Good morning and welcome to the Vulcan Materials Company Fourth Quarter 2017 Earnings Conference Call. My name is Lynette and I will be your conference call coordinator today. As a reminder, today’s call is being recorded. At this time, all participants have been placed in a listen-only mode to prevent any background noise. A question-and-answer session will follow the company’s prepared remarks. And now, I’d like to turn the call over to your host, Mark Warren, Director of Investor Relations for Vulcan Materials. Please go ahead.

Good morning to everyone. Thank you for your participation in our earnings call. Joining me today for this call are Tom Hill, Chairman and CEO; and John McPherson, Executive Vice President, Chief Financial and Strategy Officer. Before we begin, I would like to call your attention to our quarterly supplemental materials posted at our website, vulcanmaterials.com. You can access this presentation from the Investor Relations homepage. Please be reminded that comments regarding the company’s results and projections may include forward-looking statements, which are subject to risks and uncertainties. These risks are described in detail in the company’s SEC reports, including our earnings release and our most recent Annual Report on Form 10-K. Additionally management will refer to certain non-GAAP financial measures. You can find a reconciliation of these GAAP financial measures and other related information in both our earnings release and at the end of our supplemental presentation. Now, I’d like to turn the call over to Tom.

Thank you, Mark. And thank all of you for joining us for our call today. We have several important topics to cover. The Aggregates USA acquisition, the impact of tax reform, points on improving demand and pricing fundamentals, and of course, our overall financial expectations for 2018. I'll begin with a recap of the fourth quarter and the year. The pattern of shipments in the quarter was encouraging. November, December aggregates shipments posted double-digit gains over the prior year. And this was following slight declines in October's daily shipments due to lingering storm impacts. When the weather was good, shipments were strong. This was consistent with underlying demand improvement and the need to catch up on delayed work. Aggregates freight adjusted pricing in the quarter improved 2% over the prior year, and 4% for the full year. This is adjusted for geographic and product mix. High single-digit full-year pricing growth in California and Georgia reflected good visibility to continue demand recovery in those key states. In contrast, pricing in Texas declined 4% in the quarter. This was largely due to Hurricane Harvey's continued impact on job mix in the coastal region, and on freight distribution costs that couldn't be passed through immediately. Now these were temporary challenges, and our longer-term pricing strategy and expectations remain unchanged. We didn't perform as well in the quarter converting solid revenue growth into incremental gross profit. Several margin headwinds negatively impacted gross profit in aggregates by approximately $20 million. In addition to the price mix headwinds, we experienced a 23% rise in the unit cost of diesel fuel. There were additional costs related to the transition to two new more efficient Panamax class ships and for storm-related ship loading and barge movement. We also absorbed certain expenses related to operations that we acquired during…

Thanks, Tom. And good morning, everyone. First, let me point out that appendix 3 in the press release financials bridges reported to adjusted EPS for the quarter. We have followed our common practice for example in excluding the impacts of one-time tax items and debt refinancing costs. The $20 million of margin headwinds in the Aggregates segment that Tom mentioned was not adjusted out. Well, of course be happy to answer any questions you have regarding these items or the tax provision off line. As you saw in our release our 2018 guidance, calls for earnings per share of between $4 and $4.65, for growth of approximately 40% over 2017’s adjusted EPS. We expect adjusted EBITDA and including the impact of Aggregates USA operations of between $1.15 billion and $1.25 billion. For our Aggregates segment we expect same store of volume growth between 4% and 6%, generally consistent with the outlook we shared in our most recent call. Continued expansion of private construction activity drives most of the expected year-over-year growth. Although the intermediate to longer term leading indicators for public construction continue to strengthen and certain markets will experience very solid growth in the current year. Our current overall expectation is for shipments to public end users to be up only at the low single digits compared to 2017. Inclusive of Aggregates USA, we expect Aggregates shipments for the year to total in the range of 200 million tons. Although weather patterns and the timing of large projects can be difficult to predict, the first quarter should present the more difficult volume comparisons given the trends of the past three years. For example, first quarter shipments in 2017 were approximately 30% higher than in 2014. As Tom noted, we expect same-store Aggregates average selling prices to be up 3%…

Thanks, John. As we move into 2018, we're very pleased with our portfolio. Now, we're always evaluating strategic investments, divestments and swaps in order to strengthen this portfolio. Our current footprint aligns very well with profitable growth this year and ramping into 2019. For example, we like what we're seeing with the growing demand in our southeastern market. It is supported by new highway funding, port and intermodal transport development, superior employment growth, and favorable demographics, both population and household formation. Acquisitions such as LoJac and Aggregates USA will play an important role here. Arizona, California and Texas are also strong on these same fronts and recent results in California are particularly exciting for us. We like a long-term position there. California will benefit significantly from increased public spending, and our reserve base holds tremendous value. We are where the growth is, from San Diego to the Bay Area. In L.A. for example, we've added additional high-quality reserves in a huge market where reserves are lacking. In the Central Valley, we have permitted a major new quarry North of Fresno that will serve a reason of state that is expected to see the fastest growth over the next decade. In the Bay Area and Napa where private construction is strong and public construction is on the uptick we've not only added reserves, we’ve also increased our footprint and our product offerings through Shamrock. We are also the large supplier of asphalt in the state. You can see why we're excited about our future in California. Our Texas operations after a tough year should benefit from improved DLT lettings and more normalized weather patterns in Houston and other coastal areas. We're continuing to invest in our Texas market positions, including a major investment in a strategic rail serve quarry, which will…

Thank you. [Operator Instructions] We'll take your first question from Rohit Seth from SunTrust.

Hi. Thanks for taking my question. Curious if you can help me reconcile your public volume growth expectation with the strength in contract awards, and then just on the cost angle on your guidance, there’s…

…highways, we would expect mid-single digit…

I am sorry?

On highways, I think we expect mid-single-digit, we feel really comfortable with that and really because we’ve seen I’d say nine or ten large projects around the country kickoff that we thought were going to kick off in '17. In that -- that would just be the beginning of a ramp up and how we're spending as all these states mature, their DOTs to be able to facilitate that spending in the jobs, and as new money comes onboard. On the other infrastructure I think we call it flat to low single-digit. There's a lot of funding there, but the capital projects just haven't really kicked in yet.

Got you. And then just on the cost angle, where there's a number of one-time costs that were identified in 2017. Just curious how much of that you anticipate to be non-recurring in 2018 in the guidance?

John, why don’t you answer kind of what happened with the cost in 2017 and then I'll talk about plans.

I'll start. A quarter of the $20 million or so, Rohit, that we called out just to give you a feel for it, negative kind of product margin and pricing mix was about $5 million of that 20 that's largely related to patterns of shipments and mix of work around Houston and coastal areas in the southern Gulf Coast, a lot of that’s storm related, but don't expect that to repeat in the same way. Diesel was about a $4 million headwind in the quarter. Diesel cost may continue to rise, but that will really get passed through in price over time and ultimately is a good thing for our business long term. So, don't see the margin impact repeating in the same way, it’s really a timing issue. Some certain expenses tied to acquisitions we made in the year where we need to put some money in those operations. Again, don’t see that repeating, and that was about $3 million and then we had a number of transportation distribution related expenses that again don’t necessarily see repeating in the same way, that was about $8 million in total. Some of that is new ship transition, they're working through this year, some of that is barge inefficiencies that we should be able to work through. There were storm related, and then finally there was about $5 million of increased liability accruals related to some of our truck transportation activities, and again wouldn't see those recurring in the same way. So, to your question on guidance, for our Aggregates segment next year, our guidance would imply and I think we called this out double digit growth in unit margins in our Aggregates segment. Some of that is cost recovery. But I tell you it's really in line with stuff we've done before, we’ve done earlier in the recovery. If you were to look at the incrementals and kind of takeout Agg USA which distorts the incremental incrementals a little bit you'd see they're higher than the 60%. That reflects on a same-store basis, that reflects some cost recovery. But I think it's fair to say, our guidance and certainly the midpoint of our guidance doesn't reflect complete cost recovery of all the items we faced in 2017.

Yeah, I would add to that the diesel cost and the distribution cost while they’re out there -- they're a strategic advantage to us and that we’ll get them back in time with price but it widens our economic moat around our facilities. The other cost that John mentioned, they're real. I mean we experienced some that we had a tough time with weather and storms and things like that but those are unusual and timing issues are not trend issues, and our ability to convert incremental revenues to incremental gross profit hadn’t changed. But I do think that it did give us an opportunity internally to take those special cost and say, hey, look we got to be tough. We got comp over them any way and we've got our folks really focused on improving the operating efficiencies in spite of the one-time cost we saw and I would tell you they've done a nice job with that over the last few months in three ways. I think they really roll up their sleeves and addressed some problem plants that we have. I think we put the right talent in some of the most challenged areas. And I think our entire team has been acutely focused on improving throughput and downtime. Now, look, our people will deliver on this. I have confidence in that. They’ll always do and they will also execute on our, the discipline of continuous improvement of margins that you've seen us do year-after-year. So, going into 2018, I think from an operating perspective, got a good plan and we're executing.

Fantastic. The distribution cost you mentioned, is that internal distribution cost between your plants, your quarries and your yards or is that they are [both] [ph]?

Yeah. I think, it's a big chunk of that is, well, first of all, it's both. I would call out that the storm impact on the coast in Houston, specifically wouldn't allow us to fully load our ships to deliver, which is very expensive. There were a lot of problems on the Mississippi that were very expensive to us. So again, the one-time cost will get passed and the cost of diesel in that is a strategic advantage.

Got you. Thank you. I’ll pass it on.

We’ll move next to Kathryn Thompson from Thompson Research Group.

Hi. Thank you for taking my questions today. Just a follow-up on the guidance and pulling the string a little bit more. Implied in your EBITDA guidance for the year it is helpful outlining Aggregates USA, but could you also outline what was implied in terms of bolt-on acquisition contribution, and also certain storm related costs that would not be recurring assuming you have a normal year?

I’ll start, Kathryn, on bolt-on it's a little bit difficult to separate out perfectly some of those bolt-ons from the rest of the core business because they are kind of integrated within that, whether that's in the Bay Area or Nashville that you're very really familiar with. But to give you a rough number, I price a $20 million to $30 million, but take that as a rough number Kathryn because again it's a little bit hard to separate out from the rest of the core operation given that there's a pretty tightly integrated and the way we run those markets. I would say we're excited about those acquisitions and have great returns, they're performing well and show that we can deploy capital in some markets and downstream businesses in a smart way. On storm related costs, we wouldn't expect to repeat. Again, if you look at the quarter for example this $8 million of distribution related costs we really would not expect to repeat. We've got some work to do, our ships will be delivered in the second quarter or third quarter, that will drag on a little bit. We'll have some costs, we're still working through in the first quarter maybe a little bit into the second. And then when you look at diesel we see it trending up a little bit further in 2018, but again that's a timing issue, we expect to pass that through in pricing; it does happen with a lag as you know. But all this is you know very well it expands the economic mode around quarries and is actually net a positive thing for pricing and margins. Just a question of timing. So, I hope that answers your question a little bit, Kathryn. Again, I think it's fair to say that while our guidance and our outlook and our internal plans imply a return to the kind of flow-throughs and improved unit margins you've seen us deliver before, they don't necessarily imply full catch up on every headwind we faced in 2017.

Yeah. And just as an estimate once again knowing that this is a little bit, it's art and science past combined, would it be fair to say that the storm-related cost would be closer to a range perhaps similar to the bolt-on acquisitions? So maybe may be something in the – even in the 30-ish – $30 million type number that was a real impact to your 2017-only result results?

Yeah. Again recognizing, let's call it, there's some art in that, right, as you said. From my point of view, I don't think that's necessarily way off. And let me call it margin not just cost because the storms that impacted our Gulf Coast business so much and Kathryn you know this, it really impacted some of the most profitable aspects of our business. Particularly given the advantages that we have and shipping for Mexico and our service to that broad region. So, we really saw at a little bit at sales and in pricing and in sales mix and in distribution cost and in operating cost throughout a very profitable portion of our business. So, I don't think you're far off but I think it's a little easier to think of as margin impact as opposed to only cost impact because it hits – hit the business in a pretty broad way.

Yeah, I would add to that that, that if you look at our plan, you see us returning to that double-digit margin growth that John mentioned and much higher flow through. So, while diesel is going to be a headwind for a little while, so will distribution, actually that will end up being advantage to us as we catch up with that. So, I think feel very good about plan.

Okay. And just a clean-up question on the – on kind of the cost side is with the two big shifts that you're transitioning, you recognized the cost of those ships last year, but now you're transitioning now. Where do we currently stand in terms of when they will be fully operational, is it roughly coming online excluding weather impact?

We would expect one in the second quarter and one in the third quarter at this point.

Okay. And moving over to California, we had a chance to spend some time in Southern California market earlier this year. And we certainly can appreciate the tightness and supply of Aggregates in that market, but perhaps could you explore a little bit more about the rail advantage in the Southern California market and your view of the private construction market since you spent a bit of time on the public side? Thank you.

Yeah. I would just -- I’ll give you a couple of comments on California, first of all, the California is really healthy going into 2018, it's a market that we're really excited about for not just 2018, but 2019, 2020 and beyond. The private market continues to grow – residential is very healthy both in North and Southern California, non-res is solid, highways were actually coming off a low in 2017. And I think the state's going to regain its footing in 2018. We see big growth as you know and highways going into really into 2019, but really in to 2020. Our backlogs are improving on the highway side and actually, the infrastructure we're starting to see a little bit of growth on that how we have structured. It is a very, very constructive pricing environment in California. And that's really through our products, our customers’ products and the construction side of it. Demand for asphalt is growing and now we'll have to raise prices fairly quickly to get over a rapidly rising liquid costs, I think, and with all this, we're very happy with our acquisition in Northern California with Shamrock, and we're starting up a new quarry in Fresno, which is a big, big demand market for us, and these some we've been working on for 10 years. So, you can see why we're excited about California.

And given that the rail network is somewhat limited in Southern California, how much do you think that is an advantage for you or is that not necessarily – maybe help us frame that?

No. I'm sorry, I missed up part of the question. Rail movements in California are very difficult. Our position, we have the best reserve position in the largest markets for truck and as people run out of reserves in the truck market of L.A. and San Francisco, and San Diego, we're going to have to move out rail in. It will give us a marked advantage over the next few years.

Okay. Great. Thank you very much.

[Operator Instructions] We will move next to Garik Shmois from Longbow Research.

Hi. Thank you. Just wondering if you could provide a little bit more context around the synergies from Aggregates, let’s say, how much of the $50 million of EBITDA contribution 2018 does include synergies and how should we think about the ramp, the amounts and the timing over the next 12 months to 24 months?

Hey, Garik I'll start to suggest about synergies discussion and Tom could comment. The $50 million for this year has relatively little what we call synergy in it. There’s some overhead synergy will capture, little bit of cost synergy will capture, but a lot of this synergy we would say is yet to come. So, I think of that $50 million as a number we'd expect to be meaningfully higher in 2018 I'm sorry in 2019. And we're very pleased with the acquisition. You can tell just looking at a map that it fits very well with their business and this is one that's got a very broad set of synergies, they range from things that are operational to things that are logistically oriented reaching rail car utilization to things that are very commercially oriented, reaching new customers with a different level of service with a full mix of products, and as such they're very attractive synergies. I would say, a pretty good number over time. But it’ll take 18 to 24 months to fully capture them. So, to answer your question that $50 million is didn’t have a lot of synergy in it.

Yeah, I would add to that, that this acquisition as you know really expands our footprint and – and – and South and East Georgia a little bit in South Carolina, it really expands our service offering into Florida, given it’s granted for asphalt in Florida, it provides optionality of how we service our legacy rail yards and how we service the Agg USA railyards for both our existing quarries and once that requires a lot of optionality, that both in product quality how we optimize production and sale splits. So, this as John said, we’ll recognize those synergies really over the next 12 to 24 months. I think we’re very pleased with how the integration has gone. Well run businesses which this was -- have really talented people and we -- they’ve come on board, Vulcan making an positive impact immediately. And so that’s all going well as you know we talk a lot about the assets, but these are some really talented folks that we – that we came with this, so we’re pleased to welcome in our family. All of this complements our existing footprint and the new Ag USA markets, and you've got to remember this is -- this is of two of our fastest growing markets of Georgia and Florida. So far, it's going really well.

Okay, thank you. I wanted to shift over to just the comments on Illinois, Houston, they've been you know, softer markets for you in 2017 for two different reasons; that how you expect those two markets to play out in 2018? It sounds like Houston you’re poised for recovery, but any more granularity will be appreciated?

Yeah, I would call those very different. I think that Illinois is going to continue to struggle. I think the team in Illinois, well, in the face of really tough circumstances from the abandoned market, had been a really good job of executing to the best of their ability and their disciplines both on operations and their efforts on sales, and getting all, they can at what – what they've been offered. So tough -- just tough duty in Illinois with -- really with public spending. Houston I would tell you we're I think we've – we've made the turn it is you know been a tough place on top of tough economics just as we – we’re starting to come out of the sink in Houston we got slammed with hurricanes and storms, and just hurt everybody down there. But all-in-all, I think Houston is going to be fine. The highway demand in overall in Texas is very good, Houston including, res is starting from a really low base in Houston, but starting to pick up. Non-res in Houston we see is picking up also. From a pricing perspective all of Texas has held the climate. We had tough times with that – with Houston because as we talked a lot about the storm impact but I would tell you that I would expect to see price increases in Houston than actually in most of Texas in April. So, where it's- one, Illinois is going to continue to be tough, I think Houston has made the turn and will see a much better 2018.

Okay. Thank you. And then just last question just on the step-up in growth CapEx for the year assuming the Fresno project is included in that $350 million increase. Just wondering, John if you could provide some context around the payback and when we should start to see some of the volumes or when these projects should ramp up and start to be accretive to earnings? And I guess I'm wondering if this step-up in growth CapEx while we’re not talking about 2019 just yet should we expect to see maybe an elevated run rate in growth CapEx for the foreseeable future?

Yeah. I'll put it in the context of free cash flow for a second, Garik, that's okay, just to think about it in total. So, I just – I'd point out that our operating and maintenance CapEx is actually going to take a step down from about $300 million this year a little bit less than $300 million to about $250 million next year. That's not because of the growth side, it's just because we've been investing pretty heavily in our physical plant for the last two or three years. And so that's just our need, $250 million. So, our need for cooperating maintenance is CapEx is a bit lower in 2018 than it was in 2017. So that's one. Two, I would think of the growth capital as you know if it was M&A, we wouldn't be talking about it until it's finished, if we were just buying these quarries, instead of building these quarries. So, I would think a good chunk of that $350 million as if it were a transaction we were closing at the end of 2018. And some of that result you really won't see until 2019 because we're really building out some new quarries and that takes time. Now, I would underscore what Tom said as these new quarry developments have been some cases 10 plus years in the making. They're just coming to fruition now to your point of return, it's a very good time to do these things. The timing made sense for us when we look at our hand in Texas, look at our hand in California, and there are some other developments, new distribution points in places like Charleston. The market is such and the margins are such that the returns are attractive, and now is the right time to fully develop. So, excited about it, we're confident in it. In today's world those returns compare favorably to your average run-of-the-mill M&A returns. I don't expect that you will see necessarily the same level of elevated internal growth at CapEx moving forward Garik. Again, to a degree this is the timing of when these particular new quarry developments were coming to fruition. So, maybe elevated a little bit in 2019, I'm not saying over the $350 million there is more to do, but not elevated in any permanent sense.

Okay. Thank you. And best of luck.

Thank you.

We’ll move next to Phil Ng from Jefferies.

Hey, guys. The mid-single-digit price increase you guys have guided to. Is that the spice to offset inflation you're seeing? And when do you expect to kind of catch up on the diesel side and just given the backdrop where demand is, is there an opening to get a little more upside on the pricing side of things?

If you go into 2018 from what we see, we actually see the pricing climate improving. And one thing I do know is our philosophy on pricing that we've executed over the last five years has not changed, put some color on 2018 for you, we would expect pricing to build throughout the year for the two normal reasons that we talk about we want different markets, we’ll have different timing for fixed plant price increases, we'll see some – and we've seen some in January, we’ll actually see some and in February, we'll see some in April and you'll see some in mid-year. And then the second reason is remember bid work which we are doing everyday all day is a long steady campaign and will build throughout the year. I would tell you that the pricing discussions that we've had with customers in the fourth quarter in January have been very good. Their confidence in the market is as good as not better than ours, they see its improving. They can see visibility, the continued visibility on the private side, what you’re going to really see is its reinforced now by the public side in the DOTs. If I were to highlight a few areas, it would be – then you would be surprised whether it’d be down the coast Virginia through the Carolinas, Florida and Georgia will be strong, Tennessee will be good, as I talked about earlier, I think we'll think that Texas in April will start kicking in and California would be really high on our list. So, our pricing discipline continue to be successful. If you look back five years, our prices have gone up 25% and from – with the public side kicking in the environments only stronger and I have confidence we’ll execute on our pricing plans in the different markets.

Okay.

And I think you mentioned inflation, you mentioned inflation, there is a couple of quick comments, I'd encourage you to just kind of keep in mind that our Aggregates centric business doesn't have the same kind of inflationary exposure that people might be worried about with other industrials. Keeping my way on our main input the quarries, the rock think about the long-term pricing history of the industry, think about pricing climate that's actually improving, and where things like diesel cost rise has actually improved the pricing climate and the competitive dynamics at a local level because they expand the economic motor under quarry. Yes, there's a set of timing issues around that but we don't – as I say, inflation is not a big concern to us right now. Let's put it that way.

Okay. That's helpful. And I think that, John you might have teased this in your prepared remarks about appreciating the cadence of 1Q just because seasonally it's been one the last two years. How should we think about the EBITDA contribution over the quarters throughout the year and then some of the incremental dynamics as well just because you had some one-offs last year that should reverse in the back half?

Yeah. Yeah, I think this is an important point. We just want to remind people, it's not a surprise but there's nothing new here just a reminder that Q1 has been stronger on the volume side for the last two or three years in total. And there’s been a higher proportion of annual volumes and that would typically be if you look at longer term seasonality patterns. So certainly, the comps, if you will, are harder in Q1 and should get easier in Q2 and Q3 and Q4. Those from a volume side and from a cost side, and as Tom said, we'd expect some pricing to be building throughout the year just given the normal cadence and in the way, it works in the Aggregates business. I don't want to give you kind of a spread of the EBITDA throughout the year because it's very difficult and particularly in Q1 a lot of it comes down to a couple weeks in March. I almost just think it could be misleading, but I do think it's worth calling out Q1 to more difficult comp just given the patterns over the last few years and then certainly, the comps got a bit easier through the rest of the year.

Okay. That’s really helpful. And just one last one for me. Just based on some of the timing of these state level initiatives which is obviously, quite positive and as stats kicks in, is this low single-digit growth on public spending a good way to think about the growth trajectory in 1920 or could we see some acceleration? Thanks.

I think, first of all, I would call that mid-single digit growth in highways be on – they will build and we talk a lot about this. There will be a layering effect both within states as they bring work on and as the DOTs mature to be able handle work. They're not just going wait to finish one job where they start another one and then, on top of with interstate, you'll see state-on-state bills. So, places like Texas or Florida or North Carolina where the money is already mature and they're spinning it and then they are shipping it, you're going to see Georgia layer on top of that. After two years, they're starting their jobs and then, you'll follow up with California -- in a couple of years you'll follow up with California, Tennessee, and South Carolina which will also start to ramp up and layer on top of it. So, while it's – highway is mid-single-digit this year, I would expect it to ramp up in 2019, 2020, 2021 roughly for the next five years.

Okay. Very helpful. Thanks.

We'll move next to Adam Thalhimer from Thompson Davis.

Good morning.

Hey, good morning guys. Thanks for taking the questions. On the Shamrock acquisition, can you talk a little about your experience with that asset thus far and then, also kind of specifically your outlook for the Bay Area?

Yeah, so, well, first of all I would tell you must like my comments about Ag USA, that was a very well – very well-run business. And the management team that we got with Shamrock is very talented, and it's been a really good marriage with our folks and how much and how they've integrated so quickly not just the business, but also the management teams. So, we're thrilled that they're on board with us. That acquisition has performed both the aggregate distribution and Ramus Concrete have performed superior to our original plan. It is integrated very, very well. We see good growth in that area on the private side as we talked about both res and non-res, highways not so much probably for another couple of years, but it's -- so the market has performed very well. We expect it to continue to perform very well and actually kick in even more in a couple of years when the public side starts up. But you know I'm very proud of the team in California and in the Shamrock team.

Okay. Thanks for that. And then lastly, what are your high-level thoughts on industry M&A this year? Do you think it could be as active as it was last year?

It is active, and we've got M&A going on. You know, we’re always working on those things. You know I go back to for all this it's about discipline and we say this all the time, but it's about what are you going to buy and what market you’re going to buy it in. Does it fit us? So what synergies are unique to us, and how we – and then what are you going to pay for it, and you know don't overpay. And then once you get it, you really got to work hard to integrate it and get it tucked in as fast as possible.

One thing we point out that we talked about internally, it's possible that tax reform having passed and is being done and behind this is, you’re not going to shake some things loose, if you will, in terms of opportunities set. But at the same time, it really raises our need for discipline, because if you're not really careful the benefits of lower taxes just get very competed away in the M&A market. So, you've got to really, really be extra disciplined. You know we talk here about lower taxes can make a really good deal, a great deal, but they don't make a bad deal or good deal. So, we think a lot about that. I would say it's a little bit different on taxes in our core business and some might ask about inflation, so I just want to mention this, but you know our after-tax cash flow in 2018 we think is about a $100 million higher than it would have been under the previous tax regime. And given the nature of Aggregates focused business and the pricing dynamics over time and the focus on the returns on capital, difficulty of new entry we’d actually don’t expect that to get completed way in our industry, you know not at all. So, internally but lot more excess cash we have and the M&A environment we need to be if anything disciplined.

Okay. Great color. Thanks, guys.

We’ll move next to Jerry Revich from Goldman Sachs.

Good morning, Jerry.

Hi. Good morning, guys. I’m wondering if you could talk about on the organic quarry development, how much reserves are you adding or how much of your reserve position will become effectively addressable as a result of the investments? And can you talk about over what timeframe do you expect capacity utilization in the new facilities to ramp up towards the levels in the new facilities to ramp up towards the levels you see across your existing footprint.

Kind of combined because I won't call out individuals. I'd tell you it's over 300 million tons. And I would expect those projects to take 18, 24 months before we're operating them. Now, remember these are markets that we’re already in, it’s to build out our hand. And but it's going to take some time not only to start and remember these are both serving big, big growth markets. And there too – the design of this is to make – is to grow into that demand and to capture that demand which other folks would, can't capture. It's just not, the capacity is not there. So as John mentioned, both of these projects the one in Texas and California have taken over a decade and it just takes that much time I think our folks have done a great job working with the local communities to make sure we got those permits and have permission to operate. And we'll build them out and tuck them in like we would an acquisition, integrate them into the rest of our network.

Okay. That's helpful. And then on Aggregates USA on prior transactions that you folks have targeted, synergies equivalent to 25% to 50% of standalone, EBITDA I'm wondering if you can comment on how you see Aggregates USA is stacking up relative to that historical target you folks have had?

Jerry, I’ll start and I’ll repeat things we've already said about Aggregates USA. I think – but I’m not going to give you a specific number just because I don't want to confuse guidance which is the $50 million this year. Very broad range of synergies, and what we kept probably toward the higher end of synergy mix of deals we've done. But because of the breadth of this synergies and the nature of those synergies being not just overhead, not just operational costs improvement, not just logistics, not just commercial opportunities, but all of those. I think it will take a little bit longer to capture. But certainly, very exciting and as you can imagine, we're happy with that deployment of capital.

Yeah, I would add if you just look at the slide, the map that shows the overlay of our existing operations and new rail network in South Carolina, Georgia and Florida, and then what we overlay with them it is this is – this one that has rich with synergies just because you can mix and match so easily, both what quarries we shift from in to their railyards and vice versa, and how you match all that up, how you marry those markets because we had some gaps and they filled in the gaps for us, and the new product offering into Florida. So, as John said, this is one that is particularly rich with synergies and that, that will take some time to mature, and our – but our folks are all over it and working on it. And as I said earlier, the team we got is not stagnant. They understand how to put all that together and so it's been – it's been a fun integration to watch them succeed and that it will be fun to watch over the next year or 18 months.

Jerry we may also you've looked at this I know as have others but it's also just really well positioned against some of the specific things like the Georgia DLT plans to do, which will be happening over a period of years, where that’s intermodal project developments have rose out of making et cetera, et cetera. So, it's really good positioning. And that's not an 2018 issue or even a 2019 issue, but it's a really attractive aspect of the transaction and not – I'd say not accidental.

Okay. And then lastly slide 6 is a helpful layout. So obviously the past two years have been pretty tough for everybody. When you folks say that first quarter faces tough comps, are you trying to condition the market to year-over-year volume decline in the first quarter, and I guess the reason behind the question is it feels like the backlog on the highway side has been building for about a year-and-a-half. And so, if the first quarter is indeed down for the industry I guess how do we get conviction that it to reaccelerate in the construction season?

Let me be clear, the demand is there. As you saw in the fourth quarter, where our volumes were down a little bit in October, the sun came out, it was dry and November-December and we had double-digit volume growth. So, the demand is there. That is a combination of core demand on the private side, it is the new DOT work kicking in. There's some delayed work there. So, it's a combination. So, as you look at the first quarter let's be real clear about this, the demand is there. This is about being – this is about days to ship in the first quarter which is always dicey. If you look back at 2016 and particularly 2016 and then again not quite as good in 2017, we had a very good first quarter weather. So, when we talk about comps as we always say the first quarter is always dicey because you don't know if it's going to be 60 degrees or 22 degrees. Is it going to be snowing or is it going to be sunshine and so? But the underlying demand is there and I think November and December is really good evidence of that.

Just to pick up and that will be clear we're not trying to suggest specifically that volume in the first quarter will be lower than the prior year. We're simply trying to remind everyone that it is a tougher comp, but it would be inappropriate for us to try and even give any kind of specific Q1 guidance just because it's so dependent on whether in March, anyway. So, it's both a tough – tougher comp and more uncertain. I take Tom's points as the key things which is the work is there to be done.

I appreciate the color. Thank you.

Sure.

We'll hear next from Stanley Elliott from Stifel.

Good morning.

Good morning, guys. Thank you for taking my question. Quick question with all the moving parts and as we’re thinking about double digit unit margin growth for the year. Is it fair to assume that the incrementals in the first half of the year are going to be maybe a little bit softer and we're looking at a big ramp in the second half of the year in terms of allowing price to catch up allowing some of the easier comparisons? I hate to kind of get to that level of granularity, but it's just kind of a different set up than we've had in the past?

I'll start and I'm sure John will have some to add this, but as we said and we talked about pricing that it would it would accelerate through the year for the normal reasons of timing of pricing in different markets and then the pricing as a campaign particularly with bid work. So, we would expect normally for price to go build the year. Again, the comps in the first quarter are going to be tougher, they get a little easier with what we saw in wet weather in the second and third. I think that when it comes to operations and discipline, I think we're – we're kicking in and that will also improve obviously that improves with weather also. I mean it’s easier to operate in in June and July and August than it is in January and February particularly if you're in some place like Illinois or Virginia. So, for those reasons and I don't think anything is out of the ordinary there. And we've mentioned what – the first quarter stuff, that's how we would see the year shaping up. I don't have a whole lot to add to that other than to just keep in mind we're – as an industry coming out of a period of sluggish shimmer growth into -- into a sustained period of returning to growth. And with that shift, I think you're going to see some normal tick up of pricing and kind of build throughout the year. You’re going to see a little bit better operating leverage throughout the year. So, I think it's really kind of as you'd expect probably.

Yeah. That’s fair. And then with the change in the tax code and kind of the – the new improved free cash flow for you all, does it change how you think about debt levels near-term for -- should an acquisition pop up or anything along those lines, just given this kind of a more of a structural change to the -- to the operations.

I think the short answer is, no. And that we are sustaining commitment to investment grade. We need the way the agencies work, we need to keep an eye on debt to total EBITDA, but I also then would say that from an overall financial value and flexibility point of view it does give us more flexibility and it just gives us more of our own operating cash flow from which to fund investments. Adding a $100 million of cash flow is not an insignificant thing. And in the 2018 year, we're going to get another $170 million of cash from tax refunds and tax rebates that are also tied to tax reform. It's a one-time thing, but it's – it’s more than a $1 a share, it’s not an insignificant amount of money. So, it certainly gives us more flexibility. It certainly makes us more valuable It certainly makes the transactions like Aggregates USA that we did under the assumption of a higher tax rate much more valuable. But it does not change our core priorities or our position on the balance sheet or our view that what we want to do is maintain flexibility through all parts of the cycle. So, it really doesn't change our priorities or our policies. It just gives us much stronger free cash flow profile.

Yep. Yeah. Understood. Thanks, guys and best of luck.

Thank you.

That does conclude the question-and-answer portion of today's conference. I would like to turn the conference back over to Tom Hill for any additional or concluding remarks.

Well, thank you all of you for your interest in Vulcan Materials. We look forward to what is shaping up to be a very exciting 2018 and we look forward to updating you on our progress. Thank you very much.

That does conclude today's teleconference. We thank you all for your participation.