Vulcan Upgraded to Neutral

We recently upgraded our recommendation on Vulcan Materials Company (VMC - Analyst Report) to Neutral from Underperform. Headquartered in Birmingham, Alabama, Vulcan Materials engages in the production, distribution and sale of construction aggregates, and other construction materials and related services in the U.S. and Mexico. It is the nation’s largest producer of construction aggregates and a leading producer of other construction materials.

Effective January 01, 2010, the company streamlined its operating segments into four principal product lines, namely Aggregates, Concrete, Asphalt mix and Cement.

The company released its third quarter 2011 earnings on November 02, 2011. Vulcan incurred an adjusted loss of $41 million or 13 cents per share from continuing operations, much lower the Zacks Consensus Estimate of a profit of 7 cents per share.

Higher costs of certain essential materials along with soaring fuel prices negatively impacted Vulcan’s earnings. According to the company, unit cost of diesel and liquid asphalt increased 40% and 20% year over year, respectively, thus reducing pre-tax earnings by approximately $21 million in the third quarter of 2011.

However, total revenue increased to $760.8 million from $743.2 million in the year-ago quarter. The year-over-year improvement was primarily driven by favorable product pricing across all the segments and stronger demand for public infrastructure projects in some markets, partly offset by the overall weak market conditions.

Moreover, Vulcan boasts a diversified customer base, which is helpful in hedging the risk arising from the business uncertainty of an individual client. It includes heavy construction and paving contractors, commercial building contractors, concrete products manufacturers and residential building contractors, apart from state, county and municipal governments.

In addition, the company is optimistic regarding each of its operating segments for the upcoming quarters. Almost all the segments are expected to witness higher volumes and higher prices for its products, thereby offsetting higher costs.

Considering all these factors, the shares of Vulcan are also maintaining a Zacks #3 Rank reflecting a short-term “Hold” rating.

Read the full analyst report on VMC