渥肯建材 (VMC) 2001 Q1 法說會逐字稿

Good Day, Ladies and gentlemen and welcome to the Vulcan first quarter investor conference call. At this time, participants are in the listen-only mode. Later we will conduct a question and answer session with a follow-up at that time. If anyone should require assistance during the conference, please press star then zero on the touch-tone telephone. As a reminder, Vulcan has requested this conference call to be recorded. I would now like to introduce your host for today's conference call, Mr. Don James. You may begin.

Good morning. Thank your for joining our telephone conference to discuss Vulcan's first quarter results and our fore year outlook. I am Don James, chairman and chief executive officer. With me today are Mark Tomkins, our chief financial officer, John president of our business unit, and John Holland, president of our performance chemicals business unit. After Mark and I make a few brief comments, we would like to spend most of our time responding to your questions for those of you who dialed into the call. We hope this dialog will be helpful to you and others who chose to listen to this call by way of our web broadcast. Sales for the first quarter are 569 million with 11% of all the prior year record of 515 million representing the 7th consecutive record first quarter. Net earnings were 6 million or 6 cents per share compared to the prior year first quarter net earning were 23 million or 23 cents per share. Earning comparisons with the first quarter of 2000 were impacted by the effects of sharply higher natural gas prices and a slowing economy on our chemical segment as well as accelerated spending to upgrade the Tarmac facilities we acquired in October of 2000. We are pleased with the progress that has been made at the Tarmac operation and we expect full year results that are to be in line with our earlier expectation. As we have mentioned previously, first quarter aggregate shipments in earnings are subject to significant variations due to weather and are therefore not necessarily indicative of results for the full year. Additionally, in the first quarter, we completed the acquisition of our partner's interest in the Crescent market company as well as two aggregate operations in chemistry and another in Illinois. During the first quarter, we also sold 240 million of unsecured 5-year notes. This brings our total long-term debts to 930 million with an average keep on rate of 6.3%. This enabled us to form the acquisition of the Crescent market company and re-fund a significant portion of the commercial paper borrowing with long-term debt at a time when rates are atattracted levels. I will now ask Mark Tomkins to comment on our segment of financial results for the quarter.

Thanks John. Our constructive material segment reported record of first quarter sales of 400 million, up 9% from the prior year. The sales increase was due to the addition of the Tarmac operations and the acquisition of our joint venture's partner's interest in the Crescent market company. Previously, the results for the Crescent market companies were reported under the equity method of accounting. Sales were not included in our consolidating reporting and our portion of earnings was captured in other income. Excluding the effect of recent acquisition, the aggregate revenue was approximated prior year as higher prices offset lower volume. Regarding earnings, the improvements in aggregate pricing were more than offset by higher costs associated with the Tarmac operations. The effect of lower aggregate segments from traditional operations and lower gains from asset sales in California. The chemical segment posted first quarter sales of 170 million, up 14% from the prior year, due primarily to the impacts of the core alkali joint venture and improved pricing for caustic soda. The earnings benefit from improved caustic soda pricing was more than offset by the adverse effects of higher cost for natural gas, restricted operating rates at the core alkali joint venture due to reduced operating rates by key customers and lowered sales in performance chemicals. Industry prices for caustic soda were over 300 dollars per ton for the quarter, more than double of the depressed prices in the prior year. Natural gas cost in the first quarter approximated 7 dollars per MMBCU, as compared to less than 3 dollars per MMBCU in the first quarter of 2000. Chlorine prices and volumes were lower due to the effect of the slowing economy on the manufacturing sector. With the core alkali joint venture, restricted operating rates resulted in lower than anticipated earnings in the quarter. Vulcan share of this joint venture loss approximated 5 million dollars which was partially offset by management fees and selling commissions. The economic slowdown in the manufacturing sector in particular, weakness in the pulp and paper and the textile industries has impacted our performance chemical results.

Thanks Mark. Turning now to the 2001 outlook, consistent with our prior guidance, the constructive material segment is expected to deliver full year earnings of 425 to 450 millions, approximately 15% of all last year's record. In line with the past several years pricing for aggregates is expected to increase 3 to 4%. Total aggregate shipments are expected to increase 8% with our traditional operations up about 2%. With respect to the outlook for the chemical segment, while caustic soda pricing has improved and natural gas cost remained in line with previous guidance, the current economic slow down has softened demand from the manufacturing sectors. As a result overall volume as well as prices for chlorine and derivative products are expected to be lowered. Consequently, the full year outlook for chemicals is for chemicals to earn approximately 50 million as compared to our previous estimate 70 to 80 million. According to recently reported industry data, the value of highway contracts awarded during the 12 months ended March 31, 2001 for Vulcan served states is up 15% from the preceding 12 month period. The benefit of a ramp up of highway projects on construction material, combined with the impact of higher caustic soda prices and the absence of special charges in chemicals should result in higher earnings for the full year 2000. As compared to the prior year, we expect slightly higher earnings comparisons in the second quarter with significant improvements to follow in the second half. As a result, we believe earnings per share will be at record levels this year in the range of 2 dollars and 65 cents to 2 dollars and 85 cents compared to the 2 dollars and 16 cents earned in 2000. Now before we begin with your questions and in order to confirm to SEC guidelines for forward looking statements, let me remind you that certain matters discussed in this telephone conference contain forward looking statements that are subject to risk and uncertainty which can cause actual results to different materially from those projected. These include general business conditions, competitive factors, pricing, weather, energy cost, cost of hydro-carbon based wall material and other risk and uncertainties to stay out from time to time in the company's SEC reports, 00including the report on form 10k for the year. Now, we will be pleased to respond to your questions.

Thank you. If you have a question at this time, please press the 1 key on your touch-tone telephones.

Hello.

Once again, if you have a question, please press the 1 key on your touch-tone telephone. Okay, our first question comes from Jack Kelly from Goldman Sachs.

Hi this is Aaron Meyer for Jack Kelly. I was just hoping you could break out performance by region in the construction materials area.

Aaron in first quarter, that I will give you the caveat that you really, it is so weather driven that it is very difficult to take first quarter results and making a kind of projection but with that caveat, certainly our shipments were strong in Virginia, they were strong in Illinois and Wisconsin, they were strong in California. On the flip side, they were weak in the South East. Georgia, Alabama, Tennessee, North Carolina, South Carolina were the weakest regions for us. We think that was largely driven by very wet weather particularly in March.

Okay great. With regards to P21, I was hoping you could kind of give some more detail in the sense of where you see the funds kind of flowing and where you kind of seem them really not flowing.

Aaron, certainly the P21 funds are available to the state DOPs, we saw a very significant deviation between funds available and construction put in place in the fourth quarter, really, a very atypical gap between those two numbers. We think that will get jobs as I indicated in our comments, I think year old calendar, year over year and our state contract awards are up 14% through the first quarter on a 12-month of earning basis are up about 15% and that's generally across the board, that does not mean aggregate demand is going to be consistent over the next 12 months state by state because the timing of projects will always be different. But certainly, we see strong demands for higher labor cost all of our markets.

Okay great. May be you could break out the impact on EPS of the natural gas prices being higher as well as especially diesel fuel as well with that type of construction material.

Well in the first quarter, we saw a very little incremental impact of diesel fuel in the first quarter. With respect to higher gas prices in the first quarter, the impact was approximately 8 cents per share. So, when we indicated that the gas prices were a significant factor in the first quarter compared to first quarter last year that is a cent, we saw gas prices, I guess in January about 10 dollars. They certainly have come down sharply at an average 7th of the quarter and we are looking for something slightly less than 6 for the remainder of the year.

So, what was the impact on EPS, did you kind of expected to stay around 6 dollars?

That's included in our projection, when we projected about 60 million in chemical earnings and that's, that's at about 6 dollars...

Okay great. Perfect, thanks a lot.

A 6 dollar gap.

Perfect, thanks a lot.

Our next questioncomes from of UBS Warburg.

Hi good morning. Could you talk about the impact of the situation with the energy crisis in California. How that, can you just update how that's impacting the business, and just kind of, what your expectations are there.

Tripp, we keep watching that very carefully and as we sit here today it has not really had a significant impact on our business in California. Our shipments are up for the first quarter in California and we have a plan in place to try to deal with those issues. Principally, we are changing operating hours at many of our plants where possible in order to get in an hour production during off peak time. So, we will not be running, you know, at the peak demand time during the day. That will certainly benefit our neighbors as well as the communities where we operate. We are not able to do that in every location and we are certainly not impacted by energy outages and shortages. It largely depends upon who our supplier is but in those areas where our supplier has shortages, we have a plan to adjust our operating hours and we believe that will certainly help us from a production standpoint. From the demand standpoint, we really are not seeing an impact yet, certainly we are sensitive to that and are concerned that it may have some impact but we don't see it yet.

You don't see much time down in the first quarter though?

No, very little.

Last year, you were able to get some good...

You know electric rates are going up in California. We will see some impacts of that but we have that built into our projection.

Were you able to pass on the long term, last year you got some of the biggest price increases out there. Can you get some more strong price increase out there again this year.

Yes, we have another set of price increases set to go into affect April the first.

How much would those be?

It will vary from market to market and product to product. It will be somewhat less than the price increases last year but they will still be substantially greater than our normal company wide price increase.

In the improvements you're making, comments, you got some big benefits from that last year. Do you see as much benefit this year.

We have got a lot of plants under construction, modifications being made to plants. We continue to invest in the plants and equipment at CALMAT and securing additional reserves and that process will continue Tripp we think for at least another two or three years and we will continue to be getting cost reductions hopefully throughout that time period.

Okay, thanks a lot.

Our next questions comes from inaudible.

Hi, good morning. You mentioned in the construction material to, you mentioned the negative impact associated with the Tarmac operations, and I assume that these are upgrades to the operations and I am wondering whether or not, first of all you could just quantify the cash cost of those upgrades.

In the first quarter, we did a tremendous amount of non-capital work, really expense work in the Tarmac facilities. We generally didn't run some of those plants for a substantial part of the quarter as we were working on them. The impact in the quarter of the work we did at Tarmac was in the range of about 5 cents a share. And we, you know, we certainly expect Tarmac to perform in line with our expectation for the full year but we did have an unusually high impact in the first quarter, which is the best time to do significant R&M. That 5 cents also includes the impact of the interest charge for the purchase price so not all of that is plant R&M.

Will there be any sort of knock on impact into the second quarter that we should expect?

I don't think so, I think Tarmac should be performing as in line with expectations for the remainder of the year. For the full year we are you now, Tarmac we think we will probably be close to neutral the EPS and then certainly the benefit with Tarmac will continue to come in the years going forward.

Okay in terms of Kefex, what is this going to mean to the overall is Kefex going forward?

Our possible budget for the Tarmac location will, let me get that for you. We have one major plant resale and then lot of smaller items, probably about in the range of $20 million for 2001 total. That includes the plant rebuild, mobile equipment, and a number of plant modifications.

Okay, thank you very much.

Our next question comes form from inaudible

Yes, I would like a clarification on that $20 million that you just mentioned, was that just for the balance for the year on Tarmac alone?

Yes.

Okay, I just want to go back and just cover some of these energy questions in terms of diesel fuel you said you saw a very little impact in Q1, should there be any other impact that we look going forward into Q2 or Q3.

Compared to the same quarters of last year, not a great deal, diesel fuel may be higher in the second quarter than in the first, but compared to the last year second quarter we don't see a significant impact.

And the eight cents a share impact that you spoke of for natural gas was that all then primarily from the chemical side of the business?

Yes.

If I kind of look at that, it basically it looks like on a pretax basis of around twelve million dollars so that's primarily all on, and that is except for the full year I guess, that's all chemicals.

Well I am not sure I understood your question, it is twelve million pretax and it is all chemicals and that you had another statement or another part of the question that I missed.

Oh no that was it.

Okay.

I think that's it.

Our final question comes from John Lint from inaudible.

The question occurs relating into each other. California, now that they've taken over the distribution of power, they are paying the big power bills. There have been some estimates, that those rates aren't tapped by the Federal government, which can do it, but which the present administration in Washington seems disinclined to do but unless that happens, California will be really building up the debt. You know as I do, that California by June 30th has to have zero deficit according to their constitution. I see fuels close out there for weeks to get enough money in the till. Is that, that are hurt, I mean road building and could be differed if they have to have the money on hand June 30th.

Well John, surely road building was differed in California through several years in the early 90s up until the mid nineties there is a lot going on in California to addition to highway building but we certainly see a pin up demand for highways in California. At this point we don't know what the plans for the state government here whether California would divert state highway funds away from highways and other areas. We don't have any current indication that is planned. As you know California is the largest single recipients of T21 funds and we have no concern about the state matching the necessary, coming up with the necessary matching funds to receive all of the T21 funds. As you know back in the fall the voters in California approved a plan to allow CALTRANS, which is the DOT in California to outsource engineering in order to accelerate the highway programs. So we believe that a substantial public support in California for improving the highway infrastructure and we are hopeful that that support will remain consistent and as a result the state will continue to fund this highway program according to the current plan.

And Don, there's one thing that leads directly in to the second question. There are the recurring rumors and you guys know more about this than everybody in the country that some of the states are going to full up all of the funds necessary to get the matching funds from out of Washington but they are cutting back on some funds for market roads and other state roads that don't have matching funds. Have you seen that already?

John, let me go back, in the first couple of years 2 to 3 years of the IST legislation the prior six year federal highway bill, we did see states utilizing their available funds to match the federal fund with a reduction in some of the state funded projects. We are probably treating the same thing in the first two to three years of T21 but in the IST period the states didn't came back with relatively strong state funded programs after they got their matching funds for the federal dollars committed we are certainly hopeful that happens but we don't see anything different in this six year bill with respect to each state for managing their financing that occurred in the prior six year bill.

Thank you, Don.

Our next question comes from Scott Foles from Morgan Stanley.

Good morning Don, I had a couple of questions for you. First off regarding state in local highway spending, I guess, when you look back and its softening periods in the US economy how impervious is state and local spending or how closely tight is it to the condition of state and local economies since still most of the fees are still generated from user fees, and then in my second question is regarding commercial construction. When you look at I mean kind of break up commercial demands by schools retail and office space what are you all seeing currently in those three pieces of commercial construction demand, that's it.

Scott with respect to the plans of the state with respect to funding, states have different mechanisms in placed, many have as you know highway funding mechanism that are tied to fuel tax just like the federal government and as you know from watching the ramp up of federal spending as the amount growing into the continues to increase, we think by definition those states that are getting their highway funds from fuel taxes are going up as well. You know, it is cents per gallon on both the state side and federal side and so we think those funds are continuing to grow. There are some states that have the ability or that fund highway programs out of all the revenues, Georgia largely being one of those and as we study state revenues generally states that live out sales tax retail base sales tax are seeing some diminution in revenues and earnings but there are very-very few states that find highway programs out of sales tax so basically the bottom line is we think we are in good shape on the highway programs even if some states revenues are falling. Now as we look at the demand picture broken down in the categories that you have given us obviously we think highways will be up we think single family housing will be down income properties we expect to be relatively stable with last year that will include office space and retail facilities that we expect institutional building and that include schools will be up some for the year. So the highways will certainly be up stronger than any other demand segment followed by institutional building. All the other areas will be relatively flat with exceptions in single-family housing, which we project to be down.

And then Don regarding the first question. It seems that, if my memory serves correctly most of the states that live off of the sales taxes to fund highway spending those are not for the most part the significant states, in terms of the quantity of spending per year on highways.

Georgia had some gasoline tax but generally is low and they make up for that out of general fund revenues and that comes from all different sources, but that's the only state that is probably has the issue tendency also has that issue to some extent where highway funds come out of general funds although they can offset or move funds around.

Thanks.

We have another question from inaudible.

Don, since there were not a ton of extra call back questions. I will ask couple more. On the diesel fuel side of the business have you guys done anything to kind of hedge yourselves if there is a potentially higher prices going into this summer?

We hedge on the gas side, we have not currently hedged on the diesel fuel side we continue to look at that and our conclusion is that at this point we are happy with the arrangements we have. We have a nationwide arrangement with a supplier and our projections are that that is stable enough for us not to be in a hedging market for that.

And what were your assumptions on the diesel fuel side for the balance of the year?

Relatively flat with last year.

Do you know what that number was for the last year?

You mean diesel fuel per gallon?

Yes.

Something under a dollar. We spent under a dollar per gallon.

Okay.

We have a question from inaudible.

I really wanted to ask question a follow up question in terms of highways construction and you mentioned the strength of demand in the highway construction sector you also point out that strong demand that we are expecting from mid April to mid November and in light of what you are saying on overall shipment I just wonder whether you can add a bit further a bit more sort of explanations to why we're running less than 15% increase in heavy petroleum.

You read someone else's press release for that in mid April to mid November we obviously, that's the highway construction season and we agree with that but strength in highways you know we are looking for highways to be up in the several percentage point, that is being all kept somewhat by either flat demand in some of the sectors and a little you know down slightly in housing. So we are projecting 2% up in our traditional operations. We are projecting total demand up 8%, which includes the effect of acquisition. I think that's consistent with what I have seen from other producers you know there is, highways we are saying will be up about 5% and that's offset somewhat by housing probably down 3% all other public works may be up 1% so that's when we run all that through our number that yields the 2%.

And have you actually made any sort of statements in projecting on what were the price increase you expect on the highway side or are you just referring to it overall?

We do that overall and that's about 3 or 4% where we have been for the last several years although we have not quantified it as such, I have seen generally pricing to the highway construction sector would be slightly higher than average.

All right, thank you very much.

Our next question comes from Robert Donald from inaudible

Good morning, you have probably addressed this question already, but I just wondered if you could clarify the margin movement down in the first quarter in aggravates division where the margin at the level dropped 4% on dollar level, 3%. From what you said on the Tarmac costs you said 5% per share that translates to about 7 to 8 million dollars which is about 1.5% I just wondered how does the remainder spit between the volume of fact and the reduction in assets sales.

Robert the same quarry of shipment in the first quarter were down about 4% and that is a result of several different factors in some market softened demand and in other markets its weather and certainly with respect to the Tarmac operations and they already include in those numbers but generally where we have the opportunity we will work on plants when demand is low. Anytime we are working on the plant you have a double impact, your production is curtailed and you are spending money so it really has an impact on unit production cost when you, when we work on plants and certainly we saw an increase in unit production cost in the quarter, but that's very misleading. We certainly expect to get that back through the course of the year. So the worst time to look at margins and unit cost is after the first quarter because you can very distorted view. Sale prices were off 5%, so we had a strong pricing quota, we're projecting as we said 3 to 4% for the year, so we got off to a very good start in that regard but you know, we were, 4% was certainly not a disappointment to us, in the quarter given, what we had to do. The major impacts were in construction materials for the extra spending on Tarmac and the big change in asset gain that was about a negative 3.6million dollars, Tarmac was about 3.2 million, and our other aggregate was about 4.6 million and that was a combination of higher unit production cost and the effect to lower volume. That's the reconciliation.

Thank you very much.

At this time we have no further questions.

Well thank you very much for your interest. We hope you will read our press release carefully, we are optimistic about the remainder of the year as indicated in our press release, certainly we have to watch carefully what is happening with the over all economy but as we see that now we are looking forward to a record year of earnings with significant improvement both in construction materials and chemicals over the prior year. Thank you very much and we look forward to speaking with you again at the end of the second quarter.