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Producer accruals from Tax Cuts accounting near $1 billion mark

The Tax Cuts & Jobs Act (TCJA) with which President Donald Trump and his party closed out 2017 is already spurring returns in concrete, aggregates and cement. A lowering of the corporate tax rate from 39 percent to 21 percent, coupled with reduced liabilities for deferred tax payments, is reflected in major operators’ final 2017 financials and stepped up 2018 capital expenditure projections.

Vulcan Materials Co. cited a $314 million income tax benefit in the fourth quarter of 2017, including $268 million associated with TCJA-prompted revaluation of deferred tax liabilities. “While the full impact of the TCJA continues to be assessed, the Company expects earnings and cash flows will benefit meaningfully going forward,” Vulcan tells investors. “We continue to evaluate other aspects of TCJA including full expensing of certain qualified capital spending, [and] expect core capital spending to support an increased level of shipments and further improve production costs and operating efficiencies of approximately $250 million.” The producer has budgeted $350 million for internal growth capital expenditures this year, and anticipates TCJA provisions equating to a $100 million reduction of 2018 tax liabilities.

Vulcan and its closest rival in aggregates reserves and production, Martin Marietta Materials, finished 2017 with near-equal overall financials—and TCJA spoils. Martin Marietta booked a non-cash income tax benefit of $258 million by remeasuring deferred tax assets and liabilities. “We are encouraged by enactment of the Tax Cuts and Jobs Act of 2017 and its long-term benefits for Martin Marietta, our customers and our industry,” Martin Marietta CEO Ward Nye tells investors. “Importantly, passage of this legislation provides positive momentum in Washington, D.C. to address the shortfall in sustainable funding commensurate with the nation’s need for infrastructure investment.”

TCJA enabled MDU Resources Group to add nearly $42 million to fourth quarter figures for its Knife River Corp. business unit. A deferred tax liabilities gain positioned Knife River to contribute $123.4 million of MDU Resources’ $284.2 million in 2017 earnings. The business unit has entered 2018 “evaluating acquisition opportunities,” MDU Resources affirms.

Compared to peers, Summit Materials’ TCJA accounting looks more complicated, but nevertheless positive for investors holding shares from the company’s 2015 initial public offering (IPO) or subsequent offers. “Passage of comprehensive federal tax reform legislation is a positive development,” says Summit Materials CFO Brian Harris. “As a result of this legislation, we estimate that our Tax Receivable Agreement liability has been reduced by approximately 40 percent to $332 million … We believe the passage of this legislation will provide a measurable long-term benefit to our free cash flow, as $217 million in future cash payments that would have been paid to pre-IPO investors can instead be invested back into the business.”

Although not bound by publicly traded operators’ financial reporting requirements, CalPortland Co. mirrors Vulcan, Martin Marietta, MDU and Summit sentiments on TCJA. Economic momentum supported by tax reform and anticipated federal infrastructure legislation will increase jobs and position CalPortland to continue to invest in its business, the company noted last month. “The combination of the new tax legislation and reduced bureaucratic red tape will allow American manufacturing to once again compete in world markets,” added Senior Vice President Steve Regis, crediting President Trump and Congress with “delivering on promises to streamline runaway bureaucratic regulation.”

Construction materials producers should find any impolitic stunts from the White House a small price for industry tailwinds attributable to tax reform, plausible infrastructure investment strategies and a taming of federal agencies.