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Operator: Good morning, ladies and gentlemen, and welcome to Vulcan Materials Company’s Fourth Quarter Earnings Call. My name is Gretchen, and I will be your conference call coordinator today. 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: Good morning, and thank you for your interest in Vulcan Materials. With me today are Tom Hill, Chairman and CEO; and Mary Andrews Carlisle, Senior Vice President and Chief Financial Officer. Before we begin, please be reminded that today’s discussion may include forward-looking statements, which are subject to risks and uncertainties. These risks along with other legal disclaimers are described in detail in the company’s earnings release and in other filings with the Securities and Exchange Commission. Reconciliations of any non-GAAP financial measures are defined and reconciled in our earnings release, our supplemental presentation, and other SEC filings. In the interest of time, please limit your Q&A participation to one question.

This will allow for more questions during our time together. A supplemental presentation has been posted to our website, vulcanmaterials.com. Additionally, a recording of this call will be available for replay, later today, at our website. And with that, I will turn the call over to Tom.

Thomas Hill: Thank you, Mark, and thanks to all of you for joining our call this morning. We appreciate your interest in Vulcan Materials Company. In 2022, our teams hands down excelled in confronting macro challenges, and they demonstrated the resiliency of our aggregates-led business. Let’s start with the fourth quarter, which really showcased our commitment to controlling what we can control. We generated $375 million of adjusted EBITDA in the quarter, and I was particularly proud of our team for delivering 11% year-over-year growth in aggregates cash gross profit per ton despite a 6% decline in aggregates shipments. Abnormally wet and cold weather across our footprint disrupted construction activity and shipments across all segments, and we also began feeling the impact of single-family residential decline.

Pricing momentum continued with 15% growth in aggregates mix adjusted price in the fourth quarter. Our people continue to drive performance through good execution, which is grounded in our Vulcan way of selling and the Vulcan way of operating disciplines. Gross profit in both aggregates and asphalt segments increased versus the prior year’s fourth quarter despite lower volumes, and pricing momentum, more than offset inflationary cost increases. In concrete, a 15% decline in volume, driven mostly by extremely wet and cold weather in Texas created operational challenges that eroded pricing gains in that segment. For the full year, adjusted EBITDA improved 12% with all segments posting year-over-year growth in gross profit. Aggregates segment gross profit improved 9%, a noteworthy performance with the headwinds of generationally high inflation and the unexpected and arbitrary shutdown of our valuable Mexico operations in May of 2022.

Aggregates volume increased 6% and average selling prices improved 10%, accelerating as the year progressed. Importantly, our aggregates cash gross profit per ton improved over 5%, and also accelerated throughout the year, even in a challenging operating environment. In the first quarter, we held our own while inflation ramped up, more steadily than expected. Then in the second quarter, cash gross profit per ton grew modestly versus the second quarter of 2021, as we responded quickly with additional pricing action. In the third quarter, cash gross profit per ton increased 9% as pricing momentum accelerated and operating efficiencies offset some of the inflationary pressures. And as I mentioned earlier in the fourth quarter, cash gross profit per ton improved a notable 11%, even as volumes declined.

In our asphalt segment, the second half of 2022 marked an inflection point on price and cost dynamics. In the third quarter, robust pricing improvement began outpacing the sharply-rising liquid asphalt costs. For the full year, pricing increased by 21% to more than offset the 36% increase in liquid asphalt costs. And volumes grew by 7% with particular strength in Arizona and California, our two largest asphalt markets. Ultimately, gross profit improved to $57 million versus the prior year’s $21 million. In the Concrete segment, full-year gross profit of $89 million increased 64% compared to the prior year due to a full year’s contribution from the U.S. concrete assets, in addition to improved earnings in our legacy Northern Virginia and Northern California Concrete Businesses.

Inflationary pressures, including diesel and the availability of both cement and drivers had a significant impact on performance in the Concrete segment. Now, let’s shift to the new year, first focusing on demand. The demand environment for 2023 is mixed, both in terms of end users and timing. We expect modest growth in overall public demand but contraction in private demand. Now, I’ll comment briefly on each end-use. Residential construction activity is showing the impact of rising construction costs, home prices and mortgage rates on single-family housing. Single-family starts and permits have continued to decline but to a lesser degree in Vulcan-served states and the country as a whole. Currently, multifamily remains positive with a strong pipeline of projects under construction.

Housing will certainly be the primary drag on private construction in 2023, but we expect it to quickly return to growth. It is important to remember that the demographics and employment growth in our markets continue to support household formation and the growing need for additional houses in the future. Overall, private nonresidential demand remains at healthy levels. Manufacturing and other heavy industrial projects continue to provide opportunities, but we are monitoring leading indicators such as more recent ABI measures, moderation in the Dodge Momentum Index, and survey data indicating declining loan demand and lending tightening. On the public side, we expect positive momentum throughout 2023 and beyond as states and municipalities move forward with much-needed infrastructure investment.

Highway and infrastructure starts are both positive. In highways, start strengthened significantly in the second half of 2022, growing at 25% on a trailing 12-month basis at the end of the year. The Infrastructure Investment and Jobs Act funding is now reflected in proposed state fiscal year 2023, 2024 budgets across our footprint. The multiyear outlook for public infrastructure is solid. We continue to believe that the increased funding will began impacting aggregates shipments modestly as we move through 2023 and more meaningfully in 2024. In addition to IIJA funding, state tax receipts in Vulcan states are the highest they’ve been in the past 10 years. Strong state and municipal revenue support non-highway infrastructure investment as public entities continue to play catch up from the last decade of housing growth that has driven a fundamental need for infrastructure investment.

Also the considerable funding from IIJA for investment in water, energy, ports, and airports will provide future demand growth. Overall 2023 demand for aggregates will be dependent upon the depth and the duration of the declines in residential construction activity, the impact of rising interest rates on private nonresidential construction activity as the year progresses, and the timing of highway starts converting to aggregates demand. Considering these dynamics, we currently expect our aggregate shipments to decline between 2%and 6% in 2023. Pricing momentum and operational execution will drive our 2023 performance. We expect aggregate pricing to increase between 11% and 13%. Most importantly, we will continue to improve our industry-leading aggregates cash gross profit per ton and deliver solid earnings growth in 2023.

Now, I will turn the call over to Mary Andrews for some additional commentary on our 2022 performance and some more details around our 2023 guidance. Mary Andrews?

Mary Andrews Carlisle: Thanks, Tom, and good morning. Our 2022 operating performance led to another year of solid cash generation and disciplined capital allocation. Over the last four years, our free cash flow conversion has averaged over 90% with a 93% conversion ratio for 2022. After investing over $600 million in capital expenditures for both maintenance and growth projects, we put additional capital to work by completing $529 million in bolt-on acquisitions and also returned $213 million to shareholders via our growing and importantly sustainable dividend. During 2022, we also reduced our leverage back to within our stated target range of 2 times to 2.5 times after completing the U.S. Concrete acquisition in August of 2021.

Net debt to adjusted EBITDA was 2.3 times at year-end. Our investment-grade balance sheet and significant cash-generation capability give us the capacity to continue to invest in both organic and inorganic opportunities with a constant focus on improving shareholder returns and return on invested capital as we grow and optimize our portfolio. During the fourth quarter, we completed the previously-announced sale of our ready-mix assets in New York, New Jersey, and Pennsylvania. On a trailing 12-month basis, our return on invested capital at year-end was 13.5%, inclusive of the loss of earnings historically generated from the network of assets supporting our shutdown of Mexico operations. We also remain focused on continuing to leverage our SAG cost base.

SAG expenses as a percentage of revenue improved by 50 basis points versus the prior year to 7% of revenues. Having strategically managed our balance sheet, our portfolio, and our overhead cost structure, we entered 2023 from a position of strength. Tom shared with you our views on the macro demand environment and resulting aggregates expectations. Even with the challenging and uncertain macro backdrop, we expect to grow our adjusted EBITDA to between $1.725 billion and $1.875 billion by capitalizing on the strengths of our aggregates-led business and executing on our foundational strategic discipline. In our downstream businesses, we expect total cash gross profit dollars to approximate 2022 levels. Continued improvement in asphalt segment profitability and the benefit of improving highway demand should offset both the impact of the 2022 divestiture of our concrete businesses in New York, New Jersey, and Pennsylvania, and the impact of slowing residential construction activity on our remaining concrete businesses.

We expect SAG expenses of between $515 million and $530 million as we remain focused on driving efficiencies in our support functions while delivering new capabilities for the business through investments in technology and talent. We also expect depreciation, depletion, and amortization, and accretion expenses of approximately $610 million; interest expense of approximately $195 million; and an effective tax rate of approximately 22%. In 2023, we plan to consistently reinvest in our franchise with $600 million to $650 million of capital expenditures for both maintenance and growth projects. I’ll now turn the call back over to Tom for some closing remarks.

Thomas Hill: Thank you, Mary Andrews. Before we move to Q&A, I want to thank our entire Vulcan team for a successful year in 2022. And I have great confidence in our ability to continue to execute in 2023, even with the uncertainty in the macro environment. As always, we will be keenly focused on keeping our people safe, driving value for our customers, and capitalizing on the profitability expansion opportunities supported by the Vulcan way of selling and the Vulcan way of operating disciplines. Vulcan is uniquely positioned to create long-term sustainable value with the right products, in the right markets, with the right focus from the right people. And now, Mary Andrews and I will be happy to take your questions.

Operator: Our first question comes from Stanley Elliott from Stifel.

Mark Warren: Good morning, Stanley.

Stanley Elliott: Thanks. Good morning, everybody. Good morning and thank you all for the question. I guess my question would be. I guess coming in, maybe we would have thought maybe more flattish volumes in ’23 or maybe even modest volume growth. What changed, if anything, resulting in a 2% to 6% kind of volume outlook decline now? And is there anything you could share with us about what you’re seeing, and maybe a little more in-depth across those end markets? Thank you.

Thomas Hill: Yes. Sure. If you — looking into ’23, we saw some pretty good bounce-back in January from the bad weather we’ve had in the fourth quarter. So solid shipments, that being said, with the exception of California, which everybody knows we had floods. But the markets look pretty good. The — if you look at the leading indicators this year, maybe not as clear as they usually are, so we tried to be thoughtful as we looked at demand throughout the year. And I think a lot of it boils down to timing. When do we see the decrease in single-family really get to shipments? You probably saw a little bit of that in the fourth quarter, but I think the full impact gets us, we realize that kind of end of the first quarter, beginning of the second quarter.

So single-family probably gets hit about down 20%. And then for non-res, it’s really again about timing with — while the leading indicators for non-res look pretty good starts. Longer-term indicators of commercial loans and ABI could lead to challenges in the second half of the year. So we would call that segment flat for 2023. And then it’s always timing for highway funding and lettings doing the shipments will be critical. We think that segment — the public segment is up low-single digits. So as we step back and look at this, we tried to be thoughtful about the dynamics that impact the shipments and the timing of that demand. And while we can’t control demand, we can control how we run our business and our unit margins. And I think we’ve proven we’re very good at that.

We think we’ll grow that mid-teens. So regardless of the dynamics affecting, shipments will grow our earnings.

Stanley Elliott: Great, guys. And nice work on the profitability improvement. And thanks. That’s it from me. Thanks a lot.

Mark Warren: Thank you.

Mary Andrews Carlisle: Thanks.

Operator: Our next question comes from Trey Grooms from Stephens Inc.

Trey Grooms: Hi. Good morning, everyone.

Thomas Hill: Good morning, Trey.

Mary Andrews Carlisle: Good morning.

Trey Grooms: Hi. So yes, I want to echo good work on the profitability. And it looks like on the guide, it implies an acceleration there on that improvement on cash gross profit per unit. And I guess the moving pieces there if you could maybe cut into those a little bit. We’ve got — pricing is obviously playing a role. And as we kind of look at the cadence there through the year, maybe you could talk about that as well with maybe what’s baked in with a midyear increase? And how we think about the cadence of that profitability improvement as we look through the year?

Thomas Hill: I would call it pretty consistent. We carry really good pricing momentum into 2023. As we said, we guide 11% to 13% for ’23. I’m really pleased with our team’s performance and how they service our customers to earn that price and how they face the challenges that we’ve seen over the last three years and then they can adjust price on the fly and very quickly. Our pricing discussions for January 1, I thought went very well, and they’re in place. And you got to remember that as we progressed through last year, pricing accelerated as we went through 2022 driven by inflation. So the comps in the second half on price get harder so — but I think we’re confident in that — while we’re confident in that, there’s still work to be done in pricing and earning that from our customers.

Importantly, as you talked about, our teams have been able to take price to the bottom line, and we think we do that mid-teens this year. I would call price, while pricing comps get tougher as we progress through the year, cost comps get easier. So I would expect a pretty steady growth in that mid-teen level of unit margin growth quarter after quarter.

Mary Andrews Carlisle: Yes. And Trey, we do expect solid unit profitability growth throughout the year. And of course, we don’t give quarterly guidance. But I will try to give you some additional and hopefully helpful context, may be more related to volume. And if you think in terms of cadence, we definitely will have tougher seasonal comps in the first half. Looking back at 2022, three of the six months in the first half of 2022 implied 12-month shipments at a higher level than our full year 2022, and only one of six months in the back half shows particularly seasonally strong shipments. And of course, Q4 with the weather impact. We’ll provide an easier comp in 2023. So all in, I think, more challenging year-over-year in the first half from a volume perspective, and the comps at least moderate as you move through the second half.

Trey Grooms: Got it. Thanks, Mary Andrews. That’s super helpful. And I guess just to make sure I’m clear on the comment, Tom, that you had around pricing. So 11% to 13%, I guess, just coming out and asking is, is there any — what is the assumption around midyear price increases that are baked into that? I know you guys have been had the opinion and you said on the last call, I think that you guys were going to be targeting pretty aggressively in the first half — or excuse me, in the first of the year, but any kind of comment around what’s in that for midyear?

Thomas Hill: Sure. So let me just step back and talk about pricing in aggregates. If you remember, about of our work is fixed plant, and we price that once or twice a year. We had discussions in October, November for January 1 price increases. I thought those went very well. Those are in place. And we’ll just have to see what happens as we progress through the year and what the market calls for in the individual markets of how that’s priced. But the other 60% of your business is bid work and we’re bidding jobs as we speak. That’s something — it’s something you earn every day, and it’s a continuous improvement effort. And so, what we’re bidding now will ship in the third or fourth quarter. So all in, we’re very confident on our pricing guidance, but some of that’s got to be earned as we progress through the year and earned every day with our customers.

Trey Grooms: Understood. Got it. Thanks for the clarity there, Tom. Super helpful. Keep up the good work. I’ll pass it on. Thanks.

Thomas Hill: Thank you.

Operator: Our next question comes from Kathryn Thompson from Thompson Research Group.

Thomas Hill: Good morning, Kathryn.

Mary Andrews Carlisle: Good morning.

Kathryn Thompson: Good morning. Thanks for taking my question today. Tagging on just with the pricing question, but really pulling the string more in terms of the balance of price and cost. Given there’s been so much volatility in ’21 and ’22, could you clarify the confidence that you have in unit margin growth into ’23 in light of the historic volatility just with that price cost? It would be helpful too if you focus it on the aggregate side, but also given the divestiture of your Northeast concrete assets, giving any color for expectations for unit margins? Or just any type of profitability color on that segment would be helpful. Thank you.

Thomas Hill: Yes. Great question. I think that as you look at 2022, we set records in unit margins, and we’re very pleased with our growth there. We’ll grow those again in ’23, as we said, mid-teens. And what you’re seeing there is the Vulcan way of sales and the Vulcan way of operating disciplines at work. We — you saw us set new goals for long-term unit margin growth at our Investor Day in September. I think that over the last four or five years, the team has done great work on this very important metric. They have shown that they are never satisfied, that they’re always hungry for continuous improvement. And I’m proud of their performance and the culture that they developed and their commitment to excellence. That said, my confidence is very high on our target guidance on unit margin growth because of our past performance and our consistency. Mary Andrews?

Mary Andrews Carlisle: Yes. Tom highlighted the consistency. And I think if we look over the last three years, we’ve grown our cash gross profit per ton in 11 of 12 quarters. And as we expect to continue to do that in 2023 and to accelerate. And I think another important reminder about both the level of unit margin expansion in 2022 and also a contributing factor to the contraction in aggregate gross margin percentage is that we had a considerable headwind year-over-year since we report inventory using LIFO as we believe it results in a better matching of costs with revenues. So in periods of increasing costs like we saw in 2022, LIFO will result in higher cost of revenues than under FIFO. And pretax, in 2022, we took an incremental $54 million of costs through the P&L instead of putting it on the balance sheet, if we had used FIFO method in both periods. So I think we really showed strong unit margin in 2022 with some considerable cost challenges.

Thomas Hill: Kathryn, I’d also expect to see unit margin growth in the other product lines.

Kathryn Thompson: Okay, great. All right, thank you very much.

Thomas Hill: Thank you.

Operator: Our next question comes from Anthony Pettinari from Citi.

Anthony Pettinari: Hi. Good morning,

Thomas Hill: Good morning.

Anthony Pettinari: On the aggregates volume guidance, should we think of that as really an organic kind of apples-to-apples percentage change? Or is there any kind of impact from maybe downstream divestitures impacting upstream shipments? Or are there sort of supply agreements in place to take care of that or any volume impact from Mexico? Just wondering if there’s any impact there and if you could bridge those.

Thomas Hill: Yes. On the divestitures, I don’t see the impact on volumes as I think we’ll continue to service those Ready-Mix plants on Mexico or acquisitions that we made partially in — for partial year in ’22, they’re built into the guidance.

Anthony Pettinari: Okay. That’s helpful. I’ll turn it over.

Operator: Our next question comes from Jerry Revich from Goldman Sachs.

Thomas Hill: Good morning, Jerry

Mary Andrews Carlisle: Good Morning.

Jerry Revich: Hi Tom and Mary Andrews. Good morning. Really interesting price cost spread for aggregates this year as you folks catch up on the inflation we essentially saw in ’22. I’m wondering as the exit rate heading into ’24 is going to show some pretty good pricing momentum for you folks. And I’m wondering as you look at other cycles in the past, Tom, is there a precedent for another year of significant above-trend price versus cost that’s potentially feasible, maybe similar to what we saw 15 years ago.

Thomas Hill: Yes. I think that’s built into our guidance in that mid-teen unit margin growth. And as I said a little bit earlier, I think the cadence of that is your comps and pricing are easier in the first half than the second half. And but you’re — but the flip is true on costs. Your comps are going to be easier in the second half on cost. So I think we’re pretty consistent at how we — at our ability to grow unit margin as we progress through the year. And I’ve also — like I said, we’ve been very consistent about being able to do that. So I don’t see that being choppy.

Jerry Revich: Sorry, I was just asking the momentum heading into ’24. So, is there prior points in time that could give you confidence that this period of outsized price cost and unit profitability growth above trend can continue into ’24?

Thomas Hill: As always, visibility to growing public demand is a good thing for price. And I think we are — our folks are quite disciplined on how they earn price. So let’s get through ’23, but we’ll be ready to tackle our challenges and maximize unit profitability as we go into ’24 and make sure we fall back on those disciplines of the Vulcan way of selling and the Vulcan way of operating.

Jerry Revich: Sounds good. Thank you.

Thomas Hill: Thank you.

Mary Andrews Carlisle: Thanks.

Operator: Our next question comes from Michael Feniger, Bank of America.

Michael Feniger: Thanks, guys, for taking my questions. Can you just help us understand how much were costs like energy, raw materials, diesel? How much was that up incrementally in 2022 versus 2023 — sorry, 2022 versus 2021. And what are you kind of baking in there for 2023?

Thomas Hill: So Mary, why don’t you take ’22 and I’ll take ’23?

Mary Andrews Carlisle: Yes. So energy was a considerable headwind in 2022 and it cost us about $225 million between diesel and liquid. And I think may be important context and reflecting back on 2022 and thinking about how it will impact 2023, and Tom can give some more color on that. But is the fact that diesel in the fourth quarter of 2022 was almost 40% higher than the first quarter of 2022 and liquid likewise was almost 20% higher in the fourth quarter versus the fourth quarter. So I think that’s the setup as we move into 2023. And Tom can comment more on sort of full-year ’23?

Thomas Hill: Yes. I think what we have in the plan right now is probably high single-digit. It’s a combination of inflation, fuel, and labor. We’ll feel — as I said, we’ll feel a bigger impact in the first half just due to the inflationary pressures that we felt kind of escalate as we went through the year. That being said, I think all of that is partially offset with operating efficiencies and improvements generated by the Vulcan way of operations. I think our folks are all over that. And how we do that, many of the details we illustrated in our September Investor Day. But I do have pretty good confidence that they can keep some of that at bay just by improving the key metrics that of throughput and downtime and preventive maintenance that really drive your cost.

Mary Andrews Carlisle: Yes. And specific to the energy in 2023, our expectation is that, that will be more stable, but it will remain at these high levels, which is what will result in a considerable headwind early in the year and then that will moderate as the year progresses.

Michael Feniger: Great. And when you look at the portfolio, Tom, you divested some concrete assets in the Northeast. I’m just curious, is there any further portfolio moves we could see going forward? Like how do you kind of view the Asian assets after kind of a couple of challenging quarters with a lot of moving parts that impacted the year? First, you can kind of comment on how you feel the health of those — that part of your portfolio long term. Thank you.

Thomas Hill: I think that as always, we look at our assets as a group of assets that have to stand on their own and if this were something — were something more about some us, then we’ll divest of it and put that money back-in our aggregates business, which you’ve seen us do in the past. Right now, the markets that we have concrete businesses in are privileged concrete markets, and we’re pleased with them. Obviously, inflationary pressures you had price-chasing costs. And like we did in asphalt, we’ll catch that and bypass it and get back to growing margins. But I think the markets where we bought into, we like them, we kept our aggregates business in New York and New Jersey. But so far, so good, and we think we can continue to improve our returns as we march through 2023.

Operator: Our next question comes from Mike Dahl from RBC Capital Markets.

Thomas Hill: Good morning, Mike.

Mary Andrews Carlisle: Good morning.

Mike Dahl: Good Morning. Thanks for taking my question. Just a quick one on the public side. I don’t know maybe something a little bit of nuance here. We’ve been hearing about how strong backlog and lettings are recently in terms of the growth, and now you’re seeing kind of some modest impacts more as we get through the year and more meaningful in ’24. I think if we rewound back three or six months, the thought was that the tailwinds might come a little bit sooner than that. So in the context of your low single-digit expectations for public, maybe help us understand if there’s something different in the market that you’ve seen in terms of timing or level of distribution or timing? Is there something related to just the labor constraints? How would you characterize what seems to be maybe a little delay in some of the infrastructure tailwinds?

Thomas Hill: Look, I think it is as good of an infrastructure tailwind as we’ve ever seen in decades. That being said, as you heard me say before, highway work comes slower than anybody anticipates it to, but it’s coming. So overall highway funding is way up. The sector is in great shape as is the entire public sector. State DOT funding is extremely healthy. And then you’ve got IIJ revenues that are going to be reflected in fiscal year ’23, ’24 proposed budgets. Our top states are sustaining robust lettings. And that IIJ funding will hit lettings in ’23. And it will really impact 23/24 as we move forward. I’ll give you a couple of examples. If you think about Arizona, they’ll let 45 projects in the first half of this year. If you go and move to California, the total dollars — project dollars in ’23 will be a record coupled with record highway lettings that we saw in November, December.

Texas is at $10 billion budget, and they’ll have $7.4 billion of lettings in the second half of their fiscal year, which is March through August. And then on the more to come list, that’s what’s there that we know is coming. But on the more to come list, in Florida, you got Governor DeSantis proposed a 33% increase in the FDOT program that would impact lettings in the — particularly second potentially in the second half of the year or first half of next year. He’s also — this initial $7 billion that he’s wanting to accelerate for some 20 projects, congestion projects. Tennessee’s governor proposed to double the ’23 ’24 TDOT budget. So for this year, it’s a matter of timing and how fast do lettings get to project shipping. But I want to step back and say it’s nothing but timing.

This sector is in very good shape and as good shape as we’ve ever seen it and growing.

Mike Dahl: Got it. Okay, thanks for that. Very helpful, Tom.

Thomas Hill: Sure.

Operator: Our next question comes from Tyler Brown from Raymond James.

Tyler Brown: Hi, good morning

Thomas Hill: Good morning.

Tyler Brown: Hi Tom, I actually wanted to go back to the Analyst Day and talk about the progress on your logistics excellence I think the next-gen plant operations. I’m just kind of curious how those initiatives are rolling out? And are they expected to be a material driver in expanding margins in ’23? Or are those more on the come in, say, beyond ’23 into ’24?

Thomas Hill: I think what you’ll see in ’23 is maybe a little bit of incremental impact. It will be more of a ’24 play. And that’s a little bit of what we said in the Investor Day about the operating piece where we’re just really rolling it out in ’22, but more of an impact in ’23. But for logistics, we’re doing more rollout development and ’23, probably a bigger impact in ’24.

Tyler Brown: Thank you.

Operator: Our next question comes from Phil Ng from Jefferies.

Phil Ng: Hi, Tom. Just piggybacking on Mike’s question earlier on the public side of things. The low single-digit growth does seem a little more muted than your two public peers are guiding for this year. Curious if it’s a function of maybe you guys are a little more levered to bigger projects, so that’s more timing related. And I guess it would be really helpful to kind of give us a perspective as to how you think public will grow as we exit 2023 and perhaps more importantly 2024 when you get the full impact of IIJA.

Thomas Hill: Well, I think that it’s — I’ll take the second part of that question first. 2024, I think we’ll see a lot more maturing of the DOTs, getting work to shipments. And if you look at the level of lettings that we’ll see throughout the year, that sets us up extremely well for 2024 because they get them left, they get the jobs out there, get them started. And so we entered ’24 with a higher level of starts that have gone to aggregate shipments. So I think that obviously, you’ve got to wait and we’ll see how that progresses and the DOTs able to get the work let and out for that they — the projections they have. On big work, it’s hard for me to really judge what some of my peers are doing because I don’t get to look at their backlogs and look at their work.

So a little bit hard to judge. Now you are insightful in the fact that very large jobs take longer to get from letting to start because they’re complicated and there’s a lot that goes into it from procuring land and permits, and just more detailed larger engineering things that have to happen and pre work that has to go into it. So we do have a number of large jobs in our backlogs. And as I said, they do take longer, but comparing it to my peers, it’s just tough to do.

Phil Ng: I mean would it be fair, Tom, looking out to 2024, we see like mid-single-digit plus growth in public? Or is that still too optimistic at this point?

Thomas Hill: Well, obviously, too early to call because you’ve got to see what’s happening in these lettings, but let’s all be hopeful on that one.

Phil Ng: Okay. I appreciate the color.

Operator: Our next question comes from Garik Shmois from Loop Capital.

Garik Shmois: Hi. Thanks for taking my question. I wanted to ask on the non-res side of the ledger, the outlook for flat volumes this year. Just wondering if you can maybe break out what you’re seeing in your markets and your backlogs on the heavier nonres side, so things like LNG, manufacturing warehouses, things of that nature versus lever commercial?

Thomas Hill: Yes. I think the very large projects is really — it’s really encouraging. We’re seeing a number of them. I mean, I’ll give you some examples. You got aluminum plant here in Alabama, a 100 plant in Savannah, Georgia, the GM battery plant that we’ll be shipping in Tennessee, the Ford F-150 plant in Kentucky and a big solar plant in North Alabama. All of those are hundreds of thousands of tons per job, and so very good work. We have some concerns on does the light non-res follow home construction. That’s one piece. And while on heavier res, the starts look good right now. It’s really — the question is and what we’re trying to see and can’t see yet is what’s behind those because you’ve got commercial loans that have been challenged for four quarters.

So right now, the leading indicators look good. And we’ll have to wait and see on the other — see how it starts to trend? I think all in all, we try to be thoughtful as we assume flat but remember, that flat is at extremely high levels, and this sector is not overbuilt. So those set us up good for the future even if there is — that some of the lighter stuff follows homebuilding, you’ve got a lot of heavy behind that, too.

Garik Shmois: Understood. Thank you.

Thomas Hill: Thank you.

Operator: Our next question comes from Keith Hughes from Truist.

Keith Hughes: Thank you. I had some questions on the cost that was referred to earlier on the high single-digit increases in cost. Could you say again, on energy, are you seeing energy just kind of roll forward at current prices or is there any change up or down in the first half of the year?

Thomas Hill: A little bit — though the first half of the year, energy costs will be up because of costs. We think it remains at elevated levels. But in the first part of the year, there’s no question that everything, including energy, will be up because we saw such a quick rise of inflation throughout the year. So the comps get easier in cost as we go through the year just because the cost rose last year. But for energy in the first half, yes, will be — it will be a headwind for us.

Keith Hughes: And if you strip out the energy, what does year-over-year cost growth look like and other enlighting items kind of percentage?

Thomas Hill: I would take it in pieces. I think that most of it is up mid to high single digits, and that’s everything from electricity to parts, to the labor, just kind of all of it is up. It’s just going to get hit harder in the first six months of the second six months.

Keith Hughes: Okay. Thank you.

Thomas Hill: Thank you.

Operator: Our next question comes from Michael Dudas from Vertical Research.

Michael Dudas: Good morning, Tom and Mary Andrews.

Mary Andrews Carlisle: Good Morning,

Thomas Hill: Good morning.

Michael Dudas: Tom, just maybe you could share a little bit about a couple of your — where some of your larger — where are some of the surprises you may see given the dynamics you just put forth, whether it’s regional, whether it’s California, the weather was very hard, obviously, from the end of the quarter, beginning of this year. Where are some of the areas you think there could be some upside surprises and a couple of areas where there needs to be a little bit more concerned about some of the project flows that you’re anticipating?

Thomas Hill: I think the big question for all of this is timing of highway projects. And that’s in every DOT we have. All of them have great funding. All of them have great plans, all of them have really good lettings. It’s how fast do they get that work to shipping aggregates. And I think that’s the biggest question that we will have to watch as we go through the year. Now the good part about that question, if it goes faster, that’s great but, as I’ve said, the highway work, it just takes longer to get there, than we think than anybody ever thinks it does, but it gets there.

Michael Dudas: So is that the delta between minus 2 and minus 6 on your volume expectations?

Thomas Hill: I would tell you that I think that’s probably the biggest factor in the range. Yes.

Michael Dudas: Thank you, Tom.

Mark Warren: Thank you.

Operator: Our next question comes from Adam Thalhimer from Thompson Davis.

Adam Thalhimer: Thanks. Good morning, guys.

Thomas Hill: Good morning.

Adam Thalhimer: Can I get your help with your margin guidance because you’re giving us aggregates cash gross profit per ton. I want to convert that back to you just your reported aggregates gross margin. I think you’re guiding to, call it, 100 to 200 basis points of gross — aggregates gross margin improvement this year, but I’m just not sure.

Mary Andrews Carlisle: Yes. That’s right. We do expect aggregates gross margin expansion, I’d say, at least at those levels and also on EBITDA margins, too, this will be a year where we can call back to some of our more historical levels.

Adam Thalhimer: And do you see a lot of variability between quarters or is that pretty evenly throughout the year?

Mary Andrews Carlisle: Yes. I think from a margin standpoint, we expect consistent improvement throughout the year. As Tom said, it will be — first half will be more price, more cost and second half will be more moderate price and more moderate cost. But I think on the margin side, we should see good growth in — all throughout the year.

Adam Thalhimer: Okay. Very helpful. Thanks.

Thomas Hill: Thank you.

Operator: Our last question comes from Rohit Seth from Seaport Research Partners.

Thomas Hill: Good morning.

Rohit Seth: Hi, good morning. Good morning. Thanks for taking my question. Just clear to — clear up on the nonresi. You talked about the light and heavy non-resi, what is the mix between the two and your total non-resi exposure?

Thomas Hill: I think it’s probably — right now, we’re probably a lot heavier — lot heavier on the heavy nonres as we saw the light catch-up — had to catch up with residential growth. And it fell behind a little bit. So I think you still got some runway with light res as it has as it lags single-family, but the heavier piece of this will be a much heavier piece with us a majority of ours will be in heavy res.

Rohit Seth: Okay. So nonres is what, 30% of your sales, your volumes?

Thomas Hill: Yes. So that’s a pretty good round number.

Rohit Seth: Okay. And then just on capital allocation, can you maybe comment on what the deal market looks like at the moment?

Mary Andrews Carlisle: Yes. I think we still see good activity. We have — our teams are always out looking for opportunities. I think specifically in these kind of environments. I mean, sometimes, there may become a disconnect between sellers’ expectations and buyers’ valuations. But as we talked about, we have a great ability to generate a lot of cash, and we’re always looking for ways to put that to work growing the franchise, particularly through the bolt-on acquisitions. And those, I think, are more about timing on the seller side than anything else.

Thomas Hill: Yes. You saw us complete several of those really strategic ones in 2022, very important, particularly to our California, our critical California and Texas markets. We always have a few of those that we’re working on. We’re very picky about it. We’re very disciplined about it. But — and while years in which they may be the future is not as clear. Sometimes they get harder. I wouldn’t expect a big turn-off or turn-on with acquisitions kind of a steady flow like we’ve seen. So I think there will be some out there. The timing of that will be seen, but we’ll keep plugging at that and be disciplined about it.

Rohit Seth: Understood. Thank you for taking my questions.

Thomas Hill: Thank you.

Operator: It appears you have no further questions at this time. I will now turn the program back over to Tom for any additional closing remarks.

Thomas Hill: Thank you for your time this morning. Thank you for your interest in Vulcan Materials. We look forward to talking to you throughout the quarter and throughout the year. Please stay safe and we look forward to seeing you soon. Thank you.

Operator: Thank you, ladies and gentlemen. This concludes today’s conference. You may now disconnect.