Vulcan Materials Company

Good morning, ladies and gentlemen, and welcome to the Vulcan Materials Company's second quarter earnings call. My name is Katie, and I will be your conference coordinator today. During the Q&A portion of this call, we ask that you put your participation to one question. This will allow everyone the opportunity to participate. Now I would 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 and thank you for your interest in Volcker materials with me today or Tom Hill chairman and CEO Suzanne would senior vice president and chief financial officer and Mary Andrews Carlisle vice president of finance. Today's call is accompanied by a press release and a supplemental presentation posted to our website Volcker materials dot 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 risk 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 will 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. Our teams delivered another solid performance in a challenging macro environment. The resilient nature of our agri-led business actually stands out in times like these. We've grown our cash gross profit per ton in 15 of the last 16 quarters, and it expanded our trailing 12-month unit profitability at a compounded annual growth rate of 5.5% over that four-year period. These consistent results come from our unwavering commitment to executing on our strategic disciplines, which allows us to capitalize on pricing opportunities to mitigate cost pressures and to drive improvement in unit profitability. During the second quarter, we grew our aggregate cash growth profit per ton despite significant external headwinds. Importantly, our year-over-year improvement expanded sequentially each month. We are poised to carry this momentum forward and deliver both aggregate cash unit profitability growth and double-digit adjusted EBITDA growth this year. We generated $450 million of adjusted EBITDA in the quarter, an 11% increase over the prior year. These results include an approximate $20 million impact from the unexpected and arbitrary shutdown of our operation in Mexico in May. The results were also hampered by ongoing energy cost headwinds and other inflationary pressures. Pricing improvement was robust across all product lines. Year-over-year growth in aggregate mix adjusted price has increased sequentially for six quarters. Both asphalt and ready mix delivered strong double-digit price improvement, which helped offset rising energy costs. Turning now to each segment. Aggregate's gross profit improved 8% to $402 million. Demand remained healthy across our footprint during the second quarter, with the majority of geographies showing shipment growth. Overall volume improved 9% or 2% on a same-store basis. Ongoing pricing momentum helped margins return to growth in the second quarter. Freight adjusted pricing increased 9% over the prior year's quarter. Mixed adjusted pricing improved 10%. We expect continued momentum through the balance of the year as second half price increases and new project work backlogged at higher prices begin to flow through into the third quarter. It's worth noting that price and momentum building in 2022 will continue to deliver benefit into 2023. As expected, our costs were elevated in the quarter on a year-over-year basis due to significantly higher energy costs and other inflationary pressures. Our operators remain focused on controlling what they can control. by driving improved efficiencies in our plants to continue offsetting the impacts of higher input costs. In the second quarter, aggregate cash gross profit improved 2% to $7.99 per ton. In the asphalt segment, both volume and pricing improvements were geographically dispersed. Pricing actions that began last year yielded a 19% improvement in average selling prices in the quarter and helped to mitigate a $33 million energy headwind. Volumes improved 9%. Asphalt cash gross profit in the quarter held to 2021 levels despite the significant year-over-year increases in liquid asphalt and natural gas costs. Concrete cash growth's profit in the second quarter benefited from the addition of U.S. concrete, growing from $14 million in the prior year to $51 million this year. Volume, price, and material margins all improved as higher selling prices offset higher material costs. Continued improvement in private non-residential construction activity and the onset of infrastructure investment remain catalysts for the concrete segment. Now let's shift to the broader demand environment. We continue to expect private and public demand to grow in 2022. Residential construction activity in the second half of 2022 will remain good, and multifamily permits and starts are showing particular strength. Headwinds to single-family construction have resulted in slowing permits and starts, But after multiple years of strong growth, single-family construction remains at high levels, and Vulcan states continue to outperform the U.S. average. Private non-residential demand has returned to growth and has broadened in 2022 beyond aggregate intensive warehouses and distribution projects to now include other non-residential categories like office, manufacturing, and institutional work. On a 12-month basis, square footage for total private non-residential starts has grown 20% in Vulcan Surf markets and is now above pre-COVID levels. Other leading indicators, like the Architecture Buildings Index and the Dodge Momentum Index, also point toward growth. The ABI remains in positive growth territory, and the Dodge Momentum Index hit a 14-year high in June. On the public side, we've entered growth mode, and while public demand has been somewhat muted in the first half of the year, we anticipate secondhand growth in both highways and infrastructure. The bidding and booking activity we saw in the second quarter reflected record levels of public funding. In addition, we anticipate that the Federal Infrastructure Investment and Jobs Act funding will begin to flow into shipments in 2023 and for years to come. Now remember, the ultimate timing of the impact of the IIJA will depend upon the pace at which states continue to allocate additional funds and the time horizon needed to move from design to letting to construction. Overall, our markets are positioned to continue to outperform other parts of the country. and our strong execution and tireless commitment to expanding our unit margins will ensure that we continue to drive value for our shareholders. I will now turn the call over to Suzanne and Mary Andrews to comment further on our results and the full year outlook. Suzanne?

Thanks, Tom, and good morning to everyone. As I reflect on the first half of this year, I'm pleased with our 14% adjusted EBITDA growth that was driven by a strong performance in aggregates, which Tom described, and SAG cost leverage. Our strategic disciplines helped us confront and overcome macro challenges in the current dynamic operating environment. In regards to SAG, we reduced this cost as a percentage of revenue by 50 basis points in the first half to 7.3%, and we are positioned to further leverage cost by the end of the year. I'm also pleased that our net leverage was reduced to 2.5 times EBITDA, the top end of our stated target range of 2 to 2.5 times. Our balance sheet is strong, and our significant cash generation capabilities give us the capacity to continue to invest in both organic and inorganic growth opportunities. Disciplined capital management remains fundamental to our strategy. Our capital decisions are made with the goal of improving shareholder returns and return on invested capital while maintaining financial flexibility and our investment-grade credit ratings. On a trailing 12 months basis, our ROIC at quarter end was 13.6%. Our adjusted EBITDA over the same time horizon increased by 13%, and we expect continued improvement. I'll now turn the call over to Mary Andrews to provide more details on our outlook for the remainder of 2022. Mary Andrews.

Thanks, Suzanne, and good morning all. It is a pleasure to take part in this quarter's call. In February, we communicated expectations for 2022 of delivering adjusted EBITDA between $1.72 and $1.82 billion. Today, we are providing an update to our full-year guidance. Our update reflects both the previously disclosed $80 to $100 million impact from the loss of our Mexico business, in addition to other adjustments related to higher than anticipated inflationary pressures. We now expect adjusted EBITDA for the full year between $1.6 and $1.7 billion. We expect mid-single-digit growth and aggregates cash gross profit per ton for the full year. The strong pricing momentum we have seen in the first half is expected to continue, and we now expect aggregates freight adjusted prices to increase between 9% and 11% for the year. We continue to expect aggregates volume improvement of 5% to 7%. We are also revising our expectations for the asphalt segment due to the continued escalation of liquid asphalt costs. Asphalt earnings for the full year are now expected to approximate full year 2021, benefiting from solid shipment growth and aggressive pricing actions that are offsetting the significantly higher energy costs. I'll run through a few other components that may be helpful for modeling purposes. SAG expenses are expected to be between $495 and $505 million. Interest expense for the year is expected to be approximately $165 million. Depreciation, depletion, amortization, and accretion is expected to be approximately $565 million. The effective tax rate is estimated between 21% and 22%. We plan to spend between 600 and 650 million on capital expenditures in 2022. These expenditures include both maintenance and growth projects. I'll now turn the call back over to Tom for closing remarks.

Thank you, Mary Andrews, and a special thank you to Suzanne. As we previously announced, this will be Suzanne's last earnings call. You hear me say this a lot, but it's the people at Vulcan that make this place special. And Suzanne is for sure one of those people. Suzanne, we're grateful for your tenure, and we appreciate your leadership. And your leadership has played a critical role in our success over the last four years and our ability to deliver enhanced profitability and high returns on capital despite pressures like pandemics and inflation. And while Suzanne's business skills are tremendous, I think what I'll miss most is her caring touch. And I think what the organization will miss is how she welcomed us all in and made us feel a part of the Vulcan family. Suzanne, we wish you the best in your retirement. We'll miss you greatly. We want to thank you. We'll make sure you go take care of those grandbabies. I want to also thank the entire Vulcan team for your hard work and your success. I'm excited about where we've been, but I'm more excited about what we're going to accomplish the rest of 2022 and beyond. First and foremost, on keeping our people safe, as we've shown in our industry-leading safety performance. And we are focused on delivering value to our shareholders by executing at the local level, driving unit margin expansion through our strategic disciplines and maximizing the synergies from recent acquisitions. We look forward to seeing all of you in New York in September for our investor day. And now, Suzanne, Mary Andrews, and I'll be happy to take your questions.

Thank you. 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 star 2. Once again, that is star 1 to ask a question. Again, as a reminder, we ask that you please limit yourself to one question. We will pause for a moment to allow questions to queue. Thank you. Our first question will come from Stanley Elliott with Stifel. Your line is now open.

Hey, good morning, Tom, Suzanne, Mary Andrews. Thank you all for taking the question. Tom, starting off, I mean, there's a tremendous amount of volatility in the market right now. Has it changed your view on where we are in the cycle? And maybe could you point to some things that you're seeing in the market to give you confidence that things really haven't changed all that materially?

Thanks, Stanley. Good morning. Stanley, I think as an investor, I'd ask three critical questions. The first question would be, what's going to happen with price? And I think that's a pretty easy question to answer. Price is very good. It's getting better. And it's going to continue for the foreseeable future. We've seen, you know, times where we had double-digit pricing. And usually when that happens, it's a multi-year trend. Second question would be, okay, in the face of inflation, can you take that price to the bottom line? And simply yes. We saw an inflection point in the second quarter. Margins were back in growth in May at a low single digit. Then they grew to mid single digit in June. So margins are in expansion mode. And then we're going to have mid-year price increases. So pricing is now outpacing inflation. And I'd like to take you back to a critical fundamental of our agris business. And that is that aggregate pricing is inelastic. but diesel costs are not. And then the third question would be, what's going to happen with demand and shipments in the foreseeable future? And I think the answer to that one is we see demand continuing to grow, maybe in a little bit different format. So less single family, more multifamily, really growing non-res and a lot more infrastructure. So you put all those three questions together, I think our business is set up for success for the next few years.

That's great. Thanks very much, and Suzanne, best wishes to you.

Thank you, Stanley.

Thanks, Daly.

Thank you. Our next question will come from Trey Grooms with Stevens. Your line is now open.

Hey, thank you. Good morning, everyone. Good morning. So the cash gross profit, I want to touch on that. Cash gross profit per ton increased in the quarter, which is – Pretty impressive given the headwinds, and you're looking for, I think the revised guide is mid-single-digit improvement for the year, which it does imply a pretty strong pickup in the back half. So how should we be thinking about the progression there? And I'm assuming that that will imply a pretty strong exit rate and bode well for profitability going into next year. So any color you could give there would be helpful.

Yeah, so as I talked about earlier, you know, if you looked at May, we were up, you know, say 2% in unit margins. June, say 5%. You've got another price jump in July. We're also adding our bidding prices in the second half. We see the, you know, the cost inflation, it's not just going to go down, but it's not going to continue accelerating like it has. And that would point us to what I'd say high single-digit unit margins in the second half. So really, you know, we've recovered. As we always do, we'll take the inflationary hit. Our pricing lags, but we'll jump it, and we'll go back into growth mode. And I'd say that unit margins will be very good in the second half, and we'll carry that momentum into 23.

Okay. Thanks, Tom. And best wishes, Suzanne, with the retirement.

Hey, thanks so much.

Thank you. Our next question will come from Garrick Schmois with Loop Capital. Your line is open.

Oh, hi. Thanks for taking my question. I'm just wondering if you could speak a little bit more on the infrastructure side. I think coming into the quarter, you were still expecting, you know, the first half of this year to reflect a bit of an air pocket due to bidding activity that was a little bit slower in the back half of last year. I'm just wondering, you know, you've got some slides that have reflected an increase. I'm just wondering if you're seeing on the ground and kind of what the expectation for infrastructure is a little

And I'm sorry, I couldn't hear the first part of your question. Are you talking about the entire market or specific end use like highways?

Yeah, sorry, I was speaking specifically to highways.

Sure. I think it was slow as we had predicted in the first half because states kind of hit the pause button in the second half of last year to kind of see what was going to happen with their budgets. The fundamentals, I think, for multi-year growth in infrastructure and highways is very good. At this point, you've got state, county, city tax revenues at extremely high levels, and that is prior to IIJA. We've seen substantial booked work in infrastructure in the last 90 days, and embedded in that in the recent backlogs is a number of multi-year big, big projects, and again, prior to IIJ. So the bidding and backlog growth should continue for the balance of this year. And then I think the DOT budgets, as we look forward to next year, are starting to reflect, you know, the 38% funding increase from IIJ, plus on top of that, their substantial funding going into this. So, you know, we predicted the growth. We saw it in the biddings in the second quarter. We think that continues through this year. and well into 23 and 24. Got it. Thanks again. Thank you.

Thank you. Our next question will come from Anthony Pinanari with Citi. Your line is now open.

Good morning. Good morning. You know, on the updated guidance, you know, if we strip out Mexico, I think there's $30 million from higher costs. If I finer point on that $30 million diesel energy, I don't know, labor, if there's other things that we should be thinking about there?

Yeah, it's really energy. And I mean, diesel from the second half to the first half of the second half is probably about in line, but you still have other inflationary pressures that are in there. And labor continues to escalate a little bit. But it's primarily just all the flow through of all the inflationary inputs and services that we have in that business.

Yeah, Anthony, I'd just add that the extra $30 million, you'll see the majority of that in the asphalt segment due to continued higher liquid in the back half. And then you'll note we also raised the SAG guide just a bit, which is related to business development expenses and other legal costs related to Mexico.

Okay, that's very helpful. And then just on Mexico, you know, understanding the guidance adjustment, can you just remind us of the timeline for potential NAFTA arbitration and sort of the remedies that you're pursuing there?

Yeah, so with the shutdown in May, we filed an application in the NAFTA arbitration to seek additional claims because of the shutdown. In July, the tribunal granted our application to seek those further claims, and we should hope to hear a decision sometime in 2023.

Okay, that's very helpful. And Suzanne, thanks so much for all the help over the years.

Sure, I enjoyed it.

Thank you. Thank you. Our next question will come from Jerry Urvich with Goldman Sachs. Your line is now open.

Yes, hi. Good morning, everyone. Good morning. And Suzanne Mary Andrews, hi. Congratulations once again to you both. Suzanne, we'll miss working with you. I'm wondering if I could just ask, you know, as you folks look at what the outlook for aggregates percent margin performance is embedded over the balance of the year, if we back out the impact of the unfortunate situation in Mexico, do you expect year over year percent gross margin expansion in the fourth quarter just based on the pricing actions that you folks have announced? And similarly, can you just talk about the cadence of organic volume expectations now that we have to contend with not being able to ship from Mexico, it looks like, over the next couple of quarters? Thanks.

Yeah, thanks. I think on the gross margins in the back half, like Tom said, we really viewed the second quarter as having been an inflection point with pricing, you know, beginning to accelerate faster than the cost. And so we would expect to, you know, see gross margins begin to improve in the back half.

Yeah. Go ahead, I'm sorry. Oh, I apologize. I was just going to ask, is that a year-over-year margin expansion comment or sequential?

I think we'll see. Sequentially, the challenges that we've had in gross margin in the first half from the inflationary pressures will abate some in the second half.

And I apologize, Tom, did you want to add on the volume point?

Yeah, you asked about volumes, and I would tell you that what's in the guidance is, you know, growth will roughly blow single digit. I would tell you to point out that the underlying demand in the market, I think, is a lot stronger than that, particularly with the growth we're seeing in non-res and in infrastructure. The second half, as I said, we'll see growth. But you've got some headwinds there. And it's namely, the biggest one is going to be Mexico. Second would be lack of rail service. We just can't get enough product to the coastal markets. And the third and fourth one would be, you know, just truck shortages at peak time capacity and then some cement shortages in the market. As we look further out, I think the demand drivers are shifting. You've got single family leading indicators not as robust. but we think that's, well, it's still at really high levels, but we think that's offset by three factors. One, multifamily construction remains extremely strong. Two, non-residential construction continues to improve. And three, as we talked about, highways and infrastructure bookings are showing considerable strength in the last 90 days, and that's prior to IIJA, and that will only get better the second half of this year going into 23. And remember, You've got to remember that Vulcan markets enjoy considerable population growth, so our demand profile will grow faster than the rest of the country.

Super. I appreciate the update. Thanks, everyone.

Thank you.

Thank you. Our next question will come from Catherine Thompson with Thompson Research Group. Your line is now open.

Hey, good morning. This is actually Brian Barros for Catherine. Thank you for taking my question. We've been hearing increased concern from state DOTs that inflation is beginning to impact their ability to address their work programs. So I guess in addition to labor and material shortages, are you seeing inflation impact the public work programs at all?

You know, you hear about jobs not being awarded due to being over the engineer's estimates. um because of inflation and we think that's really the exception not the norm the place that we've seen a little bit of that is in georgia but even in georgia you know they postponed you know eight percent of work where they normally do about one percent um and i would underline postpone they don't do away with it they just said hey we're going to wait and see what happens with inflation and so those jobs don't go away but most states that that's more the exception the rule most states are pushing work through despite inflationary costs. For example, I think Texas and Arizona DOTs have been real clear about that they're going ahead with their scheduled programs. And you have to remember that the DOT funds are extremely high levels right now, and that's prior to the big increase in federal funds. You've got gas tax revenues at seemingly high levels. You've got extra COVID funds So at this point, the DOTs have been aggressively bidding their work since, you know, February, March. And we're seeing that in our bookings and backlogs, as we talked about. So I actually don't think it's a big issue for most of the DOTs. Thank you. Thank you.

Thank you. Our next question will come from Mike Dahl with RBC Capital Markets. Your line is now open.

Hi, it's actually Chris from Mike. Thanks for taking our questions. Just going back to the Mexican quarry disruptions, I was hoping you could help flesh out in more detail how you plan to backfill those lost shipments. I mean, is there an opportunity to potentially backfill that through M&A, you know, still plan to utilize the ship's investment? you've made over the years, and how do you plan to address the disruptions and continue to serve those Gulf markets?

Yeah, at this point, that's not in our guidance. In fact, while we took the $80 to $100 million hit, we're not backfilling those tons. You'd say, well, can't you just rail them down there? The fact of the matter is we can't get the rail service for our normal business increases that we normally do. So at this point, We don't have that in our plan.

Is there any sort of contingency plan in place if you were to permanently lose access to that court?

To be seen. I don't see it at this point because of the lack of rail service, but as time goes on, we'll keep you updated. Understood. Appreciate the call. Thank you.

Thank you. Our next question will come from Michael Finnegar with Bank of America. Your line is now open.

Hey, everyone. Thanks for taking my question. You're hosting Investor Day in September. I mean, you provided a framework. It was in 2019. So now you're seeing strong cost control, higher pricing that is likely to stick. as diesel costs peak. So would that not lead to a higher cash growth profit per ton long term? Just trying to assess as we go forward now, you know, the incremental margin, operating margins we kind of see, you know, in 2023 and going forward based on how pricing is going to exit this year and the costs have lately peaked. Thank you.

No, you're going to steal my thunder from my investor day. So, yeah, I mean, you pointed out, look, as we said in the prepared remarks, we're at $7.99 per ton. So in our long range, it's been $9. So we're rapidly approaching that. Obviously, this is a continuous improvement journey. And so we'll hope to give you guys some new goals and a path to those goals as we talk in September. And I think we'll have a A full morning of that at the end of September.

Thank you. Our next question will come from David McGregor with Longbow Research. Your line is now open.

Yes. Good morning, everyone. Tom, in responding to an earlier question, you talked about a number of factors that were influencing volume. And one of those you mentioned was just cement tightness. And I'm just wondering, There's a way to talk about the extent to which cement availability or lack thereof may be adversely impacting your aggregates business, not just this quarter, but heading out through the next five or six quarters. And if I may, you talked about the book business and the inflection you've seen there in the last 90 days. What's your expectation in terms of the timing of that becoming visible in the revenues? Thank you.

Yeah, so the cement issue, for aggregates volumes, it's It's not as big a deal as the Mexico or the rail. It's a little bit here, a little bit there. I'm not sure that if you had the cement, you'd have the trucks to deliver the aggregates or the trucks to deliver the concrete itself. But that's why I kind of put it with the cement and the trucking. So it is there. I don't see it as a big headwind. And I think there would be other governors that would take over if all the cement was there. As far as, and I think, what was the second part of your question about margin expansion?

Well, just on the cement, I guess, if I could dwell on that for a moment. My concern was more with respect to 2023 as rolling ramps and seems like cement capacity is constrained and the extent to which that might influence. I'm not so much interested in this quarter. I'm thinking about how you're thinking about the next six quarters.

And my answer applied to the balance of this year. I didn't really get into 23, but that was a little bit of a governor answer this year. But I don't think it's one of the major ones.

Okay. And then the second part is just the business that you see booked over the last 90 days, that inflection. What's your best estimate in terms of the timing of that becoming visible in revenues for you?

Well, I think it became visible in May. It became more visible where unit margins went up 2% in June. They went up 5%. We're predicting them to go up a high single digit in the second half. So I think it's here, and we're in the middle of it, and it's growing rapidly. Thanks very much. Thank you.

Thank you. Our next question will come from Adam Thalheimer with Thompson Davis. Your line is now open.

Good morning, everybody. Hey, Tom, I wanted to ask about, you talked about this demand rotation. When do you think that the percentage of revenue from infrastructure could increase materially?

I think you see it ramping up in the second half of this year, and then it ramps up some more in 23 and a lot more in 24. So you've got, I mean, what's really impacting this year is not the increase in federal funds. It is gas tax and COVID funds. That probably is the majority of the ramp up in the first half of 23, and then you've got the big jump in federal funds, I think, hitting second half in 23 and 24. Thanks and good luck. Thank you.

Thank you. Our next question will come from Michael Dudas with Vertical Research. Your line is now open.

Good morning, gentlemen. Suzanne, Mary. Good morning. Maybe for Suzanne or Mary. You highlighted the caps, capital spending outlook this year. Sure. If it's going to accelerate second half versus first half, doing what you've released, maybe a little bit of where that spending the growth and is there growth projects without giving out budgets for next year? That could be multi year ahead, given some of the delays from COVID and is there a target on the two to two and a half level on the net debt ratio? given the spending and the positive cash flow you're generating, that more capital allocation to shareholders could be thoughtful? Or is that something maybe we save for the September investment? Thank you.

Yeah, sure. As Mary Andrews indicated, the CapEx outlook for this year remains at $600 to $650 million. We've talked about this before. That's a little higher than what it has been in the last couple of years, just because we had various things impacting that, namely the pandemic. And most recently, the supply chain has made it difficult to you know, take in some of that equipment that we had planned to be delivered last year. So this year is a little bit higher. Probably, you know, two-thirds or so of that is directed toward what we refer to as operating CapEx. That's the first pillar of our capital allocation strategy because it's important that we maintain the value of the valuable franchise we have, and therefore it's super important that we keep you know, our equipment in very good working order. You know, and certainly as you look forward, you know, potentially, you know, volatile times from a macro perspective, you know, it's important that your equipment remain in good shape and good utility because that gives you the ability if you needed to to reduce CapEx, you know, going forward for a few years. So we're comfortable with where we are on CapEx with respect to growth. Certainly, you know, we have invested in a number of, you know, sales yards over the years and in certain markets that act as, you know, virtual quarries for us and help us distribute aggregates to customers. We also have a number of greenfield projects, which we do a number of those if we have a growth quarter in which there isn't a company that we're interested in from an M&A perspective. Some of those more recent greenfield sites have been California, Georgia, Texas, and South Carolina. So we're comfortable with the level of spending. We think it's appropriate for the size of our business now and puts us in good shape going forward. With respect to the leverage target, it was important for us following the U.S. concrete acquisition to get ourselves back within the range. So we were pleased to get to the top end of that range at two and a half times. And having gotten within that range, I think that we will you know, continue down the path of it's important to stay within the range with what we have in front of us. I think we are well able to do that. And, you know, the capital allocation priorities have been in place for a long time. They have, you know, put us in good shape. Our return on investment has increased 40 or 50 basis points over the last, you know, two or three years. And so we will continue to follow those capital allocation priorities. Thank you, sir. Sure.

Thank you. Our next question will come from Phil New with Jefferies. Your line is now open.

Hi, good morning. This is actually Colin on for Phil. I just wanted to touch on aggregates pricing. You guys are implementing the mid-year price increases. You talked about increasing bid work pricing. And even one of your large competitors talked about targeted 4Q price increases. So just given these dynamics, can you talk about how you're thinking about the magnitude of sequential price improvements in Q3 and Q4? And help us think about the magnitude of carryover pricing that you would expect in 2023? Yeah.

So in the quarter, as we said, it was up 9%. 10% on mixed adjusted. I think it's important to your point to note the cadence of pricing within the quarter. So April was up 7%, May was up 9%, June was up 10%. And we'll continue to see that sequential pricing as we progress to the second half. To your point, it's supported by widespread July price increases. You've got bid work continue to go up. You're replacing Old work with higher price, big work. And so I think if you look at the second half, we're probably in the 12 to 13, for the total second half, six months, we're probably in the 12 to 13% range. And as you pointed out, we ended the quarter at 10, so that'll continue to step up as we go through the year. And to your point, that will also set us up really well for 2023, as most of the work that we did in the third and fourth quarter will ship next year. So we'll go into it with significantly higher prices as we start the year. So a big advantage to us to kick off 2023 with much higher pricing.

Great. Thank you for the call, Aaron. Good luck.

Thank you.

Thank you. Our next question will come from Jean Ramirez with DA Davidson. Your line is now open.

Good morning. This is John Ramirez for Brent Thielman. How are you? Good morning. Good. Good morning. My first question is, to what extent are cement outages and allocations impacting your volumes and ready mix? Should that alleviate in the second half?

so i would tell you minor a little bit here and there some of some peak times you know it's it's it's not just cement it's also trucking for aggregates it's also you know ready mix truck operators so there's a whole bunch of things that plays into that cement is a piece of it but i'd say it all kind of just blends together so um it's more peak time uh kind of end of the week So it's a little bit, but there's a lot of other factors besides just cement.

Great. And if you don't mind, just a quick follow-up. Given the impact to the Mexico operations, are there any plans today to try and alternatively serve those markets that are relying on that product?

Not at this point, and that's really driven by lack of rail services. Great. Thank you so much.

I appreciate it. Thank you.

Thank you. At this time, I am showing no further questions. I'll now turn the program back over to Tom for any additional or closing remarks.

Thank you all for your interest and your time for Vulcan Materials this morning. We appreciate it very much. We hope that you and your families remain safe and healthy, and we really look forward to seeing you at the end of September for our Investor Day in New York. Thank you and have a great day.

Thanks everyone.

Thank you, ladies and gentlemen. This concludes today's event. You may now disconnect.