渥肯建材 (VMC) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2011 Vulcan Materials Company earnings conference call. My name is Larry and I will be your operator for today. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions). I would now like to turn the conference over to your host for today, Mr. Don James, Chairman and CEO of Vulcan Materials Company. Please proceed.

Good morning. Thank you for joining our call to discuss our results for the fourth quarter of 2011. We have posted to our website a few slides on our Profit Enhancement Plan and our planned asset sales that we announced today. These slides are also available to those of you on the webcast, and we'll be talking about those slides in a few minutes. Joining me today are Dan Sansone, our Executive Vice President and Chief Financial Officer; Danny Shepherd, our Executive Vice President for Construction Materials; and John McPherson, our Senior Vice President for Strategy and Business Development. Before we begin, let me remind you that certain matters discussed in this conference call as indicated on slide 2 of our presentation contain Forward-looking statements which are subject to risk and uncertainties. Descriptions of these risks and uncertainties are detailed in the Company's SEC reports including our most recent report on Form 10K.

First, I want to take you through some key financial highlights from the fourth quarter and full year 2011. As you saw in our Press Release, we had significantly improved results in the fourth quarter. Earnings from continuing operations were a loss of $0.20 per share in the fourth quarter compared to a loss of $0.36 per share in the fourth quarter of 2010. This year's results include $0.05 per share related to the organizational restructuring cost and $0.01 per share related to the unsolicited exchange offer by Martin Marietta. Excluding those charges, fourth quarter 2011 results were a loss of $0.14 per share compared to a loss of $0.36 per share in the prior quarter. Net sales for the quarter were $578 million, which is 5% increase from the fourth quarter of last year. Gross profit in the fourth quarter was $74 million, an increase of $24 million or 47% from last year's fourth quarter. Gross margin as a percent of net sales increased 360 basis points, largely due to strong results in our aggregate segment.

Our aggregates segment results demonstrate the impact of our effective cost controls and operating leverage. Net sales increased $16 million or 4% from the prior year. Aggregates gross profit increased by $22 million or 37%, reflecting the strength of our operating leverage. Gross profit margins increased 500 basis points as a result of higher pricing and lower unit cost. Unit gross profit was up 34%, $2.29 per ton. Aggregates shipments increased 3% in the fourth quarter, compared to the year-ago period, due mostly to increases in shipments in California and the Mid-Atlantic markets. Shipments in California and the Mid-Atlantic were up 40% and $0.19(Sic-see press release) respectively versus last year. These increases are due primarily to large infrastructure project work, as well as favorable weather conditions.

Average freight adjusted selling price increased by 1% in the fourth quarter due to improvements across a number of markets, particularly in Florida, Tennessee, Texas, and Virginia. Labor productivity and energy efficiency, which are both key operating measures for us, also improved versus the prior year's fourth quarter, helping to offset a 25% increase in the unit cost for diesel fuel. Fourth quarter earnings in asphalt were $5 million versus $8 million last year. This year-over-year decline in earnings was due primarily to higher liquid asphalt cost. The average sales price for asphalt mix increased approximately 9%, offsetting most of the earnings effect of the 16% increase in liquid asphalt cost. Asphalt mix volume decreased 1% from the prior year's fourth quarter. The concrete segment reported a $2 million improvement to a loss of $11 million in the fourth quarter, compared to a loss of $13 million in the prior period. Volumes were flat with the prior year's fourth quarter. The average sales price increased 5%, contributing to improved unit materials margins despite higher unit costs for cement and aggregates.

Finally, cement segment earnings in the fourth quarter were $1 million, an improvement of $2 million from the prior year due to increased volume and lower operating cost. Our EBITDA in the fourth quarter of 2011 was $97 million excluding restructuring charges and the expenses related to the Martin Marietta exchange offer, compared to $65 million in the fourth quarter of 2010. Fourth quarter SAG expenses were $8 million lower compared to the prior year, a decrease of 10%. This is a result of our cost initiatives and decreased spending on our new ERP and Shared Services platform, which I will discuss in a moment. Importantly, this $8 million decrease does not include the additional benefits from the restructuring we announced in December of 2011 and have now implemented. EBITDA for the year was $425 million, including $87 million related to gains from the sale of non strategic assets and a legal settlement and also including $15 million in expenses related to restructuring and the Martin Marietta exchange offer.

Our SAG expenses for the year decreased by $38 million or 11% compared to the prior year period, primarily a result of our ongoing focus on reducing cost. In 2011, our aggregates segment maintained a high level of profitability generating cash earnings of $4.08 per ton, compared to $4.15 in 2010. All key labor and energy efficiency metrics for aggregates improved for the full year from the prior year and helped offset some of the 35% increase in the unit cost for diesel fuel. Throughout the year, we continued our disciplined approach to working capital management. As a result, our cash conversion cycle remained in line with 2010 levels despite a challenging business environment for Vulcan and its customers.

As many of you know, on December 9th, our Board approved a plan that we had developed during the course of 2011, which consolidates our organization from eight divisions into four regions and streamlines our management structure. In addition to reducing overhead cost and increasing efficiency, the new organizational structure confirms our long-standing commitment to decentralize management of sales and productions. This allows us to maintain close relationships with our customers in our local markets. I'm pleased that we have substantially completed the restructuring; and along with other cost reductions carried out earlier in 2011, have now captured $55 million in run rate overhead reductions. I should note that a key factor in our ability to implement the restructuring and to do it so quickly is our new ERP and Shared Services platforms. As you know, we initiated the ERP project in November 2007 to create a common platform for all systems that support our businesses and have now completed all the major milestones for the project. The collection of systems and new processes has allowed us to make substantial reductions in SAG and will support the pursuit of increased efficiency going forward with our Profit Enhancement Plan.

Turning now to slide 4. Today, we announced a new initiative in our ongoing efforts to accelerate earnings growth and enhance our credit profile. The initiative has two parts, a Profit Enhancement Plan and planned asset sales. The Profit Enhancement Plan includes cost reduction and other profit enhancements to improve our run rate profitability as measured by EBITDA at current volumes by more than $100 million annually. We expect to achieve the full run rate by 2014. The second part of the initiative we announced today is planned asset sales. We are targeting $500 million in net proceeds from these sales. These are good assets which should have significant value to a number of potential purchasers. These planned asset sales will be made from a larger portfolio of assets that are not central to the Company's strategy as the leading aggregates producer in the fastest growing regions and urban markets of the United States. These actions will enable us to generate higher levels of earnings and cash flow, strengthen our credit profile, and give our Board flexibility to restore a competitive dividend.

Turning now to slide 5. This shows the actions included in the Profit Enhancement Plan. These profit enhancements will be in addition to the $55 million in run rate overhead reductions already achieved, which are shown on the left of the slide, and are a logical continuation of the efforts begun a year ago in early 2011. Specifically, we will drive improved profitability through leveraging Vulcan's already robust procurement practices to capture significant incremental savings in production, technology, transportation, logistics and other capital spending. Of the $100 million in profit enhancements, $25 million will be achieved in 2012, $75 million will be achieved in 2013, and the full $100 million will be achieved in 2014.

The timing of the Profit Enhancement Plan is driven by several important catalyst. First, since initiating the project in 2007, we have invested $62 million in implementing our new Oracle-based ERP and Shared Services platforms. This investment will be substantially complete in 2012, and we are now beginning to reap the benefits of these new platforms. These platforms will help us streamline processes enterprise-wide and standardize administrative and support functions, while providing enhanced flexibility to monitor and control cost. Second was the completion of our restructuring, which included the consolidation of the Company's management structure which enables us to implement best practices efficiently across the organization. This initiative has been led by Danny Shepherd who was promoted to Executive Vice President, Construction Materials in January of 2011 and John McPherson, our Senior Vice President for Strategy and Business Development who joined us in October of 2011. John has over 15 years of experience with realigning and restructuring corporate organizations and cost structures. Danny Shepherd and John McPherson will lead the execution of the Profit Enhancement Plan. Importantly, we've been engaged in dialogue with our shareholders and understand their concerns over the last few years related to our balance sheet and to our overhead cost structure. Now that our new ERP and Shared Services platforms are in place and the spending on those projects is now largely behind us, and now that our restructuring announced in 2011 has been accomplished, we are focused on the profit enhancement actions announced today to help us address those concerns.

Slide 6 provides additional information on how we get to the $100 million of profit enhancements. $75 million is from savings we will capture by leveraging our already robust procurement process to additional areas in production, technology, transportation, and logistics. $25 million is by improving the efficiency of support functions, standardizing and simplifying work flows by fully leveraging Vulcan Shared Services structure, and by retiring our legacy IT systems. Together, these actions will improve our profitability at current volumes and further enhance the Company's already strong operating leverage. We estimate that the $55 million of run rate overhead reduction already in place, plus the Profit Enhancement Plan, as well as our ongoing cost actions and price leadership, will enable the Company to generate EBITDA equal to our historical peak levels at volumes 25% lower than the historical peak. As we mentioned earlier, our SAG expenses for the year decreased by $38 million or 11% compared to the prior year. Going forward, we expect SAG cost to be approximately $270 million for the full year 2012.

Turning now to slide 7. The second part of the initiative we announced today is planned asset sales. This slide summarizes how this planned action reinforces our strategic focus. We will be selling assets that are not core to our strategy as the leading aggregates producer in the fastest growing regions in urban markets in the US. The assets we expect to be divesting will be selected from among our ready-mix concrete and cement operations, which will increase our focus on our core aggregates business, and reduce our exposure to lower margin downstream market -- downstream products in some markets. It will also come from our surplus real estate parcels, allowing us to unlock the value of excess land in our portfolio, and also from certain aggregate assets that generate lower returns allowing us to maintain our focus on higher growth markets.

Again, these are valuable assets but are not central to our strategy. We expect the divestiture's will provide net proceeds of approximately $500 million. We will use the proceeds to reduce debt, improving our overall credit profile. We will focus on optimizing the value of these assets as a disciplined seller in a disciplined process by divesting these assets over the next 12 to 18 months. Importantly, these actions will also enhance our longer term earnings growth profile, margins, and return on capital employed. We have a long history of continuously attempting to improve our product and geographic portfolio of assets and pursuing our strategy of being a leading aggregates producer in the higher growth markets in the US. In pursuit of this strategy, in 2011, we sold four quarries in Northern Indiana, we divested ready-mix assets in Arizona and New Mexico, and completed swap transaction that enable us to redeploy capital to more attractive businesses and markets. We also continued the sale of surplus real estate in California and other regions.

Moving on to our outlook for 2012. Slide 8 presents our objectives. In aggregates we expect price growth of 2% to 4%, and same store volume growth of 2% to 3%. We expect SAG cost, as I said, to be approximately $270 million for the full year in 2012. Finally, we expect 2012 EBITDA of approximately $500 million, including $25 million from the Profit Enhancement Plan and [excluding] (corrected by company after the call) impacts from the planned asset sales and the unsolicited exchange offer. We expect our full year segment earnings for each product line to improve in 2012. In aggregates the modest increase in volume and in freight adjusted selling pricing should help improve earnings during the year.

In terms of asphalt earnings, we expect an increase as a result of higher pricing and modest growth in volumes. Ready-mix concrete pricing should also continue to improve, and we expect shipments to be roughly flat with last year. We also expect cement earnings to approach break even levels in 2012. We also expect energy costs, specifically diesel fuel and liquid asphalt, to approximate the full year levels of 2011. As you know, we have a long record of paying competitive dividends. The actions announced today will provide our Board of Directors with flexibility to restore a competitive dividend. Finally, capital spending in 2012 should be approximately $100 million.

Now just briefly, I want to share our perspectives on the market. Overall, we think it's prudent to take a conservative view of the market given the gradual pace of recovery so far. That being said, we are encouraged with recent developments on a number of fronts. We have seen a rising level of support in Washington from meaningful legislation to address the nation's crumbling infrastructure, as President Obama described the situation in his state of the union address. The President singled out the vital importance of rebuilding our infrastructure as a way to grow the economy and restore jobs. The President's budget proposal released Monday calls for a 6 year transportation infrastructure investment of $476 billion, with $305 billion of that amount for the Federal Highway Program, and additional $50 billion investment in FY '12 to inject funds into transportation programs now.

The President is also continuing to call on Congress to pass a new multi-year transportation bill. Such bills have tended to pass when Presidents are strong advocates and when Congressional leadership rolls up its sleeves and gets to work. That is what is happening now in Congress where we have seen a number of positive developments over the last year. The 6 month highway funding extension signed into law in September 2011 include annualized contract authority essentially in line with the 2011 funding level. Notably, leaders in Congress from both parties have ended up working together over the last year to maintain highway funding at or very near current levels at a time of dramatic proposed cuts in many other areas of the federal budget.

The first appropriation bills for FY '12, which Congress passed in November of '11 included FY '12 appropriations for highways at $41 billion, essentially even with the last two fiscal year funding levels; underscoring the agreement reached by both House and Senate, Republican and Democratic leadership that highway funding for the new fiscal year would not be reduced. This is quite a change from early and mid-2011 when some House Republicans were aggressively advocating cuts of up to 35% to the Federal Highway Program. I am proud of the leading role our Company has played in helping bring about this change, holding personal meetings with Republican leadership and key conservatives in Congress throughout the spring and summer, demonstrating the devastating impacts on the economy of their states if such cuts were implemented, and testifying for the Senate Environmental and Public Works committee, and in meeting all together with more than 200 members of Congress and staff over the year; in addition, our employees have made more than 6,000 grass roots contacts with members of Congress during the year emphasizing the importance of maintaining current highway funding levels while Congress worked toward ultimate passage of a new multi-year bill.

Both Senate and House leaders made it clear in the fall of 2011 that they intended to move a highway bill in 2012. This week, both chambers of Congress began debating their surface transportation bills on the floor of House and the Senate and are set for continuing work on their respective bills following the Presidents Day recess next week. As I'm sure you noted, the Senate bill was reported out of the environmental and public works committee in a bipartisan 18 to 0 vote. Last Thursday the Senate voted 85 to 11 to proceed with consideration of the Senate surface transportation bill; and as I said, it is on the floor of the Senate even as we speak. This is real progress. Even if the two chambers do not both pass and then successfully conference a highway bill before the expiration of the current extension, we have seen more progress in the last 6 months than at any time since the expiration of SAFETEA-LU in 2009, and the stage is set for ultimate passage of a bill. In the meantime, Congress has created a clear path to level consistent funding with a 2012 appropriation for federal highways.

Moving now to private construction. While overall private construction has remained at historically low levels, there are some indications of improvement in certain categories. In residential construction, single family housing starts remain at historically low levels. Multi-family starts, on the other hand, have increased sharply throughout 2011. Private, nonresidential construction has also remained at low levels, however, trailing 12 month contract awards are up across the US for the fourth quarter in a row. The growth in contract awards in the manufacturing sector has remained strong since late last year and awards for new projects in the categories of retail and office buildings have increased modestly for the third consecutive quarter. While the recent growth in contract awards is encouraging, we believe employment growth as well as an increase in business investment and lending activity is necessary to sustain a recovery in nonresidential construction activity.

Finally, I wanted to take a moment to briefly discuss Martin Marietta's unsolicited exchange offer. As you know, on December 12th Martin Marietta commenced an unsolicited exchange offer to acquire all outstanding common shares of our Company at a fixed exchange ratio of 0.5 shares of Martin Marietta common stock for each share of Vulcan common stock. After a very thorough and careful review and consultation with our independent financial and legal advisors, our Board of Directors unanimously determined that the Martin Marietta's exchange offer is inadequate and not in the best interest of our Company and our shareholders. Among the reasons our Board rejected this offer are that it substantially undervalues Vulcan, it fails to compensate Vulcan shareholders for our stronger operating leverage and our asset portfolio, and it would not enhance shareholder value. In fact, we believe that Vulcan shareholders have more upside on a standalone basis. Since making its offer, Martin Marietta has not provided any new information to change our view.

Accordingly, we continue to recommend that shareholders not tender any shares to Martin Marietta. We remain focused on accelerating our profit growth by further improving our operating leverage, reducing overhead cost, strengthening our credit profile, all of which will allow our Board to restore a meaningful dividend. Our leadership team is stronger and more focused than ever and committed to creating value for our shareholders. I know there will be some questions on the Martin Marietta offer, but we hope that you focused on our improved fourth quarter results, our outlook for 2012, and the exciting new initiatives we announced today which is our primary focus. With that, I'll now turn it over to the operator to begin Q&A.

(Operator Instructions). And our first question comes from the line of Bob Wetenhall of RBC. Please proceed.

Thanks for the tremendous amount of disclosure that you provided, and congratulations on a nice quarter. I wanted to talk about the cost-saving announcements. How should we think about the $55 million in savings that's been achieved and the $100 million that comes after that? And just for model purposes are these going to be discrete measures that you've taken versus more of a continuous process, and what can you tell us about the timing and the source of the savings?

Bob, the $55 million is fully in place. It includes $25 million that we took out during the course of 2011 and an additional $30 million from the restructuring that was announced in December, which will be essentially fully in place by the end of this month. So, that is a separate number. That includes -- it's virtually all overhead including both SAG categories and general production overhead categories.

The $100 million in profit improvement comes from a significantly different focus. It is leveraging the opportunities we have with our new ERP and Shared Services program and extending and leveraging our existing procurement program to additional goods and services over a broad range of activities. We expect to get $25 million of earnings or EBITDA in 2012 from this project, an additional $75 million in 2013, and the full $100 million by 2014. All of that is incremental to the $55 million of overhead reductions already in place.

Okay. That's very, very helpful. Just one other question. You are talking about -- and I just want to make sure my math is right -- getting to EBITDA of $1.3 billion based on 225 million tons annually. Can you comment on your degree of conviction that you can actually get that much EBITDA if you get to 225 million tons? And in tandem with that, can you give us a better idea of cash margin per ton versus where you are compared to the last cycle on the upside?

With respect to the -- getting back to peak EBITDA levels, given our enhanced profitability in our Aggregates business since the peak of the last cycle, I think we are about $0.85 per ton in cash above where we were at the peak of the last cycle. With the Profit Enhancement Plan we've announced today, and with continuing improvement in our aggregates business and some improvement in our other segments, we are confident that we can get to our peak EBITDA levels at 25% below the peak volume levels that we experienced in the 2005, 2006 time frame.

Got it. Good luck and congratulations on the aggressive targets. Thanks very much.

Thanks, Bob.

Our next question comes from the line of Ted Grace of Susquehanna. Please proceed.

Good morning, Ted.

Mr. Grace, your line is open for questioning.

Can you hear me now?

Yes, we can hear you.

I apologize. Congratulations on the quarter. Likewise on the very aggressive plans. First thing I was just hoping to ask is, on the underlying profitability of the Aggregates business, Don, I think in your numbers you outlined revenue was up $16 million, profits were up something like $22 million. It looked like pricing was probably $4 million. But could you give us a bridge to kind of how you got to those incrementals and how we should think about that for 2012?

We had, as I indicated, substantial improvement in all of our productivity measures, labor, all -- every productivity. We track 8 or 10 key operating metrics at all of our plants and we improved every one of them. I will also say, and though it doesn't directly go to margin improvement, our safety, health, and environmental performance at our plants reached record levels. We had the best year in history in the safety performance at our plants and the environmental performance at our plants, all of which works together.

The earnings improvement was -- the pick up of 3% volume in the quarter really helped move the needle. We have so much leverage to volume that even modest increases in volume really help drive earnings along with the improved efficiencies that we had throughout our system.

Ted, this is Dan. There was also a reference in the press release to about $7 million of certain charges that were recorded in the fourth quarter of 2010 that didn't reappear in the fourth quarter of 2011. So, about $7 million of that earnings bridge is the absence of some of those somewhat unusual items that burdened last year's -- or 2010's fourth quarter numbers as well, and those were mainly inventory adjustments and things like that.

Okay. And then on this topic, you normally talk about kind of 60% flow-through rates in aggregates. Clearly, much better performance this quarter. Are you revising kind of what we should think about in terms of normalized incrementals as we get to volume?

I don't think so, Ted. I think we've said that's -- putting aside the Profit Enhancement Plan but looking at -- we've always said the 60% flow-through, you have to look at over the course of a full year, individual quarters are going to move up and down. But I think the Profit Enhancement Plan can expand that. But on a regular basis, I don't -- I wouldn't expand, other than as you build the Profit Enhancement Plan into those models.

Okay. Then the second thing I just wanted to touch on quickly is, I'm sure there will be a lot of other questions on this, on the divestitures, Don, you rank kind of ready-mix concrete, then cement, then downstream -- I'm sorry, surplus real estate, and then aggregates assets. Is that the order in which we should think about the prioritization of monetizing these assets?

Ted, we have a basket of assets we would consider selling. We don't need to sell the whole basket. We can sell a subset of the basket. We are looking for the best values for our Company to achieve the best prices and the best impact on our bottom line. So, we will look at various assets across that spectrum and determine where we ought to move forward.

Okay. And you mentioned that this would enhance, I think, earnings and cash flow and returns. Could you just give a sense for what the EBITDA contribution might be -- think about what the hit would be on the P&L side if you were to sell $500 million of assets? Then I'll jump back in queue. Thank you.

Well, as you can tell, our Concrete segment as a whole has negative earnings. Our Cement segment is close to breakeven. Our Excess Land doesn't generate earnings. It has some marginal carrying cost in terms of taxes and other things.

We don't -- it really -- the answer to your question depends on the basket -- which of the basket of assets we ultimately end up selling. It could be positive, it could be negative, it could be neutral. We are really looking for the best deals we can find. So, I don't think we have an assessment of that at this point.

So, you derive the $500 million of value, I'm just curious what metrics those would be based on. Land may have an intrinsic value, you have to look at the full cycle of profitability of the concrete plant. But I'm just wondering, how do we get to $500 million in value of those assets given the cash profile, the earnings profile?

Well, there are, as I said, a much larger value of assets than $500 million that we will consider. Our valuations are always based on discounted cash flows over a period of years, and that's the basis that we will go forward. We believe there are some assets in our portfolio that are probably significantly more valuable to other people than they are to us because they would have synergies, for example. Someone with excess cement capacity might be very interested in additional concrete assets. That's just one example.

Okay. Well, congratulations and best of luck for the quarter.

Thank you.

Our next question comes from the line of Garik Shmois of Longbow Research. Please proceed.

Hi. First question is on your $500 million EBITDA guidance for 2012. Just wondering if you can help us understand what the volume guidance we should be using in that forecast? Is it the like-for-like volume guidance, or is it the total volume guidance ex assumed asset sales?

Well, the total volume change in our projection from '11 to '12 for aggregates is 1% to 2%. On a same store basis, as I said, that's 2% to 3%. So, if you want to take 2011 volumes, add 1% to 2%, that's where we are. The aggregates we divested in 2011 versus the aggregates that we acquired in 2011, the aggregates we acquired are somewhat higher margin than the aggregates we divested. There's some margin improvement impact to the shift, from the shift in markets in those transactions.

Okay. That's helpful. Thanks for clearing that up. Just two questions on the Profit Enhancement Plan. Just first off, are there any new incremental costs associated with implementing the plan, or is it mainly just reaping the benefits from some of the initiatives that you've undertaken over the last couple of years rolling off?

I think the vast majority of what we expect will be -- and the numbers we've given you are net numbers. The $25 million improvement in 2012 is a net number, that is benefits minus cost. There will be some cost associated with it. John McPherson is here. John, do you have additional comments?

I have it highlighted. The $25 million of impact in '12 is net of costs in our forecast, and we do not expect major capital investment associated with the profit improvement.

Okay.

Those are largely behind us, both the cost and expense of getting there are largely behind us with the ERP platform and the Shared Services platforms and the existing procurement platform. Not many of you followed us back in 1996 and 1997, but we re-engineered our entire procurement process then, brought it up to a state-of-the-art process at that point. We will continue to update that and expand it and that will help us significantly in the Profit Enhancement Plan.

Okay. And then the $75 million in improvement in cost of goods sold, I was wondering if you could break it down by segment, give us some more color, how much is coming out of aggregates versus asphalt, ready-mix and cement?

I'm not sure -- what $75 million.

On slide 6.

75, Garik, is the 2013 impact.

Yes.

Okay. Oh, the $75 million, that is largely procurement.

He's asking by -- I think he's asking by product line.

Oh, by product line?

I would say roughly proportional to sales and size of those segments.

Okay. Yes. That's what I was looking for. Thanks. And then just one more question on the dividend. You mentioned that the Board is looking to reinstate a competitive dividend.

Was wondering, Don, if you can just give us some color or some metrics that the Board's going to look for to determine that indeed a higher dividend makes sense and maybe the time frame in which we could look forward to perhaps a higher dividend coming back?

Our Board's always looked at cash earnings as a source for dividend payments. That is a very, very important issue for our Board. We would very much like to get -- restore a dividend and continue to grow a dividend. We'll take a look at that at the end of the first quarter again. We looked at it very carefully, as you know, in the fourth quarter of last year. We looked at it again in our most recent Board meeting, and we'll continue to look at it very carefully as we move forward. But I think our Board's view is we need to restore it sooner rather than later.

And just as a follow-up to that, it wouldn't necessarily come after the debt repayment program as a result of the asset sales, it doesn't have to be mutually exclusive from that?

That is correct.

Okay. Thank you very much.

Our next question comes from the line of Jack Kasprzak of BB and T. Please proceed.

Thanks. Good morning, Don.

Good morning, Jack.

Just back to the asset sales, quickly, you covered a lot of that, but I guess I wanted to ask, there are other announcements out about asset sales, notably Semex saying they want to sell $2 billion by the end of this year. I mean, have you gotten -- are you to the point where you've gotten a feel from the market. Given the level of competition out there, how confident can you be that you'll get the types of valuations that underpin that $500 million estimate?

Jack, I think every asset we have in our basket, we have had people asking us to buy those over the last two or three or four or five years, so there's plenty of interest in them. I don't know where and what Semex is proposing to sell, but we believe that there will be significant buyers with hopefully significant synergies who will be interested in our assets that we have in our planned asset sales.

Okay. The California volume increases, noteworthy to be sure, and you mentioned infrastructure projects; but is there anything else going on out in California that you -- that might be underpinning that sort of volume change? We've obviously had good weather here lately, but are you seeing any other signs of life out there in that market given it's so important to you?

California has a very robust highway program, and we are benefiting from that significantly. Now, other volumes in California have stabilized. The private sector volumes have stabilized, albeit at low levels. But the big driver in California is highways. A lot of people don't really understand that or don't want to believe it because what they read about California's budgets, there's a very robust highway program going on out there. And we're benefiting from it substantially.

It is true that their awards were up last year while the market was down, so that's interesting.

We get the benefit, Jack, of both aggregates and asphalt and to some limited extent in concrete in the infrastructure, the highway program in California, so we get the leverage from both asphalt as well as aggregates.

Okay. And on residential construction, obviously bumping along low levels there too, but in the last two or three months starts have picked up. Mostly that's multi-family but if you look at some of the home builder orders lately, they've been pretty good. Are you guys seeing builders move dirt and start to use aggregates again?

A little bit. The big bump is in multi-family. Our outlook for US starts, housing starts for 2012 is about 714, about 488 of that is single family starts, which is a very low number, as you know. Multi-family has been the driver, and the multi-family is consuming heavy construction materials, because it's not being built on existing developed lots. There's a little bit of lot development, but there's still a big inventory of developed lots. They may not be in the right place for home builders, but -- and so there is some incremental lot development, but it's still modest.

Modest. Okay. Thanks a lot.

Our next question comes from the line of Mike Betts of Jefferies. Please proceed.

Yes, hi. Thank you very much.

Hi, Mike.

Hi. Two questions, if I could, Don. Firstly, just on Q4, plus 3% on aggregates volumes, you hire out the big increases in California and the mid-Atlantic. Presumably there was some regions where the volumes were down significantly. I mean, where were they, was my question and is it primarily caused by weather?

And then secondly, the thing that intrigued me on slide 6, you have plant operations, additional opportunity. Is this just put as additional opportunity because you still could work it through, or is that potentially a significant area of further profit enhancement? Thank you.

Mike, in terms of volumes, you are correct. Volumes from state-to-state and market-to-market varied significantly across our footprint from -- in the quarter down 13% to, we said, up 40%. So, it's very market-specific volume.

And again, it's the fourth quarter and you can't -- the fourth quarter is so heavily influenced by weather. I think we had good weather in a lot of the Eastern and southeastern US, which probably had some influence on volume. But there was a lot of work in infrastructure, particularly in highways, that we enjoyed in the quarter. Your second question was -- could you repeat that, please?

Yes, on slide 6, where it talks about the Profit Enhancement Plan, it has plant operation, additional opportunity. I'm trying to work out whether you're just kind of still working on that, whether it's just a small opportunity, or whether potentially there maybe tens of millions more to come from that.

Well, that is certainly something we are working hard on and will pursue. We are not in a position to quantify a number there yet. As you know, if you have looked at our recent debt, our margin per ton and cost per ton -- our margin per ton is substantially higher than our chief competitor, and our cost per ton is substantially lower. We do think we've got opportunity for continued improvement.

We'll get there, but I think we are more confident and have done more work to date on the other categories, but that doesn't mean we're not going to be pursuing improvement there. We have improvement in our aggregates business built into our 2012 EBITDA projection. Some of that is price. A little bit is volume and a little bit is cost improvement. What we get in this project would be in addition to what we have built into our 2012 outlook, but we will update you on that as we go quarter-by-quarter through 2012.

Okay. Just one final question, Don, if I could. You talked about ready-mix operations maybe that would be interesting to others who had cement. How much of your ready-mix is not vertically integrated?

How much of our concrete or cement?

Yes.

Well, our concrete, we don't have cement in California. As I've said, we have divested our concrete in Arizona and New Mexico. We do not have cement in Texas. We don't have cement in Maryland, Virginia, and Washington, DC. The concrete we have in Florida and Georgia can be served by our cement plant in North Florida. We do have some cement swaps in place but a significant portion of our concrete is not supplied directly at least by Vulcan cement.

So, of the 4 million cubic yards, at least 3 million of that wouldn't be supplied internally?

I don't have that number in front of me, but that's in the ballpark.

That's about right.

And we have very good -- we have some very good Concrete businesses that we don't supply with cement. We do supply the vast majority of our Concrete businesses with our own aggregates and that will be a key issue for us in determining selling these assets, is that we preserve the ability to supply the aggregates to the Concrete businesses.

Understood. Thank you very much.

Our next question comes from the line of Kathryn Thompson of Thompson Research Group. Please proceed.

Hi. Thank you for taking my questions today.

Good morning, Katherine.

Good morning. Two questions. And both more operational focused. When you look at your Aggregate margins in the fourth quarter, how much of the improvement were the result of your cost cutting initiatives, both that were ongoing and that were announced versus better volumes and/or pricing?

I'm not necessarily looking for specific dollar amount but even on a percentage basis, broad buckets, whether it be half is cost cutting and half is other, but giving some clarity with that in Q4, theoretically should give some visibility in how we should think about it when modeling going forward.

Kathryn, the majority of the improvement is as a result of operating leverage from the 3% higher volume, a little bit of price improvement, and very good productivity efficiencies both labor, fuel, explosives, other energy, electricity, not much from the overhead cost reduction that was in the fourth quarter Aggregates improvement. Certainly, as we go forward, the $56 million of run rate -- $55 million of run rate, some of that will flow through and help Aggregates, but I think fourth quarter was really operating leverage more than anything else.

Okay. Great. When we look -- obviously, there's been some mild weather that's helped a variety of building materials and building product Companies. How have your volumes trended in January and February? How much, in other words, is mild weather helping to drive demand?

In your experience in the past, when you've had milder weather in the winter, does that really pull forward much demand? So, if you could really kind of reach back to prior years in operating, first answering how volumes trended in January and February, how much weather's been an impact, and then in the past how much has mild weather really pulled forward demand from the spring?

Certainly in the end of the fourth quarter, we had favorable weather in a number of our markets. Our shipments were very strong in the latter part of the fourth quarter. Without being specific, that shipment trend has continued. How much of it is weather and how much of it is improvement in demand is always problematic to determine, but we are pleased with the 3% volume growth we had in the fourth quarter and we -- as we've indicated, we expect 2% to 3% volume growth for full year '12 on a same-store basis. How much pull-forward there is or is not is very difficult for us to determine at this point.

What about in just looking at prior years, because -- putting this into perspective there have been some contacts that said, Listen, when you have very cold weather a lot of the volume's just lost. And by the same token, with mild weather it doesn't necessarily represent as much lost volume as you would think. It's really I'm just looking --?

We don't think good weather in the first quarter is going to change the total demand outlook for full year 2012. It may move some volume around from one month to the next or from one quarter to the next, but it really is not going to be a factor -- first quarter weather is not going to be a factor in full year demand. Sometimes --

That helps. Okay. Thank you very much.

Our next question comes from the line of Trey Grooms of Stephens, Incorporated. Please proceed.

Yes, good morning. This is actually BG Dickey sitting in for Trey. Just wondering if you could quickly go through some of your end markets and give us some idea of kind of what level of growth you're expecting in each in 2012. Just trying to get a sense of what's driving the volume growth expectation aggregates in 2012.

As we look at our end markets, and these are Vulcan-served counties, at a macro level, we have highways -- shipments into highways, and this is not Vulcan-specific, this is demand in our end markets, highway's down about 3%, housing up 15%, but the vast majority of that being multi-family, non-res being up about 3%, infrastructure being down about 2%, and if you roll all that up, that's about a 1% to 2% increase in volume -- Aggregate volume in our served markets. That doesn't say anything about market share or ability to serve particular projects or whether -- who will get the work, and who has advantages and disadvantages based on where it may be, but from a macro standpoint, that's our current outlook.

Okay. That's helpful. And then just switching to pricing. Aggregate pricing expectations. Your guidance, again, calls, I believe, for 2% to 4%.

That's correct.

Can you give us an idea of kind of which markets that you serve -- you're expecting to see the highest growth or is this more broad spread, you think it will be equal across all?

I can assure you it won't be equal across all markets, it never is and probably never will be. Some of it -- as we pointed out in our comments, some of our strongest pricing in the fourth quarter came from Florida. We also had good pricing in the other markets I called out, Virginia, Texas, and Tennessee. So, those are markets that were strong in the fourth quarter. As we look forward to 2012, those same markets seem to be relatively stronger. Some shift, but both Florida and Texas should be good along with Tennessee, and perhaps some other markets, but we'll report on that as we go through the year.

Okay. Thanks. And then lastly, you gave a lot of color and detail around -- in your prepared comments about the multi-year highway bill. And just very simply, I mean, can you handicap probability, as far as actually thinking that a multi-year deal actually gets done before November, or is it anybody's guess still?

Well, I think the most important point is the commitment we think of both Houses and the Administration that highway funding will be maintained under whatever legislative structure at the 41-ish kind of annual number. That's the most, I think, encouraging and the thing that we have the most confidence in, that we are going to see a continuation of highway funding, whether by continuing the resolution, or by a Senate bill or a House bill, we think the funding levels through 2012 will remain at essentially current levels.

Senate bill adds a little for inflation, so if the Senate bill were to pass and be passed by the House as well, then there could be a slight uptick. We do not see the risk of cuts that we saw a year ago. I think the Senate bill has the best chance of passage. But to handicap it, it's very hard to say that we have high confidence that a multi-year bill will be passed by March 31st. There certainly is a possibility, but I think the more important point is we do not see a scenario in which Federal highway funding will be reduced.

Okay. And do you have a preference on the two-year bill versus the five- or six-year bill as far as -- like you're saying, the Senate bill may be more dollars, but it was generally our understanding that you would prefer a more extensive bill in terms of years. What are your thoughts on that?

Well, the best proposal out there is the President's budget, which has like $51 billion a year for six years, plus $50 billion on top of that. Whether that has any political viability or not depends on who you talk to. But certainly the Senate bill, I think having some certainty for 2 years or 1.5 years as it will be by the time it would pass, is beneficial to state DOTs.

But as long as there continues to be stable funding and an outlook for stable funding, I think that would be helpful. Obviously, we would much rather have a five- or six-year bill, but at this point I think that's problematic in being able to identify the funding source. As you know, the House is talking about oil and gas revenues from Federal lands being dedicated to the Highway Trust Fund. We would love to see that happen. That's got a lot of political angst associated with it.

Okay. Thank you. I'll pass it on.

Our next question comes from the line of Todd Vencil of Sterne Agee. Please proceed.

Thanks, hi.

Todd, you and I both know it's Agee, but go ahead.

There you go. Don, when you're talking about getting back to those peak levels of EBITDA on 25% fewer volumes, I'm just a little -- I just want to make sure I'm thinking around the Florida rock deal well enough. What volume and EBITDA levels are those that you're thinking of?

The EBITDA's about 1.35, 1.3, 1.35. The Aggregate volume levels were about 294 million.

Got it. Perfect. Thanks a lot. And a lot of the rest of the stuff that I had has come and gone. But on diesel, can you share with us what the cost and the gallons were in the fourth quarter and for the year?

Yes. For the full year, Todd, and our cost for diesel fuel is a blend of off-road and on-road, which is different than some other folks. We burn on-road diesel in our ready-mix operations, as well as our trucking operations in Texas and Illinois. Our average cost, as we said for 2011, was up about 35.4% over 2010, and the average price throughout the year was $3.31 a gallon.

So if you -- you can get to 2010 numbers by doing the math. We think it's going to be essentially flat for 2012, which is a big deal if that comes about. That 35% higher diesel fuel costs us $35 million in earnings. So, if we can -- and that's been escalating, as you know, for the last two or three years. So, if we can get stable diesel fuel prices, that will be a big benefit to us, as opposed to having them go up 35% as they did in 2011.

Excellent. I'm sorry, what were the volumes for the fourth quarter and for the year, the gallons?

Over 40 million gallons for the full year and just about 10 million for -- just under 10 million for the fourth quarter.

Thank you. Thanks, Dan. Thanks.

Thank you, Todd.

Our next question comes from the line of Keith Hughes of SunTrust. Please proceed.

Thank you. On the asset divestitures you spoke of earlier, can you at least tell us in terms of the basket you're looking at what kind of EBITDA, addition or detraction, it is was in 2011?

If you look at our segment earnings in 2011, you can get -- we don't report -- we haven't reported EBITDA by segment, but -- What? I think if you look at the --

I know where you're going.

If you look at the earnings by segment, you see a loss in Concrete, you see a small loss in Cement. So, selling those assets will improve our near-term profitability.

Okay. So that leads to my next question, is on the table getting completely out of those segments as part of this, if it goes to fruition?

No, not necessarily. We don't need to sell all of our Ready-mix and all of our Cement by any stretch to get to $500 million.

So specifically within Concrete and those losses, do you have some Businesses that are making money and others putting up really big losses, or does that kind of make up?

We have very differing results by region in Concrete.

I guess final question on this topic. You've been in this downturn for several years now, and you can look back and see large losses specifically within Concrete. Have you looked at this before and not do it for some reason, or what's been the strategic thought over the last couple of years specifically within Concrete?

We have, as I've said in our remarks, we sold or divested in a transaction our Ready-mix Concrete business in Arizona and in New Mexico over the years. We have divested a lot of Concrete assets that have come in acquisitions, along with Aggregates. Concrete can be a good Business and it is a really good Business for us in some markets, but Concrete does not enjoy the same structural advantages of Aggregates, primarily barriers to entry. And as a result of that, I think Concrete over long periods of time is a lower return, less profitable Business than Aggregates. Our obviously long-term strategic focus is on Aggregates. That being said, there are some markets where the structural characteristics of Concrete look more like aggregates, and we tend to do very well in those markets and we -- so we're not, at this point, proposing to sell all Concrete assets. They are in the basket, but we'll be very selective about what will make the most sense for us to sell.

Okay. Thank you.

Our next question comes from the line of Rodny Nacier of KeyBanc Capital. Please proceed.

Good afternoon.

Hi, Rodny.

I see energy inflation is flat in your forecast for 2012 EBITDA. Can you help me understand how much of a percent increase in Energy you think you can offset without impacting your target EBITDA number?

That -- we're looking at Energy in our -- as part of our Strategic Sourcing plan. We also are looking at Energy Efficiency in our planning. As I indicated in the fourth quarter and full year 2011, we were much more energy efficient, including diesel fuel efficiency, over 2010. We will continue those efforts.

So, it is a combination of trying to buy better, be more efficient in the utilization. I can't give you a specific answer to your question but those are embedded in both our -- in our Strategic Sourcing focus and our transportation and logistics focus. All of those have energy and diesel fuel and that will be -- that is a very large component of our total input cost and a place that we are going to be very focused in trying to improve our results.

Thanks. And with the profit plan, the $25 million that you expect to achieve in '12, I'm sorry if I missed this during the call, but can you help me understand how that's flowing through to the Aggregates business versus the downstream operations?

It will flow through to all, but principally Aggregates.

Okay. And you had commented before on the $1.35 billion of EBITDA that you would expect to achieve when you achieve your volume target. I was wondering how much of that number is now tied to explicit cost actions that you've announced in 2011 and 2012?

Certainly the cost actions we've announced in '11 and '12 will help us in that -- in reaching that goal, but our -- the profitability improvement we have experienced over the last three or four years is the principal source of that opportunity. It will only be enhanced by the Profit Enhancement Plan we've announced today.

Rodney, put a little differently, of the $55 million of overhead costs that we've announced, about $35 million or $37 million of that hits full year impact in 2012. The rest -- most of the remainder was already realized in 2011.

Okay. All right. Thank you. That's helpful. Thanks for taking my questions and good luck this year.

Thank you.

Our next question comes from the line of John Baugh of Stifel Nicolaus. Please proceed.

Thanks. Just quickly here, California in '11 represented roughly what percentage of your aggregate mix, number one? And number two, if you were to separate out in California the private nonpublic piece in '12, how do you see the public infrastructure highway spend in California year-over-year, '12 versus '11? Thank you.

My guys are doing some calculations to try to answer your question. I think our outlook is for continued infrastructure spending, primarily highway spending in California in 2012. We had a good year, obviously, in 2011, but there's still a number of projects moving forward. California's about 13% of our aggregates shipments. So, it's a larger portion of our revenue because we have significant asphalt business in California, as well as ready-mix concrete, but in aggregates it's 13% of our shipment.

Based on the spending plans that you know of, you're comfortable saying public spend will be up in '12 versus '11 in California?

I think I was indicating we think it will continue to be strong. A lot depends on bid lettings as we go through the year.

Thank you.

Our next question comes from the line of Scott Levine of JPMorgan. Please proceed.

Hi. Good afternoon. Just looking for a little bit better understanding of what a highway bill with continuity in funding might mean for the Highway and Infrastructure business. And this is going to be somewhat theoretical, but if you do get a bill this year and you do get continuity in funding for at least a couple of years, do you think that could result in growth in the Infrastructure side of your business, or at least the Highway side? And what magnitude of growth, I mean, how important is that level of visibility to the states and could we see growth in a scenario where funding remains constant, and to what extent?

Clearly, a multi-year program gives visibility and confidence to states. Whether -- I think the impact -- if you have essentially level funding, a multi-year bill, even if it's only two years, compared to continuing resolutions, probably just affects the timing of jobs, and to some extent the nature of the job.

Shorter term funding typically is used to support resurfacing, and to some extent lane additions, whereas multi-year funding often results in larger sort of new construction projects. But, at the end of the day it's really more of a timing between quarters and years rather than an absolute increase in demand, if I understood your question.

Yes. I guess maybe as a follow-on, I mean, with that timing impact, could we see a pull forward into '13 in the scenario where you get pretty significant growth in 2013 if something gets passed this year?

Yes. And that's a timing -- that's a timing thing. If something passed this year, which would allow the state DOTs to go ahead and take from their existing backlog of projects and put them out for bids, then yes, it would change the timing and it would pull volume forward.

Got it. And then one follow-up really quickly on the residential, I think you suggested that the market, residential construction up 15%. On the single family side, does that imply growth there? Is that positive in your view, or is all that growth from multi-family?

The vast majority is from multi-family.

Got it. Great. Thank you.

Our next question comes from the line Keith Johnson of Morgan Keegan. Please proceed.

Good morning and thanks for taking my question.

Good morning, Keith.

Just real quick, on the -- you had given us a little color earlier on kind of how your volumes by end markets stacked up for your 2012 outlook. Could you give us that on how 2011 finished when you look at it by infrastructure, residential, that sort of thing in aggregates?

Yes, let me get my hands on the -- we look at -- well, I have in front of me 2012 and the change. I don't have the '11 data in front of me. But you can get to it by, in essence, highways in '11 were 103% of where we think they're going to be in '12. Infrastructure's 102% of where we think it's going to be in '12.

Housing was 85% in '11 of where we think it will be in '12. Non-res was 97% of where we think it will be in '12. And overall, '11 was about 99% of where we think it will be in '12. So, I know we've got that data, I just don't have it in front of me. I just have the year-over-year change in end markets from '11 to '12, but you can back into what '11 was.

Okay. All right. Thank you. Just real quick on concrete, noticed a little bit of a sequential decline in selling price going from third quarter to fourth quarter. Just trying to get an idea, was that just a mix issue, a regional issue relative to -- or how should we trend that as we go forward?

It's a mix issue. Concrete pricing is up. We expect it to continue to improve, but there's no significance to that.

Okay. And then just a final question, I want to make sure I'm thinking about the comments around peak EBITDA on 25% less volume. If I look back into, I guess kind of '06, '07, the I guess concrete and asphalt businesses at that time were decent contributors to performance relative of course to where they are in a depressed market today. Getting back to that peak EBITDA of around $1.3 billion on 25% less volume in aggregates, what does that count in there for the downstream products, or does it?

It assumes that the downstream products recover. The volumes of the downstream products recover similar to the growth in Aggregates, but it does not assume that the downstream products ever achieve EBITDA margin levels equivalent to those that were achieved at the peak of the last cycle. Most of the leverage to get to the peak earnings faster is because of the enhanced profitability of the Aggregates business as it stands today, along with the better leverage on the overhead side.

And in that comments -- or outlook did you saw assume any adjustments around that basket of assets for selling?

No.

All right. Appreciate all the color today and good luck.

Thank you.

With no further questions, I would like to turn the call back over to Mr. Don James.

Okay, well thank you all for being with us today. We appreciate your interest in Vulcan. The primary theme I hope you heard from us today is that we are intensely focused on increasing our profitability and growth and delivering value to our shareholders. We look forward to updating you on our progress at the end of the first quarter. Thank you so much and have a good day.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may disconnect at this time. Have a good day.