Rock Products

OCT 2016

Rock Products is the aggregates industry's leading source for market analysis and technology solutions, delivering critical content focusing on aggregates-processing equipment; operational efficiencies; management best practices; comprehensive market

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30 • ROCK products • October 2016 Figure 3: Private Equity ValuaƟons & Leverage All Transactons Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 # of Transactons 66 54 45 67 46 58 TEV/EBITDA 7.0x 6.3x 7.0x 6.6x 6.7x 6.8x Total Debt/EBITDA 4.0x 3.9x 4.0x 3.9x 4.0x 3.8x Senior Debt/EBITDA 3.3x 2.9x 3.1x 2.7x 2.7x 3.1x Source: GF Data Resources Aggregates Performance In 2016, publicly traded aggregates producers are outper- - In 2016, publicly traded aggregates producers are outper- forming the S&P 500 and the Dow Jones Industrial Average e forming the S&P 500 and the Dow Jones Industrial Average (DJIA) (Figure 4) with a 14.0 percent YTD return as of June e (DJIA) (Figure 4) with a 14.0 percent YTD return as of June 30, 2016. As seasonal construction picks up steam and con- struction activity as a whole continues to grow rapidly, the gap between aggregate producer returns and the general market have widened. This trend is expected to continue through 2016 given the current robust construction cycle underway. Vulcan Materials CEO Tom Hill pointed to two important factors in continuing this trend and delivering on projected results in Vulcan's Q2 results press release: "(1) the ability of our customers to recover weather-delayed volume from the second quarter, which can be a challenge in a grow- ing market, and (2) the absence of further delays in several large projects in key markets. And, as always, fourth quarter weather and the ultimate length of the construction season can impact our shipments in a given year." Construction Employment One of the most prevalent topics in the construction indus- try is the current shortage of qualified construction labor. NBC News recently found that there are approximately 200,000 unfilled construction jobs in the U.S. as reported by the National Association of Homebuilders and that the Department of Labor reported that the ratio of construction job openings to hirings is at its highest level since 2007. The Associated General Contractors of America monthly construction employment report for June reiterated these findings. Construction employment increased in 39 states between June 2015 and June 2016, although half the states shed construction jobs between May and June 2016. This shedding of jobs despite strong demand for construction labor is evidence of the significant decline in the availablity of experienced construction labor. Housing Starts At the end of July 2016, seasonally adjusted annual housing starts were 1.21 million, up 5.6 percent in relation to the same period in 2015. June 2016 numbers showed 1.19 million annual starts. The general consensus is that 1.5 million new homes are necessary on an annual basis to keep up with population growth and the replacement of old homes, given current homeownership rates of 62.9 percent, the lowest level since the Census Bureau began tracking homeownership rates in 1965. 3 Housing starts will need to grow an additional 24.0 percent to reach sustainable levels and growth will drive land development and infrastructure expansion benefiting the aggregates industry. Construction Materials Construction material prices rose 1.1 percent in June, but have fallen 2.5 percent year-over-year, according to an Asso- ciated Builders and Contractors analysis of Bureau of Labor Statistics data. As has been the story in recent months, the monthly price gain was driven mainly by oil prices, which expanded 17.0 percent for the month but are still down 20.6 percent from a year ago. Additionally, seven other key mate- rials prices rose on a monthly basis in June. •  Unprocessed energy material prices increased 8.3 percent. •  Fabricated structural metal product prices increased 0.7 percent. •  Prepared asphalt, roofing and siding product prices 0.6 percent. • Steel mill product prices increased 0.2 percent. • Concrete product prices grew by 0.2 percent. •  Several key materials prices declined in June including iron and steel, natural gas, and nonferrous wire and cable. Aggregates Material Trends Industry results in Q2 2016 again showed quarterly increases in pricing and volume compared to the same period in 2015 for cement, crushed stone and sand & gravel. The decline in asphalt prices related primarily to instability in oil prices. Cement The estimated portland cement consumption – 22.1 million metric tons (Mt) – increased by 1.3 percent in Q2 2016 com- pared to Q2 2015. Ready-Mix Concrete Prices continued to rise in Q2 as measured by the average ready-mix concrete net selling prices of U.S. Concrete, Vulcan Materials, Martin Marietta and Eagle Materials during the quarter. Quarterly volume data is not reported. Crushed Stone An estimated 377 Mt of crushed stone was produced and shipped for consumption in the U.S. in Q2 2016, an increase of Aggregates Market Report

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