The speaker welcomes everyone to the Vulcan Materials Company Third Quarter 2023 Earnings Call and introduces the host, Mark Warren. The call will include forward-looking statements and non-GAAP financial measures. The speaker, Tom Hill, discusses the company's recent accomplishment of surpassing their goal of $9 per ton cash gross profit on a trailing 12-month basis, despite challenges in the past four years. This demonstrates the durability of their aggregates-led business and the speaker is proud of the team's high level of execution.

Vulcan Materials Company is focused on increasing their cash gross profit per ton in order to generate more free cash flow and create value for shareholders. In the most recent quarter, they saw a 19% improvement in adjusted EBITDA and gross margin improvements in their aggregates, asphalt, and concrete product lines. Despite lower volumes in some markets, they have seen growth in private non-residential construction activity, particularly in the Southeast and states with significant IIJA investments. Pricing has also improved, with average selling prices increasing 15% and gross margin improving by 660 basis points in the asphalt segment.

The company has seen improvements in average selling prices and cash unit profitability due to lower liquid asphalt costs and effective cost control. Despite a slowdown in residential construction, the company remains optimistic about the housing market and is seeing growth in single-family permits and starts. Non-residential construction trends vary, with warehouse activity softening but manufacturing activity remaining strong. The company has secured large projects in its advantaged footprint and expects continued growth in public infrastructure spending.

Mary Andrews, CFO of the company, provided additional commentary on the company's third quarter performance and upgraded 2023 outlook. She highlighted the company's strong operational performance, sound capital allocation, and strong balance sheet, which position them well for continued success. The company is currently finalizing an agreement to dispose of their Texas concrete assets, and has invested $411 million in maintenance and growth capital. They expect to spend between $600 million and $650 million on maintenance and growth capital and $200 million on strategic reserve purchases for the full year. SAG expenses have increased by 3% but have improved as a percentage of revenue.

The company's investments in talent and technology have resulted in strong operational and financial results. They expect to achieve a 20% improvement in adjusted EBITDA for the full year 2023 and plan to continue this momentum into 2024. The company is confident in the positive pricing environment for aggregates and expects public demand to grow, but there is uncertainty surrounding the impact of the microeconomic environment on private demand.

The paragraph discusses the potential impact of warehouse activity on manufacturing and non-residential demand, and the company's confidence in their ability to maintain profitability in any macro environment. The speaker also mentions the success of their teams in the past year and their focus on safety, operating disciplines, and shareholder value. During a question and answer session, the speaker is asked about the possibility of positive volume next year, but states that it is too early to make a specific prediction.

Tyler Brown asks about the impact of volumes and unit revenues on unit margins, noting that costs remain high and volumes are uncertain. Despite these challenges, the company has been able to expand unit margins.

Tom Hill, CEO of a company, discusses his confidence in expanding margins next year despite market conditions. He mentions strong pricing momentum and healthy demand, which will offset inflation and lead to high single-digit or low double-digit pricing in 2024. Mary Andrews, CFO, adds that cost increases may be higher than historical averages, but the company can still achieve attractive gross margin and unit profitability improvement due to strong pricing momentum.

During a conference call, Tyler Brown asks Tom Hill to expand on his previous comment about seeing a path to low double-digit pricing next year. Tom explains that the conversations with customers about January price increases have gone well and they expect to have mid-year price increase discussions as well. They will have a clearer view on pricing in February. Mary Andrews adds that cost has been stubborn but is starting to fall off at a slower rate than expected six months ago. Anthony Pettinari from Citigroup asks a question but it is not mentioned in the paragraph.

Tom Hill, on the topic of private non-residential projects, discusses the impact of large manufacturing projects in the Southeast on offsetting weakness in other categories. He notes that these projects are coming in on time or even faster than expected, with 11 projects already booked and another 6-8 expected to be bid on in the next year. These projects, which make up about 12 million tons, are expected to have a significant impact on the company's performance in 2024. Hill also mentions that the company's geography in the Southeast has been beneficial in securing these projects. In response to a question about state budgets, Hill states that they have not seen any significant impact on their business.

Tom Hill discusses the impact of the Infrastructure Investment and Jobs Act on the public markets and how it will gradually accelerate growth over the next few years. He mentions the increase in state DOT capital budgets for 2024 and how it sets the company up for success in the future. There is also potential for growth through M&A opportunities and a potential economic slowdown in 2024.

Tom Hill, CEO of Vulcan, discusses the company's growth opportunities and initiatives. He mentions that aggregates will always be the top priority for growth, with a focus on strategic bolt-on acquisitions and greenfield starts in adjacent markets. He also highlights the importance of improving cash gross profit per ton in aggregates. Hill and Mary Andrews, CFO of Vulcan, discuss the company's strong performance in the past 10 years, with a 10% compounded CAGR in profitability, and mention the potential for further growth through logistics services and other initiatives.

The speaker discusses the success of their company's customer service and its impact on large projects. They mention their continued efforts to improve and expand this service. The speaker also provides an update on their downstream businesses, specifically noting the strong performance of their asphalt business due to favorable market conditions and pricing.

The company is still working on its plans for 2024 and expects some challenges with liquid pricing. Ready-mix business saw improved margins due to price increases, but volumes were impacted by single-family construction. The company expects to continue improving margins in both the ready-mix and asphalt businesses. There is ongoing negotiation with the Mexican government regarding a quarry, with the latest offer of $300 million being rejected by the company. The company is holding out for a higher offer, potentially closer to $1 billion.

Tom Hill, the speaker, discusses the non-residential sector of the business. He mentions that the company has a confidentiality agreement with the NAFTA tribunal and cannot reveal numbers. However, there have been some numbers quoted in the Mexican press. The company is waiting for the results of the NAFTA claim, which they expect to receive next year. They will protect their ownership of their land in Mexico. The speaker also addresses the cross currents in the non-residential business, specifically between manufacturing and warehouse projects. He notes that both are aggregate intensive and that non-residential demand has been better than expected in 2023, with warehouses and large manufacturing projects driving the growth. Looking ahead to 2024, the speaker predicts that some segments of non-residential construction demand will be up and some will be down.

The speaker discusses the positive impact of larger manufacturing projects on Vulcan's aggregates business, with a backlog of almost a dozen projects. They also mention the strong demand for warehousing and potential challenges in light of macroeconomics. The composition of shipments is not tracked, but contract awards show a significant presence of warehouses and industrial manufacturing. The speaker refrains from giving specific numbers for 2024 but suggests that there will likely be low-teen cash gross profit per ton growth.

In this paragraph, Philip Ng thanks Tom Hill for his response and Keith Hughes asks about the role of diesel in the company's guidance for the fourth quarter and potential increases in costs for the future. Tom Hill responds that diesel was a net benefit in the third quarter, but it's uncertain what it will look like in the fourth quarter and next year. He also mentions that other inputs have stayed high, but it's too early to predict potential increases for calendar year 2024. Michael Dudas then asks a question, but it's unclear what the question is.

Tom and Mary Andrews discuss the allocation of capital towards land acquisitions, which totaled $200 million in the third quarter of this year and will continue into 2023. They mention a healthy pipeline of greenfield opportunities at varying stages and are currently working on defining spending for 2024. Operating and maintenance capex levels are appropriate for current business needs, while growth capex may vary. The company is focused on strategically positioning themselves for future growth quarters and timing capital investments accordingly.

Tom Hill and Mary Andrews discuss the strategic position of Vulcan Materials in various markets and the impact of inflation on project costs. They note that while there may have been some delays in projects due to inflation concerns in the past, they are not currently seeing this trend. In fact, budgets for projects are increasing in many states, indicating a continued demand for construction materials. The only potential delays in projects are due to capacity constraints in DOTs, but overall, demand for Vulcan's products is expected to grow.

David MacGregor asks Tom Hill about the revisions to engineers' estimates for highway demand, and Tom Hill confirms that they are going up due to inflation. Michael Feniger then asks about the price versus cost spread for 2024, but Tom Hill says it is too early to determine and they will provide more information in February. He also mentions the potential for improved operating efficiencies due to automation and the Vulcan Way of Operating.

The speaker is discussing potential movement in shipments for the next year and how it may impact the company's performance. They mention the importance of speed and demand in the housing market, particularly in single-family homes and non-residential projects. They also mention the need to consider cost and inflationary pressures. They do not have a specific plan for the sequencing of these factors, but will provide guidance in February. They also mention the Vulcan Way of Operating, which is likely a company strategy or approach.

The speaker is addressing a question about investments made in the past couple of years and their potential impact in the coming year. They mention that the investments are in place and being implemented, but it is too early to quantify their impact. They expect to see improvements in operating efficiencies but cannot provide specific numbers until December. They thank the listeners for their interest and remind them to stay safe and healthy.

This summary was generated with AI and may contain some inaccuracies.