Why We're Looking Past Weather Disruptions on This Holding
Pricing and margins are the name of the game for this construction play as concrete & aggregate volumes improve.
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While the stock market has moved off its earlier highs from this morning, we are seeing a muted response to the June-quarter miss reported by Vulcan Materials VMC. Taking the sting out of lower-than-expected top and bottom-line results, which were largely weather driven, Vulcan reaffirmed its adjusted EBITDA target for this year of $2.35 billion-$2.55 billion.
In our June Monthly Roundup, we discussed how weather weather-related issues in the quarter were a potential headwind for concrete and aggregate construction, and we would argue investors were expecting a modest miss for the quarter. That helps explain the trading range between $255-$275 we’ve seen in VMC shares since early May.
What we find in the company’s reiterated EBITDA guidance is a stronger-than-usual acceleration in profit growth in H2 2025. Normally, the second half of the year drives more than half of Vulcan's annual sales and 53%-55% of its adjusted EBITDA for the year.
Given the inclement weather experienced in H1 2025, we are likely to see H2 2025 account for a larger-than-usual piece of annual revenue as catch-up activity is augmented by new highway construction and other drivers of non-residential construction activity, including data center. As those volumes improve, we should see greater margin leverage associated with higher year-over-year gross profit per ton, driving adjusted EBITDA and EPS higher. Over the trailing 12 months, Vulcan’s ability to drive price lifted its gross margin to 31.5% compared to 29.7% over the preceding 12-month period.
That combination of higher volumes and margins keeps us comfortable with Vulcan’s 2025 EBITDA guidance. With upside potential of about 15% to our current $310 price target, we have enough upside to maintain our One rating. As we collect construction data points for the current quarter, we’ll revisit that target and our rating as needed.
The next known data point will be Friday’s Construction Spending report, but that will be for June, not July. We won’t get the July report until early September. As such, we’ll be interested in comments about H2 2025 construction prospects from competitor Martin Marietta MLM as well as construction-related companies, such as Caterpillar CAT, Tudor Perini TPC, and Jacobs Solutions J.
At the time of publication, TheStreet Pro Portfolio was long URI.
