渥肯建材 (VMC) 2013 Q4 法說會逐字稿

Good morning. My name is Angela and I will be you conference operator today. At this time, I would like to welcome everyone to the Vulcan Materials Company 2013 fourth-quarter earnings conference call.

(Operator Instructions)

Mr. Don James, Chairman and CEO, please go ahead.

Good morning. Thank you for joining us to discuss our fourth-quarter and full year 2013 results. I'm Don James, Chairman and Chief Executive Officer of Vulcan Materials.

Joining me today on the call are John McPherson, our new Executive Vice President and Chief Financial Officer, who most recently served as our Senior Vice President for our East region. And Tom Hill, our new Executive Vice President and Chief Operating Officer, who most recently was Senior Vice President of our South region. We have posted a short slide presentation to our website that we will reference throughout the call. These slides are also available to you on the webcast.

Moving to slide 2, let me remind you that certain matters discussed in this conference call 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 and our most recent report on Form 10-K. In addition, during the call, we will refer to certain non-GAAP financial measures.

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 fourth-quarter 2013 earnings release.

Turning now to slide 3, we will begin with a brief discussion of highlights from the fourth quarter before we review the full year. Our fourth-quarter results demonstrate the excellent growth potential of our markets, and the meaningful operating leverage that exist in our aggregates business. Aggregates volumes increased 7% in the quarter, and we leveraged those incremental tons of aggregate into significantly higher earnings.

As you can see on this slide, a 14% increase in net sales led to a 48% increase in gross profit. Earnings from continuing operations increased from $0.03 per diluted share to $0.08 per share for the quarter. These earnings improvement were driven by expanding margins in aggregates, earnings improvements in our non-aggregates segments, and lower SAG cost.

On slide 4, you can see that each of our segments reported higher shipments for the quarter, as private construction activity continues to increase in the markets we serve. Aggregates shipments increased 7%. Volumes in Arizona, Georgia, and California were particularly strong, up 34%, 29% and 22% respectively. Texas, Florida, and North Carolina all reported double-digit volume growth as well. These improvements continue the success we saw in the third quarter, and support our forecast early last year that volume improvements would accelerate in the second half of the year as the construction recovery began.

Our ready mix volumes were up 15% for the quarter. Asphalt shipments where also up 12%. Higher shipments drove the earnings improvement in each segment of our business, especially the aggregates business, where our operating leverage is significant. The aggregates segment gross profit of $112 million was up $30 million, or 37%, from the prior year. Taking a closer look at the aggregates segment results on slide 5, you see that aggregates pricing for the quarter was up 3.5%, and shipments were up 2.3 million tons, or 7%, leading to a 14% increase in segment revenues.

This top line growth, along with very good unit production cost, led to a 390 basis point increase in the aggregates segment gross profit margin. Cash gross profit increased $0.48 per ton, or 12%. The fourth quarter, with higher volumes, higher prices and flat aggregates segment costs, continued the strong results we experienced in the third quarter of 2013.

In moving now to the full-year results on slide 6, EPS from continuing operations was $0.16 per diluted share, an earnings improvement of $0.58 per share from the prior year. We believe this improved performance sets the stage for the beginning of earning growth going forward. A 9% increase in net sales for the year led to a 28% increase in gross profit, as each segment reported improved earnings. Full-year aggregates segment gross profit increased $61 million, and margins expanded 140 basis points due to a 3% increase in both volume and price.

We leveraged this increased sales by holding our SAG costs flat with the prior year, leading to a 14% increase in adjusted EBITDA. Our cash earnings reached $292 million, up $82 million, or 39%, over 2012. Our expectation is for 2013 to be the first year of aggregates volume growth since 2005 were met. Further, the expectation that volume growth would be weighted toward the second half of the year also materialized.

Wrapping up my comments regarding full year 2013, let me highlight the progress we have made to strengthen the balance sheet and improve our credit metrics. In 2013, we reduced long-term debt by approximately $150 million, and ended the year with cash and equivalents balance of about $198 million. Our net debt to EBITDA ratio was reduced from 5.8 times at the end of 2012 to 5 times at the end of this -- of 2013. The downward trend in this measurement is a priority for us as we continue our efforts to move to an investment grade credit rating.

I will now turn the call over to Tom Hill, who will provide some commentary around the contrast of the first half of 2013 with the second half.

Thank you, Don.

Turning to slide 7, you can see that the first half and second half of the year were markedly different, as Don just mentioned. Volumes and resulting earnings were over-weighted to the second half of the year due to improving private construction activity and the impacts of weather. In the first half of the year, volumes were slightly lower than prior year, due mostly to the sharp contrast in weather for the comparable halves.

In 2012, many of our markets experienced an extremely mild winter, while in 2013, wet weather dampened shipping levels in key shipping months. As a result, first-half volumes in 2013 were down 1% versus prior year.

Consistent with our expectations for the second half of 2013, aggregates demand improved due to increased construction activity, including some large project work that began to ship as expected without the adverse weather impacts. Additionally, shipments that were delayed in the first half of the year due to weather began to ship in the second half.

As a result, volumes in the second half increased 8%, driving a $55 million, or 27%, increase in gross profit. Aggregates gross profit for the year were up $61 million, 86% of which occurred in the second half, demonstrating the operating leverage that results from higher volumes.

Turning to slide 8, you can see an upward trend in the aggregates cash gross profit per ton, an important measure of our performance. Full-year cash gross profit per ton in 2013 was $4.36. This is the highest in four years. It is important to note that current unit profitability is 30% higher than it was in 2005, which was Vulcan's peak volume year.

This higher unit profitability sets the stage for better earnings leverage and provides the foundation for our continued optimism for significant earnings growth in this construction cycle. Our opportunities to improve our operation leverage have come from the acquisition of aggregates operations and reserves in high growth markets like the ones Don mentioned earlier. Additionally, the sale of our Florida area concrete and cement assets to Cementos Argos, announced in January, will provide immediate improvement to profitability and earnings, and allow us to pursue additional aggregates investment opportunities.

On slide 9, we summarize this transaction, the strategic rationale and the use of proceeds. After touching on the strategic rationale of this transaction, I'm going to turn the prepared remarks over to John McPherson for some comments on the financials and use of proceeds. Touching first on the transaction.

We have agreed to sell our Florida cement and concrete operations to Argos for $720 million. From a strategic viewpoint, this transaction is consistent with our aggregates-focused strategy, and we will remain in the Florida market as a leading producer of construction aggregates.

The transaction includes a 20-year aggregate supply agreement, which keeps us well positioned to participate in the Florida recovery. Vulcan and Argos are strategic partners in other parts of the country, and we believe our aggregates-focused strategy compliments the cement and concrete focus of Argos. We look forward to furthering that relationship by supplying these operations.

With that, I would like to turn the call over to John McPherson.

Thanks, Tom.

As Tom mentioned, the sales price of these assets was $720 million. The sales price will result in a pretax gain of approximately $210 million and a net impact on earnings per diluted share of approximately $1. After tax proceeds, should be approximately $685 million after the use of our existing net operating loss carrier accords and the tax benefits of acquiring another property through a 1031 like-kind exchange.

As noted when we announced the transaction, we are deploying these proceeds primarily to pay down debt. On an after-tax basis, we use a proximally $550 million to repurchase $500 million par value in bonds. We also acquired a quarry with 136 million tons of reserves in Southern California and a $117 million transaction that closed on December 31. As I will note in more detail on a subsequent slide, our credit metrics have improved significantly, and we believe we are well positioned to add high quality assets to our portfolio as opportunities arise.

Moving to slide 10, and in order to give you a clearer view of the impact the divestitures and debt repurchase may have on our near return earnings, we've included summary information from a table that will be included in a Form 8-K filing upon closing the transaction with Argos. The information reflects the Company's full year 2013 operating results, assuming both the sale of the Florida cement and concrete operations and the repurchase of $500 million in bonds have been completed on January 1, 2013.

In other words, you can see what the impact would've been on the fiscal year 2013 results we have reported today, had these transactions taken place at the beginning of last year. As you can see, the divested assets contributed approximately $173 million in net sales during 2013. Had the divestiture occurred on January 1, 2013, Vulcan's net sales would've been $2.46 billion as compared to $2.63 billion reported today, or approximately 7% lower.

Although sales would've been lower, gross profit would've been higher, $449 million as compared to the $427 million reported today. The gross profit contribution of the divested assets, although certainly improving with growing volumes in Florida, remained negative in 2013.

The pro forma impact on our gross profit margin as a percent of sales is a 210 basis point improvement to 18.3%. Interest expense, given the use of proceeds to pay down debt, would have been $33 million lower. Netting these effects on an after-tax basis, 2013 earnings per fully diluted share would have been $0.48 as opposed to the $0.16 reported today. I'll touch on the impact of these transactions and the impact it will have on our credit metrics in a moment. But before doing so, I would like to take us back to the goals we laid out two years ago.

Slide 11 draws directly from our February 2012 earnings call material. The top of the slide notes the commitments we made at that time to improve our profitability, divest non-strategic assets and reduce debt and leverage. Following the close of the divestitures and debt tender announced on January 23, which we expect to happen in the first quarter, we will have accomplished the goals we communicated to you two years ago. With respect to profit enhancement, we have increased adjusted EBITDA by $116 million and adjusted EBIT by $173 million over the past two years.

In our core aggregates segment, gross profit has increased 410 basis points, or $107 million, despite tons shipped growing only 2%. And as noted earlier, our cash margin per ton sold has improved steadily during this period. Of course, our commitment to delivering on the full profit potential of our aggregates business remains unchanged. We expect margins to improve further in 2014 as volumes continue to recover, and the profit enhancement initiatives implemented over the past two years will continue to benefit our business for some time to come. With respect to planned asset sales, we committed to generate $500 million in proceeds from the disciplined sale of non-strategic assets.

Following the close of our transaction with Argos, we will have generated over $1 billion from such divestitures. At the same time, we've reinvested approximately $240 million to purchase aggregates operations and reserves in key markets such as California, Georgia, Texas, and Virginia. Through the process of these divestitures and acquisitions, we believe we have strengthened our core aggregates portfolio and improved our perspective returns on capital now and through the cycle. And finally, from a capital structure perspective, we have reduced debt by approximately $800 million and improved our credit metric substantially, giving us greater flexibility to invest for growth and return capital to shareholders as we move forward.

Slide 12 gives a bit more information regarding our improved profitability, lower debt balances and resulting stronger credit metrics. The debt figures here for 2013 include the impact of our outstanding $500 million tender, which we compared to our adjusted 2013 EBITDA in order to illustrate the degree to which our credit position will have improved over the past two years. Following the close of our debt tender, we expect our ratio of net debt to adjusted EBITDA to be on the order of 3.6 times, down from 7.6 times in 2011.

As Don indicated, our intent remains to return to investment grade credit ratings, and we are well-positioned to accomplish that goal as demand recovers. In the meantime, we have the flexibility needed to invest in our operations and add to our portfolio as opportunities arise.

Before I hand it off to Don to discuss our outlook for 2014 in more detail, let me once again compliment and thank our people. What we have been able to accomplish over the past two years, and the excitement we have regarding the strength of our position moving forward, serve as a direct complement to the quality of Vulcan's people at all levels of our organization. Their expertise, dedication and drive will be only more valuable as we prepare for the growth ahead of us.

We are proud of what we've done so far, and we're genuinely excited about the opportunities to come. Don, over to you.

Thanks, John.

As John mentioned, we realized a sharp increase in aggregates shipments in the second half 2013. One of the drivers of this increase is the continued recovery in private construction activity. If you will turn to slide 13, you can see that we expect each measure end market for aggregates demand to increase in 2014, led by strong growth from private construction activity. This is certainly good news. Even better, we expect growth in Vulcan-served markets to outperform the rest of the US. This belief that our markets will achieve above average growth fuels the excitement John mentioned earlier.

Our market position in these high-growth markets, coupled with the earnings leverage we have improved upon during the downturn, is a powerful combination to grow earnings. Private construction activity is expected to account for most of the demand growth in 2014. Additionally, we expect large projects, including both public infrastructure and private industrial projects, to play an important role in overall demand growth in 2014.

Moving to slide 14, you will see how this end market outlook translates into volume and price growth for Vulcan. We expect volumes to increase 4% to 7% from the prior year, and for growth to occur across most of our markets. This volume growth is expected to provide positive momentum for broad based price improvement, with the timing and rate of price increase varying across our markets. We expect sales growth and earnings improvement from our non-aggregates businesses, while SAG costs for the full year are expected to be in line with 2013.

Interest expense should be $165 million to $170 million, down sharply from 2013, due to the anticipated closing of our announced tender offer for $500 million in long-term debt, and the repayment of $150 million in debt during 2013. Our DD&A for 2014 should be approximately $275 million, assuming the sale of our Florida concrete and cement businesses closing in the first quarter. Finally, we anticipate capital spending of approximately $220 million. This increase in capital spending will support the growth in aggregates volume we see in 2014 and beyond, and further improve our production costs and operating efficiencies.

In closing, let me say that we like our position today as a leading aggregates supplier in the United States. We like our markets, and we like our positions within those markets. We have been working hard over the past two years to complete our announced initiatives, and we have achieved our goals. We will remain committed to continuing improvement in our operating results, and in creating additional value for our shareholders.

Now if the operator will give the required instructions, we will be happy to respond to your questions.

(Operator Instructions)

Your first question comes from Ted Grace with SIG.

Hello, guys.

Good morning, Ted.

Congratulations. Good morning, sir.

I was wondering if you could just start by talking about, now that we've got the balance sheet more where you want it and I know you mentioned investment grading was a goal, but it certainly provides you with a lot more flexibility to go on offense.

So I was wondering if you could walk through how you're thinking about redeploying that new capital (technical difficulty) access to grow the business more aggressively with the cycle?

Ted, our strategy remains consistent. We want to grow our aggregates business in high-growth metropolitan markets. We have opportunities, we believe, to do that in 2014. And that's where our focus will be.

Okay. And maybe, could you just elaborate on how the acquisition environment feels and what the prospects for deals looks like?

We believe there are significant opportunities to help us pursue the strategy of adding aggregate operations in some of our best markets. And we are looking at those and working on some opportunities that we hope will materialize in 2014.

Okay. And then the second thing I just wanted to ask is, in thinking about the CapEx dollars, the increase to $220 million, can you walk through where you see yourself spending that between the aggregate business and the asphalt and concrete business? How we should think about growth versus maintenance CapEx?

And maybe geographically, if there's any color on -- part of that can go to the Yucatan Peninsula to increase capacity there. Any handholding in that regard would be great, as well.

Ted, there is both maintenance CapEx and growth CapEx in that $220 million. We will replace some mobile equipment.

As we have said before, our maintenance CapEx is really a function over time of the throughput of volume. And as we're looking at higher volumes in 2014, and certainly beyond, we have we have a very good plan, which Tom Hill and Danny Shepherd have worked through.

The vast majority of the CapEx will go into our aggregates business. But there'll also be some CapEx in particular going into our ready mix business in the Northern Virginia/Washington DC area, which is a really good business.

Okay. Best of luck this year, guys; and we'll talk soon.

Thank you.

Your next question comes from Kathryn Thompson with Thompson Research.

Hi, thanks for taking my questions today. We have been noting throughout this year the improvement in markets in the eastern part of the US, which previously had lagged.

Could you give a little bit more color on the pace of improvement? And in particular, up there, the margin differentials between performance in the eastern part of the US versus the western.

Certainly, our markets in the Eastern US were impacted in the first half; they came back very strongly in the second half. We do get very nice margins in the East, but we also get some really nice margins in the West. So we don't have a big diversity between our margins in the East and the West.

Certainly, our margins in California are improving; our margins in Texas are improving; our margins in Arizona are improving. So we are seeing improvement in our margins across our footprint.

And is the margin improvement more a function of just better volumes? Or is there something structural in consolidation that is helping the margin improvement?

I believe margin improvement is coming from price and price discipline; it's coming from operating cost; and it's coming from volume improvement.

As we indicated, some of our highest growth markets are in the West: Arizona, California, Texas. And we're, as we've said, I think repeatedly, we have huge volume leverage in the aggregates business, which really helps to drive earnings with relatively modest volume growth.

Okay, great.

Moving just to end markets and focusing more on the non-res and the commercial demand. Could you give a little bit more color of what types of projects you're seeing?

We're definitely seeing more industrial-focused type of commercial projects at plants, port work. But if you could give a little bit more color in the type of non-res or commercial projects you are seeing now, and maybe contrast that with what you'd seen in prior cycles.

I think -- and I will ask Tom Hill to comment on this in a minute. But there are two pieces, and we're projecting in our markets about a 9% growth in private non-res.

There are two components to that. There is the traditional private non-res growth that is retail, office, hotels; and we're seeing that in a number of markets.

But I think along the Gulf Coast, there are some very significant industrial projects, many of which are tied to the new energy opportunity and how that is creating a boom in those markets. Plus aircraft manufacturing and automobile manufacturing in some of our footprints.

Tom, let me ask you to comment further.

Thanks, Don.

We are seeing a number of industrial projects along the Gulf Coast, particularly in Texas and Louisiana, tied to energy. We've started shipping a number of those late 2013, and that will pick up in 2014.

We're also seeing some port-expansion projects. And this is in addition to the -- as Don said, the traditional nonresidential that follows the improvement in residential growth.

And I assume the port expansion is tied to Panama Canal and prep for that eventual opening?

Yes, that's correct.

Okay. Final question, and this may be in your filings.

But what portion of the ready-mixed concrete loss in the quarter was attributable to the Florida assets versus the other geographies that will stay within Vulcan?

Kathryn, it's John. I think we'll disclose more on that as we close the transaction and move forward. But certainly, the concrete assets we've retained are more profitable than the ones we have divested.

And I think, as for the divested assets, the divested assets are going to be the majority of the loss.

Perfect, thanks so much.

And your next question comes from Todd Vencil with Sterne Agee.

Thanks. Good morning, guys.

Good morning, Todd.

This is probably an obvious question, but I'm going to ask it anyway. If I take your very helpful reconciliation, walking through the impact of the divestiture blowout, the amount of that is in cement, is the rest of the adjustment all in the concrete segment?

Yes.

Okay. Great, thanks.

And then thanks for all the color on the markets. My main question is -- As you look at your forecast, Don, where do you see upside or downside risk? And what would drive that for this year to the ranges you've given?

I believe there is upside, Todd, in the industrial and energy-related projects that Tom Hill referenced. There's also upside in the timing of some of the TIFIA projects, which you are familiar with.

If some of those get kicked off in a significant way toward the second half of 2014, that's an upside. If we get a new highway bill on time, that could have a marginal impact in 2014.

But most of the work on -- that we will get on highways is already based on the existing Highway Bill, and the bid lettings had already occurred and will occur in the first part of 2014.

So the big upside is in industrial construction, primarily along the Gulf Coast. And the big TIFIA projects, and you know there are big TIFIA projects in our footprints, some of which we have booked, some of which we are working to book in Texas, Georgia, Virginia, Florida, California.

Perfect. Thanks for that.

And since you brought it up, what are you hearing from your better perch than the one I have about what the outlook or the state of affairs is with regard to the Highway Bill?

At this point, Todd, we don't see an interruption in highway funding.

The mechanism for how that will be achieved, whether it is a reauthorization of the Highway Bill on October 1, 2014, or an extension or funding extension, our belief is, based on our contacts in Washington, is that particularly in an election year, there's unlikely to be any disruption in the flow of federal dollars to the state DOTs.

Makes sense to me. And final question, just to follow-up on that. On TIFIA, I would think it would be a no-brainer to sort of whatever they do with highways to continue funding TIFIA at the higher level that was baked into the last Highway Bill. Is that consistent with what you're hearing? Or is there something else going on?

Yes. And the rationale is that there are far more TIFIA projects that have been submitted than can be funded under the current MAP-21 TIFIA authorization. It is a very deficit-friendly way to fund highway congestion -- or highway construction in high-growth metropolitan markets.

TIFIA, as you know, requires a revenue stream to fund the repayment of the treasury lending. And as a result of that, you have to be in high-growth congested markets in order to generate enough revenue to meet the TIFIA financing requirements.

So these projects get built in our sweet spots. And we really like TIFIA, and we think it is probably the easiest part of a new Highway Bill to get re-authorized.

Great. Thank you so much.

Your next question comes from Jerry Revich with Goldman Sachs.

Good morning. It's Matt Rybak on the call for Jerry.

Can you first talk about how much of the volume momentum from the second half of this past year you have seen flow into the first month of 2014?

And then maybe discuss a little bit how you're thinking about the seasonality of shipments in 2014 -- whether you think they'll again be back-half weighted, or be a little bit more smooth?

You can't draw any conclusion from January shipments, so I won't do that. And we will report on that at the end of the first quarter.

We certainly think that there is a lot of momentum going into 2014 from the second half of 2013, primarily in private construction, both residential and non-res.

We have talked about upside. If any of these industrial projects get moving in a big way or the TIFIA projects get moving in a big way, we could see stronger second-half shipments than first half. But we'll have to wait and see how the timing of those projects come along. And we will keep you updated on that in further conference calls.

And are you seeing any significant headwind on the Panama Canal project, given the stall of activity that is currently taking place down there?

I think the US port expansions are way behind the completion of the Panama Canal. So even though the canal construction has been extended by maybe a year or so, the ports along the Gulf Coast and the South Atlantic Coast have a lot of catching up to do to be ready by the time the Canal is completed.

So I don't believe there is going to be any slowdown in the work being done in the US ports.

And then just turning to the public side briefly, can you talk maybe a little bit about how your large public construction project backlog today compares to levels a year ago? And possibly quantify the value of projects you are currently bidding on?

Our public projects, particularly highway projects, are -- we have a higher backlog today than we had a year ago.

To give a little color on that, we will start our shipping the I-90 job in Chicago. We will start shipping the Virginia Midtown Tunnel. We have got -- we are seeing the I-75/575 job in Atlanta. And we just started shipping the Grand Parkway, the third loop around Houston. So we are seeing the large highway jobs pick up in 2014.

Thank you.

Your next question comes from Chris Olin with Cleveland.

How we doing?

Hello, Chris.

I just wanted to go back a little bit to the Panama Canal and the port situation.

Do you have any type of thoughts on how much aggregate stone could be consumed per port? Is there any way to quantify what the impact could be on the industry?

I think it is too early, in most cases, to try to quantify that. It all depends on the port design, and so we don't have estimates that we would be prepared to share publicly at this time.

Fair enough.

Could you give us a bit of an update on the quarry in Mexico? Maybe where it is at from a utilization point of view, and any updated thoughts you might have on expanding the production capacity there?

Yes, let me ask Tom Hill to respond to that.

We still have ample capacity at the quarry in Mexico. But if we approach capacity there, we are prepared and ready to expand that operation fairly quickly. We have looked at that and are comfortable with being able to expand that, if necessary, in a timely manner.

We have a very large reserve base there. We have plenty of capacity in our harbor for incremental aggregate shipments.

The plant can be expanded efficiently from a capital standpoint, and we look forward to being sold out because we've got tremendous opportunity coming out of that operation.

Okay. Thanks a lot.

Your next question comes from Adam Rudiger with Wells Fargo.

Hi, good morning, and thanks for taking my questions.

The first one was, going back to the Highway Bill for second. If you think about multi-year outlook and trying to grow your aggregates business back to any kind of resemblance of prior peak volume, how important is it, do you think, to get a multi-year bill like the previous ones where you had successive increases in spending?

I'm just trying to think about the outlook. And it seems that getting more positive on nonresidential -- obviously residential has been improving. It seems like the infrastructure is slowing the growth of potential a bit. So I was just trying to think about the multi-year situation and what the potential is for volume growth.

As we indicated in the prepared remarks, our outlook for 2014 is the first time since 2005 that all four of our major end markets are projected to grow in terms of aggregate demand. The big growth, obviously, as we pointed out and is contained in our slides, is on the private side.

Other non-highway infrastructure, we are projecting up 3% in our markets and highways up 2% in our markets. So clearly, highways are lagging for 2014.

Again, the timing of TIFIA projects could change that; the issue with the Federal Highway Program is, of course, funding. We are seeing, though, a lot of states making moves to pick up their own revenue streams. In particular, Virginia and Maryland have enacted state revenue enhancements that will significantly advance highway funding.

But if we get -- and our projection for highway shipments in 2014 is largely based on what's already in the pipeline. But if we are able to work with our coalitions and Congress and achieve some improvement in the Federal Highway Program, then I think there is a lot of upside there.

But at this point, we are projecting only 2% growth in our markets.

And can you remind us what highways are, right now in 2013, as a percentage of your overall mix?

About 30% to 35%.

Okay. And then my last question was, the SAG guidance that you gave for flat, does that take into account the divestiture of the cement assets? Because it looks like you had $9 million plus of SAG in that segment.

It has that segment in our SAG through the first quarter.

Okay. So that means other spending is going to be up. Normal spending course of business is going to be up about $9 million.

As we continue to grow our aggregates business, both internally and through acquisition, that will push our SAG up modestly.

Got it. Thank you.

Your next question comes Keith Hughes with SunTrust.

Hi, this is Seth in for Keith Hughes. I just wanted to ask a question on the concrete business. I'm trying to get a feel for post the divestiture.

How should we think about the margins and the volume in this business going forward?

Again, as I answered before, I think we'll give more detail on this after we close the transaction and move forward.

I would again reiterate that most of the loss reported last year was associated with the divested assets. And the margin structure of what we retained is significantly higher than what we divested.

Again, we will give you more detail as we move forward.

All right. Thank you.

And your last question comes from Stanley Elliott with Stifel.

Good morning, guys. Thank you for taking my question.

Quick question for you, Don. How quickly can something get into the pipeline and you all start shipping rocks?

Is that something that something in the pipeline would happen next year, and we're kicking the can down the road? Or is it, all of a sudden, we could have a -- I don't want to say influx, but things being more expedited, how likely is that?

It all depends on the end market; and even within the end market, it all depends on the nature of the project. For example, in highway construction, if there is an overlay project that is a resurfacing project that is bid in February, it can ship in May or June.

If it is a project that requires right-away acquisition and dirt moving, the shipments can be delayed by 12-18 months or more.

Housing is relatively quick. As you know, the impact on our demand from housing starts is largely in the infrastructure, streets and utilities, as opposed to the construction of a house. One exception being in most of Florida, building codes require houses to be built out of masonry, which has aggregate in it. And there is a little more flow through into residential there.

Multifamily residential has higher aggregate content, and those move pretty quickly.

I think once the TIFIA projects are finally approved, since they are financed and have to get to a revenue stream, there is an incentive for the contractors to get those projects built faster, which is an incentive that is not typically available in regular highway projects.

And certainly with industrial and energy projects, which are private, once those projects are approved and construction starts, there is all the incentive in the world to get those projects finished quickly.

So the lead times are very different. And we tend to look at things as a big pipeline and projects feed in, and so it's the mix of projects in that pipeline are often very difficult to say with some precision as to how long between contract award and material shipments.

I'm sorry I can't give you any more precise answer. But it is a very flexible result, depending on the nature of the project.

No, that's great.

In the release, there was a line about unlocking capital for more productive use. Should we think about that continued debt pay down, then some M&A, then -- are we starting to think about a dividend at some point this year? Or is that still to be determined?

I think our Board will consider a dividend each board meeting, as we do. And certainly, that is one of the opportunities we have. And we have said many times before, we look forward to getting to the point where we can begin to restore a meaningful dividend. Hopefully, we will have the opportunity to do that sooner rather than later.

I will ask John to respond further to the other parts of your question.

I think on the use of the capital, we are partially referring to investing more capital in our core aggregates business over time, where we enjoy great fundamentals, great returns, great operating leverage moving forward.

And you've seen us do that. We've taken some of the capital from these divestitures to both pay down debt, yes, but also to give us the flexibility to make some of the investments you've seen us make in our core aggregates markets, which are very attractive.

Yes, no doubt. And then as far as M&A --

The next significant debt repayment is at the end 2015, and we would expect to be able to repay that out of just operating cash flows.

Then as far as the M&A environment, it's been pretty active out there. Have the multiples -- are they starting to creep up as well?

And would you look at buying assets or more swaps? Or how do you all think about that as you tighten up the shares within your respective markets?

If we can do bolt-on acquisitions in our high-growth markets, we are very interested in those kind of transactions. We get significant synergy primarily from operating cost and overhead, and that will be our principal focus, is aggregate bolt-on acquisitions in high-growth markets.

If we have assets that may be more valuable to someone else than they are to us, then we would certainly consider a swap as necessary. But our primary focus is on bolt-on aggregate acquisitions in our key markets.

Perfect, guys. Thank you very much and best of luck.

Thank you.

There are no further audio questions. I would now like to turn the call over to Don.

Thank you very much for joining us today.

Obviously, we are very pleased with the fourth quarter and the second half of 2013, and we very much look forward to 2014. And we will talk to you again at the end of the first quarter.

Thank you so much, and have a good day.

This concludes today's conference call. You may now disconnect.