Q3 2020 Vulcan Materials Co Earnings Call

[music].

Good morning, ladies and gentlemen, and welcome to the Vulcan materials Company third quarter earnings Conference call. My name is Maria and I'll be your conference call coordinator today.

During the Q and a portion of this call. We ask that you. Please limit your participation to one question plus 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 Bourne, Vice President of Investor Relations for Vulcan materials Mr. warn you may begin.

Thank you operator.

With me today are Tom Hill, Chairman, and CEO, and Suzanne Wood, Senior Vice President and Chief Financial Officer.

Today's call is accompanied by a press release and the supplemental presentation posted to our website Vulcan materials Dot com.

A recording of this call will be available for replay later today at our web site.

Please be reminded that comments regarding the company's results and projections may include forward looking statements, which are subject to risks and uncertainties. These.

These risks along with other legal disclaimers are described in detail in the company's earnings release and 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. Thank you Mark and thanks to everyone for joining the call today. We appreciate your interest in Vulcan materials company.

We hope you and your families are well and will continue to be safe and healthy.

I want to begin todays call by thanking our employees for their ongoing flexibility in the face of uncertainty and change and.

And their commitment to our customers and their dedication to Vulcan and to each other.

Despite the difficulties caused by the pandemic our company continues to thrive as a direct result of their efforts.

Turning now to the third quarter.

Our financial results can be summed up very simply.

Our teams delivered another quarter of aggregate unit margin expansion through improved pricing.

Disciplined operating performances and solid execution.

Our aggregates cash gross profit per ton increased by 5%, despite an 8% volume decline.

Volume was obviously impacted by the pandemic, but also by severe wet weather across the Atlantic coast.

South East and Texas.

And wildfires on the West coast.

We expanded our unit margins by remaining focused on what we could control and by making sure that we were well positioned to respond to a rapidly changing environment.

We've talked about our four strategic disciplines for a number of quarters now and we believe that they are they have been a critical part of our success this year.

Our commercial excellence and our operational disciplines have been particularly helpful.

On the commercial side, our aggregates mix mix adjusted sales price increased by approximately 3% in the quarter.

On a year to date basis mix adjusted pricing increased by 3.5%, Despite a 4% decline in volume.

Operationally year over year, our cash unit cost of sales was flat both for the quarter and year to date.

Cost control operating efficiencies and a tailwind from diesel mitigated the impact of lower aggregate volume.

Our four strategic disciplines continue to drive improvement in our unit margins. This is evidence by our 7% year to date improvement and cash gross profit per ton.

Suzanne will review the quarter and year to date results in more detail shortly but first I want to address the demand trends that we're seeing.

Certain leading indicators are showing signs of improvement both sequentially and year over year. However, the pace of recovery.

And the timing of shipments is not certain.

[noise] residential construction continues to be the most resilient of our market segments starts and permits have rebounded, particularly in our footprint.

Single family housing is leading the way and we are especially well positioned in our markets to take advantage of this trend.

Private nonresidential construction continues to be the most variable in use.

Following the drop in the spring construction starts have remained weak as compared to last year. However, we are encouraged by improvement in certain leading indicators, which could point to future growth.

Dodge data states that warehouses and distribution centers now the largest non residential starts category continued to see growth.

As the leading supplier and the majority of our markets. We are well positioned to serve all types of <unk> nonresidential business, regardless of the category. According.

According to Dodge.

Bohlken served states are expected to account for approximately 90% of the growth in warehouses and distribution centers over the next two years.

In addition.

Non residential demand for commercial buildings like gas stations in grocery stores has historically followed the build out of new housing sub divisions.

We could expect.

This type of traditional nonresidential construction to follow the growth, we're experiencing and residential demand.

As we think about these current trends it's important to keep in mind that unlike the great recession of 2008 nonresidential construction going into the pandemic was not overbuilt.

The uncertainty surrounding the pin debit has weighed more heavily on the segment.

With respect to public highway construction.

Most Vulcan served states have flat to increasing deal t. budgets for their fiscal year 2021 versus 2020.

This coupled with.

A one year extension of the fast Act bodes well for highway demand.

Now that state deal teams have greater clarity around how how we revenues lettings are returning to higher pre cobot levels and are projected to continue to be consistent with state deal t. budgets in 2021.

Timing of shipments to highway projects May start a little slow early in 2021 due to say, it's conservative approaches to Lettings early this year, but will pick up as the year progresses.

As a more recent data point aggregate shipments in the month of October were down 5% due to one less shipping day.

While one month does it constitute a trend we were still pleased with the outcome and attribute this performance to better weather and pent up demand from the third quarter.

As we consider the remainder of 2020, we now believe we have sufficient near term visibility to provide guidance for the full year.

We expect that our 2020, adjusted EBITDA will range between $1.285 billion to $1.315 billion.

This guidance range is predicated on no major changes in COVID-19 shelf in place restrictions. It also assumes on normal weather pattern.

With respect to 2021.

We are in the midst of our budget season, and still have work to do.

Visibility continues to improve therefore, we expect to be able to provide 2021 guidance in February.

The key point to remember here is while the pandemic has created uncertainty.

Our view of the underlying fundamentals of our business remains unchanged.

Our aggregates focused business is sound and resilient and adaptable to changing market conditions.

We have a history of good operational execution and this increases our confidence in our ability to compound unit margins.

We're in the right geographies, our balance sheet and liquidity position, a great source of strength and flexibility and we will support our operational initiatives and our growth plans.

Going forward, we will we will remain focused on the things that we control.

Keeping our employees safe and healthy.

Taking good care of our customers and ensuring strong execution on our operating disciplines.

We have confidence in our future success future success.

And now I'll hand, the call over to Suzanne for additional comments Suzanne Thanks, Tom I'll cover a few financial highlights and then comment briefly on our balance sheet and liquidity position.

Our adjusted EBITDA for the third quarter was $403 million adjusted EBITDA margins increased by 210 basis points as compared to the prior year. Despite an 8% decline in total revenues.

Significant contributors to our quarterly EBITDA margin improvement were first the aggregates unit margin expansion that Tom discussed earlier, and second a 6% or 5 million dollar year over year reduction in S AG expense.

These metrics have improved on a year to date basis as well our aggregates cash gross profit per ton increased by 7% to $7.15, while aggregates volume decreased by 4%.

It's AG expense for the nine months declined by 5% or $14 million due to the execution of cost reduction initiatives and general cost control.

Now I'd like to provide a little color on our quarterly segment performance.

Starting with the aggregates volumes declined in most of our markets, reflecting weaker demand, resulting from the pandemic.

In addition, the key markets that Tom called out were particularly affected by severe weather as we experienced a record setting number of named storms.

California shipments were impacted by wildfire fires, and resulting power outages, which interrupted the supply of cement ready mix concrete production. This limited construction activity.

[noise] aggregate sales price growth in the quarter of nearly 3% on a mix adjusted basis was widespread across our footprint, reflecting a positive pricing environment.

The combination of sales price growth and good cost control more than offset reduced volume and as a result, virtually all of our markets improved their respective unit profitability.

Moving to our non aggregates segments asphalt gross profit improved by $3 million as compared to last year's quarter, a 13% volume decline was more than offset by improved pricing and lower liquid asphalt cost.

Concrete segments gross profit was $12 million, a reduction of $3 million versus the prior year.

Shipments decreased by 11% due to wet weather, particularly in Virginia, our largest concrete market.

Colors of operating cash flow in the trailing 12 month period that represents a 23% increase as compared to the previous period.

We have been and will continue to be disciplined about how we invest our cash and therefore, our capital allocation priorities are unchanged.

Capital expenditures for the nine months total $229 million and we now expect to spend between 300 million and $350 million. This year, a modest increase from our prior guidance of 275 million.

To $325 million I'll turn the call back over to Tom now for closing comments.

Thanks exam before we go to chew and I want to thank the employees of Vulcan materials company for taken care of our customers and each other.

For making mark progress toward a longer term goal of $9 cash gross profit per tongue.

And for driving are improved results were for strategic disciplines.

And now we'll be happy to take your questions.

Thank you the floor is now open for questions.

If you wish to ask a question at this time simply press star than the number one on your telephone keypad.

If at any point. Your question has been answered and you wish to remove yourself from the queue press the pound key.

Again, we do ask that you please limit yourself to one question and one follow up.

Our first question comes from the line of Katherine Thompson Thompson research good morning.

Good morning, Hey, Good morning, this is actually Bryan Burrough soccer Kathryn.

My question.

<unk>.

I wanted to start definitely just with the election result.

Or what it might be the election results and I guess really what does the outcome mean for Vulcan in terms of outlook and real demands and there's one outcome in the election of a greater relative impact versus the other in terms of outlook in demand for future projects.

Yeah, well you know looking back I think I've seen nine elections in my time in this industry and kind of one thing that is consistent is that how we finding is the issue.

Usually wins, regardless of the election outcome. So.

That our next Congress will begin work on the New Highway Bill in 2021 and is it looks today that the balance of power of both the house and the Senate will probably pretty much remain unchanged and I would think this probably plays in our favor.

<unk>.

This this house and Senate has already done substantial work on the next highway Bill so.

The fact that the balance of power doesn't change means that we start with a really good foundation with drafts of bills that are that are already in place and a lot of work that has been done on those bills. So it may help us actually get a new go faster because you don't have to go back and rerun completely start from scratch.

And remember that the with the balance of power as it is.

The Congress in place right now passed the extension of the fast act with by powers with bipartisan support with the intent to come back in 2021 with a new better funded highway Bill. So I think there's probably too likely outcomes both of which occur in 2021, one is Earl.

In 2021, a new Congress, probably passed as a stimulus package, which includes added infrastructure funding and then too and really importantly Congress passes I knew better highway funded a new a new better funded highway bill in late 2021, so regardless, we believe we will see.

Improve federal funding for highways next year, along those lines.

Most of our key states.

Have now settled their budgets and understand what their spin profile is gonna look like from 2021.

The vast majority of those have have increased funding of fewer flat like the only one that we would see down somewhat would be probably Kentucky, which is which is not a not one of our top 10 stays so like overall as we look at funding going into 21 and beyond we should see it grew.

So and 21 based on the state's D O Ts budgets and outlooks and then pass that we should see improved funding from a stimulus and also from a new highway Bill.

Got it and I guess it's.

Question I could segue into my next question.

No he answered some of it but I guess, it's really with the the covid impact in 2020.

And he just talked it out what does that mean I guess the visibility for infrastructure funding and future letting you know really our understanding at the outlook is that he kind of said pretty bright for a lot of the state, California, Georgia, Illinois.

And then to even 2022.

Could you maybe give some color on those states, specifically and maybe some of the other ones, Texas, Virginia, Florida.

Yes, so I think as we look at.

Specific state Civic, Georgia is budgeted up slightly in 2021, and then 22 will be an exciting year because they are planning on six major projects and letting us in 2022, Tennessee.

Tennessee.

21 will be flat with 20, but that's up 10% in both years from 19, Illinois is budgeting up a billion dollars annually starting next year and that's for six years now 21. They plan on preparing that with most of that spending on engineering prepared to prepare for the next five or six years, which I applaud them for doing that so they don't have the bottleneck.

So we've seen in other states trying to put that money to work, Texas is up substantially in 20 from 2021, and then Caltrans has announced that there.

Keyes too.

Related to highway construction and maintenance was drive the aggregate demand for an iron man will be up 6%. So you know I think a bright future I would so I said my opening comments remember these dot's slowed lettings in July August and September till they got confidence in revenues Nowadays they are starting to pick lettings back up so.

You may have a little bit of catch up retail into this year beginning of next year, but overall I think we have a we can see a path to demand growth and and the highway segment.

Thank you.

Our next question.

<unk> comes from the line of Chank rooms Stevens [noise].

Or drive good morning.

At trade you you may be muted Oh yep. Thank you [laughter], sorry about that [laughter] no we used to it [laughter] I know and thank you and good morning.

So on the margin front you know you guys are doing a great job in a very challenging environment aggregates cash gross profit per time being up 5%, even with volume being down eight and of course, you had the wet weather in forest fires I mean, it's pretty impressive but as we look at it you know.

<unk> got diesel was your friend.

Yeah, but you guys had been focusing on cost control and operational efficiencies for some time and Susanna I appreciate them on the color of their.

But could you walk us some through some of the successes, you're having on that front outside of diesel and maybe the sustainability there as well as.

Improvement in S. E. G expenses, you know the thoughts on S. A G leverage going forward would be helpful.

Sure and and thank you for recognizing that I think our teams have done an excellent job in the third quarter, but also this year and we saw really solid margin growth and both in spite of you said in spite of volume challenges in <unk>.

Hurricanes and fires and COVID-19 year to date or cash gross profit per ton is grown from 671 last year to 715. This year. So that's a year to date, we've turned in 7% unit margin improvement.

In the face of of volume is going down 4% and to me. It's proof that our people are are really hard at work implementing are for strategic disciplines and that's working so we've seen solid pricing gains earned by our sales folks in a logistics teams you a couple of that with a discipline operating performer.

That's a bar corie and procurement teams and they're really improving those unit metrics that drive cost. We do have the tailwind of diesel but that doesn't make up for what they've done, particularly in the face of some real challenges.

Would that wet or whether it's just tough to crush rocks and this all of this continues to great value for our shareholders and this is really important to remember that as demand returns will be able to compound. These gains in unit margins overtime. So we're gonna put it in a pocket and not let it go I think that this year, we've shown me.

[noise] progress towards a longer term goal of $9 cash gross profit per ton road trailing 12 months worth some 15.

So this points to we've got the right strategy and I think our people have done a good job of executing it in a good job executing it in tough times, So my hat's off to him and I think.

Yeah, and I I'll, just add to that tray and if you. If you go back to our Investor Day last year, we had a slide that showed what our cash gross profit had done since 2013, which we kind of marquez. When we reached an inflection point in return to growth after that after the great recession.

And if you look at that compound annual growth rate and cash gross profit per ton over time, it's up about 7% and you know we were particularly pleased with that performance, but but really pleased with the fact that as we've talked about we've been able to move that forward.

Three of the the quarters. This year and you know I think it's also important to note diesel with a tailwind it helped but even if you strip diesel diesel tailwind added that impact both in the second quarter and in the third quarter, we still moved cash gross profit per ton forward and I think.

That's you know really as Tom said, a testament to the folks in the field, who are working very hard. It's it's not an easy job to keep your cash cost flat year over year. So so again, we appreciate everything that they've they've done I think the other thing that.

Is pleasing about that March forward is that.

Where we are you know kind of getting ever closer quarter by quarter to the $9 per ton cash gross profit goal that we also talked about and to just to illustrate that progression for people who.

Be reminded of that or or or new on the call. Here. We've included a slide and slide pack that accompanied the press release that actually shows that progression over time, and where we stand now in relation to you to that longer term goal.

You also ask about S. A G expense and again, we had another quarter of improvement there with the decline Ah being about $5 million or 6% year over year and that really resulted as it has all year from some cost reduction things that we did.

Right at the end of the fourth quarter right at the beginning of the year in 2020, and we are continuing to benefit from those cost reduction actions that we took as well as well as I said on the last call. We've got some other ongoing initiatives, we're always looking for ways to be more efficient improve.

<unk> use technology at et cetera, and I think the important thing you know.

To think about as we talk about S. A G is that.

The question.

Sometimes get and and other companies get as well look how how much of that is is temporary well based on what we did at you know at the start of the year. Those those those are you know more permanent cost reductions I think in terms of whether or not something is temporary you look.

At T N E and I think that for ourselves and for other people. We've learned a lot about managing through the pandemic and so I don't think for us or lots of other companies out there we will see a return to a level of TNA.

That that existed before so I think that's going to be some money that we put in our our pocket as we continue to use.

Zoom technologies, and and other communication technologies to our advantage.

Great well, thanks for all of that and you guys in the team are doing a great job so hats off for me as well.

As my follow up Tom you mentioned that your expectation for you know highway demand and your markets might start a little slower than 21, but then you know pick up as we go through the year and understanding there's you know maybe more uncertainty today than than normal, but could you give us any high level.

Thoughts around your other end markets looking into next year maybe.

Maybe the first hampers versus the second half there. So it just any any color you're willing to share with us there'd be helpful. As well. Thank you. Thank you.

To answer your question really about 2021 to predict we're doing the work right now.

I think.

The most encouraging sector is residential we think it was doing great right now it will do very well in 2021.

To the point, where now we're building new subdivisions, which are more accurate intensive so very encouraging.

Highways as we said the budgets are now set and now we're seeing highway.

Highway letting start to catch up to those budgets.

Things were a little conservative in July.

August September but October November December in the first quarter of next year looks much better so.

Looking better and then a lot more clarity to the highway segment. The big unknown is non Reds well it dropped leading indicators drop because we talked about in the second quarter, they've started improving albeit not back to pre covid levels and I think as we watch these projects and watch Covid.

Is going to be a matter of the markets confidence both in the economy and most importantly in the pandemic.

The non risk sector wants to start we see a lot of green shoots we see people, we're actually seeing bidding activity up which is a good sign now that's we're quoting activity, where that's not booking yet and there's a time delay. So we'll see if that continues but we are encouraged but.

And it is it is encouraging but we still got work to do and still have some some indicators in some needs. Some more sized really understand what's going to happen in 2021, but.

Much better visibility today than three or six months ago, and and that visibility is much more encouraging.

Alright, thanks for that I'll I'll leave it there pass it on and good luck because we go through the fourth quarter. Thank you. Thanks right.

Our next question comes from the line of Stanley Elliot Stifel.

Morristown morning, Good morning, everybody. Thank you all for taking the the question kind of stick on that.

The outlook piece.

The increase in the Capex certainly to us is kind of Ah Ah Ah Ah.

Cause of indicator in terms of the views.

What are you all looking to to put that money to work with on his at the Greenfield at other production.

You'll plans just curious for some some color around that thank.

Thank you. So you saw we raised our cats are capex slightly from a range of $275 million to $325 million. It goes up to $300 million to $250 million. So a modest increase of both ends for the $25 million. Most of this at this point is gonna go towards replacement capital that said we are.

Now starting up the gross projects that we had we had paused on until we had clarity I think that the team feels like now that we have the appropriate visibility to demand in a market that gives us the confidence to restart those growth projects now we'll spend a little bit of that increase this year, but most of that you'll see.

As we marched in as we really get into those projects in 2021, but.

But we're excited about that and I think that the market.

Would tell us it's time to get going so we can we can finish them.

Propraetor time, and that's the beauty about Greenfields you control the timing and you can speed up or slow it down as you have market visibility, but where I think the whole team is glad that we're cranking those back up and I'm glad that we have the visibility be able to do that.

Great and to switch gears, a little bit in terms of pricing last year I believe yard put out pricing letters, maybe a little bit earlier.

[noise] commentary in the release in on the call sound pretty encouraging in terms of the outlook for price.

With that sort of outlook potentially for demand into next year.

We shouldn't really assume much of a cadence different or difference in the cadence in terms of pricing or any <unk> any contacts you could talk about some of the early letters would be great. Yeah. So I I think let's look back and they look forward is always the most challenging environment for pricing is unknowns or the lack of visibility.

To demand and COVID-19 create a lot of those unknowns.

And while they're still some questions about timing and future demand growth I'm really mainly in the non risk.

Segment, many of those unknowns that we were struggling with three six months ago are much better to find and are improving primarily in residential construction in highway demand.

We're we're seeing a growth or a clear path to grow so.

As always Arab pricing is resilient, it's just more resilient when you have visibility to demand growth.

Which I as I said is a lot better today than it was a few months ago and obviously price is a very important metric, but it's the most important metric for us.

Controllable metric for US is unit margin, where prices a big component, but cost is too.

And you know as you've heard me say, we we've done a good job growing that unit margin metric.

We're having we're right now having the price conversations with our customers are letters have already been sent out I think those communications and those conversations were going very well.

Visibility to demand growth and residential construction couple that with a D O Ts outlook.

Or growing revenues in their budgets for 2021 is encouraging to all parts of the construction materials industry in the construction industry period I would tell you at this juncture. It would appear based on conversation I think that all parts of the construction sector will be able to improve pricing in 2021.

And so that's encouraging and I would tell you that is driven by improvement and visibility and confidence in the markets.

Perfect top stand. Thank you very much of a time best of luck. Thank you.

Our next question comes from a line of Anthony Pets Night City.

Hi, good morning morning.

Tom given the the visibility you just talked about and I guess October volumes down five versus down eight in the in the quarter is it appropriate to think three Q could could sort of represent a year over year kind of trough and demand and then you know given the strength that you've seen and gross margins despite volume declines.

How should we think about.

When you do return to growth your ability to maybe outperformed 60% kind of long term target that you've laid out for incremental margins. So let's let's talk about October 1st and then we'll kind of getting those other pieces. This you know.

October volume was down 5%, but it really driven about one less work day. So on a daily run rate basis volumes were virtually flat.

And if you look at October I would tell you that I think shipments were aided by better weather. In October then October of 2019, so an easier cough, but you probably also had demand push from the third quarter in October I mean, whether was rough we had we saw Marcus that had 17 18 1920 plus more rain.

[noise] days in the third quarter, and 20th and 21 and I'm extremely 20th 19 member 19 was an abnormally dry.

Third quarter, so yeah, it's a little bit of a difference in cops and so you're seeing some of that work catch up in October.

I think that leads us into a solid start good start to a solid for quarter gives us confidence in our full your guidance and it makes us feel a lot better about it I do I I would hope that you know that is the trough. It was a it was just a tough quarter you know not just.

Covid, but and you know as we talked about wet weather, we talked about just losing so many days, but in California. It wasn't just the fires fires caused daily outages of power, which curtail cement production. So us in our country customers just had to shut down we couldn't supply the market, even when we had days that would allow us.

To do it those submit problems are solved and we're back shipping more normal and.

In California, so that in that again that volume doesn't go away and we will we will catch it up over the over the coming months. So I think that as we look forward as I said based on visibility in rez and.

The settling of state budgets with increased funding that coupled with the you know incurring a.

News, albeit still below levels and non risk.

The future looks very encouraging for us.

Okay that that's very helpful. And then just on highway spending I mean, I think most or almost all of your major states that spending as in in a lock box and you talked about state budgets being a bit better than expected maybe three months ago six months ago have you seen any efforts within your major states to.

To break the lockbox or other state needs.

Maybe trumping D O T needs are being able to maybe caused some of that sounds away or just have you seen anything like that we've seen nothing like that I wouldn't I'd be very surprised if we saw it and remember the state D O T. As in the states also recognize that like like everybody else does.

That how we construction is a very good economic stimulus and so it is a good way to put people to work help the economy in those states and it's that that work is needed are those although as are those as those roads and highways. So I wouldn't expect to see an effort to Rob the highway coffers.

Great. That's very helpful. I'll turn it over thank you.

<unk>.

Our next question comes from a line of Jerry rhetoric of Goldman Sachs.

Yes, hi.

Good morning.

Nice to hear voices I'm wondering if you can talk about the price and cadence on on the spot market over the course of the quarter you folks are open about essentially training folks for consistent.

Just increase on the spot market. Obviously this was not a great environment for it so any update on how that tract over.

Over the course of the quarter here.

Oh, it's pretty easy to sum that up has been volatile, but then they get in the world has been volatile and.

And big swings on good news and questionable news I would expect us going forward and which I think is more important that is.

Is is you see clarity to the future and and encouraging future from a damp damp demand perspective, and as we can kind of March along with that keep improving a little bit a little bit at a time, which I think is gonna happen that will take some of the volatility out in a couple of that with what we've done very consistently.

<unk> or in a quarter out of improving our unit Marge are gross cash gross profit return seven.

7%.

For a year and that that we have confidence that our strategic disciplines will allow us to do that as we've been trying to do and we talked about doing September regardless of what happens to the outside world and controlling our destiny. So I think that we we internally have the confidence in the ability.

<unk> to turn consistent unit margins you couple that with that that there is encouraging news about demand and shipments.

Near term and longer term continued to look better I think that will help us out.

Okay and then.

As you pointed out I think in your prepared remarks.

Sin Lettings slow in the early part this year also.

Tougher calm so I'm wondering in your business can you talk about the length of your public construction backlog today compared to a year ago, just put it put that into context for us. If you could in terms of what has that meant for visibility in your business.

Yeah. So I think there's as you as the states for watching the revenues and they felt like they were coming back fast, but they had they couldn't count on it. So while they said look we think our budget is gonna be okay for 2021. They didn't have the freedom just to keep the same letting schedule that I think they had originally thought they were gonna have so they were conservative.

Been Lettings in July and August September.

And you know so so they're now they're playing catch up I think you'll see letting you're seeing letting us go up and the number of our save substantially in October November December I think their schedule that I'm seeing now in the first and second quarterly up so and that's consistent with their spin profile and their budgets for 2021. So.

There was some conservative and the and the third quarter, you'll see letting US go up fourth quarter and first couple of quarters for 2021. So you know I don't think that changes a lot maybe some timing, but that's it.

I'm sorry can you just comment on the backlog part of the question. So what's the length of backlog today can you can you just quantify pours for for the public's out of business.

What we're seeing is that the backlogs are are good in rez backlogs and highways are are solid and I think our backlogs and and Nrem is have taken a hit what you would expect as I said earlier I think one of the things. It's encouraging to me is on the private side yours.

Seeing quote activity improve now you got what you quoted you got a book it and there has been some longer delays and booking as people were waiting to see have confidence independently new economy, but I think we're starting to see shoots where that starting to improve also so encourage you.

Thank you. Thank you.

Our next question comes from one of my doll of RBC capital markets.

Good morning morning, Thanks for taking my question Sir Martin.

Uhm I I wonder if all up.

From the pricing and maybe just get some relative comments because I think in the current.

Current state of play I think in the slide deck and put you see like for like pricing in most major markets could you just give us kind of a rundown of where where you're saying the most price strength and Conversely.

Yeah. It sounds like some markets are so weak or can you just give us a sense of which which markets may not be seen growth right now.

Actually we saw pricing pretty consistent across our footprint for the year and I think if you look the vast majority of of markets, we've seen price increases.

If you if you mix adjusted.

I think that you know where where it's been a little weaker of recent on a mix adjusted basis would be California, you expect that with.

Clingstone a country I agreed not shipping and.

They still going but that as I said will correct itself and I think that's really a mix issue not a price issue, but are pricing was pretty consistent across our footprint of what we implemented in January and then what was implemented really from between between April 1st and June 1st.

You know we talked about that in the second quarter, we had a little bit of catch up but that was that was in.

It was it all went through and I think as we look forward in the conversations we're having.

I think it's easier to have those conversations no now and over the last month and to get those letters out because everybody across the segment has visibility in the pricing, but it's it's it's been pretty consistent across our footprint and I don't see any places that really have had a lot of pricing headwinds.

Or that would affect us as we move forward too.

As those conversations go into 21, and and I think it's an important and.

Add onto that if we look across the footprint. We've also as as we said in the the earlier comments. We've also seen unit profitability improvement in virtually every single one of those markets as well. So you know what you're what you're looking at there is the it was the <unk>.

Mind, the fact of increases in price and and good cost control since our cash cost, where where flatten year over year might one thing one thing to point out I think that is tough.

Talk to most of our division presence over the last few weeks.

The conversations and this is really important for 2021 are pretty consistent I think that.

Across our footprint I think the market is encourage that you know 2021, we start to see.

Rez is doing great again, we start to see Ah confidence in highway.

Revenue growth and we're starting to see green shoots and the non Reds, which has been the weakest and that the fact that the nonresident just wants to start your commie wants to get going.

And we've got election almost behind this the pandemic hopefully we're there.

There will be an end in sight, and I think people getting confidence confidence that.

The walls in a better place.

Yeah, and I think with respect to nonrandom, we we talked about this on the the last call and it still holds true today, it's it's sort of the sector of some haves and have nots and I won't go through all of those what kind of what's up and what's down because it's relatively unchanged but.

So as we look.

Across our business you know I've got a list of a you know a desert RSL projects here that are you have data center related for example, we spoke to the.

Strength and warehouses and distribution centers in our earlier remarks, but where we continue to see it in data centers from you know Amazon Facebook, Google Microsoft I mean, all all of those big names are represented in work that we're doing right now.

Okay. That's that's good to hear thank you for for all the details.

The second question I guess, just a quick one shifting gears to asphalt and concrete I think both were called out as having some some regional issues associated with.

Uhm wildfires, but also just overall, whether I know, it's tough to pinpoint numbers like this but could you give us a sense of your best guess on how much of those impacts where wildfires or whether and how those businesses were shaping up in in October.

So remember asphalt is going to be more private driven conquer shouldn't more public driven and concrete is going to be more private rhythm, but I'll take them. One at a time you know our volumes were down.

13% an asphalt it was.

Whether in our big asphalt Margaret's didn't help us there and fires northern California didn't help us but.

And we had some we had some jobs that didn't repeat some big jobs in Nashville.

Didn't repeat that being said gross profit was up 9% are.

Over two and a half million dollars and that was driven by a good cost control solid pricing and liquid AC savings.

Think looking forward, we continue to be encouraged by asphalt. So it's a it's a combination of bars rain and just timing on some big highway work if you like concrete.

We really did get hit.

There's obviously, a COVID-19 impact because of of nonresidential construction that being said or volumes were down 11% and we had extremely wet weather in D. C.

And then we had.

Submit shortages in northern California So.

I think as we look forward would definitely be encouraged about northern California's we got work to make up and I think that you know as the residential construction in northern Virginia will help us in that and non rose will continue to March forward. So some challenges from anonymous person.

Excellent concrete but.

I think the next couple of quarters, we should see better volume.

Performance.

Okay, great. Thanks, Tom today. Thank you.

Our next question comes from the line of Southern Clark Dutch Bank.

Good morning, good morning, Thanks [laughter].

Just get all that moving parts.

Pricing and if they call in and some of the seemingly transitory having be talked about can you just give us a sense of maybe have pricing has trended in October and they just want the assumed in your for your guidance.

So I would I would I would I would answer that question. This way I wouldn't expect a lot of variation in the cadence of pricing of what we've seen this year versus what we're going to see in the fourth quarter I don't see anything to really change.

The direction, we've been going.

Okay, So you're talking to the like to put that through the first three quarters.

Not <unk>.

Yeah, I don't I don't see a lot of change and what we've done for the year versus what's gonna happen in the fourth quarter.

Okay got it and then so you're talking about cash gross profit baton sort of groaning growing in line with that historical way of 7% per year and it looks like you know Opex Bhutan.

Also go online with your historical lane in just under 1% per year.

Some help in detail, but you guys a little bit tougher so if things to stabilize from here on the non-drowsy side, meaning don't get significantly worse and starting to show some improvement in the back half of 2021 is it fair to to expect the same relationship then in 2021.

Assuming guizot slash, there's some potential offsets that might just caused this relationship to definitely from either cash gross profit are opex per ton perspective.

If you look at the slide that Suzanne referenced.

Is this in the deck I think it's probably the last slot in the deck you can see.

Overtime, what's going on with our cash gross profit per ton and you could particularly look at it over the last three or four years as we've been implementing our strategic disciplines and maturing those strategic disciplines, which I would tell you there's still in fairly early stages of maturing, but but working that was the reason we put those in was.

Those disciplines in place in the work so hard on them is that we felt like and good times. It always it allowed us to live up to our potential and a good times when volumes were growing we would get all we could get in tough times with what we're seeing right now it allows us to make the most out of wood.

The world deals Us and you know so you see consistent growth what's impressive to me is you see that grows in unit margins and the last.

Three months or year to trailing 12 months of this year and now volumes have gone down and that's just hard to do and that's just good work and I think that you know to answer the question about 2021, we've got work to do.

We're going through those those plans and those budgets, whether it's price for volume or cost or operating disciplines in and.

What we have to do right now so too early to call, but I think you can look back in history and you can.

Consistency and you can look at what's been accomplished over the last three quarters would really some tough headwinds and regardless of that we've been able to improve unit margins and I've got to tell you I'm proud of our teams my hat's off my hat's off to him that they've done an excellent job with that that's tough to do and particularly.

It's tough to evolve as far as particularly tough to do when you got a pandemic and extreme weather. So you know.

The goal here is month in month out quarter and quarter out here and you're out to improve those margins regardless of what happens to outside forces. It's obviously easier when things are improving.

But we will give you a lot of clarity that in February about where we think we can go to give you a number right now would be premature as we're doing the planning.

Okay I appreciate it thank you.

Thank you.

Our next question comes from them on a scale of geoffrey's.

Hey, good morning, everyone. Good morning good.

Good morning at a time, it's really encourage any here leading starting to pick back up on the public side in September October and bidding activity picking up a little bit of non rash. So can you help us understand the lag when you see that actually start to flow through your volumes and when we started thinking about 20 to unwind in terms of the shape of a year could you be in a P.

Physician to grow in the back half of next year.

I think that I would I would preface that first of all next year too early to tell I think that you know if if you're talking about the bath back half, it's a lot more possible than the front half, but you know a lot for see growth in 2021 and volumes. There's a lot of stars got a gun.

A lineup, particularly with timing of work and Big Highway work and even more importantly, the timing of getting big non reservoir bid and and bid and it'll end and book and started I think it's tough it would be difficult to have all those stores.

Line up to see volume growth in 2001, not impossible. It I think it's difficult.

And I think that.

You know again, we don't know we've got to we've we're working on getting all those answers and so we'll put that together.

I think as we said I think based on the highway leading.

Sequencing of letting us not being as strong in July August September, but picking up in October November December and then schedule to pick up in the in the first half those jobs are anywhere from.

Four months to nine months usually.

I would tell you that and and but you know if they've got to work and they can get to work, particularly with overlays. It can go faster. If you look at nonresidential historically I would've told you six to 12 months. Although you know 2020 has been the great except into that because we've seen work move all over the <unk>.

Place again as the private sector gets confidence in the pandemic in in the market I think we'll see those the the timing of quote to books to shipping improve I think we've always seen some improvement in that but work to be done and but.

Said I think that is what we've seen so far is encouraging and all of the above and then rather is going I mean, there's there's no question, it's going and it's and it's going well.

Got it.

And then it from a pricing standpoint, I mean, we can all appreciate the pricing power in your aggregates business, even if demand as we sound great financial crisis, what about your downstream business I mean, they are startling great market, but if demand edge a little softer start next year and we got muted inflation, how do you think about pricing whether it's.

<unk> or you're ready mix concrete business.

So you know I'll take asphalt first and I would point you to unit margins and asphalt as opposed to price just because pricing can move around with indexing with liquid AC. We've says we called as we talked about a year ago, you know the liquid numbers Abraham way down and we've been able to put that savings.

Things to unit margins and I think that again, we're doing the plantings I have not seen the plantings on liquid AC I think that the fact that you've got the.

D O Ts with better clarity and improved visibility to growing revenues that helps because that gives everybody.

Some headroom to be able to take risk on price and asphalt and on aggregates and just don't construction work. So encouraged there.

<unk>.

The markets were in in concrete R. D C and the D C market in the Napa Valley market.

Have pretty consistent unit margins throughout because they are unique concrete markets because of abnormally high barriers to entry and so I think that is.

We see rez improve and as we see nrem.

Continue hopefully to.

Improve it will do will also help unit margins and volumes in the concrete sector.

Okay. Thanks, a lot Tom thank.

Thank you.

Our next question comes from my Name's, Gary Smith of the Cat.

Little.

Hey, Jeff Steven Hi, Jeff This is Jeff Stephenson on for Garrick I appreciate you taking my questions.

The first one is just son could you provide an update on what you're seeing regarding the and then a environment and I'm just wondering if there's been any changes and what your expectations are in 2021.

Yeah, I mean, I think the as far as the world freezing the worst I think is behind US is still pretty early stages and we're seeing we're looking as always we're looking at some projects out there.

I think that you know the all the unknowns with the pandemic.

Is just just do a wet blanket on that I think is that gets clear this will pick back up.

Always sellers are going to so.

When the time is ripe whether that is for personal reasons for family planning for session planning or strategic moves and we'll be in the game and as you hear me talking about all the time will be disciplined about how we look at those acquisitions, but we've seen some pick up but but but not maybe back to.

Pre pandemic levels yet.

Got it that's helpful and then Tom unless I missed it I don't think he mentioned, what you're seeing in Florida, and Virginia from a D. O T budget perspective, I was just wondering if you could provide any update on on those states. Yeah Ah, Florida I would tell you has been a really good story and kind of flat to slightly up I don't think we see any change and.

Florida.

And so good news from from Afar perspective in Virginia, It's a very good story Virginia's budget is budget to be up 13% now and that's where we had an increase in gas taxes. This year.

Virginia now it has not been approved by Virginia Congress, yet they're supposed to do that in January but so lettings will hopefully continue on that path, even though they haven't approve that budget, but so far so good and I would expect us to see growth in revenues and budgets in Virginia from 20.

21 based on the proposed budget that 13% and I think the revenue is going to be okay.

Great. Thank you.

Our next question comes from the line of Adam Sandler as Thomas Davis.

[laughter] afternoon guidance he.

Did it fast act Tom what's the postmortem on that was that actually help fluffy.

An extension.

Oh, yeah for sure.

The food and that's what we've talked about that we need an extension and we needed a decent terminate extension of and the best what we had wanted was 12 months. So what that allows to happen is and is it allows the state dot's to have clarity do there.

Fiscal year, 2021, which is what they all need and the can't be going.

<unk> quarter month to month, because it chops up big jobs, because they don't know what's going to happen I think that is Ah we talked about earlier, it's important to note that the new Congress, the new house and the new Senate will pretty much have the same balance of power is what we saw when we passed the extension.

Ah the fast act and that member of that extension was passed with bipartisan support.

And with bipartisan support what day, we totally hold from both parties was this was allowed in time get through the election come back and passed a better funded new highway Bill in 2021. So that's why we said that you know that may be the fact that the balance of power doesn't change place in our favor because.

There's already been substantial work done by the subcommittees, both in the house and the Senate towards the new Bill some of that bipartisan some of that not bipartisan, but that we've got a draft and we've got drafts and so now it's a matter of of negotiating and tweaking as opposed to having to start over with a new pin.

So we're thinking at this point, we start with a solid foundation of.

Of potential highway bills, and we get it pretty quick because that was the bipartisan support in the tent when they passed extension of the fast that okay and then on non rash when did you guys actually start seeing.

Salim declines in non rash cause the way that.

You know the indicators have been going I would think that the real nonresident turns actually in 21 before recovery and 22.

So what we saw was it go down like immediately March April and it and it sunk like Iraq, what we've seen coming out of the upcoming since then as we've seen some.

Sequential growth and leading indicators of nrem somewhat choppy and it and it obviously gets impacted by.

Spikes and COVID-19.

You also says we talked about we saw a lot of jobs push way back in the second quarter of some of those came back in the third Corps some got pushed again.

So it's it's quite choppy.

And it's been yeah volumes have gotten hit this year and that's.

The majority of that volume drop I think is going to be in the nrem sector.

Residential if you remember it drops kind of in April and then it came zooming back May June and this is never stop so.

You know as you on the street nonresident still way down shipments are still down, but hopefully we've got some of the worst behind US yeah, I'll, just I'll add a little color to that is if you go back to the beginning of the year and sort of really year to date for the end of February or starts were up.

On the non recite kind of 9% to 10% so going into the year, yeah, well. It was a it looked like a pretty good performance ahead from a starts perspective and then when we got to add the month of April after it was clear that you know get a COVID-19.

<unk> was going to be here for awhile, and and was a big issue and it starts dropped by about 50%.

<unk>.

By the time, we got to May and June we had seen a little bit of improvement actually in June we got about half of aprils decline back and since Jan That's Tom said July August September.

We've seen little bits of of sequential improvement it it seems that it moves.

Somewhat similar to what you see in the number of Covid.

Covid cases, and the number of the the level of surge that it's been out there. So that's why we said last quarter and we still stand by this.

Quinn.

Covid add the number of cases and the surge dies down a bit you see those starts began to pop back up. So I think we just need you know a few months have some certainty there because I think it you know there's a lot of.

Interest in non Razzed construction, I think people just want a little bit more certainty.

Great color.

Thank you.

Our next question comes from the line of Michael did Us alphabetical research.

Yes, good afternoon or good afternoon, just the phone yeah. Good afternoon, following up on the <unk> side.

Certainly you called out and others have been calling out datacenter warehousing distribution centers as a as a positive towards the mix.

And certainly I can state of Virginia is certainly that's a big a big investment that we're seeing from the big Pectin distribution guys.

How does that change as a percent of your backlog in your business maybe from what it was prior to pandemic and is there is that more is it the quicker to market type opportunities and is the size and intensity of the of the aggregate use.

Helpful with that end of the of the market to somebody other ones that have been more muted.

<unk> 20th Yeah is Suzanne mentioned earlier, we've got over a dozen projects that were in some of warehouses and distribution centers that we are booked or in the process of booking across our footprint of those are just ones that that I can think of off the top of my head I'm sure. There's more so it has had a it's.

Had an impact on our backlog so very positive impact on our backlogs and as as we said.

Future of that will look very good because of where we are and where those are dodge predicts that 90% of all of the the new construction of warehouses and distribution centers.

Construction the over the next two years will be in our market. So you know this is not this is this'll this'll be great demand come for for the next couple of years. So we're encouraged but it's also as you pointed out. It is it is wide and flat. So it has more aggregate intensive if you think about what.

Has to go into those it is not is not high it's more intensive and the parking lots for base in asphalt in in the foundations of those warehouses, where you pour concrete so.

It is somewhat more aggregate insensitive then.

The total on the high end of Aragon intensity for the total non construction she'd be nonresidential construction mix.

Yeah that makes sense I appreciate that and just follow up just generally common California.

Looking at the 2021, and maybe 2022 and certainly the pandemic in the the issues and in California relatives. Some other major states do you think there's a better opportunity overall familiar and all your business and what you serve so I'd better opportunity to me want to surprise to the upside or maybe surprise, maybe the downside relative to with the expecting.

Maybe.

Well I think as I said earlier, I think you're going to see some volume pushed from 20 into 21, Okay based on the rough terrible.

Third quarter and into the fourth quarter that we experience in California, with wildfires and while the wildfires curtail business and were you know tragic. It also from our business, we got the double hit because because of power outages it controls submit.

Submit production so everybody was nobody could get enough submit to supply the market.

That demand doesn't go away. It just gets pushed back so I think we do have some catch up and the last.

That's <unk>.

Production are availability is just now coming back so you're gonna have some of the <unk>.

Some of the shipments push into the last couple of months of this year and in the first couple of quarters of 2021, and while that hurt and 20, it'll help and 21.

[noise] residential construction, while it also got pause by all the reason that I just talked about has come roaring back and starts her up.

Truly one month over between 20 and 30%.

Couple that with the news from Caltrans.

Demand the revenues will be up 6% and the things that control so that will help aggregates an asphalt.

As like many other places nonresidents taken a hit and it's got a it's and we're feeling that hit and so we got to recover from that hit and that will be.

Really the unknown for for Us in California in 2021.

And we will give you a lot clearer view of that when we get to giving you our projections in February.

Thanks, very much time, thank you.

Our next question comes from the line of David Mcgregor as long, though research.

Yes, good afternoon, now and thanks for taking the questions I guess I I wanted to start by just asking about an infrastructure bill as distinct from the highway Bill.

And the answer you gave to a previous question just talking about the likelihood of growth in volume in 2021, and maybe the second half better than the first half, but just to get an infrastructure bill early in the in the states with the New administration, how does that change your perspective on that the volume profile through 2021, and maybe as part of that.

Question just to the extent you could address just what do you think is out there in terms of shoveled shovel ready projects and it just how quickly that could come through into V. M. C. Revenues. So I think our focus is really is not to get lost in a major infrastructure build the important thing is a highway bill now that may be part of a larger infrastructure bill.

But <unk>.

Piece of this is is really important is infrastructure is a broad category and we're really what I'm talking to is really about the federal highway Bill and.

And the extension of the Fast Act the work that's been done on a federal highway Bill and in both the house and the Senate and there's got bipartisan support.

And then we have a foundation moving forward now could that be rolled into a broader infrastructure package. Yes, I think it's more likely that is addressed as a specific highway bill now separate from that is.

No there's already a lot of talk about stimulus into in the stimulus now there's discussions before the end of the year beginning of 2021 with us the Congresses and now the new Congress I think somewhere over the over the next few months you do get a stimulus package hopefully it will include some infrastructure funding and that will be added to anything.

We're talking about.

If you could share your expectations around that just is there a way to size that Ah Ah there's.

I don't think we can at this point if you look at the.

From a from a stimulus perspective on that's hard to do and there's a lot of conversations timing and magnitude I think it's tough to call. If you look at the highway Bill I would look back at history and look back at drafts of bills that came out of the Senate and dresser bills that came out of the house that showed funding up 30% to 40% range.

And that doesn't that gives you some kind of idea of how the authors of those bills, we're thinking about it and many of those authors are still in place in the <unk> in those subcommittees and staff that has been which is a good thing because we don't start from zero, we don't start with a new piece of paper and a new pen so that we have some.

Minimum with US now that being said a highway bill that passes in 2021 will not impact shipments in 2021. It takes a year to two years to get funding to work and that's what we've seen as we saw the dramatic increase in state funding many of those have matured into or maturing into it I would tell you that I would hope.

That but cause the states at least our states have broadened their capabilities and expanded their capabilities to handle new funding hopefully they can put it to work quicker than what we saw with the inquiry improvement of the fast Act and the new Federal Bill versus what we saw with the Duke jump in and state revenues.

Right right, Okay, one call leave it there thanks, Tom Thank you.

Our final question comes from the line of Shantung Liang Unfilmed investment.

Good afternoon.

We can't hear Ya I think you may be muted.

Hey.

Good afternoon, and thank you for taking my question sure I should.

Okay.

I'm, sorry, you cut out on <unk>.

Okay can you hear me now yes, yes.

Hello.

Yes, we can hear Ya.

Yes, but can you hear me now yes, we can.

Great. Thank you.

Question.

Okay. Thank you for taking my question. So my question is patch give me.

Yes E M. P. Jimenez sanitation pass it suggested recently that replacement bridging aggregate recycle country can take up to 20% off the aggregate content and coffee.

Right, where are you thinking and then.

They're recycling it any more important.

Especially in your probably and did you have to spell in the future and just needed today. What do you think I'll say do you think of it as a threat.

<unk> I mean are you actually think okay. I can help you <unk>.

Well I mean.

For you today in four years recycle has been an integral part.

Sure.

Can you hear me okay.

Okay four years recycle has been a part.

Part of construction materials, both whether that is gas fault or that is in concrete.

And you know it does has limitations from a quality perspective and uses but it's a part of the business today, where we are in that business and it's just an integral part of overall construction, but I don't see it as a threat I was thinking it's reality today and part of the business and we're in that business. So it's it's.

It's it's part of the core of construction materials.

Okay, you take off thank you. Thank you.

[noise] that was our final question I'd like to come that far back over to Tom how for any additional closer remarks. Thank you offer and thank all of you very much for taking the time, but listen to our call. Today. We appreciate your interest and your continued support a Vulcan materials as we look for please stay healthy.

Keep your family Safe and we look really look forward to talking to you in the coming weeks. Thanks.

Thank you ladies and gentlemen, this does conclude today's conference call you may now disconnect.

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