Q2 2020 Vulcan Materials Co Earnings Call
Good morning, ladies and gentlemen, and welcome to Vulcan materials Company second quarter earnings Conference call.
My name is Christie and I'll be your conference call coordinator today.
During the Q any portion of this call. We ask that you limit your participation to one question plus a follow up.
This will allow everyone who wishes the opportunity to participate.
Now I will turn the call over to your host Mr., Mark Warren Vice President Investor Relations for Vulcan materials. Mr. Warn you may begin.
Thank you operator, good morning to everyone and thank you for your interest in our company.
With me today, or Tom Hill, Chairman, and CEO, and Suzanne would senior Vice President and Chief Financial Officer.
Today's call is accompanied by a press release and a supplemental presentation posted to our website bulk materials dot com.
A recording of this call will be available for replay later today at our website.
Please be reminded the comments regarding the company's results in projections may include forward looking statements, which are subject to risks and uncertainties.
These risk along with other legal disclaimers or described in detail in the company's earnings release and in other filings with the Securities and Exchange Commission.
Reconciliations of any non-GAAP financial measures and other information or available in both our earnings release and at the end of our supplemental presentation.
As the operator indicated please limit your Q in a participation to one question plus a follow up this will help maximize participation during our time together.
With that I will now turn the call over to Tom.
Thanks, Mark and thanks, everyone for joining the call today, we appreciate your interest and Vulcan materials company.
As always but particularly in today's world. We hope you and your families are <unk> safe unhealthy.
In spite of the difficulties caused by the pandemic.
Companies thriving.
Which demonstrates the strength of our people and about core business.
I'll take some time to comment on three accomplishments.
First I employees have continued to shot.
I'm proud of how quickly they've adapted to rapidly changing environment.
Since the start of the pending.
They should they've shown again and again the flexibility there tenacity and their commitment to everything from ensuring a safe workplace, taking care of our customers.
Our workforce is second to none and I appreciate everything they're doing to grow Vulcan materials, regardless of challenges.
Second.
Our teams executed well on the operational and financial financial contingency plans did we developed in the early days of the pin doing.
Our approach was to identify.
Our ties and focus on what we can control.
And then to take the appropriate and decisive actions.
At times like these.
The ability to have vision.
To make decisions quickly and accurately and to execute.
Affectively is critical.
We continually review our location specific contingency plans.
And make the necessary adjustments all the while sharing best practices across our network.
The combination of these proactive plans.
Solid execution good communication.
And the strength of our Argus focused model gives us confidence that we will continue to be successful.
And third.
Our strong second quarter and year to date results clearly demonstrate our ability to grow our unit profitability and to improve our return on investment.
We remain focused on what we can control.
Including maintaining our pricing disciplines and controlling our cost.
Our success here supported by our four strategic disciplines, particularly commercial excellence in operational excellence.
You saw this in the second quarter, despite a 2% decline aggregate volume, we improved our adjusted EBITDA by 2%.
Our cash gross profit per ton by 9% and on a trailing 12 month basis, our return on investment by 100 basis points.
Suzanne will review the quarter results in more detail shortly but first I want to describe some of the demand trends we're seeing.
Certain leading indicators of construction activity appeared to be showing signs of improvement both sequentially and year over year.
Housing has been most resilient of our market segments would you data showing improvement.
In single family housing, leading the way.
Permits in sports have improved at a fast rate in our footprint than other states.
Private nonresidential construction is the most variable in use reflecting a wide range of building categories East River by different factors.
At the end of 2019, the pipeline of new projects measured by square feet of contract Awards had increased 10% from prior year in our markets compared to down 3% in other markets.
This momentum reflected winners and losers book categorically and geographically.
In April this momentum was interrupted by the pandemic. However.
Juge showed improvement over April and May.
As a leading supplier and 90% of our markets, we are well positioned to supply all types of nonresidential construction, regardless of the category.
As we think about current trends, it's important keep in mind. The unlike the great recession of 2008 private construction going into the pandemic, what's not overbuilt.
Both residential and nonresidential demand.
Were below long term averages.
This suggests that the slow down for the pending it could be shorter duration, assuming that the trajectory is not significantly interrupted by additional ways of newco bid cases.
How we construction was deemed as central business at the onset of the pandemic and so has pretty much been business as usual.
Now with shelter in place gas consumption gas consumption, Phil and this affected state deal to revenues.
But with Reopenings, the revenues or recovery.
The recovery coupled with proposed Couponites. He really has the state duties outlooks improving.
We are encouraged as work continues in Congress to backstop deal T. revenues loss to covert 19, and two reauthorized the faster.
The house has already passed backstop funding for deities as well as it reauthorization Bill the Senate is working toward a kubat.
19 recovery package now.
And we expect they will address reauthorization in September.
To summarize.
The economic environment in certain leading indicators of construction activity showed improvement during the quarter. However, the evolving pandemics effect on demand in our markets and the broader economy remains unclear.
The volatility of new Qubic cases, restricts our visibility into the second half and as a result, the peace and scope a recovery and therefore, our shipments volume is uncertain.
As a consequence, we are not reinstating earnings guidance at this time.
We will continue to monitor all aspects of our markets and as our visibility improves respect to the economic effect of the pandemic.
We will resume our usual practice providing guidance.
As we move forward, we will remain focused on the things that we can control.
Keeping our team safe and healthy servicing our customers and executing on our operating disciplines.
The maturing of our four strategic initiatives will continue to expand our margins our second quarter results clearly demonstrate that our strategic disciplines are working.
Dependent Mick has not changed the underlying fundamentals of our Aggers focused model.
Our business is sound.
Resilient.
And more easily adapted to the changing market conditions. We also have solid foundation of healthy balance sheet strong liquidity at the full support and engagement of our people.
Despite near term uncertainty route we remain confident about our long term prospects for growth.
Now I'll hand, the call over to Suzanne for some additional comments.
Thanks, Tom and good morning.
I'll cover some highlights from the quarter and comment briefly on our balance sheet in liquidity position.
As Tom mentioned adjusted EBITDA for the second quarter increased by 10% to $408 million in all three product lines aggregates asphalt and concrete we achieved improved profitability. This was particularly noteworthy in the aggregate segment in which cash gross profit per ton.
On increased by 9% to $7.69 for the trailing 12 months.
Cash gross profit per ton was almost $7, that's continuing our progress toward our goal of $9 per tonne that we shared with you at our last Investor day.
Our second quarter aggregate shipments declined by 2% from Q2 nineteens level shipping patterns varied widely across our geographic footprint, but were generally supported by healthy backlogs and our designation as an essential business.
Key markets in the southeast and coastal Texas were negatively affected by wet weather, while shipments in California were impacted by shelter in place ordinances.
Year over year shipment activity improved in Georgia, Illinois, Tennessee, and the rest of Texas.
In July our aggregate shipments declined by mid single digits compared to a strong year over year comp.
The decline reflected some project delays and reduced nonresidential activity.
During the quarter, our aggregate selling price improved by 3.3% on a mix adjusted basis with all key markets reporting improvement.
Total unit cost of sales declined by 1% and 3% on a cash cost basis as compared to the same quarter last year.
This was despite lower sales volumes and a reduction in inventory.
We carefully managed our production schedules imprudently controlled inventory, particularly in areas like Northern California, which were more acutely affected by shelter in place orders.
He associated cost of reducing inventory offset the majority of an approximate 14 million dollar tailwind from lower diesel fuel costs.
Moving to our non aggregate segments I'll start with asphalt.
Gross profit this quarter improved by $3 million as compared to last year's quarter.
Although asphalt shipments declined by 5%, we captured the benefit of lower liquid asphalt costs.
The concrete segment gross profit grew by 10% to $14 million.
Shipments decreased by 4%, while average selling prices rose by 1%.
And then the quarter as say Gee expenses declined 5% as a result of the continued execution of earlier cost reductions lower incentive compensation expense and general cost control in response to the pandemic as a percentage of revenue the improvement was.
31 basis points.
We were particularly pleased as Tom said with our improving return on investments profile.
For the trailing 12 months ended June 30 in improved to 14.2% and consistent with past practice. This has been calculated on an adjusted EBITDA basis.
Turning now to the balance sheet and our liquidity. We took further steps this quarter to enhance our position we issued $750 million of 10 year notes with a coupon of 3.5%.
The purpose of this bond issuance was to retire a 250 million dollar note that matured in June twentytwenty.
The remaining $500 million pre funded the maturity of another note due March 2021.
That note is not callable. So we will hold the cash on our balance sheet until then.
Our weighted average maturity of debt is 14 years and our weighted average interest rate is 4.1%.
Our total gross debt to EBITDA leverage ratio is two and a half times, but on a net debt to EBITDA basis, It's 1.9 times, reflecting the $870 million of cash on hand.
At June 30 are available liquidity was a healthy $2 billion.
Cash generation has been strong through the first half of the year operating cash flows were $426 million through June an increase of 41%.
Capital spending is slightly less than the prior years first six months we.
We still anticipate spending between 275 million and $325 million this year, mainly on operating and maintenance Capex.
Most of our growth projects remain on hold.
And we'll continue to evaluate our capex as we gain further visibility into the second half of Twentytwenty.
Our capital allocation priorities remain the same.
Operating and maintenance Capex remain our first priority followed by dividends.
Looking at M&A, we will remain disciplined in the evaluation of opportunities and as I mentioned last quarter, we have temporarily paused our share buybacks until visibility improves.
I'll turn the call back over to Tom now for closing remarks.
Thanks Suzanne.
Before we go to queuing day I want to again take this opportunity to thank the employees Vulcan materials company for the reference nowhere is their hard work dedication were evident in our safety record.
Our year to date Im sure Osha injury rate is 0.82 accidents per 200000 employee hours work.
That's a record say to performance and we remain committed to keeping our employees health and safety as our top priority.
And now we'll be happy to take your questions.
Thank you and at this time, if he would like to ask a question Press Star then the number one on your telephone keypad.
And your first question comes from Trey Grooms at Stephens.
Okay.
Hey.
Good morning.
Tom and Suzanne and nice quarter in a very challenging environment hats off to you in the team. Thank you. Thank you.
So clearly theres still a lot of uncertainty out there in the face to the pandemic, but Tom can you talk about both you know what you feel good about and also what gives you some concern as we as we look ahead into the back half of the year.
Sure I think I would frame that in.
What we know in what we don't know.
And starting with the unknowns.
You know, it's really driven by the pandemic the trajectory of new cases is dramatically change in month to month, making really difficult to us to accurately evaluate the impact on our business and I would break that into three buckets.
Number one the severity of shelter in place with the Spike in new cases will it slow or will it slow jobs would postpone jobs.
Number two.
Nonresidential construction, we've seen a bit of slowing and nonres construction, we saw jobs postponed a in April pick back up in May and now with spikes. We've seen some other jobs post phone. We think the jobs are going to go the works going to happen, but the timing is going to be tricky of when they start back up.
And then the third bucket would be highway work the state duties.
They have been impacted with no loss from Wolfe revenues.
Right now it's much better than we would have expected 90 days ago. Most duties state duties are on the road to recovery, but further shelter in place orders could set.
Set this back.
Most of our states are given pretty good signs right now and they just released many just released their budgets.
Which they say they will reassess mid fiscal year based on growing revenues in states and based on actual Congress or would we get to backstop and the coated phase four act.
Going into the third quarter I would remember three things first third quarter is our largest quarter I also can be our most most volatile quarter with 'cause it's hurricane season.
We're also comping over 2019 third quarter, which had no storms for the first time no impactful stores for the first time in four years and volumes were up 8%. So you know, but have a tough comp going to the quarter.
Turning to things, we do know I think what we do know gives me confidence.
We come out this in a real position of strength, regardless of what happens.
Our our.
Our aggregates business is advantage, particularly.
If demand should fall.
Our.
Footprint is also advantage and its broad and diverse our people are really engage you saw that and their health and safety performance they've done an excellent job being nimble being quick being responsive to rapidly changing environment. They you know that went into this earning the highest margins and then they improve.
That by 9% and second quarter with volumes down that improvement is not an accident they've done the pre work over the last three years to earn this you what you're seeing is our four strategic initiatives enhance our execution.
Well, we said that that those would help us in good times and protect us in challenging times and you've seen that in the first half of your balance sheet liquidity strong. So we're going to control what we can control and have a lot of confidence that our people we successful whatever the world's rosato.
Alright, thanks for that and that actually leads me to my next question.
Controlling what you can control and I'm looking at your cash gross profit per ton here increased 9% on volume that was actually down a little bit.
Clearly diesel was your friend, but impressive is you pull that off while reducing your inventory so.
Can you talk about some of the puts and takes of that unit profitability improvement.
Cash spending and operating efficiencies that you.
Put in place and you mentioned, then and how we should be thinking about that in the in the near to medium term.
Yeah, well I think hats off to our to our operating teams and our sales teams they should because they're the ones that these we congratulate performance.
Solid you saw solid price and we'll talk about more about that later, but from an operating side side. It was just good execution.
Unit margins down 3%.
We had the tailwind of diesel offset by inventory reduction in inventory reduction is just the prudent thing to do in places like San Francisco, where we had just a lot of unknowns what shipments going to look like I wouldn't expect us to see that in the second half, but the real driver was was it was.
In the cost reductions was driven by operators performance.
It was things like plant throughput plant availability labor productivity, all of which improved.
And what you're seeing there is just you know experience operators engaged teams.
Executing on those operating disciplines, which I'm very proud of so you know just have a really good performance and just good disciplines throughout the organization and I'd just add to that I think this is where having.
Those operational contingency plans in place at the plant level that we talk so much about you in the first quarter, having put those in place I think this is where they really pay off if you know going in based on certain conditions in certain trigger point, what you plan to do at the time.
Then it can all be executed in a very consistent and controlled manner and you're not.
Yeah sure scrambling around trying to figure out what actions to take and when you have those in place. There's just a built in flexibility there because the conditions. Today you know they are changing jobs or postpone jobs are back on and so you know I really think that having the plans in place helped.
And also our folks having the daily flexibility of changing to meet whatever the situation was helped helped as well.
Yes, it sounds like those plans are really paying up for you in a pretty challenging environment for sure.
Okay.
Take care and thanks for taking my questions I'll pass it on thank you. Thank you.
Thank you. Your next question is from Anthony Pettinari at Citi.
Good morning, good morning, good morning.
Regarding the stimulus that's currently being negotiated when you talk to customers and going back to the Deo tedious is it possible to talk a little bit more about what folks are ultimately expecting to see or or need to see with regard to states and infrastructure earmarked.
We feel comfortable about going forward with projects.
Yeah, I think if you as you look at just highways in general overall the highway funding situation is improving as I said, it's a lot better what we what we had expected.
90, 60 90 days ago.
With the shelter in place lifting you're seeing those gas tax revenues.
In May and June and also you got to remember in nine of our 10 states of our top 10 states. They all going into this increasing user fees. So that's also will help offset.
Any a setback we saw from ball and usage hopefully we'll get.
Progress out of Congress on coated of full relief.
As to Axis 37.
Billion dollars, which is down from the 50 billion, which we've talked about 90 days ago as lot work going on in that so hopefully.
That will happen, but as I said earlier, where here better signals as as we continue to go through this from state deities and I think they're getting himself and a better place and all of are saying, they're going to reassess the situation as we get to mid year at hopefully funds have grown.
Okay. That's helpful.
And then on aggregates pricing I'm, just wondering did you see any changes in pricing as you moved through the quarter and into July and August one of your competitors have spoken about maybe minor delays to price initiatives in the early days a coal bed. When there were some disruptions just curious if you saw anything similar yeah, you know I would.
Second in pieces of this the reported price we had was three we talked about.
Unfavorable geographic mix, which cost us about 30 basis points and that was really north Carolina volumes being down and the Mississippi River in Illinois would be an up those was really the the basis of those 30 points. Then if you remember in our last call we talked about some of our markets where we.
Normally.
Have a April one price increase to fix ready mix plants that that may push 30 to 60 days, but it would come through and all those increases did come through a number of them did push 30 to 60 days and if you step back and look at that delay in pricing in the quarter it cost us about 40 basis points.
Yes, so that was the outlier I would say in the quarter that won't have any further impact is those are all in place and I don't see any you know.
The pricing characteristics, we see right now or.
Aggregates is normal their resilient and I don't see anything that would change that environment at this point.
Okay. That's very helpful. I'll turn it over thank you. Thank you.
Thank you. Your next question is from Kathryn Thompson of Thompson Research group.
Good morning, guys. Good morning, good morning.
Thank you for taking my questions today first on the policy side, we for some day positive feedback from Caltrans on to fiscal 21 budget and letting.
Could you give a similar update for Illinois and has the state unable to move forward with the rebuild Illinois, yet in terms of funding and letting.
In the face co bid and lighter traffic volume.
It's steady.
There have a big goal.
To be logistics center it as a priority for them. We would think we don't think we'll see any fund any fall in funding in Illinois. They are as you know they raise.
They had legislation to raise gas taxes, a year ago and that is in place. So we think all nor will we will come through.
And they have to get mission come through but like you said about California, we heard really good things out of Caltrans as you know.
It's actually in very good shape, because they did their gas tax members index went up July one is an increase over last year. So despite of of.
Issues with shelter in place and and usage going down there quite ambitious in 2021, which the fiscal year, which would have just started so to put that perspective. The revenues for SB. One in 2020 were around 3 billion, they're expected to be a 4.4 billion.
In 21, now that's up over 50% increase but you know as ambitious is caltrans is that's down from the five to seven but again a over 50% increase from from last year. So they'll see they'll see a good year fiscal year 20 in Lettings in 21 in California.
And just to clarify is committed to my second question.
The increase in volumes and finally, a function of higher infrastructure funding.
I believe that's correct okay.
Then looking at cost that's definitely but the theme this quarter.
For so many companies.
Not just in heavy materials, but other construction related companies.
When you look at some of the changes that are.
More structural versus transitory.
Maybe go through those.
And then also think about how this experience change how has it changed how you think cost structure. Thank you very much.
The fundamentals of what drive cost haven't changed and it's really the operating efficiencies and disciplines their fundamental to our business.
It is based on what I talked about earlier, which is maximizing your throughput and matching what's your what's your producing to what you're selling having the disciplines to where you do the pre inspections of equipment. So you don't run it to failure.
And making sure that you get most and also so that you have the plant availability and lack of downtime and then just making sure all of that matches with labor productivity those are hard to do.
So.
In good times, there even harder to do when you have volatile volumes or following volumes. So I.
I think our folks did an excellent job on those and they stay focused on their plans and their execution and taking care of themselves. So again, you know helps us make progress towards our longer term cash gross profit per ton of $9, yeah, and while we're on that Catherine I'll just comment on U.S. AG.
Our administrative costs in the quarter and they improved 31 basis points as a percentage of revenue that that keeps pushing us toward our goal because we're always looking for ways to try to leverage that overhead structure and and we had several things operating in our favor you know we.
We took a pretty good look at the cost structure at the end of the year last year beginning of this year and so we have a number of those that are continuing to to play through until that comps over you know a little bit in the fourth quarter, but certainly in the first quarter of next year.
Little bit lower incentive comp in the quarter, but but also just.
General cost control, along the way and some of those things, we're finding as as people work from home and some are perhaps a bit transitory, but but not all of them are you find ways to be more efficient and that's really your automate things and that's really what we're looking for because.
Those are structural in in that arena and things that can play forward and I would say if you think about probably what's the most transitory you know kind of cost evolve and the one that people would typically think about rising when we hopefully all get to the point, where we can all be back.
Second the office working together you know everyone always points to you know travel expense and those sorts of things, but but I think you know Vulcan has learned something over this time of the of the pandemic and I think other companies will as well that there are certain ways in times to come.
We indicate using.
Video or other technology, where your communication you know is actually I think more saying to more clear because everyone's managing their time men.
While you need to be out front end in front of your employees and I'm not implying that we would ever step away from that I think there are ways that you can utilize that technology to even manage those costs when things get more back to normal.
Great. Thank you, Tom and see that half a dozen and best of luck, yes. Thank you Catherine.
Thank you. Your next question is from Jerry Rabbit Goldman Sachs.
Hi, Good morning, everyone Hi, good morning.
I'm wondering if you could comment on how much visibility you have in the near term Tom I understand the comments about the tough comps, but are you seeing the normal sequential build in activity.
Heading into the third quarter. The concern is we've seen some camera level data from construction starts it suggests that activity slowed in the back half of July.
Specifically, so I'm wondering if you just.
Comment on that relative to the visibility comments that you spoke to earlier please.
You know July I don't think surprised US July was also impacted by wet weather really across our but we will weather across our footprint.
The exception with California, and I'm sure that had an impact on us but the the volatility is really it's for me is not at the jobs are going to go it's when they're going to go.
And and I think that that timing is hard to call, but the fact is I don't see many jobs that or that were council as opposed to being postponed.
Okay. Thank you and I'm wondering can you talk about what you've seen.
In California, and Florida, and Texas since we've seen the walk down.
Steps kicking back in.
Any meaningful impact on on activity levels as a result from what you can tell.
Denture short answer the question is not nothing meaningful at this point with exception of some volatility and mainly commercial jobs, which we've talked a lot about already.
California was the toughest talked about credit Caltrans, which looks good the resin non resin, California were.
Were hit hard just because of more severe shelter in place, but are rebounding. If you well I'll give you. Some examples in residential there's two mega projects residential projects one in L.A. and one in in San Diego.
We're supplying the the developers or even though the rest seem to be a little slow decided to go ahead and accelerate putting infrastructure in so that because they feel like the the job Mark the house market will come back quickly and they that allows them to bill build out faster. So they'll go ahead and it took the investment.
Put the infrastructure in so what California is the hardest hit.
It's it's a little behind everybody to recover but the fundamentals for the private side are still in play in place and we know we're going to see substantial growth because of the funding the substantial increase infineon caltrans in fiscal year.
2021, so overall, so far so good Texas.
We've not seen any impact of the spikes at this point.
So you know a hopefully they'll get that under control I think it's trending in the right direction, Florida same same answer I don't think we've seen any.
Impacts in the second half of July the first few days of all of us because of spikes and new cases at this point, yeah, and I would just add to that and this is more I'll comment on your on your first question.
Well, where we operate our geographic footprint is important in this too as as Tom was just pointing out and you know certainly when you look at records in terms of permits and starts you know trailing six month, you know data trailing three month data and even the most recent month of June you're seeing some.
Sequential improvement there on on resin you know even on Nonres, which is the one that is you know most often talked about you know it's certainly you know took took a big step backward in April when the pandemic really hit and there was a heightened sense.
Of uncertainty and you know we try not to over read this but as you can imagine we do study all these.
Indicators very very carefully and you've heard me say before on the big fan of of Dodge data, but but even there from that low point of April we've we've begun to see some little bits of sequential improvement as we've moved through April may and June so.
You know I think we you know we are encouraged by that I think it shows that the the economy. He wants to recover and as Tom said, there's theres lots of work out there to be done, but I think it really does just come to what happens with a you know surges in case, but we.
As we said you know earlier, we'll be ready when it goes because we are in the right. We're in the right places.
Okay, and lastly, you know from a margin standpoint.
Congratulations to your team from us as well as I.
Sure you stepped through their drivers.
The cost reduction both as DNA and cards. It sounds like none of those are onetime items. So as we think about third quarter and layer on additional pricing that you spoke to earlier, Tom It sounds like margins could actually expand on volumes that are down mid to high single digits and just want to mature.
We're not missing any potential headwinds for us to think about whether it's a further headwinds from inventory reductions or other pieces as we think about what the better margin performance. This quarter means about to go forward.
Yes, so as we said solid performance bar folks in the first half both in price and and their operating disciplines.
I don't as I said, I don't think I don't see anything changing our price cadence.
As we look forward at that are the operations in cost there is always there's always some headwinds out there for repair maintenance of the tailwinds from diesel.
We are big advantage in Q2, maybe not be is quite as advantaged and the in the second half, but we think there will be tailwinds there.
I would not see us have again the inventory here that we took where we.
We're back in in the game so to speak of those plants are back operating so I don't see that happening again.
I believe our operating efficiencies you saw improved in Q2, we were working hard on that to keep those.
Remember third quarters Hurricane season, we've always seen two don't think it was a big impact, but you know those storms can have I can have an impact on costs I don't think they will at this point from those two we've got our strategic initiatives that are working for so right now is too many variables to call out a specific number.
But I think we have the right people we have the right plans. We are the right execution and I would expect our unit margins to grow in the second half and so that will make progress towards that longer term goal of that we've talked about $9 per tonne cash gross profit per ton.
We will see grow again, a little bit too hard to call out that number just variables, but I have confidence in growth.
Okay I appreciate the discussion. Thank you. Thank you. Thanks.
Thank you. Your next question is from Mike Dahl of RBC capital markets.
Hi, Good morning, Thanks morning, Oh, if you guys are doing well thanks for taking my questions you sure.
First question, obviously three Q is is a tough quarter overall from a from a comp standpoint in Acs, but looking at the the monthly comps could you give a sense of.
How your July comp.
Stacks up relative to.
What growth you saw in August and September last year.
I don't remember if I remember exactly though that sequentially. It was so it was a kind of a steady growth quarter. There wasn't it wasn't choppy if memory serves me right and so I don't know that there was a lot of volatility last year between months within the quarter because the weather was pretty consistent as I talked about we didnt have the the the the storms that we see and.
Prior years as I said July this year was and in all of our markets, except for I think except for California, and Arizona was of Ferrum up quite a bit wetter. So that had some impact on doubts that mid single digit decline in volume as do we talked about volatility in the market.
It's with jobs postponing, but I don't I don't see a lot of volatility month to month in and last year's quarter.
Got it okay.
Second question, just on kind of the state deities and Tom It and get in your opening remarks sheet.
Talked about potential for.
Stimulus to ship shape up in a way that backstops.
Some of the state's that's obviously been one of the more controversial.
Parts of the different stimulus bills and and debates in Washington, right now so I guess.
Couple of questions related to that what are you hearing on on the ground in terms of.
Likelihood of that getting through in a final negotiation and to what extend our your conversations with the state duties and.
And the I guess, the encouragement that they've had lately how much of that is tied to an expectation that there is some state backstop in one of these covance stimulus bills versus their specific funding that's been in place well, obviously the deities want that they need that they were.
Were negatively impacted by the pandemic and as those those falls in revenues are absolutely caused by the pandemic. So is the right thing to do to backstop. Those I think this and they're all hopefully we'll I think that you know state local funding is likely to be part of the final package as a result of the house and so.
The negotiations in the state governments will have flexibility to how to use that we're hopeful that the co bid for package is going to revive dollars targeted at state duties.
I think they know national wants that is asked for the this real the $37 billion as far as a conversation with the duties I don't think they are putting their eggs and all in the basket of getting that backstop, although they need it but I think what they're looking at is is twofold. One is I said.
Earlier, they've all increased nine of our most states have I've already in our footprint it already increase.
Funding for highway. So that's helpful. In the recovery and then the lift to shelter in place is is dramatically improving usage and so that's something else there watching how fast is that come back and how that how that war.
The continues we will positively impact funding for the rest of fiscal year 2021. Those are the two those read those are the two buckets I think that they're looking at where they want to reassess their mid year budgets.
Okay. That's helpful. Thank you.
Thank you. Your next question is from Phil Ng of Jefferies.
Hey, good morning, everyone learning.
Thats on a pretty solid quarter here in a tough backdrop, you and really good to hear that trends are picking up sequentially on the nonres side, but curious if you can try a little more color on the bidding activity how extended our your backlogs and while there's not a lot of cancellation, which is trying to gauge.
New work, that's being put up for bid a press for next year for non best.
So if you just look at backlog was we were down a little bit, but weve salt, we've seen improvement and the last.
In the trailing three months in our backlog, so things are getting better and improving.
And.
So I think I think that that that's looking better.
Yeah, Let me let me just that will walk through a few of these things to see if I can give a little bit of color around that I mean, clearly as we were going into the start of the year, you'll all three of the primary areas resin non resin and highways, we're moving along very well and and.
I had some positive momentum and we talked about that on the call in a in February.
The 19 was the big disruptive force and as I said earlier.
All the you'll all of those areas took a pretty sharp decline in in April I think yeah being in the states where in that shown some you know resiliency and certainly as the state's began to reopen that helped as well if if we just sort of take them one by one and we talk about.
Residential clearly that one's been the most resilient.
It's bounced back the most quickly and we really had the most visibility around that area and we look at a couple of things and certainly look at at Ito starts, but we also look at sort of get pre leading indicators. If you will to that you know in terms of permits and on a trailing six.
Last month basis, a trailing one month basis, particularly the trailing one month basis, when and look at June year over year were up double digits in our stage and that compares to kind of a mid single digits in in other states. So that one appears to be.
And you know moving along very well we saw a couple of has 10 months there early on and those within about three weeks flipped and and our back I you know on on track and have begun on the on the Nonres side, you know again the.
The new project pipeline was positive coming into the year you know at the ended the year actually if you looked at the trailing 12 months starts they were up about 10% in our markets, which were you know a fair bit ahead of other markets. You know again, we saw you know some.
Your nonres as a broad category, but even then and certainly now we see in a winners and losers both by category and geographically and we do we have seen these small sequential improvements that are just these little what I referred to is.
Baby steps into right direction. So it's it's encouraging but you know we are watchful and we are trying not to over read that and Tom has talked about you know highways. There. The awards activity is certainly up in our markets and so we are.
We are feeling.
Pretty good about where we stand relative to that yes, specifically on non rose we saw the monthly private Nonres square foot starts.
You know drop dramatically in April they stay down in May and then in June we made up about half of that drop so.
One of the questions I guess going forward is again timing on those projects and when they start going well how that's how does that trend look in July and August and what's going to happen. So you know what Phil, but we've made progress back and non resin hopefully that'll continue over the next few months.
Got it that's super helpful and on the public side it sounds like the bidding activity in backlogs remain pretty strong any particular states that we should have a more watchful eye. When we think about activity going into next year. The reason why I'm, probably asking is your backlog and bit bidding activity sounds pretty good but one of your competitor kind of six.
Well, maybe a modest deceleration of trends in the coming quarters appreciating footprint does that have it any color on that front would be really helpful. Thanks a lot.
Yeah. The the state I would be most watchful for and our footprint will be Kentucky, who has just been hard hit and basically shut down their diodati.
South Carolina has had some had some challenges and obviously norco, which has been where everybody's talked about is that is there are challenges, but if you look at our top five states, which Virginia diodati looks pretty good Georgia at this point.
They're saying that until they see more.
There may be down 11%, but you got to remember that's coming off of an all time record 2020.
Deal to your Fourq for Georgia, and our our starts were up 15% there and our backlogs are very good going into this.
Tennessee.
We had no impact in 2020, a little bit of a wait and see on 2021, but at this point they don't see any any how that will change from from 2020 and 2021.
And so kind of same story for techs dot.
2020 Hill.
Legs were very good.
There there because we are 21 doesn't start until September so they got some time, but at this point they think they're in pretty good shape. So for our Big States I think the deal teams as we said, we're getting good signals and hopefully we'll get improving signals is we as we travel through their fiscal year.
Thanks, a lot that's really great color.
Thank you. Your next question, it's been Stanley Elliott of Stifel.
Hey, good morning, everybody. Thank you all for taking the question [laughter].
All in terms of the debt due next year. So that the 500 that you all are going to pay down or youre thinking about the leverage ratio that you'll want to carrying any differently. At this point I mean I hear you think about by 2021, you should be down below kind of the one and half the two and a half sort of target.
Just curious to see how youre thinking about that with with that commentary yeah. I know, it's a it's a very it's a very good question I mean, we.
You know the market was was pretty choppy and that sort of March April and even early may time period, when we would've normally been out in the market to take out the $250 million bond that was due in June and so when we had Oh you know a decent window to go when we just decided.
You know kind of as the abundance of caution to go ahead and you issue. The long term bonds, 3.5% is a you know is a very good long term average coupon rate and so we decided to go ahead and just pre fund if you will that maturity of the 500 million dollar bond in March 20.
On a 21 and you're right to point out that you know our leverage on a net debt basis is now down at 1.9 times. Just you know slightly below our often stated range of two to two and a half and so yeah with bad it with that is sort of the backdrop to the answer to your question.
And as look you know the board and management take a through the cycle approach to our leverage and our strategic planning and we are absolutely comfortable within that two to two and a half times range certainly we prefer to be at the lower end of it you know during out you know to.
Times of.
You know a bit of uncertainty like like now.
And so that's really the reason that you have seen us drift toward the lower end of the range because we just like to have a little bit more visibility around them you know the depth and duration of the of the pandemic. So I'm I'm I'm, a conservative at heart, but I wouldn't I wouldn't.
We need us sitting at 1.9 times as necessarily you know any long term indicator that you know we're going to move to one and half times. For example, you know we're going to be prudent and we're going to do the right thing for the business and we're going to make sure in our debt structure and in.
Our leverage ratio that we maintain maximum flexibility and optionality for the company that that main goal.
That's perfect right, because I think going into next year did theres just additional flexibility with the cash flows can you guys should generate I'll stop there another passed on somebody else. Thank you. Thank you.
Thank you. Your next question is from Adam Thalhimer of Thompson Davis.
Hi, good morning nice quarter.
Thank you. Thank you. So most of my questions have been answered I was curious, though on the downstream side, so for asphalt and concrete kind of what your high level thoughts are for.
A bus volumes and from margins and H. too.
I would tell you that both it will from it took asphalt first.
Our volumes really got hit.
In two places, California, It will show through in place and then Tennessee, We had a very large paving projects last year that didnt repeat so I would expect our volume I don't see a big change in the volume trends I'm as we go through as we look at our backlogs and.
The projects that are out there.
I would right now I would expect liquid to stay down it can be volatile. So I would expect this a similar type of unit margin improvement as we as we March through the year on asphalt to ready mix volumes there were impacted by show through in second quarter by shelter in place and northern Cal.
For now with the.
Jobs, we see.
Push back timing, maybe we'll tricky.
No as volumes going to be hard too hard to.
Yes hold that would at this point just because there's so many variables there, but I think our unit margins will hold onto.
Okay and then.
Tom if youve walks geographically I think you did that walk on the public side and on the resi side, just curious when the nonresi side kind of which markets appeal watch.
The.
California is we've talked about while the fundamentals there or are very good. It's just behind the rest of the rest of the country and I think it will continue to two to heal itself as shelter in places lift but that wouldn't is going to be the most tricky one.
As you look at going back to the East in Virginia Nonres construction is good Georgia Nonres is actually.
Quite good driven by warehouse and distribution construction, which has no surprise anybody and I would tell you same story, and Tennessee, Nonres and Resure both shipping strong.
Texas.
Revpas is good Nonres is a good again like everywhere else warehouse and distribution.
We what's interesting about the coast with non res will be an interesting will be see what happens with LNG projects and these are so important because there's such large projects. The projects. We said nothing's changed there with the exception the outlook. We said at the end of the last quarter was the projects that we had started.
It is going to go the projects that had not started were push.
Thats still the case today. However, we're starting to have conversations about those projects those future projects was extraordinary conversations about a restarting.
Back up in 2021, so that could be some tailwinds for us as we go into 21, but too early to tell.
Okay.
Good color. Thank you. Thank you.
Thank you. Your next question, it's for Michael Dudas Cybersource vertical research.
Good morning, gentlemen, Suzanne boarded morning.
Hum falling off my question before about capital allocation and the balance sheet.
Deferred your growth capital spending of prudently for 2020. These today.
Any thoughts on other changes into more that growth capital spending were level could be given how things are emerging given the uncertainty and where some of your important states are benefiting or not benefiting from corporate restarts and.
And is that something that.
We could see once there's more visibility maybe later this year to maybe you have a catch up on.
That spending in 2021.
I think we need to see more visibility before I would be comfortable releasing growth capital again, and that's that's not a statement about about.
Anything about the mortgage is more statement. This as we said all along there's a lot of volatility and too many variables to make a call. So we'll see more before we would be comfortable going back and restarting some of those growth projects now if you look at replacement capital. That's one that we'll be watching throughout the year end up and you know it.
His point, we're comfortable where we are but.
Again, depending on how the year goes we might.
We'd be we would flex off of that went faster than we would the growth capital.
I appreciate that thanks.
Thank you.
Thank you. Your next question is from Seldon Clarke up Deutsche Bank.
Good morning, good morning.
Okay.
Of SDMA costs going forward is.
You know that $91 million on 10-Q's, or the right run rate to think about from the rest of year.
Your first half of your question was was cut off if you could repeat it would be helpful.
[noise] apologies I'm, just asking what the right run rate is for DNA costs.
Sure Yeah that that falls into the on you know.
Category of not giving guidance for the rest of the you know this the second half.
So I will decline to comment on you know a very specific and number but but look and we said that we're going to leverage our overhead costs that has been a you know a long term goal. The company has been at that a long time and I think we made a lot of progress in the in the first half so I will.
Would you know certainly expect you know us to continue to do that in the second half, but you know with respect to what the precise number or decrease is will you know, we'll we'll see when we get there but continue to monitor it.
Okay, and just switching gears.
Did you have to furlough any employees in the quarter and or do you expect to have to do so in the back half and if so are you having are seeing any issues on the the hiring side in regions that might be little bit stronger than others.
You do after rehire should we expect any.
Temporary cost inflation from either hiring costs or there's a lag to get employees more productive.
So did you question in the second quarter, we did furlough so temporary for furlough some employees and that was.
In an effort to make sure that we had the appropriate control inventories going into unknown times as we said.
We're past that the vast majority of those employees are back to work orca or scheduled would be like work.
I don't see us.
Doing a lot of that in the second half is as we see we're.
Coming on is our shipments hopefully stabilize you know so again, there's a lot of a knows that at this point I would if we did that it would be minimal in a few slipped places but off the top my head I can't name in the right now so as far as hiring you know, we're able to find employees when we.
When we fill positions.
The you know again I'm very pleased with our workforce, which is very experienced and very disciplined and you saw that in the quarter, but you know new hires a bid a little bit of actually does not just made very many right now, but we're able to find people when we need to.
Got it that for me thanks.
For Q.
Thank you. Your next question is from Garrick shipments of loop capital.
Hey, Thanks bigger and good morning, Hi, Thanks for squeezing me in so as far as volumes. This on the quarter. Yeah, I think the rail declines weren't as bad as first feared you think you're taking market share and can you talk a little bit about how you're thinking about volume versus price moving forward in a bit about uncertain market does relationship between.
The to change right now just given kind of be yes, certainly that you've talked about moving forward.
No I don't I don't think you took any kind of any kind of of market share and you don't do that when your discipline on price is wrong thing to do I think what you would I taught you heard me talk about is the volatility in geographically in the quarter on volumes we.
Had you know those states, where we lost substantial volume North Carolina, being one, California being another one and then we had states, where you know, Tennessee and the Mississippi River. So this you can you are comparing apples to oranges. When you look at other companies because all of our footprints are different.
And going forward the balance between price and volume is is in my world is disciplined on price and we plan on having that disciplined and that's what you taught heard me talk about about the cadence looking out I don't see and change in that and that is servicing our customers and being disciplined.
Okay.
Paul question, just you talked about geographic mix impacting pricing on the quarter. Just curious if you look out is there anything that we should be thinking about this relates to product mix, whether it's a rapid residential construction does that impact.
I don't materialize or anything like that.
So I don't see any.
Particularly volatility in and product mix that you're always going to have it was geographies and that's weather and timing of projects, but product mix I don't see any big changes between the different different market segments, and assure don't see any pricing changes between the different market segments.
Great. Thank you very much.
Thank you.
Thank you. Your next question is from Adrian Huerta of JP Morgan.
Good morning.
Good morning, Tom and this is on good morning.
Most of my questions have having answers so I'm just congrats on the nice results on on margins, which I think I mean, given the comments that you made that seems but we they will continue to trend.
What's the at least on a year on year basis. So congrats again.
And the only the only question, let me ask them on on the.
Capital deployment.
You've mentioned that the you're going to wait to restart the growth projects, but as you mentioned that you'd each already you leverage below the range that you expect.
What else can we see over the next couple of waters or can we see the company.
For a couple of water saving and even probably all the year next year, a with a leverage in that one of the hopper sandals.
Yeah, I you know as I said, our range is two to two and a half times and we're comfortable in that range. Just mathematically, we've we've dropped a bit below that but I'm I'm perfectly comfortable with that right now for the you know for the reasons I stated earlier you know there there are and you those grow.
Projects that we have post pound look we evaluate all those on a returns basis, they're high yielding they're very good projects. In so you know at the appropriate time, you know I would fully expect to see those start back up but I think we just want to get a little bit more visibility on you know what happens over.
You know the next couple of quarters, and hopefully, we'll get that visibility and you know things can continue on.
And what did the sites some of those growth projects that them than you could start out over the next couple of quarters.
Well, we if you go back to the guidance that we gave at the beginning of the year in terms of cap ex the growth Capex element of that I'm doing this for memory, but I believe it was $200 million and so we certainly spent you know a bit on that aren't on some things that were already started in the in the first.
First half, but you know that's the that's that was the expectation at the beginning of the year and we will just you know continue to watch that as we go forward and gain visibility and decide which ones. We and you know we start back up or if we start all of them up again, it's just you know.
You know prudent and get some visibility make sure that we keep our flexibility and optionality of leveraging cash flows and that's the way that we'll continue to to look at it the beauty of this and we've said this before is that those price.
Jacks are such that they can be easily stopped and started.
And so we're really not no.
Other than wanting to get on with them and do them because we think they're good projects. We're really not you know missing very much at this point.
Understood. Thank you. So much is on thank you. Thank you.
Thank you we have no further questions at this time I'll hand, the floor back over to Tom for any additional or closing remarks.
Well. Thank all of you for taking the time to listen to our call. Today. We appreciate your interest and your continued support a Vulcan. Please stay healthy and we look forward to talk to you in the in the weeks and months to come how good day.
Thank you. This does conclude today's conference call you may now disconnect.
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