Q3 2022 Vulcan Materials Co Earnings Call
[music].
Please standby your program is about to begin.
Good morning, ladies and gentlemen, and welcome to the Vulcan materials Company third quarter earnings call. My name is Gretchen and I will be your conference call coordinator today.
If you'd like to ask questions. Please press star one during the question and answer portion of this call. We ask that you limit your participation to one question. This will allow everyone who wishes the opportunity to participate.
Now I will turn the call over to your host Mr. Mark Warren Vice President 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 Mary Andrew's Carlisle, Senior Vice President and Chief Financial Officer, a couple of housekeeping.
Keeping items before I turn the call over to Tom.
First 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.
Reconciliations of any non-GAAP financial measures are defined and reconciled in our earnings release, our supplemental presentation and other SEC filings.
In the interest of time, please limit your Q&A participation to one question. This will allow for more questions during our time together.
Today's call is accompanied by a press release and a supplemental presentation posted to our website Vulcan materials Dot com.
Additionally, a recording of this call will be available for replay later today at our website.
And with that I'll turn the call over to Tom.
Thank you Mark and thanks to each of you for joining the call. This morning, we appreciate your interest in Vulcan materials company.
During the third quarter, our team showcase the durable growth capabilities of our aggregates led business model.
Volumes prices gross profit and importantly unit profitability improved in each of our operating segments.
Widespread double digit pricing growth across all segments outpace continued cost pressures.
Our momentum is strong.
Throughout our organization, we remain focused on our strategic disciplines. The Vulcan we are operating in the Vulcan way of selling.
And the fundamental role they play as we continue to enhance our core business.
We also continue to expand our reach and we've closed several strategic acquisitions. This year importantly, during the third quarter, we acquired strategic aggregates and downstream assets that complement our existing business.
Northern California.
In the third quarter, we generated $507 million of adjusted EBITDA, which is a 21% increase over the prior year.
Accelerating pricing growth and higher year over year shipments drove earnings improvement in each product line.
In aggregates gross profit improved 17% to $436 million volume improved 9% or 3% on a same store basis and it was geographically widespread.
Pricing momentum continued growing from mid single digit in the first quarter two hospital visit in the second quarter, the double digits in the third quarter.
Average selling prices on both a reported and mix adjusted basis increased over 12% from the prior year's third quarter.
Current pricing momentum and the visibility into future public demand growth will support a positive pricing environment for the remainder of 2022 and into 2023.
As expected our costs remained elevated in the quarter due to continued inflationary pressures.
The price per gallon of diesel was more than 60% higher than the prior year.
In most parts of suppliers also faced significant inflationary increases.
Our focus on driving efficiencies through the Volcker way of operating is critical to continuing with inflationary pressures and continuing to expand our unit profitability.
In the third quarter aggregates cash gross profit per ton improved 9% to $8.41 per ton.
Our asphalt segment also achieved significant improvement in the third quarter with a $22 million year over year increase in cash gross profit.
The average price of liquid asphalt increased by over $200 per ton compared to the prior year's third quarter.
That said continued pricing momentum and healthy volumes drove favorable results in spite of the ongoing energy related cost pressures.
Asphalt volumes increased 13%.
In asphalt pricing improved 26%.
Both volume and pricing improvements were widespread with particular strength in Arizona, and California are two largest asphalt markets.
Concrete cash gross profit in the third quarter improved $25 million due to the contribution from acquired operations as well as strong volume and price growth in our legacy operations.
Now that we are briefly review the results for the third quarter lets shift to the underlying demand environment and the outlook for construction activity.
We see both challenges and opportunities in the future demand environment.
With different dynamics impacting each in use.
Single family housing is facing considerable headwinds, but multifamily housing and private non residential starts still show growth.
On the public side, leading indicators for highways and other infrastructure are reflecting strong tax revenues and increased funding from the infrastructure investment and jobs Act.
I'll share a few highlights on each end use.
Starting with residential single family demand is now showing the impact of rising construction inflation home prices and mortgage rates.
Permits and starts are declining, albeit at slower rates in Vulcan served markets than the country as a whole.
Multifamily permits and starts remain positive.
It's important to remember that residential construction activity remains at high levels also household formations and limited inventories may dampen the magnitude and duration of weakness in residential demand.
Private non residential demand.
Leading indicators are currently healthy and the trailing 12 month private nonresidential starts are up 21% over the prior year <unk>.
Additionally, leading indicators remain positive with the architectural billings index or Abi still greater than 50 and the <unk>.
Dodge momentum index.
Levels.
On the public side, we are in growth mode. Trailing 12 month highway starts are up 14%.
And other infrastructure starts are up 18% in fact July and August where the two largest single months for Highway awards in the last 10 years.
The timing of starts converting to our shipments will be a critical variable impacting next year's demand for aggregates.
As we look into 2023, we expect that the current strength in private nonresidential construction activity and increased public funding will help to offset contracting residential demand.
We also curious strong pricing momentum into 2023.
Our teams will be finalizing their annual planning over the next few weeks and we will share with you our full year outlook on 2023 in February .
Even with uncertainty in the broader economy, we're confident.
We are well positioned to capitalize on pricing opportunities benefit from the generational increases in public funding and continue to expand our unit profitability.
I will now turn the call over to Andrew to comment further on our results.
Full year outlook metrics. Thanks.
Thanks, Tom and good morning, Tom highlighted the strong operating results, we achieved in the third quarter in both our aggregates and non aggregates segment. So I'll focus on a few other items in the P&L the balance sheet and our revised outlook for the full year 2022.
Our <unk> expenses as a percentage of revenue improved by 30 basis points versus the prior year quarter to six 5% of revenue in.
Year over year increases in S. E. G were driven primarily by higher incentives consistent with improved earnings and elevated legal and professional fees related to Mexico and business development activities.
Our support teams have been focused on integration activities for acquired businesses and we expect to reap benefits from those activities into next year.
During the quarter, we recognized a pretax gain of $24 million on the sale of real estate in California.
Also as part of our ongoing focus on portfolio management, we are finalizing an agreement for the disposition of our ready mix assets in New York, New Jersey and Pennsylvania.
And therefore during the quarter, we adjusted the carrying value to fair value, resulting in a $68 million pre tax charge.
Now turning to the balance sheet at the end of the quarter. Our net leverage was two five times adjusted EBITDA and within our stated target range of two to two and a half time.
Disciplined capital management remains fundamental to our strategy and we will continue to deploy capital consistent with our long standing stated priority.
Through the first nine months of this year, we've deployed $378 million in operating and growth capital to support and expand our valuable franchise $528 million in M&A to grow and strengthen our market positions and $159 million in.
Dividend to return cash to shareholders.
Our balance sheet is strong and during the quarter. We added another source of flexible and cost effective capital by initiating a commercial paper program, we issued $550 million of commercial paper and used the proceeds to repay half of the outstanding $1 $1 billion term loan.
In conjunction with initiating the commercial paper program. We also upsized, our revolving credit facility to $1 $6 billion and extended its maturity to August of 2027.
Our investment grade balance sheet and significant cash generation capabilities give us the capacity to continue to invest in both organic and inorganic opportunities with a focus on improving shareholder returns and return on invested capital.
On a trailing 12 month basis, our return on invested capital at quarter end was 13, 6% inclusive of strategic acquisition and ongoing investments in growth opportunity.
We are focused on continuing to improve our returns.
Now, let me comment on the update to our full year 2022, adjusted EBITDA guidance.
We now expect to generate between 164 and $168 billion.
Continued strength in underlying demand and acquisition activity are driving aggregate shipment expectation above the upper end of our original expectations of 5% to 7%.
We now expect full year aggregates volume to improve between seven and 8%.
We continue to expect mid single digit growth in aggregates cash gross profit per ton for the full year.
As expected pricing gains continued to grow in the third quarter and year over year improvement in unit profitability expanded sequentially and was in line with our second half expectations.
Other updates to our guidance include full year <unk> expenses of approximately $520 million depreciation depletion and amortization and accretion expenses of approximately $575 million.
And an effective tax rate of approximately 25%.
We continue to expect to spend between 600 and $650 million on capital expenditures in 2022 days.
These expenditures include both maintenance and growth projects and the higher fourth quarter pace of expenditures is reflective of expected deliveries on ordered equipment.
I'll now turn the call back over to Tom for some closing remarks.
Thank you Mary Andrew's before we go to Q&A I want to thank our entire Vulcan team for their hard work and consistent execution.
Proud of the results they delivered in the third quarter and I'm excited about the operations, we added through acquisitions in the quarter.
I'm, particularly proud of the Vulcan family members, who helped to rebuild discernible causeway, while at the same time coping with the hurricane impacts their lives like all of you for your dedication to your community and to one another.
We are always focused on keeping our people safe will continue empowering and developing our talented people and executing at a local level.
We will take advantage of the positive momentum and be nimble and addressing new challenges.
I am confident in our ability to continue driving improvement in our core business.
Through the further development of our book, we are selling bulk with operating strategic disciplines.
They allow us to both take advantage of opportunities and confront challenges.
<unk> long term growth and value are durable because we have the right people.
Focused on the right disciplines offering the right products in the right markets and now Mary Andrews, and I will be happy to take your questions.
Yeah.
At this time, if you'd like to ask a question. Please press star one on your Touchtone phone you may remove yourself from the queue at any time by pressing star two once again, we ask that you limit your participation to one question. This will allow everyone who wishes the opportunity to participate we will take our first question from Stanley.
From Stifel.
Good morning, everyone. Thank you all for taking the question.
Could you just talk about I mean, you got some momentum kind of exiting the year kind of how does this position you all kind of thinking about into next year, whether you mean, you mentioned a little bit on the on the some of the end market side, but just curious to get your thoughts high level.
Hum.
Good morning, first of all and I think I'll take the fourth quarter first and then next year. If you look at numbers in the fourth quarter. It would really show flat volumes compared to last year, and that's really not a reflection on demand, it's more about comps and fourth quarter weather. So we tried to be thoughtful about about this last year's November December shipping rates were.
The highest in 10 years in fact November was the highest month of last year.
Then you always got weather in the fourth quarter. In fact, we've seen some of that already the hurricane that hit Florida actually impacted us the first week of the fourth quarter when it blew up through the east coast with a lot of rain and then we've been impacted with low water on the Mississippi.
If you step back and look at the fundamentals, though our leading indicators are still very positive.
Bookings and backlogs are up meaningful year over year and quote activity is still robust so.
I think we're just trying to weigh puts and takes in the fourth quarter.
Looking to 2023 were actually doing those budgets right now as we speak and I appreciate our operators hard work on that at a high level I think 'twenty three will depend on the magnitude of decline in single family residential construction, that's being offset by the timing and growth of our infrastructure and private non res.
Construction.
If you look at the leading indicators in private non res and public infrastructure. They are very positive, particularly in Vulcan markets. The starts in Vulcan markets are outpacing other markets. The nonresidential indicators, the Abi and the DMR the both point to growth.
On highways J, a we're seeing we're starting to see that impact on planning.
It's really a question of the timing from stores to shipments quote activity in both non resin highways is very good and customer sentiment.
As positive and you've got the.
The fundamental of construction employment growth so.
I think for next year.
Matter of positives and nonresident highways being offset by single family, what I do know about 23.
I have confidence that we will be able to grow our unit margins and what gives me confidence in that is the hard work that we talked about at Investor day, we've already done and what we're doing on our strategic disciplines to walk with showing both with operations.
I think we've proved that we can do that and even with significant headwinds we were consistent and growing unit margins at a pandemic. We were consistent growing your margins when we saw volumes fall and we've been pretty consistent about growing them, even in the face of dramatic inflationary pressures. So.
I'm confident will improve regardless, we're projecting margins in 'twenty towards.
Regardless of outside forces and that's because we really want to control our own destiny.
Thomas Great color, thanks, very much and best of luck. Thank you.
Our next question comes from Jacobs from Stephens.
What drove hey, good morning, Tom Mary Andrews.
Thank you for taking my question.
Tom you touched on this on the prior question answer but.
If we could get more color when you guys put up impressive improvement in aggregates unit margins. I know you spent a lot of time on the analyst day talking about that.
We saw that come through in the quarter, especially given the cost headwinds, but could you talk about maybe a little bit more detail, how we should be thinking about the puts and takes.
As we look into the <unk> and into 'twenty three.
On the cash gross profit per ton improvement.
You mentioned the competence, there and growing but any further color would be great sure I think as I look at the fourth quarter much much like the third quarter I think it will continue that momentum and I think I would look at it pretty much consistent with Q3.
Again.
Here, a good pricing momentum into into 2023, and we'll get into that more detail, but work to be done. There is not we don't have that in the bag, yet, but and then the.
Operating efficiencies you saw that what we talked about that in September .
It's really more more throughput less downtime and being efficient with your labor and your inspections on your equipment to catch it before it breaks and I think those disciplines are in place. We are improving we've got the automation in place now still work to be done on it but it's about consistent.
This improvement.
Okay.
I'll leave it at that thank you very much for the color. Thank you.
Your next question comes from Jerry Revich from Goldman Sachs.
Well, thank you Tony good morning, everyone.
Hum.
Can we just talk about the really strong acceleration in your aggregates organic volumes and.
Margin improvement within the context of the headwinds that youre facing from the Mexican operations.
What extent have you been able to hit the same markets from rail lines versus.
The prior transportation methods.
Can you just bridge for us the year over year margin improvement given the drag.
Having those operations down year over year had in the quarter.
Yes.
You just step back and look at Mexico, Nothing's changed there will still shut down the impact is still going to be that $80 million to $100 million for the full year and that's built into our guidance. If you look at volumes. The volume growth was really widespread its not you know.
It's in every market we had.
And.
So it was it was it was very widespread.
There have not been able to make up the volumes on the coast.
And just because the railroads can't we can't mitigate it was because railroad can't pull the volume in fact, they couldnt pull the volume we wanted to ship prior to Mexico being shut down. So that has just been a loss for us and one that <unk> seen this made up kind of throughout our markets.
Tom can you comment on the on the margin piece because.
At 80 to 100 million dollar run rate, that's a big headwind that you folks overcame in the quarter any additional context you can provide.
Yes, I mean, it's.
Just a matter of those strategic disciplines at work you got price up 12, 5% and you've got.
Our operating efficiencies are in place and working and continue to improve.
We are.
$8.41 per ton in the third quarter. So we're barreling towards that nine boxes, while we placed another target of 11 to 12, but I think it's just fundamental solid operations and execution.
Well, Doug. Thank you. Thank you.
Our next question comes from Phil <unk> from Jefferies.
Hey, guys congrats on a really strong quarter and really good execution across the board.
Yes.
Tom I guess, you gave us some qualitative color on how to think about 2023, one of your competitor has guided to flat volumes for next year. I know you guys are still kind of working through that but can you kind of help unpack how youre thinking about some of these end markets, whether it's housing non res and infrastructure are some of the good guys and you have to offset that and then on the <unk>.
<unk> side when do you start.
Dissipating at an inflection and kind of popped just wanted to get some color in terms of the cadence and that flow through next year.
I think the.
You asked the right question about windows of highways pop.
If you look at starts and highways on a trailing six month basis. It is up 17% on a three month basis up 27%. So the fundamentals for multiyear growth in highways and infrastructure are very good you've got substantial funding both state County city.
Add to that the Covid funds.
For example, how is funding went up in Florida, one $5 billion from Covid funds. So there's substantial funding everywhere everywhere, you're starting to see that flow into Lettings. In fact, we booked substantial highway work in the last 90 days, so biddings in bookings growth should continue for.
Through the fourth quarter and through 'twenty, three and probably for another five or six years.
This point is not if but when it's a matter of timing and.
The speed to get funding to Lettings, which youre starting to see lettings to aggregate shipments.
Admittedly the Dot's have struggled continue.
Continue to struggle, a little bit to get money out, but they're obviously, making progress with those trailing three months stores.
But 27%.
For example, caltrans the 'twenty, one 'twenty, two lettings, where target was $4 9 billion.
<unk> fell short by 500 million, which they shifted into 2023 plans.
Which is now $5 4 billion in the next year or $7 2 billion. So how we've been growing I think it's just really just a matter of speed and how fast they can get to work I think again, what I am encouraged that as the last 90 days at 27% improvements old stores, that's a big deal.
And we're seeing in Lettings and you can see that start to flow as people are making plans.
For calendar year 2023.
On non res.
It's remarkably strong.
And growing and starts are way up and its widespread.
Okay. Thank you I appreciate the color sure.
Our next question comes from Mike Dahl from RBC capital markets.
Thanks for taking my questions.
Can we talk about inflation, a little bit and.
So maybe give us a little more color.
How youre seeing that evolve into the fourth quarter.
<unk> seen that easing if you have seen.
Conversely, if they're incremental.
So youre seeing.
Any thoughts on if things stay the way they are what what that means for.
Carryover inflation at the beginning of next year.
Yeah, I would I would call the fourth quarter similar to third quarter.
Cost inflation just remained stubbornly high.
We're obviously offsetting that with price and operating efficiencies.
Some of it.
Parts and service cost or are in will probably stay high.
That will be for sure in the fourth quarter and I would expect it into 2023.
Obviously energy headwinds have been.
Particularly diesel has been extremely tough year to date, that's just under 100 million dollar headwind for us. So I think we should expect most of the cost inflation to remain elevated for sure in the fourth quarter are now expected into 2023.
Okay that helps.
Thanks, and my second question is just on the.
The sale of.
The ready mix assets.
I stayed there in Pennsylvania could you just walk us through.
That a little bit more kind of rationale.
Any comments on <unk>.
Yes.
<unk> the portfolio post the U S concrete deal.
It's kind of the.
The last chunky thing or are there other things potentially on the horizon.
When we bought this we said we would we would value would take a year to evaluate and look at our hand and.
So in ready mix business as well, we're still in the ready mix business up there, we're keeping the Irish business and this is us just optimizing our portfolio. We felt like that after looking at the ready mix business up there fit others better than it did us we had plenty of suitors.
Again, we like the Irish business.
That's a good infrastructure play, it's a well structured yoghurt market, which we think is a platform for growth and all you're seeing there is us optimizing our portfolio.
Got it okay. Thank you sure.
Our next question comes from Michael Funk from Bank of America.
Yes.
Morning, Tom Thanks for taking my questions.
Obviously the concern on demand has been around housing and the implications there. So Tom I believe your shipments peaked last cycle in 2005 with housing yet you were able to really grow strongly in 2006 and seven I believe shipments are still kind of flat.
Down in that period, so could we see a similar playbook here for 'twenty three 'twenty four.
With housing down the resi down yet infrastructure strong and pricing maybe you kind of just talk through the similarities from from what we're seeing now compared to that <unk> <unk> period.
When housing starting to turn.
You know.
Housing has turned we know that I think that.
Historic sport to it as do permits.
I think what you got to step back to remember what's very different this time is.
It's the fundamentals for single family residential growth in our markets still are there still there <unk>.
<unk> got extremely low inventories you've got good.
Employment and.
You've got population growth. So the underlying fundamentals were not overbuilt like we were.
And when housing went down to the last time, so I would expect it to have less depth and less length of time.
That being said I think what what really is different for me as well.
The non res side. It is very strong all end users are up that's opposite stores warehouses.
Are you factoring industrial and institutional.
And the leading indicators show growth for example, if you look at square footage, which is how we have to look at it.
12 month starts are up 29% and our markets versus 11 in others and trailing three months is up 47% of our mortgage versus 9% in non Vulcan markets. So again, it's widespread it's across all end uses.
Stands out for me also is the.
The manufacturing growth in the southeast and these are big jobs.
That.
That we've that we've that we've built on.
And I, just I think let's see if I can just take a few of those you've got for example, Big River steel in Arkansas, It's probably a half a million tons <unk> got Universal's Epic Park in Orlando Smith farms Industrial Park in South Carolina.
Big forward Electric vehicle center in Tennessee, and the Samsung Chip plant in Texas. So.
And the list keeps going.
So I'm.
I guess, a little bit surprised but very pleased with the rate of growth we're seeing in non res.
Yeah, and I think one other thing as we think about 2005 era versus now more internally I think we're in a in a different place, but the focus that we've put on our strategic disciplines and the bulk of my Upselling and the bulk of my of operating which we're confident will be be helpful.
Regardless of the macro environment.
Helpful. Thank you and just my second question on the aggregate side, you reported an incremental margin of 21, 21%, 31% ex freight just bigger picture I know, we're not guiding here, but if we turn to next year and youre getting double digit growth, which is all price or price.
<unk>.
You don't you don't have another hundred million headwind from energy lets say.
You don't have a headwind there what's the right incremental operating margin, which can kind of expect on that on the aggregate side.
If we don't have that debt cost or inflationary headwind. Thank you.
<unk>.
Yeah on the Incrementals as we always do we'll guide you back to over the long term and on a same store basis to that kind of 60% obviously.
The dynamics in these volatile inflationary time make the numbers jump all over the place, but well always take you back to that 60 after the long term.
Thank you.
Our next question comes from Garik <unk> from loop capital.
Oh, hi, thanks.
Taking my question I was wondering if you could talk a bit about how much pricing you expect to carry over into 2023 from some of the Meteor actions. You took this year in aggregates, just how to think about pricing broadly.
Moving forward given some of the demand uncertainty and if you could maybe give us some color on how those discussions are going around.
Early.
Next year price increases at this point that would be helpful.
Sure.
The environment continues to be very good and really driven by visibility to growth in infrastructure and.
And inflation.
As we said last quarter, we saw we're going to see prices sequentially grow. We saw it wrote from Q1 to Q2 and then it really jumped from Q2 to Q3 I would say Q4 similar to Q3.
And that growth has really supported the big jump from two to three by the July price increases and higher priced bid work and that pricing is widespread across all of our markets.
And importantly, we are able to take it to the bottom line.
Vulcan way of selling.
Ops. If you look at next year, we carry a lot of that momentum into 'twenty three.
As do our ready mix asphalt and contracted customers.
We're bidding now will ship in 2023, so we're we're setting the table right now.
And we've had our we're having our January pricing conversations for fixed plants.
Those have gone well, but remember work to be done second half comps, so there'll be a lot tougher.
And so we got good good momentum and have a good start to 2003, we still gotta be work that we still have to do work to earn that price, particularly in the second half.
Got it thanks for that.
Our next question comes from Kathryn Thompson from Thompson Research group.
Yes.
Thank you for taking my question today.
Uh huh.
You've been spending time.
Cleaning up the portfolio with the assets in the northeast.
As we look forward also.
You mentioned focusing on M&A and growth.
Particularly in a market that is uncertain right now.
How do you focus on hardware Dean Doug.
Thanks.
Growing our portfolio in light of the current dynamic thank you.
Yes, I mean, you saw us do some of that this year.
Bought some very strategic assets in northern California, coastal Texas that fit us well and fit our network and expanded our network.
I think that as we look at acquisitions, you, probably see a little bit maybe a little bit of slowing.
Which usually happens in times of uncertainty and I think our.
<unk> here is to be opportunistic and disciplined as always.
Particularly what markets you want to be and to your point, you've got to be very disciplined about what markets you want to be and what you don't know what product lines you want to be in in those markets. So we'll continue that I think.
This was a typical year with a number of strategic aggregate bolt ons and will I think youll.
Continue to see us do that.
Okay, great. Thank you very much thank you.
The next question comes from Anthony Penitentiary from Citi.
Hi, good morning, good morning.
Over the past year, we've heard about tight cement and RMC markets being a bottleneck for AG volumes.
As the housing market has softened.
<unk> seen that start to loosen or is that something that you anticipate to see in 2023, just wondering if you could talk a little bit about those downstream markets.
Yes. It has been tight I mean, maybe a little bit of a headwind on on aggregate. So I'm not sure drivers and trucks weren't wouldn't have been a headwind anyway with that.
We've really not seen a lot of the housing market tightened in our markets, yet maybe a little bit in <unk>.
In northern California in North, Texas, but really we've not seen it yet.
With leading indicators, we know what's going to come.
I would expect most markets to continue to be.
Somewhat titled Cement, even with the even with the loosening of residential storage.
Okay. That's helpful I'll turn it over thank you.
Our next question comes from Adam Hammer from Thompson Davis.
Hey, good morning, guys. Congrats on a great quarter. Thank you.
I wanted to zero in on the North East concrete sale what was the.
What was the impact to that.
In terms of Q3 gross profit because I guess, you put that into assets held for sale. So you took that out of the concrete segment.
For Q3.
And then what would be the total impact to the back half of the year vis vis <unk> taken that out versus your guidance.
Yeah, Youre right, we did reclassify the assets as held for sale on the balance sheet.
Continues.
Operations are still reflected in the P&L and continuing up and in terms of the rest of the year, we've taken that into account in the updated.
Guidance that we provided and once it closes we can comp.
Comment more on the details of that transaction.
But for Q3, north northeast as in the concrete gross profit numbers that's correct.
Okay. Thank you very much thank.
Thank you.
Our next question comes from Timna Tanners from Wolfe Research.
Hey, good morning, guys good morning.
Just wanted to follow up and I know this is tricky but.
The Mexican Corey if you were in our shoes, how would you think about.
One the timing of any restart our ability to restart.
And two any compensation for lost revenue or any updated thoughts there or any progress there would be great. Thanks.
I wouldn't count on a restart wood I would count on that.
The $80 million to $100 million is built into our guidance.
Volumes in our volumes and says all the earnings.
We filed an application with the naphtha arbitration.
Four to seek additional claims but closer to closure and in July we were very pleased.
The tribunal granted our application to seek further claims.
We're pleased with that decision, we hope to who who know a lot more in 2023 with these things takes time take time, we have.
What made the claim public mainly because we're still working on the magnitude of the ancillary claims so we're.
Our work to be done on that one, but we do feel like we will be compensated we do feel like we have a good case and we felt like the tribunal recognize that with letting us open that back up.
In July .
Okay Annie.
Things to watch for like any of them coming court dates or our timeframes to watch for that could be road.
Further further progress it'll be next year.
Again, it takes time I would I would say as things come as we know, we'll let you know.
But no no no hard data at this point.
Okay I appreciate the update.
<unk>.
Our next question comes from Dan Cummins from Morgan Stanley .
Great. Good morning, Thanks for the question.
Sorry to ask another one on Mexico, but just.
You kind of noted in your release that you would acquire the Korean thunderous I believe which I think was serving some of those same Gulf Gulf Coast markets.
I wanted to ask if there were any kind of like less obvious ways, South American or otherwise that you might be able to actually fill on those volumes that we should be watching importance next year as well.
No I mean that was a business we had already been associated with we had a distribution agreement in place for that to work for four years. So we've been selling.
Those materials as a complementary product to our blue water networks since 2019, so it's not additive volume.
It'll be a slower march substantially lower large margins in Mexico.
We got the question will can you expand it and it would be legit logistically really difficult considerably increase the volumes from where they are today because of where that for years.
Some of the shipping constraints.
It was.
Headed in business for the last few years really as a complementary source to supply those coastal markets. So it's really not a replacement for tons in Mexico or profitability in Mexico.
Great. Thank you. Thank you.
Yes.
Our next question comes from Keith Hughes Suntrust.
Thank you just wanted in the fourth quarter kind of implied guide do you think in the aggregates segment would you be able to grow margins in other words get out ahead of the cost curve, but they are still going to be a drag.
On the fourth quarter I would expect a very similar performance to what you saw in Q3, so we've gotten our price out ahead of cost.
I don't expect costs to the inflationary pressures to go down either in Q4 or 23.
So that's kind of how I look at Marriott.
And Keith I think on a on a gross margin basis kind of what we discussed at the second quarter as we expected in the back half that the margins would score.
Squeeze closer to the prior year, you saw that in the third quarter.
The Delta was about half of what it was in the second quarter and I think that that will continue to improve in the fourth quarter.
Okay, and you had you had a really nice improvement in concrete.
Or would we expect similar type of improvement before.
I don't think I would expect a similar performance.
In the quarter I'd expect it to start going up again first quarter of next year as we raise as we have price increases the first year in concrete.
Okay Alright. Thank you. Thank you.
Our next question comes from Tyler Brown from Raymond James.
Hey, good morning, good morning morning.
Hey, Barry Andrews, I know, it's a bit early but I want to start thinking about the building blocks on the free cash flow side for next year, I think that bonus depreciation actually steps down in 'twenty three that may put some pressure on cash taxes, I think cash interest is probably a headwind, but just any color on those two items, specifically in the magnitude and what that might mean for free.
Cash.
Well give obviously give more guidance on that when we when we get to February I think youre thinking about the interest component.
<unk> correctly.
Our conversion ratios have remained at really really healthy levels and I don't think we would expect that to change materially in 2023.
Okay, alright, perfect. Thanks.
Your next question comes from David Macgregor from one Bond book Research.
Yes, good morning, everyone. Good morning.
Good morning, great quarter and congratulations on your results.
Wanted to ask you about the revised shipment guidance going from 5% to 7% to 70 and how much of this would you relate to <unk>.
Proving demand versus maybe easing constraints.
And I guess with respect to some of those constraints are.
Evolving.
Favorable way as economic growth eases in this country.
2023 be any different.
Yes, I think you've seen a little bit of easing into constraints in construction.
But there's still substantial the railroad can strengths, we're still that while they've improved a little bit we're still got bottlenecks on a good shipping day, you still have trucking.
Constraints.
Albeit both of them a little bit better than maybe they were a year ago same thing with builders. They are still having problems getting suppliers and getting parts and get them in a timely manner and theyre holding up construction again, maybe a little better where we said at the beginning of the year that the underlying demand was better than what we had predicted and we continue to see.
See that.
That underlying demand would be pretty good, albeit up.
Starting to see some softness in leading indicators in single family I think its a combination of demand remains very good and some easing of bottlenecks.
Though there is still there.
Thoughts with respect to whether it gets any better in 2023.
Yes, I think I think it I think it continues to improve I think it is slow.
<unk> that.
I think the railroads are adding people, obviously, we're getting more efficient with our with our trucking to devote more of selling.
And I think suppliers for construction I think continue to slowly improve as we as we go through 2023, yeah and another impact on the full year volume guide what is acquisition activity and just the healthy underlying demand held up.
Got it thank.
Thank you very much thank you.
Our last question comes from Michael Dudas from vertical research.
Hi, Mark good morning.
Hi, Thanks for getting me in good morning, Mark Tom and Mary Andrews, maybe.
Maybe to follow up on the previous questions back on.
Free cash.
As Youre looking at your plans for 2023 not to put out the exact guidance, but relative to capex spending levels next year versus this year are you are.
Are you caught up from some of the delays from the pandemic relative to some of the maintenance or growth opportunities.
Since you implied that potentially because of the uncertainty acquisitions maybe.
A little bit more tricky or may be deferred.
Is that impactful to the allocation towards of the balance sheet or capital return to shareholders.
Thank you.
I think on on Capex.
Like our operating plans we are in the middle of finalizing our 2023 needs right right now I don't think it would.
Expect anything substantially different we have.
Hopefully you've been able to catch up some of the.
Lack of spending in 2020 in 2020, one you'll note that.
Our.
Pace of spending in Q4.
We will accelerate from what it has been and that's you know.
Dependent upon them.
Seating equipment. So, we'll just kind of see how that shakes out and that will somewhat impact our 2023 as well, but over the longer term you know.
I think about Capex as you know very.
Barry with volume more than anything else, Martin and more than time and.
And so we wouldn't see anything meaningfully different.
And that appears to be our last question and I will now turn the program back to management for any additional or closing remarks.
Thank you I want to take a minute and thank the entire Vulcan team for their tireless efforts to ensure continuous improvement regardless of what the world froze Adam.
We appreciate your interest in Vulcan materials, and we look forward to talking to you through the quarter. Thank you and have a safe day.
Yes.
Thank you ladies and gentlemen. This concludes today's conference you may now disconnect.
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