Earnings Call Transcript
Vulcan Materials CO (VMC)
Earnings Call Transcript - VMC Q1 2020
Operator, Operator
Good morning, ladies and gentlemen and welcome to the Vulcan Materials Company First Quarter Earnings Conference Call. My name is Nicole and I will be your conference call coordinator today. All participants are currently in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session. During the Q&A portion of this call, we ask that you limit your participation to one question, plus a follow-up. It will allow everyone who wishes the opportunity to participate. Now, I would like to 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, everyone. 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 issued this morning and a supplemental presentation posted to our website vulcanmaterials.com. Additionally, a recording of this call will be available for replay at our website later today. Please be reminded that comments regarding the company's results and projections 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. You can find a reconciliation of non-GAAP financial measures and other information in both our earnings release and at the end of our supplemental presentation. I will now turn the call over to Tom to begin our prepared remarks. Tom?
Tom Hill, Chairman and CEO
Thank you, Mark, and thanks to everyone for joining the call today. We appreciate your interest in Vulcan Materials Company. In these challenging times, both personally and professionally, we hope you and your families are healthy and safe. Over the past two months, our company has taken proactive measures to protect our employees while continuing to provide our services and operate our business. I want to express my gratitude to all our employees for their patience, flexibility, and commitment to Vulcan, to each other, to our customers, and to our communities. You are doing an outstanding job under challenging circumstances, and I am proud to be part of this team. We had a strong first quarter that aligned with our expectations, with minimal disruption aside from some wet weather. Before Suzanne reviews the quarterly results, I would like to emphasize the strength of Vulcan's business model, along with how we are responding to the COVID-19 pandemic and the economic uncertainties it has created. To start, I want to stress that the fundamental drivers of our business remain stable. Our aggregates-focused business has proven to be resilient and adaptable, more so than any other products in our industry. We have a strong and stable aggregates franchise built over more than 60 years, which gives us confidence in the inherent strengths that will provide long-term stability and growth. Nevertheless, we recognize that we are in extraordinarily complex and uncertain times that will continue to test our resilience. Our strategy is to identify, prioritize, and concentrate on what we can control, taking thoughtful and decisive actions. Quick and accurate decision-making, along with effective execution, is essential during such times. I'd like to highlight a few of our top priorities today. The health and safety of our people is our top concern. Early on, Vulcan established a comprehensive set of COVID-19 protections and procedures, adhering to CDC and health organization guidelines to ensure we work in the safest environment possible. I am happy to report that these measures are effective. Second, we are focused on our financial stability. We entered this crisis with a robust balance sheet and liquidity, and we've taken prudent measures to strengthen our financial position, including supplementing our revolving credit facility with a term loan and reducing planned capital expenditures for the remainder of 2020. Also, continuous improvement is crucial for us. We are leveraging our four strategic initiatives, especially in commercial and operational excellence, to enhance our execution capabilities and operate our business more efficiently. Additionally, we prioritize real-time communication to ensure our management team is well-informed about developments at our quarries, in our markets, and with our customers. Our leadership team consistently engages in discussions regarding the health of our employees and the business, allowing us to swiftly adapt to changes in demand and construction activity timelines. This also supports effective communication that aligns our employees, accelerates decision-making, and fosters the sharing of best practices, particularly concerning health and safety. Lastly, we are focused on contingency planning from both financial and operational perspectives. I previously mentioned some proactive measures we've taken to enhance our financial standing. Operationally, each division has developed detailed contingency plans that include potential changes to production schedules and project timing, as well as cost reductions. Some elements of these plans are already in motion, particularly in terms of cost management and project timing. We are monitoring the evolving situation closely. Now, let me provide insight into demand and shipment trends and how these translate to our outlook for the remainder of 2020. In the first quarter, we were designated an essential business, which led to good shipment activity as customers worked through their backlogs and we secured public and private projects. This trend continued into April; however, we have started to observe shifts in project schedules, including delays and cancellations, particularly in the private sector. This adds uncertainty to our short-term demand outlook. While we have adequate backlogs to keep us busy, we cannot control future demand. Given the uncertainty regarding the pandemic's duration and impact, we have a certain level of unpredictability concerning project timing and new construction starts. In our previous guidance, we aimed to balance realism with caution. However, we now find ourselves in a more dynamic environment, suggesting a shift towards a more cautious approach. As a result, we have decided to withdraw our earlier earnings guidance for 2020. We will keep monitoring market conditions and, as our visibility improves, we will resume our usual practice of providing guidance. Now, I will turn the call over to Suzanne for additional comments.
Suzanne Wood, Senior Vice President and CFO
Thank you, Tom, and good morning. I'll cover some highlights from the quarter and also comment on our balance sheet and liquidity position. Adjusted EBITDA for the first quarter grew by 4% to $201 million. This included a foreign currency balance sheet translation loss of $6 million, resulting from the rapid devaluation of the Mexican peso in March. In the Aggregates segment, our gross profit improved by 5%. On a per ton basis that translated to $4.31 or a 6% increase year-over-year. Cash gross profit per ton also increased by 6% in the quarter to $6.02. Given the seasonality of the first quarter, we typically look at cash gross profit on a trailing 12-month basis. That number was $6.82 per ton, an increase of 7%, representing another good step forward on our path to $9. This quarter's aggregates shipments were 1% lower than Q1 last year, which was a tough comp. You'll recall that the first quarter of 2019 experienced strong year-over-year growth of 13% as a result of delayed shipments from the fourth quarter of 2018. There was also some negative impact from wet weather this year in the Southeast and the Southwest, but California, Florida, Illinois and Virginia realized solid growth. All of our key markets reported year-over-year price growth, up 4.5% on a reported basis and 4.8% on a mix-adjusted basis. Unit cost of sales increased by 4%. As expected, we continue to have some impact from higher repairs, maintenance and stripping. Wet weather inefficiencies also had an impact on the cost profile in certain markets. On the positive side, lower diesel fuel costs benefited the quarter by approximately $3 million. Moving on to our non-aggregates segments. I'll start with asphalt. Our gross profit this year was a $2 million loss compared to a loss of $3 million last year. Asphalt shipments increased by 2% and prices increased by 5%. In addition, the average unit cost for liquid asphalt was 6% lower than last year's quarter and this also contributed to the expanding margins. This represented the fourth consecutive quarter of year-over-year profit improvement. The concrete segment also saw better results this year. Gross profit improved by 8% to $9 million led by a 10% increase in shipments and a 3% increase in average selling prices. SAG expenses declined 4% year-over-year and as a percentage of revenue improved by 90 basis points. This resulted from adjustments to stock-based compensation and earlier-implemented cost reductions. Our return on investment continued to improve increasing by 110 basis points to 13.9% for the trailing 12 months ended March 31. Consistent with past practice, this has been calculated on an adjusted EBITDA basis. Tom has already commented on our strong balance sheet and liquidity position, which we further enhanced in April with the $750 million term loan. Our available liquidity is now $1.6 billion. This is comprised of the term loan, the undrawn revolving credit facility and cash on hand. Our debt structure is very good with a weighted average debt maturity of 14 years and a weighted average interest rate of 4.2%. And in terms of leverage our debt-to-EBITDA ratio on a gross basis was 2.2 times and on a net basis it was 2.1 times. Tom mentioned our contingency planning efforts. A part of these plans relate to our capital expenditures. We have reduced our expected 2020 spend from a total of $475 million to between $275 million and $325 million. The majority of this amount will be spent on operating and maintenance CapEx and most of our growth projects will be placed on hold. Our capital allocation priorities remain the same. But in light of the uncertainty created by the pandemic, we are most committed to operating and maintenance CapEx to protect the value of our franchise, dividends and the overall preservation of our liquidity. From an M&A perspective, our evaluation of opportunities will be even more stringent and we will remain disciplined in this area. And now, I'll turn the call back over to Tom for closing remarks.
Tom Hill, Chairman and CEO
Thank you, Suzanne. Before we go to Q&A, I want to take this opportunity to again thank the employees of Vulcan for their hard work and their dedication. They've taken good care of our customers, and continue to improve our operating disciplines and efficiencies. Our MSHA/OSHA injury rate this quarter was 0.75 accidents per 200,000 employee hours worked, a 15% decrease from the same quarter last year. Simultaneously, our hard-working teams have followed strict COVID-19 protocols and stayed healthy. Our world-class safety record over the last three years underscores how committed our people are to superior performance in safety and health. Our culture of putting people and safety at the center of our decisions serves our shareholders and our employees well. We are committed to making decisions about our business that will protect the financial health of the business and will ensure strong growth for the long term. We entered uncertain times in a position of strength. We will exit uncertain times in a position of strength. Now, we'll be happy to take your questions.
Operator, Operator
The first question will come from Stanley Elliott with Stifel.
Stanley Elliott, Analyst
Hi, everyone. Good morning. Thank you guys for taking the call and good to hear your voices.
Tom Hill, Chairman and CEO
Good morning.
Suzanne Wood, Senior Vice President and CFO
Good morning.
Stanley Elliott, Analyst
Could you all talk, I guess kind of Tom high level? I mean, obviously plenty of uncertainty in the marketplace. I'd love to get your take on kind of, what you're seeing more broadly across the portfolio maybe even a little more detail on what you're seeing in trends in April if you could please?
Tom Hill, Chairman and CEO
Sure. I would describe April as a continuation of the first quarter. I think volumes, we've seen them shipping kind of as usual. The one exception, I'd call out would be in the Bay Area where residential and non-residential construction were not deemed essential. We're seeing that lighten up though. I mean, they've lifted that in Napa and our customers in that area are telling us that they've got – when it lifts they're ready to go both in residential and non-residential. So, as far as April is concerned, so far so good from a demand perspective, again, lots of unknowns out there. We've seen some postponements and some delays. So we'll see how the rest of the quarter plays out. From a pricing perspective, I would tell you the cadence again is much like the first quarter. I don't see a big delta between April and the first three months.
Stanley Elliott, Analyst
In pricing, the pricing was obviously very good in the quarter. I mean, should we think about the demand piece obviously there's plenty of uncertainty out there. Is it fair to assume that kind of the structures you all have in place kind of what's being done at the ground level that maybe there's a little more visibility on the pricing side?
Tom Hill, Chairman and CEO
I believe the visibility regarding pricing is quite clear, especially with the strategies we've implemented in our commercial excellence efforts. In the short term, I don't foresee any issues that would disrupt our performance in the first four months. So far, everything looks good this quarter, as we achieved a 4.8 mix-adjusted. The mixture has been affected by heavy rainfall in the Southeast. Most of our January price increases have been successful, and we have additional price increases for fixed plants and ready-mixed products scheduled for April. Most of those took effect on April 1, with a few pushed to May, but they will be maintained. Therefore, I expect prices to remain stable throughout 2020, even if we experience a slight decline in volumes during the second half. This stability is a unique aspect of aggregates, and previous cycles have demonstrated this.
Stanley Elliott, Analyst
Perfect. I will pass along. Thanks guys. Appreciate it.
Tom Hill, Chairman and CEO
Thank you.
Operator, Operator
The next question will come from the line of Kathryn Thompson with Thompson Research.
Kathryn Thompson, Analyst
Hi. Thank you for taking my questions today. First for the team just a bigger picture view taking a step back could you help clarify the differences between Vulcan today versus the Great Recession a little over 10 years ago? In particular, how has end-market exposure changed, geographic mix changed, structural costs adjustments and other important fundamental differences today versus the last downturn? Thank you.
Tom Hill, Chairman and CEO
Good morning, Kath. Thank you. Firstly, from a market standpoint, the markets are fundamentally and structurally different, and in fact, they are structurally better. There is no overbuilding as we experienced about 12 years ago. Whether looking at residential or non-residential sectors, we are still below long-term averages. There is also significantly better highway funding, and our core states have made substantial investments in infrastructure, which we did not have a decade ago. The fundamentals are strong; there's no overbuilding, housing inventories are very low, and interest rates are low. Therefore, construction demand is in a stronger position today than it was 12 years ago. From Vulcan's standpoint, we are a much different company now. Our product lines have changed, and we are uniquely positioned in the Aggregates business without any cement, and our small amount of ready-mixed concrete is in excellent markets. Our balance sheet and liquidity are in a much better state. We also started earlier to ensure our unit margins either continue to improve or remain protected. The four initiatives we discussed—commercial aspects, operating disciplines, logistics, and procurement—are maturing. During favorable times, they will help us grow unit margins, and if we face challenges, they will protect our unit margins. Overall, we are in a significantly better position, as are the markets.
Suzanne Wood, Senior Vice President and CFO
I would like to add that during uncertain times, having a management team with a deep understanding of operations is crucial. Leaders who can exercise good judgment and make appropriate decisions for the business are essential for maintaining a balance between short-term and long-term considerations. When I consider my colleagues on the senior management team, including Tom, Stan Bass, and Tom Baker, I recognize that they have experience as Division Presidents who operated in the last Great Recession. They are battle-tested and bring valuable first-hand knowledge from their experience in developing actionable plans to navigate challenging times. This experience instills confidence that we can make the right decisions and execute them effectively. While we are currently facing difficulties, I believe we are structurally in a much better position than we were during the last recession.
Kathryn Thompson, Analyst
Okay. That's helpful. The next question is really a comparison and contrast between two end markets one that has more visibility versus one that maybe is a little cloudier. On the public side, you're seeing acceleration of construction work. But also you cited states that were outperforming, overall were Illinois and California. To what extent, the public really helped to drive demand at those states, because they do have more recent structural changes in funding? And then I guess the contrast against that. Help us understand how you're thinking about the non-res end market. Our contacts aren't seeing a wholesale cancellation of projects, but projects being pushed out in terms of start date. How are you thinking about that non-res exposure? Thank you.
Tom Hill, Chairman and CEO
I'll discuss the non-residential sector first. In most of our markets, shipments for non-residential projects remain strong. Our bookings and backlogs are healthy. The only exception is the Bay Area, which we hope is beginning to recover and get back on track. We are keeping an eye on Houston. Along the coast, the LNG projects that have started are proceeding, while those that haven't started are facing delays. We also have noticed a few non-residential jobs being postponed and very few cancellations, just one or two that I can think of. Our ready-mixed customers are feeling positive for now, although they may have some concerns about managing through their backlog. There are many uncertainties regarding non-residential construction due to the impact of COVID-19. Will the bidding continue? So far, things look good, but we are monitoring the situation closely. The highway sector is a strength for us. Currently, state DOT work is proceeding normally, and we have solid backlogs and bookings. However, most states are forecasting a decline in revenues, with AASHTO indicating an average drop of about 30%. Most of our states continue construction and maintenance as planned, with expected lettings for fiscal year 2020 moving forward as scheduled. Exceptions are Pennsylvania, which has stopped construction, Kentucky and Mississippi, which have suspended lettings, and North Carolina, which is facing financial issues despite efforts by their legislators to address them. On the positive side, key states like Florida, California, Alabama, and Texas are all speeding up work, which is both efficient and safer. Currently, shipments are strong, and lettings for the next three to four months look solid. However, we are uncertain about future DOT budgets beyond that timeframe, as none have released their budgets for fiscal year 2021. For now, things look promising, and we hope to see federal support from AASHTO, leading to an increase in gas tax revenues as driving resumes.
Kathryn Thompson, Analyst
And just one quick clarification. Illinois, California, you cited them as seeing increase in demand overall. How much of that was private versus public?
Tom Hill, Chairman and CEO
So in California it's across – California has been – in the first four months has been good shipments across all four end markets. Illinois is more on the public side both infrastructure with O'Hare work, toll roads. And then as you know, we've got new funding coming on in Illinois for highways.
Kathryn Thompson, Analyst
Okay. Thank you so much.
Tom Hill, Chairman and CEO
Thank you.
Operator, Operator
The next question will come from the line of Anthony Pettinari with Citi.
Anthony Pettinari, Analyst
Good morning.
Tom Hill, Chairman and CEO
Good morning.
Anthony Pettinari, Analyst
Tom just a follow-up to that last question on state budgets. You indicated lettings were solid for the next three to four months. From a flow-through perspective I mean is there a timeframe or a timeline that we need to see federal aid to states to keep the outlook relatively positive in the second half of the year?
Tom Hill, Chairman and CEO
Except for maintenance work which goes very fast, most of those jobs we'd tell you that the backlog is six to nine months on average before you start shipping them when you book them and you ship them. But again, they're all over the place. But just as a rule of thumb, we would tell you that that backlog ships six to nine months out. Big work may be a little longer but that's kind of a rule of thumb.
Anthony Pettinari, Analyst
Okay. That's helpful. And then you referenced Houston as a watch market. I'm just wondering, if you could talk broadly about the impact of maybe lower oil prices to your business both as maybe a potential, modest tailwind from derivatives, raw material perspective and then also maybe as a headwind from a demand perspective?
Tom Hill, Chairman and CEO
We ship very little directly to the oilfield because it’s not a significant area for us. Therefore, we won't experience a direct impact from that. However, lower fuel prices will help reduce our aggregate costs and may lower costs related to long-haul freight, whether that's by rail, ship, or barge. We are also monitoring the situation regarding Texas volumes, especially in Coastal Texas. Although we haven't noticed much impact so far, it's something we are keeping an eye on.
Anthony Pettinari, Analyst
Okay. That’s helpful. I’ll turn it over.
Tom Hill, Chairman and CEO
Thank you.
Operator, Operator
Our next question is from the line of Mike Dahl with RBC Capital.
Mike Dahl, Analyst
Thanks for taking my questions. I wanted to follow-up on the kind of Q&A or exchange around some of the past cycle comparisons. And I guess, specifically thinking about on the private side you're talking about seeing some non-res projects kind of delayed versus canceled. I'm curious if you go back to last cycle, did the early stages kind of start out like this and you kind of push out the projects as long as you can before push comes to shove and gets canceled? Or did you see kind of quicker outright cancellations trying to draw some comparisons around what to take from initially just seeing a postponement versus cancellation?
Tom Hill, Chairman and CEO
I think that it was quicker and you saw more cancellations than postponements. It was more dire. And again it goes back to the overbuilding, you're not overbuilt right now. If you look at homebuilders there is – these markets have – don't have any inventories. And so people want to buy a house, they've got to build them. And people are trying to take advantage of the interest rates on the non-res side with the strengths we're seeing there or data centers, distribution centers, warehouses, online commerce, education and health care. And again, those projects – I'll give you some examples of what's pushed out. We've seen a dorm and a major university pushed out. A Google project get delayed, some office buildings get delayed, a couple of Carvana facilities we saw get delayed. The only cancellation that I can think of was that Dave & Busters in Lexington. Everything else is a postponement and we'll see. Now on the res side, we saw people push out new phases of subdivisions three or four weeks ago. And now we're seeing them in a number of our markets saying we're going forward with them. So while people – it's kind of a mixed bag where people are pausing and then moving forward and then pausing and moving forward.
Mike Dahl, Analyst
Okay. That's interesting and helpful. Second question just on diesel. You noted the $3 million year-on-year improvement in the first quarter and presumably, it would get larger, especially as we work into higher volume or typically higher volume months. But curious, I understand that, there's no guidance anymore for this year but can you help us frame up, your diesel consumption for last year in aggs? And all else equal, if you were to assume current diesel pricing on last year's shipments, what type of full year tailwind would that represent?
Tom Hill, Chairman and CEO
Well our – last year our trailing 12 month I think we used about 55 million, 56 million gallons of diesel fuel. Yes, there is a drop in that but I think that we can't control the price of diesel. So what we'll always focus on is – and every operator at Vulcan would know it is your tons per gallon of fuel and every plant that we operate and that's their training and that's how they look at it. You guys can do the math. We dropped from $2.26 to $2.04. And since then it's gone down dramatically. So if it was $1 it's – assuming usage is the same, it's $50 million. But again that's one of those that – that's not our controllables. And we'll – our operators every day look at how they use it.
Mike Dahl, Analyst
Okay. Thank you.
Tom Hill, Chairman and CEO
Thank you.
Operator, Operator
Next question is from the line of Trey Grooms with Stephens.
Trey Grooms, Analyst
Good morning, Trey.
Suzanne Wood, Senior Vice President and CFO
Hi, Trey.
Trey Grooms, Analyst
Good morning, Suzanne. How are you?
Suzanne Wood, Senior Vice President and CFO
Great. I hope you are?
Trey Grooms, Analyst
Doing well. My first question is about the FAST Act, which is set to expire in September. The earlier expectation was that we would likely receive some form of a continuing resolution to get us through the election and into next year, with a possibility to reassess later. Do you believe that the current situation alters that perspective at all, and is there a chance we could receive something more substantial than just the continuing resolution? How are you approaching this considering the ongoing health crisis?
Tom Hill, Chairman and CEO
So, Trey, I would break that down into three main areas. The first, and likely the most urgent, is AASHTO's request for $50 billion to support the decline in state funding. This needs to be included in the COVID-19 Phase 4 bill. Hopefully, that will happen because it's a critical need stemming from the pandemic's impact. The second area is related to the FAST Act reauthorization. Before COVID-19, significant progress was being made in Washington on this. Earlier this year, the Senate EPW Committee passed the highway portion of the FAST Act, which included an increase of around 25% to 26%. Unfortunately, the pandemic disrupted that work. The positive aspect is that foundational work had already been accomplished. Although it's been stalled, remember that if the reauthorization isn't completed by September, we will have extensions. Therefore, funding won't be lost; it will merely be delayed. The third area involves ongoing discussions about a substantial infrastructure bill. There has been considerable talk over several quarters regarding a significant act to address infrastructure needs. While COVID-19 complicates the political landscape, it also presents an opportunity for this, and there is a widespread recognition of the need from both an infrastructure standpoint and as part of a stimulus package. We will just have to wait and see what unfolds.
Trey Grooms, Analyst
Understood. Okay. So, I guess the next question may be for Suzanne. It sounds like things are stable for now, but given the uncertainty, experiencing some level of volume declines in aggregates over the next few quarters is possible. In that scenario, I know the long-term goal for incremental margins is 60%. How should we think about the mechanics surrounding decremental margins in that situation? Assuming this is somewhat short-lived, what would happen if we enter a downturn?
Tom Hill, Chairman and CEO
I will begin, if that's alright. One of the strengths of the aggregates business is the ability to stay proactive in managing margins. It's important for us to anticipate market conditions effectively. We have established trigger points that monitor various factors beyond just falling volumes. These include how we quote, job bookings, backlog levels, and the pace of shipping, which all reflect the comprehensive market situation. Our commercial excellence strategy provides clear, automated, and consistent metrics for each market, giving us foresight about potential declines in volume. The team has also prepared detailed contingency plans for variations in volume, tailored by plant and market, to address changes in timing and necessary inventory levels. Production in aggregates can be adjusted swiftly, being a mechanical process. While both costs and prices matter, our primary focus is on managing unit margins effectively, aiming to maximize them and reach our potential. The four strategic initiatives we have will benefit us significantly, helping us to enhance margins during favorable times and safeguard them during downturns. We are well-positioned to maintain those unit margins.
Suzanne Wood, Senior Vice President and CFO
Yes, I agree with Tom. I would just add that this is why we started working on our contingency plans early, so we would know exactly what steps to take well in advance of any potential decline in volumes. As Tom mentioned, we know how to reduce costs, and we want to do it wisely. A significant portion of our costs are variable, giving us the flexibility to manage them effectively. It's important for us to make the right decisions for the business and to protect our unit margin. As we've frequently discussed, we are ahead of the industry in this area, and our teams in the field are aware of that. While history can repeat itself, if we look back at the last recession, we see that even with a significant volume decline, our unit margins only decreased by about 10%, showing that we have the capacity to manage those margins effectively.
Trey Grooms, Analyst
Okay. Understood. Thank you very much. And good luck with the rest of the quarter and stay safe.
Suzanne Wood, Senior Vice President and CFO
Thank you.
Tom Hill, Chairman and CEO
Thank you. Stay safe.
Operator, Operator
The next question is from the line of Mike Wood with Nomura Instinet.
Mike Wood, Analyst
Hi, good morning.
Tom Hill, Chairman and CEO
Good morning Mike.
Suzanne Wood, Senior Vice President and CFO
Good morning.
Mike Wood, Analyst
Could you give us some color in terms of maybe your top three markets in terms of how that revenue shortfall in transportation revenues looks compared to that 30% national shortfall per AASHTO?
Tom Hill, Chairman and CEO
I don't have those specific numbers, but our top markets include Texas, California, and Virginia among our top 10 states. All of them have maintained their lettings through fiscal year 2020. The only one from the top 10 that hasn't is North Carolina, and we are aware of the issues there, hoping they will be resolved soon. Texas appears to be in a strong position based on their current revenues. California remains relatively healthy, as does Virginia. However, I will need to provide more details about those top three later.
Mike Wood, Analyst
Okay. I'm curious to hear your thoughts on whether your shipments are lagging behind the funding that states are allocating for public infrastructure. Have you considered what would happen to your shipments if funding levels dropped by 10% or 20% from 2019 levels?
Tom Hill, Chairman and CEO
Too early. The short answer is really too early to tell and a lot of moving parts. I think that if you look at those states and where we are and our backlogs again those things lag six to nine months. But I think this is one of the real unknowns and uncertainties that we'll have to put together of what's it going to mean. I would tell you that our states and the top 10 that we talked about nine of those 10 have much better funding than increased their funding over the last three or four years. Only one that hasn't has been Arizona. So, we sit in a better place than most, but too early to tell.
Mike Wood, Analyst
Okay. Thank you.
Tom Hill, Chairman and CEO
Thank you.
Operator, Operator
The next question is from the line of Seldon Clarke with Deutsche Bank.
Seldon Clarke, Analyst
Hey thanks for the question. If you just take a step back and think about the business mix from a higher level you mentioned backlogs or some of the maintenance-type work and state lettings and obviously, you've got some ongoing projects in both the commercial and residential space. But when you try to contextualize this internally or when you do your stress test, what percentage of your revenue mix do you really think is at risk from a macro perspective over the next let's say three, six, and 12 months?
Tom Hill, Chairman and CEO
I'm sorry I can't provide a definitive answer to that because there isn't a clear answer at this time. We remain uncertain about the short-term or long-term effects of the shelter-in-place orders, and the situation is very fluid. Even today, as restrictions begin to lift, we are unsure of the implications. On the private side, we are still observing homebuilders returning to construct subdivisions, but there are a few delayed projects in the non-residential sector. The key factor will be whether these delays become significant, but so far, they have not. We also have not seen much postponement of what we currently have booked. Overall, everything seems to be on track so far, but we lack clear data to forecast either the short-term or long-term effects on the public or private sectors.
Seldon Clarke, Analyst
Could you provide insight into which states have more relaxed restrictions to help us understand the state of ongoing business for the next few weeks or months?
Tom Hill, Chairman and CEO
Yes. Generally, as we mentioned regarding both public and private operations through April, we are continuing our shipments as normal, with the exception of northern California, specifically the Bay Area and its surrounding seven counties. We anticipate an improvement in that area, which may provide us with a boost in the next 30 to 45 days. We have already seen some progress in Napa. Despite the shelter-in-place orders over the past seven or eight weeks, we have not experienced a decline. Therefore, we believe that as these restrictions are lifted, it will further support our current shipments.
Seldon Clarke, Analyst
Is there a way to clarify what you mean by normal in April in relation to last year's comparisons? Are you referring to any delayed demand from late 2018 that affected April, or is it more about standard seasonal patterns? Can you provide any additional context on what April was like?
Tom Hill, Chairman and CEO
What I can tell you is that it is fairly normal compared to previous Aprils.
Suzanne Wood, Senior Vice President and CFO
Yes. And that the spillover from fourth quarter of 2018 that was really a first quarter impact last year. So, that really has no bearing on what we're talking about for April.
Seldon Clarke, Analyst
Okay, that's helpful. Thank you.
Tom Hill, Chairman and CEO
Thank you.
Operator, Operator
Next question is from the line of Garik Shmois with Loop Capital.
Garik Shmois, Analyst
Thank you. I am curious about SAG; how much of the decline this quarter was due to lower share-based compensation compared to the cost actions you implemented? How should we view SAG moving forward in a shorter or longer downturn?
Suzanne Wood, Senior Vice President and CFO
Thank you for the question. Approximately three quarters, or around 60% to 75% of the total, was related to share-based compensation, which is linked to the share price. We'll keep reporting on those fluctuations. The other reductions you noticed in the SAG cost were highlighted in the fourth quarter, where we examined our corporate and field operational overhead and made certain adjustments, particularly in technology and efficiency, as well as improved management of professional services from a corporate perspective. Back in February, we indicated that we expected SAG to decrease both in total dollars and as a percentage of revenue for the full year. This guidance was updated alongside our other forecasts in the recent release. As we look ahead, we continuously seek opportunities to optimize our overhead. Similar to how our operations teams have established contingency plans for each plant, we also have contingency plans regarding SAG. Moving forward, we will assess which plans are implemented based on business developments.
Garik Shmois, Analyst
Okay. Thank you. Follow-up question is I was curious if you're seeing any impact to your Calica Quarry in Cancun just given some of the shutdowns in various industries in Mexico. How you're thinking about the long-haul network, just given some of the watch points across the oil markets in the Gulf coast.
Tom Hill, Chairman and CEO
First of all, our team has done an excellent job of keeping each other safe and healthy, both in the quarry and along the shipping lines. We are continuing to operate in Mexico and have been classified as an essential business. Similar to the U.S., we have implemented effective procedures and protocols to protect our employees. We are still operating and shipping, and at this point, we do not anticipate any interruptions.
Garik Shmois, Analyst
Great, thank you.
Operator, Operator
Next question is from the line of Adam Thalhimer with Thompson Davis.
Adam Thalhimer, Analyst
Thanks. Good morning guys.
Tom Hill, Chairman and CEO
Good morning.
Suzanne Wood, Senior Vice President and CFO
Hi. Good morning.
Adam Thalhimer, Analyst
Tom, what percentage of your shipments comes from backlog? So if backlog is stable, kind of says to me that shipments could be flattish, as we move through the year. But I don't know if there's a lot of book and burn work that would come in over the summer. Or if that doesn't come in this year, then all of a sudden, you're minus 10% on volume, something like that.
Tom Hill, Chairman and CEO
About 60% of our business comes from bid work that is currently in the backlog, with approximately 40% of this being large to medium projects. The remaining 20% consists of small projects, which progress more quickly. The large to medium projects typically fall within a timeframe of six to nine months. The other 40% of our work involves shipments to fixed asphalt and ready mix plants, with asphalt primarily driven by public sector demand and ready mix leaning more towards private sector needs. We have a good understanding of how this will evolve. As mentioned earlier, the systems, procedures, and disciplines established through our commercial excellence initiative three years ago have been refined and are now quite accurate regarding both volume and pricing. However, we cannot control factors such as project delays or cancellations, as well as the uncertainties associated with them.
Adam Thalhimer, Analyst
Okay. And then, what are your thoughts on, cash flow this year, because, with the pull down in CapEx you should generate a lot of cash this year, just curious how you're thinking about deploying that?
Suzanne Wood, Senior Vice President and CFO
To address the capital allocation question, our priorities remain consistent with what we have communicated previously. The order of our capital allocation priorities has not changed. However, considering the uncertainty brought on by the pandemic, we are most dedicated to operating and maintenance CapEx to safeguard the value of our franchise and ensure everything is functioning well. We remain committed to our dividends and the overall retention of liquidity. In the last quarter, we took actions to not only maintain our liquidity but also improve it. Regarding growth and mergers and acquisitions, we did reduce some of the CapEx planned for internal growth projects, which can be quickly adjusted without significantly affecting the business. We did not pursue any M&A in the first quarter but will continue to look at opportunities as they come up, applying a more rigorous evaluation due to the current economic climate. We have always been disciplined in this area and will continue to be even more so. Share repurchases are at the bottom of our capital allocation priorities; we believe they are an essential part of our long-term capital allocation strategy. We did make some purchases early in the quarter, amounting to about $26 million pre-COVID. We are committed to this strategy in the long term, but in the short term, we will likely prioritize preserving liquidity and the other factors I mentioned.
Adam Thalhimer, Analyst
Okay, great. Thank you, Suzanne.
Suzanne Wood, Senior Vice President and CFO
Sure.
Operator, Operator
Our next question is from the line of Paul Roger with Exane BNP Paribas.
Paul Roger, Analyst
Yeah. Good morning, Tom.
Suzanne Wood, Senior Vice President and CFO
Good morning.
Paul Roger, Analyst
Okay. Just a follow-up maybe, I mean you've talked a bit there about the cash flow. Maybe I'll just have a follow-up on that. I mean, obviously, you're cutting back on CapEx. I'm assuming, therefore, your business delaying your greenfields, is the plan essentially post-COVID-19 to start them again? And should we, therefore, when we think about the sort of medium term, should we be expecting CapEx to sort of ramp back up again? And just joined to that also, can you say a bit about working capital and whether there's much more to do on that front as well?
Tom Hill, Chairman and CEO
I'll address the capital expenditures first. They are always specific to the market. We have new projects in California, Virginia, and South Carolina, and we will adjust our investments based on the conditions and opportunities in those individual markets. We will need to respond to these changes as they arise. If there is a demand and need, we will certainly invest because those investments are worthwhile. If there isn't, we will wait until the right time to invest.
Suzanne Wood, Senior Vice President and CFO
Yes, regarding the working capital question, we are actively addressing it and have implemented measures to enhance it. Preserving cash flow and liquidity has always been a priority for the company and is fundamental to our operations. During challenging times, we will intensify our efforts in this area. We are ensuring timely collection of our accounts receivable and preventing any overdue balances. Additionally, we are closely managing our inventory levels as part of our contingency planning. We will also consider any necessary actions on the payable side if required. I hope this answers your question.
Paul Roger, Analyst
Yeah, that's great. And just as a quick follow-up. Can you maybe talk a little bit about the outlook for asphalt margins? I mean, obviously, Q1 you had prices up, bitumen down. I guess, bitumen comes down by even more given what oil is doing. Do you think you can hold that price cost spread? And actually could it even get wider as we go through the year?
Tom Hill, Chairman and CEO
I would say that our prices are set to continue increasing. Over the past year, we've observed a consistent rise in prices as we adapted to increasing liquid costs. We witnessed this trend in the fourth quarter and communicated our intention to surpass those costs, which is evident in our results. I am confident that pricing will keep rising in the hot mix aspect of our business. However, the liquid segment remains uncertain. As Suzanne mentioned, there was a 6% decline in that area this quarter. The future of our liquid prices is unpredictable, influenced by conflicting factors. The sharp drop in crude prices could lead to lower prices, but currently, reduced refinery activity due to decreased demand for diesel and gasoline may pressure liquid supply. I am certain that our prices will rise, but the liquid price trends ahead are uncertain.
Paul Roger, Analyst
Understood. Thanks a lot. Stay fit guys. Thank you.
Tom Hill, Chairman and CEO
Thank you.
Suzanne Wood, Senior Vice President and CFO
Thank you.
Operator, Operator
The next question is from the line of Michael Dudas with Vertical Research.
Michael Dudas, Analyst
Good morning.
Tom Hill, Chairman and CEO
Good morning.
Suzanne Wood, Senior Vice President and CFO
Good morning.
Michael Dudas, Analyst
Battling connectivity issues this morning, so I apologize in advance if this has been asked. But can you talk about the pricing tools that you now have available heading into this downturn? And is there a way to quantify or better understand what they're going to allow you to do in this cycle compared to last one? So, obviously, not having cement helps in this downturn. But from pure aggregates standpoint, can you just talk about what the tools could potentially allow you to do here?
Tom Hill, Chairman and CEO
Yes. The tools we use provide insight into the 60% of the business we are bidding on. They offer real-time updates on our backlogs, booking pace, and pricing for both. They also help us understand the sectors and sizes of the work we're handling. This real-time visibility enhances our understanding of market effectiveness, the performance of our sales force, and future trends. It equips management teams with better tools for forecasting, enabling us to adjust our operations and efforts accordingly.
Jerry Revich, Analyst
Can you discuss any changes in the framework for evaluating the performance of the 350 plant operators during a downturn compared to a year ago? Additionally, how can we prevent those who are less experienced in these situations from making costly mistakes from a cost structure perspective?
Tom Hill, Chairman and CEO
Yes, I believe we have many experienced managers along with new ones. The operational aspect of our four strategic initiatives is crucial, as it involves running our operations efficiently while keeping our staff engaged and ensuring they receive adequate training to gain experience quickly within the organization. This approach will serve us well in the future. Additionally, we will monitor key indicators from our sales team to optimize our operations and make necessary adjustments based on critical metrics. There are various factors we can manage on the operational side, such as inventory and discretionary spending, to maximize efficiency. I feel confident that our team is well-prepared to handle fluctuations in volume, similar to steady growth patterns.
Jerry Revich, Analyst
Appreciate the time. Thanks.
Tom Hill, Chairman and CEO
Thank you.
Operator, Operator
And with that, I'll hand the call back to Tom Hill for closing remarks.
Tom Hill, Chairman and CEO
Thank you. Thanks all of you for taking the time to listen to our call today. Clearly, these are very challenging times and they're challenging for all people throughout the world and for every business. So we greatly appreciate your interest and your support in Vulcan. Please stay healthy and we look forward to talking to you in the coming weeks and months and have a great day.
Operator, Operator
This does conclude today's conference call. We thank you for your participation and ask that you please disconnect your line.