Vulcan (VMC) Up 18.1% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Vulcan Materials (VMC). Shares have added about 18.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Vulcan due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Vulcan Materials (VMC) Beats on Q1 Earnings, Revokes ’20 View

Vulcan Materials Company reported impressive results for first-quarter 2020. Both the top and bottom lines not only surpassed the Zacks Consensus Estimate but also improved year over year on the back of solid segmental performance, despite wet weather in certain key markets in Southeast and Southwest.

Inside the Headlines

Adjusted earnings of 47 cents per share surpassed the consensus mark of 41 cents by 14.6%. Also, the company’s bottom line improved 2.2% from the year-ago level.

Total revenues of $1,049.2 million topped the consensus mark of $1,008 million by 4.1% and increased 5.3% year over year.

Segments in Detail

Aggregates

Revenues from the segment increased 4% year over year to $868.2 million owing to higher shipments in certain key markets and pricing.

Aggregate shipments (volumes) were down 1% year over year. The decline in shipments in the quarter and wet weather in Southeast and Southwest regions were partially offset by growth in California, Florida, Illinois, and Virginia markets.

During the quarter, freight-adjusted average sales price increased 4.5% (4.8% on a mix-adjusted basis) from the prior-year quarter. Freight-adjusted revenues also rose 3.1% from the prior-year quarter to $648 million.

Gross profit of $194 million was up 5% year over year, backed by improvement in shipments in certain key markets and widespread growth in pricing. Gross margin — as a percentage of segment sales — improved 20 basis points (bps) to 22.4%. Higher repairs, maintenance and stripping costs, as well as wet weather in certain markets served were partially offset by modestly low unit cost of diesel fuel in the quarter.

Asphalt, Concrete and Calcium

Revenues from the Asphalt segment were $139.8 million, up 5.8% year over year. The segment recorded gross loss of $2 million, narrower than the year-ago loss of $3 million. Asphalt mix selling prices increased 5% and shipments grew 2% from the prior-year quarter. The company’s largest asphalt market — California — reported solid volume growth, which offset the lower volumes in Texas. The average unit cost for liquid asphalt was 6% lower than the prior-year quarter.

Total revenues from the Concrete segment were $94.8 million, up 13.3% year over year. Moreover, gross profit totaled $9 million, up 8% year over year. Shipments were up 10% year over year, backed by growth in its two largest concrete markets — Northern Virginia and Northern California. Average selling prices grew 3% year over year.

Total revenues from the Calcium segment were up 3.8% from the prior-year figure to $2 million. The segment reported gross profit of $0.8 million, up 21.9% from the prior-year quarter.

Operating Highlights

Selling, Administrative and General or SAG expenses — as a percentage of total revenues — improved 90 bps to 8.2%. The improvement was mainly driven by cost-reduction initiatives and adjustments to stock-based compensation to reflect a lower share price. Adjusted EBIT grew 1.9% from the prior-year quarter to $105.5 million. Adjusted EBITDA was also up 9.3% year over year to $201 million.

Financials

As of Mar 31, 2020, cash and cash equivalents were $120 million, up from $30.8 million in the comparable year-ago period but down from $271.6 million at 2019-end. Long-term debt was 2.8 billion, slightly up from the year-ago quarter and 2019-end.

Trailing-12 month total debt-to-adjusted EBITDA was 2.2. Notably, its weighted average debt maturity is 14 years. Also, the effective weighted average interest rate was 4.2%.

At the end of the quarter, it entered into a $750-million 364-day delayed-draw term loan to enhance its liquidity position. On Mar 31, 2020, there were no borrowings outstanding under the existing $750-million revolving credit facility.

Vulcan returned $45 million to shareholders through dividends, up 10% from the prior-year quarter. Share repurchases were $26 million in the quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, Vulcan has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren’t focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions looks promising. It’s no surprise Vulcan has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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