Vulcan Materials Company

Good morning, ladies and gentlemen, and welcome to Vulcan Materials Company's second quarter 2023 earnings call. My name is Angela, 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, and thank you for your interest in bulk materials. With me today are Tom Hill, Chairman and CEO, and Mary Andrews Carlyle, Senior Vice President and Chief Financial Officer. Today's call is accompanied by a press release and a supplemental presentation posted 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 said, in the interest of time, please limit your Q&A participation to one question. And with that, I'll turn the call over to Tom.

Thank you, Mark, and thank all of you for your interest in Vulcan materials today. Our results through the first half of 2023 highlight both the attractive fundamentals of our agri-led business and Vulcan's commitment to compounding profitability through our solid execution of our Vulcan way of selling and Vulcan way of operating strategic disciplines. I'm proud of our teams for delivering yet another quarter of improvement in our trading 12-month average cash growth profit per ton. That marks 20 of the last 22 quarters. This exceptional execution, coupled with better than expected demand environment, gives us confidence in our ability to deliver between $1.9 and $2 billion in adjusted EBITDA this year. In the quarter, we generated $595 million of adjusted EBITDA, which is a 32% improvement over the prior year. Gross margin expanded by 480 basis points, and importantly, each product line delivered year-over-year improvement. In the aggregate segment, gross margin improved by 290 basis points. Cash gross profit per ton improved by 22%, with healthy year-over-year price improvement and moderating year-over-year cost increases. Shipments declined a modest 1% in the quarter, but were varied across markets. On the one hand, we saw solid growth in our key southeastern markets, where we have the most attractive aggregate footprint. And we were pleased with the rebound of sales in California after a very wet first quarter. On the other hand, weather continued to be a challenge in Texas, and remember, softer residential activity weighed on most markets. All geographies benefited from the continued strong underlying price environment. Our mixed adjusted sales price improved 15% in the quarter. Attractive price growth should continue to drive improvement in our unit profitability as we progress to the back half of this year and into next year. In asphalt, cash gross profit nearly tripled from the prior year to $66 million, and cash unit profitability improved over $10 a ton. Volume growth of 16%, price improvement of 9%, and lower liquid asphalt costs all contribute to the stable results. Gross margin improved almost 1,200 basis points. Concrete cash unit profitability improved by 24% in the quarter, and this is despite lower volumes that were impacted by the slowdown in residential construction activity. Prior year concrete segment benefited for the contribution of the now divested New York, New Jersey, and Pennsylvania concrete operations. Now, starting with residential, let me provide a few thoughts about each end market. To date, the impact of the slowdown in residential activity has not been as significant as most of us initially feared. Recent permits and starts were showing that some areas have reached the bottom, and the sentiment among homebuilders is much improved. These trends along with the solid underlying fundamentals for residential demand growth, such as low inventories, favorable demographic trends, and employment growth in our markets, suggest that single-family demand will bottom in the second half of this year and then start recovering thereafter. In the private non-residential construction segment, starts remain at healthy levels with particular strength in large manufacturing and industrial projects. Our strong southeastern footprint and logistics innovation efforts are making us a supplier of choice on many of these projects. As an example, we have booked and are currently shipping to projects such as battery plants, electric vehicle manufacturing facilities, LNG facilities, and large warehouse parks. On the public side, demand is unfolding largely as we expected. Funding from the Infrastructure Investment and Jobs Act is beginning to flow through, and the pipeline is building with 12-month highway starts up over 20%. 2024 state budgets are at very healthy levels, and internally, our bookings and backlog reflect this increased activity. The level of this year's shipments will depend upon how quickly this increased activity converts to shipments. We expect accelerating growth into next year and continued growth for the next several years. Trending 12-month other infrastructure starts are also up over 20%. In addition to significant IJA funding for water, energy ports, and shipments, strong state and local revenues support growth in non-highway investment. Based on the improved private demand backdrop and our first-half shipments, we now expect aggregate volumes to decline between 1% and 4% in 2023, as compared to our initial expectations of a decline between 2% and 6%. Of course, regardless of the demand environment, our focus is to consistently improve unit profitability and grow earnings in order to create value for our shareholders. We're well positioned to do exactly that this year and deliver approximately 20% year-over-year improvement in both our cash gross profit per ton and adjusted EBITDA. And now I'll turn the call over to Mary Andrews for some additional commentary on our second quarter and an update for 2023 outlooks.