Vulcan Materials Co. (VMC), the largest U.S. producer of construction aggregates, Monday reported an 84% fall in profit for the second quarter from last year, hurt by the decline in demand for construction materials amid the economic slowdown. Aggregates shipments for the quarter declined 31% from the prior year due to weak demand and wet weather. The company lowered its fiscal year 2009 earnings outlook, citing further weakness in private construction activity.
The cement, asphalt and gravel supplier is expected to benefit from the volume of public works projects in the federal government's stimulus spending plan. The Economic Stimulus Plan passed by Congress and signed by President Barack Obama in February includes an estimated $50 billion to $60 billion of much-needed direct funding for transportation and other infrastructure-related projects that will help offset projected weakness in private construction activity.
Second-Quarter Results
The Birmingham, Alabama-based company reported net income for the second quarter of $22.21 million, or $0.20 per share, down from $140.76 million, or $1.27 per share, in the year-ago quarter.
The company noted that a change in the estimated annual effective tax rate reduced earnings by $0.06 per share. In addition, aggregates shipments declined 31% from the prior year due to weak demand and wet weather, reducing earnings by $0.64 per share.
Earnings from continuing operations for the quarter was $15.56 million, or $0.14 per share, down from $141.23 million, or $1.27 per share, in the prior-year quarter. On average, ten analysts polled by Thomson Reuters expected the company to report earnings of $0.20 per share for the quarter.
Net sales for the quarter dropped 29% to $681.38 million from $965.96 million in the same quarter last year. Total revenue, which is net sales plus delivery revenue, also declined 29% to $721.86 million from $1.02 billion in the same period last year and missed analysts' consensus revenue estimate for the quarter of $759.14 million.
Don James, Chairman and Chief Executive Officer of Vulcan, stated, "While our current results reflect the volume effect of the prolonged recession, we are encouraged by the increased level of bid activity by state transportation departments as well as the significant increase in highway construction contract awards reported in May and June. The increased level of bid activity and contracts awarded demonstrate that funding provided by the federal economic stimulus plan, or American Recovery and Reinvestment Act, is working its way into the economy."
Vulcan's earnings for aggregates declined as the impact of sharply lower shipments more than offset the earnings benefit from improved prices, lower unit costs for diesel fuel and cost control measures. Asphalt earnings increased from the year-ago period as material margins recovered to more normal levels, reflecting a moderation in the cost of liquid asphalt, which more than offset the earnings effect of a 30% decline in asphalt volumes.
Concrete earnings for the quarter decreased from the prior-year period due primarily to lower volumes. Cement earnings recorded a loss due to the effects of weaker sales volumes, slightly offset by lower energy costs.
Peer Performance
Raleigh, North Carolina-based Martin Marietta Materials, Inc. (MLM) is slated to report its financial results for the second quarter on August 4. Analysts expect the company to report earnings of $0.77 per share for the quarter on revenues of $471.09 million.
In mid-July, Matrin Marietta said it currently expects net earnings for fiscal 2009 in a range of $2.70-$3.30 per share, including the effect of the government's economic stimulus plan. While reporting its financial results for the first quarter in May, the company had forecast full-year earnings in a range of $3.70-$4.15 per share, excluding the impact of economic stimulus plan.
The company attributed the reduced earnings guidance for the year to a weaker and slower-than-expected recovery of the economy, a decline in transportation infrastructure spending resulting from a decline in state revenues, a longer-than-expected delay in federal stimulus projects moving to the construction stage, and an adverse weather-affected first half of the year.
Other Metrics
Vulcan said that during the second quarter, it offset some of the cost impact related to lower volumes by rationalizing production, reducing operating hours, streamlining the workforce and effectively managing spending. Aggregates cash fixed costs for the quarter were reduced 17% from the prior-year period. The unit cost for diesel fuel decreased 54% from the year-ago period, increasing earnings by $0.12 per share. Gross profit for the quarter was $145.83 million, down from $245.23 million in the year-ago period. Gain on sale of property, plant and equipment and businesses for the quarter was $0.65 million, compared to gain of $80.50 million in the year-ago period.
Operating earnings for the latest quarter were $65.68 million, down from $238.47 million in the same period last year.
The company recorded earnings from discontinued operations for the quarter of $6.65 million, or $0.06 per share, compared to loss from discontinued operations of $0.47 million in the year-ago period. In early June, Vulcan strengthened its balance sheet by completing a successful public equity offering. The company utilized the net proceeds of $520 million from the offering to reduce short-term bank borrowings.
Year-To-Date Results
For the first six months of fiscal year 2009, Vulcan reported net loss of $10.57 million, or $0.09 per share, compared to net income of $154.69 million, or $1.40 per share, in the year-ago period.
Loss from continuing operations for the period was $16.69 million, or $0.15 per share, compared to income from continuing operations of $155.71 million, or $1.41 per share, in the same period last year.
Net sales for the half year declined to $1.25 billion from $1.74 billion a year ago. Total revenues for the six-month period were $1.32 billion, down from $1.84 billion in the prior-year period.
Outlook
For the second half of 2009, Vulcan now forecasts earnings in the range of $0.60-$0.85 per share, down from its prior outlook of $0.85-$1.00 per share. The revised outlook for the period includes $0.55-$0.80 per share from continuing operations. The company had recorded earnings of $0.63 per share for the year-ago period, excluding a noncash charge for impairment of the goodwill associated with the cement segment.
For fiscal year 2009, Vulcan now forecasts earnings in a range of $0.51-$0.76 per share, including $0.40-$0.65 per share from continuing operations. Earlier, the company had forecast earnings from continuing operations for the year in a range of $0.70-$1.00 per share. Analysts expect the company to report earnings of $0.68 per share for the year.
Vulcan said it expects higher selling prices for its products in 2009 to partially offset the earnings effects of lower volumes.
CEO James said, "The current year remains challenging due to weak private construction activity. Despite these challenges, we believe the cost management actions we have taken, along with our disciplined approach to pricing, and the improved liquidity and financial flexibility we have achieved, will enable us to participate fully in the economic recovery."
Vulcan now projects full-year aggregates shipments to decline 21%-24% from year-ago levels, compared to the prior forecast for a decline of 10%-15%. According to the company, the revised outlook for aggregates demand is due primarily to further weakness expected in private construction.
Vulcan, however, said it expects further weakness in private construction awards to be offset somewhat by incremental demand in the second half of 2009 from highway construction activity related primarily to economic stimulus projects.
The company currently expects full year aggregates pricing to increase 3%-4%, compared to its prior outlook for an increase of 4%-6%.
The company also lowered its outlook for full-year capital spending to about $175 million from the prior estimate of $200 million, and down sharply from the $354 million spent in the previous year.
Stock Quotes
VMC, which has traded in a range of $34.30-$83.00 over the past 52 weeks, closed Monday's regular trading session at $47.80, up $0.32 or 0.67% on a volume of 1.52 million shares.
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