Vulcan Materials Company

Good morning, ladies and gentlemen, and welcome to Vulcan Materials Company's fourth quarter earnings call. My name is Gretchen, and I will be your conference call coordinator today. During the question and answer portion of this call, we ask that you limit your participation to one question. This will allow everyone who wishes the opportunity to participate. If you would like to register to ask a question, please press star then one on your touchtone phone. Now I would like to 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 Vulcan Materials. With me today are Tom Hill, Chairman and CEO, and Mary Andrews Carlisle, Senior Vice President and Chief Financial Officer. Before we begin, 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. In the interest of time, please limit your Q&A participation to one question. This will allow for more questions during our time together. A supplemental presentation has been posted to our website, VulcanMaterials.com. Additionally, a recording of this call will be available for replay later today at our website. And with that, I'll turn the call over to Tom.

Thank you, Mark, and thank all of you for joining our call this morning. We appreciate your interest in Vulcan Materials Company. In 2022, our teams hands down excelled in confronting macro challenges and they demonstrated the resiliency of our agris-led business. Let's start with the fourth quarter, which really showcased our commitment to controlling what we can control. We generated $375 million of adjusted EBITDA in the quarter. And I was particularly proud of our team for delivering 11% year-over-year growth in aggregate cash growth profit per ton, despite a 6% decline in aggregate shipments. Abnormally wet and cold weather across our footprint disrupted construction activity and shipments across all segments. And we also began feeling the impact of single family residential decline. Pricing momentum continued with 15% growth in aggregate mixed adjusted price in the fourth quarter. Our people continue to drive performance through good execution, which is grounded in our vocal way of selling and vocal way of operating disciplines. Gross profit in both aggregates and asphalt segments increased versus the prior year's fourth quarter, despite lower volumes. And pricing momentum more than offset inflationary cost increases. In concrete, a 15% decline in volume driven mostly by extremely wet and cold weather in Texas created operational challenges that eroded pricing gains in that segment. For the full year, adjusted EBITDA improved 12% with all segments posting year-over-year growth in gross profit. Aggregate segment gross profit improved 9%, a noteworthy performance with the headwinds of generationally high inflation and the unexpected and arbitrary shutdown of our valuable Mexico operations in May of 2022. Agri's volume increased 6 percent and average selling prices improved 10 percent, accelerating as the year progressed. Our average cash growth profit per ton improved over 5% and also accelerated throughout the year, even in a challenging operating environment. In the first quarter, we held our own while inflation ramped up more steadily than expected. Then in the second quarter, cash growth profit per ton grew modestly versus the second quarter of 2021 as we responded quickly with additional pricing actions. In the third quarter, cash gross profit per ton increased 9% as pricing momentum accelerated and operating efficiencies offset some of the inflationary pressures. And as I mentioned earlier, in the fourth quarter, cash gross profit per ton improved a notable 11%, even as volumes declined. In our asphalt segment, the second half of 2022 marked an inflection point on price and cost dynamics. In the third quarter, robust pricing improvement began outpacing the sharply rising liquid asphalt costs. For the full year, pricing increased by 21% to more than offset the 36% increase in liquid asphalt costs. And volumes grew by 7% with particular strength in Arizona and California our two largest asphalt markets. Ultimately, gross profit improved to $57 million versus the prior year's $21 million. In the concrete segment, full year gross profit of $89 million increased 64% compared to the prior year due to a full year's contribution from the U.S. concrete assets in addition to improved earnings and our legacy Northern Virginia and Northern California concrete businesses. Inflationary pressures, including diesel and the availability of both cement and drivers, had a significant impact on performance in the concrete segment. Now let's shift to the new year, first focusing on demand. The demand environment for 2023 is mixed, both in terms of end uses and timing. We expect modest growth in overall public demand, but contraction in private demand. Now, I'll comment briefly on each end use. Residential construction activity is showing the impact of rising construction costs, home prices, and mortgage rates on single-family housing. Single-family starts and permits have continued to decline, but to a lesser degree in bulk-conserved states, than the country as a whole. Currently, multifamily remains positive with a strong pipeline of projects under construction. Housing will certainly be the primary drag on private construction in 2023, but we expect it to quickly return to growth. It is important to remember that the demographics and employment growth in our markets continue to support household formation and the growing need for additional houses in the future. Overall, private non-residential demand remains at healthy levels. Manufacturing and other heavy industrial projects continue to provide opportunities, but we are monitoring leading indicators such as more recent ABI measures moderation in the Dodge Momentum Index, and survey data indicating declining loan demand and lending tightening. On the public side, we expect positive momentum throughout 2023 and beyond as states and municipalities move forward with much needed infrastructure investment. Highway and infrastructure starts are both positive. In highways, start strengthening significantly in the second half of 2022, growing at 25% on a trailing 12-month basis at the end of the year. The Infrastructure Inflation and Jobs Act funding is now reflected in proposed state fiscal year 2023-2024 budgets across our footprint. The multi-year outlook for public infrastructure is solid. We continue to believe that the increased funding will begin impacting aggregate shipments modestly as we move through 2023 and more meaningfully in 2024. In addition to IIJA funding, state tax receipts in Vulcan states are the highest they've been in the past 10 years. Strong state and municipal revenues support non-highway infrastructure investment as public entities continue to play catch-up from the last decade of housing growth that has driven a fundamental need for infrastructure investment. Also, the considerable funding from IIJA for investment in water, energy ports, and airports will provide future demand growth. Overall, 2023 demand for aggregates will be dependent upon the depth and the duration of the declines in residential construction activity, the impact of rising interest rates on private non-residential construction activity as the year progresses, and the timing of highway starts converting to aggregates demand. Considering these dynamics, we currently expect our aggregates shipments to decline between 2% and 6% in 2023. Pricing momentum and operational execution will drive our 2023 performance. We expect our pricing to increase between 11% and 13%. Most importantly, we will continue to improve our industry-leading aggregate cash growth profit per ton and deliver solid earnings growth in 2023. Now, I'll turn the call over to Mary Andrews for some additional commentary on our 2022 performance and some more details around our 2023 guidance. Mary Andrews?