渥肯建材 (VMC) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the quarter two 2012 Vulcan Materials Company earnings conference call. My name is Ian, and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions) And as a reminder, the call is being recorded for replay purposes. I would now like to turn the call over to Mr. Don James, Chairman and Chief Executive Officer. Please proceed, sir.

Good morning. Thank you for joining us to discuss our results for the second quarter of 2012. I'm Don James, Chairman and Chief Executive Officer of Vulcan Materials Company. Joining me today on the call are Dan Sansone, our Executive Vice President and Chief Financial Officer, and Danny Shepherd, our Executive Vice President for Construction Materials. We have posted a short slide presentation to our website that we will reference during this call. These slides are also available to those of you on the webcast.

Looking at slide 2, and before we begin, let me remind you that certain matters discussed in this conference call contain forward-looking statements, which are subject to risks and uncertainties. Descriptions of these risks and uncertainties are detailed in the Company's SEC reports including our most recent report on form 10-K. In addition, during this call, Management will refer to certain non-GAAP financial measures including EBITDA, adjusted EBITDA and adjusted diluted EPS for continuing operations. These measures are not prepared in accordance with US generally accepted accounting principles. You can find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures and other related information in Vulcan's Second Quarter 2012 earnings release and in the Investor Relations section of Vulcan's website.

Turning now to slide 3, before we walk through the quarterly results, I wanted to briefly discuss a few highlights from the quarter. We remain keenly focused on reducing overhead costs and maximizing operation efficiency across the organization. These efforts have enabled us to continue to increase profitability while sales remained essentially flat. Adjusted EBITDA was $127 million in the second quarter of this year, an increase of $10 million or 8% over last year's second quarter. We achieved higher EBITDA despite a slight decline in net sales. This decline is due, in part, to demand weakness in certain of our markets to the pull-forward effect of seasonally favorable weather conditions during the first quarter and unusually severe weather from Tropical Storm Debby in Florida in June. These negative influences were offset by encouraging growth in a number of our other key markets.

Despite weaker volumes in several of our most profitable markets, aggregate segment gross profit margin increased 220 basis points and cash earnings per ton of aggregates improved to $4.57. Both of these improvements demonstrate our cost reduction efforts and earnings potential of our aggregates business, particularly as volumes across our geographic markets recover. SAG expenses were reduced during the quarter by approximately 16%, reflecting our organizational restructuring and our cost reduction initiatives.

As we look ahead, activity in both private and public sector construction markets continues to improve. We are encouraged by the passage of the new multi-year highway bill signed into law in early July, which should provide the State Department of Transportation with funding certainty that they need to move forward on infrastructure programs. I will discuss some of the details regarding the highway bill a bit later in the call. We have also made important progress on our initiatives to enable Vulcan to continue to generate higher levels of earnings in cash flow, further improve our operating leverage, reduce overhead costs and strengthen our credit profile.

Turning now to slide 4, as I noted, net sales for the quarter were approximately $649 million, which is a 1% decrease from the second quarter of 2011. For the first six months of 2012, net sales were approximately $1.1 billion, 3% higher than the same period last year. Adjusted EBITDA was $127 million in the second quarter 2012, which is an increase of $10 million or 8% over the second quarter in the prior year. When making year-over-year comparisons of earnings in EBITDA, I want to highlight three items that are excluded from the adjusted EBITDA. The second quarter results include $32 million of costs related to the unsolicited exchange offer by Martin Marietta. They also include $4.5 million of charges associated with the implementation of our Profit Enhancement Plan. And finally, we recorded a $12 million gain on the sale of mitigation credits in California during the quarter.

For the first half of 2012, EBITDA increased $52 million or 42% from the first half of 2011. I also want to point out, again, our continued success in reducing overhead costs. SAG expenses were 16% lower in both the second quarter and the first half. These decreases are the direct result of the restructuring initiatives we undertook during 2011 and the first quarter of 2012, as well as the early benefits of the Profit Enhancement Plan we announced in February. We will provide an update on the Profit Enhancement Plan shortly. I will now turn the call over to Danny Shepherd, who will walk you through our segment results for the quarter and an update on our Profit Enhancement Plan and Planned Asset Sale.

Thank you, Don. Turning to segment results on slide 5, aggregate segment results revenues were pressured by sluggish demand in certain markets and relatively weaker volumes in several of our most profitable markets. Aggregates volumes declined by double digit percentages in Georgia, North Carolina and South Carolina. All of these states are relatively high margin states for Vulcan, so the volume decreases in those states had a larger impact on bottom line results. On the positive side, we achieved double-digit growth in shipments in a number of key states including Alabama, Florida, Illinois, and Texas, while shipments in Virginia and California continued to show improvement compared to the prior year. These year-over-year increases in aggregate shipments were due mainly to large infrastructure project work, primarily highways, and increased private construction activity in these states. I should also note that while volume growth was strong in Florida, as Don mentioned, the severe wet weather in June from Tropical Storm Debby impeded the level of shipments in Florida in June, reducing the quarterly gain.

The average freight adjusted selling price increased slightly in the quarter due primarily to some price improvement, private construction work and offset mostly by the negative impact of geographic and product mix. Overall, we believe our pricing in our markets remained solid with additional improvement expected in the second half of the year. While the top line was sluggish, we continued to drive stronger profitability. On a $7 million decline in revenues, our aggregates gross profit increased approximately $9 million, reflecting lower unit cost of sales. As a percentage of segment revenues, aggregates gross profit increased by 220 basis points for the quarter. Cash earnings per ton of aggregates increased to $4.57 per ton.

All key labor productivity and energy efficiency metrics improved from last year. The unit costs for diesel fuel decreased 4%, accounting for $1 million of the increase in gross profit. Moving to asphalt, for our asphalt mix segment, gross profit in the second quarter was $5 million compared with $8 million in the year-ago period. The unit costs for liquid asphalt increased 7%, which contributed to the decline in segment earnings. The average sales price for asphalt mix increased slightly from the prior year, offsetting some of the earnings effect of an 8% decline in volumes.

Concrete gross profit was a loss of $9 million, which is in line with prior year period. Ready-mix concrete volumes increased 6% from the prior year. The earnings effect of higher volumes was offset by the unfavorable geographic mix. Finally, cement. Cement segment gross product with a loss of $2 million compared to a loss of $1 million in the prior year. A planned maintenance outage at the Company's cement plant in Florida, as well as costs related to production disruption from heavy rain and power outages from Tropical Storm Debby, negatively affected segment earnings in the second quarter. In total, gross profit for our non-aggregate segment decreased by $4 million.

Turning to slide 6, now, I'd like to highlight the steady progress we are making as a part of the Profit Enhancement Plan announced in February. As you may recall, the Profit Enhancement Plan includes cost reductions and other Profit Enhancement initiatives intended to improve our run rate profitability as measured by EBITDA, and we would expect to improve $100 million annually at current volumes. The Profit Enhancement Plan is focused on three major areas. We have a $55 million target in sourcing; we have $25 million target in G&A; and another $20 million target in transportation and logistics. As previously announced, we expect to achieve at least $25 million of the Profit Enhancement Plan in 2012 and the remainder, in 2013.

Employees throughout the organization are implementing actions to improve our profitability across all business segments. And thanks to their continuing efforts, we remain very confident that we will achieve our Profit Enhancement goal. Through the first half of 2012, we have reduced total Company controllable costs by $55 million from the prior year. This includes the benefit of previously announced restructuring, as well as the initial results of our Profit Enhancement Plan. The latest portion of restructuring and implementation cost for the Profit Enhancement Plan, approximately $4.5 million, was incurred in the second quarter. The Company expects to incur an additional $3 million in restructuring and implementation cost as work is completed in the second half of 2012. There are over 200 specific Profit Enhancement initiatives underway across Vulcan's regions and functions.

Our entire team, in particular the managers and staff closest to our operations and customers, has risen to the challenges presented by today's difficult market conditions. The actions being taken will positively impact our already impressive cash margins per ton, further improving our leverage as demand recovers. To give some examples, in the area of G&A, we have worked on further consolidating back office transactional activities into shared services and right sizing shared services staffing. Types of actions we have taken in sourcing include renegotiating several large supply contracts at reduced rates, implementing enhanced bidding requirements for certain third-party services and implementing a new T&E cost policy. A specific example of an action we have taken in transportation is optimizing fuel efficiency of Vulcan ships. We remain very committed to our Profit Enhancement Plan and the execution of these initiatives will remain a top priority for corporate and region management.

Now, for a brief update on Planned Asset Sales. I want to take a minute to give this update. As you may recall, we are planning to sell non-core assets in a disciplined and strategic manner. These are good assets, many of which we -- which will have a significant value to a number of potential purchasers. Our objective is to generate net after-tax proceeds of approximately $500 million by mid 2013, helping to strengthen our balance sheet, unlock capital for more productive uses and create value for our shareholders.

We have been pleased with the level of interest in activities surrounding this process thus far. During the last several months, we have maintained active discussions and engaged in negotiations with multiple potential purchasers. These discussions include potential sales and other transactions involving a portfolio of assets that are not central to the Company's strategy. We look forward to updating you on our progress in the coming months, and I'll now turn the call back over to Don.

Thanks, Danny. We are becoming more confident as we move to slide 7, that the worst of this economic downturn in construction is behind us. This view is supported by increased contract awards for new construction projects, particularly in private construction, which bodes well for continued demand recovery in our markets. Multi-family housing starts have been growing now for 20 consecutive months, trailing 12 month single-family housing starts turned positive in the first quarter of 2012 on the back of higher starts reported in recent months. Trailing 12 month contract awards for private nonresidential construction have been growing for the last 16 months. This trend is driven by growth in awards for commercial and retail buildings. Additionally, trailing 12 month awards for Vulcan-served states in this private non-res category are up 7% versus 2% for other states. This is another positive indicator for continued demand recovery in our high growth markets.

Turning now to slide 8, we continue to be optimistic about the trends and the private and public sector construction. We are encouraged by the passage of the new multi-year highway bill by Congress in late June. There was overwhelming bipartisan support for this legislation in both the House and the Senate, and it was signed into law by the President on July, the 6th. This bill called MAP-21, is designed to provide State Departments of Transportation with funding certainty in order to allow them to move forward on infrastructure programs. It will help rebuild America's aging infrastructure by modernizing and reforming our current transportation system, while also protecting millions of jobs.

The bill maintains essentially level funding for the next two fiscal years with over $105 billion for total funding through fiscal year 2014. It extends the highway trust fund and tax collections through fiscal year 2016, which is two years beyond the reauthorization period, and adds additional stability that we have not had for the last several years. The bill's substantial highway provisions are more reform focused than previous bills, with a strong emphasis on improving project delivery and eliminating red tape that has slowed the construction of highway projects. Funding directly for highways provides a floor of $82 billion for fiscal years '13 and '14.

On top of this, there's a very significant increase in the TIFIA program, which stands for Transportation Infrastructure Finance and Innovation Act. Funding for this program will increase to $1.75 billion over the next two-year period from only $122 million per year under SAFETEA-LU. According to the Federal Highway Administration, TIFIA funding is typically leveraged by a factor of 10 so that there is a potential for $17.5 billion in additional major project funding for fiscal years '13 and '14, over and above the $82 billion in the regular highway program. TIFIA is a highly popular program that stimulates private capital investments for projects of national or regional significance in key growth areas throughout the United States including large portions of our footprint. The program provides credit assistance in the form of secured loans, loan guarantees and lines of credit to major transportation infrastructure projects.

Eligible sponsors for TIFIA projects include state and local governments, private firms, special authorities in transportation improvement districts. Eligible projects include highways and bridges, large multimodal projects, as well as freight transfer and transit facilities. Some of the existing TIFIA projects that those of you around the country may be familiar with would include the Capital Beltway HOT Lanes in Virginia, the I-5 / I-95 corridor improvements in Florida, the Presidio Parkway in California, as well as the Central Texas Turnpike in Texas. Overall, MAP-21 creates a positive framework for future authorization through its significant reforms consolidating and simplifying federal highway programs, accelerating the project delivery process, expanding project financing and promoting public-private partnership opportunities.

Needless to say, the fact that Congress was able to pass a bill in the current political climate, maintaining funding levels while also adding an additional year of program funding beyond what all the pundits expected, has its own significance. And makes us even more optimistic about the ability of Congress to continue to work towards long-term solutions to rebuild America's infrastructure. Vulcan played a very active role in support of this legislation, communicating with Congress about the critical need for infrastructure investment. We have worked on this critical issue, and will continue to do so, both as Vulcan and as part of a broad coalition of key stakeholders including business, labor, industry association, and state and local governments.

Turning now to our outlook on slide 9, through the first half of 2012 Vulcan's adjusted EBITDA was $175 million, up from $123 million in the prior year. During the second half of 2012, Vulcan expects adjusted EBITDA of approximately $325 million, a $102 million increase from the second half of 2011. Included in the second half improvement is approximately $23 million from gains, from the routine sale of real estate that is not part of the Planned Asset Sales, and savings from the restructuring initiative announced last year and completed during the first quarter of 2012. With a balance of the year, we expect the year-over-year EBITDA improvement to be realized from cost reduction initiatives underway across the organization. Including additional savings from the profit enhancement plan, as well as the year-over-year improvement in second half segment earnings in aggregates, concrete and asphalt.

We anticipate the total cost in the second half of 2012 will decrease by approximately $50 million from the prior year, which gives us $105 million in savings for the full year. Full year SAG costs are now expected to be approximately $260 million. For 2012, we expect earnings in each segment to improve from the prior year. We now expect a total aggregate freight adjusted selling prices to increase 1% to 3%, aggregates demand should benefit from recovery in private construction activity and from the new federal highway bill I mentioned earlier. As a result, total Company same-store shipments are now expected to be up 1% to 3% with total shipments, that is adjusting for divestures of Indiana operations last year should be flat to 2% higher.

The uneven pace of growth in shipments through the first half of 2012 across our key markets makes forecasting overall volume growth more challenging. The full-year outlook assumes a more normal geographic mix of shipments in the second half of 2012. Our non-aggregate segment earnings are expected to increase approximately $25 million compared to last year, due mostly to improved earnings in asphalt and concrete. Asphalt earnings are expected to increase due to second half growth in shipments as a result of the timing of certain large projects in California.

For the concrete segment, volumes should continue to benefit from growth in private construction activity in the second half of the year. Some net earnings are expected to approach breakeven for the full year. Unit costs for diesel fuel are expected to increase modestly from the second half 2011 levels, resulting in a full-year increase of 1% to 5% from last year. Based on all of these assumptions, we expect 2012 EBITDA will be approximately $500 million, which excludes results from the Planned Asset Sales and the cost associated with the unsolicited offer. We expect capital spending in 2012 to be approximately $100 million.

In summary, we are encouraged by our second-quarter results. Our cost reduction initiatives are gaining traction and positioning us well for solid earnings growth in 2012. More importantly, these initiatives will improve the underlying cost structure of our organization and allow us to fully leverage the earning potential of a sustained recovery in demand. Now, I'll turn the call over to our Operator to begin Q&A. Dan Sansone, Danny Shepherd and I will be happy to respond to your questions. Thank you.

(Operator instructions).

Please stand by for your first question. Our first question comes from the line of Garik Shmois of Longbow Research. Please proceed.

Hi, thank you, good morning. My first question is just wondering if you could dive in a little bit more on the weakness that you saw in North Carolina, South Carolina and Georgia in the quarter. I think it was a bit surprising the level of volume declines there. Just wondering, was it all weather-driven, the pull-forward into the first quarter, rain in the second quarter; is there some market share loss going on there? Just wondering a little bit more color would be helpful.

Gary, this is Danny Shepherd. I'll answer your call. The first question you asked about demand in North Carolina and Georgia. North Carolina has remained weak for some time. As you know, we have a significant presence in the greater Charlotte area, and that area of North Carolina has been weak now for some time. We do not have a major presence in Eastern North Carolina, and large highway projects, for the most part, have been occurring in that part of the state.

Switching to Georgia, Georgia has also been weak for some time now. Georgia had a hugely over-built residential sector; that sector is slowly improving. What remains, hopefully, a bright spot for us as we move through the year, is in the highway sector. We have a reasonably good backlog in highway work as we travel through the summer, so hopefully, we will be somewhat stronger in Georgia in the second half.

Okay. Thanks for the color. I guess just looking at your volume guidance that's been reduced this morning, you had about 3% volume growth in the first half of the year, and the new full-year volume guidance implies something like a 1% plus to 3% down volume performance in the second half. Just wondering if you can reconcile, given that in the prepared remarks, you're starting to see some improved trends in private and public demand. Just wondering where the disconnect is, and why you are anticipating modest volume declines, broadly speaking, in the back half of the year.

I believe our volume guidance for the second half of the year would be essentially flat, not down, and certain maybe up slightly on a same-store basis. The issue, of course, Garik, is timing of projects. We think there's a substantial amount of work in the pipeline coming from improvement in the private sector. We were surprised by the -- by both the large declines in the three states Danny mentioned, but also by very large gains in many of our other markets. So there's a disparity in growth rates across markets, which we think will level out some in the second half, at least our outlook is based on that. But we are -- you know, we think -- we think contract awards for highways are down for the year about 5% to 7% largely because of the lack of any -- the stimulus contract awards are no longer going out. But with the passage of the new highway bill, we think the significant new contract awards in the second half, whether they ship in the second half of 2011 or the first half of '13, is difficult for us to predict at this point. But we are not -- I don't think we see a disconnect in our macro-outlook and our aggregate volume forecast.

Okay. And then just my last question is on the $50 million reduction that you're looking for in controllable costs, just wondering how that relates to the Profit Enhancement Program. It seems like in the presentation, it would be separate and you would need $50 million in lower costs to help hit your guidance for EBITDA for the full year. But if you could provide more color, you know, how you -- whether or not there are some more costs that are being pulled forward from the Profit Enhancement Program into the back half of the year, or just where these $50 million are coming from, that would be helpful.

Well, we -- in the first half, we got $55 million of controllable cost reduction about $25 million of that was SAG and about $30 million was in cost of goods sold. Of the $50 million in the second half, again, about $25 million will come from SAG and about $25 million from cost of goods sold. A portion of that savings is coming from the formal Profit Enhancement Plan, but it's also coming from a very broad based plant level and regional level initiatives that are helping us with our overall cost reduction effort. So it's a combination of the Profit Enhancement Plan, plus the last year's restructuring and last year's SAG reduction efforts, as well as the ongoing Profit Enhancement Plan benefits.

Okay. Thanks for your time this morning.

Thank you for your question. Our next question comes from the line of Kathryn Thompson of Thompson Research Group.

Hi, thanks for taking my questions today.

Good morning, Kathryn.

Good morning. Realistically in Q2, how much of the volume shortfall was a pull-forward in demand versus the Florida storm?

Certainly there was a pull-forward in demand from the very favorable weather in the first quarter. It's really hard for us to quantify that, but we know it exists. The issue in Florida from Tropical Storm Debby, I think, there were like 22 inches of rain that soaked the state, certainly portions of the state. We don't have a number associated with that. Our volumes, as Danny Shepherd said, in Florida were up double digit in the quarter. Clearly, they would have been up some more if it hadn't been for the impact of Tropical Storm Debby, but we really can't quantify that in any way that, you know, we think would be accurate.

I think it would be safe to say that the pull-forward demand probably had a greater impact, though?

Oh, yes, yes, relatively, I'm certain. Yes, I misunderstood that part of your question.

And you said in your prepared comments you expect additional pricing improvement in the second half, but our industry contacts are telling us that it's increasingly more challenging to get pricing in the market. What are you seeing that maybe is a little bit different, or is there maybe just degrees in terms of what type of pricing you feel you'll be able to get in the market?

Well, as you know in this industry, every market is different. It's a matter of what's going on in individual markets. Clearly, it is challenging in this market to get price improvement. We had very, very modest price improvement in the first half, but some.

There is a geographic mix to pricing, and we had a negative geographic mix for pricing in the second quarter. We think that will modify in the second half and we get some benefit from a more normal geographic mix as it would flow through into pricing. Put another way, we have very good pricing in North Carolina, South Carolina, in Georgia, and some of the states where we had the highest volume gains don't have as strong a pricing as some of those other markets. So that geographic impact to pricing is significant.

Okay. Now, I know kind of the topic du jour is physical cliff and elections coming up. What are you doing, two-fold question related to things that are facing the US and overall. Do you feel better or worse about demand, given those hurdles that we face in the back half of the year? And are you doing anything differently to manage your business around those events?

I'll go to the first question; second part of the question first. Clearly, we are very focused on controlling our cost, and without regard to what's happening with volume, you know, we are committed to achieve the $50 million in additional controllable costs in the second half, totaling $105 for the year. And then as we move forward into '13, the continuation of the benefit from our Profit Enhancement Plan. So we are doing that independent of political issues or demand issues.

Actually, I think, we -- with the passage of the federal highway bill, certainty that gives to DOTs and the substantial increase in the TIFIA program, I think, politically, we think we are more optimistic than we have been in several years in terms of the impact on our demand. We, obviously, are all affected by what is happening and may happen in Europe. But in terms of public infrastructure spending, what we are seeing in the housing markets, both multi-family and single-family housing, and increases in contract awards for private non-res, I think we are probably more optimistic today about the future than we have been in a long time.

Okay, great. Thanks very much for answering my questions.

Thank you for your question. Our next question comes from the line of Rodny Nacier of KeyBanc Capital Markets. Please proceed.

Hi, good morning. Don, you had commented on your expectation implied in your guidance that the volumes are going to be flat in the second half. So I'm just trying to understand the -- it's going to be on a relatively tougher comp than the 2Q and with residential activity, you know, pretty evident in the first half and not too much volume growth and comps getting tougher in the back half. I mean, is it really a combination of residential, private construction continuing to be strong and maybe some regional mixed dynamics going away?

Well, full year, we think residential -- demand from residential end markets will be up 10% plus or minus. Non-res, up 6% plus or minus. Those are the areas that are positive of -- highways, at least in terms of contract awards, will probably be down some, maybe 6% plus or minus, and so, as you balance all that out, infrastructure may be flat to down 1% or 2%. So when you run all that through our model, the improvement is coming from the private sector with some near-term weakness. Last year's third quarter is -- was weak. We saw strength coming back in the fourth quarter, so that's -- as we are looking at comps from last year, we had a relatively weak third quarter and a relatively strong fourth quarter.

Okay, and, with the bill, I missed if you had said that that changed your guidance for this year at all, with the transport bill being signed on the public side?

No, that did not change our guidance.

Okay, thank you.

I think it gives us a lot of encouragement about the future, but we didn't change our volume guidance based on the passage of the highway bill.

Okay, and that's all for then -- and my second question is on the Asset Sale Program that you have. Did you extend the timeline for the completion of the program for the $500 million? The tone in the release seems to be more cautious around the deadline. And secondly, do you have any assets that are classified as Held for Sale on your balance sheet as of now?

Rodny, Danny Shepherd here. We have not extended the deadline that we had previously communicated, and we are working very aggressively to actually accomplish some things in the Planned Asset Sale category, certainly this year. But, no; the answer is, no, we have not extended out our deadline.

Okay. All right. Thank you.

The second part, we don't have assets held for sale on our balance sheet. You know, there are rules for when you do that, and basically, the impact is you stop depreciating them, so we don't have any on the balance sheet held for sale at this point.

Okay. All right. Thanks for answering my questions, and good luck in the second half.

Thank you.

Thank you for your question. Our next question comes from the line of Brent Thielman of DA Davidson. Please proceed.

Hi, good morning.

Good morning.

Yes, I was curious in terms of getting that sort of rough $25 million improvement in the non-aggregates piece, does that also assume the sale of any businesses, or is that purely a function of better market and better operating performance with what you have?

That does not include sale of any assets. That's operating for -- it's primarily -- it's not in the cement segment. It's in the asphalt and ready-mix segment. The asphalt segment is -- will benefit from some projects that will begin in the second half, on the concrete segment, we believe, will benefit from the improvement in private sector demand, both residential and private non-res.

Got you. Okay, and then just on the residential side, I may as well more broadly speaking, just curious what you're seeing in terms of community developments, lot developments, things like that.

It's very market-specific. I think there is probably less infrastructure development per housing start today than there was at the last time we saw housing starts pick up, but that will catch up. But there's obviously some of that, but that's not a huge factor right now. But it will obviously come back as some of the already-developed lots get consumed.

Okay, great. Thank you.

Thank you for the question. Our next question comes from the line of Desi of RBC Capital Market. Please proceed.

Hi, thank you for taking my question. Filling in for Bob. Mostly focused on, maybe you can give us an idea of what you think the incremental margins are in the aggregate segment, given that you're taking out so much costs during the remainder of the year?

Incremental margin in the aggregates business, you're looking for a full-year number?

Yes. How you would estimate that --

Yes, the guidance we have given has been about 60% in the aggregates business. We are doing better than that year-to-date, and there's a lot of reasons for that, but I would go back to what Danny Shepherd said about the broad-based work. Our people across our regions are doing at the plant level, so 60% over some period of time is still a good number even though we are beating that year-to-date.

Okay, thank you.

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

Yes, thank you very much, and good morning. I wanted to return, please, to the non-aggregates businesses. I mean, I think, Don, you were talking about $25 million improvement. It was only up I think $2 million in the first half, so there's a lot of progress needed here. My specific questions were -- are really, I guess, two or three. Three.

Firstly, were there any problem projects or work contracts that you had in either the asphalt business or the ready-mix that particularly have held it back in the first half, and you won't have in the second half? And are you expecting significant price increases, as well in ready-mix or asphalt that helps with that? And then the third question, really, just the quantification, if you could, of the one-off costs that impacted the cement business in the first half or in the second quarter. Thank you.

Mike, in the asphalt business, the issue was the higher cost of liquid asphalt and the lag in getting that higher cost of liquid asphalt pushed through into our pricing. But in terms of an -- a problem with an individual project, we didn't have any of those. It's really the liquid asphalt impact; liquid asphalt prices were up about 10% in the first half, which had a significant impact on the profitability. In -- you know, we are looking for stronger volumes in both asphalt and concrete in the second half. I mentioned earlier in asphalt, it's because of the timing of larger highway projects, particularly in California. And in concrete, it's driven by the improvement in residential and private non-res construction, which is the larger user of concrete.

We expect improved material margins in both asphalt and concrete, and the combination of volume growth and improved margins is the basis for our improved guidance in the second half. With respect to the cement plant, two things happened in the second quarter. One, we had a planned outage, which always impacts results in a quarter in which you have an outage, because you don't have production for a period of time, and you have increased R&M costs. And secondly at the cement plant, we had a -- because of the storm, we had -- we lost power to the cement plant, and that clearly disrupts production not just for the time that the power is out, but then the time to get the plant back up following that. Danny, do you have any other --

Well, I would add, Mike, early in the quarter, you know what it takes when -- you know what the timeline looks like when you take a cement kiln down. So one way to look at it is we lost 10 days, roughly, early in the quarter, and we lost roughly 10 days late in the quarter because of the weather events. So hopefully, these are nonrecurring. There are no planned outages, kiln outages at the cement plant in the near future.

Do you have a quantification of the cost of those two events? Was it like $1 million or $2 million?

Yes, roughly $1 million, we believe.

Thank you. Okay, and then Danny -- Don, if I could, just return to the asphalt question. Two parts to -- my final question here, two parts to it. One, is the lack in the indexation roughly about three months, or is it significantly different? And have you locked in the liquid bitumen and liquid asphalt costs for the rest of the year, or are you still a little vague as to what that price does?

We have some portion of our liquid asphalt needs committed price-wise, and some portion, we'll have to continue to buy on the spot market. The lag in pricing, many of these projects are priced much further out than three months from the shipping date.

But the indexation, does that work on a three month basis, or is it not -- is indexation not the point?

I'm sorry, I didn't hear the question, Mike.

Yes, I mean, is the price recovery a question of waiting for the indexation to deliver the cost of the increased asphalt, or is it you winning new work at higher prices?

No. The answer -- the answer is no. You know, we are expecting significant improvement in California, as Don talked about in his remarks. The work that -- our large percentage of the work that we expect to ship in the second half is indexed work in California, and that is something that's manageable.

Okay. Thank you very much, guys. Thanks.

Thank you. I would now like to turn the call over to Mr. Don James for closing remarks.

Thank you very much for joining us for our second quarter conference call. We look forward to talking with you again after the third quarter. Thank you for your interest in our company, and have a good day.

Thank you for your participation in today's conference, ladies and gentlemen. This concludes your presentation. You may now disconnect. Have a good day.