Q3 2019 Earnings Call
Ladies and gentlemen, please stand by your conference call began momentarily. Thank you for your patience simply standby.
Good morning, ladies and gentlemen, and welcome to the Martin Marietta's third quarter 2019 earnings Conference call.
My name is crystal and I'll be your coordinator today.
Participants are currently in listen only mode.
I didn't answer session will follow the company's prepared remarks.
As a reminder, today's call is being recorded.
I'll now turn the call over to your host Ms., Suzanne Osbourne, Vice President of Investor Relations for Martin Marietta. This offer you may begin.
To facilitate today's discussion we have made available during this webcast and on the Investor Relations section of our website Q3, 2019 supplemental information that summarizes our quarterly results and trends.
As detailed on slide two this conference call May include forward looking statements as defined by securities laws in connection with future events future operating results or financial performance.
Like other businesses, we are subject to risks and uncertainties that could cause actual results could differ materially.
Except as legally required we undertake no obligation to publicly update or revise any forward looking statements, whether resulting from new information future developments or otherwise.
We refer you to the legal disclaimers contained in todays earnings release and other filings with the Securities and Exchange Commission, which are available on both our own and the FCC websites.
Unless otherwise noted all financial and operating results discussed today are for the third quarter 2019, any comparisons are versus the prior year third quarter and all margin references are based on revenues.
Furthermore, non-GAAP measures are defined and reconciled to the nearest GAAP measure and our Q3 2019 supplemental information and that SEC filings.
We will begin todays earnings call wouldn't ward Nye, who will discuss our third quarter operating performance as well as market trends as we conclude 2019 and head into 2020, Jim Nicholas will then review our financial result, a question and answer session will follow.
With that I will now turn the call over to ward.
Thank you Susan Thank you all for joining todays teleconference. This morning, we released record setting third quarter results Martin Marietta's disciplined execution.
Long term strategic plan together with our commitment to operational excellence provides a foundation for a company to consistently deliver industry leading performance.
We're able to once again established new quarterly company records for revenues and profits and year to date records for safety.
We expect that trend will continue for the remainder of 2019, keeping us on track to announce record full year results. When we report next quarter in short Martin Marietta is safer and more profitable than ever.
Driven by widespread improvements in shipments pricing and profitability across most of our building materials, because we delivered outstanding third quarter performance.
Consolidated total revenues increased 16% year over year to $1.4 billion consolidated gross profit increased 34% to $421 million.
Adjusted earnings before interest taxes, depreciation and amortization or adjusted EBITDA increased 27% to $439 million and fully diluted earnings per share was $3.96, 39% improvement.
Supported by the strong performance, an encouraging trends, we raised the midpoint of our full year 2019, adjusted EBITDA guidance to $1.275 billion.
We've consistently observed that attractive market fundamentals, including employment gains favorable population trends and superior state fiscal help promote sustainable and long term construction growth.
Mindful of these vital attributes, we purposefully positioned our business geographically and otherwise to be aggregates led in high growth markets.
We've also aligned our product offerings to leverage our strategic cement and targeted downstream opportunities.
This proven strategy combined with our pricing discipline underscores our continued ability to capitalize on the robust underlying demand in our key stage.
That's why we remain confident that increased infrastructure activity from state and local transportation funding initiatives together with continued strength in private sector activity will support study sustainable construction growth in our top 10 states that outpaces the nation as a whole for the foreseeable future.
That is a backdrop, let's review our third quarter operating results in more detail.
Well, most product demand and favorable weather led to a 12% increase in aggregate shipments, notably all divisions and primary end use markets contributed to this growth demonstrating strong underlying demand and our ability to capitalize on it.
Aggregate shipments to the infrastructure market increased 7% as anticipated shipments for transportation related projects meaningfully accelerated in our key states of North Carolina, Iowa, and Maryland supported by funding provided by the fixing America's surface transportation warfare stat and numerous.
Great and local transportation initiatives.
We anticipate public construction, particularly for aggregates intensive highways and straight to continue benefiting from the acceleration of state Lettings and contract awards in our key states and ongoing federal and state funding.
Well a successor infrastructure Bill has yet to be fully agreed upon by our elected representatives. All indications are that federal transportation funding will continue at a minimum and status quo levels, even if the fast act expires bites on terms in September 2020, without the immediate passage of multiyear follow one.
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We see little appetite for recurrence of the series of short term continuing resolutions seeing prior to the enactment of the fast Act in December of 2015.
This sentiment is evident in the Senate environment in public works committees July 2019 dropped about highway authorization Bill.
This bipartisan effort backed by both Republican Chairman, John Veracel, Wyoming, and ranking member Democrat Tom Corporate Delaware proposes authorizing federal highway funding at $287 billion over the next five years, a 28% increase over the previous authorizations funding levels.
Further the expectation is that the United States House of Representatives transportation and infrastructure Committee will propose investment levels, even higher than those offered from the Senate.
Accordingly, we believe the necessary confidence and funding securities in place for states to continue to move forward on planned and future construction projects.
Furthermore, particularly in the near term state level funding should continue to grow at a faster rates in federal funding leading to additional infrastructure investment benefiting Martin Marietta.
As a reminder, our top 10 states, which accounted for 85% of total building materials revenues in 2018 have all introduced incremental transportation funding measures within the last five years.
The infrastructure market represented 38% every third quarter aggregate shipments, which was below the company's most recent 10 year annual average a 46%.
Since infrastructure as Martin Marietta's, most aggregates intensive and use the public works growth, we're seeing and expecting is encouraging.
Aggregates shipments to the nonresidential market increased 19% with broad based strength in distribution Center warehouse data center and wind energy projects in Texas, the Carolinas, Iowa and barrels.
Additionally, we benefited from the reemergence of several large energy sector projects, along the Texas Gulf Coast, which accounted for nearly 500000 tons of aggregate shipments during the quarter.
Looking ahead, we believe continued employment in population gains will provide the impetus for sustainable commercial construction activity, particularly in our south eastern and southwestern regions. The nonresidential market represented 34% of our third quarter aggregate shipments.
Aggregate shipments to the residential market increased 16% might buy attracted homebuilding activity in Texas, Colorado, The Carolinas, Georgia and Florida.
Among other things homebuilders and no, noting improved demand from first time buyers. We expect continued residential construction growth for both single and multifamily housing across our geographic footprint driven by favorable population demographics job growth land availability attractive mortgage rates and.
I should permitting.
Currently permit growth, which in our views the best indicator of future housing construction activity is outpacing the national average for both multifamily and single family housing units in our top 10 states.
The residential market accounted for 22% of our third quarter aggregate shipments.
To conclude our discussion on end use markets the Ken rock real market accounted for the remaining 6% of aggregate shipments volumes increased 4% driven by improved ballast shipments to the class one railroads for continued repair projects from the flooding in the Midwest earlier this year.
Based on recent trends and our year to date volume growth. We've raised our full year 2019 aggregate shipments guidance from an increase of 8% to 10% to an increase of 11% to 12%.
Aggregates pricing improved 5%, reflecting our disciplined pricing strategy and the comparative strength of our markets by region. The West group posted aggregates pricing growth of 9%, which reflects favorable geographic mix and product mix the southeast group achieved pricing growth of nearly.
6% driven by market strength, and a higher percentage of long haul shipments from our higher price distribution terminals.
Our focus on pricing led to a 3.5% improvement for the mid America group.
Full year 2019 aggregates pricing is anticipated to increase 4% to 5%. We expect continued pricing momentum in 2020.
Our cement shipments increased 21% to a new quarterly volume record of 1.1 million times, driven by healthy, Texas demand as well as weather deferred projects from earlier in the year.
Cement pricing improved nearly 2% despite unfavorable product mix from a lower percentage of oil well cement shipments with a robust bidding pipeline. We believe our cement operations will continue to benefit from tight supply the health demand in Texas as well as our recently announced price increase effective April .
2020.
Turning to our downstream businesses ready mixed concrete shipments increased 9% led by double digit growth in the southwest Division.
Rocky Mountain Division experienced project delays, which tempered shouldn't grow.
Pricing declined 2% overall is unfavorable product mix and to shift in Texas customer segmentation effective pricing and offset solid pricing gains in Colorado.
Our asphalt paving business, which operates sold in Colorado benefited from strong customer backlogs and favorable weather conditions, resulting in a 34% increase in asphalt shipments asphalt pricing improved 3%.
Ill now turn the call over to Jim to discuss more specifically, our third quarter financial results Jim.
Thank you award.
The building materials business achieved record quarterly products and services revenues of $1.3 billion, an 18% increase and record product gross profit of $396 million is 37% increase notably all the building materials product lines contributed to this broad based growth.
Aggregates product gross margin increased 480 basis points to 35.1%.
This margin expansion was driven by higher prices as well as improved operating leverage from increased shipment and production level enabled by strong demand and improved weather.
The absence of the negative impact from selling acquired inventory burdened by acquisition accounting in 2018 as part of our purchase of bluegrass materials wasn't additional tailwind.
As we've mentioned our cement operations benefited from both volume and pricing growth, resulting in product revenues of $120 million and gross profit of $49 million, both all time records.
Top line improvement, coupled with production efficiencies and lower fuel and maintenance costs led to a 750 basis point extension of product gross margin to 40.6%.
Magnesia specialties product revenues decreased 13% to $59 million as chemicals, and lime customers reduced inventory levels to align with current demand.
However, despite lower revenues enhanced cost control measures contributed to the 120 basis point improvement in product gross margin to 40.4%.
We lowered full year product revenues and gross profit guidance for the magnesia specialties business to reflect current customer activity.
Our business is generating significant cash operating cash flow for the nine month ended September thirtyth increased nearly 50% over the comparable prior year period.
This improvement was driven by growth in earnings and lower contributions to our already well funded pension plan.
We will continue with the balanced and disciplined capital allocation priorities, we have long followed to further enhance shareholder value and maintain financial flexibility.
Those priorities remain value enhancing acquisitions prudent organic capital investment and the opportunistic return of capital to shareholders through dividends and share repurchases, while maintaining our investment grade credit rating profile.
Building on my comments about our very strong cash flows. We're pleased to report that less than 18 months. After the second largest acquisition and the company's history, we have de Levered and the bluegrass material transaction and return as we said we would toward target leverage ratio range of two to 2.5 times.
For the trailing 12 months ended September 2019, our ratio of consolidated net debt to consolidated EBITDA as defined in replicable credit agreement with 2.3 times.
In addition, we remain appropriately focused on returning cash to our shareholders through a combination of meaningful and sustainable dividends and share repurchases.
Based on our confidence in the outlook for our business and a significant cash generation our board of directors recently approved at 15% increase in our quarterly cash dividend paid in September when a large increases in the company's history.
Our annualized cash dividend rate is now $2.20.
Together with their ongoing share repurchase program, we have returned more than $1.5 billion to shareholders. Since February 2015, while at the same time.
Growing our business profitably and responsibly.
Based on recent trends and a strong performance to date, we've raised our full year 2019 outlook.
As detailed in today's release, we now expect consolidated total revenues in the range of $4.660 billion $4.770 billion.
And adjusted EBITDA in the range of $1.245 billion to $1.305 billion.
With that I will turn the call back over toward.
Jim Thank you.
To conclude we're proud of the results, we posted third quarter and while we're pleased with the numbers, we don't see the performance is surprising.
That's because in nearly every respect we have thoughtfully developed and consistently executed on our strategic plans positioning our business as an aggregates leader and attractive high growth geography.
We didn't get here by accident over the past several years through our steadfast improving strategy and fidelity to the world class attributes of our business safety ethics cost discipline and operational excellence Martin Marietta has positioned itself to outperform with this in mind, we look forward to continuing our momentum into.
2020.
Supported by attractive underlying market fundamentals across our geographic footprint and region specific third party forecasts. We believe the current construction cycle will continue for the foreseeable future and expand at a steady pace in 2020.
Our outlook is positive across each of our primary construction end use markets. Our preliminary view anticipates low to mid single digit growth in aggregate shipments in mid single digit growth in aggregates pricing in 2020.
Martin Marietta remains committed to the steadfast and proven strategy, we developed and executed during our 25 years as a public company. We will drive continued improvement and excellence as we responsibly manage and grow our business to create long term value for our shareholders. If the operator will now provide the required and.
Functions will turn our attention to addressing your questions.
Thank you ladies and gentlemen, if you have a question at this time. Please press the star followed by the number one key on your Touchtone telephone. If your question has been answered.
So from the Q Please press the pound.
And then the interests of time and to ensure everyone has a chance to ask your question. We do ask that you. Please limit your questions to one question and one follow up.
And we'll take our first question from Kathryn Thompson from Thompson Research Group. Your line is open.
Hi, Thank you for taking my questions today.
Following up on 2020 guidance could you flush out the drivers for the high level of volume and pricing guidance for aggregates.
Particularly on the volume side.
What extent as it dictated by.
Real demand versus just difficulty getting work done because of the tight labor market and then also any thoughts on cement and taxes would be helpful.
Take what type of color of energy and market projects have been driving demand now and into 2020. Thank you.
Sure Katharine good morning. Thank you as we looked at next year one of the key drivers in our mind Kathryn as simply taking a look at where a customer backlogs are at this time of year versus where they were last year. So to give you a good sense of that if we're looking at Q3 2019 backlog and mid Atlantic our customers. It looks like are up about 57% versus where they.
Word last year backlog, if we're looking in the Midwest.
Major project backlog looks like it's up around 11%.
Similarly, if we looked in places like the southwest and ready mix backlogs are up 12% driven by market growth in both north and the South and then to your point cement backlog.
What we can tell us up over 65% driven by major project work and that includes large giotti projects. Katherine So as we look at what our customers are telling us that's giving us the confidence going into new year has the same type of thing we're seeing in Colorado right Rocky Mountain customers are saying their backlogs are up around 12%.
So as we look at where the growth is coming as we indicated we see infrastructure better we've seen nonresi better we see residential better next year as well specifically with respect to cement.
As I indicated a lot of its major project driven.
Very healthy both in North, Texas and in Central Texas as you recall the to cement plants, we have already been load in in North, Texas, and hotter and Central Texas part of what I think is important in that marketplace to is what we're seeing relative to pricing in 2020.
We have put out our pricing letter for next year, we're anticipating an $8 per ton increase in Texas, that's going to be effective April one.
So again, if we look at volume across the aggregates business, we see it be widespread and we see it nice and steady and we'll see could customer backlogs, we see the same thing and cement and again this can be more driven by the public works, we believe in Texas and again, we think the pricing environment as we go into 2020 as I indicated in the prepared.
Marks both in aggregates and cement looks better going into 20 than it did coming into 19 and it looks better coming in to 19 did coming into 18, So long answer, but I think you need that color on where the volumes coming from and how we see pricing as well.
Okay. That's helpful. One follow up on North Carolina.
Oh, we understand that the North Carolina legislature is working on a $600 million transfer deity from the general fund to make up for.
Really a transitory issue related to start that Michelle losses.
Our work is showing that this is more transitory issue and not necessarily impacting revenue generation for new construction could you clarify this is accurate and thoughts on the likelihood of closing discount. Thank you.
Catherine Thank you for the question came from but Thats the way that we soon to the thing to keep in mind Kathryn.
It's easier to use incurred more disaster related spending in the last three years than in the previous 12 years combined so if you looked at the business that we had last year and the flooding that we had an eastern North Carolina, that's exhibit aid to it.
Their issue is simply thus the theme of reimbursements are taking four or five years to come in.
And the legislature understands that so to your point have we seen the North Carolina held already come forward with 600 million dollar propose bill we have do we anticipate that the North Carolina Senate will come up with its own formula. We believe that they will and we think they're going to address that before they move town to your point. This is.
Really just bridging something from late this year early next year, we do view it as transitory we do believe that the legislature understands this is something that they need to remedy and we believe that they're committed to remedy so.
I think your word transitory is indeed, the right work.
Thanks, Yes.
Thank you Catherine.
Okay.
Our next question comes from trade growth from Stephens. Your line is open.
Thanks.
So.
Okay.
Question.
First question.
Some of the contract award.
We've been saying there has been weakening a bit lately and I think it has created some concern.
With some folks over there.
Infrastructure market looking into next year.
But it sounds like Youre customer backlogs.
Good.
We continue to expect public demand to continue to improve into next year and I understand this data can be choppy and I think.
Some of your states are lapping tougher but.
Can you help bridge the gap here.
Contract.
Yes.
The last few months and kind of what you're expecting on the public side.
Yes sure try thanks for the question and literally I'm going to try to Richard for using some data that pertains directly to bridges, because I think that will help get you there.
First of all when you look at the ARPA data I think one thing that you can't do is look at it in a vacuum because you missed the longer run dynamics of what's happening with marketplace. So to your point.
You can see some issues on a month to month basis that can cause swings that actually belie the longer term trends. So look if you look in September 2018, Colorado had $1.5 billion Civil awards versus an average of 40 million. So if you've got just a number in a month like that it can move things around.
Pretty considerably so I think what you're referring to is when ARPA came out and said look we're looking at trailing 12 months of highways bridges and tunnels and at the end of September . They said, it's down 4.5% ish, what's happening within that is this if you look at richison tunnels and Thats back to mine.
My observation with you on really bridging this bridging internal britches in terms are down almost 13% trailing 12 months of highways down 2.1, but more importantly, if we look at current highway awards, there, 13% above 2017 levels and wonder.
The things that I think it's important to remember is if you're sitting where we sit and thats just part of an aggregate sled company youre going to be much more focused on what's happening with highways than you are relative to what's happening with bridges equally if you're coming out of a downturn and you feel like you may have some safety issues with bridges youre going to repair.
Are those bridges early on and then back off of that pivot to the high wise. So again, if we're looking at the pivot from bridges to highways in my view, that's totally expected and then more importantly, if you'd look at what the trend has been I think you'll actually be very comfortable with the trend and I would encourage people. Please don't overreact to just.
Monthly swings because that type of Lumpiness can just occur and it's nothing and are viewed to be alarmed over the long term trend is quite positive and as I indicated the backlogs that our customers are speaking up on the public side is really very attractive.
Alright. Thanks.
That's helpful.
As for my follow up.
You gave us the backdrop here.
Expectational.
Hi single.
Mid single digit pricing.
Next year. So can you talk about your expectations for cost inflation.
Geographic trends.
Can impact.
Pricing and margins and maybe how you're thinking about profitability.
Incremental flow through in that environment.
Obviously, we will give you a much more granular look see in 2021 would come out in February one one note I would make trade is on the volume, we're saying low to mid single.
Thank you Ms. spoke on on the percentages that you were speaking out in the premise of your question.
That's better right.
Part of what I would say is look do we see any components of our cost structure that were troubled by we're not I mean, we are very focused on costs everyday in our business. The single biggest cost driver. We have is labor and we believe we have labor well control. So we don't see inflationary actions are occurring.
And there that we think it could be disruptive equally we see energy is really quite well behaved. If you look at the investments that we've made both implant and enrolling stock over the last several years, we should continue to see nice trends relative to maintenance and repair and remember trade there about five areas labor maintenance and repair.
Applies DDNA energy that are really the drivers of what's going to happen from a cost perspective in our business. So do we see things and bad or re did cause us any concern we do not equally going back to the commentary that offer just few minutes ago, we believed to pricing environment continues to to be attractive and I think.
It's getting more tracker one of the metrics that weve long spoken of is that while we tend to be in a position because of an array of factors, including.
Reserves that you just have to take good care of.
We tend to get pricing all the way through cycles, we do better after big volume years too and this is a volume year, where we think we're going to be able to come in in 2020.
And actually do better on pricing in 20 than we have in 19. So again, our cost profile looks very attractive from our perspective pricing looks increasingly attractive going into 2000, we'll give you more definitive view of how that's going to translate to EBITDA and gross profit et cetera, when we speak again in February .
Thank you very much in.
Just a housekeeping since you brought up repair and maintenance.
Is there anything kind of looking into fourq that we need to be aware.
And answer shipping cost or timing of anything.
Okay.
Swing around in the Fourq you that we should be.
No I think we tried to capture it into guidance that we've given one thing that we will be doing obviously, we have sold a considerable amount of tonnage this year and when when you're selling tonnage one of the high class problems you have from that as you do have more stripping that you need to do and we're going to try to do some of that in Q4 to stay ahead of it and to.
Have us where we need to be as we entered 2020 got it. Thanks. Thanks for all the color you're welcome to take care tracker.
Thanks.
And our next question comes from Stanley Elliott from Stifel. Your line is over.
Hey, good morning, everyone. Thank you all for fitting in and congrats on the nice quarter.
Just a small for you.
Those are 2.3 times right now.
The commentary from the field. The we're hearing is very encouraging into next year.
It should be another year of of good incrementals and another good year cash flow.
Youre thinking about.
Do you use that cash, especially with opportunities for M&A, it's been fairly quiet year.
Recently, but I would love to get your thoughts on that whether you want to run at a lower leverage level or if you're more interested in putting it to work and just kind of how youre conceptually thinking about the capital structure at this point.
Well Stanley. Thank you for the question as you've noted we've got a high class worry because this business is delevering exactly the way that we thought it would actually bought bluegrass, Let me, let me turn that specifically over to Jim to talk through what our capital priorities are because what you'll hear as they haven't changed.
Yes, and we thank you for the question our first call on capital is the right acquisition I wanted to make sure. We've got the dry powder to beat in position to take advantage of strategic and value enhancing acquisitions.
Of course, the next priority for us is investing in our business.
Beyond that you'll see you'll continue to see a balanced approach we meaningfully de levered. This year as planned I would expect some further delevering to continue next year, but not at the same accent. We saw this year.
Returned to cap returning capital to our shareholders beyond that in the form higher dividend and share repurchases will likely play a larger role in 2020, assuming our leverage remains at the low end of our targeted range to the 2.5 times.
And Stanley obviously as Jim said, the first call on capital is doing the right the right deal and I have to brag on our team I think I think our team is very good at identifying the transactions I think they do a superb job going through the contracting piece of it.
Larry paper the deal and part of what we've been able to do very successfully synergize the deals as well. So again, our priorities have not changed and we're very pleased to be sitting here at this leverage ratio within the relatively short period of time since we closed on bluegrass.
Absolutely and with the higher volumes together some of the higher repair maintenance costs does that mean capex will stay elevated it next year or is that something that can kind of be a further contributor to a free cash.
Now I would think capex would be relatively constant as a percent of the size of the business. So I wouldn't you today's elevated I think it's the right level and next year will be consistently size vis-a-vis the business ice as well. So you can think about in terms of percent of sales we wouldn't expect the change terribly next year.
Perfect. Thank you very much the time best of luck.
You standpoint.
Thanks.
Our next question comes from Paul Roger from Exane. Your line is open.
Hi, Good morning, guys. Congratulations on the a strong results I'm sorry, just how the question first self then that's a cement business you talked about demand outlook and what you'll come to see that maybe you could come in speed model on the margin. Obviously you had a very slow margin performance in Q3 was there anything specific in that time the mates.
This call saw something like that I, just have any reason why the sort of high 30% low 40% isn't sustainable good into 2020 for this and then division.
Yes.
First of all good morning to West and good afternoon to you so Mike.
Nice to hear voice Paul.
But there was nothing particularly extraordinary in the quarter I mean, obviously volume was was really quite good if we look at year to a pricing that was up 3.3% one of the big things that that our team is focused on instrument right now is reliability and just making sure that those cones are running.
Oh.
Sorry about that I'm not sure what that was are you still with US Paul I guess I'd be I can tell you. Okay very good we had some bad feedback here Andrew So we're focused on making sure we have relied reliability, where it needs to be and we're focused on on making sure that we can take care of our customers one of our biggest customers in that market happens to be us.
So again I think the cement business is having a very good. This is very good year. This year I think it's kind of has a very good year next year. When we bought this business, we anticipated that to submit business that we referred to as strategic cement could have margins that are very similar to the types of margins that we see in our very attractive aggregates business.
And I'm pleased to say Thats exactly what we're saying.
Ask maybe just a quick follow up on they began its you put yes, you'll see on the Gulf Coast.
Clearly I think you said to compensate for without not point 5 million tons of shipments in Q3. So admitted that obviously a relatively small driver on the do you have spent lots of changes these schemes of health and sort of how meaningful could this type of let's say in the medium term.
No you're exactly right as we looked at the quarter. There were nearly 500000 shipments in Q3, and Thats a little bit over a million shipments year to date at least through September at the end of the quarter.
Part of what I'd like to looking at it Paul is it had a nice build throughout the year. So by 240000 tons in Q1 about 450 in Q2, we're getting close to 500000, obviously in Q3, we think.
We're going to continue to see good steady energy work in South Texas for a while I can tell you we were down there with the team several weeks ago. These are mammoth projects and these are mammoth projects and.
Wonderfully swampy wet land, that's going to take a lot of aggregates to to habit into conditions that needs to build.
To give you a sense of what the scope can be if we're looking at a series of projects that were working on now but more importantly, if we look at projects into the future that we should be good candidates for including Driftwood LNG continued work at Golden pass what we think is probably coming at Port Arthur.
Those three combined with others would demonstrate to us that theres still about 17 million tons with the projects along the Gulf coast that we should be well positioned to get our share up so we think thats going to be busy workforce.
The other thing that's going to be worth watching.
Is what happens with high speed rail in Texas, because they're clearly very interested and putting in around the 240 mile Lane of dedicated track high speed between Dallas and Houston with the stuff actually in college station.
This would be a very large project, it's not going to be a 2020 issue, but again, if we looked at these large energy projects. They are 2020 issues and beyond 2020, if we look at this time rail high speed rail that could become into Texas. Those are good attractive long term projects as well and I've heard people.
Ill say that there could be.
Upwards of 30 million tons of aggregates need on those types of projects. So we feel like nonresident our footprint will continue to be really attractive and we think the Texas market. In particular has been good and we think it's going to stay very good.
That's great. Thanks, very much is nice nice to participate today.
Thank you Paul.
Thanks.
Our next question comes from Phil Ng from Jefferies. Your line is open.
Hi, guys congrats on a strong quarter. Thanks, Phil.
You're welcome you're obviously lapping a tough comp this year, just given the strength you've put up on volumes, but your comments on backlog sound quite good for next year could there be some upside on your low to mid single digit volume outlook for 2020, and if you had to rank the level of confidence between the three different end markets you're exposed to.
How do you think about it for 2020.
Phil you slide double trying to get would talk more about 2020.
Like what will we will give you some really good color on that when we get into February if I'm thinking about the three obviously the commentary said that we think.
Well of all three of them going into 2020, which is true I think what we will continue to see those that good.
Steady build infrastructure.
So if you go back to the to the commentary that we offered in the prepared remarks, we spoke about the percentage of infrastructure and our business today and what a 10 year average looks like I'm not suggesting it's going to fall back up to 10 year averages I'm, suggesting it's going to do a nice slow steady climb back to some numbers that have a concern.
System for and funded them, we think that makes good sense. If we look at the year and really think about where non resi has been non nonres has been somewhere in the mid thirtys. This year I mean, those or at least on a historical perspective pretty high percentages at the same time, we go back to the conversation I was having with Paul just a minute ago and you think about.
But some of those non resi projects can be that's it's pretty big tonnage and the other thing that I think Phil that's making the real difference for us.
Particular, nonresidents, one reason, we have such competence and that going into new year.
Is the way we have built our businesses around corridors. So if we're in Colorado, We're talking about 25, if we're in Texas. We're talking about 35, we're in the southeast we're talking about 85 and these are major commerce Carter's and we think we'll continue secret residential activity in those markets and we think we'll continue to.
Hi, good nonres activity in those markets I'll tell you. It was comforting to look at best year on year increases in homebuilding and seen in markets like Orlando, where we have a presence in Charlotte, where we have a presence and in Houston, where we have a presence. So that's so that's my way of saying looking at the end uses they all.
Reasonably healthy to me they do not look in any respect overbuilt to me and if Theres one place that I would tell you to watch in particular, let's watch the public works, because we think thats going to continue to expand.
That's great color word I mean, if there was a pocket that that should be little more cautious I would be non resin. It sounds like you're quite bullish on that backdrop I guess for 2020, I think implicit on your full year guidance for aggregate volumes implies.
For Q volumes would track closer to a low single digit growth.
Did you see any pull forward in Threeq, you or anything notable that could be a drag on the fourth quarter. Let me, let me turns out or Jim we did see some modest but the other thing that we're doing just before I turn it over time as we said coming into the year, we thought to be wetter than usual year, we're betting on a normal to early winter as well so with that backdrop, let me turn the Jeff Yes, I think we've got we've got enough.
Total evidence that lot of customers are trying to rush to beat winter.
And so, particularly in our more northern districts and division. So we do have some annual abuse evidenced that that's happening they pulled from work into Q3 from Q4.
Okay, but theres nothing outside of that that would kind of bogged down in fourth quarter, because you comps I think was.
Not terrible, but it's probably fair to kind of taken some conservatism because your shoulder months always tough to predict is that a good way think about it if you think about it the two businesses in particular and the third quarter that really did wonderfully in aggregate volumes, where the mid east in the Midwest. So we're talking about contacts West Virginia.
Hi, Indiana, Iowa, and Nebraska, and those are all.
Parts of the country that can seasonally be much more impacted by an early winter. So we're just mindful of what that could be.
Okay. Thanks for the color really appreciate you bet.
Our next question comes from Adrian Huerta from JP Morgan Your line is open.
Thanks, and congrats on the results. My question was somewhat related to the previous one so you kind of I'll answer that one.
So my my other question was just some cash taxes.
If you're still expecting cash taxes to be somewhere around $90 million for the year on where they were so far in the first nine months of the year. Thank award.
You bet I'll turn I will turn Jim over to cash taxes. He's got a tax background that add up yes, no I think you're here if we close to your freight was spot on Adrian So I think thats the right number.
Low low mid Ninetys between 19.
Perfect. Thank you with your second question I couldn't members you know that was that was basically the first one wesco us on potentially conservative guidance on Fourq, you, but given what you have just said that.
That would probably probably you said that wed bassi to three Q and that's what it's going for the conservative for quarter. So thank you.
Welcome. Thank you Richard.
Thanks.
Our next question comes from Jerry Revich from Goldman Sachs. Your line is open.
Please check that your line is not on.
And we will move onto our next question from Michael Wood from them.
Your line is open.
Hi, good morning.
First just wanted to ask about cemented asphalt prices being down sequentially. If you could give us more color on that.
Well actually what I would say is cement pricing was really.
It was down sequentially only because of mix issues, because we actually saw less into west, Texas and oil well. This this quarter than we did previously one thing, but I would call out and this is something Michael that I'm really happy to see pricing actually did quite well and purcell, meaning the central part of Texas for us.
If we looked over the period of time that we've owned these assets Midlothian pricing is always frankly outperformed hunter and again I feel very good about what we see in North, Texas, what I like in this particular quarters is I'm, saying good solid performance in the south as well. So I think that's notable with.
Back to where are you talking about hot mix or were you talking about ready mix pricing I want to make sure I'm addressing your next question appropriately Michael.
It was talking about ready mix.
I thought so you'd you'd said I think you'd said hot mix, but I thought you meant ready mix here, here's the deal on ready mix and it's easy to sort out our volume was nicely up for the quarter. Our volume was up for the quarter, 12% and the southwest and was up about a percent and a half in the Rocky Mountains and here's what that means you've got a fairly.
Double geographic mix difference between the southwest ready mix and the Rocky Mountain ready mix and by that I mean about $30 per cubic yard difference and Rocky Mountain ready mix is simply a higher price products. So when we're selling more ready mix in Texas as we work in this instance, the.
Geographic mix that we've experienced would just give you frankly optically lower ASP. That's the primary driver what you're seeing there was a modest mix relative to where we were selling as well. If you go back to the beginning of the year. Michael you recall that we've said we were going to plan for wetter than usual year.
And part of what our team looked at as if we're going to plan for wetter than usual year. What did the different end uses particularly in ready mix that we can be more aligned with that or not is sensitive to right.
And frankly homebuilding is one of those so we ended up pushing modestly more ready mix to homebuilding in Texas and that tends to have a little bit lower ASP as well. So if we look at what's going on or was it driven by the fact that there was simply more ready mixed in Texas and there wasn't Colorado, yes.
As a driven by the fact that we pivoted modestly to having more residential yes, but here's the important thing as the ended the day, Michael we made more money and that's really what all those moves were about for us. So I wanted to give you the underlying specifics on what was happening with SP, but also wanted say at the end of the.
This is about creating higher returns for shareholders and stakeholders and Thats, what we that.
Great. That's helpful and then on the Magnesia specialties business is the inventory destock ended is that a multi quarter destock. If you can give us more color on that thank you.
I think it is.
It is winding its way down I think we anticipate that will continue in for and that's in large part what we tried to do with with the take down in the guidance. So it's not an issue that we have long term concerns about as you'll see the team in magnesia really when they saw modest slowdown adjusted their costs.
Cost profile very very quickly so to see that type of movement and actually see margins go up in that business is really a wonderful side. So I would I would encourage you. If you have good morning lights on anything you certainly don't have them on magnesia specialties that businesses sitting in a good place it's just that.
To work through some of these inventory issues that we did not see his long terminal.
Great. Thank you you bet.
Thanks.
Our next question from Jerry Revich from Goldman Sachs. Your line is open.
Yes, hi, good morning.
Hi, Jerry.
I'm wondering if you could talk about how pricing cadence played out over over the course of the quarter I think we typically see you folks layer on price increases.
Over the course of a third quarter is that how it played out this year or was it more front end loaded any color that you can share with us on the cadence would be helpful. No sure. Jerry you know what they're really as we've talked during the course of the year, there's really not been that be midyear price increases. So I think much of it was just driven by more.
Volume and where some of the volume is coming from and the normal price increases that we that we would have now clearly.
I'm not encouraging you to go in Bacon, a consistent 9% increase in the west either I mean that was a very impressive pricing performance nodes driven by a couple of things one we do have good pricing in Colorado and as we've discussed over the last several years, that's a marketplace that as we look at our overall footprint.
Tends to have lower aggregate pricing and we think we should get good value for that product and we are if we look at what's happening in southwest we did move more stone by rail and moving them into higher price sales yards and what I would say is I think thats actually a good sign I think it's good sign in for a number of reasons one that.
Tells you that central Texas is getting healthier number one.
But here's the other thing that it says that the railroads are performing better too I mean, one thing that I think is notably different this year versus less is we would have had a series of conversations last year around rail performance and how that was looking and you have not heard that this year and as we look at the year, we're probably going to send something.
In the range of mid 30 million tons.
By rail in the United States This year, and I think thats probably to access our next closest competitor. So that clearly helped on the pricing side of it as well.
And we did see some some reasonable yard activity in Florida. So I would tell you those were the primary issues that I would call out for you with respect to procedure.
Okay I appreciate the color and then any mix difference versus normal seasonality. So if we look at over the past 10 years. Your heritage pricing is typically up 20 cents sequentially fourth quarter versus third quarter. So if that dynamic plays out.
This year your pricing cadence exiting the year will be up 6% just.
The way the math works out is that something that you expect to play out under normal seasonality are there any moving pieces.
Yes that we should keep in mind I guess, what I would say is this if you're trying to just looking at Q3, ASV and you're trying to sort through what all the mix issues are instead of being modestly over five it probably would have been modestly over four that's probably just a pure straight up same on same type comparisons year.
Okay.
And then in terms of the.
2020 pricing conversations we're hearing from.
A couple of your competitors that those discussions for some are happening earlier in the season, considering as you pointed out earlier on the call how strong volume growth has been this year. So within the mid single digit range. Obviously that you spoke about for 20 that can be a really wide range.
Well sound like pricing is accelerating into 20 and I'm. Just wondering if you can comment on what had been the magnitude of price increases that you've announced so far and obviously, we'll see what they'll stick, but it sounds like price ask is higher in 20 than what it's been over the past couple of years in terms of Percentincrease.
Jerry I think thats, probably right. The only one that I'm really willing to talk to in specific dollar terms is what I've spoken to relative to cement.
$8, obviously, the aggregates can move pretty considerably depending on where you are and what the product mix is going to be so again, we'll give you more specifics on that as we come into the new year, but if your premise is more people are having more conversations earlier in the numbers sellers generally higher.
I would agree with all of those basic premises.
Okay. Thank you and lastly, maybe we can talk about cement pricing specifically you you folks have done much better than the market over the past couple of years, but for the market as a whole it's been really disappointing pricing actions I'd say from past.
Really two plus years are you more optimistic that the market will be more discipline and cement.
Overall heading into next year in any data points that tried the confidence around the price increase that you had mentioned you had announced in summit.
Again, I think when I go back and refer you back to the by backlog numbers that I gave you before on where cement sits today versus where it set last year I think thats certainly gives us confidence around it if we look at the sheer quantum of infrastructure work in Texas that gives us confidence around it as well and the other thing to keep in mind as well.
We're not a nationwide summit, where we're Texas cement Blair and we're the largest producer of summit in a market that will likely have more need for summit then it can produce in Texas, and we think Thats a fine recipe for success in that state.
Okay I appreciate the discussion thank you.
Take care.
Okay.
And our next question comes from Derrick.
Longbow Research your line is that.
Due to check that your line is not on me.
Right.
Can you hear me I'm, sorry, Garik, we're hearing now yes, okay, sorry about that.
I was wondering on nonresidential looking out to 2020, you talked about energy projects being a potential source of acceleration, but you saw a really good growth this year in data warehouses and.
Understanding that you've set up your asset footprint along some of these high growth non res core doors. So I wonder if you could speak to that end market in particular into next year, and maybe a little bit more broadly if you're expecting any change in the non res composition of growth.
2020 by.
Jerry Thanks, a question I think it can move around a little bit.
And I think you can vary.
We've seen awfully attractive wind farm activity this year, and Iowa, I think we might start seeing more of that type of activity farther south next year.
I think what we continue to see where housing will be very very healthy and I think the warehouse and in particular.
Is what's going to drive.
Good number of our volumes in those markets Garik I mean, what you've seen relative to warehousing in places like Indianapolis and even in areas such as des Moines has been really pretty impactful to our business and we think we'll continue to be goes back to they obviously, but the observation you made to the promise of your question.
And that is if you build your business along these high corridors.
You're going to see good nonres growth and again, Gary we think thats going to be very healthy in 2020.
Okay. Thanks.
Just lastly on the outlook, it's tough to handicap, but.
If you think about infrastructure and we get that.
A lot of the visibility that you have is based on.
Does that have occurred really over the last several years, but we're getting some more questions just on rescission.
And what would happen if there's not a timely extension or passage of a new highway bill. So is there any contemplation about any potential disruptions on the federal side, how that might impact infrastructure demand next year.
I will tell you what I hear very little to nothing about our rescission threat from the federal side at all I don't see and I think the other thing that.
Every every one that I speak to in Washington, not only represented so but people trade associations come away with the view that the notion of short term Crs is not a place that anyone wants to be.
And everyone understands this is a much needed area of consistent investment. So we're not seeing things and our dialogues we stay very close to us very close to it that gives us a sense of that's going to end up being an issue next year.
Great. Thanks, so much you're welcome thank you.
Thanks.
And our next question comes from Timna Tanners from Bank of America Merrill Lynch. Your line is open.
Hey, good morning, guys and thanks Ward for all that great color.
Thanks, I had left that I was hoping for a little bit more detail on was since you mentioned that M&A is your top priority for use of cash you could characterize the environment and the opportunities that you might have there.
Tim Thanks for the question is always a very active dialogue I mean, the question is how far does that go beyond the dialogue and what does the acquisition look like.
Relative state because different acquisitions are going to have different levels of attractiveness to us.
What I will tell you is the dialogue that is underway.
Businesses directly and in some instances the dialogue that's underway with people who are representing businesses tends to be a very active dialogue nuclear where that leads I can't predict right now, but it has continued to be a very consistent.
Positive thoughtful dialogue and part of what I'd like Timna is as Jim indicated through our deleveraging. We're in a very good place today and I think from the perspective.
What we believe we can do from a regulatory perspective.
We're in a very attractive place as well and we'd like to think Thats from a competitive viewpoint something that actually works in our favor.
Okay Super and then the only other question I had was on SNA raised guidance. Just wondering if you could just give us some color on that help us think about the future.
Yeah, Hey attendance, Jim that's predominantly personnel expense make made up a few things some lift ongoing labor inflation just entered some some incentive compensation given the outperformance of the business and a few few ikea initiatives as well.
Okay Super Thanks again.
Thank you Tim.
Our next question comes from Rohit Seth from Suntrust. Your line is open.
Hey, Thanks for taking my question just on the infrastructure volumes up seven non transportation projects the reconstruction.
Yes.
Just tell us.
Where are you seeing the strength in the transportation side.
If you can talk about what's actually happening in the Midwest reconstruction effort.
Well I think part of what you run into in the Midwest is every year when they go through a bad freestyle.
You still have more roads in the Midwest the tend to be farm to market type approach that tend to be gravel Roche.
And so what you'll see after winter is a fairly significant need to repair those roads. What's happened. This year as you head. The free saw you had winter you.
You had repair needs and then you actually had repair needs that were so acute also driven by the flooding that tend to become much more deeply into the year than it typically does so what I would say as you've got traditional paving projects in that part of the world that you would expect to see year ending the year out and.
We've seen considerably more just raul maintenance activity in that part of the United States because of some of the flooding situation. So we saw last year and by the way that plays into part of what we've seen in the Kim rock and rail piece of the business as well. If you look at that you'll also see that I've talked about the fact that.
Kim Rock and rail shipments were up 4% for the quarter and that was really led by ballast shipments I did I Didnt say it in my prepared comments, but the fact is it's really into western United States and that ties very directly back into that part of the country that you're asking about right now.
And then on the transportation projects, what states, we're seeing strength.
And the fact is we're seeing strengthen in almost all of our top 10 States and if you go back to it and you think about.
We've discussed relative to those state DRC budgets and what they have done with their spending or investment levels over the last several years, it's been pretty considerable I mean, Texas is 37% of our revenue and if we look at what their project awards. It look like and we are prop seven is kicking in and proud.
One of these are big numbers and then the other thing that we're seeing there is the return of very significant design build projects.
Colorado as I indicated before has had very active bidding activity in that state, we're actually seeing a proposition that's called proposition cc and that statement could actually raised more than 10 billion for transportation over the next 15 years.
Georgia, DRTV has lightings that $2 billion, which has to wax where it was in 2014. So these are all the types of initiatives that we've seen and our top 10 states that I think has these states outperforming the nation as a whole right now and probably for the pursuit.
It will future.
Okay, and then just building on that question earlier.
This is surprise you that project flow has been more lumpy.
Very lumpy.
Perhaps is.
Large projects come to the market.
Yeah.
As seen in the path.
No it doesn't because I think if you looked at the nature. Some of these jobs, you're going to have that degree of Lumpiness and.
One of the things that I think some important is as I indicated in response to the earlier question what does the trends look life in a multi year basis.
And the other thing is if you talk to the people that ARPA. They too will tell you. We're not surprised by this this is the type of activity that we would expect and it's the type of longer term dynamics that that we're looking forward that we actually think are helpful. On credit Mark This goal.
Got you see.
Move back in.
Well again, if I, if I'm looking at where awards are and I'm looking about where they are from 2017 levels and I'm thinking about the business over multiple years again, they're 13% above 2017 levels. I mean, I think if you go back and chart it.
What you'll find is something thats not going to be alarming to you again, I think breaking down what's highways and what's bridges and then sorting out aggregates intensity is an important part of that conversation.
Okay, great. Thank you.
Our next question comes from Brent Thielman from D.A. Davidson Your line is open.
Please check that your line is not on mute.
Thank you and we will move on to our next question from Adam Thalhimer from Thompson Davis. Your line is open.
Okay. Thanks for squeezing man.
And we hear you.
Great.
I wanted to ask first and sorry, if I missed this I hopped on late but the South East group with volumes up 1% would that have been.
The Hurricane and then.
Just one high level thoughts on just core demand in the southeast.
Really the southeast header had a relatively tough comp that's your bigger issue there I would not put too much stock into what happened this quarter with Dougherty and in the southeast door Imelda I mean, Dorian interrupted a few days it obviously shutdown production in the Bahamas, and we've been working with our team there.
To make sure their lives there in order and oddly enough to Orient the same storm that knocked around the Bahamas actually found its way before it was done up to Nova Scotia, as well, but I would look at the southeast and say that was really more driven by a tough comp that than anything else going on I wouldn't describe significant dorian effective that.
Okay and then.
Hi level on a private construction more does it.
Does it feel like private is still good everywhere or do you think is are we at a point, where some geographies are really really good in some geographies are starting to slow.
Yes, I guess I'm going back to my earlier commentary I don't see places that are overbuilt, and I think thats, a really important place to start I think the other thing that I would point you to see if you're looking at the Dodge momentum index or the Avi I mean part of what you'll see is for example, the abbey.
The south in the south in the eyes, a big swath of territory, that's going from the Atlantic Coast to Texas. So you think about the eyes South region.
That's going to be a big piece of our business. It has consistently been a leader in the way. The a b has looked at has also been a leader and the way we look at it through the DMR. So I think your point is a good one item and that is not all markets are created equal in some markets are better than others and part of what we have tried to do and.
And we outlined it into prepared remarks is put ourselves very intentionally end markets that we feel like in.
Every cycle will outperform and I think thats, what weve done I think thats were seeing in the volume numbers and I think Thats. One reason that we have such competence in non res, they're not ever built population trends are moving in those directions, we see big projects coming and we see steady medium projects ahead of us as well.
Great Okay. Thanks.
Thank you Adam.
Thanks.
Im showing no further questions from our phone lines I don't like to turn the conference back over to Ward Nye for any closing remarks.
Well again, thank you for joining our third quarter 2019 earnings call, our proven strategic plan and commitment to operational excellence and World class attributes of our business positioned Martin Marietta for continued growth and enhance shareholder value as we continue to benefit from the steady construction recovery, we look forward to discussing our fourth quarter and full year 2019 results and.
Wary as always were available for any follow up questions. Thank you for your time and your continued support of Martin Marietta.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program you may all disconnect everyone have a wonderful day.