Hard Rock Mining Easing Up
The recession’s been a hard road for Vulcan Materials, says CEO Tom Hill, but things are looking up.
CEO Tom Hill says Vulcan Materials has “the best position in the fastest growing markets across the country” as deteriorating highways pressure demand.
Tom Hill, in July, was named president and CEO of Vulcan Materials Inc., the second largest nonbank public company in Alabama, with revenues of $2.628 billion in 2013.
Vulcan is in the rock business — the country’s largest supplier of aggregate for road building. Since the 2008 recession, it’s not been a great business to be in.
For Vulcan, the recession’s timing was especially troublesome, coming one year after a $4.6 billion acquisition of major competitor Florida Rock Industries Inc., tipping a big load of debt onto the balance sheets at the wrong time. That helped make the company vulnerable to a hostile takeover bid by the U.S.’s number two aggregate producer, Martin Marietta Materials, in 2012 — a takeover Vulcan successfully fought off.
Vulcan’s financial performance is coming out of a long drought. After four straight quarters of losses, Vulcan returned to profits in the third quarter of 2012. Aggregate production has risen, year-to-year, for five straight quarters.
The company also has returned to its long history of strategic acquisition of rock quarries across the country, recently picking up a key Martin Marietta quarry in Oklahoma with distribution yards in Dallas. Justice Department anti-trust officials required Martin Marietta to shed the quarry when it acquired a concrete resource in Texas.
Hill takes over from Donald James, who stepped down, at age 65, after 18 years as CEO. James is now executive chairman.
Hill has been with Vulcan for more than 24 years. He was chief operating officer when he was named CEO. Before that he was senior vice president of Vulcan’s South Region. He also has served as president of the Southwest Division and the Florida Rock Division.
Demand in the highway segment is up 3 percent versus the prior year. From the longer-term view, the highway outlook, at worst, is stable. At best, we’ll see a new Highway Bill in 2015 that will have more stable funding and better funding for highways. Twenty-five percent of our demand comes out of highway spending. We have not seen a highway spending bill with different funding since 1993. I think we are starting to see more of a political will to get a new bill with more stable and better funding for highways.
In the past, I don’t think people wanted to increase the funding and the user fee on gasoline, but what we’re seeing now is the urgent need to improve our infrastructure, which is in dire need of repair and starting to affect business.
I’m not sure I can grade the national infrastructure system, but the American Society of Civil Engineers gave it a “D.”
We look at market demands, and, like everyone, our crystal ball regarding the great recession was not any better than anybody else’s. The recession has been deeper and longer than anybody expected. The last few years have not been a lot of fun. But our balance sheet is in better shape and profitability has returned and we’re coming out of it a much leaner and tougher company.
Our volumes are a little better than half of what they were before the recession, but what is impressive is that our unit margins are better than they have ever been.
We had a series of actions that improved our credit metrics. We retired half a billion in debt and established an available maturity profile. We’ve improved our EBIT. I think that we worked very hard on cost control and we do a very good job with it. Volumes have come back, and there is price improvement and a lot of operating leverage, and, as volumes come back, we will return a majority of the debt to the bottom line.
One of the things in the rock business is that we can be operational with half of our people. We have the equipment and capability to increase volumes very quickly. It’s just a matter of increasing hours. Ours is more of a mechanical process versus a chemical process, and we can ramp up or down efficiently.
For the first time in a number of quarters we’ve seen improvement in demand in all of the market segments. Geographically, we’ve seen improvement in demand in the key markets of Florida, Georgia, Texas and California, and in the vast majority of markets. One of the real strengths is Vulcan’s geographic profile. We have the best position in the fastest growing markets across the country. Dallas is very strong, and Atlanta, Charlotte, Nashville, just to name a few, and Washington, D.C. As the market comes back, because of where we are, our volumes will grow faster than the market will grow.
If you look at the Florida Rock acquisition from the short term, that deal was problematic, but, for the long-term position, it’s a very good market. Florida is one of the three fastest growing markets in the country. In the history of the company, we’ve done a lot of acquisitions and greenfield quarries, and it’s what has made us strong. One of the examples is our long-time investment in our operations in Mexico, one of the most strategic in our company, because of the transportation advantages, but it took time to mature.
Martin Marietta did not gain an advantage on us with their acquisition in Texas. If you watch what happened, we exited the ready-mixed cement business in Florida and they entered the ready-mixed cement business in Texas. We believe our company is 90 percent aggregates, and that is more profitable than the ready-mixed cement business. Along those lines, we picked up a very strategic asset in Texas. It also fits in with our decision to increase our presence in east and south Texas. We’re very pleased.
Yes, the permitting of new quarries has gotten a lot more difficult over the years. But that just continues to make them more valuable. One of the things we’re very focused on is being a part of our communities, being part of those cities and towns. We follow the letter of the law, but there is also the right way to do it.
We learned some lessons in this recession, and our job is to remember those lessons — to be lean and efficient and prudent with our capital, and that is key in this industry.
Chris McFadyen is the editorial director of Business Alabama.