Mark D. Warren - Vulcan Materials Co. J. Thomas Hill - Vulcan Materials Co. John R. McPherson - Vulcan Materials Co..

Adam Seiden - Barclays Capital, Inc. Trey H. Grooms - Stephens, Inc. Kathryn Ingram Thompson - Thompson Research Group LLC Jerry Revich - Goldman Sachs & Co. LLC Philip Ng - Jefferies LLC Adam Robert Thalhimer - Thompson Davis & Co., Inc. Garik S. Shmois - Longbow Research LLC Scott Schrier - Citigroup Global Markets, Inc.

Timna Beth Tanners - Merrill Lynch, Pierce, Fenner & Smith, Inc. Stanley Stoker Elliott - Stifel, Nicolaus & Co., Inc. Brent Edward Thielman - D.A. Davidson & Co..

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

Good morning to everyone. Joining me today are Tom Hill, Chairman and CEO; and John McPherson, Executive Vice President and 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 home page of the website. A recording of today's call will be available for replay at our website later. Additionally, from the Investor Relations home page, you can sign up to receive future news releases under EMAIL ALERTS found in the quick links.

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 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 you all of you for joining our call today. Our first quarter operating performance represents a really strong start to the year. Results were in line with our internal first quarter plans despite challenging weather and higher than expected diesel costs.

Leading indicators for construction activity in Vulcan-served markets are very encouraging. Recent price increases have been well executed and we expect materials pricing to improve further throughout the year. We're also putting recent cost headwinds behind us.

For ton margins in our Aggregates segment improved year-over-year and we expect stronger gains over the balance of the year. We are reiterating our full-year projections for net earnings and EBITDA.

When the sun shines, we're shipping strong, although bad weather in January and February drove our total shipments for the quarter slightly below expectations. With more normal weather in March, our same-store shipping pace was up 7% over last year. And April was even better. This gives us great confidence in our full-year volume guidance.

Pricing momentum remained strong. When adjusted for geographic and product mix, freight-adjusted aggregates pricing improved 3% compared to last year's first quarter. Many of our price increases took effect April 1. This is consistent with our plans.

On a same-store basis, our first quarter cash gross profit per ton and our core Aggregates segment improved 4% versus the prior year.

This record result was accomplished despite several challenges including a continued drag from rising diesel prices and the planned shutdown of several large facilities to get them ready for a robust construction season. I'm proud of the performance of our local operations' leaders.

Gross profit from our concrete segment was flat compared to the prior year and gross profit from our asphalt segment declined from the prior year due to the impact of winter weather and due to margin compression from higher liquid AC cost. Now, these costs haven't been fully passed into the market yet.

The decline also included the short-term negative impact of construction paving business that we acquired in February of last year. Despite the seasonal drag from our downstream operations, we still delivered $168 million in adjusted EBITDA for the quarter. This was driven by improving unit margins in our core aggregates business.

We feel very good about our readiness for the construction season. We finished the first quarter strong. This was a good start to the year that sets us up well for the second quarter and the rest of the year. Ultimately, I like the trends we're seeing. The leading indicators we monitor support our full-year outlook.

Private demand continues to recover across most of our footprint. Residential growth continues. We see a growing pipeline of large, private, nonresidential projects and our markets continue to enjoy strong backlogs consistent with 2018 expectations. We're also seeing renewed development of industrial projects along the Gulf Coast.

While we don't expect to shift significant volumes to these projects this year, it bodes well for 2019 and the following years. Public demand particularly with highways has begun to contribute to the recovery and overall construction activity across many of our states.

Highway-related construction starts and Vulcan markets have moved further into positive territory. This is now 29% higher on a trailing-12-month basis, outpacing the nation as a whole by 14%. As we all know, we've seen a significant inflow of highway funding across our footprint.

We've also seen a number of state DOTs struggle to take new funding and put it to work. Now, we are seeing DOTs adjusting and beginning to catch up, allowing the benefits of the FAST Act and the new state-level revenue streams to turn into tangible infrastructure development.

For example, we anticipate solid gains in highway-related demand in six of our key states; Arizona, California, Georgia, Florida, North Carolina and Texas. We are keeping an eye on a number of states that have good highway-funding programs where we may see some shipments later in 2018. Let me add, we expect much more in 2019 and the following years.

This would include California, which continued its effort to pull projects forward; coupled with Texas, South Carolina and Tennessee. Our local teams have been doing a really good job servicing our customers in both public and private markets.

Our expanding backlogs and accelerating booking pace continues for our full-year outlook for aggregates shipments in the range of 200 million tons. As I said earlier, recent good weather has met good shipments including during April. This demand visibility will support additional pricing gains throughout the year.

Other factors such as higher diesel costs and logistics' capacity constraints will also drive prices up. Some of our markets already anticipate another round of price increases this year. As we know, pricing momentum is stronger in those markets that have solid private and public demand visibility.

Examples of these would include Georgia, Florida, and looking forward, Coastal Texas. But I would point out that our Aggregates pricing continues its upward compounding move across the majority of our markets. We continue to project full-year average selling prices to increase between 3% and 5%.

We also expect that conversion of incremental same-store revenue into incremental gross profit will return to levels seen early in the recovery. I'm pleased to report that our Aggregates operating teams performed well in the first quarter and they remain focused on continuing our world-class safety performance.

They are well-positioned to handle the expected upswing in shipments with solid operational efficiencies. And we're moving past the cost pressures of recent quarters. For example, the first of our new Panamax-class ships has been delivered and put into service. This is bringing new shipping efficiencies and lowering costs.

Our current projections point to cash, gross profit per ton exceeding $6.50 by the end of the year. And remember, at the beginning of the recovery, this figure was $4.19. This improvement is proof that our local operating teams have and will remain focus on long-term improvement in unit margins.

Our asphalt and concrete operations are well positioned as we head into the construction season. As noted, material margins in asphalt may continue to see some pressure from higher liquid AC prices. This depends in part on how quickly prices adjust. That said, our 2017 acquisitions continue to perform well.

In summary, we have strengthened our portfolio through acquisitions and divestitures and our demand and margin indicators along with our first quarter performance, particularly in March, give us confidence in full year expectations for net earnings and EBITDA. John, I'll turn it over to you..

Thanks, Tom. In addition to driving our current period results, we are, of course, always working to improve the business's longer term financial strength and growth potential.

The first quarter saw several actions in this regard, and I'd like to highlight a few that relate to our organization, our asset portfolio, our balance sheet, and our after tax cash flow from earnings.

With respect to the organization, in January, we restructured several of our support functions for the purpose of more effectively and efficiently serving our local operating units and supporting their long-term growth. And in the process, we eliminated approximately 50 overhead positions.

Our first quarter results include a $4.2 million charge associated with this action. We are continuously working to leverage SAG to revenue growth, while at the same time making strategic investments in customer service, logistics management, sourcing and other of what we call One Vulcan capabilities.

In terms of our asset portfolio, we are very focused on the integration of Aggregates USA during the first quarter. But we also continue to strengthen our portfolio in other important ways.

For example, we completed the acquisition of a construction materials business in Alabama, adding aggregates and asphalt operations to complement our existing business very well. We also divested our Georgia ready-mix concrete operations to Thomas Concrete.

Thomas is better positioned to grow that particular business, and we will continue to supply aggregates to the divested facilities. Our first quarter results include a small gain associated with this divestiture. Now, moving to the balance sheet.

In the first quarter, we issued $850 million of senior notes with maturities of 3 and 30 years; and retired $885 million of debt with maturities inside of four years. Additionally, $111 million of senior notes due in 2037 were exchanged for a like amount of senior notes due in 2048.

First quarter results include a $7.4 million pre-tax charge associated with this refinancing activity. We have positioned our debt portfolio for the long-term. It fits very well with the cyclicality of our industry, as well as with the long-life nature of our aggregate-centric asset base and our materials' real price appreciation over time.

We have extended the duration of our debt, reduced our average interest rate and achieved and sustained investment-grade ratings. And at the same time, we've been able to fund over $1 billion of high-quality growth investments with only a marginal increase in our after-tax interest expense.

Finally, I'll note that much of our long-range planning focuses, as you'd expect, on cash flow generation both at the local market level and the total company level. For 2018, we expect the business to generate approximately $825 million of after-tax cash flow from earnings.

That's adjusted EBITDA, minus working capital growth, operating and maintenance CapEx, and cash taxes. As a reminder, we currently expect to invest $250 million in operating and maintenance CapEx for 2018.

And at the midpoint of our earnings guidance, we project full-year cash taxes of approximately $75 million; and that's before the effects of debt refinancing actions, the use of AMT and other credits, and refunds from prior periods. This run rate cash tax expectation is approximately $100 million lower than if under the prior tax law.

With disciplined capital deployment and compounding improvements in unit margins, our aggregate-centric business model should enable further significant gains in after-tax cash flow from earnings as the recovery moves forward. Tom, back over to you..

Thank you, John. Our peoples' commitment to outstanding performance has set us up very well for the future. We really like what we're seeing in the business right now. So I'd like to give you five examples. First, shipment growth. The private side continues to grow. And, now, public spending has joined the party and is also driving demand growth.

Second, pricing growth. This is driven by underlying private and public demand and visibility to projects, both large and small. Third, unit margin improvement driven by operations excellence and a tight focus on cost control with flow-throughs returning to past trends.

Fourth, near and long-term cash flow growth, which reflects the value of our aggregates-focused strategy and franchise. And, fifth, disciplined strategic M&A activity and capital deployment that allows us to leverage our strengths and create new opportunities for profitable growth. In closing, I'm pleased with the way our people are executing.

They are demonstrating great discipline in taking incremental revenues to the bottom line, and I am very encouraged by the growing strength that we see in the recovery. We are well-positioned to serve this increasing demand growth, and we are very much looking forward to making the most of the opportunities ahead of us.

And, now, we'd be happy to take your questions..

And we'll go first to Adam Seiden with Barclays..

Great. Thanks, fellows..

Good morning, Adam..

Good morning to you, too. So the first month or two, I guess, was perhaps a bit more challenging; and March, it seemed a bit better. And then now in the call, certainly, you pointed to April also seems like continuing some of the attraction that you guys were seeing in March.

Just wondering though if you could give us any color on how we should think about the cadence on both volumes priced through the year?.

Yeah. I would tell you that we feel really good about our volume guidance, and Q1 reinforced that. It's not unusual for us to have tough shipping days in January, February. But as I said in my comments, prepared comments, when the sun shine and we're shipping hard, March's pace was up 7% and that wasn't what I'd call reasonable, not-great weather.

(18:43) was in the middle of that, we had a lot of rain in California in March. And then April, following that, has been very strong. I'd tell you it's in the 10-ish on the same-store basis, up 10%. We're seeing the big postponed projects starting to ship. I'd tell you our folks are on track.

We feel good about the volume guidance, and what kind of reinforces that, I think there's a couple of things. Our backlogs are up. Our booking pace has accelerated. The DOTs are moving for our projects and kind of a small thing, but it's really a tell-tale as we're shipping more on weekends right now than I've seen a ship in years.

So, the demand is out there and I think it will flow through as we predicted throughout the year..

And, Adam, you and others know that, but keep in mind it's a low-volume quarter. We're just ramping in the construction season. We really like what we see in March and April in terms of what it means for how we're ramping up. Always careful about extrapolating from any one month, but we like what we're seeing.

Some of the mix effects we saw in terms of volume in Q1 really should correct themselves over the year.

And I kind of note that you saw us down in some of our core Southeastern and mid-Atlantic markets and up and other markets in the quarter, that was really mostly about weather and in some cases some rail service disruptions, all stuff we'll work through over the course of the year.

And in the same vein, Tom, may comment on this further – that really is what affected reported pricings. The real momentum in pricing is 3% in the quarter.

And just to give you a little more feel for that, Tom may chime in, but those markets that we were down in volume in the quarter were also the markets that we were – they're not only higher price, they were the most increasing in price.

So, if you look across those markets like Virginia, the Carolinas, Georgias, you'd see price increases in the quarter that read like 5%, 6%, 8%. And so, the momentum in those markets reflects the visibility that Tom mentioned. Mix affected reported pricing in the quarter, but the underlying momentum was really 3%.

And that will correct itself for the course of the year. It's not an issue for us..

Yeah, let me -- if you don't mind, let me take you, I think it's better done if we just take into the fabric of the business, and I'll pick three markets or three states starting on the West Coast, California. And if you look at Northern, Central California demand is good and growing, private is up, public is up substantially. And that's ahead of SB1.

We saw really good price increases in April in Northern California. Southern California also seeing solid growth profits underpinned by res, public again is solid, ahead of SB1. Prices were solid in April, and that's on the back of really big price increases in 2016 and 2017.

And if you really step back and look at California as a whole, volumes are growing ahead of SB 1, which gives – we got some more confidence and visibility to the public demand as ahead of us, which is reinforcing those step pricing.

If you move to East there from Texas, and I'd start with North Texas first, which is really the DFW metroplex, and as I guess our smallest market in Texas, we'd tell you demand has been on roll for years. This year it will be up slightly. Price increases were a little tough in the DFW metroplex, the April ones.

We announced those April price increases, but they met with some resistance. If you move South, into San Antonio, we see continuously solid growth in San Antonio, particularly highways in 2018. We've got big highway work ahead of us that we've already started.

And the April price increases stuck, and I would tell you that the bid work with things like based on project work is moving up as we speak. It'll move up throughout the year. Going from there to Houston, now; Coastal Texas, which is really driven by Houston, this is a market that's been a drag on us for two years. It's been a drag on volume.

It's been a drag on price. And that was the energy market going down. Now, we've actually seen Houston turn over the last 30 to 60 days. Res is back. Non-res is coming. In fact, we're hearing bubbling of energy projects. The public side is solid and this is a market we think supply may be tight throughout the year in Houston.

We'll implement some large fixed plant price increases in June. I would tell you that base prices have moved up on quarter work over the last 45 days, and we'll continue to press those throughout the year. And we also got to remember, we're working off a lot of old lower-price work in that market, actually in all of these markets.

And then, if you move east to there, the southeast, and you look at just, for example, Georgia and Florida, they're stars. They've got excellent private demand growth. The public side has come on. The large projects have started. We had very good January and April price increases.

And parts of Georgia and Florida is a place we'll probably see some midyear price increases. So, to kind of sum that up, if you step back, I think it's really clear that our shipping pace supports what you see in our full-year guidance..

Appreciate that, guys. That's pretty encouraging and also very thorough, too. So, maybe something a little bit more nuanced, but you spoke to the $4 million restructuring charge this quarter. I guess it's a fairly small amount.

But just thinking about the $4 million beyond just the total dollar amount, is there any change in how you're approaching a portion of the business that resulted in you taking these actions or is it just about getting leaner?.

I think it's not just about getting leaner. It's really about getting better, and more is not necessarily better. And so, what we've tried to do is streamline the services to our line folks where they got exactly what they needed, not what we thought they needed in some cases. And then – and we actually gave them better personnel and better services.

So, it is – a piece of that is getting leaner, but the main focus was to give better services and more consistent services to the folks that are actually making this money..

Great. Appreciate that, guys..

And we'll go next to Trey Grooms with Stephens, Inc..

Hey....

Hi, Trey..

...thank you, gentlemen. So for Aggregates USA, just trying to cut it up a little bit, it looks like things are progressing pretty well there, and I think you guys booked like something around 2 million tons, maybe a little below that in the quarter if my math is right, and you guys are guiding to 7 million tons for the year.

So, that implies a pretty big contribution in the first quarter. I think we're around 27% or so, which is higher than normal for your overall business, for the overall company, I think it's closer to 20%. I understand this market has less seasonality, but still seems high.

Is there something that would drive a higher 1Q shipment mix there for that business or did the quarter just outperform kind of what was expected there?.

Let me make a couple of opening comments on Ag USA, and then John would give you the quarter. As we look at Aggregates USA today, I would tell you it is fully integrated and functioning as one company, it's all Vulcan, great folks and great assets. We believe that we're solidly on track to earn our projected $50 million in 2018.

Now – or watch for us and we've experienced some real service headwinds, but we're working hard with railroads to get past those and I think we've kept our customers in rock and there we had to service them. So, that will be a watch for us.

But we continue to see significant synergies developing that we're really going to experience until 2019 and 2020, just going to work through those. And I would include in that rail and logistical synergies along with big commercial synergies.

And you step back and look at this – it's all underpinned with really strong demand and price growth in States of Georgia and Florida. So, good start to Ag USA, but I think really the – and we're solid there, but the real synergies will be in 2019 and 2020..

Trey, just in terms of the math, I think Tom hit it.

I mean what'll 1appen in the quarter is we got some of the early synergy capture, and so on a total contribution basis, ag in EBITDA level or what we call a cash gross profit level, a strong incremental contribution that first quarter as we captured some of the initial overhead synergies and other synergies far more in synergy capture to come, as Tom said, in 2019 and 2020 even on that front.

I'll note and we can talk about it offline if you would like. They don't like gross profit for doing contribution basis, it is lower because of the step up in the asset base and the higher DD&A per ton. So, if you're trying to look at incremental flow-through to gross profit, it'll be lower.

If you're looking at the contribution, cash per ton, which of course really matters most, it will be higher..

Got it, okay. That's helpful. And I guess kind of sticking with that for a moment where I guess more on the aggregates side still. You, guys, had mentioned in the past and I know there was some commentary today on this as well. I just want to make sure that we're understanding the cadence correctly.

John you mentioned, I think, I heard you right exceeding $6 of cash gross profit per ton by the end of the year in aggregates, and you, guys, have talked about seeing your incrementals kind of getting back to what we saw earlier in the recovery, which I'm thinking that was north of 60% for Legacy Vulcan and you reiterated your guide.

So, just any help that you can give us on the cadence of that, kind of going into this 2Q, which just given the magnitude of the quarter, the size of the quarter, any color around that would be great. I think, obviously, we're pleased with Q1. It was a good start.

I thought that our folks performed even then with some headwinds of weather in the first couple of months. Pricing is, I think, I alluded to will grow throughout the year.

We had, you know, some January price increases, with some April price increases, and then as we bid work, particularly on the base and some other bid work, it will move up throughout the year.

And then John's comment obviously about the Southeast being a little slow in the first quarter and coming back and some of our strongest markets will add to that. I would add to that that, but if you look at our operating efficiencies and cost, I think we are very proud of that performance.

Our folks in the first quarter, they actually lower total cost of sales in the face of pretty good headwinds of diesel, tough weather conditions in January and February, which was – eat you up on efficiencies.

And then, we went ahead as is normal and just good operating discipline and took some plants down and this preventive maintenance or just big maintenance we had on plants in winter months, where we know operating efficiencies aren't good, it's going to be good and the shipments were low. So, they were ready for the season.

In the face of all of that, they delivered cost below prior year. So, I think we're – and again, a good start. I think our operating folks really have their eye on the ball here and we feel good about where we're set up to go into the second quarter..

And, Trey, just taken the full year look and kind of looking at the guidance we reiterated today and what that implies for the balance of the year, just to make sure we're being clear here.

We expect in the balance of the year to have rates of improvement year-over-year but, of course, better than we saw in the first quarter and we're proud of what we did in the first quarter. But if that shipment pace growth, we expect to be better. If it's pricing momentum, we expect to be better.

If its unit margin improvement, which we really focus on a great deal, much better. If it's flow-throughs, above what you've seen recently, for sure more like what you saw earlier in the recovery, particularly you need to look at that on a same-store basis, but it's going to be north of 60%. So we like what we're set up.

We've got a combination going forward for the full-year. I'm not just talking about the second quarter now, for the rest of the year that is good market conditions, we're covering demand particularly in public that we talked about. Make better execution, get some opportunities to improve own cost execution, we're very focused on.

And then of course we do have easier comps in Q2 and Q3. So, all three of those things playing together. Again, we're reiterating our guidance today. We'd say not all that's going to happen in Q2. Still some things we're working through, but taking a full-year look, we feel good about where we stand right now..

Great thanks a lot for taking my questions. I'll turn it over. Good luck..

Thank you..

Then, we'll go next to Kathryn Thompson with Thompson with Thompson Research Group..

Hi, thank you for taking my questions today. We as a firm focused a lot on the public side, particularly the changes you're seeing with state DOTs is a change of funding, but an area that we're finding interesting on is on the commercial or the non-res side where we're seeing more billion-type dollar projects that are queued to start up.

The question for you, are you seeing those types of projects and the geographies where you compete or are you actually participate in them? If you could give a little bit more color on the types of projects on the non-res side that you're seeing in your backlogs. Thank you..

Yeah. Thank you. We'll see shipment growth in non-res throughout the year. It's in our markets. It's supported by our going backlog and an increased booking pace. There's a continuation of large projects. I would tell you it's concentrated on office, institutional government buildings.

We're also seeing what's interesting, Kathryn, I mentioned in the comments about Coastal Texas is we're seeing early activity around energy projects on the Gulf Coast, and that is very encouraging. So, from – and if you look at our markets, I think we're solid with non-res growth, and I think we feel real good about it, and you're right.

There are a lot of big projects out there..

Kathryn, I'd just add. We're seeing at the moment in our markets, and I should say in most of our Vulcan-served markets, which can be different than the nation as a whole..

Sure..

Good booking momentum on small and large private non-res work. And we stay focused on that because as you know the large can be a little bit tricky to predict exactly when it turns into shipments. So we tend to very well and share that work. It tends to be a little bit lumpy and more difficult to predict exactly when it turns into a shipment.

But for the balance of 2018, our backlog support, our outlook, as you know it's more uneven across geographies than residential would be. You have some shining stars and you have some that aren't.

But in total, backlogs booking pace outlook consistent with our outlook, and we kind of like what we see going into 2019, although it's a bit early to draw those conclusions..

Thank you. And then on the public side, it's obviously too early to see the full impact of SB1 in California quite yet, but when you shift to a state such as Georgia that now has a couple of years under its belt with its increased funding.

Could you give us a little bit more color in terms of what you're seeing in public construction flow-through in the State of Georgia? And in your opinion, how much of it is related more to the FAST Act versus the state-specific initiatives that they passed? Thank you..

First of all, I'm not sure I can separate the FAST Act from the state funding in Georgia. All I'd tell you is, it's good with good. Georgia was a big disappointment for us for last year. It's going to be a big win for us this year with those jobs starting.

And there's a number of them that start around the state of Georgia, and the state continues to work really hard to get more work out.

I would also tell you the State of Georgia still has ground to catch up to be able to get that money to market, but they're working hard on it and they're a whole lot better off today than we were six months or a year ago. As far as the FAST Act is concerned, the appropriations actually increased the federal funding by 5%, that's about $1.8 billion.

And Vulcan states were big winners with that. Of that $1.8 billion, $1.2 billion of it, well, almost $1.3 billion of it, will go to our 20 states. So we're enjoying the FAST Act now and we're looking forward to enjoying even bigger money coming from the FAST Act to our states..

Kathryn, a couple of just other quick comments for you and others on Georgia. Let me reflect a little bit on kind of quarterly timing – and you all do a lot of great work on this, so you probably know this. But if we're looking a year ago, we're looking at Georgia, we're trying to guess when a certain project is going to start.

Now, we're a little more focused on how well the DOT, GDOT and our contracting customers will get the work done, will they be able to stay on schedule and actually take our product in the timing we expect. And so, as it relates to Q2, we're keeping a little bit of an eye just on shipping, pace of projects that have already started.

But, in total, we feel like GDOT and the contracting base in Georgia is beginning to a little bit catch the tiger by the tail, if you will, and begin to get caught up. I don't know that they're all the way where they want to be. They just got a lot of stuff they're trying to do. And so, we'll just kind of keep an eye on that.

But that's really a timing issue, not a trend issue. As you know, the work is there, and as we sit here now, the work has started for the most part, and it's just a question of how quickly we get the shipments out.

It's another good example of Georgia, by the way, Kathryn, of a market – it's a great example of a market where that visibility to public and private, where that visibility links back to pricing.

So even in a quarter where, again, due to weather impacts, volumes were down in Georgia, pricing was up a good healthy amount, again, due to that visibility..

And following up, just Georgia is a good example, and as we look at other states, could you be in a situation where you are tighter in availability of a certain type of product, particularly clean stone, once you get into peak of the construction season or do you feel pretty good where you are today?.

I think that we will see a number of markets around the country get tight on stones. Some of that will be, in general, like we mentioned, some of Coastal Texas and some of that would be specific sizes. I think we have the firepower to deliver, but I think that you could see some tightness in some markets..

Kathryn, sometimes that tightness and for others is due to logistics reasons, e.g., rail service quality or, in some cases, tight trucking capacity. It's not due to an inability of Vulcan to produce, just to be clear..

(38:57)..

But Coastal Texas is probably a good example of that where we would expect to see, although is a bit of a drag on our pricing in Q1, we expect that to turn. And some of that is turning, as we speak, and it's reinforced by our taking ship deliveries, it's reinforced by our getting the dredging started where we get more full draft ships in.

So that's an example where we see potentially a pretty sharp turn..

In think same thing is true for some of Georgia and Florida also..

Yeah..

Okay. And final question is on margins, and I think you touched on it earlier in the Q&A, but I just want to make sure that I'm clear. It's around incremental margins.

Just in light of some of the variety of puts and takes with cost, diesel, dredging, et cetera, how should we think about core company incremental margins for the remainder of 2018? Thank you..

If you mean by core company, it's called same-store as in Ag USA..

Yeah, yeah..

I think I'd expect to see numbers more like what you saw in 2015 as we had volumes 5-plus-percent growth than, certainly, anything that we saw in 2017. And our focus again is very much on compounding improvements in unit margins. And we expect to deliver significantly further improvements in the balance of the year on our unit margins.

Again, if you're looking at incremental flow-throughs, incremental revenue to incremental gross profit, you really are going to want to look at it on a same-store basis..

Yeah..

Again, the DD&A per ton on Ag USA is going to be double that for the rest of the company. So, again, it just will distort the answer, so you want to look at that on the same-store basis..

Yeah, yeah. And that was the intention, just to look at it on a same-store basis..

Yeah..

Yes..

All right. Thank you for answering my questions today..

Thank you..

Okay. We'll go next to Jerry Revich with Goldman Sachs..

Good morning, Jerry..

Yes. Hi. Good morning, everyone. Hi. You folks, in the press release, spoke about the weakness in Georgia, South Carolina and Virginia in the first quarter. I'm wondering can you just talk about how demand trended in those markets in March and April.

How much did those markets snap back compared to what you laid out as having played out in the first quarter and those markets in the press release?.

Yeah. I think, first of all, that was all weather-related, the underlying demand is there. When the sun's out, just like everything else, they're shipping. In fact, they're really strong in all those states, from Georgia all the way up through Virginia and in Florida.

And as we've moved into March and April, like the rest of the country, all that is moving up. And one of the places I think is interesting is that's particularly a place of the country where weekend work is particularly strong which just underscores that the work's there.

If those contractors didn't have the work and had to be pushed, they wouldn't spend over time to work Saturdays and Sundays. So that's a very good signal of what we saw in March and April and even right now what's going on with weekend work. So I don't think we have any worries about the Southeast.

In fact, as I said in an earlier question, I would tell you that places like – of the Southeast are really stars..

We have some minor concerns about rail service quality and some of those rail served markets that's really not Atlanta, but other parts of Georgia, but Jerry I think that's something we're working through. In some ways, it's both an opportunity and a challenge. And I don't know that it necessarily affects any full year outlook.

So if your question is, have we seen reversals from the Q1 pattern, the answer I think is yes..

Okay. Appreciate the context. And in terms of the logistics issues, so we have rail costs and, in addition, we have the transition on the vessels.

Can you just give us a rough sense of putting the logistics issues together? How much of a headwind was it this quarter and how would you expect that to play out over the course of the year? Is there a line of sight on the logistic issues anticipating within the next couple quarters?.

I'm going to separate those into two buckets. First of all, let's talk about the rail. As you know, all the railroads are having challenges right now, service challenges and we're working hard with them to make sure that we service our customers. There's both challenges and opportunities to that.

The challenges will be that we've got to meet our customers' demands. And we also got to meet those demands in growing markets, which is a good thing. So there will be some tightness there, and that's compounded by tight trucking and rising fuel costs. Again, while that is a challenge, it's also an opportunity type markets, tend to be good for us.

The – on the other side of this, which leads me into the shipping, we have the most flexible logistics network in the country. We're on multiple markets, we're on multiple rails, so we do have flexibility to get our customers a product.

And then, on top of that, we have substantial barge service, and then, we have the most sophisticated rail service throughout the Gulf and on the East Coast. So, those logistics while they are challenges, I think they're also opportunities and that's our job to make sure they're opportunities.

And as we said, John, and I've said a couple of times, it'll create tight supply. On our ships and our logistics, we're still working through. We've gotten a long ways through our headwinds that we saw last year with the storms and ships, the dredging on the Texas call is happening now.

We'll be doing that in the second quarter, so we'll be past that as we enter the third quarter. We've had one ship delivered in April and we'll have the other before the end of the second quarter, so we'll be walking out of those headwinds also in the second quarter.

So, I think to sum it up, from a shipping perspective on Blue Water, we should have any of that behind us as we hit the third quarter..

Jerry, we think that's an important point. It's all consistent with our full-year plans, but won't all be done in Q2..

Okay. Thank you. And then, lastly, it's been a while since you folks had asphalt gross profits that were breakeven. Can you just talk about a little bit more on the moving piece in the quarter? I would have expected California to have had a pretty good quarter, given with the amount of works.

And maybe if you can just frame out how the quarter played out and whether you expect to return to growing gross profits in asphalt business in the second quarter..

Yeah. First of all, I would tell you that gross profits in asphalt will grow throughout the year. The first quarter I'd describe is two things. Now, this is a place we have felt some inflationary pressures. The first quarter, same-store asphalt business was impacted with big increases in liquid AC, in raw materials, in energy costs.

And we've just – we're trying to pass that through and it'll take us a number of quarters to get that passed through, but that will happen. It always does. The other thing that was in there in the quarter that is not as clear is the ownership, the full-year ownership of our business, our asphalt business in Tennessee.

And as you can imagine, in Middle Tennessee, that is dramatically affected by weather in January-February. You're just not going to do anything. So, you're going to lose money in those first two months. I would also tell you that we did very well with that business in Tennessee last year.

We will do even better with that business this year in Middle Tennessee. It is a – and by the way, they are very busy right now. I was up there in April, got first hand to meet the crews and the management team, extremely well-run, extremely well-integrated, and this is going to be a star for us in 2018. We're thrilled with that business.

So, let the year flow through. We got to catch up on prices to overcome inflationary pressures. And then, we'll see the Tennessee business; it's popping back now..

Okay. Thank you..

And we'll go next to Phil Ng with Jefferies..

Hey, guys. It sounds like you're putting....

Good morning..

...morning. It sounds like you're pretty encouraged that the DOTs have finally started to catch up on funding.

And now that you have some of these bottlenecks easing, can we see some of that pent-up demand from last year to catch up in 2018? And can you provide some upside to your mid-single digit volume guidance?.

I think that what we see in highways is consistent with what's in our plan. And we are seeing some of that DOT catch-up and flow-through, particularly in Georgia. And you'll see some of that – obviously, the mature states like Texas and Florida are doing very well.

But I think that – which really is – the catch-up is the large projects that have started and are shipping. And there's a whole bunch of that in Georgia, but there's also a fair amount of that around the country.

I mean, I could give you half a dozen jobs and I'll give you a few, but the Poplar Island job in Maryland though – in Winston-Salem, the Northern Beltway, which is over 300,000 tons, I-77 in Charlotte.

We've talked a number about three or four big jobs in Georgia, but you've got Fort Myers SR 52 widening, which is 0.25 million tons and Highway 109 and 11 in Tennessee which is a couple hundred, and then San Antonio, the 281, 1604 job, which is – that's 1.5 million ton job.

And then, the Connect 202 in Arizona has started, which is up over time at 2.5 million ton job. So, it's really those big jobs have started, starting to flow through. And then, you're starting to see more small work come out of the DOTs as bidding activity goes up.

For example, Texas will bid a $1 billion a month between now and August in their highway lettings..

That sounds like pretty interesting..

I might characterize that with the CFO hat on is a little bit of the work is there as Tom said. Work has been there. We have seen good patterns. Even if you go back to Q4 we saw when we had – whether we had good shipments. But the DOTs and the contractors are not all the way caught up.

They're making progress, but we're still going to be a little bit cautious even in terms of our own cost structure. And these are hard things we're trying to do and different than they've done for a long time and highly complex projects.

And so, we want to keep a close eye on the actual shipment pace, and just to be more clear, we are not upping our full-year volume guidance today..

Got it. That's helpful. And then some of these DOTs are appreciate that it's a work in progress.

Can you give a little more color in any states that stand out and you called out Georgia and it sounds like Texas and Florida is doing okay, but any color around that would be helpful?.

Well, you've got three states that are – that passed bills last year, California, South Carolina and Tennessee. And you just while there – particularly California has done a great job of accelerating. They only got $4.5 billion – $2.5 billion of work out there in the fix-it-first projects.

You're not going to see those states get much work through until 2019 and 2020. We've got a few paving jobs, really overlay jobs that we'll see in Tennessee. I think there's 11 that would constitute about 1 million tons that we either have backlog, we're bidding or we know we're going to bid on.

And so, you'll see a little bit of that, but I wouldn't – those new states, I wouldn't put much into this. Georgia, we've talked a lot about, so I'm not going to cover that. And in Texas, Texas is still working through because they continue to increase their funding. They have one of the more mature, sophisticated DOTs to get big work out.

We just bout talked $1 billion a month in lettings from between now and August, but they're still working to get out and don't remember they've got – in 2019, they got another $2.5 billion that have come into play with Prop 7. So all of these states, while they're doing better, they still got a hill to climb to get it up and to get that work.

They get that money to work..

Okay. That sounds pretty promising. It sounds like that gives you a lot of runway and even maybe for things to kind of pick up a little bit going into 2019. And from a pricing standpoint, you talked about how there are certain markets that you called out like Georgia, Florida, and Texas. You could see incremental round of price increases.

I assume that's on top of what's been out there for January and April.

Can you kind of size up the percentage of your portfolio that could see that benefit and just kind of help us figure out from a timing perspective when would that potentially kick in?.

Yes. So, I would tell you that the vast majority of our markets are seeing price increases, and most these markets are really right for price improvements. You've got the private work that's been there. Now, you've got the public demand that's coming on, people have visibility, both to small and large projects. Our April price increases were in place.

As I said earlier, in a number of markets, we're pushing up what I call bid work or project bid work as they now continue as the year progresses. Some markets – we talked about some markets that'll see mid-year, I mentioned parts of Georgia and parts of Florida and some of the East Coast, maybe some of North Carolina to name a few.

And remember, we'll continue to work off that older work. I think what gives us confidence in price, I'd summarize in four different places. Number one, the April price increases stuck, some midyear price increases are coming. Number two, you heard us talk about tight supply in some markets.

Number three, remember, we've got an inflationary environment that's going on, which only reinforces price increases. And fourth and probably most important is visibility, and not just ours but our competitors' and our customers' visibility to take risk on work – take risk on price because there's no more work behind it.

But if you are a member of our management team and you sat through meetings and we visit every state in the first quarter – and by the way, that was really good for us – it'd be very clear to you what our pricing strategy and philosophy is across all products and all product lines. So, I think it's shaping up to be a solid year on pricing..

Got it. And just one last one from me. From a SAG performance in the quarter, certainly very constructive, seeing some nice benefits on the restructuring front, but you did reiterate that $335 million target for the full year. Were there any one-time benefits in the quarter or could there be actually some opportunity here? Thanks..

No unusual one-time benefits in the quarter. And, obviously, we're tracking ahead of guidance and are trailing 12 months, I think, is around $320 million. We're absolutely still focused on the productivity of SAG, as Tom said. It's about being better, not just leaner. At the moment, we're holding our guidance on this consistent.

And we're holding our full-year guidance, as we said, full-year EBITDA, full-year net earnings guidance consistent. You know, we're just one quarter-end. As excited as we are about how the season is ramping up, we're one quarter end. I would tell you to get a little bit behind SAG and this is not new for us. The S has been growing a little bit.

We're making investments in sales and customer service as you'd expect. The A and G has been shrinking a little bit as we get leaner, better on the administrative side, all things you'd expect us to do. And I think we tell you that, that is an ongoing effort, not something we did just in January and we're done.

So, I think it will continue to be leaner and better in some places and we'll continue to make some investments in areas that ultimately drive better customer service and drive higher margins, whether that's sourcing, logistics capabilities, et cetera..

Got it. Thanks a lot. Good luck on the quarter..

Thank you..

Okay. We'll go next to Adam Thalhimer with Thompson Davis..

Hey. Good morning, guys. Nice quarter..

Thank you..

Two quick questions.

First of all, can you provide me any additional color on backlogs today versus prior years? And then, secondly, can you put a percentage on how many markets might see a second price increase?.

We really don't give -- we don't quote numbers on backlogs for all kinds of different reasons..

We'll give you a directional sense..

Yeah. But there's up and, actually, our backlogs are up in the vast majority of our markets, I think as important as that is our booking pace is faster than it was a year ago, faster than it was a quarter ago and it is picking up speed. And that's really demonstrates the health of the demand – the increase in demand and what's going on the markets.

And that's pretty – if you look at beneath that and look at the different segments of private and public, the private continues, the public has picked up a lot. So, I think that's – as I said earlier, that's one of the things that really gives us confidence.

And in our full-year projection and it reinforces what we saw – what we saw in March and what we saw in April and things to come.

If we have another way to put it is on the volume side, if we had any risk in our full-year projection, it's not because of the backlog, it's not because of the booking pace where we stand; it's just how quickly that backlog work turns into shipments..

Yes..

Back to the point about, they're making progress, but DOTs and large contractors, you know, they – not only there, there's a big complicated things of trying to get done. And while some of the type logistics issues we face are really get for pricing, do they limit in some ways, how quickly we can convert backlog work into shipments.

Not trying to be – just trying to be a little cautious but not extrapolating from Q1 to the rest of the year. At the same time, everything we see reinforces our full year outlook..

Okay. And any chance I can get you to put a percentage on second price increase? I mean, in terms of percentage of region..

I think, I think – well first of all, it's market dependent, it is broad spread, I mentioned places like parts of Georgia, parts of Florida, maybe parts of North Carolina and the East Coast. And we talked about Coastal Texas and the opportunities in Coastal Texas. So, that's one piece of it.

The other piece it is not just in announced price increase, but it is the bid one – this is really important is the bid work as you bid projects all along. You continue to press that price. We talked about base in Houston as an example of that. We talked about base in Florida and – sand in Florida and in Georgia. So, that's really tough to do.

It is – the key there is those four things that I named that reinforce price, particularly visibility that allow you to continue to press that up. And remember, those downstream customers are also pressing their prices because of that visibility and the knowledge of the work to come..

And put it differently, this is the same thing we said in February.

But what we're seeing in the market conditions is such that we expect pricing momentum to continue to build throughout the year, almost being a little bit back-end-loaded relative to maybe prior cycles, in part because of work we're working off and they work working into, in part because of the dynamics that Tom mentioned, in part due to things like future price increases in certain markets.

So, pricing, I'd expect to continue to play out and build momentum over the year. But I think you could tell from Tom our directions pretty clear..

Okay. Great color. Thanks, guys..

Thank you..

And we'll go next to Garik Shmois with Longbow Research..

Hi. Thank you.

Just wanted to beat the dead horse on mid-year pricing, just wondering, first off, did you get mid-year price increases in any market last year? And maybe just looking backwards, when was the last time that you're able to talk about mid-year opportunities and raising prices on bid work? Are we going back to the last cycle, or had there been more recent instances in which the market was supportive of this type of developments?.

I would tell you, probably in the last couple of years, that's been tough. Really, 2015 is when we saw that activity. Again, I think what's helping that this year and the difference between 2018 and maybe 2016 to 2017 is the visibility on the public side and more work being bid and it continued to bubble up. Again, Coastal Texas is a little different.

It's a place of market that turned, that went down substantially and now has turned. And so, that one that would be an outlier. But the big shift or the magnitude of the shift is bigger there than most markets. So to answer your question, probably 2015..

Okay. That's helpful. And then, just my last question is just on the downstream profit outlook. You maintain your guidance for profit growth in asphalt and concrete.

Wondering, are you expecting to grow margins in those businesses this year just given asphalt inflation and the timing of getting pricing, and then also material increases on the concrete side? So is the profit growth coming from both margin expansion and top line or is it just limited to top line right now?.

On margin expansion in asphalt, it's going to be tough. We've got catch-up to do within, as I talked about, the inflationary factors. So unit margin in asphalt, as they always do, when the liquid goes up are tough, but they always catch up and we'll be plugging it out as the year goes along.

I think that you will see, I believe, margin expansion ready mix as the year progresses and I'll be more bullish on that, that I would be on asphalt. But I do think this, as we stated our guidance is – we will stick with it, at this point, and I think we will do that..

Great. Thank you..

And we'll go next to Scott Schrier with Citi..

Hi. Good morning..

Good morning..

You talked a lot about the areas where you've had a lot of strength and the different price increases and everything. I'm curious if for some of the regions that have been more challenging for you and whether they've weighed down your top line pricing even on a like-for-like basis.

Can you talk about if any of those regions, if you're seeing the potential for them turning a corner on both pricing and also on the volume front?.

The one that I mentioned and probably stands out the most is Coastal Texas, which it really brought down – it fell pretty dramatically in volume and price in 2016 to 2017. With that turn in Coastal Texas along with some tightness in supply and both the public and now the private work coming back, I think that one's a good example.

I would tell you that places – we're going to struggle with price and our struggle with price is Illinois, and it's just a tough market for us. Another place would be Louisiana. We've had huge energy work in Louisiana in 2015 and 2016, and we just didn't have it in 2017 and don't have it in 2018.

Now, with the energy projects starting to bubble back up, we got our fingers crossed that Louisiana will follow Coastal Texas, and we'll see more work. But that's not going to happen in 2019. Obviously, that's not going to happen in 2018, maybe in 2019, maybe in 2020, and it will be a watch for us.

So those would be a couple that I think – two or three that I would point out and they're different cadences. As I said, we're struggling in two of them. One of them we're seeing a – because one of them we're seeing a turn and expect prices and volumes to come up in the Texas piece, but not in Louisiana or Illinois..

But they'll still be a drag in the total company reported results....

Yes..

...to your point. In 2018, no big change there. Team is doing a great job locally, by the way; great job on cash generation. But from a pricing point of view, we don't see that turning in 2018 in those markets..

Yeah. If you look at quality of earnings in Illinois, I'd tell you, to John's point, very good. They just dealt a tough hand right now, but they're playing it well..

Got it. And then, can you talk about the concrete business a little more? We saw the strong ready-mix pricing. Is that a function of market fundamentals or geographic mix as well? I know in the past you've had a lot of strength in Virginia. It looks like that was a market that was impacted by some of the severe weather..

I think that it was impacted by severe weather. I think as we look at North Virginia and the non-res in North Virginia is going to be a strength for us. They'll have a good year. It goes back to California, we'll have solid price increases. Texas, we believe, will do fine and that's really San Antonio with prices.

But it goes back to the same thing, particularly in those three markets, and that is visibility of work to come and people being able to – our customers being able to take a risk and put more profitability in it. And we're able to put more profitability into ours.

So it's really the same dynamics in those three markets as aggregates, and it's a function of the structure of those markets and the demand in those markets..

Got it. Thank you..

It is true that the acquisitions and divestitures we've made on balance will improve our reported – they have a positive impact on our material margins is the way I would think about it..

Got it. Thank you..

Okay. We'll go next to Timna Tanners with Bank of America Merrill Lynch..

Good morning, Timna..

Hey. Good morning, guys. I wanted to just touch base if we could on the cost side with cost inflation being a big theme across so much of the material space.

If diesel prices continue to creep up, then should we assume that that's immediately offset or that there's a lag effect there, is it small? And what kind of cost inflation is embedded in your guidance at this point?.

Well, I think as we said, our diesel impact in the first quarter was – diesel was around $0.11. And while it was a headwind, we still finished below year-over-year total cost of sales. I think that it will take time, as we say, always is to pass that along.

But it is – and you heard me talk about, it is happening, it will happen – but it will be throughout the year. As far as how we feel about our operating position, we said we got a few things to work off in Q2 from the storm and shipping effects, but we'll get those behind us and we're working had to do that.

And I think that our plants and operating folks are in good shape. And we're executing well, and that was underscored in our first quarter performance..

it's the capital; it's the quarry. Diesel is relatively small factor, a swing factor. But given the weight to value ratio, higher diesel creates a wider economic moat naturally around individual quarries. It's ultimately a good thing for us. There will be a lag in terms of it passing through the pricing, absolutely.

When it spikes up, like it did this quarter, you won't see it all flow through the same quarter. But even with an intermediate-term view, it's not something that I know our team is concerned about. In fact, strategically, we kind of like higher diesel prices. So we're in a little bit of a different position.

Now in an individual quarter in the very short-term, is it a drag? Yes. But strategically much less of an issue for us given that we own the key input than it would be for many other businesses..

That's understood. Thanks. And then, if you wouldn't mind, just can you give us any updated thoughts on M&A opportunities? Are they compelling small, large, any color that you can provide there? Thanks..

I would tell you kind of business as usual. There's plenty of them out there. We continue to be picky and make sure the ones that fit us are the markets that we want and to make sure we don't overpay and that we're disciplined and that plus the integration as we talked about. So, yes, they're still there.

Yes, we're still looking at them and, yes, we're going to be very selective in what we choose to pursue, much less what we choose to buy..

All right. Thank you..

Thank you..

Then, we'll go next to Stanley Elliott with Stifel..

Hey, guys. Thank you for fitting me in..

Hi, Stanley..

Most things have been asked, but I did have a quick question for you on California. Certainly, a lot of positive things to say out there.

Is there a way to parse out kind f that core business that you have versus SB1 or maybe kind of talk about your thoughts just as the general market as a whole ex-SB1?.

Yeah. We touched on that in the beginning, but for the sake of repeating myself, I will. All of 2018, we would tell you and what we have in our numbers and our plan is pre-SB1. If we get some SB1 in there, it will be a bonus for us for the year. The public side is coming on.

We had actually a down year in public in California in 2017; 2018, we are seeing it be up. They will help both our aggregates and asphalt business. All of that is pre-SB1. The private side continues to remain strong, particularly res. And we saw that the non-res is not solid.

And then, you heard me talk about price increases, very strong in Northern California and solid in Southern California. So, our operating performance is actually improved. This time last year, we were facing pretty tough floods in Southern California. Though we saw rain in March, we didn't see those kind of problems.

And I think throughout 2017, we did a lot of things in California to improve some specific large operations and we're seeing those results. We saw it in the first quarter and we'll see it throughout the year. So, our numbers while we're very excited about SB1, I would tell you that's post 2018 at this point.

If we get something, we will welcome it, we'll be thrilled with it, but I wouldn't expect in 2018..

Perfect. And then....

Stanley, in terms of the current outlook, a lot of people forget that in California, SB1 gets a lot of appropriate attention that there's been a very significant increase in this very local funding measure and other items and some of that will play out in our plans and more maintenance activity from a public side, overlay works, smaller projects, some of that is in our 2018 plan.

But for all the folks in SB1, people forget that there's a very large increase from things like Measure M or the local initiatives..

Yeah. No. That's fair. And then, a general theme at least from my takeaway is that the public side is looking a lot better than it was last year.

Do you think that's because of the change that the administration has put through on the regulatory front or do you think it's at state DOTs that finally have been able to catch up and be staffed and things like that to get projects out the door?.

In my mind, it would be the second half. It would be – and we've talked a lot about this, state DOTs are starting to catch up. They're starting to deploy those funds. They're starting to put them to work.

And that's both in – there's a lot of headlines about the big work and I named a few of them, but it's not just the big work, it is also a lot of small work, a lot of overlays or smaller road widenings. And you're just seeing them catch up, both to their funding and to the improved FAST Act funding..

Started to catch up.

Not all the way though?.

No. They've got a long ways to go..

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

Thank you..

And we'll go next to Brent Thielman with D.A. Davidson..

Thank you..

Hi, Brent..

Good morning..

Any guess how far off normalized levels the demand in Houston or kind of the Gulf Coast overall might be right now? I'm just trying to think about how far down that business went and kind of the upsides from here..

Yeah. It went down volume-wise double digit, probably a little bit or more than that..

Two years in a row..

Yeah. Two years in a row. And some of that, remember, we had very, very large energy projects that were very profitable because of our unique ability to deliver by ship, and we're very – so, they were very high priced, and all that all of a sudden went away. That, coupled with – you saw the private side and res and non-res go down.

The highway stuff has always been kind of a staple, but those two really hurt that market, the pricing in that market, the volume in that market, and the profitability. So, the important thing is we've seen a turn there, both on the private side with res, and you're starting to see – and the small non-res. Like I said, we're seeing the energy.

And the highway work in Coastal Texas and Houston has been good. It is growing. It continues to grow. And this will be a process to work through. It's not all of a sudden like we go right back to 2015 and 2018 in Coastal Texas. The important thing in this turn is moving the other way.

And we thought that was going to happen in 2017, and then we got slammed with hurricanes and storms. And that's also – we had to work out of that. So, we're looking forward to an improved year in 2018 and over the next couple years, getting back to what we saw in 2015..

Okay. That's helpful.

And then, Tom, the hang-up kind of executing these public jobs in Georgia southeast for weather-related reasons over the last, I guess, three quarters or so, has that held up the DOTs and kind of related agencies in terms of getting new work out just because there isn't the capacity to survey? And what I'm getting at, if that's the case, could we run into a situation where we have a hole or lag again in terms of those markets in working through the public side of things?.

I think what held up those big jobs – and obviously weather was an impact in the Q3 with hurricanes and troubles going to the southeast, but that didn't hold up the DOTs. The DOTs are still working on – those works had been letted – had been let. They have been awarded. And so, they were out there trying to get going.

Some of that was, there was – all of them were impacted by weather. Others were impacted by right of way issues, environmental issues, contractor issues. So, that I don't think was a drag on the DOT. In the meantime, the DOT on a parallel course is working on other jobs and other work. So, I don't think they're in series.

I will call it in parallel and the DOTs continue to get better at what they do and what they're doing. But as John pointed out, they've still got a ways to go including Georgia's..

And then some of the large contractors now are also ramping up their own capacity and getting adjusted to this, too..

Yes. And they did that in 2017..

We don't see a hole, but we're trying to be a little bit, I can say, cautious, bit as cautious in light of some very positive signals including around backlogs with respect to how quickly that turns into shipments, but not because it happens in series. It will still be happening parallel and will build on itself and begin to accelerate.

Some of that really is why we see more in 2019 and 2020 than we do in 2018..

Okay. Okay. Thank you. Appreciate it..

Thank you..

And this does conclude today's question-and-answer session. I'll turn the call back over to Tom Hill, CEO, for closing comments..

Thank you for your interest in Vulcan Materials Company and we look forward to updating you, as we move forward to what promises to be a good year for us. Thanks for being here today..

And this does conclude today's call. We thank you for your participation. You may now disconnect..