Vulcan Materials Company

Good morning, ladies and gentlemen, and welcome to the Vulcan Materials Company's third quarter earnings call. My name is Emma, 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 proceed. Now, I will turn the call over to your host, Mr. Mark Warner, Vice President of Investor Relations for Vulcan Materials. Mr. Warner, you may begin.

Good morning, and thank you for your interest in Vulcan Materials. 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. 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 Company and hope that you and your families continue to be safe and healthy. This is our first earnings call since closing the U.S. Concrete acquisition in late August. Therefore, I'd like to begin by welcoming the former U.S. Concrete employees and customers to our Vulcan family. Also want to thank our team for its continued solid execution during a quarter that was challenging due to inflationary pressures and labor constraints. Despite these challenges, our team managed our controllable cost, moved pricing higher in all segments, and importantly, expanded our aggregates unit profitability for the 13th consecutive quarter. We generated $418 million of adjusted EBITDA this quarter, an increase of 4% as compared to last year. Profitability for the quarter was held back by factors I mentioned earlier. Energy inflation was a significant $30 million headwind. Unit diesel prices were up over 50%, leading to $14 million of additional expense. The cost of liquid asphalt was over $100 per ton higher than last year, This sharp increase impacted our results by $16 million. And finally, labor constraints, especially for truck drivers, have caused delays and inefficiencies in our operations as well as those of our customers. Even with these headwinds, we improved our aggregate cash gross profit per ton by 3% to $7.74. This was achieved through consistent execution of our four strategic disciplines, which helped to drive volume growth, higher pricing, and improve operating efficiencies. This strong performance and the momentum it provides sets us up well for 22, especially with respect to pricing. Total aggregate volume, including U.S. concrete, increased by 8% versus last year's quarter. On a same-store basis, volume was up 5%. This reflects continued improvement in demand across all end markets. The pricing environment in aggregates continues to be very positive across our footprint. Same-store prices were up 3.1% in the quarter, and mix-adjusted prices increased by 3.5%. We saw our early price increases gain traction, and as a result, year-over-year average selling prices improved sequentially each quarter this year. Although inflationary pressures can create short- to medium-term headwinds, the combination of inflation and improving visibility to demand has and will continue to create favorable environment for price increases. Operating efficiencies and disciplined cost control help to offset some of the higher input costs we experience. On a same-store basis, our aggregate unit cost of sales in the quarter increased by only 1.7% as compared to last year. Now, excluding the diesel effect, unit cost of sales actually decreased by 1%. While costs will be lumpy, We have delivered comparable results for the trailing 12-month period. This solid performance in aggregates helped to more than offset reduced profitability in non-aggregate segment. Our asphalt business was notably affected by both higher energy costs and wet weather. Quarterly gross profit in the segment fell from $30 million to $7 million. Higher liquid asphalt costs accounted for $16 million of this difference. We also experienced a rise in natural gas prices, which in turn impacted our plant production costs. Asphalt volume declined by 8% as volume growth in California was more than offset by lower Arizona volumes due to extremely wet weather. Average selling prices improved by almost 2% year-over-year and better than 2% sequentially, evidence that pricing actions are beginning to ease some of the illiquid asphalt inflation. I would expect continued price improvement as we pass along higher costs. In the concrete segment, gross profit increased by 18%, reflecting our ownership of U.S. concrete for one month. Same store volumes declined by 7% due to the completion of large projects in Virginia, and the availability of drivers to make up for any lost shipping days. For the quarter, same-store prices increased by 2%. Turning now to the demand picture. The story is relatively unchanged from the second quarter. Demand has improved across all of our major end markets as well as geographies. The residential end use has shown continued strength with solid starts in single-family housing, Multifamily starts have also performed well. With respect to the non-residential end market, improvement continues in a number of leading indicators we track. From its low point early this year, starts have consistently improved, returning to growth in recent months. The level of highway starts are up as states have moved back to more normal funding levels, with Vulcan markets outpacing other markets. We look forward to the enactment of the Bipartisan Infrastructure Bill and the significant impact on volumes for years to come. Now looking forward, I want to briefly touch on our growth strategy and give a very preliminary view of 2022. As we shared on past calls, we have three paths to growth. These three are organic growth, M&A, and greenfields. Ernie's growth in the underlying business as at the core of our growth strategy because it provides the most attractive and compelling value proposition on a risk-adjusted basis. The benefits of this focus are clear as we expand our industry-leading unit profitability, despite the macro challenges we may face from time to time. Next is M&A. We look for strategic opportunities that naturally complement our principal address business. Given our leading market position, we have visibility to all deals that come to the market. The key is for us to be disciplined as we consider which deals to pursue. All opportunities are not created equal, and we want to do the deals that create the most value over time. And as the final pillar to our growth strategy is the development of greenfield sites. There are times when an acquisition target is not available in a particular growth quarter. If that is the case, we turn to new greenfield sites, and we have a long, successful history of developing them. During this quarter, we completed the U.S. concrete acquisition, and we're excited about the strategic fit and how it naturally complements our principal aggregate business in California, Texas, and Virginia. and gives us access to new platforms in New York and New Jersey. Already, our teams are working together to identify strategic opportunities. As you would expect, we are taking a thoughtful approach to integration to ensure that we capture all available synergies. It's still early days on the integration. We intend to give you a more detailed briefing in February, but we're pleased with the wins we've seen so far. we are confident in our ability to generate at least $50 million of synergies on a 12-month run basis beginning mid-year next year, when most of the integration is complete. But more to come. Suzanne will cover some additional highlights of the quarter and share our latest financial view on how we expect to finish 2021. But before I turn the call over to her, I want to reiterate our confidence in our prospects for 2022. particularly with respect to pricing and our ability to control what we can control. The 2021 demand and inflationary environment sets us up well as we head into 2022. A key to our pricing strategy was starting early in the spring with announced price increases. In certain markets, we launched further increases. These increases are evident in our sequential quarterly pricing growth. Already, we are discussing 2022 pricing expectations with customers. Clearly, we need to see where those conversations lead. But at this stage, I would be surprised if next year's price increases are not at least 5%. The demand picture also looks good leading into 2022, although we are watching the labor situation closely. If labor constraints do continue, it's important to remember that the work is still there. it may just proceed at a slower pace, effectively extending the recovery and allowing us the opportunity to compound price, control costs, and still grow earnings. Now I'll turn the call over to Suzanne for further comments.