Summit Materials, Inc. (NYSE:SUM), a leading vertically integrated construction materials company, today announced results for the third quarter of 2016. For the three months ended October 1, 2016, the Company generated basic earnings per share of $0.61 and adjusted diluted earnings per share of $0.73 on adjusted net income of $73.5 million, an increase of more than 15% when compared to the prior year period.
“Sustained organic growth in aggregates and cement pricing, coupled with improved cost discipline and margin capture, contributed to significant year-over-year increases in operating cash flow and net income in the third quarter,” stated Tom Hill, CEO of Summit Materials. “Materials gross profit increased nearly 30% on a year over year basis, representing more than half of total gross profit in the period. Overall, total gross profit margin increased 290 basis points on a year-over-year basis to 40.3% in the third quarter 2016.”
“Total sales volumes increased across all lines of business in the third quarter, due mainly to the benefit of acquisitions completed during the past twelve months,” continued Hill. “On an organic basis, total sales volumes of aggregates and products declined due to a combination of severe summer weather in most of our core regional markets and tough prior-year comparisons in Vancouver. Looking ahead, we believe that our regional markets remain in the early stages of a multi-year recovery in public infrastructure, residential and non-residential construction spending, as supported by favorable long-term demographic trends,” continued Hill.
“For the nine months ended 2016, approximately 40% of our aggregates revenues were related to public infrastructure projects,” continued Hill. “Entering 2017, we anticipate an acceleration in public infrastructure spending from current levels, supported in part by the passage of the FAST Act and state-level funding.”
“We remain a disciplined acquirer of strategic assets that serve to further entrench Summit as a leader in markets where our scale and integrated model are proven competitive advantages,” stated Hill. “During the third quarter, we completed four small bolt-on acquisitions, including one transaction that serves to expand our materials distribution capabilities through two acquired terminals in the Louisiana market. We anticipate financial contributions from these transactions will begin to contribute meaningfully in 2017,” continued Hill.
“Net leverage declined to 4.3x at third quarter-end, as Adjusted EBITDA increased more than 20% on a year-over-year basis to $146.2 million,” stated Brian Harris, CFO of Summit Materials. “At quarter-end, we had more than $240 million of cash and availability under our revolving credit facility, providing us with sufficient flexibility with which to support the growth of our existing business. We continue to maintain a high degree of capital discipline, even as we regularly review potential acquisition opportunities that align with our materials-based growth strategy. As before, we remain committed to reducing outstanding net leverage, with the objective of achieving a net debt to Adjusted EBITDA metric of 4.0x by year-end 2016.”
“We are pleased to host our first-ever Investor Day in Houston on November 15, 2016, which will be streamed live via webcast in the investor relations section of our corporate website,” noted Hill. “We believe Summit is uniquely positioned for profitable expansion in the years ahead and intend to provide important details around our roadmap for strategic growth at this important event.”
Third Quarter 2016 | Financial Performance
Net revenue increased to $480.2 million in the third quarter 2016, versus $426.3 million in the prior year period. The year-over-year improvement in net revenue was primarily attributable to higher acquisition-related sales volumes across all lines of business, coupled with improved organic and acquisition-related pricing on aggregates, cement and ready-mix concrete.
The Company reported third quarter 2016 basic earnings per share of $0.61 on net income of $61.1 million. On an adjusted basis, the Company reported third quarter 2016 earnings per share of $0.73 per diluted share on net income of $73.5 million, using 100.0 million weighted-average total shares. The shares of Class A common stock are issued by Summit Materials, Inc., and as such the earnings and equity interests of non-controlling interests, including LP units, are not included in basic earnings per share. Summit believes adjusted net income and Adjusted EPS are more representative of earnings performance, as these measures exclude the non-operating impact to earnings per share of any potential exchange of LP units for Class A common stock in any given quarter.
Operating income increased 5.9% to $88.3 million, compared to the prior year period. Gross profit increased 21.3% to $193.6 million, compared to the prior year period. As a percentage of net revenue, gross profit margin increased 290 basis points to 40.3% in the third quarter 2016, due mainly to improved gross margins across most lines of business and a higher percentage of revenue from aggregates and cement.
Adjusted EBITDA increased 21.4% to $146.2 million, compared to the prior year period, with growth across all operating segments. As a percentage of net revenue, Adjusted EBITDA improved to 30.4%, up 220 basis points from the prior year period. Operating segment Adjusted EBITDA in the third quarter 2016 was as follows:
West Segment: Adjusted EBITDA increased 6.6% million to $63.7 million in the third quarter 2016, when compared to the prior-year period. A year-over-year decline in organic Adjusted EBITDA growth was more than offset by acquisition-related EBITDA contributions, including the impact of acquisitions completed in 2015 and 2016.
East Segment: Adjusted EBITDA increased 40.6% to $51.6 million in the third quarter 2016, when compared to the prior year period. The East segment reported Adjusted EBITDA growth in the period, both including and excluding acquisitions. This performance was attributable to a higher mix of revenue from aggregates, organic improvement in aggregates and ready mix, and the impact of acquisitions.
Cement Segment: Adjusted EBITDA increased 27.6% to $40.3 million, when compared to the prior year period, due mainly to increased sales volumes, higher average prices attributable to stronger residential market demand and improved operational efficiencies, including a reduction in unscheduled downtime, cost reductions and improved production processes.
Third Quarter 2016 | Results by Line of Business
Aggregates Business: Aggregates net revenues increased 25.4% to $78.3 million in the third quarter 2016, when compared to the prior year period. Aggregates gross profit as a percentage of aggregates net revenues increased 490 basis points to 71.7% in the third quarter 2016, when compared to the prior year period. Including acquisitions, sales volumes increased 16.8% and average sales price increased 8.1%, when compared to the prior year period. Excluding acquisitions, organic sales volume declined 3.4% and organic average sales price increased 4.6%, when compared to the prior year period. Organic sales volumes were impacted in the third quarter by a combination of lower volumes in: (1) the Vancouver, B.C. market, given the completion of a large sand river project in 2015; and (2) the Texas market, given temporary flooding during the period. Aggregates organic average sales price was strong across all major markets in the third quarter.
Cement Business: Cement net revenues increased 22.4% to $81.2 million in the third quarter 2016, when compared to the prior year period. Cement gross profit as a percentage of cement segment net revenues was 48.9% in the third quarter 2016, essentially flat with the prior year period. Sales volumes increased 14.4% and the average sales price
increased 7.0% in the third quarter, in each case when compared to the prior year period. Cement volumes increased on a year-over-year basis as a result of the Davenport acquisition in July 2015, while cement prices improved as a result of favorable overall market conditions.
Products Business: Net revenues from ready-mix concrete, asphalt and other products increased 8.4% to $226.8 million in the third quarter 2016, when compared to the prior year period. Products gross margin as a percentage of product net revenues increased 180 basis points to 28.4%, when compared to the prior year period. Including acquisitions, sales volumes of ready-mix concrete and asphalt increased 16.6% and 2.7%, respectively, while average sales prices increased 0.6% and declined 7.7%, respectively. Excluding acquisitions, organic sales volumes of ready-mix concrete and asphalt declined 2.8% and 7.9%, respectively, while average sales prices increased 1.7% and declined 7.1%, respectively. The organic decline in products volumes was related to a less favorable geographic sales mix, coupled with temporary budgetary constraints on public infrastructure spending in Kansas and Kentucky.
Liquidity and Capital Resources
At October 1, 2016, the Company improved its leverage metrics as compared to July 2, 2016 with cash on hand of $31.6 million, total outstanding debt of $1.5 billion and a borrowing capacity of $209.4 million. The borrowing capacity is net of $25.6 million of outstanding letters of credit, and is fully available to the Company within the terms and covenant requirements of its credit agreement.
Financial Guidance & Business Outlook
Based on current market conditions, the Company is reiterating its prior full year 2016 Adjusted EBITDA guidance to be in the range of $360.0 million to $370.0 million, versus Adjusted EBITDA of $287.5 million in the full-year 2015. The Adjusted EBITDA outlook includes the successor period impact for acquisitions completed through today’s date.
For the full year 2016, the Company is reiterating its gross capital expenditures guidance to be in the range of $150.0 million to $170.0 million, which includes several profit-improvement projects, mainly in aggregates facilities, which stand to increase capacity and operational efficiency. Longer-term, the Company expects gross capital expenditures to approximate 6% to 7% of net revenue per annum.
Webcast and Conference Call Information
Summit Materials will conduct a conference call at 11:00 a.m. Eastern Time (9:00 a.m. Mountain Time) on Wednesday, November 2, 2016 to review third quarter 2016 results, discuss recent events, and conduct a question-and-answer period. A webcast of the conference call and presentation slides to be referred to on the call will be available in the Investors section of Summit’s website at investors.summit-materials.com. To listen to a live broadcast, go to the site at least 15 minutes prior to the scheduled start time in order to register, download, and install any necessary audio software.
About Summit Materials
Summit Materials is a leading vertically integrated materials-based company that supplies aggregates, cement, ready-mix concrete and asphalt in the United States and British Columbia, Canada. Summit is a geographically diverse, materials-based business of scale that offers customers a single-source provider of construction materials and related downstream products in the public infrastructure, residential and nonresidential, and end markets. Summit has a strong track record of successful acquisitions since its founding and continues to pursue growth opportunities in new and existing markets. For more information about Summit Materials, please visit www.summit-materials.com.
