Good day, ladies and gentlemen, and welcome to the First Quarter Vulcan Materials Earnings Conference Call. My name is Lisa, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Don James, Chairman and CEO. Please proceed.

Good morning, and thank you for joining this conference to discuss Vulcan's first quarter results. I'm Don James, Chairman and Chief Executive Officer of Vulcan Materials. Joining me today is Dan Sansone, our Executive Vice President and Chief Financial Officer; and Danny Shepherd, Executive Vice President, Construction Materials. Before we begin, let me remind you that certain matters discussed in this conference call contain forward-looking statements, which are subject to risks and uncertainties. Descriptions of these risks and uncertainties are detailed in the company's SEC reports, including our most recent report on Form 10-K. Let me begin by making some brief remarks about last week's tragic and devastating tornadoes that moved across the Southeast. As you know, our home state, Alabama, was particularly hard-hit by these storms. First, from the human perspective, I'm pleased to report that all Vulcan employees living in the numerous affected areas in Alabama as well as Mississippi, Georgia, Tennessee, North Carolina and Virginia are safe, although some employees have lost their homes, and many more have suffered serious property damage. But there's great devastation, loss of life and many tragedies as a result of the tornadoes in many of the communities where Vulcan has operations. Virtually all of us here in Alabama and our other southeastern states know someone affected by the storms. So on behalf of all current and former Vulcan employees, let me say that our thoughts and prayers go out to those who have suffered loss. Vulcan is actively involved in the recovery effort here in Alabama and in our other affected states with both human resources and financial support. I would like to thank every employee who has jumped into action to help others. Your can-do effort helps makes this organization special. From an operations perspective, we had modest damage and…

[Operator Instructions] Your first question comes from the line of Kathryn Thompson of Thompson Research Group.

This is Jamie Baskin on the line for Kathryn. Can you speak to how volume trends have been since quarter end? In other words, did the bad March weather lead to any release in pent-up demand?

I'm sad to say the weather in April didn't improve. It got worse. And with the tornadoes and the rains and the destruction -- the disruptions of shipping and production. So while we don't give monthly volume, certainly, the weather impact has continued negatively.

Okay. And then as a percentage of sales, can you talk to how much of your revenues are directly related to stimulus in Q1? And do you have -- and what your expectations are for fiscal year '11?

I can answer it this way -- and this is largely federal government data, and it's on a fiscal year basis rather than a calendar year basis, but it gives you some indication. The total stimulus spending for highways in 2010 was about $11.8 billion. In 2011, it's -- well, we anticipate it'll be $9.4 billion. But I think the more important factor for us is that a number of our key states still have a lot of stimulus money to spend. For example, Virginia has spent -- still has almost 70% of its stimulus money yet to spend. Georgia, California and Florida have almost 1/2 of their stimulus money yet to spend. So there's still a significant stimulus effect moving forward, but I can't tell you how much of our revenue in the first quarter came from stimulus projects.

Okay. And then my final question, we've been hearing rumblings about midyear price increase in aggregates. Just wanted to see if you could provide your thoughts on that.

Well, we have put in price increases in a number of markets already this year. We'll continue, as market conditions warrant, to put in price increases. We -- as we've said many, many times before, we don't have a generalized across-the-board price increase on January 1 to July 1. They are spread throughout the year based on individual market conditions, but we do expect pricing increases to take effect and are taking effect and have taken effect so far in 2011.

Okay. That's all for me.

Your next question comes from the line of Garik Shmois with Longbow Research.

It's Garik Shmois. Let me take a stab at the midyear price increase question a different way if I could. Don, given what you've seen out of markets that have secured pricing already this year, would you anticipate some markets would be able to secure a second price increase in 2011?

Yes.

Okay. And we assume that those would be markets in which volumes were the strongest.

Generally, that would be the case.

Okay. And could you -- you mentioned January and February were off to a good start. March, obviously, was hit by the weather. Is it possible to provide how much the volumes were up in January and February?

I think they were up about 6% or 7% over the prior year.

Okay. And then on your volume guidance for the full year, you maintained the midpoint at 2%. But has the way you bracketed your guidance internally changed at all given what you've seen in 1Q and here at the beginning of 2Q? Meaning, I think on the last call, you thought that maybe there's 100 to 200 basis points either direction of that 2% volume range. Could that bracket be expanded given what you're seeing right now?

Well, our range, and this is going to shock you, is 0% to 4%. So that comes in at about 2%. The volume reductions that we've seen as a result of weather we would expect to recoup by the end of the year. So it would really be a -- as I tried to indicate, we don't see the weather impact of March or April impacting negatively volumes for the full year. That volume will materialize. And I -- as I indicated too, there are several large projects that will begin across our footprint in the second half of the year. And that's really our basis for predicting volume growth in the second half and for the full year.

Okay. And I guess 2 quick questions on concrete and cement prices, if you could address the increase in concrete prices relative to the year ago period. What markets you secure pricing there or whether or not it was mainly mix related and if cement price increase in Florida had gained traction here in the beginning of the year?

Cement prices -- concrete prices, rather, improved in Florida. They are also improving in some of our Western markets, and we haven't had any large drops in concrete pricing in any of our markets. On average, as I've said, they were 4% -- actually, they were up 4.4%. So we think there's some stability coming to concrete markets and, hopefully, some improvement in pricing. Cement prices are still under some pressure, but we expect stability there. Cement is driven by concrete demand. And I think the reality is that as concrete markets improve, the ability for cement price increases to stick will be substantially better.

Okay.

Your next question comes from the line of Jack Kasprzak with BB&T.

I was going to ask about SG&A expense in the first quarter. Is that a level, on a quarterly basis, where you more or less expect it to be for the balance of the year? Or might there be further improvements in terms of the dollar amount?

I think it's -- that's adjusted for all the noise we had in there. The run rate is probably close to what we would expect for the full year.

Okay. With regard to diesel prices...

Go ahead. I'm sorry.

I'm sorry. With regard to diesel prices, up 34% in the quarter, can you tell us your average price and gallons used in the quarter?

We used probably about 8.5 million gallons in the quarter. Our diesel price is a blend of a lot of geographies, and a fair amount of our diesel is on-road diesel. As you may know, we have trucking businesses in Texas and Illinois, on-highway trucking, and we have ready-mixed trucks in a number of states. So we're very happy to pay the fuel tax associated with the on-road diesel, but that does flow through our numbers. But I think we -- our first quarter price was about $3.16 including the tax and the geographic, and that was up about $0.79 from last year.

Okay.

And we actually pay $3.16 anywhere. Probably, the answer to that is no. But if you add it all up and including the fuel tax, that's what it comes out to be.

Got it. And I think you had said or indicated how you think Aggregates profit will be up for the year. Obviously, first quarter is seasonally a very slow quarter, and your Aggregates profit was down a bit in the first quarter. Given the headwind from diesel, would the profit probably mirror your expectations for volume, i.e. most of the gains are likely to happen in the second half versus starting in the second quarter?

Yes, I think it'll be second half driven. With our incremental margins, a little bit of volume goes a long way. And if we can get the 1% to 3% price increase we expect and the 2% volume increase we expect, that will move the needle. The really good news for us was that the productivity improvements in our Aggregates business in the quarter virtually fully offset this 34% increase in diesel fuel cost, and that productivity improvement is driven by the fact that we are -- we have gotten our inventory levels down to a point where we can actually run our plants now on an efficient schedule, which we did in the first quarter at least up through March when the weather hit us. But the ability to run our plants really improves our productivity, particularly our labor productivity, but every other form of productivity as well. And we enjoyed that in the first quarter, and as I said, it virtually fully offset this 34% increase in the cost of diesel fuel.

Okay, great.

Well, that's a big deal for us. We've gone through a lot of pain over the last 2 or 3 years getting our inventory levels down so that we can actually produce to current levels of demand instead of having to pull out of inventory, which as you know, hurts your GAAP earnings.

Got it. Great.

Your next question comes from the line of Scott Levine with JPMorgan.

You mentioned, I think, in the Aggregates business that you saw generally more uniformity in pricing trends across regions. I was hoping you might be able to comment on which regions generally experienced greater relative improvement in the quarter sequentially and any other observations you might have on regional pricing trends.

Yes. What we were trying to convey is that there was less variation from prior -- from the prior year's quarter, both up and down. So the range of change narrowed. That's not to say the absolute price level equalized across the country, and I know you didn't mean to suggest that. But the change -- the places where we saw really good price improvement was in Alabama, along the Mississippi River system, in Tennessee and Kentucky, in Los Angeles, in Arizona and New Mexico, in Northern Illinois. So those are -- and as we said earlier, we actually saw some price improvement in aggregates in Florida, which was the first time we've seen that in a long time. So we're very -- we're happy and optimistic about that. So those are some of the markets. We didn't have markets that had huge price drops like we had seen in some prior quarters, and huge, I mean double digit. So that band has narrowed, which I think means that stability is coming back into the pricing environment across many, many markets.

That's encouraging to hear. One follow-up for me. It sounds like expectations of continued stability in highway funding underpin your outlook for '11. We've had some developments and some proposals regarding legislation, some news out of maybe the House, what we can expect of the Senate. Have your thoughts changed in anyway, maybe even beyond 2011? Or what are your bigger-term thoughts in terms of what we may ultimately see with renewed highway legislation?

Well, that's -- that is a key focus of ours at this point as you can well imagine. The -- if you look at the balances in the existing Highway Trust Fund plus the projected receipts into the trust fund, there is ample money to maintain the current level of spending in the regular Federal Highway Program, which is $40 billion, $41-plus-or-minus billion. We can keep that level through 2012 and really into -- well into 2013 without any change in revenue going in the Highway Trust Fund. We are -- take some comfort in the fact that the bipartisan support for highway infrastructure spending at the federal level that has existed for many Congresses really became apparent again in the fact that the Highway Program was not cut in the budget cuts that have occurred so far this year. The issue that becomes the challenge is that the projected receipts in the Highway Trust Fund of $32 billion or $33 billion a year, if the new Federal Highway Program is limited to those -- that existing level, it would be a 30% to 31% drop in the money going to each of the states. When we have met with congressmen and senators and have pointed out what would seem to us to be the obvious and they have to go back to their states and say, "Tighten your belts, guys. You're only going to get -- you're going to get 69% or 70% of what you've had for the last 3 to 4 years," I think that causes a lot of concern. So the jury is still out on what happens. But the balances and the trust fund, as a result of the supplemental appropriation that went in with the HIRE Act about a year ago created enough money in the trust fund to maintain the current level of spending at least into calendar '13. But by that point, we will have to have a new Highway Bill. So that's where we are.

Got it.

Your next question comes from the line of Ted Grace with Susquehanna.

The first question I was hoping to run by you is a good follow-on to the question just asked. I was just wondering if you could help us think about -- at a little more granular level, how you're thinking about state and local government budgets. I think we all know that they're still struggling from all the articles out there talking about increases in tax receipts. What they often overshoot in the title is the fact that their cost base is rising at a faster rate, so the budget deficits are widening. You've seen in Oregon and Kansas, both governors talk about taking the money out of the Highway Trust Fund at the state level to plug budgetary holes. You had Illinois recently introduce a 6-year Highway Bill at the state level. It was about 10% smaller than its predecessor, while the state also acknowledged that they had no idea how they'd really pay for it given their credit profile. And then we've got, obviously, the issue of gas prices negatively impacting fuel consumption with federal numbers just coming out this week reaffirming that. And so just as we think about those headwinds, I'm just wondering, as a starting point, if you could talk about how you think about those issues. And I know you mentioned some of the general obligation proposals. I think you said Texas and Virginia. But are those funds really offsetting declines elsewhere? So on a net basis, can you help us understand how to think about the state issue?

Well, the state and local issue is obviously in flux, and there are as many answers to your question as there are state and local governments and budgets. One of the things that we find encouraging -- and there's a U.S. Treasury Department report with an update on this topic, but some 70% to 80% of the state and local ballot initiatives to support increased spending for highways have passed. There is a -- when voters are asked to spend more money at the state and local level for a specific highway project, there has been very strong support for that across the country, which tells us that while nobody wants to pay higher gasoline taxes today, particularly with high gasoline prices, there is a strong grassroots support, because everybody is -- when you look at highway congestion numbers and highway condition numbers, the need is clearly there. Nobody debates the need. The whole issue is funding. We don't know where it's going to come out. I think we have -- our focus is largely on the Federal Highway Program at this point because we think that's where -- that's about 1/3 of the total highway spending in the U.S. State and local is about 2/3, but some states and some locations are increasing. Some, as you point out, are diverting highway funds for budget deficits. So there are many different stories around the country, but there has been great stability in highway contract awards as we pointed out in the Vulcan-served states, notwithstanding all the noise. Highway contract awards have been maintained at the levels of the last year or 2, which is true at the federal level as well. So the answer to the question is there are a lot of different movements in a lot of different places, but when you run them all through the system, there has been great stability in the highway spending. But the big issue, the single biggest issue is going to be at the renewal of the multiyear Federal Highway Bill and how that comes out.

Sure. And kind of as part B to that question, I was just wondering if you could talk about -- can you just help us kind of calibrate how we should think about the impact of rising diesel prices, liquid asphalt pricing? And if you could touch on what your liquid asphalt costs were in the quarter, that would be great. And potentially, aggregate price increases on fixed budgets at the -- at least on the road and highway side for state, local and federal, because as you have that inflation, right, the dollars are fixed. You can consume less aggregates ultimately. I mean, that's what my -- intuitively, you’d assume. So could you just help us understand how that kind of balance works?

Well, certainly, liquid asphalt prices were up about 12% in the quarter over the same quarter last year. And we're projecting higher liquid asphalt prices throughout '11, and that's built into our projections. Fortunately, our asphalt mix prices are up, which is generally what happens. Asphalt mix prices respond with some lag because of the whole bidding process to increases in liquid asphalt cost. We're expecting, as we said, our materials margins in asphalt to improve, which means we anticipate price improvement more than offsetting the increased cost of liquid asphalt along with some productivity improvements and higher volumes in some of our markets, which would improve our productivity.

And I guess that's confusing [ph]...

There is, clearly, with $1 of highway spending, if it's going -- if a larger portion of that dollar is going to liquid asphalt that means a smaller portion of the dollar will go to everything else, including aggregates. So there is some marginal impact there on the higher input cost.

Okay. And then if I heard you correctly, did you say your infrastructure volumes would be down 20% year-over-year was the internal expectation?

I didn't say that.

Okay. I apologize. I guess I misheard you. I guess...

Actually, we're looking that -- we think infrastructure, including public and private, it'll be up slightly in 2011 over 2010.

Okay. Maybe it was -- the context was the stimulus. Because if I look at your expectations, you said $9.4 billion spent this year versus $11 billion over last year.

Yes, that's highway stimulus.

Yes. So I guess, 2 questions. One, how do you offset that? And two, basically, if I look at your numbers, you're assuming that all the stimulus dollars will be consumed by the end of this calendar year. If you look at the CBO analysis, I think that's often slight...

I didn't say that.

But I know you spent $5.7 billion in 2009 and $11.8 billion last year. So if you spend $9.4 billion now, that's $27 billion. So that's basically the whole pot. But the CBO analysis would tell you they think that 10% to 15% is going to get spent in 2012 and beyond. So I was wondering if you can help us reconcile...

We have -- our numbers from CBO say $2.5 billion in fiscal '12.

I'm talking calendar year. So maybe that's -- I was going to -- because you...

All right, so let me back up. You said infrastructure. We have a separate category for infrastructure, which is non-highway infrastructure. We see that being up 2%. Our highway piece, we see up being 5% for the year. That is a combination of higher spending out of the regular Federal Highway Program. Again, these are fiscal year numbers -- up from $32 billion in 2010 to $35.6 billion in 2011, and that more than offsets -- that $3.6 billion increase there more than offsets the $2.4 billion decline in the stimulus spending for highways at federal level. So the net -- there's a net increase in projected spending for federal highways in 2011 over '10 if that helps you.

Yes. That's actually exactly what I was hoping to ask. And the last question, I promise. Just in terms of the dividend, can you just give us a sense of how you think about the stability of the dividend? I think given the cash generation profile and the liquidity expectations you have -- and I know it's something you guys talk about of the board level, but can you just give us a sense for how comfortable you are with the sustainability of the quarter -- the $0.25 per quarter?

Sure. I think the basic issue is you pay dividends out of cash earnings, not out of GAAP earnings. And we look at our cash earnings as the source of cash flow for dividends, and we -- our cash earnings are sufficient to pay the dividend and fund our CapEx program and help with some debt reduction.

Okay. That's great.

Your next question comes from the line of Jerry Revich with Goldman Sachs.

Can you talk about whether pricing momentum continued through the tough weather period in March and April? And also, can you touch on what kind of ready-mix pricing trends you're seeing out of your customers in areas where you're not vertically integrated in that business?

Our view is that concrete pricing not only is going up but has to go up because I don't think many people in the world are making any money in the concrete business. Some are not covering their cash cost. So that's an unsustainable market situation in our view. Our -- as I said, our ready-mix pricing in the quarter across all of our ready-mix market was up 4.4%. It was actually up more than that in March. So the answer is yes, the momentum continues.

Helpful. And another part of that question, Don, can you comment on whether in areas we are not vertically integrated, are we seeing the same pace of price increases, faster or slower? Just any context you could give us would be helpful.

Well, we see prices -- concrete prices going up across our footprint.

Okay. And can we have the same discussion on the Asphalt side? I was surprised pricing wasn't up faster this quarter considering what we've seen on the liquid asphalt side. Are you seeing asphalt mix prices accelerating in March and April like you're talking about on the ready-mix side?

Yes. Our asphalt prices were up more in the month of March than they were for the quarter, which means prices are accelerating. The issue with asphalt mix prices compared to liquid asphalt cost, there is a timing issue. And historically, and this goes back several years, suppliers of liquid asphalt would give you price protection on large jobs that might spread over a year or 2 years. That really is rarely the case today. So there's a fair amount of price risk associated with asphalt mix, and it takes -- it generally takes a couple of quarters, at least, to get the asphalt mix pricing moving up or down in relationship to the liquid asphalt inputs. Clearly, today, I think we and everyone else are seeing higher liquid asphalt cost throughout the year, which is the basis of improvement in asphalt mix pricing.

And lastly, can you touch on Cement? I apologize. I had poor reception during the prepared portion of the remarks. I'm not sure if you touched on the driver of the downtime in the quarter and how you're thinking about volumes out for the year and lastly, about pricing trends in cement considering what we saw in the quarter.

Well, cement volumes are not robust anywhere, I think, including in markets served by our cement plant. Pricing will probably improve over the course of the year. We certainly hope so. That is not a material factor in Vulcan's results. Much of our cement runs through our own concrete or through swaps, which ultimately run through our own concrete. So as concrete prices improve, I think it'll help cement. Some people say it works the other way. Cement price increases force ready-mix prices up. I'm not sure exactly which way it works. But certainly, as volumes stabilize and as ready-mix pricing stabilizes, it will certainly help the cement pricing.

And Don, the downtime part of the question, can you talk about the scheduled maintenance? Was that a function of lower demand? Or were you going to run...

Well, it's just the timing. I mean, you just have to -- when you have a big, continuous-process manufacturing plant, you have to take it down for annual maintenance, and we took it down in the first quarter. As I said, we didn't have a first quarter maintenance outage last year, nor do we expect one for the remainder of this year. So that's just a more or less annual event, which has now already occurred.

Your next question comes from the line of Brent Thielman with D.A. Davidson.

Don, I guess, between your coastal markets in California and Florida and maybe elsewhere, which sounds like you see some acceleration in volumes at least on the infrastructure side of things -- and I think, in general, those markets contribute higher absolute pricing. How is that sort of factored into your pricing guidance assumptions for the year, particularly given pretty weak construction activity and volume contributions in those markets the last few years?

Well, our pricing guidance does have a geographic mix impact to it. Our strongest volumes are really offsetting in some senses. So there's not any tremendous geographic mix impact for the year, if that's your question. It's in there, but it's not a huge factor, at least based on our current outlook.

Okay. And then how are you thinking about the progression of asphalt mix pricing throughout the year? You've certainly seen some uptick in the last few quarters, but could we see some acceleration in sort of sequential I guess quarter-over-quarter growth, what you've been seeing in the last 3 quarters just given what you’re seeing in the market right now?

We think asphalt pricing will be up for the full year over last year. We have a lot of work booked, and that's built into our forecast. Whether we'll see quarter -- sequential quarter price improvement, I don't know at this time. Probably not a lot because a lot of our work is already booked. And we already know the pricing, and that's built into our forecast.

Okay. Great.

So if we can get 4% price for the full year in the asphalt mix business, we'll be satisfied.

Great.

Your next question comes from the line of Adam Rudiger with Wells Fargo Securities.

Typically, I think you see 30% to 40% sequential growth in shipments from the first to the second quarter. I was wondering, with your comments on April weather being worse than March, if that was something you're still expecting to see this year.

I don't -- we have not re-forecast the second quarter based on April's weather, so I don't -- I can't give you an answer to that at this point. I think, as I tried to say earlier, depending upon when the water levels in the Mississippi River begin to recede and when the cleanup in a lot of markets occurs so that normal shipments and production resume, there may actually be some impact on volume from reconstruction, but that's very unlikely that any of that would occur in the second quarter. If we get that this year, it will likely be in the second half. So I don't know, but I would think the second quarter will contribute slightly less to the total annual volume this year than we would have seen historically.

Okay. And then you just said, I think, that your -- if you could get 4% liquid asphalt prices, that -- liquid asphalt mix -- excuse me, asphalt mix prices up for the year, that would satisfy you.

Well, that's our projection. We'll obviously try to get more as the year moves on, but that's what's in our forecast.

So let's say you get to 4%, and let's say that liquid asphalt stays up 12% through the year. Let's just say that doesn't change. Can you remind me of what the portion of a ton of asphalt mix -- what the cost breakout is liquid asphalt versus rocks?

Yes. As a round number, and this is way too simplistic, aggregates are 95% by weight. Liquid asphalt is 4% or 5% by weight. If you take our average aggregates price, which is $10.50 plus or minus, and you take our average liquid asphalt cost, which would be $21 or $22 of liquid asphalt cost per ton of asphalt mix, you can sort of get into the range. But as we indicated, the 4% increase in our asphalt mix cost in the quarter virtually offset the 12% increase in liquid asphalt cost. So there's a little metric there that can help you. Liquid asphalt prices are very different in Texas and California, for example. We have asphalt mix in both markets. Prices for asphalt mix are very different in each market. So there's a lot of calculations in there, and it's going to vary greatly from market to market. But suffice it to say that if asphalt mix is up 12% for the year and we get prices up 4%, our material margins will actually improve based on our projection.

Okay. That's what I was trying to understand. So that's all I have.

I would now like to turn the conference back over to Mr. Don James for closing remarks.

Thank you very much for joining us today. We look forward to talking with you again at the end of the second quarter. Thank you for your interest in Vulcan. Have a good day.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.