渥肯建材 (VMC) 2015 Q1 法說會逐字稿

Welcome to the Vulcan Materials Company first-quarter earnings call. My name is Tabitha, and I will be your conference call coordinator today.

(Operator Instructions)

Now I would like to turn the call over to Mr. Mark Warren, Director of Investor Relations for Vulcan Materials. Mr. Warren, you may begin.

Thank you, Tabitha. Good morning everyone, and thank you for your interest in Vulcan Materials Company. Joining me today for this call are Tom Hill, President and Chief Executive Officer; and John McPherson, the Executive Vice President and Chief Financial and Strategy Officer.

Please note a slide presentation will accompany the prepared remarks by management, and is available via the webcast. A copy of this presentation, as well as a replay of the conference call, will be available following the completion of this call at the Company's website.

Before we begin, the actual results and the outlook, I refer to you Slide 2 of our presentation regarding forward-looking statements, which are subject to risks and uncertainties. Descriptions of these 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 measurements. You can find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures and other related information in our earnings release and at the end of this presentation.

Now I would like to turn the call over to Vulcan's Chief Executive Officer, Tom Hill. Tom, you can proceed with the call.

Thank you, Mark. We are very pleased with our performance in the first quarter. Despite bad weather in many of our markets, we enjoyed strong earnings growth and margin expansions on higher revenues, underscoring my confidence in our full-year outlook.

We're excited about the continuing and accelerating demand across our markets. We're excited about the increasing pricing momentum, and pricing will continue to escalate throughout the year. We're also very pleased with our operating performance in the quarter.

In spite of the difficulties posed by bad weather, our local teams did a great job driving incremental revenue to the bottom line, balancing price, volume, sales and production mix, along with operating efficiencies and leverage. The first quarter is always choppy, but we still saw healthy growth and good operating execution.

Adjusted EBITDA was up 97%, total gross profit increased 128%, and same-store shipments increased 9%. Cash gross profit per ton increased 17%, with strong flow-through and Aggregates gross profit 68% on incremental freight-adjusted revenue.

Same-store pricing increased 4%, with strong pricing momentum across most markets. With improving market conditions and our focus on profit improvements, both pricing and margins continue to expand. We are extremely well positioned to achieve strong earnings growth in 2015 and beyond.

Slide 3 shows the quality of our first-quarter execution. It shows how we continue to convert incremental revenues into earnings growth.

Total revenues, excluding freight and delivery, increased 8% while adjusted EBITDA almost doubled to $77 million. This was due to strong earnings growth in Aggregates and earnings improvement in each of our non-aggregate segments while we held SAG costs flat.

Our profitability continued to improve significantly, whether measured by a margin percentage or per-unit profit. We achieved these results despite the prolonged bad weather in many key markets.

Now, let's look at our Aggregates shipment map on Slide 4. I like the color of this slide. Momentum and shipments continue with strong growth in key states such as California, Florida, Texas, Virginia, North Carolina, and Illinois.

Volume in Texas was up 22%, or 15% on a same-store basis. And North Carolina was up 29%, despite bad weather. Georgia volumes were down due to extremely bad weather, but Georgia construction activity continues to heat up, and Georgia is on the road to a very good run.

Slide 5 shows the continuing volume growth across Vulcan's footprint. This momentum is driven by strengthening private construction activity and supported by highway construction. It's occurring across all end use segments.

This is a result of increasing number of large projects and growing highway demand as states ramp up their highway programs. Shipments grew 13% in total and 9% on a same-store basis in the first quarter, even with the impact of bad weather in the Mid-Atlantic, the Southeast, and in Texas.

The growth rate in Aggregates volume on a trailing 12-month same-store basis has continued to accelerate, led by strong growth in Florida, Illinois, North Carolina, Texas, and Virginia, while aggregates shipments in California and Georgia also had solid growth. We continue to see healthy price growth, and pricing momentum is accelerating.

We had a number of markets with high single digit or double-digit price increases. For example, Miami was up almost $1.50 per ton, Tampa over $2.40, Charlotte over $1.70, Charleston almost $2 per ton, and the Houston market was up $2, and overall Texas prices were up over 10%.

We did have some headwinds on both geographic and product mix, with high volumes and lower price states like Arizona and Illinois. And much larger shipments of base and fines on new construction and large projects, especially in Virginia and North Carolina. Now, this is not a bad thing as the volume and product split helped our overall profitability.

We continue to see confidence in our customers' view of the market and their acceptance of price increases. There will be a lot more to come, as we have secured April price increases in a number of key markets. For example, Texas, Georgia, and Alabama all secured new increases of over $1 a ton in April.

Prices will escalate throughout the year as new price increases are initiated and realized on both fixed plant work and new bid work. The pricing momentum is what you have come to expect from our industry and from Vulcan.

What we are equally excited about is our ability to take top-line freight-adjusted revenue growth straight to the bottom line. In our last couple of calls, we talked about the three profit drivers that are expanding margins and profits.

On Slide 7 you can see our gross profit per ton increased 62%. So in the quarter, price was up $0.44 per ton but gross profit was up $0.80.

Our sales and operating teams continue doing an outstanding job of turning demand growth into higher levels of profitability. They are the best in the business at managing the mix of price, operating efficiencies, volume, and product.

This story of unit margin expansion isn't a new one for us. There's a trend here, not just a quarter story.

As you can see on Slide 8, looking at this over time we've continued to compound unit profitability faster than pricing. During the last 12 months, our freight-adjusted average unit price has increased 3%, or $0.30 per ton. Over that same time period, our gross profit per ton has increased 19%, or $0.63 per ton (sic - see Slide 8, "$0.56"). This is a higher unit profit than when these operations were producing twice the volume.

We are still in the early stages of recovery. We are very pleased with this momentum.

Demand for our products continues to accelerate. And I am extremely proud of the way our people are focused on unit margin growth.

Slide 9 illustrates our incremental margin performance in our Aggregate segment. Incremental gross profit margin for the quarter was 68%, excluding the impact of acquisitions completed in 2014.

Aggregates gross profit grew by $31 million on incremental freight-adjusted revenues of $46 million. Including the impact of acquisitions, the incremental margin was 52%, as the gross margin on those revenues was impacted by acquisition accounting and seasonality.

Since quarterly figures can be distorted by weather or one-time costs, we're also presented the same metric calculated on a trailing 12-month basis. For the trailing 12 months, that end of this quarter, incremental gross profit margins was also 68%, adjusted for the same acquisitions.

Aggregate's gross profit increased approximately $148 million on incremental revenues of $229 million. Given our strategic focus on the Aggregates business, gross profit flow-through is a big advantage to Vulcan as volumes continue to recover.

With Slide 10 we can step back and look at the big picture, seeing the significant progress in the Aggregate segment of our business. Before the recovery began, our annualized volumes topped at 140 million tons for the 12 months ending the second quarter of 2013. Since that time we've added 26 million tons on an annualized basis. Nice, but still a far cry from normal demand.

However, we've been able to increase segment gross profit by $216 million, with unit margins increasing 35%. Again, our people are executing on the disciplines that grow gross profit. These results also foreshadow the earnings power of our Aggregates business as we return to more normal levels of demand and as pricing fundamentals begin to improve.

Slide 11 shows our Asphalt and Concrete results for the quarter. Both of these businesses are improving on a same-store basis and as a result of transactions that we've made to improve our portfolio.

Asphalt gross profit for the quarter was approximately $9 million, a year-over-year improvement of $4 million, driven by higher margins and earnings from existing operations. On a same-store basis, asphalt volumes increased 6% from the prior year. Unit profitability increased sharply.

First-quarter Concrete gross profit was $1 million compared to a loss of $9 million in the prior year. Excluding the Company's divested Florida and California concrete businesses, unit profitability improved dramatically. Gross profit increased $6 million.

Now I will turn the call over to John for comments on capital allocation and our outlook. John?

Thanks, Tom. Capital allocation and capital efficiency of course remain critical areas of focus for our management team. And we gear our approach towards sustained value creation for our shareholders.

As it relates to the allocation of capital across our business portfolio, let me remind you that in the first quarter we completed an asset swap with CEMEX under which we exchanged our Southern California concrete operations for 13 asphalt operations, primarily in Arizona. Vulcan will continue to supply aggregates to the swapped concrete operation, And you will see a $5.9 million gain on this transaction included in this quarter's financials. We believe this transaction will prove valuable for both parties, as each should be able to earn a higher return on the acquired assets than the prior owner.

Now let me turn from business development activities to the ongoing management of our capital structure and capital costs. As part of our February 25 Investor Day presentation, we outlined certain actions intended to refinance near-term maturities, lower our weighted average interest expense and extend the overall duration of our debt portfolio.

Slide 12 summarizes these actions, which are now substantially complete. On March 16 we issued $400 million of 10-year notes priced at 4.5%. This issue was very well received, and the pricing reflects our now stronger and rapidly improving credit profile.

Those funds, along with borrowings under an expanded revolving credit facility, have been or will be used for the refinancing of $620 million of maturities otherwise due between now and 2018, as well as two smaller notes due in 2021 and 2022 for a total refinancing of approximately $640 million. The left-hand slide of -- side of Slide 12 summarizes the relevant sources and uses of cash. And the right-hand side of the Slide presents the relevant accounting charges, both the $21.7 million incurred in Q1, and the $46.9 million we project to incur for Q2.

Now let me turn briefly to Slide 13 to recap the impact of these recent transactions on our overall financial strength and flexibility. Let me first remind you that we have maintained our overall level of debt at approximately $2 billion. We're quite comfortable with that level of debt at this time, given our expectations for 2015 EBITDA and our strengthening outlook.

But we have improved the structure and cost of our debt portfolio. As you see on the slide, we now effectively have no maturities due before 2018 and a total of approximately $500 million due before 2020.

By the end of this year when we refinance our 2015 notes and maturity, we will have added a modest amount of lower cost floating rate debt to our mix, a move which makes sense for our business. In total, our weighted average interest rate will have dropped by approximately 120 basis points to 6.5%.

We expect to achieve credit metrics consistent with investment grade benchmarks during the course of this year. And as our credit position continues to strengthen, we should have further opportunities to improve the overall structure and cost of our debt portfolio. We should also have the cash flows and the investment capacity needed to both reinvest in our business and return capital to shareholders.

Now let me make a couple of comments about end markets and our outlook for 2015 before handing the call back to Tom. As noted earlier, and as you see reflected in our Q1 results, construction activity continues to recover in Vulcan served markets, although it remains far below long-term trend levels.

As outlined in our February call, we continue to see gradually improving demand in each of the major end markets we serve. The Federal Highway Program receives much attention at the moment, and deservedly so. Like other observers, we expect an extension of the current legislation, during which time leaders in Congress will seek agreement on funding sources for a new long-term bill.

Although several states have delayed work due to uncertainty at the federal level, we currently do not anticipate a major disruption to our projected volumes for 2015. In fact, given our current backlogs and the pattern to new project starts in Vulcan served states, we remain confident in growing our shipments to public transportation and infrastructure end uses.

Now, deteriorating state of the nation's transportation infrastructure and its very real cost to the average American family become more evident with each passing month. We believe that our Congressional leaders understand this fact, and we're hopeful that they will find a way to at least begin to address this pressing need.

But amidst all this frustration at the federal level, there's some encouraging news at the state and local level. And with that in mind, we did want to highlight on Slide 14 some of the positive trends we are seeing at the state level for infrastructure funding.

In general, state and local tax revenues have grown and mirrored the overall economic recovery. As state and local tax revenues approach all-time high levels, they provide stronger support for public infrastructure funding.

Additionally, many states, including several in Vulcan's service area, are tapping into other funding initiatives to bolster transportation and other infrastructure construction. At some basic level, this is a matter of responding to the demands of voters, servicing the requirements of growing population centers, and importantly, competing with other states. Our primary goal today is simply to note this important trend, as it is one reason we remain confident that aggregates demand associated with public highway and infrastructure spending will at least continue to grow at a slow but steady pace for the next several years.

To just briefly highlight a couple of very recent examples, I will point to Georgia and Texas. Georgia very recently enacted new funding for its DOT, providing approximately $900 million in additional dollars annually, indexed to CPI and fuel economy standards, and a near doubling of the overall program.

This legislation also eliminates or heavily constrains transfers of transportation revenues to other uses. This improved state-level funding compliments the decision of several counties in Georgia to levy an additional 1% sales tax for local road funding. This is very good news for our Georgia business.

In Texas, the State House and Senate each recently passed bills to increase transportation infrastructure investments further. Should final legislation be enacted along these lines, annual funding would increase by a projected $2.5 billion to $3 billion. This commitment comes on the heels of Proposition 1 approved by voters in November, and which directed approximately $1.1 billion in new funds to road repairs and maintenance.

Again, these are just two examples of the type of action we're seeing across more and more of the states we serve. States recognize the federal program is necessary but not sufficient, and they are moving to tap new sustainable sources of revenue to protect those funds from being redirected to non-transportation usages and to invest in their future economic competitiveness.

I would now like to review our full-year outlook, which you see summarized on Slide 15. We have not at this time adjusted our full-year EBITDA guidance from the range presented in February. As we have noted many times, overall first quarter results do not always provide a reliable read-through for the full year.

That said, the underlying volume and pricing fundamentals during the first quarter were certainly encouraging, and they underscore not only the improved -- the improvements embedded in our 2015 outlook, but also our longer-term targets. If diesel prices remain around current levels, we currently would expect to finish 2015 toward the high end of our EBITDA guidance range.

In support of this view and our overall sense of confidence and excitement, let me briefly walk through the assumptions underpinning our full-year outlook. With respect to Aggregates shipments, our 9% same-store growth in Q1 was on track with our full-year outlook of up approximately 8%, despite weather deferring some shipments into later in the year.

The gradual recovery and demand appears to continue across all end use segments and across the vast majority of our geographies. We remain very excited about the continuing recovery and demand and its implications for our full-year shipments.

Moving now to Aggregates pricing. The momentum we currently see is consistent with, or trending ahead of, our 6% outlook for the full year. As Tom noted, April 1 price increases appear to have held up well, and we expect to see more price improvement throughout the year.

We remain confident in the 6% target, and we expect many of our markets to see price growth well in excess of that rate. Pricing fundamentals are strong and getting stronger in many markets.

In terms of overall gross profit for the Aggregate segment, our local teams continue to execute very well, converting well over 60% of incremental freight-adjusted revenues into gross profit. Unit margins continue to improve, and to improve faster than pricing alone would indicate.

Diesel prices, as noted, have provided a tailwind and have helped offset certain costs inherent in meeting rising demand during often wet, cold operating conditions. We remain very confident in the full-year gross profit outlook for the segment.

Our Asphalt and Concrete segments have also seen rising profitability, both on a same-store basis and as a result of recent acquisitions, divestiture, and swap activity. These businesses remain on track to meet or exceed their full-year gross profit targets, although we should note that margins in these businesses can be more difficult to forecast.

And finally, SAG for the quarter remained flat to the prior year. We remain very focused on leveraging SAG expense to revenues as the recovery moves forward.

All in all, our businesses enjoy strong momentum in volumes, pricing, margins, and capital productivity. Our teams are executing very well, serving our customers well and focusing on what they can control.

If history is any guide we're like to hit a quarterly bump or two somewhere on the multi-year road to normal construction activity. But the underlying fundamentals remain very exciting. With that, I will turn the call back over to Tom for a closing comment.

Thanks, John. We're very pleased with our first quarter performance. We're pleased with accelerating volume growth, pricing momentum, and strong margin expansion across the business.

We're seeing growing construction activity in our markets. We have a lot of large projects already booked, and more to come.

Residential and nonresidential construction in our markets is growing. Key states are also rising to the challenge of increasing funding for their highway programs.

Meanwhile, we remain completely focused on the execution of the business. Price improvement, lowering costs, margin growth, and capital discipline. Our teams all across Vulcan's footprint are doing that.

We are very excited about the opportunities we see ahead of us and look forward to sharing the good news with you in the future. And now if the operator will give the required instructions, we'll be happy to respond to your questions.

(Operator Instructions)

Your first question comes from the line of Ted Grace with Susquehanna.

Good quarter.

Thank you, Ted.

I guess I was hoping to touch on pricing. Two elements to the question. One, we know reported was up about 4%. Could you talk about the headwinds and how we might calibrate around an underlying pricing number?

And then the second question would be, just kind of broader commentary. I know you mentioned that you're trending in line to above plan, which is good. But maybe if you could talk about what you're seeing overall. And then if you could just compare and contrast kind of your results to kind of other data points throughout the quarter, that would be helpful just to get some context around Vulcan versus Martin and peers -- sorry, Vulcan versus peers.

First of all, as John said, we're on track, if not ahead, I think, of our 6% pricing guidance. First quarters are always, as we said, choppy. So we saw good price increases that stuck in January. We've had very good price increases stick in April.

But when you look at a first quarter, it's really not a problem from a mix or headwinds, but it's more -- it wasn't just base and fines. It's also when you have real wet, really cold weather, particularly along the East Coast, you're not shipping to what we call fixed plants, which is your asphalt and concrete customers, which is some of our highest pricing, or not very much compared to other jobs.

So that's also a mix impact. But if you look at the underlying momentum of what's going on in pricing we have, it's really going very well and we have a lot of confidence in where we see ourselves at the end of the year.

Can you talk about kind of the range of price increases you put in April 1?

Yes, it was -- in most places, it was around $1. Texas was higher, it was anywhere from $1 to $2. And that was the range.

I've got a couple of additional points of color to add, just to build on Tom's comments. I guess the thing we would headline most is that we feel very confident of the underlying momentum. And the underlying momentum is obviously more consistent with our annual guidance than it would be the number you would you see in just the first quarter.

But a few other comments. I think, and just because you asked, Ted, in comparison to other numbers, and let's just take Martin's number from last week. Certainly that's a very good headline number, and we take it as another indication of the improving fundamentals in many of the markets that we serve.

It's very hard for us as outsiders to make a true apples-to-apples comparison when you take into account freight impacts and geographic and product mix impacts, the impact of the TXI acquisition and those kind of things. But that said, I think if we step back, our best guess would be that we're seeing many of the very same things.

As Tom noted, our pricing in Texas for the quarter was up 10%-plus. Our overall pricing outlook for the year, frankly, is roughly in line with Martin's new guidance, even though we don't measure pricing exactly the same way. Our flow-throughs I think, very consistent despite the difference in headline price numbers.

So when we step back from all that, I would guess or expect that we see very much the same thing. And we'd just reiterate, again, confidence in the full-year price outlook we've put out there, confidence in the trends, confidence in the ability to convert incremental shipments and pricing into gross profit, and confidence in the longer-term fundamentals beyond just one quarter. What we're seeing in terms of volumes, what we're seeing in terms of price, what we're seeing in terms of margin expansion, all still on trend.

Okay. That's super helpful. Best of luck this quarter. We'll talk to you soon.

Thank you.

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

Thanks.

Good morning, Todd.

Just to circle back around on one question real quick and ask it a little bit different way. Did I miss it or can you quantify how much you think you lost from mix on that price increase number? Or is it just more of a general kind of concept?

I think it's really hard to do in a first quarter because of what I talked about the mix effect of fixed plant versus just bid work. That's really hard to pull out as opposed to just base and fines. There's a big piece of where the clean stone goes and how much of it is in there.

Got it. Fair enough.

One thing we, to Todd's point, from a first quarter to first quarter it can be very difficult to make accurate comparisons. The momentum is obviously stronger than the 4%, as you can tell by our full-year outlook.

I would also just note that despite the strong reported numbers in terms of shipment growth, we still had, by our estimate, something on the order of 400,000 tons in each of Texas, Georgia, and Virginia deferred from Q1 into later quarters due to weather.

And a lot of that, as Tom mentioned in his pricing comments, was fixed plant business. So again, that's not abnormal for a first quarter. But given the wet days we had in those markets and given its impact and available construction days, not an insignificant impact in the quarter, both on volumes and by extension on pricing.

Got it. That's helpful. Thanks. Sticking with pricing for one more, any plans for a second round this year, either in the summer or the fall, of increases?

Yes, you'll see a number of price increases go into effect midyear. You'll see some in October.

And then as we bid work throughout the year, we will raise prices on the bid work. And as old work works off, it will impact pricing.

Great. And then I want to ask kind of a general question. I think if the word for the day on the last earnings report was momentum, the word for the day this time is probably accelerating, and that's -- we would [dirve] that too in terms of price increases accelerating, volume growth accelerating. When you think about the momentum in the business, and I know you have talked about this, but you think about the momentum in the business, you think about the acceleration of the rate of growth here, what's that being driven by? Is that just sort of -- you have mentioned large projects, but is it a little bit of everything everywhere, or is there something -- some particular end market or job type that you are seeing a lot of?

It's, as you said it best. It's a little bit of everything everywhere. All market segments are increasing.

Now, the private is moving faster than the public, although we've got very good highway jobs, big jobs in our footprint that we secured, and also some very big jobs along the Gulf Coast. But it is absolutely everything and all -- it's everywhere and everything.

I think large project are just a piece of it. A very nice piece, but just a piece of it.

Good. Thanks. John, final question, just to nit. You have an outlook for interest expense for the year, given some of the bond work that you've done?

Yes, I think you can subtract the charges from the interest expense labeled in the release, 221, roughly, 218. Then you've got about $69 million of charges that you could subtract out from that. That would give you this year's interest expense.

Just to keep it simple, think about a 6.5% weighted average interest rate on a $2 billion debt portfolio. So if you think about for next year, you're looking at [$130 million], if you take out, I call it the messiness of this year. Obviously we'll give guidance around that again as we get to next year, but think about $130 million as a run rate on the $2 billion debt portfolio as it currently stands.

Got it. Thanks a bunch, guys.

Thank you.

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

Thank you. On your 8% organic guidance, I think you may have touched this a little bit earlier, give as much detail, what you are expecting from the various end user markets to make up that 8%?

If you look at highway, we would say low single digit. Infrastructure would be low single digit. Residential would be mid to high double digit, and nonres would be probably mid double digit.

Within nonres, distinction there between manufacturing versus office and things like that? Any view there?

Well, I think it's two things. It's your traditional nonres, which is office buildings, malls, buildings. It's also -- we've seen big growth in very large projects.

I mentioned earlier the energy project along the Coast. We'll probably ship almost three million tons to those projects this year.

They're special to us because of our unique position in Mexico and our ability to supply those jobs via ships and the quantity and in the time that they need to be supplied. And that's not a one-year play. We'll see that much volume or more in 2016. Those are also very, very profitable jobs, again because of the advantage we have with blue water transportation.

Thank you.

Your next question comes from the line of James Armstrong with Vertical Research Partners.

Good morning. Thanks for taking my questions. The first, with oil prices remaining lower than last year, what are you seeing in the asphalt business? Are prices declining there, or are you seeing any volume pick-up from the lower prices? Could you help us understand a little bit of those dynamics?

We haven't seen any price decline at this point. There's other drivers on asphalt than just oil. It's a big one.

But we have not seen pricing decline in asphalt. Always lower liquid prices help, but that changes across our footprint. Remember, we're making asphalt everywhere from Texas all the way up through Northern California. So there's -- while overall liquid has gone down, we've got some markets where it's not gone down nearly as much as it has in others.

Overall, though, I think our -- at least in the first quarter, our profitability was up. We had good efficiencies in asphalt. We had good pricing. We had some headwinds due to weather where it was cold, but so far we're pleased with our performance in the asphalt product line.

okay. Then switching gears, could you just update on the M&A pipeline? Is there any shift in the regions you're focused on, given the near-term dynamics, or is it pretty much as it was?

I don't think there's any big shift for the reasons we're -- industry in. There's some attractive things out there that we work on.

We are also very pleased with the integration we've seen of what we picked up in 2014. Those performed well and on plan, even in spite of some seasonality.

Okay. Thank you very much.

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

First off, you mentioned obviously weather played a role in some of your markets in 1Q, but that volume should be pushed later into the year. How quickly can you recapture that volume? And can you kind of talk about what kind of demand trends you're starting to see there through April and May?

Well, let me talk about the first quarter. What we saw there was when it was dry, our shipments were very, very good across our footprint. So there is a lot of pent-up demand. As the weather falls, it will come back to us.

It wasn't just -- in the first quarter it wasn't just cold, wet weather. It was prolonged wet weather. So the times we did have dry weather, everybody showed up, and it was there. So we expect it to return sharply.

Trey, I guess the best answer, because let's not comment on specific quarters in terms of second or third, but we still have plenty of time in the year to recover that demand. In the way we think about it, our customers still have plenty of time in the year to get that work done.

Okay. And then just geographically, are you seeing any shifts or notable trends geographically since the weather has started to cooperate?

I think what you are seeing is, Texas is doing very well. But I think what you are seeing is the Southeast and the Mid-Atlantic states really start to pick up momentum. This will be a much better year in those markets than 2014 as demand continues to accelerate.

And as we think about mix in light of that comment, is there any mix that we should be aware of, mix change that we should be aware of, given your geographic kind of outlook?

When it comes to mix, as the recovery returns, as we always say this, we'll see a more -- a bigger mix of base and fines, which is a very good thing for us, because overall it adds to our profitability. But as far as our guidance on price, in spite of mix we're confident in it. And I would also say that the return of new construction with the demand for base and fines is a very good thing for us.

All right. Thanks, Tom. And may last one is, John, you mentioned earlier, and this is kind of point of clarity, that you don't measure pricing exactly the same way as Martin Marietta. And I know it has to do with the way you look at freight. But can you clarify, just so everybody is on the same page here, what you meant by that comment, please?

Sure. The way we report pricing is freight-adjusted. And so we take out the -- gives us net of freight. Instead of reporting gross pricing to the customer including freight charges that are effectively a pass-through, we report net pricing -- net of freight expenses to the customer.

Again, because we think for us that's a more accurate depiction of the underlying economics and it's the number we focus on internally as we manage our business. So if rail rates to our customers go up, or if we have a broader mix of business that goes by rail or other long-haul transportation, it is not going to affect the net pricing number we report.

Right, right. Makes sense. All right. Thanks a lot, guys, and good luck.

Thank you.

Your next question comes from the line of Timna Tanners with Bank of America Merrill Lynch.

Yes. Hey, good morning, gentlemen.

Good morning.

Wanted to ask you specifically about any weakness that you might be seeing on the energy markets or how you're thinking about that as the year progresses?

I'm sorry, I couldn't hear your question.

Can you hear me better now?

Any weakness in the energy markets, or do we see that affecting (multiple speakers)

Yes, I guess to answer your question, we don't ship much to the drilling, to the energy markets. When I say the energy markets, I'm talking about the oil patch where the drilling, where it's affected by the price of the barrel. So we wouldn't see it. We ship very little to that market.

Now, when you talk about energy when it's about the jobs along the Gulf Coast, which is the LNG jobs, the refinery expansions, we continue to see that go very well. As I mentioned earlier, we'll ship around three million tons of that -- to those jobs this year. At least that much next year. And we can continue to see a number of those projects be bid and go through construction planning.

Okay. So seeing that consistent, it sounds like.

Yes.

Okay, cool. And, yes, just wanted to ask you a little bit more about priorities for uses of cash in light of the options that you might have. Your M&A choices out there looking similarly strong? Just your priorities, if you could remind us of those.

Just to give a quick walk-through. And I'll start, Tom can comment. First, we're obviously going to continue to make the required capital reinvestments back in our franchise. And those protect the long-term health and value of our asset base. They actually drive many of the productivity benefits you see in our quarterly results quarter after quarter.

So that, for this year that $250 million of CapEx, that's obviously a priority. We'll continue to do that in that a very, very efficient way. But we're not going to shortchange our core asset base. It's too valuable.

Secondly, as we've noted, we're going to maintain our financial strength throughout the cycle. Given the actions we've taken, that shouldn't be a significant use of cash in the foreseeable future. But I would call it out as something were committed to maintain.

Next on dividends, this is obviously a Board-level decision, but it's our expectation that our dividends would continue to grow with earnings. And we think earnings could grow quite quickly during the recovery part of the cycle. But again, that's a Board decision that they will take in due course.

Then we would turn to largely bolt-on M&A, really of the kind you've seen us do in the last two, three years. We think that's a very good use of capital. It tends to have very good returns, both on a standalone basis and in terms of its impact on the rest of our business. And so as we find the right assets at the right price, we'll continue to pursue those opportunities.

We work through all that. Awe expect that over time we will still have some excess cash after all those other uses. And as stated, we will look to return some portion of that cash in the recovery cycle, if not most of that cash, to investors, and through a mix of dividend and share repurchase, but I would say primarily opportunistic share repurchase would be our current thinking.

Okay. Super. Thanks for the run through.

Thank you.

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

Hi. Thanks for taking my questions today.

Good morning, Kathryn.

First one is just to touch back on base and fines that you discussed earlier in the call. Could you clarify where you are in terms of working down the inventory of base and fines inventory, and what regions require greater work in terms of working down these inventories versus others?

Good question. First of all, I would say that I think our operating folks and our sales folks did a really good job in the downturn of managing inventories. So we're starting from a pretty good place.

As we do have some, I wouldn't call it a problem by any means, but it sure does make your operations run smoother when you have large sales of fines and base. It just balances it out, makes the -- it actually lowers your costs and -- because it just increases your efficiency in the operations. So not a problem with inventories, but it sure will be helpful as the cycle goes along to see those base and fine jobs come through and go to the bottom line.

Are there any regional differences with the base and fines inventory versus any other region?

No, I don't think I see any big regional -- not that I can think of off the top of my head. I think we're -- like I said, we took a lot of pain in the downturn to make sure we didn't have a problem with that, and I think -- again, I think our operating people did a really good job of biting the bullet, so to speak, when times were tough to make sure we weren't left with a problem.

And Kathryn, part of what Tom is referring to, and I think you understand this, is that we resisted the temptation, and this is the management team before us deserves credit for this, but we resisted the temptation to build inventory, if you will, to produce to profits as opposed to customer demand during the downturn. So we've come into this in pretty good shape from an inventory point of view.

I think you see that in our flow-throughs and our incrementals. You see in that our results. So this is more about maintaining balance as we serve rising demand and as production ramps up than it is having any kind of problem.

Great. Thanks. This is more a question related to acquisitions. Could you clarify the acquisition contributed in the quarter, revenue, volumes, operating earnings? And maybe clarify a little bit more the delta between acquisition incremental margins versus same-store sale metrics?

First of all, I think for the acquisitions, and this is not counting divestitures of the concrete, the acquisitions EBITDA was around $5 million. And I would tell you that's -- we're pleased with that based on the seasonality we saw. And we still had the headwinds of some purchase accounting in those numbers, which hopefully we've worked through most of that.

Our guidance on those -- or our outlook on those operations for the full year remains in plan. And I think we're pleased with the integration.

Great. You specifically cited Georgia weather impact. Where in Georgia were you seeing a greater relative impact?

And in general, when you talk about weather, which was cited several times in the release, was it later in the quarter? Was it more a product of precipitation? So first specifically Georgia, but then more broadly speaking in terms of that weather effect in the quarter.

I guess Georgia was all over, but obviously the biggest market is Atlanta. It wasn't a matter of how many inches of rain or snow we had. It was days lost due to wet weather.

It was how prolonged it was versus the prior year. So it just shut us down longer than before. But I think we had -- in Georgia, I think we had, for example, we had 10 more wet weather days than we did in the prior year.

Got it.

Kathryn, that comes out specifically, as Tom mentioned, again in things like our shipments to our key asphalt customers, key fixed plant asphalt customers in the quarter, which are, I'm going to call it, were 400,000-plus tons, if I recall it, below plan for the quarter. And that's kind of book jobs, book business.

So you feel confident calling it out as something that our customers weren't able to do the work, to get the crews out. So we deferred our shipment to them. (Multiple speakers) It's a lot of asphalt business and some fixed plant concrete business, but primarily asphalt business around Atlanta.

Okay, great. Thanks very much.

Thank you.

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

Follow-up question on the acquired assets. Just as you think out over the next three quarters of the year. Incremental margins in the first quarter were soft for the reasons that you cited, purchase price accounting, seasonality. But is there anything within those assets that are fundamentally different from your legacy assets that would depress or impact incremental margins moving forward?

No, I don't see anything different in those assets. They always take a little time to integrate. Again, we have some seasonality, but I see no reason that they won't perform fairly quickly, or at least over time as our current assets do.

Okay. Thanks. And then just looking at your volumes, very strong in the quarter. I get why you're hesitant at this point, early stage of the year, to raise your volume guidance. But can you just talk maybe about some of the, if any, risks that you would see to end market demand? Specifically which of the major end markets, if any, are you less bullish on? Because the tone of the call, the theme of, quote unquote, acceleration.

Things appear to be perking up really nicely across your footprint. Is there any one area, if any, that is cause for concern at all?

Well, obviously we can't predict worldwide events that may have some catastrophic impact. But just assuming that all that is neutral, I don't see any big risk. We've obviously got to go get a federal highway extension and a federal highway bill. I think there's very low risk that funding, federal funding for highways is going to run out or that Congress will let it slip. In fact, very low risk for that. But we still have to go get a long-term bill.

While states we saw, as John mentioned, a number of states are upping their funding and we actually see momentum with that, and we're very pleased with it. States get nervous when there's not a long-term bill out there. And they will start holding multiyear large jobs when they're insecure about the federal government's paying the highway bills.

The only other one that I think we've talked about internally that jumps out -- I'm thinking this was a good question, is Texas longer term with the decline in oil prices. And we, of course, monitor it, like anybody else. We haven't seen any impact yet, I think it's fair to say, particularly in our business.

You can see in that our Texas shipments this quarter, despite a wet quarter in Texas. But that's one that obviously we, like other people, will continue to monitor just to see if that creates any dislocations.

That makes sense. Thanks.

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

Good morning.

Good morning.

Nice pricing path here. I'm wondering if we could just talk about what proportion of your markets do you expect there price increase on April 1? And then maybe share a similar data point for July 1, or however you're thinking the about midyear?

Price increases in -- we say this all the time. We're not hiding behind it, but it's really true. Pricing happens at different times in different markets.

When I say that, even sub-markets. So the pricing in -- for concrete rock versus asphalt rock in a market may be on different timing depending on the personality of the market.

As far as the April price increases, we had, as I mentioned earlier, we had price increases in Atlanta that went into effect in April. We had very large price increases in Texas that went into effect April 1. They were from $1 to $2, depending on where you were in Texas. Then we saw some price increases that went into effect in April in Florida.

We'll see some more in different market segments in Florida midyear. And as the year goes along, and as I said earlier, when we bid work we'll continue to build price increases in that bid work on individual jobs, coupled with, as you work off old backlog work, it will also give some momentum to price increases.

Okay. Thank you. And then just on the Asphalt and Concrete businesses, you folks have been pretty vocal with earning a fair return on your aggregates reserve and needing to get there. Can talk about the path to get there in Asphalt and Concrete?

Are you looking for outsized pricing just to get there this year? Or is that a 2016 event? Can up paint the path for us for those assets?

Let's take Concrete first. And our pricing in concrete for the quarter on a same-store basis was up almost $7. So we're seeing good momentum in concrete with pricing.

And as I talk about earlier, some momentum not just in the Aggregates but across the entire construction materials segment. As you see that momentum in concrete, cement, asphalt, and it makes it just that much easier for pricing to flow through with aggregates. And we saw price increases across our footprint on a same-store basis on our concrete product line.

When it comes to Asphalt with -- you probably won't see a lot of big price increases in Asphalt with the impact of liquid, but the profitability in Asphalt overall was up sharply, probably over 30% on a unit basis in Asphalt. So again, you're seeing the momentum, when it comes to profitability in the downstream products, which sets the table for continued price increases on Aggregates.

Jerry, if you step back and think about our -- just our portfolio longer term, building on Tom's remarks, our asphalt business has earned quite good returns on capital through the cycle. Material margins period to period can be volatile, but through a cycle, (multiple speakers) pretty good returns. The concrete, what we have left, the concrete businesses we continue to own are doing well and earn good returns for us.

Your next question comes from the line of Adam Thalhimer with BB&T Capital Market.

I wanted to ask another question about your incremental gross margins. On the Aggregate lines, the factors that impacted you in Q1, most of those were weather-related. I guess some were not. Have any of those negative factors carried into Q2?

I'm not sure I understood your question. Would you repeat it?

Yes. I mean, the incremental gross margins in Aggregates were lower than you saw last year. And my question is, the factors that caused that to happen, did any of those carry into Q2?

I think if you look at it on a same-store basis, the incremental gross margins continue to improve. So I think the key for you is probably to look at it on a same-store basis to get an accurate read on the numbers. But if anything, we would expect our unit margins in our Aggregate segment to continue to expand.

okay.

Also think, you've got remember, you've got a first quarter in there, which is, as we say, is always choppy. If you look at it on a trailing 12-month basis, it's improving.

The price increases in Texas, you noted those were a little bit higher than other places, but you also said your watching Texas for potential slowdowns. I'm just curious why you're seeing stronger pricing trends there.

The demand in the market is more mature than other markets. It's just further in the cycle. It's actually foreshadowing of what will happen across the rest of our markets as demand continues to recover.

You've got to remember, Texas never had the big fall that some of our other markets had. And then they were -- early in the recovery, they were bolstered with all the big energy plays.

So the demand in Texas and where we are in the cycle is more mature than we are in other markets. So pricing should be ahead there.

Okay. And then lastly, we're one-third of the way into the year. I'm curious on the private construction side. Are you seeing demand that's in line with your initial expectations for the year, or is it slightly better?

No, we're seeing it in line. We're seeing very good momentum in the private construction segment of the market.

Okay. Thanks, guys.

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

Hi. This is actually Colin filling in for Bob. I just have a quick question on the public side. So in your presentation you noted that the states have really been increasing their funding levels, but you have seen some projects being delayed. Can you discuss which states have you seen that in, and where you would expect to see this as uncertainty continues?

The projects -- the places we've seen project delayed because of the lack of a long-term bill are really in Arkansas and Tennessee. And this really -- some large projects that they have -- they haven't gone away. They just said, we're not going to commit to them and put them out for bid until we have more secure long-term federal funding.

Great. Thank you very much.

And at this time, I will now turn the call over to Tom Hill for closing remarks.

Well again, we were pleased with our first quarter and we look forward to the coming quarters and sharing our good news with you. Thank you so much for your interest in Vulcan Materials. And we look forward to talking to you over the coming months. Thank you.

Thank you. Ladies and gentlemen, that does conclude the call for today. We thank you for your participation, and ask that you please disconnect.