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Will Vulcan (VMC) Benefit From Public Sector Demand in 2H23?
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Vulcan Materials Company (VMC - Free Report) is benefiting from the U.S. administration’s endeavor to pump money for rebuilding the nation's roads, bridges and other infrastructure.
The Zacks Building Products - Concrete and Aggregates industry has been witnessing an increase in public construction demand. The industry has gained 28.5% in the past six months, outperforming the Zacks Construction sector’s 19.7% growth and the S&P 500 index’s 12.4% growth.
Vulcan’s shares jumped 23.9%, slightly below the industry but outperforming the broader sector.
Image Source: Zacks Investment Research
Earnings estimates for 2023 have increased to $6.73 per share from $6.48 in the past 30 days. This implies 31.7% year-over-year growth on a 6.3% rise in revenues. This can further be substantiated from its VGM Score of B. These positive trends indicate bullish analysts’ sentiments, robust fundamentals and the expectation of outperformance in the near term.
Let’s check out the factors that are pushing this Zacks Rank #3 (Hold) company despite price fluctuation of major inputs, energy and labor constraints and soft single-family residential construction demand, leading to a 1-4% Aggregates shipments decline and high single digit rise in freight-adjusted cash cost in the third quarter.
Solid Public Construction Activity
Vulcan has been witnessing strong pricing, underpinned by growing public demand (mainly transport) and operational discipline. On Nov 15, 2021, President Joe Biden signed a bipartisan infrastructure bill of $550 billion, in addition to the approved funds of $450 billion for five years in August 2021. This bill comprises new investments in almost every infrastructure sector over the next five years, including transportation, energy, broadband and water. Out of the total allotted spending, the infrastructure development law will provide $100 billion for roads, bridges and other major projects.
Publicly-funded construction accounted for approximately 40% of its total Aggregates shipments and nearly 22% of the segment sales by volume were used in highway construction projects in 2022.
On the second-quarter earnings call, the company noted that highway starts were up more than 20% and 2024 state budgets are at very healthy levels. The company expects the current strength in private non-residential construction activity and increased public funding to offset residential market woes in the remainder of 2023.
Long-Term Strategic Moves
The company remains focused on creating long-term value by compounding unit margins through four strategic initiatives — Commercial Excellence, Operational Excellence, Strategic Sourcing and Logistics Innovation — that enhance price growth as well as operating efficiencies. Higher price realizations and its four strategic initiatives should continue to increase unit profitability.
Improvements in pricing, fixed cost leverage and operating efficiencies helped it achieve 28% growth in unit profitability of the Aggregates segment and a 15% improvement in adjusted EBITDA in first-quarter 2023.
Although Aggregates shipments fell 1% in the second quarter of 2023, pricing momentum and solid operational execution drove a 22% improvement in cash gross profit per ton. The company remains focused on compounding improvements in unit profitability throughout the cycle through fixed cost leverage, price growth and operating efficiencies.
Expansion/De-Risk Business
Since 2014, Vulcan has completed dozens of value-enhancing acquisitions in some of the fastest-growing markets in the country. In 2022, it acquired five aggregates facilities in Texas, four ready-mixed concrete facilities and two idle ready-mixed concrete sites in Virginia, eight aggregates, four asphalt mix and seven ready-mixed concrete operations in California and an aggregates operations serving limited markets along the Gulf Coast in Honduras for $594.6 million.
Apart from buyouts, the company focuses on divestitures to de-risk its business and focus more on its Aggregates business. In the fourth quarter of 2022, the company sold off its concrete operations in New Jersey, New York and Pennsylvania. In third-quarter 2022, it divested excess real estate in Southern California.
Industry Woes Persist
The company uses large amounts of electricity, diesel fuel, liquid asphalt and other petroleum-based resources, subject to potential supply constraints and significant price fluctuation, which could affect operating results and profitability. It has also been facing energy and labor constraints as well as lower residential construction demand.
Owing to soft single-family residential construction demand, the company expects Aggregates shipments to be down 1-4%. Freight-adjusted cash cost is estimated to increase high single digit in 2023. Concrete same-store volumes are expected to decline in the mid-single-digit.
The Zacks Consensus Estimate for BCC’s 2023 sales and earnings per share (EPS) indicates a decline of 20.1% and 45.5%, respectively, from the year-ago period’s levels.
EMCOR Group, Inc. (EME - Free Report) flaunts a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 17.2%, on average.
The Zacks Consensus Estimate for EME’s 2023 sales and EPS suggests growth of 11.5% and 35.9%, respectively, from the year-ago period’s levels.
TopBuild Corp. (BLD - Free Report) sports a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 14.1%, on average.
The Zacks Consensus Estimate for BLD’s 2023 sales and EPS indicates gains of 3.3% and 6.1%, respectively, from the year-ago period’s levels.
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Will Vulcan (VMC) Benefit From Public Sector Demand in 2H23?
Vulcan Materials Company (VMC - Free Report) is benefiting from the U.S. administration’s endeavor to pump money for rebuilding the nation's roads, bridges and other infrastructure.
The Zacks Building Products - Concrete and Aggregates industry has been witnessing an increase in public construction demand. The industry has gained 28.5% in the past six months, outperforming the Zacks Construction sector’s 19.7% growth and the S&P 500 index’s 12.4% growth.
Vulcan’s shares jumped 23.9%, slightly below the industry but outperforming the broader sector.
Image Source: Zacks Investment Research
Earnings estimates for 2023 have increased to $6.73 per share from $6.48 in the past 30 days. This implies 31.7% year-over-year growth on a 6.3% rise in revenues. This can further be substantiated from its VGM Score of B. These positive trends indicate bullish analysts’ sentiments, robust fundamentals and the expectation of outperformance in the near term.
Let’s check out the factors that are pushing this Zacks Rank #3 (Hold) company despite price fluctuation of major inputs, energy and labor constraints and soft single-family residential construction demand, leading to a 1-4% Aggregates shipments decline and high single digit rise in freight-adjusted cash cost in the third quarter.
Solid Public Construction Activity
Vulcan has been witnessing strong pricing, underpinned by growing public demand (mainly transport) and operational discipline. On Nov 15, 2021, President Joe Biden signed a bipartisan infrastructure bill of $550 billion, in addition to the approved funds of $450 billion for five years in August 2021. This bill comprises new investments in almost every infrastructure sector over the next five years, including transportation, energy, broadband and water. Out of the total allotted spending, the infrastructure development law will provide $100 billion for roads, bridges and other major projects.
Publicly-funded construction accounted for approximately 40% of its total Aggregates shipments and nearly 22% of the segment sales by volume were used in highway construction projects in 2022.
On the second-quarter earnings call, the company noted that highway starts were up more than 20% and 2024 state budgets are at very healthy levels. The company expects the current strength in private non-residential construction activity and increased public funding to offset residential market woes in the remainder of 2023.
Long-Term Strategic Moves
The company remains focused on creating long-term value by compounding unit margins through four strategic initiatives — Commercial Excellence, Operational Excellence, Strategic Sourcing and Logistics Innovation — that enhance price growth as well as operating efficiencies. Higher price realizations and its four strategic initiatives should continue to increase unit profitability.
Improvements in pricing, fixed cost leverage and operating efficiencies helped it achieve 28% growth in unit profitability of the Aggregates segment and a 15% improvement in adjusted EBITDA in first-quarter 2023.
Although Aggregates shipments fell 1% in the second quarter of 2023, pricing momentum and solid operational execution drove a 22% improvement in cash gross profit per ton. The company remains focused on compounding improvements in unit profitability throughout the cycle through fixed cost leverage, price growth and operating efficiencies.
Expansion/De-Risk Business
Since 2014, Vulcan has completed dozens of value-enhancing acquisitions in some of the fastest-growing markets in the country. In 2022, it acquired five aggregates facilities in Texas, four ready-mixed concrete facilities and two idle ready-mixed concrete sites in Virginia, eight aggregates, four asphalt mix and seven ready-mixed concrete operations in California and an aggregates operations serving limited markets along the Gulf Coast in Honduras for $594.6 million.
Apart from buyouts, the company focuses on divestitures to de-risk its business and focus more on its Aggregates business. In the fourth quarter of 2022, the company sold off its concrete operations in New Jersey, New York and Pennsylvania. In third-quarter 2022, it divested excess real estate in Southern California.
Industry Woes Persist
The company uses large amounts of electricity, diesel fuel, liquid asphalt and other petroleum-based resources, subject to potential supply constraints and significant price fluctuation, which could affect operating results and profitability. It has also been facing energy and labor constraints as well as lower residential construction demand.
Owing to soft single-family residential construction demand, the company expects Aggregates shipments to be down 1-4%. Freight-adjusted cash cost is estimated to increase high single digit in 2023. Concrete same-store volumes are expected to decline in the mid-single-digit.
Key Picks
Some top-ranked stocks in the sector are:
Boise Cascade Company (BCC - Free Report) sports a Zacks Rank #1 (Strong Buy). BCC has a trailing four-quarter earnings surprise of 25.5% on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for BCC’s 2023 sales and earnings per share (EPS) indicates a decline of 20.1% and 45.5%, respectively, from the year-ago period’s levels.
EMCOR Group, Inc. (EME - Free Report) flaunts a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 17.2%, on average.
The Zacks Consensus Estimate for EME’s 2023 sales and EPS suggests growth of 11.5% and 35.9%, respectively, from the year-ago period’s levels.
TopBuild Corp. (BLD - Free Report) sports a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 14.1%, on average.
The Zacks Consensus Estimate for BLD’s 2023 sales and EPS indicates gains of 3.3% and 6.1%, respectively, from the year-ago period’s levels.