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Vulcan Drives Inorganic Growth With Aggregates USA Buyout

By Zacks Investment ResearchStock MarketsJan 02, 2018 09:14PM ET
Vulcan Drives Inorganic Growth With Aggregates USA Buyout
By Zacks Investment Research   |  Jan 02, 2018 09:14PM ET
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Leading producer of construction aggregates in the United States, Vulcan Materials Company (NYSE:VMC) has been expanding its footprint in the best markets in America via acquisitions. In line with this expansion strategy, Vulcan has acquired Aggregates USA, LLC for $900 million.

With this addition, Vulcan will serve high-growth markets throughout the southeastern United States comprising Georgia, Florida, Tennessee, South Carolina and Virginia. The company will benefit the most from state highway funding programs in Georgia, Florida, South Carolina, Tennessee, and Virginia, and on the continued private sector growth across the region.

Notably, Vulcan will be able to serve Georgia with three granite quarries, two of which have rail capabilities, thereby expanding its reach in important markets. It will also have 16 rail distribution yards in Georgia, South Carolina and Florida.

Meanwhile, according to the planned agreement with the United States Department of Justice, Vulcan sold 17 Aggregates USA quarries and other facilities in Tennessee and Virginia to Blue Water Industries LLC for $290 million. The company divested 13 active quarries and yards and four inactive quarries in the Knoxville and Tri-Cities, TN, and Abingdon, VA, areas.

Inorganic Drive Strong

Vulcan has followed a systematic inorganic strategy since becoming a public company in 1956 for expansion. The company has wrapped up various bolt-on acquisitions that had contributed significantly to its growth.

In the first nine months of 2017, Vulcan closed acquisitions totaling $212.4 million. These include ready-mixed concrete facilities, an aggregates marine distribution yard and building materials yards from California, two aggregates facilities from Illinois, an aggregates facility from New Mexico, and two aggregates facilities, asphalt mix operations and a construction-paving business from Tennessee.

These buyouts boost Vulcan's ability to serve customers and bring in operational and commercial synergies.

However, the company is susceptible to bad weather conditions as most of its products are used outdoors in the public or private construction industry. Inclement weather affects both the company’s ability to produce and distribute products and also the demand, as construction work can be hampered by weather. In the third quarter of 2017, hurricanes Harvey and Irma had a major impact on Vulcan's operations and results. Aggregates shipments were lowered by at least 1.5 million tons during the quarter.

Vulcan’s shares have gained just 3.2% in the last one year compared with its industry’s growth of 4.4%. Estimates for 2018 moved south by 2.2% over the last 30 days, reflecting concerns for the stock's prospects.

Nonetheless, the company’s strong position in aggregates and various bolt-on acquisitions is expected to drive this Zacks Rank #4 (Sell) stock’s performance in the upcoming quarters.

Key Picks

A few better-ranked stocks in the Construction sector are Cementos Pacasmayo S.A.A. (NYSE:CPAC) , Century Communities, Inc. (NYSE:CCS) and NVR, Inc. (NYSE:NVR) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Full-year 2018 earnings for Cementos Pacasmayo are expected to increase 41.9%, while that of Century Communities is likely to rise 60.6%.

NVR is expected to witness 16.8% growth in 2018 earnings.

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Vulcan Materials Company (VMC): Free Stock Analysis Report

Cementos Pacasmayo S.A.A. (CPAC): Free Stock Analysis Report

NVR, Inc. (NVR): Free Stock Analysis Report

Century Communities, Inc. (CCS): Free Stock Analysis Report

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Zacks Investment Research
Vulcan Drives Inorganic Growth With Aggregates USA Buyout

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Vulcan Drives Inorganic Growth With Aggregates USA Buyout

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