Summit Materials has increased its CAPEX guidance for 2017 to between US$180 – US$190 million from US$140 – US$160 million, as the company – more known for its acquisition-led growth – turns more focus on organic growth opportunities.
CAPEX investments include development of a new cement terminal in Memphis, Tennessee. The terminal is expected to cost a total US$15 million over this year and next. Completion is expected by mid-2018.
According to the company, the Memphis terminal will help to reduce delivered costs and grow volumes.
In addition, the company is investing US$30 million over the next two years in upgrading its aggregates operations in Vancouver, aiming to lower variable costs at its quarry by 20% per tonne. Completion is expected by the end of next year.
The investment in organic growth is still dwarfed by Summits M&A activity: the company has invested US$402 million across 14 acquisitions so far in 2017 and anticipates spending a similar figure in 2018 – although CEO Tom Hill said an exact M&A figure was “difficult to predict” on its latest earnings call.
Acquisitions also led year-on-year revenue growth, accounting for US$66.7 million of Summit’s US$94.2 million increase in revenue in 3Q17. Organic growth accounted for just US$27.5 million, although that proportion was higher in Summit’s cement business, where organic growth accounted for US$9.5 million of US$11.7 million in revenue growth on higher sales volumes and cement pricing.
However, with acquisitions becoming more expensive – a fact noted by Hill on the earnings call – investment in organic growth opportunities may be increasingly attractive for Summit. There certainly appeared to be little appetite for large marquee acquisitions, despite Summit’s recent multi-billion move on Ash Grove Cement.
The company recently reported earnings of US$113.9 million in 3Q17, compared to US$146.2 million in 3Q16. Earnings expectations for the full year were revised down to US$425 million – US$435 million from US$440 million – US$455 million, following Hurricane Harvey and Irma, which have resulted in weaker construction activity in a number of Summit’s key markets.
Read the article online at: https://www.worldcement.com/the-americas/01112017/summit-sees-opportunity-in-organic-growth/