Vulcan Faces Credit Rating Cut - Analyst Blog

Vulcan Material Co.’s (VMC ) corporate credit rating has been pruned to “BBB-” from “BBB” by the Standard & Poor’s Ratings Services (S&P). S&P assesses that the company’s performance will not match the expectations for the upcoming quarters. Its rating outlook, however, stays “stable”.

 

The rating agency pointed out that the company’s second quarter operating earnings and EBIDTA underperformed expectations. The miss was largely due to lower aggregate pricing, higher fuel costs and higher cost of liquid asphalt. Aggregate shipments failed to mitigate the negative impacts.

 

However, the stable outlook is maintained as the second half of 2010 is expected to show some improvement. Increased highway and infrastructure spending may add substantially to the company’s volume and hence, profitability.

 

The high interdependence between the currently unstable housing and the construction industries has caused the latter to suffer. The housing markets of Florida and California are among the worst affected, which constitute Vulcan’s biggest markets.

 

Moreover, increased competition from companies such as Cemex (CX), Cement Roadstone Holdings (CRH), Lafarge Coppee SA (LFRGY) and Martin Marietta Materials Inc. (MLM) will also pose serious problems for Vulcan’s business in the near future.

 

The company has recently started shifting its focus from private projects to public ones such as highways, roads and bridges. Such projects deliver both certainty and consistency in terms of business and income even in the case of economic fluctuations.

 

Vulcan recorded a net profit of $20.5 million or 15 cents per share in the second quarter ended on June 30, 2010 compared with the year-ago profit of $15.6 million or 14 cents per share and the Zacks Consensus Estimate of 24 cents per share. Total revenues grew marginally by $14 million over the last year quarter’s revenue of $722 million.