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Vulcan Materials Company (VMC) Q4 2022 Earnings Call Transcript

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Vulcan Materials Company (NYSE:VMC) Q4 2022 Earnings Conference Call February 16, 2023 11:00 AM ET

Company Participants

Mark Warren - VP of IR

Thomas Hill - Chairman, President and CEO

Mary Andrews Carlisle - SVP and CFO

Conference Call Participants

Stanley Elliott - Stifel

Trey Grooms - Stephens Inc.

Kathryn Thompson - Thompson Research Group

Anthony Pettinari - Citi

Jerry Revich - Goldman Sachs

Michael Feniger - Bank of America

Mike Dahl - RBC Capital Markets

Tyler Brown - Raymond James

Phil Ng - Jefferies

Garik Shmois - Loop Capital

Keith Hughes - Truist

Michael Dudas - Vertical Research

Adam Thalhimer - Thompson Davis

Rohit Seth - Seaport Research Partners

Operator

Good morning, ladies and gentlemen, and invited to Vulcan Materials Company's Fourth Quarter Earnings Call. My sanction is Gretchen, and I will beryllium your convention telephone coordinator today. [Operator Instructions]

Now I would for illustration to move nan telephone complete to your host, Mr. Mark Warren, Vice President of Investor Relations for Vulcan Materials. Mr. Warren, you whitethorn begin.

Mark Warren

Good morning, and convey you for your liking successful Vulcan Materials. With maine coming are Tom Hill, Chairman and CEO; and Mary Andrews Carlisle, Senior Vice President and Chief Financial Officer.

Before we begin, please beryllium reminded that today's chat whitethorn see forward-looking statements, which are taxable to risks and uncertainties. These risks on pinch different ineligible disclaimers are described successful item successful nan company's net merchandise and successful different filings pinch nan Securities and Exchange Commission. Reconciliations of immoderate non-GAAP financial measures are defined and reconciled successful our net release, our supplemental presentation, and different SEC filings. In nan liking of time, please limit your Q&A information to 1 question. This will let for much questions during our clip together. A supplemental position has been posted to our website, vulcanmaterials.com. Additionally, a signaling of this telephone will beryllium disposable for replay, later today, astatine our website.

And pinch that, I will move nan telephone complete to Tom.

Thomas Hill

Thank you, Mark, and acknowledgment to each of you for joining our telephone this morning. We admit your liking successful Vulcan Materials Company.

In 2022, our teams hands down excelled successful confronting macro challenges, and they demonstrated nan resiliency of our aggregates-led business. Let's commencement pinch nan 4th quarter, which really showcased our committedness to controlling what we tin control.

We generated $375 cardinal of adjusted EBITDA successful nan quarter, and I was peculiarly proud of our squad for delivering 11% year-over-year maturation successful aggregates rate gross profit per ton contempt a 6% diminution successful aggregates shipments. Abnormally bedewed and acold upwind crossed our footprint disrupted building activity and shipments crossed each segments, and we besides began emotion nan effect of single-family residential decline.

Pricing momentum continued pinch 15% maturation successful aggregates operation adjusted value successful nan 4th quarter. Our group proceed to thrust capacity done bully execution, which is grounded successful our Vulcan measurement of trading and nan Vulcan measurement of operating disciplines. Gross profit successful some aggregates and asphalt segments accrued versus nan anterior year's 4th fourth contempt little volumes, and pricing momentum, much than offset inflationary costs increases.

In concrete, a 15% diminution successful volume, driven mostly by highly bedewed and acold upwind successful Texas created operational challenges that eroded pricing gains successful that segment. For nan afloat year, adjusted EBITDA improved 12% pinch each segments posting year-over-year maturation successful gross profit.

Aggregates conception gross profit improved 9%, a noteworthy capacity pinch nan headwinds of generationally precocious ostentation and nan unexpected and arbitrary shutdown of our valuable Mexico operations successful May of 2022. Aggregates measurement accrued 6% and mean trading prices improved 10%, accelerating arsenic nan twelvemonth progressed. Importantly, our aggregates rate gross profit per ton improved complete 5%, and besides accelerated passim nan year, moreover successful a challenging operating environment.

In nan first quarter, we held our ain while ostentation ramped up, much steadily than expected. Then successful nan 2nd quarter, rate gross profit per ton grew modestly versus nan 2nd 4th of 2021, arsenic we responded quickly pinch further pricing action. In nan 3rd quarter, rate gross profit per ton accrued 9% arsenic pricing momentum accelerated and operating efficiencies offset immoderate of nan inflationary pressures. And arsenic I mentioned earlier successful nan 4th quarter, rate gross profit per ton improved a notable 11%, moreover arsenic volumes declined.

In our asphalt segment, nan 2nd half of 2022 marked an inflection constituent connected value and costs dynamics. In nan 3rd quarter, robust pricing betterment began outpacing nan sharply-rising liquid asphalt costs.

For nan afloat year, pricing accrued by 21% to much than offset nan 36% summation successful liquid asphalt costs. And volumes grew by 7% pinch peculiar spot successful Arizona and California, our 2 largest asphalt markets. Ultimately, gross profit improved to $57 cardinal versus nan anterior year's $21 million.

In nan Concrete segment, full-year gross profit of $89 cardinal accrued 64% compared to nan anterior twelvemonth owed to a afloat year's publication from nan U.S. actual assets, successful summation to improved net successful our bequest Northern Virginia and Northern California Concrete Businesses. Inflationary pressures, including diesel and nan readiness of some cement and drivers had a important effect connected capacity successful nan Concrete segment.

Now, let's displacement to nan caller year, first focusing connected demand. The request situation for 2023 is mixed, some successful position of extremity users and timing. We expect humble maturation successful wide nationalist request but contraction successful backstage demand. Now, I'll remark concisely connected each end-use.

Residential building activity is showing nan effect of rising building costs, location prices and owe rates connected single-family housing. Single-family starts and permits person continued to diminution but to a lesser grade successful Vulcan-served states and nan state arsenic a whole. Currently, multifamily remains affirmative pinch a beardown pipeline of projects nether construction. Housing will surely beryllium nan superior resistance connected backstage building successful 2023, but we expect it to quickly return to growth.

It is important to retrieve that nan demographics and employment maturation successful our markets proceed to support family statement and nan increasing request for further houses successful nan future.

Overall, backstage nonresidential request remains astatine patient levels. Manufacturing and different dense business projects proceed to supply opportunities, but we are monitoring starring indicators specified arsenic much caller ABI measures, moderation successful nan Dodge Momentum Index, and study information indicating declining indebtedness request and lending tightening.

On nan nationalist side, we expect affirmative momentum passim 2023 and beyond arsenic states and municipalities move guardant pinch much-needed infrastructure investment. Highway and infrastructure starts are some positive.

In highways, commencement strengthened importantly successful nan 2nd half of 2022, increasing astatine 25% connected a trailing 12-month ground astatine nan extremity of nan year. The Infrastructure Investment and Jobs Act backing is now reflected successful projected authorities fiscal twelvemonth 2023, 2024 budgets crossed our footprint.

The multiyear outlook for nationalist infrastructure is solid. We proceed to judge that nan accrued backing will began impacting aggregates shipments modestly arsenic we move done 2023 and much meaningfully successful 2024. In summation to IIJA funding, authorities taxation receipts successful Vulcan states are nan highest they've been successful nan past 10 years.

Strong authorities and municipal gross support non-highway infrastructure finance arsenic nationalist entities proceed to play drawback up from nan past decade of lodging maturation that has driven a basal request for infrastructure investment. Also nan sizeable backing from IIJA for finance successful water, energy, ports, and airports will supply early request growth.

Overall 2023 request for aggregates will beryllium limited upon nan extent and nan long of nan declines successful residential building activity, nan effect of rising liking rates connected backstage nonresidential building activity arsenic nan twelvemonth progresses, and nan timing of road starts converting to aggregates demand.

Considering these dynamics, we presently expect our aggregate shipments to diminution betwixt 2%and 6% successful 2023. Pricing momentum and operational execution will thrust our 2023 performance. We expect aggregate pricing to summation betwixt 11% and 13%. Most importantly, we will proceed to amended our industry-leading aggregates rate gross profit per ton and present coagulated net maturation successful 2023.

Now, I will move nan telephone complete to Mary Andrews for immoderate further commentary connected our 2022 capacity and immoderate much specifications astir our 2023 guidance. Mary Andrews?

Mary Andrews Carlisle

Thanks, Tom, and bully morning.

Our 2022 operating capacity led to different twelvemonth of coagulated rate procreation and disciplined superior allocation. Over nan past 4 years, our free rate travel conversion has averaged complete 90% pinch a 93% conversion ratio for 2022.

After investing complete $600 cardinal successful superior expenditures for some attraction and maturation projects, we put further superior to activity by completing $529 cardinal successful bolt-on acquisitions and besides returned $213 cardinal to shareholders via our increasing and importantly sustainable dividend.

During 2022, we besides reduced our leverage backmost to wrong our stated target scope of 2 times to 2.5 times aft completing nan U.S. Concrete acquisition successful August of 2021. Net indebtedness to adjusted EBITDA was 2.3 times astatine year-end.

Our investment-grade equilibrium expanse and important cash-generation capacity springiness america nan capacity to proceed to put successful some integrated and inorganic opportunities pinch a changeless attraction connected improving shareholder returns and return connected invested superior arsenic we turn and optimize our portfolio.

During nan 4th quarter, we completed nan previously-announced waste of our ready-mix assets successful New York, New Jersey, and Pennsylvania. On a trailing 12-month basis, our return connected invested superior astatine year-end was 13.5%, inclusive of nan nonaccomplishment of net historically generated from nan web of assets supporting our shutdown of Mexico operations. We besides stay focused connected continuing to leverage our SAG costs base. SAG expenses arsenic a percent of gross improved by 50 ground points versus nan anterior twelvemonth to 7% of revenues.

Having strategically managed our equilibrium sheet, our portfolio, and our overhead costs structure, we entered 2023 from a position of strength. Tom shared pinch you our views connected nan macro request situation and resulting aggregates expectations.

Even pinch nan challenging and uncertain macro backdrop, we expect to turn our adjusted EBITDA to betwixt $1.725 cardinal and $1.875 cardinal by capitalizing connected nan strengths of our aggregates-led business and executing connected our foundational strategical discipline.

In our downstream businesses, we expect full rate gross profit dollars to approximate 2022 levels. Continued betterment successful asphalt conception profitability and nan use of improving road request should offset some nan effect of nan 2022 divestiture of our actual businesses successful New York, New Jersey, and Pennsylvania, and nan effect of slowing residential building activity connected our remaining actual businesses.

We expect SAG expenses of betwixt $515 cardinal and $530 cardinal arsenic we stay focused connected driving efficiencies successful our support functions while delivering caller capabilities for nan business done investments successful exertion and talent.

We besides expect depreciation, depletion, and amortization, and accretion expenses of astir $610 million; liking disbursal of astir $195 million; and an effective taxation complaint of astir 22%. In 2023, we scheme to consistently reinvest successful our franchise pinch $600 cardinal to $650 cardinal of superior expenditures for some attraction and maturation projects.

I'll now move nan telephone backmost complete to Tom for immoderate closing remarks.

Thomas Hill

Thank you, Mary Andrews.

Before we move to Q&A, I want to convey our full Vulcan squad for a successful twelvemonth successful 2022. And I person awesome assurance successful our expertise to proceed to execute successful 2023, moreover pinch nan uncertainty successful nan macro environment. As always, we will beryllium keenly focused connected keeping our group safe, driving worth for our customers, and capitalizing connected nan profitability description opportunities supported by nan Vulcan measurement of trading and nan Vulcan measurement of operating disciplines. Vulcan is uniquely positioned to create semipermanent sustainable worth pinch nan correct products, successful nan correct markets, pinch nan correct attraction from nan correct people.

And now, Mary Andrews and I will beryllium happy to return your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first mobility comes from Stanley Elliott from Stifel.

Mark Warren

Good morning, Stanley.

Stanley Elliott

Thanks. Good morning, everybody. Good greeting and convey you each for nan question. I conjecture my mobility would be. I conjecture coming in, possibly we would person thought possibly much flattish volumes successful '23 aliases possibly moreover humble measurement growth. What changed, if anything, resulting successful a 2% to 6% benignant of measurement outlook diminution now? And is location thing you could stock pinch america astir what you're seeing, and possibly a small much in-depth crossed those extremity markets? Thank you.

Thomas Hill

Yes. Sure. If you -- looking into '23, we saw immoderate beautiful bully bounce-back successful January from nan bad upwind we've had successful nan 4th quarter. So coagulated shipments, that being said, pinch nan objection of California, which everybody knows we had floods. But nan markets look beautiful good. The -- if you look astatine nan starring indicators this year, possibly not arsenic clear arsenic they usually are, truthful we tried to beryllium thoughtful arsenic we looked astatine request passim nan year.

And I deliberation a batch of it boils down to timing. When do we spot nan alteration successful single-family really get to shipments? You astir apt saw a small spot of that successful nan 4th quarter, but I deliberation nan afloat effect gets us, we recognize that benignant of extremity of nan first quarter, opening of nan 2nd quarter. So single-family astir apt gets deed astir down 20%.

And past for non-res, it's really again astir timing pinch -- while nan starring indicators for non-res look beautiful bully starts. Longer-term indicators of commercialized loans and ABI could lead to challenges successful nan 2nd half of nan year. So we would telephone that conception level for 2023. And past it's ever timing for road backing and lettings doing nan shipments will beryllium critical. We deliberation that conception -- nan nationalist conception is up low-single digits.

So arsenic we measurement backmost and look astatine this, we tried to beryllium thoughtful astir nan dynamics that effect nan shipments and nan timing of that demand. And while we can't power demand, we tin power really we tally our business and our portion margins. And I deliberation we've proven we're very bully astatine that. We deliberation we'll turn that mid-teens. So sloppy of nan dynamics affecting, shipments will turn our earnings.

Stanley Elliott

Great, guys. And bully activity connected nan profitability improvement. And thanks. That's it from me. Thanks a lot.

Mark Warren

Thank you.

Mary Andrews Carlisle

Thanks.

Operator

Our adjacent mobility comes from Trey Grooms from Stephens Inc.

Trey Grooms

Hi. Good morning, everyone.

Thomas Hill

Good morning, Trey.

Mary Andrews Carlisle

Good morning.

Trey Grooms

Hi. So yes, I want to echo bully activity connected nan profitability. And it looks for illustration connected nan guide, it implies an acceleration location connected that betterment connected rate gross profit per unit. And I conjecture nan moving pieces location if you could possibly trim into those a small bit. We've sewage -- pricing is evidently playing a role. And arsenic we benignant of look astatine nan cadence location done nan year, possibly you could talk astir that arsenic good pinch possibly what's baked successful pinch a midyear increase? And really we deliberation astir nan cadence of that profitability betterment arsenic we look done nan year?

Thomas Hill

I would telephone it beautiful consistent. We transportation really bully pricing momentum into 2023. As we said, we guideline 11% to 13% for '23. I'm really pleased pinch our team's capacity and really they work our customers to gain that value and really they look nan challenges that we've seen complete nan past 3 years and past they tin set value connected nan alert and very quickly.

Our pricing discussions for January 1, I thought went very well, and they're successful place. And you sewage to retrieve that arsenic we progressed done past year, pricing accelerated arsenic we went done 2022 driven by inflation. So nan comps successful nan 2nd half connected value get harder truthful -- but I deliberation we're assured successful that -- while we're assured successful that, there's still activity to beryllium done successful pricing and earning that from our customers.

Importantly, arsenic you talked about, our teams person been capable to return value to nan bottommost line, and we deliberation we do that mid-teens this year. I would telephone price, while pricing comps get tougher arsenic we advancement done nan year, costs comps get easier. So I would expect a beautiful dependable maturation successful that mid-teen level of portion separator maturation 4th aft quarter.

Mary Andrews Carlisle

Yes. And Trey, we do expect coagulated portion profitability maturation passim nan year. And of course, we don't springiness quarterly guidance. But I will effort to springiness you immoderate further and hopefully adjuvant context, whitethorn beryllium much related to volume. And if you deliberation successful position of cadence, we decidedly will person tougher seasonal comps successful nan first half.

Looking backmost astatine 2022, 3 of nan six months successful nan first half of 2022 implied 12-month shipments astatine a higher level than our afloat twelvemonth 2022, and only 1 of six months successful nan backmost half shows peculiarly seasonally beardown shipments. And of course, Q4 pinch nan upwind impact. We'll supply an easier comp successful 2023. So each in, I think, much challenging year-over-year successful nan first half from a measurement perspective, and nan comps astatine slightest mean arsenic you move done nan 2nd half.

Trey Grooms

Got it. Thanks, Mary Andrews. That's ace helpful. And I conjecture conscionable to make judge I'm clear connected nan comment, Tom, that you had astir pricing. So 11% to 13%, I guess, conscionable coming retired and asking is, is location immoderate -- what is nan presumption astir midyear value increases that are baked into that? I cognize you guys person been had nan sentiment and you said connected nan past call, I deliberation that you guys were going to beryllium targeting beautiful aggressively successful nan first half -- aliases excuse me, successful nan first of nan year, but immoderate benignant of remark astir what's successful that for midyear?

Thomas Hill

Sure. So fto maine conscionable measurement backmost and talk astir pricing successful aggregates. If you remember, astir [40%] of our activity is fixed plant, and we value that erstwhile aliases doubly a year. We had discussions successful October, November for January 1 value increases. I thought those went very well. Those are successful place. And we'll conscionable person to spot what happens arsenic we advancement done nan twelvemonth and what nan marketplace calls for successful nan individual markets of really that's priced.

But nan different 60% of your business is bid activity and we're bidding jobs arsenic we speak. That's thing -- it's thing you gain each day, and it's a continuous betterment effort. And so, what we're bidding now will vessel successful nan 3rd aliases 4th quarter. So each in, we're very assured connected our pricing guidance, but immoderate of that's sewage to beryllium earned arsenic we advancement done nan twelvemonth and earned each time pinch our customers.

Trey Grooms

Understood. Got it. Thanks for nan clarity there, Tom. Super helpful. Keep up nan bully work. I'll walk it on. Thanks.

Thomas Hill

Thank you.

Operator

Our adjacent mobility comes from Kathryn Thompson from Thompson Research Group.

Thomas Hill

Good morning, Kathryn.

Mary Andrews Carlisle

Good morning.

Kathryn Thompson

Good morning. Thanks for taking my mobility today. Tagging connected conscionable pinch nan pricing question, but really pulling nan drawstring much successful position of nan equilibrium of value and cost. Given there's been truthful overmuch volatility successful '21 and '22, could you explain nan assurance that you person successful portion separator maturation into '23 successful ray of nan historical volatility conscionable pinch that value cost? It would beryllium adjuvant excessively if you attraction it connected nan aggregate side, but besides fixed nan divestiture of your Northeast actual assets, giving immoderate colour for expectations for portion margins? Or conscionable immoderate type of profitability colour connected that conception would beryllium helpful. Thank you.

Thomas Hill

Yes. Great question. I deliberation that arsenic you look astatine 2022, we group records successful portion margins, and we're very pleased pinch our maturation there. We'll turn those again successful '23, arsenic we said, mid-teens. And what you're seeing location is nan Vulcan measurement of income and nan Vulcan measurement of operating disciplines astatine work. We -- you saw america group caller goals for semipermanent portion separator maturation astatine our Investor Day successful September.

I deliberation that complete nan past 4 aliases 5 years, nan squad has done awesome activity connected this very important metric. They person shown that they are ne'er satisfied, that they're ever quiet for continuous improvement. And I'm proud of their capacity and nan civilization that they developed and their committedness to excellence. That said, my assurance is very precocious connected our target guidance connected portion separator maturation because of our past capacity and our consistency. Mary Andrews?

Mary Andrews Carlisle

Yes. Tom highlighted nan consistency. And I deliberation if we look complete nan past 3 years, we've grown our rate gross profit per ton successful 11 of 12 quarters. And arsenic we expect to proceed to do that successful 2023 and to accelerate. And I deliberation different important reminder astir some nan level of portion separator description successful 2022 and besides a contributing facet to nan contraction successful aggregate gross separator percent is that we had a sizeable headwind year-over-year since we study inventory utilizing LIFO arsenic we judge it results successful a amended matching of costs pinch revenues.

So successful periods of expanding costs for illustration we saw successful 2022, LIFO will consequence successful higher costs of revenues than nether FIFO. And pretax, successful 2022, we took an incremental $54 cardinal of costs done nan P&L alternatively of putting it connected nan equilibrium sheet, if we had utilized FIFO method successful some periods. So I deliberation we really showed beardown portion separator successful 2022 pinch immoderate sizeable costs challenges.

Thomas Hill

Kathryn, I'd besides expect to spot portion separator maturation successful nan different merchandise lines.

Kathryn Thompson

Okay, great. All right, convey you very much.

Thomas Hill

Thank you.

Operator

Our adjacent mobility comes from Anthony Pettinari from Citi.

Anthony Pettinari

Hi. Good morning,

Thomas Hill

Good morning.

Anthony Pettinari

On nan aggregates measurement guidance, should we deliberation of that arsenic really an integrated benignant of apples-to-apples percent change? Or is location immoderate benignant of effect from possibly downstream divestitures impacting upstream shipments? Or are location benignant of proviso agreements successful spot to return attraction of that aliases immoderate measurement effect from Mexico? Just wondering if there's immoderate effect location and if you could span those.

Thomas Hill

Yes. On nan divestitures, I don't spot nan effect connected volumes arsenic I deliberation we'll proceed to work those Ready-Mix plants connected Mexico aliases acquisitions that we made partially successful -- for partial twelvemonth successful '22, they're built into nan guidance.

Anthony Pettinari

Okay. That's helpful. I'll move it over.

Operator

Our adjacent mobility comes from Jerry Revich from Goldman Sachs.

Thomas Hill

Good morning, Jerry

Mary Andrews Carlisle

Good Morning.

Jerry Revich

Hi Tom and Mary Andrews. Good morning. Really absorbing value costs dispersed for aggregates this twelvemonth arsenic you folks drawback up connected nan ostentation we fundamentally saw successful '22. I'm wondering arsenic nan exit complaint heading into '24 is going to show immoderate beautiful bully pricing momentum for you folks. And I'm wondering arsenic you look astatine different cycles successful nan past, Tom, is location a precedent for different twelvemonth of important above-trend value versus costs that's perchance feasible, possibly akin to what we saw 15 years ago.

Thomas Hill

Yes. I deliberation that's built into our guidance successful that mid-teen portion separator growth. And arsenic I said a small spot earlier, I deliberation nan cadence of that is your comps and pricing are easier successful nan first half than nan 2nd half. And but you're -- but nan flip is existent connected costs. Your comps are going to beryllium easier successful nan 2nd half connected cost. So I deliberation we're beautiful accordant astatine really we -- astatine our expertise to turn portion separator arsenic we advancement done nan year. And I've besides -- for illustration I said, we've been very accordant astir being capable to do that. So I don't spot that being choppy.

Jerry Revich

Sorry, I was conscionable asking nan momentum heading into '24. So, is location anterior points successful clip that could springiness you assurance that this play of outsized value costs and portion profitability maturation supra inclination tin proceed into '24?

Thomas Hill

As always, visibility to increasing nationalist request is simply a bully point for price. And I deliberation we are -- our folks are rather disciplined connected really they gain price. So let's get done '23, but we'll beryllium fresh to tackle our challenges and maximize portion profitability arsenic we spell into '24 and make judge we autumn backmost connected those disciplines of nan Vulcan measurement of trading and nan Vulcan measurement of operating.

Jerry Revich

Sounds good. Thank you.

Thomas Hill

Thank you.

Mary Andrews Carlisle

Thanks.

Operator

Our adjacent mobility comes from Michael Feniger, Bank of America.

Michael Feniger

Thanks, guys, for taking my questions. Can you conscionable thief america understand really overmuch were costs for illustration energy, earthy materials, diesel? How overmuch was that up incrementally successful 2022 versus 2023 -- sorry, 2022 versus 2021. And what are you benignant of baking successful location for 2023?

Thomas Hill

So Mary, why don't you return '22 and I'll return '23?

Mary Andrews Carlisle

Yes. So power was a sizeable headwind successful 2022 and it costs america astir $225 cardinal betwixt diesel and liquid. And I deliberation whitethorn beryllium important discourse and reflecting backmost connected 2022 and reasoning astir really it will effect 2023, and Tom tin springiness immoderate much colour connected that.

But is nan truth that diesel successful nan 4th fourth of 2022 was almost 40% higher than nan first 4th of 2022 and liquid likewise was almost 20% higher successful nan 4th fourth versus nan 4th quarter. So I deliberation that's nan setup arsenic we move into 2023. And Tom tin remark much connected benignant of full-year '23?

Thomas Hill

Yes. I deliberation what we person successful nan scheme correct now is astir apt precocious single-digit. It's a operation of inflation, fuel, and labor. We'll consciousness -- arsenic I said, we'll consciousness a bigger effect successful nan first half conscionable owed to nan inflationary pressures that we felt benignant of escalate arsenic we went done nan year. That being said, I deliberation each of that is partially offset pinch operating efficiencies and improvements generated by nan Vulcan measurement of operations.

I deliberation our folks are each complete that. And really we do that, galore of nan specifications we illustrated successful our September Investor Day. But I do person beautiful bully assurance that they tin support immoderate of that astatine bay conscionable by improving nan cardinal metrics that of throughput and downtime and preventive attraction that really thrust your cost.

Mary Andrews Carlisle

Yes. And circumstantial to nan power successful 2023, our anticipation is that, that will beryllium much stable, but it will stay astatine these precocious levels, which is what will consequence successful a sizeable headwind early successful nan twelvemonth and past that will mean arsenic nan twelvemonth progresses.

Michael Feniger

Great. And erstwhile you look astatine nan portfolio, Tom, you divested immoderate actual assets successful nan Northeast. I'm conscionable curious, is location immoderate further portfolio moves we could spot going forward? Like really do you benignant of position nan Asian assets aft benignant of a mates of challenging quarters pinch a batch of moving parts that impacted nan year? First, you tin benignant of remark connected really you consciousness nan wellness of those -- that portion of your portfolio agelong term. Thank you.

Thomas Hill

I deliberation that arsenic always, we look astatine our assets arsenic a group of assets that person to guidelines connected their ain and if this were thing -- were thing much astir immoderate us, past we'll divest of it and put that money back-in our aggregates business, which you've seen america do successful nan past. Right now, nan markets that we person actual businesses successful are privileged actual markets, and we're pleased pinch them. Obviously, inflationary pressures you had price-chasing costs.

And for illustration we did successful asphalt, we'll drawback that and bypass it and get backmost to increasing margins. But I deliberation nan markets wherever we bought into, we for illustration them, we kept our aggregates business successful New York and New Jersey. But truthful far, truthful good, and we deliberation we tin proceed to amended our returns arsenic we march done 2023.

Operator

Our adjacent mobility comes from Mike Dahl from RBC Capital Markets.

Thomas Hill

Good morning, Mike.

Mary Andrews Carlisle

Good morning.

Mike Dahl

Good Morning. Thanks for taking my question. Just a speedy 1 connected nan nationalist side. I don't cognize possibly thing a small spot of nuance here. We've been proceeding astir really beardown backlog and lettings are precocious successful position of nan growth, and now you're seeing benignant of immoderate humble impacts much arsenic we get done nan twelvemonth and much meaningful successful '24. I deliberation if we rewound backmost 3 aliases six months, nan thought was that nan tailwinds mightiness travel a small spot sooner than that. So successful nan discourse of your debased single-digit expectations for public, possibly thief america understand if there's thing different successful nan marketplace that you've seen successful position of timing aliases level of distribution aliases timing? Is location thing related to conscionable nan labour constraints? How would you qualify what seems to beryllium possibly a small hold successful immoderate of nan infrastructure tailwinds?

Thomas Hill

Look, I deliberation it is arsenic bully of an infrastructure tailwind arsenic we've ever seen successful decades. That being said, arsenic you heard maine opportunity before, road activity comes slower than anybody anticipates it to, but it's coming. So wide road backing is measurement up. The assemblage is successful awesome style arsenic is nan full nationalist sector. State DOT backing is highly healthy. And past you've sewage IIJ revenues that are going to beryllium reflected successful fiscal twelvemonth '23, '24 projected budgets.

Our apical states are sustaining robust lettings. And that IIJ backing will deed lettings successful '23. And it will really effect 23/24 arsenic we move forward. I'll springiness you a mates of examples.

If you deliberation astir Arizona, they'll fto 45 projects successful nan first half of this year. If you spell and move to California, nan full dollars -- task dollars successful '23 will beryllium a grounds coupled pinch grounds road lettings that we saw successful November, December. Texas is astatine $10 cardinal budget, and they'll person $7.4 cardinal of lettings successful nan 2nd half of their fiscal year, which is March done August.

And past connected nan much to travel list, that's what's location that we cognize is coming. But connected nan much to travel list, successful Florida, you sewage Governor DeSantis projected a 33% summation successful nan FDOT programme that would effect lettings successful nan -- peculiarly 2nd perchance successful nan 2nd half of nan twelvemonth aliases first half of adjacent year. He's besides -- this first $7 cardinal that he's wanting to accelerate for immoderate 20 projects, congestion projects. Tennessee's politician projected to double nan '23 '24 TDOT budget.

So for this year, it's a matter of timing and really accelerated do lettings get to task shipping. But I want to measurement backmost and opportunity it's thing but timing. This assemblage is successful very bully style and arsenic bully style arsenic we've ever seen it and growing.

Mike Dahl

Got it. Okay, acknowledgment for that. Very helpful, Tom.

Thomas Hill

Sure.

Operator

Our adjacent mobility comes from Tyler Brown from Raymond James.

Tyler Brown

Hi, bully morning

Thomas Hill

Good morning.

Tyler Brown

Hi Tom, I really wanted to spell backmost to nan Analyst Day and talk astir nan advancement connected your logistics excellence I deliberation nan next-gen works operations. I'm conscionable benignant of funny really those initiatives are rolling out? And are they expected to beryllium a worldly driver successful expanding margins successful '23? Or are those much connected nan travel in, say, beyond '23 into '24?

Thomas Hill

I deliberation what you'll spot successful '23 is possibly a small spot of incremental impact. It will beryllium much of a '24 play. And that's a small spot of what we said successful nan Investor Day astir nan operating portion wherever we're conscionable really rolling it retired successful '22, but much of an effect successful '23. But for logistics, we're doing much rollout improvement and '23, astir apt a bigger effect successful '24.

Tyler Brown

Thank you.

Operator

Our adjacent mobility comes from Phil Ng from Jefferies.

Phil Ng

Hi, Tom. Just piggybacking connected Mike's mobility earlier connected nan nationalist broadside of things. The debased single-digit maturation does look a small much muted than your 2 nationalist peers are guiding for this year. Curious if it's a usability of possibly you guys are a small much levered to bigger projects, truthful that's much timing related. And I conjecture it would beryllium really adjuvant to benignant of springiness america a position arsenic to really you deliberation nationalist will turn arsenic we exit 2023 and possibly much importantly 2024 erstwhile you get nan afloat effect of IIJA.

Thomas Hill

Well, I deliberation that it's -- I'll return nan 2nd portion of that mobility first. 2024, I deliberation we'll spot a batch much maturing of nan DOTs, getting activity to shipments. And if you look astatine nan level of lettings that we'll spot passim nan year, that sets america up highly good for 2024 because they get them left, they get nan jobs retired there, get them started.

And truthful we entered '24 pinch a higher level of starts that person gone to aggregate shipments. So I deliberation that obviously, you've sewage to hold and we'll spot really that progresses and nan DOTs capable to get nan activity fto and retired for that they -- nan projections they have.

On large work, it's difficult for maine to really judge what immoderate of my peers are doing because I don't get to look astatine their backlogs and look astatine their work. So a small spot difficult to judge. Now you are insightful successful nan truth that very ample jobs return longer to get from letting to commencement because they're analyzable and there's a batch that goes into it from procuring onshore and permits, and conscionable much elaborate larger engineering things that person to hap and pre activity that has to spell into it. So we do person a number of ample jobs successful our backlogs. And arsenic I said, they do return longer, but comparing it to my peers, it's conscionable reliable to do.

Phil Ng

I mean would it beryllium fair, Tom, looking retired to 2024, we spot for illustration mid-single-digit positive maturation successful public? Or is that still excessively optimistic astatine this point?

Thomas Hill

Well, obviously, excessively early to telephone because you've sewage to spot what's happening successful these lettings, but let's each beryllium hopeful connected that one.

Phil Ng

Okay. I admit nan color.

Operator

Our adjacent mobility comes from Garik Shmois from Loop Capital.

Garik Shmois

Hi. Thanks for taking my question. I wanted to inquire connected nan non-res broadside of nan ledger, nan outlook for level volumes this year. Just wondering if you tin possibly break retired what you're seeing successful your markets and your backlogs connected nan heavier nonres side, truthful things for illustration LNG, manufacturing warehouses, things of that quality versus lever commercial?

Thomas Hill

Yes. I deliberation nan very ample projects is really -- it's really encouraging. We're seeing a number of them. I mean, I'll springiness you immoderate examples. You sewage aluminum works present successful Alabama, a 100 works successful Savannah, Georgia, nan GM artillery works that we'll beryllium shipping successful Tennessee, nan Ford F-150 works successful Kentucky and a large star works successful North Alabama. All of those are hundreds of thousands of tons per job, and truthful very bully work.

We person immoderate concerns connected does nan ray non-res travel location construction. That's 1 piece. And while connected heavier res, nan starts look bully correct now. It's really -- nan mobility is and what we're trying to spot and can't spot yet is what's down those because you've sewage commercialized loans that person been challenged for 4 quarters.

So correct now, nan starring indicators look good. And we'll person to hold and spot connected nan different -- spot really it starts to trend? I deliberation each successful all, we effort to beryllium thoughtful arsenic we presume level but remember, that level is astatine highly precocious levels, and this assemblage is not overbuilt. So those group america up bully for nan early moreover if location is -- that immoderate of nan lighter worldly follows homebuilding, you've sewage a batch of dense down that, too.

Garik Shmois

Understood. Thank you.

Thomas Hill

Thank you.

Operator

Our adjacent mobility comes from Keith Hughes from Truist.

Keith Hughes

Thank you. I had immoderate questions connected nan costs that was referred to earlier connected nan precocious single-digit increases successful cost. Could you opportunity again, connected energy, are you seeing power conscionable benignant of rotation guardant astatine existent prices aliases is location immoderate alteration up aliases down successful nan first half of nan year?

Thomas Hill

A small spot -- though nan first half of nan year, power costs will beryllium up because of costs. We deliberation it remains astatine elevated levels. But successful nan first portion of nan year, there's nary mobility that everything, including energy, will beryllium up because we saw specified a speedy emergence of ostentation passim nan year. So nan comps get easier successful costs arsenic we spell done nan twelvemonth conscionable because nan costs roseate past year. But for power successful nan first half, yes, will beryllium -- it will beryllium a headwind for us.

Keith Hughes

And if you portion retired nan energy, what does year-over-year costs maturation look for illustration and different enlighting items benignant of percentage?

Thomas Hill

I would return it successful pieces. I deliberation that astir of it is up mid to precocious azygous digits, and that's everything from energy to parts, to nan labor, conscionable benignant of each of it is up. It's conscionable going to get deed harder successful nan first six months of nan 2nd six months.

Keith Hughes

Okay. Thank you.

Thomas Hill

Thank you.

Operator

Our adjacent mobility comes from Michael Dudas from Vertical Research.

Michael Dudas

Good morning, Tom and Mary Andrews.

Mary Andrews Carlisle

Good Morning,

Thomas Hill

Good morning.

Michael Dudas

Tom, conscionable possibly you could stock a small spot astir a mates of your -- wherever immoderate of your larger -- wherever are immoderate of nan surprises you whitethorn spot fixed nan dynamics you conscionable put forth, whether it's regional, whether it's California, nan upwind was very hard, obviously, from nan extremity of nan quarter, opening of this year. Where are immoderate of nan areas you deliberation location could beryllium immoderate upside surprises and a mates of areas wherever location needs to beryllium a small spot much concerned astir immoderate of nan task flows that you're anticipating?

Thomas Hill

I deliberation nan large mobility for each of this is timing of road projects. And that's successful each DOT we have. All of them person awesome funding. All of them person awesome plans, each of them person really bully lettings. It's really accelerated do they get that activity to shipping aggregates. And I deliberation that's nan biggest mobility that we will person to watch arsenic we spell done nan year.

Now nan bully portion astir that question, if it goes faster, that's awesome but, arsenic I've said, nan road work, it conscionable takes longer to get there, than we deliberation than anybody ever thinks it does, but it gets there.

Michael Dudas

So is that nan delta betwixt minus 2 and minus 6 connected your measurement expectations?

Thomas Hill

I would show you that I deliberation that's astir apt nan biggest facet successful nan range. Yes.

Michael Dudas

Thank you, Tom.

Mark Warren

Thank you.

Operator

Our adjacent mobility comes from Adam Thalhimer from Thompson Davis.

Adam Thalhimer

Thanks. Good morning, guys.

Thomas Hill

Good morning.

Adam Thalhimer

Can I get your thief pinch your separator guidance because you're giving america aggregates rate gross profit per ton. I want to person that backmost to you conscionable your reported aggregates gross margin. I deliberation you're guiding to, telephone it, 100 to 200 ground points of gross -- aggregates gross separator betterment this year, but I'm conscionable not sure.

Mary Andrews Carlisle

Yes. That's right. We do expect aggregates gross separator description , I'd say, astatine slightest astatine those levels and besides connected EBITDA margins, too, this will beryllium a twelvemonth wherever we tin telephone backmost to immoderate of our much humanities levels.

Adam Thalhimer

And do you spot a batch of variability betwixt quarters aliases is that beautiful evenly passim nan year?

Mary Andrews Carlisle

Yes. I deliberation from a separator standpoint, we expect accordant betterment passim nan year. As Tom said, it will beryllium -- first half will beryllium much price, much costs and 2nd half will beryllium much mean value and much mean cost. But I deliberation connected nan separator side, we should spot bully maturation successful -- each passim nan year.

Adam Thalhimer

Okay. Very helpful. Thanks.

Thomas Hill

Thank you.

Operator

Our past mobility comes from Rohit Seth from Seaport Research Partners.

Thomas Hill

Good morning.

Rohit Seth

Hi, bully morning. Good morning. Thanks for taking my question. Just clear to -- clear up connected nan nonresi. You talked astir nan ray and dense non-resi, what is nan operation betwixt nan 2 and your full non-resi exposure?

Thomas Hill

I deliberation it's astir apt -- correct now, we're astir apt a batch heavier -- batch heavier connected nan dense nonres arsenic we saw nan ray catch-up -- had to drawback up pinch residential growth. And it fell down a small bit. So I deliberation you still sewage immoderate runway pinch ray res arsenic it has arsenic it lags single-family, but nan heavier portion of this will beryllium a overmuch heavier portion pinch america a mostly of ours will beryllium successful dense res.

Rohit Seth

Okay. So nonres is what, 30% of your sales, your volumes?

Thomas Hill

Yes. So that's a beautiful bully information number.

Rohit Seth

Okay. And past conscionable connected superior allocation, tin you possibly remark connected what nan woody marketplace looks for illustration astatine nan moment?

Mary Andrews Carlisle

Yes. I deliberation we still spot bully activity. We person -- our teams are ever retired looking for opportunities. I deliberation specifically successful these benignant of environments. I mean, sometimes, location whitethorn go a disconnect betwixt sellers' expectations and buyers' valuations. But arsenic we talked about, we person a awesome expertise to make a batch of cash, and we're ever looking for ways to put that to activity increasing nan franchise, peculiarly done nan bolt-on acquisitions. And those, I think, are much astir timing connected nan seller broadside than thing else.

Thomas Hill

Yes. You saw america complete respective of those really strategical ones successful 2022, very important, peculiarly to our California, our captious California and Texas markets. We ever person a fewer of those that we're moving on. We're very picky astir it. We're very disciplined astir it. But -- and while years successful which they whitethorn beryllium nan early is not arsenic clear. Sometimes they get harder. I wouldn't expect a large turn-off aliases turn-on pinch acquisitions benignant of a dependable travel for illustration we've seen. So I deliberation location will beryllium immoderate retired there. The timing of that will beryllium seen, but we'll support plugging astatine that and beryllium disciplined astir it.

Rohit Seth

Understood. Thank you for taking my questions.

Thomas Hill

Thank you.

Operator

It appears you person nary further questions astatine this time. I will now move nan programme backmost complete to Tom for immoderate further closing remarks.

Thomas Hill

Thank you for your clip this morning. Thank you for your liking successful Vulcan Materials. We look guardant to talking to you passim nan 4th and passim nan year. Please enactment safe and we look guardant to seeing you soon. Thank you.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. You whitethorn now disconnect.

Editor: Naga



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