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Vulcan Materials Co (Holding Co) (NYSE:VMC)
Q4 2019 Earnings Call
Feb 18, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning ladies and gentlemen, and welcome to Vulcan Materials Company's Fourth Quarter and Full Year Earnings Conference Call. My name is Kevin and I will be your conference call coordinator today. [Operator Instructions]

Now I will turn the call over to your host, Mr. Mark Warren, Vice President of Investor Relations for Vulcan Materials. Mr. Warren, you may begin.

Mark D. Warren -- Vice President, Investor Relations

Welcome everyone to the Vulcan Materials' fourth quarter and full year earnings call. With me today are Tom Hill, Chairman and CEO; and Suzanne Wood, Senior Vice President and Chief Financial Officer.

Today's call is accompanied by a press release issued this morning and a supplemental presentation posted to our website. Additionally, a recording of this call will be available for replay later today.

Before we begin, please be reminded that comments regarding the company's results, the projections -- and projections may include forward-looking statements which are subject to risks and uncertainties. These risks, along with other legal disclaimers are described in detail in the company's earnings release and in other filings with the Securities and Exchange Commission.

You can find a reconciliation of non-GAAP financial measures and other information in both our earnings release and at the end of our supplemental presentation.

I will now turn the call over to Tom.

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Thank you, Mark, and thanks to everyone for joining the call today. We appreciate your interest in Vulcan Materials Company. 2019 represented another year of strong earnings growth and demonstrated the strength of our aggregate-centric business model. But before we talk about our accomplishments for the year, I want to spend a few minutes telling you about the good progress we made again in the fourth quarter.

Aggregates gross profit was $274 million dollars, a 7% improvement versus the prior year fourth quarter. Aggregate shipments increased by 4% with markets in the Southeast and Southwest reporting a strong growth. For the quarter, freight adjusted average sales prices increased by 5.5%. All key markets reported year-over-year price growth. And the 70 basis point benefit from mix was due in part to above average growth in Gulf Coast markets that are served by our unparalleled logistics network. This growth is noteworthy. The fourth quarter of 2018 made for a tough comparison with a 24% increase in Aggregates gross profit, 8% growth in volume and 5% mix adjusted price growth over 2017.

Gross profit per ton in the quarter improved to $5.32 and was negatively impacted by three things, most of which are timing and mix related. First, repair and maintenance costs were higher in the quarter. As we said before, certain types of repairs and maintenance are routined and scheduled, therefore the associated costs are more predictable. Other repair and maintenance activities are planned annually, but the exact timing is more difficult to predict with precision. We monitor the situation throughout the year to determine the optimal time to do the work and as a result, the cost can be lumpier. This quarter included several of these types of repairs. In addition, the rigorous inspection and maintenance protocol that we rolled out as part of our operational excellence initiative in early 2019 drove some of our costs, higher in the second half of the year. We expect to continue to see additional repair and maintenance costs in 2020 and have incorporated them in our guidance. Setting high standards is the right thing to do for the long-term health of our business.

Our employees are highly engaged and they are focused intuitively on the mobile equipment and fixed plant inspection and maintenance aspects of this initiative. In doing so, we can pre-empt or avoid equipment failures which could result in much more expensive repair cost.

The second factor that impacted our gross profit in aggregates was actual geographic mix versus our expectations. Our fourth quarter shipments were robust in markets alone along the Gulf Coast, which are served by rail and water. Remote served markets carry higher selling prices, but also carry higher cost, particularly if the tons are shipped by rail versus Blue Water. In the fourth quarter, higher volumes from rail distribution negatively affected margins. The third factor, was lower revenue and earnings from certain aggregates locations, which also generate tipping fees on clean fill. This result was mainly a matter of timing of projects expected to contribute to the fourth quarter, instead projects were delayed but will benefit 2020.

Finally, I'll also highlight our fourth quarter Asphalt results, where gross profit increased by $4 million compared to the fourth quarter last year. This was driven by 10% improvement in shipments and a 3% improvement in average selling prices. In addition, we expect -- we experienced volume growth in California in spite of wet weather in the fourth quarter. These volume and price improvements in addition to a 12% reduction in the average unit cost for liquid Asphalt drove a 52% improvement in unit profitability in Asphalt. Suzanne will share with you the detailed numbers in a moment. But first I like to summarize, our full year 2019 accomplishments and talk about how we are excited about 2020.

Let's start with the most important aspect of our business Safety. In 2019, our people led us to another year of world-class safety performance despite being busier than ever. We also completed the rollout of all of our strategic initiatives. Commercial excellence, operational excellence, logistics, innovation and strategic sourcing. We believe, these initiatives will help us accelerate growth toward our long-term goals.

On the financial side, Aggregate shipments grew by 7% and average freight adjusted sales price was 5.6% better than 2018. Average gross profit increased by 16% and unit profitability grew by 8%. Cash gross profit per ton was $6.74, another step forward on the path to our longer term goal of $9 per ton. And while our non-aggregates segment gross profit was flat year-over-year, the second half showed signs of improving trends in the Asphalt business.

Our adjusted EBITDA for the year grew by 12% and importantly our return on invested capital increased to 13.9%. As a whole we were pleased with our annual results, but we aren't satisfied with just setting records. Our focus is on getting better every day and reaching our potential. As we enter 2020, we are well positioned to take advantage of supportive markets and deliver another year of double-digit earnings growth. Our markets will continue to benefit from both public construction demand led by highways and a resurgence in demand on the private side, particularly residentials. The public highway demand is there.

As for the revenues to support the investment. As we've seen -- excuse me, as we said before it's not a matter of if but rather when the projects are finally started and shipments begin. To be fair, we've seen -- we've been a little bit disappointed over the last couple of months with the speed with which the states are letting work, however we remain confident that these projects are a go in the near to medium term. With respect to residential demand, which we've been a bit cautious, but now we're seeing a very positive turn and leading indicators, with Vulcan markets outpacing the rest of the country. Underlying demand fundamentals, including population and employment growth remain firmly in place and underpin our expectations of growth in private residential and non-residential construction. These demand characteristics are catalysts for a positive pricing environment in 2020 and demand visibility is also an important contributor.

With our geographic footprint focus on the higher growth markets, we are in the best position to capitalize on public and private demand. So what does all of this mean for 2020? We anticipate a 2% to 4% growth rate in aggregate shipments. Aggregate freight adjusted sales prices are expected to increase between 4% and 6%. Additionally, we maintain our longer term view of approximately 6% same-store flow-through rate to gross profit on a trailing 12 month basis. Overall, we are looking at double-digit growth in Aggregate segment earnings.

Moving to our Construction Products segment, we expect 10% to 15% growth in gross profit collectively. This contemplates relatively stable liquid cost in Asphalt.

I'll now turn it over to Suzanne for further comments on our 2019 full year performance and 2020 guidance.

Suzanne H. Wood -- Senior Vice President and Chief Financial Officer

Thanks, Tom, and good morning to everyone. In 2019 our Aggregates volume growth reflected the solid underlying demand fundamentals in our market, including growth in population, household and jobs that is 2 times to 3 times that of other markets over the next 10 years. Shipments in certain markets in the Southeast, Mid-Atlantic and Texas were particularly strong. Average sales prices in aggregates increased and higher prices were widespread with all major markets reporting improvement. For the full year, our costs were up 4%, contributing to a 48% same-store Aggregates flow-through rate. As Tom mentioned, there were several factors that affected this rate, particularly in the fourth quarter. Our segment gross profit increased by 16%. This continued progression underpins our ability to deliver attractive earnings growth. SAG expenses, while higher in absolute dollar terms decreased as a percentage of total revenues.

Moving on now to the balance sheet, cash flows and return on investment, we made progress in each of these areas. Our balance sheet structure remains strong, with a weighted average debt maturity of 14 years and a weighted average interest rate of 4.4%. Leverage was reduced from 2.6 times to 2.2 times, well within our target range. We generated $820 million of discretionary cash flow and we followed our capital allocation priorities to determine the most shareholder returns enhancing use of that cash. In 2019, this included investments and attractive growth opportunities as well as return of cash through dividends and share repurchases. And as a result, our return on invested capital improved by 130 basis points on an adjusted EBITDA basis.

I'll move on now from 2019 to 2020. Tom has already covered the operational aspects of our segment guidance. So I'll comment on a few other points. SAG expenses are forecast to be approximately $365 million in 2020. This represents a reduction in absolute dollars as well as a reduction in the ratio of expense to revenue. We already have taken steps to ensure we are efficiently leveraging our overhead. We anticipate that interest expense will approximate $125 million and that depreciation, depletion accretion and amortization will approximate $385 million in 2020. And our effective tax rate will be approximately 20%. The combination of these assumptions lead us to an adjusted EBITDA range of $1.385 billion to $1.485 billion for 2020. The midpoint of this range represents a 13% increase as compared to 2019.

Moving on to our cash flow expectations. Remember that our business is an inherently cash generative one and 2020 will be no exception. We anticipate discretionary cash flow of approximately $800 million. As you model our cash flows, I'll share some thoughts to help you fill in the blanks. As guide posts, we will continue to adhere to our unchanged capital allocation priorities in directing our uses of cash and we will stay within our target leverage range. We expect cash interest expense of $120 million, operating and maintenance capex of $275 million and finally, cash taxes of $180 million.

The discretionary uses of our cash involve returns to shareholders, internal growth capital and acquisitions. Let me cover each one of those. First, we expect to maintain a progressive dividend generally growing it in line with earnings to a level that is fully sustainable through the cycle. Second, we expect to spend approximately $200 million on growth capex for projects that are already largely under way as we do not spend the full amount of growth capital we projected in 2019. These projects include the opening of a new quarry in California, capacity expansion at other quarries as well as improvements to our logistics and distribution network and sales yards. And third, we will continue our disciplined evaluation of acquisition opportunities as they arise only investing in those which fit our strategy and offer superior returns and synergies. And last, we will continuously evaluate the use of opportunistic share repurchases as a means to return excess cash to shareholders.

And now I'll turn the call back over to Tom for closing remarks.

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Thanks, Suzanne. Now before we go to Q&A, I want to take this opportunity to thank the men and women of Vulcan Materials for their hard work and dedication. They have taken good care of our customers and have improved our business processes and disciplines. Importantly, they have promoted our strong safety culture and are responsible for delivering our industry-leading safety metrics. As we move forward, we will continue to capitalize on our strengths, our aggregates focus business, our outstanding geographic footprint and our local execution capabilities. We will also remain focused on compounding our unit margins through the cycle and improving our return on invested capital.

Now we'll be happy to take your questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Stanley Elliott of Stifel. Please go ahead.

Stanley Elliott -- Stifel -- Analyst

Good morning, everybody. Thank you for taking the question. Tom could you talk a little bit about the cost structure, kind of puts and takes as we're heading into 2020? You mentioned some of that being planned in the current guide, does any of this roll off? I'm just curious to see how you guys are thinking about the cost piece?

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Sure. If you look at the fourth quarter, the average cost per unit profitability was -- as I said, was impacted by three unique items and pretty much equally all three of those items are somewhat of a combination of mix and timing. The first one is a large clean fill project, which we will take dirt into quarry for a tipping fee. The job was temporarily stopped, but it will start back up in 2020. So we'll see that again. We'll get that back. The second item was really geographic mix. It was increased volumes to remote distribution rail yards on the Gulf Coast which is a good thing. It just comes at a higher cost for the simple reason that experience not only to the quarry costs, but also the yard costs, and you couple that with, we had a little bit lower volumes in the Mid-Atlantic states really due to timing of work. And then the third item was increased equipment maintenance cost that is really driven by our equipment inspection efforts as part of our operations. Excellence efforts which we kicked off in February last year and this is really to prevent catastrophic equipment failure, it improves operating efficiencies and actually improved customer service. While the costs were higher in Q3 and Q4 because of these efforts, a long-term focus on maintenance is just the right decision for the company.

Now those efforts will benefit us later this year as over time, it improves cost by helping to eliminate expensive failure costs and really the expense of downtime. And I would expect some of these costs to continue for a bit into 2020. But all of that's built into our full-year 2020 guidance. And I got to tell you, I'm very pleased, this takes a lot of work, a lot of effort and I'm pleased with our operators performance here.

Stanley Elliott -- Stifel -- Analyst

And then sticking on the cost side, can you guys speak to the leverage you're seeing on the SAG line. I wanted to call it SG&A, but I feel like that tracking below 7% of sales maybe one of the best in the company's history. You talk a little bit about how you're driving that down when your revenues are going to be up double-digits?

Suzanne H. Wood -- Senior Vice President and Chief Financial Officer

Yes, sure. I'm happy to do that. And good morning to you. Yes, the SAG area, which is predominantly corporate and administrative tight cost is an area where we are continually focusing our attention. If you look at the fourth quarter and you look at the full year of 2019, while the absolute dollar amount is higher, we did reduce it as a -- those costs as a percentage of revenue, and that's something that we have been really focused on as part of our budgeting process and as we move into 2020. I mean look that we want to make sure that we are delivering the appropriate services to our operational folks and we have looked across the footprint, particularly in those corporate and admin functions for ways to be more efficient and effective in delivering those important services to people and sometimes that is just finding more efficient ways to do things, sometimes it's using technology, you just use a number of things at your disposal to try to affect some change. So you'll see those efforts which have already begun. Some are completed as we speak. You'll see that reflected in the 2020 guidance. And we are absolutely driving toward not just a reduction of those cost as a percentage of revenue, but also a reduction in the absolute dollar amount and we have plans in place to do that.

Stanley Elliott -- Stifel -- Analyst

Perfect. Thank you very much for the time and best of luck.

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Trey Grooms of Stephens, Inc. Please go ahead.

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Good morning Trey.

Suzanne H. Wood -- Senior Vice President and Chief Financial Officer

Good morning.

Trey Grooms -- Stephens Inc -- Analyst

Good morning. So I guess I'm going to talk more -- or my first question is more around the volume. So 4Q -- the 4Q volume you did see a little bit of a deceleration there relative to what we saw in some of the other quarters and then seeing the volume going from 7% or so I guess that you put up in '19 in Aggregates to the guidance this year of 2% to 4%. You know as my first question, can you talk more specifically about how we get there? What your end market expectations are or your assumptions for your end markets, public, private, non-res and then residential that you have baked into that?

Suzanne H. Wood -- Senior Vice President and Chief Financial Officer

Hi, good morning. That's a good question. I'll just start off with a gentle reminder about the tough comp that we had year-over-year in fourth quarter and then Tom can address some more specific comments. If we look at the fourth quarter of 2018 from the revenue perspective, it was just a really strong quarter. We had an 8% growth in volume, which led to a 24% in Aggregates gross profit. So I think with the volume increase of about 4% in the quarter this year, I mean frankly that's I think that's pretty, pretty decent growth, it's well within our guidance range that we set forward at the beginning of the year and coming off a very good fourth quarter we had last year, I'm not completely surprised by that.

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Yes. I would add to that the 2% to 4% growth in 2020, I think is our -- trying to be thoughtful about taking everything into account, demand, timing of shipments, weather comparing it to 2019. So remember that we saw a little bit slower starts and leading indicators on the private side and the third quarter kind of July to October that has now picked up, it picked up dramatically. And it could flow through part of 2020 as a short low or it could just -- what we're seeing right now to flow through, we just don't know quite know yet.

On the highway side, funding is up, demand is up and public works for the first time non-highway public works is picking up, still there is quite a bit of unknowns about, again about how fast the DOTs can get jobs, let and to work the funding is there, but it will be about timing I think. We're also not going to have as Suzanne said, we're not going to have a first quarter 2019 -- last year we had a windfall, we're up 13% as we had pull forward from the prior year and then 2019 we didn't have any hurricanes or tropical storms that impacted us in any material way. I think the 2% to 4% volume growth in our guidance is a thoughtful approach as we put all those factors together. I would point out in all of this that we will see growth in all four end markets and the one that's that's coming on and we're pleased to see is that the non-highway infrastructure pieces is now rolling.

Trey Grooms -- Stephens Inc -- Analyst

Got it. Okay. And Tom, you mentioned the 1Q of '19 having a pretty good showing there with some windfalls. How should we be thinking and maybe this is for Suzanne, but how should we be thinking about the cadence there of the volume as we look into '20 in light of things like tough comps and other things of that nature?

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

I think, as always, it's going to be timing related, it will be the -- we'll have ebbs and flows with that, but the -- it will be timing of weather and timing of large projects.

Trey Grooms -- Stephens Inc -- Analyst

Okay, fair enough. Thank you. I'll pass it on.

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Kathryn Thomas of -- beg your pardon Kathryn Thompson of Thompson Research Group. Please go ahead.

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Good morning Kathryn.

Suzanne H. Wood -- Senior Vice President and Chief Financial Officer

Good morning.

Kathryn Thompson -- Thompson Research Group -- Analyst

Good morning. Thank you for taking my questions today. First focusing on Illinois, we are seeing a pick up in lettings in Illinois. You talked about lettings in prepared commentary but focusing on that, how do you expect forward -- you're seeing work, what type of projects and how big of an impact could we build only have a state that has relatively underperform every past several years?

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

I think it was hard for me to hear you. Was your question, first of all, how is it in Illinois, and what -- should we expect from how we are working with hyperbole?

Kathryn Thompson -- Thompson Research Group -- Analyst

Yes. Really, what we've seen lettings, are you starting to see work come from rebuild Illinois and what are your expectations for future volumes at the state from this past FAST Act?

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

So I think that Illinois, I wouldn't -- we're not expecting a lot of that funding to flow through in 2020. I think it's pretty more '21. We still have some of the pull work and airport work, which will benefit us in Illinois in 2020 on the private side and Illinois is probably not one of our strengths, it is probably one of the few places where pricing some weakness on that. So while the team in Illinois did the job improving unit margins, they are not getting the benefit of big volumes and I don't think we're going to see the highway in Illinois, much of it until '21. Am I answering your question?

Kathryn Thompson -- Thompson Research Group -- Analyst

Yes. Perfect. Yes. No, that's helpful. That's helpful. And then also, just following up on the rail network. Assume that most of the volumes are out of your South Georgia ops, could you just confirm -- give more color in terms of the type of projects that you're seeing that are driving demand in the Gulf? Thank you.

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Yes. So it was -- in the fourth quarter the rail work was really widespread and it was really more timing. We are pleased with it is good work just comes at a higher cost, but it was across the board, I mean it was Texas, it was the Mississippi, Louisiana/Panhandle, South Alabama even into Florida. We really just had a good solid fourth quarter even weather helped it.

Kathryn Thompson -- Thompson Research Group -- Analyst

All right. Thanks very much.

Operator

Our next question comes from Jerry Revich of Goldman Sachs. Please go ahead.

Jerry Revich -- Goldman Sachs -- Analyst

Yes, hi, good morning everyone.

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Good morning.

Suzanne H. Wood -- Senior Vice President and Chief Financial Officer

Good morning.

Jerry Revich -- Goldman Sachs -- Analyst

I'm wondering, can you talk about the pricing cadence as we think about 2020 versus '19, any differences and timing of price increases that we should keep in mind. Then can you comment on how broad the price increases is in terms of breadth of markets as we think about '20 versus what you put through in '19?

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Yes. I would describe it is very similar -- 2020 will be very similar to 2019. We're continuing to see solid price improvements at this point in 2020. We're very confident guide that 4% to 6% price improvement for the year. Our bid work, our backlogs would support this and our discussions with our fixed plant customers would support this kind of pricing momentum. Again we always point this out, but we do it again, it's really underpinned by that visibility of the rapidly growing highway work and a solid -- we think a solid performance will be seen in growth in the private side, and then again, now we're starting to see growth in the non-highway infrastructure, well, it's the smallest piece of it, it's healthy. And I would tell you that we're going to see price increases across -- it's really widespread across every one of our markets.

Suzanne H. Wood -- Senior Vice President and Chief Financial Officer

As it was in '19.

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Yes.

Jerry Revich -- Goldman Sachs -- Analyst

And we will have if you hit -- the pricing items will have two straight years of 5% or so pricing gains. Is that sustainable in the medium term and obviously you're looking for lower volume growth in '20 than in '19, I'm wondering as we think about the medium-term outlook, how would you counsel us to think about sustainable level of long-term pricing gains?

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Obviously, we're not going to give guidance past 2020, but you saw it in '19, you'll see it in '20, I think the -- again we've got a long-term substantial highway funding coming and that visibility. We will continue to grow. So that just supports the kind of pricing we're seeing.

Jerry Revich -- Goldman Sachs -- Analyst

Okay. And lastly in the past when you had pricing momentum in Aggregates in your Asphalt markets you're able to achieve gross margin expansion, I think at a faster rate than we've seen so far in the cycle. Can you just comment on what's holding you back from achieving historical levels of gross margins in Asphalt in this cycle compared to the past?

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Yes. Well, I think in -- as far as Asphalt is concerned, we are guiding to non-air product lines being up 10% to 15%. Asphalt prices and unit margins are going to drive the big improvement in that Asphalt. We would expect gross profit in Asphalt to be up double-digit that would be probably a slight improvement, flat to a slight improvement in liquid cost. I think the good news is the good highway work where we experience that the big funds and the timing of that line up with our Asphalt business. So the story in Asphalt, I think is this is, we said all of last year we would catch and bypass liquid liquid prices or liquid cost to improve unit margins, you saw this happen in the fourth quarter, more to come.

Jerry Revich -- Goldman Sachs -- Analyst

Okay. Thank you.

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Anthony Pettinari of Citi. Please go ahead.

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Good morning.

Suzanne H. Wood -- Senior Vice President and Chief Financial Officer

Good morning.

Anthony Pettinari -- Citigroup Global Markets -- Analyst

Good morning. Tom, I think you mentioned being disappointed over the last couple of months with regards to the speed with which some states are wedding work. I was wondering if you could just give a little more color on which states you're seeing this and maybe the magnitude of the delays relative to what you were initially expecting?

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Yes. I would describe it this way, I think at this point where we are in the year right now, we would expect highway demand at this point be up predict low single digit. Now that could move to mid-single digit depending on the timing of large projects and really states ability to get work less and get work started. As I said earlier for Asphalt, the good news is states where we have Asphalt probably have the strongest demand going into 2020, Texas, California, Virginia, Florida, Tennessee.

But the flip side of that is, places like Georgia and South Carolina they struggled in the last year to get work. They get funding left and work started, if you look at Georgia we're still shipping three mega projects in Georgia, so that's helping, but I would tell you that highway awards data starts have been a little slower, but then again lettings they do ebb and flow, they come and go. All that said, I think that single digit -- that low single digit could turn quickly to push us to mid-single digit. You've got Georgia in the second half of 2019 where lettings were slow, now Georgia in the first half of '20 is going to let $1 billion worth of work. Texas is looking to double their lettings going into 2021, that's already healthy is at $7 billion going to $14 billion. California we'd expect fund spending to go up some 13% embedded in that is a 25% increase in maintenance funding and that maintenance funding could go very fast.

All in all, we will experience growth in highways in 2020 and for years to come. And then I will give you a reminder that highway starts right now, while they have been, maybe a little bit slower, or up 20% versus where they were two years ago. So it's growing, it's just how fast can the states get it to work.

Anthony Pettinari -- Citigroup Global Markets -- Analyst

Got it, got it. That's very helpful. And then in the release, I think you made some reference to concrete project delays. Can you talk about where you saw these project delays and the magnitude and whether you expect this to kind of continue into 2020?

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Yes. We got delayed two places. It was timing of big projects in Virginia and then it was both weather and fires in Northern California where we've got hit with on the volume piece of this. I would expect volumes in concrete in 2020 up mid-single digit and recovering in both those markets. I would expect prices up probably mid single digit. And I would expect unit margins in concrete up double-digit.

Anthony Pettinari -- Citigroup Global Markets -- Analyst

Okay. That's helpful. I'll turn it over.

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Mike Dahl of RBC Capital Markets. Please go ahead.

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Good morning.

Michael Dahl -- RBC Capital Markets -- Analyst

Hi. Thanks for...

Suzanne H. Wood -- Senior Vice President and Chief Financial Officer

Good morning.

Michael Dahl -- RBC Capital Markets -- Analyst

Good morning. Thanks for taking my questions. I'm -- just to follow-up on one of the prior questions around the state lettings. What's your sense of just the underlying fundamental cause for the slower pace of lettings. Is a worker shortage, is it something in terms of the just getting things through the regulatory body? Just a little more color on the underlying root cause there?

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Yes. I don't think it's external factors outside of the DOTs. It's really them being able to -- they got huge slug of funding. They got to mature into that and they got to have -- you've got to get it estimated, permitted let, we've got engineering that goes into it. So there is a lot of work those DOTs to put projects out, while everybody has the pressures of workers and employment. This is not what's holding up the lettings is just its holding up the states, it's just their ability to get that work planned and out and let and put to work.

Suzanne H. Wood -- Senior Vice President and Chief Financial Officer

Particularly as some of the projects are larger, perhaps than they had been in the past. The larger the project that just adds a degree of complexity to the process.

Michael Dahl -- RBC Capital Markets -- Analyst

Okay, thanks. Second question, just thinking about the incremental margins, if I look at 2019 on the whole, the difference, if my math is right in terms of the incremental margin and what you would target on a 60% would be about $60 million and -- in EBITDA and so understand some of the one-time issues or transitory issues that you've been talking about, but it's a pretty big number. And this is in a year where you had everything kind of working for you in terms of volume, price and your internal initiatives. So as we go into '20, I guess what I'm getting at is really just what's giving you the level of confidence that you can get back to the 60%. Is it actually volume was too high in 2019 and so as you go into '20 the stripping costs aren't as high. Just trying to understand that bridge a little.

Suzanne H. Wood -- Senior Vice President and Chief Financial Officer

Yes. I will comment first and then I'm sure Tom will have a follow-up comment. I'm -- I can't say I'm quite sure about your math on the $60 million, but with respect to the 60% that is we say this often that is a long-term average, you're going to have some quarters and some years when you hit it, some quarters you're below it. We have had a couple of years where we were just above that. In fact, if you just look at 2019 for the trailing 12-month period ended in September we were right at 60%. So I think when you look at the flow through for this year, it really does revolve around those three items that Tom called out. Had it not been for those, we would have been much closer to that number. And some of those were timing and mix related and to the extend its timing and mix related. You won't have that pressure into 2020.

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Yes. I think fundamentally, this is not an inflationary issue, it's more about timing. We talked about the remote distribution that's a good -- that's really good because it's more volume for us. The fill work will come in 2020. As far as what we did in Q3 and Q4 was stripping and preventive maintenance, I think those are just operating disciplines. First of all, the stripping is an investment and while it's cost it's a one-time thing for a while as you develop kits and get ready for future volumes, which we think we're going to grow.

On the maintenance side, it's really about we want to control our equipment, don't have the equivalent control you, and make sure you do in a timely manner. Let me just give you like a real life example of that. If you were to take a seven foot cone crusher down, it all samples it cost you $50,000. If you wait till it failed it would cost you $150,000 and that's just the tip of the iceberg costs because now you're taking the plant down which is very expensive. And if you look at underneath that, where we are from really important metrics like tons per hour to a plant downtime returns per man hour you're seeing improvement. It's an investment.

We started February with the investment in our people operations through this operation's excellence program, it allows us to maximize the long-term efficiencies operations. And I'd tell you that I'm confident that these efforts will improve our profitability of the company and I think our folks who've taken those into account is they created their plan and the guidance for 2020.

Michael Dahl -- RBC Capital Markets -- Analyst

Okay. Thanks for the call.

Operator

Our next question comes from Rohit Seth of SunTrust. Please go ahead.

Rohit Seth -- Suntrust Robinson Humphrey -- Analyst

Thanks for taking my question. Just curious on if residential construction grew faster than you expected in 2020, would there be any ASP or mix benefits or maybe on the cost side.

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

No, I think, I think it will -- residential has a good mix of both base and clean stone. I think it would flow through like everything else. Although, and that is something we'd love to see. So we got our fingers crossed, but I wouldn't expect any big price mix change or unit margins mix change.

Rohit Seth -- Suntrust Robinson Humphrey -- Analyst

Okay. And then on your incremental margins, just kind of building on some of the things you've already said. But I mean the last few years it's come under the 60%, I'm curious how much of equipment failure has been part of that issue?

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Well, I think as we do that we talk about same-store and same-store in 2018 finished 65%. 2019 was -- so we have years that were up, we have years below I think as you look at it and I would point out to you that same-store and you're going to have times when it's parties and have times with a slower, we will guide you back to the 60%.

Rohit Seth -- Suntrust Robinson Humphrey -- Analyst

All right. I'm...

Suzanne H. Wood -- Senior Vice President and Chief Financial Officer

I think the other thing -- I'm sorry, I was just going to add. I think the other thing for us is the real question as we look through some of these fourth quarter cost, is there something there that is indicative of a significant shift in the cost performance of the company. Is something going on there that has materially changed the cost structure of the company and that to me would be the real important sort of carry forward question into 2020. And again as we go back through those items, our view internally as we've talked a lot about them is no that there isn't something that is a significant change in the cost structure of the company and for that reason, even though there can be some volatility in it between quarters or years we on the long-term basis guide back to a trailing 12 or 6 days.

Rohit Seth -- Suntrust Robinson Humphrey -- Analyst

Understood. And then on the M&A pipeline, can you provide any thoughts on what you're seeing out there and maybe your appetite?

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Yes. As always, we've got some projects both large and small, that we're working. Again, as we always tell you its discipline. Everything does not fit us, it's got to be unique to have synergies for us, have the discipline that if it's too expensive won't be able to walk away from it and really importantly is once you get it make sure you integrate it very fast and very accurately. So we've got a number of them working. We'll just again all of them don't fit us, so we'll be picky about what we buy.

Rohit Seth -- Suntrust Robinson Humphrey -- Analyst

Any deals of size out there?

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

It's both. It's both, some large ones and some small ones. I don't think there's any mega ones out there, but I would this full gamut.

Rohit Seth -- Suntrust Robinson Humphrey -- Analyst

Understood. All right. Thank you.

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Michael Wood of Nomura Instinet. Please go ahead.

Michael Wood -- Nomura Instinet -- Analyst

Hi. Good morning.

Suzanne H. Wood -- Senior Vice President and Chief Financial Officer

Hi, Michael.

Michael Wood -- Nomura Instinet -- Analyst

I was hoping you could quantify the repair and maintenance a little bit more. Curious if you could tell us how much it is as a percentage of COGS and should we think about this is a purely variable next year in terms of increasing alongside volume or could it maybe decline after being elevated this year?

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

I think what -- we would guide you to that this is that I think you may see a little bit more of this in the first few months of the year. And then I would expect it to level off to meet the guidance that we've given you. And I would call that out is both some stripping and some repair and maintenance, but I think we're confident as we look at our hand for the full year guide guidance of how that flows through -- our cost flows through for the year.

Michael Wood -- Nomura Instinet -- Analyst

Okay. In 2019 I know you were talking about throughout the year, earlier in the year, some lower mixed ongoing on to the larger highway projects. I'm curious if you can give us an update on that? Is that continued or you seeing kind of mix up as those projects mature?

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

I think what we saw in -- the mix that we saw in the quarter was a little bit of geographic and a little bit of product mix. As we called out I think was that for the year our performance was right in line with guidance. The full year was 5.5 mix adjusted 4.8 and it was in the impact of asphalt size, is it really driven by highway work. Geographic mix a little bit higher volumes on the Gulf Coast and the Southeast.

Michael Wood -- Nomura Instinet -- Analyst

Okay. Thank you.

Operator

Our next question comes from Phil Ng from Jefferies.

Phil Ng -- Jefferies -- Analyst

Hi guys.

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Good morning.

Suzanne H. Wood -- Senior Vice President and Chief Financial Officer

Hi. Good morning.

Phil Ng -- Jefferies -- Analyst

Good morning. Appreciating that there are some delayed lettings and potentially some downdraft from private, couple of tougher comps would be helpful, Tom, if you give us some color how to think about the shape of the year from a growth standpoint?

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Yes. Good question. I would expect -- first of all, you've got a really tough comp in Q1, because volumes last year were up 13% and it was really that you had the pull-forward from '18 into '19, and other than that I would call it one of timing of large projects and timing of weather, and we also had a very -- the weather in the first quarter of last year was with exception of California was quite good. So, and you guys can look outside and see what's happening right now with the weather in first quarter this year. So all in all, I think it's timing of weather in large projects.

Phil Ng -- Jefferies -- Analyst

And Tom you're not calling for any delay of larger project at this juncture, which would you can't predict at this juncture, if I'm interpreting your kind of...

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Yes. So we're shipping a lot of big projects right now. We called out three in Georgia. We've got a number of different places. I believe it's going to be how fast the highways can get the jobs let into work. And we talked about that a little bit where there was fast and we were slow, what we call it out with Georgia and South Carolina, which slot. So the second half of last year's lettings which flow into 2020 and slow, but the first half of this year they've got huge letting. So we'll see, how fast the work get started.

Phil Ng -- Jefferies -- Analyst

Got it. And then based on your guidance for your downstream business for 2020, it's a touch below what you thought, actually, coming into 2019 initially just given some of the project delays you saw last year and frankly a more manageable liquid actual price environment I'm little surprised you're not expecting more strength. Can you give us some of the puts and takes?

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Yes. I think what we see is real strength in unit margin improvement in Asphalt, and up double-digit. We're calling for liquid being flat to slightly down. And our volumes are just up slightly. And the -- that again will be determined by the timing of this DOT work and how fast it gets started. You got to remember, we had two -- we had big projects in Asphalt in Tennessee and we had the big 202 project in Arizona, which neither one of those were repeating going into 2020. So they were windfalls in '19, they're not going to repeat, even with that we're seeing slight improvements in volume and so that get much bigger, they'll have to accelerate work is in some of the lettings that I talked about.

Phil Ng -- Jefferies -- Analyst

Got it.

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

The thing, I'm encouraged about, I said in Asphalt is you saw those margins turn in the fourth quarter, we have been predicting that kind of chasing that through the year '19, now we see we carry that momentum into 2020.

Phil Ng -- Jefferies -- Analyst

And just one cleanup question Tom, when you said flat to down liquid costs are you calling sequentially or is that more on a year-over-year on a full year basis?

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

As a comparison year-over-year. But you know I think importantly with that we're going to manage what -- a number of what happens the last fall, we're going to manage that unit margin in Asphalt appropriately. So the liquid prices fall, we'll see that accretive to unit margins and like I said, the good news is, we call it and keep growing it and I think we'll see that as we continue to perform in 2020.

Phil Ng -- Jefferies -- Analyst

Okay. Thanks a lot.

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Seldon Clarke of Deutsche Bank. Please go ahead.

Seldon Clarke -- Deutsche Bank -- Analyst

Hey. Thanks for the question. Could you just give us a sense of how the margin differs on your shipments by rail and is this a dynamic that's coming solely from higher demand in these particular areas or has the cost of service provided by the rails change with some of the ongoing initiatives that they've been putting into place?

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Okay. I would point out this way. In general the rail tons is just going to be a little lower margins. And that's, and higher price, higher costs a little bit lower margins, but very good margins. So it's good work. I mean the volume being up is a good thing. I would point out that in contrast, the Blue Water tonnages and much higher margins, it would be higher price, higher cost and higher margins than the whole. So what we saw in the quarter was just a timing of good work along the rail that happened to ship at a higher rate.

Seldon Clarke -- Deutsche Bank -- Analyst

Okay. So nothing to do with then putting process reality in place. Okay.

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

No. A simple thing with quarry cost versus rail distribution, you have rail distribution plus the quarry costs which just comes at a higher price and a higher cost.

Seldon Clarke -- Deutsche Bank -- Analyst

Got it. Okay. And then just a question on the 2020 guidance. There is about 700 basis points of differential in the high and low end as it relates to the year in your growth. Could you just give us a sense of maybe what's embedded in the low end of guidance and what would you really need to see to hit the higher end of that range?

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

I think, I would tell you is probably going to be mostly volume. I go back to timing of shipments, I go back to do we get -- do you get hit with the tropical storm or two or three. Those would be the big variables, I think between the high end of the low end and how it lines up would be the delta.

Suzanne H. Wood -- Senior Vice President and Chief Financial Officer

That's right. And that's, that's a very similar approach to what we took at the beginning of 2019 when we gave the volume guidance then, a range of 3% to 5%. And you know luckily and happily we wound up being ahead of that for the year. But Tom's right, it really comes down to what happens with the timing, it's shipments and weather as to whether you're at the lower end or the higher end. And as Tom said, we'll continue to watch with interest how residential, how those starts, you continue to improve throughout the year.

Seldon Clarke -- Deutsche Bank -- Analyst

All right. Thanks for the time.

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Garik Shmois of Loop Capital. Please go ahead.

Garik Shmois -- Loop Capital -- Analyst

Hi, thanks. Just one more...

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Good morning.

Suzanne H. Wood -- Senior Vice President and Chief Financial Officer

Good morning.

Garik Shmois -- Loop Capital -- Analyst

Hey, good morning. So just wanted to follow-up just on the highway outlook just being in intellectual year with the FAST Act expiring in the fall. Do you think that could lead to additional letting delays in 2020. Just curious how these are factored in the plan to the highly outlook and some of the sluggishness that you can see?

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Yes. We talked about the cadence and now we're lettings, and some that they have been slow and now coming on strong and the timing of it. I wouldn't think the election year would have any impact on state DOT lettings and the least I don't think it's going to have -- it won't -- for sure will have any an impact on the FAST Act or funding from the feds. I think people in Washington are working hard toward the highway bill, a lot of progress made on that, both on the build side and the funding. I don't expect to get a highway bill in 2020. At the same time when the FAST Act expires, I don't expect any of that funding to go down, we'll just an extension. So I don't see a big impact on it, I don't see any impact on state DOT lettings due to this being election year.

Garik Shmois -- Loop Capital -- Analyst

Okay, thanks. And then, just given some of the repair and maintenance costs here and some of the other items that you called out. Is this all just to be clear, within your plan as you think about your $2 billion EBITDA target you laid out your Investor Day and thinking about how that could be potentially achievable once you reach 230 million to 240 million tons of volume.

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Yeah. If anything, I think the four strategic initiatives including the operations excellence initiative or give me more and more confidence in our ability to get to the $9 that we planned. I think that our operator -- if you look -- if you were to look beneath the surface in our operations, while the headline is higher stripping and repair and maintenance costs. Behind that, I think you're doing the right things in the investing in the business for the long term, really importantly though is you're starting to see the key operating parameters which we measure things like tons per hour throughput through individual plants, downtime individual plants, tons per man hour individual plants, we're starting to see improvement. I think we are teaching our young people the right things to do. We are leveraging the collective knowledge and experience of Vulcan across 350 plants. So, while we see some headline things, the ultimate work that goes into this from those initiatives is starting to gel the commercial excellence initiatives is mature. It is working, and we're very pleased with our progress there.

Garik Shmois -- Loop Capital -- Analyst

Great. Thank you.

Operator

Our next question comes from David MacGregor of Longbow Research. Please go ahead.

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Yes. Good morning.

David MacGregor -- Longbow Research -- Analyst

Good morning. Just getting back to the 2% to 4% volume guide. And just a question, I guess on construction capacity and if we get a large increase in awards and lettings. What are the downstream bottlenecks that most concern use or constraint to your volume growth and how you accounted for that as potentially concerned development with the new guidance?

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Well, first of all for Vulcan internally, I don't think we see any bottlenecks we can handle it. We love to see it grow as much as it could and we will be there both from an aggregate to prospective and asphalt prospective or concrete perspective. On -- as far as. if lettings were to increase dramatically, I think what you see is the work would happen. The big bottleneck as always with the people ask about is labor in all the labor shortages to answer that question is yes. I don't think it's going to hold up work, but I think it will hold up is ability to catch up once work is delayed. So if you had a month in the winter time, which was all rainy and little cold trying to catch that up or we a big tropical storm come through, it's going to take a little longer to catch it up just because they don't have the fire power to do it fast. That's how I would describe it.

David MacGregor -- Longbow Research -- Analyst

Okay. Have you factored that in your guidance, is that there is an element potentially the discrepancy between 2% to 4%, which seems fairly conservative versus the story, which seems pretty bullish?

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

I think that -- I think when it comes to volume as I've said, we tried to pull all of those factors and as comparing to last year, the pull through the weather aspect of it. You know a little bit of a air pocket leading indicators in the rail side and the timings of how we lettings in states ability to get that work and we would put all that together and the upside potential, the risk piece of it. That's what we got will try to be thoughtful about the 2% to 4%.

David MacGregor -- Longbow Research -- Analyst

Yes, that makes sense. And then second question on mix and if you could talk about the pace of growth in your backlog. And as your backlog building faster and your higher margin products and geographies?

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

I think I I would describe this. I think when we looked at the 4% to 6% is best we can. If you take the mix of products of will not say mix both geographic and product mix together. I think we have seen good improvement in base in our backlogs. We've seen good improvement in clean stone in our backlogs and our booking pace right now as we look at it both in price and in volume will support our guidance.

David MacGregor -- Longbow Research -- Analyst

Thank you very much.

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Adam Thalhimer of Thompson Davis. Please go ahead.

Adam Thalhimer -- Thompson Davis -- Analyst

Hey, good morning guys. Would you chalk if EBITDA was flat to down in Q1?

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Well. We don't -- we can't yield Q1 guidance, I think as we said we are comping over a year in the first quarter of 2019 with which was very good weather and we had the windfall of pull forward of 13% volume from the year before. I don't think you'll see that pull through. You guys can look outside know what the weather is doing in the fourth -- in the first quarter. So again we're halfway through it, we'll just have to wait and see.

Adam Thalhimer -- Thompson Davis -- Analyst

And then Tom, can you walk us through the demand you're seeing right now in California and Texas?

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Sure. I would describe California this way, I think that the -- well, let me start with Texas. The public side is very strong. The TxDOT has done an excellent job of lettings and getting work out. There is big work -- there is shipping right now, there's big work on the horizon. And as we said next year they're going to go from -- a while back of $7 billion to $14 billion. On the private side, I would describe North Texas is being driven by non-res, I'd say, res is fairly flat with some exceptions, some big development North Fort Worth South Texas housing strong. Non-res, a little bit soft. Coastal Texas everything strong. And you could see some LNG work start on Coastal Texas in the second half of 2020 a little bit going now.

California, Northern Cal public is very strong both for Aggregates and Asphalt. Private side looks good, maybe a bit flat in the Bay non-res is a bit soft, but leading indicators were improving, publics on Southern California, again public very strong, highway strong, non-highway is strong on single private loan in Southern California. A little bit of a watch for us with leading indicators a bit, we were a bit softer in the last three months of indicators were up over 20%. So all in all, I think pretty healthy growth in both states, and I would tell you that I would expect good margin improvements -- unit margin improvements in both locations, both in aggregates and in asphalt.

Adam Thalhimer -- Thompson Davis -- Analyst

Good color. Okay. Thanks, Tom.

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Thank you. Our next question comes from Adrian Huerta of JP Morgan. Please go ahead.

Adrian Huerta -- JP Morgan -- Analyst

Hi, good morning everyone and thank you for taking my call Tom and Suzanne.

Suzanne H. Wood -- Senior Vice President and Chief Financial Officer

Good morning.

Adrian Huerta -- JP Morgan -- Analyst

Good morning. Quick question on cash taxes, can you tell us how the end of last year. I believe they probably ended way below what you were expecting early last year and now you're back into expecting $200 million. If there is any chances that there could be lower than your guidance?

Suzanne H. Wood -- Senior Vice President and Chief Financial Officer

Sure. And the main reason for the reduction in cash taxes through the year was that as we started the year. We have not made a determination as to whether we were going to take advantage of the bonus depreciation or not that's a calculation that we have to go through each year, because there is some interplay between it and depletion allowance that we get, when we file our tax returns as well as some other things. So there is an actual, while it might seem obvious, you would want to take advantage of the bonus depreciation there is actually a calculation that you need to go to ensure you are selecting the calculation methodology that gives you the most tax benefit.

So we started out the year under one assumption, we determined in the second quarter and called this out at the time that we were indeed going to take the bonus depreciation that resulted in for 2019 us paying quite a bit less tax than we had initially intended and the estimated the cash tax rate was between 7% and 8%. As we start off in 2020 we are guiding to, you don't want effective tax rate of 20% will go through the same process again and make a determination as to what our depreciation methodology we're going to use. So there is some chance the cash tax may be lower. But we will -- we'll work through that process in a similar fashion that we use this year.

Even under the even under the assumption of having higher cash taxes in 2020 as compared to 2019, I just point out, we still would throw off about $800 million of discretionary cash flow. So very, very healthy, very substantial and that $800 million could be put on a discretionary basis toward your growth projects, potentially M&A if something comes along that meets all the criteria that Tom outlined your dividends and share repurchases.

Adrian Huerta -- JP Morgan -- Analyst

That was very clear, Suzanne. And if I may ask another question. Can you share with us any details on the quarry that is expected to open in California in terms of a win and the size and potential volumes on an annual basis that that quarry could take?

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Yes. So it's, it's, in Frisco, we're not. Is it will probably won't open until beginning of next year -- versus second quarter of next year. Size we're not going to actually disclose that at this point. We have a closer to it will talk about those things. It's been a very good market. It was taken us some 10 plus years to get this done, the team has worked very hard and now they're working hard to build it out into a market that is there is, it is very healthy and quite profitable.

Adrian Huerta -- JP Morgan -- Analyst

Excellent Tom. So it's a totally new market for you?

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

No, it's a market we've been in before.

Adrian Huerta -- JP Morgan -- Analyst

Okay, excellent. Thank you so much Tom and Suzanne, I appreciate it.

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Thank you.

Suzanne H. Wood -- Senior Vice President and Chief Financial Officer

Thank you.

Operator

Our next question comes from Paul Chabran of On Field Investment Research. Please go ahead.

Paul Chabran -- On Field Investment Research -- Analyst

Good morning and thank you for taking my questions. First of all concerning the rail deliveries, I think you talked about that extensively already so and I applogies which you already answered, but how should we think about it for 2020 the evolution of rate increase. Is there any chance that it could impact your margins as it did in Q4 2019.

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

I'm sorry, the beginning of your question, I'm sorry. Beginning of your question I couldn't hear.

Paul Chabran -- On Field Investment Research -- Analyst

I'm sorry. The question was related to the evolution of rate deliveries in 2020. How should we think about that does change, they could impact your margin as it did in Q4 2019.

Suzanne H. Wood -- Senior Vice President and Chief Financial Officer

The repairs and maintenance, is that what you're asking about the connection was a little poor I just couldn't hear. I'm sorry.

Paul Chabran -- On Field Investment Research -- Analyst

Yes. Applogies. It's concerning the rail deliveries. They don't defense rail deliveries that had an impact on your margin in Q4?

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Well, I wouldn't expect, the rail happen to be a timing issue of big shipments in the fourth quarter and I would not expect, I think we've got those -- the volumes that we do out of those that rail distribution network embedded in our 2020 guidance and I would see very little impact.

Paul Chabran -- On Field Investment Research -- Analyst

Okay. All right. Thank you very much.

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Thank you.

Suzanne H. Wood -- Senior Vice President and Chief Financial Officer

Thank you.

Operator

Our next question comes from Brent Thielman of D.A. Davidson. Please go ahead.

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Good morning.

Suzanne H. Wood -- Senior Vice President and Chief Financial Officer

Good morning.

Brent Thielman -- D.A. Davidson -- Analyst

Hey, good morning. Just wanted to, for I think for you, Suzanne, just on the SAG expense. Can you help us understand the sensitivity to growth this year. In other words, if things are going to lineup well, through the year. You start seeing 5%, 6%, 7% volume growth, can we sustain SAG below 2019 level?

Suzanne H. Wood -- Senior Vice President and Chief Financial Officer

Yes, I think we can. As I said, this is a matter of what's driving that cost reduction year-over-year or the changes we talked about. Some of that is being more efficient in the way we do things. So it's not like it's a variable kind of expense. It's more what I would call on the fixed side that we are making some changes and so I think that that would be sustainable, yes.

Brent Thielman -- D.A. Davidson -- Analyst

Thank you. That's all I had.

Operator

Our next question comes from Michael Dudas of Vertical Research. Please go ahead.

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Good morning.

Michael Dudas -- Vertical Research -- Analyst

Good, I think afternoon. I think you may have gone into 12 o'clock. So in light of that you've been very good job in answering and being very descriptive. So all of my questions have been answered. Appreciate it. Thank you. Good luck.

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Thank you.

Suzanne H. Wood -- Senior Vice President and Chief Financial Officer

Thank you.

Operator

There are no further questions at this time, I would like to hand the call back To Tom Hill for any additional or closing remarks.

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Well, thank you for your interest and support to Vulcan Materials. We've enjoyed talking to you today. As you can tell, Suzanne and I are very excited about 2020. And we look forward to sharing the team's news of how we continue to make progress toward our longer-term goals of $9 a ton, cash gross profit per ton. We'll talk to you throughout the months to come. Thanks.

Suzanne H. Wood -- Senior Vice President and Chief Financial Officer

Thanks. Goodbye.

Operator

[Operator Closing Remarks]

Duration: 70 minutes

Call participants:

Mark D. Warren -- Vice President, Investor Relations

J. Thomas Hill -- Chairman of the Board, President and Chief Executive Officer

Suzanne H. Wood -- Senior Vice President and Chief Financial Officer

Stanley Elliott -- Stifel -- Analyst

Trey Grooms -- Stephens Inc -- Analyst

Kathryn Thompson -- Thompson Research Group -- Analyst

Jerry Revich -- Goldman Sachs -- Analyst

Anthony Pettinari -- Citigroup Global Markets -- Analyst

Michael Dahl -- RBC Capital Markets -- Analyst

Rohit Seth -- Suntrust Robinson Humphrey -- Analyst

Michael Wood -- Nomura Instinet -- Analyst

Phil Ng -- Jefferies -- Analyst

Seldon Clarke -- Deutsche Bank -- Analyst

Garik Shmois -- Loop Capital -- Analyst

David MacGregor -- Longbow Research -- Analyst

Adam Thalhimer -- Thompson Davis -- Analyst

Adrian Huerta -- JP Morgan -- Analyst

Paul Chabran -- On Field Investment Research -- Analyst

Brent Thielman -- D.A. Davidson -- Analyst

Michael Dudas -- Vertical Research -- Analyst

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