Vulcan Materials Company (VMC) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to the Vulcan Materials Company Second Quarter 2026 Earnings Call. My name is Bo and I will be your conference call coordinator today. Please be reminded that today's call is being recorded and will be available for replay later today at the company's website. [Operator Instructions] Now I would like to turn the call over to your host, Mr. Mark Warren, Vice President of Investor Relations for Vulcan Materials. Please go ahead, sir.

Thank you, operator. I'm joined today by Ronnie Pruitt, Chief Executive Officer; and Mary Andrews Carlisle, Senior Vice President and Chief Financial Officer. Before we begin our prepared remarks, please note that a press release and a supplemental presentation related to this call are available at our website, vulcanmaterials.com. Today's discussion may include forward-looking statements, which are subject to risks and uncertainties. Details on these risks, other legal disclaimers and reconciliations of any non-GAAP financial measures are defined and described in our earnings release, supplemental presentation and other filings with the Securities and Exchange Commission. For the question-and-answer session, we kindly ask that you limit your participation to 1 question. This will help us address as many questions as possible during the time we have available. And with that, I'll turn the call over to Ronnie.

Thanks, Mark, and thank you all for your interest in Vulcan Materials. The resiliency of our aggregates-led business and the importance of our strategic disciplines are evident in periods of inflationary pressure. I am proud of how our commercial and operating teams have navigated the first half of the year to deliver adjusted EBITDA growth and aggregate cash gross profit per ton expansion. And most importantly, they did so while keeping each other safe. In the quarter, we generated $654 million of adjusted EBITDA, approximating the prior year despite energy headwinds of almost $40 million. Our teams executed well, earning higher prices for our products in each segment and driving operational efficiencies to help offset inflationary increases in our input costs. Second quarter aggregates cash gross profit per ton topped $12 and was $0.14 higher than the prior year. Shipments increased 1% compared to the prior year and varied widely across geographies depending upon weather conditions. Aggregates freight-adjusted selling prices moved higher both sequentially and year-over-year. On a mix-adjusted basis, average selling prices in the quarter improved 5% compared to the prior year, with improvement widespread across geographies. Our commercial teams continue to execute our Vulcan Way of Selling disciplines to capture value for our products and deliver solutions for our customers. Excluding diesel, Aggregates freight-adjusted unit cash cost of sales increased 3% compared to the prior year. Our Vulcan Way of Operating disciplines were executed well to drive efficiencies and control spending even with lower-than-expected volumes in many areas due to wet weather. From coast to coast, our teams are aligned with a relentless focus to drive compounding improvements in the profitability of our existing portfolio and to win the future in Aggregates. Winning in the future will also mean continuing to strategically add to our portfolio through acquisitions and greenfield projects. Both of these growth pipelines remain active, including numerous acquisition opportunities likely to be finalized this year. The strength of our balance sheet gives us the financial flexibility to pursue those opportunities that will drive the most value for our shareholders. During the second quarter, we completed several strategic portfolio actions. We finalized the divestitures of our concrete operations in California and our noncore operations in the U.S. Virgin Islands generating cash proceeds that can be redeployed to strategically grow our Aggregates business. A clear example was our acquisition of an aggregate operation from Brannan Sand & Gravel in early June. This acquisition expanded our reach into Southern Colorado and strengthen our distribution network in Dallas-Fort Worth. Our team is already hard at work capturing synergies and driving value from this strategic acquisition. In terms of the demand environment, what I see ahead of us is similar to what the views that I shared on the last call. We still expect strong public activity in our markets and improving private large project opportunities to drive year-over-year shipments growth in 2026. Trailing 12 months highway awards in Vulcan markets remain up double digits from a year ago, far outpacing non-Vulcan markets. The same is true for public infrastructure awards, which are up 20% year-over-year in Vulcan markets, yet down in other markets. The amount of work in the pipeline bodes well for public shipments for the next several years, providing good demand visibility, which is important for a healthy pricing environment. With the August recess upon us, as expected, there will likely be a continuing resolution to fund federal highway spending while Congress completes this work. The House Transportation and Infrastructure Committee passed its Build America 250 Act with overwhelming bipartisan support in late May. The bill enhanced the focus on aggregate intensive construction and shifted to our formula first distribution approach compared to the infrastructure investment and Jobs Act, both changes benefiting Vulcan. While the final text and timing remain uncertain, we anticipate a smooth transition between funding programs, given the significant amount of IIJ funds that are yet to be spent. On the private side, large project opportunities continue to drive nonresidential activity, particularly data centers. Our footprint is well aligned with data center activity in addition to power infrastructure expansion, recently announced LNG projects and other manufacturing opportunities. Our scale, quality and customer service make us a supplier of choice for these large complex projects. Residential construction continues to struggle due to the ongoing lack of affordability. Longer term, there remains a fundamental need for additional housing and our footprint is well positioned to benefit from an eventual recovery. With a continued expectation of modest growth in aggregate shipments in 2026, a healthy pricing environment and a solid year-to-date execution from our operating teams, we reiterate our full year adjusted EBITDA guidance range of $2.4 billion to $2.6 billion. Now I'll turn the call over to Mary Andrews to provide some additional commentary on our second quarter performance before we take your questions.

Thanks, Ronnie, and good morning. The strong cash generation of our business, coupled with the recent proceeds from divestitures Ronnie commented on earlier, have the balance sheet extremely well positioned for us to continue to pursue our disciplined and balanced capital allocation strategy, reinvesting in our business, growing our franchise through strategic acquisitions and returning capital to shareholders through both dividends and share repurchases. Through the first 6 months of this year, we have invested $370 million in maintenance and growth capital projects, $75 million in a strategic aggregates acquisition and returned over $0.5 billion to shareholders, including $400 million of share repurchases. We continue to expect between $750 million and $800 million of capital expenditures for the full year. During the second quarter, we used cash on hand to pay down our outstanding commercial paper balances of approximately $200 million and maintained approximately $300 million of cash at quarter end. At June 30, net debt to adjusted EBITDA leverage stood at 1.7x, providing plenty of capacity to support an active acquisition pipeline. We are focused on improving our return on invested capital as we continue to compound profitability in our existing business and make disciplined capital allocation decisions. Our trailing 12-month return on invested capital improved 20 basis points from a year ago to 16.1% at quarter end. SAG expenses in the first 6 months were 2% lower than the prior year. Trailing 12 months expenses of $558 million or 6.9% of revenues, 30 basis points lower than the prior year period. We continue to closely manage our overhead costs. As Ronnie said, we are pleased with the first half execution and results that our teams delivered and are reaffirming our full year adjusted EBITDA outlook. Now before we take your questions, I'll pass back to Ronnie to provide an update on Vulcan's arbitration against Mexico.

Thanks, Mary Andrews. As previously disclosed, Vulcan pursued an arbitration against Mexico under the North American Free Trade Agreement, commonly referred to as NAFTA. We received the order on Monday. All 3 members of the tribunal found that Mexico's actions were arbitrary, grossly unfair and unjust. All 3 members of the Tribunal also found that numerous actions taken by Mexico clearly violated NAFTA, including those related to the claims associated with a large majority of damages. However, the 2 members of the Tribunal who wrote the majority opinion awarded us only immaterial damages. The third member decent, a disagreeing with the low damages award. As we look ahead, we remain focused on driving improved profitability in our business, and I would like to thank the men and women of Vulcan Materials for a great performance during the quarter, controlling our costs and expanding our cash gross profit per ton while keeping each other safe. Now Mary Andrews and I will be happy to take your questions.

[Operator Instructions] We'll go first this morning to Anthony Pettinari with Citi.

Ronnie, can you talk a little bit more about the puts and takes on demand? And maybe specifically, what gives you confidence in the second half of the year to meet the full year volume guidance?

Yes. Anthony. I would say, first of all, demand is tracking as we expected. And we're in outdoor sports. So we're always going to have some weather disruptions. But I would say, overall, tracking as expected. As we entered the year, we had healthy backlogs. And as we sit here today, we have healthy backlogs, and our quoting activity continues to remain very robust. On the positive side, trends across public infrastructure, public highways, data centers and other forms of manufacturing are all good. And we've also seen a pickup in LNG projects, along with energy generation and power infrastructure expansion, which is really being driven by the data centers. Conversely, we continue to see single-family and residential growth remain weak. But other parts of light non-res, they're going to follow rooftops. And so that's another area that as we see single-family start to recover, I think like nonres will follow. But I will also remind you of our advantaged footprint. I mean, where we're at and that matters. And when we start seeing single-family recovery, I like our footprint, and I think we're in a really good position to capture that.

We go next now to Tyler Brown with Raymond James.

So I've got a couple of questions on cost. But cost performance was pretty solid here in Q2. It maybe came in slightly better than the guidance despite fuel and let's call it, some weather friction. But Mary Andrews, if we look at the full year guide, it seems to imply that, that cost inflation is maybe a bit better in the second half than the first half. Can you just give us any color on what's kind of driving that and your just your confidence in hitting those trends?

Yes, Tyler. Thank you. I'll address the first part, and then I'll give it to Mary Andrews to talk about some of the numbers. But as I look at our Q2 performance, it was really good. And I would say it was better than a lot of expectations. And we dampened the impact of a $26 million diesel headwind. And we really did that through our Vulcan Way of Operating disciplines. I mean when I look at our production efficiencies that we continue to focus on VWO as well as our labor scheduling and how we continue to focus on how we're going to get the most out of that and really in the backdrop of wet weather that does impact our cost as well. So I'm very pleased with where we're at. And I think VWO continues to be something that is evident in our results and the productivity is that. For the rest of the year, I think there's other levers that we'll continue to look at as far as oil continues to be inflated. So we're going to continue to really think about our operating efficiencies and how we drive that through our process intelligence and labor efficiencies. But also there's things, levers we can pull with our stripping. And so we're focused on things that are heavily consuming of diesel. So stripping is one of those. We'll continue to focus on that. Also leverage our liquid asphalt storage that we've had. We've got one in Southern California. We recently closed on another one in Northern California. And that's another way for us on the downstream business to fight some of those headwinds of volatility in cost.

Yes. And Tyler, just to add to what Ronnie covered on some of the levers that we have in the second half, another dynamic in the second half is how unusual the second half of last year was from a cost standpoint, particularly the fourth quarter. We faced unusually concentrated repair costs and higher insurance costs last year that we don't expect to repeat this year. So those anomalies and some benefit of seasonally higher tonnage in the second half compared to the first are also things that should drive both a much improved year-over-year performance and an improved absolute cost performance in the back half, even as Ronnie said, even as those diesel prices remain sticky quite likely and right now at levels still similar to the second quarter. And one other thing I'd mention is since we're talking about cost is our year-to-date SAG expense, which we've maintained at levels lower than last year. In fact, I would expect full year SAG expenses to probably be $10 million to $15 million lower now than the initial range we provided of $580 million to $590 million back in February. So overall, we are pleased with the cost execution in the first half and confident in a solid performance in the second half as well.

We'll go next now to Trey Grooms with Stephens.

Ronnie, you guys talked about some midyears out there in some market, maybe your price increases in some markets and given the diesel backdrop. But any update you can give us on midyear increases. And then if I could sneak just one more in, just given the Mexico situation. I really appreciate your prepared comments there. But any additional color you could give us at this time around the tribunal's decision there. I think they said unfair and unjust, which is I think, an understatement here. But at any rate, any additional color there?

Yes, Trey, thanks. I'll take the second part first, and then I'll talk about midyear's second. So with regards to Mexico, really what I said in my prepared remarks, I'll reiterate from a standpoint of the decision was disconcerting to us. All 3 arbitrators agreed that Mexico had clearly violated NAFTA, yet they awarded immaterial damages. And so that's really all I'm going to say about that. What I will also say, though, is that, look, we've continued to move forward with running our business. And even since the illegal taking of Calico back in 2022. We've successfully continued to supply the Gulf Coast and really meet the needs of our customers in a very dynamic market. And I would say overall, our EBITDA has grown more than 50% over those 4 years. And so we've done things to continue to grow the company. I'm very pleased with the efforts that our people have given for that. When I look at the Gulf Coast today, it's very -- it's still a very dynamic area, and it's still going to be challenged on how material gets to the Gulf Coast. And so we've still got the best distribution network along the Gulf Coast, and we're going to continue to serve that through different forms of fashions. And so we remain very well positioned to supply our customers there. And remember, we still own the land, and we still own the land around the port, which are 2 very valuable things when it comes to Mexico. With regards to your second part -- or your first part, really your pricing question. When I look at midyear, I would say they went as expected. And when I really compare them year-over-year, and so that's -- we do a lot of comparisons. Sequentially, I mean we're almost 2x better than we were last year. And so we intentionally pulled midyears forward. We pulled those forward to June. And I think we've had success in that, that shows in our mix adjusted as we sit today of 5% on our pricing. I would tell you, our biggest lever to overcome fuel continues to be price. And so what you will continue to see from us is disciplined around that. And I'm confident in our commercial team, our execution on Vulcan Way of Selling that we will continue to use price as our biggest lever. So if we continue to see fuel being as sticky as it is, I think you'll see us continue to be very aggressive in moving price throughout the remainder of the year.

Great. And I did want to say hats off on the costs. You guys did a great job.

We'll go next now to Philip Ng with Jefferies.

Ronnie, great color. Any more color in terms of how demand is shaping up in July? I know certainly, you had some weather-related issues, color on that front. And you talked about orders and backlog is quite good right now, good momentum. Can you kind of quantify how things were to start the year? And I guess, how orders and backlogs, perhaps from a growth standpoint, you're shaping up today?

Yes. I would tell you that as we sit today, backlogs look very similar as they did as we entered the year. And a lot of that is the puts and takes of where weather happens, geography matters and so where those weather patterns, we had probably abnormal weather in Texas and a little bit of abnormal weather in the Southeast. As we sit here in July, I would tell you, we've continued to see strange weather patterns, but shipments are continuing kind of as expected. But there's a lot of puts and takes around that. And where it's raining at maybe drive somewhere else. And so that's why we continue to look at the mix adjustment of the geography impact because all markets are not the same. As I look forward and thinking about the dynamics of where we're at with the end users, I mean I look at some of our starts momentum and referring to Dodge awards. On the highway side, I mean, North Georgia, on a trailing 12 is up 189%. I mean those are -- now these are large dollar projects, and we can give you some specifics of those projects. But a lot of this is the 400 toll roads and some of this public-private partnership and other ways of looking at things that are funding mechanisms outside of the federal program. Total infrastructure in the Gulf Coast is up 360% over the last 12 months. So a lot of public -- that's where we get our confidence in public. On the private side continues to be really driven by data centers, but we are seeing some other manufacturing things. And I would tell you that I think the power side of power generation and power infrastructure is going to continue to be a tailwind as we move throughout the data center buildout. And those are projects that are being reflected both in our quoting activity as well as some booking activity. We also talked about some LNG projects. We've seen that along the coast as well. And so those are different types of projects that we've seen in the past. Those have been relifted. And really, the only part that we see continue to be on the negative side is single-family. And so I believe that with the 2 legs of our stool, we continue to be confident in a year of growth. And if the other leg of the stool would kick in, I think, again, our footprint is a really dynamic footprint, very advantaged and we would get the benefit of that.

Ronnie, any color on warehouses? You really haven't talked much about that.

Yes. I mean I would tell you, we're seeing a couple of green shoots in very specific markets, but overall, warehousing continues to be overall flat. I mean, we're not seeing any green shoots and warehouses from an overall perspective. But I do think it's one that as we see that kind of recovery as well, again, our footprint is very advantaged on that as well.

We'll go next now to Steven Fisher with UBS.

Congrats again on the cost management. Just to follow up on the discussion about the large project activity. We too are hearing a lot about the momentum there. Just curious what that might look like from a timing perspective for aggregates. And based on kind of what you're seeing in hearing, is there a particular time frame when you think those will start to be more visible in your shipments? Is that sort of just on a rolling basis? Or is it more that these things are going to take a little time to ramp up. So maybe like first half of '27 or second half of '27? Just curious when we could really start to see these big projects really kind of show up in the shipments.

Yes. Thank you. Great question. I would tell you, we see them ever tell you, I mean -- and it is going to be more of that consistent approach, even though you think about the way these bookings come into us and the influence they can have on our backlog, when you actually go to put the work in place, it's still a customer out there that's taking the material, putting it down on a public job or on a private job, and it still takes their scheduling and their tools to do that. And so in the end, you're not going to see these big massive swings because a bigger job starts 1 place. And you're always wrapping 1 up, and you're starting another one. And so we love slow and steady. I mean, especially with the compounding interest of the nature of our business and how we're focused on growing our cash gross profit per ton. And so I would tell you, our backlog shapes up as we see it today. It's very predictable. And I would tell you it's slow and steady for us as what we would want to continue to see.

We'll go next now to Keith Hughes with Truist.

What kind of mix-adjusted price are you anticipating in the guide in the second -- second half of the year given the new year have been rolling in all second quarter?

Yes. So Keith, for pricing cadence, I think, is playing out exactly like we saw at the beginning of the year, which would mean the lower end of the range in the first half, and we'll be exiting at the upper end in the back half. And that is really reported and mix adjusted, it will just depend on what those comps look like. But I would tell you that compared to our pricing plans coming into the year, we are executing just as we expected. It's playing out like we thought.

And on volume, would it be similar to where you're at the higher end of the range in the second half versus the first half, same trend?

I think the volume was the opposite. We were at the higher end of the first half, and I think it will continue to be consistent in the second half. And obviously, weather is always a factor in the fourth quarter. But I would say that we look at it today and we think to hit our range that we said. I mean, it really is kind of continuing the shipping paces that we've seen throughout the second quarter and the second half would be similar to that.

We'll go next now to Kathryn Thompson with Thompson Research Group.

You gave a lot of great color on end markets and what's driving demand. And we'd like to step back and look at the forest for the trees. And just conceptually, more things are going to be made in the U.S. -- built in the U.S. for a variety of different parts. And granted, as you said earlier, there's been a lot of focus on data centers, but it's a bit more than that. You did touch on comments on power. It'd be helpful if you could pull the string a little bit more on that on the comparable dividend levels. First, where are you seeing the power expansion? And then what type because there's now a variety of different power type structure. So it's not just in Texas, but it's also in other parts of the U.S. And maybe just give a broader more fleshed out view of what you're seeing in power and how Vulcan is supporting that growth?

Yes, you're absolutely right, Kathryn. Thank you. I would tell you, it's a lot of different forms. And so we've still got a combination of renewables, so we're still seeing solar work. We've bid several solar manufacturing ones. And then we're seeing -- I think the first phase of this, we're seeing like we have 4 projects that are converting coal-fired power plants back to natural gas. We're seeing Georgia -- Georgia Power, Alabama Power, be very active in those kind of projects. Obviously, in Texas, we're seeing a lot of growth there, but we're also seeing this combination of some of the dollars you see tied up with these data centers is because they include power. And so it's hard when you look at the data center numbers when you talk about dollars and then you start kind of stripping that out? Or what is that is the real data center itself and what part of that is power. But I would tell you, a lot of these are now to get them approved. They're coming with full power supply to the data center. So we're seeing a mix of that. I would say, overall, when we look at our quoting activity in the category of power generation, we're just seeing a lot more quoting activity. Now I'm not going to tell you it's going to go as fast as data centers because you and I both know data approval process is going to look a little different. And so we just see it as another form of healthy forward-looking demand of our products. And again, I mean, we like slow and steady, and we like our ability to continue to compound our cash gross profit in over the future. So I just see this as another area of future aggregate demand that's going to be needed and it's very aggregate-intensive.

We'll go next now to Angel Castillo at Morgan Stanley.