Vulcan volumes weaker than expected - Jefferies

Vulcan volumes weaker than expected - Jefferies
Published: 03 August 2011

Vulcan reported second-quarter EPS of US$0.07 from continuing operations after adding back refinancing costs. This was above both Jefferies’ forecast of US$0.03 and Bloomberg’s estimate of consensus of a loss of US$0.05. Relative to Jefferies’ forecast the beat was entirely due to tax. It had assumed a tax credit at the rate of 53% on the quarter’s pre-tax loss, whereas the actual rate was 85%. There is no explanation for the high rate of tax credit in the results press release. The 2Q11 pre-tax loss of €47.4m was US$18.9m worse than Jefferies had forecast, mainly due to trading profits at the gross level being US$21.8m less than it forecast.


Vulcan reported a gross profit for 2Q11 of US$100.8m, US$21.8m below a forecast of US$122.6m. US14.9m of the shortfall relative to the forecast was concentrated in its main aggregates business, but the smaller business units in concrete, asphalt and cement also each contributed less than Jefferies had forecast.


The main reason for the shortfall relative to Jefferies forecasts was the weaker than expected volumes. The volume of aggregate shipped in 2Q was 9% lower than in 2Q10. Vulcan attributes this to three factors; weaker underlying demand, “severe” weather in April and flooding throughout the quarter in its river markets.


Aggregates pricing during the quarter was 2.5% higher than in 2Q10, averaging US$10.36/t. This matched Jefferies forecasts, but was only US$0.03 higher than in 1Q11. Vulcan’s average selling prices for asphalt, concrete and cement were though higher than it had assumed.


Following the weaker than expected 2Q volumes, Vulcan has lowered its full-year guidance for its aggregate volumes from +2%, to flat to down 2%. It still expects growth in 2H11 of between 2% and 6% but has assumed that the shortfall in H1-2011 relative to its forecasts is not recovered. Its volumes fell by 6% in the first-half of 2011. Vulcan continues to expect full-year aggregate price increases of 1-3%. Its forecasts are similar to those of Martin Marietta who yesterday forecast volumes flat to -3% this year and prices up between 2% and 4%. Vulcan continues to expect its asphalt earnings to increase in 2011, the loss in its concrete business to be lower, and the loss on its cement business to be worse this year.