Q4 2022 Vulcan Materials Co Earnings Call
Speaker 1: disciplines. Gross profit in both agrits and asphalt segments increased versus the prior year's fourth quarter despite lower volumes.
Speaker 1: and pricing momentum more than offset inflationary cost increases. In concrete, a 15% decline in volume driven mostly by extremely wet and cold weather in Texas created operational challenges that eroded pricing gains in that segment.
Speaker 1: For the full year, adjusted EBITDA improved 12% with all segments posting year-over-year growth and gross profit.
Speaker 1: Agri-segment gross profit improved 9%, a noteworthy performance with the headwinds of generationally high inflation, and the unexpected and arbitrary shutdown of our valuable Mexico operations in May of 2022.
Speaker 1: Agri-volume increased 6% and average selling prices improved 10% accelerating as the year progressed.
Speaker 1: Importantly, our aggregate cash growth profit per ton improved over 5% and also accelerated throughout the year, even in a challenging operating environment.
Speaker 1: In the first quarter, we held our own while inflation ramped up more steadily than expected. Then in the second quarter, cash gross profit per ton grew modestly versus the second quarter of 2021, as we responded quickly with additional pricing actions.
Speaker 1: In the third quarter, cash gross profit per ton increased 9% as pricing momentum accelerated and operating efficiencies offset some of the inflationary pressures.
Speaker 1: And as I mentioned earlier, in the fourth quarter, cash gross profit baton improved a notable 11% even as volumes declined.
Speaker 1: In our asphalt segment, the second half of 2022 marked an affliction point on price and cost dynamics.
Speaker 1: In the third quarter, robust pricing improvement began outpacing the sharply rising liquid asphalt costs.
Speaker 1: For the full year, pricing increased by 21% to more than offset the 36% increase in liquid asphalt costs.
Speaker 1: and volumes grew by 7% with particular strength in Arizona, California, our two largest asphalt markets.
Speaker 1: Ultimately, gross profit improved to $57 million versus the prior year's $21 million.
Speaker 1: In the concrete segment, full year gross profit of $89 million increased 64% compared to the prior year due to a full year's contribution from the U.S. concrete assets in addition to improved earnings in our legacy Northern Virginia and Northern California concrete businesses.
Speaker 1: Inflationary pressures, including diesel and the availability of both cement and drivers, had a significant impact on performance in the concrete segment.
Speaker 1: Now, let's shift to the new year, first focusing on demand.
Speaker 1: The demand environment for 2023 is mixed, both in terms of end uses and timing.
Speaker 1: We expect modest growth in overall public demand for contraction in private demand.
Speaker 1: Now, I'll comment briefly on each end use.
Speaker 1: Residential construction activity is showing the impact of rising construction costs, home prices, and mortgage rates on single-family housing.
Speaker 1: Single-family starts and permits have continued to decline.
Speaker 1: but to a lesser degree in Volcan served states than the country as a whole.
Speaker 1: Currently, multifamily remains positive with a strong pipeline of projects under construction.
Speaker 1: Housing will certainly be the primary drag on private construction in 2023, but we expect it to quickly return to growth.
Speaker 1: It is important to remember that the demographics and employment growth in our markets continue to support household formation and the growing need for additional houses in the future.
Speaker 1: Overall, private non-residential demand remains at healthy levels.
Speaker 1: Manufacturing and other heavy industrial projects continue to provide opportunities.
Speaker 1: but we are monitoring leading indicators such as more recent ABI measures, moderation in the Dodge Momentum Index, and survey data indicating declining loan demand and lending tightening.
Speaker 1: On the public side, we expect positive momentum throughout 2023 and beyond as states and municipalities move forward with much needed infrastructure investment.
Speaker 1: Highway and infrastructure starts are both positive.
Speaker 1: and highways.
Speaker 1: start strengthening significantly in the second half of 2022, growing at 25% on a trailing 12-month basis at the end of the year.
Speaker 1: The Infrastructure Inflation and Jobs Act funding is now reflected in proposed state fiscal year 2023-2024 budgets across our footprint.
Speaker 1: The multi-year outlook for public infrastructure is solid.
Speaker 1: We continue believe that the increased funding will begin impacting agriculture shipments modestly as we move through 2023 and more meaningfully in 2024.
Speaker 1: In addition to IIJA funding,
Speaker 1: State tax receipts in Vulcan states are the highest they've been in the past 10 years.
Speaker 1: Strong state and municipal revenues support non-highway infrastructure investment as public entities continue to play catch-up from the last decade of housing growth that has driven a fundamental need for infrastructure investment.
Speaker 1: Also, the considerable funding from IIJA for investment in water, energy, ports, and airports will provide future demand growth.
Speaker 1: Overall, 2023 demand for aggregates will be dependent upon the depth of the
Speaker 1: and the duration of the declines in residential construction activity.
Speaker 1: The impact of rising interest rates on private non-residential construction activity as the year progresses
Speaker 1: the timing of highway starts converting to average demand.
Speaker 1: Considering these dynamics, we currently expect our aggregate shipments to decline between 2 and 6 percent in 2023.
Speaker 1: Pricing momentum and operational execution will drive our 2023 performance.
Speaker 1: We expect our pricing to increase between 11 and 13 percent.
Speaker 1: Most importantly, we will continue to improve our industry-leading, average cash gross profit per tonne and deliver solid earnings growth in 2023.
Speaker 1: Now, I'll turn the call over to Mary Andrews for some additional commentary on our 2022 performance and some more details around our 2023 guidance. Mary Andrews?
Speaker 2: Thanks, Tom, and good morning.
Speaker 2: Our 2022 operating performance led to another year of solid cash generation and disciplined capital allocation. Over the last four years, our free cash flow conversion has averaged over 90%, with a 93% conversion ratio for 2022.
Speaker 2: After investing over $600 million in capital expenditures for both maintenance and growth projects, we put additional capital to work by completing $529 million in bolt-on acquisition and also returned $213 million to shareholders.
Speaker 2: via our growing and importantly sustainable dividend.
Speaker 2: During 2022, we also reduced our leverage back to within our stated target range of two to two and a half times after completing the US concrete acquisition in August of 2021.
Speaker 2: Net debt to adjusted EBITDA was 2.3 times at year end.
Speaker 2: 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 constant focus on improving shareholder return and return on invested capital as we grow and optimize our portfolio.
Speaker 2: During the fourth quarter, we completed the previously announced sale of our ReadyMix asset in New York, New Jersey, and Pennsylvania.
Speaker 2: On a trailing 12-month basis, our return on invested capital at year end was 13.5%, inclusive of the loss of earnings historically generated from the network of assets supporting our shutdown Mexico operations.
Speaker 2: We also remain focused on continuing to leverage our SAG cost base. SAG expenses as a percentage of revenue improved by 50 basis points versus the prior year to 7% of revenues.
Speaker 2: Having strategically managed our balance sheet, our portfolio, and our overhead cost structure, we enter 2023 from a position of strength.
Speaker 2: Tom shared with you our views on the macro demand environment and resulting aggregate expectations.
Speaker 2: Even with a challenging and uncertain macro backdrop, we expect to grow our adjusted EBIDA to between 1.725 and 1.875 billion by capitalizing on the strengths of our aggregate-led business and executing on our foundational strategic discipline.
Speaker 2: In our downstream businesses, we expect total cash gross profit dollars to approximate 2022 levels.
Speaker 2: Continued improvement in asphalt segment profitability and the benefit of improving highway demand should offset both the impact of the 2022 divestiture of our concrete businesses in New York, New Jersey, and Pennsylvania, and the impact of flowing residential construction activity on our remaining concrete businesses.
Speaker 2: We expect SAG expenses of between $515 and $530 million as we remain focused on driving efficiencies in our support functions, while delivering new capabilities for the business through investments in technology and talent.
Speaker 2: We also expect depreciation, depletion, amortization, and accretion expenses of approximately $610 million, interest expense of approximately $195 million, and an effective tax rate of approximately 22%.
Speaker 2: In 2023, we plan to consistently reinvest in our franchise with $600 to $650 million of capital expenditures for both maintenance and growth projects.
Speaker 2: I'll now turn the call back over to Tom for some closing remarks.
Speaker 1: Thank you Mary Andrews. Before we move to Q&A, I want to thank our entire Vulcan team for a successful year in 2022.
Speaker 1: And I have great confidence and their ability to continue to execute in 2023 even with the uncertainty in the macro environment.
Speaker 1: As always, we will be keenly focused on keeping our people safe.
Speaker 1: driving value for our customers, and capitalizing on the profitability expansion opportunities.
Speaker 1: supported by the Vulcan way of selling and the Vulcan way of operating disciplines.
Speaker 1: Vulcan is uniquely positioned to create long-term sustainable value with the right products in the right markets with the right focus from the right people.
Speaker 1: And now Mayor Andrews and I will be happy to take your questions.
Speaker 3: At this time, we will open the floor for questions. If you'd like to ask a question, please press the star key followed by the one key on your touch tone phone. If at any time you'd like to remove yourself from the questioning queue, press star two. We ask that you limit your participation to one question. Our first question comes from Stanley Elliott from Stevell.
Speaker 4: Good morning, everybody. Good morning. Thank you all for the question. I guess my question would be, you...
Speaker 4: I guess coming in, we would have thought maybe more flat volumes than 23 or maybe even modest volume growth. What changed, if anything, resulting in the 2 to 6 kind of volume outlook decline now? And is there anything you could share with us about what you're seeing and maybe a little more in-depth across those end markets? Thank you. Yeah, sure. If you're looking at 23, if you're looking at 23,
Speaker 1: We saw some pretty good bounce back in January from you know the bad weather we had had in the fourth quarter So solid shipments that being said with the exception of California, which everybody knows we had floods, but the markets looked pretty good If you look at the leading indicators this year, maybe not as clear as they usually are so we try to be thoughtful
Speaker 1: as we look to demand throughout the year. And I think a lot of it boils down to timing. When do we see the decrease in single family really hit shipments? You probably saw a little bit of that in the fourth quarter, but I think the full impact gets us, we realized that kind of end of the first quarter, beginning of the second quarter.
Speaker 1: So single family probably gets hit about down 20%.
Speaker 1: And then for non-res, it's really, again, about timing. While the leading indicators for non-res look pretty good, starts.
Speaker 1: Longer term indicators, commercial loans and the ABI could lead to challenges in the second half of the year. So we would call that segment flat for 2023. And then as always, timing for highway funding and letting's going to shipments will be critical. We think that.
Speaker 1: segment, the public segment is up low single digits. So as we step back and look at this, we try to be thoughtful about the dynamics and impacting shipments and the timing of that demand. And while we can't control demand,
Speaker 1: We can control how we run our business and our unit margin, and I think we've proven we're very good at that. We think we grow that mid-teen, so regardless of the dynamics affecting shipments, we'll grow our earnings.
Speaker 4: Great guys, and nice work on the profitability improvement. And thanks. That's it for me. That's what. Thank you.
Speaker 3: Our next question comes from Trey Grooms from Stevens Inc.
Speaker 5: Hey, good morning, everyone.
Speaker 5: Good morning, Trev. Good morning. Hey. So, yeah, I'm going to echo good work on the profitability, and it looks like on the guide, but
Speaker 5: implies an acceleration there on that improvement on cash gross profit per unit. And I guess the moving pieces there, if you could maybe cut into those a little bit. You know we've got...
Speaker 5: pricing is obviously playing a role. And as we kind of look at the cadence there through the year, maybe you could talk about that as well with maybe what's baked in with a mid-year increase and how we think about.
Speaker 5: the cadence of that profitability improvement as we look through the year.
Speaker 1: I would call it pretty consistent. We carry really good pricing momentum in the 2023. As we said, we got 11 to 13 for 23. I'm really pleased with our team's performance and how they service our customers to earn that price.
Speaker 1: and how they face the challenges that we've seen over the last three years and that they can just price on the fly very quickly. Our pricing discussions for January 1, I thought, went very well and they're in place. And you gotta remember that as we progressed through last year, every everybody thinks of you as the baker and I, but who? Why soinitionally? What impact does that offer?
Speaker 1: pricing accelerated, you know, as we went through 2022 driven by inflation. So the comps in the second half on price get harder. So, but I think we're confident in that while we're confident that there's still work to be done in pricing and earning that from our from our from our customers.
Speaker 1: Importantly, as you talked about, our teams have been able to take price to the bottom line, and we think we do that mid-teens this year. I would call price, while pricing comps get tougher as we progress through the year, as cost comps get easier.
Speaker 2: So I would expect a pretty steady growth in that mid-teen level of unit margin growth quarter after quarter. Yeah, and Trey, we do expect solid unit profitability growth throughout the year. And of course we don't give quarterly guidance, but I will try to give you...
Speaker 2: some additional and hopefully helpful context maybe more related to volume. And you know if you think in terms of cadence we definitely will have you know tougher seasonal comps in the first half.
Speaker 2: Looking back at 2022, three of the six months in the first half of 2022 implied 12-month shipments at a higher level than our full year 2022. And only one of six months in the back half showed particularly seasonally strong shipments.
Speaker 5: Thanks, Mary Andrews, that's super helpful. And I guess just to make, make sure I'm clear on the the comment, Tom, that you had around pricing. So 11 to 13%, I guess just coming out and asking is, is there any
Speaker 5: What is the assumption around mid-year price increases that are baked into that? I know you guys have been of the opinion and you've said on the last call, I think that you guys were going to be targeting pretty aggressively in the first half, or excuse me in the first of the year, but any kind of comment around what's in that for mid-year.
Speaker 1: Sure, so let me just step back and talk about pricing and the aggregates. If you remember, you know, about 40% of our work is fixed plant and we price that once or twice a year. We had discussions in October , November for January 1 price increases. I thought those went very well. Those are in place.
Speaker 1: and we'll just have to see what happens as we progress with the year and what the market calls for and individual markets will have that price. But the other 60% of your business is bid work and you know that we're bidding jobs as we speak that you that's something it's a it's something you earn every day and which is a continuous improvement effort.
Speaker 1: And so what we're bidding now will ship in the third or fourth quarter. So all in we're very confident on our pricing guidance, but some of that's got to be earned as we progress through the year and earned every day with our customers.
Speaker 5: Understood. Got it. Thanks for the clarity there, Tom. Super helpful. Keep up the good work. I'll pass it on. Thanks. Thank you.
Speaker 3: Our next question comes from Catherine Thompson from Thompson Research Group.
Speaker 6: Good morning, Catherine. Hi. Good morning. Good morning.
Speaker 3: Thank you for taking my question today. Tagging on just for the pricing question, but really pulling the string more in terms of the balance of price and cost.
Speaker 3: given there's been so much volatility in 21 and 22.
Speaker 3: Could you clarify the confidence that you have in unit margin growth into 23 in light of the historic volatility just with that price cost? It would be helpful to if you, you know, focus in on the aggregate side, but also given the divestiture of your...
Speaker 3: Northeast concrete assets, giving any color for expectations for unit margins or just any type of profitability, color on that segment would be helpful. Thank you.
Speaker 1: Yeah, great question. I think that as you looked at 2022, we set records in unit margins, and we're very pleased with our growth there. We'll grow those again in 23, as we said, mid-teens. And what you're seeing there is the Vulcan wave of sales and the Vulcan wave of operating disciplines at work.
Speaker 1: We saw, you saw us set new goals for long term unit margin growth at our investor day in September . I think that over the last four or five years, the team has done great work on this very important metric. They have shown that they are never satisfied, that they're...
Speaker 1: always hungry for continuous improvement, and I'm proud of their performance and the culture that they developed and their commitment to excellence. That said, my confidence is very high on our target guidance on unit margin growth because of our past performance and our consistency. Mayor Andrews
Speaker 2: Yeah you know Tom highlighted the consistency and I think you know if we look over the last three years we've grown our cash gross profit per ton in 11 of 12 quarters and as we said could expect to continue to do that in 2023 and to accelerate and I think another important reminder about both the level of unit margin expansion and 20...
Speaker 2: and a better matching of costs with revenues. So you know, in periods of increasing costs, like we saw in 2022, LIFO, you know, will result in higher cost of revenues than under FIFO. And pre-tax in 2022, we took an incremental $54 million of cost.
Speaker 2: through the P&L instead of putting it on the balance sheet if we used a FIFO method in both periods. So I think we really showed strong unit margin in 2022 with some considerable cost challenges.
Speaker 1: Catherine, I'd also expect to see unit margin growth in the other product lines.
Speaker 3: OK, great. Alright, thank you very much. Thank you.
Speaker 3: The next question comes from Anthony Penneri from Citi.
Speaker 7: Good morning. On the aggregates volume guidance should we think of that as really an organic kind of apples to apples percentage change or is there any kind of impact from you know maybe downstream divestitures impacting upstream shipments or there's sort of supply agreements in place to take care of that or...
Speaker 1: or acquisitions that we made partially and per partial year in 22, they're built into the guidance.
Speaker 7: Okay, that's helpful. I'll turn it over.
Speaker 3: Our next question comes from Jerry Riverish from Goldman Sachs.
Speaker 8: Good morning. Hi Tom, good morning. Really interesting price cost spread for aggregates this year as you folks catch up on the inflation we essentially saw in 22. I'm wondering.
Speaker 8: as the exit rate heading into 24 is going to show some pretty good pricing momentum for you folks. I'm wondering as you look at other cycles in the past, Tom, is there a precedent for another year of significant above trend price versus cost that's potentially...
Speaker 1: feasible maybe similar to what we saw 15 years ago? Yeah you know I think that's built into our guidance and that mid-teen unit margin growth and as I said a little bit earlier I think the cadence of that is your comps and pricing are easier in the first half than the second half and but your but the flip is true on costs.
Speaker 1: your comps are going to be easier in the second half on on on clause. So I think we're pretty consistent in how we in our ability to grow unit margin as we as we progress through the year. And I'm also like I said we've been very consistent with being able to do that. So I don't see that being choppy.
Speaker 8: I was just asking the momentum heading into 24.
Speaker 8: Is there prior points in time that could give you confidence that this period of outsize price costs and unit profitability growth above trend can continue into 24? You know as always visibility to
Speaker 1: to growing public demand is a good thing for price. And I think we are, our folks are quite disciplined on how they earn price. So, you know, let's get through 23, but we'll be ready to tackle our challenges and maximize unit profitability as we go into 24.
Speaker 4: are taking my questions. Can you just help us understand how much were costs like energy, raw materials, diesel, how much was that up incrementally in 2022 versus 2023? Sorry, 2022 versus 2021. And what are you kind of baking in there for 2023?
Speaker 1: So Mary, why don't you take 22 and I'll take 23.
Speaker 2: Yeah, so you know energy was a considerable headwind in 2022 and cost us, you know, about $225 million between diesel and liquid. And, you know, I think maybe important context and reflecting back on 2022 and
Speaker 2: and liquid likewise was almost 20% higher in the fourth quarter versus the fourth quarter. So I think that's the setup as we move into 2023 and Tom can comment more on sort of full year 23. Yeah, I think what we have in the plan right now is probably high single digits. It's a combination of inflation.
Speaker 1: fuel and labor will feel, as I said, will feel a bigger impact in the first half just due to the inflationary pressures that we felt kind of kind of escalates and went through the year. That being said, I think all of that is partially offset with operating efficiencies and improvements generated by the Vulcan Web operations. I think our folks are all over that.
Speaker 1: And how we do that, many of the details we illustrated in our September investor day. But I do have pretty good confidence that they can keep some of that at bay just by improving the key metrics of throughput and downtime and preventative maintenance that really drive your cost. It's at Valencia Open, the Ver Besides offer on Discover team.
Speaker 2: Yeah, and specific to the energy in 2020-2023, you know, our expectation is that it'll be, you know, more stable, but it'll remain at these, you know, high levels, which is what will result, you know, in a considerable headwind early in the year. And then that will moderate as the year progresses.
Speaker 4: Great. When you look at the portfolio, Tom, you're divesting some concrete assets in the Northeast.
Speaker 7: I'm just curious, is there any further portfolio moves we could see going forward? How do you view these downstream assets after a couple of challenging quarters with a lot of moving parts that impacted the year? I appreciate your comment on how you feel the health of that part of your portfolio.
Speaker 1: seen us do in the past. Right now the markets that we have concrete businesses in are privileged concrete markets and we're pleased with them. Obviously inflationary pressures, you had price chasing costs and like we did an asphalt, we'll catch that and bypass it and get back to growing margins but
Speaker 1: I think the markets where we bought into, we like them. We kept our aggregates business in New York and New Jersey. But so far so good and we think we can continue to improve our returns as we march through 2023.
Speaker 3: Our next question comes from Mike Dahl from RBC Capital Markets.
Speaker 9: Good morning, Mike. Good morning.
Speaker 10: Thanks for taking my questions.
Speaker 10: Just a quick one on the public side. I don't know, maybe sensing a little bit of nuance here. We've been hearing about how strong backlogs and...
Speaker 10: Luddings are recently in terms of the growth and I'm saying kind of some modest impacts more as we get through the year and more meaningful in 2024.
Speaker 10: rewound back through six months, the thought was that the tailwinds might come a little bit.
Speaker 10: sooner than that. So in the context of your low single digit expectations for public maybe you know you help us understand if there's something different in the market that you've seen in terms of
Speaker 10: timing or level of distribution of...
Speaker 10: funds, is there something related to just the labor constraints, how would you characterize that what seems to be maybe a little delay in some of the infrastructure talents?
Speaker 1: Look, I think it's as good of an infrastructure tailwind as we've ever seen in decades. That being said, as you've heard me say before, highway work comes slower than anybody anticipates it to, but it's coming. So overall highway funding is way up. The sector is in great shape, as is the entire public sector.
Speaker 1: State DOT funding is extremely healthy, and then you've got IJ revenues that are going to be reflected in fiscal year 2324, proposed budgets.
Speaker 1: Our top states are sustaining robust lettings.
Speaker 1: And that IJ funding will hit lettings in 23. And it will really impact 23 slash 24 as we move forward. I'll give you a couple examples. If you think about Arizona, they'll let 45 projects. Three Senators in there, in three
Speaker 1: And in the first half of this year, if you go to move to California, the total project dollars in 23 will be a record couple with, you know, record highway lettings that we saw in November , December . You know, Texas is at, you know, a $10 billion budget and I have $7.4 billion.
Speaker 1: lettings in the second half of their fiscal year which is March through August .
Speaker 1: And then on the more to come list, now that's what's there, we know it's coming, but on the more to come list.
Speaker 1: In Florida, Governor Santos has posed a 33% increase in the FDOT program that would impact lettings in the second half of the year or the first half of next year. He's also, there's an additional $7 billion that he's wanting to accelerate for some 20 projects.
Speaker 1: congestion projects, Tennessee's government proposed to double the 2324 budget, the T.DOT budget.
Speaker 1: So for this year, it's a matter of timing and how fast do lettings get to project shipping.
Speaker 1: But I want to step back and say it's nothing but timing. This sector is in very good shape and is good shape as we've ever seen it and growing.
Speaker 10: Got it. Okay. Thanks for that. Very helpful, Tom. Sure.
Speaker 3: Next question comes from Tyler Brown from Raymond James.
Speaker 10: Good morning. Hey good morning. Hey Tom I actually wanted to go back to the analyst day and talk about the progress on your logistics excellence I think the next-gen plant operations I'm just kind of curious how those initiatives are rolling out and are they expected to be a material driver and expanding margins in 23
Speaker 1: or are those more on the come in say beyond 23 into 24? I think what you'll see in 23 is maybe a little bit of incremental impact. It'll be more of a 24 play and that's a little bit of what we said in the investor day about the operating piece where we're really rolling it out in 22 but more of an impact in 23. But for logistics
Speaker 4: I was just thinking of backing on Mike's question earlier on the public side of things. The low single digit growth does seem a little more muted than your two public peers are guiding for this year. I'm curious if it's a function of maybe you guys are a little more levered to bigger projects because that's more timing related. I guess it would be really helpful to give us a perspective into how you think public will grow.
Speaker 1: work, getting work to shipments. And, you know, if you look at the level of lettings that we'll see.
Speaker 1: throughout the year that sets us up extremely well for 2024 because they get them let, they get the jobs out there, get them started, and so we enter 24 with a higher level of starts and starts that have gone to aggregate shipments. So I think that obviously you got to wait and see how that progresses and are the DOTs able to get the work let and out for
Speaker 1: that they would the projections they have. On big work it's hard for me to really judge what some of my peers are doing because I don't get to look at their backlogs and look at their work so a little bit hard to judge. Now you are insightful in the fact that very large jobs take longer to get from letting to start because they're complicated.
Speaker 1: there's a lot that goes into it from procuring land and permits and just more more more detailed larger engineering things that have to happen and pre work that has to go into it. So we do have a number of large jobs in our backlogs and as I said they do take longer but comparing it to my peers is just tough to do.
Speaker 4: I mean, would it be fair, Tom, looking out to 2024, we see like mid-single-digit plus growth in public or is that still too optimistic at this point?
Speaker 1: Well obviously too early to call because you've got to see what's happening to these leddings but but let's let's all be hopeful all now one
Speaker 11: Okay, appreciate the color.
Speaker 3: Our next question comes from Derek Shemois from the U.S. Capitol.
Speaker 7: Oh, hi, thanks for taking my question. I wanted to ask on the non-resize of those ledger the Outlook for flat volumes this year. I'm just wondering if you can maybe break out what you're seeing in your markets and your backlogs on the heavier non-resize, so things like LNG, manufacturing warehouses.
Speaker 7: Oh, hi. Thanks for taking my question. I wanted to ask on the non-res side of the ledger, the outlook for flat volumes this year. Just wondering if you can maybe break out what you're seeing in your markets and your backlogs on the heavier non-res side, so things like LNG, manufacturing, warehouses, things of that nature versus a later commercial.
Speaker 1: Yeah, I think the very large projects is really encouraging. We're seeing a number of them. I mean, I'll give you some examples. You've got an aluminum plant here in Alabama, a Hyundai plant in Savannah, Georgia, the GM battery plant that we'll be shipping in Tennessee.
Speaker 1: the Ford F-150 plan in Kentucky and a big solar plan in North Alabama. All of those are, you know,
Speaker 1: Kentucky and a big solar plan in North Alabama. All those are, you know.
Speaker 1: hundreds of thousands of tons per job and so very good work.
Speaker 1: We have some concerns on does the light non-res follow home construction?
Speaker 1: That's one piece. And while on, on.
Speaker 1: heavier res, the starts look good right now. It's really the question is and what we're trying to see and can't see yet is what's behind those because you've got commercial loans that have been challenged for four quarters. So right now the leading indicators look good and you know we'll have to wait and see on the other. It's see how it starts to trend.
Speaker 1: I think in all in all we try to be thoughtful as we assume flat but remember that flat is at extremely high levels and this sector is not overbuilt so those set us up good for the future even if there is you know that some of the lighter stuff follows
Speaker 1: Home building you've got a lot of heavy behind that too.
Speaker 9: Thank you.
Speaker 3: Our next question comes from Keith Hughes from Truist.
Speaker 1: Thank you. I have some questions on the cost that was referred to earlier on the high single-digit increases in cost.
Speaker 1: Could you just say again on energy, are you assuming energy just kind of rolls forward at current prices or is there any change up or down in the first half of the year? A little bit. Well, the first half of the year, energy costs will be up because of costs. We think it remains at elevated levels, but in the first part of the year...
Speaker 1: But for energy in the first half, yeah, it'll be a headwind for us.
Speaker 1: If you strip out the energy, what does year-over-year cost growth look like in other inflating items?
Speaker 1: I would take it in pieces. I think that most of it is up mid to high single digits, and that's everything from electricity to parks to labor. Just kind of all of it is up. It's just going to get hit harder in the first six months and seconds it's much.
Speaker 9: Okay, thank you. Thank you.
Speaker 3: Your next question comes from Michael Dutas from Vertical Research.
Speaker 7: Good morning, Joe and Mary Andrews.
Speaker 6: Morning. Morning.
Speaker 7: Tom, just maybe you could share a little bit about a couple of your, you know, where some of your large, where some of the surprises you may see given the dynamics you just put forth, whether it's regional, whether it's California, you know, the weather's, you know, was very hard, obviously from the end of the quarter or beginning of this year. Where some of the areas you think there could be some upside surprises and a couple areas where
Speaker 7: there needs to be a little bit more concern about some of the project flows that you're anticipating.
Speaker 1: I think the big question for all of this is timing of highway projects and that's in every DOT we have. All of them have great funding, all of them have great plans, all of them have really good lettings. It's half-assed that they get that work to shipping aggregates and I think that's the biggest question.
Speaker 1: we will have to watch as we go through the year. Now you know the good part about that question if it goes faster that's great but as I've said the highway work it just takes longer to get to get there than we think it then anybody ever thinks it does but it gets there.
Speaker 12: So is that the Delta between minus 2 and minus 6 on your volume expectations?
Speaker 1: I would tell you that I think that's probably the biggest factor in the range.
Speaker 9: Yes. Thank you, Tom. Thank you. Thank you.
Speaker 3: The next question comes from Adam Delmeyer from Thompson Davis.
Speaker 13: Thanks, good morning guys. Morning. Can I get your help with, um...
Speaker 13: your margin guidance because you're giving us aggregates.
Speaker 13: cash, gross profit per ton.
Speaker 13: I want to convert that back to your reported aggregates gross margin. I think you're guiding to...
Speaker 13: Call it 100 to 200 basis points of gross aggregates gross margin improvement this year, but I'm just not sure.
Speaker 2: Yeah, that's right. We do expect aggregate growth margin expansion and, you know, I'd say at least at those levels. And also on EBITDA margins too, this will be a year where we can call back to some of our more historical levels.
Speaker 13: And do you see a lot of variability between quarters or is that a pretty pretty evenly throughout the year?
Speaker 2: Yeah, I think from a margin standpoint, you know, we expect consistent, you know, improvements throughout the year. As Tom said, it'll be, you know, first half will be, you know, more price, more cost, and second half will be more moderate price and more moderate cost. But I think on the margin side, we should see good growth, you know, all throughout the year. That's thinking about that growth. That's the only difference there. And I think there's hope, but I thinkathon and that Mehmet really need more growth.
Speaker 9: Okay, very helpful. Thanks. Thank you.
Speaker 3: Our last question comes from Roa Seth from Seaport Research Partners.
Speaker 4: Good morning. Hey, good morning. Good morning. Thanks for taking my question. It's clear to...
Speaker 4: to clear up on the non-RESI. You talked about light and heavy non-RESI. What is the mix between the two and your total non-RESI exposure?
Speaker 1: I think you know it's probably right now we're probably a lot heavier a lot heavier on the heavy non-res as we saw the light catch up had to catch up with with residential growth and it fell behind a little bit so I think you still got some runway with with with light res is it as it has
Speaker 1: as it lags single family, but the heavier piece of this will be, and much heavier piece of this will, a majority of ours will be in heavy risk.
Speaker 8: Okay, so non-res is what, 30% of your sales, your volumes?
Speaker 1: Just yes, that's a pretty good round number.
Speaker 4: Okay, and then just on capital allocation, can you maybe comment on what the deal market looks like at the moment?
Speaker 2: Yeah, I think we, you know, we still see, you know, good activity. We have our teams are always out, you know, looking for opportunities, you know, I think is typically in these kind of environments. I mean, sometimes there may become a disconnect between sellers expectations and buyers valuations, but
Speaker 1: more about timing on the seller side than anything else. Yeah, you saw us complete several of those really strategic ones in 2022, very important, particularly to our California, our critical California and Texas markets. We always have a few of those that we're working on. We're very picky about it, we're very disciplined about it. But while, you know,
Speaker 1: years in which they maybe the future's not as clear, sometimes they get harder, I wouldn't expect a big turn off or turn on with acquisitions kind of a steady flow like we've seen. So I think there will be some out there, timing of that will have to be seen.
Speaker 1: but we'll keep plugging at that and be disciplined about it. Thank you for taking my questions. Thank you.
Speaker 3: It appears you have no further questions at this time. I will now turn the program back over to Tom for any additional closing remarks.
Speaker 1: Thank you for your time this morning. Thank you for interest in Volcker materials. We look forward to talking to you throughout the quarter and throughout the year. Please stay safe and we look forward to seeing you soon. Thank you.
Speaker 3: Thank you, ladies and gentlemen. This concludes today's conference. You may now disconnect.
Speaker 3: Thank you, ladies and gentlemen. This concludes today's conference. You may now disconnect. This concludes today'sIGH aligned Mao BUT linear repro BUT linear review DE inflation Patents
Speaker 14: I'll see you next time.
Speaker 14: I'll see you next time.