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.

Thanks, Tom, and good morning to everyone. We've covered the key financial and operational highlights already, so I'd like to speak to the following topics. First, Our balance sheet strength and capital allocation priorities. Second, our return on invested capital. And finally, our financial guidance for 2021. With respect to the balance sheet, we will continue to prioritize sensible leverage and financial flexibility in order to support our capital allocation strategy and maintain our investment grade rating. The structure of our debt is sound. with long maturities that make sense for our business. Due to our strong cash generation, we were able to reduce our net debt to EBITDA leverage ratio to 2.7 times following the U.S. concrete acquisition. This is just above our stated range of 2 to 2.5 times, and we will be focused on getting back within that range in the near term. Our capital allocation priorities remain unchanged, and the consistent application of those while maintaining a sensible leverage range has allowed us to improve our return on investment over the past three years. For Legacy Vulcan, the return was 14.7%, up 240 basis points from three years ago. With the inclusion of one month of U.S. concrete earnings, and a one-quarter impact of the acquisition on average invested capital, our return was 14.2%. We'll continue to focus on the sequential improvement of returns. The final topic I want to share this morning is our updated view on 2021 guidance. Our guidance incorporates U.S. Concrete's expected EBITDA contributions since acquisition, as well as recent trends in demand, price and costs. Our adjusted EBITDA guidance range for the full year is now $1.43 to $1.46 billion. This includes $50 to $60 million of EBITDA from the acquisition, but excludes $115 million gain on a land sale completed in the first quarter. I'm sure there will be a number of questions on business trends and the outlook in the Q&A section, so 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, including our newest team members from U.S. Concrete, for their hard work and their dedication to serving our customers. Our people are what makes Vulcan better every day. We have and will always operate Vulcan for the long term. This means a strong emphasis on keeping our people safe and continuously improving our already strong culture. Local execution is key to driving improvements in our business, particularly around our strategic disciplines. As we move forward, we will seek to maximize synergies with U.S. Concrete. As always, for Vulcan, we will maximize unit margin expansion through our four strategic disciplines. And remember, improving financial returns is of paramount importance. And now we'll be happy to take your questions.

At this time, if you would like to ask a question, please press star 1 on your touchtone phone. You may remove yourself from the queue at any time by pressing the pound key. And as a reminder, we do ask that you limit your participation to one question to allow others the opportunity to participate. We will take our first question from Stanley Elliott with Skifull.

Hey, good morning, everyone. Thank you all for taking the question. Tom, I wonder if I could start off talking a little bit more about the pricing expectations for 22. You know, very positive commentary about conversations and then the comments about at least 5%. Thanks so much.

Yeah, thanks, Stanley. As I look forward, I think this is one of the most important themes. As we've said over the past couple of quarters, the combination of visibility to growing demand, you couple that with inflationary pressures, this all bodes well for aggregate prices. And our teams recognized this early on and started trying to move price in Q2. And as we predicted, our third quarter price increases were 3.1, mixed adjusted 3.5, which was up sequentially from 2.6 in Q2 and 1.3 in Q1. And that sequential improvement is really important because it illustrates the improving pricing environment. So looking forward, I'd expect that trend to continue in Q4. And then looking past that, 2022, I think we'll see bigger jumps in pricing in January and in April as the 2022 fixed prices go into effect. So, as we said before, based on trends, backlogs, and customer conversations, I'd be very surprised if our 2022 price increases don't eclipse 5%.

That's very encouraging. Thanks, guys. Best of luck. Thank you.

We'll go next to Trey Grooms with Stevens, Inc.

Morning, Trey. Good morning. Thank you. And well done in the quarter, given the headwinds, especially on the unit profitability. Well done. Thanks. Tom and Suzanne, my question is looking into next year as well. You know, you mentioned solid fundamentals, positive demand trends. But you also noted labor constraints, which have obviously been a challenge for everyone. But kind of taking all those things into consideration, and as you look at the geographies and the end markets that you serve, could you dive in a little bit more around how you're thinking about the volume outlook for 22 and maybe some of the key drivers there? Thank you.

Yeah, let's look kind of present and then we'll look – or backwards into the quarter and then we'll look forward. So, you know, on the same sort of basis, the volume was up north of 5%, which was, you know, strong. The vast majority of our markets experienced volume growth, which speaks to the market's underlying growing demand and how broad-based it is. We'd have a little bit of weather in Alabama, parts of Texas, Arizona really got washed out, and a little bit of weather in Northern California – Now, this was more than offset with really strong shipments in the southeast and the eastern seaboard. As we look to 2022, 2022 may be the first year in well over a decade where we'll see growth in all four end uses. So it's just broad-based. Residential construction should continue to grow. Non-res, you know, it's very important because it continues to recover through the pandemic and moves into growth into 2022. Non-highway infrastructure, we think, grows following the big residential growth we've seen this year. And highway demand in 2022 will also see growth supported by improvements in state funding and some COVID relief funds. So, you know, all that's really good news for 2022. Demand, however, as we talked about, there are some headwinds. And you've got supply chain issues, labor shortages, and they're beginning to have some impact on shipments. Now, you know, those headwinds don't make demand go away. They only push it out and extend. So it really extends the cycle if that happens. So the fundamentals for volume growth in 2022 are in place with some headwinds. And while it's kind of early in our planning stages, under the conditions, I'd be surprised if we saw aggregate growth above 4%. At the same time, You know, that demand, if we did have those headwinds, the demand gets drawn out and extends the cycle. And, you know, with our ability to compound margins over time, that could be very helpful. So fundamentals really strong, some damping effect with supply chain and labor, but the underlying fundamentals are really good.

Understood. Thanks for the code there, and thanks for taking my question. Sure.

We'll go next to Garrix Morris with Loop Capital.

Hi, this is Jeff Stevenson on for Garrix.

Thanks for taking my questions.

Good morning.

Yeah, in the press release, you mentioned that concrete same-store sales volumes were negatively impacted by fewer larger projects. I'm just wondering if you could provide any more color on this. How does U.S. concrete look from a comp standpoint? Are they running the risk of fewer larger projects and less lumpy volumes? Any more color would be helpful.

Sure. The large projects we had finished up were in northern Virginia, really in the D.C. area, and it's just a little bit of a lull in our backlog. As we move into 2022, I think the underlying piece of concrete improvement was the non-res piece. We see non-GREs growing in 2022. That's very important for ReadyMix. The other thing I was encouraged with in the quarter on the same store basis and also with U.S. Concrete, you're starting to see unit margin expansion. And earlier in the year, both our concrete business and U.S. Concrete's concrete business got dinged from diesel and a combination of diesel and what I'd call traffic inefficiencies. Last year, you just didn't have any traffic on the road, so you were able to deliver concrete very effectively and efficiently. This year, not so much, and so it added some cost. While those were headwinds for 21, pricing at this point has jumped past that, has jumped past raw materials, and we're seeing margin growth. So as we move into 22 with the combined businesses, I would predict you will see volume growth really driven by non-residential construction growth, but also unit margin growth because prices have caught up and bypassed cost changes from 20 to 21. So, you know, I'm very encouraged for our outlook in 2022 in this product line.

Great. Thank you. Thank you.

We'll go next to Jerry Vish with Goldman Sachs.

Yes, hi. Good morning, everyone. Good morning. Good morning. Tom, I'm wondering if you'd be willing to expand on the M&A pipeline, you know, how significant is it in terms of number of opportunities or magnitude of opportunities? And is there a timeframe by which, you know, if we don't have meaningful M&A, you know, we'd be looking to step up stock buyback? How are you, Suzanne, and the board thinking about that?

Sure. So the pipeline, as you would expect, is a lot out there. It's not all created equal. And we'll be, as we always are, disciplined about our M&A opportunities. We'll be disciplined about the markets we want to be in, what synergies are unique to Vulcan. And then, you know, we have to be disciplined on the multiple or the amount you're willing to pay. And then once you get it, you know, integrated fast and accurately, You know, we got the question earlier, you know, do we have capacity? Yes. I wouldn't expect us to do some the size of U.S. concrete, but more traditional bolt-on size deals we'd be interested in or working on a number of them.

Terrific. Thanks. Thank you.

We'll go next to Anthony Pettinaria, Citigroup.

Good morning. Good morning. I'm just wondering how the margin profile of the U.S. concrete aggregates assets compares versus company average, as well as maybe same question on concrete. And then is there a possibility or timeline for normalizing that difference, if any, if you can just talk about margin profile?

Yeah, so if you look at their aggregate unit margins, they're very respectable. They're probably a quarter less than ours. And so comparable, I think that You know, they've done a good job with that. Their position in the markets are good. Their structure of their markets is good, and it's very attractive. While they've done a really good job with that, I think that our – and this is one of the important pieces of synergies. I think that our four strategic disciplines are very applicable to their business, to their aggregate business. We've already started on that. The teams have met, and, you know, that's working. So I think that as we work into 2022 – The same applies both from a pricing and a demand and a unit margin growth perspective looking to 2022. And we think that we can help them take steps just like they can in concrete. Moving to ReadyMix, I think that their operating disciplines and efficiencies are better than ours. They have some really impressive technology in Where's My Concrete? The teams have always started applying that to our ReadyMix operations. And so I think this is very helpful for both product lines. Their technology and disciplines help us. Ours helps theirs in aggregates. And so that was one of the strengths of the deal.

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

We'll go next to Courtney Yacobonis with Morgan Stanley.

Hi, thanks for the question, guys. If we could just maybe follow up on the comments on U.S. concrete. I think you have laid out a 50 million run rate synergies by mid-year next year with more detail to come in February. But can you just help us understand? Are you thinking about that being you know, primarily revenue-driven, you know, from additional aggregate sales, or is this more going to come from some of those operational cost-focused measures that you talked about? But just when we're thinking about integrating that in, you know, help us think about that if that's more on, you know, the top line or the cost.

Yeah, I think the short answer is all of the above. You know, you took them off pretty good. But remember, it's only been 70 days. That said, I'm very impressed with and how fast our line leaders are putting the businesses together. The teams in California, Texas, and Virginia were together before the end of the first week when we closed and have already made marked progress on market, sales, operating, procurement, strategies, and tactics, which will really pay off for us.

Yeah, I mean, it's still early days, as Tom said, and some of these synergies take time to develop and realize, but as we said in the prepared remarks, we are very confident in our ability to generate at least $50 million of synergies, and that is on the 12-month run rate basis beginning mid-year next year when most of the integration efforts will be complete. I think it's important to note that this $50 million that we're referring to are identifiable cost synergies and efficiency synergies. And again, I mean, we believe that there are more synergies, as Tom has talked about, and we're in the process of working on those.

Yeah, we'll be back in February with more details, but the symbiosis between the two companies, from my perspective, is appearing better than we originally thought. I'll give you some concrete examples. I had the opportunity... a couple or three weeks ago to sit down with the Combined Texas team and was really impressed and very pleased with their focused, creative, and insightful combination of business, combined business plans to leverage commercial opportunities so they can improve price and volume. And their detailed plans of improving their operational execution. And we're seeing the same thing with the California and Virginia teams So in all markets, stronger market presence, pricing, and logistics capabilities. And, you know, you've got a much better opportunity to leverage procurement opportunities. And as I said earlier, you know, we have the ability now to use our technology and theirs to improve performance. both the ready-mix concrete and the aggregate product lines for the two companies. So for me, it's just exciting to watch.

Great. Thank you.

Thank you.

We'll go next to Catherine Thompson with Thompson Research.

Hey, good morning. This is actually Brian Barros on for Catherine. Thank you for taking my question. Good morning. Sure. Morning. On aggregates, it seems you're still having good cost controls, at least on the cost you can manage yourself, so kind of ignoring diesel there. Could you just clarify the puts and takes for cost controls in the quarter around that? Thank you.

Yeah, I think this is one of the things in the quarter that I'm most proud of. It was an excellent performance by our operators. First and foremost, they kept their people safe. Cash cost was up 2.6% in the quarter Without diesel, it was down 1%. And so the increase was all diesel, partially offset with some efficiency savings. And year-to-date, so this is a trend, so year-to-date that cash cost was up only 1.2%, and without diesel, again, down 1%. This is a really strong performance because while diesel is the most dramatic change, All of our inputs are up. Like, you know, the steel is up almost 65%. And what that tells me is that our Vulcan way of operating strategic discipline is working. And our operators are making those efficiencies and those disciplines pay off. And so while this is hard to do, particularly in inflationary pressures, it's working. And as you've seen over the last two years with our performance, it's sticky. I mean, it's there. And that kind of cost performance allows us to capture price to maximize unit margin growth, which is, you know, our cash unit margin now is at $7.74 a ton. And if you look back... This is a compounded annual growth rate of 7% in unit margin growth over eight years, including diesel. So I would tell you I am very proud of my operators, and they and I both know they're not done.

Yeah, I just want to add one point of clarification on the unit cost of sales increase. On the same store basis, they were up 1.7% as compared to last year's third quarter growth. But excluding diesel, they decreased almost 1%. And those numbers are in the press release.

Thank you. Thank you.

We'll go next to Adam Thalheimer, Thompson Davis.

Hey, good morning, guys. Nice quarter. Thank you. Comment a little bit on the outlook for downstream margins. I'm sorry, I didn't hear you. Oh, can you comment a little bit on the outlook for downstream margins?

Yeah, so if you look at asphalt first, you know, we took a big hit this year with liquid. And, you know, it's kind of you're a little bit comparing the perfect storm because last year liquid prices plummeted and the margins went up. This year they spiked and it took a bite out of margins. As we said in the prepared remarks, 2022 should see strong demand from improved highway work. And asphalt prices are moving to catch liquid, and you saw that start to move in the quarter, but there is a lag. So we should see gross profit improvements in asphalt in 2022, but I would not expect them to get back to 2020 levels. And the reason why is you have that big decrease in liquid in 2022, but I would expect profitability in the product line to improve based on volume improvements and unit margin improvements because prices are going up to catch liquid costs. Moving to ready mix, I think 2022 is set up very nicely for the combined Vulcan U.S. concrete ready mix businesses. And, again, that non-residential demand turning to growth in 2022 is very healthy for concrete demand. Northern California saw some headwinds in 21. It's really a hangover from the pandemic. It was the most severe shelter in place. And the governmental offices shut down so nobody could get building permits. And that air pocket is what's hit us in 2021. We're past that. The permits are out there. Our backlogs are very good and growing. The same can be applied to New York, exactly the same thing. And in Texas, it was good and will continue to grow. But you couple all that with healthy price increases, which has now gotten into margin growth, I really look forward to the 2022 concrete business. Great.

Thank you, Tom. Thank you.

We'll go next to Keith Hughes with Chewist.

Thank you. Just a quick question on asphalt. You've highlighted some of the issues in the quarter. I guess my question is on pricing. It seems like it would have inflated more given the whole market. If you could talk about the path through an asphalt and any hindrances there and any details would be very helpful.

Yeah, it's just always a lag. I mean, when you have spikes in asphalt, you take a hit for a little bit of time until prices catch up. Again, like we saw in last year when it falls, the opposite happens, and you're able to put those margins in your pocket for a while. So, you know, liquid I think will settle down. With that, we'll be able to catch it with price. You sell that, go up $2 in the quarter, and it will continue to accelerate. But it just takes time to catch up. And I don't think we'll catch it all. from 20 to 2022, but 2022 will be improved.

Okay, thank you. Thank you.

We'll go next to David McGregor with Longbow Research.

Yes, good morning, everyone. Congrats on the good morning. Good morning. Yeah, good morning. I guess, you know, you've made repeated reference here to the same-store freight-adjusted unit cost of sales, excluding diesel being down 1%. I'm guessing most of that would be volume leverage. So just how should we think about the margin benefit of the improved legacy operating efficiencies and productivity achieved through the pandemic period? And do you expect to cover next year's cost inflation with pricing, or are you expecting productivity to play a more significant role in the 2022 margin progression story? Thank you.

I think as we look forward to 2022, obviously, you know, prices north of 5%. That's really good, and we'll definitely improve unit margins. Our goal every year is through efficiencies and disciplines to offset any kind of headwinds we have in price. Our operators have done a really good job with that this year. Obviously, we couldn't overcome diesel, but price did. I don't think that you see the big spikes like we had with cost in gas. diesel going forward so for sure price you will see margin growth in 2022 but it's going to be the combination of price and operating efficiencies because you just got to continue to improve those to offset it I would tell you if I looked at things like tons per man-hour or you know throughput through a plant or plant availability across our footprint particularly our top 50 plants which is the most of reduction It's not just volume that's covered up costs. It's also those efficiencies are improving, and that's just good, smart, hard work by our operators.

Thanks very much. Thank you.

We'll go next. This is Amanda Tannis with Wolf Research.

Hey, good morning, everyone.

Good morning.

Good morning. I wanted to just follow up on the Q4 guidance in particular, if we could. So if I take the midpoint of the new guidance versus the old guidance, it's effectively a $25 million increase, as I understood it. But you also talked about about a $50 million contribution, I think, from USCR. So if I understood that wrong, please clarify. But I wanted to just make sure I understood what's driving that change, what is happening in the fourth quarter with regard to maybe picking up some of that volume that you highlighted losing because of the weather. And if anything, you can share with us on the trend in October. That'd be great. Thanks.

Yeah, well, with respect to your question on the guidance, I mean, you're spot on. There was a $25 million net change midpoint to previous midpoint to current midpoint. If you just take the middle of the U.S. concrete guidance range we gave, that's 55. So that implies a you know, a $30 million reduction. Otherwise, and what you're seeing there is just the rollover of the energy costs, you know, the energy headwinds into the fourth quarter. That's our current expectation.

Anything on October you can share?

I mean, we typically don't comment on October, you know, on the call. I mean, it's pretty early days here, you know, in terms of closing, but, you know, I would, you know, I would say as we normally would at this point if we had anything, you know, materially different to say, you know, we'd say that in a press release or otherwise. So, really no commentary. Okay. Thanks, Ed.

Thank you.

We'll go next to Phil Nugg of Jefferies.

Hey, guys. Tom, the bottom actually alluded to limiting volume growth in 2022 to 4%. How much of that is tied to external dynamics versus how you're set up from a labor and production standpoint? And I guess bigger picture, do you see these issues getting cleared out by 2023, and do you see a more pronounced acceleration of volumes?

I think that way too early to call for 2023. I think it's not us. I think we've got the capacity and the firepower to produce a lot more than 4%. I think it's really ability for, number one, to get product to market through truck drivers and truckers. Second is our customers' ability to get more employees. And it's more to catch up as opposed to get work done. I think they can get work done. But the ability, if you have a week of rain and to catch that back up, now you don't have the crews to take out there for the next two weekends to do it because you're just working people too many hours. You just don't have enough people in the crews. And then the last thing is, particularly in res, you're seeing supply chain issues. windows or doorknobs or all kinds of different things that, and there's a whole, you can read about them, there's a whole list of them, but as you talk to the big residential customers, they're having supply chain issues. And you have to put that mix in there, and that hits non-res also. So I think that while the underlying demand structure is very good, as I said earlier, what's really important is it's widespread geographically, but it's also across all four end uses. And up until this year, up until 2022, we've always had one of those as a drag, and I don't think we do in 2022. So the fundamentals are there. I think you just have a little bit of a damping effect with labor and supply chain. But if that clears up, we could do better at this point with work to be done. And we'll come back in February with very clear guidance and the thought process behind that. But at this point, I would govern it to four. Okay, thank you. Four, I mean, I won't be over four. I don't, you know, we're not trying to give guidance at four at this point, but I don't think you'll get over four.

We'll go next to Josh Wilson, Raymond James.

Yes, thanks for taking my question.

Good morning.

Just a few clarifications on the modeling side. When you first announced the U.S. concrete acquisition, you expected it to add $190 million in EBIT prior to synergies, has there been any revision to what the baseline is given recent trends?

Well, you know, when we talked about that, we were basing that really on trailing 12 months through the end of March. And I would say that, you know, since that time, you know, U.S. Concrete has experienced some of these same energy headwinds that, you know, we've experienced and others in the industry have experienced. Yeah, we'll see where that leads. We've given, you know, we've given you guidance for the period of time, you know, since we've owned them through the end of the year. And, you know, we'll comment further on what we expect them to contribute in February.

Yeah, I think that, you know, they experienced the headwinds we talked about with the, you know, recover from the pandemic in Northern California and New York. Obviously, they had the inefficiency cost headwinds with traffic getting back on the road, and the energy cost, as Suzanne mentioned. As I said earlier, I think the market and demand headwinds are behind us. The permitting is strong. The backlogs are strong. Work is happening in the two coastal markets that we had concerns about in 21. And really importantly, at this point, price has moved past $1. cost and showing growth in unit margin. And obviously, like the rest of the construction material sector, they'll have price increases, you know, in all these markets will have price increases in ready mix, you know, between January and April. So I think 22 sets up really well for the concrete business on the agri piece of it, much like ours. The same comments we said about 2022, with price and volume and cost would apply to the previous U.S. concrete aggregates businesses. Thanks so much.

Thank you.

We'll go next to Brent Thoman with DA Davidson.

Hey, great. Thank you. Hey, Tom, I know it's been a short period of time since ownership of USCR, but any change to your sort of collective go-to-market or overall strategy in the markets that you already overlap the business? I'm thinking particularly California, and if it is too early, maybe you could just talk about what gets you excited about controlling the upstream capacity and, frankly, the downstream capacity you now have in that region, because that all seems pretty attractive. Yeah.

Yeah, it fits very well. It's a little too early to call into detail, and we'd like to do that in February, and we'll do that in February. But I think what, as I said earlier, what really gets me excited is those teams in California, Texas, and Virginia were together within days of the closing. They knew each other well. They were big customer buyers, so they had relationships. and they had their strategies and their tactics to improve volume, price, and leverage operating efficiencies and share information and assets and equipment. They had them together before we could go back and review them, and we're executing. So it's happened really fast. More to come. We'll put a lot of detail on that, but I am very pleased with what those combined line managers have done already put in place and how quickly and smoothly that's gone. I think the commonality, the cultures being so much like each other and our previous relationship has helped this, and I think I underestimated the speed at which that would impact the line businesses. So, you know, congrats to them and great work.

Thank you.

We'll go next to Michael Dudas with Vertical Research.

Good morning, gentlemen. Suzanne?

Good morning.

Good morning. When you're looking at your, I know you have your CapEx budget for this year, but just as a preliminary thought for 22, talking about your maintenance and your growth side, how does it look just preliminarily? And looking at the USC assets, the capitalization of those assets, do they need to be caught up? Is there any special opportunities that you're seeing early on there. And I'm assuming you're probably going to budget a little bit more for inflationary contractor issues that probably haven't seen in the last several years. Thank you.

Yeah, you're right. I mean, clearly the prices of everything, you know, is going up across the board. And, you know, we also, you know, there as well have some, you know, supply chain issues to manage. But, you know, I'll just touch on this year first and then comment on next year. You know, you'll note we kept our CAPEX guidance for 2021 the same. And that's really, you know, as a result of reviewing U.S. concrete's needs for the period of ownership, we were able to fold that within the guidance range that we had. So really no big issues there. You know, as we look forward to next year, You know, typically we will spend somewhere between, you know, $450 million, $475 million, give or take. I wouldn't expect that to be vastly different. You know, we're obviously still in the early days and, you know, in terms of putting together the two capital plans and the two budgets and having a really good look at that. But I haven't seen anything so far that makes... me or us believe that we need to significantly pick up that CapEx guide.

Excellent. Thank you, Suzanne.

That concludes the Q&A portion of today's call. I will now turn the call over to Tom for closing remarks.

Thank you for your interest in Vulcan. We look forward to talking to you throughout the quarter. Obviously, we're looking forward to 2022. In the meantime, please stay safe and healthy and keep your family safe and healthy. Thank you.

Thanks. This does conclude today's program. Thank you for your participation. You may disconnect at any time.