Q4 2021 Vulcan Materials Co Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to Vulcan materials company's fourth quarter earnings call. My name is Catherine and I will be your conference call coordinator today during the Q&A portion of this call. We ask that you limit your participation to one question.
We'll allow everyone who wishes the opportunity to participate.
I will turn the call over to your host Mr. Mark Warren Vice President of Investor Relations for Vulcan materials. Mr. Warren you may begin.
Good morning, and thank you for your interest in Vulcan materials 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 a supplemental presentation posted to our website Vulcan materials Dot com.
According to this call will be available for replay later today at our website.
Please be reminded that today's discussion may include forward looking statements, which are subject to risks and uncertainties. These risks along with other legal disclaimers are described in detail in the company's earnings release and in other filings with the Securities and Exchange Commission rare.
Reconciliations of any non-GAAP financial measures are defined and reconciled in our earnings release, our supplemental presentation and other SEC filings.
As the operator indicated please limit your Q&A participation to one question.
With that I'll turn the call over to Tom.
Thank you Mark and thanks to everyone for joining the call. This morning.
We appreciate your interest in bulk materials company and hope that you and your families continue to be safe and healthy.
As you will have seen from the press release. This morning, Suzanne has decided to retire in September to spin some well deserved time with her family I'll have more to say on this at the conclusion of our prepared remarks.
Now, let's move to our fourth quarter performance and Suzanne will cover the full year performance later on.
I want to thank our team for its strong execution execution during the fourth quarter. Our financial results were ahead of expectations. Despite ongoing challenges from inflationary pressures, particularly in energy and labor constraints.
Focusing on our operating disciplines and proactive pricing actions, we once again saw expansion in our industry leading unit profitability.
At the same time, we made excellent progress on integrating U S concrete into our business. This overall a strong finish to the year allows us to carry considerable momentum.
Into 2022 .
We generated $386 million of adjusted EBITDA This quarter, an increase of 23% over 2021.
Energy related inflation was the most significant impact to our business with $36 million worth of higher cost of which $17 million related.
Related to diesel fuel, while the remainder related to liquid asphalt and natural gas.
Labor pressures caused higher labor cost due to overtime.
In the face of these challenges, we were able still able to manage our controllable costs well.
It's cash unit cost of sales increased less than 1% as compared to the prior year's fourth quarter.
This was an excellent operating performance and I'd like to thank all of our operators and congratulate them on a job well done in 2021 .
And all the while delivering a world class safety performance.
Our operating performance helped us improve aggregates cash gross profit per ton by 6% to $7.41.
This result includes an 8 million dollar acquisition related impact for selling acquired material afterwards, mark up to fair value.
Importantly, this progress on cash unit margin expansion represents the 14th consecutive quarter of improvement.
We achieved this by consistently executing on our four strategic disciplines.
Which helped to drive volume growth higher pricing and improved operating efficiencies.
These strategic disciplines will help us take advantage of the favorable demand and pricing environment in 2022.
Total aggregates volume, including U S concrete increased by 13% versus last year's quarter.
On a same store basis volume was up 7%.
This reflects not only continued improvement in demand across all end markets, but also favorable weather in November and December .
Yeah.
The aggregates pricing environment continues to strengthen across our footprint.
Same store prices were up three 7% in the quarter as compared to the prior year and mix adjusted prices increased by four 2%.
Year over year mix adjusted pricing sequentially improve throughout the year, having started at 1.3% in the first quarter.
The pricing actions taken to date.
Along with better demand visibility.
Stage for a favorable pricing environment in 2022.
Asphalt gross profit was $4 million in the quarter compared to $17 million last year as a 35% increase in liquid asphalt costs created a 17 million dollar headwind for us.
As we've discussed before liquid asphalt cost.
We're at three year lows in 'twenty, 'twenty and a significant fluctuation of these costs have made.
For a more difficult comp year over year.
The good news is that our selling price for asphalt mix increased 5% from the prior year quarter.
Through 2022.
As pricing catches up we will work to get back to asphalt segment's long term averages in terms of margins.
Concrete gross profit grew from $99 million to $22 million in the fourth quarter.
This increase was due to the acquisition combined with higher shipments and price growth in our legacy business.
Results were negatively impacted by higher diesel prices and the availability of drivers.
Before we move on to the overall demand environment I'll comment briefly on U S concrete.
We continue to be excited about this acquisition and how it expands our footprint.
It naturally complements our existing argues for business in California, Texas, and Virginia, and it gives us access to new platforms and the northeast.
We moved immediately following the acquisition to begin securing cost savings and synergy opportunities.
As I mentioned previously the integration is going well and our progress accelerate during the fourth quarter with both from both operational and back office standpoint.
I am pleased with how the business and management teams have blended seamlessly during the first four months of ownership.
We remain confident in our ability to generate at least $50 million of initial synergies.
Initial cost synergies on a 12 month run basis, beginning mid year.
Now I'll touch briefly on the demand picture, which is increasingly positive.
The key takeaway is that for the first time in many years.
All four end uses are expected to grow.
The residential end use has continued to show growth in starts in both single family and multifamily housing and we expect starts continue at these high levels.
Nonresidential starts continued to strengthen over a broader range of categories, improving nonresidential, Ron residential demand will be positive and helped drive growth in our address in our concrete businesses.
On the public side.
Growth is expected in both highways and other infrastructure.
The recently enacted infrastructure investment and jobs Act.
We'll add to existing demand as well as our long gating the cycle.
Having said that we do not expect it to have a significant impact in 2022.
We are well positioned in the attractive growth markets, we serve and those markets are poised to benefit greatly from the legend legislation in coming years.
Yeah.
Before I turn the call over to Suzanne I want to reiterate our confidence in our prospects for 2022, particularly with respect to demand visibility pricing and our ability to control what we can control.
We will be mindful.
Of potential pressures from both inflationary trends in tight labor markets.
We will continue to focus on our operating excellence and our strategic sourcing disciplines to help offset some of these pressures.
Now I'll turn the call over to Suzanne for further comments Suzanne.
Thanks, Tom and good morning to everyone. While we faced some challenges in 'twenty 'twenty. One it was a year of significant accomplishments, including the completion of our acquisition. Our most notable financial achievements were the growth in our unit profitability and adjusted EBITDA full year al.
[noise] forgets cash gross profit per ton rose by 5%, while adjusted EBITDA increased by 10%.
The ability to generate numbers like this while incurring $93 million of higher energy related costs across this segment demonstrates the strength flexibility and resiliency of our aggregates focused business model. It also points to the contributions of <unk>.
Our four strategic disciplines, which help us make the most of any economic environment.
Aggregates prices increased by 3% as compared to the prior year and we held our cash unit cost growth to less than 2% through efficiency improvements and general cost controls.
This allowed us to offset inflationary pressures and improve our unit profitability.
With respect to the balance sheet, we quickly reduced our net leverage to the top end of our target range ending the year at two and a half times given our ability to generate strong cash flows there is capacity and liquidity to invest in other opportunities whether organic or inorganic.
But as always we will be disciplined in doing so.
Certainly, we'll continue to prioritize sensible leverage and financial flexibility in order to support our capital allocation priorities and maintain our investment grade ratings.
Our debt structure is sound with long maturities that makes sense for our business.
Our capital allocation priorities remain unchanged and have led to an improving return on investment profile on a trailing 12 month basis, our Rois C was 14.2%, while investing in growth and overcoming inflation and a pandemic we.
We have improved our aro I see by 160 basis points over the past three years.
Now turning to our outlook, let me make a few comments before turning the call back over to Tom.
Following a strong performance in 2020 , one we expect 2022 to be another good year of earnings growth in terms of our guidance incorporates the full year contribution of U S concrete.
Given the level of integration and change going on in our business, we are providing guidance on a consolidated basis.
We expect adjusted EBITDA of between 1.72 and $1.82 billion. The midpoint of this range represents a 22% increase over 2021.
We've outlined the more detailed guidance in the press release, but let me touch on a couple of key items.
First we project a high single digit growth in our aggregates cash gross profit per ton driven by unexpected 6% to 8% increase in aggregates pricing and 5% to 7% increase in shipping volume.
As mentioned on the third quarter call volumes may be affected by labor constraints and therefore, we've tried to be thoughtful about the volume guidance range.
If labour constraints continue in 2022 it's important to remember that the work is still there. It may just proceed at a slower pace effectively extending the recovery and allowing us the opportunity to compound our unit margins.
With respect to costs. They are expected to rise by mid single digits, but we will do all we can to control what we can control.
And non aggregates, we anticipate cash gross profit of $300 million to $325 million with approximately 75% of that coming from concrete.
Most of the improvement will be driven by a full year of earnings from the acquisition of U S concrete, but also from improvement in our asphalt and legacy concrete businesses.
S. A G expenses will range from $485 million to $495 million, reflecting the inclusion of U S concrete and anticipated synergies as described on our last call.
And finally, we expect to invest between 600 and $650 million in capital expenditures, including growth and capacity adding projects.
This compares to $465 million invested in 2021 and includes a full year of expenditures for U S concrete.
I'll turn the call back over to Tom now for closing remarks.
Yes.
Thank you Suzanne before we go to Q&A I want to comment on a supply chain issue.
For 30 years Vulcan materials. This court limestone your Playa del Carmen Mexico.
The land that we own.
We are extremely proud of our history as a good corporate citizen and I am, particularly proud of the poor and 50 operators that facility.
The operating safely and have contributed thousands of hours in service to the surrounding communities and the environment.
Since late 2018, we have been engaged in a NAFTA arbitration with Mexico in order to secure a right Corey future reserves.
A hearing took place in 2021, and we expect a ruling in the second half of 2022.
We have continued to engage with government officials to pursue an amiable.
Resolution of that dispute.
However, recently, Mexico has taken additional actions that adversely affected our operations in Mexico.
We are focused on taking care of our customers affected by these actions and we will continue to work with the Mexican authorities to reach a mutually agreeable and beneficial solution.
Now looking at Vulcan in total.
I want to again, thank the entire Vulcan team for their hard work and dedication to servicing our customers.
Our people are what makes Vulcan better every day.
We have and we'll always operate Vulcan for the long term.
This includes keeping our people safe.
And improving on our already World class safety record.
The three key elements of our near term strategy that will deliver value for our shareholders are the following one.
Execute at a local level to drive the unit margin expansion by focusing on our four strategic disciplines and.
And three maximize synergies with U S concrete.
I'm looking forward to working with our teams this year to accomplish our goals.
Before I close let me comment on the leadership changes I mentioned at the beginning of my comments.
Effective March one Darren Hicks will serve as our chief Human Resources Officer.
Our culture and our people are key to our success.
And Darren brings a wealth of experience to the new role.
We are confident he is the right person to continue to help drive Vulcan forward into the future.
And of course as I said Suzanne is planning to retire later this year.
Maryann, Bruce Carlyle will be replacing Suzanne effective September one.
She is the ideal person to step into Susanna shoes.
Having worked closely with both Suzanne and be in the planning and execution of our strategy for a number of years now.
Although we hate to see Suzanne go we fully support her decision and we are grateful for her commitment to ensure a smooth transition.
And now Susan and I will be happy to take your questions.
If you would like to ask a question. Please press star one on your Touchtone phone.
Star and one if you would like to ask a question you can remove yourself from the queue at any time by pressing the pound Keene will go first to new La Mer Cuzco with Stephens. Your line is open.
Okay.
Congrats on a nice finish to the year. Thank.
Thank you.
So Tom and Suzanne Thanks for all that detail on the guide.
Could you talk about how youre thinking about the puts and takes around the cadence of how this year is expected to unfold in 'twenty two.
Sure I think I think as we look at 'twenty two it's important we look back because it sets the tone.
'twenty, one I'm really proud of our People's performance over the really over the last two years.
Despite your thinking about despite a pandemic labor shortages inflation.
We were able to grow unit margins mid single digit over the last two years and that just tells me our strategic disciplines are working.
Look our teams turned in a EBITDA growth of 10% the last year, despite a $93 million in extra energy costs. This is just a job well done.
And if you look forward in 'twenty, two it's shaping up to be a really exciting year of you got all four end uses should experience growth.
So the fundamentals for for vault for demand growth or really good, albeit there'll be some headwinds from you know labor or supply chain issues.
So if those if if the supply chain issues and labor ease up you probably got some upside on volume, but we tried to be thoughtful there. So we got to see that happen first pricing momentum built through the year in 'twenty one.
And we've carried that momentum into 'twenty two.
I think we will see continued disciplined cost control like we saw last year, even in the face of inflation.
And that discipline allows us to grow aggregate unit margins by high single digit in 'twenty, two and so we'll see we'll cover that I think we will see both volume and unit margin growth in concrete and asphalt.
As we as we March through 'twenty, two now remember the fourth quarter is going to have some challenges you still got the same energy comps you saw in Q3 and Q4 of last year, we probably will have a challenge of energy of some $35 million weather was challenging in January February .
You had some COVID-19 spikes that affected cruise in labor and.
In January but I think we quickly get past that and have a really strong and exciting 'twenty two.
Yeah.
The next question comes from Stanley Elliott with Stifel. Your line is open.
Hey, good morning, everyone. Thank you all for taking the question and Suzanne Best of luck I know, we saw plenty of time to hear you on these calls but.
Can you talk a little bit more about the confidence that you are seeing on the residential market I mean, some of the the mortgage rate some of those those sorts of numbers seem to be maybe not quite as positive as I've seen but on the flip side. You know certainly I think theres an argument. There's a lot of markets that are are structurally under built in in part of your footprint, but curious what sort of.
Since you're hearing and having a with some of these builders on longer term.
Land issues and things like that that would give us a little more confidence to go even beyond 'twenty two.
Yeah. Good morning, first of all and I would tell you I think <unk>, we see strong growth in 'twenty two I think it's very widespread across almost all of our markets.
Maybe some weakness in Chicago, Baltimore, you've got new subdivision construction, continuing so it's very aggregate intensive which is great for US now I would tell you, it's gonna be a bit slower erode a bit slower rate than what we saw in 'twenty, one which was as we all know was white hot and as you called out that's due to supply <unk>.
Shrinks.
Inflation and interest rates in land.
So all in all a good study now if it you know just stepping back and look at interest rates.
Freddie Mac rate for 30 years at 3.7, that's still extremely low rates so while.
While not as fast as 'twenty, one it will see growth.
The next question comes from Kathryn Thompson with Thompson Research Your line is open.
Hi, Thanks for taking my questions today, and Suzanne Best of luck with your new chapter. Thank you.
Hmm wanted to it for guidance for 'twenty, two I just want to look backwards in order to look for just for some clarification, especially with U S. C are in the mix.
First on the concrete side, some puts and takes on the concrete business and how New York and California ops were impacted by the plant shutdowns and what does that mean.
And into 'twenty, two and then on the aggregate side once again with guidance bridging the delta between same store sales viands versus those contributed by U S. C R and keep Florida, our Q4 and frame how that delta should be accounted for in 'twenty two guidance. Thank you.
Thank you, let's start with aggregates and as we look back you know we finished last year, a really strong Q3 was up 8%, 5% or same store Q4 was up 13%, 7% on a same store.
But you got to really look at those quarters to understand that remember Q3 comp was comping over 'twenty 'twenty, where we had the most severe shelter in place. So it was a pretty easy comp and then.
In Q4, we saw unseasonably good weather in November and December now when you turn a 'twenty two as we said the good news is the fundamentals are there we're seeing growth in all four end users, but you got that's dampened by challenges from supply chain and labor and for our customers and particularly for.
Our carriers transportation, maybe a challenge, there's probably going to be a challenge in 'twenty two so the guy.
And the volume is growth of five to seven you know.
Our same store is really hard to call out because those businesses are now so integrated so theres lots of mixing and matching but if I had to call that out I'd call. It two to four range, we try to be thoughtful about that guidance because of all of the challenges we're seeing from.
From labor and supply constraints, but if if the supply chain and labor ease up we've probably got upside to volume in aggregates.
On on concrete if you remember.
Volumes were challenged in concrete.
2021 due to in California, and New York do because they were the most severe shelter in place and the government offices just shut down so when we got to the point, where we couldn't get a Christmas couldn't get building permits.
I think that as you look forward and then we had challenges with diesel and efficiencies because traffic came back in.
But I really like how 'twenty two is shaping up for concrete volumes should be much improved you know we passed the air pocket of shelter in place in Northern California, New York You Remember you got nonresidential demand segment turns two is turned to growth in 2022 that's a big impact on concrete DFW continues.
To be very good so we will see volume growth in 2022 but will also start to see margin expansion as prices have moved past headwinds.
You couple all of this with our California, Texas, and Virginia. The Vulcan UFC businesses are functioning as one I think concrete would be a much improved business in 'twenty two.
Yeah.
The next question comes from Jerry Revich with Goldman Sachs. Your line is open.
Yes, hi, good morning, everyone and good morning installations. Thank you.
I'm wondering if you could just expand on the situation in Mexico, sorry, sorry to hear you have to go through that after all the years of safe operations. There can you talk about what their contingency plans are for serving customers is it via rail from the Georgia area.
Honestly that comes at a higher cost. So I'm wondering are we able to push through the higher cost.
Yeah.
In real time as it faces disruption. Thanks, Yeah, well first of all we're not having to do that I think it was step back and look at Mexico. It's important to note that we have.
All of the legal rights to operate in Mexico, we have all the appropriate permits in place. We're in negotiations to come to a resolution that benefits all of the parties of interest Mexico is interested in our properties for tourism, which we believe will coexist with our with our existing operations in fact, we think.
The continued to operate there will ultimately benefit the overall volume for tourism.
And we believe this will happen. So you know if you kind of put it in perspective, we shipped a little over 7 million tons from from to the U S from Mexico in 2021 those tons are in our guidance and we continue shipping from our yards and were now back shipping from Mexico to the U S. So look this.
Things will work out if you will.
It will be fine. If you know you could supplement some by rail but at this point, we're shipping and we're servicing our customers I think if you really step back and this is the big picture for all of this stuff in the opportunity in 'twenty two is a big opportunity, we're talking about in volume and price and so overall.
Ship shaping up to be a very good year, and we will get our situation in Mexico.
Okay.
Yeah.
Well go now to Anthony Pettinari with Citibank Your line is open.
Good morning, and good morning, good morning, and congratulations to Susanne on the next chapter.
Yeah.
Tom I was just wondering in terms of infrastructure spending.
Remind us the kind of the timing that you expect for that demand to flow through in 'twenty, two and maybe more in 'twenty three and then in terms of the appropriations Bill which seems like it's been installed is the delay there.
I have the potential to meaningfully impact the timing of that infrastructure spending and when you would see that.
Through Aggregators sales, just any any thoughts on that.
Yeah, I think first of all to highway demand and 22, we will see growth there.
I think it will it will flow through and probably ramp up as the year goes along.
States are flushed with capital as tax receipts are up across the board and remember those states still have COVID-19 relief funds.
And now that money is accelerating in Lettings and bid work. So 22 demand should should grow throughout the year sequentially.
We don't think we'll see any of the I I J a funds in 'twenty, two maybe a little bit the end of the year, but it's really a 'twenty three 'twenty four play so.
Let's step back and look at how I J J I I J a flows.
Money flows two ways through this first funds that which flow through regular federal programs prior to a J a.
Things like the fast act are fully available to states passed appropriations.
Once we get appropriations second.
Funds are new discretionary programs will flow later, because you have to write the you have to write in and in the active programs.
This is why we say that that funding will take the new funding. The additional funding would take time to flow through which is why we predict will start hitting in 'twenty three 'twenty four but I think some important remember 76% of our J a funds.
We will be distributing the states be a formula.
So two thirds of those formula funds will go into Vulcan States.
This is a big deal and a big advantage to Vulcan served states.
Yeah.
The next question comes from Garik <unk> with loop capital Your line is open.
Oh, hi, Thank you on the pricing guidance, obviously, it seems like the increases here at the beginning of the year and throughout the first quarter are being well accepted but if you could provide any color.
And how those discussions are going.
And does the guidance at all rely on additional pricing beyond what you've already announced and you know of course are lumpy.
Throw my congratulations to Susanne.
There as well thank you Derek.
Yeah, well if pricing I think is a really good story from the beginning of last year is we built a lot of momentum.
We talked about in 'twenty, one and we've carried that into 'twenty two.
You know, we set all time inflation and visibility to growing demand or excellent catalysts for price increases.
And you saw us guide to 6% to 80% of price range, we have a lot of confidence in that it's very widespread is through all markets now.
Now included in that we don't have second half price increases.
They're not in our guidance there are possible there are some upside it's way too early to call that we'll start having discussions here in the next few months about that and I think we'll have a lot better feel for that as we get into the second quarter.
At this point you know isn't.
Six days, great as the World goes along the demand continues to improve there'll be opportunity for pricing, but I think where we're confident in the.
Midpoint of seven or the range of six to eight are going into this and that's that leads us to high single digit unit margin growth with our with our operating abilities and we think that's a strong showing for 'twenty two.
The next question comes from Michael Feniger with Bank of America. Your line is open.
Hey, everyone. Thanks for taking my questions I recognize that 2022, you're still contending with these inflationary costs. I think you said you're embedding mid single digits I'm. Just curious if that is picking where diesel and liquid asphalt are today.
Our or any relief there and then when we think of 2023 I is there any chance that we see some relief that incrementals on the aggregate side could be.
And that 60% target range. Thank you.
Let's take a little more first I mean, we were very close to just below 60 in 'twenty one.
We'll be around we would guide you to 60 in 'twenty, two which is kind of where we always guide you I think that doing that in a in a.
Period, where you've got is bigger jumps in diesel cost is a heck of a of an operating performance.
I'm proud of that performance in 'twenty, one and are confident we'll be able to do it in 'twenty two from to get to the target of 60 or Incrementals.
As you look at the operating side of the business and cost I would tell you I could not be more proud of our Vulcan operators and their performance in 2020 , one and going into 'twenty two.
As always they were make sure that our people were healthy and safe.
Then, let's look at they just crushed rock like Champs and just step back and think our total cost of sales was only up one 5% last year with diesel up over $40 million and that's with all goods and services, we're dramatically up labor was up.
And that's our operations strategic discipline to work.
And I'm proud of those guys those men and women, we're carrying that momentum into 'twenty two.
We're calling out maybe a little higher cost increases with mid single digit really driven by as you called out fuel, but you also got labor inflation, just everything we use.
But you know that still leaves us to high single digit unit margins and.
In a period of inflation, while we got that as a very good performance and that's what Vulcan is built for and that's what we talk about all the time. This is who we are we were built to dampen headwinds like you see it and take advantage of tail winds with the extra volume and price and we did it in 'twenty. We've we did it in 'twenty one I have all Congress of the world.
Will do.
The minimum we'll be able to do it in 'twenty two.
We'll go now to Mike Dahl with RBC capital markets. Your line is open.
Hi, This is actually Chris kalata on for Mike. Thanks for taking my question.
I was hoping to ask about kind of your thoughts on that.
The supply chain outlook. This year, obviously that has implications on on volumes and pricing. So I was wondering you.
You mentioned potential upsides, if things start to improve it any sense you can any way you can help quantify the potential upside there and to the extent supply conditions don't improve.
What upside is there on the pricing as an offset so just your thoughts on how that evolves through the year.
Yeah, you know it is.
So I'll take our operations then our customers are our big our procurement folks who are I'll call them out there doing a great job. We've had very few are internally now getting rocked two customers who was a challenge in 'twenty one it'll be a challenge in 'twenty, two and that is from both rail and truck that is labor.
And you know it is challenging the railroads are all having trouble I think there they say, they're going to improve I believe them I think it will get better.
But it's still a challenge and then you just look at projects out there and you talk to our customers and it's everything from switch gear two types of pipe to door knobs to windows to.
Plumbing plumbing parts. So it's just so widespread and it's I think it's too early to call anything better than what we've seen.
I think in our guidance, we were thoughtful again, if things start to ease up I think you've got opportunity there.
Is it as we look at price I.
I would call our cadence of price last year. It was was a pretty sharp curve I think that curve will be will won't be as sharp as it is this year I think youll see more consistent pricing throughout the year in that six to eight range kind of starting in the first quarter and working all the way through.
Again, if we have opportunities for second half prices and it's too early to call maybe that gets a curb gets a little steeper.
It gets a little steeper, we'll keep plugging it at that and we'll keep you posted.
Yes.
The next question comes from Phil <unk> with Jefferies. Your line is open.
Hey, guys Suzanne Thanks for all the help through the years and married congrats and looking forward to working with you.
Tom I guess, you've kind of alluded to a mid year price increases a few times on this call I believe one of your bigger competitors.
Have actually some commentary on their pricing letters for the first time that hayek signaling into their customers that you should probably expect one this year. So how do you guys kind of approach that have you started signaling to your investors I mean, your customers on potentially a midyear price increase for aggregate and any color on the pricing momentum you're seeing in California, how does that kind of stack up to I think the five.
8% you guided I think that at this point I think you got it.
The 6% to 8%.
Hum.
I think we know where this is February middle of February we're just starting to have conversations with fixed plant about mid year. It's really early in the process same thing with bid work way too early to call I think I'm confident in the six to eight but we'll see what happens.
I would tell you that pricing in California is consistent with the rest of our model. There is opportunity there and you know that our customers know the inflationary pressures we have.
And they have them also so it's and they're also looking at moving their pricing. So the whole sector is going up again.
That visibility is growing demand gives people the confidence to take risk on price and then you've got the inflationary pressures. It's just a little easier conversation, but I think it's well where have is beginning to have conversations about second half pricing and theres off there may be opportunity. There is two way too early to call.
Yeah.
We'll go now to Adam Thalheimer with Thompson Davis Your line is open.
Oh, Hey, good morning, guys. Congrats on a strong Q4, hey on the asphalt side, Tom real quickly can you comment on the outlook for volumes in California, and Arizona This year yeah.
Yeah.
Good both of them improved.
Arizona got hit last year, and it was or a problem for us with volume in 'twenty, one and it was really timing on projects and it was supply chain. We got held that our customers got held up with I think some big piping and other other other parts for utilities Theyre, just held up projects, but.
I would tell you both have opportunity for improved volume and I think that like the rest of the product line as we March through the year sequentially and prices go up our aggregate in the second half, we'll see margin growth now at the first half is going to be challenge because you've probably got.
A big negative comp in liquid AC of about $15 million in Q1, but we'll get past that and as we saw prices go up in Q4, 5%, they're moving up and as we always do we gotta blip. That's a delay there is strands, yet and we'll catch it.
Yeah.
We'll go now to Michael Dudas with vertical research your line is open.
Hi, Good morning, Mark Tom Congrats Suzanne and shut off to Maryann, Darren as well yeah. Thank you. Thank you.
Tom You mentioned in your prepared remarks.
You're seeing some growth in non res maybe.
Share some views on its light starting to catch up to the visibility on heavy and is that something that can continue to gain strength throughout the year, given the supply chain issues or any difference in supply chain issues on non res ultimately an awesome year.
A little bit, but you know its non res last couple of years, it's been pretty volatile. We spent 2020 falling we spent 21 recovering and we will see growth in 'twenty two heavy non res still strong in 'twenty. Two I think we're seeing a growth in traditional non risk, which as we predicted.
To this following subdivision growth and that's coming on that'll come on in 'twenty, two and we're starting to see green shoots in high rise projects.
And importantly, remember non res is is very important and very good for our concrete business. So our timing is good with that with the purchase of U S concrete.
It's a it's a sector, where we're excited about they too have supply chain issues, yes, they are different.
From a risk I think there are probably a little less challenged but it's a volatile situation of what to watch it as we go through the year.
The next question comes from David Macgregor with Longbow Research. Your line is open.
Okay.
Yes, good morning, everyone and good.
Good morning.
Comes next.
Thank you.
I guess I wanted to Tom you had talked about the fact that you don't expect.
Okay.
Business really come through meaningfully at least until 2023.
Meantime in 2022, you've got all four of your main verticals firing here and it's creating a 6% to 8% price environment.
What happens if those four verticals remain strong into 2023, and then you layer in on top of that the incremental business associated with the <unk>.
What gives I mean, how did you find market equilibrium here just the prices just oh parabolic or do you bring on incremental.
Mr.
Channel capacity.
I realize you probably have rock crushing capacity, but it would be more detailed capacity I guess, but how do I think about how that resolves into 2023.
You know I think what you see is.
Continuing compounding unit margins I think that you know what we said was that the the I I I G E.
It gives us a lot more security of extending the cycle. So if you were to have an air pocket in the in the private side, you've covered up with a J, a but I think we stick to our disciplines and that's why those four strategic discipline is so important that you continue to serve customers earn that price through the commercial efforts we take that.
Price in those in that to the bottom line Bucks back between U R. R. R operations of disciplines, and our cost control and operating efficiencies.
Use the procurement to make sure we get the goods and services, we need to keep those operations running in times of supply chain and labor challenges and then those logistics, it's tough to get a.
Logistics is so important these days because theres just a shortage of labor in both rail and truck and that's being officials of that is really important to maximize.
<unk> profitability, but are you you are right it bodes well if the if.
We believe the private side will continue it bodes really well if that happens, but do you know if theres, a little slippage or something happens that would challenge that I think that the magnitude of this extends the cycle and continuous growing our margins.
Okay.
The next question comes from Courtney <unk> with Morgan Stanley . Your line is open.
Hi, Good morning, guys and congrats Suzanne Thank God morning.
I just wanted to follow up on some of the discussion about the infrastructure investment and jobs Act and so I think you had mentioned you know you think it might take a little bit longer to hit in 'twenty. Three 'twenty. Four you know at this point are you thinking it's a relatively even impact between the two years do you see it more weighted to 'twenty three and then just you know.
Incremental follow through in 'twenty, four or is it the other way around and then you know how are you thinking about it from a volume perspective versus the pricing perspective, do you have more confidence that.
And we'll see a significant increase in volumes or do you anticipate more of that coming through on on the pricing side and you know I think someone had asked earlier about hyperbolic pricing, but are we setting up for a situation, where we could have two to three years of sustained double digit pricing growth.
Yeah, so from a volume perspective in the cadence of the new funding, what we're saying is because and this is where I talked about the second new discretionary programs. They take time to flow through because you have to right you have to write regulations enact programs.
And that just takes time, that's the reason we say look we'll have growth in 'twenty two from states increase in funding the new Federal fund increase in funding will start to flow through in 'twenty three as they.
As they enact those programs and they start to then they get the Lettings and then they put the job the war.
The jobs to work and we ship rock and I would expect a ramp up through 'twenty, maybe a little bit this year, probably doubtful, but you'll start to see a ramp up in demand as we March through 'twenty three 'twenty four 'twenty five as those programs mature and those funds flow to work now with that <unk>.
Got embedded in that is you've got very you'll have very clear visibility to be a state dot's to work this coming and that's growing demand and that visibility to growing demand use everyone confidence to take risk on jobs and take risk on price. So it will be good for both volume and.
But I would expect from volume a gradual ramp up you know 'twenty three 'twenty four 'twenty five and in pricing to follow.
This does conclude our question and answer session I would now like to turn the call back over to Tom Hill for any closing remarks.
Thank you guys for your time today as always we appreciate your interest in Vulcan, We hope that you keep you and your families.
And and happy.
Suzanne and Mary Andrews, and Martin I'll be I'll see you in the coming days and weeks you guys have a great rest of the day. Thank you. Thanks a bunch.
This does conclude today's program. Thank you for your participation you may disconnect at any time.
Okay.
Yeah.
Okay.
Okay.
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