Economic Stimulus Plan Could Provide Some Relief to Aggregates-Manufacturer Vulcan Materials Company

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Researched by Industrial Info Resources (Sugar Land, Texas)--Vulcan Materials Company (NYSE:VMC) (Birmingham, Alabama), a leading manufacturer of asphalt, concrete, cement, and construction aggregates such as sand, crushed stone and gravel, recently released its fourth-quarter and full-year earnings report for the 2008 fiscal year, which ended December 31. In a conference call regarding the earnings, Chairman and CEO Donald M. James said, "The fourth quarter brings to a close a very challenging year. The economic uncertainty, turmoil in the financial markets and tighter credit standards weakened the construction activity further in 2008."

Vulcan has seen reduced year-over-year aggregate demand for 11 straight quarters. In 2008, aggregate shipments were 204 million tons, down 12% from the previous year, although price increases helped offset some of this volume decline. In addition to the company's aggregate segment, Vulcan also operates two other business segments: the Asphalt Mix and Concrete segment and the Cement segment. For the year, net sales were up 11.7% across all segments. For the quarter, however, primarily because of a sharp decline in aggregate demand, net sales fell 6.3%. While the average selling price of aggregates increased 6% in the quarter, shipments fell 23%.

"The financial and economic turmoil in the U.S. is unprecedented, and the external factors affecting the construction industry continue to present unique challenges for our business. Aggregates demand and our shipments have declined for three consecutive years," said James. "We continue to respond aggressively to further weakness in demand for our products by making tough decisions regarding operating hours, production rationalization, and manning levels. As a result, employment levels across the company are down 14%."

James believes that Vulcan will be well positioned once the economy begins to recover. "The cash earnings generated on each ton of aggregates sold in 2008 was higher than in any other period in our history. The increased level of unit-profitability supports our optimism about the earnings potential of our business when demand begins to recover," he said.

Vulcan's CEO also expressed cautious optimism in regard to the proposed economic stimulus package currently making its way through Congress. "The economic stimulus plan...includes much-needed funding for transportation and other infrastructure-related projects that will benefit the construction industry. We have ample production capacity located in attractive markets, and we have strong unit cash margins. Any increase in demand for our products due to the stimulus bill can be met quickly, efficiently and profitably. Key Vulcan-served states such as California, Florida and Texas should receive the largest percentage of highway funding out of the stimulus plan and are likely targets for above-average funding for other stimulus spending for infrastructure across their large population base."

Industrial Info, as part of its North American Metals & Minerals Database, is monitoring $255 million of construction, maintenance and expansion projects of Vulcan that are currently under way or planned for the future. The company is nearing completion of the expansion of its cement plant in Newberry, Florida. Construction of the $165 million project began in September 2006 and was originally scheduled to be completed early this year. Because of a lack of funding and the economic downturn, however, construction was temporarily placed on hold. Sources have indicated that construction has now resumed and that the plant is about 80% complete and should be finished later this year.

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