Good morning. Welcome, everyone, to the Vulcan Materials Company Third Quarter 2023 Earnings Call. My name is Angela, and I will be your conference call coordinator today. After the company's prepared remarks, there will be a question-and-answer session. 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.

Thank you, operator, and good morning, everyone. 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 to our website, vulcanmaterials.com. 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 non-GAAP financial measures are defined and reconciled in our earnings release, our supplemental presentation, and other SEC filings. During the Q&A, we ask that you limit your participation to one question. This will allow us to accommodate as many as possible during the time we have available. And with that, I'll turn the call over to Tom.

Thank you, Mark, and thank you all for joining our call this morning. In September, we officially surpassed our prior goal of $9 per ton cash gross profit on a trailing 12-month basis, and that was before reaching the 230 million tons on a same-store basis and despite macro challenges over the past four years that none of us likely anticipated back in the fall of 2019 when we initially set that target. This accomplishment perfectly demonstrates the durability of our aggregates-led business, and I'm really proud of how our teams continue to execute at a high level. Compounding profitability through the solid execution of our Vulcan Way of Selling and Vulcan Way of Operating Strategic Disciplines is at the core of who we are across our coast-to-coast footprint. Today, our teams are intensely focused on our new target of $11 to $12 of cash gross profit per ton. Cash gross profit per ton growth is key to increasing our free cash flow and continuing to create value for our shareholders. In the quarter, we generated $602 million of adjusted EBITDA, which is a 19% improvement over the prior year. Our aggregates, asphalt and concrete product lines all posted another quarter of year-over-year gross margin improvement. In the aggregates segment gross margin expanded by 200 basis points and cash gross profit per ton improved by 18% despite lower volumes. Shipments declined 2% in the quarter with variations across end uses and geographies. Residential weakness impacted the majority of our markets while, at the same time, many of our markets are seeing improving momentum in highway shipments. Private non-residential construction activity related to large industrial and manufacturing projects continued to drive healthy volume growth, particularly in Georgia and the Carolinas. Remember, footprint matters in the aggregates business. Ours is unmatched in the Southeast, where private demand dynamics are currently strongest, and across the country in states where IIJA investments will be the most significant. Pricing momentum continued across our footprint, with all geographies achieving healthy year-over-year increases. Average selling prices improved 15% in the quarter and 3% sequentially, more than offsetting continued inflationary cost pressures. In asphalt, gross margin improved 660 basis points. Shipments increased 11% across most geographies, with particular strength in California. Average selling prices improved 2% and cash unit profitability improved over 50%, benefiting from lower liquid asphalt costs and solid manufacturing cost control. Concrete gross margins improved 120 basis points. Cash unit profitability improved by over 30%, despite lower volume that continued to be impacted by the slowdown in residential construction activity. Remember, prior year concrete segment earnings benefited from the contribution of the now divested New York, New Jersey and Pennsylvania concrete operations. Through the first nine months of the year, we have executed well and successfully navigated evolving macro dynamics. Let me comment briefly on what we are currently seeing in each end use. Starting with residential, we are encouraged by the recent growth in single-family permits and starts in many geographies over the last three months. On the other hand, after providing some support for overall residential demand, multi-family starts have now begun to pull back from historically high levels. Affordability and higher mortgage rates are likely to continue to have some impact on residential activity, but the underlying fundamentals remain firmly in place. Vulcan markets have low housing inventory levels and favorable demographics, driving the need for additional housing. In private non-residential construction, trends differ across categories. As expected, warehouse activity, the largest non-res category, has softened, but manufacturing activity remains at high levels and is concentrated in Vulcan states. We have booked and are shipping on numerous large manufacturing projects where we offer customers a differentiated solution with our advantaged footprint and logistics capabilities. On the public side, leading indicators remain supportive of continued growth in both highway and infrastructure. Trailing 12-month highway starts are up 18% and 2024 state budgets are at record levels. We continue to expect accelerating growth in public construction activity into next year and continued growth for the next several years. Our nimble sales and operating teams are well prepared to deliver value for our customers in any demand environment and to continue to improve unit profitability and drive value for our shareholders. Now, I'll turn the call over to Mary Andrews for some additional commentary on our third quarter performance and upgraded 2023 outlook.

Thanks, Tom, and good morning. Over the last 12 months, we have improved our adjusted EBITDA margin by 220 basis points, posted a 97% free cash flow conversion ratio before our strategic reserve purchases, returned $275 million to shareholders via dividends and repurchases, improved our return on invested capital by 180 basis points, and reduced our net debt to adjusted EBITDA leverage to 1.8 times. Our robust operational performance that Tom highlighted, coupled with our sound capital allocation and strong balance sheet, position us well for continued success on our strategic objectives of further enhancing our core and expanding our reach. As part of our ongoing portfolio optimization, we are currently working to finalize an agreement for the disposition of our Texas concrete assets. As a result, during the quarter, we classified these assets as held for sale and recorded a $28 million pretax charge to adjust the carrying value to fair value. During the first nine months, we have invested $411 million in maintenance and growth capital. We continue to expect to spend between $600 million and $650 million on maintenance and growth capital and $200 million on strategic reserve purchases for the full year. Year to date, our SAG expenses have increased a modest 3% and improved by 30 basis points as a percentage of revenue. Year-over-year increases are due mostly to higher incentive accruals congruent with improved earnings. Our investments in talent and technology to support our business objectives are paying off in operational results. After another quarter of strong operational execution and financial results, we now expect to achieve between $1.95 billion and $2 billion of adjusted EBITDA for the full year 2023, a greater than 20% improvement versus the prior year at the midpoint. We plan on carrying this strong momentum into next year. So I'll now turn the call back over to Tom to provide some initial commentary on 2024 and a few closing remarks.

Thank you, Mary Andrews. While we are still finalizing our operating plans for 2024, let me offer some early commentary on our expectations, and I'll start with the two things I'm most confident in regarding 2024. First, aggregates pricing momentum. For the last seven quarters, aggregate prices have exceeded historical norms, and the price environment remains quite positive. Our Vulcan Way of Selling is driving our commercial execution. We expect prices to improve at least high single-digit in 2024. Second, public demand. We are confident in growing public demand, supported by the recent growth in contract award activity and healthy state DOT budgets for 2024. We expect public construction activity to accelerate next year. Now, there's more uncertainty regarding the impact of the microeconomic environment on private demand that makes it, frankly, a little bit early to call. While current trends in single-family residential activity are positive, uncertainty remains as to how higher rates and affordability challenges may impact that sector overall and influence whether or not it returns to growth next year. In private non-residential demand, similar uncertainties exist as to how a higher rate environment could impact the sector overall. Additionally, if warehouse activity continues to pull back from the recent historical high levels, it may further mask the current strength in manufacturing activity and will be a key driver of the decline - the degree of decline in non-residential demand. We'll give you an update in February as to how we see these dynamics unfolding and what that means for aggregate shipments in 2024. I am confident that our teams are well equipped to deliver unit profitability growth in any macro environment, and they have a proven track record of doing so. Over the last 12 months, even in the face of a volatile macro backdrop and lower aggregate shipments, our aggregates cash gross profit per ton has expanded by 18% and our adjusted EBITDA has improved 17%. As we work to finish this year strong and finalize our plans for 2024 over the next couple of months, we remain focused on keeping our people safe, stay committed to our Vulcan Way of Selling and Vulcan Way of Operating Disciplines and continue to deliver value for our shareholders. And now, Mary Andrews and I will be happy to take your questions.

The first question comes from Trey Grooms with Stephens. Please go ahead.

Hi. Good morning, everyone. So Tom, I wanted to kind of follow up on the last bit of your commentary here. And I appreciate some of your high-level comments around demand and the end markets. But could you maybe give us enough color where we could try to triangulate maybe the possibilities, if it is possible to call at this point, of if volume could be in positive territory next year as you kind of look at those three or four end markets and understanding there's a lot of uncertainty here? But any additional color you could give us around that would be helpful.

Yes. Trey, good morning. Probably a little early to call specifics. I'd say that footprint is going to matter, and I like ours because of the position in the Southeast, it wouldn't surprise me if we saw a modest decline next year similar to what we've seen this year, but we get there a different way. Some challenges on the private side. Single-family we think has hit bottom and is improving. And I think we can get to growth when looking at the full year for 2024. Multi-family, as you know, will be a headwind. So in non-res, I think we've got some - it's a mixed bag. We've got some challenges on the light side and our warehouses. Warehouse starts have gotten a little weaker. The headwinds in light warehouses will be partially offset, I think, by the big industrial projects, which really fit us now. Now, we'll - you'll definitely see growth on the private side, both in highways and non-highway infrastructure, driven by state, local and the big IIJA funding. All that said, to your point, I think I could make a scenario to get flat volume next year, but at this point, I'd probably lean us to a modest decline. But that said, I think we should still realize really strong earnings growth next year, even if we do have a modest decline in volume.

Got it. Okay. Thanks for those thoughts, Tom. I appreciate it. I'll pass it on.

You bet.

The next question comes from Tyler Brown with Raymond James. Please go ahead.

Hi. Good morning.

Hi, Tyler.

Hi. Good morning. I know there's obviously going to be a lot of chatter about volumes, but I kind of want to come back to this idea about unit revenues versus unit costs, because it feels like costs are just remaining stubbornly sticky. Volumes are stubbornly opaque. So despite both of those, though, you guys have expanded unit margins. So can you just talk about your confidence in the durability of expanding those margins into next year, kind of regardless of what the market throws at you? And Mary Andrews, just any thoughts on what unit cost inflation ex-fuel could be? Thanks.

Yes. Let me take - I think I'll take price first. And you are right, we'll expand margins, and I think we'll see another year of really strong unit margin growth even in the face of inflation. And it's really because we carry really good pricing momentum into 2024. That visibility into healthy public demand growth and you couple that with rising energy prices really sets up a good environment for price. Our conversations with our customers for January price increases, I think, have gone very well. If you look at our backlog prices, I think they are very healthy. And as we look at 2024 prices, I'd expect at least high single-digit, but I could also see a path to low double-digit pricing. So at this point, we carry really good - we carry excellent pricing momentum into 2024, and we'll more than offset inflation and see strong unit margin growth.

Yes. Tyler, and in terms of cost and evaluating next year, I think it's probably helpful to think about our recent trends on a trailing 12-month basis. You'll remember on a year-over-year basis, trailing 12-month total cost, cash cost to sales, began rising in the first quarter last year. And we saw it ramp considerably that delta for five quarters before peaking in the first quarter of this year. It's since moderated for the last two quarters modestly. And we expect that trend to continue. We just think it's going to be gradual. So as we think into next year, I think what that means is higher than historical average cost increases in 2024, possibly even high single digits. But as you started with the pricing momentum that Tom described, we can still deliver attractive gross margin improvement and definitely unit profitability improvement next year.

Okay. Excellent. Thank you.

Thank you.

The next question comes from Garik Shmois with Loop Capital. Please go ahead.

Hi. Good morning. Thanks for having me. I was wondering if you can expand on just that last comment, Tom, with respect to seeing a path to low double-digit pricing next year, recognizing you don't have a formal guidance just yet and you do expect pricing to be at least high single digits. Is that based on the conversations that you guys are having now with the customers and perhaps better-than-expected discussions? Does it require carryover from any mid-year increases you got this year? Or does it require any additional mid-year pricing next year? Just any additional color on how we get to low double digits in 2024?

Yes. On price, first of all, I would say that it's high single digit, low double digit. The January price increases conversations gone very well. And as you pointed out, I think as we've seen for the last few years, we'll have mid-year price increase discussions with our customers. It's just part of the norm now. We'll - well, I guess we'll check back in in February with a little more color on that and have a lot clearer view of it. But again, I think as we look forward, it looks pretty good from a price perspective. On cost, as Mary Andrews said, it's - the place is just stubborn for us. And where we've looked past, had low single digit each year. This year - up until 2022, this year, we're at low double digit. But as Mary Andrews says, starting to fall off, but it's - I think it's slower than maybe I would have expected six months ago.

Got it. Okay. Thanks for that.

The next question comes from Anthony Pettinari from Citigroup. Please go ahead.

Hi. Good morning. Tom, on private non-residential, you talked about some of these large manufacturing projects in the Southeast helping to offset weakness in some of the lighter categories. And I'm just wondering, as you look over the past few months and as we think about '24, have you seen any kind of incremental slowdown or delays in some of these megaprojects? Or are they coming kind of on time or maybe faster than expected? I guess, we've seen some news stories about maybe availability of skilled labor and contractors in some cases impacting individual projects. But I don't know if that was something that was widespread or something that you're seeing with your customer set.

Actually, I think just the opposite. We've seen them come on strong. At this point, I think we booked 11 of those very large projects and starting to ship those. It'll be more of a 2024 play. Those 11 that I'm thinking of make up about 12 million tons. As we look out, I think we are probably over the next year, we'll bid another six, seven, eight of these big projects that would constitute another 14 million tons. So the large industrials are going to move the needle for us in 2024. Geography really helps here. There's Georgia, Tennessee, Alabama, Mississippi, where a lot of those are right in our footprint. So our geography has really helped us here. But from our perspective, they've gone probably a little faster than maybe we have anticipated. So - but remember, we are first coming out of the ground, so supply chain probably impacts us less than maybe others does.

Okay. That's very helpful. I'll turn it over.

Thank you.

The next question comes from Stanley Elliott with Stifel. Please go ahead.

Hi. Good morning, everybody. Thank you for the question. Hi, Tom, could you talk a little bit more about kind of what you're seeing at the state budget level? It seems to be kind of a different part of the story maybe from prior years. And just how that can help the public markets accelerate into next year?

Yes. Good question. And actually, it's going well. As you know, we always say it takes two years for the money to go to work. And if you remember, IIJA was past November of '21. So we are at a two-year mark, and we are starting to see it come on. It'll be a gradual growth rate over time. We will see growth in 2024. We see it in the awards. Trailing 12 months is up 17% on awards. But if you look at the - to your point, if you look at the state DOT capital budgets for 2024, they're actually really big. You probably won't see all of that in '24, but it'll sure sets us up well. For example, I think Alabama is up 29% capital budget. California is up 5%, but 50% over three years in California. So we are starting to see that money flow through. Florida will be up 20%. Tennessee's budget doubles. And Texas is up 21%. So this will be a multi-year play. They can't put all that money to work in 2024, but sure sets us up. Some of it will go to work in '24, but it sets us up also for '24 and '25. I think that, again, all this is really setting us up well for '24, '25 and '26.

Perfect. Thanks so much.

Thank you.

The next question comes from Kathryn Thompson with Thompson Research Group. Please go ahead.

Good morning. Thanks for taking my question today. I know there's a lot of questions just about the rest of '23 and the outlook for 2024. But stepping back and looking at the big picture, there's been a bit of activity in the industry from an M&A standpoint and some rumblings of greater slowdown in the economy in 2024, which can be opportunities for growth for companies well positioned as yourself. As you think about these type of opportunities and just areas of growth for Vulcan, how do you position yourself and what geographies and/or products are at top of the list in terms of growth initiatives for Vulcan? Thank you.

Yes. Well, aggregates is always going to be the top of the list, and bolt-ons in our footprint will give us the best returns. As I look at the M&A market right now, from, say, six or eight months ago, it's actually picked up. I think over the next several months, over the next several quarters, we should see some strategic bolt-on acquisitions. And I think that we've got some really good opportunities there. I think we'll also, over the next two years, see a marked pickup in greenfield starts as we got some really good opportunities in adjacent markets to add some new facilities that we've been working on for the last five to 10 years. So I think both will pick up. As always, our biggest growth engine is going to be improving cash gross profit per ton in aggregates. And I think, as we've heard earlier in this conversation, while we've had a great year in '23, I think we'll also have a really strong year because of pricing momentum and our operating disciplines as we look out to 2024. So I'm very encouraged with growth on all fronts at this point.

Okay. Great. Thank you.

Thank you.

The next question comes from Jerry Revich with Goldman Sachs. Please go ahead.

Hi, Tom, Mary Andrews. Good morning. I'm wondering if we could just talk about the opportunity that you folks have from the logistics services and other initiatives outside of price cost. You've had, over the past 10 years, 10% compounded CAGR and profitability. You've had some contribution outside of price cost from those initiatives. And can we just ask you for an update on how that's tracking and the opportunity set over the next couple of years?

Yes. That's - it's quietly gone very well for us, and that's been, I think, a strategic advantage of servicing our customers, particularly on these very large projects. They're complex. They are all - quality and delivery makes a big difference because those projects have a time frame and some of them have damages, if you're not on time and if you can't get it there and get the right product there to hold the project up, it's worth more than the price of aggregates. So I think that, both from a price perspective and a volume perspective, quietly has been a strategic advantage for us.

And the outlook from here, Tom? Any particular acceleration, because it seems like it's contributed to the unit profitability CAGR about 1 points to 2 points generally?

Yes. I think that it will continue to grow. I think we continue to add new features to that, including back office features that make it easier for our customers to do business with us. So I think, again, we're not done with it and we continue to learn and improve upon it.

Thanks.

Thank you.

The next question comes from Mike Dahl with RBC Capital Markets. Please go ahead.

Morning, Tom.

Morning.

Morning. Thanks for taking my question. We talked about the downstream businesses, maybe give us an update on how you're thinking about them for this year within the guide. And then if you do have any initial thoughts on kind of the volume and price or price cost outlook, similar to how you outlined for aggregates for your downstream businesses next year, that would be great.

Yes. So asphalt, it's been a great year. It was a really strong quarter. Volumes were up 11%, margins up 50%. And we really helped - first of all, we are in really good asphalt markets, but we're also obviously helped by liquid - fall in liquid and, on top of that, really good pricing momentum for hot mix. As we look to 2024, I'd say we are still doing the work. I think there's potentially some challenges from liquid pricing going up. I think demand will be okay, but I think we'll give you a lot more color in February. As I looked at ready-mix, as we called out kind of early in the year, where we struggled with unit margins because of inflation and energy last year, we got past that with price as we predicted. Volumes in the quarter were a little challenged on a same-store basis, and that's really driven by single-family construction. But prices were up 10% and unit margins were up over 30%. Next year, I think it's a little early to call because of the volatility in the private side. We just got to see more. That said, I think we do have pretty good pricing momentum going into '24 on concrete.

And I think just longer term, we think about that ready-mix business as kind of low double-digit gross margin. And I think as we move ahead, we'll continue improving back towards that. On asphalt, same thing probably through the cycle, high single digits, maybe low double digits. We're ahead of that right now, because of timing on energy, but the margin recovery in both businesses is exciting, and we'd expect that to continue.

Great. Thank you.

Thank you.

The next question comes from Timna Tanners with Wolfe Research. Please go ahead.

Morning, guys. Thanks for all the great detail. I guess, I know I asked yet, I figured I'd touch on the Mexican quarry updates, because there was some news recently that the government offered you something north of $300 million, and that was not accepted. So just wondering what the latest there is, what you're holding out for. I know you've quoted some press reports of closer to over $1 billion, but just trying to get a sense of maybe any timing there or the latest in that process. Thanks.

Yes. As far as - you got to remember, as far as a number is concerned, we have a confidentiality agreement with the NAFTA tribunal. So we can't quote numbers. There's been some quoted in the Mexican press. As far as the business value of that business is concerned, the simple story is that we're waiting for the results of the NAFTA claim. The NAFTA tribunal heard the case in August. We like our position. We like how that hearing went. We should get those results sometime next year. And as far as the property rights and our property down there, we'll protect our ownership - we'll simply protect our ownership of our land in Mexico.

So them offering you something before the results of the NAFTA panel was just, what, to try to get around that ultimate result maybe? That seems strange.

I can't - I don't want to predict the dealings of the Mexican government. I can't explain that to you.

Understood. All right. Thanks again.

Thank you.

The next question comes from Philip Ng with Jefferies. Please go ahead.

Hi, guys. You guys called out some cross currents in your non-res business, notably between manufacturing and warehouse. Can you help size up these two end markets for you from a percentage of your business or tons? And any nuances between the aggregates intensity of these two different end markets?

Yes. Well, I would tell you, first of all, both of them are really aggregate intensive because they're big and they're flat. But let me just kind of see if I can size up the non-res sector for you. I think, first of all, non-residential demand has been much better in '23 than we originally anticipated back in February, really supported by warehouses and the large manufacturing projects. As we look to '24, I think non-residential construction demand will have some segments up and some segments down. The larger manufacturing projects, which you pointed out, are really good for aggregates and particularly good for Vulcan. As I pointed out, so many of those are right in our footprint, and we are - we've already backlogged almost a dozen of them. So we'll service a little bit of that this year, but most of it will go into '24. Warehousing demand held up really good in '23. It's at record levels, but we see some risk as starts are now slowing, as we had anticipated. We thought we'd get hit with some of that at '23, but so far so good. But I think we're probably anticipating some of that for '24. We'll continue to see some challenges to light because of macroeconomics. But even with some challenges to non-res, I think our markets outperform because of the big, large industrials and how many have we backlogged.

Yes. And Phil, in terms of composition of shipments, we don't necessarily track shipments to that level. But I think you could think about it in terms of contract awards. And so in private non-res, warehouses now make up probably close to 50% of the contract awards; and the industrial manufacturing, probably 10% to 15%.

Okay. And then you guys gave us some good color for 2024 in terms of the big drivers, low single-digit volume declines potentially in aggs, double-digit price, and then potentially high single-digit cost inflation. Mary Andrews, I guess if I had to unpack that, I get to low-teen cash gross profit per ton growth next year. Am I generally in the strike zone?

Well, I think it's just too early for us to give you - to go there, really. We'll come back in February with more specifics. But as we've talked about, we definitely see good opportunities for continued unit profitability growth next year.

Yes. I think, overall, your assumptions are - again, we got - some of that could fluctuate by the time we get to February. But at this point, I don't think your assumptions are way off.

Okay. Thanks, Tom.

Thank you.

The next question comes from Keith Hughes with Truist. Please go ahead.

Yes. A question on diesel. What role is that playing in the guidance for the fourth quarter? And at current prices, what would that look like to start next year?

Yes. So in the quarter - in the third quarter, diesel was really up and down, but was a net benefit. Thinking as we move forward, if diesel stays at the levels we saw in September, fourth quarter would probably be essentially a push. Looking into next year, we think on average, diesel will be higher year over year, but it's probably too early to call exactly what that will look like. As you know, for us, diesel can be a temporary challenge, but it's also an opportunity.

And while we're on cost, one other question, I know a lot of your other inputs, components in this kind of the world has been continued to stay high. Will - are you hearing from your suppliers more potential increases to begin calendar '24?

Yes. I think everything is sequentially staying up. We are in those negotiations. I think it’s a little early to call that right now from - for the big movers. The one we think will be up will be energy. Both diesel and electricity will probably be up. But as far as the other inputs, I think that it's stayed a lot more stubborn than we would have anticipated. I don't think we are - at this point, we call up probably high single for next year, but it's really too early to call as we're doing the operating plans and the negotiations with our suppliers at this point.

Okay. Thank you.

Thank you.

The next question comes from Michael Dudas with Vertical Research. Please go ahead.

Good morning, Tom. Good morning, Mary Andrews. When you talked about you allocated capital towards the land acquisitions here this quarter, up to $200 million, you talked about 2023. Maybe you can share how that progress is and what's the medium-, longer-term timing on some of the greenfield opportunities? Are there some that are closer rather than others? And on a big picture basis, how much is that kind of, if you think about, relative to investing the capital into those types of projects?

Yes. So this year, those strategic reserve purchases, as you would have seen, we completed the majority of that in the third quarter. And we are working on our capital planning for next year right now. And Tom mentioned earlier, we do have a healthy pipeline of greenfield opportunities at varying stages. So we are working now to define what that spending will look like for 2024. I think if you think of capex overall as we go into next year, we think that the current levels for operating and maintenance capex are appropriate for our current business needs and kind of where we are in the cycle. The growth is the part that will move around a little bit more, but we wouldn't expect the same level of land purchases next year as this year.

Okay. And you would add - so there's capacity growth potential in those states or others as you're looking out medium to longer term as those markets continue to be attractive for you guys.

Yes. I think the answer is that yes. It's also - what you're looking at is where are the growth quarters and how do you get the most effective logistic position to those future growth quarters and what's the timing of putting the capital in. And that's the beauty of a greenfield is you can time the capital and you can - you don't have to go in all at once. So if you've got a faster growing market where your greenfield is, you'd put a big plan in. And if you got - if it's out there and you just want - in a slow growth, you'd put maybe a portable or smaller plan in. But I think that in a number of these, it is getting the most strategic position in those markets at the right time.

Thank you, Mary Andrews, Tom.

The next question comes from David MacGregor with Longbow Research. Please go ahead.

Yes. Good morning, everyone, and thanks for taking my question. Tom, good morning. Good morning, Mary Andrews. I guess my question is just on the timing on project starts. And I guess, are you seeing much in terms of change in the lag between awards announcements and aggregate shipments? I mean, is that lag greater than you would have otherwise expected at this point? And we've had quite a bit of inflation, obviously, in materials and labor and services. And I'm guessing a number of these projects are running above engineers' estimates. Any projects being held back or delayed as a consequence of inflationary concerns and expectations that, if they were to defer, they might get better economics further down the road?

As far as delay - as far as people - projects getting pushed back, we saw a little bit of that in a couple of states I'd say nine months ago. We're not seeing that today at all. In fact, states are working hard to get projects out. Inflation has definitely had an impact on project costs, but we are still seeing growth in demand this year and we'll see growth in demand next year despite inflation. And as you heard me talk about earlier, budgets are up in a number of states, what I'd say dramatically. So I think they understand that. I don't think I worry about projects being pushed back from a cost perspective. If it is delays to projects, it's really delays to getting into lettings because of capacity of DOTs growing into the funding. But again, I think all that taken in. We continue to see gradual growth in highway demand next year and the next year and the next year and the next year.

Are you seeing much in the way of revisions to engineers' estimates?

Yes. They're going up, and I think they're adjusting to it appropriately. But there's a lag there and they're playing a little bit of catch-up because of inflation.

Thank you, Tom.

Thank you.

The next question comes from Michael Feniger with Bank of America. Please go ahead.

Morning.

Good morning.

Morning. Thanks for taking my questions. You gave some great color on 2024. Just to kind of put a finer point on it, when we think of the price versus cost spread you guys achieved in Q3, is that price versus cost spread expanding in 2024 or staying the same, given kind of the moving pieces you were indicating earlier?

I think the simple answer is, and you're not going to like, it was a little early to call. We're still figuring that out. We're trying to give you color very early on price and cost. And I think on price, we said high single digit, maybe in the low double digit on cost, really early on cost because we're estimating high single digit, but we're doing the work right now including negotiating with our vendors and doing the operating plans. I think what I am encouraged about on the cost perspective is I think we'll see improved operating efficiencies because of the automation in the - what we've done in the plants, but also the complete program of the Vulcan Way of Operating. But to call that margin growth at this point, I think we're just a little bit early. We'll be back to you in February.

Appreciate that. And when we think of next year, how you kind of outlined potential movement in shipments when we think of the cadence to residential, public, light versus heavy? I'm just curious if you kind of help us understand how you think the cadence kind of plays out for next year. Is it - do you start strong? Or does it actually kind of get better through the year? You have kind of easier comps potentially in the second half. Just how we kind of think of these moving pieces, how that rolls through next year?

I don't know that I have - we've got that down yet. I think the puts and takes for next year go like this. And this is - and I'm not answering questions as far as sequencing to quarterly, but more what would be on the high side and what would drive us lower. And I think, number one, speed of - and really important, speed of how the dollars going to work and going to shipments will be at the forefront. Second would be, does single-family come roaring back or is it maybe a little slower? I hopefully think we'll see growth in single family. It's how fast and how far. And the macroeconomic - the macro - the demand - the fundamentals for demand in single-families there. But you're fighting, obviously, cost and inflationary pressures and the price of a house. On non-res, it will be the speed of the big projects versus what happens with warehouses. So I think that those are kind of the puts and takes. I'm not sure that as far as the sequencing quarter to quarter, I think we got to do some work on that. But those will be the puts and takes of if we have the high end, the low end when we get to guidance in February.

Perfect. Thank you.

Sure.

The next question comes from Rohit Seth with Seaport Research Partners. Please go ahead.

Hi. Good morning. Thanks for taking my question.

Hi, Rohit.

Morning.

Good morning. My question is on the Vulcan Way of Operating. You guys had mentioned on past calls that you had made some investments over the past couple of years. I know you touched on the logistics side, but I think there's some plant-level stuff that you had in the works and we're looking forward to potentially being needle movers in 2024. Do you still think those are going to be needle movers next year? And if you can help us think about what to expect and if you can quantify any impact, that'd be great.

Yes. It's really hard to quantify, particularly at this point, as those operating plans are being developed and will be presented to us in December. From a high level, we - the investment we did and the top probably 70% of our operating facilities or tons from a volume perspective, that investment is in place. Now, once you get it in place, you've got to get the technical piece for each plant has to come out. We're working on that as we speak. I think we'll be through that by the time we get to the first, second quarter of next year or at least mid-year next year. So we'll see some marked improvements, I believe, in operating efficiencies, putting that to dollars and cents. That work is going on right now, and we won't be done with it until December. So we'll have to get back with you in February.

All right. Thank you.

Thank you.

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

Thank you very much for your interest in Vulcan Materials. We look forward to talking to you throughout the quarter. Please keep yourselves and your families safe and healthy. Thank you.

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