Vulcan(VMC) - 2019 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements The unaudited condensed consolidated financial statements for the period ended June 30, 2019, show an increase in total assets to $10.48 billion, driven by the adoption of new lease accounting standards, with total revenues for the second quarter growing to $1.33 billion, resulting in a net earnings increase to $197.6 million Condensed Consolidated Balance Sheets As of June 30, 2019, total assets increased to $10.48 billion from $9.83 billion at year-end 2018, primarily due to the recognition of $418.9 million in operating lease right-of-use assets, with total liabilities rising to $5.11 billion and total equity to $5.37 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total current assets | $1,255,015 | $1,079,145 | | Property, plant & equipment, net | $4,290,682 | $4,237,307 | | Operating lease right-of-use assets, net | $418,896 | $0 | | Goodwill | $3,167,061 | $3,165,396 | | Total assets | $10,480,764 | $9,832,130 | | Total current liabilities | $663,588 | $602,550 | | Long-term debt | $2,781,826 | $2,779,357 | | Operating lease liabilities | $396,952 | $0 | | Total liabilities | $5,109,317 | $4,629,227 | | Total equity | $5,371,447 | $5,202,903 | - The company adopted a new lease accounting standard (ASU 2016-02) in 2019, resulting in the recognition of $418.9 million in right-of-use (ROU) assets and corresponding lease liabilities on the balance sheet for the first time[9][20][116] Condensed Consolidated Statements of Comprehensive Income For the second quarter of 2019, total revenues increased by 10.6% year-over-year to $1.33 billion, and net earnings rose by 23.7% to $197.6 million, with diluted EPS for Q2 2019 at $1.48 Q2 Financial Performance (in thousands, except per share data) | Metric | Q2 2019 | Q2 2018 | % Change | | :--- | :--- | :--- | :--- | | Total revenues | $1,327,682 | $1,200,151 | 10.6% | | Gross profit | $370,502 | $323,184 | 14.6% | | Operating earnings | $276,074 | $230,253 | 19.9% | | Net earnings | $197,558 | $159,652 | 23.7% | | Diluted EPS | $1.48 | $1.19 | 24.4% | Six-Month Financial Performance (in thousands, except per share data) | Metric | H1 2019 | H1 2018 | % Change | | :--- | :--- | :--- | :--- | | Total revenues | $2,324,193 | $2,054,625 | 13.1% | | Gross profit | $562,177 | $482,519 | 16.5% | | Operating earnings | $380,507 | $311,437 | 22.2% | | Net earnings | $260,857 | $212,631 | 22.7% | | Diluted EPS | $1.96 | $1.58 | 24.1% | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2019, net cash from operating activities increased to $301.9 million, while net cash used for investing activities decreased significantly to $216.3 million due to lower acquisition spending, and net cash used for financing activities was $103.5 million Six-Month Cash Flow Summary (in thousands) | Activity | H1 2019 | H1 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $301,916 | $275,760 | | Net cash used for investing activities | ($216,348) | ($456,609) | | Net cash (used for) provided by financing activities | ($103,450) | $95,318 | | Net decrease in cash | ($17,882) | ($85,531) | - A key difference in operating cash flow was a $100 million discretionary contribution to pension plans in Q1 2018, which was not repeated in 2019[13][94][173] - Investing cash flow was significantly lower in H1 2019 due to a large payment for business acquisitions ($219.0 million) in H1 2018 that did not recur[13][174] Notes to Condensed Consolidated Financial Statements The notes detail the company's accounting policies, including the significant adoption of a new lease standard which added over $400 million in assets and liabilities, with revenues disaggregated by segment and geography, and various legal contingencies disclosed - The company is the largest U.S. supplier of construction aggregates (crushed stone, sand, gravel) and also produces asphalt mix and ready-mixed concrete, operating primarily in twenty states, Washington D.C., Mexico, and the Bahamas[15][16] Segment Total Revenues - Q2 2019 vs Q2 2018 (in thousands) | Segment | Q2 2019 | Q2 2018 | | :--- | :--- | :--- | | Aggregates | $1,062,061 | $956,265 | | Asphalt | $247,163 | $211,828 | | Concrete | $103,768 | $106,723 | | Calcium | $2,003 | $2,282 | Segment Gross Profit - Q2 2019 vs Q2 2018 (in thousands) | Segment | Q2 2019 | Q2 2018 | | :--- | :--- | :--- | | Aggregates | $329,215 | $283,476 | | Asphalt | $27,583 | $25,750 | | Concrete | $12,887 | $13,191 | | Calcium | $817 | $767 | - The company is involved in several significant legal and environmental proceedings, including the Lower Passaic River Superfund Site, the Texas Brine sinkhole matter, and a NAFTA arbitration claim against Mexico, with the financial impact of these cases remaining largely uncertain[75][79][86] Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported strong Q2 2019 results, with net earnings up 24% and Adjusted EBITDA up 15% year-over-year, driven by a 16% increase in Aggregates segment gross profit, supported by robust public construction demand and strong liquidity Executive Summary In Q2 2019, net earnings grew 24% to $197.6 million and Adjusted EBITDA increased 15% to $372.0 million, primarily fueled by the Aggregates segment's 16% gross profit rise, 4% shipment increase, and 5.9% freight-adjusted pricing improvement, with full-year 2019 Adjusted EBITDA projected between $1.250 billion and $1.330 billion Q2 2019 Financial Highlights vs. Q2 2018 | Metric | Q2 2019 | Change vs. Q2 2018 | | :--- | :--- | :--- | | Net Earnings | $197.6 million | +24% | | Adjusted EBITDA | $372.0 million | +15% | | Aggregates Gross Profit | $329.2 million | +16% | | Aggregates Shipments | 57.3 million tons | +4% | | Aggregates Freight-Adjusted Price | - | +5.9% | | Diluted EPS from Continuing Ops | $1.48 | +23.3% ($1.20 in Q2'18) | - The company's key markets are benefiting from robust growth in public construction demand, driven by highways, with new highway construction starts up 21% over the past two years[129] - Full-year 2019 guidance expects earnings from continuing operations between $4.55 and $5.05 per diluted share and Adjusted EBITDA between $1.250 billion and $1.330 billion[132] Results of Operations For Q2 2019, total revenues increased 11% to $1.33 billion, primarily driven by the Aggregates segment with sales up 11% and gross profit up 16%, while the Asphalt segment faced a 16% rise in liquid asphalt costs and the Concrete segment saw a 2% decline in gross profit - In Q2 2019, Aggregates segment unit margins increased by $0.58 per ton, or 11%, to $5.74 per ton, reflecting strong pricing and operational efficiency[137] - Asphalt segment performance in Q2 was impacted by a 16% year-over-year increase in the cost of liquid asphalt, though pricing gains began to offset this pressure[140][141] - For the first half of 2019, a 20% increase in the unit cost of liquid asphalt negatively impacted Asphalt segment earnings by $19.7 million compared to the prior year[147][153] Reconciliation of Non-GAAP Financial Measures This section provides reconciliations for key non-GAAP metrics, including Q2 2019 Aggregates freight-adjusted revenues of $806.4 million, Aggregates cash gross profit of $405.0 million, and Adjusted EBITDA of $372.0 million EBITDA and Adjusted EBITDA Reconciliation - Q2 (in millions) | Metric | Q2 2019 | Q2 2018 | | :--- | :--- | :--- | | Net earnings | $197.6 | $159.7 | | Income tax expense | $47.6 | $40.0 | | Interest expense, net | $33.0 | $33.2 | | DDA&A | $93.5 | $85.6 | | EBITDA | $372.0 | $319.2 | | Adjustments (Business development, Restructuring) | $0.0 | $5.6 | | Adjusted EBITDA | $372.0 | $324.8 | Aggregates Segment Cash Gross Profit (in millions) | Metric | Q2 2019 | Q2 2018 | | :--- | :--- | :--- | | Gross profit | $329.2 | $283.5 | | DDA&A | $75.8 | $69.7 | | Cash gross profit | $405.0 | $353.2 | | Cash gross profit per ton | $7.07 | $6.43 | Liquidity and Financial Resources The company's primary liquidity sources are operating cash flow and a $750 million line of credit, with $558.5 million available capacity at quarter-end, maintaining an investment-grade credit rating and total debt at $2.92 billion - As of June 30, 2019, the company had $558.5 million of available borrowing capacity under its $750 million line of credit[181] Debt and Capital Structure (in millions) | Metric | June 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total debt | $2,918.8 | $2,912.4 | | Equity | $5,371.4 | $5,202.9 | | Total capital | $8,290.2 | $8,115.3 | | Total Debt as a % of Total Capital | 35.2% | 35.9% | - The company did not repurchase any common stock in the first six months of 2019, with 8,297,789 shares remaining available for purchase under the current board authorization as of June 30, 2019[185][186] Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to interest rate risk, with approximately 29.7% of its debt at floating rates as of June 30, 2019, and a hypothetical one-percentage-point decline in interest rates would increase the fair value of its debt by an estimated $271.2 million - The company's primary market risk is interest rate exposure, with 29.7% of its debt at floating rates as of June 30, 2019[178][203] - A one-percentage-point decline in interest rates would increase the fair value of the company's debt by an estimated $271.2 million[204] Controls and Procedures Based on an evaluation as of June 30, 2019, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective, with no material changes to internal controls over financial reporting during the second quarter of 2019 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the quarter[206] PART II OTHER INFORMATION Legal Proceedings This section refers to Note 8 of the condensed consolidated financial statements for a discussion of recent developments concerning the company's legal proceedings - Information regarding legal proceedings is detailed in Note 8 of the financial statements[208] Risk Factors There were no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2018 - No material changes to risk factors were reported for the quarter[209] Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any of its equity securities during the second quarter of 2019, with 8,297,789 shares remaining available for purchase under the existing board authorization, and no unregistered sales of equity securities occurred Share Repurchases - Q2 2019 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Apr 1 - Jun 30, 2019 | 0 | $0.00 | - As of June 30, 2019, the company had 8,297,789 shares remaining under its current share repurchase authorization[211] Mine Safety Disclosures Information concerning mine safety violations and other regulatory matters as required by the Dodd-Frank Act is included in Exhibit 95 of this report - Mine safety disclosures are provided in Exhibit 95[213] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications pursuant to the Sarbanes-Oxley Act (Exhibits 31 and 32), mine safety disclosures (Exhibit 95), and XBRL data files (Exhibit 101) - Key exhibits filed include Sarbanes-Oxley certifications (31a, 31b, 32a, 32b), MSHA citations (95), and XBRL data files (101)[214]