Vulcan Materials Company(Holding Company) 2026 Q3 Earnings Call

Please go ahead, sir. Thank you, operator.

Joining me today are Ronnie Pruitt, Chief Executive Officer, and Mary Andrews Carlisle, Senior Vice President and Chief Financial Officer. Before we begin, please note that a press release and a supplemental presentation related to this call are available at vulcanmaterials.com. Today's discussion includes forward-looking statements which are subject to risks and uncertainties. Reconciliations of any non-GAAP financial measures and other disclosures are included in our earnings release, supplemental presentation, and other SEC filings. During Q&A, we kindly ask that you limit your participation to one question. This will help us to address as many questions as possible. Now I will turn the call over to Ronnie.

Thanks, Mark, and thank you all for joining our Vulcan Materials third quarter earnings call this morning. During the quarter, we continued to successfully execute on our two-pronged growth strategy by improving the profitability of our organic business and expanding our aggregates franchise through disciplined bolt-on acquisitions. Absent energy cost headwinds of approximately $40 million and adjusting for the prior year divestitures of some more cyclical downstream businesses, adjusted EBITDA for our underlying business grew 5% in the quarter, demonstrating the resilience of our aggregates-led strategy. Our operating and sales teams are aligned with our Vulcan Way of Operating and Vulcan Way of Selling disciplines. I am pleased with the execution we are seeing across our footprint, and I am confident that there is significant value to create by staying focused on the fundamentals.

Aggregates cash gross profit per ton continued to compound higher even with the inflationary pressures from higher energy costs. During the quarter, we closed on two attractive bolt-on aggregate acquisitions and have since completed another acquisition earlier this month. This year, we have added strategic aggregate assets in two key Vulcan states, Texas and Tennessee, in addition to expanding our reach into the southeastern Colorado and southern Ohio markets. These acquisitions add long-term quality aggregate reserves to our portfolio, carry minimal risk, are easy to integrate, and are synergistic with our existing assets. The pipeline for future growth opportunities is healthy, and I expect we will complete several more transactions before the end of the year. Thoughtful portfolio actions and solid execution delivered adjusted EBITDA of $707 million and 20 basis points of year-over-year margin expansion in the quarter.

On a seasonally adjusted basis, aggregate shipments momentum in the third quarter was similar to the second quarter and consistent with the current demand environment. On a year-over-year basis, shipments decreased 3%. The prior year benefited from favorable weather and outsized seasonally adjusted shipments in the third quarter following a slow start to the construction season due to severe winter weather and rainfall throughout the first half of last year. Aggregates cash gross profit per ton expanded modestly over the prior year, with higher freight adjusted selling prices more than offsetting sharply higher diesel input costs. Our teams are executing well on the fundamentals they control. On a mix adjusted basis, average selling prices in the quarter improved 5% compared to the prior year, with improvement widespread across geographies. Excluding diesel, aggregates freight adjusted unit cash cost of sales increased 3% compared to the prior year.

Now let's shift to the demand backdrop against which our teams are delivering these solid results. The demand environment remains mixed across end uses, with growth opportunities in some categories and challenges in others. Our Vulcan Way of Selling disciplines allow us to navigate complex market dynamics and maximize value in any environment. On the public side, activity remains at healthy levels. There is still a long tail from IIJA, with approximately 35% of funds yet to be spent. There is a current extension of the federal highway authorization bill that maintains funding at current levels and is expected to be extended again until a bill is passed. These dynamics provide an environment in which states are continuing to let work and execute projects. Importantly, the opportunities in Vulcan markets continue to outpace the U.S. overall.

For example, trailing 12-month contract awards are up 2% in Vulcan markets versus 1% at a U.S. level. The need for continued investment in infrastructure is significant and something our elected officials are working to address. On the private side, large project opportunities continue to drive non-residential activity. Our footprint is well-aligned with the ongoing data center development and increase in energy and other manufacturing opportunities. We are currently shipping on a variety of solar, wind, LNG, power plant, and refinery projects. In addition to large-scale manufacturing projects like SpaceX and Toyota in South Texas and Scout Motors in South Carolina. Our scale, quality, and customer service make us a supplier of choice on large, complex projects. The continued lack of housing affordability and a challenging rate environment are limiting residential construction activity.

In Vulcan markets, demographics are favorable to the rest of the U.S. and create a fundamental need for additional housing, but timing of a recovery is still unclear given affordability dynamics. With a solid year-to-date execution from our operating teams, we expect to deliver another year of earnings growth and approximately $2.4 billion of adjusted EBITDA, even with a muted demand environment and over $100 million of energy headwinds now expected for the year. With that, I'll turn the call over to Mary Andrews Carlisle to provide some additional commentary on our third quarter performance, after which I will share some initial thoughts on 2027 before we take your questions.

Thanks, Ronnie, and good morning. Ronnie highlighted the consistent execution of our two-pronged growth strategy. The same is true for capital allocation. We continue to prioritize reinvesting in our franchise, identifying disciplined opportunities for growth that align with our aggregate-led strategy, supporting our steadily growing dividend, and returning excess capital to shareholders through share repurchases. Through the first 9 months of this year, we have generated nearly $1 billion of operating cash flow and received cash proceeds of $572 million for downstream and non-core divestitures. We have reinvested approximately $550 million into maintenance and growth capital expenditures, thoughtfully redeployed approximately $300 million of proceeds, primarily from the California concrete sale, into strategic aggregate acquisitions, and returned approximately $950 million to shareholders through a combination of dividends and $750 million of share repurchases. Importantly, we have moved our trailing 12 months return on invested capital 20 basis points higher since year-end.

At September 30, net debt to adjusted EBITDA leverage stood at 1.9 times, providing plenty of capacity to continue to support an active acquisition pipeline. Up and down the P&L, we are focused on controlling what we can control. SAG expenses year to date are 3% lower than the prior year, even as we make incremental investments in technology and talent to support our strategic disciplines. Closely managing our human capital, aligning compensation costs with results, and driving efficiencies across the enterprise are all contributing to lower SAG year over year on both a percentage of revenue and absolute basis. Now, before we take your questions, I'll pass back to Ronnie to share some initial thoughts on what lies ahead in 2027.

Thanks, Mary Andrews. As I look to 2027, I am confident we have the right strategy, the right team, and the right focus to continue delivering earnings growth and value creation for shareholders. I expect the demand backdrop will largely be a continuation of the current environment, with opportunities for growth varying across and even within end markets. Our backlogs and quote activity also support this outlook. With a stable federal highway funding in place through the continuing resolution and steady growth in awards over the past several years, the public pipeline remains at healthy levels as we move into 2027. We are hearing that there is a real focus in D.C. on getting a bill passed, which we expect to be a priority after the midterm elections. This bodes well for future public demand.

On the private side, we expect that large project opportunities will continue to drive non-residential activity, and that residential will remain challenged until affordability is addressed. Against the similar demand backdrop to 2026, we anticipate 2027 aggregate pricing to benefit from pricing actions taken this year as the inflationary environment set in, and from announced increases for January 1st. As a result, we expect aggregates prices to grow mid to high single digits in 2027, creating a strong opportunity for attractive unit profitability expansion as we continue to control cost and leverage our Vulcan Way of Operating disciplines. We are in the midst of our annual planning cycle now and will provide more detail in February on any shifts in the demand environment, our shipments outlook inclusive of 2026 acquisitions, and our profitability expectations. Now, Mary Andrews and I will be happy to take your questions.