Q1 2020 Earnings Call

Ladies and Gentlemen, please continue to hold your conference call Will begin momentarily dead dead dead dead.

We've not yet seen contractors and customers delaying or canceling building projects in a material way while we typically do not comment on intraday Trends. These are a typical times. We're making an exception and it's highlighted on our supplemental information slides 13 and 14. We are sharing preliminary April shipment and pricing Trends to provide greater transparency as to what we are now, seeing in a covid-19 impacted month specifically for the month of April aggregate shipments remained elevated in most jobs, but did not match the near-record April 2019 volumes. We saw notable growth in north, Texas, Colorado and Indiana cement shipments continue to be strong in her currently trending close to prior-year levels. The one notable exception is oil well cement shipments as demand continues to decline due to volatile and historically low oil prices.

Ready Mix Concrete shipments are also trending near April 2019 levels even as some home builders temporarily pause construction activity.

April

Good news for the Magnesium Specialties business are ten million dollars lower than the comparable prior-year. Demand for our line and Pericles products has slowed dramatically as steel producing customer is temporarily idled their facilities in response to the covid-19 indu shutdown of certain domestic auto manufacturers beginning in mid-march.

In terms of April pricing Trends Aggregates pricing improved mid single-digits over April 2019 as announced increases were broadly implemented earlier in the year. So many months is up, even with several competitors announcing plans to delay price increases until June 1st prior to the covid-19 outbreak. We were highly confident in realizing the full wage increase of $8 per tonne implemented April one given overwhelming Market support in a tight Texas cement environment Ready Mix Concrete pricing is slightly higher than April 2019 levels will have a clearer picture of Ready-Mix concrete pricing trends for the remainder of the year as the phased reopening of the Texas and Colorado economies unfold month.

The hours is the basic endurable industry. It does not mean that we're immune to the disruptions caused by the pandemic. Our economy is interconnected and dislocations and consumer Behavior or other Industries may impact Martin Marietta as such looking Beyond April we anticipate product demand will soften in the coming months with the private sector feeling the effects sooner. The timing duration and extent of weaker demand levels are presently unknown infrastructure particularly for Aggregates intensive highways and streets is expected to be resilient of the companies three primary and uses in the near-term the vast majority of State Departments of Transportation are operational and continue to advertise and award projects. Nonetheless. We expect many state budgets will face temporary headwinds with lower fuel taxes tolls user fees and other related Revenue collections as much of a nation has been shut off.

Replace the impact of lower funding levels is expected to become more meaningful in the second half of 2020 apps and congressional action and will vary considerably among the states wage Florida D O T for example has accelerated over two billion dollars of critical Transportation projects to leverage construction deficiencies resulting from lower vehicle traffic including closing additional travel lanes and Performing more daytime hours worked to help mitigate State funding risks industry representatives are actively engaging with Congress to address surface transportation in the face for emergency relief and economic recovery covid-19 legislation. The first recommendation is a federal backstop of nearly fifty thousand billion dollars in immediate flexible funding to offset the estimated 30% loss in State Transportation revenues over the next eighteen months. The second recommendation is to pass.

You have a comprehensive nature.

Chris Transportation reauthorization package, we believe our industry is better equipped than in recent history to execute on an infrastructure Bill given the backlog of fully designed project non-residential construction activity on existing projects has broadly continued in most regions. However, many commercial projects in the engineering or planning stages are being delayed or cancelled particularly for office retail and Hospitality some industrial activity on the other hand is not expected to experience significant near-term destruction from covid-19 off warehouses distribution centers and data centers are expected to perform relatively well in the current environment as businesses increase e-commerce activity secure Regional Supply chains off and become more reliant on cloud and Network Services similarly large energy sector projects on the Gulf Coast of Texas that are already underway are expected to continue age.

The residential Market is expected to experience the most rapid and perhaps steepest decline from the impacts of covid-19 as unemployment in general economic instability off at home buyers and home developers to delay plans. However, in contrast to the Great Recession, we do not anticipate a prolonged period of reduced residential activity. Today's home inventories remain near all-time lows despite notable population games and Martin Marietta States and to benefit from historically low interest rates.

As we prepare for the secondary effects of the economic Fallout from the coronavirus. We rely on our values driven culture as I emphasized earlier the safety health and well-being of our employees customers communities and other stakeholders remains our top priority with established Protections in place to accomplish this we're focused on our business priorities generating cash flow preserving liquidity and adjusting cost to align the product demand. Our team has developed extensive plans for a variety of economic scenarios phone number ready to implement them with immediacy and integrity as warranted in addition to strengthening our balance sheet through a timely five hundred million dollar Bond offering an early March. We've bought a non-essential costs reduced Capital spending for discretionary projects and implemented hiring restrictions. We're tightening our belts and aligning our capacity with demand consumer.

Would that commitment to be imprudent stewards of shareholders Capital? We will re-evaluate these actions as visibility improves.

Having the right strategy making the right decisions at the right time and being able to safely execute them does matter a lot and Martin Marietta will do just that we're well-positioned geographically financially and otherwise to successfully managed through today's unprecedented environment and emerged more resilient and capable how so First Choice Martin Marietta has a much stronger Geographic and competitive position today compared with any previous downturn in our more than 25 years as a public company. This is noteworthy considering we navigated through the Great Recession and remain profitable throughout never suspended or cut a dividend and emerged with a healthy balance sheet today. We continue to jab record profitability on aggregate shipment levels much lower than our Peak volumes in 2005 and with the geographic footprint that we've not only considerably expanded but also, yep.

Moreover we continue to thoughtfully execute on our strategic plans carefully positioning our business through Aggregates, let expansion in high-growth markets with attractive fundamentals and leveraging strategic cement and targeted Downstream opportunities these strategic plans. Not only

Provide Martin Marietta with new growth platforms, but also opportunities to expand our footprint to complement existing operations and build critical mass. We now have them in positions and ninety percent of our markets up from 65% a decade ago, which supports favorable pricing Trends economies of scale and cost flexibility.

Second we have experienced teams with Decades of collective industry knowledge and expertise together their leadership and contributions have produced strong and sustained Financial returns from Martin Marietta and our shareholders is recently demonstrated by one five and ten year cumulative shareholder return performance. This is largely the same leadership team that sucks specially formulated our operation response and prudently addressed our business needs during the Great Recession the most challenging economic environment our industry ever experienced wage, you know, I'm certain involving times proven cycle tested leadership and experience is critical in brief Martin Marietta has the right strategies priorities experience, and she seems to responsibly manage us through these challenging times now now turn the call over to Jim for a more detailed financial review Jim. Thank you and good morning to everyone else.

I will briefly highlight our first quarter results as well as provide a summary of our financial and liquidity positions both of which support our near and long-term strategies.

As detailed in today's release our first quarter financial and operational performance, exceeded our expectations particularly considering the record-setting prior-year quarter that benefited from Kathy were working from an extraordinary wet 2018.

On a Consolidated basis total revenues increased 2% to $958 for each quarter record gross profit was relatively flat selling and administrative expenses improved ten basis points as a percent of total revenues.

The earliest for shared was $0.41 and adjusted earnings before interest taxes depreciation depletion and amortization or adjusted ebitda decreased 6% to $149.

The building materials business achieved record first quarter revenues across our Geographic footprint product demand Trends remain strong, even in the Texas and North Georgia markets that experienced record or near-record precipitation levels.

Aggregates cement and Ready Mix Concrete pricing also improved with all divisions contributing to the solid growth a testament to the strength of our markets and the discipline of our locally driven pricing strategy.

building materials gross profit improved slightly key takeaways include the following

Aggregates product gross profit decreased $5000000 largely due to our quarterly update of inventory standard costs.

Our proton production costs had been trending downward over the last twelve months as cost control measures and operating efficiencies have their desired effect off all else equal. This would result in higher operating margins going forward, but in this quarter it also resulted in a $4 expense as we reflected the lower cost in our updated inventory valuation in contrast during the first quarter of 2019. We recorded from 11 million dollar inventory valuation adjustment to reflect the higher production costs experienced during the weather impacted year in 2018.

Well this cute.

$15 year-over-year inventory standard variants reduce korle product gross margin by 260 basis points lower unit production costs will provide future benefits. I'm submitting product gross margin expanded 1170 basis points driven by improved cost absorption from higher production levels as well as increase the San Antonio Austin and Houston markets.

Pricing gains combined with lower maintenance and energy expenses also contributed to the improved margin.

Chris profit for the Ready-Mix concrete business declined nine million dollars pricing improvements and double-digit shipment growth in Colorado were more than offset by lower volumes from record rainfall delaying projects in the Dallas-Fort Worth area as well as increased raw material cost.

For the Magnesium Specialties business product revenues decreased 13% consistent with expectations as chemicals customers continue to reduce inventory levels for reasons unrelated to covid-19. Notably product gross margin improved five hundred basis points despite lower revenues driven by ongoing cost control measures and lower energy costs.

We still currently anticipate the destocking trend of our chemicals customers to be transitory in nature.

Our Consolidated results included several items that affect comparability with the prior-year quarter to provide additional Clarity. We included a slide in the queue 12020 supplemental information posted on our website that provides a normalized view of pre-tax earnings with the items affecting comparability removed from both current and prior to your quarters.

In addition to the Aggregates inventory standard adjustments discussed earlier these items also included six billion dollars of other operating expenses to finance third-party railroad met in exchange for federal income tax benefit of approximately 7 million dollars, which drove low income tax rate for the first quarter of 2020 lastly. We encourage the cash expense of two million dollars to implement a new paid time off policy for our employees as you will see on Slide Five first-quarter 2020 earnings before income tax money action items affecting comparability improved fifteen million dollars.

moving on now to a capital structure

throughout our history Martin Marietta has operated with a growth mindset while maintaining a healthy balance sheet to preserve our financial flexibility as a result. We have ample liquidity for the example teacher given today's environment. That is an enviable place to be

We will continue to balance our long-standing disciplined Capital allocation priorities to maintain that flexibility.

our priority

Has remained Valium history Acquisitions prudent organic capital investment and the absence of the return of capital to shareholders through dividends and share repurchases all while maintaining our investors a good credit rating profile. Our approach is intended to ensure our castles are sufficient for range of scenarios in today's uncertain environment that range erio's is broader and actions to enhance cash flows and preserve liquidity are even more important.

For the extent of the economic disruption became better understood we repurchased 211000 shares during the first quarter since then we have temporarily paused share repurchases.

We will continue to closely monitor the situation and as circumstances change. We will revisit this pause in our share repurchase program.

To further bolster cash flows as Ward mentioned. We are reducing our Capital spending for discretionary projects.

We now estimate full year Capital expenditures will be $325 million dollars to $350 billion dollars down from our original guidance of $425 to $470 billion dollars.

We demonstrated our ability to pull back and capital spending in safety improved ways that did not damage the business in the long run during the Great Recession. We are doing that again now as appropriate with respect to the company's balance sheet and cash position with a timely Bond offering an early March issuing $500 of 10-year senior notes at a 2.5% coupon off proceeds will be used to repay a $300 of floating-rate notes that mature later this month with the bulk of a remaining cash preserved on the balance sheet looking forward as you can and our supplemental information slides after satisfying the mayor payment, we will have no additional bond majorities for more than four years.

You're confident in a recorded deposition net cash combined with a nearly $760 available on our existing revolving facilities provided total liquidity of approximately $580 at the end of the quarter additionally at two point three times net debt Consolidated adjusted ebitda. We remain well within our Target leverage ratio of two to two point five times at the end of the first quarter with that it will turn the call back over toward for some closing comments. Thanks Jim in summary. We are pleased with our solid first-quarter performance and in home equity in regards to our 2024 year guidance, we will reinstate our earnings guidance. Once we have sufficient visibility to do so that said we remain confident that the attractive underlying fundamentals and long-term secular growth Trends in our key geographies, both of which underpinned the company's record 2019 performance and strong first-quarter 20/20 results remain intact dead.

and will be evident once again as you

This economy stabilizes and recovers Martin Marietta is well-positioned geographically financially and otherwise to responsibly navigate today's extraordinary environment wage Drive sustainable long-term growth and shareholder value as we move forward. We had thoughtfully developed and consistently executed on our strategic plans positioning our business office an aggregate slender and attractive high-growth geographies aligning our product offerings to leverage strategic cement and targeted Downstream opportunities and prudently advocating Capital while maintaining Financial flexibility in doing so we built a business that is durable resilient and stronger than ever. If the operator will now provide the required instructions. We return our attention to addressing your questions.

Thank you, sir. As a reminder to ask a question. You would need to press star one on your telephone. So which are your question, press the pound key due to the lack of time. We ask that you please limit yourself to one question and one follow-up.

Our first question comes from trade rooms from Stevens, please go ahead.

Hey, good morning, everyone.

good morning for a

I work. So my first question is really around, you know, the the state tax receipts, you know that you mentioned being down course, you know, and you talked about the possibility of you know, 30% you know being down 30% or so over the next eighteen months for four T's also you've got in the background the the past act expiring this year. You know, you guys have a lot more, you know, boots-on-the-ground than than most around this month. I wanted to get your opinion first off on you know, how you think all this shakes out with you know, some of the states are are coming together and asking for you mentioned the 50 billion there, but how do you think this month it's shakes out from where we sit today and then as my follow-up, you know, if we don't get anything from the FED to to bridge the gap when would that start off?

Settings and and then ultimately, you know aggregate demand.

All right. Thanks for your question. Look I think a couple of things are worth noting to your point is the one that has come out and asked for the $50 infusion from the federal government's to States. And again, that's exactly right that's taking into account that they're seeing something that could be a 30% Delta in gas tax collections. So we'll see where that goes from the federal perspective. That's probably going to take a few months to see I think on a state-by-state basis, but you're likely to see trade our state's program to have to come back and their legislators are going to have to address them for different deities. And I think that's going to vary pretty considerably if we look at Texas which is our largest state by Revenue their deities in a pretty healthy place and they've got a very heavy rainy day fund there indicating for example that they don't seem need to go to that during this first year. So the fact is depending on how revenues come in places like, Texas. May not need to go there at all.

States like Colorado, which is our second largest

But by Revenue have the ability to their Treasurer choose to issue certificates of participation. And we think those types of of levers can keep Colorado d o t in a very good place in North Carolina is in a similar spot. We've discussed the fact historically that they've had some storm issues that they needed to manage through and they had some issues relative to some little commonly referred to as the map act covid-19 has made that a bit more complicated for North Carolina. T. But legislature is in session. They are looking at several things that they can do that state one thing that's worth noting and and of course it's here in our backyard. We actually over the last couple of years have been very successful in bidding on work here in North Carolina. So for example, one of your concerns is probable tonnage looks like going forward. We booked over ten million tons of Aggregates on six large ncdot projects in North Carolina dead.

And we've only shipped about 600,000 of that ten million. So to your point could different states feel different degrees of pressure. They probably will do we think South Eastern and South-Western states that tend to be are leading States will come through that better than most we think so do we think existing projects that are underway will continue going I think the answer to that is we believe strongly that that will be the case and I think you could see some instances in the second half of people looking at bidding activity a little bit more carefully particularly relative to maintenance in in public. But again today, we we see this as being pretty steady and pretty resilient and there will always be someone else here where there and legislators will need to Endeavor to deal with it and we think we would likely get some help from the federal government. The last thing that I'll add to it is I do Thursday.

Just give us increased emphasis as we said in the prepared remarks toward getting a successor to the Past act. My view has long been that the Senate plan is likely to be the one that would be pushed forward. If you recall that's a $287 billion dollar Five-Year Plan that that basically is looking at a pretty significant increase over fast act funding level. So we feel like that would be a very worthwhile and useful Endeavor for our friends in Washington.

Thank you for the color on that board. And and my second question is on that, you know, the just pricing historically has been very resilient through downturns long. Do you see anything in your markets or or do you you think anything has changed to where you know that that wouldn't be the case if volume was to to drop significantly off, you know, I look at I think the markets are better suited today than they were last time and they did great last time and and I don't see anything that gives me any concerns around the ankle gets price. It's just I think that works, you know, if you look at the quarter you can look at our corner and see what the numbers for the lower than we thought, you know, the fact is we saw really big increases in volume off in our Central Division and our West Division and our Central Division has an asp SSR West Division that are lower than corporate-wide ASP, so I would not let q1 Price Club.

Yeah, give you any degree of concern around the overall thesis as you could tell from our supplemental materials once you got into April.

You some pricing with the four handled in front of it. The other thing that I would say Trey is I think you will see greater resilience in cement particularly in our business in Texas as well this year. We think we're going to continue despite these recent Trends with covid-19 to see good solid price increases in Texas cement. So again, if we look at Aggregates, but I don't think anything has changed there if anything gets better and I think cement is better as well. Thank you for the colors always very helpful and I'll pass it on. Thank you, Stay safe trip.

Thank you. Next question comes from Kathryn Thompson from Thompson research, please go ahead.

I thank you for taking my questions today a follow-up on the North Carolina. Could you confirm for those listening that the ten million tonnes you outlined is funded you could you give a little bit more color on the timing and and flew through these times and the ten million tonnes from everything that we have seen in Glade. Yes is funded and we anticipate those projects will be going they tell you though. They're not wholly in eastern North Carolina and they're going to be going through 20 and 21. So we we see those projects as being certainly through the rest of this year. And in fact that you're canceling.

Okay, thank you. And then a lot of different puts and takes on margins and appreciate the call you have both in your PowerPoint and prepared commentaries a day. But taking a step. Could you give a little bit more color on a basis point standpoint or or dollar standpoint the bridge or margins in the quarter? Also focusing on the geographic what's traffic with one time or any other factors? That's relevant. Huh? Sure. Absolutely Catherine. I'm going to give you a couple of broadside views on that and ask Jim to talk you through a more detailed as long as you could tell what's always interesting to me is when we have an inventory variation and it goes down people who are uninformed will look at that and be troubled by actually, that's something else if we celebrate inside because it actually means our costs are going down which is exactly what you want and exactly what what our shareholders want. So what we saw in part was a change in in dead

Because our costs we're getting better part of what we can talk through as well is a certain degree of geographic mix shift that we saw a change. For example, our Central Division volumes up over 20% in the quarter our West Division sell volumes up over 15% in the quarter and to give you a sense of it central asps back in the mid twelves as our Western asps and you look at overall afd's at 1480. So when you go through that you you start to get a sense of what could be vastly different as you go through a break in a quarter that remember it's our lowest volume quarter. So things can feel oversized in that but I'll tell you is the more you look at this quarter the more you're going to like this quarter and then took it over to Jim he can walk you through why I feel that way. Yeah. Yeah. Thanks so we can we put in the something else like that that walk.

walking folks from the

Want to ask you to Q one of this year simply to help illustrate the improved quality of earnings this year, which is last year. So kind of the put number is to the description that work just gave the bath inventory revaluation item was $15 that by itself is equivalent to 60 incremental margin basis points, in addition the geographic mix from a larger perspective was about ten million dollars. So that's about forty and you're my mortgage basis points a couple other items. We had increased production. So our cost of production was very good wage that was slightly offset, but not wholly all set by higher freight cost. So those two combined meted out to about 8 basis points, you would head back and took a diesel to tell one for the quarter and if you want to pull that out to kind of keep it normalized that equates to about sixty million, sorry 16 basis points from an internet perspective. It was four million dollars. So yep.

Which it takes you add all that up. Anything else gets us to Iraq right around $55 and sixty percent incremental margin.

Captain that was the lot of math and and a lot of color, but I hope that helped.

Yep helps. Thank you very much. You bet.

Thank you. My next question comes from Garrix moist from loop capital, please go ahead. I think's wanted to ask on margins moving forward slash documental margins and you tend to deliver about 60% aggregate incremental than enough cycle. But, you know given potential volume declined over the next several quarters. How should we think about Declan margins looking forward? Yeah. I think I think you know, theoretically it should be the same going down as it is going up. We will Endeavour to be better than that. We've got cost reduction plans waiting to get things get me through the worse. Um, we don't see it getting through the worst necessarily but we're ready for that. So I think for now it's probably safe to assume it's symmetrical approach going up and going down again, but you should expect is just what Jim said and in prepared comments. We said we are going to adjust costs as as we go through a volume profile as well. I think part of what's

For to remember is probably online business the business that was always profitable and never cut a dividend and I think we can surprise in in any Marketplace today.

Okay. Thanks to that question is non-res. Can you remind us how much of your non-res is split between the more cyclical office retail piece that you cited as expected to be software on the coming months versus the heavy non-res that is holding up a bit better. You know what historic I'm going to give you a stork and I'm going to give you a closer to real-time so historic and a normal time you would have expected about 30% of our business to have been on Rise you would have expected about half of that 30% or 15% to be heavy you would have expected but 15% of it to have been lighter leaning more office retail etcetera. Actually, what we've seen is it's trended modestly more torque heavy and you can imagine why because more people are shopping behind a keyboard as opposed to a shopping center. So while housing has been relatively good retail that typically would have

Courthouse and has not been as robust in.

It shifted more toward warehousing and the Amazon nation of the United States and that's actually something that we've benefited from. So what I would say Garrett is if you purchased or cley that are phase say that ended at the 1st at the end of the first quarter you would have expected a bigger piece of that than really we've seen being office and Retail it tends to be modest income with heavy today. If we go into a deeper government-mandated recession and that's how I like to think about this one. You could certainly see the heavy side of it being a large percentage but at least historically that's where it's been. That's where it is as we finish the first quarter and we finish April and as we think about it quite a quick look like going forward we tried to outline of the prepared remarks. It could be that light side of non-res bit could feel some components of that earlier rather than later. So it's going to be call it a probably low double-digits.

for the pixel color

Thank you, Gary.

Thank you. Next question comes from Phil and Jay from Jeffrey's please go ahead. Hey, good morning everyone and thanks for all the detail glad to hear Texas and that pricing seems quite robust. And your expectation was to get the full eight bucks. No, no, no, no. No, that's not good place of in that market obviously have been under supplied for some time. Now the color that you provided in DEC and April looks like pretty good momentum there how much of that incremental pricing verse carry over pricing and then this is a high fixed-cost business. How should we think about the vehicle models for cement? You know what I I think some it's going to hang in there pretty well. I mean what I would say about to your first part on price, I mean, obviously we came into the year feeling very good about pricing feeling very good about the 8th up until covid-19.

Roll on aggregate pricing pieces being very tight. So then actually getting better, you know in In fairness Phil I think prices can be better in the north than it's going to be in the South but I think you're going to get it in both places. And again, I think we're you're going to see very good cost control in cement this year. For example, if we're looking at are killing maintenance expenses year-over-year. We're anticipating wage going to be about seven point six million dollars Less in 20 than they were in nineteen part of what you saw in q1. Is there about two point eight million dollars Less in q1 2013 and they work and nineteen. So it's hard to know exactly how to address the margin issue there. You obviously saw very attractive margins for the first quarter because that this is does he need a tire fixed cost. But again, we put over the last decade about a billion dollars worth of capex ended up business. I think we've got cement plants in Texas that are close to state-of-the-art where you'd log

Some very different energy resources at that facility today that are reducing our costs. So we think our cost profile will be good. We think our pricing profile is getting better and actually

Part of what we're lacking too is I think if you're seeing good anchor get pricing good cement pricing. You're likely to see a much more steady Market relative to Ready Mix as well. So filled out giving you a lot of color around the way that that distance is not operating now and what the change is your every year and and why we feel confident with that businesses and since I hope that's responsive that's super helpful. And then I appreciate the deck where you give us April Trends and this is not very scientific just eyeballing. It looks like it might be down mid-single digits long. Basis appreciate you might have been like a record year any color on how April performed last year and any color on how we should think about the rest of the two Q in terms of demand Trends. I think you should just mention that he's not expecting a material decline going forward. Just want to you know, try and get like all that. Yeah. Look what I tell you is last year in April was near record wage.

So what I'll tell you is April looking at these these trends that you solve felt very good. And even if you look at those charts on I guess it's supplemental slide thirteen. It shows a little bit off for the dip in early April. And by the way, we call that Easter so that that's exactly what that was. So again, if you look last year at a near-record April if you look at very solid volumes this year in April if you look at a at a better pricing environment, and if we're part of what we spoke about earlier in the call with with the odd conversation on the inventories as the cost profile, it's just better look. It's it's hard not to triangulate around those three things and feel like you've got a very durable business. Thanks a lot. Thank you. Take care, Phil.

Thank you, Next question comes from Stanley Elliot from stifel, please go ahead buddy. Good morning. Thank you guys for taking the question off the residential Market weird how quickly can you know, if the economy starts to reopen, you know, people feel good about things or better about things I guess on a relative basis how quickly can some of these residential projects get the Greenlight to go ahead I eek we end up seeing some of those volumes in the back part of the year, you know, I think you could I mean, let's look at it in two different ways Stanley. Let's look at what the page look like before the government-mandated reception. So housing was healthy through March permits were up 7.4% versus prior year if we look at states that matter to us Texas wage up. 10.5% Florida was up almost eleven North Carolina was up almost almost nine. So to your point very healthy housing market place then comes down.

series of shelter in place order borders and obviously you see confidence turn pretty quickly from the end of the year when it was hi to but it felt like toward the end of March here's what I would say if we look at regions that have declined and they all have the Northeast has declined the most the Midwest has declined next the most and then the one that has declined the least to your point has been the South and if you think about where we have built our business it's not exclusively but it's largely a south east and south Western us business office so what we would say is this we think the South clearly performed on the upside we think the south is going to outperform on the downside but equally we think if things get turned back on but it will perform quite well here's part of what's different in this government-mandated recession versus Prime and Stanley housing is not overbuilt so if we look at population Trends and and yep

Noted that in the prepared remarks population Trends in North Carolina population Trends some Georgia, Florida, Texas, Colorado all states and Bush. We have one or two positions wage are very

Are you attracted population Dynamics the other piece of it Stanley and and this is one that I would ask ask you and your colleagues who who spend time thinking about this to ponder. I think you're likely to see more people visiting away from Urban living and looking more to live in suburbs for a while. I think having some space is going to be something that people will gravitate towards the other thing and it's if it's mostly away from your house in question, but I think it's relevant. I think if we think about what a transportation act as likely to look like in this next iteration, yep, it's going to be heavier on Surface transportation and perhaps lighter on Transit because suddenly the notion of getting and trains or otherwise is going to be something I think people would be cautious up. So against them I try to answer your question very specifically, where were we pre covered? Where are we now? What did the percentages look like? Where do we think the comeback will be the the quickest and some of them?

I guess color around the Y.

Now that's great and on the car side, you know, like I don't think it's quite like 2009 but you'll did a really nice job of taking the call us out. Could you could you have in place? Could you look at sg&a being being down on a year-over-year basis? And then and then also gives a reminder. Could you tell us how much you all used in terms of diesel gallons last year's? Yeah, certainly can what I would say is this look we're always very sensitive to sg&a. And I think if you look at us compared to most of our peers and you look at our sg&a as percentage off you you're going to be pretty impressed with where that is. What I will tell you is we will absolutely positively adjust that as we feel like we need to so and and I think our track record reveals that something that we would do but importantly Stanley will do it in the right way with respect to diesel fuel last year we used right at I believe. It's right at 15 million gallons of diesel fuel wage.

Here and for those of you who are wondering will use the whopping eleven point seven million gallons in the first quarter of 2020.

Perfect. Thank you very much. Appreciate it. Mr. Stanley. Good to hear your voice. Next question comes from from Goldman Sachs, please go ahead. Yes. Hi. Good morning everyone and I can hear you all doing well. And you sound like you're a good form to Jerry's a good to hear you. I'm wondering where the to talk about giving the difference in the footprint how we should think about pricing in this downturn compared to the Great Recession. Nice not to have the river systems and you know what? We saw in the last cycle of the sexually pricing bottom after volumes did and I'm wondering given the change in the footprint. How are you folks managing the home business potentially differently in this cycle compared to coming out of the Great Recession, you know, one of the things that I'm sensitive to Jerry to your point is we've got a one or two position in ninety percent of our

Markets today and the Great Recession we had one or two positions 65% of our markets. Okay. So so let's take let's talk a bit about what critical mass. Can me?

And I think critical mass and the dimension of your question is our friend. I think equally you raise a really good point and that if we've been very thoughtful about geographic area. We wanted to exit and Geographic areas that we wanted to enter and what we trying to do is enter areas with with high relative population growth and multiple economic drivers. So if we go back and take a look at the way our sore plan has come together and dictated that we have one or two positions. It's it truly has dictated that we have landed where we have I think the markets where we took these positions they are far better than they were before. I equally think from a local land-use perspective. The barriers to entry are as high can delete probably higher today than they were before if you think about even during the last several years and what I think most would say, it's been a relatively good economy in some of these sectors of the United States. You have not seen a great job.

Little green feeling and I think in a down economy, you see even less of that the other thing that's important to remember Jerry is in construction. We're seldom going to be the reason that a contract number is either successful in getting a job or not successful in getting a job and what I mean by that is this stone is about 10% of the cost of building Road. It's about 2% of the cost of building a home in somewhere between those two percentages on a non residential project. In other words. We are the product that's utterly essential for that project go forward because there is no substitute General speaking for what we do at the same time. We're not going to make or break what's going on relative to the project. I think that's one reason that you saw Aggregates do so. Well in the last downturn my sense is dead for all of those reasons. You will see it do in my view better as we go through this period of time

What if you know we're coming out of those in the residential pickup happens as you laid out in twenty one under that scenario. Some construction activity bottoms call it forth quarter twenty, you know, first quarter of Twenty-One given the market structure today. When would you expect Aggregates pricing through Thursday? We accelerate under that scenario that I just laid up, you know, I think we will continue to be very consistent all the way through this at least from Martin Marietta perspective. That's part of what we talked about. Historically is is you're right. It would either go up or the volume up with slow with the the price up with slow and volume and the fact is Jerry. If you look over the last couple of years, it's never really worked that way actually pricing in some respects has done better. Overall. The volume has done particularly in places where there's been some wage.

Cinebowl, um consolidations. So to your point if we look at what asps have done in Colorado on a percentage basis.

They've gone up nicely ahead of aggregate volumes overall. So I think it's going to vary a lot by geographic region, but at the same time this has proved itself not to behave in a down Market as a commodity. So from our perspective again recognizing that we're very small percentage of the overall cost. But we having product in the ground that's more valuable tomorrow than it is today. We're going to approach pricing with that mindset.

It doesn't sound like you think the corporates are pricing. April is is an outlier.

No, not at all.

Thank you, very thank you.

Thank you for reminder. Please ladies and gentlemen limit yourself to one question and one follow-up. Our next question comes from Paul Rodger from life ahead.

Yeah, good morning guys hike I know good afternoon from London you talked about the the flexibility on the cost side. Wonder if you could talk a bit more on the the cash flow slide off. I didn't particular how much it might be to reduce working capital. I'm just linked to that maybe also the follow up with you have any concerns on the receivable side took me pull up. I'll turn it over to Jim and he'll take you through those one of the nice things about our policy with this one bit of color. One of the nice things about being a building materials supplier is you either have lien rights on Thursday the jobs or would you have Bond rights and public jobs? So actually ours is one of those sectors that tends to have more stable and collectible receivables than most. So if that is a perfect background, they tried to balance the question over to Jim. Yeah. It's it's something that we will mindful of and watchful of is the macro matter. I will say, uh receivables are dead.

Um are backstabbing are a our facility. So that is a natural object that we we get we get the access to funds almost immediately. So the error receivable is is a great source of funds for us after our 401K our facility and as far as relates to bad debt expense or writing off those receivables. It has historically been a very very very small. I would call it in significant expense for us averaging around three million dollars per year at most and so that's that's not something that I'm troubled by you of course monitor that and take action as needed, but it's a very very small number typically, so that's that's not an issue for us.

I want to play clarinet. I'm just as a quick follow-up. What do you think about what this this crisis could do in terms of the structure of the industry long. Do you think was the potential of this process a bit more pressure on some of the moment pops some of the smaller aggregate guys and could actually create opportunities for you to even potentially accelerate some of the offshore strategy game. You know, it it certainly could you put I'll tell you is most closely held businesses are probably in a pretty good place going into this downturn. My experience is that it's more succession issues that tend not drive those decisions than it is near-term economic issues, but I'm not going to be naive and assume that they're not some people out there who may feel otherwise in that respect one of the things that you'll see if you look at our balance sheet is Thursday. We're right at two point three times debt-to-ebitda. That's very much within the range that we like to stay Paul. If you go back and take a look at where we were going into the Great Recession and what we look like wage.

Coming out of the Great Recession. We did utilize that down.

I'm trying to grow our business very very responsibly. We continue to say that our best first dollar is in the right acquisition and emphasis on the word. Right? So we will continue to watch wage that we'd like to believe that we're going to be at preferred acquirer. It distances should come up and we will watch that and we will be very thoughtful about the way that we approach it.

A fake YouTube all thank you.

Thank you. Next question comes from Michael Wood from the Murrah Internet please go ahead is right after like can you provide an update on fire in Texas specifically in terms of what level of oil prices mean for contributions to skate transportation funding and then similar what you expect to occur on asphalt margins as inputs drop, you know what pricing package plus lower backs know. Let me let me do with the latter one first. If we go to the only place that we have asphalt is in Colorado just as a reminder and one of the great things about being Colorado's you're not on either one of the coast. So what it tells you is asphalt and liquid stays relatively steady as you go through it. So if we look at liquid costs as we went through Thursday, they really about $450 a tonne. They recently come closer to about $420 a tonne. So we we don't think we're going to see big variations in that Colorado Market relative wage.

Would one of the things that's worth knowing is if we look at our backlog and asphalt and Paving we've got about a hundred million dollars more in work here today this year in April than we did prior year. So we've got a very attractive Paving business in that Marketplace and we've got a cost structure that we think is going to be quite helpful to us as we go go there the other thing that we saw in q1 issue saw some Municipal work accelerated and it's a practical matter for us. What happens is we bid on Municipal work often times. We negotiate private work. So at times you'll see a modestly low selling price on the muni work simply because it's did so I just wanted to make sure that we we talked through that back to your other question several things relative to text. Thursday. We look back over the last several years going back to as late as 2017 and look at numbers that were awarded a text. You know 2017 is Five Point 1 billion dollars in New Jersey.

2018 it was seven point six billion dollars in 2019 899, you know, we've got a couple of different estimates right now, but the latest aspirin I've seen for Texas is around like this around six point nine billion dollars. So again, if you look at 7.9 and you look at what that how that racks up relative to history, you know, that that's not a bad place to be the thing to remember on each one and prop 7 and I think that was that was the gravamen of much of your question, you know one allocates portions of oil and gas revenues to the state highway fund through 2034. 7 is really comes into play sales and and tax collections reach $28 billion. And after that the next two point five billion transferred to the T, you know, we're going to have to watch and see how some of the prop one and prop 7 money's go. I think we haven't seen any big surprises coming from that so far and that in part that's dead.

We buy what I've mentioned before.

For Texas has a ten billion dollar rainy day fund and the Texas controller so far has indicated that the state can manage whatever Revenue loss. They've seen in this first year without having to go and tap in that rainy day fund. But in any event, we know a very robust fund is there so several things. I've tried to give you what I think is responsive data package to to Asphalt liquid and Paving in Colorado give you a good sense of what total text. Current letting Supply like over a period of years where those dollars have come from and Thursday. We think that is and and the backstop over when do they thought

Very helpful. Thank you. You're welcome. Next question comes from from Deutsche Bank, please go ahead. How do you think about the impact from mix as it relates to both Revenue per unit and gross margins across the different construction end markets do the Sacramento is change across the public markets, whether it's you know, infrastructure, uh commercial or ready. Not really there's really again somebody in our perspective relatively agnostic in terms of birth HD and possibility. They're pretty consistent exact. Okay. Thanks and then just getting back to the oil and gas question for a second. Uh, you just give us a sense of what you think your direct exposure to the oil and gas complex is and then realize this might be a little bit more difficult but to contextualize but your internal

Meetings are stressed out scenarios. How do you think about your more indirect exposure for the oil and gas industry as well? So that's what the question here's the way I would I would respond to that. I guess several things one with lower oil actually help system diesel pretty considerably if we go back to the sheer volume of gallons that we burn through a year. You know, fifty million gallons is not a small amount. So it helps that Dimension, uh to your point. Do we have some energy exposure relative to Stone that we have sold two people traditionally in the Shell fields answer is yes, if we go back and say, okay, what would that look like it absolute Peak it peaked back in 2014. We sold 7.5 million tonnes two different. She'll producers who needed Stone to build pads or until roads the absolute off at this time. We sold one point four million and last year. We were 2.3 and and this year we said we probably thought we'd be somewhere between two hundred and three million because we thought

That was a pretty steady Eddie run rate. So I would say that relative to those things now with respect to your other questions, which is a good one on on the balance of some of non-rem as if we think about those really large energy projects not she'll activity but the but the large energy projects in South Texas, here's what I would say, the first wave of those really has gone there were total of Wars for about seven point nine million tons of Aggregates and about six hundred and sixty thousand cubic yards of concrete and of those 7.99 we want about 3.5 million tons of it and and that's consistent with what we've said. We said we weren't going to get all of that we would get our share of it and I think we certainly have if we think about what the rest of this month is likely to look look like I think him 20 20 will probably ship around a million tonnes during the course of the year to those different projects and what that means. Is this it it means Port Arthur. Yep.

The golden pass and some other large projects that are still down there on the books will likely be pushed out to the right just a little bit.

And it's a reminder that that's going to tell you up to modestly over 14 million tons of Aggregates. Yeah coming forward in these projects over the course of time. So again, I'm try to address diesel cost and what that energy means to us in our business. I've tried to address what's going on in the Shell fields, but the peacock troll last year and what we thought this year would be and when our overall view is on the large energy projects on the Gulf Coast.

Oh, that's really helpful. Thank you. You're welcome. And thank you.

Thank you on next question comes from David MacGregor from Longbow research, please. Go ahead. Yes. Good morning everyone. Who am I speaking with you again? David? Good to hear your voice. It's been a question on the the fast Act and the expiration of September and I know there's been a lot written about the likelihood of something like this actually getting done before the election which seems to be increasingly remote opinion of many in which case I guess we're looking at a continuing resolution situation. Just help me with the continuing resolution is is it possible to get an increase in spending levels under control solution or are you kind of locked in as existing levels know I think the fact that you if they agree to it, you could get an increase that aren't actually David what's been interesting? That's exactly where we thought we were coming into your we we anticipated that the most likely result in 2020 was to be in continuing resolution land until post-election. I do think it's going to be interesting to see if there's

Is going to be a push to have a successor to the Past act before then because obviously it does expire in September. I think the one thing that I would say is this I think everyone learn from the experience of decade ago that short-term CRS are not good for anybody. They're not good for the government. They're not good for the States. They're not good for the contractors and they're not good material suppliers. So I would say that I'm not sure that we're totally in a place that it's only going to be CRS. I think you might see something more percent level as opposed to the house double, but they clearly if they wanted to take it up they could

Okay, and then also you earlier in your comments on the call you made reference to getting activity in the second half of the year and you thought that people would be looking at at that lot differently than giving a makro. I guess guess at what you meant by that but if you go back and elaborate on that a little further in terms of just how you see building activity unfolding over the balance dear. Well, I think we're are, it's more geared toward private activity and and what may or may not happen then and I think much of a day but it's going to be dictated by how quickly we come out of some of these day at home Waters and how the economy frankly dead reacts to several things. Uh, I think that's going to be your driver. I think the light portion of non-res has historically proven itself to be the place that people can either turn on or turn off with greater Precision than others. I think home building the same same thing can be said there if you look at what home builders have dead.

Even during the last several weeks.

Many of them hit pause for a period of time. I think we certainly feel like they're going to come back and resume. But again, I think what we're trying to outline David is none of us have ever done this before. This is going to be a little bit different. The things that I think are going to be constant is I think we're going to do really well on pricing. I think we're going to do really well on costs. I think we're going to get our share of business. I think the question is going to be exactly what will business on the projects. I'd look like and I think if anybody can tell us that you know that somebody we all like to have on their pay wrong. Thanks for watching. Thank you, David.

Thank you. My next question comes from Tim. Tanner's from Bank of America, please go ahead.

Can I get afternoon guys? Thanks for all the great color. Where'd I really? Thank you. What I really wanted your perspective on kind of the three different components of potential government support. So I know there is this some discussion on a fast act and continued Evolution versus the replacement. But also you mentioned the nearly fifty billion request and there's of course the NeverEnding waiting for the infrastructure stimulus potential. So if you look at those three different categories, can you comment on the probability that you see of each and when it would affect your markets? Yeah, I guess what I would say is this I am I'm increasingly wondering if the phase on Aggregates just ends up being the new highway built and and that's one reason that we're wondering if they don't go ahead and acceleration and rather than having see ours this year on the past. We might seeing you Highway Bill. And by the way, we would be perfectly fine with that. I think that's a good steady undertaking.

I think the one that I would want your near-term will be how that fifty billion dollars is received because I do think there's going to be increasing pressure from State fees on their members of Congress and Senate members to shore up some revenue shortfalls and state you're going to have ten if we go back over the last decade but I could clearly see in and you've done great work on it is it's been to State D that have really filled the whole over the last decade the federal government has not

And I think there's going to be a real need for the federal government to help offset that into downturn so near-term. I would watch more closely on or the afterlife request. You know, it'd be more focused on the emphasis of having a ready-to-go highway Bill behind the past Act.

Okay, that's helpful. And then just one quick follow-up was on the request. They point to that potential 30% decline in state revenues for over the next eighteen months. Is that a Martin number or is that their number? And would you think that that would translate to your specific state that that's their number and and I think it it varies considerably calmer State and and actually come to Art but has a really good chart that can take you on a state-by-state journey. If if you're so inclined on on what federal funds but State Farm's look like wage and then how State funds roll into it so different states for example will deal differently with gas tax or vehicle transfer fees or others and then equally wage being on what the source of the funds are dictates how much of a trust fund you may have around some of those dollars.

Okay, great. Thank you.

You're welcome. Thank you. I'll ask question comes from from SunTrust. Please go ahead and get in here just build your own a last couple questions. If we didn't get you know a full fifty billion dollar bailout and something somewhat less than that and took the money goes into the fund and you get a continuing resolution with the Fastback. And then what you have in your backlog so it gets a little bit more complicated than just looking at those same. Is there a potential for growth in in the infrastructure and Market in 20 21 in those circumstances, you know, I think there could be in some stages. I mean, I don't think you can dismiss that and again part of what I was outlining and I think it was Parkland by the Jerry's question. He was talking about the difference in the markets that we operate wage.

Today versus where we were a decade ago, you know, if you look at this at the physical condition of States today, most of the states aside from some of these very discouraging issues are in very good conditions particularly with rainy day funds we talked about a big rainy day fund in Texas. There's a big rainy day fund in North Carolina as well. So I think what's happened with a lot of states in fairness, they're waiting to see what comes out of Washington and then they're going to make their own state-by-state decisions on what they need to do. What I will tell you is if you go to each one of these large states in which we have a significant presence, they all tend to view infrastructure as a critical priority and and they view it as a critical priority off their population Trends are such that if they don't stay ahead of that they're going to be in a really difficult place. And by the way, that's a high-class problem. Not not not a bad problem so dead.

Short answer is yes, I think you could see the grease of growth. I don't think you would necessarily see it everywhere under that scenario, but I think you could see it yesterday.

Okay, and then you know it's you know five years since the past bag and we look back at kind of how that played out. The states have read your money funding as well. If you did get a new monthly bill, what do you think change in terms of how closely that money can be put the word what projects are out there in the marketplace and just your thoughts on what what day is different angles like here's what's here's what's different. If you think about what happened last time repeat, they had it state that had significant layoffs. So they they went dead came into the recovery without a lot of engineering and design professionals. So the fact is they weren't in a position to put job's out to bid and award and give notices to proceed wage. I think that's fundamentally different today. I think when we go back and and think about that statement, I gave you just a few minutes ago relative to Colorado when I said we'd won a hundred million dollars more in work wage.

year-to-date in April of 20

Then we did in the prior year. I think that's actually pretty good evidence of where D O T sit today. You can also go and look and see how different deities have dealt with over the last decade Texas d o t v is just hire a lot of people North Carolina DLT has outsourced a lot of that design work to very specific engineering firms across the state and they put themselves in a position to age or delivery rate could actually be very attractive and oddly enough. That's one of the things state is is sorting through right now because they were able to get projects out much more quickly frankly than they thought they would so again, if if you look structurally it held the otsr set today versus where they were a decade ago it it's very different and I think from a Contractor on material supply perspective. It's an advantage to the industry.

Okay, thank you. And then last question on m&a last quarter like the pipeline was eating up a bit, but the world is changing comment on what the deal for looks like out there. Are you you still have an appetite to do maybe a sizable deal or you going to be able to more conservative than they're turned off when I guess the couple of things real? He never won. I think if you go back and look at the deals that we've done I think you can look at the history on them and and you'll be pleased with what we've done because and I think that's a large part. We've been thoughtful about what and we've been thoughtful about when and with thoughtful about size. So I'm going to give you the the answer you would expect and I'm going to say it all entirely depends. I mean there could be used to come along that would be so impactful to us that if you were looking over our shoulder and a model you would say good Heavens go and do that and they're going to be others that that we would log.

So you'd be more cautious with and frankly you would urge that as well, you know part of what I spoke of in the comments is we've had an experience management team and this is not our first rodeo and it's not going to be our first time you're looking at deals in a in a market that might be different. So we will look at them. We want to grow our business we want to go and responsibly. We also understand the value of a fortress balance sheet. That's what we have today and what we want to make sure we can do really to set the best of all worlds. And I think we've got a path to do it, but you're going to maintain that investment-grade at all cost is that right off? We certainly said it's important to us. I'm not sure we've ever said at all costs, but it's early as important to us. All right. Thank you.

All right. Thank you all for joining our first quarter 2020 earnings conference call Martin. Marietta has the right strategies the right priorities and the right team to responsibly navigate through these challenging times and drive sustainable long-term growth and shareholder value as we move this company forward. We look forward to discussing our second quarter 2020 results and a few months is always we're available for any more questions. Thank you for your time and your continued support apart. Mary had a please stay safe and stay healthy. Take care.

ladies and gentlemen

This concludes today's conference call. Thank you for participating in and out disconnect home phone.