Summit Materials net revenue increased 22.4 per cent to US$426.3m in the third quarter of 2015, compared to US$348.1m in the same period a year earlier. The increase in net revenue was primarily attributable to an increase in volumes and price across all lines of business, led by the West and Central regions. Net revenue grew organically by US$4.7m, or 1.3 per cent, compared to the prior year quarter.
Further adjusted EBITDA increased 55.2 per cent to US$120.4m, compared to US$77.6m in the prior year quarter, with growth in all regions. As a percentage of net revenue, further adjusted EBITDA improved to 28.2 per cent, compared to 22.3 per cent in the prior year quarter. Adjusted EBITDA by region in the third quarter 2015 compared to the prior year quarter was as follows: gross profit increased 46 per cent to US$159.5m, compared to US$109.3m in the prior year quarter. As a percentage of net revenue, gross margin improved to 37.4 per cent, compared to 31.4 per cent in the prior year quarter, primarily attributable to improved profitability in materials and products, in addition to a higher mix of revenue from materials and products as a result of organic improvements and acquisition activity.
Materials results
Net revenue from materials increased 60.9 per cent to US$129.5m, compared to US$80.5m in the prior year quarter. Aggregates volumes grew 21.9 per cent driven by 3.9 per cent organic volume growth and the remainder attributable to acquisitions. Aggregates organic price increased five per cent with the improvement due to higher prices across all regions.
Cement volume and price increased 77 per cent and 13.1 per cent, respectively, mainly attributable to the acquisition of the Davenport assets from Lafarge earlier this year, and an overall improved pricing in the market.
Gross margin from materials increased to 57.7 per cent, compared to 50.5 per cent in the same quarter of the previous year.
Products results
Net revenue from products increased 16.9 per cent to US$208.5m, compared to US$178.4m 3Q14. Ready-mixed concrete volumes increased 20.5 per cent primarily attributable to acquisitions. Ready-mixed concrete price increased five per cent, largely benefitting from the pass through of higher cement prices.
Asphalt volume and price increased 10.7 and 1.4 per cent, respectively, mostly reflecting stronger market demand with additional benefits to volume from acquisitions.
Gross margin from products increased to 26.7 per cent, compared to 23.1 per cent in the prior year quarter.
Acquisition update
During the quarter the company completed the acquisition of a 1.2Mta capacity cement plant in Davenport, Iowa along with seven cement distribution terminals. Summit is now the third-largest cement producer along the Mississippi River system with 2.4Msta of cement capacity across its two cement plants with eight distribution terminals. The Davenport Assets were integrated into the operations of Continental Cement Co, an existing wholly-owned subsidiary of Summit.
The company also acquired LeGrand Johnson Construction Co, a vertically-integrated construction materials company based in Utah and servicing the northern and central Utah, western Wyoming and southern Idaho markets.
Commenting on the third-quarter performance, Tom Hill, CEO of Summit, stated: "The significant improvement in our results reflects our sustained efforts to capitalise on steadily rising demand trends across our markets, the contributions from our highly strategic acquisitions and continued progress on our internal initiatives.
"We were especially pleased to record a 55.2 per cent increase in our further adjusted EBITDA representing another quarter of incremental margins in excess of 50 per cent. This is a strong accomplishment and largely tied to the successful completion and ongoing integration of our Davenport Assets acquisition, which remains on track. Our expanded cement network was a meaningful contributor to the 600 basis point increase in our gross margin to 37.4 per cent, reflecting a 970 basis point increase in the mix of our gross profit from materials, increased profitability across all of our lines of business and lower energy costs.
"On an organic basis, aggregate price increased five per cent year-over-year, which is a third straight quarter of improved pricing, highlighting our disciplined focus on price optimisation, especially on incremental project activity in our private and public construction markets. Looking more broadly, our organic prices increased across all of our lines of business reflecting the relative health and stability of our geographic footprint and our ability to enhance our profitability at each stage of our vertically integrated network of businesses."
Market trends
In Texas Summit Material's markets that were affected by severe weather during the first half of 2015 have experienced a rebound in activity during the second half of 2015. In Houston the company saw continued strong demand in traditional residential and non-residential markets. Concerning the broader market, the company said it is encouraged by the favourable long-term outlook for construction activity, especially in its West and Central regions.
"Across the nation, state budgets are improving, as are the local political climates for public infrastructure. As a result, many states, including Texas, Iowa, Utah and Idaho, are allocating additional resources to invest in public construction. Additionally, we have experienced steady improvement in private non-residential and residential activity which we anticipate will continue," Mr Hill noted.
