Earnings Call Transcript
Vulcan Materials CO (VMC)
Earnings Call Transcript - VMC Q1 2021
Operator, Operator
Good morning, everyone, and welcome to Vulcan Materials Company's First Quarter Earnings Conference Call. My name is Christie, and I will be your conference call coordinator today. 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, Vice President of Investor Relations
Good morning. Thank you for joining our earnings call today. With me today are Tom Hill, Chairman and CEO; and Suzanne Wood, 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. A recording of this call will be available for replay later today at our website. Please be reminded that today's discussion may include forward-looking statements that are subject to risks and uncertainties. These risks, along with other 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 indicated, please limit your Q&A participation to one question. This will help maximize participation during our time together. With that, I will now turn the call over to Tom.
Tom Hill, Chairman and CEO
Thank you, Mark, and good morning to everyone. We appreciate your interest in Vulcan Materials and hope that you and your families continue to be safe and healthy. I want to begin by saying that our performance in the first quarter was a very promising start to the year. Demand in our markets continues to improve, and our team executed well as evidenced by our financial results. Adjusted EBITDA, which excludes the gain on the sale from our reclaimed quarry in California, was $244 million, up 22% compared to last year. This strong growth was driven in part by a 3% increase in aggregate shipments. Despite weather impacts across Texas and parts of the Southeast in February, we experienced a pickup in shipments, and March proved to be a strong month. Residential starts continue to accelerate, and highway starts also increased due to improved lettings in the third and fourth quarters of last year. We've experienced an increase in both the number of jobs and the shipping speed in the heavy nonresidential space, which is also the most aggregate intensive. Finally, some of the jobs that had been postponed last year have started. With year-over-year improvement across our footprint, pricing was the second driver of our EBITDA growth. Freight-adjusted aggregates pricing increased by 2% in the quarter. Adjusted for mix, the increase was 1.3%. This was as expected since we were shipping work that had been bid in the middle of the pandemic when there was uncertainty and a lack of demand visibility. As our 2021 price increases gain traction, we will see pricing improvement throughout the year. The third driver of EBITDA growth and the one most within our control was our exceptional cost performance in the quarter. Aggregate total cost of sales per ton was 2% lower than last year's first quarter. Cash cost of sales per ton declined by 3%. Cost control like this is an accomplishment and requires considerable discipline from our operators. The team focused hard on operational execution, and as a result, all of our operating parameters in the quarries improved year-over-year. We were pleased with the meaningful impact from our four strategic disciplines, which will continue to mature. The most compelling metric continues to be our strong unit margin gains across the footprint. Aggregates' cash gross profit per ton increased by 9%. This demonstrates the attractive operational earnings power of our aggregates business when demand is combined with strong execution on our four strategic disciplines. Overall, our operating results this quarter helped drive a 90 basis point improvement in our return on invested capital. Suzanne will provide further comments on this and other aspects of our financial performance. Let's now turn to our view of the end markets and then we'll cover how that influences our outlook for the full year. Broadly speaking, the demand environment improved considerably over the last few months. Construction starts, as measured by Dodge, got better along with other leading indicators such as the Dodge Momentum Index and ABI. Construction employment levels continue to improve as well. Residential construction remains the strongest end market. There is pent-up demand for houses, and new subdivisions are being built with more to come. The market fundamentals of low interest rates and reduced supply are still in place, which foreshadows continued growth. Housing starts are growing faster in Vulcan-served markets. The outlook for our nonresidential end markets remains limited. However, our quote activity has increased, and leading indicators are improving, which suggests that a turnaround is happening. The strongest nonresidential sector relates to e-commerce and technology and encompasses data centers, warehouses, and distribution facilities. According to Dodge, 90% of the growth in this sector will occur in Vulcan-served markets. The majority of nonresidential starts currently fit within this category, but we believe a strong residential market combined with an increasingly open economy will drive additional demand in other nonresidential sectors. With respect to highways, state budgets and lettings are progressing as anticipated. We are seeing the improvement in lettings from the second half of 2020, now turning to shipments. The COVID-19 relief funds have provided a backstop for any lost transportation revenues for highways. Our country's leadership continues to work on an infrastructure package. Both parties have proposed substantial increases in highway funding, and this is a priority for both Democrats and Republicans. To summarize, our view of end markets: demand is improving. We see evidence of this both on the ground with our customers and in the data from leading indicators. As a result, we've upgraded our aggregates volume guidance for 2021 to a range of 1% to 4% growth compared to 2020. Excluding the gain on the sale of the California property, we now expect full year adjusted EBITDA of between $1.38 billion and $1.46 billion. As we look forward to consider opportunities, we have three paths to growth with higher returns. Those paths are organic growth, M&A, and greenfields. I'll take each in turn. First, organic growth is a critical part of any strategy because it offers the most attractive and compelling value proposition on a risk-adjusted basis. We have the best geographic footprint in the industry and the best operators in the industry, but we are not satisfied. Our four strategic disciplines are designed to accelerate this organic growth strategy, and the benefits are clear as we grow our unit profitability. Second, we regularly review an active list of M&A targets. Last year the M&A market basically shut down, but it's reopened this year. We have a long history of making both large and small acquisitions when they are a good strategic fit. Since 2014, we've completed more than two dozen value-enhancing acquisitions in some of the fastest-growing markets in the country. Finally, we have a long and successful history of developing and opening new aggregate locations. This allows us to pinpoint the location of aggregates reserves in growth quarters where there is no acquisition opportunity. Additional benefits include more control over the timing of capital investment and not paying a premium for the assets. We like having a balance between organic and inorganic growth. It provides a high degree of flexibility and is an important part of our capital allocation process and our ability to increase our return on invested capital. I'll now turn the call over to Suzanne for further comments.
Suzanne Wood, Senior Vice President and CFO
Thanks, Tom, and good morning to everyone. I'd like to start by highlighting four key areas to consider this quarter. Our aggregates unit profitability expansion, return on invested capital, balance sheet strength, and the California land sale. First, unit profitability: our aggregates gross profit per ton increased by 12% to $4.82. We believe this is important because improving the operational profitability of existing locations generally comes with limited capital investment compared to other growth engines. When the improvements are both sustainable and widespread across the footprint, significant value is created. Our strategic disciplines are making an impact, and we have a good track record of execution. Over the past three years, our compound annual growth rate for gross profit per ton was 7%. The second key area is return on invested capital. As Tom mentioned, the 90 basis point improvement in the quarter pushed our return to 14.8% for the trailing 12 months ended March 31. While a higher returns profile is always good, the way in which the improvement is achieved is also important. For example, the first quarter's ROIC gain was comprised of a 1% increase in invested capital and a 7% increase in adjusted EBITDA. This further highlights the importance of the unit profitability discussed earlier. Over the past three years, our trailing 12 months ROIC has improved by 280 basis points, driven by a 4% compound annual growth rate in invested capital and an 11% compound annual growth rate in adjusted EBITDA. The third area is the balance sheet. Our balance sheet strength has created significant optionality and flexibility as we consider our capital allocation priorities, our balanced approach to growth, and shareholder returns. Our net debt to adjusted EBITDA ratio is 1.4 times, and we have nearly $900 million of cash on the balance sheet. Our debt has a weighted average maturity of 15 years, with no significant maturities in the near-term. And as always, we will continue to operate the business for the long term. We will not rush decisions to invest just because extra capital is available. The last of the four key areas I wanted to highlight was the sale of the reclaimed quarry in Southern California. The sale generated $182 million of net proceeds and a pre-tax gain of $115 million. One of the strengths of our aggregates-focused business is the multiple opportunities to create value, and the life cycle of this quarry demonstrates that well. Now, so far on the call, we focused entirely on the aggregates business. So let's shift briefly to non-aggregates. Gross profit in those segments collectively was $5.6 million in the quarter or $2 million less than last year. The severe weather mentioned earlier affected both asphalt volumes in Alabama, Tennessee, and Texas, and concrete volumes in Virginia. Before I turn the call back over to Tom, I'll touch briefly on two more topics: diesel fuel costs and a change in our effective tax rate. With respect to the cost of diesel, it really wasn't much of a factor in the quarter because the unit price of diesel was relatively unchanged from last year's first quarter. For the full year, we now anticipate that the cost of diesel fuel will be a headwind of approximately $25 million, reflecting higher prices since the start of the year. The last time we spoke with you, we expected that our effective tax rate for 2021 would be 21%. We now expect the full-year rate to be between 23% and 24%, following a 27% rate in the first quarter. The higher rate in Q1 and the revised expectation for the full year resulted from Alabama's recent change in the law, which modified the methodology by which a company apportions income to the state. This change had the effect of reducing our ability to fully utilize certain net operating loss carry-forwards in Alabama. As a result, we recorded a $14 million charge in the first quarter. And with that, I'll turn the call back over to Tom for closing comments.
Tom Hill, Chairman and CEO
Thank you, Suzanne. Before we go to Q&A, I want to again thank our employees for their hard work, for keeping each other safe, and for their dedication to servicing our customers, embracing our strategic disciplines, and making Vulcan better every day. We will continue to operate Vulcan for the long term. This means, staying focused on our strong local execution, driving unit margin expansion, maintaining a strong financial position, and improving our returns. Now, we'll be happy to take your questions.
Operator, Operator
Thank you. Your first question is from Stanley Elliott of Stifel.
Stanley Elliott, Analyst
Good morning, everyone. Thank you for taking the call. Can you talk a little bit about what's happening on the cost structure? I mean going back to the Aggregates Day, you guys had a framework for volumes and EBITDA. Where you're tracking, kind of, the midpoint of the guide would imply that you're at least a year ahead of what you would talk about on the cost side. I don't know if that's just the last year pricing with COVID being the anomaly or something else that's driving it, but it is certainly nice to see. Thank you.
Tom Hill, Chairman and CEO
Yes. Good morning. It was an excellent operating quarter. The cash cost was down 3% on flat production volumes. What we're seeing, Stanley, is our operating disciplines at work. Most importantly, we kept our folks safe, but there were just good fundamental improvements in our key operating parameters, things like throughput, plant availability, yield, and labor and energy efficiencies. For example, I'll give you an example: 31 of our top 50 plants showed improvement in plant availability. And that's a big lever when it comes to cost. So my hat goes off to operators. Congratulations on a great start to the year. And we appreciate all the hard work, but it's a lot of smart work too.
Suzanne Wood, Senior Vice President and CFO
Yes. And Stanley, I'd just add to that. One of the themes of the Investor Day when we had it was that, as Tom said, we're going to focus on what we can control because you don't always have control over volumes, and we certainly saw that in the last year with the pandemic and the uncertainty. So we've really pushed, and our operators have embraced these operational efficiency initiatives, and that discipline that Tom talked about. And that's really what you see coming through in the quarter because you should always have some measure of control over your cost.
Operator, Operator
Thank you. Your next question is from Kathryn Thompson of Thompson Research.
Kathryn Thompson, Analyst
Hi. Good morning and thank you for taking my questions today. And 12 years ago today, Tom, Suzanne, we started TRG, and you guys were our very first earnings call as a company. So happy birthday to TRG.
Suzanne Wood, Senior Vice President and CFO
Outstanding.
Kathryn Thompson, Analyst
Switching to our DNA, which is infrastructure and public construction focus. Just one year after COVID began, how would you describe state DOT health and outlook? And tying to that your thoughts on the infrastructure bill and the extension of the FAB stat. What this means for Vulcan going forward?
Tom Hill, Chairman and CEO
I would say that the state Department of Transportation budgets and lettings have returned to normal. After a slowdown in lettings during the third quarter following a revenue decline in the second quarter of last year, lettings picked up in October and have remained steady. The 2021 DOT budgets and lettings have essentially stabilized. Gas tax revenues have rebounded, and there was $10 billion in aid from the initial COVID-19 relief packages. Therefore, 2021 is essentially back to normal. Looking ahead to 2022, which typically begins on July 1 in most states, it seems that budgets will also revert to normal or as intended, with overall growth anticipated. Notably, four of our five top states are expected to experience funding increases in fiscal year 2022. Regarding the federal highway bill, the encouraging news is that the issue of our nation's infrastructure and potential solutions is frequently highlighted in the media. While it's premature to determine the exact funding increase, both proposals indicate a significant boost in funds for roads and bridges. It's important to remember that any infrastructure definition that includes new construction relies on aggregates at the foundation level. This will benefit us, whether for roads, bridges, or other infrastructure types. In summary, we are likely to see an infrastructure package completed by year-end, accompanied by a significant funding increase. Also, as I mentioned earlier, state funding is up and will keep improving, suggesting a promising future from an infrastructure standpoint.
Kathryn Thompson, Analyst
Thank you.
Operator, Operator
Thank you. Our next question is from Jerry Revich of Goldman Sachs.
Tom Hill, Chairman and CEO
Good morning, Jerry.
Suzanne Wood, Senior Vice President and CFO
Good morning.
Jatin Khanna, Analyst
Good morning, everyone. This is Jatin Khanna on behalf of Jerry Revich. We are hearing in other industries that concerns over drastically higher capital gains taxes are driving private players to the market this year. Are you seeing that dynamic play out? And can you also update us on your M&A pipeline overall?
Tom Hill, Chairman and CEO
I'm sorry, I believe your question was regarding capital gains taxes. Unfortunately, the connection was not very clear.
Jatin Khanna, Analyst
Yes. So we are hearing in other industries that concerns over drastically higher capital gains taxes are driving private sellers to the market this year. Are you seeing that dynamic play out? And can you also update us on your M&A pipeline overall?
Suzanne Wood, Senior Vice President and CFO
Sure. I'll let Tom comment on the update on the M&A pipeline. But with respect to whether or not capital gains tax and the potential changes proposed by the Biden Administration are driving sellers to the market, I mean that's something that you often hear come up as tax law potentially changes and as there's a pickup in M&A activity. In our view, it's possible. I certainly wouldn't say that it would have no impact. But in our experience, we typically see the driver, particularly in some of the small bolt-on acquisitions, as being sort of generational changes with ownership. As certain of the business leaders that have been running some of these smaller to mid-sized businesses decide that they want to have a look at succession planning and whether their children are going to be involved in the business, etc. We see that as the more typical driver of a potential seller into the M&A market.
Tom Hill, Chairman and CEO
Yes, I don't think it will have a big impact on M&A. I mean, M&A has picked up, but I don't think that's the catalyst.
Operator, Operator
Thank you. Your next question is from Garik Shmois of Loop Capital.
Tom Hill, Chairman and CEO
Good morning, Garik.
Garik Shmois, Analyst
Hey. Good morning. Thanks for taking my question. I just want to understand the guidance raise a little bit better. How much of the guidance is related to the 1Q strength, maybe relative to your initial plan? And then you did take up your volume outlook, but you also took up the view of diesel costs. So should we think of those two netting out the rest of the year? So, I guess, just trying to understand what's incremental in the overall EBITDA guidance this year relative to the 1Q performance.
Tom Hill, Chairman and CEO
The volume increased by 3%, mainly driven by the Southeast and Mid-Atlantic regions. Work is returning faster than we expected. During our February call, we mentioned that the key uncertainty for 2021 was how quickly jobs would resume. The good news is that this has happened quicker than we anticipated, particularly in the nonresidential and highway sectors, which were major uncertainties for us. As we gained more clarity on job start times and our backlog, we felt confident enough to raise our volume guidance. The essential factor was the availability of work and the speed of its return, which has surpassed our expectations. Regarding cost guidance, we are projecting low-single-digit increases, which reflect inflationary pressures, particularly with fuel costs. We have seen fuel expenses rise from around $10 million to $25 million due to the increase in diesel prices. Our aim with costs is always to maintain flat expenses. Our team is committed to achieving this, and we believe we can outperform inflation. However, our current estimate for costs remains at low-single-digit increases.
Suzanne Wood, Senior Vice President and CFO
Yes, Garik, I'll just add something with respect to the volume guidance. As Tom said, when we last spoke to you in February, it really was around the fact that we wanted a bit more visibility around starts and what was coming in the market because we were still a bit early in the process. And so, it really for us was a combination of seeing the growth in the first quarter. As Tom said, some of those postponed jobs were starting to come back online, input from our customers on what we were seeing across the footprint in all the markets, but also from a macro perspective, we have a number of leading indicators we look at that are all turning in the positive direction. And just, as examples, we look at construction, unemployment. We look at ABI, the index, as kind of a trend indicator, even though it can be volatile month-to-month. We are a big believer in Dodge starts on a total dollars basis. That's growing again in our markets, and we also look at the Dodge Momentum Index, which is sort of an indicator for non-res. So, when you put all that together, including our own internal metrics, it gave us the confidence to look at what happened in the first quarter and take that forward based on some of those indicators that I mentioned.
Operator, Operator
Thank you. Your next question is from Mike Dahl of RBC Capital Markets.
Tom Hill, Chairman and CEO
Good morning.
Mike Dahl, Analyst
...for taking my question. Suzanne, I actually just wanted to follow-up on the volume questions and maybe Tom as well. I understand that 1Q is seasonally a relatively small quarter for you, but given the strength at the start of the year, some easier comps over the next couple of quarters and your comments about the moment in the business. The low-end of that volume guide actually still seems fairly conservative. Can you just walk through kind of why wouldn't volume be even stronger at this point given what you're talking about and maybe some of the puts and takes you could elaborate on?
Suzanne Wood, Senior Vice President and CFO
Sure, that's a good question. We've mentioned this frequently. We aim to provide thoughtful guidance by offering a range and detailing factors that could influence our position within that range. The lower end of the range does have a slight increase in volume, which is impacted by the nature of the first quarter being generally the smallest and affected by seasonal factors. Looking ahead to the third quarter, severe weather events could also have an effect, so we want to approach that with caution. On the higher end of the volume, if we see an increase in construction starts and job opportunities, we could certainly reach that level. It's really dependent on the non-residential sector and how quickly it recovers. Could we possibly perform a bit better? Maybe. However, based on what we currently know from both internal and external indicators, we feel confident with the one to four range. We have taken everything into account, and it feels like the right stance for us at this moment. As we move forward into the second quarter, we will reassess our position then, but it's crucial not to rush ahead of ourselves, as this is a quarter-by-quarter evaluation.
Mike Dahl, Analyst
Okay. Appreciate that. Thank you.
Operator, Operator
Your next question is from Trey Grooms of Stephens.
Tom Hill, Chairman and CEO
Good morning, Trey.
Trey Grooms, Analyst
Thank you for taking my question. Regarding pricing, you mentioned that it improved sequentially in March and you anticipate this trend to continue throughout the year. Additionally, you raised your forecast for diesel costs this year, which usually leads to increased pricing. Similar to Mike's earlier question about volume, could there be a possibility for pricing to reach the higher end or even exceed the upper limit of the range? You didn’t adjust the pricing range of 2% to 4%, but is there a chance for that? Also, how should we view the timing of fixed plant pricing in terms of price changes? Will it be more stepwise, or relatively linear as we progress through the year?
Tom Hill, Chairman and CEO
So, Trey, you called it out. Always, if you look at inflationary pressures and diesel coupled with better visibility to rising demand, that's always good for price. And I mean that's like two of the fundamental things that are really good for price. So I'd call pricing in the quarter as expected. Q1 we're working off work that we bid in the middle of the pandemic, when price increases were not as robust because of uncertainty. There was a lot of uncertainty if you think back a year. And as we said in Q2, we would accelerate prices through the year. Our April fixed plant prices are now in effect and went as expected. So prices will continue to grow through the year. And that's what we expected. And that's what we're seeing. I do think that pricing will, as you say, climb, due to both fuel and inflation and demand returning. Our bid work pricing is moving up faster now, because of inflationary pressures particularly diesel and logistics challenges. And then, we're now having more conversations about a second price increase or a mid-year price increase, depending on the market with our customers. And they get that based on both fuel and inflationary pressures. At the same time, and we all know that pricing is critical for all of us, but at the same time, remember, it's only part of the unit margin arithmetic. Unit margin is still the most important metric. And I believe our teams have done a really good job implementing those four strategic disciplines. Our cash gross profit per ton went up by 9% in the quarter. And that's a good job. Because it was a combination of volume, price, and cost.
Trey Grooms, Analyst
Yeah. Thank you for the color, Tom. I appreciate it. And best of luck. Thank you.
Tom Hill, Chairman and CEO
Thank you.
Operator, Operator
Thank you. Your next question is from Keith Hughes of Truist.
Keith Hughes, Analyst
Thank you. Most of my questions have been asked. But I just want to turn back to the nonresidential comments. You've given some color on the industry and what kind of projects could be coming. I guess my question, given the outlook and the type of projects, are there variability in terms of when those actually become shipments for you, whether it's a data center versus an office building? And any kind of aggregate intensity that you would find amongst those different projects that could be coming in the market?
Tom Hill, Chairman and CEO
Non-residential projects are definitely on the upswing, particularly driven by e-commerce, warehouses, and distribution centers. This type of construction tends to require more aggregates because of the flat work involved. Interestingly, we are observing that these heavy projects are progressing more quickly than usual; the duration from bidding to starting work is significantly shorter than what we typically see in non-residential sectors. This shift impacted our outlook for the year, as we noticed non-residential jobs commencing sooner than anticipated. Additionally, we are witnessing the resumption of projects that were delayed during the pandemic. Alongside this, we are beginning to see improvements in traditional non-residential projects that follow subdivision construction. Overall, non-residential construction is recovering, but as you pointed out, the heavy side demands more aggregates and generally gets underway faster.
Keith Hughes, Analyst
Thank you.
Tom Hill, Chairman and CEO
Thank you.
Operator, Operator
Thank you. Your next question is from Josh Wilson of Raymond James.
Josh Wilson, Analyst
Good morning, Tom, Suzanne. Congrats on the quarter. And thanks for taking my question.
Suzanne Wood, Senior Vice President and CFO
Good morning.
Josh Wilson, Analyst
Most of my questions have been answered as well, but on the inflation side of things, could you also address maybe what you're seeing on the labor side and also in asphalt costs?
Tom Hill, Chairman and CEO
Yeah. So while our market outlook is really exciting with the growth from a volume perspective, there's always going to be challenges, and right now it's inflationary pressures, labor, and logistics. And we're addressing these now. Our four strategic disciplines will allow us to mitigate these challenges faster. And I'll take them in turn. Inflation, the aggregates business has the ability to beat inflation for a couple of reasons. It allows us an avenue for price, and we own our largest cost, which is the rock in the ground. We believe that our good operating efficiencies supported by our operating disciplines will help offset inflation. Labor, again, our operating excellence program improves efficiencies. But also we've really accelerated employee training and development. That retains employees, attracts employees, and gets new employees up to speed faster, which is very important and keeps them safe. And on the logistics front, if you remember future truck shortages were one of the catalysts behind our logistics innovation efforts. And that allows us to truck more efficiently, and we can beat those challenges actually with technology-driven efficiencies. So our strategic disciplines are designed to take advantage of tailwinds but also to dampen the effects of headwinds, so that we can live up to the potential for our shareholders. I think that's what you'll see over the next year. We'll take advantage of the volume and potentially pricing tailwinds, but we will offset the headwinds of inflation, labor, and logistic challenges.
Josh Wilson, Analyst
Thanks. Good luck with the next quarter.
Tom Hill, Chairman and CEO
Thank you.
Operator, Operator
Thank you. Your next question is from Phil Ng of Jefferies.
Tom Hill, Chairman and CEO
Good morning.
Collin Verron, Analyst
Hi. This is actually Collin Verron on for Phil. A great start to the year. Thank you for taking my question. So you called out cost control as a driver of gross profit margin and unit margin improvement in the aggregates business in the quarter. Just given the increase in volumes and pricing you're expecting, as well as your outlook for higher diesel fuel costs, can you provide color on how you're thinking about the year-over-year change in aggregates gross margins and unit margins through the remainder of the year?
Tom Hill, Chairman and CEO
Yes. So I would probably call out in the range of mid-single-digit. And if you put that together, that meets our range in price that's out there. I would call out probably low single-digit – flat to low single-digit in cost. And at this point, we think all that's achievable.
Collin Verron, Analyst
Okay. Thank you.
Tom Hill, Chairman and CEO
Thank you.
Operator, Operator
Thank you. Your next question is from Michael Dudas of Vertical Research.
Michael Dudas, Analyst
Good morning, Tom, Mark, Suzanne.
Tom Hill, Chairman and CEO
Good morning.
Suzanne Wood, Senior Vice President and CFO
Good morning.
Michael Dudas, Analyst
Tom, I was intrigued about your comments about your balanced look at allocation and talking about the greenfield opportunities. Maybe you could share a little bit more on timing. What's in like current plan in your CapEx budget for this? Are the projects – I assume they're much longer dated size, scale of what could happen? And is there anything that's imminent that you're looking at that would require over the next several years you quite a bit of capital to boomers or a lot of opportunities? Just want to get a sense of how you're thinking that when you balance it relative to your organic and certainly the M&A opportunities?
Tom Hill, Chairman and CEO
Yes. If we take a step back and consider growth, it's important to remember that in 2020, our mergers and acquisitions activity was quite limited. However, we've seen significant improvement in 2021. Moving forward, we will continue to be both opportunistic and disciplined in our acquisition strategy, ensuring that any potential acquisition aligns with our goals. When discussing growth, it’s essential to look at Vulcan’s overall capacity to grow, which is distinct due to its balanced approach. We have identified three main avenues for growth. First, acquisitions. As the largest aggregates producer, we will be the first to know when something becomes available for sale, but we must remain disciplined and ensure we pay the right price for the right assets. Second, there's the development of Greenfield facilities, which involves establishing new facilities. This process is challenging and requires significant effort and smart planning. We need to identify growth areas, consider geological factors, acquire land, obtain permits, and build the appropriate facilities at the right time. Greenfield projects are crucial because when there are no acquisition targets to meet our growth needs, these projects become the alternative. However, it requires expertise, and the process is not easy; timing is critical. Lastly, we need to focus on organic growth. I've highlighted our four strategic disciplines repeatedly because they are vital to our success. This organic growth must be approached with careful design, planning, and discipline. It is beneficial from a shareholder perspective as it typically involves lower risks and offers higher returns. Our results over the past few years indicate that our approach is effective, as we’ve seen an increase in unit margins. Maintaining this balanced strategy is essential for us, and we also have the financial resources necessary to implement it.
Michael Dudas, Analyst
Thank you, Tom.
Operator, Operator
Thank you. Your next question is from Timna Tanners of Bank of America.
Timna Tanners, Analyst
Good morning, guys.
Tom Hill, Chairman and CEO
Good morning, Timna.
Suzanne Wood, Senior Vice President and CFO
Good morning.
Timna Tanners, Analyst
I wanted to ask two questions. First, you mentioned that the infrastructure proposals focus on increased spending on roads. However, we are trying to understand the auxiliary spending, particularly in the Biden proposal, and its implications for aggregates. Have you done any analysis on that or have any insights? Second, do you have any updates on how the Board is evaluating the dividend? I know it was recently raised, but any new thoughts on that would be appreciated.
Tom Hill, Chairman and CEO
Yes. I'll discuss highways while Suzanne addresses the dividend. It's crucial to note that in infrastructure, particularly regarding the highway bill in the Biden plan, any new construction must include aggregates in the foundation. We appreciate roads and highways since they require a lot of aggregates. Additionally, in the realm of alternative energy solutions, we have been significant suppliers for the foundations, which has been a profitable segment for us over the years, so we are pleased with that as well.
Suzanne Wood, Senior Vice President and CFO
Timna, I'll just address the dividend question. Look, the dividend is very important to us, and it's very important to our shareholders, and we want to make absolutely certain that we maintain the dividend. It's a very good way of increasing shareholder returns. As you've noted, the company has continued to increase that year-over-year. And as we've said, we think about it in almost a progressive kind of way. By that, I mean we will continue to grow the dividend at the Board's discretion to a level that we are absolutely certain that we can maintain through the cycle, because what we absolutely do not want to do is have shifts and changes in that dividend. When you're talking about an ordinary dividend, the ability to maintain that level is absolutely critical, and that's what we're focused on. When you look at our cash-generation capabilities, if you look at our operating cash flows over the trailing 12 months, cash flow from operations was $1.2 billion. That's up about 20% year-over-year. So I think you can tell by the strong cash generation capabilities that we have that we should, again at the Board's discretion, be in a position to continue the view I just described on dividend growth.
Timna Tanners, Analyst
Yes. Absolutely. It's a high-quality problem, but your share price is going up so strongly means that the dividend yield is being kind of small.
Suzanne Wood, Senior Vice President and CFO
Yes.
Timna Tanners, Analyst
You're observing the cycle here. The free cash flow has remained quite consistent, even during the recent correction, which is interesting. I apologize, please continue.
Suzanne Wood, Senior Vice President and CFO
No, I was just going to say you're right. It is a quality problem to have. I mean, what we've been very focused on with our disciplines and focus on unit profitability, etc. is making sure that that free cash flow is stable; it's increasing. When you have a high degree of confidence in your free cash flow generation, then you can do good things with your capital allocation priorities. That was really the first step, and I think we've accomplished that and we'll look forward to additional opportunities to improve the company's ROIC.
Tom Hill, Chairman and CEO
It's difficult to give a general guideline. I would say that wind energy requires a lot of aggregate, as you are not only installing the large foundations for the windmills but also establishing the entire logistics network, including the roads and utilities necessary for those windmills. Therefore, wind energy is quite aggregate-intensive.
Timna Tanners, Analyst
Okay. Thanks guys.
Operator, Operator
Thank you. Your next question is from Adam Thalhimer with Thompson Davis.
Tom Hill, Chairman and CEO
Good morning, Adam.
Adam Thalhimer, Analyst
Good morning. Good morning, guys. A great start to the year. I guess my biggest question, Tom, would just be on aggregates pricing. And there's so much inflation throughout the entire construction chain right now. I mean, when do you think we break out of this low single-digit range that we've been in for a while for aggregates pricing?
Tom Hill, Chairman and CEO
I believe you'll see us increase prices as we progress through the year. A common question we receive is whether we can achieve double-digit price increases. However, you have to consider that the average pricing across 60 markets varies, with each market evolving at its own pace. Our strategy involves pushing prices aggressively in the market for some time, followed by a necessary pause for everyone to adjust before we raise them again. Achieving double-digit growth requires many factors to align perfectly. While it's possible, it's not something I'd recommend pursuing aggressively. That said, the pricing environment has significantly improved. We now have visibility into demand and inflationary pressures, both of which support pricing. We'll continue to work on this throughout the year, and as we approach the end of the year, we will have more clarity for 2022. Keep in mind, we are still navigating some projects that were bid during the pandemic when price increases were less favorable. Once we move past that period, we will continue to push forward. We do aspire to see double-digit pricing, but achieving that is quite challenging, though not impossible.
Adam Thalhimer, Analyst
Okay. Thank you very much.
Tom Hill, Chairman and CEO
You bet.
Operator, Operator
Thank you. Next question is from Anthony Pettinari of Citi.
Anthony Pettinari, Analyst
Hi, good morning.
Tom Hill, Chairman and CEO
Good morning.
Anthony Pettinari, Analyst
You talked about the guidance raise being partly driven by job shipping and starting faster than expected. I'm just wondering if that was really pronounced or concentrated in any specific state or end market? And just generally, how the 2021 volume growth outlook for aggregates maybe breaks out between your end markets?
Tom Hill, Chairman and CEO
If you examine what's going on in the end markets, you'll notice that conditions are quite normalized across our territory. The residential sector is performing very well, and the non-residential sector is picking up momentum, particularly in heavy construction. We're beginning to see positive signs in the light construction sector. In terms of highways, jobs for bidding in the fourth quarter have returned more quickly than anticipated. Keep in mind that Q3 was slow as the Departments of Transportation were figuring out how to kick off the year. For infrastructure outside of highways, I would rate the situation as flat to improving. Although there were some revenue pressures, those have rebounded, and COVID relief is expected to take effect by the end of this year or early next year. If I had to highlight a particular market, I would say the Southeast and Mid-Atlantic states are the strongest performers. On the other hand, Illinois, Texas, and Northern California saw declines, which were largely driven by weather conditions. Specifically, Texas and Illinois experienced extreme cold, while Northern California faced wet weather. To summarize, while the Southeast and Mid-Atlantic are standout areas, the performance this quarter was largely influenced by weather rather than demand. Overall, we are seeing improvements across all our markets.
Anthony Pettinari, Analyst
Okay. That's very helpful. I'll turn it over.
Tom Hill, Chairman and CEO
Thank you.
Operator, Operator
Thank you. Your next question is from Paul Roger of Exane.
Tom Hill, Chairman and CEO
Good morning.
Paul Roger, Analyst
Hi, Suzanne. Good morning.
Suzanne Wood, Senior Vice President and CFO
Hi, good morning.
Paul Roger, Analyst
So I've just got one question then. It's maybe slightly less feel compared to the rest of the Q&A. And it's basically looking at the environmental agenda and the fact that that's obviously going up in the U.S. Can you talk a bit about the risk and opportunities that brings? And maybe specifically what impact would the increased use of recycled aggregates have on Vulcan?
Tom Hill, Chairman and CEO
If you look at the environmental piece for Vulcan, we've been doing this a long time and been doing it well for a long time. If you step back and just look at, for example, greenhouse gas, our effect for us, our greenhouse gas emissions are actually, for a construction materials company, very low. Even with that being said, we are improving our footprint. We are looking at renewable energies. We're probably about 25% of our mobile equipment has the new engines in it which have less emissions, and we will plug in that every year to improve it. I think we've got a great story to tell. But even that being said, we're working hard to improve it.
Paul Roger, Analyst
And on the recycled aggregates side, I mean, that was one of the things we saw when the green agenda really took off in Europe. Presumably that's negative for virgin aggregates and potentially margin, is it?
Tom Hill, Chairman and CEO
Yes. If you’re talking about recycling, we are a significant recycler. We are involved in the concrete-recycling business, and in our asphalt sector, we also recycle a substantial amount of asphalt. This is integral to our operations, and it is expanding.
Suzanne Wood, Senior Vice President and CFO
I would like to add that regarding highways, the formulas used for asphalt differ by state, and there are limits on the amount of recycled material that can be used. Therefore, caution is necessary in this area. We are pleased to be involved in the recyclable business, but it does not serve as a complete substitute for virgin asphalt in many applications.
Tom Hill, Chairman and CEO
Thank you.
Operator, Operator
Thank you. Your next question is from Zane Karimi of D.A. Davidson.
Zane Karimi, Analyst
Thank you for the information so far. I would like to delve a bit deeper into your outlook, especially regarding what you're observing in California and Texas. What factors are influencing activity in these markets? Additionally, how has your outlook changed from last quarter to this one? Are you noticing stronger factors in infrastructure or non-residential areas that could lead to potential growth?
Tom Hill, Chairman and CEO
We are observing growth in both California and Texas. California faced significant challenges in 2020 due to the pandemic, particularly in Northern California, where shelter-in-place orders were strict. Additionally, there were power outages caused by fires that resulted in cement shortages. However, the situation has improved; we no longer have the same issues with cement costs or availability. Business operations have resumed, and there are no rolling power outages, which has contributed to a recovery in highways and residential projects, alongside improvements in non-residential and infrastructure sectors thanks to returning revenues and COVID relief assistance. Texas initially struggled with severe winter weather, but looking beyond that, the highways and residential markets in Texas are performing very well, with improvements in non-residential sectors being driven by heavier projects. Overall, both California and Texas are showing much stronger markets and a better ability to conduct business.
Zane Karimi, Analyst
Thank you.
Operator, Operator
Thank you. There are no further questions at this time. I will now turn the call back over to Tom for any additional or closing remarks.
Tom Hill, Chairman and CEO
Yeah. Thank you very much for your time and interest in Vulcan this morning. We'll continue to make good progress on our long-term goals, and we look forward to sharing the news with you over the quarter and for quarters to come. Have a nice day and stay healthy and safe.
Suzanne Wood, Senior Vice President and CFO
Bye.
Operator, Operator
Thank you. This does conclude today's conference call. You may now disconnect.