Vulcan Materials Company announced record fourth quarter and full year sales and earnings.
Earnings from continuing operations were $115m in the fourth quarter as compared with $92m in the prior year. Net sales increased nine per cent from the prior year’s fourth quarter. Full year net sales increased 16 per cent to $3bn. Earnings from continuing operations were $477m, a 45 per cent increase per diluted share from the prior year.
Don James, Vulcan’s Chairman and Chief Executive Officer, stated, "We achieved excellent earnings growth in the fourth quarter, demonstrating the strength and diversity of our businesses. Our coast-to-coast footprint serving many of the fastest growing U.S. markets provided regional economic diversification in 2006. The increasing demand for aggregates in a broad range of public infrastructure and nonresidential construction helped offset the correction that has occurred in residential construction. Our consistent earnings growth is a reflection of both our broad geographic and end-use markets and a pricing environment for aggregates that recognizes the high cost of reserves replacement and product distribution in high growth metropolitan markets."
Fourth quarter aggregates pricing increased 16.5 percent from the prior year’s level. Aggregates shipments were 6 percent lower than the prior year’s record fourth quarter. The average unit cost for diesel fuel in the quarter was favorable to the prior year and somewhat offset higher costs for parts, supplies, electricity and the effects of lower production volumes.
Sales and earnings for asphalt increased from the prior year’s fourth quarter as improved prices more than offset higher costs for liquid asphalt and aggregates and the effects of lower volumes. Concrete earnings were slightly lower than in the prior year as improved selling prices were offset by the effects of lower volumes and higher costs for cement and aggregates.
Other income decreased approximately $11 million from the prior year’s fourth quarter due principally to a $1 million increase in the carrying value of the ECU earn-out as compared with an $11 million increase in the fourth quarter of 2005 (Table E).
For the full year, improved pricing for all key products led to a 16 percent increase in net sales and drove earnings per share from continuing operations up 45 percent to a record $4.79 per diluted share. Aggregates pricing improved 14.7 percent and more than offset the effects of a slight decline in aggregates shipments and higher production costs related to diesel fuel, parts, supplies and electricity. Asphalt and concrete earnings also increased significantly as pricing improvements exceeded increases in raw material costs.
The effective tax rate for 2006 was 32.1 percent as compared to 28.4 percent for 2005. Last year’s tax rate included a reduction in estimated income tax liabilities for prior years and a favorable settlement of federal income tax refund claims, representing approximately $0.12 per diluted share. In 2006, favorable tax adjustments totaled $0.01 per diluted share.
For the full year, net cash provided by operating activities increased 22 percent from the prior year to $579 million.
During 2006, the Company purchased 6,757,361 shares at a total cost of approximately $523 million, representing an average cost of $77.37 per share.
All results are unaudited.
Outlook - Full Year 2007
Commenting on Vulcan’s outlook for 2007, Mr. James stated, "We remain confident in our ability to continue strong earnings growth in 2007. Broader economic factors such as low interest rates, job growth, falling office vacancy rates and the solid fiscal condition of most states should continue to aid the more aggregate-intensive infrastructure and private non-residential end use markets in 2007. Overall demand for aggregates in our markets should remain relatively stable.
"The residential construction slowdown in the U.S. continued in the fourth quarter of 2006 and contributed to lower aggregates shipments for the year. However, with mortgage interest rates still at relatively low historical levels and household formations increasing in high growth markets, residential construction has the potential to stabilize by the second half of 2007.
"Aggregates demand from highway construction in Vulcan-served markets should increase in 2007, primarily as a result of higher state spending levels and moderating liquid asphalt costs. In 2006, construction cost inputs for highway projects increased significantly, particularly liquid asphalt and diesel fuel, resulting in some delays for new contract awards.
"We believe private non-residential construction will continue to improve in 2007. This construction end market includes a wide array of project types and generally is more aggregates intensive than private residential construction. Economic factors, such as job growth, vacancy rates, private infrastructure needs and demographic trends, help drive demand for this type of construction.
"We believe that for 2007 our business is very well positioned to achieve earnings from continuing operations of $5.51 to $5.91 per diluted share. In January 2007, we closed a real estate sale transaction in California that resulted in a net after-tax gain of $0.26 per diluted share, and its earnings effect is included in our guidance. Excluding the gain from this real estate sale transaction, our earnings guidance for 2007 is consistent with full year guidance provided at the end of the third quarter. Our current earnings outlook is based on an overall aggregates price improvement of 10 to 11 percent and aggregates shipments in line with the prior year."
Outlook - First Quarter 2007
Mr. James further stated, "Weather in the first quarter of 2006 was very favorable for construction. As a result, earnings in the first quarter of 2006 far exceeded usual seasonal trends. Typically, the first quarter contributes approximately 10 percent of operating earnings for the full year and we expect the first quarter of 2007 to be more in line with historical performance. Consequently, including the sale of the real estate in California, we expect to earn $0.75 to $0.95 per diluted share in the first quarter of 2007."
In keeping with past practice, Vulcan will give quarterly and annual earnings guidance. Revised guidance will be issued only if Vulcan determines that comparable earnings per share, on either a quarterly or an annual basis, will be outside its most recent published estimates.