Vulcan Materials Company (NYSE: VMC) has reported strong fourth-quarter and full-year 2023 results, showcasing robust earnings and margin expansion driven by its uniquely positioned aggregates business. The company's fourth-quarter earnings per share increased by 89%, and its gross profit margin expanded by 550 basis points.
According to the financial highlights, the company's total revenues for the fourth quarter were $1,834 million, compared to $1,732 million in the previous year, while full-year revenues stood at $7,782 million, up from $7,315 million in the prior year. Gross profit for the fourth quarter was $472 million, compared to $350 million in the same period last year, and $1,949 million for the full year, up from $1,558 million in the previous year.
Tom Hill, Vulcan Materials' Chairman and Chief Executive Officer, expressed satisfaction with the company's performance, stating, "2023 was an exceptional year for Vulcan Materials. We generated over $2 billion in adjusted EBITDA, a 24 percent increase over the prior year, expanded EBITDA margin by 360 basis points and generated $1.5 billion of operating cash flow that can be deployed to grow our business."
Hill also noted, "Our industry leading aggregates cash gross profit per ton increased each quarter on a year-over-year basis and was $9.46 per ton for the full year, a 21 percent improvement over the prior year. Six consecutive years of unit profitability improvement during a continuously shifting macro backdrop demonstrates the durability of our uniquely positioned aggregates-led business."
Looking ahead, Hill expressed confidence in the company's outlook for 2024, stating, "We are well positioned to deliver another year of earnings growth and strong cash generation in 2024. The pricing environment remains positive, and we expect pricing momentum and operational execution will lead to attractive expansion in aggregates unit profitability, regardless of the macro demand environment."
In terms of outlook, management expects continued improvement in aggregates segment cash gross profit per ton, with total shipments flat to down 4 percent, freight-adjusted price improvement of 10 to 12 percent, and a mid-single digit increase in freight-adjusted cash cost. Additionally, the company anticipates total asphalt, concrete, and calcium segment cash gross profit of approximately $275 million, selling, administrative and general expenses of $550 to $560 million, interest expense of approximately $155 million, depreciation, depletion, accretion and amortization expense of approximately $610 million, an effective tax rate of 22 to 23 percent, net earnings attributable to Vulcan of $1.07 to $1.19 billion, and adjusted EBITDA between $2.15 and $2.30 billion for 2024.
Vulcan Materials Company's shares have moved 5.8% and are now trading at a price of $256.64.
The company's full 8-K submission is available here.
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $4,383 | $4,929 | $4,857 | $5,552 | $7,315 | $7,680 |
| Gross Margins | 25% | 25% | 26% | 25% | 21% | 24% |
| Net Margins | 12% | 13% | 12% | 12% | 8% | 11% |
| Net Income (M) | $516 | $618 | $584 | $671 | $576 | $825 |
| Net Interest Expense (M) | $138 | $130 | $136 | $149 | $169 | $186 |
| Depreciation & Amort. (M) | $277 | $301 | $315 | $343 | $409 | $617 |
| Diluted Shares (M) | 134 | 133 | 133 | 134 | 134 | 134 |
| Earnings Per Share | $3.85 | $4.63 | $4.39 | $5.02 | $4.31 | $6.17 |
| EPS Growth | n/a | 20.26% | -5.18% | 14.35% | -14.14% | 43.16% |
| Avg. Price | $111.16 | $125.51 | $123.07 | $175.53 | $172.67 | $242.46 |
| P/E Ratio | 28.5 | 26.88 | 27.91 | 34.76 | 39.88 | 39.04 |
| Free Cash Flow (M) | $364 | $600 | $708 | $561 | $536 | $627 |
| CAPEX (M) | $469 | $384 | $362 | $451 | $613 | $828 |
| EV / EBITDA | 17.18 | 16.18 | 15.61 | 19.88 | 19.66 | 19.18 |
| Total Debt (M) | $2,912 | $2,784 | $3,803 | $3,885 | $3,976 | $3,875 |
| Net Debt / EBITDA | 2.8 | 2.13 | 2.15 | 2.7 | 2.8 | 1.89 |
| Current Ratio | 1.79 | 2.58 | 2.17 | 2.21 | 1.99 | 3.13 |
Vulcan Materials Company (VMC) presents an intriguing investment opportunity, albeit with some caveats. On the positive side, the company's revenues have been expanding at a commendable rate of 10.5%, indicating strong demand for its products. Additionally, VMC's capital expenditures are increasing at a robust 14.2%, reflecting a commitment to future growth and efficiency. Furthermore, the company's earnings per share have grown at an annualized rate of 8.2% over the last 6 years, demonstrating a consistent track record of profitability.
However, it's important to note some concerns. VMC's operating margins are averaging at 16.7%, which, while healthy, may not be sufficient to offset potential economic downturns or industry-specific challenges. Moreover, the company's PEG ratio is 3.7, indicating that the market might be overvaluing VMC's growth potential. Given the PEG ratio is above 2, investors should exercise caution and consider the possibility of an overvaluation.
From a value perspective, VMC's financial position raises some red flags. The company's total liabilities of $7.16 billion far exceed its current assets of $2.7 billion, resulting in a net current asset level of -$4.45 billion. This imbalance could potentially strain VMC's financial flexibility and raise solvency concerns, especially in the face of economic downturns or industry headwinds. Additionally, VMC's P/E ratio of 41.0 is considerably higher than the Industrials sector average of 22.19, indicating that the stock may be trading at a premium. While the expected earnings of $8.05 per share do provide a lower forward P/E ratio of 31.9, it's worth noting that this is still above the historical average P/E ratio of 31.74, further underlining the potential for overvaluation.
In conclusion, Vulcan Materials Company presents an exciting growth story, backed by strong revenue expansion and a history of EPS growth. However, the company's financial position and potentially overvalued stock raise valid concerns. Investors should carefully consider these factors before making an investment decision in VMC.
