Mark D. Warren - Director-Investor Relations J. Thomas Hill - President, Chief Executive Officer & Director John R. McPherson - Executive Vice President, Chief Financial & Strategy Officer.

Ted Grace - Susquehanna Financial Group LLLP Kathryn Ingram Thompson - Thompson Research Group LLC Garik S. Shmois - Longbow Research LLC Trey H. Grooms - Stephens, Inc. Keith Hughes - SunTrust Robinson Humphrey, Inc. Robert Wetenhall - RBC Capital Markets LLC Laymon Todd Vencil - CRT Capital Group LLC Stanley Elliott - Stifel, Nicolaus & Co., Inc.

Adam Robert Thalhimer - BB&T Capital Markets.

Welcome to the Vulcan Materials Company Third Quarter Earnings Call. My name is Tabitha and I'll be your conference call coordinator today. 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, Mr. Mark Warren, Director of Investor Relations for Vulcan Materials. Mr. Warren, you may begin..

Thank you, Tabitha. Good morning, everyone, and thank you for your interest in Vulcan Materials. Joining me today for this call are Tom Hill, President and CEO; and John McPherson, Executive Vice President, Chief Financial and Strategy Officer.

Please note a slide presentation will accompany the prepared remarks by management and is available via the webcast. A copy of this presentation as well as a replay of the conference call will be available following the conclusion of this call at the company's website.

Before we begin with actual results and projections, I refer you to slide two of our presentation regarding forward-looking statements, which are subject to risks and uncertainties. Descriptions of these are detailed in our most recent report on Form 10-K. In addition, during this call, management will refer to certain non-GAAP financial measures.

You will find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures and other related information in our earnings release and at the end of this presentation. Now, I'd like to turn the call over to Vulcan's Chief Executive Officer, Tom Hill.

Tom?.

Thank you, Mark, and thank all of you for joining us today for our third quarter earnings call. At Vulcan, we posted another strong quarter, and we remain on track to have a very good year. Our solid performance, continued revenue growth and margin expansion are a direct result of the great efforts of our people.

Today, you're going to hear about steady recovery, solid price improvement and about our sharp focus on the things we can control. Now, we won't be giving guidance for 2016 in today's call, but as we begin our planning cycle for the next year, our fundamental trajectory remains intact.

We continue to experience a gradual, steady recovery in demand and shipments, although the details, of course, vary from market to market. We also continue to see a positive pricing climate with appropriate increases either announced or planned for next year.

We remain well positioned to convert incremental revenues into incremental gross profit at an impressive click. We're excited about the opportunities ahead. Our people know that they must remain highly focused on margin improvement and continue to drive ongoing improvements in our business. We're focused on capitalizing on our momentum.

Our people are engaged and entrepreneurial and they are sharing best practices across the organization. They know that they are empowered to serve our customers and keep making our company more profitable and better in every way.

We also, all of us, remain highly focused on safe operations protecting the health and safety of our employees at all times. Now to company specifics. The recovery in construction activity continued across most of our markets. As we will show you, the metrics are certainly trending in the right direction.

While demand is recovering gradually to more normal levels, we've enjoyed sustained margin expansion and we continue to grow our profitability in a disciplined manner. As construction activity and materials demand continue to pick up, we're also seeing improving confidence in pricing. Now, we've had some cost increases during the last two quarters.

Even though some of this is expected given volume growth, we are very focused on continually improving our operating performance. These efforts began to pay off in September, when we saw marked improvements in our costs. We are going to stay very focused on this.

Our employees are doing a really good job turning incremental revenues into incremental profits. And let me add, we see these trends continuing. We are heading into 2016 with the wind at our back. That said, we are totally focused on finishing this year strong. Now, let's talk about the third quarter. Demand continued to recover gradually in the quarter.

Our results demonstrated the earnings leverage in our business model. With improving market conditions and our focus on profit improvements, both pricing and margins continued to expand. As you can see on slide four, a 19% increase in total revenues converted to a 39% increase in gross profit.

This also drove a 47% increase in adjusted EBIT, and a 31% increase in adjusted EBITDA. Our diluted earnings per share from continuing operations increased 82%. Adjusted earnings per share from continuing operations were $0.95 per diluted share and an increase of $0.41 from the prior year.

Gross profit margins increased by 490 basis points and were supported by pricing momentum. We enjoyed strong earnings growth in Aggregates as well as in our Asphalt and Concrete segments. We continue to manage and leverage SAG. SAG costs did increase in absolute terms. Here, one-time items offset lower head count related costs.

What's important is as a percent of sales, SAG is trending towards 8% for the year, down about 1% from the prior year. All in all, I am very pleased with our peoples' performance, whether measured by margin percentage or per unit profit, our profitability continue to improve very significantly. Now, let's take a look at our shipments across the U.S.

The map on slide five shows a breakdown of our growth in shipments of Aggregates on a same-store basis across the country. In the quarter, we saw solid demand growth, even though many customers faced bottlenecks impeding shipments.

It's important to recognize what a good job our local teams are doing working with our customers to meet rising demand effectively and efficiently. Momentum continued with solid growth in key states; shipments in Arizona, California, Florida, Georgia, South Carolina, Texas and Louisiana each grew by 10% or more.

In contrast to the majority of our markets which were up, Illinois was down about 10%. This was due to significant large project work completed in 2014. Now at the same time, California saw healthy growth in the third quarter as major projects kicked off after being delayed in the first half of the year.

I'd like to turn your attention to slide six, which shows our year-over-year growth in shipments. As you can see, this is very similar pattern to the last slide, with solid year-to-date growth in Aggregates shipments of 10% in total or 7% on a same-store basis. Both our East and West Coast markets continued to enjoy healthy growth as did Texas.

Shipments in the Gulf Coast markets were also strong, with the exception of the central Gulf Coast region. Turning to slide seven, you can see that our pricing continues to strengthen, and for the quarter, it improved in line with our expectations, up 8% over the prior year's quarter.

In a number of markets, we saw year-over-year freight adjusted price improvements in excess of 10%. These increases were fairly broad-based and occurred across all product types. And in more than half of our markets, we had price increases, ranging from $0.60 to $1.20 per ton.

For the quarter, we didn't see this level of price increases in Virginia, South Carolina and Arizona because we had much larger shipments of base material and fines on new construction and large projects. As discussed before, volume in base and fines can detract from price, but it improves overall profitability.

Let me emphasize the fact that pricing momentum will continue for us. There are three primary reasons that the pricing climate should remain positive. One, customer confidence continues to improve. Two, increasing demand builds backlogs. And third, construction related businesses are increasingly focused on earning adequate returns.

Effective pricing performance remains a key focus for our management teams across our footprint. We are focused on delivering value to customers, while earning a good return on the significant investments that we make on their behalf.

This ties directly to providing excellent service to our customers – the right product, the right quality, the right time and being paid the right price for superior service and value. Now, we've talked a lot on past calls about the three profit drivers that are expanding our margins and profits. That's because it's important.

As a reminder, the three profit drivers are sales and production mix, price and operating efficiencies. We call these the three circles. As you can see on slide eight, our third quarter and trailing 12 month, gross profit per ton increased 23% and 25%, respectively.

So in the quarter on a same-store basis, price was up $0.86 per ton and gross profit margin was up $0.90 per ton. Our sales and operations people are doing a superior job turning demand growth into higher profitability. Our local teams continued to do an outstanding job managing the combination of price, operating efficiencies, volume and product mix.

This is something we will stay focused on every day. With respect to the three circles, we've talked about the positive pricing environment and we've talked about new construction improving the impact of product mix on profitability. Regarding the third circle, operating efficiencies and leverage.

We continue to emphasize production planning and operating efficiencies across the business. Despite improvements in unit profitability and same-store costs, we have seen some areas of rising costs. As I mentioned, I'm not satisfied with this and neither are our people.

Still, we've seen some costs rise; about two-thirds of these increases resulted from geographic mix and fringe benefits often outside our control. In addition, during the last two quarters, we have begun to see a trend of rising repair and maintenance and labor costs in some areas. Even though this isn't surprising, we are not going to accept it.

Growing volumes are requiring us to run operations longer, resulting in more repairs and higher than budgeted spending on parts and supplies. And labor costs in some areas were up in the first eight months of the year. We saw costs go up, we focused on them, and we realized improvements in September.

We will continue to manage these costs very carefully. Let's turn to slide nine. Our employees can be very proud of this chart. It clearly shows that our people are highly focused on continuous improvement and quality of earnings. We're excited about the ongoing very positive trend in unit margin expansion.

We have now seen nine consecutive quarters of expanding unit margin and we'll continue to post improvements. Since our volumes began to grow in the second half of 2013, our gross profit per ton has increased sharply. We are now seeing the additional benefits of strong and ongoing improvement in pricing.

Our unit profitability is higher than when these operations were producing twice the volume. Again, I would expect this trend to continue into 2016. Slide 10 shows our incremental margin performance in the Aggregates segment. This underpins the margin improvement you saw on the previous slide.

Our incremental gross profit margin for the third quarter was 72%, excluding the impact of acquisitions completed during 2014. Aggregates gross profit grew by $60 million on incremental freight adjusted revenues of $83 million.

Including the impact of acquisitions, the incremental margin was 65% with a gross margin on those revenues impacted mainly by higher costs at acquired operations as we bring them up to our standards and by higher costs for repair and maintenance.

Now, since quarterly figures can be distorted by seasonality or one-time costs, we also present the same metric calculated on a trailing 12-month basis. For this time period, incremental gross profit margin was 73%. Aggregates gross profit increased approximately $177 million on incremental revenues of $242 million, adjusted for the same acquisitions.

On a trailing 12-months basis, the flow through rate was consistently – has consistently exceeded the company's stated goal of 60% since volumes began to recover in the second half of 2013.

Given our strategic focus on the Aggregates business, our ability to take that revenue to the bottom line is a big advantage to Vulcan as volumes continue to recover. With that, I'll turn the call over to John for additional comments on our earnings performance and outlook for the remainder of the year.

John?.

Thanks, Tom. I'll begin with slide 11, and as we did last quarter, use it to recap many of the trends Tom just reviewed. On this slide, we highlight the improved profitability of our Aggregates segment, both in total gross profit dollars and on a per ton basis, since the recovery in volumes began in the second half of 2013.

On the left hand side of the chart, you see that for the trailing 12 months just ended, we shipped 175 million tons, 35 million tons more than for the trailing 12 months ending in the second quarter of 2013, just before the recovery began.

Now, looking to the right hand side of the chart, you see that Aggregates segment gross profit for the 12 months just ended was $682 million or $324 million ahead of the 12 months before the recovery began.

So, on 35 million of incremental Aggregates' tons shipped so far in the recovery, we've delivered $324 million in incremental segment gross profit. Gross profit per ton has increased $1.35 or 53%, and a 25% increase in shipments has been converted into a 90% increase in segment gross profit.

These facts, we believe, illustrate the impact of the continuous, compounding performance improvements you heard Tom reference, and that in many ways characterize our current Aggregates centric strategy and execution focus. Now turning to slide 12, which shows the solid performance of our Asphalt and Concrete businesses for the third quarter.

Segment gross profit and unit profitability in each of these segments increased significantly versus the prior year, and year-to-date the gross profit from these businesses has exceeded plan.

Asphalt gross profit for the quarter was $30 million, a year-over-year improvement of $15 million driven by improving same-store volumes, strong cost disciplines and margin management, as well as the impact of acquired operations.

As a reminder, our acquisition and swap activities have added 19 Asphalt plants to our portfolio since the second half of last year. On a the same-store basis, Asphalt volumes grew 20%, in part due to work deferred from the first half of the year, and Asphalt gross profit grew $11 million.

Vulcan is among the five largest producers of asphalt in the country and these operations complement our Aggregates operations very well. Third quarter Concrete gross profit was approximately $10 million compared to $5 million in the prior quarter – in the prior year.

Margins in this business segment have benefited from divestitures and other actions to focus our portfolio. The operations we have divested lost $2 million at the gross profit line in the prior year quarter. On a same-store basis, Concrete volumes were flat versus the prior year and gross profit improved by $3 million.

I'll now wrap up with slide 13 and a recap of our full year 2015 outlook, before handing the call back to Tom for some closing remarks.

In short, our outlook for the full year remains largely consistent with that presented in our second quarter call, and we are reaffirming our expectations for full year adjusted EBITDA in the range of $775 million to $825 million.

As usual, we note that weather patterns can impact results in the fourth quarter significantly, particularly if they shorten the total construction season. But, and as you've seen earlier in this call, the business is performing well and it is performing as expected. Now, ticking through a few of the individual drivers.

We currently expect full year volumes of approximately $177 million tons, up 9% year-on-year in total and 7% on a same-store basis. As noted earlier, we see the gradual recovery and demand continuing across most of our markets.

However, capacity constraints at various points in the construction chain – for example, the availability of skilled construction labor in certain markets – have made it difficult for many of our customers to catch up fully on work deferred due to rain in the first half of the year.

And the continued uncertainty regarding federal highway legislation has begun to impact timing of certain road projects on the margin. With respect to pricing, we expect the currently positive environment to persist. And we currently expect to finish 2015 with a year-on-year increase in average freight adjusted selling prices of approximately 7%.

As we'd indicated, pricing momentum in the second half of the year has been stronger than in the first half of the year. Our Asphalt and Concrete segments have performed ahead of plan, both on a same-store basis and as a result of moves we've made to strengthen our portfolio.

These segments should generate full-year gross profit of approximately $95 million. But again, please note that fourth quarter weather patterns can significantly impact actual results. SAG remains roughly in line with plan and declining as a percent of sales. Importantly, direct salary and wage costs for SAG head count have remained flat this year.

And we do not expect the rise in the pension and other post-retirement benefit costs that we've had this year to reoccur next year. Core capital spending, excluding dollars committed to the purchase of new ships to service our Yucatán quarry, remains in line with plan.

As noted in our earnings release, we may elect to pull some spending forward from 2016 in order to capitalize on certain procurement opportunities. As has been our practice, we plan to issue guidance for our 2016 year during our February earnings call.

And certainly a number of the things can change between now and then, including federal highway legislation which Tom will touch on in a moment. But as we sit here in early November, we see volume and pricing trends similar to those we've seen year-to-date continuing through the fourth quarter and into next year.

And we, of course, remained intently focused on converting that top line revenue growth into cash flow and earnings growth, to the very best of our ability. As Tom, said at the beginning of the call our basic trajectory remains intact. Tom, back to you..

Thanks, John. Our employees are working hard to ensure our strong performance, continue revenue growth and margin expansion. I can't say enough good things about our people. They never quit, always try to do things better and have enormous pride in what they do; and I see this every day. Our priority is continuous improvement.

We're going to stay very focused on the things that we can control – on keeping our people safe, on customer service, on controlling cost and on price. We'll get fair value for the major investments we make in this business. I can tell you, it's all about creating value for our customers and our company.

Now, before I conclude, I'd like to say a few things about the highway bill. I reported in our last call about the significant progress in Washington towards a new bill. The Senate, with great leadership, did its job when it passed a new six-year bill, the DRIVE Act, on July 30.

The House transportation and infrastructure committee marked up its version of the highway bill two weeks ago. Congressional leaders believe it may be possible to compress the two bills and pass the final highway bill before the end of November.

We are encouraged by the bipartisan progress that is occurring in Congress to address America's infrastructure challenges. We have been very engaged in efforts to encourage Congress to step up to this challenge.

A new multi-year highway bill will be a step in the right direction and our nation's leaders will need to take additional big steps in the years to come. This is important for our country, our industry and for Vulcan. In closing, I truly appreciate your interest in Vulcan Materials Company.

Looking forward to the rest of 2015 and into 2016, I want you to know that we are very energized and engaged. We are focused on the fundamentals, on finding new ways to grow our company and its profitability every day. Now, if the operator will give the required instructions, we will be happy to respond to your questions..

Your first question will come from the line of Ted Grace of Susquehanna..

Thank you, gentlemen..

Hi, Ted..

Hey, Tom, I hate to lead off on a question on 2016 given your opening comments.

And so, I won't ask specifically for guidance, but just as it relates to maybe the slope of that trajectory heading into next year, it seems like depending on whether 4Q probably comes in a little bit below plan given some of the commentary; obviously one of your large peers gave some guidance that people are interpreting as off-trend growth.

And so, I'm just wondering if you could give any kind of hand holding, whether it's market related expectations on how people should think about that slope.

I know John just said basic trajectory intact, but any way you could kind of frame out, anything would be helpful, if we could start there?.

Let me start with demand. We're seeing demand growth in all of our major markets – the vast majority of them – and in the market segments. More than half of our markets in the third quarter saw double-digit growth, a little bit of lagging as we talked about with Alabama, Mississippi, kind of the center of the country.

But overall, we continue to see healthy demand growth, whether that's across geographies or market segments. So, we don't see anything that would give us pause for slowdown, whether in the fourth quarter or afterwards. Now, if you look at – on the same thing on price – we continue to see very healthy climate for price increases.

That's built by customer confidence and by rising demand..

Okay, that's super helpful. And then maybe if I can just quickly tuck one in on costs. I know you talked about being somewhat above expectations in the last couple of quarters. You mentioned some of the factors in the third quarter, including more recently, labor and R&M ticking up, taking some proactive action to address that.

Just when we think about the normal framework of incrementals you've talked about, is there any tweaking we should think about in kind of the next one or two years that could affect that to any meaningful degree or is that still kind of a useful framework as we think about just normalized flow through rates?.

Ted, I don't see anything that would change the fundamentals of our earnings leverage or our trajectory – just – it's not there. And I'll address the third quarter; our costs in the third quarter year-over-year on a same-store basis were down about a nickel. Built in that was diesel was down about $0.23.

The increase occurred in fringes and geographic mix was about two-thirds of it, which geographic mix is usually remote distribution network or higher cost markets. That will always – fixes itself – so that will come back around. The fringes are one-time or won't last. The other piece of that was R&M, which is natural for this time of the cycle.

And then in some areas, we had labor costs that some – that were up in the second quarter and the third quarter – we recognized those. I think our folks did a good job of addressing those and we saw marked improvement in cost overall in September. So it's – what's important here is that we focus on the things that we can control.

It's imperative that we always try to improve that. And it's that compounding effort of every day in every quarry of making it better and compounding those earnings..

So, Ted, I think if you just checked through each of those three big drivers of costs, none of them are really structural in our view. One is geographic mix, shipping from higher cost locations or markets, and frankly, that comes typically with higher priced and higher margin markets as well.

So, that as Tom said, correct itself and that's not a bad thing. On fringes and those employee benefit related cost, most of that, including the pension accounting issues, we don't see repeating next year and we'll correct for.

And then, I think, Tom gave you a clear explanation for how we've addressed to some degree already, some of the somewhat temporary headwinds we think we've seen in repair and maintenance cost and labor cost..

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

Good morning, Kathryn..

Good morning. Thank you for taking my questions today. I think that you helped to answer some of the questions I had about the higher costs, which were more one-time in nature versus embedded cost on a go forward basis. Just to clean up that question that you had – the answer that you were just giving in the previous queue.

How far along are you in terms of resolving some of those costs that – I know you said you made progress in September – but is this something realistically it will be more of a Q1 before you really kind of fully cleaned up? Or will there just be some residual, particularly from a geographic mix, that we see lingering in Q4?.

Let me give you an example of labor. I think we got ahead of ourselves in a few markets on labor, where we thought volume's going to come back faster than it did. We hired too many people and actually we had to go correct it when we saw it wasn't going to happen.

We also – we're running in a number of the places – we're running, say, four plants with two crews and we've made some structural scheduling mistakes there, which we corrected. So a lot of this, I think, we've taken really good steps to recognize the problems, why we have good metrics and our folks look at it really hard and they've corrected it.

And then as far as the geographic mix that will come and go, I don't see anything structural to that. You'll get that back actually..

Okay, super. Thank you. And then, if you could – I know that the year ago quarter you made quite a few acquisitions.

Could you once again just break out, how much the contribution from the quarter were – in terms of revenue and earnings contribution – were from the acquired assets versus just core growth?.

Yeah, the adjusted EBITDA for the acquisitions in the quarter was in the range of $13 million. I think overall, our acquisitions' performing well. We're pleased with the assets and the personnel that we added at Vulcan. I think – I'm very happy with the job – the integration job that our folks did in getting those tucked in and going.

We're pleased with how it fits into our network. So overall, we're very pleased with the acquisitions and like what we've got..

And Kathryn, we can break out for you revenue or gross profit contribution by segment of the acquisitions offline, if you like..

Okay..

I think in total, we're probably trending toward – I think we'd said $40 million to $50 million of EBITDA at the beginning of the year – we're probably trending toward the low end of that range full-year.

Still, very satisfied with performance, but as we've noted, we've had some increased investments to better manage some mine plans and improve production capacity of certain product types in some of the acquired facilities.

And that explains some amount – that explains part of why we're at the lower of that range – but that's basically where we're tracking, around $40 million, but not towards $50 million..

Perfect. And then my final question is around Aggregate pricing. You've seen some accelerating in pricing as the year's progressed and really actually from prior year and carrying into Q3.

Twofold question, are there certain markets we're seeing greater pricing leverage? And then two, we've just received anecdotal feedback from the field that, particularly in the Southeast, you have – I don't want to say changed your pricing structurally – but are certainly being more proactive in terms of gating pricing equally across all of your main product segments being base, fines and clean stone.

Maybe if you could flesh that – either confirm or flesh out that feedback that we've been getting in the field. Thank you..

Yeah. I think that the pricing trends we see right now are very positive and very predictable, with the pricing following the volume. I think what the good news is what we are seeing going at the end of 2015 and going into 2016 is a very healthy pricing environment.

We've got steady rising demand in the vast majority of our markets; that's driving customer and construction industry confidence, which is always a good thing for pricing. But, one of the things we always have to remember is pricing is a campaign; it's something you do every day.

It's thousands of price decisions every week, and it's also about the compounding improvements over time of not just pricing, but margin expansion.

So, our employees are striving hard to improve the value for our customers, and I think that if you step back and look at it, the environment that we're in right now and that we close into 2016 is very healthy for pricing improvements..

Great. Thank you very much..

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

Thank you. I just want to touch on demand and maybe if you could speak to any change in trends with respect to the demand segments, whether it's infrastructure, non-res or residential.

I know you've commented that you're seeing steady progression on volumes, but has there been any, whether it's change in bidding or acceleration or deceleration, in any of these segments?.

Yeah, I think that, as I said earlier, we're seeing good demand growth across all segments. Now, in the non-res piece, like you, we see the leading indicators. And we've seen them dip a little bit, but on the ground, whether it comes to shipments or bidding projects, we have not seen any dip in non-res demand.

The good news is we're starting to see improvements in residential and in highway work. So, overall we're continuing to see good, steady growth – demand growth..

Garik, a few maybe pieces of the additional color since I know this – we know this is an area of focus for folks. From a geographic point of view, it's almost easier to talk about the ends of the spectrum.

So, in terms of recovery toward normalized demand for us, on one end of the spectrum, certainly we have some Texas markets that are a bit further along in the recovery; in our view, still doing quite well, but a bit further along.

And on the other end, as Tom has mentioned before, we have our Mississippi, Alabama, Illinois, kind of our middle of the country markets, that really haven't gotten much momentum yet in terms of the recovery moving along; but everything else is making pretty good progress.

The facts and circumstances vary by market, but everything else is making pretty good progress. The one issue that we do continue to see in some markets, and it will inform all of our plans for 2016 when we get there, is just the pace at which this growing demand and recovering demand really gets turned into Aggregates shipments.

And again, in some markets that's – that's a function of large project timing and how quickly DoT's can get their raised level of funding out the door into new projects; so we'll monitor that closely.

And in other markets, that's a function of these, if you will, bottlenecks in the construction supply chain that we've referenced, where availability of crews or equipment or developed land or skilled trade labor, those can really be the determinants of how quickly we grow.

So, net-net, we continue to see across our portfolio, a steady, gradual repeating recovery that's basically on the same kind of trend we've been on for 2015..

Great. That's very helpful. Just wanted to dive in a little bit just on around the fourth quarter and your annual guidance and this fairly wide range that you've left for EBITDA for the fourth quarter.

Just wanted to be clear on that range and what could drive the upper and lower end? Is it really just a function of weather and project timing or is there anything else that we should be paying attention to?.

Hi, Garik, it's John. I wouldn't – we're not trying to signal anything by the breadth of that range. So, I wouldn't read too much into it first. I'd read it as unchanged from our last call.

That would be the probably the main message because as I went through, most of the underlying drivers that we see are basically still on track with our last discussion on our last call. So, I think the read is largely unchanged.

Yes, weather can affect it one way or the other, but I don't know that I'd try to read too much into the fact that we didn't change or narrow the range..

Okay. That makes sense. And then just lastly, just highway bill question. You sounded a bit more optimistic, and certainly the discussions around in Congress have been more optimistic, and I think there's greater hope that a highway bill will gets passed relatively soon.

If so, could you maybe talk about how this might end up impacting Aggregates demand, whether it's 2016, 2017, and what the medium to longer-term impact would be from the highway bill?.

Yeah, I think, first of all, we're very optimistic that the bill is going to get passed. We believe that the House will vote on the bill this week, as a matter of fact. When this happens, it will give certainty for states. So you'll see a number of states which are starting to – have held back funds for large projects – which is Arkansas has done that.

We've seen – and now we see Georgia is talking about it – and a number of states have done it. Well, they'll have certainty for the future going forward, which will be very good for us. That is a compounding impact because a number of states have raised their funding.

But you've got to remember, there's going to be a lag here between, whether it's the increase in state funding or the federal funding, just because they've got to be able to get the funds. And then, they've got be able to set up plans and let the projects, and the projects have to start construction.

So at best, I would say it'd be the end of 2016, but I think the highway bill, the impact of that, you'll really see towards the end of 2016 and into 2017. What is hidden in there is, you will start to see states have great relief with unlocking large multi-year projects.

Even if they said they're not doing it, we've got a number of them that are just hesitant to do anything until they see that bill. And that I think will flow through towards – start to flow through in 2016 – but real impact, I believe, will be in 2017.

John?.

That's right..

Great. Thank you..

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

Hey, good morning..

Good morning, Trey..

Hey, just one point of clarity, I know you've talked about kind of the – some of the states there in the middle of the country that you guys are in that have been laggards – but just one, if, kind of going back to the slide deck, it looks like year-to-date, North Carolina was in the greater than 5% category.

But then, if you look at just for the third quarter, it was in the flat to down category.

Can you talk about kind of what's driving that? Have you seen deceleration there or just your thoughts around – that just kind of stood out to me?.

Yeah. I wouldn't read anything into that Trey. North Carolina last year, we had two very large paving jobs that we completed that weren't included in shipments of this year. So, I think that as you look at North Carolina, the demand's still healthy; it's across a broad range of whether it's res, non-res, highways or infrastructure.

In fact, the North Carolina DoT just passed a bill to substantially up their funding in that state. So overall, we feel good about North Carolina. We feel good about demand growth, think, it will carry into 2016.

And we'll start to see some flow through of the $700 million increase in state highway spending – now, that won't come through right away – but you'll start to see some of it, probably end of 2016, but healthy..

Trey, you might even take that as just an example, and I know you know this very well, but of why it's a bit dangerous to extrapolate too much in our business from single quarter trends. And that's, of course, in the volume side, why we include both the quarterly view and the trailing 12-month or year-to-date view.

Whether it's a volume trend or whether it's a pricing or cost trend, we're always going to encourage people to make sure you also take a slightly longer-term view and don't focus only on one quarter just because there can be so much volatility..

Yeah, understood. Thanks for the clarity there. And also, I guess as a follow-up, you guys had been fairly acquisitive, I guess, with some tuck-in deals that seemed to make a lot of sense. I guess recently – more recently – you've kind of taking your foot off, at least apparently, taking your foot off the gas a little bit there.

Can you talk about, I guess, what you're seeing out there and how multiples are trending in the space? And then with that backdrop, kind of update us on your thoughts around capital deployment.

I'll start, John. I think, Trey, there's really a good pipeline of acquisitions out there. As we've talked about a lot, they will come when they come. That's something we can't control. Last year, they all seemed to bunch up in the third quarter.

I think what's important for us – well, the timing of that's unknown – what's important is the discipline of what we buy, what we pay for and then how we integrate it. And we need to be real clear about the synergies that are unique to Vulcan and how we leverage those.

So, don't read, because something that happened that the pipeline's dried up, because it hasn't and we are not – we have not put – taken our foot off the accelerator at all..

And Trey, on overall capital allocation priorities, I think the key message is that our priorities have not changed and that we're making good progress on the direction we've laid out.

Just to quickly tick through a few, as I mentioned, our core CapEx, reinvesting in the franchise, maintenance haz-mat capital, that remains on track and it is been executed well.

In terms of financial flexibility and our overall balance sheet, making good progress, and again, going forward, that's not a use of cash to de-lever, and we've also reduced our average interest expense a bit; we'll continue to look at that of course.

We remain committed to a dividend – and the return of capital to shareholders through that dividend – that grows with earnings. That's a board decision, but nothing has changed there.

Tom just touched on opportunities for M&A-related growth where, we have many, it's just a question of discipline and to some degree, seller expectations that may be ahead of where they need to be.

And then of course, as we continue to generate substantial free cash flow through time, substantial operating cash flow, we expect to have a balanced approach of reinvesting that, whether that's CapEx or M&A-like growth and returning it whether that's through dividend or share repurchase..

That all sounds good. Thanks a lot and good luck..

Thank you..

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

Turning back to the highway bill, the various proposals out there have some level of inflation factored in their six year view.

Can you just remind investors, would the impact of that be greater than the actual dollar because of the types of projects and the long-term nature of projects? Just getting for a feel of – we haven't had a six year bill in so long – sort of a refresher course of what to do with those numbers if this thing gets passed?.

Yeah, let me start with the escalators in the – the Senate bill escalation is 3% annually – which would mean, you start at a baseline of $41 billion; in year three, it'd be $45 billion and in year six it'd almost be $49 billion. That compares to a House bill, the drafted House bill, which is at 1.9% annually, so a little less.

Now, where we end up, our vote is for the Senate bill obviously or something beyond that, but who knows how that's going to turn out.

While those increases are really important and we'll take all the funding we can get – more importantly, our country needs it – the confidence that this gives the states to move forward with long-term projects or very large projects is really important.

It also – even if it's a six year bill that's only funded for three – it locks in policy for six years, which also builds confidence, not just for the states, but for the entire construction material cycle.

So, you'll see this also builds on that confidence we talk a lot about for pricing momentum, because there will be funding out there, which means there'll be projects out there, which means there'll be work out there for our customers.

And so, that overall confidence is really important, not just for our customer base and pricing, but also for the states that allow them to free up more work and drive demand..

So, a 2% to 3% increase, whatever it ends up being in dollars allocated, could we assume when the dollar – when they hit – it would grow the infrastructure piece of your business greater than that?.

Yes..

And keep in mind, that the parts of that funding that are non-federal, are growing typically in our markets at a higher rate..

Good point..

So the state and local funding is growing at a substantially higher rate in many of our markets than you see the federal dollars, but as Tom explained, the long-term federal program is certainly helpful to getting those state level funds and revenues sources from being collected to actually being spent on key projects..

Along those lines, while we've had a number of states in our footprint increase their funding, we have a number of them right now that are critical, that are debating increasing their funding, okay.

This will give confidence and it will give – it creates momentum for those states to go do their part where there is much needed funding from a state and local perspective..

And at one point on – I think it was in the DRIVE Act – there was a talk of elimination of TIFIA.

Is that still a topic that would be on – potentially on the table?.

Yeah, that's really a reduction of TIFIA. TIFIA was budgeted at $1 billion a year. The DRIVE Act cuts it down to $300 million. And actually, truth be known, that's not bad news for us because we weren't getting to – we know $300 million is about as good as anybody got to, if they got that far – to using those funds.

So more than half of those funds went unused. That will go into work on intermodal and infrastructure projects.

So what our view of that is, it's actually pretty good news and that we'll get what we were using in TIFIA; the unused funding of that will go into major projects to address intermodal and infrastructure projects they'll actually ship materials on..

Okay. Thank you..

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

Hey, good morning. Just wanted to ask you, you've had a lot of success in driving gross profit per ton from $2.55 up to $3.90.

And like how do we think about your ability to keep driving that – because I got to credit you, that's a ton of incremental improvement – but how much more runway is left?.

Bob, it's John. Our view is pretty straight forward. We think there's substantial runway left.

As you recall from our Investor Day, and we laid this out on a cash gross profit basis on Investor Day, but as we continue to move forward in the recovery, continue to move back toward normal levels of demand with the kind of pricing environment we expect, we should be able to continue converting that incremental revenue at about 60%.

And doing that through this period of time gets us to a cash gross profit number that instead of being a little bit less than $6 this quarter will be a little bit above $8. So, substantial room left. I'd remind people that as an entire construction complex, more and more people are appropriately focused on earning fair returns on capital.

And earning these kind of incremental margins is consistent with that view. So, we are very, very focused on it and we don't see anything from where we sit that should limit our progress on that dimension in the near-term..

Cool. That's encouraging. Tom, I haven't heard you this bulled up in a long time; it's a really solid quarter operationally. It looks like you're getting price for service. In your forecast, you're looking at 7% price for the full-year and you obviously gave a confident view of demand trends going into 2016.

So, I'm trying to reconcile a little bit how we should be thinking about pricing trends next year. You have a tough comp if you're up 7% this year. Should we expect pricing next year to be low single-digit, more like consistent with this year? Thanks and good luck..

Thanks. It's all about the environment and I think it's in momentum. As you go into the fourth quarter of this year and into next year, as I said earlier, we continue to see that demand going up and very steady demand. It's about customer confidence. They have backlogs; they have backlogs with profitability in it, so they can raise their prices.

So, it is that confidence in the pricing environment that is so key, and as we talk about a lot, it's very predictable trends that as that volume continues to trend up, pricing will follow it.

So, as we said earlier, it's the campaign of pricing and those compounding improvements over time, but going into the fourth quarter and into 2016, what I'd tell you is that that pricing environment is very healthy..

Could you just get a little more specific in thinking about 2016 to guide us? Is it more like, hey, you're at great pricing, lot of demand, we're up 7% in 2015? Against that comp would you expect to be at the low single-digit into the range next year or in a level more consistent with like 5% to 7% or 6% to 7% like this year in 2016?.

Hey, Bob, it's John. While I appreciate the effort, we're not going to give guidance for 2016 on this call. But I'd just reiterate what we've said, which is, as we sit here today in early November, the core trends that we see in terms of demand recovery and the pricing environment, we see continuing into the fourth quarter and into 2016.

So we don't see a significant shift in overall trajectory, but we're not prepared at this time to give specific guidance..

Totally cool. Good luck..

Thanks..

Your next question comes from the line of Todd Vencil of Sterne Agee..

Hi, thanks, guys..

Hey, Todd..

Hey, Todd..

Let's take, hopefully, short shot at beating that almost nearly dead horse here one more time.

Just real quick, and briefly I think, are you guys seeing deceleration in any aspect of your business anywhere, and if you are, where?.

I think we've got some watch points. I'm not seeing deceleration anywhere. The watch points, as I mentioned earlier, were, one was non-res just because of some of the leading indicators.

As I said earlier, we're not seeing that on the ground, what we're bidding and what we're shipping; but we see that, we watch it, and I think our folks and Todd, I'd agree, (54:32) are very confident. The other place to watch is, as we talked about earlier, is to watch Texas, with the reduction in exploration drilling and the impact on jobs.

While we've not seen any impact yet, it's been an odd year in Texas where it was the rain in the first half of the year back-loaded the year. So, if there is a drop off, it would be masked and it's a place we'll watch. But other than that, I think we're pretty confident..

This isn't a direct answer to your question, but I would just remind folks on this – as Tom was saying – on both price and volume, there is of course, as there always is, a lot of variability across our portfolio geographically.

So, if you were to look at the rates of volume growth or the rates of price growth, they're pretty well dispersed around the average.

And so, we have – of course, as we get a little more clarity on our 2016 plans – we're going to have some geographies that are certainly slower growth than others, and some that are faster growth than others, and we'll have to incorporate all of that into our guidance for next year..

Perfect. Thanks for that. And then, same question. You guys talked about bottlenecks in some places. This is something that we've heard from builders and contractors and guys who use contractors.

Can you talk about how much of an impact that's having and if there's any rhyme or reason? Is it certain geographies? Is it certain trades that you're seeing it in?.

I don't know that I can put a pattern to it, but we have seen a number of our customers run into bottlenecks which impacted third quarter shipments and will impact fourth quarter shipments. Now, that volume's not going away; it will be shipped. So whether that's in ready-mix business, it's trucks and drivers, it's finishers.

In the Asphalt business, it's crews and lay down machines. And they're not going to ramp up – they'll ramp up a little bit, but not going to add – just have it slow down. I think what is key to what we saw in the third quarter and you're seeing happen at the end of this year versus last year is the sense of urgency by our customers.

When I say that, last year if they got delayed, they just put it off to the next week or till the weather got right.

Whereas this year, we're seeing contractors work on Saturdays and Sundays; we're seeing a lot more sense of urgency of getting these jobs done, which is very good news for us because that means they have backlogs now that they got to get this work done, so they can get on to the other work, which really signals from a macro perspective that there's more work out there and we continue to see the steady growth..

Got it. Thanks for that..

Your next question comes from the line of Stanley Elliott with Stifel..

Hi, guys, good morning and congratulations.

Quick question on the pricing or did you guys highlight kind of what the regional mix was versus the absolute pricing?.

Well, I think that, as we said earlier, usually the places where we are further along in the cycle, we see better pricing. So, we saw better pricing in Texas in a number of places where the cycle's further along.

And as we go into next year, I think that pattern or that trend tends to hold true, that the places where the cycle is a little more mature, you have a little more confidence in momentum and pricing..

Stan, it's John.

One thing I just continue to underscore for those on the call is just as with volume, and I'll highlight both, but if you look at pricing by our general manager areas, if the average for the company was around 8% for the quarter, we have – and I'm just looking at what numbers I have in front of me – we have some that are 14%, 12%, 12%, 11%, 9%, and we do have a couple that are 3%, 2%, negative 1%, negative 3%.

So there's a lot of dispersion based on local market factors, and in a single quarter, mix of business and other things. The same is true on the volume side of the business. If the average volume is roughly 7.5%, then you've got some that are up 20%, 19%, 13%, 11%, 10%, 10%.

But you also have a couple, as we highlighted, that are nearly – like Illinois – nearly down 10%. And so, again, any single quarter view is going to have that kind of dispersion amongst our geographic businesses, and therefore all the more reason to make sure you also take these kind of trailing 12 month or longer-term views of the business..

I appreciate that.

What I was trying to get at is that some of the markets that have say mid-teen sort of absolute pricing compared to kind of some of the low double-digit pricing, just how that's influencing the overall? And my guess is that as some of those higher ASP markets continue to improve, the whole pricing complex will improve as well? The comment about the bottlenecks and allowing some of the volumes to slip over into kind of, for the quarter or even into 2016, was that a material amount or is there any way to put a number around that?.

That's really hard to put a number around. You know it's happening; you could see it happening. When you talk to your customers in the different markets, it's pretty widespread, but to put a number on that's pretty tough..

Sounds fair. Thanks guys, and best of luck..

Thank you..

Your next question comes from the line of Adam Thalhimer with BB&T Capital Markets..

Hey, good morning guys.

The environmental charge in the quarter, is that something we could see going forward or is that really one-time issue?.

I think it's primarily – this is John – primarily a one-time issue. And you saw some, if you will, elevated above recent trend cost and relating to other income and expense. And a lot of that had to do with some one-time environmental charges including some settlement of past liabilities. So, I would think most of that is one-time..

Okay. And then, you mentioned that there was some places where you have ramped up labor in anticipation of demand that wasn't quite as strong as you had hoped.

Where was that?.

Southeast..

Okay. Thanks..

And let me add to that. It wasn't that demand that was off or demand was poor, it just wasn't as good as they had hoped it would be..

And Tom, we've talked it about a lot, I mean they're going to be – as we continue to transition our crews and our scheduling levels, like many in the industry, from operating most of our plants as shared crews to having fully staffed plants again, there's going to be a little – the transition is not going to go perfectly.

The key for us is to monitor it, manage it, correct it and to stay on top of it. But they're going to be some things like this as we transition from such historically low shipment levels back to something that's more normal, particularly given that we've been operating in some of these markets with shared crews across two or three plants.

Just changing that staffing model is going to – is not going to be frictionless..

Great. Okay. Thanks, guys..

That concludes the Q&A portion of the call today. I will now turn the call back over to Tom Hill for the closing remarks..

Well, thank you very much for your interest in Vulcan. As you can tell, we will finish 2015 strong and we're very excited about what lies ahead of us for 2016. We look forward talking to you next quarter. Thank you..

Thank you. That concludes today's conference call. You may now disconnect..