Welcome to the Vulcan Materials Company first quarter earnings call. My name is Cassie, and I'll be your conference coordinator today. As a reminder, today's call is being recorded. At this time, all participants have been placed in a listen-only mode to prevent any background noise. A question and answer session will follow the company's prepared remarks. Now I'd like to turn the call over to your host, Mr. Mark Warren, Director of Investor Relations for Vulcan Materials. Mr. Warren, you may begin.
Good morning to everyone. Joining me today are Tom Hill, Chairman and CEO, and John McPherson, Executive Vice President, Chief Financial and Strategy Officer. Before we begin, I would like to call your attention to our quarterly supplemental materials posted at our website, vulcanmaterials.com. You can access this presentation from the investor relations homepage of the website. A recording of today's call will be available for replay at our website later. Additionally, from the investor relations homepage, you can sign up to receive future news releases under email alerts found in the quick links. 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 are described in detail in the company's SEC reports, including our earnings release and our most recent annual report on Form 10-K. Additionally, management will refer to certain non-GAAP financial measures.
You can find a reconciliation of these measures and other related information in both our earnings release and at the end of our supplemental presentation. Now, I'd like to turn the call over to Tom.
Thank you, Mark, and thank all of you for joining our call today. Our first quarter operating performance represents a really strong start to the year. Results were in line with our internal first quarter plans, despite challenging weather and higher than expected diesel costs. Leading indicators for construction activity in Vulcan served markets are very encouraging. Recent price increases have been well executed, and we expect materials pricing to improve further throughout the year. We're also putting recent cost headwinds behind us. Per ton margins in our aggregate segment improved year-over-year, and we expect stronger gains over the balance of the year. We are reiterating our full year projections for net earnings and EBITDA. When the sun shines, we're shipping strong.
Although bad weather in January and February drove our total shipments for the quarter slightly below expectations, with more normal weather in March, our same-store shipping pace was up 7% over last year, and April was even better. This gives us great confidence in our full year volume guidance. Pricing momentum remains strong. When adjusted for geographic and product mix, freight adjusted aggregates pricing improved 3% compared to last year's first quarter. Many of our price increases took effect April 1. This is consistent with our plans. On a same-store basis, our first quarter cash gross profit per ton in our core aggregates segment improved 4% versus the prior year. This record result was accomplished despite several challenges, including a continued drag from rising diesel prices and the planned shutdown of several large facilities to get them ready for a robust construction season.
I'm proud of the performance of our local operations leaders. Gross profit from our concrete segment was flat compared to the prior year. Gross profit from our asphalt segment declined from the prior year due to the impact of winter weather and due to margin compression from higher liquid AC costs. Now, these costs haven't been fully passed into the market yet. The decline also included the short term and negative impact of construction paving business that we acquired in February of last year. Despite the seasonal drag from our downstream operations, we still delivered $168 million in adjusted EBITDA for the quarter. This was driven by improving unit margins in our core aggregates business. We feel very good about our readiness for the construction season. We finished the first quarter strong.
This was a good start to the year that sets us up well for the second quarter and the rest of the year. Ultimately, I like the trends we're seeing. The leading indicators we monitor support our full year outlook. Private demand continues to recover across most of our footprint. Residential growth continues. We see a growing pipeline of large private non-residential projects, and our markets continue to enjoy strong backlogs consistent with 2018 expectations. We're also seeing renewed development of industrial projects along the Gulf Coast. While we don't expect to ship significant volumes to these projects this year, it bodes well for 2019 and the following years. Public demand, particularly with highways, has begun to contribute to the recovery and overall construction activity across many of our states.
Highway related construction starts in Vulcan markets have moved further into positive territory. This is now 29% higher on a trailing 12-month basis, outpacing the nation as a whole by 14%. As we all know, we've seen a significant inflow of highway funding across our footprint. We've also seen a number of state DOTs struggle to take new funding and put it to work. Now we are seeing DOTs adjusting and beginning to catch up, allowing the benefits of the FAST Act and the new state-level revenue streams to turn into tangible infrastructure development. For example, we anticipate solid gains in highway-related demand in six of our key states, Arizona, California, Georgia, Florida, North Carolina, and Texas. We are keeping an eye on a number of states that have good highway funding programs, where we may see some shipments later in 2018.
Let me add, we expect much more in 2019 and the following years. These would include California, which continues its effort to pull projects forward, coupled with Texas, South Carolina, and Tennessee. Our local teams have been doing a really good job servicing our customers in both public and private markets. Our expanding backlogs and accelerating booking pace continue to support our full-year outlook for aggregate shipments in the range of 200 million tons. As I said earlier, recent good weather has meant good shipments, including during April. This demand visibility will support additional pricing gains throughout the year. Other factors such as higher diesel cost and logistics capacity constraints will also drive prices up. Some of our markets already anticipate another round of price increases this year. As we know, pricing momentum is stronger in those markets that have solid private and public demand visibility.
Examples of these would include Georgia, Florida, and looking forward, coastal Texas. I would point out that our aggregates pricing continues its upward compounding move across the majority of our markets. We continue to project full-year average selling prices to increase between 3% and 5%. We also expect that the conversion of incremental same-store revenue into incremental gross profit will return to levels seen early in the recovery. I'm pleased to report that our aggregates operating teams performed well in the first quarter, and they remain focused on continuing our world-class safety performance. They're well positioned to handle the expected upswing in shipments with solid operational efficiencies. We're moving past the cost pressures of recent quarters. For example, the first of our new Panamax class ships has been delivered and put into service. This is bringing new shipping efficiencies and lowering costs.
Our current projections point to cash gross profit per ton exceeding $6.50 by the end of the year. Remember, at the beginning of the recovery, this figure was $4.19. This improvement is proof that our local operating teams have and will remain focused on long-term improvement in unit margins. Our asphalt and concrete operations are well positioned as we head into the construction season. As noted, material margins in asphalt may continue to see some pressure from higher liquid AC prices. This depends in part on how quickly prices adjust. That said, our 2017 acquisitions continue to perform well. In summary, we have strengthened our portfolio through acquisitions and divestitures, and our demand and margin indicators, along with our first quarter performance, particularly in March, give us confidence in full-year expectations for net earnings and EBITDA. John, I'll turn it over to you.
Thanks, Tom. In addition to driving our current period results, we are of course always working to improve the business's longer-term financial strength and growth potential. The first quarter saw several actions in this regard, and I'd like to highlight a few that relate to our organization, our asset portfolio, our balance sheet, and our after-tax cash flow from earnings. With respect to the organization, in January, we restructured several of our support functions for the purpose of more effectively and efficiently serving our local operating units and supporting their long-term growth. In the process, we eliminated approximately 50 overhead positions. Our first quarter results include a $4.2 million charge associated with this action. We are continuously working to leverage SAG to revenue growth, while at the same time making strategic investments in customer service, logistics management, sourcing, and other of what we call One Vulcan capabilities.
In terms of our asset portfolio, we are very focused on the integration of Aggregates USA during the first quarter. We also continue to strengthen our portfolio in other important ways. For example, we completed the acquisition of a construction materials business in Alabama, adding aggregates and asphalt operations that complement our existing business very well. We also divested our Georgia ready-mix concrete operations to Thomas Concrete. Thomas is better positioned to grow that particular business, and we will continue to supply aggregates to the divested facilities. Our first quarter results include a small gain associated with this divestiture. Now moving to the balance sheet. In the first quarter, we issued $850 million of senior notes with maturities of three and 30 years, and retired $885 million of debt with maturities inside of four years.
Additionally, $111 million of senior notes due in 2037 were exchanged for a like amount of senior notes due in 2048. First quarter results include a $7.4 million pre-tax charge associated with this refinancing activity. We have positioned our debt portfolio for the long term. It fits very well with the cyclicality of our industry, as well as with the long-life nature of our aggregate-centric asset base and our materials real price appreciation over time. We have extended the duration of our debt, reduced our average interest rate, and achieved and sustained investment grade ratings. At the same time, we've been able to fund over a billion dollars of high-quality growth investments with only a marginal increase in our after-tax interest expense.
Finally, I'll note that much of our long-range planning focuses, as you'd expect, on cash flow generation, both at the local market level and the total company level. For 2018, we expect the business to generate approximately $825 million of after-tax cash flow from earnings. That's adjusted EBITDA, minus working capital growth, operating and maintenance CapEx, and cash taxes. As a reminder, we currently expect to invest $250 million in operating and maintenance CapEx for 2018. At the midpoint of our earnings guidance, we project full-year cash taxes of approximately $75 million. That's before the effects of debt refinancing actions, use of AMT and other credits, and refunds from prior periods. This run rate cash tax expectation is approximately $100 million lower than if under the prior tax law.
With disciplined capital deployment and compounding improvements in unit margins, our aggregate-centric business model should enable further significant gains in after-tax cash flow from earnings as the recovery moves forward. Tom, back over to you.
Thank you, John. Our people's commitment to outstanding performance has set us up very well for the future. We really like what we're seeing in the business right now. I'd like to give you five examples. First, shipment growth. The private side continues to grow, and now public spending has joined the party and is also driving demand growth. Second, pricing growth. This is driven by underlying private and public demand and visibility to projects both large and small. Third, unit margin improvement driven by operations excellence and a tight focus on cost control, with flow-throughs returning to past trends. Fourth, near and long-term cash flow growth, which reflects the value of our aggregates-focused strategy and franchise. Fifth, disciplined strategic M&A activity and capital deployment that allows us to leverage our strengths and create new opportunities for profitable growth.
In closing, I'm pleased with the way our people are executing. They are demonstrating great discipline in taking incremental revenues to the bottom line. I am very encouraged by the growing strength that we see in the recovery. We are well-positioned to serve this increasing demand growth, and we are very much looking forward to making the most of the opportunities ahead of us. Now we'll be happy to take your questions.
If you'd like to ask a question over the phone lines, please signal by pressing star one. Okay, we'll go first to Adam Seiden with Barclays.
Great. Thanks, fellas.
Morning.
Morning to you, too. The first month or two, I guess, was perhaps a bit more challenging. In March, it seemed a bit better. Now in the call, certainly, you pointed to April also. It seems like continuing some of the traction that you guys were seeing in March. I was just wondering, though, if you could give us any color on how we should think about the cadence on both volume
Yeah, I would tell you that we feel really good about our volume guidance, and Q1 reinforced that. It's not unusual for us to have tough shipping days in January, February. As I said in my prepared comments, when the sun shine and we're shipping hard. March's pace was up 7%, and that was in what I'd call reasonable, not great weather. Even that was in the middle of that, we had a lot of rain in California in March. April following that has been very strong. I'd tell you it's in the 10-ish on a same-store basis, up 10%. We're seeing the big postponed projects starting to ship. I'd tell you our folks are on track. We feel good about the volume guidance. What kind of reinforces that, I think there's a couple of things. Our backlogs are up, our booking pace has accelerated.
The DOTs are moving forward projects and kind of a small thing, but it's really a telltale, is we're shipping more on weekends right now than I've seen us ship in years. The demand's out there, and I think it'll flow through as we predicted throughout the year.
Adam, you and others know this, keep in mind, it's a low volume quarter. We're just ramping into the construction season. We really like what we see in March and April in terms of what it means for how we're ramping up. Always careful about extrapolating from any one month, but we like what we're seeing. Some of the mix effects we saw in terms of volume in Q1 really should correct themselves over the year. I kind of note that you saw us down in some of our core Southeastern and Mid-Atlantic markets and up in other markets in the quarter. That was really mostly about weather and in some cases, some rail service disruptions. All stuff we'll work through over the course of the year. In the same vein, Tom may comment on this further. That really is what affected reported pricings.
The real momentum in pricing is 3% in the quarter. Just to give you a little more feel for that, Tom may chime in, those markets that we were down in volume in the quarter were also the markets that they're not only higher price, they were the most increasing in price. If you look across those markets like Virginia, the Carolinas, Georgia, you'd see price increases in the quarter that read like five, six, eight. The momentum in those markets reflect the visibility that Tom mentioned. Mix affected reported pricing in the quarter, the underlying momentum was really three, and that'll correct itself over the course of the year. It's not an issue for us.
Yeah. I think it's better done if we just take you into the fabric of the business, I'll pick three markets or three states. Starting on the West Coast, California, if you look at Northern and Central California, demand is good and growing. Private is up, public is up substantially, that's ahead of SB 1. We saw really good price increases in April in Northern California. Southern California also seeing solid growth, privates underpinned by res. Public again is solid ahead of SB 1. Prices were solid in April, that's on the back of really big price increases in 2016 and 2017.
If you really step back and look at California as a whole, volumes are growing ahead of SB 1, which gives, I guess, more confidence and visibility to the public demand that's ahead of us, which is reinforcing that pricing. If you move to the east there for Texas, I'd start with North Texas first, which is really the DFW metroplex, is I guess our smallest market in Texas. We tell you demand has been on a roll for years. This year will be up slightly. Price increases were a little tough in the DFW metroplex, the April ones. We announced those April price increases, they met with some resistance. If you move south into San Antonio, we continue to see solid growth in San Antonio, particularly highways. In 2018, we got big highway work ahead of us that we've already started.
The April price increase has stuck, I would tell you that the bid work with things like base on project work is moving up as we speak, it'll move up throughout the year. Going from there to Houston now, coastal Texas, which is really driven by Houston, this is a market that's been a drag on us for two years. It's been a drag on volume. It's been a drag on price. That was the energy market going down. We've actually seen Houston turn over the last 30, 60 days. Res is back. Non-res is coming. In fact, we're hearing bubbling of energy projects. The public side is solid, this is a market we think supply may be tight on throughout the year in Houston. We'll implement some large fixed plant price increases in June.
I would tell you that base prices have moved up on quoted work over the last 45 days, we'll continue to press those throughout the year. We also got to remember, we're working off a lot of old lower price work in that market, actually in all these markets. If you move east to there to the Southeast, and you look just for example, Georgia and Florida, they're stars. You've got excellent private demand growth. The public side has come on. The large projects have started. We had very good January and April price increases. Parts of Georgia and Florida is a place we'll probably see some mid-year price increases. To kind of sum that up, if you step back, I think it's really clear that our shipping pace supports what you see in our full year guidance.
Appreciate that. That's pretty encouraging and also very thorough too. Maybe something a little bit more nuanced, but you spoke to the $4 million restructuring charge this quarter. I guess it's a fairly small amount, but just thinking about the $4 million beyond just the total dollar amount, is there any change in how you're approaching a portion of the business
that resulted in you taking these actions, or is it just about getting leaner?
I think it's not just about getting leaner, it's really about getting better. More is not necessarily better, what we tried to do is streamline the services to our line folks to where they got exactly what they needed, not what we thought they needed in some cases. We actually gave them better personnel and better services. A piece of that is getting leaner, but the main focus was to give better services and more consistent services to the folks that are actually making us money.
Great. Appreciate that, guys.
We'll go next to Trey Grooms with Stephens Inc.
Hey, Trey.
Hey, gentlemen. For Aggregates USA, just trying to cut it up a little bit, it looks like things are progressing pretty well there. I think you guys looked like something around 2 million tons, maybe a little below that in the quarter, if my math's right, you guys are guiding to 7 million tons for the year. That implies a pretty big contribution in the first quarter, I think around 27% or so, which is higher than normal for your overall business, for the overall company. I think it's closer to 20%. I understand this market has less seasonality, but still seems high. Is there something that would drive a higher 1Q shipment mix there for that business? Did the quarter just outperform what was expected there?
Let me make a couple open comments on Agg USA, then John will give you the quarter. As we look at Aggregates USA today, I would tell you it is fully integrated and functioning as one company that's whole Vulcan. Great folks and great assets. We believe that we're solidly on track to earn our projected $50 million in 2018. A watch for us, we've experienced some rail service headwinds, but we're working hard with railroads to get past those, and I think we've kept our customers in rock and did what we had to do to service them. That'll be a watch for us. We continue to see significant synergies developing, that we really won't experience until 2019 and 2020. Just got to work through those. I would include in that rail and logistical synergies along with big commercial synergies.
When you step back and look at this, it's all underpinned with really strong demand and price growth in states of Georgia and Florida. Good start to Agg USA, and we're solid there, but the real synergies will be in 2019, 2020.
Trey, just in terms of the math, I think Tom hit it. What'll happen in the quarter is we got some of the early synergy capture. On a total contribution basis, e.g., and EBITDA level or what we call a cash gross profit level, strong incremental contribution in that first quarter as we captured some of the initial overhead synergies and other synergies. Far more in synergy capture to come, as Tom said, in 2019 and 2020 even on that front. I'll note, we can talk about it offline if you would like, that on a gross profit per ton contribution basis, it is lower because of the step up in the asset base and the higher DD&A per ton. If you're trying to look at incremental flow throughs to gross profit, it'll be lower.
If you're looking at the contribution cash per ton, which of course really matters most, it'll be higher.
Got it. Okay. That's helpful. I guess sticking with that for a moment, more on the aggregate side still. You guys had mentioned in the past, I know there was some commentary today on this as well, just want to make sure that we're understanding the cadence correctly. John, you mentioned, I think I heard you right, exceeding $6 of cash gross profit per ton by the end of the year in aggregates. You guys have talked about seeing your incrementals getting back to what we saw earlier in the recovery, which I'm thinking is north of 60% for legacy Vulcan. You reiterated your guide. Just any help that you can give us on the cadence of that going into this 2Q, which just given the magnitude of the quarter, the size of the quarter, any color around that would be great.
I think obviously, we're pleased with Q1. It was a good start. I thought that our folks performed even with some headwinds of weather in the first couple of months. Pricing, I think I alluded to, will grow throughout the year. We had some January price increases with some April price increases, then as we bid work, particularly on base and some other bid work, it will move up throughout the year. John's comment obviously about the Southeast being a little slow in the first quarter and coming back in some of our strongest markets will add to that. I would add to that if you look at our operating efficiencies and cost, I think we were very proud of the performance of our folks in the first quarter.
They actually lowered total cost of sales in the face of pretty good headwinds of diesel, tough weather conditions in January and February, which always eats you up on efficiencies. We went ahead as is normal in just good operating discipline and took some plants down and did some preventive maintenance or just big maintenance we had on plants in winter months where we know our operating efficiencies aren't going to be good and the shipments are low, so that we're ready for the season. In the face of all of that, they delivered cost below prior year. I think we're again, a good start. I think our operating folks really have their eye on the ball here, we feel good about where we're set up to go into the second quarter.
Trey, just taking the full year look and kind of looking at the guidance we reiterated today and what that implies for the balance of the year, just to make sure we're being clear here. We expect in the balance of the year to have rates of improvement year-over-year that are, of course, better than we saw in the first quarter. We're proud of what we did in the first quarter. If it's shipment pace growth, we expect it to be better. If it's pricing momentum, we expect it to be better. If it's unit margin improvements, which we really focus on a great deal, much better. If it's flow-throughs above what you've seen recently, for sure, more like what you saw earlier in the recovery. Particularly, you need to look at that on a same-store basis. It's going to be north of 60%.
We like what we're set up. We've got a combination going forward for the full year. I'm not just talking about the second quarter now, for the rest of the year. That is good market conditions, recovering demand, particularly on public, like we talked about. We think better execution and some opportunities to improve our own cost execution that we're very focused on. Then, of course, we do have easier comps in Q2 and Q3. All three of those things playing together. Again, we're reiterating our guidance today.
Right.
We'd say not all that's going to happen in Q2. Still some things we're working through, but taking a full year look, we feel good about where we stand right now.
Great. Thanks a lot for taking my questions. I'll turn it over. Good luck.
Thank you.
Okay, we'll go next to Kathryn Thompson with Thompson Research Group.
Hi, thank you for taking my questions today. We as a firm focused a lot on the public side, particularly the changes you're seeing with state DOTs as they change their funding. An area that we're finding interesting is on the commercial or the non-res side, where we're seeing more billion-type dollar projects that are queued to start up. Question for you: are you seeing those type of projects in the geographies where you compete or you actually participate? Then if you could give a little bit more color on the types of projects on the non-res side that you're seeing in your backlogs. Thank you.
Yeah, thank you. We'll see shipment growth in non-res throughout the year. It's in our markets. It's supported by a growing backlog and an increased booking pace. There is a continuation of large projects. I would tell you it's concentrated in office, institutional, and government buildings. We're also seeing what's interesting, Kathryn, I mentioned in the comments about coastal Texas, is we're seeing the early activity around energy projects on the Gulf Coast. That is very encouraging. If you look at our markets, I think we're solid with non-res growth, and I think we feel real good about it. You're right, there are a lot of big projects out there.
Kathryn, I'd just add, we're seeing at the moment in our markets. I should say in most of our Vulcan serve markets, which can be different than the nation as a whole.
Sure.
Good booking momentum on small and large private non-res work. We stay focused on that because as you know, the large can be a little bit tricky to predict exactly when it turns into shipments.
Yep.
We tend to do very well on share of that work. It tends to be a little bit lumpier and more difficult to predict exactly when it turns into a shipment. For the balance of 2018, our backlogs support our outlook. As you know, it's more uneven across geographies than residential would be. You have some shining stars and you have some that aren't. In total, backlogs, booking pace outlook, consistent with our outlook. We kind of like what we see going into 2019, although it's a bit early to draw those conclusions.
Thank you. On the public side, it's obviously too early to see the full impact of SB 1 in California quite yet. When you shift to a state such as Georgia that now has a couple of years under its belt with its increased funding, could you give us a little bit more color in terms of what you're seeing in public construction flow-through in the state of Georgia? In your opinion, how much of it is related more to the FAST Act versus the state specific initiatives that they passed? Thank you.
First of all, I'm not sure I can separate the FAST Act from the state funding in Georgia. All I'd tell you is it's good with good. Georgia was a big disappointment for us for last year. It's going to be a big win for us this year with those jobs starting. There's a number of them that have started around the state of Georgia, and the state continues to work really hard to get more work out. I would also tell you the state of Georgia still has ground to catch up to be able to get that money to market, but they're working hard on it, and they're a whole lot better off today than we were six months or a year ago. As far as the FAST Act is concerned, the appropriations actually increased the federal funding by 5%.
It was about $1.8 billion, Vulcan states were big winners with that. Of that $1.8 billion, $1.2 of it, well, almost $1.3 of it will go to our states, to our 20 states. We're looking forward to we're enjoying the FAST Act now, and we're looking forward to enjoying even bigger money coming from the FAST Act to our states.
Kathryn, a couple of just other quick comments for you and others on Georgia. Let me reflect a little bit on kind of quarterly timing. You all do a lot of great work on this, so you probably know this. If we're looking a year ago and we're looking at Georgia, we're trying to guess when certain projects are going to start. Now we're a little more focused on how well the DOT, GDOT, and our contracting customers will get the work done. Will they be able to stay on schedule and actually take our product in the timing we expect? As it relates to Q2, we're keeping a little bit of an eye just on shipping pace to projects that have already started.
In total, we feel like GDOT and the contracting base in Georgia is beginning to a little bit catch the tiger by the tail, if you will, and begin to get caught up. I don't know that they're all the way where they want to be. They've just got a lot of stuff they're trying to do. We'll just kind of keep an eye on that. That's really a timing issue, not a trend issue. As you know, the work is there, and as we sit here now, the work has started for the most part. It's just a question of how quickly we get the shipments out. It's another good example, Georgia, by the way, Catherine, of a market, it's a great example of a market where that visibility to public and private, where that visibility links back to pricing.
Even in a quarter where, again, due to weather impacts, volumes were down in Georgia, pricing was up a good healthy amount, again, due to that visibility.
Following up, just Georgia is a good example. As we look at other states, could you be in a situation where you are tighter in availability of certain type of rock, particularly clean stone, once you get into the peak of the construction season? Do you feel pretty good where you are today?
I think that we will see a number of markets around the country get tight on stone. Some of that will be in general, like we mentioned, some of coastal Texas, and some of that would be specific sizes. I think we have the firepower to deliver, but I think that you could see some tightness in some markets.
Kathryn, sometimes that tightness, and for others, is due to logistics reasons, e.g., rail service quality, or in some cases, tight trucking capacity. It's not due to an inability of Vulcan to produce.
Correct
Just to be clear. Coastal Texas is probably a good example of that, where we would expect to see, although there's a bit of a drag on our pricing in Q1, we expect that to turn, and some of that is turning as we speak, and it's reinforced by our taking ship deliveries. It's reinforced by our getting the dredging started. We're getting more full draft ships in. That's an example where we see potentially a pretty sharp turn.
I think the same thing is true for some of Georgia and Florida also.
Yeah.
Great. Final question on margins, and I think you touched on it earlier in the Q&A, but I just want to make sure that I'm clear, is around incremental margins. Just in light of some of the variety of puts and takes with cost, diesel, dredging, et cetera, how should we think about core company incremental margins for the remainder of 2018? Thank you.
If you mean by core company, it's called same store, as in Aggregates USA.
Yes.
I think I'd expect to see numbers that look more like what you saw in 2015, as we had volumes 5%+ growth, than certainly anything that we saw in 2017. Our focus, again, is very much on compounding improvements in unit margins. We expect to deliver significantly further improvements in the balance of the year on our unit margins. Again, if you're looking at incremental flow-throughs, incremental revenue to incremental gross profit, you really are going to want to look at it on a same-store basis.
Yeah.
The DD&A per ton on Aggregates USA is going to be double that for the rest of the company. Again, it just will distort the answer, you want to look at that on a same-store basis.
Yep. That was the intention, just to look at it on a same-store basis.
Yeah.
Yep.
All right. Thank you for answering my questions today.
Thank you.
Okay, we'll go next to Jerry Revich with Goldman Sachs.
Morning, Jerry.
Yes, sorry, good morning, everyone. Hi. You folks in the press release spoke about the weakness in Georgia, South Carolina, and Virginia in the first quarter. I'm wondering, can you just talk about how demand trended in those markets in March and April? How much did those markets snap back compared to what you laid out as having played out in the first quarter in those markets in the press release?
Yeah, I think first of all, that was all weather related. The underlying demand is there. When the sun's out, just like everything else, they're shipping. In fact, they're really strong in all of those states, from Georgia all the way up through Virginia and in Florida. As we moved into March and April, like the rest of the country, all that is moving up. One of the places I think is interesting is that's particularly a place of the country where weekend work is particularly strong, which just underscores that the work's there. If those contractors didn't have the work and hadn't been pushed, they wouldn't spend the overtime to work Saturdays and Sundays. That's a very good signal of what we saw in March and April of, and even right now, what's going on with weekend work.
I don't think we have any worries about the Southeast. In fact, as I said in an earlier question, I would tell you that places of the Southeast are really stars.
We have some minor concerns about rail service quality in some of those rail-served markets. It's really not Atlanta, but other parts of Georgia. Jerry, I think that's just something we're working through. In some ways, it's both an opportunity and a challenge. I don't know that it necessarily affects any full-year outlook. If your question is, have we seen reversals from the Q1 pattern? The answer, I think, is yes.
Okay. I appreciate the context then. In terms of the logistics issues, we have rail costs, and in addition, we have the transition on the vessels. Can you just give us a rough sense, putting the logistics issues together, how much of a headwind was it this quarter, and how would you expect that to play out over the course of the year? Is there a line of sight on the logistics issues dissipating in the next couple of quarters?
I'm going to separate those in two buckets. First of all, let's talk about the rail. As you know, all the railroads are having challenges right now, service challenges, and we're working hard with them to make sure that we service our customers. There's both challenges and opportunities to that. The challenge is going to be that we got to meet our customers' demands, and we also got to meet those demands in growing markets, which is a good thing. There will be some tightness there. That's compounded by tight trucking and rising fuel costs. Again, while that is a challenge, it's also an opportunity. Tight markets tend to be good for us. On the other side of this, which leads me into the shipping, we have the most flexible logistics network in the country.
We're on multiple markets, we're on multiple rails, we do have flexibility to get our customers product. On top of that, we have substantial barge service. We have the most sophisticated rail service throughout the Gulf and on the East Coast. Those logistics, while they are challenges, I think they're also opportunities, and that's our job to make sure they're opportunities. As we said, John, I've said a couple of times, it'll create tight supply. On our ships and our logistics, we're still working through. We've gotten a long ways through our headwinds that we saw last year with the storms and ships. The dredging on the Texas Gulf is happening now. We'll be doing that in the second quarter, so we'll be past that as we enter the third quarter.
We've had one ship delivered in April, and we'll have the other before the end of the second quarter. We'll be working out of those headwinds also in the second quarter. I think to sum it up from a shipping perspective on blue water, we should have any of that behind us as we hit the third quarter.
Jerry, we think that's an important point. It's all consistent with our full-year plans, but it won't all be done in Q2.
Okay. Thank you. Lastly, it's been a while since you folks had asphalt gross profits that were break even. Can you just talk about a little bit more on the moving piece in the quarter? I would have expected California to have had a pretty good quarter given with the amount of work. Maybe you could just frame out how the quarter played out and whether you expect to return to growing gross profits in the asphalt business in the second quarter.
Yeah. First of all, I would tell you that gross profits in asphalt will grow throughout the year. The first quarter I describe is two things. This is a place we have felt some inflationary pressures. The first quarter, same source asphalt business was impacted with big increases in liquid AC and raw materials and energy costs. We're trying to pass that through. It'll take us a number of quarters to get that passed through, but that'll happen. It always does. The other thing that was in there in the quarter that is not as clear is the full-year ownership of our asphalt business in Tennessee. As you can imagine, in middle Tennessee, that is dramatically affected by weather in January, February. You're just not going to do anything. You're going to lose money in those first two months.
I would also tell you that we did very well with that business in Tennessee last year. We will do even better with that business this year in middle Tennessee. By the way, they are very busy right now. I was up there in April, got firsthand to meet the crews and the management team. Extremely well run, extremely well integrated. This is going to be a star for us in 2018. We're thrilled with that business. Let the year flow through. We got to catch up on prices to overcome inflationary pressures. We'll see the Tennessee business pop back as it's popping back now.
Okay. Thank you.
We'll go next to Phil Ng with Jefferies.
Hey, guys.
Morning.
Morning. Sounds like you're pretty encouraged that the DOTs have finally started to catch up on funding, now that you have some of these bottlenecks easing, could we see some of that pent-up demand from last year catch up in 2018? Can you provide some upside to your mid-single digit volume guidance?
I think that what we see in highways is consistent with what's in our plan. We are seeing some of that DOT catch up and flow through, particularly in Georgia. You'll see some of that, obviously the mature states like Texas and Florida are doing very well. I think that what really is the catch up is the large projects that have started and are shipping. There's a whole bunch of that in Georgia, but there's also a fair amount of that around the country. I could give you half a dozen jobs, I'll give you a few, but the Poplar Island job in Maryland, in Winston-Salem, the Northern Beltway, which is over 300,000 tons, I-77 in Charlotte.
We've talked a number about three or four big jobs in Georgia, but you got Fort Myers SR 52 widening, which is quarter million tons, Highway 109 and 11 in Tennessee, which is a couple of hundred. San Antonio, the 281/1604 job, which is a million and a half ton job. The Connect 202 in Arizona has started, which is over time, a two and a half million ton job. It's really those big jobs have started, starting to flow through, and then you're starting to see more small work come out of the DOTs as bidding activity goes up. For example, Texas will bid $1 billion a month between now and August in their highway lettings.
Just sounds like it's pretty broad-based.
How I characterize that with a CFO hat on is a little bit of a, the work is there, as Tom said. Work has been there. We've seen good patterns. Even if you go back to Q4, we saw when we had reasonable weather, we had good shipments.
That's great.
The DOTs and the contractors are not all the way caught up. They're making progress, but we're still going to be a little bit cautious, even in terms of our own cost structure. These are hard things they're trying to do, and different than they've done for a long time, and highly complex projects. We want to keep a close eye on the actual shipment pace. Just to be more clear, we are not upping our full year volume guidance today.
Got it. That's helpful. Some of these DOTs appreciating that it's still a work in progress. Can you give a little more color? Any states that stand out? You called out Georgia, then it sounds like Texas and Florida is doing okay, but any color around that would be helpful.
Well, you've got three states that passed bills last year. California, South Carolina, and Tennessee. Particularly California, has done a great job of accelerating. They've already gotten $4.5 billion of work out there in the Fix It First projects. You're not going to see those states get much work through until 2019 and 2020. We've got a few paving jobs, really overlay jobs that we'll see in Tennessee. I think there's 11 that constitute about 1 million tons that we either have backlogged, we're bidding, or we know we're going to bid on. You'll see a little bit of that. Those new states, I wouldn't put much into this. Georgia, we've talked a lot about, so I'm not going to cover that. Texas. Texas is still working through because they continue to increase their funding.
They have one of the more mature, sophisticated DOTs to get big work out. We just talked about $1 billion a month in lettings between now and August. They're still working to get out. Don't remember, in 2019, they got another $2.5 billion that are going to come into play with Proposition 7. All of these states, while they're doing better, they still got a hill to climb to get that money to work.
Okay. That sounds pretty promising. It sounds like that gives you a lot of runway, even maybe for things to kind of pick up a little bit going into 2019. From a pricing standpoint, you talked about how there are certain markets that you called out, like Georgia, Florida, and Texas. You could see incremental round of price increases. I assume that's on top of what's been out there for January and April. Can you kind of size up the % of your portfolio that could see that benefit and just kind of help us figure out from a timing perspective, when would that potentially kick in?
Yeah. I would tell you that the vast majority of our markets are seeing price increases. Most of these markets are really ripe for price improvements. You've got the private work that's been there. Now you've got the public demand that's coming on. People have visibility both to small and large projects. Our April price increases were in place. As I said earlier, in a number of markets, we're pushing up what I call bid work or project bid work, and that'll continue as the year progresses. We talked about some markets that'll see midyear. I mentioned parts of Georgia and parts of Florida and some on the East Coast, maybe some in North Carolina, to name a few. Remember, we'll continue to work off that older work. I think what gives us confidence in price, I'd summarize in four different places.
Number one, the April price increases have stuck. Some midyear price increases are coming. Number two, you heard us talk about tight supply in some markets. Number three, remember, we've got an inflationary environment that's going on, which only reinforces price increases. Fourth, and probably most important, is visibility. Not just ours, but our competitors and our customers' visibility to take risk on price because there's more work behind it. If you were a member of our management team and sat through meetings and we visit every state in the first quarter, and by the way, that was really good for us, it'd be very clear to you what our pricing strategy and philosophy is across all products and all product lines. I think it's shaping up to be a solid year on pricing.
Got it. Just one last one from me. From a SAG Performance in the quarter is certainly very constructive. Seeing some nice benefits on the restructuring front, but you did reiterate that $335 million target for the full year. Were there any one-time benefits in the quarter, or could there be actually some opportunity here? Thanks.
No unusual one-time benefits in the quarter. Obviously we're tracking ahead of guidance, and our trailing 12 months, I think is around $320 million. We're absolutely still focused on the productivity of SAG, as Tom said, it's about being better, not just leaner. At the moment, we're holding our guidance on this consistent, and we're holding our full-year guidance, as we said, full-year EBITDA, full-year net earnings guidance consistent. We're just one quarter in. As excited as we are about how the season's ramping up, we're one quarter in. I would tell you, if you got a little bit behind SAG, and this is not new for us, DS has been growing a little bit. We're making investments in sales and customer service, as you'd expect. The A&G has been shrinking a little bit as we get leaner, better on the administrative side, all things you'd expect us to do.
I think we tell you that that is an ongoing effort, not something we did just in January and we're done. I think it will continue to be leaner and better in some places, and we'll continue to make some investments in areas that ultimately drive better customer service and drive higher margins, whether that's sourcing, logistics capabilities, et cetera.
Got it. Thanks a lot. Good luck on the quarter.
Thank you.
We'll go next to Adam Thalhimer with Thompson Davis.
Hey, good morning, guys. Nice quarter.
Thank you.
Just two quick questions. First of all, can you provide any additional color on backlogs today versus prior years? Secondly, can you put a percentage on how many markets might see a second price increase?
We don't quote numbers on backlogs for all kinds of different reasons.
We give you a directional sense.
There's up. Actually, our backlogs are up in the vast majority of our markets. I think as important as that is our booking pace is faster than it was a year ago, faster than it was a quarter ago, and it is picking up speed. That really demonstrates the health of the increase in demand and what's going on in the markets. If you look at beneath that and look at the different segments of private and public, the private continues, the public has picked up a lot. I think as I said earlier, that's one of the things that really gives us confidence in our full-year projection, and it reinforces what we saw in March and in what we saw in April and things to come.
If we have another way to put it is, on the volume side, if we had any risk in our full-year projection, it's not because of the backlogs, it's not because of the booking pace of where we stand, it's just how quickly that backlog work turns into shipments.
Yep.
Back to the point about they're making progress, DOTs and large contractors, they're not all the way there. These are big, complicated things they're trying to get done. While some of the tight logistics issues we face are really good for pricing, do they limit in some ways how quickly we can convert backlog work into shipments? Just trying to be a little cautious by not extrapolating from Q1 to the rest of the year. At the same time, everything we see reinforces our full-year outlook.
Okay. Any chance I can get you to put a % on second price increase? I mean, in terms of % of regions.
Well, first of all, it's market dependent. It is broad spread. I mentioned places like parts of Georgia, parts of Florida, maybe parts of North Carolina and the East Coast. We talked about coastal Texas and the opportunities in coastal Texas. That's one piece of it. The other piece is not just an announced price increase, but it is the bid work, and this is really important, as you bid projects all along, you continue to press that price. We talked about base in Houston as an example of that. We talked about base in Florida and sand in Florida and in Georgia. That's really tough to do. The key there is those four things that I named that reinforce price, particularly visibility, that allow you to continue to press that up.
Remember, those downstream customers are also pressing their prices because of that visibility and the knowledge of the work to come. Put differently, this is the same thing we said in February, but what we're seeing in the market conditions is such that we expect pricing momentum to continue to build throughout the year, almost being a little bit back-end loaded relative to maybe prior cycles, in part because of work we're working off and new work we're working into, in part because of the dynamics that Tom mentioned, and in part due to things like future price increases in certain markets. Pricing, I'd expect to continue to play out and build momentum over the year, but I think you could tell from Tom, our direction is pretty clear.
Okay. Great color. Thanks, guys.
Thank you.
Okay, we'll go next to Garik Shmois with Longbow Research.
Hi, thank you. Just wanted to beat the dead horse on mid-year pricing. Just wondering, first off, did you get mid-year price increases in any market last year? Maybe just looking backwards, when was the last time that you were able to talk about
mid-year opportunities and raising prices on bid work. Are we going back to the last cycle, or have there been more recent instances in which the market was supportive of this type of development?
I would tell you probably in the last couple of years, that's been tough. Really, 2015 is when we saw that activity. Again, I think what's helping that this year and the difference between 2018 and maybe 2016 and 2017 is the visibility on the public side, and more work being bid, and it continued to bubble up. Again, coastal Texas is a little different. It's a place, a market that turned, that went down and then substantially and now has turned. That one would be an outlier. The big shift or the magnitude of the shift is bigger there than most markets. To answer your question, probably 2015.
Okay. That's helpful. My last question is just on the downstream profit outlook. You maintain your guidance for profit growth in asphalt and concrete. I'm wondering, are you expecting to grow margins in those businesses this year, just given asphalt inflation and the timing of getting pricing, and then also material increases on the concrete side? Is the profit growth coming from both margin expansion and top line, or is it just limited to top line right now?
On margin expansion and asphalt, it's going to be tough. We got catch up to do with the, as I talked about, the inflationary factors. Unit margin asphalt, as they always do when liquid goes up, are tough, but they always catch up, and we'll be plugging it out as the year goes along. I think that you will see, I believe, margin expansion in ready-mix as the year progresses. I'd be more bullish on that than I would be on asphalt. I do think as we stated, our guidance is we're going to stick with it at this point and think we will do that.
Great. Thank you.
Okay, moving next to Scott Schrier with Citi.
Hi, good morning.
Good morning.
You talked a lot about the areas where you've had a lot of strength and the different price increases and everything. I'm curious if for some of the regions that have been more challenging for you and whether they've weighed down your top-line pricing even on a like-for-like basis. Can you talk about if any of those regions, if you're seeing the potential for them turning a corner on both pricing and also on the volume front?
The one that I mentioned and probably stands out the most is coastal Texas, which it really brought down. It fell pretty dramatically in volume and price in 2016 to 2017 with that turn in coastal Texas, along with some tightness in supply and both the public and now the private work coming back. I think that one's a good example. I would tell you that a place is we're going to struggle with price, and our struggle with price is Illinois. It's just a tough market for us. Another place would be Louisiana. We've had huge energy work in Louisiana in 2015 and 2016, and we just didn't have in 2017 and don't have in 2018. Now with the energy projects starting to bubble back up, we got our fingers crossed that Louisiana will follow coastal Texas, and we'll see more work.
That's not going to happen in 2019. Excuse me, that's not going to happen in 2018. Maybe in 2019, maybe in 2020, and it'll be a watch for us. Those would be a couple that I think that are two or three that I would point out, and they're different cadences. As I said, we're struggling two of them. One of them we've seen a turn and expect prices and volumes to come up in the Texas piece, but not in Louisiana or Illinois.
They'll still be a drag in the total company reported results.
Yes
To your point, in 2018, no big change there. Team is doing a great job locally, by the way. Great job on cash generation. From a pricing point of view, don't see that turning in 2018 in those markets.
Yeah, if you look at quality of earnings in Illinois, I'd tell you to John's point, very good. They just dealt a tough hand right now, but they're playing it well.
Got it. Can you talk about the concrete business a little more? We saw the strong ready-mix pricing. Is that a function of market fundamentals or geographic mix as well? I know in the past you've had a lot of strength in Virginia. It looks like that was a market that was impacted by some of the severe weather.
I think that it was impacted by severe weather. I think as we look at Northern Virginia and the non-res in Northern Virginia is going to be a strength for us. They'll have a good year. It goes back to California will have solid price increases. Texas, we believe, will do fine. That's really San Antonio with prices. It goes back to the same thing, particularly in those three markets, and that is visibility of work to come and our customers being able to take risk and put more profitability in it, and we're able to put more profitability in ours. It's really the same dynamics in those three markets as aggregates, and it's a function of the structure of those markets and the demand in those markets.
Great. Thank you.
It is true that the acquisitions and divestitures we've made on balance will improve our. They have a positive impact in our material margins, is the way I would think about it. Thank you.
Okay, we'll go next to Timna Tanners with Bank of America Merrill Lynch.
Morning, Timna.
Hey, good morning, guys.
Morning.
Wanted to just touch base, if we could, on the cost side with cost inflation being a big theme across so much of the material space. If diesel prices continue to creep up, should we assume that that's immediately offset or that there's a lag effect there? Is it small? What kind of cost inflation is embedded in your guidance at this point?
Well, I think, as we said, our diesel impact in the first quarter diesel was around $0.11. While it was a headwind, we still finished below year-over-year total cost of sales. I think that it will take time, as we say always is, to pass that along. You heard me talk about it is happening, but it'll be throughout the year. As far as how we feel about our operating position, we said we got a few things to work off in Q2 from the storm and shipping effects, we'll get those behind us, and we're working hard to do that. I think that our plants and our operating folks are in good shape. We're executing well, and that was underscored in our first quarter performance.
Timna, I'd also just highlight that given it's such a big topic out there, I'd remind folks, you on the call know this, we're so aggregates focused that inflationary pressures play out a little bit differently for us than they might for other materials company and certainly for other industrials. Reminder, in aggregates, we own our biggest cost input. It's the capital, it's the quarry.
Diesel's a relatively small factor, a swing factor, given the weight to value ratio, higher diesel creates a wider economic moat, an asset around individual quarries. It's ultimately a good thing for us. There will be a lag in terms of it passing through the pricing, absolutely. When it spikes up like it did this quarter, you won't see it all flow through in the same quarter. Even with an intermediate term view, it's not something that I know our team is concerned about. In fact, strategically, we kind of like higher diesel prices. We're in a little bit of a different position now. In an individual quarter, in the very short term, is it a drag? Yes. Strategically, much less of an issue for us, given that we own the key input, than it would be for many other businesses.
No, that's understood. Thanks. If you wouldn't mind, just can you give us any updated thoughts on M&A opportunities? Are they compelling, small, large, any color that you can provide there? Thanks.
I would tell you kind of business as usual. There's plenty of them out there. We continue to be picky and make sure they're the ones that fit us in the markets that we want, make sure we don't overpay and that we're disciplined, and that plus the integration as we talk about. Yes, they're still there. Yes, we're still looking at them. Yes, we're going to be very selective in what we choose to pursue, much less what we choose to buy.
All right. Thank you.
Thank you.
we'll go next to Stanley Elliott with Stifel.
Hey, guys. Thank you for fitting me in.
Hey, Stanley.
Most things have been asked, but did have a quick question for you on California. Certainly, a lot of positive things to say out there. Is there a way to parse out kind of that core business that you have versus SB 1 or maybe to kind of talk about your thoughts, just as the general market as a whole, ex SB 1?
Yeah. We touched on that in the beginning, and for the sake of repeating myself, I will. All of 2018, we would tell you, and what we have in our numbers and our plan is pre SB 1. If we get some SB 1 in there, it will be a bonus for us for the year. The public side is coming on. We had actually a down year in public in California in 2017. 2018, we are seeing it be up. That'll help both our aggregates and asphalt business. All of that is pre SB 1. The private side continues to remain strong, particularly res, and with that, non-res is not solid. You've heard me talk about price increases, very strong in Northern California and solid in Southern California. Our operating performance is actually improved. This time last year, we were facing pretty tough floods in Southern California.
Although we saw rain in March, we didn't see those kind of problems. I think that throughout 2017, we did a lot of things in California to improve some specific large operations. We're seeing those results. We saw it in the first quarter, and we'll see it throughout the year. Our numbers, while we're very excited about SB1, I would tell you that's post 2018 at this point. If we get something, we will welcome it. We'll be thrilled with it, but I wouldn't expect it in 2018.
Perfect.
Stanley, in terms of the current outlook, a lot of people forget that in California, just because SB1 gets a lot of appropriate attention, that there's been a very significant increase in just very local funding, Measure M and other items. Some of that will play out in our plans and more maintenance activity from a public side, overlay work, smaller projects. Some of that is in our 2018 plan. For all the folks in SB1, people forget that there's very large increase from things like Measure M or other local initiatives.
Yep. No, that's fair. The general theme, at least from my takeaway, is that the public side is looking a lot better than it was last year. Do you think that's because of the change that the administration has put through on the regulatory front? Or do you think it's that state DOTs have finally been able to catch up and be staffed and things like that to get projects out the door?
In my mind, it'd be the second half. It would be, and we've talked a lot about this, state DOTs are starting to catch up. They're starting to deploy those funds. They're starting to put them to work. There's a lot of headlines about the big work, and I named a few of them, but it's not just the big work. It is also a lot of small work, a lot of overlays, a lot of small road widenings. You're just seeing them catch up both to their funding and to the improved FAST Act funding.
Starting to catch up, not all the way.
Oh, no, they got a long ways to go.
So
Sounds great, guys. Thanks, and best of luck.
Thank you.
We'll go next to Brent Thielman with D.A. Davidson.
Thank you.
Brent. Morning.
Any guess how far off normalized levels of demand Houston or kind of the Gulf Coast overall might be right now? I'm just trying to think about how far down that business went and kind of the upside from here.
It went down volume wise, double digit. Probably more than that.
Two years in a row.
2 years in a row. Some of that, remember, we had very large energy projects that were very profitable and because of our unique ability to deliver by ship, so they were very high priced, and all of that all of a sudden went away. That coupled with you saw the private side and res and non-res go down. The highway stuff has been kind of a staple, but those 2 really hurt that market, the pricing in that market, the volume in that market, and the profitability. The important thing is we've seen a turn there, both on the private side with res and the small non-res. Like I said, we're seeing the energy and the highway work in coastal Texas and Houston has been good. It is growing. It continues to grow. This will be a process to work through.
It's not all of a sudden like we go right back to 2015 and 2018 in coastal Texas. The important thing, it has turned, it is moving the other way. We thought that was going to happen in 2017, and then we got slammed with hurricanes and storms, and that also we had to work out of that. We're looking forward to an improved year in 2018, and over the next 2 years, getting back to what we saw in 2015.
Okay. That's helpful. Tom, the hangup kind of executing these public jobs in Georgia, Southeast for weather-related reasons over the last, I guess, 3 quarters or so. Has that held up the DOTs and kind of related agencies in terms of getting new work out just because there isn't the capacity to serve it? What I'm getting at, if that's the case, could we run into a situation where we have a hole or lag again in terms of those markets and working through.
I don't.
public side of things?
I think what held up those big jobs, and obviously weather was an impact in the Q3 with hurricanes and tropical storms in the Southeast, but that didn't hold up the DOTs. The DOTs are still working on Those works have been let. They have been awarded. They were out there trying to get going. All of them were impacted by weather. Others were impacted by right of way issues, environmental issues, contractor issues. That I don't think was a drag on the DOT. In the meantime, the DOT on a parallel course is working on other jobs and other work. I don't think they're in series. I would call it in parallel. The DOTs continue to get better at what they do and what they're doing. As John pointed out, they still got a ways to go, including Georgia's.
Some of the large contractors now are also ramping up their own capacity and getting adjusted-
Yep
to this too.
They did that in 2017.
We don't see a hole, we're trying to be a little bit, I'm going to say cautious, but as cautious in light of some very positive signals, including around backlogs, with respect to how quickly that turns into shipments. Not because it happens in series. It'll still be happening parallel, and it'll build on itself and begin to accelerate. Some of that really is why we see more in 2019 and 2020 than we do in 2018.
Okay. Thank you. Appreciate it.
Thank you.
This does conclude today's question and answer session. I'll turn the call back over to Tom Hill, CEO, for closing comments.
Thank you for your interest in Vulcan Materials Company, and we look forward to updating you, as we move forward in what promises to be a good year for us. Thanks for being here today.
This does conclude today's call. We thank you for your participation. You may now disconnect.