Good morning. Welcome, everyone, to the Vulcan Materials Company Second Quarter 2025 Earnings Call. My name is David and I will be your conference call coordinator today. Please be reminded that today's call is being recorded and will be available for replay later today on the company's website. 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. Joining me today are Tom Hill, Chairman and CEO, and Mary Andrews Carlisle, Senior Vice President and Chief Financial Officer. Today's call includes a press release and a supplemental presentation available on our website, vulcanmaterials.com. Please note that our discussion may contain forward-looking statements that involve risks and uncertainties, which are detailed in the company's earnings release and other filings with the Securities and Exchange Commission. Non-GAAP financial measures are defined and reconciled in our earnings release, supplemental presentation, and other SEC filings. I will now turn the call over to Tom.

Thank you, Mark, and thank all of you for your interest in Vulcan Materials Company. I'm very proud of how our talented teams are delivering results that exhibit their commitment to continuous improvement through consistent execution of our strategic disciplines. Most importantly, they are doing so while keeping one another safe. Both our safety and financial performance through the first half of the year has been outstanding, despite a challenging operating environment. Extreme temperatures early in the year and excessive rainfall in the second quarter have all contributed to lower same-store to-date shipments across all product lines. Nonetheless, our adjusted EBITDA has improved 16%. Margins have expanded 260 basis points, and aggregate cash gross profit per ton has grown 13%. Our two-pronged growth strategy to improve earnings through compounding profitability on our organic business and adding strategic assets to our portfolio is clearly working. In the quarter, we generated $660 million of adjusted EBITDA, a 9% improvement over the prior year despite lower aggregate shipments. Rainfall in the Southeast notched 10-year records in many key Vulcan states, namely Georgia, Tennessee, Alabama, and the Carolinas, disrupting both our aggregates and asphalt businesses in these markets. Aggregate shipments were impacted by an estimated 2 million to 3 million tons in our most profitable markets. Still, our reported cash gross profit per ton expanded an impressive 9%. Our teams executed particularly well on our Vulcan Way of Operating disciplines to navigate the challenging operating environment, drive plant efficiencies, and tightly control operating costs. Freight adjusted unit cash cost of sales increased only 1.5% while remaining lower on a year-to-date basis. Price improvements were geographically widespread and freight-adjusted average selling prices improved 5%. On a mix-adjusted basis, average selling prices improved 8%. The difference was the anticipated impact of recent acquisitions and unfavorable geographic mix due to weather-impacted shipments in our attractive Southeast markets. Consistent pricing discipline, coupled with operating execution, are yielding attractive unit profitability growth as we move into the back half of the year. Let me share a few other thoughts about the second half. Residential construction activity, which accounts for about 20% of our shipments remains weak with persistent affordability challenges across most of the U.S. markets. Docks and permits for single-family housing continue to accelerate. However, multifamily starts are showing signs of improvement with over half of our markets having turned positive on a trailing 3-month basis. This improvement should begin to help offset the weakness in single-family activity. In private non-residential construction, higher rates for longer and macro uncertainty have been weighing on construction activity. But we are beginning to see several signs of recovery. With growth in data center activity and moderating declines in warehouse and other private nonresidential categories, trailing 3 months starts have turned positive. This is an encouraging sign that private non-residential demand will soon begin to grow. Data centers remain a bright spot. We are currently serving a number of data center projects and actively discussing green-lit projects totaling over $35 billion. We're beginning to hear discussions of supporting power generation projects in areas with a heavy exposure to data centers. Nearly 80% of data center activity in the planning stage is within 30 miles of Vulcan operation. On the public side, trailing 12 months highway contract awards in Vulcan markets have accelerated meaningfully. They were modestly down a year ago and were up over 20% at the end of June. IIJA funding is continuing to benefit both highways and other public infrastructure activity. And we still have over 60% of the dollars yet to be spent. Importantly, the improvements we're beginning to see in both private and public demand environment are translating into accelerating bookings and growing backlogs to support volume growth in the back half of this year and into 2026. Therefore, we continue to expect to deliver between $2.35 billion and $2.55 billion of adjusted EBITDA. Now I'll turn the call over to Mary Andrews for some additional commentary on our results and revised outlook. Mary Andrews?

Thanks, Tom, and good morning. Over the last 6 months, our year-over-year trailing 12 months aggregate freight adjusted unit cash cost of sales has improved nearly 600 basis points, from 10% to 4%. The focus of our operating teams on utilizing our process intelligence system and other Vulcan Way of Operating tools to drive plant efficiencies is contributing to the attractive expansion in our aggregates cash gross profit per ton, even in a lower volume environment. The solid operating performance through the first 6 months of this year drove a 58% improvement in operating cash flow, and free cash flow on a trailing 12-month basis surpassed $1 billion. This attractive cash generation, coupled with our consistent disciplined capital allocation, will enable us to continue to drive long-term value creation for shareholders. Through the first 6 months, we reinvested $207 million in maintenance and growth capital expenditures, returned $169 million to shareholders through dividends and share repurchases, and retired $400 million of debt. Our return on invested capital at June 30 was 15.9%. At quarter end, we reclassified $550 million of commercial paper borrowings from long-term to short-term debt, reflecting the likelihood that we will use some of the discretionary cash generation in the second half to repay those balances. Doing so will reduce our interest expense while maintaining the flexibility to reissue at any time to opportunistically capitalize on growth opportunities. At June 30, net debt to trailing 12-month adjusted EBITDA leverage was 2.1x. Given the cold and wet start to the year that slowed spending timelines on some projects, we now expect full year maintenance and gross capital expenditures of approximately $700 million, with an acceleration of spending in the second half of the year. Our trailing 12-month SAG expenses of $550 million were flat to the prior year, and 10 basis points lower as a percentage of revenue. Year-to-date expenses of $283 million were in line with our expectations. As Tom said, we are reaffirming our full year adjusted EBITDA guidance of $2.35 billion to $2.55 billion. Double-digit year-over-year shipments thus far in July, the exceptional execution of our teams in the first half of the year, and the improving private and public demand backdrop all give us confidence in an accelerating second half of the year. I'll now turn the call back over to Tom to provide a few closing remarks.

Thank you, Mary Andrews, and thank you to my Vulcan teammates who delivered a strong first half of 2025. Our trailing 12 months Aggregates cash gross profit of $11.25 per ton is now over 50% higher than just 3 years ago when we communicated a goal of $11 to $12 per ton. This clearly depicts the durability of our aggregates-led business and our commitment to controlling what we can control to deliver consistent earnings growth for our shareholders regardless of the demand backdrop. And now Mary Andrews and I will be happy to take your questions.

We'll take our first question from Trey Grooms with Stephens.

So clearly, you all faced a heavily weather-impacted first half of the year, which clearly impacted your volume and I'm sure had to hurt profitability as well to some degree. So I guess, what are you seeing, or what gives you the confidence going into the second half to reaffirm your EBITDA guide for the year despite this kind of tough first half that we've been having to deal with, especially due to weather?

Well, thanks for the question, Trey. I think, Trey, excluding rain, I was very pleased with the quarter and the first half of the year. Volumes were down 1% in Q2 and in the first half without acquisitions down 5%. As we've been talking about, of course, we saw significant rainfall in the Southeast. And with our outsized performance in the Southeast, we were probably impacted more than most. Now that's the tough news. For me, the good news is that even with the wet weather in Q2, the cold weather in Q1, volumes down and the most impacted region being the Southeast, which houses probably our highest prices and margins, we still saw first half prices up 6%, and unit margins up 13%. For me, that's really quality earnings under some tough conditions. And one, I think our people should be very proud of their performance in the first half. It gives us a lot of confidence for the second half because a bit of good weather in the Southeast like we saw in July will really help improve what I thought was already a really good performance. When it's dry, we're shipping strong. July had what I call normal weather patterns, and we saw very strong shipments. They were, as Mary Andrews said, up double digits in July, and that's a little bit of catch-up probably by some easy comps. But importantly, what we know is that our backlogs, booking pace, and shipping pace are all up and would support our full year guidance of 3% to 5%, which will have a significant catch-up in the second half. We've always said this would be second half loaded from a volume perspective. I think the other thing that gives me confidence in it is that the underlying demand is there, and it is improving. So I think that we're starting to be on the edge of a turn for the private side.

We'll take our next question from Anthony Pettinari with Citigroup.

Last quarter, I think you mentioned maybe delays in bids translating to bookings, as something that maybe you're seeing a little bit more, and maybe we've seen some of that national data. I'm just curious if that's accurate? Are you seeing project timelines stretch out or customer confidence improved? Or I'm just kind of curious how that kind of the booking timeline has trended?

Yes, good question and an important one because it's turned. We were seeing them getting greenlit. They're going. That's what's also building our booking pace and our backlogs. So I think we've seen the turn in that.

Okay. And is that specific to private commercial, or public, or are you seeing it across end markets?

I think you're seeing it across all end markets. The one I would call out that we're not seeing across would be single-family. But as we talked about, the backlogs, booking pace, and starts on the public side are very strong, and it continues to improve on the private side in all sectors, except for single-family.

We'll take our next question from Kathryn Thompson with Thompson Research Group.

Just tagging on the infrastructure question, you talked about the acceleration of dollars flowing out. How much of this—when you look, there are certain key states like Florida, with the Moving Florida initiative, which is $4 billion. And then Tennessee's Modernization Act, which added another $3.3 billion to DOT funding. Is it these types of states that have these big initiatives and you're starting to see dollars flow through? Or is it other types of projects that are more related to IIJA, and just seeing a more delay in those? Or is it a combination of all of the above?

Yes. It's all of the above. And the capital spending, as you pointed out, in all of our southeastern states, in fact, all of our bigger states are up and up considerably. That is coupled with IIJA funding. I think you're seeing both of them come together along with some local funding that's been increasing over the last 3 or 4 years. So I think what we're seeing in the highway work is demand is very strong and getting better. We're seeing this in lettings, we're seeing it in bookings. We're seeing it in backlogs. Remember, a year ago, the contract awards were down 2%. Now, contract awards are up 22%. And so we're also seeing this in our shipments. I mean we saw it in July. We really feel the impact in 2026. And this kind of growth in public demand should be a strong catalyst for '26 pricing because it's so visible. And so that gives you that visibility to future work, which really helps pricing.

Okay. And leads to that contract awards are up 22%, is that for Vulcan-served states, or is that more a national?

Yes, that is Vulcan-served—that's highway for Vulcan-served states.

And Kathryn, I think one of the things we're pleased to see is that shift from, as Tom commented, down a year ago to significantly up is distinctly different in Vulcan states versus other states where the awards have actually decelerated some.

We'll take our next question from Brian Brophy with Stifel.

This is Andrew on for Brian. I just had a question on CapEx. It looks like it took a step down in the quarter. I'm wondering if there are any particular drivers of that? And then are there any changes in how you're thinking about CapEx for the full year?

Yes. So the CapEx in the first half being lighter than what we anticipate for the full year was really due to the slow start with the weather, just harder to get project timelines going. We do expect now that CapEx for the full year will be about $700 million, which is a bit lower than our original guide of $750 million to $800 million.

We'll take our next question from Steven Fisher with UBS.

So obviously, good cost performance in the quarter, and I'm just curious what your visibility is to the increases in the second half of the year, and maybe what you experienced in July with the real kind of question around, do you think you'll be able to be back growing cash gross profit per ton by double digits in Q3?

Yes. So as I alluded costs, we would call it towards—trending towards, or guiding towards the low end of our guidance. The cost in the first half was down 1%, up 1% in Q2. Although that was a really excellent operating performance. That's really hard to do when you have that kind of rain. So great performance by my operators. Their safety record was also record-setting. So thanks and congratulations to all of them. Really—what they're really doing is hit to your point is helping us take that price to the bottom line. Our— to that point, our gross margins for Aggregates was up 200 basis points, and it was up to 42.7% in Q2. So again, in spite of rain-reduced volumes in the Southeast and extremely wet quarter, I thought our folks should be very proud of both the cost performance and the unit margin performance. What it's telling me is that the Vulcan Way of operating is making a difference. We've got a long way to go on that, but we should see that improving. And also, to your point, we're just able to take all the price to the bottom line.

Yes. I mean if you look at the quarter, with our price being up over $1 per ton, $1.11, and being able to take $0.95 of that to the bottom line and cash gross profit per ton was just a great performance. And we think that will carry that momentum into the back half.

Yes. And remember, this is in reduced volumes. The volume leverage that we—as the volumes go up will really help us with that and really push—help push those unit margins up.

We'll take our next question from Keith Hughes with Truist.

I guess on the non-residential comments, some of the more bullish that I've heard, when do you think that would turn into volumes for you? Is that a '26 story? Or what's the view?

We'll feel a little bit of it in the second half. I think it is probably more of a '26 volume just because you've got a delay in those projects. But we're—I mean I think we're starting to see that. We are definitely seeing in our backlogs. And we're starting to see a little bit of shipments, but I think it's more of a '26 play, '27 play. We've been anticipating a recovery in non-res. Now I think we're starting to see signs of the turn. The data centers are accelerating quickly. We're seeing some green shoots in warehouses and green shoots to traditional like non-res, which we think is at the bottom. Our backlogs in non-res are up and support our encouraging comments. So I think we're encouraged about it. So let's hope that momentum continues but it sure appears that it's going to.

And final question in the guide. What are you thinking about second half for Aggregates pricing?

I think that we keep on with the momentum. I think we'll be impacted some because the highway sector is so strong right now, which has a larger portion of base, which is a cheaper product, but it's also a cheaper product to make. So I would point you to, I feel good about the unit margins, and I feel good about our momentum in pricing. But that sequential will be a little bit less than prior year because of product mix, because of the heavy highway sector. Yes. One of the things I would tell you, add to that was, I thought that—when it came to pricing, we feel really strong in the acquisitions. Both on the East Coast and the West Coast, we got all we had planned in January, and I think we got all we have planned in mid-year, which will help us because as you can see, the mix has been a drag on us.

We'll take our next question from Ivan Yi with Wolfe Research.

First, roughly what percent of your Aggregates move on the rails? And I guess I just want to get your initial thoughts on the proposed Union Pacific, Norfolk Southern merger. What impact would this have? Would you support or oppose the transaction?

I don't know that it has any impact on us. We're customers of both those railroads, but the way Aggregates shipments move, you're not going to co-mingle those. So I don't see much of an impact for us. In other words, what we ship now, we're not a long hauler. So we're shipping to a market which is within each one of those railroads not changing carriers.

We'll take our next question from Angel Castillo with Morgan Stanley.

This is a bit of a multipart one, but I just wanted to get a better sense of—you mentioned the bid to bookings conversions starting to improve here. And it sounds like some of that is just, again, an inflection point. But curious, what are you seeing change here? Is it just market confidence? Is it the tax bill? And then as you kind of respond to that, I guess, just curious, it sounds like you're also still seeing some deferrals and delays. So are those also still at maybe a little bit elevated levels? Or are you seeing an inflection there where those are no longer kind of occurring?

Yes. So I don't think we're seeing—I think the deferrals and delays have come to pass. We're seeing the bids—those jobs start. And so I think while that will build for '26, just because our backlogs are building, I think we're going to feel that in the second half. Where is that? It's a pretty broad spread. The highway and infrastructure work is very good. That is all that money to IIJA and the state funding and local funding going to work. And so that we will definitely feel in the second half of '25 and into '26. Data centers are good and growing. We're shipping a number of them right now and have—as I said there's $35 billion of greenlit projects that haven't—they're going to go, but we're not feeling them at this point. Those are heavily in our markets on, as I said, on non-res. Warehouses, we think, are turning. So that will help us, light-res, we think has bottomed. That will help us. And then interesting, we haven't talked about but on multifamily residential, we've gone in the growth mode in 3 month starts, I think we're up 17%. So the only one we're struggling right now is single family, not overbuilt. So at some point in time, it will turn, but we haven't seen signs of that at this point.

Yes. And I think, Angel, overall, there was just a bit of a post-liberation day lull that we seem to really be past now, and trailing 3-month contract awards in private non-res have turned positive. So that to us is encouraging that we've moved past some of that uncertainty.

We'll take our next question from Phil Ng with Jefferies.

Tom, you sounded pretty bullish on the pace of the infrastructure side of things. I think coming into the year, there was probably an expectation for infrastructure to call it be up mid-single digits. Now given what you're seeing, is that still a good way to think about it? And does that rate of growth, perhaps even accelerate more in '26 and beyond?

I would tell you that, as I said, what we're seeing is just that money going to work. And the DOT's ability to get more work out, I think, is maturing. I do think that, as I said, we see the upswing in '25, I think we see it grow even more to '26, and it wouldn't surprise me to see it go more into '27.

Phil, you're right. The first half was impacted really by the weather in our asphalt business in Tennessee and Alabama, and the softer private demand did weigh on ready-mix. I think overall, in asphalt, we still saw price improvement and lower liquid helped offset the lower volumes in the quarter. So I think a pretty solid performance there. The good news is we've seen a good recovery already in July, shipments where we were weather impacted, and I think the accelerating public demand, and a little bit lower liquid level versus what we'd initially anticipated, all bode well for the back half in asphalt. And then in ready-mix, we certainly have some ground to make up, but we saw price improvement and unit margin improvement even with the lower volumes, some of that in part to the quality of that recent Southern California acquisition. But we're encouraged in ready-mix by some of the positive signs on the private side that Tom was just talking about and still think we have a shot at some improvement in the back half.

We'll take our next question from Garik Shmois with Loop Capital.

I had a question on aggregates pricing. How should we think about midyear increases this year? Tom, you spoke a little bit to traction on acquired markets? Just wondering how widespread the midyears were? And then also on the mix side, I appreciate the product mix headwinds with more base. But I'm wondering about geographic mix, especially if the Southeast snaps back here as it has in July? How does that impact price in the second half of the year?

Yes. So on midyears, I'd call it some products in some markets, which is not that unusual. Everybody wants it to have an impact on same year, as we say it will have a little bit of impact on '25, but it's really a '26 play, and it's really trying to set you up for your '26 price increases. So it's more tailwind for '26. As I said, I was very pleased with the pricing we got on both in North Carolina and in California on the acquisitions. They're behind, and we'll quickly get them up to Vulcan standards, but that's going to take a little while. And as you saw in the mix, that was a big part of the difference in reported and mix. The other part to your point was the Southeast where our volumes were hit hard with record rainfall in a number of our key states. I think that the fact that we performed as well as we did in the first half based on mix, and based on challenging conditions, gives me a lot of confidence in the second half where I think we'll see better volumes, and that we can continue that momentum, and we carry a lot of that into '26. So I think while we've had a challenge from outside forces, I thought our internal performance was quite disciplined and done quite well.

Yes. And Garik, I think we will see some modest sequential growth, but it really will just come down to geographic mix and product mix and where those land. What's important to us mostly is just the underlying pricing momentum with the 8% mix adjusted in the quarter and how strong that remains.

Yes. The one thing you brought up base that I would point out, while people tend to, I guess, kind of look down on base, it is a really important product for us, and it has great margins, and it balances our plants, and will help our costs. So while it may be—while flexible base is lower price, it's still really good margins and really important. For me, as an operator, I think the base volumes look fantastic.

We'll take our next question from Michael Dudas with Vertical Research Partners.

I want to hear your thoughts on Big Beautiful Bill legislation and how that maybe from your clients, or how you assess it from a Vulcan standpoint? And maybe to follow on to that, what are you hearing your thoughts on IIJA 2.0?

Yes. I'll start first maybe with the recent tax legislation. There are certainly some benefits in there for us. Those will mainly come from 100% bonus depreciation and the expensing of domestic research costs. So we currently estimate a cash tax benefit of over $40 million for June year-to-date activity, and we would expect the full year benefit could approach $100 million. We don't expect any material impact to our effective tax rate but definitely a cash tax benefit for 2025 and going forward.

Yes. On a new highway bill, I think the good news, what I'm encouraged about is that Congress is already working on one. They are already trying to pin it. They are aggressively pursuing it. I think to tell you what the magnitude is versus IIJA is probably too early to call. It will be bigger. Now whether that's 5% or 20%, I don't—we don't know yet. We're voting for 20%, but I'd take 5%. I think importantly, remember IIJA funding, as I commented, we've only spent 60% of that funding. So—and we're 1.5 years away from the bill expiring. So there will be a tail to this, and we'll have substantial highway work based on IIJA dollars that will go past the exploration of IIJA. So we've got kind of what I call an insurance policy, or a timeline that will protect us on trying to get that new bill. But we'll get one, and it will be a higher funding.

Let's settle for 12.5%, at this time and we'll call it a day.

We'll take our last question today from David MacGregor with Longbow Research.

Tom, you talked about 2 million to 3 million tons that were lost in the quarter. How much incremental tonnage do you think you'll ship in Q3 that was of that 2 million tons to 3 million tons, how much can you recover? And I guess, also on that question, I appreciate all the conversation and discussion around the backlogs. And I know normally, you don't open that up and get into a lot of detail, but given we seem to be at a fairly important inflection point in terms of what you're seeing there. I wonder if you can maybe just dig in a little further on the backlog and share with us a little more detail? Maybe growth numbers year-over-year versus last quarter? Anything you could say about pricing growth in the backlog, anything there would be helpful.

Yes. So on the weather-related, it will be spread out in the second half. I mean, you just don't get a big slug of that. We saw the price of—the slug we saw was probably in July that probably helped that double-digit number, but most of it will be spread out over the quarter. So I think we catch that up and do fine with it and move ahead. If I look at our backlog. The—there—I would call them up in all sectors, except for single-family and kind of, what I call flat to maybe down a little bit in single-family. But the one that's—non-res is up and highways are up substantially. So I think that gives us a lot of confidence in continuing our guide to the 3% to 5%, but also gives us confidence that we're going to start '26 off on the right foot.

And we'll take our last question today from Michael Feniger with Bank of America.

Tom, you mentioned with the second half the product mix with highways, kind of weighs on the sequential pricing. It sounds like a mix impact. Is there anything we should keep in mind for 2026 that growth is led more by highways and data centers? Does that headline pricing number look a little bit more modest for the price versus cost spread? Is still the same in terms of 60% incrementals, kind of double-digit gross profit per ton? Just kind of wondering, as the mix and your end markets kind of evolve, do you have to think about it differently, if it impacts the pricing or the profitability metrics at all?

Well, over the last couple of years, we've got a lot of headwinds on the private side, and we've been slow getting growth on the—on high-rise, about where we thought. But what was encouraging me about pricing '26 is two things. Number one, the highways are such strong and you've got a lot of visibility to coming work in highways. It's not just what we have in our backlogs, but what's the funding and the capital spending levels for our states, coupled with the IIJA money maturing and the DOTs being able to get that work out. All of those are really impacting us. But remember, once they say it's going to go, it's going to go. It's not going to get paused. It's not going to get pushed back unless you have a permitting issue. So there's a lot of clarity to what's going in that. If you layer on top of that, if we're making the turn on the private side, then that gives us a lot of tailwinds for people who have confidence and more work to come and taking risk on pricing going forward. So that's what's given me a better feeling than maybe what I had 3 or 4 or 6 months ago when we were a little bit of a lull on the private side and the public side had not kicked in as strong.

Great. And just lastly, for a second question. You guys are looking— we're looking like $1 billion of free cash flow. Is that the new baseline for you guys going forward? Rebase-ing the free cash flow this $1 billion number, and moving it higher? And if that is the case, this is your new baseline, which should be a record for the company. Like does that change at all how you're thinking of capital allocation? I appreciate that I think you're at 2x leverage but I'm just kind of curious if that new baseline, does that kind of change or how aggressive you'll be on the capital allocation side?

Yes. I would tell you, our capital allocation priorities don't change. But I think the level to which we can allocate capital to each of those priorities does change. And even as you think about the back half of the year, given the current balance sheet profile and the strong cash generation, I think returning cash to shareholders is likely, and that level will be dependent upon how the M&A discussions that we've been having continue to develop.

Yes. I thought we were very pleased with the two acquisitions we got. We closed on the end of '25. We're pleased with our integration, particularly on the pricing side. M&A was a bit slow in the first months of the year. We're starting to have some conversations now that hopefully will be meaningful to us. So I'm encouraged—I'm more encouraged about the M&A than maybe I was all 4, 5 months ago. But also, like I said, once you buy one, you better execute and I'm pleased with the execution of what we've done with the two we closed within the last year.

There are no further questions on the line at this time. I'll turn the program back to Tom Hill, Chairman and CEO, for any closing or remaining remarks.

Again, thank you for your interest in Vulcan Materials. We appreciate your time. We look forward to talking to you throughout the quarter, and we hope you stay safe and your families stay safe. Thank you.

This does conclude today's program. Thank you again for your participation, and you may now disconnect.