Vulcan Materials Company (NYSE:VMC)

CAPS Rating: 2 out of 5

The Company is a producer of construction aggregates and a major producer of asphalt mix and concrete. Its business consists of the production, distribution and sale of construction aggregates and other construction materials and related services.


Player Avatar tekennedy (80.48) Submitted: 5/5/2010 5:03:37 PM : Outperform Start Price: $51.72 VMC Score: -47.86

I enjoy the economics of the aggregate industry due to the low competition environment which they operate(a high weight to value ratio means that transportation from further sources is uneconomical). Pricing historically has gone nowhere but up(this company in particular hasn't had a year where average pricing per ton for the company has went down since the 70's) as they can continuously raise prices to the point where pricing plus transportation is just less than the next closest source. Even in the last year where volume dropped to a level unseen in the last decade or so pricing improved.
The company's customers are roughly 50-50 split between residential/commercial housing and government. Government spending is historically less volitile but recent funding complications have led to less demand from this segment as well as residential/commercial. From this point I see volumes rising significantly in the next 2 years from this unsustainable point and the company should become profitable again. Over the longterm I believe growth from pricing plus acquisitions of new aggregates companies should ensure the company grows faster than the S&P. Also its pricing compared with what I'd consider normalized earnings is either at or below the S&P in general.

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Member Avatar DCHSTOCK (< 20) Submitted: 7/28/2010 10:15:16 PM
Recs: 0

have to disagree with you on Vulcan. You do have good analysis on the company though. Prices never go up forever. We have seen it in the aggregate industry now with re crushing road and companies feeling they can produce rock by purchasing there own quarries. Also I agree with your split but all roads lead to residential. 1. Your neighborhood is built. 2. Commercial real estate builds where they see growth(AKA the neighborhood that was just built!) Then it trickles down from there. If you see residential growth coming back soon than buy all you can of Vulcan stock. I work at an aggregate company and prices that took years to get up are now butchered down by mom and pop quarries and competition taking the gloves off. One could say that these companies work in a semi oligopoly but that is not the case anymore with such scarce jobs. The one impressive thing with Vulcan is there Mexican venture in Playa Del Carma. They produce rock at the Mexican quarry(cheap rock) which is shipped to Texas, New Orleans and Mobile Alabama at a cheap cost per unit. The bad thing about Vulcan is that is in debt to its ears with the Purchase of Florida Rock in which the audit of the company caused them to have an impairment charge(Basically means they paid to much). Also with tax dollars to local governments down the roads will have to be fixed by piece meal style instead of new blacktop. Either way you can almost look at this as like pay me now or pay me later on the standpoint of fixing city roads. So with state funding down and commercial real estate down with empty strip malls all over the South along with homes for sale everywhere for the short term(2 to 3 years) Vulcan should feel the pain. Also with the debt the company I do not see any acquisitions in there future. I might see them being purchased by an international cement or aggregate company that wants exposure to the US market. Martin as well as Texas industries from a debt standpoint are in my opinion better purchases at this time but good luck with Vulcan

Member Avatar tekennedy (80.48) Submitted: 8/6/2010 2:57:48 PM
Recs: 0

Thanks for the well thought out critique. I agree with you on most points.
1) Although pricing doesn't generally go up forever I believe due to the low cost per ton there will be little competition from substitute products allowing the pricing to increase more than inflation. Also although individual regions have gone down in price (namely west coast and florida) geographical diversity has allowed overall pricing to be more stable.
2) I'm actually not a fan of the aggregate sites where product is delivered by boat as the cost of delivery varies based on economic factors and energy costs. I believe sites located close to growing locations have a low cost competitive advantage. Martin has a greater quantity of this style of operations and that combined with higher valuation led me to choose Vulcan as an investment.
3) I dislike the debt levels of the company and the dilutive impact of its most recent stock offering and factored that into its valuation. I think it will take a few years to fully digest that acquisition and understand housing will take years to come back but I consider the company a longer term holding which is a great hedge on inflation.
4) I hadn't thought of this as an acquisition target. I'd almost be dissapointed as there are only 2 pure plays(this and martin, texas industries has greater cement and another large segment I forget at the moment) but it is a real possibility at todays prices.

Member Avatar tekennedy (80.48) Submitted: 9/21/2010 1:20:38 AM
Recs: 0

Doubled down. Buying from the discount bin

Member Avatar tekennedy (80.48) Submitted: 12/16/2010 2:16:56 PM
Recs: 0

Sold a call I'd purchased yesterday. I plan to buy the stock again on a pullback.

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