Do you dig rocks? Do you dig companies that make money by digging rocks out of the ground? Then get a load of Vulcan Materials (NYSE:VMC), one of the country's leading producers of sand, gravel, asphalt, and similar stony stuff. The company reports its Q4 and full-year 2005 numbers tomorrow.

Wall Street Wisdom:

  • General consensus. Rocks are boring -- at least that seems to be Wall Street's view. Only five analysts follow the company, but of those five, three like it enough to rate it a "buy," and the other two don't dislike it enough to call it anything worse than a "hold."
  • Revenues. This perfectly respectable company is expected to report perfectly respectable sales growth tomorrow -- up 10.2% year over year to $671.2 million.
  • Earnings. Profits are a different story entirely. Analysts believe that in Q4 2005, Vulcan beat its Q4 2004 numbers by 32.2%, and will report $0.82 per share tomorrow.

Margin watch:
Vulcan's gross margins and operating margins have been sliding a bit recently, but on the bottom line things are holding up just fine.

Margins%

6/04

9/04

12/04

3/05

6/05

9/05

Gross

28.2

29.8

23.7

23.6

24.1

24.3

Op.

20.1

21.6

15.4

15.0

15.6

15.7

Net

12.4

13.0

11.7

13.0

13.6

14.0

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

Foolish lookout:
More worrisome than the company's margins is the situation with cash flow -- at least at first glance. Free cash flow has plunged 45% from the $222 million generated in the first nine months of 2004 to the $123 million generated through Q3 2005. However, when I went looking for the cause of this plunge, the usual suspects went missing.

Accounts receivable have been up year over year, but only by 17% -- on par with sales growth. Inventories, meanwhile, actually declined year over year, despite growing sales. That's super performance in any company. This leads me to suspect that the worsening cash flow picture is connected somehow to the firm's sale of its chemical business. Once that's out of the way, I expect we'll see free cash flow revive and begin to better reflect the company's excellent inventory and A/R management.

Fool contributor Rich Smith does not own shares of Vulcan.