Vulcan Announces Fourth Quarter 2018 Results

Vulcan Announces Fourth Quarter 2018 Results

Fourth Quarter Earnings from Continuing Operations were $0.93 per Diluted Share

Aggregates Gross Profit Increases 24 Percent and Unit Profitability Expands

Double-digit Earnings Growth Expected in 2019

PR Newswire

BIRMINGHAM, Ala., Feb. 14, 2019

BIRMINGHAM, Ala., Feb. 14, 2019 /PRNewswire/ -- Vulcan Materials Company (NYSE: VMC), the nation's largest producer of construction aggregates, today announced results for the fourth quarter and year ended December 31, 2018.

Net earnings were $124 million and Adjusted EBITDA was $286 million in the fourth quarter.  For the full year, net earnings were $516 million and Adjusted EBITDA was $1.132 billion (an increase of 15 percent) despite significantly higher energy costs. 

Tom Hill, Chairman and Chief Executive Officer, said, "Our fourth quarter results reflect a strong finish to the year.  Solid shipment growth, compounding price improvements and strong operating efficiencies in our aggregates business contributed to double-digit growth in revenues and operating earnings.  Aggregates pricing continued its upward momentum, and unit profitability expanded further despite higher costs for diesel fuel.  This demonstrates the resiliency of our aggregates-centric business model.  Our conversion of incremental aggregates sales into aggregates earnings was strong again in the fourth quarter – contributing to a same-store segment gross profit flow-through rate of 64 percent for the year.

"Our aggregates-focused business is well positioned for further gains in our industry-leading unit profitability in aggregates.  Since the recovery began in the second half of 2013, our core operating and sales disciplines have contributed to 13 percent average annual growth in aggregates gross profit per ton.  We expect double-digit earnings growth again in 2019, given the strength of our operational performance and continuing growth in public sector demand.  Aggregates pricing momentum continues to improve.  Mix-adjusted pricing in the fourth quarter increased 5 percent, and we expect price growth in 2019 at a similar rate.

"In our key markets across the United States, we are benefitting disproportionally from both strong growth in public construction demand and continued solid growth in private demand.  For 2019, we expect reported earnings from continuing operations of between $4.55 and $5.05 per diluted share and Adjusted EBITDA of between $1.250 and $1.330 billion."  

Fourth quarter and full-year highlights include the following:


Fourth Quarter


Full Year

Amounts in millions, except per unit data

2018

2017


2018

2017

Total revenues

$1,088.0

$   977.5


$ 4,382.9

$ 3,890.3

Gross profit

$   275.3

$   241.5


$ 1,100.9

$   993.5

Aggregates segment






Segment sales

$   874.0

$   769.5


$ 3,513.6

$ 3,096.1

Freight-adjusted revenue

$   657.6

$   596.0


$ 2,667.3

$ 2,392.7

Gross profit

$   256.4

$   206.6


$   991.9

$   854.5

Shipments (tons)

49.7

46.0


201.4

183.2

Freight-adjusted sales price per ton

$   13.23

$   12.95


$   13.25

$   13.06

Gross profit per ton

$     5.16

$     4.49


$     4.93

$     4.66

Asphalt, Concrete & Calcium segment gross profit

$     18.9

$     35.0


$   109.1

$   139.0

Selling, Administrative and General (SAG)

$     84.4

$     85.9


$   333.4

$   325.0

SAG as % of Total revenues

7.8%

8.8%


7.6%

8.4%

Earnings from continuing operations before income taxes

$   153.9

$     14.3


$   623.3

$   361.3

Net earnings (1)

$   124.0

$   327.5


$   515.8

$   601.2

Adjusted EBIT

$   195.8

$   155.2


$   785.5

$   676.0

Adjusted EBITDA

$   285.6

$   233.2


$ 1,131.7

$   981.9

Earnings from continuing operations per diluted share

$     0.93

$     2.43


$     3.87

$     4.40

Adjusted earnings from continuing operations per diluted share

$     0.99

$     0.74


$     4.05

$     3.04

(1)Fourth quarter and full year 2017 results include a one-time, non-cash benefit of $268 million, or $1.99 per diluted share,

resulting from the Tax Cuts and Jobs Act of 2017.






Segment Results

Aggregates
Fourth quarter segment gross profit increased 24 percent to $256 million, or $5.16 per ton.  As a percentage of segment sales, gross profit margin expanded from 26.8 percent in the prior year to 29.3 percent due to solid growth in shipments, compounding price improvements and cost control.  For the full year, segment gross profit increased 16 percent to $992 million, or $4.93 per ton.

Full year, same-store incremental gross profit was 64 percent of incremental segment sales excluding freight and delivery, in-line with longer-term expectations of 60 percent.  As a reminder, quarterly gross profit flow-through rates can vary widely from quarter to quarter; therefore, the Company evaluates this metric on a trailing-twelve month basis.

Fourth quarter aggregates shipments increased 8 percent (4 percent on a same-store basis) versus the prior year quarter.  Daily shipping rates in October and November were slowed by Hurricane Michael and wet weather in Texas and a number of Southeastern markets.  Strong shipment growth continued in Alabama, Arizona, Florida and Illinois.  Shipment growth in Texas and Virginia rebounded after weather-related interruptions in September and October.  Full year aggregates shipments increased 10 percent (6 percent on a same-store basis) led by double-digit growth in Alabama, Arizona, Florida, Illinois, Tennessee and Texas.  Most other key markets realized flat-to-modest growth in full year shipments as compared to the prior year.  In Virginia, volumes declined 9 percent due mostly to wet weather experienced throughout the first half of the year.

For the quarter, freight-adjusted average sales price for aggregates increased 2 percent versus the prior year's quarter, with the growth rate negatively affected by strong shipment growth in relatively lower-priced markets such as Alabama, Arizona and Illinois.  Excluding mix impact, aggregates price increased 5 percent versus the prior year's fourth quarter.  Throughout 2018, pricing momentum continued to improve as the year-over-year growth rate in average sales price increased each quarter.  For the year, freight-adjusted aggregates pricing increased 1.4 percent.  On a mix-adjusted basis, pricing increased 3.5 percent versus the prior year.  Positive trends in backlogged project work along with demand visibility, customer confidence, and logistics constraints support continued upward pricing movements in 2019.

Fourth quarter same-store unit cost of sales (freight-adjusted) decreased compared to the prior year quarter as fixed cost leverage and other operating efficiencies more than offset a 17 percent increase in the unit cost for diesel fuel.  For the year, same-store unit cost of sales (freight-adjusted) decreased 2 percent, more than offsetting a 25 percent increase in the unit cost for diesel fuel.  The Company remains focused on compounding improvements in unit margins throughout the cycle through fixed cost leverage, price growth and operating efficiencies.  Since the recovery began in the second half of 2013, gross profit per ton in aggregates has compounded at an average annual growth rate of 13 percent.

Asphalt, Concrete and Calcium
Asphalt segment gross profit of $7 million for the fourth quarter was $16 million lower than the prior year's quarter due to lower material margins.  Although asphalt mix selling prices increased 7 percent in the fourth quarter, or $3.74 per ton, a 54 percent increase in unit costs for liquid asphalt more than offset the price improvement.  Full year segment gross profit was $56 million versus $91 million in the prior year.  For the full year, higher liquid asphalt costs negatively affected segment earnings by $54 million.  Pricing gains are beginning to offset higher liquid asphalt costs, but their impact will be gradual during 2019.

Concrete segment gross profit improved slightly for the quarter versus the prior year's fourth quarter.  Same-store shipments decreased 7 percent year-over-year.  Shipment growth in California partially offset lower shipments in Virginia (the Company's largest concrete market) and Texas due in part to wet weather.  Same-store average price increases of 3 percent led to a 5 percent gain in same-store material margins.  Full year segment gross profit increased 10 percent to $50 million.

Calcium segment gross profit was $0.5 million approximating the prior year's fourth quarter.  Full year segment gross profit increased 10 percent to $2.7 million.

Capital Allocation and Financial Position

For the full year, capital expenditures were $469 million.  This amount included $222 million of core operating and maintenance capital investments to improve or replace existing property, plant and equipment.  In addition, the Company invested $247 million in internal growth projects to secure new aggregates reserves, develop new production sites, enhance the Company's distribution capabilities, and support the targeted growth of its asphalt and concrete operations.  During 2019, the Company expects to spend approximately $250 million on maintenance capital and $200 million for internal growth projects that are largely underway.

The Company remains active in the pursuit of bolt-on acquisitions and other value-creating growth investments.  The Company closed four acquisitions during 2018 for cash consideration of $221 million.  These acquisitions complement our existing positions and expand our capabilities in Alabama, California, and Texas markets. 

Full year pretax interest expense, net was $137 million versus $291 million in the prior year.  The prior year included pretax charges of $153 million associated with debt refinancing activity.

During the year, the Company returned $282 million to shareholders, compared to $193 million in the prior year, through dividends and share repurchases.  At year end, total debt was $2.9 billion, or 2.6 times full year Adjusted EBITDA compared to 2.9 times at the prior year end. 

For 2018, net earnings were $516 million, and the business generated approximately $925 million of after-tax cash flows from earnings (defined as Adjusted EBITDA less working capital change (excluding cash and debt), operating and maintenance capital, and cash taxes).

The Company's capital allocation and investment-grade rating priorities remain unchanged.

Selling, Administrative and General (SAG) Expenses and Taxes

SAG expenses in the quarter were $84 million, slightly lower than the prior year.  For the full year, SAG expense was $333 million, or 7.6 percent as a percentage of total revenues, down from 8.4 percent in 2017.  The Company remains focused on further leveraging its overhead cost structure.

Tax expense for the year was $105 million (effective tax rate of 16.9 percent) compared to the prior year tax benefit of $232 million.  The prior year's fourth quarter tax benefit included $268 million of net benefit associated with the Tax Cuts and Jobs Act enacted in December 2017 and $29 million of benefit tied to state-level net operating loss carryforwards.

Demand and Earnings Outlook

Regarding the Company's outlook Mr. Hill stated, "We delivered strong incremental earnings in 2018 and are well positioned to carry that momentum forward this year.  We expect solid growth in private demand and strong growth in public demand.  Above-average demand growth in Vulcan markets compared to the rest of the U.S. further supports our positive outlook for shipment growth.  The underlying direction of unit profitability remains clear, strongly supported by our strategic and tactical focus on compounding pricing improvements.  We expect double-digit earnings growth in 2019."

Management expectations for 2019 include:

  • Aggregates shipments growth of 3 to 5 percent
  • Aggregates freight-adjusted price increase of 5 to 7 percent
  • Fifteen to twenty percent growth in Asphalt, Concrete and Calcium gross profit, collectively
  • SAG expenses of approximately $355 million
  • Adjusted EBITDA of $1.250 to $1.330 billion
  • Interest expense of approximately $130 million
  • Depreciation, depletion, accretion and amortization expense of approximately $360 million
  • An effective tax rate of approximately 20 percent
  • Earnings from continuing operations of $4.55 to $5.05 per diluted share

Conference Call

Vulcan will host a conference call at 10:00 a.m. CT on February 14, 2019.  A webcast will be available via the Company's website at www.vulcanmaterials.com.  Investors and other interested parties may access the teleconference live by calling 800-347-6311, or 720-543-0197 if outside the U.S. approximately 10 minutes before the scheduled start.  The conference ID is 7323197.  The conference call will be recorded and available for replay at the Company's website approximately two hours after the call.

Vulcan Materials Company, a member of the S&P 500 Index with headquarters in Birmingham, Alabama, is the nation's largest producer of construction aggregates – primarily crushed stone, sand and gravel – and a major producer of aggregates-based construction materials, including asphalt mix and ready-mixed concrete.  For additional information about Vulcan, go to www.vulcanmaterials.com.

FORWARD-LOOKING STATEMENT DISCLAIMER
This document contains forward-looking statements.  Statements that are not historical fact, including statements about Vulcan's beliefs and expectations, are forward-looking statements.  Generally, these statements relate to future financial performance, results of operations, business plans or strategies, projected or anticipated revenues, expenses, earnings (including EBITDA and other measures), dividend policy, shipment volumes, pricing, levels of capital expenditures, intended cost reductions and cost savings, anticipated profit improvements and/or planned divestitures and asset sales.  These forward-looking statements are sometimes identified by the use of terms and phrases such as "believe," "should," "would," "expect," "project," "estimate," "anticipate," "intend," "plan," "will," "can," "may" or similar expressions elsewhere in this document.  These statements are subject to numerous risks, uncertainties, and assumptions, including but not limited to general business conditions, competitive factors, pricing, energy costs, and other risks and uncertainties discussed in the reports Vulcan periodically files with the SEC.

Forward-looking statements are not guarantees of future performance and actual results, developments, and business decisions may vary significantly from those expressed in or implied by the forward-looking statements.  The following risks related to Vulcan's business, among others, could cause actual results to differ materially from those described in the forward-looking statements: those associated with general economic and business conditions; the timing and amount of federal, state and local funding for infrastructure; changes in Vulcan's effective tax rate; the increasing reliance on information technology infrastructure for Vulcan's ticketing, procurement, financial statements and other processes could adversely affect operations in the event that the infrastructure does not work as intended, experiences technical difficulties or is subjected to cyber-attacks; the impact of the state of the global economy on Vulcan's businesses and financial condition and access to capital markets; changes in the level of spending for private residential and private nonresidential construction; the highly competitive nature of the construction materials industry; the impact of future regulatory or legislative actions, including those relating to climate change, wetlands, greenhouse gas emissions, the definition of minerals, tax policy or international trade; the outcome of pending legal proceedings; pricing of Vulcan's products; weather and other natural phenomena, including the impact of climate change; energy costs; costs of hydrocarbon-based raw materials; healthcare costs; the amount of long-term debt and interest expense incurred by Vulcan; changes in interest rates; volatility in pension plan asset values and liabilities, which may require cash contributions to the pension plans; the impact of environmental cleanup costs and other liabilities relating to existing and/or divested businesses; Vulcan's ability to secure and permit aggregates reserves in strategically located areas; Vulcan's ability to manage and successfully integrate acquisitions; significant downturn in the construction industry may result in the impairment of goodwill or long-lived assets; changes in technologies, which could disrupt the way we do business and how our products are distributed; the effect of changes in tax laws, guidance and interpretations, including those related to the Tax Cuts and Jobs Act that was enacted in December 2017; and other assumptions, risks and uncertainties detailed from time to time in the reports filed by Vulcan with the SEC.  All forward-looking statements in this communication are qualified in their entirety by this cautionary statement.  Vulcan disclaims and does not undertake any obligation to update or revise any forward-looking statement in this document except as required by law.








Table A

Vulcan Materials Company








and Subsidiary Companies









(in thousands, except per share data)


Three Months Ended


Twelve Months Ended

Consolidated Statements of Earnings

December 31


December 31

(Condensed and unaudited)

2018


2017


2018


2017









Total revenues

$1,088,047


$977,490


$4,382,869


$3,890,296

Cost of revenues

812,763


735,973


3,281,924


2,896,783

  Gross profit

275,284


241,517


1,100,945


993,513

Selling, administrative and general expenses

84,382


85,920


333,371


324,972

Gain on sale of property, plant & equipment








  and businesses

6,570


13,197


14,944


17,827

Other operating expense, net

(10,983)


(19,590)


(34,805)


(47,324)

  Operating earnings

186,489


149,204


747,713


639,044

Other nonoperating income, net

292


1,646


13,000


13,357

Interest expense, net

32,857


136,513


137,423


291,085

Earnings from continuing operations








  before income taxes

153,924


14,337


623,290


361,316

Income tax expense (benefit)

29,645


(313,632)


105,449


(232,075)

Earnings from continuing operations

124,279


327,969


517,841


593,391

Earnings (loss) on discontinued operations, net of tax

(256)


(423)


(2,036)


7,794

Net earnings

$124,023


$327,546


$515,805


$601,185









Basic earnings (loss) per share








  Continuing operations

$0.94


$2.47


$3.91


$4.48

  Discontinued operations

$0.00


$0.00


($0.01)


$0.06

  Net earnings

$0.94


$2.47


$3.90


$4.54









Diluted earnings (loss) per share








  Continuing operations

$0.93


$2.43


$3.87


$4.40

  Discontinued operations

$0.00


$0.00


($0.02)


$0.06

  Net earnings

$0.93


$2.43


$3.85


$4.46

















Weighted-average common shares outstanding








  Basic

132,060


132,519


132,393


132,513

  Assuming dilution

133,369


134,815


133,926


134,878

Depreciation, depletion, accretion and amortization

$89,783


$77,991


$346,246


$305,965

Effective tax rate from continuing operations

19.3%


nm


16.9%


-64.2%

 





Table B

Vulcan Materials Company





and Subsidiary Companies








(in thousands)

Consolidated Balance Sheets

December 31



December 31

(Condensed and unaudited)

2018



2017

Assets





Cash and cash equivalents

$40,037



$141,646

Restricted cash

4,367



5,000

Accounts and notes receivable





  Accounts and notes receivable, gross

542,868



590,986

  Less: Allowance for doubtful accounts

(2,090)



(2,649)

   Accounts and notes receivable, net

540,778



588,337

Inventories





  Finished products

372,604



327,711

  Raw materials

27,942



27,152

  Products in process

3,064



1,827

  Operating supplies and other

25,720



27,648

   Inventories

429,330



384,338

Other current assets

64,633



60,780

Total current assets

1,079,145



1,180,101

Investments and long-term receivables

44,615



35,115

Property, plant & equipment





  Property, plant & equipment, cost

8,457,619



7,969,312

  Allowances for depreciation, depletion & amortization

(4,220,312)



(4,050,381)

   Property, plant & equipment, net

4,237,307



3,918,931

Goodwill

3,165,396



3,122,321

Other intangible assets, net

1,095,378



1,063,630

Other noncurrent assets

210,289



184,793

Total assets

$9,832,130



$9,504,891

Liabilities





Current maturities of long-term debt

23



41,383

Short-term debt

133,000



0

Trade payables and accruals

216,473



197,335

Other current liabilities

253,054



204,154

Total current liabilities

602,550



442,872

Long-term debt

2,779,357



2,813,482

Deferred income taxes, net

567,283



464,081

Deferred revenue

186,397



191,476

Other noncurrent liabilities

493,640



624,087

Total liabilities

$4,629,227



$4,535,998

Equity





Common stock, $1 par value

131,762



132,324

Capital in excess of par value

2,798,486



2,805,587

Retained earnings

2,444,870



2,180,448

Accumulated other comprehensive loss

(172,215)



(149,466)

Total equity

$5,202,903



$4,968,893

Total liabilities and equity

$9,832,130



$9,504,891

 




Table C

Vulcan Materials Company




and Subsidiary Companies





(in thousands)


Twelve Months Ended

Consolidated Statements of Cash Flows

December 31

(Condensed and unaudited)

2018


2017

Operating Activities




Net earnings

$515,805


$601,185

Adjustments to reconcile net earnings to net cash provided by operating activities




  Depreciation, depletion, accretion and amortization

346,246


305,965

  Net gain on sale of property, plant & equipment and businesses

(14,944)


(17,827)

  Contributions to pension plans

(109,631)


(20,023)

  Share-based compensation expense

25,215


26,635

  Deferred tax expense (benefit)

64,639


(235,697)

  Cost of debt purchase

6,922


140,772

  Changes in assets and liabilities before initial




   effects of business acquisitions and dispositions

(6,974)


(169,352)

Other, net

5,499


13,020

Net cash provided by operating activities

$832,777


$644,678

Investing Activities




Purchases of property, plant & equipment

(469,088)


(459,566)

Proceeds from sale of property, plant & equipment

22,210


15,756

Proceeds from sale of businesses

11,256


287,292

Payment for businesses acquired, net of acquired cash

(221,419)


(1,109,725)

Other, net

(12,850)


(3,248)

Net cash used for investing activities

($669,891)


($1,269,491)

Financing Activities




Proceeds from short-term debt

739,900


5,000

Payment of short-term debt

(606,900)


(5,000)

Payment of current maturities and long-term debt

(892,055)


(1,463,308)

Proceeds from issuance of long-term debt

850,000


2,200,000

Debt issuance and exchange costs

(45,513)


(15,291)

Settlements of interest rate derivatives

3,378


0

Purchases of common stock

(133,983)


(60,303)

Dividends paid

(148,109)


(132,335)

Share-based compensation, shares withheld for taxes

(31,846)


(25,323)

Net cash provided by (used for) financing activities

($265,128)


$503,440

Net decrease in cash and cash equivalents and restricted cash

(102,242)


(121,373)

Cash and cash equivalents and restricted cash at beginning of year

146,646


268,019

Cash and cash equivalents and restricted cash at end of year

$44,404


$146,646

 









Table D

Segment Financial Data and Unit Shipments










(in thousands, except per unit data)



Three Months Ended


Twelve Months Ended



December 31


December 31



2018


2017


2018


2017

Total Revenues








Aggregates 1

$873,996


$769,509


$3,513,649


$3,096,094

Asphalt 2

185,819


160,600


733,182


622,074

Concrete 

92,595


108,297


401,999


417,745

Calcium 

1,974


1,918


8,110


7,740

Segment sales

$1,154,384


$1,040,324


$4,656,940


$4,143,653

Aggregates intersegment sales

(66,337)


(62,834)


(274,071)


(253,357)

Total revenues

$1,088,047


$977,490


$4,382,869


$3,890,296

Gross Profit








Aggregates

$256,374


$206,562


$991,858


$854,524

Asphalt

6,627


22,866


56,480


91,313

Concrete 

11,795


11,585


49,893


45,201

Calcium 


488


504


2,714


2,475

Total

$275,284


$241,517


$1,100,945


$993,513

Depreciation, Depletion, Accretion and Amortization




Aggregates

$73,221


$62,592


$281,641


$245,151

Asphalt

8,562


6,559


31,290


25,400

Concrete 

3,035


3,536


12,539


13,822

Calcium 

65


110


272


677

Other

4,900


5,194


20,504


20,915

Total

$89,783


$77,991


$346,246


$305,965

Average Unit Sales Price and Unit Shipments




Aggregates








Freight-adjusted revenues 3

$657,580


$595,952


$2,667,291


$2,392,686

Aggregates - tons

49,716


46,021


201,375


183,179

Freight-adjusted sales price 4

$13.23


$12.95


$13.25


$13.06










Other Products








Asphalt Mix - tons

2,769


2,778


11,318


10,892

Asphalt Mix - sales price

$56.03


$52.29


$55.13


$52.23










Ready-mixed concrete - cubic yards

737


897


3,223


3,568

Ready-mixed concrete - sales price

$124.34


$119.52


$123.35


$116.45










Calcium - tons

69


69


285


273

Calcium - sales price

$28.48


$27.86


$28.44


$28.26










1 Includes product sales (crushed stone, sand and gravel, sand, other aggregates), as well as freight & delivery

     costs that we pass along to our customers, and immaterial service revenues related to aggregates.

2 Includes product sales, as well as immaterial service revenues from our asphalt construction paving business.

3 Freight-adjusted revenues are Aggregates segment sales excluding freight & delivery revenues, and other

     revenues related to services, such as landfill tipping fees that are derived from our aggregates business.

4 Freight-adjusted sales price is calculated as freight-adjusted revenues divided by aggregates unit shipments.

 












Appendix 1

1.   Reconciliation of Non-GAAP Measures













Aggregates segment freight-adjusted revenues is not a Generally Accepted Accounting Principle (GAAP) measure. We present this metric as it is consistent with the basis by which we review our operating results. We believe that this presentation is consistent with our competitors and meaningful to our investors as it excludes revenues associated with freight & delivery, which are pass-through activities. It also excludes immaterial other revenues related to services, such as landfill tipping fees, that are derived from our aggregates business. Additionally, we use this metric as the basis for calculating the average sales price of our aggregates products. Reconciliation of this metric to its nearest GAAP measure is presented below:













Aggregates Segment Freight-Adjusted Revenues










(in thousands, except per ton data)






Three Months Ended


Twelve Months Ended






December 31


December 31






2018


2017


2018


2017

Aggregates segment









Segment sales


$873,996


$769,509


$3,513,649


$3,096,094

Less:     Freight & delivery revenues 1


203,518


165,101


796,929


670,676

             Other revenues


12,898


8,456


49,429


32,732

Freight-adjusted revenues


$657,580


$595,952


$2,667,291


$2,392,686

Unit shipment - tons


49,716


46,021


201,375


183,179

Freight-adjusted sales price


$13.23


$12.95


$13.25


$13.06













1At the segment level, freight & delivery revenues include intersegment freight & delivery (which are eliminated at the consolidated level) and freight to remote

  distribution sites.













Aggregates segment gross profit margin as a percentage of segment sales excluding freight & delivery (revenues and costs) is not a GAAP measure. We present this metric as it is consistent with the basis by which we review our operating results. We believe that this presentation is consistent with our competitors and meaningful to our investors as it excludes revenues associated with freight & delivery, which are pass-through activities (we do not generate a profit associated with the transportation component of the selling price of the product). Incremental gross profit as a percentage of segment sales excluding freight & delivery represents the year-over-year change in gross profit divided by the year-over-year change in segment sales excluding freight & delivery. Reconciliations of these metrics to their nearest GAAP measures are presented below:













Aggregates Segment Gross Profit Margin in Accordance with GAAP










(dollars in thousands)






Three Months Ended


Twelve Months Ended






December 31


December 31






2018


2017


2018


2017

Aggregates segment









Gross profit


$256,374


$206,562


$991,858


$854,524

Segment sales


$873,996


$769,509


$3,513,649


$3,096,094

Gross profit margin


29.3%


26.8%


28.2%


27.6%

Incremental gross profit margin


47.7%




32.9%















Aggregates Segment Gross Profit as a Percentage of Segment Sales Excluding Freight & Delivery










(dollars in thousands)






Three Months Ended


Twelve Months Ended






December 31


December 31






2018


2017


2018


2017

Aggregates segment









Gross profit


$256,374


$206,562


$991,858


$854,524

Segment sales


$873,996


$769,509


$3,513,649


$3,096,094

Less:     Freight & delivery revenues 1


203,518


165,101


796,929


670,676

     Segment sales excluding freight & delivery


$670,478


$604,408


$2,716,720


$2,425,418

Gross profit as a percentage of segment sales









     excluding freight & delivery


38.2%


34.2%


36.5%


35.2%

Incremental gross profit as a percentage of









     segment sales excluding freight & delivery


75.4%




47.1%















1 At the segment level, freight & delivery revenues include intersegment freight & delivery (which are eliminated at the consolidated level) and freight to remote

   distribution sites.













GAAP does not define "Aggregates segment cash gross profit" and it should not be considered as an alternative to earnings measures defined by GAAP. We and the investment community use this metric to assess the operating performance of our business. Additionally, we present this metric as we believe that it closely correlates to long-term shareholder value. We do not use this metric as a measure to allocate resources.  Aggregates segment cash gross profit per ton is computed by dividing Aggregates segment cash gross profit by tons shipped. Reconciliation of this metric to its nearest GAAP measure is presented below:













Aggregates Segment Cash Gross Profit










(in thousands, except per ton data)






Three Months Ended


Twelve Months Ended






December 31


December 31






2018


2017


2018


2017

Aggregates segment









Gross profit


$256,374


$206,562


$991,858


$854,524

Depreciation, depletion, accretion and amortization


73,221


62,592


281,641


245,151

     Aggregates segment cash gross profit


$329,595


$269,154


$1,273,499


$1,099,675

Unit shipments - tons


49,716


46,021


201,375


183,179

Aggregates segment cash gross profit per ton


$6.63


$5.85


$6.32


$6.00

 












Appendix 2

Reconciliation of Non-GAAP Measures (Continued)













GAAP does not define "Earnings Before Interest, Taxes, Depreciation and Amortization" (EBITDA) and it should not be considered as an alternative to earnings measures defined by GAAP. We use this metric to assess the operating performance of our business and as a basis for strategic planning and forecasting as we believe that it closely correlates to long-term shareholder value. We do not use this metric as a measure to allocate resources. We adjust EBITDA for certain items to provide a more consistent comparison of earnings performance from period to period. Additionally, we present the metric After Tax Cash Flow from Earnings to assess the operating performance of our business and as a basis for strategic planning and forecasting. Reconciliation of these metrics to their nearest GAAP measure are presented below:













EBITDA and Adjusted EBITDA


















(in thousands)






Three Months Ended


Twelve Months Ended






December 31


December 31






2018


2017


2018


2017

Net earnings


$124,023


$327,546


$515,805


$601,185

Income tax expense (benefit)


29,645


(313,632)


105,449


(232,075)

Interest expense, net


32,857


136,513


137,423


291,085

(Earnings) loss on discontinued operations, net of tax


256


423


2,036


(7,794)

EBIT




$186,781


$150,850


$760,713


$652,401

Depreciation, depletion, accretion and amortization


89,783


77,991


346,246


305,965

EBITDA



$276,564


$228,841


$1,106,959


$958,366

     Gain on sale of businesses


0


(10,508)


(2,929)


(10,508)

     Property donation


0


4,290


0


4,290

     Business interruption claims recovery, net of incentives

0


0


(2,253)


0

     Charges associated with divested operations


8,497


1,547


18,545


18,062

     Business development, net of termination fee 1


0


2,280


5,202


3,064

     One-time employee bonuses


0


6,716


0


6,716

     Restructuring charges


513


0


6,219


1,942

Adjusted EBITDA


$285,574


$233,166


$1,131,743


$981,932

Less:











     Working capital change excluding cash & debt






(66,752)



     Operating & maintenance capital expenditures






221,684



     Cash taxes






51,183



After-tax cash flow from earnings






$925,628



1 Represents non-routine charges associated with acquisitions including the cost impact of purchase accounting inventory valuations.













Similar to our presentation of Adjusted EBITDA, we present Adjusted Diluted EPS to provide a more consistent comparison of earnings performance from period to period.

























Adjusted Diluted EPS from Continuing Operations (Adjusted Diluted EPS)


















Three Months Ended


Twelve Months Ended






December 31


December 31






2018


2017


2018


2017

Diluted EPS


$0.93


$2.43


$3.87


$4.40

     Items included in Adjusted EBITDA above


0.06


0.02


0.14


0.11

     Interest charges associated with debt purchase


0.00


0.49


0.00


0.73

     Debt refinancing costs


0.00


0.00


0.04


0.00

     Tax reform income tax savings


0.00


(1.99)


0.00


(1.99)

     Alabama NOL carryforward valuation allowance


0.00


(0.21)


0.00


(0.21)

Adjusted Diluted EPS


$0.99


$0.74


$4.05


$3.04













The following reconciliation to the mid-point of the range of 2019 Projected EBITDA excludes adjustments (as noted in Adjusted EBITDA above) as they are difficult to forecast (timing or amount). Due to the difficulty in forecasting such adjustments, we are unable to estimate their significance. This metric is not defined by GAAP and should not be considered as an alternative to earnings measures defined by GAAP.  Reconciliation of this metric to its nearest GAAP measure is presented below:













2019 Projected EBITDA


















(in millions)












Mid-point

Net earnings








$640

Income tax expense








160

Interest expense, net








130

Discontinued operations, net of tax








0

Depreciation, depletion, accretion and amortization








360

Projected EBITDA








$1,290

 

Vulcan Materials Company, Birmingham, AL. (PRNewsFoto/Vulcan Materials Company) (PRNewsFoto/) (PRNewsFoto/)

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SOURCE Vulcan Materials Company

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