Vulcan Materials Company (VMC) has been downgraded to ‘junk status’ by Moody’s Investors Service, the credit rating agency of Moody’s Corporation (MCO), thus reflecting the agency’s lack of confidence in the company’s future performance.
Moody’s identifies weak demand for private construction, unfavorable pricing and stiff government policies as adverse impacts on Vulcan during the coming quarters, thereby preventing the construction aggregates’ producer to regain investment-grade credit measurement.
The U.S construction industry is experiencing the trough for nearly a decade, despite stronger demand from public infrastructure projects in Texas, Virginia and South Carolina regions. Private construction contracts shrank 1.2% year over year to a seasonally adjusted rate of $490 billion, driven by deteriorating demand for new shopping malls, office buildings, hotels, motels and other commercial buildings. Moreover, absence of appropriate government stimulus to revive the industry all over again has also weakened the industry further.
In addition to the challenging conditions in the construction industry, the company is facing a tough pricing environment especially in the key markets of Florida and California. For instance, Vulcan could only raise the selling price of asphalt mix by 2% in the face of a 14% increase in liquid asphalt costs. Thus, a declining demand coupled with rising raw material costs have pulled down profits since the beginning of 2010.
During the most recent quarter, Vulcan’s loss widened to $46 million or 36 cents per share from the year-ago net loss of $12.6 million or 10 cents per share. Again for full year 2010, Vulcan reported a net loss of $102.5 million or 80 cents per share compared with net earnings of $18.6 million or 16 cents per share for full year 2009.
Similar arguments concerning Vulcan were put forward by Standard & Poor’s Ratings Services during last December, thus underlining Vulcan’s chances for a possible downgrade to ‘junk status.’ As per Standard & Poor’s, market conditions will continue to be fragile for the asphalt and gravel manufacturers throughout 2011.
Apart from a “junk status”, Moody’s also lowered Vulcan’s senior unsecured debt ratings to “Ba1” from “Baa3” and gave corporate family and default-probability ratings of “Ba1.” However, it has assigned a “stable” outlook for its ratings.
MOODYS CORP (MCO): Free Stock Analysis Report
VULCAN MATLS CO (VMC): Free Stock Analysis Report
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