BIRMINGHAM, Ala., Feb. 8 /PRNewswire-FirstCall/ -- Vulcan Materials Company (NYSE: VMC), the nation's largest producer of construction aggregates, announced results today for the fourth quarter and full year ended December 31, 2009.
Fourth Quarter Summary and Comparisons with the Prior Year
-- Net earnings from continuing operations were a loss of $13 million, or $0.10 per diluted share.
-- Cash earnings from continuing operations were $67 million.
-- Aggregates shipments declined 23 percent, reducing earnings $0.57 per diluted share.
-- Aggregates pricing increased 5 percent.
-- Aggregates cash fixed costs decreased 8 percent.
-- Selling, administrative and general expenses decreased 7 percent.
-- Total contract awards for highways increased 13 percent in Vulcan-served states.
Commenting for the Company, Don James, Vulcan's Chairman and Chief Executive Officer, stated, "Our employees continue to run the business in a cost-efficient manner, maximizing our cash generation during the economic downturn. Their efforts in the fourth quarter contributed to further reductions in cash fixed costs in our operations as well as reductions in overhead expenses. Continued weakness in private construction activity, uncertainty surrounding the timing and amount of either a formal extension or reauthorization of the multi-year federal highway program, and extremely wet weather suppressed momentum gained from stimulus-related construction. Nonetheless, we finished the year with strong cash generation. For the full year 2009, free cash flow was $343 million, an increase of $261 million from the prior year, and cash earnings per ton of aggregates remained in-line with the prior year.
"We continue to believe that 2010 will be the biggest year for stimulus-related highway construction. Economic stimulus funds of $27.5 billion designated for highway projects under the American Recovery and Reinvestment Act of 2009 buoyed contract awards for highways in the second half of 2009. Despite the failure of Congress to pass a fully-funded extension of SAFETEA-LU, the previous highway authorization that expired on September 30, 2009, contract awards for highways in the fourth quarter increased 9 percent from the prior year. Vulcan-served states, which were apportioned 55 percent more funds than other states, generally have lagged the rest of the country in awarding contracts and starting stimulus-related construction. In the fourth quarter, however, contract awards for highway projects in our states increased 13 percent from the prior year versus a 2 percent increase in other states. We are encouraged by the increased award activity and are optimistic that stimulus-related highway projects in Vulcan-served states, after a slow start, are now moving forward and will benefit demand for our products in 2010."
Fourth Quarter Operating Results Commentary
Fourth quarter earnings for aggregates were lower versus the prior year as the impact of reduced shipments more than offset the earnings benefit from improved prices and cost control measures. Aggregates shipments declined 23 percent from the prior year due to weak demand and extremely wet weather in most key markets. Lower aggregates volumes reduced fourth quarter EBITDA by approximately $69 million versus the prior year. Most markets realized price improvement from the prior year. The overall price increase benefited somewhat from a product mix shift to more aggregates for highway construction.
Key Vulcan-served markets in the Mid-Atlantic, Southeast, Midwest, and Southwest regions were hampered by an unusually large amount of rainfall throughout the quarter. Additionally, aggregates volumes were negatively affected by the varied timing of spending of stimulus-related funding, the uncertainty regarding timing and duration of an extension of the federal highway bill as well as the lack of visibility regarding timing for ultimate passage of a new multi-year highway bill. Construction activity on stimulus-related highway projects has varied widely in Vulcan-served states and in certain key states lagged the rest of the country. Florida, Virginia, California, and Georgia spent less than 10 percent of their highway-related stimulus funds by the end of 2009. Conversely, Illinois, Tennessee, and North Carolina spent 41, 36 and 23 percent, respectively, of stimulus funds by year end.
Segment earnings in asphalt and concrete were a slight loss due to the earnings effects of lower volumes and lower materials margins. Asphalt materials margins in the fourth quarter were lower than the prior year as lower selling prices for asphalt mix more than offset lower costs, including a 29 percent decline in the costs for liquid asphalt.
Selling, administrative and general (SAG) expenses in the fourth quarter declined $6 million from the prior year. This year-over-year decline in overhead costs is due mostly to reductions in employee-related expenses, which more than offset a year-over-year increase in project costs of $2.6 million related to the replacement of legacy IT systems. Additionally, the current year's fourth quarter included expenses of $8.5 million for the fair market value of donated real estate as compared to $5.1 million in the prior year. Excluding the effects of donated real estate from both years, SAG expenses declined 11 percent versus the prior year's fourth quarter.
Full Year Summary and Comparisons with the Prior Year
-- Net earnings were $30 million, including $19 million from continuing operations.
-- Cash earnings were $369 million from continuing operations and $12 million from discontinued operations.
-- Aggregates shipments declined 26 percent, reducing pretax earnings $334 million.
-- Aggregates pricing increased 3 percent.
-- Cash provided by operating activities was $453 million compared with $435 million in the prior year.
-- Full year capital spending was $110 million compared with $353 million in the prior year.
-- Free cash flow was $343 million compared with $82 million in the prior year.
-- Total debt was reduced by $810 million in 2009.
Commenting on the full year, Mr. James stated, "Throughout the period of protracted decline in demand for construction materials, Vulcan employees have managed costs aggressively. In 2009, their efforts further rationalized production and reduced operating hours, thereby offsetting some of the cost impact related to lower volumes. Their efforts also contributed to an increase in free cash flow, demonstrating the cash generation ability of our business even in the midst of an economic recession."
All results are unaudited.
Outlook Highlights and Commentary
Commenting on the Company's outlook, Mr. James stated, "Overall, the construction environment remains challenging, reflecting continued weak private nonresidential construction activity and uncertainty regarding the timing and amount of a new multi-year federal highway program.
"Since May of last year, highway construction awards have been buoyed by stimulus-related funding. Through December 2009, the Federal Highway Administration reported approximately $15 billion of stimulus-related highway projects under construction with $5.6 billion of these stimulus funds having been paid to contractors for work performed. During this same period, Vulcan-served states lagged the rest of the country in awarding and starting stimulus-related highway construction projects. These differences in awarding projects and spending patterns are due in part to the types of projects planned and to the proportion sub-allocated to Metropolitan Planning Organizations less accustomed to implementing a large number of projects. The above-average increase in our states in fourth quarter contract awards for highways provides some encouragement that construction activity in our states should improve in 2010.
"Overall, our outlook for aggregates demand in 2010 reflects an increase in highway and other infrastructure-related construction activity due primarily to stimulus-related funding. While we have assumed that regular federal funding for highways will remain at an annualized level consistent with fiscal year 2009 under SAFETEA-LU, Congress will need to act quickly to restore fiscal year 2010 funding levels and contract authority prior to the start of the construction season. Additionally, residential construction activity should increase year-over-year in 2010, albeit from low levels. Further weakness is expected in private nonresidential construction. As a result, aggregates volumes are expected to be flat to up 5 percent from 2009 levels. For the full year 2010, we expect aggregates pricing to improve 2 to 3 percent.
"In our asphalt business, we expect sales volumes to increase approximately 5 percent from 2009 levels. Pricing for asphalt mix is expected to increase from 2009 levels but not enough to offset projected higher prices for liquid asphalt and aggregates. As a result, we expect lower material margins in asphalt when compared with the prior year. In concrete, we expect sales volumes to remain flat with the prior year and pricing to decline modestly, reflecting continued weakness in private nonresidential construction.
"Debt reduction and achieving target debt ratios remain a priority use of cash flows. For the full year, we expect capital spending of approximately $125 million, up from $110 million spent in 2009 and down sharply from the $353 million spent in 2008.
"Our available production capacity and ongoing efforts to improve cash margins position Vulcan to participate efficiently and effectively in the $50 to $60 billion of stimulus-related construction, including significant remaining portions of the $27 billion for highways and bridges. We expect 2010 to be the largest year of stimulus-related highway demand for our products followed by another solid year in 2011. By that time, we expect demand from private construction activity to be improving, accelerating the earnings leverage from our improved cost structure and disciplined approach to pricing."
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