Vulcan Materials Company (VMC) — Q1 2015 Earnings Call Transcript

Thank you, Tabatha, and good morning, everyone, and thank you for your interest in Vulcan Materials Company. Joining me today for this call are Tom Hill, President and Chief Executive Officer; and John McPherson, Executive Vice President, Chief Financial and Strategy Officer. Please note, a slide presentation will accompany the prepared remarks by management and is available via the webcast. A copy of this presentation as well as a replay of the conference call will be available following the conclusion of this call at the company's website. Before we begin the actual results and the outlook, I refer you to Slide 2 of our presentation regarding forward-looking statements, which are subject to risks and uncertainties. Descriptions of these are detailed in the company's SEC reports, including our most recent report on Form 10-K. In addition, during this call, management will refer to certain non-GAAP financial measures. You can find the reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures and other related information in our earnings release and at the end of this presentation. Now I'd like to turn the call over to Vulcan's Chief Executive Officer, Tom Hill. Tom, you can proceed with the call.

Thank you, Mark. We are very pleased with our performance in the first quarter. Despite bad weather in many of our markets, we enjoyed strong earnings growth and margin expansion on higher revenues, underscoring my confidence in our full year outlook. We're excited about the continuity and accelerating demand across our markets. We're excited about increasing pricing momentum, and pricing will continue to escalate throughout the year. We're also very pleased with our operating performance in the quarter. In spite of the difficulties posed by bad weather, our local teams did a great job driving incremental revenue to the bottom line, balancing price, volume, sales and production mix, along with operating efficiencies and leverage. The first quarter is always choppy, but we still saw healthy growth and good operating execution. Adjusted EBITDA was up 97%, total gross profit increased 128%, and same-store shipments increased 9%. Cash gross profit per ton increased 17%, with strong flow-through in aggregates gross profit, 68%, on incremental freight-adjusted revenue. Same-store pricing increased 4%, with strong pricing momentum across most markets. With improving market conditions and our focus on profit improvements, both pricing and margins continue to expand. We are extremely well-positioned to achieve strong earnings growth in 2015 and beyond. Slide 3 shows the quality of our first quarter execution. It shows how we continue to convert incremental revenues into earnings growth. Total revenues, excluding freight and delivery, increased 8%, while adjusted EBITDA almost doubled to $77 million. This was due to strong earnings growth in aggregates and earnings improvement in each of our non-aggregates segments, while we held SAG cost flat. Our profitability continued to improve significantly whether measured by a margin percentage or per-unit profit. We achieved these results despite the prolonged bad weather in many key markets. Now let's look at our aggregate shipments map on Slide 4. I like the color of this slide. Momentum in shipments continue, with strong growth in key states such as California, Florida, Texas, Virginia, North Carolina and Illinois. Volume in Texas was up 22% or 15% on a same-store basis, and North Carolina was up 29% despite bad weather. Georgia volumes were down due to extremely bad weather, but Georgia construction activity continues to heat up and Georgia is on the road to a very good run. Slide 5 shows the continuing volume growth across Vulcan's footprint. This momentum is driven by strengthening private construction activity and supported by highway construction. It's occurring across all end-use segments. This is a result of the increasing number of large projects and growing highway demand as states ramp up their highway programs. Shipments grew 13% in total and 9% on a same-store basis in the first quarter, even with the impact of bad weather in the Mid-Atlantic, the Southeast and in Texas. The growth rate in aggregates volume on a trailing 12-month same-store basis has continued to accelerate, led by strong growth in Florida, Illinois, North Carolina, Texas and Virginia, while aggregate shipments in California and Georgia also had solid growth. We continue to see healthy price growth, and pricing momentum is accelerating. We had a number of markets with high single-digit or double-digit price increases. For example, Miami was up almost $1.50 per ton; Tampa, over $2.40; Charlotte, over $1.70; Charleston, almost $2 per ton; and the Houston market was up $2; and overall, Texas prices were up over 10%. We did have some headwinds on both geographic and product mix, with high volumes in lower-price states like Arizona and Illinois, and much larger shipments of base and finds on new construction and large projects, especially in Virginia and North Carolina. Now this is not a bad thing as the volume and product splits helped our overall profitability. We continue to see confidence in our customers' view of the market and their acceptance of price increases. There will be a lot more to come as we have secured April price increases in a number of key markets. For example, Texas, Georgia and Alabama all secured new increases of over $1 a ton in April. Prices will escalate throughout the year as new price increases are initiated and realized on both fixed plant work and new bid work. The pricing momentum is what you have come to expect from our industry and from Vulcan. What we are equally excited about is our ability to take top line freight-adjusted revenue growth straight to the bottom line. In our last couple of calls, we've talked about the 3 profit drivers that are expanding margins and profits. On Slide 7, you can see our gross profit per ton increased 62%. So in the quarter, price was up $0.44 per ton, but gross profit was up $0.80. Our sales and operating teams continue doing an outstanding job of turning demand growth into higher levels of profitability. They are the best in the business at managing the mix of price, operating efficiencies, volume and product. This story of unit margin expansion isn't a new one for us. There's a trend here, not just a quarter story. As you can see on Slide 8, looking at this over time, we've continued to compound unit profitability faster than pricing. During the last 12 months, our freight-adjusted average unit price has increased 3% or $0.30 per ton. Over that same time period, our gross profit per ton has increased 19% or $0.63 per ton. This is a higher unit profit than when these operations were producing twice the volume. We are still in the early stages of recovery. We are very pleased with this momentum. Demand for our products continues to accelerate, and I am extremely proud of the way our people are focused on unit margin growth. Slide 9 illustrates our incremental margin performance in our aggregate segment. Incremental gross profit margin for the quarter was 68%, excluding the impact of acquisitions completed in 2014. Aggregates gross profit grew by $31 million on incremental freight-adjusted revenues of $46 million. Including the impact of acquisitions, the incremental margin was 52% as the gross margin on those revenues was impacted by acquisition accounting and seasonality. Since quarterly figures could be distorted by weather or onetime costs, we are also presenting the same metric calculated on a trailing 12-month basis. For the trailing 12 months that ended this quarter, incremental gross profit margin was also 68%, adjusted for the same acquisition. Aggregates gross profit increased approximately $148 million on incremental revenues of $229 million. Given our strategic focus on the aggregates business, gross profit flow-through is a big advantage to Vulcan as volumes continue to recover. With Slide 10, we can step back and look at the big picture, seeing the significant progress in the aggregates segment of our business. Before the recovery began, our annualized volumes troughed at 140 million tons for the 12 months ending in the second quarter of 2013. Since that time, we've added 26 million tons on an annualized basis. Nice, but still a far cry from normal demand. However, we've been able to increase segment gross profit by $216 million, with unit margins increasing 35%. Again, our people were executing on the disciplines that grow gross profit. These results also foreshadow the earnings power of our aggregates business as we return to more normal levels of demand and as pricing fundamentals begin to improve. Slide 11 shows our asphalt and concrete results for the quarter. Both of these businesses are improving on a same-store basis and as a result of transactions that we have made to improve our portfolio. Asphalt gross profit for the quarter was approximately $9 million, a year-over-year improvement of $4 million, driven by higher margins and earnings from existing operations. On a same-store basis, asphalt volumes increased 6% from the prior year. Unit profitability increased sharply. First quarter concrete gross profit was $1 million compared to a loss of $9 million in the prior year. Excluding the company's divested Florida and California concrete businesses, unit profitability improved dramatically. Gross profit increased $6 million. Now I'll turn the call over to John for comments on capital allocation and our outlook. John?

Thanks, Tom. Capital allocation and efficiency remain key priorities for our management team as we strive for long-term value creation for our shareholders. In the first quarter, we completed an asset swap with CEMEX, exchanging our Southern California concrete operations for 13 asphalt operations, primarily in Arizona. Vulcan will continue supplying aggregates to the concrete operations we exchanged, and you'll notice a $5.9 million gain from this transaction in this quarter's financials. We believe this swap will be beneficial for both parties, as each should achieve higher returns on their new assets compared to what the previous owner received. Now, moving to our capital structure and costs, during our February 25 Investor Day, we discussed actions to refinance our near-term debt, reduce our average interest expense, and extend the duration of our debt portfolio. Slide 12 outlines these actions, which are mostly finished. On March 16, we issued $400 million of 10-year notes at a rate of 4.5%. This issuance was well-received, reflecting our improved credit profile. The proceeds, along with funds from an expanded revolving credit facility, will be used to refinance $620 million of debt maturing between now and 2018, as well as two smaller notes due in 2021 and 2022, totaling around $640 million. The left side of Slide 12 details the cash sources and uses, while the right side lists the related accounting charges—$21.7 million incurred in Q1 and a projected $46.9 million for Q2. On Slide 13, we can summarize how these transactions affect our financial strength and flexibility. We have maintained our total debt around $2 billion, a level we feel comfortable with given our expectations for 2015 EBITDA and our positive outlook. Although we've improved the structure of our debt portfolio, we currently have no maturities before 2018 and roughly $500 million due before 2020. By year-end, after refinancing our 2015 notes, we will have added some lower-cost floating rate debt, which aligns well with our business. Overall, our average interest rate will decrease by about 120 basis points to 6.5%. We expect credit metrics to align with investment-grade standards this year, and as our credit position strengthens, we anticipate more opportunities to enhance our debt structure and costs. We also foresee having the cash flow and capacity to reinvest in our business and return capital to shareholders. Now, regarding end markets and our 2015 outlook, construction activity is recovering in our served markets, though it’s still below long-term trends, as shown in our Q1 results. We continue to see slowly improving demand across our major markets. The Federal Highway Program is drawing attention, and we expect an extension of current legislation while Congress seeks funding for a new long-term bill. Although some states have paused work due to federal uncertainty, we don’t foresee major disruptions to our 2015 volume estimates. With our current project backlogs and new project launches in our markets, we remain optimistic about growing our shipments to public transportation and infrastructure sectors. The decline in our nation's transportation infrastructure and its tangible costs to American families is becoming increasingly apparent. We believe Congress understands this issue and hope they will start addressing it. However, there's some positive news at the state and local levels. Slide 14 highlights encouraging trends in infrastructure funding from states. Generally, state and local tax revenues are increasing alongside the economic recovery. As revenues near historic highs, they bolster public infrastructure funding. Many states, including those in our service area, are utilizing alternative funding initiatives for transportation and infrastructure projects. This is largely in response to voter demands, the needs of growing populations, and the necessity to compete with other states. One key example is Georgia, which has recently rolled out new funding for its Department of Transportation, allocating around $900 million annually, pegged to CPI and fuel economy standards, effectively doubling its program. The legislation curtails transferring transportation funds to other uses, benefiting our Georgia operations. Similarly, in Texas, the legislature has passed bills to enhance transportation infrastructure investments, which could raise annual funding by an estimated $2.5 billion to $3 billion. This follows Proposition 1, ratified by voters in November, directing about $1.8 billion for road repairs and maintenance. These are just two instances reflecting how more states are recognizing the insufficiency of federal programs and are channeling resources toward essential transportation needs. Now, let me briefly outline our full-year outlook, summarized on Slide 15. We have not altered our full-year EBITDA guidance from the range presented in February. First-quarter results are not always indicative of the entire year, but positive indicators from the quarter support our expectations. If diesel prices remain stable, we anticipate finishing 2015 towards the upper end of our EBITDA guidance range. Regarding aggregate shipments, our 9% same-store growth in Q1 aligns with our forecast of approximately 8% for the full year, despite weather delays. Demand recovery appears to be ongoing across all segments and regions we serve. We’re enthusiastic about the demand recovery and its implications for our shipments. On asphalt pricing, the current trend aligns with or exceeds our 6% full-year outlook. The price increases on April 1 have held well, and we expect further price improvements throughout the year. We maintain confidence in our 6% target with several markets likely to exceed that growth rate. Pricing fundamentals remain solid in many areas. Regarding overall gross profit for our aggregates segment, our teams are effectively converting over 60% of increased revenues into gross profit, with margins improving faster than pricing alone would suggest. Diesel prices have helped mitigate some costs while meeting rising demand amid challenging operating conditions. We are confident in our gross profit outlook for this segment. Our asphalt and concrete segments are also exhibiting increased profitability, both on a same-store basis and due to recent changes. These segments are on track to meet or surpass their full-year gross profit goals, although margin forecasting can be tricky. Lastly, our selling, administrative, and general expenses have remained stable compared to last year. We are focused on optimizing these expenses relative to revenues as we continue to recover. Overall, our business is experiencing strong momentum in volume, pricing, margins, and efficiency. Our teams are doing well in serving our customers and concentrating on elements within their control. Historically, we may encounter some bumps along the way to normal construction activity, but the fundamental landscape is encouraging. I will now hand the call back to Tom for his closing remarks.

Thanks, John. We're very pleased with our first quarter performance. We're pleased with the accelerating volume growth, pricing momentum and strong margin expansion across the business. We're seeing growing construction activity in our markets. We have a lot of large projects already booked and more to come. Residential and non-residential construction in our markets is growing. And key states are also rising to the challenge of increasing funding for their highway programs. Meanwhile, we remain completely focused on the execution of the business. Price improvement, lowering costs, margin growth and capital discipline. Our teams all across Vulcan's footprint are doing that. We are very excited about the opportunities we see ahead of us and look forward to sharing the good news with you in the future. And now, if the operator will give the required instructions, we'll be happy to respond to your questions.

I was hoping to discuss pricing. There are two parts to my question. First, we know that reported pricing was up about 4%. Can you elaborate on the challenges and how we can adjust for an underlying pricing figure? Secondly, I'd like to hear your broader thoughts since you mentioned that you're performing in line with or above expectations, which is positive. Could you provide insight into what you're observing overall and compare your results to other data points from the quarter, particularly in relation to Vulcan and its peers?

First of all, as John mentioned, we are on track, if not ahead, of our 6% pricing guidance. The first quarters tend to be unpredictable, and we saw significant price increases that held in January. We also experienced strong price increases that remained in April. When analyzing the first quarter, it's not a mix or headwinds issue. It's not only about the base and finds; extremely wet and cold weather, especially on the East Coast, affects our shipments to fixed plants, such as asphalt and concrete customers, which are among our highest pricing segments. This also contributes to the mix impact. However, when considering the underlying momentum in pricing, things are progressing very well, and we are confident in our outlook for the end of the year.

And can you talk about kind of the range of price increases that you put in April 1?

Yes, in most places it was around $1. Texas was higher, ranging from $1 to $2. That was the range.

Ted, I want to add a couple more points to build on Tom's comments. The key takeaway is that we are very confident in the underlying momentum, which aligns well with our annual guidance rather than just the first quarter figures. Additionally, since you asked, Ted, comparing with Martin's number from last week, that's certainly a strong headline figure and indicates improving fundamentals in many of our markets. However, it's challenging for us to make accurate comparisons given the effects of freight, geographic and product mix changes, and the impact of the TXI acquisition. Nevertheless, if we step back, we believe we are experiencing many of the same trends. As Tom mentioned, our pricing in Texas rose over 10% this quarter. Overall, our pricing outlook for the year aligns closely with Martin's updated guidance, even though we measure pricing slightly differently. Our flow-throughs were consistent despite varying headline price numbers. In summary, I would expect to see similar trends. We want to reaffirm our confidence in our full-year price outlook, the ongoing trends, and our ability to convert additional shipments and pricing into gross profit, along with our confidence in the long-term fundamentals that extend beyond just one quarter. We're still observing positive volume trends, pricing, and margin expansion.

Could you clarify if you mentioned how much you believe you lost from the mix due to the price increase? Or is it more of a general idea?

I think it's just really hard to do in the first quarter because of what I talk about, the mix effect of fixed plant versus just bid work, and that's really hard to pull out as opposed just base and finds. It's a big piece of where the clean stone goes and how much of it is in there.

To Tom's point, making accurate comparisons from the first quarter year-over-year can be quite challenging. The momentum is evidently stronger than the 4%, as reflected in our full year outlook. Additionally, it's worth mentioning that despite the impressive reported numbers regarding shipment growth, we estimate that approximately 400,000 tons in Texas, Georgia, and Virginia were deferred from Q1 and delayed by a quarter due to weather conditions. Much of this, as Tom noted in his pricing comments, was associated with fixed plant business. This isn't unusual for a first quarter, but given the wet weather in those markets and its impact on available construction days, it had a considerable effect on both volumes and, consequently, on pricing.

Got it. That's helpful. And sticking with pricing for one more, any plans for a second round this year, either in the summer or the fall, of increases?

Yes, you'll see a number of price increases go into effect midyear. You'll see some in October. And then as we bid work throughout the year, we will raise prices on the bid work. And as all work works off, it will impact pricing.

Great. I want to ask a general question. If the key theme from the last earnings report was momentum, this time it seems to be about acceleration. This applies to both the accelerating price increases and volume growth. When you consider the momentum in the business and the acceleration of growth, what do you think is driving this? Is it primarily due to large projects, or is it a mix of various factors? Are there specific markets or job types that are particularly contributing to this growth?

It encompasses a bit of everything across the board. All market segments are experiencing growth. Currently, the private sector is progressing more quickly than the public sector, although we have secured some significant highway projects within our region, as well as major contracts along the Gulf Coast. It really is a comprehensive expansion. While large projects are an important part of this growth, they represent only a fraction of the overall picture.

Good. And, John, a final question just to nit. Do you have an outlook for interest expense for the year given some of the bond work that you've done?

Yes, I think you can subtract the charges from interest expense labeled in the release. It's $221 million roughly, $218 million. And then you've got about a $69 million of charges that you could subtract out from that, that would give you this year's interest expense. But just to keep it simple, think about a 6.5% weighted average interest rate on a $2 billion debt portfolio. And so if you think about it for next year, you're looking at about $130 million, if you just take out the, I call it the messiness of this year. And obviously, we'll give guidance around that again as we get to next year. But think about $130 million as a run rate on the $2 billion debt portfolio as it currently stands.

On your 8% organic guidance, I think you may have touched on this a little bit earlier, give as much detail of what you're expecting from the various end-user markets to make up that 8%.

Yes, if you evaluate the highway sector, we would anticipate low single-digit growth. Infrastructure is also expected to see low single-digit growth. Residential markets are projected to have mid- to high double-digit growth, while non-residential is likely to experience mid-double-digit growth.

And within non-res, a distinction there between manufacturing versus office and things like that, any view there?

I believe there are two key factors at play. First, there's the traditional non-residential sector, which includes office buildings and malls. Additionally, we've observed significant growth in large-scale projects. As I mentioned earlier, the energy projects along the coast are expected to require nearly 3 million tons from us this year. These projects are particularly important to us due to our unique position in Mexico and our capability to deliver those materials by ship in the necessary quantities and timelines. This isn't just a short-term opportunity; we anticipate maintaining or exceeding this volume in 2016. Moreover, these projects are quite lucrative for us, largely due to our advantages in blue water transportation.

The first, with oil prices remaining lower than last year, what are you seeing in the asphalt business? Are prices declining there? Or are you seeing any volume pickup from the lower prices? Could you help us understand a little bit of those dynamics?

We haven't observed any decline in asphalt prices at this time. While oil is a significant factor, there are other influences on asphalt pricing. Lower liquid prices generally help, but this varies across different regions. We're producing and shipping asphalt from Texas all the way to Northern California, and while liquid prices may have decreased overall, some markets aren't seeing the same level of decline. However, in the first quarter, our profitability increased as we achieved good efficiencies and maintained favorable pricing in asphalt. We did face some challenges due to cold weather, but overall, we are satisfied with our performance in the asphalt product line.

Could you provide an update on the M&A pipeline? Is there any change in the regions you're focusing on, considering the short-term dynamics, or is it essentially the same as before?

I don't think there's any big shift for the reasons we're interested in. There are some attractive things out there that we work on. We are also very pleased with the integration we've seen of what we picked up in 2014. Those performed well and on plan, even in spite of some seasonality.

You mentioned that weather impacted some of your markets in the first quarter. However, that volume is expected to be pushed later in the year. How quickly can you regain that volume? Additionally, can you discuss the demand trends you are noticing through April and May?

Let me discuss the first quarter. We observed that when it was dry, our shipments performed exceptionally well across our markets. There is significant pent-up demand, and as the weather improves, we anticipate it will return to us. In the first quarter, it wasn’t just cold and wet; it was extended wet weather. During the dry spells, we saw strong participation, and we expect that demand to rebound sharply.

Trey, I guess the best answer, because let's not comment on specific quarters in terms of second or third, but we still have plenty of time in the year to recover that demand. And the way we think about it, our customers still have plenty of time in the year to get that work done.

Okay. And then just geographically, are you guys seeing any shifts or notable trends geographically since the weather has started to cooperate?

Texas is performing very well, and we're also noticing that the Southeast and Mid-Atlantic regions are gaining significant momentum. This year will be much stronger in those markets compared to 2014 as demand continues to grow.

And as we think about mix in light of that comment, is there any mix that we should be aware of, mix change that we should be aware of given your geographic kind of outlook?

As recovery progresses, we expect to see a greater variety of base and finds, which will positively impact our profitability. Despite changes in mix, we remain confident in our pricing guidance. Additionally, the resurgence of new construction alongside the demand for base and finds is beneficial for us.

All right. My last question is for John. You mentioned earlier that your company measures pricing differently than Martin Marietta, particularly regarding how you consider freight. Could you clarify what you meant by that comment so everyone is on the same page?

Sure. We report pricing adjusted for freight. This means we exclude freight charges, which are essentially pass-through costs, and instead report net pricing after excluding these freight expenses. We believe this provides a more precise view of the underlying economics, and it's the figure we prioritize internally in managing our business. Therefore, changes in rail rates or a different mix of business utilizing rail or long-haul transportation will not impact the net pricing figure we disclose.

I wanted to ask you specifically about any weakness that you might be seeing on the energy markets or how you're thinking about that as the year progresses.

I'm sorry, I couldn't hear your question.

Any weakness in the energy markets or do we see that...

No.

Yes.

To answer your question, we don't ship much to the energy market, particularly in the oil sector where drilling is influenced by barrel prices. Our shipments to that market are minimal. However, regarding energy jobs along the Gulf Coast, particularly in LNG projects and refinery expansions, we are seeing strong performance. As I mentioned earlier, we expect to ship around 3 million tons for those jobs this year and at least the same amount next year. Additionally, we continue to see many of those projects being bid and moving through construction planning.

Okay. So seeing that consistent, it sounds like?

Yes.

Okay. Cool. And yes, I just wanted to ask you a little bit more about priorities for uses of cash in light of the options that you might have with your M&A choices out there looking similarly strong, just your priorities, if you could remind us of those.

Just to give the quick walk through, and I'll start. Tom can comment. First, we're obviously going to continue to make the required capital reinvestments back in our franchise. And those protect the long-term health and value of our asset base, and they actually drive many of the productivity benefits you see in our quarterly results quarter-after-quarter. So that, for this year, that $250 million of CapEx, that's obviously a priority. We'll continue to do that in a very, very efficient way. But we're not going to shortchange our core asset base. It's too valuable. Secondly, as we've noted, we're going to maintain our financial strength throughout the cycle. Given the actions we've taken, that shouldn't be a significant use of cash in the foreseeable future. But I would call it out as something we're committed to maintain. Next, on dividends, this is obviously a board-level decision. But it's our expectation that our dividends would continue to grow with earnings, and we think earnings could grow quite quickly during the recovery part of the cycle. But again, that's a board decision that they will take in due course. Then we turn to largely bolt-on M&A, really of the kind you've seen us do in the last 2, 3 years. We think that's a very good use of capital, tends to have very good returns, both on a standalone basis and in terms of its impact on the rest of our business. And so as we find the right assets at the right price, we'll continue to pursue those opportunities. We work through all that and we expect that over time, we will still have some excess cash after all of those other uses. And as stated, we will look to return some portion of that cash in the recovery cycle, if not most of that cash, to investors and through a mix of dividend and share repurchase, but I'd say, primarily, opportunistic share repurchase will be our current thinking.

First, just to touch back on base and finds that you discussed earlier in the call, could you clarify where you are in terms of working down the inventory of base and finds inventory? And what regions require greater work in terms of working down these inventories versus others?

Good question. First of all, I'd like to highlight that our operations and sales teams did an excellent job managing inventory during the downturn, so we're starting from a solid position. While I wouldn't describe it as a problem, having significant sales of base and find products definitely helps streamline operations. It balances things out, reduces costs, and enhances efficiency. Therefore, while we are not facing issues with inventory, it will certainly be beneficial as we progress through the cycle to see those base-and-find projects come through and positively impact our bottom line.

Are there any regional differences with the base and finds inventory versus any other region?

No, I don't think there are any significant regional differences that come to mind. As I mentioned, we faced a lot of challenges during the downturn to ensure we avoided any issues, and our operational teams did an outstanding job of making difficult decisions when times were tough to prevent any problems from arising.

And, Kathryn, well, part of Tom was referring to, and I think you understand this, is that we resisted the temptation. And this is the management team before us deserves credit for this, but we resisted the temptation to build inventory, if you will, to produce the profits as opposed to customer demand during the downturn. And so we've come into this in pretty good shape from an inventory point of view. And I think you see that in our flow-throughs and our incrementals. You see that in our results. So this is more about maintaining balance as we serve rising demand and as production ramps up than it is having any kind of problem.

Okay. Great. This is more a question related to acquisitions. Could you clarify the acquisition contribution in the quarter revenue, volumes, operating earnings? And maybe clarify a little bit more the delta between acquisition and incremental margins versus same-store sale metrics?

First of all, I think the EBITDA from the acquisitions, excluding the divestitures of the concrete, was around $5 million. We are pleased with this result considering the seasonality we experienced, and we still faced some purchase accounting challenges in these numbers, which we hope we have mostly resolved. Our outlook for those operations for the full year remains on track, and we are satisfied with the integration.

Great. You mentioned the impact of weather in Georgia. Can you specify which areas in Georgia experienced a greater impact? Additionally, when discussing weather, which was mentioned multiple times in the release, was the effect more significant later in the quarter? Was it mainly due to precipitation? Please address these points starting with Georgia and then more generally regarding the weather impact during the quarter.

I guess Georgia was all over, but obviously, the biggest market is Atlanta. And it wasn't a matter of how many inches of rain or snow we had, it was days lost due to wet weather. It was how prolonged it was versus the prior year. So it just shut us down longer than before. But I think we had, in Georgia, I think we had, for example, we had 10 more wet-weather days than we did in the prior year.

And, Kathryn, as Tom pointed out, this specifically relates to our shipments to key asphalt customers in the quarter, which were over 400,000 tons below plan, if I remember correctly. This is based on jobs that were booked, so we can confidently say that our customers were unable to complete the work and we deferred our shipments to them. This primarily involves asphalt business, particularly around Atlanta, along with some fixed plan concrete business.

A follow-up question on the acquired assets. Just as you think out over the next 3 quarters of the year, incremental margins in the first quarter were soft for the reasons that you cited, purchase price accounting, seasonality, but is there anything within those assets that are fundamentally different from your, I guess, legacy assets that would depress or impact incremental margins moving forward?

No, I don't see anything different in those assets. They always take a little time to integrate and, again, we had some seasonality, but I see no reason that they won't perform fairly quickly, or at least over time, as our current assets do.

Okay. And then just looking at your volumes, very strong in the quarter. I get why you're hesitant at this point, early stage of the year, to raise your volume guidance. But can you just talk maybe about some of the, if any, risks that you would see to end-market demand, specifically which of the major end markets, if any, are you, I guess, less bullish on? Because the tone of the call, with the theme of "acceleration," things appear to be perking up really nicely across your footprint. Is there any one area or, if any, that is cause for concern at all?

I can't predict worldwide events that may have a significant impact, but assuming everything remains stable, I don't see any major risks. We need to secure a federal highway extension and a federal highway bill. I believe there is a very low chance that federal funding for highways will run out or that Congress will neglect it. However, we still need to secure a long-term bill. As John mentioned, several states are increasing their funding, and we are encouraged by this momentum. Nevertheless, states become anxious when there's no long-term bill in place, and they may hold off on large multiyear projects if they are uncertain about the federal government's ability to cover highway expenses.

The only other one that I think we've talked about internally that jumps out, I'm just kind of thinking this was a good question, is Texas longer-term, with the decline in oil prices and we, of course, monitor it like anybody else. We haven't seen any impact yet, I think it's fair to say, particularly in our business, and you can see that in our Texas shipments this quarter despite a wet quarter in Texas. But that's one that obviously we, like other people, will continue to monitor just to see if that creates any dislocations.

I'm wondering if we can just talk about what proportion of your markets do you expect to enter your price increase on April 1, and then maybe share a similar data point for July 1 or how were you thinking about mid-year.

Price increases occur at various times across different markets, and even within submarkets. For example, the timing of price adjustments for concrete rock compared to asphalt rock can differ based on market conditions. In April, we implemented price increases in several locations, including large increases in Texas that took effect on April 1, ranging from $1 to $2 depending on the area. Additionally, Florida saw price adjustments in April, with more anticipated in different segments around mid-year. As we progress through the year, we'll continue to incorporate price increases into our bids for new projects, which, combined with addressing old backlog work, will help us maintain momentum for further price increases.

Okay. And then just on the asphalt and concrete businesses, you folks have been pretty vocal with earning a fair return on your aggregates reserve and needing to get there. Can you just talk about how to get there in asphalt against concrete? Are you looking for outsized pricing to get there this year? Or is that a 2016 event? Can you paint the path for us for those assets?

Yes, let's start with concrete. For the quarter, our pricing for concrete on a same-store basis increased by nearly $7, indicating strong momentum in this area. As I mentioned earlier, we are experiencing positive momentum not just in the aggregates business but across the entire construction materials segment. This momentum is evident in concrete, cement, and asphalt, which facilitates smoother pricing flow through with aggregates. We also observed price increases across our concrete product line on a same-store basis. Regarding asphalt, you might not notice significant price increases due to the impact of liquid, but overall profitability in asphalt rose sharply, likely by over 30% on a unit basis. Therefore, we are witnessing a positive trend in profitability and downstream products, positioning us well for ongoing price increases in aggregates.

Jerry, if you take a moment to consider our portfolio in the long term, building on Tom's comments, our asphalt business has generated good returns on capital throughout the cycle. While material margins can fluctuate, we achieve solid returns over time. Additionally, the concrete businesses we still own are performing well and also provide us with good returns.

I wanted to ask another question about your incremental gross margins on the aggregates line. The factors that impacted you in Q1, most of those were weather-related. I guess some were not. Have any of those negative factors carried into Q2?

I’m not sure I understood your question. Could you please repeat it?

Yes, I mean, the incremental gross margins in aggregates were lower than you saw last year. And my question is, the factors that caused that to happen, did any of those carry into Q2?

I think if you look at it on a same-store basis, the incremental gross margins continue to improve. So I think the key for you is probably look at it on a same-store basis to get an accurate read on the numbers. But if anything, we would expect our unit margins at our aggregates segment to continue to expand.

You should keep in mind that we have a first quarter that's typically unpredictable. However, when you examine it over the last 12 months, there is a positive trend.

Okay. The price increases in Texas, you noted were a little bit higher than other places, but you also said you're watching Texas for potential slowdowns. So just curious why you're seeing stronger pricing trends there.

The demand in the market is more mature than other markets. It's just further in the cycle. It's actually foreshadowing what will happen across the rest of our markets as demand continues to recover. You've got to remember Texas never had the big fall that some of our other markets had, and then they were early in the recovery. They were bolstered with all the big energy plays. So the demand in Texas and where we are in the cycle is more mature than we are in other markets. So pricing should be ahead there.

Okay. And then lastly, we're 1/3 of the way into the year, and I'm curious on the private construction side, are you seeing demand that's in line with your initial expectations for the year? Or is it slightly better?

No, we're seeing it in line. We're actually seeing very good momentum in the private construction segment of the market.

This is Collin filling in for Bob. I have a quick question about the public sector. In your presentation, you mentioned that states have been increasing their funding levels, but there have been some delays in projects. Can you talk about which states you’ve observed this in and where you expect to see this continue due to uncertainty?

The projects where we have observed delays due to the absence of a long-term bill are primarily in Arkansas and Tennessee, involving some significant undertakings. These projects are still on the table; however, the decision has been made to hold off on committing to them and putting them out for bid until there is more reliable long-term federal funding.

Well, again, we were pleased with our first quarter, and we look forward to the coming quarters and sharing our good news with you. Thank you so much for your interest in Vulcan Materials, and we look forward to talking to you over the coming months. Thank you.