Earnings Call: Q3 2020

Nov 5, 2020

Good morning, ladies and gentlemen, and welcome to the Vulcan Materials Company Third Quarter Earnings Conference Call. My name is Maria, and I will be your conference call coordinator today. During the Q and A portion of this call, we ask that you please limit your participation to 1 question plus a follow-up. Now, I will turn the call over to your host, Mr. Mark Warren, Vice President of Investor Relations for Vulcan Materials. Mr. Warren, you may begin. Thank you, operator. 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, bulkamaterialsdot com. A recording of this call will be available for replay later today at our website. Please be reminded that comments regarding the company's results and projections 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 any non GAAP financial measures and other information are available in both our earnings release and at the end of our supplemental presentation. As the operator indicated, please limit your Q and A participation to 1 question plus a follow-up. This will help maximize participation during our time together. With that, I will now turn the call over to Tom. Thank you, Mark, and thanks to everyone for joining the call today. We appreciate your interest in Vulcan Materials Company. We hope you and your families are well and will continue to be safe and healthy. I want to begin today's call by thanking our employees for their ongoing flexibility in the face of uncertainty and change and their commitment to our customers and their dedication to Vulcan and to each other. Despite the difficulties caused by the pandemic, our company continues to thrive as a direct result of their efforts. Turning now to the 3rd quarter. Our financial results can be summed up very simply. Our teams delivered another quarter of aggregate unit margin expansion through improved pricing, disciplined operating performances and solid execution. Our aggregate cash gross profit per ton increased by 5% despite an 8% volume decline. Volume was obviously impacted by the pandemic, but also by severe wet weather across the Atlantic Coast, the Southeast and Texas, and wildfires on the West Coast. We expanded our unit margins by remaining focused on what we could control and by making sure that we were well positioned to respond to a rapidly changing environment. We've talked about our 4 strategic disciplines for a number of quarters now, and we believe that they have been a critical part of our success this year. Our commercial excellence and our operational disciplines have been particularly helpful. On the commercial side, our aggregate mix adjusted sales price increased by approximately 3% in the quarter. On a year to date basis, mix adjusted pricing increased by 3.5% despite a 4% decline in volume. Operationally, year over year, our cash unit cost of sales was flat both for the quarter year to date. Cost control, operating efficiencies and a tailwind from diesel mitigated the impact of lower aggregate volume. Our 4 strategic disciplines continue to drive improvement in our unit margins. This is evidenced by our 7% year to date improvement in cash gross profit per ton. Suzanne will review the quarter and year to date results in more detail shortly, but first, I want to address the demand trends that we're seeing. Certain leading indicators are showing signs of improvement, both sequentially and year over year. However, the pace of recovery and the timing of shipments is not certain. Residential construction continues to be the most resilient of our market segments. Starts and permits have rebounded, particularly in our footprint. Single family housing is leading the way, and we are especially well positioned in our markets to take advantage of this trend. Private nonresidential construction continues to be the most variable in use. Following the drop in the spring, construction starts have remained weak as compared to last year. However, we are encouraged by improvement in certain leading indicators, which could point to future growth. Dodge data states that warehouses and distribution centers, now the largest non residential starts category, continue to see growth. As a leading supplier in the majority of our markets, we are well positioned to serve all types of nonresidential business, regardless of the category. According to Dodge, Vulcan Served States are expected to account for approximately 90 percent of the growth in warehouses and distribution centers over the next 2 years. In addition, non residential demand for commercial buildings like gas stations and grocery stores has historically followed the build out of new housing subdivisions. We could expect this type of traditional non residential construction to follow the growth we're experiencing in residential demand. As we think about these current trends, it's important to keep in mind that unlike the Great Recession of 2,008, nonresidential construction going into the pandemic was not overbuilt. The uncertainty surrounding the pandemic has weighed more heavily on this segment. With respect to public highway construction, most Vulcan served states have flat to increasing DOT budgets for their fiscal year 2021 versus 2020. This, coupled with a 1 year extension of the FAST Act, bodes well for highway demand. Now that state DOTs have greater clarity around highway revenues, lettings are returning to higher pre COVID levels and are projected to continue to be consistent with state DOT budgets in 2021. Timing of shipments to highway projects may start a little slow early in 2021 due to state's conservative approaches to lettings earlier this year, but will pick up as the year progresses. As a more recent data point, aggregate shipments in the month of October were down 5% due to 1 less shipping day. While 1 month doesn't constitute a trend, we were still pleased with the outcome and attribute this performance to better weather and pent up demand from the Q3. As we consider the remainder of 2020, we now believe we have sufficient near term visibility to provide guidance for the full year. We expect that our 2020 adjusted EBITDA will range between 1.285 $1,000,000,000 to $1,315,000,000 This guided range is predicated on no major changes in COVID-nineteen shelter in place restrictions. It also assumes our normal weather pattern. With respect to 2021, we are in the midst of our budget season and still have work to do. Visibility continues to improve. Therefore, we expect to be able to provide 2021 guidance in February. The key point to remember here is, while the pandemic has created uncertainty, our view of the underlying fundamentals of our business remains unchanged. Our aggregates focused business is sound, resilient and adaptable to changing market conditions. We have a history of good operational execution, and this increases our confidence in our ability to compound unit margins. We're in the right geographies. Our balance sheet and liquidity position are great source of strength and flexibility and will support our operational initiatives and our growth plans. Going forward, we will remain focused on the things that we control, keeping our employees safe and healthy, taking good care of our customers and ensuring strong execution on our operating disciplines. We have confidence in our future success. And now I'll hand the call over to Suzanne for additional comments. Suzanne? Thanks, Tom. I'll cover a few financial highlights and then comment briefly on our balance sheet and liquidity position. Our adjusted EBITDA for the Q3 was $403,000,000 Adjusted EBITDA margins increased by 2 10 basis points as compared to the prior year, despite an 8% decline in total revenues. Significant contributors to our quarterly EBITDA margin improvement were: 1st, the aggregates unit margin expansion that Tom discussed earlier and second, a 6% or $5,000,000 year over year reduction in SAG expense. These metrics have improved on a year to date as well. Our aggregates cash gross profit per ton increased by 7% to $7.15 while aggregates volume decreased by 4%. SAG expense for the 9 months declined by 5% or $14,000,000 due to the execution of cost reduction initiatives and general cost control. Now, I'd like to provide a little color on our quarterly segment performance. Starting with aggregates, volumes declined in most of our markets, reflecting weaker demand resulting from the pandemic. In addition, the key markets that Tom called out were particularly affected by severe weather as we experienced a record setting number of named storms. California shipments were impacted by wildfires and resulting power outages, which interrupted the supply of cement or ready mix concrete production. This limited construction activity. Aggregate sales price growth in the quarter of nearly 3% on a mix adjusted basis was widespread across our footprint, reflecting a positive pricing environment. The combination of sales price growth and good cost control more than offset reduced volume, and as a result, virtually all of our markets improved their respective unit profitability. Moving to our non aggregate segments, asphalt's gross profit improved by $3,000,000 as compared to last year's quarter. A 13 percent volume decline was more than offset by improved pricing and lower liquid asphalt costs. The Concrete segment's gross profit was $12,000,000 a reduction of $3,000,000 versus the prior year. Shipments decreased by 11% due to wet weather, particularly in Virginia, our largest concrete market. California's volume was also less than last year's Q3 due to the factors previously mentioned. On a year over year basis, we were particularly pleased with our improving return on investment profile. For the trailing 12 months ended September 30, ROI was 14.2% and consistent with past practice, this was calculated on an adjusted EBITDA basis. Turning now to the balance sheet and liquidity, we took further steps this quarter to enhance our position. We renewed our revolving credit facility for another 5 years and took the opportunity to increase its size from $750,000,000 to $1,000,000,000 All other terms were substantially similar to those contained in the previous facility. At the end of the quarter, our leverage ratio was 1.7 times on a net debt to EBITDA basis, reflecting $1,100,000,000 of cash on hand. Approximately $500,000,000 of this cash on hand will be used to repay a debt maturity coming due in March 2021. And at September 30, our available liquidity was a very healthy $2,000,000,000 We also generated a robust $1,100,000,000 of operating cash flow in the trailing 12 month period. That represents a 23% increase as compared to the previous period. We have been and will continue to be disciplined about how we invest our cash and therefore our capital allocation priorities are unchanged. Capital expenditures for the 9 months totaled $229,000,000 and we now expect to spend between $300,000,000 $350,000,000 this year, a modest increase from our prior guidance of $275,000,000 to $325,000,000 I'll turn the call back over to Tom now for closing comments. Thanks, Suzanne. Before we go to Q and A, I want to thank the employees of Vulcan Materials Company for taking care of our customers and each other, for making marked progress toward our longer term goal of $9 cash gross profit per ton, and for driving our improved results through our 4 strategic disciplines. And now we'll be happy to take your questions. Thank you. The floor is now open for Our first question comes from the line of Kathryn Thompson of Thompson Research. Good morning. Good morning. Hey, good morning. This is actually Brian Biros on for Kathryn. Hey, Brian. Thanks for taking my questions today. Hey, I wanted to start, I guess, really just with the election results or what it might be the election results. And I guess really what does the outcome mean for Vulcan in terms of outlook and real demand? And does one outcome in the election have a greater relative impact versus the other in terms of outlook and demand for future projects? Yes. Well, looking back, I think I've seen 9 elections in my time in this industry. Kind of the one thing that is consistent is that highway funding is the issue that usually wins regardless of the election outcome. So I think that our next Congress will begin work on a new highway bill in 2021. And as it looks today that the balance of power of both the House and the Senate will probably pretty much remain unchanged. And I would think this probably plays in our favor as this House and Senate has already done substantial work on the next highway bill. So the fact that the balance of power doesn't change means that we start with a really good foundation with drafts of bills that are already in place and a lot of work that's been done on those bills. So it may help us actually get a new bill faster because you don't have to go back and completely start from scratch. And remember that the with the balance of power as it is, the Congress that's in place right now passed the extension of the FAST Act with bipartisan support with the intent to come back in 2021 with a new better funded highway bill. So I think there's probably 2 likely outcomes, both of which should occur in 2021. 1 is early in 2021, our new Congress probably passes a stimulus package, which includes added infrastructure funding. And then 2, and really importantly, Congress passes a new better highway funded a new better funded highway bill in late 2021. So regardless, we believe we'll see improved federal funding for highways next year. Along those lines, most of our key states have now settled their budgets and understand what their spend profile is going to look like from 2021. The vast majority of those have increased funding or few are flat. I think the only one that we would see down somewhat would be probably Kentucky, which is not one of our top 10 states. So I think overall, as we look at funding going into 'twenty one and beyond, we should see it grow in 'twenty one based on the state's DOTs budgets and outlooks. And then past that, we should see improved funding from stimulus and also from a new highway bill. Got it. I guess it's a good segue to my next question. So you answered some of it. But I guess it's really with the COVID impact in 2020 and all the stuff you just talked about. What does that mean, I guess, with visibility for infrastructure funding and future lettings? Really, our understanding is the outlook is, as you kind of said, pretty bright for a lot of the states, California, Georgia, Illinois, kind of going into even 2022. I guess, could you maybe give some color on those states specifically and maybe of the other ones, Texas, Virginia, Florida? Yes. So I think as we look at specifically State Pacific, Georgia is budgeted up slightly in 2021 and then 'twenty two will be an exciting year because they are planning on 6 major projects in lettings in 2022. Tennessee, '21 will be flat with 'twenty, but that's up 10% in both years of 'nineteen. Illinois is budgeting up $1,000,000,000 annually starting next year, that's for 6 years. Now 2021, they plan on preparing that with most of that spending on engineering to prepare for the next 5 or 6 years, which I applaud them for doing that, so they don't have the bottlenecks that we've seen in other states trying to put that money to work. Texas is up substantially from 2020 to 2021. And then Caltrans has announced that the keys to related to highway construction and maintenance was to drive the aggregate demand, asphalt and aggregate demand will be up 6%. So I think a bright future I would as I said in my opening comments, remember these DOT slowed lettings in July, August September till they got confidence in revenues. Now they're starting to pick lettings back up. So you may have a little bit of catch up tail end of this year and beginning of next year. But overall, I think we have a we can see a path to demand growth in the highway segment. Our next question comes from the line of Trey Grooms of Stephens. Trey, you may be muted. Yes. Thank you. Sorry about that. We're all used to it. I know. Thank you and good morning. Good morning. So on the margin front, you guys are doing a great job in a very challenging environment. Aggregates cash gross profit per ton being up 5%, even with volume being down 8%. Percent and of course you had the wet weather and forest fires. I mean it's pretty impressive. But as we look at it, you've got diesel was your friend, but you guys have been focusing on cost control and operational efficiencies for some time. And Suzanne, I appreciate some of the color there. But could you walk us through some of the successes you're having on that front outside of diesel? And maybe the sustainability there as well as that improvement in SAG expenses, the thoughts on SAG leverage going forward would be helpful. Sure. And thank you for recognizing that. I think our teams have done an excellent job in the Q3, but also this year. And we saw really solid margin growth in both. And in spite of as you said, in spite of volume challenges and cash gross profit per ton has grown from $6.71 last year to $7.15 this year. So that's a year to date we've turned in 7% unit margin improvement in the face of volumes going down 4%. And to me, it's proof that our people are really hard at work implementing our 4 strategic disciplines and that that's working. So we've seen solid pricing gains earned by our sales folks and our logistics teams. You couple that with a disciplined operating performance by our quarry and procurement teams and they're really improving those unit metrics that drive cost. We do have the tailwind of diesel, but that doesn't make up for what they've done, particularly in the face of some real challenges. With that wetter weather, it's just tough to crush rock. And this all of this continues to create value for our shareholders. And this is really important to remember that as demand returns, we'll be able to compound these gains in unit margins over time. So we're going to put it in our pocket and not let it go. I think that this year we've shown marked progress towards our longer term goal of $9 cash gross profit per ton, another trailing 12 months worth $7.15 So this points to we've got the right strategy and I think our people have done a good job executing it and a good job executing it in tough times. So my hats off to them and I thank them. Yes. And I'll just add to that, Trey. If you go back to our Investor Day last year, we had a slide that showed what our cash gross profit had done since 2013, which we kind of mark as when we reached an inflection point and returned to growth after the Great Recession. And if you look at that compound annual growth rate in cash gross profit per ton, over time, it's up about 7%. And we were particularly pleased with that performance, but really pleased with the fact that, as we've talked about, we've been able to move that forward in 3 of the quarters this year. And I think it's also important to note, diesel was a tailwind, it helped. But even if you strip the diesel tailwind out of that impact, both in the Q2 and in the Q3, we still moved cash gross profit per ton forward. And I think that's really, as Tom said, a testament to the folks in the field who are working very hard. It's not an easy job to keep your cash cost flat year over year. So again, we appreciate everything that they've done. I think the other thing that is pleasing about that march forward is that it's we're kind of getting ever closer quarter by quarter to the $9 per ton cash gross profit goal that we also talked about. And to just illustrate that progression for people who want to be reminded of that or are new on the call here, we've included a slide in the slide pack that accompanied the press release that actually shows that progression over time and where we stand now in relation to that longer term goal. You also asked about SAG expense. And again, we had another quarter of improvement there with the decline being about $5,000,000 or 6% year over year. That really resulted as it has all year from some cost reduction things that we did right at the end of Q4, right at the beginning of the year in 2020. And we are continuing to benefit from those cost reduction actions that we took, as well as, as I said on the last call, we've got some other ongoing initiatives. We're always looking for ways to be more efficient, improve, use technology, etcetera. And I think the important thing to think about as we talk about SAG is that the question we sometimes get and other companies get is, look, how much of that is temporary? Well, based on what we did at the start of the year, those are more permanent cost reductions. I think in terms of whether or not something is temporary, you look at T and E, and I think that for ourselves and for other people, we've learned a lot about managing through the pandemic. And so I don't think for us or lots of other companies out there, we will see a return to a level of T and E that existed before. So I think that's going to be some money that we put in our pocket as we continue to use Zoom technologies and other communication technologies to our advantage. Great. Well, thanks for all that. And you guys and the team are doing a great job. So hats off from me as well. As my follow-up, Tom, you mentioned that your expectation for highway demand in your markets might start a little slower in 2021, but then pick up as we go through the year. And understanding there's maybe more uncertainty today than normal, but could you give us any high level thoughts around your other end markets looking into next year, maybe and maybe the first half versus the second half there? So just any color you're willing to share with us there would be helpful as well. Thank you. Yes, thank you. To answer your question really about 2021, too early to predict. We're doing the work right now. I think the most encouraging sector is residential. We think it was doing great right now. It will do very well in 2021. It's to a point where now we're building new subdivisions, which are more aggregate intensive, so very encouraging. Highways, as we said, the budgets are now set and now we're seeing highway lettings start to catch up to those budgets. The lettings were a little conservative in July, August, September, but October, November, December and the Q1 of next year looks much better. So looking better and a lot more clarity to the highway segment. The big unknown is non res. While it dropped, leading indicators dropped as we talked about in the Q2, they started improving, albeit not back to pre COVID levels. I think as we watch these projects and watch COVID, it's going to be a matter of the market's confidence, both in the economy and most importantly in the pandemic. The non res sector wants to start. We see a lot of green shoots. We see people we're actually seeing bidding activity up, which is a good sign. Now that's we're quoting activity where that's not booking yet and there's a time delay. So we'll see if that continues. But we are encouraged by it. And it is encouraging, but we still got work to do and still have some indicators and some need some more science to really understand what's going to happen in 20 21. But much better visibility today than 3 or 6 months ago and that visibility is much more encouraging. All right. Thanks for that. I'll leave it there, pass it on, and good luck as we go through the Q4. Thank you. Thanks, Greg. Our next question comes from the line of Stanley Elliott of Stifel. Good morning, Stanley. Good morning, everybody. Thank you all for taking the question. Kind of stick on the outlook piece, the increase on the CapEx certainly to us is kind of a positive indicator in terms of the views. What are you all looking to put that money to work on? Is it the greenfield? Is it other production plans? Just curious for some color around that. Thank you. So you saw we raised our CapEx slightly from a range of $275,000,000 to $325,000,000 It goes up to $300,000,000 to $350,000,000 So a modest increase of both ends for $25,000,000 Most of this at this point is going to go towards replacement capital. That said, we are now starting up the growth projects that we had paused on until we had clarity. I think that the team feels like now that we have the appropriate visibility to demand in our markets that gives us the confidence to restart those growth projects. Now we'll spend a little bit of that increase this year, but most of that you'll see as we march and as we really get into those projects in 2021. But we're excited about that and I think that the market would tell us it's time to get going so we can finish them at the appropriate time. And that's the beauty about greenfields, you can control the timing and you can speed it up or slow it down as you have market visibility. But we're I think the whole team is glad that we're cranking those back up and glad that we have them. In terms of pricing, last year, I believe you all had put out pricing letters maybe a little bit earlier. The commentary in the release and on the call sound pretty encouraging in terms of the outlook for price. With that sort of outlook potentially for demand into next year, we shouldn't really assume much of a cadence difference or difference in the cadence in terms of pricing or any context you could talk about some of the early letters would be great. Yes. So I think let's look back and then look forward. As always, the most challenging environment for pricing is unknowns or the lack of visibility to demand. And COVID-nineteen created a lot of those unknowns. And while there's still some questions about timing and future demand growth, really mainly in the non res segment. Many of those unknowns that we were struggling with 3 or 6 months ago are much better defined and are improving, primarily in residential construction and highway demand, where we're seeing a growth or a clear path to growth. So, as always, aggregate pricing is resilient. It's just more resilient when you have visibility to demand growth, which as I said, is a lot better today than it was a few months ago. And obviously, price is a very important metric, but it's the most important metric for us or the most important controllable metric for us is unit margin, where price is a big component, but cost is too. And as you heard me say, we've done a good job growing that unit margin metric. We're having we're right now having the price conversations with our customers. Our letters have already been sent out. I think those communications and those conversations are going very well. Visibility to demand growth in residential construction, you couple that with the DOT's outlook for growing revenues and their budgets for 2021 is encouraging to all parts of the construction materials industry and the construction industry period. I would tell you at this juncture, it would appear based on conversation that I think that all parts of the construction sector will be able to improve pricing in 2021. And so that's encouraging. And I would tell you that it's driven by improvement in visibility and confidence in the markets. Perfect. I understand. Thank you very much for the time. Best of luck. Thank you. Our next question comes from the line of Anthony Pettinari of Citi. Hi, good morning. Good morning. Tom, given the visibility you just talked about and I guess October volumes down 5% versus down 8% in the quarter, Is it appropriate to think 3Q could sort of represent a year over year kind of trough in demand? And then given the strength that you've seen in gross margins despite volume declines, how should we think about when you do return to growth, your ability to maybe outperform the 60% kind of long term target that you laid out for incremental margins? So let's talk about October 1st and then we'll kind of get into those other pieces of this. October volume was down 5%, but it was really driven by 1 less work day. So on a daily run rate basis, volumes were virtually flat. And if you look at October, I would tell you that I think shipments were aided by better weather in October than October of 2019, so an easier comp. But you probably also had demand push from the Q3 in October. I mean, weather was rough. We had we saw markets that had 'seventeen, 'eighteen, 'nineteen, 'twenty plus more rain days in the Q3 in 'twenty than 'twenty one I mean, excuse me, 'twenty to 'nineteen. Remember 'nineteen was an abnormally dry Q3. So it's a little bit of a difference in comps and so you're seeing some of that work catch up in October. What I think that leads us into a solid start good start to a solid Q4 gives us confidence in our full year guidance and makes us feel a lot better about it. I do I would hope that that is the trough. It was just a tough quarter, not just COVID, but and as we talked about wet weather, we talked about just losing so many days. But in California, it wasn't just the fires. The fires caused daily outages of power, which curtailed cement production. So us and our concrete customers just had to shut down. We couldn't supply the market even when we had days that would allow us to do it. Those cement problems are solved and we're back shipping more normal in California. So that and that again, that volume doesn't go away and we'll catch it up over the coming months. So I think that as we look forward, as I said, based on visibility in res and the settling of state budgets with increased funding, that coupled with the incurring news, albeit still below levels in non res, I think that the future looks very encouraging for us. Okay. That's very helpful. And then just on highway spending, I mean, I think most or almost all of your major states, that spending is in a lockbox and you talked about state budgets being a bit better than expected maybe 3 months ago, 6 months ago. Have you seen any efforts within your major states to break the lockbox or other state needs maybe trumping DOT needs or being able to maybe claw some of that funds away or just have you seen anything like that? We've seen nothing like that. I wouldn't I'd be very surprised if we saw it. And remember that the state DOTs in the states also recognize that like everybody else does, that highway construction is a very good economic stimulus. And so it is a good way to put people to work, help the economy in those states. And that work is needed, as are those as those roads and highways. So I wouldn't expect to see an effort to rob the highway coffers. Great. That's very helpful. I'll turn it over. Thank you. Our next question comes from the line of Jerry Revich of Goldman Sachs. Good morning, Jerry. Yes. Hi. Good morning. Nice to hear your voices. I'm wondering if you can talk about the pricing cadence on the spot market over the course of the quarter. You folks have spoken about essentially training folks for consistent price increase on the spot market. And obviously, this was not a great environment for it. So any update on how that tracked over the course of the quarter here? It's pretty easy to sum that up. It's been volatile, but then again, the world has been volatile, and big swings on good news and questionable news. I would expect us going forward, which I think is more important that as if you see clarity to the future and an encouraging future from a damp demand perspective and as we can kind of march along with that, keep improving a little bit, a little bit at a time, which I think is going to happen, that will take some of the volatility out. You couple that with what we've done very consistently quarter in and quarter out of improving our unit margin, our gross cash gross profit per ton 7% for the year and that we have confidence that our strategic disciplines will allow us to do that kind of as we've been trying to do and we talked about doing in September regardless of what happens to the outside world and in controlling our destiny. So I think that we internally have the confidence and the ability to turn consistent unit margins. You couple that with that there is encouraging news about demand and shipments near term and longer term continue to look better, I think will help us out. Okay. And then, Tom, you pointed out, I think, in your prepared remarks, we've seen lettings slow in the early parts of your office. I'm wondering in your business, can you talk about the length of your public construction backlog today compared to a year ago? Just put that into context for us, if you could, in terms of what has that meant for visibility in your business? Yes. So I think as you as the states were watching their revenues and they felt like they were coming back fast, but they had they couldn't count on it. So while they said, look, we think our budgets are going to be okay for 2021, they didn't have the freedom just to keep the same letting schedule that I think they had originally thought they were going to have. So they were conservative in lettings in July August September. And so now they're playing catch up. I think you'll see lettings you're seeing lettings go up in a number of our states substantially in October, November, December. I think their schedules that I'm seeing now in the first and second quarter will be up. So and that's consistent with their spin profile and their budgets for 2021. So while there was some conservative in the Q3, you'll see lettings go up 4th quarter and 1st couple of quarters for 2021. So I don't think that changes a lot, maybe some timing, but that's it. And sorry, Tom, can you just comment on the backlog part of the question? So what's the length of backlog today? Can you just quantify for us for the public side of business? I think what we're seeing is that backlogs are good in res. The backlogs in highways are solid, and I think our backlogs in non res have taken a hit, which you would expect. As I said earlier, I think one of the things that's encouraging to me is on the private side, you're seeing quote activity improve. Now you've got to once you quote it, you've got to book it. And there has been some longer delays in booking as people were waiting to see have confidence in the pandemic in the economy. But I think we're starting to see shoots where that's starting to improve also. So, encouraging. Okay. Thank you. Thank you. Our next question comes from the line of Mike Dahl of RBC Capital Markets. Good morning. Good morning. Thanks for taking my questions. Sure, Mike. I wanted to follow-up on some of the pricing and maybe just get some relative comments because I think in the on current state of play, I think in the slide deck you put, you've seen like for like pricing in most major markets. Could you just give us kind of a rundown of where you're seeing that most markets are still weaker? Can you just give us a sense of which markets may not be seeing growth right now? Actually, we saw pricing pretty consistent across our footprint for the year. And I think if you look at the vast majority of markets, we've seen price increases if you mix adjust it. I think that where it's been a little weaker of recent on a mix adjusted basis would be California. You expect that with, clean stone of country to aggregate not shipping and base still going. But that, as I said, will correct itself. And I think that's really a mix issue, not a price issue. But our pricing was pretty consistent across our footprint of what we implemented in January and then what was implemented really from between April 1 June 1. We talked about that in the Q2. We had a little bit of catch up, but that was in it all went through. I think as we look forward in the conversations we're having, I guess easier to have those conversations now and over the last month and to get those letters out because everybody across the segment has visibility in the pricing. But it's been pretty consistent across our footprint and I don't see any places that really have had a lot of pricing headwinds or that would affect us as we move forward to as those conversations go into 'twenty one. And I think it's an important add on to that. If we look across the footprint, we've also, as we said in the earlier comments, we've also seen unit profitability improvement in virtually every single one those markets as well. So what you're looking at there is the combined effect of increases in price and good cost controls since our cash costs were flat year over year. Mike, one thing to point out, I think that is and I've talked to most of our division presidents over the last few weeks, the conversations and this is really important for 2021 are pretty consistent. And I think that across our footprint, I think the market is encouraged that 2021, we start to see res is doing great. Again, we start to see that confidence in highway revenue growth and we're starting to see green shoots in the non res, which has been the weakest and that the fact that the non res just wants to start, the economy wants to get going. And we've got election almost behind us, the pandemic, Hopefully, we're there will be an end in sight. And I think people are getting confident confidence that the world is in a better place. Yes. And I think with respect to non res, and we talked about this on the last call and it still holds true today. It's sort of the sector of some haves and have nots and I won't go through all of those, what's kind of what's up and what's down because it's relatively unchanged. But as we look across our business, I've got a list of a dozen or so projects here that are data center related, for example. We spoke to the strength in warehouses and distribution centers in our earlier remarks, but we continue to see it in data centers from Amazon, Facebook, Google, Microsoft. I mean, all those big names are represented in work that we're doing right now. Okay. That's good to hear. Thank you for all the details. The second question, I guess, just a quick one shifting gears to asphalt and concrete. I think both were called out as having some regional issues associated with wildfires, but also just overall weather. I know it's tough to pinpoint numbers like this, but could you give a sense of your best guess on how much of those impacts were wildfires or weather and how those businesses were shaping up in October? Okay. So remember, asphalt is going to be a more private driven excuse me, more public driven than concrete is going to be more private driven, but I'll take them one at a time. Our volumes were down 13% in asphalt. It was wet weather in our big asphalt markets didn't help us there and fires in Northern California didn't help us. But and we had some jobs that didn't repeat, some big jobs in Nashville that didn't repeat. That being said, our gross profit was up 9% or over $2,500,000 and that was driven by, I think, good cost control, solid pricing and liquid AC savings. I think looking forward, we continue to be encouraged by asphalt. So it's a combination of buyers, rain and just timing on some big highway work. If you look at concrete, we really did get hit. There's obviously a COVID-nineteen impact because of non residential construction. That being said, our volumes were down 11%, and we had extremely wet weather in D. C, and then we had cement shortages in Northern California. So I think as we look forward, I would definitely be encouraged about Northern California as we got work to make up. And I think that as the residential construction in Northern Virginia will help us in that and non res will continue to march forward. So some challenges from a non res perspective on concrete, but I think the next couple of quarters we should see better volume performance. Okay, great. Thanks, Suzanne. Thank you. Our next question comes from the line of Sheldon Clark of Deutsche Bank. Good morning. Hey, good morning. Thanks. Just given all the moving parts that relate to pricing in the 3rd quarter and some of the seemingly transitory headwinds you talked about. Can you just give us a sense of maybe how pricing has trended in October and maybe just what's assumed in your full year guidance? So I would answer that question this way. I wouldn't expect a lot of variation in the cadence of pricing of what we've seen this year versus what we're going to see in the Q4, I don't see anything to really change the direction we've been going. And so you're talking to the like for the through the 1st 3 quarters, not 3Q? Yes. I don't see a lot of change in what's Okay. Got it. And then so you talked about cash gross profit per ton sort of growing in line with that historical rate of 7% per year and it looks like OpEx per ton is also growing in line with your historical rate at just under 1% per year. Obviously, some help from diesel, but volumes are a little bit tougher. So if things do stabilize from here on the non resi side, meaning don't get significantly worse and start to show some improvement in the back half of twenty twenty one, Is it fair to expect the sort of same relationship then in 2021 assuming diesel is flat? Or are there some potential offsets that might just cause this relationship to differ from either cash gross profit or OpEx per ton perspective? If you look at the slide that Suzanne referenced, it's in the deck, I think it's probably the last slide in the deck. You can see over time what's going on with our cash gross profit per ton. And if you particularly look at it over the last 3 or 4 years as we've been implementing our strategic disciplines and maturing those strategic disciplines, which I would tell you, they're still in fairly early stages of maturing, but working. That was the reason we put those in was those disciplines in place and worked so hard on them is that we felt like in good times, it always allowed us to live up to our potential. And in good times, when volumes were growing, we would get all we could get and in tough times with what we are seeing right now, it allows us to make the most out of whatever the world deals us. And so you see consistent growth. What's impressive to me is you see that growth in unit margins in the last 3 months or year to trailing 12 months of this year and now volumes have gone down. And that's just hard to do. And that's just good work. And I think that to answer the question about 2021, we've got work to do. We're going through those plans and those budgets, whether it's price or volume, our cost or operating disciplines and what we have to do right now. So too early to call, but I think you can look back at history and you can let consistency and you can look at what's been accomplished over the last three quarters with really some tough headwinds And regardless of that, we've been able to improve unit margins. And I've got to tell you, I'm proud of our teams. And my hat's off to them that they've done an excellent job with that. That's tough to do. And particularly, it's tough to do with volumes, particularly tough to do when you've got a pandemic and extreme weather. The goal here is month in, month out, quarter in, quarter out, year in, year out to improve those unit margins regardless of what happens to outside forces. So obviously, easier when things are improving, but we'll give you a lot of clarity to that in February about where we think we can go. To give you a number right now would be premature as we're doing the planning. Okay. I appreciate the color. Thank you. Thank you. Our next question comes from the line of Phil Ng of Jefferies. Hey, good morning, everyone. Good morning. Hey, good morning. Tom, it's really encouraging to hear lending starting to pick back up on the public side in September, October and bidding activity picking up a little bit in non res. But can you help us understand the lag when you see that actually start to flow through your volumes? And when we start thinking about 2021 in terms of the shape of the year, could you be in a position to grow in the back half of next year? I think that I would preface that this first of all, next year too early to tell. I think that to if you're talking about the back half, it's a lot more possible than the front half, but a lot for see growth in 2021 in volumes, There's a lot of stars got to line up, particularly with timing of work and big highway work and even more importantly, the timing of getting big non res work, bid and booked and started. I think it's tough. It would be difficult to have all those stars line up to see volume growth in 2020. Not impossible, but I think it's difficult. And I think that, again, we don't know. We've got to we're working on getting all those answers, and so we'll put that together. I think as we said, I think based on the highway letting sequencing of lettings not being as strong in July, August, September, but picking up in October, November, December and then scheduled to pick up in the first half. Those jobs are anywhere from 4 months to 9 months usually. I would tell you that and but if they've got to work and they can get to work particularly with overlays, it can go faster. If you look at non residential, historically, I would have told you 6 to 12 months, although 2020 has been the great exception of that because we've seen work move all over the place. Again, as the private sector gets confidence in the pandemic and in the market, I think we'll see those the timing of quote to book to shipping improve. I think we've always seen some improvement in that, but work to be done. And but as I said, I think that is what we've seen so far is encouraging in all of the above. And then res is going. I mean, there's no question it's going and it's going well. Got it. And then from a pricing standpoint, I mean, we can all appreciate the pricing power in your aggregates business even if demand is we saw in a great financial crisis. What about your downstream business? I mean, they're certainly in great markets, but if demand is a little softer start next year and we got muted inflation, how do you think about pricing, whether it's asphalt or your ready mix concrete business? So, I'll take asphalt first and I would point you to unit margins in asphalt as opposed to price just because pricing can move around with indexing with liquid AC. We've said as we called as we talked about a year ago, the liquid numbers have come way down and we've been able to put that savings to unit margins. And I think that again, we're doing the plannings. I have not seen the plannings on liquid AC. I think that the fact that you've got the DOTs with better clarity and improved visibility to growing revenues that helps because that gives everybody some headroom to be able to take risk on price and asphalt and on aggregates and just on construction work. So encouraged there. We've the markets we're in, in concrete are D. C. And the D. C. Market and the Napa Valley market have pretty consistent unit margins throughout because they're unique concrete markets, because of abnormally high barriers to entry. And so I think that as we see res improve and as we see non res continue hopefully to improve, it will also help unit margins and volumes in the concrete sector. Okay. Thanks a lot, Tom. Thank you. Our next question comes from the line of Garik Shmois of Loop Capital. Hey, this is Jeff Stephens. Hi, Jeff. Hi, Jeff. This is Jeff Stevenson on for Garik. I appreciate you taking my questions. Sure. The first one is just on, could you provide an update on what you're seeing regarding the M and A environment? I'm just wondering if there's been any changes and what your expectations are in the 2021? Yes. I mean, I think as far as the world freezing, the worst I think is behind us. It's still pretty early stages and we're seeing we're looking as always, we're looking at some projects out there. I think that the all the unknowns with the pandemic as just do wet blanket on that. I think as that gets clear, this will pick back up. As always, sellers are going to sell when the time is right, whether that is for personal reasons, for family planning, for succession planning or strategic moves. And we'll be in the game. And as you hear me talk about all the time, we'll be disciplined about how we look at those acquisitions. But we've seen some pickup, but not maybe back to pre pandemic levels yet. Got it. That's helpful. And then, Tom, unless I missed it, I don't think you mentioned what you're seeing in Florida and Virginia from a DOT budget perspective. I was just wondering if you could provide any update on those states. Yes. Florida, I would tell you, has been a really good story and kind of flat to slightly up. I don't think we see any change in Florida. And so good news from a far perspective. And Virginia is a very good story. Virginia's budget is budgeted to be up 13% now, and that's where we had an increase in gas taxes this year in Virginia. Now it has not been approved by the Virginia Congress yet. They're supposed to do that in January. But so lettings will hopefully continue along that path even though they haven't approved the budget. But so far so good. And I would expect us to see growth in revenues and budgets in Virginia from '20 to 'twenty one based on the proposed budget at 13%, and I think the revenues are going to be okay. Great. Thank you. Our next question comes from the line of Adam Follinger of Thomas Davis. Good afternoon, guys. Hey, did the Fast Act, Tom, what's the post mortem on that? Was that actually helpful for you, the extension? Yes, for sure. That's what we talked about that we need an extension and we needed a decent term in that extension of and the best what we had wanted was 12 months. So what that allows to happen is and it allows the state DOTs to have clarity through their fiscal year 2021, which is what they all need and they can't be going quarter to quarter, month to month because it chops up big jobs because they don't know what's going to happen. I think that as I as we talked about earlier, it's important to note that the new Congress, the new House and the new Senate will pretty much have the same balance of power as what we saw when we've passed the extension of the FAST Act. And that remember, that extension was passed with bipartisan support. And with bipartisan support, what we told from both parties was this was allowed in time, get through the election, come back and pass a better funded new highway bill in 2021. So that's why we said that maybe the fact that the balance of power doesn't change plays in our favor because there's already been substantial work done by the subcommittees both in the House and the Senate towards a new bill, some of that bipartisan, some of that not bipartisan, but that we've got a draft and we've got drafts. And so now it's a matter of negotiating and tweaking as opposed to having to start over with a new pen. So we're thinking at this point, we start with a solid foundation of potential highway bills and we get it pretty quick because that was the bipartisan support and the intent when they passed the extension of the FAST Act. Okay. And then on non res, when did you guys actually start seeing volume declines in non res? Because the way that the indicators have been going, I would think that the real non res downturn is actually in 'twenty one before recovery in 'twenty two. So what we saw was go down like a me seeing coming out of the coming since then is we've seen some sequential growth in leading indicators of non res somewhat choppy and it obviously gets impacted by spikes in COVID-nineteen. You also say, as we talked about, we saw a lot of jobs push way back in the Q2, some of those came back in the Q3, some got pushed again. So it's quite choppy and it's been volumes have gotten hit this year and that's the majority of that volume drop I think is going to be in the non res sector. Residential, if you remember, it dropped kind of in April, then it came zooming back May, June and has never stopped. So as you're on the street, non res is still way down, shipments are still down, but hopefully we've got some of the worst behind us. Yes, I'll just add a little color to that is if you go back to the beginning of the year and sort of really year to date through the end of February, our starts were up on the non res side kind of 9% to 10%. So going into the year, it was a it looked like pretty good performance ahead from a starts perspective. And then when we got to the month of April after it was clear that COVID-nineteen was going to be here for a while and was a big issue, those starts dropped by about 50%. And by the time we got to May June, we had seen a little bit of improvement actually in June. We got about half of April's decline back and since June, as Tom said, July, August, September, we've seen little bits of sequential improvement. It seems that it moves somewhat similar to what you see in the number of COVID cases and the number of the level of surge that it's been out there. So that's why we said last quarter and we still stand by this, when COVID, the number of cases and the surge dies down a bit, you see those starts begin to pop back up. So I think we just need a few months of some certainty there because I think it you know, there's a lot of interest in non res construction. I think people just want a little bit more certainty. Great color. Thank you. Thank you. Our next question comes from the line of Michael Dudas of Vertical Research. Yes, good afternoon all. Hi, good afternoon. Just a follow-up. Yes, good afternoon. Following up on the non res side, certainly you called out and others have been calling out data center warehousing distribution centers as a positive towards the mix. And certainly like in state of Virginia, where it's certainly that's a big investment that we're seeing from the big tech and distribution guys. How does that change as a percent of your backlog in your business maybe from what it was prior to pandemic? And is there is that more is it quicker to market type opportunities? And is the size and intensity of the aggregate use helpful with that end of that of the market relative to some of the elements that have been somewhat muted in 2020? Yes. As Suzanne mentioned earlier, we've got over a dozen projects that were in some of warehouses and distribution centers that we either booked or in the process of booking across our footprint. And those are just ones that I can think of off the top of my head. I'm sure there's more. So it's had an impact on our backlogs, a very positive impact on our backlogs. And as we said, the future of that will look very good because of where we are and where those are. Dodge predicts that 90% of all of the new construction of warehouses and distribution centers that construction will over the next 2 years will be in our market. So this is not a this is this will be great demand to come for the next couple of years. So we're encouraged by it. It's also as you pointed out, it is wide and flat. So it is more aggregate intensive. If you think about what has to go into those, it is not high, it's more intensive in the parking lots for base and asphalt and in the foundations of those warehouses where you pour concrete. So it is somewhat more aggregate intensive than the total on the high end of aggregate intensity for the total non construction should be non residential construction mix. Yes, that makes sense. Appreciate that. And just a follow-up, just generally, Tom, in California, looking out to 2021 and maybe 2022 and certainly the pandemic and the issues in California relative to some other major states. Do you think there's a better opportunity overall from all your businesses and what you serve? Is there a better opportunity in 2021 to surprise to the upside or maybe surprise to maybe the downside relative to what the expectations might be? Well, I think as I said earlier, I think you're going to see some volume push from 2020 into 2021 based on the rough, terrible, 3rd quarter and into the Q4 that we experienced in California with wildfires. And while the wildfires curtailed business and were tragic, it also from our business, we got the double hit because of power outages, it controls cement production. So everybody was nobody could get enough cement to supply the market. That demand doesn't go away, it just gets pushed back. So I think we do have some catch up in the last and that cement production, our availability is just now coming back. So you're going to have some of the shipments push into the last couple of months of this year and the 1st couple of quarters of 2021. And while that hurt in 'twenty, it will help in 'twenty one. Residential construction, while it also got paused by all the reasons I just talked about, has come roaring back and starts are up, I think, in the trailing 1 month over between 20% 30%. You couple that with the news from Caltrans, the revenues will be up 6% and the things that control snow that will help aggregates and asphalt as like many other places non res has taken a hit and it's got a it's we're feeling that hit and so we got to recover from that hit and that will be that's really the unknown for us in California in 2021. And we'll give you a lot clearer view of that when we get to giving you our projections in February. Thanks very much, Tom. Thank you. Our next question comes from the line of David MacGregor of Longbow Research. Yes. Good afternoon now and thanks for taking the questions. I guess I want to start by just asking about an infrastructure bill is distinct from the highway bill. And the answer you gave to a previous question, just talking about the likelihood of growth in volume in 2021 and maybe the second half better than first half. But just to get an infrastructure bill early in the stage of the new administration, how does that change your perspective on that volume profile through 2021? And maybe as part of that question, just to the extent you could address just what you think is out there in terms of shovel ready projects and just how quickly that could come through into VMC revenues? So I think our focus is really is not to get lost in a major infrastructure build. The important thing is a highway build. Now that may be a part of a larger infrastructure bill, but the piece of this is, it's really important is infrastructure is a broad category. And we're really what I'm talking to is really about the Federal Highway Bill, and the extension of the FAST Act, the work that's been done on our Federal Highway Bill in both the House and the Senate and this got bipartisan support. And then we have a foundation moving forward. Now could that be rolled into a broader infrastructure package? Yes. I think it's more likely that it's addressed as a specific highway bill. Now separate from that is there's been a lot of talk about stimulus and the stimulus now there's discussions before the end of the year, beginning of 2021, whether that's the Congress is in now or the new Congress. I think somewhere over the next few months, you do get stimulus package. Hopefully, it will include some infrastructure funding and that will be added to anything we're talking about. Any sense you could share your about. Any sense you could share your expectations around that? Just is there any way to size that? I don't think we can at this point. If you look at the from a stimulus perspective, that's hard to do and there's a lot of conversations, timing and magnitude, I think it's tough to call. If you look at the highway bill, I would look back at history and look back at drafts of bills that came out of the Senate and drafts of bills that came out of the House that showed funding up 30% to 40% range. And that doesn't that gives you some kind of idea of how the authors of those bills were thinking about it. And many of those authors are still in place in those subcommittees and staff that has been which is a good thing because we don't start from 0. We don't start with a new piece of paper and a new pen so that we have some momentum with this. Now that being said, a highway bill that passes in 2021 will not impact shipments in 2021. It takes a year to 2 years to get funding to work. And that's what we've seen as we saw the dramatic increase in states funding. Many of those have matured into or maturing into it. I would tell you that I would hope that because the states, at least our states, have broadened their capabilities and expanded their capabilities to handle new funding, hopefully, they can put it to work quicker than what we saw with the improvement of the FAST Act and the new federal bill versus what we saw with the DIG jump in state revenues. Right, right. Okay. Long call. I'll leave it there. Thanks, Tom. Thank you. Our final question comes from the line of Shintang O'Yang of On Field Investment. Good afternoon. We can't hear you. I think you may be muted. Hello. Hello. Good afternoon. Thank you for taking my question. Sure. I have a question. I'm sorry, you cut out on some. Can you hear me now? Yes. Hello? Yes, we can hear you. Yes, but can you hear me now? Yes, we can. Right. Thank you. So I have a question on thank you for taking my question. So my question is that yes, the European Cement Association President suggested recently that the replacement of virgin aggregates by recycled concrete can take up to 20% of the aggregate content in concrete. So we're thinking in an environment where recycling is getting more important than especially in Europe, probably in the U. S. As well in the future. Just wanted to know what do you think of it? Do you think of it as a threat for every business or you actually think of it as an opportunity? Well, I mean, for today and for years, recycle has been an integral part of the construction. Can you hear me okay? Yes. Okay. For years, recycle has been a part of construction materials, both whether that is in asphalt or that is in concrete. And it does have limitations from a quality perspective and end uses, but it's a part of the business today. We are in that business and it's just an integral part of overall construction. That I don't see it as a threat. I was thinking it's reality today and part of the business and we're in that business. So it's part of the core of Construction Materials. Okay. Okay, great. Thank you. Thank you. And that was our final question. I'd like to turn the floor back over to Tom Hill for any additional or closing remarks. Thank you, operator, and thank all of you very much for taking the time to listen to our call today. We appreciate your interest and your continued support of Vulcan Materials. As we look forward, please stay healthy, keep your family safe, and we really look forward to talking to you in the coming weeks. Thanks. Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect.