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Analyst Blog

On Jul 7, we issued an updated research report on construction materials maker Vulcan Materials Company (VMC - Analyst Report).

On May 6, Vulcan Materials reported solid first-quarter results. Adjusted loss of 28 cents per share was narrower than the Zacks Consensus Estimate of a loss of 34 cents as well as the year-ago loss of 47 cents. Solid top-line performance and efficient cost control offset higher costs resulting from weather related production challenges which led to a decent earnings performance. Total revenue increased 6.7% from the prior-year quarter owing to another strong performance in aggregates.

Despite the chilly winter, aggregates volumes as well as pricing increased in the quarter driven by growing demand for construction, especially private construction. Both residential housing starts as well as non-residential contract awards are showing steady improvement benefiting from job growth, more attractive lending standards and the general economic recovery. Sustained growth in private construction activity improves the demand for both aggregates as well as non-aggregates businesses of Vulcan Materials. Vulcan Materials is seeing improvement in key markets like Florida, Texas, California, Georgia and Arizona as private construction activity improves steadily.

However, volume trends did slow down from the second half of 2014 due to inclement weather conditions. Moreover, disruptions in production and shipping days led to increased costs which coupled with unfavorable geographic mix weighed on margins. Also, limited visibility on aggregates demand growth in public construction and uncertainty surrounding September expiration of the current highway bill keeps us concerned.

Nevertheless, Vulcan Materials enjoys strong fundamentals including its strong aggregates reserves positions, continued profit improvements, divestitures of non-strategic operations and significant debt reduction.

Though aggregate volumes slowed down in the first quarter, management expects the shipment delays to recover in the second quarter resulting in better volumes as the construction season sets in. Private construction is expected to continue to lead volume growth in 2014. Additionally, large projects, including both public infrastructure and private industrial projects, are expected to contribute modestly to volume growth.

Other Stocks to Consider

Vulcan Materials carries a Zacks Rank #1 (Strong Buy). Other stocks in the building construction/materials sector worth considering include Martin Marietta Materials Inc. (MLM - Snapshot Report), D.R. Horton, Inc. (DHI - Analyst Report) and Toll Brothers, Inc. (TOL - Analyst Report). All the three stocks carry a Zacks Rank #2 (Buy).

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