Vulcan Materials' (VMC) CEO Tom Hill on Q4 2015 Results - Earnings Call Transcript

| About: Vulcan Materials (VMC)

Vulcan Materials Company (NYSE:VMC)

Q4 2015 Earnings Conference Call

February 04, 2016 11:00 AM EST

Executives

Mark Warren - Director-Investor Relations

Tom Hill - President and Chief Executive Officer

John McPherson - Executive Vice President, Chief Financial and Strategy Officer

Analysts

Timna Tanners - Bank of America Merrill Lynch

Bob Wetenhall - RBC Capital Markets

Trey Grooms - Stephens

Stephen Kim - Barclays

Kathryn Thompson - Thompson Group

Garik Shmois - Longbow Research

Adam Thalhimer - BB&T

Ted Grace - Susquehanna

Todd Vencil - Sterne Agee

Jerry Revich - Goldman Sachs

James Armstrong - Vertical Research

Stanley Elliott - Stifel

Brent Thielman - D.A. Davidson

Mike Betts - Jefferies

Operator

Welcome to the Vulcan Materials Company Fourth Quarter Earnings Call. My name is Bridgette and I will be your conference call coordinator today. At this time, all participants have been placed in a listen-only mode to prevent any background noise. A question-and-answer session will follow the company's prepared remarks.

And now I would like to turn the call over to your host, Mr. Mark Warren, Director of Investor Relations for Vulcan Materials. Mr. Warren you may begin.

Mark Warren

Thank you, Bridgette. Good morning, everyone, and thank you for your interest in Vulcan Materials Company. Joining me today for this call are Tom Hill, Chairman and CEO; and John McPherson, Executive Vice President, Chief Financial and Strategy Officer.

To facilitate our discussion today, we have made available during this webcast and on our website supplemental information. Rather than walkthrough each slide as we've done in past calls, Tom and John will summarize the highlights of our fourth quarter results and outlook for 2016. We believe this approach will assist your analysis and will allow more time to respond to your questions.

With that said, please be reminded that comments regarding the company's results and projections may include forward looking statements, which are subject to risks and uncertainties, including general economic and business conditions, the timing and amount of federal, state, and local funding for infrastructure and the highly competitive nature of the construction materials industry. These and other risks and uncertainties are described in detail in the company's SEC reports including our earnings release and our most recent Annual Report on Form 10-K.

In addition, during this call, management will refer to certain non-GAAP financial measures. You can find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures and other related information in our earnings release and at the end of the supplemental presentation.

Now, I would like to turn the call over to Vulcan's Chairman and Chief Executive Officer, Tom Hill. Tom?

Tom Hill

Thank you, Mark, and thank you all for joining us for our fourth quarter earnings call. I hope you have had time to review our earnings release and the supplemental information posted earlier today on our website. As Mark mentioned, John and I will summarize the highlights of our fourth quarter results and the outlook for 2016. Then, we will be happy to take your questions.

We remain highly focused on the fundamentals of our business at Vulcan, on the clear opportunities in front of us. Regardless of recent concerns that have swept through global securities markets, we are focused on the things that we control and on our improving profitability. We have made a lot of progress over the last year and we have a good report for you today.

Aggregates volumes are up nicely, pricing is positive, our gross profit per ton numbers continue to be really impressive. We are controlling our cost. But first, I would like to start the conversation by making three basic points. Number one, we finished the year strong. Our teams companywide are executing our aggregate focus strategy extremely well.

Second, I assure you that we will sustain this focus into 2016. We believe these efforts will result in more than $1 billion in adjusted EBIDTA this year. Circumstances obviously vary across our geographical footprint, but the gradual recovery and demand continues in each of our end-use segments.

Third, our performance throughout 2015 as we continue to move through the early stages of construction recovery, demonstrated clear and steady progress towards the longer-range goals and the expectations we put forth at our investor day last year. With very few exceptions, construction activity in the markets we serve still remains well below long-term trends. However, we are positioned for multiple years of double-digit revenue growth with strong conversion of those incremental sales to gross profit.

Now, I would like to go a little deeper into our fourth quarter and full year results. John will then hit the highlights of our 2016 outlook and I will conclude with some observations of our path forward.

Let me say up front, I am pleased with how we finished 2015. Our mindset at Vulcan is that we can always improve and we work hard on getting better all the time in every aspect of the business.

Shipments were strong in the fourth quarter whenever and wherever the weather cooperated. As we noted in our third quarter call, many of our customers have seen their backlogs grow as demand continues to pick up and as they face capacity constraints. We saw higher level of shipments on weekends and many of our customers were beginning to keep their crews on as long as the weather allowed. Those trends held up through the fourth quarter.

Firming demand and reasonably dry weather in California and Florida contributed to year-over-year shipment growth exceeding 15% in those states. Shipments in Georgia grew by 22% despite wet weather. On the other hand, shipments increased in the low-single digits in Texas. This was due to extremely wet weather in October and November. The underlying shipment trends in each of these states continue to be good.

In total, same store shipments for the quarter were up more than 8% in our aggregate segment, 4% percent in our asphalt segment, and 2% in our concrete segment. For the year, we shipped 178 million tons of aggregates. This is slightly above our midyear forecast of 177 million tons. And an increase of about 10% over 2014's shipments.

All in all, this was a very solid year of volume growth. Remember this is from an asset base that has delivered aggregate shipments of approximately 300 million tons. As we talked about before, we are still early in the recovery towards 255 million tons, which we believe represents a more normal mid-cycle level of shipments.

We have a broad base of demand both in terms of geography and end-use markets. We see each of our end-use markets continuing to grow. Some of our Texas markets are at the upper end of the spectrum of normalized demand, having enjoyed extremely strong growth. Most of our markets, however, are still well below normal demand and it should enjoy steady growth for years to come. We are seeing good growth on both coast with still a lot of upside.

Other individual markets in the Central United States, such as Nashville, Knoxville and Chattanooga are also continuing to strengthen. When you put it all together, the longer term shipment trends we focus on continue to look good across most of our markets.

Regarding pricing, we continue to experience a positive pricing environment in most of our markets. This is a result of three factors. First, we've invested substantial capital in the business to serve our customers and need to earn a fair return. Second, we continue to see increasing customer confidence in the recovery. And third, the construction industry is increasingly focused on improving returns on capital as volumes remain well below normal levels.

Overall, freight-adjusted average sales price for aggregates increased 11% on a same-store basis or $1.18 per ton compared to the prior year's fourth quarter. In the quarter, we estimate $0.15 per ton held from product and geographic mix. For the full year, average selling prices increased 7%.

Now, I would like to make a few remarks regarding our customer service and cost control levers. Throughout the quarter our teams did an excellent job meeting our customers’ needs, including tight deadlines and complex demands on big projects both safely and efficiently. During the quarter, we saw improvement in repair and maintenance costs and overtime labor costs. This improvement contributes to our strong finish for the year.

Costs during the first three quarters of 2015 have begun to rise as increasing volumes required us to run our plants longer. This led to more repairs and higher spending on parts and supplies and associated labor. Now, I said in our last call, we are very focused on improving these costs and we are beginning to see these improvements in September. The improvements continue and I am proud of our operating people for the work they have done here.

We remain intensely focused on managing these costs efficiently balancing the factors affecting production quality, service, and cost. Still a clear picture comes with a longer term view, for the year, our unit cost of sales in Aggregates declined slightly as our employees remained focus on continuous improvement. We got better at controlling costs as the year progressed. We also saw reduced expenditures as diesel cost declined. Setting aside external forces, our strong emphasis on cost control near-term and longer-term will not change. Overall I am pleased with the progress we have made with our execution and our focus.

We continue to focus on customer service, employee development, cost control, and our safety performance. We saw marked improvement in our safety performance in the fourth quarter. Let me emphasize, this is a continuous improvement track, a process of working to get better every day. We have made good progress but there is still more to be done. A strong example of the progress we have made is the outstanding job our teams did converting incremental revenue into incremental gross profit. Flow-through in the quarter was 89% on a same-store basis, obviously strong result. But better look at it on a trailing 12-month basis where it was 77%, well ahead of the 60% threshold we target longer-term.

Our unit profitability in Aggregates continues to improve. Something our employees work hard on and can be very proud of. Gross profit margin on a same-store basis increased 38% in the fourth quarter compared to the prior year's quarter. Unit gross profit margin was $5.38 per ton. This marks 12 consecutive quarters of expanding unit margin. We will continue this trend on a trailing 12-month basis unit margin increased by 29% to $4.38 per ton. Now there is a slide you have seen before, slide number 11. That covers this. And I would like to call your attention to it because it's impressive.

Here you will see that for the trailing 12-months, we shipped 178 million tons, 38 million tons more than the year prior to the start of the recovery. Aggregates segment gross profit for the year was $756 million or $398 million ahead of the 12 months before the recovery began. So on 38 million tons of improvement, we have delivered almost $400 million in incremental segment gross profit. Gross profit per ton has increased $1.69 or 66% during this period. A 27% increase in shipments has been converted into an increase in gross profit in excess of 100%.

Looking at 2015 as a whole, you can clearly see the benefits of our aggregate focused strategy. We have the assets and capabilities in place to service our customers. We have the focused execution to drive profitability and we have a very strong platform for continuing growth.

With that, I will turn the call over to John for additional comments on our earnings performance and outlook for the remainder of the year. John?

John McPherson

Thanks, Tom and good morning to everyone. So, Tom just highlighted and as you've seen in our release we had a strong finish to a strong year. A year with same-store Aggregates shipments up 7%, Aggregates pricing up 7%, strong conversion of that incremental revenue into incremental gross profit, improved material margins in our asphalt and concrete businesses, and continued leveraging of SAG to revenues. We expect to see much of the same in 2016, another year of continuous compounding improvement in our execution and in our results.

To complement the information shared in our release, I will first offer a few comments regarding the demand environment, then outline our performance expectations for the year and briefly note our plans for capital allocation. As Tom said, we see a broadening recovery and demand across each of our end use segments and across most of our geographic footprint. In total, we see demand across the markets we serve growing approximately 7% with some upside potential based on the rate at which rising DOT budgets and public infrastructure funding converts into active construction projects and material shipment.

We project private demand in the markets we serve to grow approximately 10% year-over-year, supported by growth in both residential and non-residential activity. We see continued double-digit growth in residential construction across our footprint with non-residential construction continuing to expand albeit at a slower pace than 2015. Although certain measures of private non-residential construction suggested some decline in the second half of the year, our on the ground view indicates continued solid growth.

And importantly, employment data and other macroeconomic and demographic factors further signal a sustained recovery in private demand across our markets. Much has been made about the potential impact of lower oil prices and we continue to monitor trends in private construction activity in markets such as Houston. But to date we have not seen a materially negative impact when looking at our portfolio as a whole.

I will now turn to public demand where we see 2016 being something of a transition year and in a positive way. Across our markets, we expect demand growth tied to public construction of approximately 5%. Longer-term visibility with respect to public demand has improved markedly with the passage of the federal Highway bill, state-level funding initiatives and record levels of local tax receipts.

In addition, the public construction share of tax receipts remains at 20-year lows and at ultimately unsustainable levels. This shift to higher levels of total public funding combined with greater visibility should allow for a higher percentage of new construction in the mix, which bodes well for our materials demand and in our case product balance. All of this is good. But at this point, we don't see the full benefit of these trends impacting our volumes until 2017 and beyond. We will monitor the lag between DOT budgets rising and a commensurate increase in product activity throughout the year. But to be clear, rising public construction activity is beginning to kick in with the question being at what pace?

Finally, we continue to see the overall rate of recovery in many markets constrained by construction labor shortages and other bottlenecks in the total construction supply chain. Although the situation can inhibit the overall rate of shipment growth in the near-term and lengthen the time required to return to normalized levels, it does provide further support for disciplined increases in pricing, margins and ultimately returns on capital.

So against this backdrop of approximately 7% total demand growth in 2016, what do we expect to deliver in terms of financial results? As we've stated, our 2016 guidance is for between $1 billion and $1.1 billion in adjusted EBIDTA and approximately 25% increase over 2015. We don't give quarterly guidance as you know and we encourage investors to consider longer-term trends in addition to quarter-to-quarter results.

I will now comment on certain of the factors and assumptions underpinning our annual guidance. You should consider these figures to be mid-points of current Management expectations and keep in mind that our results vary widely across the individual markets we serve. Starting with aggregate shipments, we're projecting a total of 191 million tons or an increase of 7% over the prior year. On the geographic basis, we expect the growth in 2016 to be relatively widespread with higher rates in markets such as Arizona, Florida, Georgia and Southern California offsetting lower than average rates in markets such as Texas where we see continued growth but at a slower rate than the Company as a whole and Illinois where we project a small decline in year-over-year shipments.

And as with 2015, we may see a greater share of shipments occur in the second half of the year in part due to the impact of El Niño weather on our Western States and in part due to the expected flow of large project activity throughout the year. Again as Tom noted, the overall pricing climate for our materials remains positive and constructive. We're entering the year with good momentum and we currently expect freight adjusted average selling prices for aggregates to increase 7% in 2016 in line with the increase seen in 2015. Please keep in mind that pricing decisions in our business are made locally with wide variances by product type angiography.

Our local teams will continue to balance pricing, customer service, operating efficiencies, and the overall sales and production mix all with an eye toward improving total unit margins and earning a fair return on capital employed. These shipment and pricing expectations of course suggest mid-double digit growth in freight adjusted revenues for the aggregate segment. We expect to continue converting these incremental revenues into incremental gross profit at a 60% or higher rate.

Consistent with this view, we expect gross profit in the segment to increase by approximately 25% year-over-year. And we expect to realize continued improvements in our per ton margins. We also expect to see continued profit improvement in our asphalt and concrete segments following on the strong gains posted in 2015. We currently project gross profit for these segments combined to increase approximately 20% in 2016. These operations are well positioned to benefit from the continued recovery and demand due to improvements to our asset portfolio, as well as our internal operating proficiencies.

Our current forecast for SAG is 295 million, approximately 3% growth over 2016. We plan to continue to leverage SAG to sales even as we make important investments in our sales and customer service capabilities. Administrative headcount should remain essentially flat year-over-year. So to recap, we expect to see in 2016 much the same of what you've seen in a very positive 2015. As well as through the entire early stage of recovery so far. Our people at all levels of the organization are focused on helping our customers grow, controlling what they can control and driving continuously improve results for our shareholders and other stakeholders.

Now, I will conclude with some brief remarks regarding capital allocation. Our aggregate centric strategy and the way we manage it day by day is geared toward generating significant amounts of pre-cash flow even in periods of depressed demand. That's by design as you’d expect and we give it a great deal of focus. Our priorities for allocating that cash flow and managing the inherent cyclicality of our business has not changed from those we've outlined at different times over the core course of the last year or so.

In short, we intend to balance three objectives; reinvesting in the business for productivity and growth, maintaining adequate financial strength and flexibility, and a disciplined return of capital to shareholders. With respect to reinvestment, I will note that we plan to allocate approximately $275 million of cash this year to what we call core CapEx. That is reinvestment to sustain and improve the performance and productivity of our current operations.

In addition, we expect to invest a meaningful amount in growth whether in the form of acquisitions, or the internal development of new production and distribution capacity. With respect to financial strength, and flexibility I will note that our debt-to-EBITDAR ratio is lower than 2.4 times. Refinancing activities during 2015 extended our decorations, while lowering our rated average interest rate. We do not expect to use cash in the near-term to lower our total debt of approximately $2 billion. Rather we have the financing capacity and the liquidity needed to fund smart reinvestments in growth such as those I just mentioned. And we intend to maintain that flexibility throughout the cycle.

Finally, we expect the amount of capital returned to shareholders to increase as the recovery moves forward. As noted previously, we expect the dividend to grow roughly in line with earnings during the recovery phase of the cycle. We also expect to use opportunistic share repurchase to return additional capital over time.

With that I will hand the call back to Tom.

Tom Hill

Think you John. You've heard me talk about the strong year we had and the things we consistently focus on to deliver superior results. Ours is a long term business. We set long-range goals and work hard to get where we think we can be given our world class assets and people. We are pleased with our 2015 results and the way we are positioned for future success. We've made clear progress towards the goals that we set forth in our Investor Day last February and are very much on track.

We’re on track to achieve $2 billion in EBIDTA at normal levels of demand. We’re on track moving steadily towards a normalized demand level of 255 million tons per year of Vulcan aggregates. We’re on track for continuing gradual recovery in each major end market and in most of our geographies. We now have a fully funded long-term Highway bill and we are very pleased to see healthy increases in state and local funding for highways and other public construction.

We continue to anticipate aggregate segment cash gross profit at normal demand in the range of $8.25 per ton. This will be the result of solid sales execution, continued growth weighted towards our more profitable geographies, pricing fundamentals that continue to strengthen, and consistently strong incremental margins. At normal demand levels we also see greater profitability in our non-aggregate segment in the range of $175 million. Here we benefit from continuing operating discipline and improvements.

The strength in portfolio that came with our asset swap in 2015 and improving materials margins. We also remain on track with SAG costs moving towards 6% as a percent of sales. SAG as a percent of revenue declined 70 basis points in 2015. We intend to further leverage SAG to sales growth. As we look forward we believe that we are well positioned for several years of double-digit topline growth, with strong conversion to the bottom line.

No matter how you look at this, I am pleased to tell you that we are executing well and that is the watchword of our people. Execute, execute, execute. Control your own destiny and finish strong. I’m very proud of our people and the good work they are doing. I can promise you that we are all committed to making a good Company better every day. We are excited about where we are today and we are even more excited about where this Company is going.

Now if the operator will give the required instructions we will be happy to respond to your questions.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from the line of Timna Tanners with Bank of America Merrill Lynch.

Timna Tanners

Good morning, guys.

Tom Hill

Good morning, Timna.

Timna Tanners

Thanks for all that great detail. I was wondering if you could provide a little bit more color around what would comprise the range of your guidance. So, if you could speak a little bit about volumes and how much that might include deferred tons from last year's weather and talk a little bit more about color regarding Texas that would be great?

John McPherson

I don't think - when it comes to deferred tons in the fourth quarter, maybe a little bit. But as you heard us talk about our customers and the sense of urgency, when the sun came out, when they are ready to work, whether it was weekends or evenings, they pushed a lot of work through. So, if there may be a little bit, but probably not a lot of deferred work from 2015 into 2016. Your second question was about Texas. I think that how we would look at Texas is obviously it's a very big state with multiple markets and multiple market dynamics. So, kind of breaking that down a little bit, Dallas, Fort Worth, San Antonio, West Texas all have very healthy demand growth that we think will flow into 2016. Houston and some of the coastal markets may have some softening in the private side, but overall I think that when you look at Texas it's still growing.

Timna Tanners

Okay, great. And the only other one for me if I could is, if you could talk us, give us an update on what you're seeing in terms of M&A opportunities in general and how receptive are the mom-and-pop's right now or do you think, new job geographies or kind of where you have been expanding recently as your focus.

John McPherson

I think, we continue to see opportunities for attractive acquisitions. The timing of that is always an unknown or question mark, just because when people decide they want to sell. I think the key piece of that is discipline - being disciplined in we buy, what we pay for and being very disciplined about how we integrate it into the Vulcan family. And we also have to be very disciplined and clear about the synergies that are unique to Vulcan and how we leverage them.

Tom Hill

Timna and John, I just a couple I could add on your question, first just to be clear our outlook for 2016 does not include the impact of any new M&A. It includes the impact of transactions already done, but not any new M&A. And if you're looking for things that could be kind of swing factors and volume, one we have called out as again how quickly this higher level of public funding for construction converts into actual shipments for us. That can be a little bit difficult to predict and so I think that's a swing factor we look at during the year. And apart from a lot of the attention Texas gets I guess we would just also note that for us we see a very much broadening of demand across our markets. Our demand growth in 2016 is really driven not by just any single state story. It's really driven by the entire portfolio and we think that's healthy for us, we’re excited about it.

Timna Tanners

Okay, thank you so much.

Tom Hill

Thank you.

Operator

And your next question comes from the line of Bob Wetenhall with RBC Capital Markets.

Bob Wetenhall

Congratulations on a very nice finish two the year. I was hoping you guys could give a little bit of color, your incremental gross profit margin was off the chart, well ahead of what we are expecting, can you give us a little idea of how to think about that. Obviously you've got some terrific price, but you also called out mix. And then you mentioned there is aggressive cost control on repairs and maintenance and also a tailwind from oil. I just wanted to get a better framework for thinking about this and the likelihood of this persisting into 2016.

John McPherson

Bob it's John, I will start. As we always do we would focus here on the 12-month number not just a single quarter number. We think it gives you a good read. So, I would encourage you to look at the 77 for the year as a more meaningful number than any individual quarter. And we just think that's a better way to look at the business given the timing of how varies revenues and costs can flow quarter-to-quarter. Now if you, you may have already done the math, but you will see that our outlook for 2016 implies a flow-through rate that's above the 60% threshold that we see as a long-term number, but it's below the 77 that we did in 2015. A couple things we think about as we look at next year, one is that we expect to have higher stripping cost as we prepare for future growth. And those are items that are expensed in the current year, but they really prepare us for growth over multiple years. That's a bit of a factor we are considering in our 2016 outlook. And we are also keeping an eye on what happens with diesel prices throughout the year. So, we continue to believe that 60% is a very good long-term number. We expect to see something north of that in 2016, but I would also tell you and I'm sure Tom will echo this, we’re really confident and pleased with how our teams are executed because that’s really where the rubber meets the road in our business. Our local teams are doing a fantastic job and we expect that execution strength to continue into the New Year.

Bob Wetenhall

That's really helpful. I wanted to ask on slide 9, you had pointed out on the large improvement that you are getting in gross profit per ton. I wanted to see what you're kind of expecting working gross profit per ton climbed to the end of 2016 and what are your assumptions for the non-aggregates business in terms of volume growth. You laid out that 7% number for core aggregates. I just wanted to see your thinking on the non-aggregate businesses in terms of volume trends. Thanks and good luck.

Tom Hill

I will handle the non-aggregates. I think that if we look at asphalt, we look at volumes probably up in the high single-digit, low double-digit range. Concrete same kind of range. And I think we have with both of those, both concrete and asphalt we have a very good, like aggregates we have a very healthy pricing and margin environment with rising customer confidence and demand growth.

John McPherson

Bob, one more thing on the asphalt and concrete business before getting to aggregates profits. Keep in mind the asphalt business over time is really well expose if you will to increases in public funding, across many states. And so while the short term margin structure for asphalt can fluctuate, long-term returns on capital can be very stable and very attractive. Again tied to public funding, a little bit more on balance. To your point on aggregate margins per ton, first I will draw your attention to the longer term as kind of how we think about the business. As you heard Tom say, we think we’re very much on track with the longer term outlook we put out at our Investor Day a year ago, which would imply on a cash basis per ton margins north of $8. And if you look and see what's happening in pricing, if you look and see what's happening in our operating leverage, if you look at our results so far through the recovery, we are at least on track with our long-term goal. I want to draw your attention to that because that's really how we think about it. In the shorter term for 2016, we continue to expect margins per ton to increase faster than the rate of pricing. So the year-over-year increase might be around 20% roughly maybe slightly below that. And again that ties back to a flow-through that is above the long-term 60% threshold, but a little bit below last year. So, we think it's a reasonable expectation, something we’re confident our teams can deliver.

Bob Wetenhall

And if I could just sneak one in, on asphalt pricing it looks like it's breaking away from the positive trends in aggregates and concrete, how should we think about that into the end of the year?

Tom Hill

We experienced a very good year in asphalt in 2015. Our people will continue to do an excellent job of quality and service and provide value for our customers. Like stone, as I said earlier there is a really healthy pricing and margin story when it comes to customer confidence, backlogs, people have a vision particularly with the highway bill and asphalt. So, I think our folks are doing an excellent job of managing cost, material margins, while at the same time creating value for our customers. We would tell you and it's really hard to look at just price and asphalt, you really need to look at margin because of the fluctuations in materials cost, but we would plan to expand our unit margins in asphalt slightly of 2016 over 2015.

Bob Wetenhall

Great quarter, good luck. Thank you.

John McPherson

Thanks, Bob.

Operator

And your next question comes from the line of Trey Grooms with Stephens.

Trey Grooms

Good morning.

John McPherson

Good morning, Trey.

Trey Grooms

Great year.

John McPherson

Thank you.

Trey Grooms

My question I guess would be around pricing. Can you talk about geographically where you guys are seeing higher pricing relative to, or price increases I should say relative to some markets may be that aren't as strong from a price increase standpoint. I know you said that most of your markets realize solid price improvement, but any color you can give us geographically on that?

John McPherson

I think, I would answer this way where we've seen the recovery more mature, those markets in general tend to be having a higher price increases and it's all about the environment, but across the footprint, we see good pricing environment with rising demand. The entire construction materials sector whether that's contracting asphalt, concrete, is seeing improvements in margin. I think people are really pressing that. And you've got customer confidence and good vision of what's going to happen. That vision is really helped by the federal Highway bill that passed. People know they've got five years offending. States know they've got five years of funding. So, I think as you see that that can only help the pricing environment. Our folks are working hard to improve the value that we bring to our customers. But overall, where we've seen the recovery a little more mature, we see better pricing environment.

Trey Grooms

Alright that makes sense. Thanks for that. As a follow up, how should we be thinking about the favorable product and geographic mix that we saw on pricing. I think you pointed out it was about $0.15 positive impact. Is that kind of a one-time benefit, I know it's not one time, but I guess the question is should we be expecting a similar type benefit as we look into the coming quarters and into 2016 being a favorable geographic and product mix.

John McPherson

Driving in the quarter some of that $0.15 was a one-time event and an example would be some very high-value product we shipped in South Carolina associated with some flood control. So, some of that we call out is a little bit one time. But what I would underscore is that even if you take that out our pricing for the year, the pricing trend we are on was actually still, a good bit above the 7% we had laid out for the year particularly on a same-store basis. So, I would think about the trend going into the next year, the momentum for next year on a percentage basis it's more like 7 plus as opposed to 11. Just because [indiscernible] period-to-period. Let me underscore one more thing, there is no deceleration happening on pricing. The environment is still positive construction and so what I would tell you is we have 7% in 2015, we expect 7% in 2016, we are entering the year we go momentum we have a lot of visibility to it and it is a pretty strong story.

Trey Grooms

Just one more from me on the outlook for private is up 10% and I think you guys said res being up double-digit. I think that implies still some pretty healthy growth in your outlook for non-res. Specifically what do you guys see and that gives you guys confidence that the non-res market is going to continue to improve with that kind a clip and also if you could give us any idea of what your mix is in heavy commercial versus or heavy non-res versus light in your non-res exposure would be great?

Tom Hill

I will start. I think we see and you said it steady growth in the non-residential sector included and embedded in our service is mid-single digit growth in non-residential. And while we've gotten some mixed singles, we've all got mixed signals about non-res construction with leading indicators, our outlook is very consistent with what we're hearing from our customers, with what we're seeing on the ground and what we experience day in and day out. So, I think we are quite confident in our non-residential forecast and it’s steady. You said it best it’s steady growth.

Trey Grooms

Alright, thanks a lot guys, I really appreciate you taking my questions.

Tom Hill

Thank you.

Operator

And your next question comes from the line Stephen Kim with Barclays.

Stephen Kim

Yeah, I wanted to see if we could talk a little bit just about your, whether you saw a strengthening relative to your expectations really kind of at the end of the quarter, at the end of Q3 for example, you didn't really narrow your guidance range and it came in above the high-end and if you set step back and see how things trended over the course of the quarter, is it true that things really exceeded your expectations at the end of the quarter and where would you say the greatest source of upside surprise was?

John McPherson

I will start. I think a lot of it had to do with great execution by our people, frankly. So, weather helped in a couple of markets. You saw that in the volumes, but overall weather was kind of a mixed bag in the quarter. Really, really wet and really, really warm. So, I think what we saw on the demand-side lot of what we would have expected, which is shipment patterns consistent with this continuing recovery and you heard Tom say when people are able to get work done, they did the work. But internally, the organization execution on pricing and margin management and cost controls in the quarter was excellent. And reflected strong performance throughout the year. We had challenged our people, Tom had challenged our people to finish strong and they did so. I don’t think you see that reflected in our results.

Tom Hill

I would echo what John said, our folks are really focused on executing and finishing and they did that. I think what you also see is, we talked about this a lot that sense of urgency out in the overall construction industry and they are focused on execution and they finish the year strong and with a sense of urgency because they got work behind it going into 2016. So, they need to finish despite inclement weather at times.

Stephen Kim

Got it. That helps. Thanks very much for that. Now, I think you, from what I can gather from your comment on capital allocation it didn't sound like you were looking to - you were not including share repurchases in your guide, or in your outlook, I’m just curious have you bought any shares back so far this year, that's basically the main question I had.

John McPherson

Well, obviously we haven't bought any shares back this year because we are still in the blackout period until today. So, you'll see in our financial statement the reflection of shares we purchased for the end of last year before the blackout purchase ended, fairly modest amount. I might well repeat what we've said many times, which is in the context of our overall capital allocation priorities, which of course include reinvesting for growth, include financial flexibility and include returning capital to shareholders. Within that context, we would expect over time to have some, when we call it opportunistic share repurchase. Complements the dividend, which we also expect to growth earnings and we will report on that of course every quarter.

Stephen Kim

So you don't have a 10b5 plan in place?

John McPherson

No. Not yet.

Stephen Kim

Okay John. Thanks very much guys.

Operator

And your next question comes from the line of Kathryn Thompson with Thompson Group.

Kathryn Thompson

Hi, thanks for taking my questions today.

John McPherson

Hi Kathryn.

Kathryn Thompson

I have to apologize we had our power knocked out due to construction jobs in the Nashville area.

John McPherson

We like construction in the Nashville area. Sorry about your power.

Kathryn Thompson

It is what it is. It is more on the policy side, in your opinion when you look at that 22% growth in Georgia volumes how much of that was a assumption was normal weather versus seeing an early impact, the passage of [indiscernible] just from our numbers it adds an estimated $750 million fiscal 2016 and $820 million in fiscal 2017 in terms of incremental transportation revenues. Yes the reason we are getting in field is that yes there was certainly weather impact, but how much is with that volume also driven just by the passage of that bill?

Tom Hill

I will start with the weather in that I think it was - it's a little confusing because it was extremely wet in Georgia. Yet it was extremely warm. So, we got help with the warm weather, but got really - the wet weather should have hurt us. I think it goes back to the thing we keep talking about is that we had a number of large projects that there was a sense of urgency of when they could work they went to work. In fact would that sometimes use more rock because you've got to get out of the mud. I think that there is overall in Georgia, there is really solid underlying demand growth in all market segments. In every one of them and it's really healthy. I do not think that the increased highway funding in Georgia has started yet. In fact usually that takes 18 months to 24 months to flow through. Georgia is trying to accelerate that in fact as John talked about earlier, you could see more of that in 2016 then would be normal possibly but they've got to get that out there. But to answer your question, it is the impact of really solid underlying demand growth in all market segments not the improvement in the highway funding.

Tom Hill

Not yet because we share your view and longer-term enthusiasm with respect to the funding changes in Georgia. They were very long overdue. So we absolutely agree it’s just not yet. I think what you're seeing now has been a long building improvement and a lot of private construction in Atlanta which Kathryn as you will know is one of the most depressed of all of the markets in which we operated in. We have a fantastic position and team in Georgia and so we're really excited about the outlook there.

Unidentified Analyst

Okay. So in another words, a 75% to 80% increase in state funding [indiscernible] (50:16) haven’t been really – there really is no impact yet for volumes?

Tom Hill

I don't think you were seeing that yet in the fourth quarter, maybe a teeny bit and we’ll keep an eye on how much we see in 2016.

Unidentified Analyst

Okay, great. Thank you.

Tom Hill

Okay, great. Thank you.

Operator

And your next question comes from the line of Garik Shmois with Longbow Research.

Garik Shmois

Congratulations. A couple questions on pricing if I could. Your run rate exiting above the 7% average for 2015 and above the guidance for 2016. Just wondering why - just given the strength and pricing that we saw in the back half of the year, why wouldn't we automatically assume that the pricing guidance is conservative and John I think you alluded that it's a 7% plus view but what would take for pricing to trend maybe towards the low end of your internal expectations?

John McPherson

I will start, Garik. If trying to trend towards the low-end, per se we feel like we have very pretty good visibility on pricing side. Pricing in our business Garik as you know is a function of literally thousands of decisions made throughout the course of the year. So it's a little bit inherently harder to predict. I think if we were going to trend towards the lower end, unless something unforeseen happens, to some degree it would be a function of geographic or product mix. Some shift in that but we just don't see right now. But I would echo as Tom said, the conditions for that kind of pricing increase would seem to be in place. And therefore it’s included in our guidance.

Garik Shmois

Okay. And then I guess you're not expecting much in the way of a big step up in DOT funding to benefit 2016 demand, it sounds like a 2017 benefit. But in the case there is some demand that comes through in the second half of 2016 from some new large infrastructure projects. Conceptually can help us understand how that might impact pricing if your business mix ends up skewing towards the start of new big Highway work?

Tom Hill

Couple of things. First of all, I think we do have increased funding in - DOT funding in 2016 maybe not Georgia or a lot of the – some Georgia but you've got a number of states that have huge increases in DOT funding that we have built in the 2016. Texas is one, they're going from 6.1 billion to 9.8 billion. Florida goes up substantially. We've got six or seven states that have already passed increased funding that will flow through in 2016. The big impacts on the Highway bill and as funding increases, we need to take another step in 2017 coupled with the state DOTs will start letting larger jobs with the visibility of having long-term funding. So as far as pricing is concerned, I think as it does flow through, it will be a mix of work on the job obviously asphalt prices tend to be the high in the spectrum basis low but I think it could possibly help prices but I probably tell it would probably be pretty neutral.

Garik Shmois

Okay. Thanks.

John McPherson

Garik if history is in a guide, it should be positive for margins and overall returns. And again it's one more reason we keep getting people focused on the margin per ton line and not just the price line.

Garik Shmois

Got it. Makes sense.

Operator

And your next question comes from the line of Adam Thalhimer with BB&T.

Adam Thalhimer

Hey, good morning guys, congrats on the great quarter.

Tom Hill

Thank you.

John McPherson

Thanks, Adam.

Adam Thalhimer

You guys start off a discussion saying you’re surprised of skeptical people are about the construction recovery. And then when you talk about double-digit revenue growth for multiple years, I mean that's something I would expect people to try to poke holes into. What would give you confidence in saying that about years beyond 2016?

Tom Hill

I think Adam one of the things that's been a real game changer for this is the passage of a long-term Highway bill and the passage in multiple states for long-term substantially increased funding. That gives us – that really gives us the industry and us visibility and it gives you a foundation – a growing foundation in the public sector of demand growth.

John McPherson

Adam, you need to look into it and understand of course that really with the exception of just a couple markets in Texas, all of our markets and our markets unbalanced are still well below normalized levels of demand. Construction activity has a long way to recover. It's not even driven by new economic growth. And at the levels we are talking about, we still have multiple years before we get back to 45 year trends of normal consumption. Mid to high single-digit shipment growth, a mid to high single-digit revenue growth if I can do the math correctly is more than double-digit revenue growth. And that's where this continuous steady rate of gradual recovery. Is it going to be a perfect straight line absolute linear quarter-to-quarter of course not? History hasn’t worked that way, but history would also show that we absolutely recovered a normal and then in fact expand beyond that. So I think if you take a longer-term view, it's actually – it's not in fact it’s anything conservative relative to history.

Adam Thalhimer

Okay. Thanks for reiterating that and then just lastly I wanted to follow-up on Trey’s question. I think he was trying to get a breakdown of the heavy in light non-res being the work that we typically follow housing and then maybe heavy – maybe you can give us a sense for what your exposure would be at a big energy projects along the Gulf Coast.

Tom Hill

I tell you it's a good mix. With housing continue to grow, you will see the light follow that and it always does. We see really good housing growth in 2016. As far as the heavy, we still have substantial amount of projects along the Gulf Coast energy projects actually going into 2016, some in 2017 and some in the 2018. We've seen a few new ones start to look at engineering and permitting but that segment continues to be healthy whether it's refinery expansion, Port jobs, ethanol crackers, we still see substantial projects. We have - our outlook is very clear for 2016 and pretty clear going into 2017.

Adam Thalhimer

Great. Thanks, Tom.

Operator

And your next question comes from the line of Ted Grace with Susquehanna.

Ted Grace

Great quarter and great end of the year.

Tom Hill

Thanks, Ted.

Ted Grace

John, I was wondering if you could just step through either a gross profit per ton bridge or a consolidated EBIDTA bridge just so we can get order of magnitude kind of what the benefit in 4Q was, it's not hard to figure out pricing and volume but kind of R&M benefits, energy. We are estimating maybe $10 million a year on your benefit from diesel and aggregates alone. Could you may be just step through that so we’ve got the data.

Tom Hill

Ted, some of it we can do off-line in more detail, but let me give the highlights kind of quarter and year. And as always I try and draw more attention to the year. But in the quarter you saw that our total cost of sales per unit declined and that was a combination of you said continued diesel benefit year-over-year roughly in the range of what you discussed. But unlike previous quarters we did a better job of managing our per ton expenses as of R&M and some other costs. So on balance we had a decline in cost of sales for the quarter and I think you saw that. For the year, we had a slight decline in total cost of sales and that was really diesel benefits offsetting some raising per ton cost that we commented on throughout the year in terms of R&M, parts and supplies associated labor with that et cetera as well as some overtime labor as we ramped up production. We are really pleased with execution we had in the fourth quarter. We are not taking for granted that all of those issues are behind us. We are still ramping up production and we are still well below what she would normally think of as the sweet spot of production levels in many of our plants. So it's something we're very much keeping an eye on and manage tightly as we go through 2016.

Ted Grace

Okay. And on a related basis if you kind of run rate current diesel prices, it would imply something like $30 million or so year-over-year benefit, just to mention what’s baked into guidance or expectations.

Tom Hill

I think our current guidance, our current plans would have diesel prices rising slightly relative to where they are now. It might be something that I need to check hour by hour, the way oil prices have been moving. But we don't have a further decline in prices baked into our plan.

Ted Grace

Okay, great. The second thing I was hoping ask is just on SAG, a bit above our expectations in the fourth quarter. I know you highlighted kind of pension and profit sharing and some investment in sales. Can you walk through 4Q relative to expectations as we can appreciate that?

John McPherson

Sure. And I'll do it relative to the year too. So I wouldn’t take, don't read 4Q as a run rate change, there were some accrual timing issues that made 4Q higher. So I wouldn’t read run rate for 4Q. For the year, we ought to see a bit above our expectations, which is not something we are pleased with. I think for the year we executed better than we forecasted to be honest. So my comments on SAG, which is probably a number I would like to be zero as a CFO, but our comments on SAG would be that administrative headcount year-over-year remained essentially flat. So the core wage element of our SAG was well in control.

The variances were driven by fringes which is pension, payroll taxes, some deferred comp, calculations those kinds of things which we frankly just didn’t forecast as well as I would liked to it at the beginning of the year. Some of those were driven a little bit higher with our rising stock price. We also had higher outside services fees and professional fees, those were legal and tax. And a couple other items associated with some changes we're making and some investments we're making on the sales side of our business. And then finally, our sales headcount was modestly higher in the year and our SAG is associated with that as we continue to invest in growth for the future. So again I think the execution was solid. We would like to see that number grow at more or like 3% than what we saw in the past year. We were to control it and we’ll certainly continue to leverage it to sales.

Ted Grace

Okay, that’s helpful. Great quarter again and best of luck this year.

John McPherson

Thanks guys.

Operator

And your next question comes from the line of Todd Vencil with Sterne Agee.

Tom Hill

Good morning, Todd.

Todd Vencil

Good morning. A lot of steps been knocked out but just a couple of follow-ups. I want to beat the non-reservoirs a little bit more just given that that's where a lot of investor concern has been focused and everything you are saying would seem to completely contradict and/or a few lot of what I’ve been hearing over the past few weeks from people on the other end of the phone. But you talked about some mixed signals from the forward-looking indicators and that doesn't jive with what you're seeing on the ground. Can you kind of help me think about how you put those two things together? What among the four indicators would look soft and have you seen any reflection of that, it doesn't balance out or you feel like the forward-looking indicators are suggesting softness or simply off-base are being interpreted wrong?

Tom Hill

I think you've got – just look at indicators you've got [indiscernible] who actually showed some weakness in Q3 and Q4. And then you’ve got the construction backlog indicator by the Association of Builder Contractors, so the U.S. was flat before our market in the South was up about 15% for Q4. And then more importantly what we're seeing in our individual markets you still got solid growth in the non-res. I'll give you little flavor on that. If we looked at how you saw - if you sit here where we are non-res going into ’16, we see that Atlanta will be up high single digits; Nashville up high double digits; Nashville up mid double digit; Phoenix low double-digit; Chicago, low double-digit; Charlotte 10% to 11%. So you've got a lot of cities and a lot of locations where there is still very healthy growth in non-res and trying to take an indicator on a national level is tough to put into our world where it's just local and we've got a good visibility.

Todd Vencil

Perfect. That helps a lot. And then on the public side, your comments about the fact that a lot of the highway stuff is going to kick until 2016. Georgia hasn't started kick in yet in terms of their states improvements and their transportation funding. Is there – would you think that highway growth in 2017 could be better than the growth rate in 2016 because of these factors?

Tom Hill

Yes. And I would tell you – I think that will continue to grow 2016, 2017, 2018, 2019 out to the future as – because the Federal funding is compounded at 3% per year. And then you've got a number of states who have already - are already now collecting funds. Those funds will continue to grow in the future and as important as anything, then that work will start flowing through. As I said earlier, you've got normally you have unless somebody is really accelerated plans on the shelf, you've got 18 months to 24 months of lag time from collecting the taxes to shipping rock.

Now Georgia has announced publicly that they are going to be very aggressive about trying to turn work out in 2016 and I think they are working hard at that. We are pulling for them but it just takes time to do plans, get engineering, place bids and even get permits. So it will be and I said earlier this is a game changer for an industry and that you've now got a real visibility into the future for multiple years and you've got a foundation that is continuing to grow.

Todd Vencil

Got it. Perfect. Thanks a lot.

Operator

And your next question comes from the line of Jerry Revich with Goldman Sachs.

Jerry Revich

Good morning. Good afternoon, everyone.

Tom Hill

Good morning

Jerry Revich

Tom, I’m wondering if you could talk about the price increase for January 1 that you’ve put through for 2016, how does that compare versus the price increase that was rolled out to start last year?

Tom Hill

I’d tell you that it depends on the market. We really come back to this every time. We make literally thousands of pricing decisions every day. You've got some markets where we have January 1 price increases, you've got others that have a cadence of April 1, you've got others that have a cadence of April and October or January and July. So it's really all over the board and there's not just one price increase that goes out there.

I would tell you that from where I sit, I'm very confident in our 7%. That will be over quarter-over-quarter, month-over-month, that will be choppy and always is. But at the end of the day, like we told you last year, we were solid in the 7% and that's where we finished. So I think going forward, I think, as you look at it that the environment for pricing and I talk about this a lot because it's so important, customer confidence and improving visibility out into the future and rising demand is very important.

Jerry Revich

And as we think about the way the pricing cadence worked out over the course of 2015, like you said you built momentum over the course of the year, which was really the first time we saw that in this cycle. Are you thinking about the pricing cadence in 2016 lining up and similar fashion when rollup all of the – thousands of pricing decisions like you mentioned?

John McPherson

It's hard to predict because first of all you are comping over very different numbers. And so at this point, I'm not sure sitting here in the first couple of weeks of February that's really hard to predict, it could line up like that or you could see it be much more solid or much more steady through the year. It's just too hard to predict with only a few weeks gone in the year.

Jerry Revich

And then in terms of the Department of Transportation budget comments that you made. Can talk about year-over-year 5% growth, how much of that is based on their budgets versus what you're hearing from the folks in procurement and I guess what's the potential of that, we get projects started sooner relative to what's implied of 5% comment?

John McPherson

Again that 5% is a rollup of a lot of different markets, a lot of different DoT and even more local engineering segments of DoT, or districts of DoT. And our folks usually have pretty good visibility to that just because they spent a lot of time knowing what those projects are going to look like. As I think John said earlier, you could see some big DoT projects get pushed forward. And we would welcome that, but at this point and they're talking like – for example, in Georgia and a number of other states, there is a lot of talk about that, but we haven't seen it come to fruition yet and we don't count that until we see that happen and I couldn't predict whether that will happen or not.

Jerry Revich

Okay, thank you.

John McPherson

Thank you.

Operator

And your next question comes from the line of James Armstrong with Vertical Research.

James Armstrong

Thanks for taking my question and congrats on a good quarter. First question I have is margins in the fourth quarter were really strong and then you mentioned fuel, but as fuel costs have come down have you seen distances that you can ship aggregates rise and if so what effect are you seeing from that trend?

John McPherson

Theoretically that could happen, but I will also tell you that with rising demand, rising confidence, people are servicing the market and possibly serving the market closer to them as opposed, they don’t have to reach out because the work is improving right around where they are. And this goes back to pricing environment and the health of it and people recognizing that we are not back to normal demand yet they've got to make returns on the investments they have and that’s true for aggregates or asphalt or concrete or contracting. So – while I understand why you asked the question and it's a very good one, it's not playing out that way.

Tom Hill

Most of our urban markets, which is a concentration for us, you've got a lot of other barriers to long haul shipping or truck – long trucking that go way beyond diesel costs, it’s availability of drivers, availability of trucks, traffic patterns, regulatory issues around trucking, unpredictable service quality to further your are tucking the stuff. So there are a lot more things, particularly in urban environment to go into this and adjust diesel price right now.

James Armstrong

Okay, that helps. And then switching gears to the Highway bill that you touched on a lot on today's call, you don't see much impact in 2016 yet, but what projects are out there and what type of visibility do you have for 2017 and beyond, can you help us quantify that a little bit?

Tom Hill

I'm not sure I can give you individual projects. There are a number of very large projects that are in the works. There are bidding that are out there. I think what I'm not sure I could identify off the top of my head any specific large projects, but places like Tennessee, for example, have actually held a number of projects because they did not have visibility. Now what those are, I'm not sure I could – I could quote to you, but that's an example.

I think what you will also see is it will be two things, it will be – part of it will be expansion and new projects, which we love because they are more intensive, but you've got a lot of states like South Carolina that really are and a number of other states that really have a lot of maintenance issues they will flow through very quickly. It may not be large projects, but with that funding there they will go head and these are overlays and things like that, which will come faster than the large projects.

James Armstrong

That helps. Thank you.

Tom Hill

Thank you.

Operator

And your next question comes from the line of Stanley Elliott with Stifel.

Stanley Elliott

Hi, guys. Thank you for fitting me in. Quick question about the improvements you guys made on the call side of the question. You talked about repair and maintenance costs coming down. Is that because of new equipment that came in, some of the growth CapEx to help bring those numbers down. And then the second part to the question was around labor costs with lower overtime, does that mean that you sufficiently kind of staffed up some of these plants that had been needing or borderline needing a second shift or what have you to the point where now it should be smoother sailing heading into 2016?

Tom Hill

I think you a little bit answered your own question and that obviously replacement capital and mobile equipment, fixed equipment helps to driven down [ph] cost. But it's really – what we really focus on while we do that and we do that appropriately, what we really focus on is doing proper preventative maintenance and timing and fixing things the right way the first time so you are not throwing good money after bad.

When it comes to whether it's labor or uses of diesel or cost in general, I think it's that continuous focus on operating efficiencies. You heard us talk about we struggle with labor, we define – our folks defined it. And then actually in the back third of the year, it wasn't just last quarter, September forward they made significant improvements on their efficiency to labor and their planning. And again, so you're correct about shifts where you're bringing things up and you're running multiple crews between even more plans, labor can be a challenge without appropriate planning.

I am very pleased with our operating people that they are never been satisfied, they are campaigning for continuous improvement and they focus and work hard every day and I give them credit. They are never satisfied and they work tirelessly on it. But all of this is about compounding that continuous improvement to give us the margin expansion that we've enjoyed over the last ten quarters. And that speaks to that never being satisfied and that continuous campaign to improve and improve those operating efficiencies.

Stanley Elliott

One last one, the issues kind of going on with the credit market does that have any bearing on when you guys ultimately and finally get bumped up to investment grade?

Tom Hill

You probably have to ask the rating agencies. It should not from my point of view, but that's obviously up to the agencies.

Stanley Elliott

Yeah, fair enough. Thanks guys and congratulations and best of luck.

Tom Hill

Thank you.

John McPherson

Thanks.

Operator

And your next question comes from the line of Brent Thielman with D.A. Davidson.

Brent Thielman

Thanks. Great quarter, great year. John, could you elaborate on your comment about product balances in the public sector to work with. Are you referring to some of the downstream businesses or is that related to the types of aggregate you expect as the market gets more momentum?

John McPherson

It's more of the types of aggregate. New construction can be more aggregate intensive, but It helps us if you will produce and so the full product mix whether that's asphalt size, that’s concrete size base. And so It's very efficient work for us if we do it the right way. And it's just a better mix than we’ve had, I’m going to call it, earlier in the recovery. My main point from that that I would like to make for people as we tend to focus only on the price impact when it's conceivable that it could have a marginally negative price impact yet be very positive for unit margins.

Brent Thielman

Got it. And I know a lot of questions on this Highway bill. I will ask one more. I'm curious to your thoughts states now have greater federal funding clarity, do you see or hear any conversations or anticipate that this bill could actually be a catalyst for more states now to kind of think about a gas or sales tax. I know we have seen a few of them already but given the sense that they have some idea of what's coming to them from the federal government and there are certain needs out there. Could that push more through some of the state?

Tom Hill

Absolutely. And I think you said it best. It is being a catalyst for states that haven't increased their funding to take matters into their own hands. They recognize the opportunity they have with increased and long-term federal funding. So you will see a number of states, California, Santa Clara, for example, who are – the state legislature are in the throes of trying to address much-needed infrastructure improvements.

Brent Thielman

Okay. And then of all of this with the bill in place in your served markets, where do you think this can have the biggest impact or where do you feel like the burdens been greatest because of lack of federal funding clarity?

Tom Hill

I think we’ve had a number of states that have – Tennessee to be an example, Arkansas is an example, South Carolina is an example, they've been very hesitant to increase their own funding but also to let much-needed major projects that are multi-year because either they have a legal obligation that they can't or they're worried about being paid back. So I think as you’ve said in your opening question and comment, it will be a catalyst for both.

Brent Thielman

Great. Thank you.

Operator

And you next question comes from the line of Mike Betts with Jefferies.

Mike Betts

Yeah, thank you very much. I have two questions if I could please. First one on --

Tom Hill

Mike, I'm sorry, I can’t hear you.

Mike Betts

Can you hear me any better now?

Tom Hill

That's great. Sorry about that.

Mike Betts

No worries. I had two questions if I could. First one, returning to the non-res area, is it possible to give us some indication of when you kind of did the budget, roughly what proportion of the work assumed in non-res was already contracted and therefore there’s some kind of certainty because I'm sure you follow all of the contract award states rather than you took a view it might happen just to give us some – maybe some – a bit more confidence in that non-res numbers? And then secondly on the asphalt because it expanded quite significantly in 2015. How much now is kind of maintenance work, which is let probably during the year that the work is done rather than long-term contracts?

John McPherson

Clarity on the non-res, I'm not sure I can give you a percentage of what is backlog, that’s really hard to do, because so many of those are small jobs that you have to get into the local detail whether it’s a Walmart parking lot or a big box store or a high-rise. That's really hard to predict.

Tom Hill

The heavy side of it is pretty clear.

John McPherson

Yeah. And that’s where I was going. The big work, the major projects we have very good clarity, in fact we are already shipping them or we know exactly when they are going to start because those jobs have very tight and very tough deadlines. Very specific delivery obligations and so we know exactly what's going on with those.

Mike Betts

You were asked earlier, I am not sure that you wanted to answer to it, but the rough split heavy and light.

John McPherson

I'm not sure I have a number for you. I have to get back with you on that.

Mike Betts

Okay, okay. And then on the asphalt again a big, short-term work versus long-term work, rough proportions and what happens like if – if the actual price moves dramatically?

Tom Hill

I think there is probably a pretty good mix of short-term and long-term work, the majority of it, I would usually when you look at that overlays are shorter term, new construction is longer-term, you're going to be more heavily weighted towards the shorter term for overlays as opposed to new construction. I would tell you that towards the end of this year and moving into 2017 and 2018, you'll see the market piece of that of the longer-term growth and we've seen that grow over the last 18 months. But the majority of it's going to be shorter term.

John McPherson

And Mike while our material margins in asphalt can fluctuate period to period, I'm not sure this is quite what you're asking but we don't have lots and lots of long-term fixed-price contracts or anything like that.

Mike Betts

Okay.

John McPherson

So, obviously, the margin can fluctuate period to period as you know asphalt can be a bit more volatile in its margin than some other parts of the business. Although generally always positive and good. But, no, we don't have lots of long-term fixed-price contracts that give us some big exposure.

Mike Betts

And just to finalize on that, have you – I mean, the liquid asphalt price I think was – the cost was declining way slower than the oil price, is that still the situation?

Tom Hill

Liquid asphalt prices have probably somewhat leveled off. And I think that's how we – as we plan this, that would be our plan now. Who knows, [indiscernible], but as I said earlier with that, we do have a modest increase improvement in our unit margins in asphalt. And that's really driven by some operating efficiencies and some actually some new capital we put into that product line as well as we think we've got a little bit better from an operating perspective.

Mike Betts

Understood. That's great. Thank you both very much.

Operator

And we have no further questions. At this time, I would now like to turn the call back over to Tom Hill for any closing remarks.

Tom Hill

I would tell you thank you very much for your interest in Vulcan Materials. I would like to thank our folks for their tireless efforts to improve our company. I would also like to reiterate we are very excited about our future, we look forward to talking to you in the weeks to come. Thank you.

Operator

Thank you. This does conclude today's conference call. You may now disconnect your line.

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