Vulcan Announces Record Third Quarter Sales and Earnings

Vulcan Materials Company (NYSE:VMC) announced today that third quarter net sales, operating earnings and earnings per share from continuing operations were at record levels. Net sales increased 13 percent while operating earnings and earnings per share increased 25 percent and 18 percent respectively, compared to the third quarter last year. Net sales increased approximately $99 million to $848 million. The average price for aggregates in the third quarter increased 15 percent from the prior year’s third quarter, driving operating earnings and margins higher than last year on 6.6 percent lower shipments. Earnings from continuing operations were $1.45 per diluted share, compared to $1.23 per diluted share in the prior year. The effective tax rate from continuing operations increased to 31.0 percent from 25.8 percent in the prior year due to income tax adjustments that were $0.07 per diluted share less favorable. Earnings per share for the current quarter include $0.03 due to an increase in the carrying value of the ECU earn-out, compared to the $0.06 recorded in the third quarter of 2005 (see Table E). Third quarter net earnings were $1.39 per diluted share and include a $0.06 per diluted share loss from discontinued operations. Don James, Vulcan’s Chairman and Chief Executive Officer, stated, "Sales increased in each of our major end use markets leading to higher operating earnings. Our employees achieved these outstanding results in the face of slower residential construction activity in many markets and some temporary deferrals of highway projects resulting from escalating liquid asphalt costs that sharply exceeded prior estimates for these projects. While the excess supply of single family houses is likely to restrain new construction in many markets into 2007, the recent trend of falling liquid asphalt and diesel costs should bring highway bids back in line with project estimates in the future.” Gross profit increased 20 percent as price increases more than offset the effects of lower volumes and higher costs for liquid asphalt, cement, diesel fuel and electricity. As a percent of net sales, gross profit improved to 32 percent from the prior year’s level of 30 percent. In California, Vulcan’s largest state by revenue, gross profit increased over 40 percent. Earnings growth in California more than offset the effects of lower aggregates volumes due in part to wet weather conditions in the second half of the quarter in Virginia, North Carolina and Illinois. Earnings and margins from asphalt and concrete product lines improved as price increases more than offset lower volumes and the effects of higher costs for liquid asphalt, cement and internally transferred aggregates. Other income decreased approximately $6 million from the prior year’s third quarter due primarily to a smaller increase in the carrying value of the ECU earn-out. The third quarter 2006 increase in the value of the earn-out was $4.7 million, or $0.03 per diluted share. This earn-out agreement is accounted for as a derivative instrument, with any adjustments to the carrying value recorded as other income or charges from continuing operations (Table E). We received the first ECU earn-out payment of approximately $128 million during the third quarter. This earn-out runs for four additional years with total cash receipts capped at $150 million. Last year’s tax rate reflected a reduction in estimated income tax liabilities for prior years and a favorable settlement of federal income tax refund claims representing approximately $0.10 per diluted share. Favorable tax adjustments in 2006 totaled $0.03 per diluted share. Through the first nine months of 2006, net cash provided by operating activities was $364 million, an increase of $90 million from the prior year's amount of $274 million. During the third quarter, the Company purchased 2,238,939 shares of its common stock at a total cost of approximately $169 million, representing an average cost of $75.50 per share. Year-to-date, the Company has purchased 6,746,261 shares at a total cost of approximately $522 million, representing an average cost of $77.37 per share. All results are unaudited. 2006 Outlook Mr. James stated, "Through the first nine months of 2006, sales and earnings growth significantly exceeded last year’s record results due to improved pricing and margins in all key products. We expect this pricing momentum to continue and we anticipate strong growth in sales and earnings in the fourth quarter. For the full year, we now expect aggregates pricing to improve 14 percent on flat to slightly lower volumes compared to last year’s record levels, assuming typical weather patterns in the fourth quarter. Overall, we now expect 2006 earnings from continuing operations of $4.55 to $4.80 per diluted share, compared to the $3.30 per diluted share reported in 2005. "Our 2006 earnings guidance for continuing operations reflects $0.05 per diluted share in expense referable to stock options for the full year, including $0.01 in the fourth quarter. Our 2005 earnings from continuing operations did not include any expense for stock options. "We continue to generate significant value for our shareholders through the development and sale of reclaimed and surplus real estate. In the fourth quarter, we anticipate closing a real estate sale contract in California that would result in a net after-tax gain of $0.26 per diluted share. This gain is not included in the $4.55 to $4.80 per diluted share earnings guidance for 2006. "Additionally, our current year earnings guidance does not assume any potential adjustment in the carrying value of the ECU earn-out beyond the $0.17 per diluted share recorded through the first nine months of 2006. "Costs related to our former Chemicals business should result in a full year loss of $0.10 per diluted share from discontinued operations in 2006, including $0.01 in the fourth quarter.” 2007 Outlook Commenting on Vulcan’s outlook for 2007, Mr. James stated, "We are uniquely positioned as a leading supplier of aggregates. Our coast-to-coast footprint includes approximately 300 aggregates facilities serving many of the fastest growing U.S. markets. We expect continued strong growth in sales and earnings in these key markets. "We see excellent potential for additional growth, given relatively low interest rates, falling office vacancy rates and the solid fiscal condition of most states, coupled with projected increases in the more aggregate-intensive infrastructure and private non-residential end use markets. So far in 2006, construction cost inputs for highway projects have increased significantly, particularly liquid asphalt and diesel fuel, resulting in some delays for new contract awards. However, we expect highway construction to pick up significantly in 2007, as a result of higher state tax revenues and an increase of $3.4 billion in the federal highway authorization for fiscal year 2007, along with moderating liquid asphalt costs. Approximately 75 percent of our aggregates shipments go to public infrastructure and private nonresidential construction. "The residential construction slowdown in the U.S. is well documented and has contributed to lower aggregates shipments in several of our markets. However, with mortgage interest rates at relatively low historical levels and household formations increasing in high growth markets, residential construction has the potential to stabilize in 2007 once the excess supply of new houses has diminished. "Our preliminary outlook for 2007 earnings from continuing operations is $5.25 to $5.65 per diluted share. This represents projected earnings growth of approximately 25 percent compared to 2006, when $0.32 per diluted share referable to ECU adjustments and the gain on sale of contractual rights to mine a quarry in Atlanta, Georgia is excluded from 2006 earnings. We are in the process of fully developing our 2007 operating plans and will provide more definitive sales and earnings guidance when we issue our fourth quarter 2006 financial results.” In keeping with past practice, the Company will give quarterly and annual earnings guidance. The Company will issue press releases to revise such guidance if it is reasonably certain that comparable earnings per share, on either a quarterly or an annual basis, will be outside its latest published estimates. Conference Call Vulcan will host a conference call at 10:00 a.m. CST on October 31, 2006. Investors and other interested parties may access the teleconference live by calling (866) 356-3095 approximately 10 minutes before the scheduled start. International participants can dial (617) 597-5391. The access code is 88602887. A live webcast will be available via the Internet through Vulcan's home page at vulcanmaterials.com. The conference call will be recorded and available for replay approximately two hours after the call through November 7, 2006. Vulcan Materials Company, a member of the S&P 500 index, is the nation's largest producer of construction aggregates and a major producer of other construction materials. Certain matters discussed in this release, including expectations regarding future performance, contain forward-looking statements that are subject to risks, assumptions and uncertainties that could cause actual results to differ materially from those projected. These risks, assumptions and uncertainties include, but are not limited to, those associated with general economic and business conditions; changes in interest rates; the timing and amount of federal, state and local funding for infrastructure; changes in the level of spending for residential and private nonresidential construction; the highly competitive nature of the construction materials industry; pricing; weather and other natural phenomena; energy costs; costs of hydrocarbon-based raw materials; increasing healthcare costs; the timing and amount of any future payments to be received by the Company under two earn-outs contained in the agreement for the divestiture of the Company's Chemicals business; and other risks, assumptions and uncertainties detailed from time to time in the Company’s SEC reports, including the report on Form 10-K for the year. Forward-looking statements speak only as of the date hereof, and Vulcan assumes no obligation to update such statements. (Tables Follow) Table A Vulcan Materials Company and Subsidiary Companies (Amounts and shares in thousands, except per share data) Three Months Ended Nine Months Ended Consolidated Statements of Earnings September 30 September 30 (Condensed and unaudited)   2006    2005    2006    2005      Net sales $ 848,296  $ 749,367  $ 2,298,349  $ 1,934,116  Delivery revenues 81,025  80,649  227,822  206,590  Total revenues 929,321  830,016  2,526,171  2,140,706    Cost of goods sold 575,008  522,111  1,603,662  1,404,252  Delivery costs 81,025  80,649  227,822  206,590  Cost of revenues 656,033  602,760  1,831,484  1,610,842    Gross profit 273,288  227,256  694,687  529,864  Selling, administrative and general expenses 67,854  62,387  198,076  169,511  Other operating (income) expense, net (1,284) (37) (26,808) 4,173  Operating earnings 206,718  164,906  523,419  356,180    Other income, net 4,810  10,673  27,659  12,907  Interest income 914  6,484  5,034  12,118  Interest expense 7,713  9,150  19,689  28,023  Earnings from continuing operations before income taxes 204,729  172,913  536,423  353,182  Provision for income taxes 63,421  44,592  173,972  101,475  Earnings from continuing operations 141,308  128,321  362,451  251,707  Earnings (loss) on discontinued operations, net of tax (5,243) (6,105) (8,777) 46,407  Net earnings   $ 136,065    $ 122,216    $ 353,674    $ 298,114  Basic earnings (loss) per share: Earnings from continuing operations $ 1.48  $ 1.25  $ 3.68  $ 2.46  Discontinued operations (0.06) (0.06) (0.09) 0.45  Net earnings per share $ 1.42  $ 1.19  $ 3.59  $ 2.91    Diluted earnings (loss) per share: Earnings from continuing operations $ 1.45  $ 1.23  $ 3.60  $ 2.41  Discontinued operations (0.06) (0.06) (0.09) 0.45  Net earnings per share $ 1.39  $ 1.17  $ 3.51  $ 2.86                        Weighted-average common shares outstanding: Basic 95,708  102,320  98,546  102,503  Assuming dilution 97,679  104,397  100,671  104,376  Cash dividends declared per share of common stock $ 0.37  $ 0.29  $ 1.11  $ 0.87  Depreciation, depletion, accretion and amortization from continuing operations $ 57,583  $ 55,759  $ 165,599  $ 162,944  Effective tax rate from continuing operations   31.0%   25.8%   32.4%   28.7% Table B Vulcan Materials Company and Subsidiary Companies   (Amounts in thousands) Consolidated Balance Sheets September 30 December 31 September 30 (Condensed and unaudited)   2006    2005    2005    Assets Cash and cash equivalents $ 68,651  $ 275,138  $ 253,594  Medium-term investments -  175,140  192,720  Accounts and notes receivable: Accounts and notes receivable, gross 483,356  480,647  540,709  Less: Allowance for doubtful accounts (4,572) (4,277) (4,166) Accounts and notes receivable, net 478,784  476,370  536,543  Inventories: Finished products 209,216  170,539  158,853  Raw materials 10,300  9,602  8,727  Products in process 1,876  1,589  1,525  Operating supplies and other 16,705  16,022  16,774  Inventories 238,097  197,752  185,879  Deferred income taxes 18,735  23,184  42,446  Prepaid expenses 27,070  17,138  20,643  Total current assets 831,337  1,164,722  1,231,825  Investments and long-term receivables 6,985  6,942  6,919  Property, plant and equipment: Property, plant and equipment, cost 3,758,480  3,481,708  3,429,186  Less: Reserve for depr., depl., & amort (1,992,564) (1,877,741) (1,838,360) Property, plant and equipment, net 1,765,916  1,603,967  1,590,826  Goodwill 625,076  617,083  646,833  Other assets 180,924  196,170  178,318  Total assets $ 3,410,238  $ 3,588,884  $ 3,654,721        Liabilities and Shareholders' Equity Current maturities of long-term debt $ 32,547  $ 272,067  $ 242,120  Short-term borrowings 236,750  -  -  Trade payables and accruals 174,510  142,221  146,788  Other current liabilities 131,074  164,726  158,318  Total current liabilities 574,881  579,014  547,226  Long-term debt 322,267  323,392  355,308  Deferred income taxes 297,191  275,065  300,432  Other noncurrent liabilities 302,801  284,872  287,870  Shareholders' equity 1,913,098  2,126,541  2,163,885      Total liabilities and shareholders' equity   $ 3,410,238    $ 3,588,884    $ 3,654,721  Table C Vulcan Materials Company and Subsidiary Companies   (Amounts in thousands) Nine Months Ended Consolidated Statements of Cash Flows September 30 (Condensed and unaudited)   2006    2005    Operating Activities Net earnings $ 353,674  $ 298,114  Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation, depletion, accretion and amortization 165,618  163,392  Net gain on sale of property, plant and equipment (3,672) (4,219) Net gain on sale of contractual rights (24,850) -  Contributions to pension plans (1,112) (28,847) Increase in assets before initial effects of business acquisitions and dispositions (155,481) (199,154) Increase in liabilities before initial effects of business acquisitions and dispositions 29,688  35,655  Other, net (247) 9,197  Net cash provided by operating activities 363,618  274,138      Investing Activities Purchases of property, plant and equipment (299,147) (151,210) Proceeds from sale of property, plant and equipment 5,909  5,069  Proceeds from sale of contractual rights, net of cash transaction fees 24,850  -  Proceeds from sale of Chemicals business, net of cash transaction fees 141,916  209,327  Payment for partner's interest in consolidated Chemicals joint venture -  (62,701) Payment for businesses acquired, net of acquired cash (20,498) (93,314) Purchases of medium-term investments -  (283,765) Proceeds from sales and maturities of medium-term investments 175,140  270,255  Change in investments and long-term receivables 172  620  Other, net (13) -  Net cash provided by (used for) investing activities 28,329  (105,719)   Financing Activities Net short-term borrowings 236,750  -  Payment of short-term debt and current maturities (240,470) (1,291) Payment of long-term debt -  (8,253) Purchases of common stock (521,632) (123,125) Dividends paid (109,109) (89,046) Proceeds from exercise of stock options 23,036  35,394  Excess tax benefits from exercise of stock options 12,991  -  Other, net -  46  Net cash used for financing activities (598,434) (186,275)   Net decrease in cash and cash equivalents (206,487) (17,856) Cash and cash equivalents at beginning of period 275,138  271,450  Cash and cash equivalents at end of period   $ 68,651    $ 253,594  Table D     1. Supplemental Cash Flow Information   Supplemental information referable to the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30 is summarized below (amounts in thousands):   2006    2005    Supplemental Disclosure of Cash Flow Information Cash paid during the period for: Interest, net of amount capitalized $ 19,678  $ 26,170  Income taxes 172,126  173,053    Supplemental Schedule of Noncash Investing and Financing Activities Liabilities assumed in business acquisitions -  4,709  Accrued liabilities for purchases of property, plant and equipment 16,540  9,608  Proceeds receivable from exercise of stock options 676  -  Accrued liabilities for purchases of treasury stock 310  -  Noncash proceeds from the sale of the Chemicals business: Earn-outs -  128,167  Working capital adjustments -  14,213    2. Net Sales and Unit Shipments (Amounts in thousands)   Three Months Ended Nine Months Ended September 30 September 30 Net Sales by Product - Customer 2006    2005  2006    2005    Aggregates, excluding freight to remote distribution sites $ 543,695  $ 503,491  $ 1,502,449  $ 1,312,397  Freight to remote distribution sites 37,166  32,563  107,990  92,042  Aggregates 580,861  536,054  1,610,439  1,404,439  Asphalt mix 155,448  113,254  366,760  261,847  Concrete 69,700  68,703  206,784  185,535  Other products 42,287  31,356  114,366  82,295    Total net sales $ 848,296  $ 749,367  $ 2,298,349  $ 1,934,116    Unit Shipments   Aggregates Customer tons 65,272  69,787  185,187  184,827  Internal tons (a) 3,601  3,938  9,960  10,363  Aggregates - tons 68,873  73,725  195,147  195,190    Asphalt mix - tons 3,427  3,537  8,732  8,645    Concrete - cubic yards 752  870  2,319  2,428    (a) Represents tons shipped primarily to our other operations (e.g., asphalt mix and concrete). Revenue from internal shipments is not included in net sales as presented in the accompanying Consolidated Statements of Earnings. Table E   Reconciliation of Non-GAAP Performance Measures   (Amounts in thousands, except per share data)   Three Months Ended Nine Months Ended September 30 September 30 2006    2005  2006    2005    GAAP Earnings from continuing operations before income taxes $ 204,729  $ 172,913  $ 536,423  $ 353,182  Gain on sale of contractual rights (1) (1) -  (24,850) -  Gain from adjustment in the carrying value of the ECU earn-out (2) (4,734) (9,620) (27,720) (9,350) Earnings from continuing operations before income taxes, excluding gains on sale of contractual rights and adjustment in the carrying value of the ECU earn-out (3) $ 199,994  $ 163,293  $ 483,853  $ 343,832      GAAP Earnings from continuing operations, net of tax $ 141,308  $ 128,321  $ 362,451  $ 251,707  Gain on sale of contractual rights, net of tax (1) (1) -  (14,850) -  Gain from adjustment in the carrying value of the ECU earn-out, net of tax (2) (2,837) (5,765) (16,613) (5,603) Earnings from continuing operations, excluding gains on sale of contractual rights and adjustment in the carrying value of the ECU earn-out, net of tax (3) $ 138,470  $ 122,556  $ 330,988  $ 246,104      GAAP Diluted earnings per share from continuing operations $ 1.45  $ 1.23  $ 3.60  $ 2.41  After-tax gain per diluted share resulting from the sale of contractual rights (1) -  -  (0.15) -  After-tax gain per diluted share resulting from the adjustment in the carrying value of the ECU earn-out (2) (0.03) (0.06) (0.17) (0.05) Earnings per share from continuing operations, excluding gains on sale of contractual rights and adjustment in the carrying value of the ECU earn-out, net of tax (3) $ 1.42  $ 1.17  $ 3.28  $ 2.36      (1) During the second quarter of 2006, the Company recognized a $25 million pretax gain from the sale of its contractual rights to mine the Bellwood quarry in Atlanta, Georgia. The City of Atlanta plans to convert the property into a city park and greenspace as part of a larger economic growth and development project around the city's perimeter. The Company worked with city and county officials to achieve this mutually beneficial transaction. Over the next two years, the Company will continue operating the quarry as it transitions customers to its existing 12 quarries in the greater Atlanta area and to a new, zoned site purchased in 2004 in anticipation of the Bellwood sale.   (2) In June 2005, the Company sold substantially all the assets of its Chemicals business, known as Vulcan Chemicals, to a subsidiary of Occidental Chemical Corporation, Basic Chemicals. Subject to certain conditions as defined in a separate earn-out agreement, Basic Chemicals is required to make future payments based on ECU and natural gas prices during the five-year period beginning July 1, 2005, capped at $150 million (ECU earn-out or ECU derivative). The ECU earn-out is accounted for as a derivative instrument; accordingly, it is reported at fair value. Changes to the fair value of the ECU derivative are recorded within continuing operations pursuant to SAB Topic 5:Z:5.   (3) The Company prepares and reports its financial statements in accordance with U.S. Generally Accepted Accounting Principles (GAAP). Internally, management monitors the operating performance of its construction materials business using non-GAAP metrics similar to those above. These non-GAAP measures exclude the effects of two items, described more fully above: 1) the gain on the sale of contractual rights at the Bellwood quarry in Atlanta, Georgia, during the second quarter of 2006 (included in other operating income, net in the accompanying condensed consolidated statements of earnings), and 2) the ECU earn-out obtained in connection with the June 2005 sale of our Chemicals business, including the associated changes in carrying value (included in other income, net in the accompanying condensed consolidated statements of earnings).   In Management's opinion, these non-GAAP measures are important indicators of the ongoing operations of our construction materials business and provide better comparability between reporting periods because they exclude items that may not be indicative of or are unrelated to our core business and provide a better baseline for analyzing trends in our core operations. The Company does not, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. The Company believes the disclosure of the effects of these items increases the reader's understanding of the underlying performance of the business and that such non-GAAP financial measures provide investors with an additional tool to evaluate our financial results and assess our prospects for future performance.