Caterpillar, Vulcan May Gain From Highway Proposal
Caterpillar Inc. (CAT) and Vulcan Materials Co. (VMC), struggling with a near three-year construction decline, are among companies that may benefit most from a $50 billion proposal to rebuild U.S. roads, railways and runways.
President Barack Obama’s plan, which needs congressional approval, would pick up the slack when most of the highway stimulus funds under the $814 billion American Recovery and Reinvestment Act are used up next year, said Mike Betts, an analyst with Jefferies Group Inc. in London.
Without Obama’s initiative, highway spending may fall as much as 5 percent next year, causing companies such as Vulcan, the biggest U.S. gravel supplier, and Cemex SAB, the country’s second-biggest cement maker, to miss their targets for volume growth, Betts said.
“The risk of a fall of highway spending for 2011 is receding quickly, and there is a possibility of an increase,” Betts said.
Yesterday, Obama called for Congress to approve spending to rebuild 150,000 miles of road, construct and maintain 4,000 miles of railroad and refurbish 150 miles of runways. The $50 billion plan would be an “up-front investment” that should be accompanied by long-term transportation funding, according to a White House statement.
The House in July approved highway construction funds of $45.2 billion for the fiscal year that begins Oct. 1, a 10 percent increase from the current period. The Senate needs to approve its version of the bill.
Obama’s proposal would provide an economic boost and help make companies like Caterpillar more competitive, said Jim Dugan, a spokesman for the company.
“These types of road projects put people to work quickly, which benefits the economy in the near term,” Dugan said in an e-mail. Caterpillar is the largest maker of construction and mining equipment.
Representatives of Vulcan and Cemex didn’t immediately respond to calls for comment.
Caterpillar, based in Peoria, Illinois, fell 38 cents to $69.70 at 4:15 p.m. in New York Stock Exchange composite trading. Monterrey, Mexico-based Cemex’s American depositary receipts lost 4 cents to $8.43, and Birmingham, Alabama-based Vulcan declined 29 cents to $38.26.
Caterpillar has risen 22 percent this year, which compares with a 14 percent gain in the Standard & Poor’s Supercomposite Machinery Index. Vulcan has fallen 27 percent this year, compared with a 14 percent drop for the Russell 3000 Building Materials Index.
Martin Marietta, HeidelbergCement
Martin Marietta Materials Inc. (MLM), the second-biggest U.S. provider of crushed stone, sand and gravel for construction; HeidelbergCement AG (HEI), the biggest U.S. cement maker; CRH Plc (CRH), the Dublin-based maker of building materials; and Granite Construction Inc. (GVA) also rank among those that would be most affected by Obama’s initiative, Betts said.
Fluor Corp. (FLR), URS Corp., Michael Baker Corp., Sterling Construction Co., Astec Industries Inc. (ASTE) and Terex Corp. (TEX) would also benefit, said Clint Currie, an analyst with Concept Capital’s Washington Research Group.
Federal, state and local highway spending will probably total almost $80 billion this year as stimulus funds helped make up for a cutback in state outlays, Betts said. Spending on roads has run at an annual rate of $70 billion to $80 billion for the past three years, he said.
Even with stimulus funds, construction spending has been dropping since October 2007 and the industry has lost almost 2 million jobs, according to data compiled by Bloomberg.
Lower State Spending
Many companies that had counted on the federal support for an increase were disappointed this year because of lower state spending, according to Betts. If the plan is approved, the impact of the spending won’t be felt until late next year, just as the stimulus money ends, he said.
“I don’t think anybody is going to run out and put $50 billion of additional highway spending in their forecast and raise their numbers,” Betts said.
By the end of this year, about 65 percent of the $27 billion stimulus for highways will have been spent, according to Vulcan, which provides crushed stone, gravel and sand for construction. About 30 percent will be spent next year, the company said.
Federal stimulus spending and a highway bill “provides a cornerstone of our demand outlook,” Don James, chief executive officer of Vulcan, said Aug. 3. Vulcan expects shipments to rise as much as 5 percent in the second half of 2010.
Cemex predicts U.S. volume growth of 5 percent this year. CRH lowered its profit forecast for 2010, citing lower-than-expected U.S. volumes and more competitive pricing.
The president’s proposal also calls for creating an “infrastructure bank” for public-private investment in large projects and for giving high-speed rail equal priority under the transportation program.
The plan could provide freight railroads, which include Union Pacific Corp., that have passenger trains running on their tracks with money to install positive train control technology, which can prevent crashes, Concept Capital’s Currie said in an interview. A 2008 law requires the automatic-braking technology to be installed on routes that carry passenger trains by 2015.
Outfitting all U.S. tracks will cost U.S. railroads $10 billion, Matt Rose, chief executive officer of Fort Worth, Texas-based Burlington Northern Santa Fe Corp., said last year. Burlington Northern, owned by Warren Buffett’s Berkshire Hathaway Inc., is the second-largest U.S. railroad after Union Pacific Corp.
Amtrak, the U.S. long-distance passenger railroad, praised Obama’s proposal in an e-mailed statement.
House Transportation and Infrastructure Committee Chairman James Oberstar, a Minnesota Democrat, last year introduced a $500 billion six-year measure to fund highways and transit. Congress hasn’t acted on the bill. U.S. highway and transit programs are operating now under an extension, which expires Dec. 31, of the previous surface transportation bill.
“If an infrastructure bill is passed later this year, it could lessen the urgency to pass a larger, multi-year authorization for transportation,” Currie said in a report today. He gave the plan a 50 percent chance of passing.
Senator Jim Inhofe, the ranking Republican on the Senate Environment and Public Works Committee, called Obama’s plan a “show for the election.”
U.S. construction spending on transportation rose in the first six months of this year from last year. Transportation spending accounts for less than 5 percent of total construction spending.