Vulcan Materials Management Discusses Q2 2012 Results - Earnings Call Transcript

Vulcan Materials (VMC)

Q2 2012 Earnings Call

July 26, 2012 11:00 am ET

Executives

Donald M. James - Chairman, Chief Executive Officer and Chairman of Executive Committee

Danny R. Shepherd - Executive Vice President of Construction Materials

Daniel Sansone - Chief Financial Officer and Executive Vice President

Analysts

Garik S. Shmois - Longbow Research LLC

Kathryn I. Thompson - Thompson Research Group, LLC.

Rodny Nacier - KeyBanc Capital Markets Inc., Research Division

Brent Thielman - D.A. Davidson & Co., Research Division

Michael Betts - Jefferies & Company, Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Quarter 2 2012 Vulcan Materials Company Earnings Conference Call. My name is Ian and I will be your operator for today. [Operator Instructions] As a reminder, the call is being recorded for replay purposes. And I would now like to turn the call over to Mr. Don James, Chairman and Chief Executive Officer. Please proceed, sir.

Donald M. James

Good morning, and thank you for joining us to discuss our results for the second quarter of 2012. I'm Don James, Chairman and Chief Executive Officer of Vulcan Materials Company. Joining me today on the call are Dan Sansone, our Executive Vice President and Chief Financial Officer; and Danny Shepherd, our Executive Vice President for Construction Materials.

We have posted a short slide presentation to our website that we will reference during this call. These slides are also available to those of you on the webcast.

Looking at Slide 2 and before we begin, let me remind you that certain matters discussed in this conference call contain forward-looking statements, which are subject to risk and uncertainties

Descriptions of these risk and uncertainties are detailed in the company's SEC reports, including our most recent report on Form 10-K.

In addition, during this call, management will refer to certain non-GAAP financial measures, including EBITDA, adjusted EBITDA and adjusted diluted EPS for continuing operations. These measures are not prepared in accordance with U.S. Generally Accepted Accounting Principles. You can find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures and other related information in Vulcan's second quarter 2012 earnings release and in the Investor Relations section of Vulcan's website.

Turning now to Slide 3. Before we walk through the quarterly result, I wanted to briefly discuss a few highlights from the quarter. We remain keenly focused on reducing overhead cost and maximizing operation efficiency across the organization. These efforts have enabled us to continue to increase profitability, while sales remained essentially flat. Adjusted EBITDA was $127 million in the second quarter of this year, an increase of $10 million or 8% over last year's second quarter.

We achieved higher EBITDA despite a slight decline in net sales. This decline is due in part to demand weakness in certain of our markets to the pull-forward effect of seasonably favorable weather conditions during the first quarter and unusually severe weather from tropical storm Debby in Florida in June. These negative influences were offset by encouraging growth in a number of our other key markets.

Despite weaker volumes in several of our most profitable markets, Aggregates segment gross profit margin increased 220 basis points, and cash earnings per ton of aggregates improved to $4.57. Both of these improvements demonstrate our cost-reduction efforts, and earnings potential of our Aggregates business, particularly as volumes across our geographic markets recover.

SAG expenses were reduced during the quarter by approximately 16%, reflecting our organizational restructuring and our cost reduction initiatives.

As we look ahead, activity in both private and public sector construction markets continues to improve.

We are encouraged by the passage of a new multi-year highway bill, signed into law in early July, which should provide State Department of Transportation with a funding certainty that they need to move forward on infrastructure programs.

I will discuss some of the details regarding the highway bill a bit later in the call.

We've also made important progress on our initiatives to enable Vulcan to continue to generate higher levels of earnings in cash flow, further improve our operating leverage, reduce overhead cost and strengthen our credit profile.

Turning now to Slide 4. As I noted, net sales for the quarter were approximately $649 million, which is a 1% decrease from the second quarter of 2011. For the first 6 months of 2012, net sales were approximately $1.1 billion, 3% higher than the same period last year. Adjusted EBITDA was $127 million in the second quarter of 2012, which is an increase of $10 million or 8% over the second quarter in the prior year.

When making year-over-year comparisons of earnings and EBITDA, I want to highlight 3 items that are better excluded from the adjusted EBITDA. The second quarter results include $32 million of cost related to the unsolicited exchange offer by Martin Marietta. They also include $4.5 million of charges associated with the implementation of our Profit Enhancement Plan. And finally, we recorded a $12 million gain on the sale of mitigation credits in California during the quarter.

For the first half of 2012, EBITDA increased $52 million or 42% from the first half of 2011. I also want to point out, again, our continued success in reducing overhead cost. SAG expenses were 16% lower in both the second quarter and the first half. These decreases are the direct result of restructuring initiatives we undertook during 2011 and the first quarter of 2012, as well as the early benefits of the Profit Enhancement Plan we announced in February. We will provide an update on the Profit Enhancement Plan shortly.

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