Dear Shareholders & Friends

In 2018, we executed on our goals and achieved success the right way — the Vulcan Way — through a steadfast commitment to our shareholders, customers, employees and the communities we serve. Along the way, we continued Reaching Higher. We delivered pre-tax earnings growth and enhanced profitability while also growing the business in strategic locations, even as we faced severe weather events that disrupted operations in some states for weeks at a time. We advanced our world-class safety performance, improving on our record-setting results from the previous year. With a clear and compelling strategy, a lean and locally-led operational structure, and unparalleled positions in attractive long-term growth markets, we are well-equipped to take advantage of market opportunities or market challenges. And we are especially well-situated to benefit as infrastructure demand in key Vulcan states continues to grow, fueled by substantial increases in state and local funding.

Even though the year provided plenty of headwinds for the construction industry, our people were more than up to the challenges we faced. Despite weather disruptions, a 32 percent increase in the cost of liquid asphalt, and a 25 percent increase in the cost of diesel fuel during the year, we delivered strong top and bottom line growth — a testament to our operating discipline and the talent of our people. For the year we increased total revenues, earnings from continuing operations before taxes, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), while decreasing our overhead expenses as a percent of total revenues. We finished the year with adjusted earnings from continuing operations of $4.05 per diluted share, compared to $3.04 per diluted share in the previous year, and with same-store flow-through of incremental aggregates revenue to the bottom line of 64 percent.

We performed well in 2018, and I am confident that we will continue Reaching Higher to deliver even stronger results in the future as we benefit from the operational strength of our business and improving market trends in the public sector.

Dramatic Growth in Public Infrastructure Funding

We begin 2019 on the cusp of a major expansion in public infrastructure construction demand. State transportation funding legislation and local ballot measures are bringing about important increases in public spending for much needed projects and are finally beginning to generate new highway construction and the repair and maintenance work necessary to address the country’s failing infrastructure — all projects that depend upon aggregates as the fundamental building block.

As one example of many, we are just beginning to benefit from highway work in California made possible by SB-1, The Road Repair and Accountability Act, signed into law in 2017. SB-1 provides an additional $52.4 billion over a ten-year period to fund the state’s dilapidated transportation infrastructure, essentially doubling prior funding. As the largest producer of both aggregates and asphalt in California, we are uniquely positioned to serve SB-1 projects in the Golden State. We expect greater demand for aggregates and asphalt from these projects in 2019 and for years beyond, as new highway work and other major transportation projects get underway.

The same trends are occurring in other Vulcan-served states. In fact, nine of our key states that generate almost 80 percent of our revenue have passed legislation over the last three years that raises their transportation infrastructure funding by nearly 60 percent over 2015 levels. California, Florida, Georgia, Maryland, North Carolina, South Carolina, Tennessee, Texas, and Virginia have all stepped up to address their transportation infrastructure needs and boost their economies.

Altogether, state laws and local initiatives to increase transportation infrastructure funding have added more than $20 billion per year of funding capacity in just these nine Vulcan states. To put it in perspective, that’s nearly half the annual amount provided to all 50 states under the federal transportation law, the Fixing America’s Surface Transportation (FAST) Act. We expect more Vulcan-served states to follow suit in 2019 and the following years. The momentum and need is there. In last November’s elections, 352 local transportation funding initiatives appeared on ballots in 31 states, and 79 percent of them were approved by voters. Voters want better infrastructure. Many of America’s political leaders are waking up to that fact.

We are excited about accelerating public sector growth. At the same time, demand from private sector projects has remained stable in our markets, providing a solid base for overall growth. In fact, private construction activity has continued to improve in several of our important markets, particularly housing and nonresidential construction in the South and West.

Overall, we see significant room for growth, with demand for aggregates still below historical averages, and well below past peaks in demand, even as population and economic activity continue to increase in our key markets. We believe that we are in the middle stages of the market upturn that began more than five years ago. We see significant upside in revenues and profitability, and we are working to ensure that our unit cost of production per ton of product sold — already the best in the industry — continues to improve, resulting in even stronger profitability.

Hand-in-hand with our sharp focus on operational excellence, we also continued our leadership in proactive capital stewardship. We maintained excellent liquidity, reinvested in our core operations, maintained our investment grade credit rating, successfully pursued profitable growth opportunities, and returned $282 million to shareholders through dividends and share repurchases, an increase of $89 million over the previous year.

The Vulcan Way

Value is created and sustained not only though strong financial results, but through a steadfast, long-term commitment to our customers, employees, communities, and the environment. The construction materials we provide create more than just strong financial results — they build stronger communities. Our materials are the building blocks that make possible the roads and bridges, schools, houses, public and private buildings, hospitals and places of worship for communities throughout America.

Beyond infrastructure, we are also focused on building stronger communities by giving back and contributing to many worthwhile civic and cultural initiatives that are important to us and to our neighbors.

We are positive, long-term members of dynamic, thriving, and growing communities. We are proud of this social responsibility commitment — doing the right thing, the right way, at the right time. That is the cornerstone of our philosophy, and we call it “the Vulcan Way.”

It is a fundamental commitment for us. It guides everything that we do, and we are constantly striving to achieve more. We believe in encouraging and enabling our people to accomplish great things, both at Vulcan and within our communities. The backbone of Vulcan is our people, and our people hold themselves to the highest standards.

The most important aspect of our commitment to our people is keeping them safe. We are an industry leader in safety, and that is very important to us. We take our record of excellence seriously, and we are committed to improving on it. Our 2018 safety record was even better than our world-class 2017 performance, remaining at less than one injury per 200,000 employee-hours worked. Our goal is zero injuries in the workplace.

We believe that is achievable. In fact, in the past 12 months, 94 percent of our facilities have not had an employee lose a single hour of work due to an injury. It’s a well-earned achievement, the outcome of a relentless focus on the safety and well-being of our people.

Developing Our People — Aiming Higher

We are also highly focused on the development and growth of our people. We are all working to continually improve our performance and to help each other do it. We are investing not just in our employees’ safety, but also in their professional advancement and growth as leaders.

Our leaders and teams work from carefully developed SMART1 goals. They share them, and they revise and update them, with a constant eye on continuous improvement and performing at the top of their game no matter what is thrown at them. Our work together is exciting, energizing, and fulfilling. That is one reason why our Organizational Health Index scores, as measured by McKinsey & Company and compared to 1,700 other companies, are consistently among the highest. Our employees perform at Vulcan with a great deal of satisfaction in the work that they do, but they are also determined to always get better.

Sustainability and Environmental Stewardship

We take great pride in our sustainability and environmental stewardship initiatives, which underpin our commitment to long-term growth. Vulcan’s operations ended the year over 98 percent citation-free in both state and federal regulatory inspections. We are also continually working to increase energy efficiency and reduce emissions. Our operations are not a major source of greenhouse gas emissions as measured by the U.S. Environmental Protection Agency. Nevertheless, we have reduced greenhouse gas emissions by more than 49 percent since 2015. And unlike metal mines, there is no toxicity associated with by-products from our quarries. These by-products can be reclaimed and re-blended into saleable materials. However, in no way does that diminish our commitment to do better every day in protecting the environment, and we are always striving to drive further improvements in environmental stewardship.

Every site Vulcan operates has unique environmental characteristics that call for a tailored, site-by-site stewardship strategy that includes a strong focus on water re-use and recycling. Our commitment to sustainable growth is also demonstrated by our recent investment in two new, state-of-the-art ships that serve important and growing markets on the U.S. Gulf Coast and up the Atlantic coast as far as Charleston, South Carolina. Compliant with Energy Efficient Design Index standards, these ships have much lower emissions and are far more fuel efficient than our prior fleet.

We focus intently on the environment when our quarries are in use, but we are also focused on their best use when production is completed, looking far into the future. More than forty Vulcan operations are certified by the international Wildlife Habitat Council (WHC) in recognition of our creation and preservation of wildlife habitats at these sites. We employ extensive land reclamation practices at our sites as we look to the end of their productive life, while also holding thousands of acres of land in conservation easements. Proper stewardship of the land, for the long term, is of great importance to us. Our team at Vulcan’s Calica Quarry in Mexico, for instance, has been recognized by the Mexican government for its reforestation program that produces more than 20,000 plants and trees from our nursery there — plants that are native to the land in Mexico’s Yucatán Peninsula. Over the last 15 years, Vulcan’s Calica facility has continued to receive “Clean Industry” certificates for outstanding environmental performance as determined and issued by PROFEPA, Mexico’s federal environmental protection agency in charge of enforcing environmental laws.

In this year’s annual report, we describe some of our investments in employees and in environmental sustainability. These investments are the right thing to do, are good for our business, and have helped us deliver superior performance.

In closing, I’m extremely proud of our resilience in 2018. We faced no shortage of challenges, but our people still delivered impressive results and positioned us extremely well for 2019 and the ensuing years. We looked out for each other, for our Company, and for our communities and the environment, all consistent with our sharp focus on creating long-term value for shareholders.

We are excited about the future and committed to capitalizing on the opportunities before us in the right way — the Vulcan Way. Our customers, partners, communities, and shareholders have come to expect a world-class level of commitment, service and focus from us, and we will honor that expectation by always Reaching Higher.

As always, thank you for your support and investment in Vulcan Materials.


Tom Hill
Chairman, President and Chief Executive Officer

1 “Specific, Measurable, Achievable, Relevant, Time-bound”