Q4 2019 Earnings Call
It's scheduled to begin shortly these campaigns standby. Thank you for your patient.
[music].
No.
<unk> answer session will follow the company's prepared remarks.
As a reminder, today's call is being recorded I'll now turn the call or what's your house misuse and offer Vice President of Investor Relations for Martin Marietta Osbert you may begin.
Good morning, and thank you for joining Martin Marietta fourth quarter and full year 2019 earnings call with me today, a ward Nye, Chairman and Chief Executive Officer, and Jim Nicholas Senior Vice President and Chief Financial Officer.
Today's call we have made available during this webcast and on the Investor Relations section of our website 2019 supplemental information that summarizes our financial results in 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 to 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.
And the FCC website.
Unless otherwise noted a financial and operating results discussed today are for the full year 2019, any comparisons are versus the prior year.
Furthermore, non-GAAP measures are defined and reconciled to the nearest GAAP measure and our 2019 supplemental information NFC see filings.
We will begin todays earnings call with Ward Nye, who initially will discuss our full year operating performance Jim Nicholas will then review our 2019 financial result, after which we'll discuss market trends and 2020 expectations a question and answer session will follow.
We'll now turn the call overt award.
Thank you Suzanne and thank you all for joining todays teleconference.
Martin Marietta, Mark 25 years as a public company in 2019.
Throughout our history, we positioned our business to outperform through the disciplined execution of a proven strategy and our team shared commitment to the world class attributes of our business, including safety ethics cost discipline and operational excellence today's reported results clearly validate the importance of these strategic priorities.
Hi, Suzanne noted today's discussion will appropriately focused on full year results. However, as you read in our earnings release, we reported a much improved year over year fourth quarter. The capped off a 12 month period, a record setting financial performance.
In 2019, we once again establish new records for revenues profits and adjusted EBITDA from improve shipments question.
Cost management across most of our building materials business for the year consolidated total revenues increased 12% to $4.7 billion consolidated gross profit increased 22% to $1.2 billion adjusted earnings before interest taxes depreciation depletion and.
Question for adjusted EBITDA increased 15% to nearly $1.3 billion and diluted earnings per share was $9.74 a 31% improvement.
Our 2019 results marked the eighth consecutive year of growth in these financial metrics.
Martin Marietta its ability to repeatedly translate revenue growth into increased profitability has been and continues to be a differentiator.
Our strong earnings growth drove a total shareholder return of 64% in 2019 more than doubled the S&P 500, and strong outperformance relative to most of our sector.
For those who have long followed Martin Marietta, you know our passion is operating our business safely.
Safety is a core principle and the foundation of our strong financial performance.
We're proud to have achieved world class lost time incident rate levels company wide for the third consecutive year. Additionally, weve meaningfully improved safety performance at our legacy bluegrass materials operations acquired in 2018, our company's second largest acquisition.
From the board room to side operations, our teams have embraced our Guardian Angel and when man branded safety culture. This continued commitment has elevated safety awareness across the company, reducing downtime for workplace incidents and leading to higher revenues and profitability.
Most importantly, working safely protects our employees and the more than 400 communities, which we live and work.
Now, let's take a deeper dive into the full year operating performance for each of our product offerings.
Aggregate shipments increased 12% to 191 million tons exceeding our original 2019 guidance for volume growth of 6% to 8%.
These shipment levels benefited from solid underlying product demand together with carry ever work from an extraordinarily well 2018, notably for the first time in four years aggregate shipments to all three primary end use markets increased reflecting improved strength in public and private sector spending in our markets.
Aggregates pricing improved 4% in line with our expectations Importantly, all divisions contributed to this solid growth a testament to the strength of our markets and the disciplined execution of our locally driven pricing strategy.
We expect these dynamics combined with recent positive industry trends to support ongoing pricing momentum.
Our cement operations established new for your records for volumes in gross profits.
It's increased 10% to nearly 3.9 million tons, driven by robust, Texas demand 2018, whether deferred projects and an expanded distribution terminal footprint.
Cement pricing improved 3% consistent with our expectations, we expect our cement operations will continue to benefit from tight supply and healthy demand in Texas supported by growing customer backlogs and our April 2020 price increases.
Now turning to our downstream businesses.
Despite solid fourth quarter volume improvement, our full year ready mix concrete shipments decreased 2%.
Southwestern Rocky Mountain divisions were unable to completely overcome weather challenges that intermittently hindered construction activity throughout the year.
Average selling price increased modestly with solid gains in Colorado, partially offset by strategic customer segmentation that limited pricing improvements in Texas.
Our Colorado asphalt and paving business enjoyed strong customer backlogs a notable portion of which had been deferred into 2020 that said shipments in pricing improves 7.5% and nearly 4% respectively.
I'll now turn the call over to Jim discussed more specifically, our full year financial results Joe.
Thank you worth.
The building materials business achieved record products and services revenues $4.2 billion, 12% increase and record product gross profit of $1.1 billion, 26% increase.
Full year aggregates product gross margin increased 360 basis points to 29.3% driven by pricing gains and improved operating leverage from increased shipment and production levels.
We also benefited from the absence of the negative impact from selling acquired inventory burdened by acquisition accounting and 2018 as part of the bluegrass transaction.
However, following month, a robust shipment levels, we incurred higher let your cost for contract services repairs and supplies to better prepare ourselves for future production needs.
These costs negatively impacted our incremental margin as did the disproportionately strong growth in long haul distribution revenues, which have a lower margin and local or truck served Cory revenues.
Well revenues grew at roughly double the rate of 40 revenues I'm pleased to report that gross profit per ton increase for both the long haul and local Corey operations.
Our cement operations established all time records for product revenues and gross profit.
Product revenues increased 13% to $439 million, driven by volume and pricing growth.
Notably gross profit increased 14% to $143 million, even after accelerating $6 million a planned maintenance outage activities at our Hunter cement plant during the fourth quarter 2019.
Revenue growth, coupled with production efficiencies from increased shipment and production level more than offset the higher maintenance costs as product gross margin improved 20 basis points to 32.7%.
Product revenues for the ready mix concrete business decreased less than 2%.
Despite lower revenues gross margin expanded 60 basis points, reflecting the benefits of our 2018 restructuring of the company's southwest ready mix concrete business.
Magnesia specialties product revenues decreased 7% to $250 million as chemicals and line customers reduced inventory levels to align with the slowing demand trends experienced during the back half of the year.
Our wine business was negatively impacted the general Motors work stoppages in September and October as steel manufacturers pulled back on demand the flexing agent products, we provide.
We anticipate these current trends to be short term nature.
Impressively.
Gross margin actually improved 150 basis points to 39.8% as the business proactively respond and was effective cost control measures.
We ended 2019 with a strongest cash generation in our history.
Operating cash flow of $966 million increased 37% over 2018, driven by double digit earnings growth and lower contributions to our already well funded qualified defined benefit pension plan.
Martin Marietta continues to balance its longstanding disciplined capital allocation priorities to further enhance shareholder value and maintain financial flexibility.
Our priorities remain value enhancing acquisitions prudent organic capital investment and the opportunistic return of capital to shareholders through dividends and share repurchases.
All while maintaining our investment grade credit rating profile.
In 2019, we deployed $394 million of capital into our business in returned $228 million to shareholders through both an increased dividend and the repurchase of 416000 shares of our common stock.
Since the announcement of our share repurchase program in February 2015, we've returned more than $1.6 billion shareholders. While at the same time growing our business profitably and responsibly.
We also reduced debt by $350 million in 2019.
Strong earnings growth in higher debt repayments allowed the company to return as he said he would toward target leverage ratio of two to 2.5 times.
With that.
I'll turn the call back over to award to discuss our 2020 outlook.
Thanks, Joe we're excited to build on our momentum in 2020 and beyond by capitalizing on attractive fundamentals that support sustainable and long term construction growth.
This underscores the importance of the notion we have long articulated where you are matters, we have thoughtfully executed on our strategic analysis and operating review known internally or soar to position our business through aggregates, let expansion in high growth Mega regions. These mega regions exhibit attractive market fundamentals and.
Alluding population growth business unemployment diversity and superior state fiscal position.
Notably, Texas, North Carolina, Georgia, and Florida will account for nearly half of our nation's population growth between now and 2040.
Thats a staggering statistic in four of our top 10 states by revenue.
These states are experiencing and will likely continue to experience a significant influx of people requiring homes schools offices restaurants in roads and short population growth will drive increased consumption of heavy side building materials in key Martin Marietta served markets for the next two decades.
With that in mind, we're confident that construction activity in our top 10 states will continue to outpace growth nationwide.
The combination of strong infrastructure funding levels and healthy private sector activity is expected to drive both increased shipments and better pricing, resulting in record profitability for our company in 2020.
The infrastructure market is our most aggregates intensive venues, but represented only 35% of our aggregate shipments in 2019, well below the company's most recent 10 year average of 45%.
In 2020, we anticipate infrastructure shipments to meaningfully grow driven by Lettings and contract awards in our key geographies strong state and federal funding levels and proposed regulatory reform that if approved will reduce the permitting burden of large transportation projects.
States continue to play an expanded role in infrastructure investment, which bodes well for Martin Marietta as we have intentionally positioned our business in states with superior Department of transportation programs in Texas, our largest state by revenues the de OTI expects nearly $22 billion of construction contracts.
Fiscal year 2021, as part of its 10 year 77 billion dollar unified Transportation program.
Construction growth in Texas will benefit further from large scale design build projects in and around Dallas Fort worth.
North Carolina, our third largest state by revenues has an attractive overall fiscal position in fact, the state's treasury is very well funded in 2020 as tax collections continue to exceed projections that said, we anticipate modest but transitory headwinds and road maintenance spending through the first half of 2020 as north.
South Carolina duty works through some temporary cash flow issues.
More broadly we expect incremental funding at the state and local levels to continue expanding at a faster near term rates, then federal funding, which will lead to additional growth opportunities for our company.
Voters approved 89% of state and local transportation initiatives on the November 2019 ballot, providing nearly $10 billion of targeted transportation funding across the nation of this total 80% was approved for transportation initiatives in our key States, Texas, Colorado norm.
Airliner in Georgia.
Rebuilding our nation's infrastructure remains a national strategic priority, one that tends to enjoy bipartisan support in Washington.
The expected enactment of a comprehensive federal infrastructure package to replace the fixing America's surface Transportation Act or fast Act will drive multiyear infrastructure growth. Notable progress is being made on this front.
In July 29 team the Senate Committee on environment in public works issued America's Transportation Infrastructure Act a draft highway authorization Bill.
The draft proposal was $287 billion and federal highway funding over the next five years, a 28% increase over previous authorizations funding levels also in late January The House Committee on transportation and infrastructure unveiled the moving forward framework, which includes 300.
$18 billion over five years for federal highway spending a 41% increase the president and last week state of the Union address endorsed the Senate Bill urging Congress to pass infrastructure legislation.
Legislative emphasis will now turn towards assuring a sustainable funding mechanism and we're optimistic one will ultimately be agreed upon.
Nonetheless, we're entering 2020 with the perspective that a successor bill is unlikely to be passed before the November 2020 election. However, we fully expect congressional continuing resolutions to maintain federal transportation funding at a minimum at status quo levels for any interim period.
Following the fast Act September 2020 exploration.
We are confident that states have the necessary visibility and resources to advance planned and future construction projects, particularly in our key states, which tend to be less dependent on federal support for highway projects.
Nonresidential shipments, which accounted for 36 for side of our 2019 aggregate shipments are higher levels on a percentage basis than we've historically experienced nonetheless, we expect another year of healthy commercial activity in 2020 supported by projects for data centers warehouses distribution centers and Corp.'s.
Patients remember, we purposefully positioned our business along major Interstate growth quarters, where land is readily available for the construction of these fulfillment and data centers. Additionally, the recent upward movements and the architectural billings and Dodge momentum indices support a sustainable commercial construction outlook.
Within the industrial sector heavy building materials consumption should benefit from the incoming wave of large energy sector projects over the next several years, particularly along the Texas Gulf Coast.
Construction activity on four projects is expected to begin in earnest in 2020 and continue for several years thereafter, Martin Marietta is well positioned to supply the aggregates cement and ready mix concrete needs for these multiyear energy projects.
Residential construction represented 22% of our 2019 aggregate shipments.
While this end uses outperformed relative to the overall construction market, we expect continued gains across our leading south eastern and southwestern geographic footprint.
Permit growth, which in our view is the best indicator of future housing construction activity from Martin Marietta continues to be solid for single family and multifamily housing units in our top 10 states.
Keep in mind multifamily construction generally begins early and an economic cycle and then transitions to more aggregates intensive single family construction healthy multifamily bodes well for continued residential growth across our footprint.
Even more compelling as previously mentioned, Texas, North Carolina, Georgia, and Florida four of our top 10 States will account for nearly 50% of the country's total population growth over the next two decades as people migrate to areas with attractive employment opportunities land availability and overall business into.
Tax friendly environments importantly, notable population growth drives increased housing demand, which also supports future non residential and infrastructure activity.
In summary, we expect to aggregate shipments to increase 2% to 4% in 2020, reflecting growth in all three primary construction end uses and notable upside in the infrastructure market.
From a cadence perspective shipment growth is expected to be weighted toward the second half of the year given a strong first half comparison and transit North Carolina Giotti headwinds.
Annual price increases, which become effective from January one to April one have already garnered market support most importantly in Texas, the Carolinas and southeast to that end, we expect aggregates pricing to increase in a range of 4% to 6%.
Combined with contributions from our cement downstream magnesia specialties businesses on a consolidated basis. We expect total revenues of $4.875 billion to 5 billion $75 billion and EBITDA of $1.348 billion to 1 billion 400 fit.
The $3 million.
To conclude we're proud of our 2019 record financial results and industry, leading safety performance, we're equally optimistic about the future of Martin Marietta as we move forward Martin Marietta remains committed to positioning our business to be aggregates led in high growth geographies and aligning our product offerings to leverage strategic.
Eric cement and targeted downstream opportunities, we will continue to be disciplined in our solid strategic plan and our team's commitment to the world class attributes of our business safety ethics cost discipline and operational excellence, we look forward to continuing our strong momentum in 2020 and further strengthening.
Our foundation for long term success.
The operator will now provide the required instructions, we will turn our attention to addressing your questions.
Thank you.
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First question comes from Trey.
Stephens Your line is that open.
Okay. Thank you very much.
Good morning.
Hi, Trey.
Thanks.
The 2020 guide and.
Obviously facing.
And as you look at your volume assumptions.
Yes.
I know you mentioned shipments might be towards the second half.
But.
More specifically.
Thing in your backlogs.
Customers.
Confidence in that.
Yes.
Pretty tough comps.
No trade Thats a great question. Thank you for that I.
Here's the quick tale of the tape I mean, if we go down I can tell you mid Atlantic backlogs for our customers are up.
If we look at Midwest that just had a killer year last year from a volume perspective, there there's or flat if we look at mideast, they're up southwest is up.
Cement is up.
And Rocky Mountain is up I mean, the Rockies really it was interesting trade because they had a 29 team that felt like 2018 did I think for much of the industry from a weather perspective, so as we're looking across our footprint and looking at most of our divisions. What I'll tell you was their backlogs and speaking to their customers actually look is good.
We're better going into 20 than they did going into 19 and to your point. That's the primary driver that gives us the confidence in the volume prediction that we put out so far today, we feel very comfortable with that.
Gotcha.
I guess for my follow up.
Infrastructure.
In the fourth.
In the press release.
No there can be some delays and things.
Short term situation going on in North Carolina.
More detail about the public side.
Corridor.
Yeah.
In the 20.
Actually trade does not what I would say is there were primarily two issues that I would call out.
Clearly there were some permitting delays in Georgia that slowed down two projects those are those resolved.
And really you had some weather issues that the drove some activity or lack of activity in Colorado, if we paused and looked at it more broadly here's what I'll tell you. If you look in Texas Youre looking at lighting schedule of $7.7 billion, which is very much in their sweet spot I think there will be very good with that what striking is if you look forward to 2021.
It's a $14.1 billion place holder right now so those are huge dollars for this year and going into next because you'll see even more design build.
Keep in mind, we're going to start to benefit from the major mobility program in Georgia, as well, they're going to come out with $12 billion of new projects to reduce congestion primarily around the Atlanta Metro area.
In a post bluegrass world, we have a much more significant footprint even.
Even in North Carolina. The fact is the status and very very good condition. If we look overall at the Lettings that they've had over the last several years they put us actually in a very attractive place, particularly in eastern North Carolina I think the only thing that may happen for a period of months is we may see modestly less maintenance.
Spend.
But equally if we look at Colorado, DTN again, hitting these really hit our top leading states from an infrastructure perspective, the surface treatment budget is up significantly it's up 84 million to 303 million and the capital construction budget remains steady to last year when they were actually hit with pretty notable weather circa.
Stances. So if we look at our states by revenue number one Texas it looks really good number to Colorado. It looks really good North Carolina looks strong actually we're going to have some delays early Georgia looks good and Florida continue to have a budget into $10 billion range again, when we're looking at numbers like that.
On the public side and we see what we think is coming it gives us a lot of conviction around that big a single part of our business trends.
Okay.
Good.
Thanks for taking my questions.
You bet take care.
Thank you and our next question comes from Catherine Thompson of Thompson Research Group. Your line is open.
Hi, Thank you for taking my questions today first on pricing.
Give thoughts on trends in pricing.
How do you feel going into 2020 in terms of how the landscape.
And how is this relative to last June.
Really look at it in terms of product line that'd be helpful. Thanks.
Sure Catherine a couple of things one pricing in the quarter actually look quite good it was up over 5% now as Jim mentioned in his portion of the prepared comments. Some of that was driven by the fact that we simply have more long haul in the quarter. Our rail business was actually up considerably if you normalize volume.
Pricing would have been up a little bit over 4% for the quarter, which again is very much in keeping with where we thought.
Again, I think you can look at Q4 from a volume and pricing perspective, and get some kind of play on how things are going to be as we start going into 2020.
I think we're seeing a better price environment in aggregates than we've seen for a while across our entire footprint.
No, we're seeing a better pricing environment in summit than we've seen since we've owned those assets in Texas. So if we're looking at that pricing environment in particular Catherine.
You may recall that we had announced an $8 a ton price increase effective April one it looks like most of the rest of the market is there. There's one player thats actually come in as we understand it with a letter that that has that at $9.50 a ton. So again, we feel very good about where that is equally if.
We look at the downstream businesses I think we'll continue to see price increases for ready mix concrete in the range of six to $8 per cubic yard that's probably not a bad bogey for you to keep in mind in both Colorado, and Texas right now and keep in mind part of what we called out in our prepared commentary as we had some segments.
Changes modestly and concrete that actually gave us an optimal headwind on pricing because we've made more play in Texas in particular to the housing market, because we think thats actually more resilient to weather.
So as you recall coming into 19, we had said we were planning for wetter than usual year at that dictated some degree of the shift that we had and the way that we were lighting.
Okay and uses as well I hope that's responsive to your question.
Yes, that's very helpful.
My second question really ties and the current quarter with your outlook.
The current quarter is really the puts and takes for the margin drag.
Good segments and help us understanding onetime in nature persons ongoing kind of tying into that really into 2020 I look as you mentioned the long haul volumes in the quarter.
Pat.
The cost for Colorado, and Thats, where but in the long haul volumes, how do we think about that cadence going forward in other words.
So unique event.
In Q4, this is something that Tim.
2020, and really how pulling it all together.
Help us understand how did that backwards from than what it means going forward.
Sure I'll do my best with that that's what that's a lot.
Catherine Here's what I would say when I was speaking to Q4, saying look about as a professor prelude I was really talking more about pricing and more about volume in that context. So here's what I would say with respect to the quarter itself. There were some very specific one offs in the quarter that I think you need to keep in mind. One we did have some catch up on grading and.
Jim referenced that so let's call that seven I have $8 million, we actually did bring some maintenance at our 100 cement kilns forward during the quarter because part of what we're aiming for and what we feel like it's going to be very good here and so that is a higher degree of efficiency and we feel like we positioned ourselves in Q4 for that with respect.
After the Rocky Mountains, we had one capital project in Wyoming.
And we're basically putting a new plants and Grand Canyon, because that's going to help us feed the northern Colorado market long term into sales yards as we see aggregate depletion plays for the industry occurring Northern Colorado that project finished as several months later than we had planned so between that which is.
Now finished.
But between that project, finishing later and whether being considerably different in Q4 in Colorado that helped drive part of the difference that we see there just to give you some metrics around that I think this is important for the quarter. If we're looking at Colorado all by itself asphalt paving had 57% more weather impacted days in Q4.
And by the way that had 30% more full year.
Impacted days. So it gives you much clear visibility into 2020, and then the last piece that I would call out is what we mentioned in the southeast we had those two delays on projects.
Public works in Rand, Atlanta, and then as you.
You recall when hurricane Dorian stopped over the Bahamas last year, we have an operation as you may recall in Freeport and we were unable to take one boatload of stone outer Freeport than we otherwise would have in Q4. So really if you look at the catch up on grading the item on summit that I mentioned issues relative to Rocky mountain in weather.
And the capital project, it's not been resolved and those two issues in the southeast that's your bridge in Q4.
So as we look at the way Q4 lined up from that perspective now to the other part of your question I think was really relative to the margins.
And what I'll say in that regard is that if we look at what happened.
In the quarter relative to rail volumes, they increased 20% now remember.
I view that is good in more ways to not unlike the fact that we're seeing the rail yards in that expanded network see the volume go through.
But as you will also recall the margins that we get at the rail yards.
Our not as attractive as the margins we get a truck served quarters. So you had a modest mix impact on that and that was really the driver on puts you saw on a change in margin now as we think about putting said look like going in 2020, and I think that was the last piece of your question.
We anticipate.
Fading, we're going to see really in 2020 about the same degree of long haul shipments that we saw in 29 team and to give your sense of it and that was probably up.
Over 4 million tons on long haul in 29 team. So again, we're looking for what we feel like is going to be at attractive.
The 19, but we don't think we're going to see that type of shift relative to the other mix Katherine tell me if I if I hit the issues that you wanted me to address.
Yes, and really kind of the point is this kind of a one time and how should we think about the cadence.
Right.
My question. Thank you.
Okay very good thank you.
Yeah.
Comes from.
Jefferies. Your line is now open.
Hey, guys.
Phil is there.
Good morning.
Is there a good way to think about impact on volumes in your aggregates business to start the year.
Short term dynamic you called out in north.
Carolina and embedded in your full year guide, how you're thinking about whether this year, whether this year and any other bottlenecks labor in transportation.
I would say Phil is this.
Well again.
In adding a wetter than usual year and Thats, what we did last year's wells, we're taking the same approach to weather.
Saying lets plan for to be wetter weather. So that's what you're seeing those numbers I think with respect to North Carolina.
As we said at the prepared remarks, we view that as wholly transitory I think you might see some issues, but I think they're going to be modest in the first half of the year. It may be somewhere in the half a million 2 million tons, all and worst case.
Phil if you're trying to look at it that way, but my guess is we're going to see that made up in some private work in the state. So it's something that we wanted to make sure we spoke up but it's not something that we're seeing as disruptive to the overall business I think importantly on the last part of your question and that was relative to what do we.
See going on contractors supply chain et cetera.
I think trucking has clearly gotten better over the last couple of years I think contractors could still use more labor than they entirely have so actually think contract labor served as a little bit of a governor on what growth was in 29.
Okay.
I think I'd be foolish to say wouldn't be some modest governor going into 20, but I do think labor has gotten better over time in part going back to the commentary that we offered last year and that was consistent with the notion that contractors were willing to pay more to get labor because they see.
And emerging public side, we're coming and the penalties for not completing public workman timely manner tend to be pretty notable so.
I don't think you can totally dismiss it I think they are issues I think their issues that are getting better is that responsive Phil yeah. That's really helpful and in ward I mean, I think you guys have.
Excellent job kind of highlighting your backlog.
I'm excited to the public builders had obviously reported pretty strong orders double digit increases just curious have you seen that uptick in your business and what's the typical lag from orders are starts.
Your demand.
What it can vary a lot depending on the.
On the jobs.
Because you can certainly get orders and then on occasion, just as we saw North Georgia, you can see some permitting that delays that may tie into environmental or other issues. So it can be anywhere from two months to six months fill and again there can be some noise around both of those.
But I do think.
What we're seeing relative to public is a much healthier 20 than we've seen over the last several years.
Okay. That's helpful and just one last one for me I want it going up.
Appreciate the commentary said about Texas cement sounds like you're feeling a lot more upbeat about the pricing environment, what's embedded in your guidance in any.
You know early green shoots or read on the competitive landscape and how you guys are behaving that market. Thanks a lot.
Youre welcome looking from from what we can tell obviously, we've come out with our price increase letter that was $8 effective April 20.
From what we hear from from our customers in the.
Marketplace I think most others have come out with wood prices that sound like there in that same range I think theres, one that has come out with a letter that even in excess of that but.
Certainly what we're looking at and it's something that going into the year, we've got nice conviction around so.
Okay. Thanks, a lot you.
You bet.
Thank you.
Comes from.
Citigroup Your line is now open.
Hi, good morning.
Good morning, Anthony welcome welcome to the call we're delighted to have.
Thank you our thank you just following up on Phil's question on cement volumes were up double digits for another quarter and I think you just talked about.
Are you seeing expectations or the pricing opportunity with regards to volume expectations. I think you referenced some at being up but is it possible that we could see another strong quarter in one Q for volumes, that's maybe comparable to what we saw in fourq over threeq.
One thing I try to stay away from is talking too much about the.
After that were in the middle of because if we ever talked about a one quarter and it was great. Then we don't talk about the next you're almost indicating one way or the other.
I will say is this I think everything that we see in Dallas, and Fort worth and incentive Antonio and keep in mind Thats, where to cement plants are is a very healthy marketplace, we've talked a little.
The early in the call up what do you see budgets looked like there at the same time, if we come back and take a look at what residential.
It looks like about marketplace I mean, it's really very very attractive, Texas and Florida continued to be for example in the top 10 for total permits DFW has been leading the nation for a.
While in single family and in multifamily and once you wouldn't expect is still see multifamily so strong.
This deep into a recovery, which tells US what we've long said Anthony that is this is really not then a building led recovery yet so I think as we're looking at our cement business we think.
It is going to be very busy. This year, we think Texas is going to be a great place to be from a volume perspective, and a profit perspective. The one thing I would say to you is we're going to be particularly focus this year on enhancing our efficiencies. If we can get efficiency levels at the levels that we believe are perfectly attainable at both Midlothian and hutter.
Before we can have a very special year in some at this year.
Okay. That's that's very helpful. And then ward I was wondering if you could talk maybe broadly about how the M&A landscape looks here, especially in aggregates and some of these higher growth states that you're targeting I guess, it's almost two years since we'll grass and you see leverage quite successfully.
Yes, we have we brought that leverage down very quickly and as Jim said as we said we would.
But we're involved in a steady.
Diet of conversations on M&A and part of what we're doing as you've heard US say before were an aggregate sled business and that is what is going to drive our ability to.
The grow the business the way that we would like to going forward.
I also believe that two things one we have a very healthy balance sheet.
Number two we've got regulatory capacity I think in attractive markets today that others don't.
What that means as you can expect us on the right deal.
To make sure that we get the right deals are the same time, you should expect us to be very disciplined around transactions that from a Martin Marietta perspective.
Don't fit what we want to do and I think if you go back and take a look at and what we did with Dxi, what we did with bluegrass and what we've done with some of the tuck in transactions we've done in Colorado.
In the aftermath of our river for the Rockies transaction that is an area, which we are very very disciplined but I would tell you very very busy right now.
Okay. That's helpful I'll turn it over.
Thank you Matt.
And our next question comes from.
Goldman Sachs.
[music].
Yes, hi, good morning, everyone.
Hi, Jerry.
I'm wondering if you could talk about your demand expectations for Cory serve markets versus rail served markets for 20 should we be looking for the mix dynamic that we sell play out in the fourth quarter, continuing at least on a year over year basis.
Part of 20.
Jerry I think what we anticipate is what we saw for the full year on rail should remain relatively static. So again, there was disproportionate growth on the rail side in 19, we think we'll see that pretty steady and 20, and we think we'll see more coming out of the trucks or.
If you recall Jerry coming into 19, we had actually said, we thought you'd see incremental margins in the aggregates business around 55%, but we did not anticipate as strong a rail yard.
Year, as we did which brought that down just modestly if you take a look at what Incrementals look like for the aggregates business going into 20.
We'll see that we're planning for that 60% number as opposed to 55% that we plan for last year. So I think.
Dialogue around really.
Thinking more or less flat rail 19, and 20, and then also going back and giving you that snapshot of where we were on Incrementals last.
Sure, where we are this year I think that answers your question.
It does yen to your point earlier on the call look very good volume year overall.
Looks like there are some puts and takes around volumes as you would expect than in 20 compare to generally robust across born demand 19.
From your experience on the pricing cycle, how should we think about the cadence or pricing over the course of a year.
Especially considering it sounds like theres going to be different cadence to demand this year by market compared to what we saw 19.
I think we've seen the price increases going in the way that we thought.
They would jerry and that as they've been going anywhere from January one two April one so I and my guess is there's not going to be anything, particularly striking.
In a difference relative to pricing other than factor I think it's going to be modestly stronger in 20 than it was in 19, because thats usually.
Steve what healthy volumes do for you so.
I wouldn't call out any particular difference relative to cadence.
And sorry, just a clarification.
So you've obviously made announcements of January in April price increase what about.
The level of mid year price increase.
Thats embedded.
The midpoint of guidance can you just give us a bit of contact so how much work remains to be done over the balance of the year to get the midpoint.
We have not baked in any mid years and to that Jerry. So so really what we've done in the guidance is anticipated to wetter than usual year, we've anticipated.
The pricing is with pricing has and then it many years come along.
I would add some momentum to that and keep in mind. During one thing to remember even if you do get mid years, you're only going to recognize about 25% of a mid year during the year in which you put the mid year, because you still have to work off some soon.
Plug and other commitments before it really fully comes into place for many years help you agree and the year on what you put them and they actually end up being more of your friend in the following year.
Perfect. Thank you.
Thank you Gerry.
Thanks.
Question comes from.
Davidson Your line is that.
Okay.
Great. Thank you good morning.
Question on the yet.
Specialties business, a little more pressure here in the fourth quarter it looks like outlook suggests.
That might level off here to some degree just curious kind of what you're seeing and hearing from customers there.
Confidence around that.
No look thanks, Thanks for the question Brent because that's a business that is such a good business and they just never get the airtime that they deserve but they were faced with two things last year. One Jim mentioned in his comments that there was a slowdown in steel, particularly around the GM for settlement.
And then we saw some customers just rationalizing inventories from the chemical side.
As you would imagine we stay very close with those customers I think we feel like largely that they will have worked through those issues, particularly by the time, we get toward the end of first quarter. So if you look at if that business I think we feel very comfortable with the guidance that we'd have out there right now part of what I was really taken with though is if you look at that business and you say.
But the revenues went down your gross profit went down as well, but on a percentage basis didn't go down as much as the revenues and then if you look at the margin what you'll actually see last years the margin went up.
So I think thats indicative of how well they run that business and how accurately they can forecast where the business is going where they.
Need to so again, if we look directly to the dialogue with our customers I think that's what gives us the confidence that it's going to end, where where we set.
Okay appreciate that and then or just because it's in the release you talked a bit about it but any other details are kind of broader parameters. We can think.
And to your kind of around that for 2025, you. Obviously there is really enviable.
Capital deployment position, you talked about kind of lessons learned over the last decade can you can you share what you learn from that might change and as we move forward.
What I would say in many respects is it worked pretty well so there are lot of.
Aspects of that that we would not change as opposed to things that we would change what do we believe we believe this business is in aggregates led business and we think its aggregates led for all the right reasons, we think really being focused on geographies with high population growth or either consuming significant aggregates is where we want to be.
The notion that we've moved the business from one or two and 65% of our markets to one or two in 90% of our markets over a decade.
Is a pretty heady statistic when you think about a big heavy slow moving industry and the ability to always remain profitable and never cut a dividend. These these are things to us that are so.
Metal to who we are and what I would tell you as you should continue to look for us to do the types of things that we did when we exit the river and we went into Colorado to do the types of things than we did as we bumped up our business in Atlanta and took a leading position in Maryland and to the extent that we can do that in markets that continue.
To exhibit good population trends good state fiscal health multiple induce drivers those of the types of things that we're focused on when we did sore 2020. Our aim was to beat to the point that we had something that looks like in enterprise value of around $20 billion by the time, we got to 2020.
I think when we roll that out.
Most people who were looking at it would have been two kind to have said you can't do it but they may well have thought it.
And we largely did it so as we think about store 2025, we will continue to be we'll probably put some numbers out that can look aspirationally. We think they are doable and that's how we intend to grow the business.
Okay, great. Thank you. Thank you Brian.
Thanks.
Question comes from there.
Yep.
No.
Hi, Thanks.
Wondering if you look out to 2020, you came out with the preliminary volume outlook after three Q.
Mid single digits in here you're.
With the 2% to 4% increase so.
Pretty similar rate of growth, but just wondering just over the last three months has shifted good or bad it just a roger.
Okay.
Relative to when you came out the preliminary outlook.
What I would say Garik and this is I would tell you. This is more got Bennett as.
Matt Okay. So so forgive me for that I would think the sentiment is broadly better now than it was three or four months ago. So if we're going back to the period of time Quinn, we would have been going through a planning or budgeting cycle in the fall and took a poll our division presidents Vice President and general.
Managers and said, Okay. How do you feel last October how do you feel now I think as a general rule they feel better now than they felt that.
And by the way they Didnt feel bad then.
Got it thanks for that.
And then just to clarify some of the expenses they hit the fourth quarter, particularly related.
Is there anything to call out if you look out just as far as the cadence of some of these lumpier expenses into 2020, just how you're you're planning on some of these larger cost items.
No actually I don't think so for example that I think are killing expenses will actually be friendlier and 20 than they were in 19 for some of the reasons we.
Yes.
I think we've actually on some catch up grading that we've done I think we're sitting and the type of place that you would expect I think the capex that we've been putting into mobile equipment will continue to be our friend relative to maintenance and repair.
So gearing theres not a cadence out there this year that I would be.
Wanted to highlight to you right now I think the big driver for a little bit of a stutter step there at year end was volumes were just up more than than people would have thought and because of that we had some catch up to do but we don't see that and 20 right.
Got it thanks again.
Thank you.
Thank you and our next question comes from Stanley Elliott of Stifel. Your line is now open.
Good morning, everybody. Thank you all for taking my question.
Hey on the capital spend side I think you kind of touched on a little bit, but you had been run an elevated I can close depreciation can you talk a little bit about what the plans for Capex our media.
And then rolling stock like you called out is that expansion projects, just trying to get a flavor for where you see the most opportunity.
Hey, Stanley it's Jim So I would say in aggregate in total our Capex is roughly constant as a percent of sales we've been doing that 18 19 and expect the same in 2020.
We had been spending more on mobile in prior years for shifting a bit now to plant.
Grades and efficiency improvements so I would say we're close to so most of it is maintenance capital, but its efficiency improving capital at the same time. So we see no no start changes going forward there.
Perfect and lots of questions on kind of the but what all stripping costs. There are you seeing anything else within the costs environment, that's concerning and heading into 2020 be at labor or or energy costs or anything else that you would want to call out that we should be aware of.
Finally, we're really not if you look back over the last several years labor has never been an issue for us. It doesn't look like it's going to be this year, either and as we're looking at the other inputs again, we feel very confident with it. So I don't see anything that that would really moving needle in that respect.
Perfect. Thank you very much appreciate that thanks.
Thank you Sam.
Our next question comes from Adam.
And David.
Hey, good morning, guys.
What I wanted to start on aggregates pricing I just wanted to make sure I understood and then pricing accelerated all throughout 2019, Yes, you got accelerating again and.
2020, I'm just curious, what's what's really driving that.
You know what I think volume is clearly a friend on that and obviously in the fourth quarter. There was some degree of mix relative to rail that did that but again. If we go back over time, you are part of what we've seen Adam and we've spoken of it I think it surprised.
People that we would have the ability to get price in a down market, but we did and part of what we indicated is is we thought we would have even more ability to get price and an up market and I think thats. What you saw last year keep in mind.
We ended up being at the end of the day, a relatively small piece of overall construction from.
The cost perspective, if your 10% of the cost to building road, 2% of the cost to building a home and somewhere between those percentages. So on a non res project. We are seldom the product that is going to make or break the general contractor or sub on either getting the job not getting the job or being profitable at the same time, we have a.
Correct in the ground that gets more valuable by the day and we want to make sure that we have the ability to capture that you because the barriers to entry continued to be very very high. So I think you have.
All of those factors coalescing, and I think thats evidenced in what you're saying the pricing.
And then I think.
It was under letter word you called out the.
The wind projects being a slight headwind.
This year can you just give us some more color on that how impactful is that so no pun intended on the when projects being a headwind right.
So what we're seeing Adam is really the tax investment credits.
And if projects aren't.
Under construction at the end of 2020 really that's been an issue in two areas for US one in the Midwest and to a degree in the southwest more in the Midwest and southwest.
Right now we don't see it as a as a notable headwind we really just more called it out because we recognize that the.
Yes credits are going away and we want to be sensitive to it and the other thing that we're sensitive to I spoke about the fact that Midwest volumes going into the year look relatively flat to last year, but Midwest volumes last year were really up so that's an area the country on a percentage basis, we just want to be thoughtful around.
Okay, great. Thanks, guys. Congrats thank you Adam.
Thanks.
One comes from Michael.
Research your line.
Hi, good morning, gentlemen, and Suzanne.
Good morning, Michael.
In your release this morning, you talked about.
Potential positive on regulatory.
Driven improvement in efficiency and trying to get projects let.
Any sense on how how companies think that will come through given what's going on in politics wise and how that can impact maybe the cadence in terms on lettings in the next.
Couple of years, you give you combine that with the maybe potential federal building say 20.
Sure, Michael it's going to be scientific and anecdotal all at the same time. So have we seen some states go from taking seven years to get jobs out to being more like two years to get jobs that we have has north Carolina for example, been a part of that.
Absolutely have we seen other states getting better at that no doubt and even in the President's draft budget that he's put out of course is talking about the totaled one trillion dollar infrastructure investment. So thats. The broad picture. These paid it at the same time, even he starts talking about in that broad based budget more of what.
I'd like to see Don I think we've seen some elements of it in NEPA reform on what can happen on getting projects approved more quickly.
So what I would tell you it's kind of sit here today and give you definitive numbers on what we think they would be up no a cat, but at the same time kind of look over the past several years and say that north.
Our line of for example was able to go through $2 billion that had really been put on the shelves because they couldn't get jobs out as quickly as they wanted to because they had gotten more efficient at it yes, do we think it will continue to get better at the federal level, Yes, and do we think that will likely be part of a new highway Bill we think it.
Probably will be.
That's great great color. Thanks for that were just one quick follow up.
Turning back to M&A and how you're looking at we're having active discussions on many folks are those folks also expectations moving higher given some of those publicly available data in the expectations I think most.
We'll have in the industry and is that causing some maybe some some lockup relative to.
Things, maybe getting done and the more rapid environment in the next to say six to 18 months.
Well I think you can vary a lot I think it can vary depending on are you talking granted are you talking limestone and Santa gravel.
Are you talking a pure play or are you talking to vertical play.
Are you talking East Coast are you talking middle of the country or west. So I think it moves around what I would say at the end of today is people recognize these are very valuable businesses.
Often times, they are justifiably pretty proud of them.
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Which is one of the reasons that we have to make sure that we can get good synergies when we go into these transaction so.
Again, I think theres a lot of dialog, we will not over reach on things will continue to be responsible with it but we're certainly seeing things today that if things come together, we can execute on and I think do quite well with.
Excellent response thanks.
Michael Thank you and again welcome to the call.
Thanks, I appreciate that.
Thank you.
One comes from Seldon Clarke.
The open.
Hey, guys. Thanks, a question.
M&A.
How much capacity do you.
For the.
Yeah.
Could you give us a sense of.
Thank our potentially out there so.
Well I'd tell you what let me let me do that I'll address the first the second part of and that has some of the quantum of deals I'll, let Jim come back and talk a little bit about firepower and the fact is we're always.
He is engaged in at least are probably more than a handful dialogues and again. They can they can vary pretty considerably in size. So the conversations continue to be regular and they continue to be rich in many respects enrich I don't mean numbers I mean, just in the form of dialogue that said, let me turn it over.
And he can talk a little bit about firepower.
But you know we did we acquired bluegrass or 1.6 billion a few years ago. We did that comfortably delivered rapidly we could do that that size in larger today.
Readily so I'd say, we have ample firepower, we can do a larger deals with new multiple mediums.
Size deals.
And again it is our top priority getting the right acquisition at the right price. So we will make it happen if we need to but it would be very comfortable for us for firepower perspective to do any any deals it would be coming coming to fruition next two years.
Okay. That's helpful and then just what's going on.
Hello.
Yes.
What do you think.
On a more on.
So how should we think about.
Capital deployment.
Right well our priorities have not changed so answer the second part of the question first.
Aside from M&A, the reinvesting in the business and for Capex, you talked about that roughly eight 9% of sales typically what we shoot for doing.
And beyond that.
Returning capital to shareholders in the form of higher dividends, which you've been doing last couple of years meaningful increases the dividend rate.
And then.
Sure buyback, which you've also been due in the last few years. So we'll continue to do those two things in terms of leverage we have stated target leverage of two 2.5 times. We're currently at the lower end of that range of course has done in the context of M&A pipeline in the context of economic outlook and our expectations for the year.
So there's no static view, we take but by and large two to 2.5 times is our debt to EBITDA ratio seller and if we think about what's happened over the last 24 months 18 months, we've done the second largest transaction our company's history you before last we raised our dividend by 9%. This past year by 15% obvious the board will look at that again.
In August but to do a transaction the way that we did with bluegrass to de lever as quickly as we did to be in a position to take the dividend up and buy shares back is a very nice place to be and I think that speaks well to the discipline, but the team has shown overall on capital requirement.
All right I appreciate the questions. Thanks.
Thank you so and again, thanks for joining our call today.
Yes.
Thank you and our next question comes from.
Jpmorgan Your line is open.
Thank you good morning, what two questions. One is on on cement prices specifically on index as what's what are your views on.
Input party prices.
For Texas any of you think that that could drive.
Actually even how you increases on cement prices in the second one is.
On your guidance for some end gross profit.
Hi for on site from prices on what else is are you expecting to drive margins higher this year.
I guess it number one Adrian Thank you for your question number two if we just look at Texas cement overall, and Texas consumed about 18.7 million tons of summit last year about 13, and a half of that was was from domestic producers in Texas. So the short answer is you're going to have to have some degree of import that's coming up.
For the state right now simply to meet the needs.
I think if you look at where our plants are very much by design in Dallas Fort worth and incentive ntone the ability for water imports to come and meaningfully interdict our businesses is low and again thats by design I.
I think you will continue to see the need and the desire for cement to continue to go up.
And that state I think the fact that we're talking about an $8 per tonne price increase their demonstrates that the demand supply.
Band is going to be somewhere in our favor.
Surely that is going to help drive our business. The other thing that I would say to your point, yes, we will clearly have less kilmer maintenance.
<unk> expenses in 20 than we had last year and then the number that we know it's going to be real it's just a more elusive number is once you get from the sheer efficiencies that we believe we will recognize it both midlothian ended hunter.
Again, as I looked across the business and think about the areas that I think have the.
The potential to have a really pretty special year. This year I would put summit somewhere near the head of that public statement.
Excellent. Thank you were.
Youre welcome. Thank you.
Thank you.
My question.
Research Your line is open.
Hi, good morning. Thanks.
Thanks.
Thanks.
Pretty system days moving towards.
Just wanted to understand whether it's something that's would be considering.
And.
So what do think bidding but on the value of.
Quick.
On the.
You mentioned that aggregate footing.
Hi, some today's infrastructure project.
George.
Hello.
Could you give us.
Sure.
Excluding.
But.
Well certainly try to lets deal with the recycle issue first and what I would say Paul is recycle is going to be an issue that's not going to hit all markets. The same way, it's going to hit different markets differently. So if you think about markets such as Los Angeles or markets, such as Houston that really in the la you've got depletion and Houston you have no course.
Aggregates that are indigenous there.
Which means that as you have certain destruction of buildings you can have crush concrete in that marketplace that can be used in some instances as a base material keep in mind in many instances recycle is going to be more usable in a commercial application as opposed to a.
Application because oftentimes it won't meet the more rigorous deo t. specifications. So what I would say is at what I think todays pricing is in aggregates and what I, frankly think they're going to be for the next decade, where you see more recycle on the edges. I think you will indication I don't think it's going to be a huge.
Displacing factor keep in mind, even recycle that you see in recycled asphalt commonly referred to as rap.
Is really more used to pull the liquid out of billings as opposed to the stone. So I think we see that way relative to the second part of your question that was with respect to delays what I would.
Say is clearly we did see some delays in Georgia, we saw some delays in North Carolina I don't want to quantify exactly how much I think that would have moved the aggregate tonnage I think you would've would have moved it.
A bit.
Importantly, those are high profit states I think it probably would have hit more bottom line on profits as.
As opposed to bottom line relative to volumes.
Okay. Thank you very much thank you Paul.
Yeah.
Question comes from all Rogers.
Ben.
Hi, This is Robert Smith on for Paul Georgia.
Very good.
Hi, there I was asking.
To accelerate Greenfield investment spending.
Since you typically make on these investment.
Im sorry, Rob relative to Greenfield.
Yes, please yes.
I guess, we would say several things we think theres a role.
And what we do for Greenfielding at the same time, if we look at our volume this past year to 191 million tons and we look all the way through a cycle I would ask you to remember this at the peak of last cycle, we produced and sold 205 million tons at the bottom of the last cycle 125 million tons in 191 last year of that 190 $140 million.
Tons are due to acquisitions over the last decade ish. So we're comparing same on same all the way through a cycle take the Oneninety that we just finished with in 2019 take 40 million tons from it it puts us at 150 million tons same on same versus 2.5 at peak and 125 at the bottom.
That's not long way of saying I don't think we're in a position today that adding greenfield sites is a particularly value enhancing strategy for us we have ample reserves and very attractive markets. Greenfielding to me is when you want to go into a new market, where you've got reserves that you're trying to protect the other thing, but I would say.
Most greenfield applications will probably take around 70 years to put in and again, you've got several components you had to be mindful of number one environmentally once you're dealing with a delegated state authority from from usually federal statutes, but then more importantly, what's happening relative to local land use.
Rob that's the piece of it in the United.
States that I think most people Miss because I think most people feel like the bigger issue its environmental the bigger issue is in fact land use so as we think about it help we open the single largest greenfield operation on the Union Pacific's vast network.
About five years ago, we have but again a very strategic.
Play to make sure we can supply DMT specs stone into Houston for a generation.
Have we looked at it opening underground mines that places like in the mid Western US we have but we havent taken on a slew of greenfields because at the end of today.
We don't think it's the best use of our.
Yeah.
Thank you.
Just just as a follow up you did touch on this slide.
Asphalt margins disappointed if it's again and I. Appreciate this is mostly bad.
But yes. It is of looking ahead.
Potential improvement in 2020 asked me given a potential tailwind.
From my 2020.
I do think we'll see a potential tailwind I mean again weather was the primary driver for for the variance that you've seen we've talked a little bit about the sheer quantum days that we lost because of the weather. If we look at the backlogs that we have in that.
Business going into the year they.
Really look very very good if we look and then from a customer perspective.
We're looking at already over 50% of our backlog being booked for the year and for me need to be able to say that to you in the first half of February is a pretty heady place.
Great. Thank you.
Thank you.
Thank you and this does conclude your question answer session I would now like to turn the call back over to ward Nye for any closing remarks.
Thank you for during our fourth quarter and full year 2019 earnings conference call. We continue to focus on maximizing value for shareholders as we build on our.
Wrong results and strive to realize the company's full potential.
Given Martin Marietta's World class attributes and our expectation of a sustainable and steady public private sector. Construction activity. We believe 2020 will be another record year for Martin Marietta, We look forward to discussing our first quarter 2020 results on a few months as always were available to.
To answer any follow up questions. Thank you for your time and your continued support of Martin Marietta.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating disconnect.
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