Vulcan Materials Company (VMC) Q1 2014 Earnings Report, Transcript and Summary

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

Thank you. Good morning. We appreciate you joining us to discuss our first quarter 2014 results. As the operator said, I'm Don James, Chairman and Chief Executive Officer of Vulcan Materials. Joining me today are John McPherson, our Executive Vice President and Chief Financial Officer; and Tom Hill, our Executive Vice President and Chief Operating Officer. A slide presentation will accompany this webcast and will be posted on the company's website at the conclusion of this earnings call. Before we begin, let me remind you that certain matters discussed in this conference call, as indicated on Slide 2 of the presentation 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. 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 2014 earnings release and at the end of this presentation. We are very encouraged by our performance during the first quarter and with the recovery in demand for our products. Despite the challenges inherent in an unusually cold and wet winter in many of our markets, our employees delivered solid shipment growth and improved margins. During the quarter, we successfully completed the previously announced sale of our Florida area cement and concrete assets to Argos, as well as the related repurchase of $506 million of our outstanding debt. Vulcan is well positioned to increase our shipments and our earnings, and to expand our aggregates operations and reserves as we move forward. Turning now to Slide 3. Our first quarter results demonstrate the strong earnings leverage in our aggregates business. Aggregates volumes increased 6% and we leveraged those incremental tons into significantly higher earnings. The 9% increase in net sales led to a 93% increase in gross profit. Reported earnings from continuing operations were $0.41 per diluted share versus a loss of $0.47 in the prior year. Included in these earnings improvements are $1.04 per diluted share of income related to the sale of the company's Florida area cement and concrete assets, and $0.35 per diluted share in charges to interest expense referable to the $506 million of debt repurchase. Adjusted for these onetime transactions, earnings from continuing operations were a loss of $0.28 per diluted share, a $0.19 per share improvement from last year. Reported EBITDA for the quarter was $267 million, which includes a $220 million gain from the sale of Florida concrete and cement assets, and $7 million in other income, primarily from the routine sale of reclaimed land from former operating sites. Excluding these items, adjusted EBITDA grew 50%, from $26 million last year to $39 million this year. This improvement was driven by both increased aggregate shipments and by higher aggregate prices, which more than offset higher costs resulting from production challenges due to weather. Non-aggregate cash gross profit benefited from higher asphalt volumes and higher materials margin. With that said, I'd like to now turn the call over to Tom Hill to give us a few more specifics about our first quarter results.

Thanks, Don. Taking a look at the aggregates segment results on Slide 4, you'll see the resulting revenue and gross profit impact from higher shipments and pricing. Aggregates segment revenues increased 13% and segment gross profit increased 55%. Aggregates shipments increased 6% versus the prior year, despite very cold weather in most of our markets. Shipments in California, Florida, Georgia, Illinois and Texas showed strength, each increasing by more than 15% versus the first quarter of last year. Due to favorable -- due to unfavorable weather, first quarter shipments in Virginia, North Carolina and South Carolina were lower versus the prior year. Strengthening private construction demand more than offset the effects of extremely cold weather in Georgia, and unusually wet weather in Florida, resulting in year-over-year growth in shipments in these markets. In other areas harder hit like Virginia, the number of available shipping days was cut in half by extreme winter weather. This restriction on construction activity and available shipping days impacted both our aggregates and concrete business in Virginia. That said, we expect shipments delayed beyond the end of March due to weather to be recovered in the following months as the construction season gets underway. Aggregates pricing for the quarter was up 2% versus the prior year. These solid results were despite an unfavorable geographic mix due to the impact of weather on volumes in several higher price markets. Without the unfavorable geographic mix impact due to weather, our year-over-year pricing increased 3%. Slide 5 highlights the favorable operating leverage in our aggregates business. Trailing 12-month volumes have increased 8 million tons or 6%, while aggregates segment's gross profit improved $84 million or 25% due to higher pricing, the earnings leverage of volume growth and cost control. Turning to Slide 6. We compare our trailing 12-month cash gross profit per ton at the end of the first quarter with the prior year and the prior peak volume, which occurred in the first quarter of 2006. Trailing 12-month unit profitability has increased 6% from the prior year. More significantly, cash gross profit per ton is 31% higher than the prior peak volume. This is remarkable considering the fact that current volume is 50% below the prior peak. This improvement of more than $1 per ton reflects the accomplishments of our employees to effectively manage cost and improve price throughout this downturn. This per ton gain also illustrates the attractive structural characteristics of our aggregates business. Higher unit profitability sets the stage for significant earnings growth in this improving demand cycle. Now I will turn the call over to John to provide some commentary about the outlook.

Thanks, Tom. Our volume growth in the first quarter and resulting earnings improvement that Tom just discussed are a really solid start to what we believe will be a very strong year for overall demand growth. The demand momentum, which began in the second half of 2013, is continuing in 2014. And our margins are expanding due to the combination of operating leverage, cost disciplines and growth in pricing. Turning now to Slide 7. You see a breakdown of our expectations for aggregates demand by each of the major end markets. These expectations are consistent with the demand outlook we discussed during our fourth quarter conference call in February, but let me share a bit of color regarding what we see in the market as of the end of the first quarter. Two points to start. First, we continue to expect each end market to grow in 2014, with private construction recovering most rapidly. Secondly, we expect Vulcan's served markets to grow at a faster rate than the markets we do not serve. We're very pleased with how our portfolio is positioned, as the recovery in construction activity continues to take hold. Now touching on activity and trends in specific end-use markets. In private residential, we continue to see broad-based growth across our geography, led by states such as Arizona, California, Florida and Texas. But in addition, we're also seeing residential construction activity in aggregates demand recovering in important areas such as Atlanta, Charlotte and Nashville. In private nonresidential, our markets are beginning to benefit from some growth in office and commercial work, complemented importantly by rising demand from large industrial projects. As we've noted before, these projects can represent large quantities of aggregates supplied over multiple years. And Vulcan is very well positioned to serve these customers, particularly along the Gulf Coast. These projects provide an exciting opportunity for our aggregates business. That said, the timing of shipments can vary and we continue to monitor them before the actual shipment days. Now we're also seeing strengthening large project activity in the public arena, including in transportation infrastructure. Although it has taken longer than most of us expected, federally funded TIFIA projects are beginning to drive additional aggregate shipments. The Grand Parkway in Houston and the Northwest Corridor in Atlanta are just 2 projects we expect to begin shipments to in 2014, or have already begun to make shipments to. Additionally, state-level funding initiatives across several states are beginning to drive new project lettings, with Virginia and Maryland just being 2 examples. While the parameters surrounding the renewal of the Federal Highway Bill remain uncertain, large transportation infrastructure projects and the growth in contract awards we've already seen should provide reasonably stable demand in this end market for the balance of the year. Overall, we expect modest growth in shipments in the public end markets in 2014, and we're optimistic with respect to public infrastructure construction in 2015 and beyond. So while the first quarter does not make a year, our local teams and our customers are excited by what they see in the early stages of this recovery. Activity and confidence are rising across an increasingly broad group of geographies and end uses. And we believe Vulcan's people and assets are very well positioned to meet our customers' rising aggregates demands during this time. Before turning the call back over to Don for some closing remarks, I'll comment on 2 additional topics that continue to be priorities, particularly as we look toward another year of earnings growth and hopefully a multiple year recovery in demand. The first topic is the strengthening of our balance sheet. During the quarter, both our sale of cement and concrete assets to Argos and our repurchase of approximately $500 million in debt closed as expected. As you can see on Slide 8, net debt to trailing adjusted EBITDA is down from 6.4x to 3.6x. Coupled with unit margins and earnings, this improvement in our balance sheet allows us the flexibility to reinvest in growth, whether through margin-enhancing capital projects, bolt-on acquisitions, or other opportunities to strengthen our aggregates franchise. And of course, we've continued to add to our portfolio as opportunities present themselves. Over the past 18 months, we have acquired assets and improved on our ability to serve customers in areas such as San Diego, Atlanta, San Antonio, Charleston and Northern Virginia. The second topic I would like to highlight briefly relates to the value of the land we own and our commitment to manage these holdings in a manner that generates value for both our shareholders and the communities in which we operate. Our first quarter results included $18 million in cash proceeds and a $6 million pretax gain on the sale of 2 properties, a former Baltimore area quarry, of which a schematic depicting the intended use is shown here on Slide 9; and a parcel of land on the river in Chattanooga. Those of you who have followed our company closely know that the disposition -- that dispositions such as these are not at all out of the ordinary. Since 1998, we have generated an average annual cash proceeds of approximately $32 million from land sales. Vulcan owns more than 110,000 acres of land, a significant portion of which is in urban or urbanizing areas. We will continue to operate and develop these properties with an eye toward their post mining uses and the ultimate value to both our shareholders and our neighbors. I'll now turn the call back over to Don for some closing comments.

Thanks, John. Let me close by saying that we're encouraged by the improving economic fundamentals we see in our footprint. Our outlook for aggregate volume and price growth remains very positive, consistent with the guidance we gave in February. We expect 2014 to be another year of earnings growth for Vulcan, and we're well positioned to capitalize on the multiyear recovery in demand that we believe is in front of us. Thus far, in this recovery, we have leveraged modest volume growth and strong growth in earnings due to the operating leverage inherent in our aggregates business and the disciplined execution of our operation and sales teams. This operational performance by our teams gives us tremendous earnings upside as volume recovery continues. In our non-aggregates segments, we continue to expect to earn $40 million to $60 million in gross profit in 2014. These improved results include higher earnings in asphalt and the return to profitability of our concrete segment. With our improved capital structure, we're excited about the possibilities of expanding our aggregates operations and reserve base and further enhancing our footprint in the fastest-growing U.S. markets. We are continuing to pursue a number of attractive growth opportunities that will enhance our earnings potential. This is an exciting time and an excellent opportunity for Vulcan, and we remain committed to adding lasting value built around our unmatched asset base. And now, the operator will give the required instructions, we'll be happy to respond to your questions.

[Operator Instructions] Your first question comes from the line of Ted Grace with Susquehanna.

I was hoping to touch on margins. I know you mentioned you were pleased with the performance in the quarter. And specifically on the aggregate side, I was wondering if you could just walk through kind of the puts and the takes on the incrementals, what weather impact may have been in the quarter if you're able to impute it based on shipping days available and maybe just start there?

Sure, Ted. This is John. First, I'd say there were 2 major weather-related impacts that affected our incrementals in the quarter. One was production, both amount and efficiency. And we had an inventory reduction in the quarter, which led to about a $2.8 million negative variance of profitability for us for the quarter. The other impact, as Tom mentioned, was a negative geographic mix in terms of pricing and margin, and that contributed another negative $3.7 million in headwinds to us. So on a normal geographic mix and on a normal production basis, we would have been $6.5 million or so higher in the aggregate segment gross profit line. When you walk that across and there's one other thing I'd note, I think, Ted, you get to the kind of numbers that you're used to seeing, we continue to believe in the 60% flow-through number that we stated before, particularly through the cycle. And again, I think, when you make those adjustments for both the geographic mix and for production, you'll see the kind of incrementals you're used to seeing from us.

Was there anything on the freight side or the logistics side that was a notable call out in terms of just the dilution would add to the underlying volume-based incrementals?

Well, there's 1 -- that's an important question. I think, 1 thing to note, within our aggregates segment, we have intentionally grown our transportation-related revenues and this is a profit enhancement for us. These revenues come with substantially no capital commitment but they already lower margin as a percent of sales. So in the quarter, those revenues grew from about $60 million to $80 million as being supporting products and services, transportation-related. So Ted, to be clear, what I call the non-direct stone revenue, that grew at a rate of 32%, 33% during the quarter. It's very -- it lends to our incremental margins per tons sold. It's very good for us to do. It's an important profit enhancement, but it does, if you look at the total segment numbers, dilute the margin.

Okay. That's really helpful. So the last thing I'll ask, and I'll jump back in queue, is you talked about the cash cost per ton being down 8% year-on-year, could you just bridge us what the key variables were in the first quarter and then how we should think about those variables in the second through fourth quarter?

I'll probably let Tom comment. But the cash margin was up is what I'd highlight, not the cash cost down.

The cash cost -- this is Tom, Ted. The cash cost per ton was virtually flat. And that is attributed to our people in that they were operating in really tough conditions, which affect -- negatively affect operating parameters. So we were pleased with a relatively flat cash cost year-over-year.

And then, as we think about that cost dynamic going forward, I know you said there's a lot of labor leverage going forward but are there any other kind of headwinds or tailwinds we should just be mindful of as we kind of model going forward?

I think that the rising volumes always help those cash costs because there's a big piece to that. I think, our folks have done a good job keeping our equipment and operations in good shape, ready for rising volumes. And that's a matter of really adding hours at this point.

Okay. And the last thing I'll just ask before I jump back in queue, any chance you could just characterize kind of how April started off or the quarter started off?

I think, Ted, we'll have to answer that when we get into the second half. Our volumes were up more in March than they were in the balance of the quarter. I think, they were up 9% in March. We like the momentum through the quarter and coming out of the second half of last year. But let's talk about April when we get to our second half call.

Your next question comes from the line of Robert Wetenhall with RBC Capital Markets.

[indiscernible] filling in for Bob. So if I do the math on your assumptions for end market growth, it would imply aggregates volume growth at the top end of your guidance range. As compared to the outlook provided in February, would you say you were more encouraged about the outlook for volume growth at this point in the year?

Well, I think, we're experiencing broad-based growth throughout all of our markets. And we're hearing a lot of -- this is Tom, I'm sorry, and we're hearing a lot of confidence from customers, suppliers and employees. To try to give you a little color, throw a local color on that, the California -- the private segment in California continues to improve. UCLA is predicting housing permits up 27%. Texas was really hitting on all 8. Residential and non-res continues to improve in Texas. We're beginning to see new subdivisions in Houston and San Antonio. We secured a number of very large energy-related projects along the coast. The large -- the 4 largest of which would be over 2 million tons. And then, the highway segment in Texas is healthy. We talked about before we secured the Grand Parkway in Houston, which is a TIFIA project, we begin to ship it. The central U.S. is a little slower to return, but we are starting to see recovery. We've secured a number of large projects in Illinois and residential is starting to -- we're seeing growth in residential in Nashville and Knoxville. Georgia is a market that we're very pleased with, the residential continues to accelerate and commercial is following. And while the highway funding is flat, we have secured the Northwest Corridor, which John mentioned earlier, which is a TIFIA project, they'll start to ship probably towards the end of 2014. Our Florida market continues also to improve. Residential continues to grow, commercial is following that healthy. With health -- an example of that is the Doral Breeze project in Miami, where we secured 750,000 tons. The Carolinas, we're starting to see residential improved in the Carolinas, really driven by Charlotte, as John mentioned. In Virginia, we also see improved residential and some big projects like the Midtown Tunnel, which is a TIFIA project. So overall, we have a lot of confidence in our markets. I think, you do have to remember, this is the first quarter, and there's a lot of -- to play out, there's a lot of noise in the first quarter. So at this point, I think, I'd have to tell you we're comfortable with our range.

That's great. And then, on pricing, aggregate prices were up 2% versus your guidance of 3% to 5%. And so how much is your expectation for accelerated pricing gains as a function of improving mix versus maybe a true pricing power as volume growth accelerates?

Well, I think, we're seeing pricing momentum all across the markets. Now as we say early on, every market, even submarket, prices at different times, it is a whole mix there of timing of pricing. But while we -- even through the downturn, we were able to get price increases. So with growing markets, growing demand, growing confidence, it just gives you better pricing momentum. Again, much like volume, we're -- just coming out of the first quarter, there was a lot of noise in there. So we -- I think, we're comfortable with that until we have a few more months of real construction cycle under our belts.

I think, you hit the keyword, which is momentum. And while it's early, we're really excited about the momentum, both on the volume side across geographies, and as Tom mentioned, on the pricing and margin side in our business.

Your next question comes from the line of Keith Hughes with SunTrust.

I just wanted to dig in a little bit on the private nonresidential buildings estimate you have. Very bullish estimate here, both in your markets and as a whole. Can you kind of list off 1, 2 or 3, which of those you think will be the best and which could be potential laggers this year in that segment?

I think, the best was going to be the private residential. And that's typical in that the non-res will follow the private -- the housing. But there's a component to the non-res that is a little different this time and that is the big energy-related projects that we've seen along the ports. So the answer to your question, to be clear about it, across the country, residential is leading but non-res is, as usual, comes behind it. But that non-res is bolstered by those -- the big energy plays on the Gulf Coast.

So, and within nonresidential, you would expect the energy and I assume industrial to be the leader in office and retail development to be a little less than that, would that be fair?

I think, right now, right at this time, that's correct. But you are starting to see the building and the -- come on and the traditional non-res, strip centers and things like that, you're starting to see those come on which are -- it's following the residential.

And for Vulcan, is the aggregate intensity, how do those end user markets within nonresidential compare?

Well, historically, highways are the most aggregate-intensive. Industrial projects would be next because, particularly the ones on the Gulf Coast, the first step in the process is to build a pad on which you can expand a refinery or build an LNG facility or an industrial plant along the Gulf Coast in low-lying areas. So those are significantly aggregate-intensive. Then, traditional commercial construction will be next and residential is the least aggregate-intensive. Although in the residential area, as you know, the primary use of aggregates is in lot development, streets and utilities and infrastructure. And in this, unlike residential construction 1 year or 18 months ago, we're now in a lot development phase, which is more aggregate-intensive than residential would be thought as steady state.

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

Question on the $2.8 million inventory drawdown in the quarter. Just wondering, was this primarily in weather-hit markets or is it a bit more broad-based? And if you could talk about the outlook for inventory management for the balance of the year and if there's going to be any impact on incremental margins?

Garik, this is Tom. The drawdown on inventory was really due to the bad weather, the cold weather in the East. It is just very inefficient or impossible to run in snow and ice. So that was intentional on our part. And I don't see that inventory being an impact going forward, we'll catch that up and move on. But you just -- you create a lot of cost and a lot of pain for yourself if you try to run in really, really bad weather.

Okay. That makes sense. And I guess, if you could talk about -- you touched upon your views on private non-res. And you've talked about for a couple of quarters now the sensitivity to your guidance, depending on whether or not some of these big projects in the South commenced this year and certain timing around these projects. As you move through the first quarter, as we sit here in early May, can you talk about your visibility with respect to these big projects now as opposed to a quarter ago, and what your level of confidence that they actually get started this year versus next year?

We've seen a couple of those projects start. We begin to ship a few of them. But we are still unclear as to the timing of a few others, and that's based on permit or engineering plans. So at this point, we need to see another quarter before we have real clarity on those big projects because when they go, a lot of them go really fast. So we still got some uncertainty on timing at this point.

Okay. That's fair. And I guess, just a couple of housekeeping questions, I think, mainly for John. Could you provide an update on your view on SG&A for the year, as well as depreciation costs?

Sure. On SG&A, we, of course, continue to manage it very, very tightly. We're very confident that we will be able to offset any normal increases in SG&A due to wage increases or those types of things with other savings. And so we'd expect it to be flat to down for the year. And equally importantly, we are very confident we will continue to leverage sales growth and profit growth through time. On -- does that answer your question?

Yes. And DD&A and then maybe interest as well.

DD&A and interest. DD&A we'd see as $265 million for the full year, and that reduction from last year, as a reminder, is largely due to the assets we divested. So that's $265 million versus I think $305 million last year. Interest expense would be in the range for the full year of $165 million to $170 million. The run rate reduction with our bond repurchase is about $32 million. And to save you asking, tax rate for the full year we see it at around 28%.

Your next question comes from the line of Kathryn Thompson with Thompson Research Group.

I appreciate the color that you had regarding the mix impact on pricing, but one thing I want to talk about a little bit is we look forward and knowing that you're going to have more infrastructure-related projects coming forward, how should we think about managing product mix in regard to modeling pricing, knowing that you're going to have a greater mix of base, which is a lower price point but you're still getting pricing on that. So if you could help us how we should think about that, not just for the upcoming quarter but over the next 12 to 24 months?

This is Tom, Kathryn. I'll look back on that, we did not have a big impact on our first quarter for mix. And I think, we have -- going forward, I wouldn't see us having a substantial mix impact on pricing. I think, there's a pretty good balance there. I think, we have a handle on that. And while we will see some large base jobs, we are also going to see substantial concrete rock and asphalt rock work. So I don't see a big mix impact on price.

You talked a bit for margin also, right?

Yes. That mix of business doesn't hurt our margin either.

Okay. Great. And we've been following TIFIA for a bit now. Could you give a little bit more clarity on how much of TIFIA projects are being captured in your current volume guidance for the year? And it's difficult to put it in buckets on a percentage basis, but can you give a better sense of will it be more like 10% or 15% type this year or do you see more momentum into 2015? But in general, giving some sense of the relative mix and momentum of this TIFIA project as they ramp up?

This is Tom again. Let me see if I can work you through some TIFIA jobs that we either have or have on the horizon. We have the Regional Connector in California, which is a small job. The Grand Parkway in Houston, which we talked about is a very large job, which will -- has started shipping and will impact this year. The I-4 expansion in Orlando is a job that just bid and was awarded. It's a little bit unclear of where the materials will go at this point and that job probably will not start until '15. The Northwest Corridor that we talked about in Atlanta, which is a very big job, the highway expansion in Atlanta that has an impact of about 1.4 million tons. But again, that will start shipping in late '14. The Midtown Tunnel in Northern Virginia, that job is around 800,000 tons, we are shipping that job currently. And in the Duluth [ph] Metro Rail in Northern Virginia, that's really a concrete job that we'll supply with our Northern Concrete group has an impact of about 140,000 to 150,000 cubic yards. So that gives you a view of what we know about right now. Most of those, we have secured. Some of them we'll ship this year. A lot of that we'll ship in 2015 and beyond. Does that answer your question?

Yes, it is. It's really we're in a very, very early stages of seeing the volumes flow through, which is helpful.

I think, that's right. It's early stages. And I think, when you look at large projects overall, and maybe back to Garik's question, what we have is we have much better visibility to the awards and to the backlogs and to our -- what we have left is those are 2 exact shipment dates. But the momentum in the overall demand is there and is growing and the question is just one of timing.

Your next question comes from the line of Trey Grooms with Stephens.

Quick question on the mix again. And Tom, I know you mentioned that you don't expect a real impact and didn't see a real impact as far as product mix goes on pricing. But geographic mix obviously had a little bit of impact in the first quarter. And then, you touched on these large energy projects coming up over the next few years in the Gulf. Also there's some port deepening and other activities going on in the Gulf as well. And with Florida being a pretty high-priced market relative to some, should we expect a positive mix impact from just geographic mix impact on pricing as we look over the next several quarters and the next year?

The answer to your question is yes. Obviously, we're hit hard on the East Coast with weather in the first quarter. That will catch up. As that catches up, it will have a positive impact on price. Also Virginia, North Carolina and South Carolina, which have attractive pricing, as their markets come back, and as the Florida market comes back, we will see positive impact on pricing.

But just specifically to some of the activity in the Gulf, do you think that those will be priced as such that will -- you'll be able to realize more of that price impact or mix impact, I guess, as these big, large projects come in? Just trying to get a sense for how you think those are going to be situated?

I think, those are at attractive prices. And I think, they will have a positive impact on pricing.

Okay. And then, also, kind of on that note, I'm assuming a lot of that, with all the activity in the Gulf, a lot of that would be coming from the Yucatán, a lot of that product. So how should we think about margins on that rock? Would they be any different than typical coming out of the Yucatán?

Those are very attractive margins and they will help us.

And Trey, on the point, we have a very significant competitive advantage on projects on the Gulf Coast because it's a straight shot, as you know, up from our quarry on the Yucatán Peninsula. And so those are really good projects for us both in terms of pricing and margin.

It seems like you guys are set up nicely to benefit from those.

Trey, one more slightly different point on geographic mix, just worth noting for the group. In our -- again, as Tom mentioned, our Virginia, Maryland markets, and through the Carolinas really were hit by weather. And just to give you a sound bite on that, our ready-mix volumes in Virginia, Maryland were down 19% versus the prior year. They're up everywhere else. And so it obviously impacted our results significantly in that segment for the quarter. But just to give you a sense, Tom had mentioned how we had half the shipping days go away in Virginia and Maryland. And so that will rebound as we go through the year. But you shouldn't lose that as a driver of mix and as a driver of concrete segment performance in the quarter.

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

Can you talk about the large-scale infrastructure projects that are likely to move towards TIFIA financing? Is your visibility and lead times better than it's been in prior cycles? We're hearing from some contractors that their jobs for mid to late '15 that already visibility is pretty good on, which would be much earlier, I guess, than the typical bid cycle than prior cycles. I'm wondering if you're seeing that as well. And then, just based on the project flow, can you talk about, with a rough sense, of what proportion of your aggregate shipments in '15 and '16 could ultimately be towards TIFIA-related projects?

Jerry, we are -- continue to be very active in monitoring and working with potential contractors on the large TIFIA projects. The substantial majority of those projects are in our footprint and the reason for that simply is these have to be revenue-generating projects. And many of them are toll roads. And in order to get the traffic counts necessary to generate the revenue stream to support the TIFIA financing, you have to be in large, congested metropolitan areas. So California, Texas, Georgia, Florida, North Carolina, Virginia, Illinois, those are where most of the big TIFIA projects are located, which happen to be fortunately markets where we have very substantial positions. So we think we will get more than our fair share of the TIFIA projects. And as I said, we want to work very closely with the contractors in order to help them achieve the best value for the aggregates and other heavy materials and products in markets where we have those on those projects. That being said, and I think, Tom took you through a list of the ones that we currently have booked or active and working on, that's a very important part of our future demand. It is not possible for us to tell you today what portion of our projected shipments in '14, '15 or '16 don't go to TIFIA projects because we simply don't know what the timing of those projects is going to be or the level of our participation. We won't get every TIFIA project in our footprint because we have competitive markets wherever we operate. But it will be a significant boost to our volume. But in order to try to give you the kind of specificity as to what percentage growth will be in each of the next 3 years on TIFIA projects, we simply don't have the data to do that.

Okay. But it does sound like the visibility has improved, as you pointed out, we've all been waiting for those projects to get moving and it sounds like it's finally starting to play out.

It is. And they've been slow coming out of the U.S. DOT. Part of it was the shift from -- as you know, under the statute, the federal government could provide up to 49% of the total financing. Because the number of projects was substantially oversubscribed, the DOT and the Treasury decided they would cut back maximum participation to about 33%. So some of the projects had to go back and redo their financing in order to meet that 33% test. That's been one of the issues. And just the fact that there was a huge increase in TIFIA, and therefore, a huge increase in the number of projects submitted to the DOT has certainly slowed the process of review and approval. But as we have noted and you have noted, finally, under the new MAP-21 version of TIFIA, which dramatically increased the federal support there, that we're seeing those beginning to materialize.

Okay. And then, from a capital deployment standpoint, you've obviously reduced leverage pretty aggressively here. How should we think about capital deployment from here? Anything to do before your December 2015 notes become due?

Nothing to do before the notes come due. We'll likely pay those off as they come due out of operating cash flow. I think, the answer to your question, as we noted in our remarks, is that we are very well positioned to pursue growth opportunities as they arise. We'll be disciplined in how we do that. But we think there's a real opportunity in the market these days to smartly grow our footprint and our franchise.

Your next question comes from the line of Todd Vencil with Sterne Agee. L. Todd Vencil - Sterne Agee & Leach Inc., Research Division: Don and Tom, you guys have both talked about the growth in residential communities, which I guess, were basically dead for a while and are now coming back. Can you talk about whether that community development activity is picking up and how far away you think we might be from reaching kind of parity where, I guess, we're developing a lot for every lot we're building on?

I'll give you one small example. I was in San Antonio last week with our management team and there's lot development going on everywhere. I think, the same thing is happening in Phoenix and Atlanta, lot of other markets, as Tom mentioned, Nashville and Charlotte. I don't have any metrics to say that we will reach equilibrium in lot development and home starts by day X. But at this point, I think, you've seen the statistics that say house prices are moving up sharply in most markets because the inventory levels of new homes are dramatically reduced. You know what incentive that creates for homebuilders. They need lots to build new houses to meet the demand and we're seeing a tremendous amount of lot development. It's very geographically specific, but it's all based on the markets where there's population growth, household formation, job creation. That's been a big driver. L. Todd Vencil - Sterne Agee & Leach Inc., Research Division: Got it. That makes a ton of sense. Is it fair to say, as people, I guess, that worried a little bit this spring about exactly where the starts are and the traffic is, that this is a phenomenon and a trend that's a little longer-term, takes longer to develop the communities. So does it feel a little more durable than maybe the more volatile housing statistics?

Well, I think, we take a fair amount of comfort in the fact that we're still plus or minus 1 million housing starts a year. And so the average over the last, whatever, 30, 40 years has been 1.4 million, 1.5 million. So we're -- housing starts, before they even get to a normalized run rate level, have to go up another 50%. And there got to be lots for those houses to be built on. So there's a lot of noise from month to month and week to week about housing starts and home sales. But when you back up and look at it over the longer term, we're very bullish on housing, particularly given our geographic footprint and the population statistics in our states. One of -- for example, the demographers are now saying Florida has now surpassed New York in population. So Florida has been very strong for us for at least the last 18 months in terms of recovery. It got hit, as you know, dramatically in the downturn. But I think, we are very bullish about housing and don't get distracted by reports about this, that and the other that come out every week about housing. We just think the long-term supply/demand in our markets is very favorable for us.

Your next question comes from Mike Vix [ph] with Jeffries.

I have 3 or 4 pretty short questions, hopefully. The first one was the states that had over 15% growth, I was surprised that Illinois was in that state, although you have referred to it briefly in some of the other comments. Could you kind of just summarize why you think that market is so strong? Secondly, I noticed in terms of leverage now, you're looking at net debt to EBITDA. Could you talk about where you'd be targeting in the longer term for that ratio to be? And therefore, give us some idea of the size of corporate activity that you might be looking at? And then, just finally, the ready-mix, obviously, was distorted by Maryland and Virginia, as you mentioned, but it's also distorted by the Florida divestment. Do you have any kind of like-for-like volume change excluding Florida you could give us for the quarter, and did it also have a significant impact on the ready-mix price?

Mike, this is Tom. I'll start off with Illinois. As I said in my comments, we have secured a number of very large projects in Illinois that will last throughout the year. So we're pleased with our performance in Illinois and confident that those markets will improve as the year goes along.

And there was no weather impact in Illinois?

I'm sorry?

There was no negative weather impact in Illinois?

There was bad weather impact. But the large projects, when they were able to ship, they shipped strong.

I think, our guys on the ground are just doing a good job winning the work, too, and gaining share. Mike, on your question on balance sheet, we use any number of metrics, we just used this particular one to illustrate the improvement. As stated, our longer-term through cycle goal is to return to investment-grade metrics. It's really less about the metrics and more about the ability to pursue growth smartly throughout the entire cycle, which is what we're focused on. As we sit here today, our view is that we have plenty of firepower and financial flexibility to pursue those options that make sense for us and I think that's a function of both the balance sheet, but, Mike, also the really strong margins and unit economics that we're able to generate from the business, the strength of our operations and sales teams. So we don't see financial constraints in what we do, it's more a question of the opportunities and which ones make sense.

Mike, on your question on ready-mix, I think, John has already mentioned that our ready-mix in Virginia, Maryland and the District of Columbia, which is one of our best ready-mix markets, was down about 19% due to weather in the quarter. Everywhere else, we were up, on average, at least double-digits. California, Texas and Georgia. We had very good ready-mix shipments in the quarter year-over-year growth. We are projecting that our ready-mix segment becomes profitable in 2015, part of that is growth in margin and volume and price. Part of it is not having the Florida business as part of our mix going forward. So we think ready-mix will benefit greatly from the growth in housing, and to some extent, growth in private non-res construction. If you've been to Washington DC lately or -- you see huge amount of private non-res construction there in terms of office buildings and high-rise condos in the district, as well as in Northern Virginia, and that's a very strong market for us, all we need there is a little weather.

Mike, just to give you another sound bite, the concrete businesses we retained, some asset that we've divested, would have been up on volume, I think, 1.4% for the quarter, and that's despite what is by far our largest position, Virginia, Maryland being down 19%. So the increases in the other markets are very strong. We have increases in pricing, increases in material margins across each of these businesses, and I think, all indicative of the recovery in private residential activity. So we're bullish on it. And obviously, the weather impact in Northern Virginia will reverse itself. I think, if you look at the gross profit mix relative to the expectations in our concrete segment for the quarter, it is almost entirely explained by the volume decline in Northern Virginia, which again, will reverse itself.

Is that a high-margin market for you?

We have a very good position in that market. That's a good concrete market, arguably our highest-margin market.

At this time, there are no further questions. This does conclude today's conference call. You may now disconnect.