. But I think It's important not to get ahead of ourselves, and it's a quarter-by-quarter process of looking at it.

Okay. Appreciate that. Thank you. Thank you.

Thank you. Your next question is from Trey Grooms of Stevens.

Morning, Trey. Good morning. Thanks for taking my question. So I guess on pricing here... You mentioned that pricing improved sequentially in March, and you expect this to continue through the year. And you also increased your outlook for diesel costs this year, which typically leads to more pricing. So similar to Mike's question a minute ago on the volume, is there opportunity for pricing to maybe move to the higher end or maybe even above? The higher end of the range that you didn't adjust the pricing range of up two to four. But could there be opportunity there? And how should we be thinking about the price cadence given the timing of fixed plant pricing? Is there step functions or would it be fairly linear as we look through the year?

So Trey, you called it out. Always, if you look at inflationary pressures and diesel prices, Couple with better visibility to rising demand, that's always good for price. And I mean, that's like two of the fundamental things that are really good for price. So, you know, I'd call pricing in the quarter as expected. Q1, we're working off work that we did in the middle of pandemic when price increases were not as robust because of uncertainty. And there was a lot of uncertainty if you think back a year. And as we said in Q2, we would accelerate prices through the year. Our April fixed plant prices are now in effect and went as expected. So prices will continue to grow through the year. And that's what we expected and that's what we're seeing. I do think that pricing will, as you said, will climb due to both fuel and inflation and demand returning. Our bid work pricing is moving up faster now because of inflationary pressures, particularly diesel and logistics. and then we're now having more conversations about a second price increase or a mid-year price increase depending on the market with our customers and they get that based on, you know, both fuel and inflationary pressures and, you know, I would venture to say their profitabilities are now, their bid work, their pricing is going up because of both the same thing, both inflationary pressures and invisibility to demand. At the same time, and we all know that, you know, pricing is critical for all of us, but at the same time, remember, it's only part of the unit margin arithmetic. You know, unit margins is still the most important metric, and I believe our teams have done a really good job implementing those four strategic disciplines. You know, our cash gross profit per ton went up by 9% in the quarter, and that's That's a good job because it was a combination of volume, price, and cost.

Yep. Thank you for the color, Tom. Appreciate it, and best of luck. Thank you. Thank you.

Thank you. Your next question is from Keith Hughes of Truist.

Thank you. Most of my questions have been asked, but I just want to turn back to the non-residential comments. You've given some color in the industry what kind of projects could be coming. I guess my question, given the outlook and the type of projects, are there variability in terms of when those actually become shipments for you, whether it's a data center versus an office building, and any kind of aggregate intensity that you would find amongst those different projects that could become in the market?

Yeah, that's insightful. So non-res is definitely improving. and as you point out, it's led by the e-commerce and warehouses and distribution centers and that heavy part of non-residential construction is more agri-intensive just because it's flat and it's a lot of flat work and so the agri-intensity is higher but what's interesting and what we're seeing in that heavy side is those jobs are going faster. So the time from when they're let or when they're bid to the time they're working Thank you very much. The heavy side is more agri-intensive, and it does tend to stock faster.

Thank you.

Thank you. Thank you. Your next question is from Josh Wilson of Raymond James.

Good morning, Tom and Suzanne. Congrats on the quarter, and thanks for taking my question.

Good morning.

Most of my questions have been answered as well, but... On the inflation side of things, could you also address maybe what you're seeing on the labor side and also in asphalt costs?

Yeah. So, you know, while our market outlook is really exciting with the growth from a volume perspective, as always, there's going to be challenges. And right now, it's inflationary pressures, labor, and logistics. And You know, we're addressing these now, and our four strategic disciplines will allow us to mitigate these challenges faster, and I'll take them in turn. Inflation, you know, the agris business has the ability to beat inflation for a couple reasons. It allows us an avenue for price, and, you know, we own our largest cost, which is the rock and the ground, and we believe that our good operating efficiencies supported by our operating disciplines will help offset inflation. Labor, again, our operating excellence program improves efficiencies, but also we've really accelerated employee training and development, and that retains employees, that attracts employees, and gets new employees up to speed faster, which is very important, and keeps them safe. And then on the logistics front, if you remember, future truck shortages were one of the catalysts behind our logistics innovation efforts. And that allows us to truck more efficiently, and we can beat those challenges actually with technology-driven efficiency. So those four strategic disciplines are designed to take advantage of tailwinds, but also to dampen the effects of headwinds so that we can live up to the potential for our shareholders. And I think that's what you'll see over the next year. We'll take advantage of the volume and potentially pricing tailwinds, but we'll offset the headwinds of inflation, labor, and logistic challenges. Thanks.

Good luck with the next report.

Thank you.

Thank you. Your next question is from Phil Ng of Jefferies.

Good morning. Hi. This is actually Colin Varon on for Phil. Great start to the year, and thank you for taking my question. So you called out cost control as a driver of gross profit margin and unit margin improvement in the ag business in the quarter. Just given the increase in volumes and pricing you're expecting, as well as your outlook for higher diesel fuel costs, can you provide color on how you're thinking about the year-over-year change in aggregates, gross margins, and unit margins through the remainder of the year?

Yeah, so, you know, I would probably call out in the range of mid-single digit, you know, and if you put that together, that's that meets our range in price that's out there. It would call out probably low single digit, you know, flat to low single digit in cost. And at this point, we think, oh, that's achievable. Okay, thank you. Thank you.

Thank you. Your next question is from Michael Dudas of Vertical Research.

Good morning, Tom, Mark, Suzanne. Good morning.

Good morning.

I was intrigued about your comments about your balanced look at allocation and talking about the greenfield opportunity. Maybe you could share a little bit more on timing. What's in, like, current plan in your CapEx budget for this? Are the projects, I assume they're much longer dated, the size, scale of what could happen? Is there anything that's imminent that you're looking at? that would require over the next several years quite a bit of capital to move. Was there a lot of opportunities? Just let me get a sense of how you're thinking that when you balance it relative to your organic and certainly M&A opportunities.

Yeah, so if you just step back and look at growth, if you remember in 2020, the M&A growth really dried up. We're seeing a marked pickup in 2021. And as always, we're going to be both optimistic and disciplined about our approach to acquisitions. It's got to fit us. So when it comes to growth, I'd actually take a broader view, as you talked about, and look at Vulcan's ability to grow. And it's unique because it's balanced. And we talked about the three avenues. One was acquisitions. And look, we're the largest, most profitable agri-producer. We're going to get the call when something's for sale. But we have to be disciplined, and we have to do the work to pay the right price for the right assets. Number two would be opening greenfield facilities and greenfielding to open a new facility. Greenfielding is a, it's difficult to do and requires a lot of hard, smart work. You have to go out and define the growth quarters, you have to overlay that with geology, you have to procure the land, you have to get the permits, and then you have to build the right facility at the right time. And the reason that greenfields are so important is that as you look at a growth quarter, there may not be an acquisition target available to best supply that growth quarter, hence the greenfield. But you have to have the know-how, and it's hard to do, and you have to do the hard work. There's nothing easy about it, and you have to time it right. And then the last and the third quarter we talked about was organic growth. And you've heard me talk endlessly about our four strategic disciplines, and we're excited about them because they're important. And This has to be done with its design and planning and discipline. It's important from a shareholder's perspective because it's lower risk and higher returns. And for us, it's working. As you look at our numbers over the last couple of years, you see us accelerate our growth in unit margins. But that balance approach for us is so important. and don't forget that we also have the balance sheet to execute on this.

Thank you, Tom.

Thank you. Your next question is from Tim Nathaners of Bank of America.

Hey, good morning, guys. Morning. I wanted to ask two questions. One was just you did highlight that the infrastructure proposals as they stand both focus on increased spending on roads. but one thing we struggle with is trying to understand some of the auxiliary spending and especially in the Biden proposal and what that might mean for aggregates, if you've done any work on that or have any thoughts. So in either proposal, what that might mean. And the second question is if you have any updated information for us on how the board's looking at the dividend. I know you just raised it, but just any new thoughts, that would be great.

Yeah, so I'll talk about how we let Suzanne talk about dividend. I think that what's important in infrastructure, and I said this when we were talking about the highway bill in the Biden plan, anything that is new construction, you have to have aggregates in the foundation. Now, obviously, we love roads and highways because they're most aggregate intensive, but anything that is new construction, you're going to have aggregates in it. So if you look at Alternative Energy Solutions. We're actually a big provider for the foundations for alternative energy which has been a good business for us for years so we welcome that also.

Timna and I'll just address the dividend question. Look, the dividend is very important to us and it's very important to our shareholders and we want to make absolutely certain that we maintain the dividend. It's a It's a very good way of increasing shareholder returns. And as you noted, the company has continued to increase that year over year. And as we've said, we think about it in almost a progressive kind of way. And by that, I mean we will continue to grow the dividend at the board's discretion to a level and many more. Thank you. Over the trailing 12 months, cash flow from operations was $1.2 billion. That's up about 20% year over year. So I think you can tell by the strong cash generation capabilities that we have that we should, again, at the board's discretion, but we should be in a position to continue the view I just described on dividend growth.

Absolutely. It's a high-quality problem, but your share price is going up so strongly means that the dividend yield is being kind of small. So here you're pointing through the cycle, but the free cash flow has been pretty steady now, actually, even through this latest correction. So, you know, curious on that. And I guess you didn't have – oh, I'm sorry. Go ahead.

No, I was just going to say you're right. It is a quality problem to have. I mean, what we've been very focused on with our disciplines and focus on unit profitability, et cetera, is making sure that that free cash flow is stable, it's increasing, because when you have a high degree of confidence in your free cash flow generation, then you can do good things with your capital allocation priorities. And that was really the first step, and I think we've accomplished that, and we'll look forward for additional opportunities to improve the company's ROIC.

Okay, fair. And Tom, on the question I had earlier, is there anything that you can provide in terms of rule of thumb, in terms of green energy? I mean, offshore I imagine is less than, you know, certainly some of the solar and onshore wind. But is there anything about aggregates per project or anything that you can provide for us in terms of guidance?

It's hard to do a rule of thumb. I would just say that the wind energy is very agri-intensive because you're not just putting in the foundations, which are massive, for those windmills. You're also putting all the logistics, network, all the roads and utilities for those windmills. So the wind energy is very agri-intensive. Okay.

Thanks, guys.

Thank you. Your next question is from Adam Thalamar with Thompson Davidson.

Good morning, Adam.

Good morning.

Morning, guys. Great start to the year. I guess my biggest question, Tom, would just be on aggregates pricing. And there's so much inflation throughout the entire construction chain right now. I mean, when do you think we break out of this low single-digit range that we've been in for a while for aggregates pricing?

I think you'll see us march that up as we progress through the year. I think, you know, we get the question a lot of times, can you get to double-digit? Price increases. Yeah, that's what I want to know. So to answer the question, we have. The history will tell you yes, and we have done it before. But you've got to see an average of some 60 markets pricing all put together. And each market marches to a different cadence. And so what we'll do is we'll push price really hard in the market for a while, and then you may have to pause and let folks catch up, and then you'll push it again. and to get to that double digit number, all the stars have to line up at once. Can that happen? Yes. Would I advise that? No. But I would say this much. The pricing environment has improved dramatically. And as I said a little bit earlier, you've got both demand visibility and now you've got inflationary pressures, both of which are good for pricing. So We'll plug at it all year, I think, you know, and obviously we'll, we get towards the end of the year, we'll have a better view for 2022. And don't forget, as we said, we're still working off some, you know, work that we did in the middle of the pandemic when price increases were not as healthy as they are today. So we'll get past that and we'll plug. But yes, we would love to see double digit pricing. I would also tell you that's very hard to do. Not impossible, very difficult. Okay, thank you very much. You bet.

Thank you. Your next question is from Anthony Pettinari of Citi.

Good morning. Good morning. You talked about the guidance raise being partly driven by job shipping and starting faster than expected. I'm just wondering if that was really pronounced or concentrated in any specific state or end market and just generally how the 21 volume growth outlook for ags maybe breaks out between your end markets.

I think that if you look at really what's happening in the end markets, it's pretty normalized across our footprint. You've got residential, which is very, very good. You've got non-res, which is returning, driven by the heavy side, but we're starting to see green shoots on the light side. On highways, the jobs that will bid... and the fourth quarter just have returned faster. Remember, Q3 was down as the DOTs were trying to start their year and see what was going to happen. And in infrastructure, non-highway infrastructure, I would call it flat to improving. You know, you had pressures from revenues, but, you know, they've come back and you've got COVID relief that will kick in probably by the end of this year, beginning of next year. I think that if I had to pick a market, I'd say the southeast and mid-Atlantic states were the strongest. You know, you had Illinois down and Texas down and Northern California down. That was really weather-driven. I mean, cold, frigid weather in Texas and then in Illinois and wet weather in Northern California. So if I had to pick areas, it would be the southeast and mid-Atlantic states. but I would tell you that the quarter was more, the volumes were down, were more weather-driven, not demand-driven, and I would call out improving in all of our markets.

Okay, that's very helpful. I'll turn it over. Thank you.

Thank you. Your next question is from Paul Roger of Exxon.

Morning. Hi, Suzanne. Morning. Hi, good morning. I'm not here, but yeah. So I've just got one question then. It's maybe slightly less field compared to the rest of the Q&A. And it's basically looking at the environmental agenda and the fact that that's obviously going up in the U.S. Can you talk a bit about the risks and opportunities that brings? And maybe specifically, what impact would the increased use of recycled aggregates have on Wilkins?

If you look at the environmental piece for Volcan, we've been doing this a long time and doing it well for a long time. But if you step back and just look at, for example, greenhouse gas, our greenhouse gas emissions are actually, for a construction materials company, very low. And even with that being said, we are improving our footprint. We are looking at renewable energies. We're also, we're probably about 25% of our mobile equipment has the new engines in it, which have less emissions, and we will plug in that every year to improve it. So I think we've got a great story to tell. I think we're, but even that being said, we're working hard to improve it.

And on the recycled aggregate side, I mean, that was one of the things we saw when the The Green Agenda really took off in Europe. Presumably that's negative for Virgin Aggregates and potentially margin, is it?

Yeah, so if you're referring to recycle, we are a big recycler. We obviously are in the concrete recycling business. We're also, with our asphalt business, we're a big recycler of asphalt. So it is part of our makeup and it is growing.

And I would just add to that, Paul, that in terms of highways, the formulas that are used for the asphalt there, it varies by state, but you're only able to use a certain amount of recycled material there. So you have to be cautious as to what you're doing, and we're very You know, happy, as Tom indicated, to be in the recyclable business. But, you know, it is not a replacement for virgin asphalt in many of the applications.

Thank you. Thank you.

Your next question is from Zane Carini of DA Davidson.

Thanks for the call so far. I was just hoping to go into a little more detail on your outlook and particularly what you're seeing in California and Texas. What is driving activity in these markets and how is your outlook? How has it really changed from last quarter to this? Are you seeing stronger drivers in infrastructure or non-resi for a potential upside from here?

For both of them, I would tell you we are seeing growth. Remember, California gets California first. 2020 was a really difficult year in California. You had the pandemic. Northern California was the most severe shelter in place. On top of that, you had the rolling power outages from the fires, which caused severe cement shortages. You know, I would call cement tight in California, but nothing like it was last year. So much improved in California just from ability to do business. It's opened up, and you don't have rolling power outages, cement shortages. but that being said, highways are up, residential is up and strong, non-res is improving and infrastructure is recovering both with revenues coming back and with COVID relief help. Texas, obviously the rough start with the frigid weather in Texas but putting that aside, highways are very strong in Texas, res is very strong in Texas, non-res is improving, again driven by the heavy and the non-infrastructure is also improving. So both in California and Texas, we see much improved markets and ability to do business. Thank you.

Thank you. There are no further questions at this time. I will now turn the call back over to Tom for any additional or closing remarks.

Yeah, thank you very much for your time and interest in Vulcan this morning. We'll continue to make good progress on our long-term goals, and we look forward to sharing the news with you over the quarter and for quarters to come. Have a nice day, and stay healthy and safe. Bye.

Thank you. This does conclude today's conference call. You may now disconnect.