渥肯建材 (VMC) 2014 Q1 法說會逐字稿

Welcome to the Vulcan Materials earnings conference call. My name is Phyllis and I will be your operator for today's call.

(Operator Instructions)

Please note that this conference is being recorded.

I will now turn the call over to Mr. Don James, Chairman and Chief Executive Officer. Mr. James, you may begin.

Thank you. Good morning. We appreciate you joining us to discuss our first-quarter 2014 results. As the operator said, I'm Don James, Chairman and Chief Executive Officer of Vulcan Materials.

Joining me today are John McPherson, our Executive Vice President and Chief Financial Officer and Tom Hill, our Executive Vice President and Chief Operating Officer. A slide presentation will accompany this webcast and will be posted on the Company's website at the conclusion of this earnings call.

Before we begin, let me remind you that certain matters discussed in this conference call, as indicated on slide 2 of the presentation, 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. 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 first-quarter 2014 earnings release and at the end of this presentation.

We are very encouraged by our performance during the first quarter, and with the recovery in demand for our products. Despite the challenges inherent in an unusually cold and wet winter in many of our markets, our employees delivered solid shipment growth and improved margins.

During the quarter, we successfully completed the previously announced sale of our Florida-area cement and concrete assets to Argos, as well as the related repurchase of $506 million of our outstanding debt. Vulcan is well positioned to increase our shipments and our earnings, and to expand our aggregates operations and reserves into the fall work.

Turning now to slide 3, our first-quarter results demonstrate the strong earnings leverage in our aggregates business. Aggregates volumes increased 6%, and we leveraged those incremental tons into significantly higher earnings. The 9% increase in net sales lead to a 93% increase in gross profit.

Reported earnings from continuing operations were $0.41 per diluted share, versus a loss of $0.47 in the prior year. Included in these earnings improvements are $1.04 per diluted share of income related to the sale of the Company's Florida-area cement and concrete assets, and $0.35 per diluted share in charges to interest expense, referable to the $506 million of debt repurchased. Adjusted for these one-time transactions, earnings from continuing operations were a loss of $0.28 per diluted share, a $0.19 per share improvement from last year.

Reported EBITDA for the quarter was $267 million, which includes a $220 million gain from the sale of Florida concrete and cement assets and $7 million in other income, primarily from the routine sale of reclaimed land from former operating sites. Excluding these items, adjusted EBITDA grew 50%, from $26 million last year to $39 million this year.

This improvement was driven by both increased aggregate shipments and by higher aggregate prices, which more than offset higher costs resulting from production challenges due to weather. Non-aggregate cash gross profit benefited from higher asphalt volumes and higher materials margin.

With that said, I would like to now turn the call over to Tom Hill to give a few more specifics about our first-quarter results.

Thanks, Don.

Taking a look at the aggregates segment results on slide 4, you see the resulting revenue and gross profit impact from higher shipments in pricing. Aggregates segment revenues increased 13% and segment gross profit increased 55%. Aggregates shipments increased 6% versus the prior year, despite very cold weather in most of our markets. Shipments in California, Florida, Georgia, Illinois and Texas showed strength, each increasing by more than 15% versus the first quarter of last year.

Due to unfavorable weather, first-quarter shipments in Virginia, North Carolina and South Carolina were lower versus the prior year. Strengthening private construction demand more than offset the effects of extremely cold weather in Georgia and unusually wet weather in Florida, resulting in year-over-year growth in shipments in these markets.

In other areas harder hit, like Virginia, the number of available shipping days was cut in half by extreme winter weather. This restriction on construction activity and available shipping days impacted both our aggregates and concrete business in Virginia. That said, we expect shipments delayed beyond the end of March due to weather to be recovered in the following months as the construction season gets underway.

Aggregates pricing for the quarter was up 2% versus the prior year. These solid results were despite an unfavorable geographic mix, due to the impact of weather on volumes in several higher-priced markets. Without the unfavorable geographic mix impact due to weather, our year-over-year pricing increased 3%.

Slide 5 highlights the favorable operating leverage in our aggregates business. Trailing 12-month volumes have increased 8 million tons, or 6%, while aggregates segment's gross profit improved $84 million, or 25%, due to higher pricing, the earnings leverage of volume growth and cost control.

Turning to slide 6, we compare our trailing 12-month cash gross profit per ton at the end of first quarter with the prior year and the prior peak volume, which occurred in the first quarter of 2006. Trailing 12-month unit profitability has increased 6% from the prior year.

More significantly, cash gross profit per ton is 31% higher than the prior peak volume. This is remarkable, considering the fact that current volume is 50% below the prior peak.

This improvement of more than $1 per ton reflects the accomplishments of our employees to effectively manage cost and improve price throughout this downturn. This per-turn gain also illustrates the attractive structural characteristics of our aggregates business. Higher unit profitability sets the stage for significant earnings growth in this improving demand cycle.

Now I will turn the call over to John to provide some commentary about the outlook.

Thanks, Tom.

Our volume growth in the first quarter and result in earnings improvement that Tom just discussed, are a really solid start to what we believe will be a very strong year for overall demand growth. The demand momentum, which began in the second half of 2013, is continuing in 2014, and our margins are expanding due to a combination of operating leverage, cost disciplines and growth in pricing.

Turning now to slide 7, you see a breakdown of our expectations for aggregates demand by each of the major end markets. These expectations are consistent with the demand outlook we discussed during our fourth-quarter conference call in February, but let me share a bit of color regarding what we see in the market, as of the end of the first quarter.

Two points to start. First, we continue to expect each end market to grow in 2014, with private construction recovering most rapidly. Secondly, we expect Vulcan-served markets to grow a faster rate than the markets we do not serve. We are very pleased with how our portfolio is positioned as the recovery in construction activity continues to take hold.

Now touching on activity and trends in specific end-use markets. In private residential, we continue to see broad-based growth across our geography, led by states such as Arizona, California, Florida and Texas. But in addition, we are also seeing residential construction activity and aggregates demand recover in important areas such as Atlanta, Charlotte and Nashville.

In private nonresidential, our markets are beginning to benefit from some growth in office and commercial work, complemented, importantly, by rising demand from large industrial projects. As we've noted before, these projects can represent large quantities of aggregates supplied over multiple years, and Vulcan is very well positioned to serve these customers, particularly along the Gulf coast.

These projects provide an exciting opportunity for aggregates business. That said, the timing of shipments can vary and we continue to monitor them for the actual shipment dates.

Now, we are also seeing strengthening large project activity in the public arena, including in transportation infrastructure. Although it has taken longer than most of us expected, federally funded TIFIA projects are beginning to drive additional aggregate shipments. The Grand Parkway in Houston and the Northwest Corridor in Atlanta are just two projects we expect to begin shipments to in 2014, or have already begun to make shipments to.

Additionally, state-level funding initiatives across several states are beginning to drive new project [write-ups], with Virginia and Maryland just being two examples.

While the parameters surrounding the renewal the Federal Highway Bill remain uncertain, large transportation infrastructure projects and the growth in contract awards we've already seen should provide reasonably stable demand in this end market for the balance of the year. Overall we expect modest growth in shipments in the public end markets in 2014, and we are optimistic with respect to public infrastructure construction in 2015 and beyond.

So while the first quarter does not make a year, our local teams and our customers are excited by what they see in the early stages of this recovery. Activity and confidence are rising across an increasingly broad group of geographies and in uses, and we believe Vulcan's people and assets are very well-positioned to meet our customers' rising aggregates demands during this time.

Before turning the call back over to Don for some closing remarks, I will comment on two additional topics that continue to be priorities, particularly as we look toward another year of earnings growth and hopefully multiple-year recover and demand.

The first topic is the strengthening of our balance sheet. During the quarter, both our sale of cement and concrete assets to Argos and our repurchase of approximately $500 million in debt closed as expected. As you can see on slide 8, net debt-to-trailing adjusted EBITDA is down from 6.4 times to 3.6 times.

Coupled with unit margins and earnings, this improvement in our balance sheet allows us the flexibility to reinvest in growth, whether through margin-enhancing capital projects, bolt-on acquisitions or other opportunities to strengthen our aggregates franchise. And of course we've continue to add to our portfolios opportunities present themselves. Over the past 18 months, we have acquired assets and improved on our ability to serve customers in areas such as San Diego, Atlanta, San Antonio, Charleston and Northern Virginia.

The second topic I would like to highlight briefly relates to the value of the land we own and our commitment to manage these holdings in a manner that generates value for both our shareholders and the communities in which we operate. Our first-quarter results included $18 million in cash proceeds and a $6 million pretax gain on the sale of two properties, a former Baltimore area quarry, of which a schematic depicting the intended use is shown here on slide 9, and a parcel of land on the river in Chattanooga.

Those of you who have followed our Company closely know that dispositions such as these are not at all out of the ordinary. Since 1998, we have generated an average annual cash proceeds of approximately $32 million from land sales.

Vulcan owns more than 110,000 acres of land, a significant portion of which is in urban or urbanizing areas. We will continue to operate and develop these properties with an eye toward their post-mining uses and the ultimate value to both our shareholders and our neighbors.

I will now turn the call back over to Don for some closing comments.

Thanks, John.

Let me close by saying that we are encouraged by the improving economic fundamentals we see in our footprint. Our outlook for aggregate volume and price growth remains very positive, consistent with the guidance we gave in February. We expect 2014 to be another year of earnings growth for Vulcan, and we are well-positioned to capitalize on the multi-year recovery and demand that we believe is in front of us.

Thus far in this recovery, we have leveraged modest volume growth and strong growth in earnings, due to the operating leverage inherent in our aggregates business, and the disciplined execution of our operation and sales teams. This operational performance by our teams gives us tremendous earnings upside as volume recovery continues.

In our non-aggregates segments, we continue to expect to earn $40 million to $60 million in gross profit in 2014. These improved results include higher earnings in asphalt and the return to profitability of our concrete segment.

With our improved capital structure, we are excited about the possibilities of expanding our aggregates operations and reserve base and further enhancing our footprint in the fastest-growing US markets. We are continuing to pursue a number of attractive growth opportunities that will enhance our earnings potential.

This is an exciting time and an excellent opportunity for Vulcan. We remain committed to adding lasting value built around our unmatched asset base.

And 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 the line of Ted Grace with Susquehanna.

I was hoping to touch on margins. I know you mentioned you were pleased with the performance in the quarter, and specifically on the aggregate side, I was wondering if you could just walk through kind of the puts and the takes on the incrementals?

Weather impact may have been in the quarter, if you are able to impute it based on shipping days available, and maybe just start there?

Sure, Ted. It's John.

First, I'd say there were two major weather-related impacts that effected our incrementals in the quarter. One was production of both amounts and efficiency and we had an inventory reduction in the quarter, which led to about a $2.8 million negative variance in profitability for us for the quarter.

The other impact, as Tom mentioned, was a negative geographic mix in terms of pricing and margin. That contributed another negative $3.7 million in headwinds to us. So on a normal geographic mix and on a normal production basis we would have been $6.5 million or so higher in the aggregates segment gross profit line.

Okay.

When you walk that across, and just one other thing I'd note, I think, Ted, you get to the kind of numbers that you are used to seeing. We continue to believe in the 60% flow-through number that we've stated before, particularly through the cycle.

And again, I think when you make those adjustments for both the geographic mix and for production, you will see the kind of incrementals you are used to seeing from us.

Was there anything on the frayed side or the logistics side that was notable call out in terms of the dilution that would've add to the underlying volume -based incrementals?

There's one -- that's an important question. One thing to note within our aggregates segment, we have intentionally grown our transportation-related revenues. This is a profit enhancement for us. These revenues come with substantially no capital commitment, but they are at a lower margin as a percent of sales.

So in the quarter, those revenues grew from about $60 million to $80 million, these being supporting products and services, transportation related. So Ted, to be clear, what I call the non-direct stone revenue?

Yes.

That grew at a rate of 32%, 33% during the quarter. It lends to our incremental margins per ton sold. It's very good for us to do. It's an important profit enhancement. But it does, if you look at the total segment numbers, dilute in margin.

Okay. That's really helpful.

So the last thing I'll ask and I'll jump back in queue is, you talked about the cash cost per ton being down 8% year on year. Could you just bridge us what the key variables were in the first quarter? And then how we should think about those variables in the second through fourth quarter?

I'll probably let Tom comment, but the cash margin was up, is what I would highlight, not the cash costs down.

The cash costs -- this is Tom, Ted.

The cash cost per ton was virtually flat. And that is a tribute to our people in that they were operating in a really tough conditions which negatively affect operating parameters, so we were pleased with a relatively flat cash cost year over year.

As we think about that cost dynamic going forward, I know you said there's a lot of labor leverage going forward, but are there any other kind of headwinds or tailwinds we should be mindful of as we model going forward?

I think that you know the rising volumes always help those cash costs, because there's a big fixed piece to that. I think our folks have done a good job keeping our equipment and operations in good shape, ready for rising volumes. That is a matter of really adding hours at this point.

Okay. The last thing I will ask before I jump back in queue, any chance you can characterize how April started off, or the quarter started off?

I think Ted will have to answer that we get into the second half.

Our volumes were up more in March than they were the balance of the quarter. I think they were up 9% in March. We like that momentum through the quarter, and coming out of the second half of last year. But let's talk about April when we get to our second-half call.

Fair enough, guys. I will jump back in the queue. Good luck this quarter.

Thanks.

Your next question comes from the line of Robert Wetenhall with RBC Capital Markets.

(Technical difficulty) filling in for Bob. If I do the math on your assumptions for end-market growth, it would imply aggregates volume growth at the top end of your guidance range. As compared to the outlook provided in February, would you say you're more encouraged about the outlook for volume growth at this point in the year?

I think we are experiencing broad-based growth throughout all of our markets, and we are hearing a lot of this -- this is Tom, I'm sorry. We're hearing a lot of confidence from customers, suppliers and employees.

To try to give you a little local color on that, the California, the private segment in California, continues to improve. UCLA is predicting housing permits up 27%.

Texas is really hitting on all eight. Residential and non-res continues to improve in Texas. We are beginning to see new subdivisions in Houston and San Antonio.

We secured a number of very large energy-related projects along the coast. The four largest of which would be over 2 million tons. And then the highway segment Texas is healthy. We've talked about before, we secured the Grand Parkway in Houston, which is a TIFIA project, begin to ship it.

The central US is a little slower to return, but we are starting to see recovery. We have secured a number of large projects in Illinois, and residential is starting to -- we're seeing growth in residential in Nashville and Knoxville.

Georgia is a market that we are very pleased with. The residential continues to accelerate; commercial is following. And while the highway funding is flat, we have secured the Northwest Corridor, which John mentioned earlier, which is a TIFIA project. We will start to ship probably towards the end of 2014.

Our Florida market continues also to improve. Residential continues to grow, commercial is following that healthy -- with health. An example of that is the Doral Breeze Project in Miami, where we've secured 0.75 million tons.

The Carolinas, we're starting to see residential improve in the Carolinas, really driven by Charlotte, as John mentioned. And Virginia, we also see improved residential and some big projects like the midtown tunnel, which is a TIFIA project.

So overall, we have a lot of confidence in our markets. I think you do have to remember this is the first quarter, and there is a lot to play out. There's a lot of noise in the first quarter. So at this point it think I would have to tell you we are comfortable with our range.

That's great. Thanks for the color.

And then on pricing, aggregate prices are up 2% versus your guidance of 3% to 5%. How much are your expectations for accelerated pricing gains is a function of improving mix versus a true pricing power as volume growth accelerates?

I think we're seeing pricing momentum all across the markets. Now, as we say earlier, every marketing and sub-market prices at different times. It is a whole mix there of timing of pricing. But while we weeded through the downturn, we were able to get price increases. So with growing markets, growing demand, growing confidence it just gives you better pricing momentum.

Again, much like volume, we are just coming out of the first quarter. There was a lot of noise in there. So I think we are comfortable with that until we have a few more months of real construction cycle under our belt.

I think you hit the key word, which is momentum. While it is early, we are really excited about the momentum, both on the volume side across geographies, and as Tom mentioned, on the pricing and margin side in our business.

Great. Thanks, guys.

Your next question comes from the line of Keith Hughes with SunTrust.

Thank you. I just wanted to dig in a little bit on the private nonresidential buildings estimate you have. Very bullish estimate here, both in your markets and as a whole. Can you kind of list off one, two or three, which of those you think will be the best, and which could be potential laggers this year in that segment?

I think the best is going to be the private residential, and that is typical in that the non-res will follow the private, the housing. But there is a component to the non-res that is a little different this time, and that is the big energy-related projects that we've seen along the port.

To answer your question, to be clear about it, across the country, residential is leading, but non-res is, as usual, comes behind it. But that nonres is bolstered by the big energy plays on the Gulf coast.

Within nonresidential, you would expect the energy and, I assume, industrial to be the leader and office and retail development to be a lot less than that? Would that fair?

I think right now, right at this time, that's correct, but you are starting to see the building come on and the traditional non-res of strip centers and things like, you see starting those come on, which are -- it's following the residential.

And for Vulcan, is the aggregate intensity, how to those end-user markets within nonresidential compare?

Well, historically, highways are the most aggregate intensive. Industrial projects would be next because, particularly the ones on the Gulf Coast, the first step in the process is to build a pad on which you can expand a refinery or build an LNG facility or an industrial plant along the Gulf Coast in low-lying areas, so those are significantly aggregate intensive.

Then, traditional commercial construction would be next and residential is the least aggregate intensive. Although in the residential area, as you know, the primary use of aggregates is in lot developments, streets and utilities and infrastructure. And in this, unlike residential construction 1 year or 18 months ago, we are now in a lot development phase, which is more aggregate intensive than residential would be on a steady state.

Okay. Thank you.

Your next question comes from the line of Garik Shmois with Longbow Research.

On the $2.8 million inventory drawdown in the quarter, just wondering, was this primarily in weather-hit markets or has it been more broad-based? And if you can talk about the outlook for inventory management for the balance of the year and if there's going to be any impact on incremental margins?

Garik, this is Tom.

The draw down on inventory was really due to the bad weather, the cold weather in the East. It is just very inefficient or impossible to run in snow and ice, so that was intentional on our part. I don't see that inventory being an impact going forward. We will catch that up and move on. But you create a lot of costs and a lot of pain for yourself if you try to run in really bad weather.

Okay. That makes sense.

If you could talk about -- you touched upon your views on private non-res, and you've talked about, for couple of quarters now, the sensitivity to your guidance depending on whether or not some of these big projects in the South commence this year and uncertain timing around these projects. As you move through the first quarter, and as we sit here in early May, can you talk about your visibility with respect to these big projects now, as opposed to a quarter ago, and what your level of confidence that they actually get started this year versus next year?

We've seen a couple of those projects start. We began to ship a few of them. But we are still unclear as to the timing of a few others and that is based on permitted or engineering plans.

So at this point, we need to see another quarter before we have real clarity on those big projects, because when they go, a lot of them go really fast. We still have some uncertainty on timing at this point.

Okay, that's fair.

Just a couple of housekeeping questions, I think mainly for John. Can you provide an update on your view on SG&A for the year as well as depreciation cost?

Sure. On SG&A we, of course, continue to manage it very tightly. We are very competent that we will be able to offset any normal increases in SG&A due to wage increases or those types of things with other savings.

And so we would expect it to be flat to down for the year. And equally importantly, we are very confident we will continue to leverage at sales growth and profit growth through time. That answer your question?

Yes, on DD&A and then maybe interest as well.

DD&A and interest -- DD&A we'd see as $265 million for the full year. And that reduction from last year, as a reminder, is largely due to the assets we divested. So that is $265 million versus, I think, $305 million last year.

Interest expense, we would be in the range for the full year of $165 million to $170 million. The run rate reduction with our bond repurchase is about $32 million. And to save you asking, tax rate for the full year, we see it around 28%.

Perfect. Thanks so much.

Your next question comes from the line of Kathryn Thompson with Thompson Research Group.

Hi. Thanks for taking my questions today.

I appreciated the color that you had regarding the mix impact on pricing, but one thing I want to talk about a little bit is, we look forward and knowing that you're going to have more infrastructure-related projects coming forward, how should we think about managing product mix in regard to modeling pricing, knowing that you're going to have a greater mix of base, which is a lower price point, but you're still getting pricing on that.

So if you could help us how we should think about that not just for the upcoming quarter, but over the next 12 to 24 months? Thank you.

This is Tom, Kathryn. I'll look back on that.

We did not have a big impact in our first quarter from mix. I think we have -- going forward, I wouldn't see us having a substantial mix impact on pricing.

I think there is a pretty good balance there. I think we have a handle on that. And while we will see some large base jobs, we are also going to see substantial concrete, rock and asphalt rock work. So I don't see a big mix impact on price.

Great.

It's awfully good for margin also, right?

Yes.

That mix of business doesn't hurt our margin either.

Okay, great.

We've been following TIFIA for a bit now. Could you give a little bit more clarity in how much of TIFIA projects are being captured in your current volume guidance for the year? It's difficult to put in buckets on a percentage basis, but we get a better sense of will it be more like 10% or 15% type this year and you see more momentum into 2015?

But in general, giving some sense of the relative mix and momentum of those TIFIA projects as you ramp up. Thank you.

This is Tom, again.

Let me see if I can work you through some TIFIA jobs that we either have or have on the horizon. We have the Regional Connector in California, which is a small job. The Grand Parkway in Houston, which we've talked about is a very large job, which has started shipping, and will impact this year.

The I-4 expansion in Orlando is a job that just bid and was awarded. It's a little bit unclear of where the materials will go at this point. That job probably will not start until 2015.

The Northwest Corridor that we talked about in Atlanta, which is a very big job, highway expansion in Atlanta. It has an impact of about 1.4 million tons. But again, that will start shipping in late 2014.

The Midtown Tunnel in Northern Virginia, that job is around 800,000 tons, we are shipping that job currently. And then the Dulles Metro Rail in northern Virginia, that is really a concrete job that we will supply with our Northern concrete group. Has an impact of about 140,000 to150,000 cubic yards.

So that gives you a view of what we know about right now, most of those we have secured. Some of them will ship this year. A lot of that will ship in 2015 and beyond.

Okay, so it's --

Am I answering your question?

Yes, it is. It's really we're in the very early stages of seeing the volumes flow through, which is helpful. All right, that's all I have for now. Thank you.

You're right, it's early stages. I think we look at large projects overall, and maybe back to Garik's question.

What we have is, we have much better visibility to the awards and to the backlogs. What we have less visibility to is to exact shipment dates. But the momentum and the overall demand is there, and is growing, and the question is just one of timing.

Perfect. That's helpful. Thank you so much.

Your next question comes from the line of Trey Grooms with Stephens.

Good morning.

Quick question on the mix again, and Tom, I know you have mentioned that you don't expect a real impact, and didn't see a real impact as far as product mix goes on pricing, but the geographic mix obviously had a little bit of impact in the first quarter.

And then you touched on these large energy projects coming up over the next few years in the Gulf. Also you know there are some Port deepening and other activities going on the Gulf as well. With Florida being a pretty high-priced market relative to some, should we expect a positive mix impact from just -- geographic mix impact on pricing as we look over the next several quarters and in the next year?

The answer to your question is, yes. Obviously, we were hit hard on the East Coast with weather in the first quarter. That will catch up. As that catches up, it will have a positive impact on price.

Also, Virginia and North Carolina and South Carolina, which have attractive pricing, as their markets come back and as the Florida market comes back, we will see positive impact on pricing.

Just specifically to some of the activity in the Gulf, do you think that those will be priced as such that you will be able to realize more of that price impact, or mix impact, I guess, as these big large projects come in? Just trying to get a sense for how you think those are going to be situated.

I think those are in attractive prices and I think they will have a positive impact on pricing.

Okay. And then also kind of on that note, I'm assuming a lot of that, with all the activity in the Gulf, a lot of that would be coming from the Yucatan, a lot of that product. So how should we think about margins on that rock? Would they be any different than typical coming out of the Yucatan?

Those are very attractive margins, and they will help us.

Okay, great. Thanks, Tom.

Trey, on the -- we have a very significant competitive advantage on projects on the Gulf coast because it is a straight shot, as you know, up from our quarry on the Yucatan Peninsula. So those are really good projects for us, both in terms of pricing and margin.

It seems like you guys are set up nicely to benefit from those. Thanks a lot, guys, and good luck.

Trey, one more slightly different point on geographic mix just worth noting for the group. Again, as Tom mentioned, our Virginia, Maryland markets and through the Carolinas really were hit by weather.

Just to give you a sound bite on that, our ready-mix volumes in Virginia and Maryland were down 19% versus the prior year. They're up everywhere else. So that obviously impacted our results significantly in that segment for the quarter.

Just to give you a sense, Tom had mentioned had we had half the shipping days go away in Virginia, Maryland. So that will rebound as we go through the year. But you shouldn't lose that as a driver of mix and as a driver of concrete segment performance in the quarter.

Okay. Thanks for that color.

Your next question comes from the line of Jerry Revich with Goldman Sachs.

Hi, good morning.

Good morning.

Can you talk about the large-scale infrastructure projects that are likely to move towards TIFIA financing? Is your visibility and lead times better than it has been in prior cycles? We're hearing from some contractors that their jobs for mid to late 2015, already visibility is pretty good on, which would be much earlier, I guess, than the typical bid cycle and prior cycles. I'm wondering if you were seeing that as well?

And then, just based on the project flow, can you talk about, with the rough sense, of what proportion of your aggregate shipments in 2015 and 2016 could ultimately be toward TIFIA-related projects?

Jerry, we are -- continue to be very active in monitoring and working with potential contractors on the large TIFIA projects. The substantial majority of those projects are in our footprint, and the reason for that simply is, these have to be revenue-generating projects, and many of them are toll roads.

And in order to get the traffic counts necessary to generate the revenue stream to support the TIFIA financing, you have to be in large, congested metropolitan areas. So California, Texas, Georgia, Florida, North Carolina, Virginia, Illinois, those are most of the big TIFIA projects are located, which happened to be, fortunately, markets where we have very substantial positions.

So we think we will get more than our fair share of the TIFIA projects. And as I said, we want to work very closely with the contractors in order to help them achieve the best value for the aggregates and other heavy materials and products in markets where we have those on those projects.

That being said, I think Tom took you through a list of the ones that we currently have booked or active in working on. That is a very important part of our future demand.

It is not possible for us to tell you today what portion of our projected shipments in 2014, 2015 or 2016 are going to go to TIFIA projects, because we simply don't know what the timing of those projects is going to be or the level of our participation. We won't get every TIFIA project in our footprint, because we have competitive markets wherever we operate.

But, it will be a significant boost to our volume. But in order to try to give you the kind of specificity as to what percentage growth will be in each of the next three years on TIFIA projects, we simply don't have the data to do that.

Okay. But it does sound like the visibility has improved. As you pointed out, we've all been waiting for those projects to get moving and it sounds like it is finally starting to play out.

It is. And they have been slow coming out of the US DOT. Part of it was the shift from, as you know, under the statute the federal government could provide up to 49% of the total financing, because the number of projects was substantially oversubscribed. The DOT and the Treasury decided they would cut that maximum participation too about 33%, so some of the projects had to go back and redo their financing in order to meet that 33% test. That has been one of the issues.

And just the fact that there was a huge increase in TIFIA, and therefore a huge increase in the number of projects submitted to the DOT, has certainly slowed the process of review and approval. But as we have noted and you have noted, finally under the new MAP-21 version of TIFIA, which dramatically increased the federal support there, that we are seeing those beginning to materialize.

Okay. And then, from a capital deployment standpoint you've obviously reduced leverage pretty aggressively here. How should we think about capital deployment from here? Anything to do before your December 2015 notes become due?

Nothing to do before the notes come due. We will likely pay those off before they come due out of operating cash flow.

I think the answer to your question, as we noted in our remarks, is that we are very well-positioned to pursue growth opportunities as they arise. We will be disciplined in how we do that. But we think there is a real opportunity in the market these days to smartly grow our footprint and our franchise.

Okay. Thank you very much.

Your next question comes from the line of Todd Vencil with Sterne, Agee.

Hey, guys. Good morning.

Hey, Todd.

Don and Tom, you guys have both talked about the growth in residential communities, which I guess were basically dead for a while and are now coming back. Can you talk about whether that community development activity is picking up, and how far away you think we might be from reaching kind of parity where, I guess, we are developing a lot for every lot we are building on?

I will give you one small example. I was in San Antonio last week with our management team, and there is lot development going on everywhere. I think the same thing is happening in Phoenix and Atlanta. A lot of other markets, as Tom mentioned, Nashville and Charlotte.

I don't have any metrics to say that we will reach equilibrium in lot development and home starts by date X. But at this point, I think you have seen the statistics that say house prices are moving up sharply in most markets, because the inventory levels of new homes are dramatically reduced.

You know what incentive that creates for homebuilders. They need lots to build new houses to meet the demand and we are seeing a tremendous amount of lot development.

It is very geographically specific, but it is all based on the markets where there is population growth, household formation, job creation. That has been a big driver.

Got it. That makes a ton of sense.

Is it fair to say as people, I guess, have worried a little but this spring about exactly where the starts are and the traffic is, that this is a phenomenon and a trend that is a little longer term, takes longer to develop a community. So does it feel a little more durable than maybe the more volatile housing statistics?

I think we take a fair amount of comfort in the fact that we are still plus or minus 1 million housing starts a year. And sort of average over the last, whatever, 30, 40 years, has been 1.4 million or 1.5 million.

So we're -- housing starts, before they even get to a normalized run rate level, have to go up another 50%, and there have got to be lots for those houses to be built on. There is a lot of noise from month to month and week to week about housing starts and home sales, but when you back up and look at it over the longer term, we are very bullish on housing, particularly given our geographic footprint and the population statistics in our states.

One of -- for example, the demographers are now saying Florida has now surpassed New York in population. Florida has been very strong for us for at least the last 18 months in terms of recovery. It got hit, as you know, dramatically in the downturn.

But I think we are very bullish about housing, and don't get distracted by reports about this that and the other, that come out every week about housing. We think the long-term supply and demand in our markets is very favorable for us.

Great. Thank you so much.

Your next question comes from Mike Betts with Jefferies.

Yes, thank you very much.

Mike, it's very good to have you back.

Thanks, Don.

I have three or four pretty short questions, hopefully. The first one was the states that had over 15% growth. I was surprised that Illinois was in that state, although you have referred to it briefly some of the early comments. Can you kind of summarize why you think that market is so strong?

Secondly, I noticed in terms of leverage now you're looking at net debt-to-EBITDA. Can you talk about where you would be targeting in the longer term for that ratio to be and therefore give us some idea the size of corporate activity that you might be looking at?

And then just finally, the ready mix, obviously, was distorted by Maryland and Virginia, as you mentioned, but it's also distorted by the Florida divestment. Do you have any kind of like-for-like volume change excluding Florida you could give us for the quarter? And did also have a significant impact on the ready mix price? Thank you.

Mike, this is Tom.

I will start off with Illinois. As I said in my comments, we have secured a number of very large projects in Illinois that will last throughout the year. So we are pleased with our performance in Illinois, and confident that those markets will improve as the year goes along.

(Multiple speakers) There were no weather impacts in Illinois?

I'm sorry?

There was no negative weather impact in Illinois?

There was bad weather impact, but the large projects, when they were able to ship, they shipped strong.

I think our guys on the ground just did a good job of winning the work, too, and gaining share.

Mike, on your question on balance sheet. Do we use any number of metrics? We did choose this particular one to illustrate the improvement as stated.

Our longer term through cycle goal is to return to investment-grade metrics. It's really less about the metrics and more about the ability to pursue growth smartly throughout the entire cycle, which is what we are focused on.

As we sit here today, our view is that we have plenty of firepower and financial flexibility to pursue those options that make sense for us. And that is a function of both our balance sheet, but Mike, also the really strong margins and unit economics that we were able to generate from the business, is the strength of our operations and sales teams.

So we don't see financial constraints on what we do. It's more a questions of the opportunities and which ones make sense.

Mike, on your question on ready mix. I think John has already mentioned that our ready mix in Virginia, Maryland and the District of Columbia, which is one of our best ready-mix markets, was down about 19% due to weather in the quarter.

Everywhere else, we were up on average at least double digits. California, Texas and Georgia, we had very good ready mix shipments in the quarter year-over-year growth.

We are projecting that our ready mix segment becomes profitable in 2015. Part of that is growth in margin and volume and price. Part of it is not having the Florida business as part of our mix going forward.

So we think ready mix will benefit greatly from the growth in housing and, to some extent, growth in private non-res construction. If you've been to Washington, DC, lately or -- you see huge amount of private non-res construction there in terms of office buildings and high-rise condos in the District as well as in Northern Virginia. That is a very strong market for us. All we need there is a little weather.

Mike, just to give you another sound bite, the concrete businesses we retained, so absent what we've divested, would've been up on volume, I think 1.4% for the quarter, and that's despite what is by far our largest position, Virginia, Maryland, being down 19%. So the increases in the other markets are very strong.

We have increases in pricing, increases in material margins across each of these businesses. I think all indicative of the recovery and private residential activity. So we are bullish on it. And obviously the weather impact in Northern Virginia will reverse itself.

I think if you looked at the gross profit mix relative to expectations in our concrete segment for the quarter, it is almost entirely explained by the volume decline in Northern Virginia. Which, again, will reverse itself.

Is that a high-margin market for you?

We have a very good position in that market. That's a good concrete market.

Understood. That's great. Thank you very much.

Arguably our highest margin market.

Okay. Thank you.

At this time there are no further questions. This does conclude today's conference call. You may now disconnect.