Vulcan Materials Company

Good morning, ladies and gentlemen, and welcome to Vulcan Materials Company's second 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.

Thank you, Operator, and good morning, everyone. 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 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 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 our time together. With that, I'll now turn the call over to Tom.

Thank you, Mark, and thanks to everyone for joining the call this morning. We appreciate your interest in Vulcan materials and hope that you and your families continue to be safe and healthy. I want to begin today's call by taking a moment to congratulate our team for their solid execution during the first half of the year. Our performance through the first two quarters further demonstrates the strength of our aggregates-led business. We expect the momentum we generated in the first half of the year to carry through the second half, and we reiterate our full year 2021 adjusted EBITDA guidance range of $1.38 billion to $1.46 billion. For the first half of the year, our adjusted EBITDA increased by 7%, and our average cash gross profit per ton expanded by 5% through a combination of volume growth, higher pricing, and improved operating efficiencies. Adjusted EBITDA for the second quarter was $406 million, essentially unchanged versus the same quarter last year. We achieved this result despite a $25 million headwind from much higher diesel and liquid asphalt costs. Diesel costs rose by $15 million in the quarter. Liquid asphalt costs were $10 million higher than the same period last year. And together with wet weather negatively impacted the profitability of our non-aggregate segments. Even after considering the energy headwind, our aggregate cash gross profit per ton grew by 2% in the quarter due to our team's consistent execution of our four strategic disciplines. With a 4% increase in aggregate volume in the second quarter and the market's current visibility to demand, the pricing environment continues to improve. Freight adjusted aggregate pricing increased 3% in the quarter, and the rate of growth improved sequentially throughout the quarter. Adjusted for mix, freight adjusted price improved 2.6%, twice the growth rate realized in the first quarter. Along with improved volume and pricing, operating efficiencies and cost control helped to offset inflationary pressures. Our total cash cost of sales increased by 4% in the quarter versus the prior year. Excluding the diesel headwinds, cash costs of sales grew by less than 1%. During the second half of the year, we will remain diligent and focused on controlling what we can control and on driving further improvements in our profitability. This solid aggregate performance helped to offset reduced profitability in the non-aggregate segment. Our second quarter non-aggregates gross profit declined year over year due primarily to the higher liquid asphalt costs, which I mentioned earlier, and lower volumes in both asphalt and concrete. Wet weather impacted asphalt shipments, while a shift in timing of projects, particularly in Virginia, resulted in lower than anticipated concrete shipments. Turning now to the demand picture. It has improved across our major end markets, as well as geographies. The residential end use has shown continued strength with solid starts in single-family housing. We've also seen an uptick in multi-family housing starts. Now, with respect to the non-residential outlook, improvement continues in a number of leading indicators, and we have begun to see month-over-month improvement in starts. The strongest non-residential sector continues to be the work related to e-commerce and technology infrastructure. but lighter traditional non-residential demand is also recovering. The level of highway starts remained healthy in the first half of 2021 as states got back to normal funding and budget levels. On the broader subject of federal highway and infrastructure spending, we're encouraged by the progress made toward a highway bill with substantially higher funding over the FAST Act levels. We've also seen an acceleration of starts in public infrastructure, such as water and sewer treatment systems, airports, and storm and flood control. Before turning the call over to Suzanne, I want to briefly touch on our growth strategy and the recently announced agreement to acquire U.S. Concrete. We have three paths to growth, and it's important to strike the right balance between these three in order to drive higher returns. Those paths are organic growth, green fields, and M&A. We always start with organic growth because it offers the most attractive and compelling value proposition on a risk-adjusted basis. We have a unique and irreplaceable asset base spread across the most attractive geographies in the U.S. Our four strategic disciplines are designed to accelerate our organic growth, and the benefits are clear as we expand our unit profitability. We also have a long and successful history of developing and opening new aggregate locations, particularly in growth quarters where acquisition opportunities may be limited. We like the flexibility that Greenfields provide in regards to timing and pace of capital spending. Our third growth engine is M&A. U.S. Concrete is a great strategic fit for Vulcan as it naturally complements our existing aggregates business. It also brings new geographic exposure to the company, expanding and diversifying our already strong footprint into the Northeast. Along with my colleagues at both Vulcan and U.S. Concrete, I'm very excited about the potential for this combination. It will allow us to further drive sustainable long-term shoulder value and I look forward to welcoming the U.S. concrete team to the Vulcan family. Now I'll turn the call over to Suzanne for further comments.

Thanks, Tom, and good morning to everyone. I'd like to begin by highlighting a few key areas to consider this quarter. Our aggregates price realization, unit profitability, return on invested capital, and balance sheet strength. First, our ability to consistently deliver compounding price improvements is an important driver of our unit margins. The current pricing environment is positive due to improving demand visibility and inflationary pressures. We've seen attractive sequential improvement in pricing through the first half of the year, and we expect the momentum to carry over to the second half. Clearly, these compounding price improvements, along with good operational execution, are having a positive impact on our unit profitability. This quarter marked the 12th straight quarter of improvement in our trailing 12-month cash gross profit per ton. For the trailing 12 months, cash gross profit per ton was $7.26, and for the quarter, it was $7.83 per ton, moving ever closer to our current goal of $9 per ton. The next area of focus is our return on invested capital. We are pleased with our improving returns, and on a trailing 12-month basis, return on invested capital was 14.8%, an increase of 60 basis points compared to the prior year period. This improvement was comprised of an essentially unchanged invested capital base and a 4% increase in trailing 12-month adjusted EBITDA. And finally, We will continue to prioritize our balance sheet strength to create the flexibility and optionality necessary to support our capital allocation strategy. At June 30, our net debt to EBITDA was 1.3 times, reflecting $968 million of cash on hand. Our debt has a weighted average maturity of 15 years with no significant maturities in the near term. It's important to note that even after the anticipated close of the U.S. concrete acquisition, our balance sheet will be in good standing and we remain committed to maintaining our investment grade rating. Before turning the call back over to Tom, I do want to touch briefly on two housekeeping matters. First, you will have noted an increase in our interest expense this quarter. Concurrent with the announced pending acquisition of U.S. Concrete in June, we obtained a bridge facility commitment to support the deal. Subsequently, we executed a $1.6 billion delayed draw term loan, which will be used to fund the acquisition along with cash on hand. Borrowings under that facility are due three years from the funding date. And so this facility will be used as an interim measure prior to accessing the bond market at the appropriate time. As a result, financing costs of $9 million for the bridge commitment was recognized as expense in the second quarter. The final matter to mention is our effective tax rate. And as a reminder, at the end of first quarter, we increased our expectation of the full year rate to between 23 and 24%, that guidance is still applicable. And with that, I'll turn the call back over to Tom for closing remarks.

Thanks, Suzanne. Before we go to Q&A, I want to again thank the entire Vulcan team for their hard work and their dedication to serving our customers. Our people are what makes Vulcan better every day. I would be remiss if I didn't comment on the current COVID environment and the recent announcements by the CDC in response to the surge in the Delta variant. We will continue to closely monitor the spread of the virus, ensuring the health and safety of our employees and their families. We will continue to operate Vulcan for the long term. This means keeping our people safe and healthy, staying focused on strong local execution, driving unit margin expansion, and improving our financial returns. And now we'll be happy to take your questions.

Thank you. The floor is now open for questions. As a reminder, we ask that you please limit yourself to one question. And your first question comes from Trey Grooms of Stevens.

Hey, good morning, everyone.

Good morning.

Morning, Trey. Tom, your aggregates business clearly performed well given some of the headwinds. Obviously, asphalt is facing some challenges right now on the cost front, but as we look into the back half of the year, can you help us unpack some of the puts and takes around the guidance, specifically around these different segments?

Thank you. Sure. As you heard us say, you know, we're confident in the full-year guidance of $1.38 to $1.46 billion, which, you know, we remember we raised that 90 days ago. As you said, probably with a little bit different puts and takes, we probably won't make up or won't be able to make up the shortfall and other aggregates, which is really asphalt. As, you know, we're playing catch-up on liquid costs. Now, I would say to that asphalt prices are going up, and we'll see increased prices and probably improved margins in the second half, but probably not enough to offset all the liquid headwinds. That being said, aggregate volumes appear to be improving with demand improving in all market end uses. So I'd call it asphalt being offset by shipping on the higher side of our volume midpoint. So, you know, aggregates, we're on the optimistic side of volume. Prices and aggregates, we, you know, reiterate the two to four range, although we're seeing prices improving sequentially. From a cost perspective, we would still say that over the 12 months, we'll be low single digits, so good operating disciplines, unit margin in the mid-single-digit range, non-aggregates a little lower but improving. which brings me to, I'd say, confidence in that $1.38 to $1.46 billion guidance.

Great. Perfect. That's great, Keller. Thanks for the thoughts, Tom, and take care. Thank you. Thanks, Craig.

Thank you. Your next question is from Stanley Elliott of Stiefel.

Good morning, everyone. Thank you all for taking the question. And nice work in a very tough environment. Tom, can you talk a little bit more about what you're seeing on the price side of the equation? You mentioned sequentially improving. You've got the demand commentary, which looks encouraging in the back half of the year and into next year. Just curious to see what's happening on the ground in terms of the pricing dynamics. Thank you.

Sure, and good morning, Stanley. Yeah, when you have – when we have visibility to growing demand like we have right now, and you couple that with pressures from fuel and other inflationary pressures – We know that prices will accelerate. They're probably accelerating a little faster than maybe we anticipated 90 days ago, and it's probably a little brighter. At this point, I think we'd be premature to adjust our 2021 pricing outlook, but I think it bodes very well for pricing in 2022. As we said in the first quarter call, as we called out, the rate of price increases continues to escalate sequentially over time. We saw that in the quarter. We talked about, I mean, if you mix a just price in the second quarter, it doubled over the first quarter. And then if you look within the second quarter, prices increase sequentially month to month. I think that we'll see, continue to see that sequential rate growth pattern throughout 2021. And I would expect that sequential improvement to continue in 2022, although maybe a little higher amplitude. And here's why. We started talking to our customers about second-half price increases in May. On bid work, which is about 6% of our work, we have definitely increased price increases over the last 60 days on new jobs. Now, remember, there's a lag between that bid work They won't ship for roughly six to nine months. When it comes to fixed plants, we've had discussions and are having discussions about second half price increases. And we've realized those in a few markets. But in our conversations with customers, they've been very positive. Again, all supported by that clear visibility to growing demand and inflationary pressure. So while we see some benefit to 2021, This is definitely going to be a 2022 impact because those jobs that we're bidding now or bid over the last couple of months are definitely going to benefit 2022. And we'll see a bigger impact on fixed plant prices in 2022. Again, I think I would expect to see that rate of price increases continue to climb sequentially this year in that pattern to continue into 2022. So this is just a really good environment for pricing.

Great, guys. Thank you very much. Best of luck. Thanks.

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

Good morning. Good morning. Tom, is the decision to acquire U.S. Concrete a function of a more optimistic view on volumes over the next, you know, three to five years, maybe consistent with what we're hearing from D.C. on infrastructure? I mean, you've talked about the attractiveness of the assets. I'm just wondering why now is sort of the right time to pursue the acquisition. You know, has market structure gotten better? Are you more optimistic on end market demand? Just wondering if you can give any more color there.

Well, as you know, usually when one of those happens, it's a long-term view, and it takes a long term to make one of those happen. So as you know, we've been talking for a while and thinking about it for a while and working with U.S. Concrete. I think if you step back with it, obviously market demand looks good for the short term. But again, when you do one of these, it's both short term and long term. And for both companies, shareholders, I think it was a good deal. If you step back and look, the geography works, both in California and Texas and in Virginia, and it introduces us to some really good positions in attractive new markets in New York and New Jersey. Their aggregates and ReadyMix assets are very attractive. I think it's a well-run company. Their cultures are very much like ours, and I think the deal is progressing nicely, and we look forward to getting their team into the Vulcan family. We know them. They're talented. And we just think it's very complimentary. And, you know, the fact that the short-term markets look very good is another benefit. Okay. That's helpful. I'll turn it over.

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

Hey, everyone. This is Justin on behalf of Jerry Revick. The balance sheet is projected to be in great shape post the U.S. concrete acquisition. How would you characterize the M&A pipeline and the opportunity set from it?

Yeah, I think that the M&A pipeline continues to be good and is active. I'd say a lot more smaller targets, more bolt-ons. We have the balance sheet to be able to do what we want to do or need to do there. But as always, I think You know, you have to be disciplined about those and what markets do you want to be in and what synergies are unique to us. Don't overpay. And when you get them, make sure you integrate them fast and accurately. So there's a lot out there, but we'll be disciplined how we – and we have the firepower, but we'll be disciplined how we look at them. Thank you.

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

Thank you. You referred earlier in the call to $15 million of diesel inflation. I think that was the second quarter number. If you could talk about what that think that'll look like in the third, I assume it's probably going to go up some, given where diesel has moved. And then maybe even in the fourth, how it's going to affect the rest of the year.

Yeah, I think, you know, we saw $15 million impact on diesel for the quarter, 16 and a half. So it was really a Q2 impact on I think the second quarter will be the hardest hit for the year by diesel. And if you remember last year's diesel in the second quarter, maybe I think it was under a dollar. So just if you look at comparables, this will be the toughest hit. You know, who knows what's going to happen with diesel prices, but our best outlook would tell you the impact of the $20 to $25 range in the second half. That being said, I think we're comfortable with our operating efficiencies to be able to to, you know, only have low single-digit cost climb for the full year, which, you know, right now we're under 1%.

Yeah, I think that was $20 million to $25 million in the second half.

Okay, thank you. And if I could sneak one more in on U.S. Concrete, any kind of narrow time frame when you think the deal will close?

Second half at this point. I mean, it's going along well, but those are hard to predict, so I'll just tell you second half. Okay, thank you.

Thank you, your next question is from Catherine Thompson of Thompson Research Group.

Hi, thank you for taking my question today. Could you clarify how much of price controls versus pricing play into your out expectations? And are you seeing, are there certain geographic areas where you're seeing greater relative strength or were there greater opportunities in light of both price and cost controls? Thank you.

I'm sorry, Catherine, I couldn't hear the first part of that question.

Yeah. Could you clarify how much of price controls versus pricing have played into your expectations, not just for 21, but into 22? And what geographic markets are you seeing greater relative upside? And are there greater opportunities for pricing there, but also are there operational efficiencies that maybe didn't present themselves to the same degree earlier this year?

Yeah, I think that if you step back and look at all of this, the pricing environment is as good as we've seen it in a while. Now, you've got temporary inflationary pressures with diesel, but that is good for pricing because it allows you to have the ability to raise prices, particularly with the demand environment being what it is. And I think with good cost control, I think we're confident with that mid-single-digit unit margin improvement. From a pricing, from a geographic perspective, it's really widespread. We've raised bid prices across our footprint over the last two months. I think that the second half fixed plant price increases a few places in the southeast, but that will really be more of a 2022 play with hopefully a higher amplitude on pricing and maybe earlier in the year. So, you know, you've got temporary pressures from inflation, but really a good setup for prices moving forward. And I think that, you know, we've got a pretty good proven record on cost control to offset inflationary pressures. And we'll catch up with diesel even on cost control.

Yeah, Catherine, I would just add to that, that, you know, look, when you look at The performance in the second quarter and also in the first half, certainly very good from a pricing perspective, as Tom said, which was expected. But despite the diesel headwinds, we also had a very good cash cost performance as well. Cash cost of sales was up 4% in the quarter, but if you back diesel out of that, which rose significantly and rapidly, our expenses were less than 1% rise year over year. So we certainly experienced some inflation in other parts of the business and other input products besides diesel. But again, we had sufficient operating efficiencies and cost control to hold those cash costs to within less than 1%. And so If you have the combination of good pricing discipline and those rises we've talked about and we have good control over costs, which is one thing that we should be able to fully control, then you get the good results in cash gross profit per ton that we talked about. In Tom's comments, he called out that cash gross profit per ton was up 2%. If you exclude diesel from that, it's up 5%. So, you know, again, a very good performance, and it just shows, you know, when you focus on the things that you can control, what can be accomplished. You know, in fact, if you look at the progression of cash gross profit per ton, and you look at it on a trailing 12-month basis, ended with the second quarter in 2019. and you compare that to the trailing 12 months ended the second quarter in 2021, so that kind of 24-month period there, you know, it's up 5%. So, you know, that's something that we're always focused on. We always like to talk about that because that's clearly the driver of our profitability, and we'll continue to talk about that. Okay, great. Thank you.

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

Morning. Thanks for taking my questions. So my first question, clearly there's still some moving pieces around kind of the legislative agenda as it relates to the standalone infrastructure bill and potential reconciliation. But it does seem like things are kind of taking place. taking shape in a more tangible form. So just wanted to ask for your thoughts on, as you've read through the text and the amendments, how you're thinking about the potential support from the infrastructure bill and how might we see these tailwinds manifest in terms of both timing and magnitude in your view?

Yeah, I would tell you that we're excited about it. I mean, this is a multi-generational opportunity for highway funding and one that our country sorely needs. So this is exciting for us, not just for the company, but also for the country. I think we're confident that Congress passes on an infrastructure package to include a long-term reauthorization of the FAST Act. It would be a roughly 60% increase from the FAST Act. At this point, all signs point to those significant increases in core highway funding. We think the Senate should pass their bill in the next week, which is incredibly exciting. And then I think we're confident that Congress passes the bill this year. Now, you know, I would caveat that it always takes one to two years to see funding pass into shipments. Usually we normally say two years, but I think state DOTs have really matured into their substantially increased funding and have much greater ability to step up work faster than what we saw over the last three years when the states dramatically increased state funding.

And I think, yeah, I'd just add to that, you know, one more. Of course, the prospect of the passage of a bill, as Tom said, it's very exciting. I mean, from our perspective, it also provides an opportunity, we think, to kind of extend the cycle, giving us a longer period of time to continue to compound price, which then flows into compounding unit margins, back to my earlier point.

Right, OK, that's good to hear. And my second question, I mean, made a comment about just the expected second half close and things going well with US concrete. When you say things going well, I just wanted to ask if you could elaborate a bit more. Is that going well in terms of your conversations management to management, field team to field team or integration wise? Or is that a comment specific to your conversations with the DOJ and any update you can give on the review process?

I mean, short answer is all of the above. We've had conversations management team to management team. We've looked at what we have to do integration. Obviously, that's limited until we close. They've got to run their business independently of ours and vice versa. We're getting to know each other better, getting to know capabilities better. How do you overlay that and how do you move quickly but accurately? And then the DOJ process, I think, is going at this point quite well, and we feel confident that we'll close it this year. Sounds good. Thank you. Thank you.

Thank you. Your next question is from Garrick Schmoy of Lube Capital.

Great. Thanks for having me on. I was wondering if you could provide some more color just on the timing headwinds you saw that impacted the concrete segment. Do you think it's specific to TQ? And I'm wondering if there's any potential delays in other parts of your business, perhaps due to inflation or labor constraints that might be coming down the pike here in the second half of the year.

Yeah, good morning, Gary. The short-term impact was timing of jobs. It had an impact of about $4 million in the second quarter. That was really some big jobs in northern Virginia. They'll ship, we think, second half of this year, and the volume should return. I think it's Candidly, a good time to be in the ready-mix business. Again, while you have the short-term challenges of diesel, you're seeing ready-mix prices moving with great momentum. In many markets around the country, we'll see two to three price increases this year alone, as will ours. So while you've got this quarter, maybe next, some short-term headwinds from fuel, pricing is moving fast. rapidly, and I think that's a really good sign for the ready-mix business, along with the demand and the end uses is improving, the same as aggregates. Okay.

And just to be clear, you're not really seeing any delays in other areas just because of labor inflation or material inflation or supply chain constraints that might be backing up?

No, the jobs that we saw in the second quarter were just timing on the jobs. It wasn't inflation, supply, or labor constraints. Great. Thanks for that. Thank you.

Thank you. Your next question is from Adam Thalamer of Thompson Davis.

Hey, good morning, guys. Tom, I'm just curious on the U.S. – another one on the U.S. concrete deal. Just curious how – how you are framing this to investors who are worried that you're increasing downstream exposure?

Well, I think that if you look at our history, number one, we've gone from 95% to 85% of our EBITDA coming from aggregates. When this closes, 85% of our EBITDA will come from aggregates. I think more importantly, you've got to look at how the two companies match up. The geographies work extremely well. California, Texas, Virginia, we match up very well. If you look at their technical capabilities, they're a very good operator in ready-mix concrete. We think they can help us. We think we can help them with our ability to expand unit margins, our collective ability to expand unit margins and aggregates. So we help each other. We think their culture fits ours very well. And you also got to remember, there's 12 and a half million tons of aggregate and U.S. Concrete. And so it is also, which is very complimentary in places we aren't, or product lines that we aren't, so it's very complimentary to us. And as I said, the management team fits very well. We know them well. They know us well. We've always talked to each other because we know each other very well. But in our conversations and pre-closing and to start to figure out how we put the companies together, it's going extremely well. So I think if you talk to anybody on the collective teams, we're all excited about this and see lots of opportunities. Thanks, Tom. Sure.

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

This is actually Colin on for Phil. Thank you for taking my question. Can you parse out how your different end markets perform to contribute to that 4% year-over-year increase in aggregate shipments, and then maybe dive a little bit more into trends in the non-res end market? and how that business is tracking versus 2019 levels?

Sure. I think if you look across our footprint, it's pretty consistent. Non-res is improving. Non-res starts on a six-month to three-month basis have now turned positive. We continue to see strength, as you would imagine, the heavy non-res, the warehouses and distribution centers, but now we're seeing growth in things like government buildings, institutional buildings, health care, private schools and churches, and we're just starting to see green shoots on stores that follow new subdivisions. So I'd call non-res out across our footprint pretty much as improving. You know, residential, it's going great. Single-family starts on a 12-month basis were up 31% in our markets. Inventory is extremely low. This is almost all new subdivision work, which is more and more aggregate intensive. So demand growth in this sector will continue to grow and still not overbuilt. Now you're seeing multifamily improvement permits for both multifamily and single family would support continued growth. So it's just strong on the REV side. Highways, good. We're confident. We've We've returned back to normal. I can talk about that more later. I think what's exciting, which is a little bit of a shift that we're seeing now, we're seeing growth in non-highway infrastructure. And this is, we started to see this in kind of the end of 19, beginning of 20, then it got shut down with a pandemic. But on a trillion 12-month or six-month and three-month, it's very good. And, you know, it's more in the, in the sector of water, sewage, and you remember that the housing growth is also driving the non-highway infrastructure. So, all in all, you've got non-res returning and has made the turn. The other three are now growing.

Great. Thank you for the caller.

Sure.

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

Good morning. Thanks for taking my question.

Good morning.

Just to make sure we tie out all the moving parts in the second half, can you update the gross profit guidance? I think before you had said that non-aggregates gross profit collectively would be up mid to high single. Where are you thinking that shakes out now?

Yeah, I'll speak to that. You know, in terms of Our cash gross profit per ton, that's usually the measure that we call out. We had, for the full year, we had talked about that being sort of roughly mid-single digits, and we don't see a reason to change that guidance at this point.

Yeah, I think if you look at, and this is more of a longer-term view of this, as always, because cost can be so So variable within a quarter. But year-to-date, you know, we're at 5%. I think we tell you that as we march through the year, probably we'll absorb the inflationary pressures and we'll end the year at mid-single digit from a cash growth profit per ton.

Got it. And with the heavy non-resi that's been the driver for so long, are any geographies seeing any moderation there at all, or even if it's in, like, quoting activity?

No, it's still going well, and what's interesting about that is because it's big and flat, it's very agri-intensive, but their ability to go from bid to turning dirt and shipping rock is probably faster than any segment we're seeing. I mean, they're really quick at it, so I don't see any slowdown in it. The good news is, as we said, the light side is starting to see some growth and even stores are which is kind of the last one to fall in here, is starting to follow the subdivision with green shoots. Great. Good luck with the next quarter. Thank you.

Thank you. Your next question is from Brent Thielman of DA Davidson.

Hey, thank you. Good morning. Good morning. Tom, can you talk about the California public and private bid environment, just given you, that's one of your higher-priced markets, you're getting a good chunk of revenue from USCR there.

Yeah, I would tell you very good news. The residential market continues to improve a little bit better in Southern California, the Northern California, which was, you know, the hardest hit with the shutdown. Non-res, again, excuse me, the res is healthy. The non-res is improving, again, probably a little faster in Southern and Northern California, but both on the mend. Caltrans, a great story. You know, Caltrans came out this week. and upped their outlook for lettings in 2022 by over 50%. So great news from Caltrans. They have really matured into their funding fast. They've got a lot of needs, and they're going to put that money to work. So both for our aggregates business, our asphalt business, our concrete business, and future aggregates and concrete business from U.S. Concrete, good signs, good omens, and good news.

Tom, that's their fiscal 2022, is that right?

Yeah, so that starts July. That's correct. At Caltrans, that's fiscal year 2022. So that starts, I believe, July 1, started July 1.

Very helpful. Thank you. Best of luck. Thank you.

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

Good morning, Tom. Good morning. So just back to U.S. Concrete, your expectations on your return profile on the investment over the next several years, what were your expectations or how they frame relative to other investment opportunities? And maybe you can tie that back to once the deal closes and the balance sheet gets restructured, your go-forward targets on whether certain type of debt levels, priorities on cap allocation, And will there be any, you know, more allocation one way or the other, given how well you think the concrete can bring the cash into the business?

I wouldn't see a big shift in capital when you put the two together, either up or down. Obviously, I think, again, I wouldn't see a shift in priorities either. in putting the two together, I think it gives us a lot of more flexibility on moving capital around and how we allocate it and mixing and matching. Again, I think we've got to get it closed and we can give you a lot better view of returns and how that's going to look and let us put the teams together and really get it closed. But I would tell you at this point, I am more optimistic than I was before we started talking to them and feel very good about it. And that's you know, what happens when we put the two together and how we help each other, but also the short term, the markets look to be improved.

Do you think, you know, just from your early indications that U.S. concrete was fairly well capitalized in its current asset base?

I think they're fine. I think it's a well-run business. I think that team has done a good job. I think, you know, like all of us, they've got places where they feel better than others. We would tell you the same thing about ours, but I don't think – again, I don't see any big shift with this, and I think that team has done a good job with allocating capital as well as running the business, servicing the customers, and managing their operating efficiencies. Thank you, Tom. Thank you.

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

Thank you for your interest in Vulcan Materials. We look forward to talking to you next quarter or throughout the next few days and weeks and months. As always, you know, the world is changing, and we hope that all of you stay healthy and safe and keep your families healthy. I look forward to talking to you. Bye-bye.

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