Wall Street Will Have to Revisit Vulcan Materials After Compelling Results
We see continued margin strength ahead, and Wall Street needs to factor that into its thinking.
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We’re coming off Wednesday morning’s earnings conference call from Vulcan Materials VMC, which delivered a solid EPS beat for the March quarter and reiterated its 2025 guidance that calls for adjusted EBITDA between $2.35 and $2.55 billion versus $2.057 billion last year. For the March quarter, Vulcan reported EPS of $1.00, well ahead of the $0.76 consensus, on revenue of $1.64 billion a tad shy of the $1.65 billion consensus and compared to $1.5 billion in the year-ago quarter.
Now, this is where things get very interesting: Adjusted EBITDA for the quarter clocked in at $411 million, up significantly compared to $323 million, a much faster increase compared to year-over-year revenue gains for the quarter. The key is the higher profit per revenue dollar, which we see in the adjusted EBITDA margin jumping to 25.1% in the March quarter from $20.9% in the year-ago one. With volumes down slightly due to the impact of winter and other wet weather, the drive behind that margin improvement was a factor we called out several months ago: pricing. During the quarter, aggregates freight adjusted price improved by 7% on a year-over-year basis and this led to sizable gains in key metrics such as freight-adjusted sales per ton, gross profit per ton (+18.7%), and cash gross profit per ton (+20%).
We continue to see the housing market as a headwind for Vulcan given affordability factors and economic uncertainty. However, infrastructure spending and private non-residential construction, such as data centers and other buildings, remain a very nice tailwind for construction activity. Paired with opportunistic but disciplined pricing, we see Vulcan’s adjusted EBITDA expanding meaningfully as we exit the seasonally-weakest quarter into the two seasonally strongest.
More than likely, we will see a repeat of what we saw with ServiceNow NOW price targets. By that we mean the Wall Street folk who dialed back their VMC targets in recent weeks will now need to factor pricing and margin prospects into their thinking. Given the upside surprise for March, we should see those same folks lift their price targets, especially given favorable pricing dynamics in Vulcan’s backlog of business. As we move through the year, we will want to keep a watchful eye on pricing dynamics and what that means for margin and bottom-line prospects.
For now, we’re going to keep our VMC target at $310. We will review that target as monthly construction spending data is reported and we collect more data points from others in and around the sector. But it’s more than enough upside to maintain our One rating on a company that is likely to see minimal disruption from tariffs. When VMC shares pass $270, barring any new data, we may need to revisit that One rating.
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At the time of publication, TheStreet Pro Portfolio was long VMC and NOW.
