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Vulcan Materials Co (Holding Co) (VMC 0.28%)
Q3 2019 Earnings Call
Nov 6, 2019, 11:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Ladies and gentlemen, please stand by. Good morning, ladies and gentlemen, and welcome to Vulcan Materials Company's Third Quarter Earnings Conference Call. My name is Jack, and I will be your conference call coordinator today. [Operator Instructions]
Now, I would like to turn the call over to your host, Mr. Mark Warren, Vice President of Investor Relations for Vulcan Materials. Mr. Warren, you may begin.
Mark D. Warren -- Investor Relations
Good morning everyone and thank you for joining our third quarter earnings call. With me today are Tom Hill, Chairman and CEO; and Suzanne Wood, Senior Vice President and Chief Financial Officer.
Before we begin, I would like to call your attention to our quarterly supplemental materials posted at our website vulcanmaterials.com. Additionally, a recording of this call will be available for replay at our website later today.
Please be reminded the comments regarding the company's results and projections may include forward-looking statements which are subject to risks and uncertainties. These risks, along with other legal disclaimers are described in detail in the company's earnings release and in other filings with the Securities and Exchange Commission.
Finally, you can find a reconciliation of non-GAAP financial measures and other related information in both our earnings release and at the end of our supplemental presentation.
Now, I'd like to turn the call over to Tom.
Thomas Hill-- Chairman, President and Chief Executive Officer
Thank you, Mark, and thanks to everyone for joining the call today. We appreciate your interest in Vulcan Materials. Our third quarter results reflected another strong performance with adjusted EBITDA improving 15% as compared to last year. This was driven primarily by the Aggregates segment which experienced higher shipments, better pricing and improve unit margins.
For the quarter. Aggregate shipments increased by 8% both on a reported and same-store basis. But remember the quarter did include an extra day. If we normalize the number of shipping days, same-store volume increased by 6%, in line with expectations. This growth in volume reflects the solid underlying demand fundamentals in our markets.
The fundamentals, which include growth in population and households and in jobs are two to three times the growth of other markets over the next 10 years. Shipments in certain markets in the Southeast, Mid-Atlantic and Texas were particularly strong. Shipments in California were also better than last year due to the strength in Southern and Central California.
Freight adjusted sales prices rose by 5.6% and importantly the increases were widespread. On a mix-adjusted basis prices improved by 5% both product mix and geographic mix were slightly favorable.
Gross profit per ton grew by 9% in the quarter to $5.87. We are pleased with the progression of our unit profitability. In fact, this quarter represented the fifth straight quarter of high single-digit or low double-digit year-over-year improvement.
The four strategic initiatives reviewed at our recent Investor Day contributed to this outcome and offer further opportunities for margin enhancement. On a trailing 12-month basis, the aggregate same-store incremental flow-through rate was 60% which is in line with our long-term guidance.
Through the first nine months of the year, aggregates shipments have exceeded the upper end of our expectations. Pricing has increased in line with our expectations and we have delivered good incremental earnings. This improved aggregates performance will partially be offset by lower non-aggregates gross profit.
Our non-aggregates gross profit is now expected to be below original expectations, but in line with the prior year. That said we are well-positioned to deliver another year of double-digit earnings growth and should carry good momentum into 2020 in all product lines.
We expect full year 2019 adjusted EBITDA of between $1.25 billion and $1.33 billion on track with our expectations at the beginning of the year. Looking ahead to next year, we expect another year of strong earnings growth. Based on early successes of our four strategic initiatives we are confident that our margin expansion will continue.
With respect to 2020 aggregates shipments, we anticipate low to mid single digit growth at this time. Vulcan served markets should continue to benefit from public construction demand led by highways. State and local level transportation funding has increased significantly in our key states and it will be a multi-year contributor to our future results.
Most of the approved funding is firewall and can be only used for transportation. Therefore it's not a matter of if but win. The demand visibility is there but the timing of shipments is not precise given the number of state and local transportation agencies involved and the relative complexity of large projects.
On the private side, which accounts for the other half of our aggregate shipments, we continue to have solid shipment momentum in most of our markets. It's important to remember that over the medium to long-term, the underlying demand fundamentals including population and employment growth remain firmly in place and underpin long-term growth in residential and non-residential construction. And we are in the best position with our geographic footprint to capitalize on this trend.
Now turning to price, we expect a positive environment again next year. The visibility of public demand should help drive sales price increases similar to 2019 mid-single digit range. Together with disciplined capital allocation priorities, the compounding effect of price and unit margin improvement will position us to grow our discretionary cash flows and improve our return profiles in 2020. We will report out our final 2020 guidance in February.
Now I'll turn the call over to Suzanne for some additional comments on the results. Suzanne?
Suzanne H. Wood -- Senior Vice President, Chief Financial Officer and Secretary
Thanks, Tom, and good morning to everyone. Clearly, the third quarter represented another quarter of strong earnings growth for our Aggregates business, but we also made progress in our non-aggregates segments. Asphalt segment gross profit was $28 million, an increase of $4 million or 16% as compared to the prior year.
Asphalt mix shipments increased by 18% and average selling prices rose by 3%. The significant volume increase related to a number of projects across our footprint. The average unit cost for liquid asphalt was 6% higher this quarter compared to the same period last year. This compares favorably to the second quarter when our liquid asphalt costs were 16% higher year-over-year.
We expect liquid cost to remain stable throughout the remainder of the year. As a result, asphalt material unit margins were slightly lower than the prior year and therefore the gross profit improvement was driven by volume. Concrete segment gross profit was $15 million or 3% higher than the prior year quarter. Both volume and average selling prices improved.
As Tom said, for the full year, we now expect our gross profit from the non-aggregates segment to be in line with the 2018 level. This change in our outlook is due mostly to the timing of shipments in our asphalt business.
With respect to SAG costs, our trailing 12 month expense as a percentage of revenue declined by 40 basis points. Similar to last quarter, we incurred higher compensation-related expense, including incentives that are tied to earnings expectations and the share price. We also continue to make investments to accelerate the benefits derived from our sales and operational initiatives. For the full year, we remain on track with our expectations and will focus on further leveraging these costs in 2020.
Turning to the balance sheet, our leverage position and debt structure provide us with significant flexibility as we continue to execute our business plan. Our leverage ratio at September 30, was 2.2 times, well within our target range. The weighted average maturity of our debt is 14 years and our weighted average interest rate is 4.4%.
On Page 8 of the supplemental slides, you'll find information on our discretionary cash flow expectation of $825 million for the full year. As a reminder, we define discretionary cash flow as mid-range adjusted EBITDA guidance, less working capital change, interest, taxes and operating and maintenance capital.
During the quarter, we closed no acquisitions, but we did invest $3 million in share repurchases. For the full year, we reiterate our expectation of spending approximately $250 million on operating and maintenance capex and approximately $200 million on internal growth projects, which will further strengthen the footprint and generate future earnings.
Our return on investment continued on its positive trajectory. For the trailing 12 months ended September 30, our ROI was 13.8% on an adjusted EBITDA basis. This compares to 12.6% for the 2018 fiscal year.
Before I hand over to Tom. I'll make one comment on our guidance. With a quarter to go, we remain on track with our full year expectations. The midpoint of which has remained unchanged at $1.29 billion. When we gave our initial 2019 annual guidance we tried to be thoughtful about it. That approach served us well because we have consistently performed within those parameters and therefore expect to deliver another year of double-digit earnings growth.
And now I will turn the call back over to Tom for some closing remarks.
Thomas Hill-- Chairman, President and Chief Executive Officer
Thanks, Suzanne. Before we go to Q&A, I want to take this opportunity to thank the men and women at Vulcan for their hard work and dedication. We have taken good care of our customers and have improved our business processes and disciplines. Importantly, they have promoted our strong safety culture and are responsible for delivering our industry-leading safety metrics.
As we move forward, we will continue to capitalize on our strengths. Our aggregates focus business, our outstanding geographic footprint and local execution capabilities particularly around those things we can control. Our four strategic initiatives will ensure continued improvement in unit margins.
Now we'll be happy to take your questions.
Questions and Answers:
Operator
[Operator Instructions]. We will start with Stanley Elliott with Stifel.
Thomas Hill-- Chairman, President and Chief Executive Officer
Good morning, Stanley.
Stanley Stoker Elliott -- Stifel -- Analyst
Hey, good morning everyone. Thank to you guys for taking my question. Can you comment on what you're seeing on the cost side, I know you like to talk about the incrementals on more of a trailing basis as opposed from quarter-to-quarter. Were there any one-off stripping costs or anything else that might have popped up just curious?
Thomas Hill-- Chairman, President and Chief Executive Officer
Yeah. Third quarter, the cost increase really based in two areas. One was planned higher repair maintenance on stationery equipment, particularly some big crusher repairs that we did or rebuilds that we did and also we took one of our big drag lines down in Florida and made some major repairs on it.
The second area was extra Blue Water shipping costs. As we took our older ships into dry-dock and we're using contract ships at much higher cost that ship is back in the fleet at this point. So that's behind us.
And you pointed out year-to-date, we've also not so much in the quarter but year-to-date, we experienced some higher stripping costs in preparation for higher volumes from highway demand. If you think about all these costs are planned long-term investments in anticipation of improving volumes, but again as you talked about, if you look at what we always guide you to the trailing 12 month same-store flow-through was at 60%, which is where we would guide you to be.
Stanley Stoker Elliott -- Stifel -- Analyst
Perfect.
Suzanne H. Wood -- Senior Vice President, Chief Financial Officer and Secretary
Yeah. And picking up on -- just picking up on Tom's point, I'd also add that, as he said, we always guide toward 60% on a trailing 12-month basis. And if you look at just pick the last eight quarters, we've got quarters ranging and with flow throughs in the specific quarter ranging from 41% to just over 100%.
So it's really difficult to look at a particular quarter when you've got 350 mines and lots of different things going on. That's why we always guide to the trailing 12 month to smooth some of those things out, Stanley.
Stanley Stoker Elliott -- Stifel -- Analyst
Perfect. Understood. And then just as the second question, kind of looking out to 2020 on the low to mid single-digit volume growth. I know you don't want to give too much color here, but maybe a couple of states that maybe you're most excited about looking at the upcoming year?
Thomas Hill-- Chairman, President and Chief Executive Officer
Yeah, I would point you to the really pretty much across the footprint, but the Mid-Atlantic Southeast will be strong, parts of Texas will be strong, California with SB-1 kicking in should be good. As you said, is we are actually right in the middle of the planning for 2020. So it's early on the private side, we still see growth in shipments to res and non-res sectors and they've been strong, particularly strong in '19. If you kind of said – what are you -- there’s some watches there which we called out San Francisco, Dallas, Miami and Chicago.
But we have talked about Nashville, but Nashville we actually think has gotten a second win is doing quite well on the private side. We've got most of our markets shipping really strong on private. Highway demand and shipments that we talked about is going to be very good. And we'll continue to grow not just 2020 but the number of years to come.
We've tried to be thoughtful in that low to mid single digit in ’23 because it's really early in the process and we'll obviously give you a much better look at this in February.
Stanley Stoker Elliott -- Stifel -- Analyst
Understood. Thank you all for the time. Best of luck.
Thomas Hill-- Chairman, President and Chief Executive Officer
Thank you.
Operator
[Operator Instructions] I'll now move to the next question, Kathryn Thompson with Thompson Research Group. Please go ahead.
Thomas Hill-- Chairman, President and Chief Executive Officer
Good morning, Kathryn.
Suzanne H. Wood -- Senior Vice President, Chief Financial Officer and Secretary
Good morning.
Kathryn Thompson -- Thompson Research Group -- Analyst
Okay, thank you for taking my -- morning. Good morning. Thank you for taking my questions today. Shifting to California, I know that SB-1 has been great. Would love to get an update on progress and give any color of what is the impact the fires have had on construction projects? Thank you.
Thomas Hill-- Chairman, President and Chief Executive Officer
Yeah. SB-1 continues to be well. We saw it double and up through from where it was passed in '17 through this year. The next year they will add another $1 billion to it. As you know, we got a slow start this year because we just got rained out in the first five months. But now we're shipping strong both with aggregates and asphalt.
So things are picking up in California. On the fires, we've recently seen some delays from fires and I think we'll have those and we will have those but you, as you know, the work doesn't go away and we will be there. Most importantly, our people are all okay and their homes are all OK. We, as far as power outages, which is another part of that we've not seen any to our aggregates operations. We've seen a little bit to our ready-mix operations but no impact from that at this point.
Kathryn Thompson -- Thompson Research Group -- Analyst
Okay, great. Then -- and really this is more a broad downstream question for you. Just a little bit more color in terms of the regional market impacted with the asphalt timing and then with concrete gross profit and we had great volume and pricing. But the gross profit as a percentage of sales was off year-over-year, maybe a little color on that? Thank you very much.
Thomas Hill-- Chairman, President and Chief Executive Officer
Yeah. As we talked about with asphalt, we would have thought it would have done a little bit better this year. We actually had good quarter and the gross profit was up 60%, but certainly driven by volume. What we would tell you where we the shortfall in asphalt would have been volume in California is just because the rains in the first part of the year, but the demand is there, and that will flow into 2020.
We were a little slower on catch up on unit margins that we would have anticipated. But I think what we saw a good news is we saw in the second and third quarter that unit margins were virtually flat. So price has call -- liquid costs. As we look forward to 2020, we would see based on backlogs and booking pace our prices and hot mix going up and we would expect at worst case liquid costs to be flat. So I think as we look forward to 2020, really good news for this product line.
The highway demand will drive volumes up in asphalt and I think that now that liquid has stabilized, we'll see unit margins start to improve. So I look forward to this product line in 2020.
Kathryn Thompson -- Thompson Research Group -- Analyst
Thanks very much.
Operator
Now we'll take a question from Mike Dahl with RBC Capital.
Thomas Hill-- Chairman, President and Chief Executive Officer
Good morning.
Mike Dahl -- RBC Capital Markets -- Analyst
Hi, thanks for taking my questions. Morning. First question I had and I might not have heard preferably but just around the costs and margins in the quarter in aggs, it sounds like, it sounds like they were a bit lower than your internal plans. But then, Tom, the comments you made around planned maintenance and added Blue Water shipping. I wasn't clear if those were increases that you had contemplated in your plan or if those were the reasons for the increased cost versus your internal expectations or just any additional puts and takes there that you may not have contemplated?
Thomas Hill-- Chairman, President and Chief Executive Officer
Yeah. Both of those -- well all of that was planned. But it was, an increase over prior year, but it was planned. I think as you kind of look at to Suzanne’s point, if you look at the cost profile in the aggregates business, it's going to be lumpy quarter-to-quarter. It's just the nature of the beast. You have 350 facilities, you have to do the right thing at the right time and each of those whether that’s stripping or whether that's a big repair on a crusher or play -- as we did pulling out drag line down.
And if you -- if in those sort of timing always is a big flux because you all three of those 50 may or may not hit at once, they may hit at different times and you can't really procrastinate those things. You need to do it when you need to do it or it will cost you more. It will lead to downtime, it will lead to failures. So for the long-term nature of the business you inspect it and fix it when it needs to be fixed or you strip when it needs to be fit -- when it needs to strip. We talked about that a lot in Tampa with inspecting and maintenance and timely own equipment. But if I step back and look at it and put my operators head on. I am very confident in our ability to pull through that 60% on a regular basis for the long haul but you won't do it quarterly.
And if you look at a trailing 12 month, we've done that. I mean that's our track record and that's what we'll always guide you to but quarterly because of the nature, the long-term nature of the beast and just doing what you got to do in each one of those individual mines, it's going to be lumpy by nature.
Mike Dahl -- RBC Capital Markets -- Analyst
Okay, understood. Second question is just around the guidance and appreciate the thoughts on this throughout the year. I guess just to press on the implied 4Q guide a bit. The low end of the implied guide would have you down year-on-year on EBITDA. So I guess just to be, just want some clarification of whether -- It doesn't seem from the outside that there is anything that would produce that type of outcome given volume and price, but is there anything you're seeing there or is it really just you've had this annual guide out now and you may be tracking towards the midpoint or better but just didn't feel the urgency to take up the low end?
Thomas Hill-- Chairman, President and Chief Executive Officer
I think -- I think I'll comment on the market and then let Suzanne comment on the financials. The work is there. I think we feel good about our backlogs and our booking pace and we support our outlook, both for the full year and for 2020. But as always in the fourth quarter, it's just a matter of how many shipping days, you're going to have before the year is out. I think you saw that last year, we actually ran at a time when we pull work into the first quarter of 2019.
So it's first and first -- fourth quarter and first quarter always just iffy because of the time of year, it is, but the underlying fundamentals, the pricing, the demand all those fundamentals are there and we feel very good about it.
Suzanne H. Wood -- Senior Vice President, Chief Financial Officer and Secretary
Yeah. And I would just add on to that we do -- that's the guide that's been in place all year. We're still comfortable within that range as you indicated, hopefully at or around the midpoint of the range, but it depends on the number of shipping days. So I would not read anything into the fact that we didn't raise the lower end of the range, we just decided to leave it in place. But nothing in our outlook for the year has changed. And indeed if you look at the results that we have produced year-to-date, I mean we are on a good pathway to achieve that.
Mike Dahl -- RBC Capital Markets -- Analyst
Okay, great. Thank you both.
Thomas Hill-- Chairman, President and Chief Executive Officer
Sure.
Operator
Now moving to a question from Jerry Revich with Goldman Sachs.
Thomas Hill-- Chairman, President and Chief Executive Officer
Good morning, Jerry.
Jerry Revich -- Goldman Sachs -- Analyst
Hey, good morning, Tom, Suzanne, Mark. How are you?
Mark D. Warren -- Investor Relations
Good.
Jerry Revich -- Goldman Sachs -- Analyst
So I'm wondering if you could talk about the pricing announcements that you've made for 2020. What's the breadth of pricing actions or is it more or less mid single digits, across the board or is there more variability by market. And in terms of the pricing actions that you're taking, are they more significant than what we've seen in those capital markets in '18 and areas where you're pushing pricing above the company average for '20?
Thomas Hill-- Chairman, President and Chief Executive Officer
As always, there is going to be -- there'll be variability and that's specifically because different markets have different cadences of you push price for a while and then you let it catch up and then you push price for a while. So, those will all be a little different. I think that the pricing dynamics in all markets is good. I believe we will see price -- real price increases in the vast majority, if not all of our markets. Our backlog, our booking pace would support that mid single, our conversations with our fixed plants customers I think would support that. Again, you know we are still, we're in the middle of this, so we're still early in the process. That's our best thoughtful guide at this point. We will give you a more educated view of this and as we'll have a volume in February. But the very strong shipments on the private side, coupled with the visibility of the dramatically growing highway work really support pricing throughout the sector, not just aggregates, but I think all construction materials and construction will in this year strong and I think we'll start in the 2020 with very good momentum.
Jerry Revich -- Goldman Sachs -- Analyst
And Tom, I'm wondering if you could expand on your prior comments you had made in your prepared remarks on infrastructure project cadence, so clearly the backlog is healthy. We've seen some lumpy awards activity in California in particular comes to mind. Can you just talk about, over what timeframe would we see -- would we need to see a reacceleration in lettings to have a steady project cadence and avoid holes in the schedule, if you will?
Thomas Hill-- Chairman, President and Chief Executive Officer
It's really hard to predict holes in the schedule. I think that if you look at starts, for example, which is -- has been -- if you look at starts, which looks kind of like they would be down a little bit. You got to remember that the value of those starts is up 20% over two years ago. So we're -- number one we're playing at a much higher level and then you've also seen with these big increases, massive increases in funding, you're seeing much larger projects.
So the starts metric is now very lumpy where shipments -- those big projects will ship over a number of years, so that the nature of that leading indicator is changed a little bit. Let me give you an example, if you look at the job that we're shipping today, which is our I-66 in Northern Virginia, it dropped into the starts in April of 2018 at $2.3 billion. So it just skewed the value of the starts as you compare to April year-over-year, but that job is shipping and it will ship four years. So that -- the big projects has made that a little bit lumpy. I think if you look at overall, you just look at value of what's going on the states and I'll just run through of eight and nine of them for you, Florida. The -- it will be up -- lettings will be up 25% this year. Georgia lettings will more than double over the next two years, from $1.4 billion to $3 billion. Texas' budget goes from $26 billion, that's over $31 billion.
Virginia, DLT and regional authorities goes from $4.5 billion to $5.5 billion from a budget perspective, highway lettings and highway spending in South Carolina will be up 10%. Tennessee is up 40% over two year timeframe. And California, as I said earlier, it's up since 2017 $1.7 billion, it will increase another $1 billion in 2020.
So there's a lot of work out there and a lot of work to come. Timing, we'll just have to see what happens, but it's again, as I said in my prepared remarks, is not if, it’s when.
Jerry Revich -- Goldman Sachs -- Analyst
Okay, thank you.
Thomas Hill-- Chairman, President and Chief Executive Officer
Thank you.
Operator
And now we'll hear from Trey Grooms with Stephens Inc.
Thomas Hill-- Chairman, President and Chief Executive Officer
Good morning Trey.
Trey Grooms -- Stephens Inc -- Analyst
Good morning Tom, Suzanne, Mark. Thanks for taking my question. So just looking at the elevated cost or planned costs that occurred in 3Q, is there any, anything we should be aware of as we're looking into 4Q when it comes to any of these costs that might be occurring mid-term?
Thomas Hill-- Chairman, President and Chief Executive Officer
Not dramatic. I think it's, again it's, it's the timing of when those fall in individual plants, but I wouldn't -- nothing has changed in our fundamental cost structure. Again, it’s going to be lumpy, it’s going to be lumpy by quarter, but -- and I'm actually pleased with the disciplines that we're instilling for the long-term of what happens in operating efficiencies. I mean you got to rebuild crushers, you got to ruble drag lines and those are going to come at different times, but the underlying fundamentals that really drive the cost of efficiencies of tons per man hour, tons per hour, downtown those kind of things, I think we continue to push the ball forward and improve on it.
Trey Grooms -- Stephens Inc -- Analyst
Okay. And with the asphalt business unit margins, margins improved, I guess, but the, it was on volume. Just -- and it sounded like most of the downside to your guide on that side of the business was due to volume and timing there. So did I -- but I didn't understand that correctly?
Thomas Hill-- Chairman, President and Chief Executive Officer
Yeah, so let me sit back and explain it to you. The -- there is a mixed bag in the shortfall of guidance was volume and volume in California. We just got -- we just shorten the year with the rain in the first five months. So that was one piece of it. The other piece of it is we thought we would start improving unit margins faster than we have and that's really price of -- of hot mix catching the cost of liquid.
Trey Grooms -- Stephens Inc -- Analyst
Yeah.
Thomas Hill-- Chairman, President and Chief Executive Officer
I think the good news to that is what we saw in Q2 and Q3 was we've caught it, we’re virtually flat. And as we look into 2020 we know that based on our backlogs that our prices are up, we believe that in worst case liquid will probably be around flat. So you should start seeing unit. So as you look at 2020, we think we'll see unit margin expansion, because we don't, we're not chasing that oil anymore. We've continued to be able to raise prices on the hot mix side. If you look at demand going into 2020 it's pretty simple. We know what's happening with lettings and how we’re spending and that's a big driver of asphalt volumes.
So again, we're doing the plan right now. We can't give you guidance, but we will be clear on that when we talk to you in February.
Trey Grooms -- Stephens Inc -- Analyst
Okay. It sounds like improvement nonetheless.
Thomas Hill-- Chairman, President and Chief Executive Officer
Yes.
Trey Grooms -- Stephens Inc -- Analyst
And last one for me, just on the FAST Act expiring next year. What's your expectation for, I guess right now any update on your kind of thought of how it shakes out and what the response is from the Fed? And then at this point, I guess, and then do you expect states to hit the pause button at all as we move closer to that expiration date?
Thomas Hill-- Chairman, President and Chief Executive Officer
I'll take the second part of that first. And the answer is absolutely not. The states or we'll move, we'll move forward. They have a substantial amount of funding and they will have political pressure to spin that funding and improve their roads, improve their infrastructure because their voters said we’re voting on this to make our roads better. So they will make sure that happens. Again, timing, we'll see. If you look at the highway bill, the simple part of that is, the funding is not going to go down. If we don't get a bill, which I don't think we will in election year, then they'll -- will have extensions. If you look -- and so I don't. I have faith in that that spending will continue and infrastructure will be supported.
If you look a little further out to the highway bill, you've heard me say this the house is in there actually working on a bill right now. Policymakers are working on the reauthorization package as we speak. The Environmental Public Works Committee is working on a bill, which would increase funding by roughly 28%. Again, we'll see what happens. But the Feds are not going to let it go down and our states’ funding in our states is up $20 billion a year.
So -- and that is now flowing into shipments. So demand is going to continue to grow over the next seven or eight years. But what we know right now, and I believe we will, right up to election there'll be a drive to get another Federal bill done.
Trey Grooms -- Stephens Inc -- Analyst
All right, well thank you very much for that. And good luck with the rest of the quarter.
Thomas Hill-- Chairman, President and Chief Executive Officer
Thank you.
Operator
And our next question will come from Michael Wood with Nomura Instinet.
Thomas Hill-- Chairman, President and Chief Executive Officer
Good morning, Michael.
Michael Wood -- Nomura Instinet -- Analyst
Hi, good morning. I appreciate the comments that you made in the Q&A session here on asphalt and the non-aggregates. But I'm curious with -- you're essentially flat in the non-Ag businesses year-to-date. And I'm curious why we wouldn't start to see an improving trend in fourth quarter, does that give you any concern at all for the ability to grow those non-aggregates into 2020?
Thomas Hill-- Chairman, President and Chief Executive Officer
Well, fourth quarter is just tough to -- could tough to predict on asphalt. And again it’s, remember asphalt, you've got to lay it at 45 degrees and rising. So you just don't know when in different -- out of different markets we're in, when you got to stop laying asphalt. I think the fundamentals – so that’s kind of why I look forward to 2020.
I think that the fundamentals for 2020 are very good and we don't give quarterly guidance, but the fourth quarter is just a hard to call anyway, particularly with asphalt because of the temperature sensitivity of the product line.
Suzanne H. Wood -- Senior Vice President, Chief Financial Officer and Secretary
That's right. And if you go back to when we had some similar discussions around this in the first quarter on asphalt, we would have said exactly the same thing, Michael, it's just Q4 and Q1 are just iffy because of the temperatures.
Michael Wood -- Nomura Instinet -- Analyst
Understood. And as a follow-up, the aggregates freight adjusted selling price, there is not a lot of movement quarter-over-quarter. I'm curious if there's any mix impacts that you didn't call out besides the geographic because I would think as projects roll off, given your success with prior price increases, you would see at least a steady upward drift?
Thomas Hill-- Chairman, President and Chief Executive Officer
So I think we did have a little bit of mix and we, it was 5.6% up $0.35. But mix was mix adjusted went up 5%. It was about half product and half geographic. The product was we'll clean stone sizes particularly asphalt sizes, again, driven by the highway demand. And then the geographic mix was higher volumes in Mid-Atlantic and Southeast.
I think if you look at our backlogs booking pace, again it would support that mid single-digit. And I think that's is -- not all markets can create equal and the timing of those is different. But again early to tell, we got work to do on that, we'll give you a lot clearer guidance in February.
Michael Wood -- Nomura Instinet -- Analyst
Got it. Thank you.
Thomas Hill-- Chairman, President and Chief Executive Officer
Thank you.
Operator
Now moving to Paul Roger with Exane BNP.
Thomas Hill-- Chairman, President and Chief Executive Officer
Hi Paul.
Paul Roger -- Exane BNP Paribas -- Analyst
Yeah, good morning, everyone. Hi. Nice to be on the call today. And I'll just move away from the trade-in, if I may and focus a little bit on capital allocation. Obviously your balance sheet is in quite a nice position now. I see some of your competitors have also talked about an increase in the -- the sort of M&A pipeline. Is that the type of thing you're seeing. I know you’re on the look out for deals of M&A [Phonetic]?
Suzanne H. Wood -- Senior Vice President, Chief Financial Officer and Secretary
Yeah. We will. I mean our capital allocation policy is unchanged. We've talked about that a number of times, so I'll just speak specifically to the M&A part of your question. I mean, look we certainly like and prefer same-store growth. It's the most profitable and the least risky but deals come along. We look at those, all the, all the time. We've looked at a number of them this year. But we are very picky about those we do. They have to -- they have to hit us certain very specific set of criteria. They have to fit, fit well in terms of geography, product to move us forward. We have specific returns characteristics. So we continue to look and we pass on a fair number, because they don't hit those very high hurdle rates, but there are a few in the pipeline and we will see which ones get to the finish line.
Paul Roger -- Exane BNP Paribas -- Analyst
Okay. So that's very clear. And then just going back to the Asphalt business. I mean, you’ve obviously given some color on your expectations for 2020 anyway. And I'm just wondering is there any sort of structural reason why this can’t be a sort of mid to high teens margin business again? And also, do you expect any impact from IMO 2020 in terms of deflation on the cost side?
Thomas Hill-- Chairman, President and Chief Executive Officer
I think as far as the unit margins that may be a little bit aggressive. Obviously, I agree with you, I'd love to have that, but maybe aggressive on double-digit unit margin improvement, without help from liquid. Now, if you get help from liquid it's a different story. As far as IMO 2020, I think again, we're early in the planning, I think we would be in the mindset that right now liquid at worst case is flat to slightly up at worst case, but again I don't know that we have clear enough visibility in 2020 at this point to make a call on liquid.
Paul Roger -- Exane BNP Paribas -- Analyst
Got it. Thanks again for taking my questions.
Thomas Hill-- Chairman, President and Chief Executive Officer
Thank you.
Operator
And now we'll hear from Rohit Seth with SunTrust.
Rohit Seth -- SunTrust -- Analyst
Hey, good morning. Thanks for taking my question.
Thomas Hill-- Chairman, President and Chief Executive Officer
Good morning.
Rohit Seth -- SunTrust -- Analyst
Good morning. We've talked a lot about the public, but on the housing side, builders are benefiting from lower rates, their orders have been really strong. Just curious if you've seen a pick up on the housing side for your business and -- and maybe what you can share what growth was like across the footprint during the quarter?
Thomas Hill-- Chairman, President and Chief Executive Officer
Yeah. For the year, shipments to residential market have been high single-digit. We're carrying really strong shipment momentum into 2020. Most recently, if you look at the trailing three month permits and starts in our markets are up. As you said, the fundamental drivers for housing is still very good population growth, employment growth, low interest rates on houses and low inventories of houses. I mean this is -- most of our markets this is not much inventory or all-time low.
So if you look at residential demand, we should carry pretty good -- at this point we believe we will carry a pretty good momentum into 2020.
Rohit Seth -- SunTrust -- Analyst
And maybe you can talk about what you, where the shipment growth was this quarter by geography?
Thomas Hill-- Chairman, President and Chief Executive Officer
Yeah, it was actually pretty good throughout our footprint, particularly strong in Mid-Atlantic Southeast, coastal Texas was very strong, South Texas was strong, Southern and Central California was strong. Tennessee was, East Tennessee was very good.
Suzanne H. Wood -- Senior Vice President, Chief Financial Officer and Secretary
And although you didn't ask, I'll offer up that on the pricing side, very widespread virtual, well every one of the key markets experienced year-over-year price increases, so that was nice to see as well.
Rohit Seth -- SunTrust -- Analyst
Okay. And then last one if I can here. At the Analyst Day, you talked about gross profit -- unit profits rising to about mid-eights. And then we saw like incrementals come in here reminds us the best incremental margins and for us the model is about 60%. There was no intention there to suggest that maybe incrementals would be better as we go forward into over the next few years. Is that right?
Thomas Hill-- Chairman, President and Chief Executive Officer
No, I think we would take you right back to 60% over the long haul. And again, in any quarter, you're going to have quarters that will be much above 60%, you’d have quarters that will be way below 60%. But on a longer – and I talked about that because of the lumpy nature of the cost and the timing of that is you have to do it when you need to -- you need to do it when you need to do it for the good of the business and the long-term profitability of the business. But I think we'd always bring it back to 60%.
Rohit Seth -- SunTrust -- Analyst
Understood. Thank you for taking my questions.
Thomas Hill-- Chairman, President and Chief Executive Officer
Thank you.
Operator
And our next question will now come from Garik Shmois with Longbow Research.
Thomas Hill-- Chairman, President and Chief Executive Officer
Good morning.
Garik Shmois -- Longbow Research -- Analyst
Hi. Thank you. Hi, good morning. A competitor of yours talked about the shift in the mix of business moving towards large scale highway work and less away from bridge work at this point of the cycle. So just curious if you're seeing that and if so how does that impact your outlook from in aggregates intensity standpoint for volumes potentially from a price mix standpoint, moving forward?
Thomas Hill-- Chairman, President and Chief Executive Officer
I think you're going to see more what you'll see is capacity in these large projects. And even in smaller projects, I think they're going to be a lot aimed at just lane capacity because we're so constrained. Obviously there'll be maintenance in there, but that is very good news for us because lane capacity is the most intensive demand used for aggregates of any we have including just within highway.
So, as we look forward, I think we would see improved maintenance, but most importantly and most of the money is going to be with lane capacity, which is the most aggregate and intensive.
Garik Shmois -- Longbow Research -- Analyst
Okay, thanks. And just a quick one. There were some concerns around Hurricane Dorian impacting the timing of volumes in the quarter. I was wondering if you ended up seeing any of that and, if that delay in Florida in the Southeast might end up being shifting some project work into the fourth quarter?
Thomas Hill-- Chairman, President and Chief Executive Officer
We didn't see a lot of that. And if you notice, this is, we've not used the W word once in this call. So we're pleased with that. But I don't know that we saw a lot of impact from Dorian if it was, it was fairly brief, but it didn't really hit our radar.
Garik Shmois -- Longbow Research -- Analyst
Okay, thank you. Best of luck.
Thomas Hill-- Chairman, President and Chief Executive Officer
Thank you.
Operator
Timna Tanners with Bank of America will have the next question.
Thomas Hill-- Chairman, President and Chief Executive Officer
Good morning, Timna.
Timna Tanners -- Bank of America Merrill Lynch -- Analyst
Yeah. Hey, good morning guys, How are you? If you could discuss a little bit some of the other cost trends like labor in particular and any other freight costs this for starters, if you could discuss that and any other major components, we should be thinking about?
Thomas Hill-- Chairman, President and Chief Executive Officer
I think the buckets I would put cost in was fuel was slightly down. Labor costs as far as cost per hour I wouldn't -- not a big change minor but not a big change. The shipping costs we talked about was, we had one of our ships in Blue Water and that's behind us and that our -- the Vulcan ship is back in service.
But the primary -- the primary cost driver for us in the quarter as far as the delta was the higher planned repair maintenance on stationary equivalent. That was the big one besides the ships.
Timna Tanners -- Bank of America Merrill Lynch -- Analyst
Okay. So I didn't mean to make you repeat that. I was thinking more going forward.
Thomas Hill-- Chairman, President and Chief Executive Officer
No, it's okay. No, no.
Timna Tanners -- Bank of America Merrill Lynch -- Analyst
[Speech Overlap] Labor cost going forward a big issue or do you think that's been contained because I know that's something that you've been talking about for a while?
Thomas Hill-- Chairman, President and Chief Executive Officer
I think there's pressures on labor costs going forward. I think what we're focused on is the disciplines and efficiencies to mitigate labor costs and those are how we run those plants and how do we best utilize our men and women that run the quarries
Timna Tanners -- Bank of America Merrill Lynch -- Analyst
Okay, super. And then circling back on the capital allocation discussion. You may have had a nice step change in returns and just trying to think about what are your priorities in terms of organic growth. I know you talked about M&A already but organic growth versus repurchases you did a few and also dividends? Thanks.
Thomas Hill-- Chairman, President and Chief Executive Officer
I think our biggest growth engine, as always will be our organic growth and the change of high-single digit to double -- low double digit to our unit margins in those four strategic initiatives where we are actively trying to improve those, and with a lot of discipline and process. Obviously, we're going to look for M&A. As Suzanne said, we're going to be disciplined about it. We look at a lot of those and they have to fit our profile, they have to fit what we want, and the key there is to be disciplined.
And so, you know, but again, the key here is improving that unit margin day in and day out.
Suzanne H. Wood -- Senior Vice President, Chief Financial Officer and Secretary
And I think you mentioned dividends. I mean we look at the dividend as a progressive one. It's clearly a Board decision, but our view is that we should, particularly with our cash generation, which is you'll note, we raised our discretionary cash flow guidance by about $10 million for the year versus last quarter. We'll continue to look at the dividend and the plan would be to generally raise it in line with our earnings growth to a level that we are absolutely certain we can maintain throughout the cycle.
Timna Tanners -- Bank of America Merrill Lynch -- Analyst
Got you. Okay, thanks guys.
Thomas Hill-- Chairman, President and Chief Executive Officer
Thank you.
Operator
Now, we'll hear from Adam Thalhimer with Thompson, Davis.
Thomas Hill-- Chairman, President and Chief Executive Officer
Good morning, Adam.
Suzanne H. Wood -- Senior Vice President, Chief Financial Officer and Secretary
Good morning.
Adam Thalhimer -- Thompson Davis & Co. -- Analyst
Hey, good morning guys. I wanted to ask, first on the -- what are you hearing from your Washington Group on the risk of rescission. It looks like Texas might have to repay the Federal government $600 million next year. I mean do you think that actually happens or do you think somebody they step in and fix it?
Thomas Hill-- Chairman, President and Chief Executive Officer
I think the threat of the FAST Act rescission going into effect is slim to none. I think what this will do is help Congress find a way to pass the repeal of the recession. The Feds are not going to cut funding.
Adam Thalhimer -- Thompson Davis & Co. -- Analyst
Good. I was hoping you would say that. And then as it relates to incremental margins, we've had a couple of years here, it's kind of trended below 60%. I'm just curious for a model -- modeling purposes out to 2020. I mean would you like us to stick in 60% or is it better to just stick in 50% and work it higher as the year goes on?
Thomas Hill-- Chairman, President and Chief Executive Officer
We would guide you to 60%. Now in any given quarter, obviously, as I’ve just talked about, it's going to be quite volatile. In any given year, you're going to be plus or minus something around 60% but you're always going to come back over time to that 60% number, and that's how we guide you.
Suzanne H. Wood -- Senior Vice President, Chief Financial Officer and Secretary
Well as an example, for the full year 2018 it was 64%. We would still here – we’d still guide you back to 60%.
Thomas Hill-- Chairman, President and Chief Executive Officer
Yeah, the year before -- that was well below 60%.
Suzanne H. Wood -- Senior Vice President, Chief Financial Officer and Secretary
Right.
Thomas Hill-- Chairman, President and Chief Executive Officer
Right now we're at 60%, so we guide you back to 60%.
Adam Thalhimer -- Thompson Davis & Co. -- Analyst
Okay. I mean to get to 60% for this year it implies that margin is up in Q4 in Aggs? So I guess that's kind of why I wanted to focus on 2020 because I'm just not sure margins can go up in Aggs in Q4?
Thomas Hill-- Chairman, President and Chief Executive Officer
Well, I think that we are always trying to drive margin ups on Aggs whether it’s in a quarter or over a year. That's -- that's fundamentally what we're doing. And that is the thing that we can control there is the improvement in unit margins and that's what we're focused on. As well as servicing our customers so we are not sure our part of the volume.
Adam Thalhimer -- Thompson Davis & Co. -- Analyst
Understood. Okay, thank you.
Thomas Hill-- Chairman, President and Chief Executive Officer
Thank you.
Operator
We'll now hear from Phil Ng with Jefferies.
Phil Ng -- Jefferies -- Analyst
Hey, guys.
Thomas Hill-- Chairman, President and Chief Executive Officer
Good morning.
Timna Tanners -- Bank of America Merrill Lynch -- Analyst
Good morning. It sounds like your conversations with your customers on pricing have been pretty constructive and I know it's early. Are there any pockets of markets where you could see like a mid-year increase in 2020?
Thomas Hill-- Chairman, President and Chief Executive Officer
I would – it’s way too early to tell that. We're not even through the plan of 2020 and beginning of the year price increases. Usually, there will be -- and normally when you have rising demand, you will have a few markets where you're able to, -- the whole market can accept mid-year price increases and that's not just an aggregates that kind of flow through.
It just depends. And, but I think so from, if you just step back and look what happens in over the last five or six years, they will be, there's usually best enjoyed time, there is a few markets would it will take mid-year price increases, but you got to remember, we're talking about the fixed plant pricing on which is 40% of the business, the 60% of bid work is you’re pricing dozens of quotes day in and day out.
And in those market and those things we're always trying to push price forward and that's part of our commercial excellence and what we work hard on is to earn that -- to earn to service our customers where we earn those price increases but that happens day in and day out.
Phil Ng -- Jefferies -- Analyst
Got it. Yeah, that's helpful color. And I know it's really early and appreciate you're giving us some color for 2020. Your volume outlook seems very reasonable to me, but it's also reflecting some modest deceleration from the last few years. With housing reaccelerating and pretty healthy backlogs in public, just curious what's driving some of that deceleration and are there any end markets that are a little less strong from your perspective? Thanks.
Thomas Hill-- Chairman, President and Chief Executive Officer
I think I would describe it this way, I think we're just trying to be thoughtful because it's very early. And we don't have our plans. This is our best estimate at this time. So it's not -- we're not trying to signal at all any deceleration. I think what we're trying to do is just be thoughtful because we don't have the plan yet.
Phil Ng -- Jefferies -- Analyst
That's really helpful color. Appreciate it.
Thomas Hill-- Chairman, President and Chief Executive Officer
Thank you.
Operator
And ladies and gentlemen, that concludes our question-and-answer session. I'll turn the call back over to Tom Hill for closing comments.
Thomas Hill-- Chairman, President and Chief Executive Officer
Thank you and thanks all of you for your time and your interest in Vulcan Materials. As you can see the business continues to operate well and we look forward to discussing this with you throughout the quarter. Thank you.
Operator
[Operator Closing Remarks]
Duration: 53 minutes
Call participants:
Mark D. Warren -- Investor Relations
Thomas Hill-- Chairman, President and Chief Executive Officer
Suzanne H. Wood -- Senior Vice President, Chief Financial Officer and Secretary
Stanley Stoker Elliott -- Stifel -- Analyst
Kathryn Thompson -- Thompson Research Group -- Analyst
Mike Dahl -- RBC Capital Markets -- Analyst
Jerry Revich -- Goldman Sachs -- Analyst
Trey Grooms -- Stephens Inc -- Analyst
Michael Wood -- Nomura Instinet -- Analyst
Paul Roger -- Exane BNP Paribas -- Analyst
Rohit Seth -- SunTrust -- Analyst
Garik Shmois -- Longbow Research -- Analyst
Timna Tanners -- Bank of America Merrill Lynch -- Analyst
Adam Thalhimer -- Thompson Davis & Co. -- Analyst
Phil Ng -- Jefferies -- Analyst
