渥肯建材 (VMC) 2004 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the first quarter 2004 Vulcan Materials conference call. I will be your coordinator for today. At this time all participants are in listen-only mode. We will be facilitating a question and answer session towards the end of this conference call. If you require assistance at any time during the call, please press star followed by zero and a coordinator will be happy to assist you. As a reminder this conference is being recorded. I would now like to turn the presentation over to your host for today's call Don James, Chairman and Chief Executive Officer. Please proceed, sir.

Good morning. Thank you for joining the Vulcan Materials conference to discuss our first quarter results as well as our current outlook for the remainder of 2004. I'm Don James, Chairman and Chief Executive Officer of Vulcan. With me today are Mark Tomkins, our Senior Vice President and Chief Financial Officer, Mark Badgett, Senior Vice President of Construction Materials, East, and Brad Rosenwald, President of our Chemicals division. Before I begin let me remind you that certain matters discussed in this conference call contain forward-looking statements which are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Descriptions of these risks and uncertainties are detailed in the company's SEC reports including the report on form 10-K for the year.

After I make a few brief comments, we would like to spend most of our time responding to questions from those of you who dialed in to this call, we certainly hope this dialogue will be helpful to you and others who choose to listen to this call through our web broadcast. Let me remind you a replay will be available approximately two hours after the completion of this call at our website. Before I move into the first quarter results and outlook for remainder of 2004, I'd like to take this opportunity to highlight a recognition in which all employees of Vulcan take pride. In early March, Vulcan was named to Fortune Magazines annual most admired companies list. Vulcan ranked first in our industry in all eight criteria, used by Fortune. But more importantly, Vulcan ranked in the top ten companies in the entire fortune 1,000 in both financial soundness as well as social responsibility. This recognition is a great tribute to the thousands of Vulcan employees all across the country who work every day to achieve superior returns for our shareholders and to be good citizens in the many, many communities where we operate.

Now let's begin by discussing the results for the first quarter. We were very pleased with our first quarter performance. Net earnings from continuing operations were 15 cents per diluted share compared to last years 2 cents per share. Net earnings were approximately $15 million in the quarter or 14 cents per diluted share compared to a loss of 17 cents per share in the prior year. Prior year loss included an 18 cent per share non-cash charge related to the cumulative affect of our adoption of FAS 143 which is accounting for asset retirement obligations. Our net sales for the quarter increased 8% to $561 million. Stronger volumes in our construction materials segment drove the $42 million sales increase. Net cash provided from operating activities was $18 million higher than last year due primarily to our higher earnings. On April the 1st of this year, we retired $243 million in five-year notes as scheduled from available cash. In the quarter selling, administrative, and general expenses were $3 million higher due to increased healthcare and incentive costs.

In the quarter construction materials had record sales of $432 million, an increase of 10% from the prior year. Construction materials segment earnings increased to approximately $43 million substantially up from the $19 million reported last year. This earnings improvement resulted from stronger volumes for all key products, including, record first quarter aggregate shipments. During the first quarter most of our key markets benefited from dryer weather and robust construction activity. The favorable weather was particularly good in March, which as you know was a key month for us in the first quarter. Overall aggregate sales volumes increased 10% from the prior year. This strong volume increase compliments the 13% and 15% increases recorded in the third and fourth quarters of 2003 and appears to indicate a sustained recovery in construction activity is under way.

Aggregate margins improved from the prior year due to the combination of a modest price increase and lower unit operating cost resulting or due to our higher volume. Sales volumes in other key products were also higher as ready-mix concrete and asphalt volumes increased approximately 22% and 8% respectively on a year-over-year basis. The stronger rating in concrete sales volume was due mostly to strong demand in southern California and Arizona. Asphalt volumes increased due mostly to stronger residential demand for housing subdivisions in southern California.

Now, taking a look at chemical results in the quarter, the segment reported a loss of $8.5 million while net sales increased $2 million to $129 million. Segment results were negatively impacted by a significant decline in caustic soda prices. The fixed manufacturing relationship between caustic soda and chlorine coupled with strong demand for chlorine has led to an oversupply of caustic soda in the market which negatively impacted caustic soda pricing. As a result pricing for caustic soda declined $43 per ton versus last year's first quarter. Strong demand for chlorinated organics including growth in our 5 CP sales, contributed to higher margins from these products when compared to last year. We are pleased with the growth in 5 CP sales and its contributions to our chemical segment results. 2004 will mark the second full year of production of this product and we are encouraged by the future prospects of this product to produce the feed stock for a new non ozone depleting foam blowing agent.

In the quarter, chemicals recorded higher asset impairment charges and legal costs when compared to the first quarter of last year. Consistent with our outlook last quarter for plant operating performance in 2004 our chemical plants ran better in the first quarter. Capacity utilization increase of 96% to 98%. For us capacity utilization is the effective availability of our plants after factoring in planned maintenance and outages. Our full year outlook for construction materials remains unchanged with earnings for the year in the range of 415 to $445 million. A sustained recovery in construction activity appears to be under way. Over the past twelve months aggregate sales volumes have increased approximately 10% for Vulcan. Our earnings outlook is predicated on residential construction approximating the high level of 2003, highways increasing modestly, and nonresidential construction increasing later in the year.

Our full year outlook for construction materials assumes a modest increase in both aggregate volumes and pricing. We will continue our focus on improving cost in our aggregate plants. Certainly much has been written and discussed about the status of the next six-year highway bill. Although both the senate and the house have passed their versions of the bill, conferees have not yet been selected so the formal conference committee negotiations are not yet under way. Certainly informal negotiations are very active and are probably occurring even as we speak this morning between leaders of the Senate and the House and the Administration. The current extension of T 21 expires tomorrow. A two-month extension at $33.6 billion on an annualized rate for highways passed the House yesterday. The Senate is currently debating when and how the conference conferees will be selected and are looking at the passage of a two-month extension and that is being debated, I think, in the Senate this morning. We, along with other industry members, support the Senate's version of the bill at $318 billion. It's certainly important for congress and the President to come together and get a six-year bill enacted, so the state DOTs can move forward with their planned highway programs this year.

With respect to chemicals, segment results should continue to benefit from better plant operating performance in growth and demand of 5 CP as that product ramps up. Demand for chlorine and other chlorinated products is improving. Pricing for chlorine should improve year-over-year. As I mentioned earlier in my first quarter remarks, caustic soda prices have weakened significantly from the first quarter of last year. Our outlook remains unchanged with a year-over-year decrease in pricing for the full year despite some strengthening in prices late in the year. We expect to complete our accelerated program for improving the reliability and efficiency of our chemical plants by the end of this year.

Furthermore our outlook assumes somewhat higher energy and raw material costs which reflect the current pricing trends in natural gas and hydrocarbon based raw materials. As a result we are reaffirming our projected chemicals loss in the range of 5 to $15 million for the year. For the company as a whole healthcare costs are still forecast to increase approximately $12 million for the year. Additionally we project pension costs to be flat this year with last year. Based on our current economic outlook we expect our earnings to range between $2.45 to $2.65 per diluted share. For the company, we expect strong pre-cash flow performance again in 2004. We are certainly focused on utilizing this cash in the best interest of our shareholders. Our options include disciplined capital spending on internal projects with high returns, attractive construction material both on acquisition and share repurchases. For the second quarter we expect to earn between 75 cents and 85 cents per diluted share, with both segments reporting improved earnings versus the second quarter of last year. We would be pleased to respond to your questions.

Ladies and gentlemen, if you wish to ask a question, please press star followed by 1 on your touchtone telephone. If your question has been answered or you wish to withdraw your question, please press star followed by 2. Please press star 1 to begin. Your first question comes from the line of Stephen Kim with Smith Barney. Please go ahead.

Good morning. This is actually Mishu for Steve.

Good morning, Mishu, how are you?

Great, thanks. How are you. I just had a few questions here. First one regarding chemicals. Now, the chemicals division showed a profit, I think, excluding that non-cash charge in the fourth quarter and now in the first quarter I understand the caustic soda was an impact as well as non-cash charges. Can you just break that down and talk about the underlying profitability trend there in the first quarter?

Yes. We do our comparisons on a first quarter to first quarter basis and that's what I have in front of me now, Mishu. But the change in earnings was about $4.9 million. The improvement in demand for chlorinated organics including the growth in 5 CP added something like $3.8 million. The $43 per ton decline in caustic soda pricing reduced earnings by about $6 million, and the other significant factor is we indicated that the way our insurance programs work, we pay legal fees -- we pay legal fees up front and get reimbursed from our carriers at the conclusion of cases and we had higher legal fees in the first quarter. We also wrote down the value of some houses that we had purchased as additional buffer around our chemical plants and all of that together was about $3 million. The caustic soda price change from Q4 of '03 to Q1 of '04 was about $4 million. The effect was $4 million. I hope that answers your question, Mishu.

That's very helpful. Second question is on commercial construction. Now you're still maintaining your outlook that commercial construction should be coming back toward the end of the year. Can you just give us a little bit more details regarding that. Have you seen anything recently in terms of activity that has caused you to maintain that or is it just the absence of any kind of new indicators just leading you to maintain that?

Well, if we listen to our people in the field, they are saying in some markets nonresidential private construction is picking up. If we look at the sort of macroeconomics statistics, it would look like there's no basis for it picking up. But certainly, at this point, we believe that we will see a pickup in that by the end of the year. I think we're really seeing it in some markets already. It just is not, we can't reconcile that with what the macro figures of construction put in place and new contract awards would indicate. But we are confident that nonres will improve some this year and we're in fact seeing that already in our markets.

Do you think that that disconnect between the macro data which is indicating no improvement but a lot of anecdotal and overall economic indicators showing that it might be improving faster. Do you think that that could lead to a kind of surprise, that it might come sooner than possible rather than later?

I don't know and I'm certainly not going to predict that. But, I hope you're right.

Okay. And final question, in 2003, on an annual basis, your networking capital actually generated cash as opposed to consuming cash. I was just wondering if you could give some color behind that. Was that as simply the result of growth or was that as a result of dedicated initiatives to reduce, let's say, inventories.

Let me refer you to Mark Tomkins for that.

Mishu, we took a concerted effort to reduce inventories so that was the predominant factor in working capital adding to cash in 2003. We expect to be predominantly flat on the change in working capital this year so you shouldn't expect to see the same kind of pickup.

Okay. Great. That was it for me. Thanks.

Thank you.

Your next question from the line of David Weaver with Legg Mason. Please go ahead.

Good morning, Don.

Good morning, David, how are you?

Doing firn. Can you -- I was looking at the highway contract awards and it seems like the nation is still pretty choppy but there are some markets like the Carolinas that look like they're picking up. Are you seeing that from your end on highway work?

Yeah. We think highways will improve this year over last year. You know, we really do need to get the highway bill finalized and depending on the timing of that, I think there is certainly will be an impact on sales into the highway segment as a result of the timing of that. But we believe highways will be up slightly this year over last year.

What impact do you think you would see if, say, they went for a two-year bill instead of a six-year?

From our standpoint, I mean, we are actively supporting a six-year bill because we think that's the right public policy. A two-year bill would probably cause state DOTs to focus more on resurfacing projects and less on big bridge and big new construction projects and putting aside our sort of policy considerations in the aggregates business you would tend to get a larger portion of total spending on resurfacing and lane addition than we get in new construction where there's a lot of excavation and land acquisition cost as well as in big bridges where there's more engineering and construction and materials. Although we do not want to see a two-year deal because we think the six-year bill is a better public policy. From our standpoint a two-year bill is not all bad.

Okay. One question on the housing market. You, I would guess letting your materials more go into the development stage versus the actual homes. Is that correct?

Yes, although, and I think that's clearly true, although in markets where we sell concrete, we do get a bump out of the actual construction of the house as well as the infrastructure.

Okay. Are you seeing any change in the pattern for the actual development process or builders still pretty active there?

They are very active. Everywhere I go, I see housing subdivisions still being constructed with streets and utilities going in.

Okay. That's all I've got. Thank you.

Your next question comes from the line of Jack Kasprzak from BB&T. Please go ahead.

Thanks. Good morning, everyone. John, my first question is on aggregate pricing and the environment. Seems like over the past few quarters including the first quarter maybe prices were up only slightly and I know sometimes there can be a mix impact there. But given that we might be seeing a sustained improvement in construction demand prices of some other construction materials appear to be on the rise. Do you think we could be in for a better pricing environment for aggregates where we might see say 2 or even 3% price increases at some point rather than maybe only modest price increases?

Jack, I certainly agree with you that the environment we're seeing is conducive to the opportunity to get improved pricing. I guess I've looked at some projections for producer price indexes for aggregates for the full year and it's between 2.5-3%. So I agree with you that the situation I see what's happening to prices for cement and many other products in the construction materials industry. And with growing demand certainly that's always a good time to be getting better than average price increases.

Okay. Can you remind us do you have a share repurchase authorization in place right now?

We do.

And how much is left on that?

Something over 8 million shares.

8 million shares. Okay. And then wonder if Mark Tomkins could update us on the capex budget for this year?

Jack, we're forecasting 200 to 230.

200 to 230.

About 30 of that, 30-35 is chemicals.

Okay. Great. That's all I have. Thanks a lot.

Thanks, Jack.

Ladies and gentlemen, once again if you wish to ask a question, please key star 1 on your touchtone telephone. Your next question comes from the line of Jack Kelly with Goldman Sachs. Please go ahead.

Good morning, Don.

Hey, Jack. How are you?

Very good, thanks. Just on the caustic soda price you mentioned down $43 per ton first quarter over first quarter. What range is kind of built into your estimate of that loss you gave us earlier for the year? What's kind of your estimate for year-over-year change in caustic soda pricing?

Very close to what happened in the first quarter. I think we've got maybe $46 a ton year-over-year decline in caustic soda price.

Okay. Secondly you'd mentioned 10% volume gains in the first quarter. Do you think that gain was tempered at all by the uncertainty over the bill or are the states just kind of coming up with the money, knowing pretty well that this bill will be passed at some point here in the next month or two?

You know the continuing, the money is still flowing for the state. That's not stopping. The continuing resolution at $33.6 for highway -- $33.6 billion for highways, money is still going to the states and the states are still doing construction projects. So I think that's moving on. I think, Jack, private construction is really driving increasing demand. Highways are up some but private construction, housing has been strong, and as we talked earlier on the conversation, I think private nonres in some markets is beginning to show signs of recovery. So this recovery is not driven so much by public spending as it is by private spending. And even in places, certainly in California where many people think construction is dead, our aggregates volume were up 7%. Our concrete volumes were way up double digits. Our asphalt volumes were up substantially and that's all private because there's not a whole lot of public spending going on in California.

Okay. And on the pricing issue. It seems unlikely that you can really get more in pricing. Typically that's not the way your business works. You set prices late -- in this case late '03 early '04 because you have a big bit business and those prices have to be pretty much locked in. So it seems like whatever you did in January, or by January was pretty much what you realized for the year. Is that still fair?

No, I don't think that's a fair statement. Certainly we bid projects, big highway projects and we give firm quotes and they're built into the bids and we honor those quotes. But we have a lot, we have a lot of customers, a lot of different markets, literally hundreds and thousands of pricing decisions as we go through the year and we have the opportunity to adjust our pricing strategy depending upon the facts and circumstances as they appear at the time.

Okay. Thank you.

We believe, I guess we have built in, you know, 2-3% sort of price increase for the year for aggregates.

Yeah. I knew you had that flexibility, it just seems like whatever kind of happens at the beginning of the year, doesn't by the end of the year it never seems to have changed too much. Then you have pricing increases and you have price decreases and that kind of all sorts out, but I just didn't think you had the pricing leverage changed a lot.

It is, I don't think a fair analysis to say that our prices for 2004 are fixed. I believe we have a fair amount of our pricing decisions will be made as the year moves forward.

Okay. Thank you.

It appears there are no further questions. Mr. James, please proceed with your closing remarks.

Thank you very much for joining us. As I indicated earlier we are very pleased with our first quarter. It's good to get a great start on the year and we look forward to talking with you again at the conclusion of the second quarter. Thank you for your interest and involvement. Good day.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect.