Vulcan Materials Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 16, 2024

There are 14 speakers on the call.

Operator

Good morning, and welcome to everyone to the Vulcan Materials Company 4th Quarter 2023 Earnings Call. My name is Carrie, and I will be your company's call coordinator today. Please be reminded that today's call is being recorded and will be available for replay later today at the company's website. All lines have been placed in a listen only mode. After the company's prepared remarks, there will be a question and answer session.

Operator

Now I would like to turn the call over to your host, Mr. Mark Warren, Vice President of Investor Relations for Vulcan Materials. Mr. Warren, you may begin. Mr.

Operator

Warren, you may begin your conference now. Please unmute your conference line, Mr. Warren. We are not able to hear you.

Speaker 1

Thank you, operator. Let me start over, operator, and we'll get started on the earnings call here. Thank you, operator. Good morning, everyone. With me today are Tom Hill, Chairman and CEO and Mary Andrews Carlisle, Senior Vice President and Chief Financial Officer.

Speaker 1

Today's call is accompanied by a press release and a supplemental presentation posted to our website, bulkamaterials.com. Please be reminded that today's discussion may include forward looking statements, which are subject to risks and uncertainties. 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 non GAAP financial measures are defined and reconciled in our earnings release, our supplemental presentation and other SEC filings. During the Q and A, we ask that you limit your participation to one question.

Speaker 1

This will allow us to accommodate as many as possible during our time we have available. And with that, I'll turn the call over to Tom.

Speaker 2

Thank you, Mark, and thanks all of you for your interest in Vulcan Materials Company. Our teams delivered an outstanding year in 2023 and achieved 2 significant milestones. We generated over $2,000,000,000 in adjusted EBITDA and we surpassed $9 of aggregate cash gross profit per ton. We remain focused on continued growth, consistent execution and value creation for our shareholders. Our 4th quarter results again demonstrated the benefits of that focus and our aggregates led business.

Speaker 2

We delivered a 27% year over year improvement in adjusted EBITDA. Margin expansion in each of our 3 primary product lines and another 90 basis points of sequential improvement in our trailing 12 months return on invested capital. In the Aggregate segment, continued pricing momentum coupled with moderating inflationary costs resulted in $9.92 of our cash gross profit per ton, a 21% improvement over the prior year. Our Vulcan way of selling and Vulcan way of operating disciplines continue to contribute to our commercial and operational results. The 4th quarter performance marked 19 of 20 quarters over the past 5 years of sequential improvement in trailing 12 month aggregate unit profitability.

Speaker 2

A clear example of our consistent execution and the durability of our business. Aggreg shipments in the 4th quarter increased 2% compared to a weak prior year quarter that was impacted by abnormally wet and cold weather. Aggregate's freight adjusted price improved 14% in the quarter, pushing the year to date average selling price to $19 per ton, a $2.60 per ton increase over the prior year. Freight adjusted unit cash cost of sales increased 7% compared to the prior year quarter. This marked a 3rd consecutive quarter of trailing 12 month deceleration in year over year cost.

Speaker 2

As we move into 2024, we are determined to continue controlling what we can control, most notably the expansion of our average unit profitability. Price momentum remains healthy and we expect freight adjusted aggregate price to grow from 10% to 12% for the full year. Inflationary cost pressures continue to moderate and we expect freight adjusted unit cash costs to increase mid single digit in 2024, resulting in an attractive mid teens improvement in cash gross profit per ton. On the demand side, we continue to expect a moderate decline in 2024 with aggregate shipments forecast land within a range of flat to down 4% for the full year. Much like 2023, we see varying dynamics across different end uses.

Speaker 2

So let me provide some commentary on each end use. I'll start with residential which has quickly entered recovery mode. Single family housing permits and starts return to growth in the second half of last year and momentum is accelerating across our footprint. We expect the strength in single family construction activity to be offset by weaker multifamily starts as they pull back from historically high levels. Overall, the underlying fundamentals for residential construction activity remain firmly in place.

Speaker 2

Volcan markets have low housing inventory levels and favorable demographics driving the need for additional housing. We continue to see distinct trends across various categories of private non residential construction, which we anticipate will result in a year over year decline in shipments to this end market. Moderating warehouse starts from recent historical high levels are expected to be the headwind to private non residential construction. Light commercial activity is expected to remain weak as uncertainty in the macro economy and higher interest rates persist. Manufacturing activity however remains a catalyst for non residential shipments and is concentrated in both in states.

Speaker 2

We continue to ship on numerous large manufacturing projects, which we offer customers a differentiated solution with our advantage footprint and logistics capabilities. On the public side, demand backdrop is developing as expected. We began seeing modest growth in the second half of 'twenty three and project accelerating demand into 2024. Trailing 12 month highway starts have now surpassed $100,000,000,000 20 24 state budgets are at record levels and strong upcoming lettings are anticipated in many Vulcan states. We continue to see growth in both highways and infrastructure activities for the next several years.

Speaker 2

Coupling our anticipated unit profitability growth with the demand backdrop I just described at midpoint of our guidance, we project delivering a 4th consecutive year of double digit growth in adjusted EBITDA. I'm very proud of our teams for what they have and will achieve. Now I'll turn the call over to Mary Andrews for some additional commentary on our 2023 performance and some more details around our 2024 outlook. Mary Andrews?

Speaker 3

Thanks, Tom, and good morning. Our strong operational and strategic execution in 2023 set us up well to continue our long track record of growth through disciplined capital allocation and consistent execution. Over the last 10 years, we increased our revenues at an annual growth rate of 11%, grew our adjusted EBITDA at an annual growth rate of 16%, strengthened our free cash flow generation at an annual growth rate of 23%, and improved our return on invested capital by 1,000 basis points. During 2023, we generated $1,500,000,000 of operating cash flow and received proceeds of over $700,000,000 for the sales of non core businesses and real estate. Having followed our long standing capital allocation priority of reinvesting in our franchise, investing in attractive growth opportunity and returning cash to shareholders through both dividends and share repurchases.

Speaker 3

We ended the year with over $900,000,000 of cash on hand and net debt to adjusted EBITDA leverage of 1.5 times. Our balance sheet is a source of strength and provides us considerable financial flexibility to continue to grow. We will remain disciplined in optimizing our overall portfolio of assets as evidenced by the Q4 disposition of our Texas Concrete business and sale of excess real estate in Northern Virginia. Our return on invested capital improved by 280 basis points over the last 12 months and we are focused on continued improvement. We also remain focused on continuing to drive value for the business through disciplined investments in SAG expenses to both support our organic growth initiatives and innovation through technology.

Speaker 3

SAG expenses as a percentage of revenue remained at 7% in 2023. Overall, we expanded our adjusted EBITDA margin by 3 60 basis points and project further expansion in 2024. Let me provide a few additional details around the 2024 guidance to supplement the demand, pricing and aggregates unit profitability outlook Tom highlighted earlier. We expect our downstream businesses to contribute approximately $275,000,000 in cash gross profit. Reflective of asphalt earnings consistent with 2023 contributing approximately 70% of the total and concrete earnings adjusted for the divestiture of our Texas concrete assets contributing approximately 30% of the total.

Speaker 3

We expect SAG expenses of between $550,000,000 $560,000,000 a modest low single digit increase year over year. We project depreciation, depletion, amortization and accretion expenses of approximately $610,000,000 interest expense of approximately $155,000,000 and an effective tax rate between 22% and 23%. In 2024, we plan to reinvest in our franchise through operating and maintenance and internal growth capital expenditures of between $625,000,000 $675,000,000 We expect another year of attractive growth in adjusted EBITDA and strong cash generation in 2024 despite a shift in construction demand environment. We forecast adjusted EBITDA of between $2,150,000,000 $2,300,000,000 for the full year. At the midpoint, this represents an 11% organic improvement over 2023.

Speaker 3

I'll now turn the call back over to Tom to provide a few closing remarks.

Speaker 2

Thank you, Mary Andrews. Vulcan's culture and people are fundamental to our success. Our employees work tirelessly each day to deliver value to our customers, our communities and shareholders. And their meaningful contributions were highlighted with 3 unsolicited recognitions last year. Bulk Materials was named 1 of the top 200 Best Companies to Work For by U.

Speaker 2

S. News and World Report. 1 of America's Most Responsible Companies, 2024 by Newsweek and was included in the American Opportunity Index, which measures how well large companies invest in their human talent to drive business performance and individual employee growth. I'm excited about what Vulcan Materials will achieve in 2024. We will remain focused on keeping our people safe, growing our business, capitalizing on our Vulcan way of selling and Vulcan way of operating disciplines, and continue to deliver value to our shareholders.

Speaker 2

Now Mary Andrews and I will be happy to take your questions.

Operator

Thank And we'll take our first question from the line of Trey Grooms with Stephens. Please go ahead.

Speaker 4

Good morning, Tom and Mary Andrews. Good morning, Tom. Thanks. Sure. I guess I wanted to touch on aggregates pricing here.

Speaker 4

Obviously, a very strong performance last year and it looks like you're looking for another year of double digit growth ahead here for pricing. So, Tom, what's driving the confidence there as we move into 'twenty four on the pricing outlook?

Speaker 2

Trey, I think we saw a fundamental change in our markets in 2022. We realized in March 2022 that we had runaway inflation. And so we took the lead in 2022 and pulled midyear prices forward to May 1 that year in every market. And then follow that up with we pulled all the 2023 price increases to January 1 where some of it had been April 1. So I think today the fundamentals for pricing is very, very good.

Speaker 2

And I think embedded in those fundamentals are 3 clear changes that we're seeing in our markets. 1, there's more discipline in announced price increases. 2, our average price increases are now January, not April 1. And third, our mid year price increase conversations are expected in all markets. So we're in a really good place in pricing.

Speaker 2

It's probably as good a place as we've been historically. And you couple that with the tools and disciplines of the bulk we're selling, I think our future looks very good.

Speaker 3

Yes, Trey. And I'll just add that headline pricing is one thing, but as we always like to remind people, the important thing is taking that price to the bottom line. And our 2023 cash gross profit per ton improved over 20% and expecting another year of attractive growth in 2020 4 in the mid teens range. I think this shows our execution has us making quick progress towards our $11 to $12 target at much lower tonnage. So the compounding nature of this business really showcases its durability and I think the continuous opportunity for strong organic growth.

Speaker 2

Yes, that all makes a lot

Speaker 4

of sense. Thank you a lot and I'll pass it on. That's super encouraging. Thank you.

Speaker 2

Thanks, Troy.

Operator

Our next question comes from the line of Stanley Elliott with Stifel. Please go ahead.

Speaker 5

Hey, good morning, everyone. Congratulations on the quarter and the outlook. Last question was a perfect lead in. I was curious if you guys could talk a little bit more about kind of what you're seeing on the cost side, maybe how does this mid single digit sort of cost inflation that you're expecting in the coming year come together? Any puts and takes there would be great.

Speaker 2

Thanks, Stanley. You saw the cost in the 4th quarter was up 7% and that's down from what we've been seeing as low double digit in prior quarters. I think it was like the 3rd quarter where it started to come down. So what we're seeing is the impact of inflation starting to dampen. As we said, we thought we'd see this year in mid single digit range.

Speaker 2

That said, I would expect this to go this way that cost is going to be highest year over year in Q1 and then tail off as we march through the year. That's due to two reasons. 1, easing of inflationary pressures. But 2, you're starting to see improving operating efficiencies from the bulk of operations. So you couple that together, I think we're starting to catch up on the kind of runaway cost we've seen for a couple of years and we'll I think we'll see improvement as we go through the year.

Speaker 5

Perfect. That's great. Thanks so much and best of luck.

Speaker 6

Thank you. Thanks.

Operator

And our next question comes from the line of Kathryn Thompson with Thompson Research Group. Please go ahead.

Speaker 7

Hi, thank you for taking my question today. Two part on the just more color on the volume guide bridge and what you're seeing from an end market perspective. I know you had it in prepared commentary, but maybe a little bit more color just in terms of growth rates by end market. And in previous calls, you were able to give some quantification of what mega projects are of your total expected sales. So just a clarification on the earlier question on pricing.

Speaker 7

Is does the pricing guidance, does that include the thought for mid year price increases or is it just carryover from previous pricing actions or is it a combination of both? Thank you.

Speaker 2

Yes, I'll take the mid year first. While there's not much in there for mid year price increases. Now we will or have announced mid year price increases and should start those conversations in April. So I'm not saying there's no it's not in the plan, but we'll for sure have the conversations. There are very little ups in the plan.

Speaker 2

On volume, as we talked about in November, we're predicting a modest decline in demand for 2024. We see strength on the public side and kind of a mixed bag of strengths and weaknesses on the private side and not go through those. Highways, steady growth wins the race and we'll continue to see that ramp up and we feel good about it. Lots of funding there and it's starting to be put to work. Non highway infrastructure we'll see solid growth.

Speaker 2

In non res, most sectors I think will be challenged. That'd be traditional non res, warehouses, distribution. And as you talked about that's partially offset in our footprint with the large industrial projects and I think we have some 10 of those and we can we talk about that later, but they're meaningful. While single family what we saw was challenged in 2023, it will be a strength for us in 2024. It's back into growth mode and recovering rapidly.

Speaker 2

At the same time, I think multifamily as everybody knows will be challenged. So as we said, we call volumes flat to negative 4. Now January, February as everybody knows we're both either a freeze out or a wash out or both. So we're seeing a slow start. That being said, it's still on January February.

Speaker 2

So I think we feel very good about the full year guidance. So probably a modest decline in volumes for 2024. That said, we should still see healthy double digit earnings growth.

Speaker 3

Yes. Catherine, I'll give you a couple of other things to think about regarding Q1 volume that may be helpful context. Last February was seasonally adjusted the strongest single month of shipments we had in 2023 and the strongest February and at least the last 10 years. And also this year simply given the way the calendar falls, we'll have approximately 10% fewer shipping days in March, which clearly we all know is the most important month of the quarter. Now the good news there is that's just timing.

Speaker 3

We pick those days back up in April. But from a Q1 perspective, it'll be impactful. So overall volumes will be challenged in the And I would expect that paired with the probable volume impacts to cost, I'd expect maybe mid to high single digit growth in cash gross profit per ton in the Q1 still with the very attractive mid teens improvement for the full year.

Speaker 7

Thank you so much.

Operator

And we'll take our next question from the line of Anthony Pettinari with Citi.

Speaker 5

Hi, good morning. Hi. I'm wondering if you could talk a little bit more about capital allocation. And we've seen a number of, I guess, very large deals in construction materials over the past few months. Just wondering if you could talk about potential attractiveness of M and A and what the pipeline might look like from your perspective in 2024?

Speaker 3

Yes, sure. Anthony, the balance sheet is really well positioned to fund all of our capital allocation priorities in 2024, particularly M and A growth. As we mentioned, we ended the year with over $900,000,000 of cash and net leverage of 1.5 times. So we'll think about capital allocation in 2024 very consistently as we have in the past that there is a very attractive M and A pipeline and that's what we're focused on in terms of being able to deploy the capacity that we have. And I'll let Tom, you want to make any more comments on the pipeline?

Speaker 2

Sure. Well, I think if I step back and look at it, our is a 3 pronged strategy to growth and it's very effective and has provided us with double digit revenues and EBITDA for the last 3 years and will begin in 2024. And those 3 are number 1, organic growth in the bulk we're selling, both we're operating, which you see us do. And we've been very consistent. We've been able to grow those unit margins consistently for 5 years.

Speaker 2

2nd is as you talked about is M and A. I think M and A while it was pretty quiet in 2023 with a lot of unknowns out there, I think it will be very busy in 2024. I would expect us to bring some deals to the finish line. And then I would supplementing that M and A is greenfield growth, which is picking up and we have a handful of those projects beginning this year. It will take a little bit of time to get through that and we get a little closer to it, we'll talk about some of those.

Speaker 2

But I feel really good about our growth strategy and M and A I think will be a much bigger part of it in 'twenty four than what we saw in 'twenty three.

Speaker 5

Okay, that's helpful. I'll turn it over. Thank you.

Operator

And our next question

Speaker 8

I wanted to ask in the Q4 your margin performance was really outstanding sequentially, full point ahead normal seasonality. So it looks like costs are already starting to come down for you folks. Can you just talk about what improved in the quarter? And is there an opportunity if some of those improvements continue for us to be at the lower end of the growth outlook that you outlined in the prepared remarks, Tom?

Speaker 2

Well, I think what you're seeing is, as I said earlier, 2 things. You're moderating inflationary pressures or the comparisons get a lot easier. And I think we'll continue to see that. But also if you look at our operating parameters and you remember we put the automation and the insights and the technology and the top 100 plants over last year, you're starting to see those things go to work, which helps us with throughput and throughput of critical sizes. So I think that as we march through 2024, I think our costs should improve sequentially as we go through the quarter.

Speaker 2

Now weather can have a hiccup on that or one or 2 big outages can have a hit on that, but as overall I would expect our cost to continue to improve over the next 4 or 5 quarters.

Speaker 6

Excellent. Thank you. Thank you.

Operator

And our next question comes from the line of Phil Ng with Jefferies. Please go ahead.

Speaker 2

Good morning, Phil.

Speaker 9

Hi, guys. Good morning. Congrats on a really strong quarter. So, Tim, last year, your pricing philosophy, conversation

Speaker 5

on

Speaker 9

mid years already. So just give a little bit of heard you correctly, you're at least having a conversation on mid years already. So just give a little color to how you're thinking about your approach and philosophy this year. And in a more moderating deflationary environment, do you think double digit pricing is kind of the new norm going forward? Thanks.

Speaker 2

Well, as I said, I think we're in a very, very good place from a pricing perspective based on the fundamentals that we're seeing and also the bulk of where selling those tools help us dramatically in bid work. I think that we went early as we have and I think that will continue with January 1, which helps obviously helps. We think we were appropriate in our January 1 prices. We've announced mid years in a few markets already. I think over the next probably the next beginning end of the quarter we'll probably announce it mid years for the other markets.

Speaker 2

And obviously you spend April, May and June having those conversations, so that you're ready for JulyAugust for midyear price increase. So I think that what those the fact that it's all in January and the fact that everybody expects to have conversations about midyear price increases, I think is very important for our markets.

Speaker 9

Okay. And then double digit pricing, is that like the new norm going forward?

Speaker 2

I feel good about pricing.

Speaker 6

Okay. All

Speaker 9

right. Appreciate the color. Thank you.

Speaker 6

You bet.

Operator

And we'll take our next call or our next question from the line of Michael Feniger with Bank of America. Please go ahead.

Speaker 10

Yes. Thank you for taking my questions. Tom, to follow-up on just the pricing, can you just the cadence of pricing for this year? You gave great color on the cadence of how you think cost plays out. Just on pricing, do you think by the end of the year, are you still kind of in that 10% to 12% range or are you below it because you start strong?

Speaker 10

Just kind of how we should think about that.

Speaker 2

No, I think the pricing will be pretty consistent through the year in that 10% to 12% range. I don't see a big changes in that. Now you also got to in the Q3 you got to see what happens with mid years And we'll have that conversation after we get past July 1 to give you a lot more clarity because we'll just have a clear picture of it. And every market is going to be different. They always are.

Speaker 2

But I would call it pretty consistent low double digit pricing throughout the year.

Speaker 10

Great. And Tom just to follow-up. You gave great color on kind of the volumes, your shipment growth with the different segments. Just when we think about say fast forward to 2025 and obviously we'll see how 2024 plays out. But if you in a similar range in 2025 with the volume kind of guidance and it's underpinned by growth in infrastructure, can you just help us understand how that informs pricing relative to maybe if it's being driven by residential or private construction market, how having it underpinned by infrastructure, how that kind of maybe shifts the pricing conversations?

Speaker 2

Thanks. I'd love to tell you that my philosophy is all demand growth are good things. I don't care where it comes from. I like it. But the pricing between public and private, there's really not a big difference there.

Speaker 2

I think the one thing I would call out, the good thing about public demand is it's very visible and it's for sure. I mean on the private side people could hold projects or delay them, but public growth is going to go to work. It's not a matter of if, it's when. And so that visibility to going demand on the public side is really good for pricing. But a ton of concrete rock for public or private is probably the same number.

Speaker 2

The difference is the public people know it's there, they know it's coming and they can take risk on value and price.

Operator

And we'll take our next question from the line of Mike Dahl with RBC Capital Markets. Please go ahead.

Speaker 6

Hi, thanks for taking my question. Just back on

Speaker 11

kind of the M and A and capital allocation, you raised pretty healthy funds from the RMC sale in Texas. It seems like that was the last big chunk aside from maybe California of the legacy U. S. Concrete assets. So I just wanted to have you elaborate a little more on kind of rationale behind making the move now.

Speaker 11

And then when you as you think about reallocation, you mentioned M and A, there's organic investments. I mean, you obviously now have pretty healthy capital position. So relative, I think this was asked before, but ag specific pipeline and relative size of the deals that you think are potentially out there that can cross the finish line this year? Anything you can provide there?

Speaker 2

I would look at the M and A as more traditional bolt on. I think which is very much in our footprint, so have highest returns, deal sizes, everything from small to mid range, maybe a little bit some a little bigger than mid range. But I think that as far as the timing is concerned, I think 23% was abnormally, I guess quiet and it was because there was so much insecurity about are we going to fall off a cliff, is there going to be a recession. And so when you have all those unknowns, people tend to slow down both buyers and sellers. And I think the fact you got that behind you, you'll see some catch up in 2024.

Speaker 11

And rationale for exiting the ready mix assets?

Speaker 2

Well, I think if you look at our assets, we look at our business as collection of assets. And if there were more to someone besides us and it's not strategic then there ought to be another owner and we'll take that money and apply it back in the aggregates business. And so this is no different than what you've seen us do and we exit businesses at times and we exit different product lines at times and so this one made sense strategically for us to sell the Texas Trade Mix business.

Speaker 6

Thank you.

Operator

And we'll take our next question from the line of Keith Hughes with Truist. Please go ahead.

Speaker 6

Just to shift over to asphalt and concrete, you gave guidance, you've done a good bit in cash, cash gross profit versus prior year. Can you talk a little bit more in detail what's going on and what you expect in 2024?

Speaker 2

Yeah, I think the asphalt performance in 13% gross margin was a really good performance. Now if you look back about 3 years ago everybody was asking me why I don't sell that asphalt business and now everybody wants me to buy more. So that's just the asphalt business, but 13% is a good number. So it's performing well. We see flat at very high levels for 2024 and I would call that hot mix price increases offsetting increasing liquid cost and increasing aggregate cost.

Speaker 2

So asphalt in a very good place and we like our story there and I think that those teams are performing well. Ready mix, I'd call it virtually flat with the private side some challenged markets. This that affects the ready mix business. But it's not a bad performance based on some of the private challenges we had. But remember ready mix is 2% of our EBITDA.

Speaker 2

So I think under circumstances both businesses are doing fine.

Speaker 3

Yes. And just in terms of ready mix, Keith, just to maybe a couple of things helpful to think about the impact of the divestiture. Our expectations in 2024 for a modest decline in same store volumes which were about 4,000,000 cubic yards in 2023. And we expect kind of consistent gross margin performance. Thinking longer term about that, I think that there are low single I mean our low double digit expectations are still what we're pushing for.

Speaker 3

That's going to take time and better volumes to get there. But one thing about 2024 where we expect relatively flat gross margins with the weight of the non cash fixed cost on the volume challenges that Tom mentioned really driven by private non res. We do expect to see some expansion in cash gross profit margins and also improved unit profitability given the markets where we've retained our concrete businesses.

Speaker 6

Okay. Thank you. Thank you.

Operator

And we'll take our next question from the line of Garik Shmois with Loop Capital. Please go ahead.

Speaker 6

Hi, thanks. Congrats on the nice results. I wanted to follow-up on the cost side. I know it's a little bit more favorable than the preliminary outlook you offered on the 3Q call and you spoke to some broad based deflation getting better as you look through the year, operational improvements helping as well. Anything in particular though that's changed or has gotten better since the last call that you could point to on the cost side?

Speaker 6

That would be helpful.

Speaker 2

Yes. I think what you're seeing there is the Vulcan with operating inefficiencies in those plants and that's embedded in that is technology. It is training, which is so important from a safety perspective, also from a plant availability and inspection of that equipment. And then our throughput you're seeing our throughputs of critical sizes starting to improve. So it's a combination of easing inflationary pressures, comps kind of level out, but also those operating efficiencies are really, really important to making sure that we our job is to beat inflation not just live with it.

Speaker 6

Got it. Thanks a lot. Thank you.

Operator

And we'll take our next question from the line of Angel Castillo with Morgan Stanley. Please go ahead.

Speaker 12

Hi, good morning. Thanks for taking my question and congrats on a solid quarter. May Anders, I thought I heard you say, I guess, given the kind of capital that you have, you still have the ability to kind of do organic, inorganic and return capital to shareholders. So just wanted to expand on that a little bit. It sounds like on the M and A front, you're looking at more bolt ons.

Speaker 12

And if I did the math correctly, just moving to the midpoint of your kind of leverage allows you to have at least another kind of $2,000,000,000 of kind of capital that you can deploy, which seems plenty for both M and A as well as other way to kind of returning cash to shareholders. So maybe just could you talk about buyback intentions for the year and then also willingness to potentially levering up above your range, historical range for the right opportunities and returning cash to shareholders?

Speaker 3

Yes, sure. I mean, as you referenced, I think we're really well positioned to be able to fund all of our capital allocation priorities in 2024. And as it relates to returning cash to shareholders, doing that via repurchases has long been a part of our capital allocation priorities. I think appropriately following reinvesting in the business, growing the business through both M and A and Greenfields and returning cash through our sustainable dividends. But with the attractive cash generation and you saw with the slower M and A in 2023, we did repurchase $200,000,000 of shares.

Speaker 3

And we would enter 2024 thinking about making those capital allocation decisions in the same kind of disciplined manner. And in terms of leverage, I think for us regardless of where we are in the target against kind of target leverage range, what's important is being disciplined about doing the right deals and the deals that are going to have attractive returns for us. And we certainly have over time levered up even outside the top end of that range with plans to always quickly get back within that 2 to 2 point 5 times that we tend to target.

Speaker 12

Very helpful. Thank you.

Speaker 6

Thank you.

Operator

And we'll take our next question from the line of Michael Dudas with Vertical Research. Please go ahead.

Speaker 13

Good morning, Mary Andrews, Mark, Tom.

Speaker 2

Good morning.

Speaker 13

Tom, curious about your thoughts. You indicated a positive trend for civil public infrastructure and records the Department of Transportation budgets. How are they prepared and ready to pull through when you see some of the budget numbers in your important states? I'm also curious on how things in California, because you hear certainly Caltrans is above the budget there, but certainly there could be some other issues there. So just a little bit of sense of on the public side in your important states, how you see the opportunities for bidding and project work going forward?

Speaker 2

Yes, I think they're still challenged, but they are because they got so much money, it's a lot for them to digest, but they are growing into it. And as I said, we'll see solid growth in highways in 'twenty four. We saw low single digit in 'twenty three. We'd expect mid single digit in 2024 kind of as expected. But also we've got to remember that IIJ passed in November of 2021.

Speaker 2

So we're just past that 2 year mark and voice aid takes 2 years. As we've said it will be a ramp up, not a step change in this. I think it will be ramp up over time. And I think that the DOTs are growing into their capital. They've added resources and the lettings continue to be healthy.

Speaker 2

There's a lot of money out there. But I would what I would see here I think is kind of slow and steady wins the race and we'll see improving growth in 'twenty four kind of mid single digit. I think that will go up in 'twenty five again. I think that demand will go up in 'twenty six and I think it will go up in 'twenty seven. So that slow and steady improvement in public isn't bad, particularly when you're compounding unit margins like we are.

Speaker 2

As far as Caltrans, I think they'll be fine. There's always some rumblings numerous times in Caltrans and funding and people trying to grab it. But remember it is firewall, it has to be used for infrastructure. Excellent. Thank you, Tom.

Speaker 2

Thank you.

Operator

And we'll take our last question from the line of Brent Thielman with D. A. Davidson. Please go ahead.

Speaker 4

Hey, thanks, Tom, Larry. I guess a clarification question on the ready mix business, a ton of refinement of that over the last 12 months. Can you sort of level set us on what that business is now sized to do? I think you did 7,500,000 cubic yards in '23. Where do we go from here?

Speaker 4

And I guess my other question, since I'm the last is, I think we've all been sort of worried about the implications of some of this light non residential activity, sort of more interest rate sensitive sectors hitting your business. Could you talk about to what degree that's actually had an impact? Has it been more resilient than you would have expected?

Speaker 2

I'll take that one first and then I'll let Mary Andrews take the ready mix. I think it's been fairly weak for us. Obviously offices has been weak, but last year the light side was pretty weak. So kind of more of the same on that still challenged by interest rates. And my I would tell you that my view of that is that the more traditional ex office building, more traditional light non residential construction usually follows creation of subdivisions.

Speaker 2

And so we're back in growth modes in those subdivisions. So I would expect us sometime maybe 2025, middle of 2025 that starts to impact that sector of the light res. So it probably has a brighter future than what we've seen in 'twenty three and 'twenty four, but kind of what I described 'twenty four is more the same than 'twenty three.

Speaker 3

Yeah. And in terms of ready mix, we completed the divestiture of the Texas Concrete in mid November and had disclosed that was about 4,000,000 cubic yards annually. So that puts us in 2023 at about 4,000,000 cubic yards on a same store basis. We would expect those volumes to decline modestly in our 2024 outlook of those cash gross profit dollars being 30% of that $2.75 kind of as I said consistent from a gross margin percentage standpoint with 2023 bit of expansion from a cash gross profit percentage standpoint and in that business, we're focused on continuing to improve that margin performance over time for the retained assets that we have, which we believe are in very attractive and well structured ready mix markets.

Speaker 6

Okay. Thank you. Thank you.

Operator

And we have no further questions at this time. I'll turn the call back over to Tom for any closing remarks.

Speaker 2

Thank you for your time this morning. We appreciate your interest in Vulcan Materials Company. We look forward to talking to you throughout the quarter. Please keep yourselves and your family safe. Thank you.

Operator

This concludes today's conference. Thank you for your participation and you may now disconnect.

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Earnings Conference Call
Vulcan Materials Q4 2023
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