Vulcan Materials Company

Good morning, ladies and gentlemen, and welcome to Vulcan Materials Company's fourth quarter earnings call. My name is Catherine, 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.

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. 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 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. As you will have seen from the press release this morning, Suzanne has decided to retire in September to spend some well-deserved time with her family. I'll have more to say on this at the conclusion of our prepared remarks. Now let's move to our fourth quarter performance, and Suzanne will cover the full year performance later on. I want to thank our team for its strong execution during the fourth quarter. Our financial results were ahead of expectations despite ongoing challenges from inflationary pressures, particularly in energy and labor constraints. Focusing on our operating disciplines, and proactive pricing actions, we once again saw expansion in our industry-leading unit profitability. At the same time, we made excellent progress on integrating U.S. concrete into our business. This overall strong finish to the year allows us to carry considerable momentum into 2022. We generated $383 million of adjusted EBITDA this quarter an increase of 23% over 2021. Energy-related inflation was the most significant impact to our business with $36 million worth of higher costs, of which $17 million related to diesel fuel, while the remainder related to liquid asphalt and natural gas. Labor pressures caused higher labor costs due to overtime. In the face of these challenges, we were still able to manage our controllable costs well. Aggregate's cash unit cost of sales increased less than 1% as compared to the prior year's fourth quarter. This was an excellent operating performance, and I'd like to thank all of our operators and congratulate them on a job well done in 2021, and all the while delivering a world-class SAGE performance. Our operating performance helped us improve aggregate cash gross profit per ton by 6% to $7.41. This result includes an $8 million acquisition-related impact for selling acquired material after its markup to fair value. Importantly, this progress on cash unit margin expansion represents the 14th consecutive quarter of improvements. We achieved this by consistently executing on our four strategic disciplines, which helped to drive volume growth, higher pricing, and improved operating efficiencies. These strategic disciplines will help us take advantage of the favorable demand and pricing environment in 2022. Total aggregate volume, including U.S. concrete, increased by 13% versus last year's quarter. On a same-store basis, volume was up 7%. This reflects not only continued improvement in demand across all intermarkets, but also favorable weather in November and December. The aggregate pricing environment continues to strengthen across our footprint. Same-store prices were up 3.7% in the quarter as compared to the prior year, and mixed adjusted prices increased by 4.2%. Year over year, mixed adjusted pricing sequentially improved throughout the year, having started at 1.3% in the first quarter. The pricing actions taken to date, along with better demand visibility, set the stage for a favorable pricing environment in 2022. Asphalt gross profit was $4 million in the quarter compared to $17 million last year as a 35% increase in liquid asphalt costs created a $17 million headwind for us. As we discussed before, liquid asphalt costs were at three-year lows in 2020, and the significant fluctuation of these costs have made for a more difficult comp year over year. The good news is that our selling price for asphalt mix increased 5% from the prior year quarter. Through 2022, as pricing catches up, we will work to get back to asphalt segments long-term averages in terms of margins. Concrete's gross profit grew from $9 million to $22 million in the fourth quarter. This increase was due to the acquisition combined with higher shipments and price growth in our legacy business. Results were negatively impacted by higher diesel prices and the availability of drivers. Before we move on to the overall demand environment, I'll comment briefly on U.S. Concrete. We continue to be excited about this acquisition and how it expands our footprint. It naturally complements our existing aggregate business in California, Texas, and Virginia, and gives us access to new platforms in the Northeast. We moved immediately following the acquisition to begin securing cost savings and synergy opportunities. As I mentioned previously, the integration is going well, and our progress accelerated during the fourth quarter from both operational and back office standpoints. I am pleased with how the business and management teams have blended seamlessly during the first four months of ownership. We remain confident in our ability to generate at least $50 million of initial cost synergies on a 12-month run basis beginning mid-year. Now I'll touch briefly on the demand picture, which is increasingly positive. The key takeaway is that for the first time in many years, all four end uses are expected to grow. The residential end use has continued to show growth in starts in both single-family and multi-family housing, and we expect starts to continue at these high levels. Non-residential starts continue to strengthen over a broader range of categories. Improving non-residential demand will be positive and help drive growth in our aggregates and our concrete businesses. On the public side, growth is expected in both highways and other infrastructure. The recently enacted Infrastructure Investment and Jobs Act will add to existing demand as well as elongating the cycle. Having said that, we do not expect it to have a significant impact in 2022. We are well-positioned in the attractive growth markets we serve, and those markets are poised to benefit greatly from the legislation in coming years. Before I turn the call over to Suzanne, I want to reiterate our confidence and our prospects for 2022, particularly with respect to demand visibility, pricing, and our ability to control what we can control. We will be mindful of potential pressures from both inflationary trends and tight labor markets. We will continue to focus on our operating excellence and our strategic sourcing disciplines to help offset some of these pressures. Now, I'll turn the call over to Suzanne for further comments. Suzanne?

Thanks, Tom, and good morning to everyone. While we faced some challenges in 2021, it was a year of significant accomplishments, including the completion of our acquisition. Our most notable financial achievements were the growth in our unit profitability and adjusted EBITDA. Full-year aggregates cash growth profit per ton rose by 5%, while adjusted EBITDA increased by 10%. The ability to generate numbers like this while incurring $93 million of higher energy-related costs across the segment demonstrates the strength, flexibility, and resiliency of our aggregates-focused business model. It also points to the contributions of our four strategic disciplines, which help us make the most of any economic environment. Aggregates prices increased by 3% as compared to the prior year, and we held our cash unit cost growth to less than 2% through efficiency improvements and general cost controls. This allowed us to offset inflationary pressures and improve our unit profitability. With respect to the balance sheet, we quickly reduced our net leverage to the top end of our target range. ending the year at two and a half times. Given our ability to generate strong cash flows, there is capacity and liquidity to invest in other opportunities, whether organic or inorganic, but as always, we will be disciplined in doing so. Certainly, we'll continue to prioritize sensible leverage and financial flexibility in order to support our capital allocation priorities and maintain our investment-grade ratings. Our debt structure is sound with long maturities that make sense for our business. Our capital allocation priorities remain unchanged and have led to an improving return on investment profile. On a trailing 12-month basis, our ROIC was 14.2%. While investing in growth, and overcoming inflation and a pandemic, we have improved our ROIC by 160 basis points over the past three years. Now, turning to our outlook, let me make a few comments before turning the call back over to Tom. Following a strong performance in 2021, we expect 2022 to be another good year of earnings growth in terms of our guidance, It incorporates the full year contribution of U.S. concrete. Given the level of integration and change going on in our business, we are providing guidance on a consolidated basis. We expect adjusted EBITDA of between $1.72 and $1.82 billion. The midpoint of this range represents a 22% increase over 2021. We've outlined the more detailed guidance in the press release, but let me touch on a couple of key items. First, we project a high single-digit growth in our aggregates cash gross profit per ton, driven by an expected 6% to 8% increase in aggregates pricing and 5% to 7% increase in shipping volume. As mentioned on the third quarter call, volumes may be affected by labor constraints, and therefore we've tried to be thoughtful about the volume guidance range. If labor constraints continue in 2022, 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 our unit margins. With respect to costs, they're expected to rise by mid single digits but we will do all we can to control what we can control. In non-aggregates, we anticipate cash gross profit of $300 to $325 million, with approximately 75% of that coming from concrete. Most of the improvement will be driven by a full year of earnings from the acquisition of U.S. Concrete but also from improvement in our asphalt and legacy concrete businesses. SAG expenses will range from 485 to $495 million, reflecting the inclusion of U.S. concrete and anticipated synergies as described on our last call. And finally, we expect to invest between 600 and $650 million in capital expenditures including growth and capacity adding projects. This compares to $465 million invested in 2021 and includes a full year of expenditures for U.S. concrete. I'll turn the call back over to Tom now for closing remarks.

Thank you, Suzanne. Before we go to Q&A, I want to comment on a supply chain issue. For 30 years, Vulcan Materials has quarried limestone near Playa de Calma, Mexico, on the land that we own. We are extremely proud of our history as a good corporate citizen, and I am particularly proud of the 450 operators at that facility. They operate safely and have contributed thousands of hours in service to the surrounding communities and the environment. Since late 2018, we have been engaged in a NAFTA arbitration with Mexico in order to secure our rights to quarry future reserves. A hearing took place in 2021, and we expect a ruling in the second half of 2022. We have continued to engage with government officials to pursue an amiable resolution of that dispute. However, recently, Mexico has taken additional actions that adversely affected our operations in Mexico. We are focused on taking care of our customers affected by these actions, and we will continue to work with the Mexican authorities to reach a mutually agreeable and beneficial solution. Now, looking at Vulcan in total. I want to again thank the entire Vulcan team for their hard work and dedication to servicing our customers. Our people are what makes Vulcan better every day. We have and will always operate Vulcan for the long term. This includes keeping our people safe and improving on our already world-class safety records. The three key elements of our near-term strategy that will deliver value for our shareholders are the following. One, execute at a local level. Two, drive unit margin expansion by focusing on our four strategic disciplines. And three, maximize synergies with U.S. Concrete. I'm looking forward to working with our teams this year to accomplish our goals. Before I close, let me comment on the leadership changes I mentioned at the beginning of my comments. Effective March 1, Darren Hicks will serve as our Chief Human Resources Officer. Our culture and our people are key to our success, and Darren brings a wealth of experience to the new role. We are confident he is the right person to continue to help drive Vulcan forward into the future. And of course, as I said, Suzanne is planning to retire later this year. Mary Andrews Carlisle will be replacing Suzanne effective September 1st. She is the ideal person to step into Suzanne's shoes, having worked closely with both Suzanne and me in the planning and execution of our strategy for a number of years now. Although we hate to see Suzanne go, we fully support her decision. And we are grateful for her commitment to ensure a smooth transition. And now, Suzanne and I will be happy to take your questions.

If you would like to ask a question, please press star and one on your touchtone phone. Again, that is star and one if you would like to ask a question. You can remove yourself from the queue at any time by pressing the pound key. We'll go first to Noah Mercusco with Stevens. Your line is open.

Good morning, and congrats on a nice finish to the year.

Thank you.

So, Tom and Suzanne, thanks for all that detail on the guide. Could you talk about how you're thinking about the puts and takes around the cadence of how this year is expected to unfold in 22?

Sure. I think as we look at 22, it's important we look back because it sets the tone. You know, as it goes to 21, I'm really proud of our people's performance really over the last two years. You think about despite a pandemic, labor shortages, inflation, we were able to grow unit margins mid-single digit over the last two years, and that just tells me our strategic disciplines are working. Our teams turned in EBITDA growth of 10%. The last year, despite $93 million in extra energy costs, this is just a job well done. And if you look forward to 2022, it's shaping up to be a really exciting year. You've got all four end uses should experience growth. So the fundamentals for demand growth are really good, albeit there will be some headwinds from labor, supply chain issues. So if the supply chain issues and labor ease up, you've probably got some upside on volume. But we try to be thoughtful there, so we've got to see that happen first. Pricing momentum. built through the year in 21, and we've carried that momentum into 22. I think we'll see continued disciplined cost control, like we saw last year, even in the face of inflation. And that discipline allows us to grow aggregate unit margins by a high single digit in 22. And so we'll see, on top of that, I think we'll see both volume and unit margin growth in concrete and asphalt as we march through 22. Now, remember, the fourth quarter is going to have some challenges. You still got the same energy comps you saw in Q3 and Q4 of last year. We probably will have a challenge of energy of some $35 million. Weather was challenging in January and February. You had some COVID spikes that affected crews and labor in January. But I think we quickly get past that and have a really strong and exciting 22.

The next question comes from Stanley Elliott with Stiefel. Your line is open.

Hey, good morning, everyone. Thank you all for taking the question. And Suzanne, best of luck. I know we still have plenty of time to hear you on these calls. But can you talk a little bit more about the confidence that you're seeing on the residential market? I mean, some of those The mortgage rate, some of those sorts of numbers seem to be maybe not quite as positive as we've seen. But on the flip side, certainly I think there's an argument there's a lot of markets that are structurally underbuilt in part of your footprint. But curious what sort of conversations you're hearing and having with some of these builders on longer-term land issues and things like that that would give us a little more confidence, even beyond 22%.

Yeah, good morning, first of all. And I would tell you, I think, Rez, we see strong growth in 22. I think it's very widespread across almost all of our markets, maybe some weakness in Chicago, Baltimore. You've got new subdivision construction continuing, so it's very aggregate intensive, which is great for us. Now, I would tell you it's going to be a bit slower growth. it wrote a bit slower rate than what we saw in 21, which was, as we all know, was white hot. And as you called out, that's due to supply constraints, inflation, and interest rates in land. So, you know, all in all, a good study. Now, if it, you know, just stepping back and look at interest rates, you know, Freddie Mac rate for 30 years at 3.7, that's still an extremely low rate. So, While not as fast as 21, it will see growth.

The next question comes from Catherine Thompson with Thompson Research. Your line is open.

Hi. Thanks for taking my questions today. And, Suzanne, best of luck with your new chapter. Thank you. For guidance for 22, I just want to look backwards in order to look forwards just for some clarifications, especially with USCR in the mix. First, on the concrete side, some puts and takes on the concrete business and how New York and California ops were impacted by Omicron shutdowns and what does that mean going to 22. And then on the aggregate side, once again, with guidance, bridging the delta between same-store sales volumes versus those contributed by USCR and Q4 and frame how that delta should be accounted for in 22 guidance. Thank you.

Yeah, thank you. Let's start with aggregates. And as we look back, you know, we finished last year really strong. Q3 was up 8%, 5% on same-store aggregates. Q4 was up 13%, 7% on the same story. But you've got to really look at those quarters to understand that. Remember, Q3 comp was comping over 2020 where we had the most severe shelter in place, so it was a pretty easy comp. And then in Q4, we saw unseasonably good weather in November and December. Now, when you turn to 22, as we said, the good news is the fundamentals are there. We're seeing growth in all four end uses. But you've got – that's dampened by challenges from supply chain and labor and for our customers and particularly for our carriers. Transportation may be a challenge. It's probably going to be a challenge in 22. So the guy in the volume is growth of five to seven. You know, same store is really hard to call out because those businesses are now so integrated. So there's a lot of mixing and matching, but if I had to call that out, I'd call it two to four range. We try to be thoughtful about that guidance because of all of the challenges we're seeing from labor and supply constraints. But if the supply chain and labor ease up, we've probably got upside volume in arrogance. On concrete, if you remember, volumes were challenged in concrete in 2021 due to, in California and New York, because they were the most severe shelter in place. And the government offices just shut down, so we got to the point where we couldn't get, our customers couldn't get building permits. I think that as you look forward, and then we had challenges with diesel and efficiencies because traffic came back in. But I really like how 22 is shaping up for concrete. Volume should be much improved. You know, we've passed the air pocket of shelter-in-place in Northern California and New York. Now, remember, you've got non-residential demand segment has turned to growth in 2022. That's a big impact on concrete. DFW continues to be very good. So we'll see volume growth in 2022, but we'll also start to see margin expansion as prices have moved past headwinds. You couple all this with our California, Texas, and Virginia, the Vulcan, and USC businesses, our function is one. I think concrete will be a much improved business in 22.

The next question comes from Jerry Revich with Goldman Sachs. Your line is open.

Yes, good morning, everyone, and Suzanne, congratulations. Thank you. I'm wondering if we could just expand on the situation in Mexico. Sorry to hear you have to go through that after all the years of safe operations there. Can you talk about what the contingency plans are for serving customers? Is it via rail from the Georgia area? Obviously, that comes at a higher cost, so I'm wondering are we able to push through the higher cost in real time as we face this disruption? Thanks.

Yeah, first of all, we're not having to do that. I think let's step back and look at Mexico. It's important to note that we have all the legal rights to operate in Mexico. We have all the appropriate permits in place. We're in negotiations to come to a resolution that benefits all the parties of interest. Mexico is interested in our properties for tourism, which we believe will coexist with our existing operations. In fact, we think that continue to operate there will ultimately benefit the overall volume for tourism. And we believe this will happen. So, you know, if you kind of put it in perspective, we shipped a little over 7 million tons to the U.S. from Mexico in 2021. Those tons are in our guidance, and we continue shipping from our yards, and we're now back shipping from Mexico to the U.S. So, look, this thing will work out. We'll be fine if, you know, you could supplement some by rail, but at this point we're shipping and we're servicing our customers. I think if you really step back in the big picture for all of this stuff, and the opportunity in 22 is a big opportunity we're talking about in volume and price. And so overall, it's shaping up to be a very good year. And we'll get our situation in Mexico.

We'll go now to Anthony Paginari with Citibank. Your line is open.

Good morning.

Good morning.

And congratulations to Suzanne on the next chapter. Thank you. Tom, I was just wondering, in terms of... infrastructure spending. If you could remind us the kind of the timing that you expect for that demand to flow through in 22 and maybe more in 23. And then in terms of the appropriations bill, which seems like it's been stalled, is the delay there, does it have the potential to meaningfully impact the timing of that infrastructure spending and when you would see that through aggregate sales? Just any thoughts on that?

Yeah, I think first of all, to highway demand in 22, we'll see growth there. I think it will flow through and probably ramp up as the year goes along. States are flush with capital as tax receipts are up across the board. And remember, those states still have COVID relief funds. And now that money is accelerating in lettings and bid works. So 22 demand is should grow throughout the year sequentially. We don't think we'll see any of the IIJA funds in 2022, maybe a little bit at the end of the year, but it's really a 23-24 play. So let's step back and look at how IIJA flows. Money flows two ways through this. First, funds which flow through regular federal programs prior to IIJA Things like the FAST Act are fully available to states past appropriations, once we get appropriations. Second, funds or new discretionary programs will flow later because you have to write in the active programs. This is why we say that the new funding, the additional funding, will take time to flow through. which is why we predict we'll start to hit in 23-24. But I think it's important to remember 76% of IIJA funds will be distributed to states via formula. So two-thirds of those formula funds will go into Vulcan states. This is a big deal and a big advantage to Vulcan-served states.

The next question comes from Garrett Chamois with Loop Capital. Your line is open.

Oh, hi. Thank you. On the pricing guidance, obviously it seems like the increases here at the beginning of the year and throughout the first quarter are being well accepted. But if you could provide any color on how those discussions are going and does the guidance at all rely on additional pricing beyond what you've already announced? And, you know, of course, let me throw my congratulations to Suzanne there as well.

Thank you, Garrick.

Yeah, well, pricing, I think, is a really good story from the beginning of last year. You know, we built a lot of momentum, as we talked about, in 21, and we carried that into 22. You know, we say it all the time, inflation and visibility to growing demand are excellent catalysts for price increases. And, you know, you saw us, our guide to 6% to 8% price range, We have a lot of confidence in that. It's very widespread. It's through all markets. Now, included in that, we don't have second-half price increases. They're not in our guidance. They are possible. There are some upside. It's way too early to call that. We'll start having discussions here in the next few months about that. And I think we'll have a lot better feel for that as we get into the second quarter. At this point, you know, six days is great. The world goes along. The demand continues to improve. There will be opportunity for pricing, but I think we're confident in the midpoint of seven or the range of six to eight going into this, and that leads us to high single-digit unit margin growth with our operating abilities, and we think that's a strong showing for 22.

The next question comes from Michael Fenner with Bank of America. Your line is open.

Hey, everyone. Thanks for taking my questions. I recommend that 2022, you're still contending with these inflationary costs. I think you said you're embedding mid-single digits. I'm just curious if that is picking in where diesel and liquid asphalt are today or any relief there. And then when we think of 2023, is there any chance that we see some relief that incrementals on the aggregate side could be And that's 60% target range. Thank you.

Let's take a little most first. I mean, we were very close to just below 60 and 21. I think we'll be around, you know, we will guide you to 60 and 22, which is kind of where we always guide you. I think that doing that in a period where you've got as big of jumps in diesel costs is a heck of an operating performance. And I'm proud of that performance in 21 and confident we'll be able to do it in 22 to get to the target of 60 on incrementals. As you look at the operating side of the business and cost, I would tell you I could not be more proud of our Vulcan operators and their performance in 20 and 21 and going into 22. As always, they made sure that our people were healthy and safe. Then let's look at it. They just crushed rock like champs. And just step back and think. Our total cost of sales was only up 1.5% last year, with diesel up over $40 million. And that's with all goods and services were dramatically up. Labor was up. And that's our operations strategic discipline at work. And I'm proud of those guys, those men and women. We're carrying that momentum into 22. You know, we're calling out maybe a little higher cost increases with mid-single digit, really driven by, as you called out, fuel. But you also got labor and you got inflation, just everything we use. But, you know, that still leads us to high single digit unit margins. And in a period of inflation like we got, that is a very good performance for And, you know, that's what Vulcan is built for. That's what we talk about all the time. This is who we are. We're built to dampen headwinds, like you see, and take advantage of tailwinds with the extra volume and price. And, you know, we did it in 20. We did it in 21. I have all the conferences in the world. Our men and women will be able to do it in 22.

We'll go now to Mike Dahl with RBC Capital Markets. Your line is open.

This is actually from Mike. Thanks for taking my question. I was hoping to ask about kind of your thoughts on the supply chain outlook this year. Obviously, it has implications on volumes and pricing. So, I was wondering, you mentioned potential upside, if things start to improve. In any sense, any way you could help quantify the potential upside there and to the extent Conditions don't improve. What upside is there on the pricing as an offset? Just your thoughts on how that evolves through the year.

Yeah, you know, it is for us, and I'll take our operations, then our customers, I'll take our procurement folks, and I'll call them out. They did a great job. We've had very few internally. Now, getting ROC to customers was a challenge in 21. It'll be a challenge in 22, and that is from both rail and truck. That is labor. And, you know, it is challenging. The railroads are all having trouble. I think they say they're going to improve. I believe them. I think it will get better, but it's still a challenge. And then you just look at projects out there, and you talk to our customers, and it's everything from switchgear to, you know, some types of pipe, to doorknobs, to windows, to plumbing parts. So it's just so widespread, and I think it's too early to call anything better than what we've seen in our guidance. I think in our guidance, we were thoughtful. Again, if things start to ease up, I think you've got opportunity there. As we look at price, I would call our cadence of price last year was a pretty sharp curve. I think that curve won't be as sharp as it is this year. I think you'll see more consistent pricing throughout the year in that six to eight range, kind of starting in the first quarter and working all the way through. Again, if we have opportunities for second-half prices and it's too early to call, maybe that curve gets a little steeper or that slope gets a little steeper. We'll keep plugging at that, and we'll keep you posted.

The next question comes from Phil Noe with Jefferies. Your line is open.

Hey, guys. Suzanne, thanks for all the help through the years. And Mary, congrats. I'm looking forward to working with you. Thanks. Tom, I guess you kind of alluded to mid-year price increases a few times on this call. I believe one of your bigger competitors have actually some commentary in their pricing letters for the first time that, hey, signaling to their customers that you should probably expect one this year. So how have you guys kind of approached that? Have you started signaling to your customers on potentially a mid-year price increase for aggregates? And any color on the pricing momentum you're seeing in California, how does that kind of stack up to, I think, the 5% to 8% you guided?

I think that at this point, I think you guide to the 6% to 8%. I think we know this is February. This is the middle of February. We're just starting to have conversations with fixed plant about mid-year. It's really early in the process. Same thing with bid work. Way too early to call. I think I'm confident in the six to eight, but we'll see what happens. I would tell you that pricing in California is consistent with the rest of our model. There's opportunity there. And, you know, our customers know the inflationary pressures we have. and they have them also, and they're also looking at moving their pricing. So the whole sector is going up. Again, that visibility to growing demand gives people the confidence to take a risk on price, and then you've got the inflationary pressures. It's just a little easier conversation. But I think while we're beginning to have conversations about second-hand pricing, and there may be opportunity there, it's way too early to call.

We'll go now to Adam Thalheimer with Thompson Davis. Your line is open.

Hey, good morning, guys. Congrats on the strong Q4. Hey, on the asphalt side, Tom, real quickly, can you comment on the outlook for volumes in California and Arizona this year?

Yeah, good. Both of them improved. You know, Arizona got hit last year, and it was a problem for us with volume in 21. and it was really timing on projects, and it was supply chain. Our customers got held up with, I think, some big piping and other parts for utilities that just held up projects. But I would tell you both have opportunity for improved volume, and I think that like the rest of the product line, as we march through the year sequentially and prices go up, After we get in the second half, we'll see margin growth. Now, the first half is going to be a challenge because you've probably got a big negative comp and liquid AC of about $15 million in Q1. But we'll get past that. And as we saw, prices go up in Q4, 5%. They're moving up. And as we always do, that's a delay there. It's transient, and we'll catch it.

We'll go now to Michael Dudas with Vertical Research. Your line is open.

Good morning, Mark, Tom. Congrats, Suzanne, and a shout-out to Mary and Darren as well.

Yeah, thank you.

Thank you. Tom, you mentioned in your prepared remarks that you're seeing some growth in non-res. Maybe share some views on is light starting to catch up to the visibility on heavy equipment? And is that something that can continue to gain strength throughout the year given the supply chain issues? Is there any difference in supply chain issues on non-res?

Yeah, a little bit. But, you know, non-res the last couple of years has been pretty volatile. We spent 2020 falling. We spent 2021 recovering, and we'll see growth in 2022. Heavy non-res, still strong in 2022. I think we're seeing growth in traditional non-res, which, as we predicted, is following subdivision growth, and that's coming on. That will come on in 22. And we're starting to see green shoots in high-rise projects. And, you know, importantly, remember, non-res is very important and very good for our concrete business, so our timing is good with that, with the purchase of U.S. concrete. It's a sector we're excited about. They, too, have supply chain issues. Yes, they're different from RIS. I think they're probably a little less challenged, but it's a volatile situation, and we'll have to watch it as we go through the year.

The next question comes from David McGregor with Longbow Research. Your line is open.

Yes. Good morning, everyone. Good morning. And Suzanne, good luck with what comes next. Yeah, good morning. Yeah, thank you. I guess I wanted to, Tom, you had talked about the fact that you don't expect the IIJA business to really come through meaningfully, at least until 2023. In the meantime, in 2022, you've got all four of your main verticals firing here, and it's creating a 6% to 8% price environment. What happens if those four verticals remain strong into 2023, and then you layer in on top of that the incremental business associated with the IIJA, What gives? I mean, how do you find market equilibrium here? Do prices just go parabolic, or do you bring on incremental channel capacity? I realize you probably have rock-crushing capacity, but it would be more the channel capacity, I guess. But how do I think about how that resolves into 2023?

You know, I think what you see is continuing compounding unit margins. I think that, you know, what we said was that the IIJA gives us a lot more security of extending the cycle, so that if you were to have an air pocket in the private side, you cover it up with IIJA. But I think we stick to our disciplines, and that's why those four strategic disciplines are so important, that you continue to service your customer and earn that price. Through the commercial efforts, we take that price and that opportunity To the bottom line, by continuing our operations disciplines and our cost control and our operating efficiencies, you use the procurement to make sure we get the goods and services we need to keep those operations running in times of supply chain and labor challenges. And then there's logistics. It's tough to get logistics. It's so important these days because there's just a shortage of labor in both rail and truck, and us being efficient of that is really important to maximize labor. profitability. But you're right. It bodes well if we believe the private side will continue. It bodes really well if that happens. But even if there's a little slippage or something happens that would challenge that, I think the magnitude of this extends the cycle and continue us growing our margins.

The next question comes from Courtney Iacovonis with Morgan Stanley. Your line is open. Hi, good morning, guys, and congrats, Suzanne.

Thank you, Courtney. I just wanted to follow up on some of the discussion about the Infrastructure Investment and Jobs Act. So I think you had mentioned, you know, you think it might take a little bit longer to hit in 23 and 24. You know, at this point, are you thinking it's a relatively even impact between the two years? Do you see it more weighted to 23 and then just, you know, incremental follow-through in 24, or is it the other way around? And then You know, how are you thinking about it from a volume perspective versus a pricing perspective? Do you have more confidence that we'll see a significant increase in volumes, or do you anticipate more of it coming through on the pricing side? And, you know, I think someone had asked earlier about, you know, hyperbolic pricing, but, you know, are we setting up for a situation where we could have, you know, two to three years of, you know, sustained double-digit pricing growth?

Yeah, so from a volume perspective and the cadence of the new funding, what we're saying is, and this is where I talked about the second new discretionary programs, they take time to flow through because you have to write regulations and act programs, and that just takes time. That's the reason we say, look, we'll have growth in 22 from states' increase in funding. The new federal increase in funding will start to flow through in 23 as they enact those programs. And then they get to lettings, and then they put the jobs to work, and we ship rock. And I would expect a ramp-up through 20, maybe a little bit this year, probably doubtful, but you'll start to see a ramp-up in demand as we march through 23, 24, and 25 as those programs mature and those funds flow to work. Now, with that, you've got... Embedded in that is you've got very – you'll have very clear visibility via state DOTs to work that's coming, and that's growing demand. And that visibility to growing demand gives everyone confidence to take risk on jobs and take risk on price. So it'll be good for both volume and price, but I would expect from volume a gradual ramp-up, you know, 23, 24, 25, and pricing to follow.

This does conclude our question and answer session. I would now like to turn the call back over to Tom Hill for any closing remarks.

Thank you, guys, for your time today. As always, we appreciate your interest in Vulcan. We hope that you keep you and your families safe and happy. Suzanne and Mary Andrews and Mark and I will be out to see you in the coming days and weeks. You guys have a great rest of the day. Thank you.

Thanks a bunch.

this does conclude today's program thank you for your participation you may disconnect at any time