Announcement • Jan 13

Summit Materials, Inc. (NYSE:SUM) completed the acquisition of Argos USA Corporation from Cementos Argos S.A. (BVC:CEMARGOS), Argos SEM LLC and Valle Cement Investments, Inc.

Summit Materials, Inc. (NYSE:SUM) entered into an agreement to acquire Argos USA Corporation from Cementos Argos S.A. (BVC:CEMARGOS), Argos SEM LLC and Valle Cement Investments, Inc. for $3.2 billion on September 7, 2023. Summit Materials will pay in a cash and stock transaction valued at $3.2 billion. Under the terms of the agreement, Cementos Argos will receive approximately $1.2 billion in cash (~40% of transaction value) subject to closing adjustments, and approximately 54.72 million shares of Summit stock (~60% of transaction value) and one preferred share of Summit. In connection with the entry into the agreement, Summit Materials entered into a commitment letter with Morgan Stanley Senior Funding, Inc. (“MSSF”) and BofA Securities, pursuant to which MSSF has committed, subject to customary conditions, to provide Summit Materials, LLC with debt financing for the transaction consisting of an up to $1,300 million senior 364-day term loan facility. The proceeds of the debt commitment financing will be used to pay the cash purchase price for the transaction and pay related transaction costs. Summit Materials, LLC and Summit Materials Finance Corp. intend to offer $800 million aggregate principal amount of Senior Notes due 2031. The company intends to use the proceeds from the offering, together with borrowings under a new term loan B facility, to finance the transaction. The Summit Board of Directors is expected to comprise eight Summit-appointed representatives and three representatives appointed by Cementos Argos. If this Agreement is validly terminated by Summit pursuant to Section 11.01(d)(i) (Superior Proposal) to enter into a written definitive agreement with a Third Party or by Cementos pursuant to Section 11.01(c)(i) (Adverse Recommendation Change), Summit shall pay termination fee of $100 million. Argos USA reported consolidated Total revenues of $1.56 billion, net income of $51.27 million, total assets of $2.39 billion, Operating income of $77 million and Total stockholder's equity of $1.23 billion for the year ended December 31, 2022. Under the terms of the agreement, which has been unanimously approved by both companies’ Boards of Directors. Cementos Argos will enter into a shareholder agreement with Summit at closing of the transaction pursuant to which Cementos Argos will be subject to certain standstill provisions and a 24-month lock-up period on sales of Summit shares. The transaction is subject to customary closing conditions, including regulatory approvals, antitrust regulatory approval and approval by Summit Materials shareholders. Following the closing of the transaction, the combined company will be led by Anne Noonan, Summit’s President and Chief Executive Officer. At closing, the combined company will continue to operate as Summit Materials and continue to trade on the NYSE under the ticker symbol “SUM.” Both Summit and Argos North America will continue to operate independently until the necessary legal and regulatory approvals are met. The transaction is expected to close in the first half of 2024. As of October 24, 2023, the transaction is expected to close in the first quarter of 2024. As of Oct. 24, 2023, Summit Materials announced the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"). As of January 3, 2024, Institutional Shareholder Services and Glass Lewis have recommended that Summit shareholders vote in favor of all proposals in connection with its pending combination with Argos. On January 11, 2024, Summit shareholder approved the transaction and the transaction is expected to close on January 12, 2024. Morgan Stanley & Co. LLC acted as financial advisor and fairness opinion provider and James P. Dougherty, Evan Rosen, Frank J. Azzopardi, Howard Shelanski, William A. Curran and Kyoko Takahashi Lin of Davis Polk & Wardwell LLP acted as legal counsel to Summit Materials. Summit has agreed to pay Morgan Stanley a fee for its services of $30 million, $7.5 million of which was payable as of Morgan Stanley’s delivery of its fairness opinion and the remainder of which is payable if the Transaction is consummated. Sergio Galvis, Scott Crofton, Lee Parnes, Andrew Ferry, Devlin Woods, Kathleen Larkin, Spencer Sigalow, Werner Ahlers, Emilie Klovning, Alan Fishman, Renata Mascarenhas, Bill Farrar, Renata Hesse, Eric Queen, Brad Smith, Matthew Liptrot, Davis Wang, Ellen Kim, James Jang, Mark Schenkel, William Bekker, Katherine McClellan, John Estes, Virginia Cueva, Matthew Brennan, Jeannette Bander, Hollie Chenault, Matthew Nisi, Rob Schlein and Misha Patel of Sullivan & Cromwell LLP acted as legal advisor to Cementos Argos S.A. Cleary Gottlieb is representing Morgan Stanley & Co. LLC as financial advisor to Summit Materials Inc. Davis Graham & Stubbs LLP is also acting as legal counsel to Summit Materials. Broadridge Corporate Issuer Solutions, Inc. acted as transfer agent to Summit in the transaction. J.P. Morgan Securities LLC acted as financial advisor to Cementos Argos in the transaction. Stuart Rogers of Alston & Bird LLP represented Morgan Stanley as financial advisor. Summit Materials, Inc. (NYSE:SUM) completed the acquisition of Argos USA Corporation from Cementos Argos S.A. (BVC:CEMARGOS), Argos SEM LLC and Valle Cement Investments, Inc. on January 12, 2024. In connection with the Transaction, effective as of the closing of the Transaction, (i) John Murphy resigned from his position as a director of Summit, (ii) Juan Esteban Calle, Jorge Mario Velásquez and Irene Moshouris were appointed as directors of Summit and (iii) Brian Frantz was appointed as Chief Accounting Officer and Senior Vice President of Summit.

Seeking Alpha • Dec 12

Summit Materials: Good Growth Prospects At A Discount Valuation

Summary The Elevate Summit Strategy should benefit Summit Materials by improving its margin through portfolio optimization, commercial and operational excellence, and M&As. The company’s revenue should benefit from the pricing actions, M&As, and healthy demand in the public and non-residential end markets. The stock is trading at a lower valuation than its peers, Martin Marietta Materials and Vulcan Materials. Investment Thesis Summit Materials’ (SUM) revenue should benefit from the pricing actions, M&As, and healthy demand in the public and non-residential end markets. The margins should improve through business portfolio optimization and pricing actions. The company launched its Elevate Summit Strategy to drive growth, create shareholder value, and improve the quality and consistency of earnings. Under this strategy, the company is divesting low-margin businesses and focusing on acquiring high-margin businesses. Through the implementation of this strategy, it is targeting a 30% adjusted EBITDA margin in the long term. The stock is attractively valued, and given its good long-term prospects, I have a buy rating on it. The Elevate Summit Strategy The company introduced its Elevate Summit strategy in March 2021 to drive growth, create value for its shareholders, and improve the quality and consistency of earnings. Through this strategy, the company plans to achieve a 30% adjusted EBITDA margin, which should be achieved in multiple stages (which the company calls "horizons"). Under each stage or horizon, the company has set target adjusted EBITDA margin ranges, ROIC, and leverage. The leverage target is <3x and is common under each horizon. In Horizon 1, which is now substantially complete, the company worked on improving its business efficiency through smart standardization and by cultivating a culture of commercial and operational excellence. It also divested its dilutive businesses, like some of the downstream businesses, to boost margins and free up capital for growth. For Horizon 1, the company’s adjusted EBITDA margin target range is 23% to 25%, and the ROIC target is 9%. In Horizon 2, the company plans to explore creative business models to reduce downstream capital investment and maximize aggregates pull-through. It also plans to reduce volatility by pursuing long-term contracts and supply agreements. The company plans to do M&As to enter prioritized markets. The three criteria for an M&A are: bridging the portfolio mix, focusing on bolt-ons, and entering or building strong footholds in high-growth strategic markets. For Horizon 2, the company’s adjusted EBITDA margin target range is 25% to 28%, and the ROIC target is 10%. In Horizon 3, the company should start to realize and sustain consistent growth, as by then, it will have standardized processes, operational excellence, and competency in innovation and differentiated solutions. In this stage, it plans to boost margins and reinforce growth in new markets through innovative offerings and solutions with differentiated value. For Horizon 3, the company’s adjusted EBITDA margin target range is 28% to 30%, and the ROIC target is >10%. The company has made good progress on its Horizon 1 initiatives so far. Since the launch of this initiative, the company divested 11 companies related to the downstream business, generated more than $500 mn in proceeds, and entered into eight long-term supply agreements. It also achieved net debt to adjusted EBITDA leverage of 2.3x in Q3 FY22, which is well below its target level of 3x. The company has now entered Horizon 2 and plans to focus on value-creating M&As and continue its divestiture process from Horizon 1. In addition to the company-level targets in the Elevate Summit strategy, management has also introduced segment-level objectives in its businesses, which it calls North Star objectives. The company introduced these objectives on May 2022, Investor Day. The first North Star objective is to achieve a sustainable 40%+ LTM (Last Twelve Months) adjusted EBITDA margin in the cement business. The company plans to do it through a customer-centric approach, driving operational excellence and maximizing the entire value chain. The value creation projects include the Davenport Dome in Iowa, the conversion to lower-emitting Portland Limestone Cement ((PLC)), and improving the Cement grinding performance. The Davenport Dome should help reduce demurrage costs and provide supply to its Northern customers. The second North Star objective is to reach a 50% adjusted cash gross profit margin in the aggregates business. Management plans to achieve it through commercial and operational excellence. Commercial excellence includes leveraging technology and data to enhance the customer experience, delivering sustainable customer solutions, and continuously investing in sales capabilities, whereas Operational excellence includes standardization and simplification of business processes. The third North Star objective focuses on shifting the business portfolio towards more materials-led, which is a higher margin business. The target is to generate 75% of its EBITDA from aggregates and cement by the end of Horizon 2. The company’s commitment to shifting its portfolio to a materials-led business can be seen in its recent actions. The company recently sold its asphalt and paving business in the East segment to a local market partner and entered into a long-term supply agreement with the buyer for aggregates and ready-mix volumes. This allows SUM to grow in the southeastern Kansas market through an asset-light approach. Further, in October, it acquired SCI Materials, an aggregates business in Florida. SCI will integrate with SUM’s Georgia Stone Products business and contribute to the East segment. Revenue growth prospects In Q3 FY22, the company saw double-digit Y/Y pricing growth in all lines of business. The average selling price of aggregates, cement, ready-mix, and asphalt increased by 10.2% Y/Y, 12.8% Y/Y, 17.5% Y/Y, and 19.3% Y/Y. This was driven by the pricing momentum from the previous quarter and, in part, by the July 1 price increase. The volumes in the aggregates line of business were down 9% Y/Y, driven by the impact of divestitures (620 bps), unfavorable weather in Texas and the Carolinas, and supply chain issues, partially offset by 70 bps benefit from the SCI acquisition. The ready-mix business’s volume declined 12.1% Y/Y due to the impact of divestitures under the Elevate Summit strategy of 10.8% and cement shortages in Utah, partially offset by a low single-digit volume increase in Houston due to the resilient residential demand. In Q3 FY22, the net revenue in the West segment was up 16.6% Y/Y driven by robust pricing across all lines of businesses and end markets, partially offset by volume declines in aggregates and ready-mix. In the East segment, net revenue declined 25.8% Y/Y due to divestitures, wet weather conditions, and supply chain challenges, partially offset by pricing increases in aggregates and ready-mix. The Cement segment is experiencing strong demand conditions, leading to 29.6% Y/Y net revenue growth in the quarter. The volume and pricing increased 12.4% Y/Y and 12.8% Y/Y. The volume growth was due to the increased capacity from the PLC conversion, better asset utilization, and supplementing some of its production with imports to satisfy the demand level. Imports contributed 5% of the cement volume in the quarter. Looking forward, the strong pricing trends in the aggregates business should help the company exit 2022 with strong pricing momentum. The backdrop for cement pricing is also favorable as demand remains strong, supply remains tight, and imports are expensive. The company has locked in 2023 cement prices at higher rates with its partners and announced a $17 per ton cement price increase effective January 1, 2023. Furthermore, SUM intends to raise prices in its downstream business. The downstream business' pricing is more pass-through in nature, and the Y/Y growth in pricing should reflect passing the higher input costs through the value chain. One thing which I believe may pose some risk for revenue is the drought conditions in the Mississippi river basin. The company has two cement plants, one in Davenport, Iowa, and one in Hannibal, Missouri. It has a river-based distribution network for its Cement business and uses a barge to get its product into the market. However, the drought conditions from the plains to the Mississippi river basin are resulting in low river levels and are impacting the barge traffic along the Mississippi river. The company is working proactively with its customers to manage expectations and is not yet seeing any slowdown, but it is not immune to these conditions. If drought conditions continue, the company’s cement volume can be impacted, affecting revenue. However, this is a near-term headwind and should not sustain in the medium term. The company’s medium-to-long-term prospects look strong. In 2023, the public end market is poised to experience robust growth given the well-funded state budgets and the funding from the U.S. Infrastructure Investment and Jobs Act (IIJA). The public end market contributes ~36% to the annual net revenue of the company. The solid Department of Transportation (DOT) budgets have begun to flow through contract awards for highway projects and paving awards. The non-residential end market, which contributes 32% to the annual net revenue, is supported by investments such as semiconductor manufacturing plants, electric vehicle and battery plants, LNG projects, and other projects. The Dodge Momentum Index and the Architectural Billing Index ((ABI)) are showing healthy signs of growth for the non-residential market. The growth in both non-residential and public end markets should offset the slowdown in the residential market which contributes ~32% to the annual net revenue of the company.

Total Shareholder Yield	-0.02%
Future Dividend Yield	0%
Dividend Growth	n/a
Next dividend pay date	n/a
Ex dividend date	n/a
Dividend per share	n/a
Payout ratio	n/a

Segment	Dividend Yield
Company (SUM)	n/a
Market Bottom 25% (US)	1.4%
Market Top 25% (US)	4.2%
Industry Average (Basic Materials)	1.0%
Analyst forecast (SUM) (up to 3 years)	0%

Data	Last Updated (UTC time)
Company Analysis	2025/02/11 05:03
End of Day Share Price	2025/02/10 00:00
Earnings	2024/09/28
Annual Earnings	2023/12/30

Package	Data	Timeframe	Example US Source ^*
Company Financials	10 years	Income statement Cash flow statement Balance sheet	SEC Form 10-K SEC Form 10-Q
Analyst Consensus Estimates	+3 years	Forecast financials Analyst price targets	Analyst Research Reports Blue Matrix
Market Prices	30 years	Stock prices Dividends, Splits and Actions	ICE Market Data SEC Form S-1
Ownership	10 years	Top shareholders Insider trading	SEC Form 4 SEC Form 13D
Management	10 years	Leadership team Board of directors	SEC Form 10-K SEC Form DEF 14A
Key Developments	10 years	Company announcements	SEC Form 8-K

Analyst	Institution
Daniel Wang	Berenberg
Paul Roger	BNP Paribas
Paul Luther	BofA Global Research

This company has been acquired

Summit Materials Dividends and Buybacks

Dividend criteria checks 0/6

Key information

Recent dividend and buyback updates

Recent updates

Quikrete Reportedly Is in Advanced Talks to Acquire Summit Materials

Price target increased by 8.5% to US$51.68

Third quarter 2024 earnings: EPS and revenues miss analyst expectations

Summit Materials, Inc. to Report Q3, 2024 Results on Oct 30, 2024

Summit Materials: Good Growth Prospects Should Drive Further Upside

Critical Moves And Synergies Set To Spur Revenue Growth And Margin Expansion

Consensus EPS estimates fall by 14%

Second quarter 2024 earnings: EPS and revenues miss analyst expectations

Summit Materials, Inc. to Report Q2, 2024 Results on Aug 05, 2024

Investor sentiment improves as stock rises 16%

Summit Materials: Still Cheap, Still Worth An Optimistic View

Consensus EPS estimates fall by 22%

First quarter 2024 earnings: EPS and revenues miss analyst expectations

Summit Materials, Inc. to Report Q1, 2024 Results on May 01, 2024

Summit Materials: Diversified But Lacking Upside

Summit Materials, Inc., Annual General Meeting, May 21, 2024

Consensus EPS estimates increase by 12%

President exercised options and sold US$816k worth of stock

New minor risk - Earnings quality

Full year 2023 earnings: Revenues exceed analysts expectations while EPS lags behind

Consensus EPS estimates fall by 22%

Summit Materials, Inc. to Report Q4, 2023 Results on Feb 14, 2024

Summit Materials Announces Executive Appointments

Summit Materials, Inc. Announces Management Changes

Summit Materials, Inc. (NYSE:SUM) completed the acquisition of Argos USA Corporation from Cementos Argos S.A. (BVC:CEMARGOS), Argos SEM LLC and Valle Cement Investments, Inc.

Summit Materials, Inc. Appoints Marshall Moore as EVP, Chief Operations Officer

Summit Materials: A Good Buy At Current Levels

Consensus EPS estimates increase by 76%

Third quarter 2023 earnings: EPS exceeds analyst expectations

Summit Materials, Inc. to Report Q3, 2023 Results on Nov 01, 2023

Insufficient new directors

Summit Materials: Cementing Its Position

Summit Materials, Inc. (NYSE:SUM) entered into an agreement to acquire Argos USA Corporation from Cementos Argos S.A. (BVC:CEMARGOS), Argos SEM LLC and Valle Cement Investments, Inc. in a transaction valued at $3.2 billion.

Investor sentiment deteriorates as stock falls 16%

Price target increased by 7.4% to US$42.80

New minor risk - Profit margin trend

Second quarter 2023 earnings: EPS and revenues exceed analyst expectations

Summit Materials, Inc. to Report Q2, 2023 Results on Aug 02, 2023

Summit Materials: Good Medium To Long-Term Growth Prospects

First quarter 2023 earnings: EPS and revenues exceed analyst expectations

Full year 2022 earnings: EPS and revenues miss analyst expectations

Summit Materials Non-GAAP EPS of $0.32 beats by $0.02, revenue of $552.27M misses by $14.89M

Summit Materials, Inc. to Report Q4, 2022 Results on Feb 15, 2023

Consensus forecasts updated

Summit Materials: Good Growth Prospects At A Discount Valuation

Third quarter 2022 earnings: Revenues exceed analysts expectations while EPS lags behind

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