Vulcan Materials Q1 2022 Earnings Call Transcript

Quartr
Provided by Quartr
May 4, 2022

There are 10 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to the Vulcan Materials Company's First Quarter Earnings Call. My name is Chelsea, and I will be your conference call coordinator today. During the Q and A portion of this call, we ask that you limit your participation to one question. This will allow everyone who wishes the opportunity to participate. Now, I will turn the call over to your host, Mr.

Operator

Mark Warren, Vice President of Investor Relations for Vulcan Materials. Mr. Warren, you may begin.

Speaker 1

Good morning, and thank you for your interest in Vulcan Materials. With me today are Tom Hill, Chairman and CEO And Suzanne Wood, Senior Vice President and Chief Financial Officer. Today's call is accompanied by a press release And a supplemental presentation posted to our website, bulkmaterials.com. A recording of this call will be available for replay later today at our website. Please be reminded that today's discussion may include forward looking statements, which are subject to risks and uncertainties.

Speaker 1

These risks, along with other legal disclaimers, are described in detail in the company's earnings release and in other filings with the Securities and Exchange Commission. Reconciliations of any non GAAP financial measures are defined and reconciled in our earnings release, our supplemental presentation And other SEC filings. As the operator indicated, please limit your Q and A participation to one question. With that, I'll now turn the call over to Tom.

Speaker 2

Thank you, Mark, and thanks to everyone for joining the call this morning. As always, we appreciate your interest in Vulcan Materials, and I hope that you and your families have had a safe and healthy start to the year. Our teams executed well in the Q1. They remain focused on capitalizing on pricing opportunities And mitigating cost pressures, their efforts have and will continue to result in the expansion of our unit margins. Our strategic disciplines are helping us to both take advantage of tailwinds and dampen headwinds in a very dynamic environment.

Speaker 2

We delivered solid results in the Q1. We generated $294,000,000 of adjusted EBITDA, A 20% increase over the prior year despite accelerating inflation, continuing volatility in the energy markets And ongoing disruptions in supply chains. This quarter again demonstrates the resiliency of our aggregates business And our team's strong execution of our strategic disciplines. Over the trailing 12 months, we have delivered 10% adjusted EBITDA growth in spite of $131,000,000 of higher energy related costs. On a trailing 12 months, Aggregates cash gross profit per tonne has improved for 15 consecutive quarters, Absent the impact of selling acquired inventory.

Speaker 2

In all business segments, the pricing environment is strong Due to growing demand and ongoing inflation, momentum continued with year over year growth in aggregate's mixed adjusted price increases Sequentially for the 5th straight quarter, our combined commercial and operational execution contributed To higher cash gross profit in both Aggregates and Total Non Aggregate segments. In the Downstream businesses, Volume price and material margins improved in both product lines. Turning now to the segments. Aggregates gross profit improved 9% to $243,000,000 or $4.58 per ton. Demand is healthy across our footprint and volume improved 14% or 7% on a same store basis.

Speaker 2

Shipments were in line with expectations since the prior year's quarter was negatively impacted by the big February freeze. As anticipated, Aggregates pricing showed strong momentum in the Q1 with freight adjusted pricing increasing 6% over the prior year's Q1. Mix adjusted pricing improved 7%. We expect to see continued strength in pricing throughout the year and are confident about midyear price increases that will be particularly impactful to 2023. As expected, our costs were elevated in the quarter on a year over year basis since The inflationary impacts did not begin in earnest until the Q2 last year.

Speaker 2

Over the 12 months Of continuously rising diesel and other inflationary impacts, our freight adjusted unit cash cost of sales has increased by 5%. In a challenging macro environment, this is a job well done and I commend our operators for their hard work And for keeping each other safe and for delivering these results. In the Q1, cash gross profit With $6.53 per tonne, excluding the impacts of selling required inventory and higher diesel costs, cash gross profit With $6.90 per tonne, a 5% improvement over the prior year. Asphalt Cash gross profit of $6,000,000 was in line with the prior year. Pricing actions initiated last year to offset rising liquid asphalt input Positively impacted the Q1 results.

Speaker 2

Average selling prices increased 13% versus last year and help to improve Unit Materials Margins. The average price of liquid asphalt was over 30% higher prior year, a $14,000,000 headwind to our Q1 results. While we expect liquid asphalt prices to continue to rise, We are encouraged by the significant sequential improvement that we've seen in pricing over the last couple of quarters, and we remain focused on improving Our gross profit margin in asphalt. Concrete cash gross profit grew from $12,000,000 to $49,000,000 In the Q1, driven primarily by the addition of U. S.

Speaker 2

Concrete, volume, price and material margins all improved As higher selling prices offset higher material costs, including internally supplied aggregates. Now let's shift to the demand environment, which remains positive. Private demand is expected to grow in 2022 across all major categories, Both single and multifamily housing and both heavy and more traditional non residential, public demand is improving And as funding is put in place from the Infrastructure Investment and Jobs Act, future growth is expected in both highways And other infrastructure. After double digit growth in 2021, the residential end use is expected to grow, But at a more modest rate in 2022. Demand remains strong and starts are still positive.

Speaker 2

However, we are mindful of factors such as supply chain issues, Rising interest rates and labor constraints. With the continued demand for additional housing, multifamily demand is accelerating. Private nonresidential demand has returned to growth in 2022. While demand will continue to be influenced by Aggregates' intensive warehouse In distribution projects, other private segments like office, manufacturing and industrial are now contributing to the sustainable growth in this end market. On a trailing 12 month basis, Square footage for total non residential starts has grown for the last 7 months and is now back to pre COVID levels.

Speaker 2

Other external leading indicators like ABI and the Dodge Momentum Index also point toward growth for 2022. On the public side, demand growth is expected in both highways and other infrastructure. The timing of the impact of the Infrastructure Investment The Jobs Act will depend upon the pace at which states allocate additional funds and the time horizon needed to move from design to letting to construction. As we previously communicated, we anticipate the majority of the impact to be realized in 2023 and beyond. We are well positioned in attractive markets and are poised to benefit greatly from legislation for years to come.

Speaker 2

With the solid demand backdrop and positive pricing environment, we remain confident in delivering significant earnings improvement in 2022. We are focused on leveraging our strategic disciplines to control what we can control and to diminish the impacts of things outside of our control. I will now turn the call over to Suzanne for further comments. Suzanne?

Speaker 3

Thanks, Tom, and good morning to everyone. The macro challenges of the last 24 months have been well documented and discussed. We continue to confront these challenges from a position of strength led by our resilient aggregates business. Our commercial and operational execution are sound and supported by our strategic disciplines. Our balance sheet is strong.

Speaker 3

These factors combine to form our positive 2022 outlook. As Tom already highlighted, our Strategic disciplines help us to take advantage of tailwinds and dampen the impact of headwinds. We've done that over the last 8 quarters, delivering a 4% compound annual growth rate in our trailing 12 months cash unit margins in the face of a number of challenges. The current pricing environment provides tremendous support for both our near term and longer term results, And we'll continue to leverage best practices and the collective knowledge of our talented teams to manage our overall costs. This is evident in our SAG cost, which as a percentage of total revenues declined 60 basis points versus the prior year's quarter.

Speaker 3

We continue to make progress on the integration of U. S. Concrete to further leverage our costs. Now with respect to the balance sheet, we took steps in the quarter to improve its structure. We extended the maturity of our $1,100,000,000 Term loan to August 2026.

Speaker 3

The loan can be repaid in full or in part at any time with no penalty. Simultaneously, we also extended the maturity of our revolving credit facility to September 2026. Our net leverage is 2.6 times. That's just above the top end of our target range of 2 to 2.5 times. Given our ability to generate strong cash flows, there is capacity to invest in other opportunities, whether organic or inorganic.

Speaker 3

Having said that, we do expect to move back within the target range by year end. As always, we'll remain disciplined as we allocate capital with a view to improving shareholder returns and maintaining financial flexibility and our investment grade ratings. We also remain focused on improving our return on investment. On a trailing 12 months basis, our ROIC at quarter end was 14%. And our adjusted EBITDA over the same time horizon has improved by 10% and we That continued growth in 2022.

Speaker 3

In February, we communicated expectations for 2022 of delivering adjusted EBITDA between $1,720,000,000 $1,820,000,000 We reiterate this guidance. We expect the favorable pricing dynamics and our strong execution to lead to attractive growth in aggregates unit profitability as well as improvement in our downstream businesses. Our expectation of investing between $600,000,000 $650,000,000 in capital expenditures remains unchanged. I'll now turn the call back over to Tom for closing remarks.

Speaker 2

Thank you, Suzanne. In closing, I would like to remind you of 3 things our teams remain clearly focused on in order to deliver value for all of our stakeholders: 1, executing at the local level 2, driving unit margin expansion by focusing on our strategic disciplines and 3, maximizing synergies from recent acquisitions. Our people are what makes Vulcan better every day. And I appreciate the hard work of our entire Vulcan team. I'm excited about what we will accomplish in 2022 and for years to come.

Speaker 2

And now, Susanna, I'll be happy to take your questions.

Operator

And our first question will come from Trey Grooms with Stephens. Your line is now open.

Speaker 4

Hey, good morning Tom and Suzanne. How are you?

Speaker 3

Good morning, Trey. Good morning.

Speaker 4

Great. Tom, first off, I know you talked a little bit about the pricing environment and that clearly is strong. And you have an expectation for price momentum to step up in 2022. And I guess if Kind of go back to what you said in February, I think the guidance called for 6% to 8% increase this year in price versus last year, Which came in, I think, closer to 3%. So, and you put 6% and you put up 6% in the quarter.

Speaker 4

So clearly, some nice acceleration there. But can you talk about the price momentum you're seeing today, expecting through the year and how you're thinking about Mid year increases relative to maybe where you were a few months ago?

Speaker 2

Sure. I thought the performance And the Q1 was a really good start to the year. As you said, we reported 6, mix adjusted we were at 7. If you remember, in February, we predicted it to start off higher than at At the low end of the range, but higher than the Q4 last year. And then we grow it sequentially as we march through the year.

Speaker 2

That combination of visibility to demand and coming demand, you couple that with inflation, it's just a good catalyst for price growth. All of our January April increases are now in place. At this point, I feel very confident about midyear price increases across the vast majority of our work. Now remember, mid year price increases will have some positive impact on 2022. Because of the delay in our work and our jobs, it's really more of a 'twenty three play and it sets us up really good for next year.

Speaker 2

So Off to a really good start. I think we progressed and continued to accelerate price as we go through the year and we're always starting to set ourselves up for 2023. As you said, a really good pricing environment.

Speaker 3

And Trey, I'll just add one thing just to remind everyone. When we're talking about Pricing and guidance. We all price in the industry a little bit differently and talk about it a little bit differently. So as a reminder, our pricing that we quote to you is freight adjusted, meaning that it's FOB, the quarry. And therefore, it excludes transportation to long haul markets.

Speaker 3

So in times of inflation and volatility, That can make a big difference in the top line price that's quoted. But what's really important here, and I'm sure we'll come on to talk about unit margins later, It's how much of that price you're really able to take to the bottom line.

Speaker 4

Perfect. Thank you for that. I'm going to stick with the one question, but I do got to take my hats off to you on the profit per ton as well. Good work on that side as well. Thank you.

Speaker 5

Thanks, Fred.

Operator

Thank you. Our next question will come from Stanley Elliott with Stifel.

Speaker 4

Hey, good morning, everyone. Thank you for the question. Good morning. And actually it's a nice segue for me. Tom, I was curious if you Talk a little bit more about the execution, controlling costs and the trade adjusted costs of 11%.

Speaker 4

Doing a really nice job on the unit margins. We'd love to hear you guys Talk a little bit more about what's happening behind the scenes.

Speaker 2

Sure. As we talked about, our aggregates business, we believe will beat inflation. While we continue to do a good job on price, I think our operators have really improved efficiencies to help offset inflation and offset the huge $59,000,000 12 month spike we've experienced in diesel and aggregates. And I think they're doing all the time, making sure they service our customers to keep each other safe. So if you kind of look back over the last 12 months, we've held cost to 5% in the face of inflation and massive spikes In fuel and energy, I would tell you, I think that has been an excellent job from our operators and I appreciate The job they're doing and as always, they do it keeping our folks healthy and safe.

Speaker 2

And to me, what this demonstrates throughout the whole Aggreg's business is that we're executing on our 4 strategic disciplines and they're making a difference Obviously, controlling word control, but also offsetting outside pressures that maybe we had not expected when we started this journey.

Speaker 4

Thanks, everybody. Best of luck.

Speaker 2

Thank you.

Operator

Thank you. Our next question will come from Jerry Revich with Goldman Sachs.

Speaker 6

Yes. Hi. Good morning, everyone.

Speaker 2

Good morning, Jerry.

Speaker 6

I'm wondering if you could just talk about the magnitude of inflation that you folks We're seeing on labor and other inputs and what do you expect the cadence of that to look like? In other words, When do we hit an easier comp from that standpoint? And I'm assuming the price realization is going to Dovetailed nicely with that cadence, but maybe I can get you to expand on price cost, if you don't mind.

Speaker 2

Sure. I'll be glad to. It's like everybody else, it's everywhere. To follow our labor, probably mid single digit. Parts are up, Hard to get parts, steel is up, rubber is up, everything is there.

Speaker 2

The headline has to be in fuel And in energy, if you just look at diesel, we predicted I'd say that, if you look at diesel and asphalt, what we said Last quarter was probably a $50,000,000 headwind in the first half of the year. That's probably going to be 50% higher at this point. We said it probably gets easier in comps in Q3 and Q4, and we'll probably just comp over that. At this point, we still predict those Now it will be up in Q3 and Q4. So it's tough and it's there and it's real, but as you pointed out, I think we offset that with price and we continue to improve our unit margins, which is our job.

Speaker 2

And I think that if you looked at our guidance, I think both Suzanne and I have confidence that we hit that guidance and I think the Q1 was evidence of that.

Speaker 6

Thank you. Thank

Operator

you. Thank you. Our next question will come from Kathryn Thompson with the Thompson Research Group.

Speaker 3

Hi. Thank you for taking my question today. So you have a good volume outlook and are seeing some areas that have not seen Signs of life, including office, and you've yet to see the momentum on a state level from public spending. And again, since backdrop, there continue to be some supply chain snafus and you're tight in cement Across the U. S, we're even hearing some concerns about availability of Certain types of rock heading into the peak construction season.

Speaker 3

How are first, from your perspective, How is the supply chain journey for you as you manage your business now? And then How you see it going forward for the remainder 'twenty two, really into 'twenty three, 'twenty? Thank you.

Speaker 2

Yes. So for us, I mean, it's impacted us a little bit, maybe a little on efficiencies with parts for mobile equipment. Hopefully, that's improving, but we saw that for the first time in the Q1. For our customers, I think it's a little bit different story. I thought that obviously, the Q1 was strong, but remember, we're comping over Pretty easy comp with the big freeze in February last year.

Speaker 2

So again, it's just Q1 easy comp. The fundamentals in demand, I think, are really a good place and probably as good as we've seen in a long time with all four end uses Should have shipments up in 2022. That said, as you pointed out, we've got labor and supply chain issues. Labor Will affect our customers just getting catching up on work more than getting it done, but also hurts us in transportation. It hurts the rail transportation.

Speaker 2

In any peak day with excellent weather, you just don't have enough trucks to deliver at peak demand and so it kind of It spreads it out. So as you point out, supply chain is just slowing some work. I think while that being said, I think the good news is that work is not canceling. We're not seeing any jobs go away. And so it's While demand is there, it's not going away.

Speaker 2

It's just it's pushing it to the right and extending the cycle and that's not all bad. If we see some of these pressures ease, I think there's potential for more sooner, but we haven't seen that easing yet as we go into the season.

Operator

Thank you very much. Thank you. Thank you. Our next question will come from Keith Hughes with Truist Securities.

Speaker 5

Thank you. Several impressive things in this release, but particularly asphalt, given some of the inflation seen in that sector with the flat year over year performance. I guess my question is Quarter or 2, is there some recent inflation you're going to lag that's going to put some pressure? Or do you think you're on the right side of the cost now?

Speaker 2

I think Q2 will see some pressures as we've pointed out because it's still a harder comp. We haven't seen the big jump in you start to see the inflation last year in Q2, but not the big jump in diesel and liquid. So Q2 has tougher comps kind of in all product lines driven by energy. From a specific asphalt perspective, I was very pleased With the jump we saw in prices up 13%, and remember that we said in our guidance in Asphalt that we'd see gross Profit growth driven by second half volumes and second half margin growth. I think that In the quarter, we saw liquid go up $130 or $14,000,000 And the fact that we were able to offset it with price is A really good omen looking forward to the rest of the year.

Speaker 2

I think we caught it, and I think as we progress through the year, we start back growing those into margins and asphalt.

Operator

Okay.

Speaker 6

Thank you. Thank you.

Operator

Thank you. Our next question will come from Derek Schmois with Loop Capital.

Speaker 5

Hi, thanks and congrats on the quarter. I was

Speaker 2

just wondering if you can go into

Speaker 5

a little bit more detail just on the volume growth expectations for the rest of the year. Clearly Q1, You're up against a fairly easy comparison, but anything we should consider as the demand environment continues to improve for you?

Speaker 2

Yes. Again, I would stick to our guidance, which was 5% to 7% kind of on volume growth, that's 2 to 4, same store. Again, great start. Again, easy copies and small quarter. I would call out this.

Speaker 2

I would stick to that guidance at this point until I see some of these. As we heard earlier, you've got labor issues, you've got supply chain issues, You could have cement issues being tight. I don't think it dampens volume that much, but I don't see that easy at this point, so I would stick with our volume original growth until we see more.

Speaker 3

And I think like we said last quarter, I mean, if there is an easing, then we stand ready to benefit from that.

Speaker 6

Yes, understood. Thank you. Thank you.

Operator

Thank you. Our next Question will come from David MacGregor with Mongo Research.

Speaker 7

Yes. Good morning, everyone, and congratulations on the great quarter and Thank you. Thank you, Michelle. I guess I wanted to ask about your EBITDA guidance range, the $172,000,000 to $182,000,000 And that's not changing, but obviously a lot within that is changing. And just responding to Gerrick's question, you just talked about volume, I think, where you were in terms of beginning of your assumptions.

Speaker 7

Clearly, pricing is going to be a lot better. Can you just talk about how you're thinking about that cash cost inflation, that mid single digit number you gave us back in February?

Speaker 2

Yes. So I think that I think as I look at the year and just put some takes to the year after 1 quarter, And it's just the Q1. I would say that's probably upside or maybe to the high end of our pricing guidance, Maybe upside on volume, although we haven't seen it yet. I think we'll have challenges. We knew we're going to have challenges on diesel.

Speaker 2

We got bigger challenges there than we had anticipated. We knew we were going to have a challenge on liquid asphalt again. That has climbed more than we thought it would And we'll continue to climb. So we put all that together, I would tell you that I have good confidence in our guidance And we need to see a little bit more before I would be willing to adjust it.

Speaker 7

Okay. Thank you very much.

Speaker 2

Sure.

Operator

Thank you. Our next question comes from Bill Ng with Jefferies.

Speaker 7

Hey, guys. Congrats on a really strong quarter. Thank you. Tom and Suzanne, is there a good way to think about the midyear increase from And if demand remains pretty good, do you see this being more of the norm and appreciating that the Full impact is really more of a 2023 event. Can you get closer to like double digit pricing from an increase standpoint in the back half of this year?

Speaker 7

Sorry, a lot to unpack there.

Speaker 2

No, it's okay. I think that if you step back and just look at the aggregates business, one of the really attractive Attributes of Aggregates is its pricing and elasticity. And from Vulcan's perspective, its ability to compound unit margins over time. That's specifically why we're in the aggregates business. That's why we're leading that business.

Speaker 2

That's why 90% Our gross profit is in aggregate. Today, the environment for price growth is excellent, and it's really driven by the intersection of Inflation, current demand and visibility to growing demand. You've seen us sequentially grow price over the last 5 quarters, And I'm confident we'll continue that trend. So we started off at 6% or 7%, depending on how you call the price in the quarter. And I think each quarter, we'll continue to grow that as we progress forward.

Speaker 2

I would at this point, I would hope we would be at the higher end of that guidance At this point now, if you really want to be good at this business, you got to take that price to the bottom line, Which is why we worked so hard on those strategic disciplines and why it's not just about price, it's also about cost control and operating efficiencies. And so the combination of those 2 at this point, even in the face of what we faced with inflation, I think our troops are doing an excellent job Both in servicing our customers' earning price, but also operating in the most efficient manner possible under some pretty Tough circumstances.

Speaker 3

Yes, Ellen, I think you see that when you look at the guidance we called out at the beginning of the year, if you look at that cash gross profit And the guidance ranges that we've given call for that to go up high single digits year over year. And I'd say at any time that's a good performance to be able to drive that to that level, but taking into consideration all the Energy headwinds we've talked about and the inflation, despite the opportunity for some price increases, Yes, that's a performance I'd really be proud of.

Speaker 7

For sure. I mean, given all the inflation you saw, Improving 1Q is pretty promising. Appreciate the color.

Speaker 6

Yes. Thank you.

Operator

Thank you. Our next question will come from Michael Dudas with Vertical Research.

Speaker 8

Good morning, Mark.

Speaker 3

Good morning. Good morning.

Speaker 2

Tom, we could share

Speaker 8

your thoughts on How the U. S. Concrete integration is going relative to plan and what are the puts and takes you've seen over First several months of having under the Vulcan family. And is the New York kind of like the Northeast market? And You hear about a lot of civil, a lot of work coming through various agencies in New York State.

Speaker 8

Are you Seeing some of that for this year and going out into the next couple?

Speaker 2

Yes, we are. New York, I think 2 things are happening in New York. The public Demand is growing into some very big projects that are coming that are in the works. And now we're starting to see non res up there Starting to pop, so good news in that market. If you step back and look

Speaker 8

at U.

Speaker 2

S. Concrete, at this point, we're functioning as one business. The combined field teams operating as one team, I think as you heard me say last quarter, the timing is turning out to be excellent for two reasons. As you know, we talked about non residential demand, which is so important to Concrete is in growth mode and there's a lot of work coming in on across our footprint. And then pricing in all product lines is, as we talked about, is really jumping in 2022.

Speaker 2

So It sets us up really well for that acquisition to create even more value for our shareholders.

Speaker 7

Thanks, Ben. Sure.

Operator

Thank you. Our next question will come from Courtney Yakavonis with Morgan Stanley.

Speaker 9

Hi, good morning guys. Good morning. Just one clarification on the pricing comments. I know you've been talking a lot about the mid years, but Is your reiterated guidance include the upside from mid years at the high end? Or I think last quarter you characterized it as not including mid year in it.

Speaker 9

So just wanted to understand if that changed given the elevated Diesel and liquid asphalt headwind that you are now baking in. And then secondly, on the down You've given us some guidance for gross profit last quarter. Any change

Speaker 3

to how we should

Speaker 9

be thinking about those business lines?

Speaker 2

Yes. So the pricing I would point out would still be in that 6% to 8%, but probably on the high end of it. And you got to remember that Mid year price increases will hit some of it in May, some of it in June, some of it in July. But because of the lag in our business, You get some benefit in 2022, but it really sets you up that work most of that work is going to hit in 2023. So It's while you'll see some benefit and push us, I would say, to the high end of that range, the big benefit is going to hit in 'twenty three and that's great.

Speaker 2

I think from a downstream perspective, we would tell you it's the same. No change in guidance. Again, what we said was $300,000,000 to $325,000,000 cash gross profit in the downstream. While we've seen inflationary pressures in both Product, both concrete and asphalt, we're also seeing price, and I would stick with our guidance and continue to grow our unit margins and volume, particularly 2nd half loaded.

Speaker 9

Okay, great. Thank you.

Speaker 6

Thank you.

Operator

Thank you. Our next question comes from Michael Finnegar with Bank of America.

Speaker 7

Hey guys, thanks for taking my question. Just following up, I mean With the pricing not the high end and what you started, so when you exit, I mean, what kind of incremental should we be thinking about For next year, if you're looking at 10% to 12% pricing in 2023, should this Basically, the cash gross profit per ton, which is growing high single digit, how much is that accelerating should we be thinking about in 2023 and we'll see about those incrementals around that business.

Speaker 2

Yes. Well, too early to call pricing in 2023. Again, it's nice setup With midyear price increases, and I would always point you in aggregates to 6% incremental same store. 60. 60, yes.

Speaker 2

60% same store. And inflation puts pressure on that, Particularly spikes in diesel, but if you look at over the long term, that's where I would guide you that 16%.

Speaker 7

Okay. And can gross margin in asphalt you already missed, can that get back to 2020 levels Next year, I know you're assuming that there's improvement in the second half this year. But with next year, if we get some moderation or just stabilization On these price increases, can we see those margins come back or do you think there's something structural that keeps those margins in the downstream businesses from getting back to those levels?

Speaker 2

I will remind you that 2020 was special for asphalt because of the sharp fall in liquid prices. And so it was probably an outlier, Whereas 21 was also an outlier the other way with a spike in liquid, it's somewhere in between those 2. And I think we get back to more normalized. I don't think there's any structurally change in asphalt. I think you saw huge swings in liquid, which is abnormal, but we'll get back to more normalized margins in asphalt.

Speaker 2

And I think We're all in our path there with what you saw in the Q1.

Speaker 3

Yes. I want to just add here. I mean, it's Look, we had a really good Q1, and we're really excited about that. Our people worked Very hard to deliver that and we're very appreciative to them for their efforts. And I think we certainly saw a good performance in Price, we said we're confident in midyear price increases.

Speaker 3

And so while those are great to talk about, I just want to caution people, let's not forget that there's a bit of another side to that equation. We've seen Cost pressures, Tom talked about those in terms of energy and other inflation. When we reiterated our EBITDA guidance, we're really trying to take into effect that both of those items.

Operator

Thank you. Thank you. Our next question will come from Adam Thalhimer with Thompson Davis.

Speaker 2

Hey, good morning, guys. Just a quick one

Speaker 7

on residential. Tom, you said I think you said residential decelerating growth this year. What are you hearing from Some of your major homebuilding clients, maybe you can even kind of do a geographic walk for us. Thanks.

Speaker 2

Yes, the geographic walk is pretty easy. It's widespread. It's everywhere from residential and the housing market is just tight. I mean, in every market we operate in, Maybe the exception of Illinois, but every play and even that one's not still got some tightness to it, but you can't find houses. I think residential demand continues to operate at a very high level.

Speaker 2

You still have supply chain issues. Again, demand is very good. Obviously, we'll see growth in 2022. I just don't think it's The white hot level that we saw in 'twenty one in single family. Now multifamily permits and starts are up double digits, so It's really heating up.

Speaker 2

Overall, res continues both single family and multifamily operates at a very high level and continues to be good. And I don't see it slowing down. I think the growth rate maybe slowed a little bit, but it would have been tough to keep up at that The rate we saw in 2021.

Speaker 3

Still at high levels.

Speaker 2

Yes. So growth just not maybe not is Not at the level of growth that we saw in 2021, but really good news.

Speaker 7

Understood. Thanks.

Operator

Thank you. Our next question will come from Brent Thielman with D. A. Davidson.

Speaker 7

Hey, thank you. Good morning. Hey, Tom, there's been some discussion about delays in certain infrastructure projects just because the costs sort of advanced beyond the original And that's a time to go back and kind of revisit it. Is that something you've seen become more pervasive across your markets? And any sense If that had any effect at all in terms of slowing some of the good momentum, and I think that piece of your business should otherwise be I

Speaker 2

don't think I don't know that I've experienced the delays from inflation. I think when it comes to non highway infrastructure, We should see growth in 2022. Starts in the last 3 months were up 16%. New subdivision work helps this segment. And I think it's we're well positioned we are well positioned for some really big jobs that are coming in that sector And some everything from lot repairs to airports to wind, farm work and rail intermodal, I think it continues to grow in 2022 and 2023.

Speaker 6

Okay. Thank you. Thank you.

Operator

Thank you. Our last question will come from Mike Dahl with RBC Capital Markets.

Speaker 7

Hi. It's actually Chris calling on for Mike. Thanks for taking my question. Understand that you guys still feel comfortable with your Prior kind of volume outlook, but I just want to get a sense of the flexibility around that again in terms of Supply chain pressure is the limiting factor that is on your outlook. Have supply chains improved at all this quarter?

Speaker 7

And what's your outlook there for the remainder of the year?

Speaker 2

No, I would tell you the supply chain is still tight. I haven't seen any improvement. Labor is still tight. It doesn't impact you as much in Q1 because the volumes On at a high level, they are in Q2 and Q3 in the construction season. So you just you're not operating at a high enough level to dampen it, Which is what we're going to see in Q2, Q3.

Speaker 2

And it's it is supply chain from everything from windows To doors, to doorknobs, to switch gear, to plumbing, to pipe, it's just everywhere. And then the labor piece Not only dampens the construction companies, but also dampens, as I talked about, transportation, both rail, railroads are Operating below struggling, as everybody knows, to beat peak demand because they can't get crews. And then as I said, they were short on trucks In a peak shipping time, again, I don't think it does away with demand. I just think it Pushes it out and probably extends the cycle. So not all bad news, although we'd like to ship as much as we can every day.

Speaker 2

If we don't get to it in the next quarter, in the next quarter, we'll get to it next year. So not all bad news. Hopefully, that will ease up some as we progress the year. And again, if that happens, we'll take advantage of it, and we'll adjust and we'll communicate to you. But Right now, we just don't see it.

Speaker 7

Understood. Appreciate the color.

Speaker 2

Sure.

Operator

Thank you. Ladies and gentlemen, this does conclude today's question and answer portion. It is now my pleasure to turn the call back over to Mr. Tom Hill for any closing remarks.

Speaker 2

Thank you, operator. Listen, thank all of you for your interest in Vulcan Materials and your time today. We hope that you and your family stay safe, and we look forward to talking

Speaker 6

to you throughout Good quarter. Bye bye.

Speaker 3

Thanks, everyone.

Operator

Ladies and gentlemen, this does conclude today's program, and we thank you for your participation. You may disconnect at

Speaker 8

any time.

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Earnings Conference Call
Vulcan Materials Q1 2022
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