Vulcan Materials Company

Q4 2023 Earnings Conference Call

2/16/2024

spk10: Welcome everyone to the Vulcan Materials Company fourth quarter 2023 earnings call. My name is Carrie and I will be a conference call coordinator today. Please be reminded that today's call is being recorded and will be available for replay later today at the company's website. All lines have been placed in a listen-only mode. After the company's prepared remarks, there will be a question and answer session. 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.
spk14: Thank you, Operator. Good morning, everyone. With me today are Tom Hill, Chairman and CEO, and Mary Andrews Carlisle, 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. 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 Exchange Commission. Reconciliations of non-GAAP financial measures are defined and reconciled in our earnings release, our supplemental presentation, and other SEC filings. During the Q&A, we ask that you limit your participation to one question. This will allow us to accommodate as many as possible during our time we have available. And with that, I'll turn the call over to Tom.
spk11: Thank you, Mark, and thank all of you for your interest in Volcker Materials Company. Our teams delivered an outstanding year in 2023, and achieved two significant milestones. We generated over $2 billion in adjusted EBITDA, and we surpassed $9 of aggregate cash gross profit per ton. We remain focused on continued growth, consistent execution, and value creation for our shareholders. Our fourth quarter results again demonstrated the benefits of that focus and our aggregate-led business. We delivered a 27% year-over-year improvement in adjusted EBITDA, margin expansion in each of our three primary product lines, and another 90 basis points of sequential improvement in our trailing 12-month return on invested capital. In the aggregate segment, continued pricing momentum, coupled with moderating inflationary costs, resulted in $9.92 of aggregate cash gross profit per ton. a 21 percent improvement over the prior year. Our Vulcan way of selling and Vulcan way of operating disciplines continue to contribute to our commercial and operational results. The fourth quarter performance marked 19 of 20 quarters over the past five years of sequential improvement in 12-month aggregate unit profitability, a clear example of our consistent execution and the durability of our business. Aggregate shipments in the fourth quarter increased 2% compared to a weak prior year quarter that was impacted by abnormally wet and cold weather. Aggregate freight adjusted price improved 14% of the quarter, pushing the year-to-date average selling price to $19 per ton, a $2.60 per ton increase over the prior year. Freight adjusted unit cash cost of sales increased 7% compared to the prior year quarter. This marked a third consecutive quarter of trading 12-month deceleration in year-over-year costs. As we move into 2024, we are determined to continue controlling what we can control, most notably the expansion of our aggregate unit profitability. Price and momentum remains healthy, and we expect freight-adjusted aggregate price to grow from 10% to 12% for the full year. Inflationary cost pressures continue to moderate, and we expect freight-adjusted unit cash costs to increase mid-single digit in 2024, resulting in an attractive mid-teens improvement in cash gross profit per ton. On the demand side, we continue to expect a moderate decline in 2024, with aggregate shipments forecast to land within a range of flat to down 4% for the full year. Much like 2023, we see varying dynamics across different end uses, so let me provide some commentary on each end use. I'll start with residential, which has quickly entered recovery mode, single-family housing permits, and starts return to growth in the second half of last year, and momentum is accelerating across our footprint. We expect the strength in single-family construction activity to be offset by weaker multifamily starts as they pull back from historically high levels. Overall, the underlying fundamentals for residential construction activity remain firmly in place. Vulcan markets have low housing inventory levels and favorable demographics driving the need for additional housing. We continue to see distinct trends across various categories of private non-residential construction, which we anticipate will result in a year-over-year decline in shipments to this end market. Moderating warehouse starts from recent historical high levels are expected to be the biggest headwind to private non-residential construction. Light commercial activity is expected to remain weak as uncertainty in the macroeconomy and higher interest rates persist. Manufacturing activity, however, remains a catalyst for non-residential shipments and is concentrated in Vulcan states. we continue to ship on numerous large manufacturing projects, which we offer customers a differentiated solution with our advanced footprint and logistics capabilities. On the public side, the demand backdrop is developing as expected. We began seeing modest growth in the second half of 23 and project accelerating demand into 2024. Trending 12-month highway starts have now surpassed $100 billion. 2024 state budgets are at record levels, and strong upcoming leddings are anticipated in many Vulcan states. We continue to foresee growth in both highways and infrastructure activities for the next several years. Coupling our anticipated unit profitability growth with the demand backdrop I just described at midpoint of our guidance we project delivering a fourth consecutive year of double-digit growth in adjusted EBITDA. I'm very proud of our teams for what they have and will achieve. Now I'll turn the call over to Mary Andrews for some additional commentary on our 2023 performance and some more details around our 2024 outlook. Mary Andrews.
spk00: Thanks, Tom, and good morning. Our strong operational and strategic execution in 2023 set us up well to continue our long track record of growth through disciplined capital allocation and consistent execution. Over the last 10 years, we increased our revenues at an annual growth rate of 11%, grew our adjusted EBITDA at an annual growth rate of 16%, strengthened our free cash flow generation at an annual growth rate of 23%, and improved our return on invested capital by 1,000 basis points. During 2023, we generated $1.5 billion of operating cash flow and received proceeds of over $700 million for the sales of non-core businesses and real estate. Having followed our longstanding capital allocation priorities of reinvesting in our franchise, investing in attractive growth opportunities, and returning cash to shareholders through both dividends and share repurchases. We ended the year with over $900 million of cash on hand and net debt to adjusted EBITDA leverage of 1.5 times. Our balance sheet is a source of strength and provides us considerable financial flexibility to continue to grow. We will remain disciplined in optimizing our overall portfolio of assets. as evidenced by the fourth quarter disposition of our Texas concrete business and sale of excess real estate in Northern Virginia. Our return on invested capital improved by 280 basis points over the last 12 months, and we are focused on continued improvement. We also remain focused on continuing to drive value for the business through disciplined investments and SAG expenses to both support our organic growth initiatives and innovation through technology. SAG expenses as a percentage of revenue remained at 7% in 2023. Overall, we expanded our adjusted EBITDA margin by 360 basis points and project further expansion in 2024. Let me provide a few additional details around the 2024 guidance to supplement the demand, pricing, and aggregates unit profitability outlook Tom highlighted earlier. We expect our downstream businesses to contribute approximately $275 million in cash gross profit, reflective of asphalt earnings consistent with 2023, contributing approximately 70% of the total, and concrete earnings adjusted for the divestiture of our Texas concrete assets, contributing approximately 30%, the total. We expect SAG expenses of between $550 and $560 million, a modest low single-digit increase year over year. We project depreciation, depletion, amortization, and accretion expenses of approximately $610 million, interest expense of approximately $155 million, and an effective tax rate between 22% and 23%. In 2024, we plan to reinvest in our franchise through operating and maintenance and internal growth capital expenditures of between $625 and $675 million. We expect another year of attractive growth in adjusted EBITDA and strong cash generation in 2024, despite a shifting construction demand environment. We forecast adjusted EBITDA of between $2.15 billion and $2.3 billion for the full year. At the midpoint, this represents an 11% organic improvement over 2023. I'll now turn the call back over to Tom to provide a few closing remarks.
spk11: Thank you, Mary Andrews. Vulcan's culture and people are fundamental to our success. Our employees work tirelessly each day to deliver value to our customers, our communities, and shareholders. And their meaningful contributions were highlighted with three unsolicited recognitions last year. Vulcan Materials was named one of the top 200 best companies to work for by U.S. News and World Report, one of America's most responsible companies 2024 by Newsweek, and was included in the American Opportunity Index, which measures how well large companies invest in their human talent to drive business performance and individual employee growth. I'm excited about what Vulcan Materials will achieve in 2024. We will remain focused on keeping our people safe, growing our business, capitalizing on our Vulcan way of selling and Vulcan way of operating disciplines, and continuing to deliver value to our shareholders. Now, Mary Andrews and I will be happy to take your questions.
spk10: Thank you. If you, at this time, if you would like to ask a question, please press the star and one on your touch tone keypad. You may remove yourself from the queue at any time by pressing star two. Once again, it is star one to ask a question. We'll pause for a moment to allow questions to queue. And we'll take our first question from the line of Trey Grooms with Stevens. Please go ahead.
spk04: Good morning, Tom and Mary Andrews. Good morning. Thanks. Sure. I guess I wanted to touch on aggregate pricing here. Obviously, a very strong performance last year. And, you know, it looks like you're looking for another year of double-digit growth ahead here for pricing. So, Tom, what's driving the confidence there as we move into 2024 on the pricing outlook?
spk11: Trey, I think we saw a fundamental change in our markets in 2022. We realized in March of 2022 that we had runaway inflation, and so we took the lead in 2022 and pulled mid-year prices forward to May 1st that year in every market. And then followed that up with we pulled – all the 2023 price increases to January 1, where some of it had been April 1. So I think today the fundamentals for pricing is very, very good. And I think embedded in those fundamentals are three clear changes that we're seeing in our markets. One, there's more discipline in announced price increases. Two, our average price increases are now January, not April 1st. And third, our mid-year price increase conversations are expected in all markets. So, you know, we're in a really good place in pricing. It's probably as good a place as we've been historically. And you couple that with the tools and disciplines of the Vulcan Way of Selling, I think our future looks very good.
spk00: Yeah, Trey, and, you know, I'll just add that headline pricing is one thing, but we always like to remind people, you know, the important thing is taking that price to the bottom line. And our 2023 cash growth profit per ton improved over 20%. And, you know, expecting another year of attractive growth in 2024 in the mid-teens range. You know, I think this shows our execution has us making quick progress towards our $11 to $12 target, you know, at much lower tonnage. So the compounding nature of this business is, really showcases its durability and, you know, I think the continuous opportunity for strong organic growth.
spk04: Yeah, that all makes a lot of sense. Thank you a lot, and I'll pass it on. That's super encouraging. Thank you. Thanks, Greg.
spk10: Our next question comes from the line of Stanley Elliott with Stifle. Please go ahead.
spk07: Hey, good morning, everyone. Congratulations on the quarter and the outlook. Last question was a perfect lead-in. I was curious if you guys could talk a little bit more about kind of what you're seeing on the cost side, maybe how does this mid-single-digit sort of cost inflation that you're expecting in the coming year come together? Any puts and takes there would be great.
spk11: Thanks, Stanley. You know, you saw the cost in the fourth quarter was up 7%, and that's down from what we've been seeing as low double-digit in prior quarters, and I think it was like the third quarter in a row where it started to come down. So what we're seeing is the impact of inflation starting to dampen. As we said, we saw, we see this year in mid-single-digit range. That said, I would expect this to go this way, that cost is going to be highest year-over-year in Q1 and then tail off as we march through the year. that's due to two reasons. One, easing of inflationary pressures, but two, you're starting to see improving operating efficiencies from the Volcker Wave operations. So you couple that together, I think we're starting to catch up on the kind of runaway costs we've seen for a couple years, and I think we'll see improvement as we go through the year.
spk07: Perfect. That's great. Thanks so much, and best of luck. Thank you.
spk10: Thanks. And our next question comes from the line, of Catherine Thompson with Thompson Research Group. Please go ahead.
spk09: Hi, thank you for taking my question today. To part on the, just more color on the volume guide bridge and what you're seeing from the in-market perspective. I know you had it in prepared commentary, but maybe a little bit more color just in terms of growth rates by in-market. And in previous calls, you were able to give some quantification of what megaprojects are of your total expected sales. Just a clarification on the earlier question on pricing. Does the pricing guidance, does that include the thought for mid-year price increases, or is it just carryover from previous pricing actions, or is it a combination of both? Thank you.
spk11: Yeah, I'll take the mid-year first. Well, there's not much in there for mid-year price increases. Now, we will or have announced mid-year price increases and should start those conversations in April. So I'm not saying there's no – it's not in the plan, but we'll for sure have the conversations. There are very little of us in the plan. On volume, as we talked about in November, we're predicting a modest decline in demand for 24%. We see strength on the public side and kind of a mixed bag of strengths and weaknesses on the private side, and I'll go through those. Highways, you know, steady growth wins the race, and we'll continue to see that ramp up, and we feel good about it. Lots of funding there, and it's starting to be put to work. Non-highway infrastructure, we'll see solid growth. In non-res, most sectors, I think, will be challenged. That'd be traditional non-res, warehouses, distribution, And as you talked about, that's partially offset in our footprint with the large industrial projects. And I think we have some 10 of those, and we can talk about that later. But they're meaningful. While single-family, what we saw, was challenged in 23, it'll be a strength for us in 24. It's back into growth mode and recovering rapidly. At the same time, I think multifamily, as everybody knows, will be challenged. So, as we said, we call volumes flat to negative four. Now, January, February, as everybody knows, we're both either a freeze-out or a wash-out or both. So, you know, we're seeing a slow start. That being said, it's still only January, February. So, you know, I think we feel very good about the four-year guidance. So, probably a modest decline in volumes for 24. That said, we should still see healthy double-digit earnings growth.
spk00: Yeah, and Catherine, I'll give you a couple of other things to think about regarding Q1 volume that may be helpful context. Last February was seasonally adjusted the strongest single month of shipments we had in 2023 and the strongest February in at least the last 10 years. And also this year, simply given the way the calendar falls, we'll have approximately 10% fewer shipping days in March which clearly we all know is the most important month of the quarter. Now, the good news there is that's just timing. We pick those days back up in April. But from a Q1 perspective, it'll be impactful. So, you know, overall volumes will be challenged in the first quarter. Pricing will be strong, and it should fall within our guidance range. And I would expect that paired with, you know, the probable volume impacts to cost, I'd expect maybe mid to high single-digit growth and cash growth profit per ton in the first quarter still with the, you know, very attractive mid-teens improvement for the full year.
spk09: Thank you so much.
spk10: And we'll take our next question from the line of Anthony Pettinari with Citi.
spk06: Good morning. Hey. I'm wondering if you could talk a little bit more about capital allocation. And, you know, we've seen a number of, I guess, very large deals in construction materials over the past few months. Just wondering if you could talk about potential attractiveness of M&A and, you know, what the pipeline might look like from your perspective in 2024.
spk00: Yeah, sure. Anthony, the balance sheet is, you know, really well positioned to fund all of our capital allocation priorities in 2024. particularly M&A growth. You know, as we mentioned, you know, we ended the year with over $900 million of cash and net leverage of, you know, one and a half times. So, you know, we'll think about capital allocation in 2024, you know, very consistently as we have in the past, but there is a very attractive M&A pipeline. And that's, you know, what we're focused on in terms of being able to to deploy the capacity that we have. And I'll let Tom, you want to make any more comments on the pipeline?
spk11: Sure. Well, I think if I step back and look at it, it is a three-pronged strategy to growth. And it's very effective and has provided us with double-digit revenues in EBITDA for the last three years and will again in 2024. And those three are, number one, organic growth through the And, you know, we've been very consistent. We've been able to grow those unit margins consistently for five years. Second, as you talked about, is M&A. I think M&A, while it was pretty quiet in 23 with a lot of unknowns out there, I think it will be very busy in 2024. I would expect us to bring some deals to the finish line. And then supplementing that M&A is Greenfield Growth, which is picking up, and we have a handful of those projects beginning this year. You know, they take a little bit of time to get through that, and we'll get a little closer to it. We'll talk about some of those, but I feel really good about growth strategy, and M&A, I think, will be a much bigger part of it in 24 than what we saw in 23.
spk06: Okay, that's helpful. I'll turn it over.
spk11: Thank you.
spk10: And our next question comes from the line of Jerry Revich. with Goldman Sachs. Please go ahead.
spk13: Hi, Jerry.
spk10: Good morning.
spk13: Hi, Tom. Mary Andrews. Good morning. I wanted to ask, in the fourth quarter, your margin performance was really outstanding sequentially, you know, full point ahead of normal seasonality, so it looks like costs are already starting to come down for you folks. Can you just talk about what improved in the quarter, and is there an opportunity if some of those improvements continue for cost to be at the lower end of the growth outlook that you outlined in the prepared remarks, Tom?
spk11: Well, I think what you're seeing is, as I said earlier, two things. You're moderating inflationary pressures, so the comparisons get a lot easier. And I think we'll continue to see that. But also, if you look at our operating parameters, and remember, we put the automation and the insights and the technology in the top 100 plants. over last year. You're starting to see those things go to work, which helps us with, you know, throughput and throughput of critical sizes. So I think that as we march through 2024, I think our costs should improve sequentially as we go through the quarter. Now, weather can have a hiccup on that or one, two big outages can have a hit on that. But Overall, I would expect our costs to continue to prove over the next four or five quarters.
spk13: Excellent. Thank you.
spk11: Thank you.
spk10: And our next question comes from the line of Phil Ng with Jefferies. Please go ahead.
spk16: Morning, Phil. Hey, guys. Congrats on a really strong quarter. So, Tom, last year your pricing philosophy, I think, was to go big to start the year on average pricing and take a more measured approach on mid-years. If I've heard you correctly, you're at least having a conversation on mid-years already. So just give a little color to how you're thinking about your approach and philosophy this year. And in a more moderating inflationary environment, do you think double-digit pricing is kind of the new norm going forward? Thanks. Thanks.
spk11: Well, as I said, I think we're in a very, very good place from a pricing perspective based on the fundamentals that we're seeing and also the Vulcan way of selling those tools help us dramatically in bid work. I think that we went early as we have, and I think that will continue with January 1, which obviously helps. We think we were appropriate in our January 1 prices. We've announced mid-years in a few markets already. I think over the next, probably the next beginning, end of the quarter, we'll probably announce it mid-years for the other markets. And obviously you spend April, May, and June having those conversations so that you're ready for July slash August for a mid-year price increase. So I think that what those, the fact that it's all in January and the fact that everybody expects to have Conversations about meteor price increases I think is very important for our markets.
spk16: And in double-digit pricing, is that like the new norm going forward? I feel good about pricing. Okay. All right. Appreciate the call. Thank you. You bet.
spk10: And we'll take our next call or our next question from the line of Michael Fenninger with Bank of America. Please go ahead.
spk12: Yeah, thank you for taking my questions. Just, Tom, to follow up on just the pricing, can you just, the cadence of pricing for this year, you gave great color on the cadence of how you think cost plays out. Just on pricing, do you think by the end of the year, are you still kind of in that 10% to 12% range, or are you below it because you start strong? Just kind of how we should think about that.
spk11: No, I think the pricing will be pretty consistent through the year in that 10% to 12% range. I don't see a big difference. you know, a big change in that. Now, you also got to, in the third quarter, you got to see what happens with mid-years. And, you know, we'll have that conversation after we get past July 1 to give you a lot more clarity because we'll just have a clearer picture of it. And every market's going to be different. They always are. But I would call it pretty consistent low double-digit pricing throughout the year.
spk12: Great. And, Tom, just to follow up, You gave great color on kind of the volumes, your shipment growth with the different segments. Just when we think of, let's say, fast forward to 2025, and obviously, you know, we'll see how 2024 plays out. But if you're in a similar range in 2025 with the volume kind of guidance, and it's underpinned by growth in infrastructure. Can you just help us understand how that informs pricing relative to maybe if it's being driven by residential or private construction markets, how having it underpinned by infrastructure, how that kind of maybe shifts the pricing conversations?
spk11: Thank you. I will tell you that my philosophy is all demand growth are good things. I don't care where it comes from. I like it. But the pricing between public and private, there's really not a big difference there. I think the one thing I would call out, the good thing about public demand is it's very visible and it's for sure. I mean, on the private side, people can hold projects or delay them, but public growth is going to go to work. It's not a matter of if, it's when. And so that visibility to growing demand on the public side is really good for pricing. But a ton of concrete rock for public or private is probably the same number. The difference is the public people know it's there, they know it's coming, and they can take risk on value and price.
spk10: And we'll take our next question from the line of Mike Dahl with RBC Capital Markets. Please go ahead.
spk05: Thank you for taking my question. Just back on kind of the M&A and capital allocation issue, You raised some pretty healthy funds from the RMC sale in Texas. It seems like that was the last big chunk, aside from maybe California, of the legacy U.S. concrete assets. So I just wanted to have you elaborate a little more on kind of rationale behind making the move now. And then as you think about reallocation, you mentioned M&A assets. There's organic investments. I mean, you obviously now have pretty healthy capital positions. So, you know, relative, I think this was asked before, but, you know, ag-specific pipeline and relative size of the deals that you think are potentially out there that can cross the finish line this year, anything you can provide there?
spk11: I would look at the M&A as more traditional bolt-on, I think, which, you know, which is very much in our footprint, some of the highest returns. Deal sizes, everything from small to mid-range, maybe a little bit bigger than mid-range. But I think that as far as the timing is concerned, I think 23 was abnormally, I guess, quiet. And it was because there was so much insecurity about, you know, are we going to fall off a cliff? Is there going to be a recession? So when you have all those unknowns, people tend to slow down, both buyers and sellers. And I think that the fact you got that behind you, you'll see some catch up in 2024.
spk05: And rationale for exiting the ready mix assets?
spk11: Well, I think, you know, if you look at our assets, we look at our business as a collection of assets. And If, you know, if there were more to someone besides us and it's not strategic, then, you know, there ought to be another owner and we'll take that money and apply it back in the agri-business. And so this is no different than what you've seen us do. And, you know, we exit businesses at times and we exit different product lines at times. And so this one made sense strategically for us to sell the Texas Ray Mix business. Thank you.
spk10: And we'll take our next question from the line of Keith Hughes with Truist. Please go ahead.
spk02: Hey, Keith. Hey, how are you doing? Thanks for taking the question. Just to shift over to asphalt and concrete, you gave guidance. You've done a good bit in cash, cash gross profit versus prior years. Can you talk a little bit more in detail what's going on? Is there what you expect in 2024 to come out?
spk11: Yeah, I think the asphalt performance at 13% gross margin was a really good performance. Now, you know, if you look back about three years ago, everybody was asking me why I don't sell that asphalt business, and now everybody wants me to buy more. So, you know, that's just the asphalt business. But 13% is a good number. So it's performing well. We'd see flat at very high levels for asphalt. 2024, and I would call that hot mix price increases offsetting increasing liquid costs and increasing aggregate costs. So asphalt in a very good place, and we like our story there, and I think that those teams are performing well. Ready Mix, I'd call it virtually flat with the private side some challenge markets, you know, that affects the Ready Mix business. But it's not a bad performance based on, you know, some of the private challenges we had. But remember, ready mix is 2% or EBITDA. So, you know, I think under the circumstances, both businesses are doing fine.
spk00: Yeah, and just in terms of ready mix, Keith, just to maybe a couple things helpful to think about the impact of the divestiture. You know, our expectations in 2024 for a modest decline in same store sales volumes, which were about 4 million cubic yards in 2023. And we expect, you know, kind of consistent gross margin performance. Thinking longer term, you know, about that, I think that our low double-digit expectations are still what we're pushing for. That's going to, you know, take time and better volumes to get there. But, you know, one thing about 2024, where we expect relatively flat gross margins with the weight of the non-cash fixed cost on the volume challenges that Tom mentioned, you know, really driven by private non-res. We do expect to see some expansion in cash growth profit margins and also improved unit profitability given the markets where we've retained our concrete businesses.
spk05: Okay, thank you. Thank you.
spk10: And we'll take our next question from the line of Garrick Schmoy with Loop Capital. Please go ahead.
spk03: Oh, hi, thanks. Congrats on the nice results. I wanted to follow up on the cost side. I know, you know, it's a little bit more favorable than the preliminary outlook you offered on the three-week call when you spoke to some broad-based deflation, you know, getting better as you move through the year, operational improvements. helping as well. Anything in particular, though, that's changed or has gotten better since the last call that you could point to on the cost side that would be helpful?
spk11: Yeah, I think what you're seeing there is the vocal way of operating and efficiencies in those plants. Embedded in that is technology. It is training, which is so important from a safety perspective, but also from a plan availability and inspection of that equipment. And then you're seeing our throughputs of critical sizes start to improve. So it's a combination of easing inflationary pressures, comps get, you know, kind of level out, but also those operating efficiencies are really, really important to making sure that we, you know, our job is to beat inflation, not just live with it. Got it. Thanks again. Thank you.
spk10: And we'll take our next question from the line of Angel Castillo with Morgan Stanley. Please go ahead.
spk01: Hi, good morning. Thanks for taking my question, and congrats on the thought quarter. May I understand? I thought I heard you say, I guess, that, you know, given the kind of capital that you have, you still have the ability to kind of do organic, inorganic, and return capital to shareholders. So I just wanted to expand on that a little bit. It sounds like on the M&A front you're looking at more bull dones. And if I did the math correctly, just moving to the midpoint of your kind of leverage allows you to have at least another kind of $2 billion of kind of capital that you can deploy, which seems plenty for both M&A as well as other ways of kind of returning cash shareholders. So maybe just could you talk about buyback intentions for the year and then also willingness of potentially levering up above your range, historical range, for the right opportunities and returning cash shareholders?
spk00: Yeah, sure. I mean, as you referenced, you know, I think we're really well positioned to be able to fund, you know, all of our capital allocation priorities in 2024. And as it relates to returning, you know, cash to shareholders, you know, doing that via repurchases has long been a part of our, you know, capital allocation priorities. I think appropriately following reinvesting in the business, you know, growing the business through both M&A and Greenfields and returning cash, you know, through our sustainable dividend. But with the attractive cash generation and, you know, you saw with the slower M&A in 2023, we did repurchase $200 million of shares and we would, you know, enter 2024 you know, thinking about making those capital allocation decisions in the same kind of, you know, disciplined manner. And in terms of, you know, of leverage, I think for, you know, for us, regardless of where we are, you know, against kind of our target leverage range, you know, what's important is being disciplined about doing the right deals and the deals that are going to have attractive returns for us. And, you know, we certainly have over time, levered up even outside the top end of that range with plans to always quickly get back within that two to two and a half times that we tend to target.
spk01: Very helpful. Thank you. Thank you.
spk10: And we'll take our next question from the line of Michael Dudas with Vertical Research. Please go ahead.
spk08: Good morning, Mary Andrews, Mark, Tom. Good morning. Tom, I'm curious about your thoughts. You indicated a positive trend for civil public infrastructure and records, the Department of Transportation budgets. How are they prepared and ready to pull through when you see some of the budget numbers in your important states? And I'm also curious on how things in California, because you hear certainly Caltrans has bumped up the budget there, but certainly there could be some other issues there. So just a little bit of a sense of on the public side in your important states, how you see the opportunities for bidding and project work going forward.
spk11: Yeah, I think, you know, they're still challenged, but they are, because they got so much money, it's a lot for them to digest, but they are growing into it. And as I said, we'll see solid growth in highways in 24. We saw low single digit in 23. We'd expect mid-single digit in 24, kind of as expected. But also, we've got to remember that IIJ passed in November of 21, so we're just past that two-year mark, and we'll say it takes two years. As we've said, it'll be a ramp-up, not a step change in this, and I think it'll be a ramp-up over time. And I think that the DOTs are growing into their capital. They've added resources, and the lettings continue to be healthy. There's a lot of money out there, but What I would see here, I think, is kind of slow and steady wins the race, and we'll see, you know, improving growth in 24 kind of mid-single digit. I think that'll go up in 25 again. I think that demand will go up in 26, and I think it'll go up in 27. So, you know, that slow and steady improvement in public isn't bad, particularly when you're compounding unit margins like we are. As far as Caltrans, I think they'll be fine. There's always some rumblings numerous times in Caltrans and funding and people trying to grab it. But remember, it is firewalled. It has to be used for infrastructure.
spk08: Excellent point. Thank you, Tom.
spk11: Thank you.
spk10: And we'll take our last question from the line of Brent Thielman with D.A. Davidson. Please go ahead.
spk15: Hey, thanks, Tom. Mary, I guess your clarification question on the ready mix business, the time of refinement of that over the last 12 months, can you sort of level set us on what that business is now sized to do? I think you did seven and a half million cubic yards in 23. Where do we go from here? And I guess my other question since I'm the last is, I think we've all been sort of worried about the implications of some of this light non-residential activity, sort of more interest rates, sensitive sectors hitting your business. Could you talk about to what degree that's actually had an impact? Has it been more resilient than you would have expected?
spk11: I'll take that one first, and then I'll let Mary Andrews take the ready mix. I think it's been fairly weak for us. Obviously, offices have been weak, but you know, last year the light side was pretty weak, so kind of more of the same on that, still challenged by interest rates. And I would tell you that my view of that is that the more traditional ex-office building, more traditional light non-residential construction usually follows creation of subdivisions. And so we're back in growth modes in those subdivisions. So I would expect us sometime, you know, maybe 25, middle of 25, that starts to impact that sector of the light res. So it probably has a brighter future than what we've seen in 23 and 24. But kind of what I describe 24 is more the same of 23. Yeah.
spk00: And in terms of ready mix, you know, we completed the divestiture of the Texas concrete in mid-November and had disclosed that was about 4 million cubic yards annually. So that puts us in 2023 at about 4 million cubic yards on the same store basis. We would expect, you know, those volumes to decline modestly in our 2024 outlook of those cash gross profit dollars being 30% of that 275, kind of, as I said, consistent from a gross margin percentage standpoint with 2023. a bit of expansion from a cash gross profit percentage standpoint. And, you know, in that business, we're focused on, you know, continuing to improve that margin performance over time for the retained assets that we have, which we believe are in, you know, very attractive and well-structured ready-mix markets.
spk15: Okay. Thank you. Thank you.
spk10: And we have no further questions at this time. I'll turn the call back over to Tom for any closing remarks.
spk11: Thank you for your time this morning. We appreciate your interest in Vulcan Materials Company. We look forward to talking to you throughout the quarter. Please keep yourselves and your families safe. Thank you.
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