Vulcan Materials Company (NYSE:VMC) Q2 2023 Earnings Call Transcript August 3, 2023

Vulcan Materials Company beats earnings expectations. Reported EPS is $2.29, expectations were $1.91.

Operator: Good morning, ladies and gentlemen, and welcome to Vulcan Materials Company’s Second Quarter 2023 Earnings Call. My name is Angela, and I will be your conference call coordinator today. [Operator Instructions] Now I will turn the call over to your host, Mr. Mark Warren, Vice President of Investor Relations for Vulcan Materials. Mr. Warren, you may begin.

Mark Warren: Good morning, and thank you for your interest in Vulcan Materials. With me today are Tom Hill, Chairman and CEO; and Mary Andrews Carlisle, Senior Vice President and Chief Financial Officer. Today’s call is accompanied by a press release and a supplemental presentation posted at our website. Please be reminded that today’s discussion may include forward-looking statements, which are subject to risks and uncertainties. These risks, along with other legal disclaimers, are described in detail in the company’s earnings release and in other filings with the Securities and Exchange Commission. Reconciliations of any non-GAAP financial measures are defined and reconciled in our earnings release, our supplemental presentation and other SEC filings. As the operator said, in the interest of time, please limit your Q&A participation to one question. And with that, I’ll turn the call over to Tom.

Tom Hill: Thank you, Mark, and thank all of you for your interest in Vulcan Materials today. Our results through the first half of 2023 highlight both the attractive fundamentals of our aggregates-led business and Vulcan’s commitment to compounding profitability through our solid execution of our Vulcan web selling and both with operating strategic disciplines. I’m proud of our teams for delivering yet another quarter of improvement in our trailing 12-month aggregates cash gross profit per ton. That marks 20 of the last 22 quarters. This exceptional execution, coupled with better-than-expected demand environment gives us confidence in our ability to deliver between $1.9 billion and $2 billion in adjusted EBITDA this year. In the quarter, we generated $595 million of adjusted EBITDA, which is a 32% improvement over the prior year.

Gross margin expanded by 480 basis points, and importantly, each product line delivered year-over-year improvement. In the Aggregates segment, gross margin improved by 290 basis points. Cash gross profit per ton improved by 22% with healthy year-over-year price improvement and moderating year-over-year cost increases. Shipments declined a modest 1% in the quarter, but were varied across markets. On one hand, we saw a solid growth in our key southeastern markets, where we have the most attractive Aggregates footprint. And we were pleased with the rebound of sales in California after a very wet first quarter. On the other hand, weather continued to be a challenge in Texas. And remember, softer residential activity wait on most markets. All geographies benefited from the continued strong underlying price environment.

Our mix adjusted sales price improved 15% in the quarter. Attractive price growth should continue to drive improvement in our unit profitability as we progress through the back half of this year and into next year. In Asphalt, cash gross profit nearly tripled from the prior year to $66 million, and cash unit profitability improved over $10 a ton. Volume growth of 16%, price improvement of 9% and lower liquid asphalt costs all contribute to the stable results. Gross margin improved almost 1,200 basis points. Concrete cash unit profitability improved by 24% in the quarter, and this is despite lower volumes that were impacted by the slowdown in residential construction activity. Prior year Concrete segment benefited for the contribution of the now divested New York, New Jersey and Pennsylvania Concrete operations.

Now starting with residential. Let me provide a few thoughts about each end market. To date, the impact of the slowdown in residential activity has not been as significant as most of us initially feared. Recent permits and starts were showing that some areas have reached the bottom, and the cinema among homebuilders is much improved. These trends along with the solid underlying fundamentals for residential demand growth such as low inventories, favorable demographic trends and employment growth in our market suggests that single-family demand will bottom in the second half of this year and be — and then start recovering thereafter. In the private nonresidential construction segment, starts remained at healthy levels, with particular strength in large manufacturing and industrial projects.

Our strong Southeastern footprint and logistics innovation efforts are making us a supplier of choice on many of these projects. As an example, we have booked and are currently shipping to projects such as battery plants, electric vehicle manufacturing facilities, LNG facilities and large warehouse parks. On the public side, demand is unfolding largely as we expected, Funding from the infrastructure investment and Jobs Act is beginning to flow through and the pipeline is building with trailing 12-month highway starts up over 20%. 2024 state budgets are at very healthy levels. And internally, our bookings and backlog reflect this increased activity. The level of this year’s shipments will depend upon how quickly this increased activity converts to shipments.

We expect accelerating growth into next year and continued growth for the next several years. Trailing 12-month other infrastructure starts are also over — up over 20%. In addition to significant IIJA funding for water, energy, ports and shipments, strong state and local revenue support growth in non-highway investments. Based on the improved private demand backdrop, our first half shipment — and our first half shipments, we now expect Aggregates volumes to decline between 1% to 4% in 2023 and as compared to our initial expectations of a decline between 2% and 6%. Of course, regardless of the demand environment, our focus is to consistently improve unit profitability and grow earnings that we create value for our shareholders. We’re well positioned to do exactly that this year and deliver approximately 20% year-over-year improvement in both our cash gross profit per ton and adjusted EBITDA.

And now I’ll turn the call over to Mary Andrews for some additional commentary on our second quarter and an update for 2023 outlook.

Mary Andrews Carlisle: Thanks, Tom, and good morning. Our strong operational performance through the first 6 months in this year exhibits the benefits of our strategic focus on enhancing our core. We have improved our adjusted EBITDA margin by 350 basis points year-to-date through a combination of gross margin expansion and disciplined SAG cost management. This operational execution and resulting cash generation have allowed us to deploy capital toward each of our long-standing priorities, to improve our return on invested capital and to maintain the strength of our investment-grade balance sheet. Over the last 12 months, we have invested $677 million in maintenance and growth capital including strategic greenfields. Additionally, we have deployed $340 million for acquisitions, and we’ve returned $271 million to shareholders via a combination of dividends and share repurchases.

We have improved our return on invested capital by 110 basis points on a trailing 12-month basis. And we have reduced our leverage on a net debt to adjusted EBITDA basis to 2x at June 30, 2023, from 2.5x at June 30, 2022. We are well positioned to execute on our strategic objectives of further enhancing our core and also expanding our reach. Talent and technology are critical to achieve our business objectives, and we continue to invest in both while remaining focused on further leveraging our SAG costs. Trailing 12-month, SAG expenses as a percentage of revenue have improved by 50 basis points. Now let me shift to the updates to our full year guidance. As Tom mentioned, we now expect to generate between $1.9 billion and $2 billion of adjusted EBITDA in 2023, a 17% to 23% improvement over the prior year.

Our revised outlook results in the update to our aggregates volume expectations that Tom described, in addition to the momentum in our Asphalt business. With our non-aggregates businesses now in margin recovery mode, we expect to generate approximately $295 million of cash gross profit from our downstream businesses. With 50% to 55% of the total expected from Asphalt and 45% to 50% of the total expected from Concrete. We continue to expect to spend between $600 million and $650 million on maintenance and growth capital. Additionally, we expect to spend approximately $200 million on opportunistic purchases of strategic reserves in California, North Carolina and Texas, 3 important markets for Vulcan Materials. Because reserves are critical to our long-term success, our land portfolio is extensive and a strategic focus for us.

We take a disciplined approach to securing high-quality reserves, the timing of which often depends on a combination of availability, alternative use of the cash and tax efficiency. We manage the entire life cycle of our land to create maximum value for the business, for our shareholders and for our communities, putting land to work both before and after mining. Our excess properties once completely mined and often reclaimed to their highest and best use can generate significant value such as the 2021 sale of previously mined property in Southern California that was reclaimed for commercial and retail development and sold for over $180 million. Of course, the timing of buying and selling land can be uneven, but our focus is on the strategic management of our land portfolio.

All other aspects of the full year guidance, as reaffirmed or updated in May remain unchanged. I’ll now turn the call back over to Tom for some closing remarks.

Tom Hill: Thank you, Mary Andrews. In closing, I want to thank and congratulate our teams on an outstanding performance in the first half of this year, and I want to challenge them to remain focused on our Vulcan web selling and Vulcan web operating disciplines so that we can continue to compound improvements and drive value for our shareholders. Most importantly, we will remain committed to each other and keeping each other safe. And now Mary Andrews and I will be glad to take the questions.

Q&A Session

Operator: [Operator Instructions] The first question today comes from Trey Grooms with Stephens.

Trey Grooms: Nice work in the quarter.

Tom Hill: Thanks, Trey.

Trey Grooms: So I guess I wanted to touch on the guide specifically the increase in your volume outlook for the year, I think, Tom, and I know you have some things maybe from a high level, but could you maybe go into a little bit more detail on the primary drivers there, especially as you kind of look on the private side, on res and private non-res, and is that adjustment that you’ve made here for the full year based more on what you’ve seen in the results year-to-date or an improvement in the outlook for the balance of the year?

Tom Hill: This last part of that is, I’d say both. We had a strong start, and I think things are looking better than what we had thought at the beginning of the year. Volume in the quarter was only down 1%. It was a great recovery in California, where we had a big washout in the first quarter. Texas was wet in the first quarter, it was wet in the second quarter, causing shipments to be down year-over-year. Interesting in the second quarter, the Southeast was also wet. But after those wet days, we’re seeing a faster recovery in these markets. I mean, the volumes go up as soon as it drives out, volumes pop and so that’s good news for all of us. The private demand has been stronger than we anticipated. Both single-family and multifamily shipments have held up better than I think our original projections.

Nonres has also been better, as we said, driven by the heavy side. So that’s why we raised our guidance to negative 1% to negative 4%. Highways, I think, finishes the year about where we thought low single digit. We got really backlogs and bookings are growing. So we’ll really build in 2024. But at the end of it, the private side was just stronger — has been stronger and will be stronger than we originally anticipated.

Operator: The next question comes from Garik Shmois with Loop Capital.

Garik Shmois: Just wanted to piggyback on Trey’s question with respect to the volume outlook. I was wondering, if you could speak a little bit more just for the light non-res side that the players are recognizing that the heavy piece has been strong. Are you seeing any change in trend there? And then also highways are — it sounds like as expected this year. Just curious if there’s any visibility to what kind of growth we might anticipate into 2024.

Tom Hill: I’ll take non-res first. As I said, it’s been a lot better than we thought. It’s really driven by as you would expect, warehouse, distribution center. And now we’ve got the heavy industrial projects coming on, which have been very helpful. I would say a little bit of risk in some geographies and some sectors next year as we’ve seen maybe some slow in starts in Texas and warehouses. That said, if you look at that segment, warehouse segment in some of our stronger markets like — strong markets like Georgia, Florida, California, Arizona, we’re still seeing growth in starts and warehouses in those markets. So a little bit mixed bag of warehouses. I’d say other really good news in non-res is that we continue to see the big growth in the heavy industrial projects in our footprint.

And these projects carry substantial volume needs. We have, I think, 11 of these big projects that we’ve already booked, most of them were already shipping on, and they’ll carry out through 2024. On top of that, we’re currently bidding on a number of projects that, as you know, won’t ship until ’24, ’25. So in this sector, geography really does matter. So better growth in non-res than I think we originally expected. I’m sorry, your second question was on how we demand. It’s really a matter of timing. We’re seeing a lot of growth in — we’re seeing growth in bidding. The funding, as you know, the federal side, the state side and the local side is very good. Highway lettings continue to build our bookings in our backlogs and highways continues to build.

And as you know, what we’re bidding today, and what we’re looking today, we’ll ship in ’24. So again, low single digit in the sector in ’23, but is setting up very well for ’24 and ’25 and ’26.

Operator: The next question comes from Stanley Elliott with Stifel.

Stanley Elliott: Could you guys talk about the pricing environment? You mentioned pretty broad-based momentum to the first half of the year. You did leave the pricing guidance unchanged. Is that regional mix? Is it maybe some timing? And to what level are you guys thinking about second price increases and maybe even how that carries off into 2024?

Tom Hill: Yes. I would tell you that the pricing in ’23 is unfolding as we thought it would. Prices were up 15% in the quarter. We expect going to be up 15% that carry through the full year. I think if I step back and remember the sequence in pricing was very different between ’22 and ’23. In ’23, as we told you, we went out much higher, much earlier than we did in 2022. We’ve gotten more price in ’23. We got more price in ’23, and we’ve gotten it earlier. So if you kind of look at — a good reference would be Slide 5 in that deck. And if you looked at ’22, the full year, year-over-year from January 1 to December 31, we went up above 53. So from the beginning of this year until the end of June for ’23, we’re already up $2.28.

So it is compounding, it is much faster, much higher. Second half price increases while they were mixed, will only help that. I’d tell you they’re more — they really are really a good setup for 2024, and we’ll continue this momentum. The reason why is — moment is very good, as you know, but demand is looking better. The private side is better. The public side is growing. So all of us in the sector have very good visibility to a more positive ramp picture. And our customers, I would tell you, continue to be quite confident. So I feel good about the momentum. We’re right now planning our January 1 price increases, which will go out in a few months. And I would expect us, again, to go out higher earlier than we did. What point to this, though, and I think really important is our ultimate goal is to take that price to the bottom line.

And that’s really important that we continue that margin expansion. We’re up low 20s in the — we’re in the first quarter, low 20s in the second quarter. We expect that to continue for the next few quarters. And that is a really important number. And we get there in the second half of the year a little different, probably a little — as a percentage-wise, we got tougher comps on price, but easier comps on costs. So we continue that low 20s margin expansion.

Operator: The next question comes from Mike Dahl with RBC Capital Markets.

Mike Dahl: So I had a question on the downstream businesses. So it’s nice to see certainly good properties and you’re referencing that you’re in margin recovery mode. You took up the guide for this year. When I take a step back and look at kind of your legacy business combined with the previous U.S. Concrete legacy business, it seems like there will be still like quite a bit more work or runway left on what “normal” to be in downstream. So just wanted to get your thoughts on that in terms of timing. Should we be thinking about that, your combined businesses could be like $400 million to $295 million. I’m not saying this year or next, but is that the right normal to be thinking about, or how should we frame that?

Tom Hill: Yes. I think we were very encouraged that this quarter, we had unit margin growth in all 3 product lines. We battled out a little bit in Asphalt for a year or 2. And then we had to catch up. We said we’d catch up this year in Concrete, and we’ve got it in the second quarter. I’ll take the product lines kind of one at a time, really strong quarter for Asphalt. Gross margins were up — were at $66 million. They were $26 million last year. Volumes were up 16% in spite of wet weather in Texas, California and Arizona Asphalt volumes were really strong after a tough first quarter because of rain. Prices were up 9%, and our liquid costs were down. So great quarter in Asphalt. We told you guys we would continue to grow this margin than we are.

So really encouraged by that. And that will only get better as you see the funding from IIJA and local and state, plenty of go to work in the public sector. Ready-mix, we had a really tough first quarter, slow start to the year. We got really blowing up with weather. We covered — I thought the team there did a really nice job, recovering rapidly in the second quarter, and it was really driven by unit margin expansion. So on a same-store basis, our volumes were down actually 11%. A combination of rain in Texas and the impact of single-family demand. Prices were up 10% and unit margins were up 24%. So — we said we’d get back to growth mode and ready mix. I think we are, and I think we’ll continue that recovery. But I’m really proud of the ready-mixed teams recovery and the Asphalt team’s continued performance in those product lines.

Mary Andrews Carlisle: Yes. And Mike, just on a sort of longer-term horizon, I think in the ready-mix business, we still think that low double-digit gross margins is where we need to be. And so if you look — we saw a great recovery in the second quarter. If you look at where we are in the trailing 12. As you said, we still have runway ahead of us, and that’s the margin expansion that we’re looking forward to going forward. And similarly, in the Asphalt business, we’ve sort of long said high single digit, maybe low double-digit, long-term gross margins in Asphalt. We’ve hit 10% on a trailing 12-month basis. And I think with where we are right now with the pricing environment and the demand environment ahead of us, we can still see some expansion there as well, but would still think of high single digit, low double digit over the long term.

Operator: The next question comes from Anthony Pettinari with Citi.

Anthony Pettinari: Just following up on margins. I think you previously pointed to cash cost up high single digits year-over-year this year. I’m just wondering, is that still a fair expectation? And I think costs were up a little bit more than that in 2Q. You talked about comps getting easier in the second half. Just any kind of further detail in terms of the cadence from 3Q to 4Q? And if there’s any sort of good guys or bad guys from a cost perspective that we should especially keep in mind for the second half?

Tom Hill: Yes. We’re getting better costs, but they’re still high. They were up 9% in the quarter. And you really feeling the impact of the inflationary pressures on parts and services. As we said, comps get easier throughout the year, our guidance is the high single, which would put us in kind of mid for the balance of the year. Parts and service costs continue to plague as well. So we have issue of challenges with parts delivery, which hurts our efficiencies. That also is getting better. I think we do have a good guy in the quarter of diesel, which was probably an impact of around $25 million. And our operating efficiencies continue to improve and will help us offset some of this. So we guide you to — for the full year to high single digit, which would put us kind of mid in the back half of the year, but we’re comping over a lot easier numbers.

Mary Andrews Carlisle: Yes. And Anthony, I think most important is it has been a challenging couple of years with inflationary pressure, certainly, but Aggregates is a price/cost winner, and our gross margin on a trailing 12-month basis, returning to expansion in the second quarter, what was great to see. We’ve got a good runway ahead of us on that. And as Tom highlighted earlier, still expect low 20% growth this year in our cash gross profit per ton.

Anthony Pettinari: Okay, that’s very helpful. And maybe just on labor, are you seeing any change there, maybe not in terms of wage rate or dollar, but in terms of availability of labor that’s maybe helping you or hurting you this year?

Tom Hill: It’s still tight. I think it is. The labor market has gotten better from our perspective. I think we’ve also gotten better retention and how we handle that. So still a challenge, but much improved from where it was over the last couple of years.

Operator: The next question comes from Jerry Revich with Goldman Sachs.

Jerry Revich: Tom and Andrews, I wonder if you just talk about how you’re thinking about pricing for ’24, it feels like one of the big lessons learned for the industry from ’22 is the price for a higher level of inflation and inflation is lower, just get the benefits of that. How are you thinking about the magnitude of those January 1 price increase comp that you spoke about versus the historical 4% to 5% CAGR that you and the industry have delivered given the backdrop that we’ve seen over the past 18 months.

Tom Hill: So as I said, I think we’ve got a lot of momentum going with this, and this — the private side demand on this being better is helping that. Everybody’s got good visibility to the public side, I think that if you go out there and talk to the segment to the Construction Materials and Construction segment, people are feeling a lot better about the future than maybe we were 6 months ago. And you can see more of the demand. So that positive sentiment, the momentum on pricing and better visibility to demand, all a good setup for price. As far as magnitude, we’re working on that right now, but I would — our strategy last year was to go out higher on January 1. I thought that worked very well. And I think I wouldn’t see a stream from that strategy as we look to 2024.

Operator: The next question comes from Tyler Brown with Raymond James.

Tyler Brown: So I’m a little unclear on the CapEx. So I think CapEx is expected to be $600 million, $650 million, but does that include the $200 million in land purchases? Or will that be on top of it? Maybe I’m missing it, but those maybe flow on the acquisition line on the cash flow statement. I’m just not sure. And then just, Tom, any color on the M&A pipeline?

Mary Andrews Carlisle: Yes. So Tyler, to clarify, the $200 million that we’re planning to spend on strategic reserves is in addition to the $600 million to $650 million. It will show up as PP&E as it is land. But I think you’re thinking about it right in terms of it being more of an opportunistic strategic acquisition type opportunity. And I’ll let Tom hit M&A.

Tom Hill: Yes. I would simply describe the acquisition with the improving picture and clarity to the private demand and it probably looked a little better than maybe we thought. I would expect that to improve the M&A pipeline. We’ve got — we always have a couple we’re working on, but strategic bolt-ons. But I would think this will help the pipeline.

Operator: The next question comes from Timna Tanners with Wolfe Research.

Timna Tanners: Wanted to follow up on the strategic cash uses. So talking about property purchases, is this because of opportunistic availability? Or is this a need to reach ore reserves, just some color there? And similarly, just wondered if you would comment on the first share buyback since the pandemic and what that might illustrate for your future plans.

Tom Hill: I think we’ll split that question. I’ll take the land piece. You’re exactly right. It is opportunistic. A lot of times, these are when they come up, much like a bolt-on acquisition, and that’s both for buying reserves, but also both buying reserves and selling land are going to be lumpy by nature. You heard Mary Andrews, I think it was in ’21, where we sold $180 million worth of land. So it is — it comes when it comes, it’s hard to plan. Sometimes you can, most of the time you can’t. I would tell you, I’m very pleased with the reserves we got. They were primarily in California, Texas and North Carolina. So glad to give them good use of capital and pleased with the team’s effort on that.

Mary Andrews Carlisle: Yes. And in terms of share repurchases, returning excess cash to shareholders through repurchases has been part of our long-standing capital allocation priorities. We believe appropriately following reinvesting in the business, through operating and maintenance CapEx, after growing the business and returning cash through the dividend. So with attractive cash generation and slower M&A in the first half of the year. We repurchased $50 million of shares in the second quarter. And really, our capital allocation decisions in the back half of the year will just follow our same disciplined approach.

Operator: The next question is from Phil Ng with Jefferies.

Phil Ng: Congrats on the strong quarter. My question is your guidance for average volumes you’re calling for it to be down, call it, 1% to 4%. And you want to down modestly in 2Q. And with housing bottoming and you’re calling out pretty good momentum on the infrastructure and heavy commercial side with frankly easier comps in the back half, it feels kind of conservative. Any one-offs that we should be mindful of, and when we look out to 2024, time you’re talking about how you’re seeing momentum building on infrastructure and heavy on the industrial side. Any color on how to think about the growth profile in those 2 end markets when we kind of look at 2024?

Tom Hill: Yes. I think if you look at the kind of the upside, downside to our guidance, the low side, the minus 4 would tell you that single-family shipments would have to fall off, of course, than we’ve seen. I think we bottom — we’re seeing kind of the bottom in single-family. And I think that it gets better for — hopefully, we get better for 2024. On the high side, at minus 1, we’d have to see a little more volume. How we have — some of our projects we have to start a little faster. It could happen, and that’s why we got the range where we do. I do think that the heavy piece and he is going to help us in the second half. I think it’s going to be more help in 2024 on the heavy industrial.

Phil Ng: Is there a way to think about how that growth profile is going to look next year? I mean, low single digits for Infra. Is that like a mid- to high single-digit growth story next year?

Tom Hill: On other infrastructure, you mean?

Phil Ng: Just infrastructure in general, right? I mean, Tom, you talked about low single-digit growth this year, right? So when we look out to 2024 with all the lettings have been bidding actively flowing through, is that like a mid-single-digit growth or high single-digit growth?

Tom Hill: I think it’s too early to call. We just got to see more. I would address that we haven’t talked about the non-highway infrastructure is also looking very good. Like highways, the local state and federal funding is extremely healthy, and that’s IIJA in it. Starts and the other non-highway infrastructure were up in probably 6 months, it was up 18% and trailing 3 is up 20%. So good for ’23, probably again low single digit but much better for ’24.

Operator: The next question comes from Kathryn Thompson with Thompson Research Group.

Brian Biros: This is actually Brian Biros on for Kathryn. Just on the Asphalt business, can you just touch a little bit more on the performance there? Maybe the volume growth specifically, just kind of what projects are you seeing come to market in that business that it’s more repair work, or maybe it’s more new work coming down the pipeline?

Tom Hill: It’s — as far as the paving is both. You’re seeing both new and recovery. You do have — I mean, and overlays I was pleased with the volume growth because we had a lot of rain in Texas, which is a big asphalt. Flip side of that is California and Arizona probably had some catch-up from the first quarter, which we just didn’t do much at all. I am very pleased with the pricing performance and the unit margin performance. So I think a really good start to the year in Asphalt. We’re back in unit margin growth mode and the growth in funding for highways is only going to help this product line.

Operator: Next question comes from Adam Thalhimer with Thompson Davis.

Adam Thalhimer: Great quarter. Tom, I think you characterized the midyear price increases as mixed. What was that? I think there was hope a month or 2 ago, it might be better, and does that bode well for January increases next year?

Tom Hill: Yes. Remember, as I said, the sequencing from ’22 to ’23 was very different. We intentionally went out much higher, much earlier in 2023. So kind of as expected, the midyear was successful in some markets. It was successful in some market segments. It will have a little bit of an impact on ’23, but it’s going to have a much larger impact on ’24, and that’s simply a matter of timing from timing from project pricing to shipment and also maybe some backlogs. It does impact 2024. I don’t think it slows any momentum for January 1 price increases. Again, that strategy of higher early work is really good in ’23, and we’ll get that strategy towards ’24. But — so that’s — I would tell you that as expected.

Operator: The next question is from Keith Hughes with Truist.

Keith Hughes: Give us some update on the situation in Mexico and Macquarie there and to the process. Any sort of movement at all?

Tom Hill: So the short answer is the same. No news. We’ve got the NAFTA claim. We’ll have the final hearing on that — on the NAFTA tribunal this year. We should have a result of that in 2024. We feel very good about our position. We feel very good about our case. We feel very good about the evidence, but we won’t have — we’ll finish the legal proceedings this year and have a final ruling in ’24.

Keith Hughes: And what would be the best case scenario if you’re successful in that?

Tom Hill: I think that we get a large check and because of the shutdown of our business. The magnitude of that, we can’t disclose because we have a confidential agreement with the tribune.

Operator: Next question comes from David MacGregor with Longbow Research.

David MacGregor: Tom, nice quarter. I wanted to maybe just ask a little bit on the guidance and you talked about the third quarter being in California, Texas in the second quarter. What’s your sort of best estimate of the carryforward tons into the second half due to the disruptive first half weather?

Tom Hill: I think you saw that in California, Arizona in the quarter. You probably will have some of that in the third quarter in Texas. As I said earlier, what I’m impressed with is we’re seeing a lot of speedy recovery after wet days in our markets, which tells me that our — the firepower of our contractors is getting much better. And I’m sure it is because of the work that they got coming out from all the public funding. So I think maybe a little bit in Texas. Everybody else, I think you don’t see a lot of carryforward because they’ve been able to catch up pretty quick.

Operator: The next question comes from Michael Dudas with Vertical Research.

Michael Dudas: Tom, as you provided some very helpful observations on expectations for the second half year in ’24, but if you’re going to isolate either better-than-expected pricing, better-than-expected cost and better-than-expected volume as we maybe exit the ’23 into ’24, what would you point towards or maybe all of the above?

Tom Hill: You’re saying if we go from ’23 to ’24?

Michael Dudas: Yes, as we get through the second half of the year as results come through, your expectation would have been getting to year-end, like say, the high end of your EBITDA range or would it be better pricing, better cost utilization and execution or better volumes?

Tom Hill: I would tell you we probably have the best shot at how we work coming on a little faster than maybe we expected is the flip side of that is obviously that if you see a bigger slowdown on — some — more slowdown on res, which at this point, we don’t think is going to happen unless we’ll take it one at a time. On pricing, I think we’ve got it about right, how we got it because we’ve got a little bit in the midyear, but it’s going to flow through in ’24. The cost piece, I think, again, we’ve got to be mid-single digits at the end of the year. And I think that between efficiencies and comps, we get there. I guess at the end of the day, if I had to pick one, I would probably pick the volume piece of that.

Operator: The next question comes from Brent Thielman with D.A. Davidson.

Brent Thielman: Tom, nice to see the continued improvement in Aggregates gross margin this quarter. I guess my question was more to the quarter and thinking about this going forward. With the East under some pressure, due to weather and some of those variables, was that actually a net negative to your reported profitability in that segment?

Tom Hill: I’m sorry, couldn’t understand what you point out as possibly negative.

Mary Andrews Carlisle: The East. We do have very attractive margins in our East Coast business. I think while there was some wet weather A lot of the strength in the private non-res and these large industrial projects in those areas. And so our volumes were quite healthy in those markets.

Tom Hill: I also would tell you that I think the East — I was impressed with we had wet weather in East, but the recovery time when those thunderstorms will flow through, the next couple of days was impressive.

Operator: It appears we have no further questions at this time. I will now turn the program back over to Tom for any additional closing remarks.

Tom Hill: Well, thank you all for your interest and your time and your support of Vulcan Materials Company. We look forward to talking to you throughout the quarter, and we hope that you and your families stay healthy and safe. Thank you.

Operator: This does conclude today’s program. Thank you for your participation. You may disconnect at any time.