Q1 2020 Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to the bulk immaterial company's first quarter earnings Conference call. My name is Colin I'll be your conference call coordinator today.
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After the speaker's remarks, there will be a question answer session. If you wish to ask a question at that time, you may do so by pressing star and the number one on your telephone keypad.
MS yourself from the Q at any time press the pound Keith.
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Now I'd like to turn the call ever to your host Mr., Mark worn Vice President of Investor Relations for Balkan materials used to warn you may begin.
Good morning, everyone with me today, or Tom Hill, Chairman, and CEO, and Suzanne would senior Vice President Chief Financial Officer.
Today's call is accompanied by a press release issued this morning, and a supplemental presentation posted to our website bulk materials dot com.
Additionally, a recording of this call will be available for replay at our website later today.
Please be reminded the comments regarding the company's results and projections may include forward looking statements, which are subject to risks and uncertainties.
These risk 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.
You can find a reconciliation of non-GAAP financial measures and other information in both our earnings release and at the end of our supplemental presentation.
I'll now turn the call over to Tom to begin our prepared remarks Tom.
Mark and thanks to everyone for joining the call today, we appreciate your interest in Vulcan materials company.
As you all know we're living in operating in times the challenge US all both at work and at home.
We hope you and your families are healthy and safe.
It's been over two months since our company proactively begin taking protective measures to keep our people healthy.
While continuing to crush rock service, our customers and run our business.
I like to begin the call by saying thank you.
All of our employees for their patients the flexibility and commitment to Vulcan.
Each other and to our customers as well as to our communities.
You are doing a great job under difficult circumstances.
I'm very proud to be part of your team.
We had a good first quarter. It was in line with our expectations and we didn't experience much disruption other than some wet weather.
Before Suzanne goes over the quarterly results.
I'd like to talk about the underlying strength.
Oh Vulcan's business model.
And then I'll speak to how we're proactively responding to the Cupet 19 pandemic.
And to the economic uncertainties that this crisis has created across our economy.
First.
I want to emphasize that the underlying fundamentals driving our business remain unchanged.
<unk> Aggers focus business is sound.
It's resilient.
More adaptable to demand shifts than any other products in our space.
We have a strong and stable I guess franchise there was built over 60 years.
As a result.
Remain confident about our company with its inherent strengths that will provide long term stability and growth.
In the near term however.
These are extraordinarily complex and uncertain times that are and will continue to test our resolve in our resilience.
Our approach is to identify.
Prior to us and to focus on what we can control.
And to take appropriate thoughtful.
And decisive actions at times like these the ability to make decisions quickly and accurately and to execute effectively is critical.
I'd like to highlight a few of the parties that are top of mind for our management team today.
First and foremost.
The health and safety of our people or of Paramount importance to us.
Early on Vulcan implemented a robust set of Cooper 19 protections precautions and procedures.
We are following the guidance to the CDC and other help organizations to keep us working in the safest environment possible.
I'm pleased to tell you.
It's working.
Second.
We are focused on our financial position.
We ended this crisis with a strong balance sheet and liquidity.
In addition, we have taken prudent steps to further enhance our financial position, including.
Complementing our existing revolving credit facility.
The term loan and reducing our planned capital expenditures for the remainder of 2020.
Next.
Continuous improvement remains vitally important to us.
We are utilizing our four strategic initiatives, particularly commercial and operational excellence to improve our execution capabilities and manage our business more efficiently.
Fourth we're concentrating on real time communication. This ensures that the management team has immediate insight into what's happening on the ground at our coreys in our markets and with our customers.
Our top operating and functional team leaders are constantly participating in calls where discussions.
Where we were discussing and monitoring the health of our employees the business and the impacts for the pending.
This allows us to look around corners, and quickly adjust our plants, particularly with respect to possible changes in demand or the timing of construction activity.
It also helps us to Cascade communication to line employees to accelerate the decision making process.
And to promote the sharing of best practices, particularly around health and safety.
And finally.
We're looking ahead and focusing on contingency planning.
From both the financial and the operational perspective.
Now I already mentioned a couple of proactive steps, we took to enhance our already strong financial position.
Operationally.
Each division has developed detailed contingency plans and trigger points to allow us to execute well ahead of the curve depending on the pandemics effect on construction activities.
These plans include among many other items changing our production schedule project timing and reducing costs.
Certain elements of these plans already underway, particularly around cost reduction and project timing.
As you can see we're taking many steps to adapt to the changing environment.
We are Vigilantly monitor training this evolving situation.
Now I'll describe what we're seeing from a demand and shipment perspective, and how that translates to an outlook for the remainder of 2020.
During the first quarter, we were designated ethnic central business as a result shipment activity was good across our markets as customers executed on their backlogs and we continued to book, both private and public projects.
These conditions generally continued in April.
However on the private side, we have begun to see some project schedules shift.
Including some postponements and cancellations.
This adds to our uncertainty about near term demand.
We have sufficient backlogs to stay busy.
But we cannot control future demand.
So given the lack of visibility.
As to the duration and impact of the pandemic.
And to the quickly evolving economic situation.
There is just a level of unpredictability, we respect project timing and new construction starts.
When we provided our previous guidance, we tried to strike a reasonable and a thoughtful balance between being realistic and being cautious.
We now find ourselves in a more dynamic world in which we believe the balance should shift.
Toward a more cautious approach.
Therefore, we decided to withdraw our previous earnings guidance for 2020.
We will continue to monitor all aspects of our markets.
As more data becomes available and our visibility improves will resume our usual practice of providing got us now I'll hand, the call over because then for additional comments Suzanne.
Thanks, Tom and good morning, I'll cover some highlights from the quarter and also comment on our balance sheet and liquidity position.
Adjusted EBITDA for the first quarter grew by 4% to $201 million. This included a foreign currency balance sheet translation loss of $6 million, resulting from the rapid devaluation of the Mexican peso in March.
In the aggregate segment, our gross profit improved by 5% on a per ton basis that translated to $4.31 or a 6% increase year over year.
Cash gross profit per ton also increased by 6% in the quarter to $6 to sense.
Given the seasonality of the first quarter, we typically look at cash gross profit on a trailing 12 month basis that number with $6.82 per time, an increase of 7% representing another good step forward on our path to $9.
This quarter's aggregate shipments were 1% lower than Q1 last year, which was a tough comp you'll recall that the first quarter of 2019 experienced strong year over year growth of 13% as a result of delayed shipments from the fourth quarter of 2000.
In 18.
There was also some negative impact from wet weather this year and the southeast and the southwest, but California, Florida, Illinois, and Virginia realized solid growth.
All of our key markets reported year over year price growth up 4.5% on a reported basis and 4.8% on a mix adjusted basis.
Unit cost of sales increased by 4%.
As expected we continued to have some impact from higher repairs maintenance and stripping.
Wet weather inefficiencies also had an impact on the cost profile in certain markets on the positive side lower diesel fuel costs benefited the quarter by approximately $3 million.
Moving onto our non aggregate segments I'll start with asphalt our gross profit. This year was a 2 million dollar loss compared to a loss of $3 million last year.
Asphalt shipments increased by 2% and prices increased by 5% in.
In addition, the average unit cost for liquid asphalt was 6% lower than last year's quarter and this also contributed to the expanding margins.
This represented the fourth consecutive quarter of year over year profit improvement.
The concrete segment also saw better results. This year gross profit improved by 8% to $9 million led by a 10% increase in shipments and a 3% increase in average selling prices.
It's a g. expenses declined 4% year over year and as a percentage of revenue improved by 90 basis points.
This resulted from adjustments to stock based compensation and earlier implemented cost reductions.
Our return on investment continued to improve increasing by 110 basis points to 13.9% for the trailing 12 months ended March 31.
Consistent with past practice. This has been calculated on an adjusted EBITDA basis.
Tom has already commented on our strong balance sheet and liquidity position, which we further enhanced in April with the 750 million dollar term loan.
Our available liquidity is now $1.6 billion.
This is comprised of the term loan the undrawn revolving credit facility and cash on hand.
Our debt structure is very good with a weighted average debt maturity of 14 years and a weighted average interest rate of 4.2%.
And in terms of leverage our debt to EBITDA ratio on a great gross basis was 2.2 times and on a net basis. It was 2.1 times.
Tom mentioned, our contingency planning efforts a part of these plans relate to our capital expenditures.
We have reduced our expected 2020 spend from a total of $475 million to between 275 and $325 million. The majority of this amount will be spent on operating and maintenance capex and most of our growth.
Projects will be placed on hold.
Our capital allocation priorities remain the same but in light of the uncertainty created by the pandemic. We are most committed to operating and maintenance capex to protect the value of our franchise.
Dividends and the overall preservation of our liquidity.
From an M&A perspective, our evaluation of opportunities will be even more stringent and we will remain disciplined in this area.
And now I'll turn the call back over to Tom for closing remarks.
Thank you Suzanne.
Before we go to Q in a I want to take this opportunity to again, thank the employees of Vulcan for their hard work and their dedication.
They've taking good care of our customers and continue to improve our operating disciplines and efficiencies.
Our im sure Osha injury rate this quarter was 0.75 accidents per 200000 employee hours work.
A 15% decrease from the same quarter last year.
Simultaneously our hard working teams have followed strict who've at 19 protocols and stays healthy.
Our World Class safety record over the last three years underscores how committed are people are to superior performance and safety and health.
Our culture of putting people in safety at the center of our decisions serves our shareholders and our employees well.
We are committed to making decisions about our business that will protect the financial help to the business.
I will ensure strong growth for the long term.
We entered uncertain times in a position of strength.
We will exit uncertain times and they position of strength.
Now, we'll be happy to take your questions.
Yeah.
At this time, if you'd like to ask an audio question you may do so I pressing star in the number one on your telephone keypad.
Two and then yourself from the Q at any time press the pound Keane.
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One moment five first question.
The first question will come from the line of Stanley Elliott with Stifel.
Hey, everyone. Good morning. Thank you guys for taking my call and good to hear your voice has good morning, good morning.
Could you talk I guess kind of Tom high level, I mean, obviously plenty of it started in the marketplace I'd love to get your take on kind of what you're seeing more broadly across the portfolio and maybe even a little more detail on what to what you're seeing and trends in April if he could place.
Sure I would describe April is a continuation of of the first quarter.
Volumes will suing them shipping kind of as usual the one exception I'd call out would be in the bay area, where.
Residential and non residential construction, we're not deemed essential.
We're seeing that lighten up though I mean, they have lifted that in Napa and our customers in that area are telling us that they've got the wouldn't lifts they're ready to go both in resin Nonres is.
So as far as April is concerned so far so good from a demand perspective again, you know so lots of unknowns out there with Subaru suits and postponements and some delays. So we'll see how the rest of the quarter plays out from a pricing perspective.
I would tell you the cadence again is a big Delta between April and the first three months.
And pricing you know what the price. It was obviously very good in the quarter I mean should we think about yeah. The demand piece, obviously, there's plenty of uncertainty out there.
Is it fair to assume that that kind of the structures, you'll have a place I'm kind of what's being done at the ground level that that maybe there is little more visibility on the pricing side.
Yeah, I think that that the visibility on price inside is particularly with the disciplines that we put in our commercial excellence piece is very clear FOUP for that for the for the short term I don't see any thing there would would throw me off of how we cater to get our cadence in the fourth.
Four months, so again, so far so good you know in the quarter you saw with.
We were 4.8 mix adjusted the mix was in the southeast where we had a lot of rain.
Most all of our January price increases stuff Oh, we have some price increases the fix plants and ready mix to go in April most of those went through April 1st there's a few that pushed into may, but they're going to stick. So I think prices should hold throughout 2020.
And I would tell you the whole even if you see volume slide a little bit in the second half.
You know that's one of the unique characteristics <unk> about aggregates and we see that prove out over over past cycles.
Perfect I'll pass along thanks, guys. Appreciate it thank you.
Your next question will come from line of Kathryn Thompson with Thompson research.
Hi, Thank you for taking my questions today.
First of the team to say a bigger picture you, taking a step up that could you help clarify that typically is between Vulcan today versus the great recession I'm, a little over 10 years ago and particular, how has the end market exposure changed geographic mix change.
Structural cost adjustments and other other important fundamental differences today.
Versus the last downtown. Thank you everyone CAD. Thank you first of all from a market perspective, the markets are just fundamentally and structurally different and actually there. They are structurally better you don't have the overbuilding. There. We had some 12 years ago, if you'd look at it from a either a reserves or nonres perspective.
We're still below long term averages.
You've got much better highway funding, our our core states Vulcan Corestates have made big investments in infrastructure and we didn't have that 12 years ago and then the fundamentals are just good I mean, you've got you don't have the overbuilding you got extremely low inventories of houses you've got low interest rates. So.
You know just fundamentally construction demand is in a better positioned today than it was 12 years ago from Vulcan's perspective, we're just a very different company.
Structurally our product lines are different we are uniquely advantage in the aggregates business. We don't have any summit a little bit of ready mix. We have is is in.
Great markets, our balance sheet liquidity as much better and then.
Yeah, we started earlier in this to ensure the unit margins either continues to improve or protected and those are those four initiatives that we talked about the the commercial piece the operating disciplines logistics in procurement and as we said a last year those initiatives, which are very.
Much maturing well in good times will help us grow unit margins, if we get headwinds it will protect our unit margins. So we're just in a lot better place and as all the markets.
And I would I would just add to that T. Catherine I mean from my perspective, when you go through uncertain times like these having a management team that has a deep knowledge of operations. It is just so important because you have leaders who know how to exercise good judgment and.
And how to make decisions that are right for the business because it's really about striking an appropriate balance between you know short term and long term decisions and as I think about my you know my colleagues around the table on the sit on the senior management team certainly Tom stand bass and Tom.
On Baker I mean, these guys were division presidents out in the field and the last great recession running a business. So they are absolutely battle tested and I just think thats very important they've got the first hand knowledge from having put together you know actionable plans to stay.
Hey ahead of the curve back then and that experience has been brought forth. Now. So you know I think that yeah that is something that gives me confidence that we will be in a position to make the right decisions and execute them well and as Tom said I mean, I think we you know in while this is.
Difficult time in many ways you know from a structural perspective, where you know we're much better off than we were in the last recession anyway.
That's helpful. <unk>. The next question is really a compares and contrasts clean to end markets went to has more visibility versus one that maybe it's a little cloudier on the public side, you're seeing acceleration of construction work.
They also you cited states ever outperforming overall, but Illinois, California to what extent that public really helped to drive demand at this stage because they do you have more recent structural changes in funding and then I guess the contrast against that help us understand how you're thinking it.
That that non resi and market.
Our contacts arent seeing a wholesale cancellation project, but projects being pushed out and trying to start date. How are you thinking about that non ran exposure <unk>.
I'll take the Nonres first in the vast majority of our markets shipments to Nonres projects. It just continues to be strong our bookings and our backlogs continue to be healthy again, the exception we'd call out would be the bay area, which we think we'll hopefully is starting to start back up and we'll get that back on track.
I think Houston is a watch for US we have seen.
Along the coast the LNG projects that were the ones that have started are going the ones that a habit had not started or being pushed back.
We also see a few other non res.
Jobs pushed back very few cancellations I can only think of one or two that come to mind.
Our you know if you're talking a ready mix customers that they feel good for now the I think they probably have some pause or concerns past.
Good through their backlog. So you know, there's just a lot of unknowns funaro's perspective, with the impact of cobot 19 or Nonres construction.
No. We will work bid will it continue but you know so far so good but we're watching it closely.
The the highway piece is a strength for US currently the state deal Ti work is shipping normal we've got solid backlog as we continue to have solid bookings.
However, most states you know are projecting as you guys know a decline in revenues.
And ask though would tell you that's probably on average 30%.
The the vast majority of our states have continued construction and maintenance as as as expected. They expect the weddings for fiscal year 2020 to continue as planned.
Exceptions to that would be Pennsylvania, which was halted construction, Kentucky, Mississippi, which is suspended lettings and the North Carolina, We know came into this year with.
With financial issues, although the logistic <unk> their legislations club legislators are trying to fix that the flip side of that is some of our key States, Florida, California, Alabama, Texas are all accelerating work and that's we know that's both efficient and safer.
I'll now what we know on this is that shipments for now are strong and good lettings for this for the near term three or four months are solid we don't know what the future holds for these deals these past three or four months out there none of hours it released their budgets for fiscal year 2020 ones.
So you know again, you know so far so good.
We'll watch what happens and hopefully funding a will get backstop from the Feds flash, though and hopefully the world will start drive and again it will see guest expert best Texas pick back up.
And just one quick just a clarification, Illinois, California, you said it them as seeing increasing demand at the overall how much it that was private versus public.
So in in California, it's it's across the California's been.
In the first for four months has been good shipments across all four end markets.
Illinois is more on the public side both.
Infrastructure with O'hare work toll roads, and then as you know we've got new funding coming on in Illinois for highways.
Great. Thank you so much thank you.
The next question will come from the line and Anthony Pettinari with Citi.
Hi, good morning, good morning.
Tom Tom just a follow up to that last question on state budgets, you indicated lettings were solid for the next three to four months from a flow through perspective, I mean is there a timeframe or a timeline that we need to see federal aid to state.
To keep you know there's the outlook relatively positive in the second half of the year.
You know except for maintenance work, which goes very fast most of those jobs. We tell you that the you know the backlog six to nine months on average before you know you start shipping them. When you when you book amenities ship them, but again that all over the place, but just as we will fall from what we would tell you that that backlog shipped.
Six to nine months out.
Big Big work, maybe a little longer but that's that's so that's kind of rule of thumb.
Okay. That's that's helpful. And then you referenced Houston is a watch market I'm. Just wondering if you could talk broadly about the impact of maybe lower oil prices tier to your business. Both is maybe a potential modest tailwind from a derivatives raw material perspective, and then also.
Maybe as a headwind from a demand perspective.
Yeah. So from a directly we shipped very little to the oilfield is just not a big play for us it's not in our really in our geography. So.
We will see the direct impact from that indirectly, obviously lower fuel prices will help our aggers costs. It could help cost from a freight long haul freight perspective, whether that's rail shipper barge.
And then we'll continue as I said, we'll continue to watch the impact.
On Texas volumes, particularly coastal Texas.
We're not seeing a lot of that yet, but it's a watch for us.
Okay. That's helpful I'll turn it over.
Thank you.
Our next question is from the line of Mike Dahl with RBC capital.
Good morning, Thanks for taking my questions Hydra.
Wanted to follow up on a you know the the kind of Kootenay or exchange around some of the past cycle comparisons and I guess, specifically thinking about on on the private side, you're talking about seeing some.
On whereas projects kind of delayed versus canceled.
I'm curious if you go back to last cycle you did it did the early stages kind of start out like this and you kind of push out the projects as long as you can before push comes shop and gets cancelled or did you see kind of quicker.
Outright cancellations trying to draw some comparisons around <unk>.
Yeah, what to take from initially just saying a postponement versus cancellation I I think that use it was quicker and you saw more cancellations than postponements.
It was more dire and again it goes back to like the Overbuilding you just you're not overbuilt right. Now if you look at homebuilders. There is these markets have don't heavy inventories and so people want about house, they they've got to build them.
And if people are trying to take it yeah. It advantage of the interest rates on the.
Nonres side with the strengths were seeing there or data centers distribution centers warehouses online commerce education and healthcare.
And again those projects the I'll give you. Some examples was pushed out we've seen a door with warming up makes university push out.
Google project get delayed some office buildings get delayed a couple of Carvana facilities, we saw good and lay the only cancellation that I can think of.
Was the Dave and Busters in Lexington, everything else is the postponement and we'll see now.
On the rail side, we saw people push out new phases, a sub division three or four weeks ago and now we're seeing them in a number of all markets and we're going forward with them. So while people. It's it's a it's kind of a mixed bag where people are pausing in the moving forward and pausing to move in <unk> and moving forward.
Okay, that's interesting and unhelpful.
Second question just on on diesel you know you noted the 3 million to our year on year and improvement in in the first quarter and presumably it would get larger, especially as we work into.
Higher volume are typically higher volume months, but curious if you don't understand that theres no guidance and anymore for this year, but can you help us frame up yeah, you're diesel consumption for last year and in X. and you know all else equal. If if you are assuming current diesel pricing on on the last.
Two years or.
Shipments what type of full year tailwind what would that represent.
Well you know.
Our last year are trailing 12 month I think we used about 50 556 million gallons of of diesel fuel.
Yes, there is a drop in that but I think that we can't control the price of diesel. So we'll always focus on his and every operator woke would know what is your tons per gallon fuel in every plant that we operate and that's that's their training and that's how they look at it you guys can do the math we dropped from.
To 26 to two Ofour and since then has gone down dramatically. So you know if was one dollar it's no.
Assuming that sooner uses the same its 50 million but.
Again, that's one of those that that's not our controllables when will our operators over they look at how they use it.
Okay.
Thank you. Thank you.
Next question from the line of Trey Grooms, let Steven.
What's driving <unk> very good.
Good morning, Suzanne how are you.
Great I hope you are.
Doing well.
So my first question is around the fast Act you know it expiring in September.
Thank you know the prior thought was that we would likely get a the some sort of a continuing resolution that kind of see us through the election and into next year and maybe revisit you guys think that the current situation.
Changes you know that at all and you know the potential that we make a get something or maybe more meaningful than just to see our how are you thinking about that given a lot of the current health crisis that we're in.
So trapped I divide that into into three buckets. The first one and probably the most pressing is ash toes request for 50 billion to backstop, though the fall and state funding.
This really needs to be included in the covert 19 phase for Bill and I, you know hopefully that's going to happen because it's a real need. This there was the impact of the pandemic.
The second.
Bucket or this is is to your point, though the fast Act reauthorization.
You know prior to cope with 19, there was serious work underway in DC on reauthorization.
Earlier this year, so you'd be W Committee pass though.
A highway portion of the fast Act. It was an increase of I guess about 25.6%. Unfortunately, the pandemic interrupted that work. The good news is the it was a pre work has been done there. So they had a good start to it again, it's been interrupted but remember that.
If the reauthorization isn't done by September we will get extensions. So we're not to lose that funding. It won't go down it'll just be pushed out and then.
So it's either flat or you know if we were to get it we would go up dramatically and then the third bucket would be the the discussion kind of the continuous discussion of a big infrastructure Bill there's a lot of talk.
There's been a lot of talked for several quarters about a significant act to address infrastructure.
Again, cobot 19 complicates this politically but there's also this is also a this is an opportunity for that and everybody recognizes the need both from an infrastructure perspective, but also to as this is a stimulus package. So what has had to see what happens.
Understood Okay [noise].
So and then I guess the next question maybe for Suzanne.
It sounds like things are holding in now, but clearly up with all the uncertainty you know.
Seeing some level of volume declines in aggregates over the next few quarters is not entirely out of the question.
So in in that kind of scenario. Another long term goal for incremental margins is 60% is there.
How should we be thinking about the and the case of lower volume I'm, just kind of the mechanics around.
Decremental margins.
And that type of scenario and assuming you know that this is.
Somewhat short lived in duration. If there is if we do come into some type of a downturn.
I'll start off if you don't mind I think that's part of the beauty of the agribusiness.
A big the key to that is from from a margin.
Mm.
Perspective is staying ahead of the curve and make sure you know, what's gonna I'm going to happen in head and I headed off a we've been we set trigger points in these markets that aren't just volume fall hauling. Its you know according praised our how we're quoting our job bookings backlog levels the shipping pace and.
That's the all in markets.
A big benefit to us is that commercial excellence strategic agenda, which allows in in individual markets for clear metrics that are automated they're consistent they are accurate and they really give us a view to the future before before before volumes actually.
Fall at the same time, you look at timing delays and in critical inventory sizes.
I think that the team has done a really good job, putting those contingency plans in place for potential volume swings and their detail about plant and by market and setting those trigger points.
And again that.
This is you can take production in aggregates as you know up and down very quickly as mechanical process.
So you know cost as a piece of this prices a piece of this but at the end of the day, it's that management of unit margins and our goal is to maximize those unit margins and live up to our potential again those force or to use initiatives are really going to serve us well in this and as we said they know the hope is.
No margins in good times and protect the in bad times. So, we'll we'll leverage that and I think we're in a really strong position to predict those unit margins, yeah, I agree with time and and I would just add to that look I mean, that's that's why we got started on these contingency plans very early so we would know exactly what we.
Planned to do well in advance of any you know volume's beginning team to to fall because certainly as Tom said, you know we understand how to reduce costs, we want to make sure that we do that sensibly, but you know a a large part of our costs are variable and so we do.
You have the ability to to do that we want to make sure. We do the right things for the business, we do want to protect our unit margin and certainly as you've heard US talk about many times you know we are well ahead of the industry on those and so our folks in the field and understand that well you know you can always say.
Say that you know history will repeat itself, but just as a you know just just as an indicator of the company's resolve and ability to reduce cost. If you look back to the last recession. When certainly you know there was a significant decline in volume our unit.
Margins only went down by about 10% outwear, while volumes decline much more than that so you know that indicates that there is you know certainly room for us to manage those margins.
Okay.
Understood. Thank you very much and good luck with the rest of the quarter and as they say thank you. Thank you stay safe.
The next question is from the line of Mike, let it wouldn't know more instinet.
Hi, good morning, what am I could you marine and could you give us some color in terms of maybe your top three markets in terms of how that revenue shortfall in transportation or revenues look looks compared to that 30% national shortfall per Asheville.
No I don't know that I have those specific numbers, but our top markets are gonna be Texas. The top you look at our top 10 markets.
Our top 10 states.
The top three would be Texas, California, Virginia all of them.
Of have have kept their lettings the same a through fiscal year 2020.
I'm the only one that has not done not out of the one out of the 10 that did not as North Carolina, and we all know what's happening there and hopefully.
They'll get that problem solved.
I would tell you that Texas is very healthy based on their web based on their current revenues, California continues to be pretty healthy as those Virginia, but specifics of those top three I'll have to get back with you.
Okay, and yeah, I'm curious to get your thoughts in terms of your shipments.
You know lags the Oh funding that the states are putting it on the public infrastructure side have you looked at in terms if funding levels drop you know, 10%, 20% from 2019 levels.
What that would actually lead to in terms of the drop off in your shipments.
[noise] too early did the short answer is really too early to tell a lot of moving parts.
I think that in it and if if you look at those states, where we are and our backlogs again those things lags six to nine months, but I think this is one of the real unknowns and uncertainties that we'll have to put together of what's it going to mean.
I would tell you the our states and the top 10, we talked about or none of those 10 have much better funding.
<unk> increased their funding over the last three or four years only one that hasn't has been Arizona. So we sit in a better place than most but too early to tell.
Okay. Thank you. Thank you.
Next question from the line of Seldon Clarke with Deutsche Bank.
Hey, Thanks for the question, Eric Hi, if you just take a step back and think about the business mix from a higher level. You know you mentioned backlogs are suddenly maintenance type work in state Lettings and obviously, you've got some ongoing projects in both the commercial and residential space, but when you try to contextualize this internally.
There you know when you do your stress test what percentage of your revenue mix do you really think is at risk from a macro perspective over the next I'd say, a three six and 12 months.
Again, I I'm, sorry, not to give you a clear answer that because I. Just don't think there is a clear answer right now on it we just.
We don't know the short term or long term impact of the shelter in places and it's a very dynamic situation.
Even today as people start to lift it we don't know what that means we don't know on the private side again, we continue to see rez.
Homebuilders come back and Bill subdivisions, we see a few projects here in their postpone in the Nonres.
Sector. So on the private side is really going to depend on.
Is does do these postpone must get to be meaningful. So so far they have not or does what we have book does it postpone again, which we have not seen much of that at this point.
So again, so far so good but I just don't thing we have clear information either on the public side or the private side to predict that either short term or long term.
Okay any color on this stage said you know have Ah looser restrictions in place that you know just to give a sense of what the continuing business looks like over the next couple of weeks or months.
Yeah. So.
In general as we said both on the public side and the private side through April we're shipping is as usual I'm with you know that's the one exception has been it's been northern has been northern California actually the just the bay area in the Southern counties up there and we think that's going to lift.
Which will give us a a boost or hopefully over the next 30 45 days. It's always start a will get was we said with Napa, but at this point with the shelters in play the children's place over the last summer eight weeks, we've not seen a fall off so we would think that as those lifted would always support the shipments were seeing today.
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Okay is there any way to just you know contextualize, what you mean by as normal in April I'm, you know whether it relates to comps last year. If there is you know what type of a you know delayed demand from late 2018 impact in April or you're talking normal seasonality or has anything to help contextualize what April a thing what I would tell you is.
Well, it's fairly normal compared to prior April.
Yeah and that the the the spillover from.
Fourth quarter of 2018 that was really a you know a first quarter impact last year. So that really has no no bearing on what we're talking about for April.
Okay. That's helpful. Thank you. Thank you.
Next question from the line of Gary Smalley <unk> capital.
Oh, Hey, Thanks, I'm, just wondering if I say gee, how much of the decline in the quarter was the lower before share based comp versus the cost actions you talk and you know how to think about suji moving forward, both in a maybe a shorter or longer downturn.
Yeah, I know and that thank you for the question I'm, probably three quarters, or so maybe 60% to 75% or the amount was share based comp I mean, that's basically tie to the on to the share price and so we'll continue to report on fluctuations.
There the and the other reductions that you saw in on the S. AG cost I mean, we really Ti <unk>, there's a bit in the fourth quarter. When we talked about you know having looked across our you know corporate and field operational overhead base and we may.
Some adjustments there really around technology and looking for ways to be more efficient as well as waste from the at corporate standpoint to better manage professional services and therefore, we said you know back in February that we expected S AG to be lower.
<unk> for the full year, both in absolute dollars and as a percentage of of revenue. You know certainly that guidance was you know was was lifted as as we lifted all the other guidance in India released this morning, and I I would say that you know as as we think about S. AG.
As we go forward and then these times I mean, we're always looking for ways to better leverage the overhead I'm just like offer our operations group had detailed contingency plans by plant. We also have our contingency plans with respect to to S.
He said we will.
As we go forward, we will see you know which of those contingent take plans are executed on the basis of what we see happening in the business.
Okay. Thank you follow question is I was curious if you're seeing any impact to your Publico core you can't Coon just given some of the shutdowns and various industries in Mexico has your thinking about a long haul network just given some of the watch sports across all markets in the Gulf Coast.
So.
First of all our people who've done a great job keeping each other safe and healthy.
Both on the Coreys and the Corey and in the shipping lines. We continue to operate Mexico, we've been deemed and central business.
Just like the U.S. weve implemented solid procedures and protocols picked our employees.
Again, you know, we're still operating and we're still shipping and at this point you know, we don't see it or we don't see any any interruptions.
Great. Thank you.
Next question is from the line of Adam polymer with Thompson Davis.
Thanks, Good morning, guys morning, Hey, good morning.
[noise], what Tom what percentage of your.
Shipments come from backlog so backlog is stable.
Kind of says to me that you know shipments could be flattish hasn't moved through the year, but I don't know Theres a lot of book and burn work.
That would come in over the summer to where if that doesn't come in this year than all of sudden yet you know your minus 10% on volumes something like that so about 60% of our business is what we called bid work, which is in the backlog and about 40 that is large comedian projects. The other 20 is small projects the smaller projects go faster.
The the largest medium projects again is kinda in that and that 60 or excuse me six to nine month timeframe.
The other 40% of our work is shipments to fixed asphalt and ready mix plants.
You asphalt will be more driven by the the public side. The ready mix is usually more driven towards the private side. So I mean, we've got pretty good insight into into how we're going to look there I would tell you that as I said earlier the systems and the.
Procedures in the disciplines that were put in would the commercial excellence initiatives. Some three years ago and that they've been perfected actually that's really gotten pretty accurate both from a volume perspective in a price perspective, the things we can't control and both of these are projects being delayed or projects being council.
Sales and the unknowns around those okay and then what are your thoughts on.
Cash flow this year, because with the pull down and Capex.
I should say that generate a lot of cash this year, just curious how you're thinking about deploying to.
Yeah, I, yeah, it to the capital allocation and question look you know our priorities are basically the same as when we've talked to you before you know the order of the capital allocation priorities are unchanged and but in light of the pandemic uncertainty.
I would tell you that we are most committed to operating and maintenance capex to protect the value of our our franchising keep all of that in good running order, we're very committed to our dividends and certainly to the overall preservation of liquidity and and you saw us take steps and the.
Corridor to and ensure that we not only preserved our liquidity, but but enhance dead and you know as we think about AD growth and M&A and you're you're right. We did reduce some of the capex that we plan to spend on on internal growth projects.
That was projects are pretty easily turned and off without a lot of impact on the on the business and M&A. You know we would didn't do any in the first quarter, we would continue to evaluate opportunities as they arise, but let applying an even more stringent lens.
To that just given the current economic environment and so we've always been very disciplined there and certainly we will we will remain even even more add disciplined and you know at the bottom of the capital allocation priority waterfall, our share repurchases and look you know we we.
Think share repurchase is an important part of that Ah capital allocation structure. We yeah. It's it's part of that for the long term and we did do a little buying very early in the quarter about $26 million pre code.
So we're committed in the long term, but but I can tell you end up in the short term, yeah, probably probably not we will focus more on preserving liquidity and the other items I mentioned.
Okay, great. Thanks, Suzanne sure.
Our next question from the line of Paul Roger What Dick Hayne, BNP Paribas mourn Paul.
Yeah, but how does that <unk> well good afternoon blended Ah, yes, yes, yes.
Just a follow up maybe I know you've talked a bit data about the cost maybe I'll just have a follow up on that they obviously are pretty buck on capex I'm, assuming that fall Yelp S. A delay and you all greenfields is the plan essentially host Kobe 19 set to stop that May again, I'll stick with that Oh, we think about the sort of meat Intel chip.
Expected cop, <unk>, capex and sort of lumpy backup again I'm just joined today by all stuff here said that about working capital, whether that's much more to doing lots ones as well.
I'll take the Capex first it's market specific as always.
Those or Greenfields in California, and Virginia, and South Carolina, and so slow ramp up or down depending on those individual markets and the needs and the opportunities.
So its we'll we'll have to play that just by year, but if the need is there in the demands there obviously, we're going to invest because a good investments and if not we will hold off until it's time to invest.
Yeah, and with respect to the working capital question you know yeah. We're obviously looking at looking at that and have taken some steps to to add to improve that as I said, you know the and our cash flows and the preservation of liquidity have always been important to the to the company.
It's one of the core tenets of of how we run our business and so you know in times like these obviously, we're going to ramp up those those efforts. So we are you know making sure that are our accounts receivable is collected timely making sure that Ah you know we don't let any.
Aging or anything like that slip there and you know we're also looking at you know carefully managing our inventory levels. That's all part of the contingency planning and certainly you know we will you know theres some steps to be taken on the payable side, we'll look at.
That is as well.
Hopefully that hopefully that's responsive to your question.
Yes, that's good and just a quick follow up can you maybe talk a little bit about outlook for gosh <unk> margin been able to say Kiwanja hot tighten up bitumen down I guess pension income is down by even bulk in while oil stewing I'd do you think you couldn't hold up price cost that Nazi couldn't you can get wider hazardous India.
Well I think I would I would describe it this way our prices will continue to climb we saw and they are you seeing a number of quarters actually all of last year prices climb as we chased liquid rising liquid cost we caught it in the fourth quarter and we said we would catch it and go past it which is which is what you've seen so I do have confidence that our pricing will continue.
You too to go up and the hot mix portion of it I think that the liquid piece for us is an unknown.
On the surface. So it went down some 6% as Suzanne said in the quarter, but the future for us is unknown and liquid and there's opposing forces. There you know the dramatic fall and in crude prices would have a lowering of effect flip side of that is right now you've got got less.
Refinery activity because this demand for diesel and gasoline is down and so does that the question is is that put pressure on supply of of liquid. So what I'm confident is our prices will go up what are the unknown here is what's gonna have happened to liquid up prices as we go.
Go forward.
When the stuff Thats off state that guys. Thank you. Thank you. Thank you.
The next question from the line of Michael do dots with vertical research.
Good morning, good morning, or or maybe after the person for Mark, but then I. Appreciate I. Appreciate you taking that my question.
The implementation of of covert mitigation throughout your organization through the plants they facilities.
How how quick we did everybody adapt do you see that continue who is there any productivity issues or could there be some enhancements to operations. As you think about you know going forward. If we're going to keep these types of mitigations for a for a long period of time, a are you seeing that with the customer with your customers are you talking too as well.
So I don't know the short answer is I don't really see a big impact on our operations on our customers.
I'd tell you I'm very proud of our people and the job they have done with this and they're doing a great job, both you're doing great job of protecting themselves. But also you remember there's a dynamic of this that what happens out of work and so they've been very vigilant protect themselves and their families. We started this really early and we continue.
HM two adjust as we get new information and new procedures, you know out of our 9000 employees. We've had minimal cases, and that's the script protocols and its stay in to that it is paid off from an operating perspective, you saw in <unk> in our in our.
In my opening remarks about our safety record for the first quarter was excellent and continue to be excellent through April and I got to tell you. That's up that's a real feet from our operators and that there you know under a lot of.
Pressure and and with the code that 19 protocols, which were new they still protected themselves are operating efficiencies and the first four months has been very good so they've done a great job and we've not seen any pick ups and I don't expect to see any from our perspective, but I think the same can be said.
Customers.
We are deemed in a central business all of us are and we have to earn that and protect ourselves and follow the rules and I think the industry as a whole has done a really good job with that.
Those are excellent thoughts and just my follow up would be yeah.
The mitigation in the aftermath of coal did do you think that there'll be some trends and opportunities that will impact where your.
Plants in your business is located to see migration.
Being here in the New York City area, you do talk to people thinking about there look there continue to look south, especially after what's going on here do you think that could give some medium longer term support to your business. Both I think that you know from where we are located both in the markets were end and where were located in those markets Vulcan as advantaged and.
That's been built over six decades, as we said so I really like vulcan's position a moving forward you know there's always the question of.
The recent question of do people want to move out of the metropolitan areas and go by House Gosh, We hope so [laughter], we'll be glad to supply the stone to build those houses no sub divisions.
I'm, sorry, well thanks for your thoughts appreciate it thank you.
Our next question from the line of filling with Jefferies.
Hey, good afternoon, everyone. Good afternoon.
<unk> LNG projects around the Gulf region to choose you guys have talked about can you help a size how big of the opportunity that is and then if you had to kind of break down what percent of those projects have started versus not yet and then with oil prices were attacked do you have a view of that kind of moves forward [noise].
So you know this was always a 2021 play the LNG projects as we said that had started are continuing and Oh, we were shipping a number of those projects today, but Louisiana and in Texas.
The the the big work was a the work there was coming it is tens of millions of tons that has been postponed again that was more to be 2021. It was kind of icing on the K gove everything else it was going on.
I'm sure at some point in time those projects will go I think there is demand throughout the world It will walk that.
I think the we'll have to settle down some so the timing is unknown, but I think ultimately they'll go.
That's helpful and I'm on the commercial side of things can you help US breakout you know your major end markets by percentage you know some of the.
You know and markets like warehouse and datacenter seem to be more solid footing dollar for opposed to that they may be hospitality to office might be more at risk Kenny can you get out break us at break down the the major buckets from a percentage standpoint.
So I think that if you looked at the heavy nonres and which is some of what has is has slowed the lighter non rose, which we talked about data centers distribution centers warehouses healthcare education online commerce as very.
Much picked up I would describe that is probably in normal times, maybe half and half, but that's just over a long period of time with any any any moment in time, one of those is going to be heavier than the other one and right. Now. It is just tends to be the lighter one that is heavier.
Okay. Thanks, a lot appreciate the color.
The next question from lineup Adrian Herder with JP Morgan.
Hi, Tom a son, Thank you for for taking my question I'm doing my quick Hi, Mike what kinds of the way that maintenance cost and you can just give us any more details on them on an incremental amount that you had these water that flow through the income statement then.
Oh, the total amount that of maintenance costs that you had a last year on what is your expectation for the full year for this year. So you know we've called out.
The last couple of quarters that we would see higher maintenance and higher stripping costs, we've talked about that in the third quarter, we talked about that in the fourth quarter. We said it would we see it again in the first quarter and then it would start to level off if you look at the cash cost.
Aggregates, who was up some 3% or 26 cents.
Most of that increase was in parts and supplies and stripping again, yeah. Remember this is the worst time of the year. The first quarter to operate just because it's cold is what you have begun efficiency. So we go in and try to win finish a lot of those repairs and maintenance. So when the season comes we're ready to go that.
That is what you saw in Q1, that's where we talked about there was going to happen I think X volume swings we feel good about the balance of the year. We feel like are you know our operating disciplines and our strategic initiative on those operating disciplines are in place.
And they're maturing and doing well, so I feel really good about our operations and and our operating efficiencies again that is the fundamentals of that is maximizing group you looking at all on M. piece, but the fundamentals of that or how do you maximize input minimize downtime how do you a fish.
Currently use manpower and then you proactively inspect that equipment and maintain it and then the last is employee ownership and engagement and effective leadership is key to all of that.
Thank you don't that was there was here and if I may ask a follow up question can you just on those have been more on on what happened I mean, I heard what did you say that they you're taking steps to improve on working capital.
I'm going to talk a bit down what and what happened in the fourth quarter and working capital.
Yeah with with respect to add working capital in the in the first quarter and we had a bit higher use of working capital because and we had a little bit of inventory build I mean, not a whole lot, but a little bit in a couple of air.
Areas, we called out that where you know fairly wet in the south east and the South West.
And we also had a fair a debt of mobile equipment, which falls into our operating and maintenance Capex that we had ordered in the fourth quarter and that came in and was paid for and in cash and the first quarter and so that was that.
It was another you know fair fair bit of working capital that just was was timing between the fourth quarter and the first quarter and in addition to that we also expanded $26 million a of cash with respect to a share repurchases and that those were really.
The biggest at components in the first quarter.
Hey, good zone.
Sure.
The next questions from the line has really had set with San Fran.
Hey, Thanks for taking my question I'm sure just on this so CTO teas.
No the Ashkelon number down, 30% and requiring about $50 billion, let's say that number doesn't come in quite at the 50 billion.
I was just thinking about it doesn't come out 50 billion in states could look at the highway.
Ones as.
As far as they can use to pay for other areas as the budget that there that are in shortfall. So I think the lockbox as might be a little bit important right now do you know on hand, which states.
In your markets have put in lock boxes.
I believe California, I think Illinois has won deals and about some of the other tough translates well.
Well all of them have lot boxes. So all of that funding is protected and can't be.
Diverted for other uses so the funding is safe and hopefully that funding will will come back strong is as we reopened up but for now.
Any funny because there is to be use only for highways.
Okay.
And today, there was a a new employment report came out it shows construction.
Employment was down about two and half million jobs in April. Meanwhile, most of the companies reporting on construction. This earning season that April was was it was not not too bad.
The two and half million to the alarming number just curious.
Did you see.
Seasonality hearing that I mean.
Let me by surprise that yeah, I think that is a national number and we did not see that kind of drop in our markets. I don't think we've seen that kinda dropping our marks in April. So I think is more where that is I would you know all these all these shelter and places have been different for example, as we've talked about and.
Seven counties and around the Bay area will restrictive on private well, Pennsylvania did not did not keep going with highway construction is we know New York got hit harder. So some of the northeast probably got hit harder than most of our markets.
Got hit with this so I just that we didnt see those kind of drops in our markets.
Okay, and then just on liquid asphalt again, so look what actual does fall, though do you expect to realize the benefit I know there's been about mix responses on a path.
Yeah, if history repeats itself, which we believe it will as a as we saw last couple of years is mix went up we chased it we've caught that now so if you see a drop we should you should see that benefit unit margins in asphalt.
All right. So your actual business given the highway is probably give me the most resilient part of your business I mean that should.
Probably a pretty good business for you guys is here is that fair to say.
I would like most of this from a demand perspective I wouldn't know you. So far so good you know, we're where we think we're protected with with highway demand for the next three or four months after that hopefully the ash. So we'll get what they need and it'll continue to grow as we move forward yeah.
You know clearly clearly it's something we need to you know to monitor sure.
Right, Okay, all right great. Thank you that's all I have thank you.
The final question will come from the line of Jerry Revich with Goldman Sachs.
Yes, hi, good morning, Good afternoon, Hi, Jerry I drew.
Battling connectivity issues. This morning, so I apologize and dance. If this has been asked but can you talk about that pricing tools that you now have available heading into this downturn and you know their way to quantify or a better understand what they're going to allow you to do in this cycle can take last one so yeah audio.
So you're not having said that helps.
In this downturn, but from pure aggregate standpoint can you just talk about.
What the tools could potentially I will allow you to do here.
Yeah. So so that the tools that we use all give us visibility into that really into that 60% of the business that we that we're bidding we talked about in it. It's real time, the keeps up with our backlogs are booking pace what the prices in both of those look like where the wouldn't.
Sector. The work is is coming from what size. The work is coming from so you will have a real time visibility and down deep into markets of the affected not only the effectiveness of our salesforce and and how they're doing on their disciplines, but also how how we how the will should look going for.
Sure.
And it just gives those management teams a lot better tools to predict so that we can adjust our operations and our efforts accordingly.
Yeah, and Tom in terms of what that will drive for from a market. Your standpoint does that mean, we should look for lower market you're at the trough, whereas you folks focus I'm, even more powerful jobs can can you just flesh that out for me a bit relative to the competitive landscape as well no.
I would look at it that way I think what it allows us to do is maximize our price and maximize our customer service to earn that price.
So I wouldn't see a big market share swing in this and you got to remember.
That is the beauty of the Irish business is the pricing characteristics that they are resilient and we've seen this through multiple cycles. In fact, we sooner for 40 years I wouldn't think that this one would be any different I think probably the industry as a whole is better off today than it was some 12 years ago. So I think.
The pricing disciplines, both within Vulcan and within the industry or better today than they probably were 12 years ago much less 20 years ago.
And in terms of yeah, the metrics that you're managing by individual 350 plant operators can you talk about any changes in terms of the framework for evaluating their performance.
The downturn compared to what it would have looked like a year ago and how do we keep folks from the who haven't seen this movie before is the senior management team has from.
Getting up over their skis from a cost structure standpoint.
Yeah, well I think that that you know we have a lot of experience managers, we have a lot in a new managers I think that the again the the operating piece of those four strategic initiatives of how do we run those operations the most efficiently and keep our people engaged to make sure we have appropriate train.
Thing so the do you get that experience faster and further into the organization or very important and it will serve us very well through this the same time, we will look at all those leading indicators from our sales group to affect our operations as we look at critical sizes, when those operations and adjust.
Those accordingly, you know, there's a lot of leavers to pool and the operating side of the business.
Whether that's you know inventory or discretionary spending you know maximizing as we've talked about those fundamentals of efficiencies in it and I think that are I know that our people are very good place here and they'll be able to handle a swings in volume as they would have it just marched up steadily.
Appreciate the time thanks.
Thank you.
With that I'll hand, the call back to Tom Hill for closing remarks.
Thank you. Thank all of you ever taken the time to listen to our call. Today. Clearly these are very challenging times and their challenge for all people throughout the world and for every business.
So we greatly appreciate your interest and your support and Vulcan. Please stay healthy and we look forward to talking to you and the coming weeks and months and have a great day.
This does conclude today's conference call. We thank you for your participation asset you. Please disconnect your lines.
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