Vulcan Materials Company (VMC) Q1 2013 Earnings Report, Transcript and Summary

Welcome to the Vulcan Materials Earnings Conference Call. My name is Brandy, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn this call over to Mr. Don James, Chairman and Chief Executive Officer. Mr. James, you may begin.

Good morning. Thank you for joining us to discuss our first quarter 2013 results. I'm Don James, Chairman and Chief Executive Officer of Vulcan Materials. Joining me today are Dan Sansone, our Executive Vice President and Chief Financial Officer; and Danny Shepherd, our Executive Vice President and Chief Operating Officer. We have posted a short slide presentation to our website that we will reference during the call. These slides are also available to those of you on the webcast. Before we begin, let me remind you that certain matters discussed in this call, as indicated on Slide 2 of our presentation, contain forward-looking statements, which are subject to risk and uncertainties. Descriptions of these risk and uncertainties are detailed in the company's SEC reports, including our most recent report on Form 10-K. In addition, during this call, management will refer to certain non-GAAP financial measures. These measures are not prepared in accordance with U.S. Generally Accepted Accounting Principles. You can find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures and other related information in Vulcan's first quarter 2013 earnings release and in the Investor Relations section of Vulcan's website. Turning now to Slide 3. I want to begin by briefly discussing a few highlights from the quarter. Our business segments performed in line with our expectations in the first quarter, and thus we have reaffirmed our outlook and remain on track to achieve earnings improvements in 2013. Gross profit of $18 million was $4 million lower than the prior year's first quarter, which benefited from unseasonable warm and dry weather, and this year's gross profit was $25 million higher than the first quarter of 2011. Aggregate segment gross profit, while down versus the prior year, was in line with our expectations and better than 2011. Aggregate shipments were 5% lower than the prior year and 5% higher than the first quarter of 2011, which like 2013 was subject to more typical winter weather. The timing of large projects in a number of markets also affected the year-over-year comparison. We achieved broad-based improvement in aggregates pricing, which was up 5% overall, helping to offset the earnings effect of lower volumes. Our reported price improvement is adjusted for freight cost incurred in transport aggregates from the producing quarry to the sales yard. We believe measuring our price improvement in this way provides a clearer view of changes in actual realized prices. Without this freight adjustment, our year-over-year price improvement was even higher than our reported number. Over a year -- on a year-over-year basis, our trailing 12-month cash gross profit per ton has continued to increase despite the 5% decline in first quarter shipments. We believe this demonstrates the benefits of improved pricing, as well as our initiative to increase operating efficiency and reduce cost. Volumes in ready-mixed concrete and cement increased 6% and 14%, respectively, due to improving levels of private construction. Both Florida and Texas delivered improvements in ready-mixed volumes, exceeding 20%. Collectively, non-aggregates gross profit improved $5 million to a loss of $7 million. Cost-reduction continues to be an ongoing focus of our management team and all of our employees. As we look ahead, we remain encouraged by improving trends in private sector construction. These positive trends bode well for not only earnings growth in our aggregates business but also earnings improvement in our non-aggregate segments, which are located in high-growth markets. We are also pleased to see contract awards for public highways, a leading indicator of future construction activity, turned positive in the first quarter for the first time in 2 years. With that, I'd like to turn the call over to Danny Shepherd who will walk you through our segment results for the quarter. Danny?

Thanks, Don. Turning to Slide 4, you can see how the weather played a significant role in the year-over-year comparisons. The unseasonably mild winter weather in last year's first quarter, coupled with some above-average participation this year in a number of our East Coast and central U.S. markets distorted the year-over-year comparisons. The absence of comparable large industrial and infrastructure projects in the Midwest, Tennessee and Virginia also contributed to the 16% decline in the East Coast and central U.S. markets. Turning to Slide 5, you see that despite 5% lower volumes in the first quarter, our trailing 12 months cash gross profit per ton of aggregates increased 2%. Overall, we expected our first quarter aggregate shipments to be lower than last year when shipments increased 10% due to favorable weather, as well as the timing of shipments to serve our large projects. However, despite overall lower volumes, we were pleased to see aggregate shipments in a few key states such as Arizona, California and Florida, showing strength, increasing by at least 10% versus the prior year. Florida alone experienced a 25% increase in aggregate shipments during the first quarter, benefiting from recovery in private construction activity, particularly in the residential market. Other key markets, such as Texas, continue to benefit from broad-based demand growth across all end-use markets. Sales volumes at the company's remotely served sales yards along the central Gulf Coast also benefited from stronger demand, increasing approximately 25% versus the prior year. Unfavorable weather, lower production levels and a geographic mix shift impacted year-over-year cash cost comparisons. As an example of the distortion caused by geographic mix, let's take my comment about sales volume growth along the central Gulf Coast and apply it to cost. The unit cost of sales at remotely served sales yards is higher than at a producing quarry because of the freight and handling cost incurred to transfer aggregates from the producing quarry to the yard. As a result, the 25% sales increase, along the central Gulf Coast I just mentioned, stands in stark contrast to our volumes inside Tennessee and Kentucky, where volumes collectively declined 25%. These mid-south markets are truck-served from producing quarries and therefore carry a lower unit cost structure than a sales yard, creating the unfavorable geographic mix impact for both unit cost and total cost. Additionally, production levels were reduced to match sales levels. Notwithstanding the lower first quarter shipments across many markets, our operating managers did an excellent job of balancing production with sales and holding inventory levels essentially flat. While these management decisions had a negative effect on GAAP earnings and EBITDA in the quarter, it positions us to run our plants at efficient levels in the second and third quarters and more than recover these lost earnings. I'm pleased to say that our employees did a nice job of maintaining productivity, as measured by tons per manhour given the lower production levels. Year-over-year, this metric of production efficiency essentially remained unchanged. Unit production cost increased slightly from the prior year, due mostly to repairs and maintenance. Plant period costs were down versus the prior year. In a number of locations, the cost variance was caused by planned cash cost in the quarter for routine expenditures necessary to prepare for the start of seasonal construction activity. We did have new operation that were not counted in the prior year. Finally, as Don mentioned, we benefited from broad-based price improvement, with virtually all of the company's markets realizing higher pricing versus the prior year, which helped offset the earnings effect of lower volumes and the unfavorable geographic mix. Turning to Slide 6 for an update on performance of non-aggregates for the quarter, we're continuing to see concrete and cement volumes recover from cyclical lows. Concrete and cement volumes were up 6% and 14%, respectively. These 2 segments are benefiting from increased private construction activity, particularly in Florida. Concrete segment gross profit improved $2 million, due in part to a 6% increase in shipments and after absorbing higher input cost for aggregates and cement. Cement segment gross profit in the first quarter was $1 million, up slightly versus the prior year. Asphalt mix segment gross profit improved by approximately $3 million despite a 4% decline in shipments. Unit profitability, as measured by material margins, increased 19% due in part to a 7% decrease in unit cost of liquid asphalt. In total, gross profit for our non-aggregate segment improved $5 million to a loss of $7 million. And with that, I'll turn the call back over to Don.

Thanks, Danny. If you'll turn now to Slide 7, you'll see that we have continued to focus on strengthening our balance sheet through debt reduction. Net debt declined 6% over the last year, and net debt to adjusted EBITDA improved from 7.5 as of March 2011 to 6.4 this year all throughout a meaningful recovery yet in demand for aggregates. After a payment of a scheduled debt maturity of $140 million in June of this year, which we'll make from our existing liquidity, we will have no debt due until the fourth quarter of 2015. Strengthening our balance sheet remains a top priority for our management team. Turning now to Slide 8 for our end markets. Housing starts measured on the seasonally adjusted annual rate are now at more than 1 million, indicating the beginnings of a broad-based recovery in residential construction. In fact, most well-conserved markets realized double-digit growth in housing starts for the trailing 12 months. More importantly, we are seeing significant growth in several key states, including Florida, Texas, California, Georgia and Arizona. Growth in these key well-conserved states is important because not only will we realize the attractive incremental margins from higher aggregates volume, but our non-aggregates businesses will benefit as well. This growth in residential construction activity and its traditional follow-on impact to private nonresidential construction underpins our expectations for volumes and earnings improvements in 2013. Our April concrete shipments are indicative of this expanding recovery in private construction. For the past month, our concrete shipments were up over 20% compared to April of 2012, led by Florida, which was up over 30%. Year-to-date concrete shipments are slightly ahead of our year-to-date plan. Moving on to Slide 9. We are also continuing to be encouraged by leading indicators of future construction activity for private nonresidential buildings. One leading indicator, the Architectural Billing Index, or ABI, has been showing signs of steadily increased activity. The ABI can be an important leading indicator of construction for private nonresidential buildings. As you'll see on this slide, for 8 consecutive months, the ABI has been above 50, a level that indicates an increase in billing activity. This is a promising sign as we move further into 2012. Turning now to Slide 10. Private construction contract awards continue to recover in our markets, which includes contract awards for nonresidential buildings shown here. As shown in this chart, U.S. private nonresidential contract awards for the trailing 12 months ending March 31, 2013, are up 16% from the prior year period. This growth should support increased aggregate demand and private construction well into the future. Moving now to highway construction activity on Slide 11. You can see the year-over-year change in contract awards for new construction and construction put in place. As you'll see from this chart, the passage of the federal highway bill, or MAP-21, in July of 2012, is finally providing stability and predictability to highway funding. New highway projects, as measured by trailing 12 month contract awards, were up 1% versus last year's first quarter, marking the first year-over-year increase in contract awards for highways since January of 2011. The large increase in TIFIA funding contained in the new highway bill should also positively impact future demand. Contract awards for TIFIA projects are projected to add $30 billion to $50 billion to highway and infrastructure construction, substantially exceeding the contract awards for highways from the 2009 stimulus bill shown on the graph here from 2009 through 2010. Additionally, state and local governments appear to be moving forward with funding initiatives over and above the federal programs. Key states, such as Virginia, Texas and Maryland, are pursuing new funding initiatives that should increase future transportation investments substantially. In Virginia, a 5-year funding package approved by the general assembly can generate $3.4 billion for highways over the next 5 years, an increase of about $780 million per year. In Texas, the Department of Transportation has remained committed to bidding approximately $8.8 billion in transportation projects in FY '13 compared to about $4.8 billion last year. In Maryland, new revenue measures have been enacted that could raise $4.4 billion over 6 years, an increase of about $100 million to $200 million per year over that period. And finally, Richland County, South Carolina, home of the state capital in Columbia and the University of South Carolina where we have a substantial presence, is an example of a local government addressing their infrastructure needs beyond the state and federal program. In that County, a 1% sales tax increase was approved that will yield $35 million to $50 million per year the next 20 years. That tax goes into effect next month, or this month, actually. Turning now to Slide 12. Our outlook for another year of operating earnings improvements remains on track and it's supported by improved pricing, cost management and continued growth in private construction activity, which should drive volume growth. Aggregates demand from private construction is expected to grow overall, led by the residential sector. Residential construction is expected to increase approximately 20%, while demand from private nonresidential buildings is expected to increase about 8% compared to 2012. Our current expectation is for aggregates demand in the public construction, including highways and other infrastructure to approximate 2012 levels. However, our outlook for this end market has improved modestly given the recent upturn in trailing 12-month highway contract awards. The projects that could materially impact our 2013 aggregates volumes include a disproportionately greater number of large discrete highway and industrial projects. The timing of these projects remains challenging to predict. Our year-to-date aggregate shipments through April are slightly ahead of our year-to-date plan, and our full year shipments in 2013 are expected to increase 1% to 5%, with most of the expected year-over-year growth to occur in the second half of the year. In keeping with our successful efforts to offset the earnings effect of lower volumes in recent quarters, we will continue our focus on reducing controllable cost and achieving improved pricing. The geographic breadth of pricing gains we achieved in 2012 and so far this year enforces our expectation for continued price growth in 2013. We expect full year adjusted -- freight adjusted price growth of approximately 4% for full year 2013. Additionally, we expect earnings in each of our non-aggregates segments to improve compared to last year. Asphalt material margins increased throughout 2012, and we expect these material margins to increase again in 2013 and contribute to earnings growth in this segment. Full year concrete volumes and material margins are expected to improve in 2013 as housing starts continue recovering in key states. As we've noted, concrete volumes in the first quarter increased 6% overall versus the prior year, due in part to increased private construction activity in Florida. We expect the increased private construction activity to continue to lead to improved unit profitability in the Concrete segment. Demand earnings should also improve in 2013 due mostly to lower production cost. As a result, collectively, full year earnings from these segments are expected to contribute significantly to our earnings growth in 2013. Our full year outlook for 2013 reflects our continued progress toward achieving our Profit Enhancement Plan goals. Through the first quarter of 2013, profit enhancement initiatives have generated approximately $55 million of run rate profitability improvements. And we remain on track to meet our target of $100 million in run rate improvements from the 2011 base year. Finally, we will continue to work on additional asset sales, transactions that allow us to strengthen our balance sheet and credit metrics, as well as to deploy capital into assets and markets with higher future returns, to increase our ability to improve earnings as construction activity rose. And with that, I'll now turn the meeting back over to our operator to begin Q&A.

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

On the pricing, it's a question we've been asking all of our aggregate contacts, but how much of the price increase benefited from mix versus a pure price increase? And also to get set further, what was the pricing improvement in your strongest markets and in your weakest markets?

Kathryn, I think of the 5% price increase we enjoyed in the first quarter, about 1% of that is mix and the rest is through same-store price increases. You ask about the range of price increases, I think increasingly, we are seeing price growth across virtually all of our markets. The range is really 10% into 12% and then a market or 2, it's probably down 5% or less, but there's a broad range. But virtually, every market was up. Typically, the markets where there is a price decline is because of a special project or some initiative that we did intentionally.

Okay. And just to reconfirm, your -- the states with the highest per unit price are the Carolinas, Georgia, California and Florida?

Well, the East Coast, the entire East Coast is a strong pricing market. The Gulf Coast is a strong pricing market, but of course, as Danny Shepherd said, our unit cost on the Gulf Coast are higher because of the freight. But these are freight adjusted prices, so the shipments into the Gulf Coast, including Florida and Texas, are good markets, and California are good markets from a price standpoint. So our whole coastal business from our southern tier from Florida to California is good pricing, the whole East Coast is good pricing. The weakness is in the Midwest.

Faults in the midyear price increase?

Kathryn, as we try to say, we don't do big lump sum one-time midyear price increases. We have boots on the ground, and we try to move prices wherever and whenever we have the opportunity.

Your next question is from Trey Grooms with Stevens.

Just kind of touching on non-res. Are you guys seeing and I may have missed it in your prepared comments, but are you seeing any tangible evidence of non-res, new non-res, specifically kind of commercial and the more cyclical stuff, see any improvement there, any intangible evidence of that? And I understand the ABI is kind of pointing that, that could start to improve pretty nicely at some point maybe this year, but just if you are seeing it, where to?

It depends on your definition of non-res. If you're including industrial projects, we're seeing a lot of industrial projects, particularly along the Gulf Coast, refineries, airbus and Mobile, chemical plant expansions. There's a lot of industrial work in the queue. In terms of buildings, I think our concrete shipments are some indication that there is a recovery underway in certain markets, at least, in private non-res buildings, while concrete shipments are driven by housing starts, there's also a fair amount of that concrete shipment increase that's going to private non-res buildings. So the private construction is really the driver of concrete, much more so than public, and we're seeing big increases as we've indicated in concrete shipments.

Okay. That's helpful. And then I asked one of your competitors the same question here yesterday or a few days ago but I'd like to get your take on it, Don, as far as kind of looking out longer-term, with all of the things kind of looking into '14, it looks like it could really drive some good volume for you guys and in my opinion I think -- I'm not looking for any guidance on this front, but it doesn't seem unrealistic to see some very nice volume improvements next year, maybe even double digits. And if that were the case, hypothetically, as we look forward, how does your pricing kind of correspond with volume given kind of where we are in the cycle right now as we look forward?

Well, McGraw -- and I won't give you any bulk on specific guidance for '14 and '15, but you probably have seen the McGraw-Hill numbers that came out the last few days. McGraw-Hill is seeing total construction activity up 18% in 2014 and 20% above that in 2015. So we concur based on the data we see, that construction is going to come back after this 5-year recession we have had. Included within the McGraw-Hill numbers are residential improvement of 14% and 22% in '14 and '15 -- I mean, residential is 36% and 26%. Non-res is 14% and 22%. So there's a lot of optimism there and it is supported, obviously, by contract award data. It's not a theoretical increase, it's real in terms of the contract awards that are coming out. Clearly, Trey, if you look at the relationship of volume growth to price growth for our company, and really for the industry, but particularly for our company, you see that when volumes start moving up significantly so that the visibility of future demand is out there, as well as maybe some of the smaller local players in the market booking up with volume, we have tremendous pricing power. The last time we were seeing substantial volume growth in 2004, '05, '06 and '07, we were averaging double-digit price growth. I'm not predicting that, but that's certainly within the range of possible outcomes.

Your next question is from Robert Wetenhall with RBC Capital Markets.

This is actually Desi filling in for Bob. Just on the SAG line, I was curious what you were thinking relative to 2012 what you're expecting for SAG dollars and for 2013. And then...

Our full year SAG expectation right now is about flat, slightly down from 2012, but essentially flat. We are hoping to improve on that, but our current outlook is essentially flat. There's a lot of ups and downs in that. I would say on what we might call controllable cost, they're down. Some costs like benefits cost, where it's tougher to control them in the near-term, are up. So there's some offsets going on there.

Okay. And then I also want to get a sense of what you're seeing in the market in terms of the opportunity for potential asset sales this year. And then it looks like you made an acquisition in the quarter, if you could also talk about that, too.

Yes. We bought 2 quarries in Georgia from Lafarge. We're very pleased to close that deal. We are operating, making improvements, integrating them with our existing operations. We continue to look for bolt-on opportunities in markets where we think there's good growth potential and which -- and where the acquisition of a bolt-on, not only can we hopefully improve its operations, but we would achieve overhead synergies and cost synergies and the ability to serve our customers better in those markets. So we continue to work on those transactions. We also continue to look at our portfolio, and when we see places where we have capital tied up that does not have the kind of upside we're seeing in the rest of our markets, we are certainly prepared to exit those markets looking for that capital. And that's an ongoing process. Danny Shepherd and our 3 regional SVPs are very focused on that process. That's nothing new for us, but given now the outlook for the next several years in construction growth, particularly in certain of our key markets we are really -- we're pursuing those. Obviously, having willing sellers has helped us.

Your next question is from Ted Grace with Susquehanna.

I was hoping to talk about pep and as a starting point, I know you mentioned the $55 million of run rate savings realized through the end of 1Q. Can you just remind us sequentially kind of what the -- how 4Q compared to 1Q?

I'm going to get Danny Shepherd. He and the SVPs are our pep gurus. Could you repeat the question for Danny, please?

I think I heard the question. Well, as Don said in his remarks, he referred to the $55 million number. We believe that in 2013 we will have achieved $75 million in pep improvements, and we believe that we will deliver, as we've promised, the $100 million in 2014. And we will be at a run rate of $100 million at some point in 2013.

Okay. So what I'm trying to understand initially is the run rate were at $55 million, kind of sequentially what changed and how that rate improved, I'm assuming?

I really can't comment on that and answer that question. I can really only tell you that we're at the $75 million run rate now.

Ted, this is Dan. We've got tracking on that, but I don't think we have the data parsed the way you phrased your question right in front of us, so we'd be probably guessing but we can come back and if it's important and flesh that out. It's all part of our tracking, we just didn't slice it the way you framed your question.

Sure, okay. That's great, we can swirl back on it. Maybe thinking about the opportunities in front of us for the remainder of the calendar year, just dividing those between whether it's sourcing or plant operations or logistics, where do we expect to get the biggest gains incrementally in calendar 2013?

I can answer that. We are making good progress on procurement savings, and our transportation initiatives are really gaining momentum. We are now achieving both revenue and cost savings in several parts of the country as a result of the plans that we put in place. That's both in trucking, rail. We're making good progress.

And, Ted, to maybe add on to that, we expect the bulk of the incremental savings for the rest of this year to be in the areas Danny just described. In contrast, we have achieved most of the savings that we had targeted in SG&A costs. There's still some incremental amounts that are going to flow through during the course of 2013, but the bulk of the SAG or overhead-related savings have already been put in place, but again there are some additional actions that will occur during the course of the year but the largest dollar magnitude yet to come lies in sourcing and transportation and logistics.

Ted, I'll give you one other example of the fact that the original plan has evolved to reflect what's going on in the marketplace. For example, one of our transportation cost savings was to run our ships at lower speeds, which would allow us to save a few million dollars in fuel costs. With the big ramp-up in demand across the entire Gulf Coast in Florida, we are now having to run our ships wide open 100% in service of moving our rock from our Mexican quarry to our yards along the Gulf Coast and in Florida. And as a result of that, we're not going to be able to save that $3 million or $4 million in freight -- in fuel cost, but the margin on those incremental sales just overwhelms all of that. So to take what we set out 15 months ago and reconcile it where we are today, there are some moving pieces there. And we're making those adjustments as we need to improve our overall profit growth.

Okay. And then the last thing I was hoping to ask you is on the divestiture side, kind of the update, I know we've been targeting something on the order of $500 million from start to finish by mid-2013. Can you just let us know kind of where the process stands and how we feel about the goalposts?

Ted, this is Danny Shepherd. We're making progress on the -- on our goal. Hopefully, within the next few months, we'll have something positive to report. Obviously, we can't be specific at this point, but we are focused on our divestiture program and believe that we have a reasonably good shot of achieving what we've told you.

Your next question is from Jerry Revich with Goldman Sachs.

In the context of your full year aggregates volume guidance, I'm wondering if you could talk about how you expect the year to play out sequentially. Obviously we had really tough weather comps in the first quarter, and I'm wondering how do you see the seasonality playing out this year compared to last year and perhaps if you're willing to touch on how April volume trends stacked up.

Jerry, to hit our guidance of 1 to 5 for the remaining 3 quarters of the year, we need to be up about 3% to about 7.5% given the first quarter shipments. That's just a math problem. We expect, because of the existence of some large projects that are in the pipeline, we expect there to be pretty hefty second half contribution to that total aggregate volume. That's simply because some of these TIFIA projects will kick off hopefully sometime in the second half of the year plus some of these industrial projects on the Gulf Coast. Some of the TIFIA projects have already started, some of the industrial projects have started, but there's much more in the pipeline. So the timing of whether those shipments are in the second half of '13 or they roll over into the first half of '14 is difficult for us to predict, but our base load business, our base load business is improving, certainly, as you can see. And then our aggregates, we are obviously behind on year-to-date shipments compared to our guidance but we're right on our plan.

We're behind on year-to-date versus last year, not to our guidance.

Right, right, right. So we're reasonably confident we will hit our guidance. We hope to be able to narrow that guidance for you after the second quarter after we are able to see the timing of some of these larger projects.

And on the acquired quarries from Lafarge in Georgia, can you just talk about the size of the reserve and how the pricing point compares to overall Vulcan pricing?

Yes. This is Danny Shepherd again. First of all, we are well pleased with the reserve position that we were able to acquire. In addition to the existing reserves, there are reserves that we can add to this property, and I'm giving you a range, 30, 40 years is certainly what we believed -- we believe is -- can be described as proven and probable. And there are -- there's another body of reserves that would add significantly to the proven and probable reserves. So we're pleased with the reserve position. As to the pricing question, the -- it's hard to say exactly what our pricing position will be. We're certainly pleased that we've added it to our Atlanta market, but I really can't comment on the specifics of pricing for you. But we're pleased with the acquisition. It fits us perfectly, and we're well pleased.

Those 2 -- the 2 quarries, Jerry, that we acquired are in the northeast quadrant of Atlanta where we were unable to serve the market. So they helped fill our hand out in terms of the geographic market that we can supply.

Okay. And lastly, I'm wondering if you could talk about pricing conditions that you're seeing from your customers of ready-mix and asphalt industries, are they able to put through accelerating price increases on the finished products at this point?

We saw very modest price growth in ready-mix in the first quarter, and in terms of asphalt pricing, essentially flat. The story in asphalt though is with the declining in the price -- decline in the price of liquid asphalt, our margins are improving. But the first quarter is not the indicative of what the full year is likely to be for any number of reasons, particularly in asphalt, because of the weather situation. But on balance, we think we'll see price improvement in concrete and we certainly expect to see margin improvement in asphalt.

Okay. And what about for your customers in areas where you're not vertically integrated there? Do you have a sense of their ability to get price increase to stick?

We certainly hope so and we think given the increasing demand in residential and private non-res, this is the time they need to be getting price improvement and certainly, that's a decision they make, we don't make, but I think the stage is set for pricing growth, particularly in concrete.

Your next question is from Keith Hughes with SunTrust.

My question relates to concrete. Is there any sort of metric you can give us in terms of tons or pricing or anything like that? Would you think this will cross back over into profitability and the gross profit line?

It's largely about volume, Keith. We need to be able to run our plants and our trucks steadily and consistently. We also need some price growth, but volume is the key right now for recovery and profitability in the Concrete business. Our Concrete businesses are -- the profitability differs greatly from market to market. Some markets are profitable, some aren't. But the growth in demand, particularly in Florida, I think, bodes well for opportunity for profit improvement there.

Is it 30% above where we are before this quarter or is there a metric...?

I don't have that calculation in front of me, but -- and I don't think -- Danny, you don't have that data in front of you either, but I can't give you that metric. We will certainly look back at our numbers and our projections and can fill in that blank for you later.

Your next question is from Mike Betts with Jefferies. Michael Betts - Jefferies & Company, Inc., Research Division: I had kind of 3 areas of questions, if I could, very quickly. Firstly, in the EBITDA bridge, the $19 million of increased costs and other, we know $4 million is due to repairs and maintenance. Is there any way of kind of splitting what the rest is? And related to that, is that repair and maintenance a timing issue or should we regard it as just an increased cost that you're going to face as volumes start to pick up? That's my first question. The second one to give you, just to help, you're talking in the press release about your objectives for costs this year or your cash cost objectives for 2013. Can you remind me, did you say what they were and have they changed given a bigger volume is coming potentially from the Gulf Coast area? And then just finally on that Gulf Coast market, presumably, that's likely to be strong for the foreseeable future, but it has implications for profitability. I know prices are higher there but is there a scope to put through more substantial price increases to offset the impact on profitability?

Mike, let me first approach the question about the Gulf Coast. As Danny said in his remarks, our unit cost of sales is higher there because of the embedded freight and handling. We also have very strong pricing there, and we have really good margins in that business. So we're perfectly happy to incur the higher cost structure because those shipments come with very high profitability and we report freight adjusted pricing, so we take the freight out of the reported pricing on the Gulf Coast. So with respect to the Gulf Coast, we are really happy with the way things are going. As I told you, our ships are now going full blast all across the markets from Florida to Texas, and that's good. With respect to the cost in the quarter, and I'll ask my colleagues, but generally, there are -- you picked up the R&M, which prepares us for the improving production volumes in Q2 and Q3 that Danny referenced. There is a weather impact there, and there is a geographic mix there, and I'll ask Dan to fill in the blanks on that.

Mike, if you take the $19 million in that EBITDA bridge, I think we can drop that into 4 buckets. First bucket we would characterize as cost that have been affected by either weather or mix, meaning geographic mix throughout the network, and that's about $6 million of the increased cost. Second category or bucket into which we would categorize some of this cost is what we would call seasonal timing or -- and that would include -- and that's about $7 million, and that's the parts and supply and repairs and a few other items that are really costs that were going to be spent in the course of 2013 and it's really a timing issue. [indiscernible] of what I would call true cost increases where we have structural increases in costs. For example, we have one site where the minimum royalty obligation stepped-up contractually from 1 year to the next and a few other items, and that's about $2 million. And then about $4 million is referable to the higher volumes that are flowing through the distribution yards which carry the incremental freight and handling costs associated with it. So if you add those 4 categories up, you get to the $19 million. Michael Betts - Jefferies & Company, Inc., Research Division: Understood. And that's really helpful. Just the one other one. Have you shared with us what your cash cost objectives are for 2013?

No. Michael Betts - Jefferies & Company, Inc., Research Division: Would you like to?

Well, we have given volume and price guidance. We haven't given EBITDA guidance or cost guidance. Once we get into a more normalized production environment in the second quarter, I think that becomes easier. You shouldn't, for any number of reasons, and you've been in this industry as long as any of us, you shouldn't draw very many conclusions from first quarter performance, good or bad, for the full year. It's just too much variation, particularly with weather. And this year, the weather had a very significant geographic mix effect as well, which is not typical in this industry. Suffice it to say, we have a full fledged focus on cost management throughout the organization from the plant, all the way up through the entire organization. But we have not given guidance on what we expect our cash cost will be in 2013.

Your next question is from Chris Olin with Cleveland Research.

Just wanted to talk a little bit about your Mexican quarry and kind of going back to what you said regarding your ships. It seems like that facility could be one of the big drivers of the growth given where the pockets of the demand seem to be developing, Florida, Gulf Coast. I'm just wondering if you can give us updates, kind of where that plant stands in terms of utilization. And you mention the ships running full, I'm just wondering if that's any kind of constraint and would you need to invest in that asset to capitalize on some of the future growth.

With respect to -- our plant capacity there is about 12 million tons. We are not at capacity. We still got a couple of million tons of capacity available. Our ship capacity is 9 million tons, and we have contracts with another carrier who has self-unloading vessels that will allow us. So shipping is not a constraint. Production capacity currently is not a constraint, but we certainly have the ability to ramp up our capacity at that plant very efficiently when we see future demand exceeding capacity of the plant. We have plans in place, the engineering work is done, cost estimates are done, it's just a matter of when we pull the trigger based on demand. And you're right, the -- that product from that quarry fits the growing demand beautifully. Its premier product is concrete rock and that concrete rock can make cement -- I mean, can make concrete with slightly lower cement levels than much of the other concrete rock that's sold in the United States. Secondly, the big industrial projects along the Gulf Coast require huge amounts of base to start with, and that is the other premier product coming out of that. So base and concrete rock are our principal products coming out of Mexico, they go to the Florida and the Gulf Coast, and that's where concrete and base markets are growing significantly. So that's -- I think you hit the nail on the head, that is one of our really sweet spots as this recovery progresses.

There are no further questions at this time. I would now like to turn the call back over to Mr. James for some closing remarks.

Well, thank you so much for joining us today. We look forward to being able to talk with you for the next 3 quarters in 2013 and hopefully all of us can enjoy the benefits of the recovery in private sector construction. Thank you very much.

Thank you, ladies and gentlemen. This does conclude today's Vulcan Materials earnings conference call. You may now disconnect your lines. Presenters, please hold.