Q2 2020 Martin Marietta Materials Inc Earnings Call
Ladies and gentlemen, please standby your conference call will be good momentarily once again, ladies and gentlemen, please stay on the larger conference call will be good momentarily.
[music].
Peter Today, all participants are currently the listen only mode. A question answer session with all the company's prepared remarks as a reminder, today's call is being recorded will be available for replay on the company's website I'll now turn the call over to your host Ms., Susan Osbert, Martin Marietta's, Vice President of the rest relationships and you may begin.
Good morning, and thank you for joining Martin Marietta second quarter 2020 earnings call with me today are Ward Nye, Chairman and Chief Executive Officer, and Jim Nicholas Senior Vice President and Chief Financial Officer.
A reminder, today's discussion may include forward looking statements.
Defined by the United States Securities laws in connection with future events future operating results or financial performance.
Like other businesses, we're subject to risks 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.
Please refer to the legal disclaimers contained in todays earnings release and other filings with the Securities and Exchange Commission, which are available on both our own Mds He sees website.
We made available during this webcast and all the Investor Relations section of our website Q2, 2020 supplemental information it summarizes our financial results and trends. In addition, any non-GAAP measures discussed today are defined and reconciled to the most directly comparable GAAP measure and our earnings release and that.
You see filing.
Today's earnings call will begin with ward Nye for his remarks, we'll focus on our second quarter operating performance as well as current in emerging market trends, Jim Nicholas will then review our financial results in liquidity position and Ward will then provide some closing comments.
Question answer session will follow our prepared remarks.
I'll now turn the call over to ward.
Thank you Suzanne and thank you all for joining today's teleconference. We sincerely hope that you and your families are remaining safe and healthy as we continue to manage through these unprecedented times.
As highlighted in this mornings release, Martin Marietta delivered outstanding operational financial and safety performance notwithstanding some localized weather had once in the quarter and the broader uncertainties presented by the covert 19 pandemic.
This performance is a testament to our company's commitment to our values. The Wolf Trax attributes of our business and the disciplined execution of our strategic plan.
Martin Marietta establish do profitability records for both the second quarter and the first half of the year driven by favorable pricing and proactive cost management across the building materials business.
Second quarter, specifically consolidated gross margin expanded 200 basis points, despite slightly lower revenues as compared with the prior year period.
Selling general and administrative or SJ expenses as a percentage of total revenues improved 10 basis points to 5.6%.
Adjusted earnings before interest taxes, depreciation and amortization for adjusted EBITDA increased 7.5% to $407 million and fully diluted earnings per share was $3.49 a 16% improvement.
In addition to record financial performance and despite the challenging conditions. We also achieved the best safety performance in our history.
Company wide, both our last time and total industry incident rates are better than world class safety levels. These superior results are directly attributable to our dedicated and talented employees, who continue to demonstrate resiliency during these uncertain times.
Extraordinarily proud of how our team has adapted to our new health protocols, while remaining steadfastly focused on caring for one another working safely and efficiently and seamlessly meeting our diverse stakeholders needs.
The Martin Marietta, along with many of our customers has operated as a designated a central business through at the Cobot 19 shutdowns and subsequent phases, we still experienced impacts from the macroeconomic slowdown.
Despite these challenges second quarter product demand for a building materials business remained strong across a number of our key geographies, including North, Texas and the front range of Colorado two of our leading vertically integrated markets contractors continued construction on projects already underway and have in.
Some instances benefited from jobs that were accelerated to better leverage lower traffic volumes during shelter in place orders and new projects.
In addition, we saw aggregate shipments growth in Georgia, and Florida. Despite above average rainfall in these states during the quarter and in Indiana.
Overall quarterly aggregate shipments declined approximately 4% compared with near record prior year period Boy.
As a reminder, our second quarter 2019 results benefited from weather deferred carryover work sizable energy sector projects in Midwest flooding repair activity.
Aggregates pricing improved 3.3% all divisions contributed to this growth underscoring the health of our markets and the importance of our locally driven pricing strategy.
By region, the West group posted a 5.5% increase reflecting favorable product mix.
Pricing for the mid America group improved 2%, the Central Division, which has selling prices below the corporate average contributed a higher percentage of the mid America groups shipments consistent with the first quarter trends.
Product mix limited southeast groups pricing growth as a higher percentage of lower priced fines and based on where show.
Underlying demand for our Texas based cement business remains largely stable. However, second quarter cement shipments decreased 3% driven primarily by the decline in energy sector activity that has resulted from lower oil prices.
West, Texas oil well cement shipments were down over 75% country cobot expectations, a trend expected to continue until oil prices stabilize at level that fosters additional investment and drilling activity in the Permian basin.
Throughout the quarter, we saw attractive and consistent pricing strength in our north and central Texas cement operations, specifically cement prices in Dallas and San Antonio the markets, most proximate to our Midlothian and hundred facilities were up 4%.
That said, notably lower shipments of higher priced oil wells specialty cement products bound for West, Texas Limited overall pricing growth.
Turning to our targeted downstream businesses, the ready mix concrete shipments increased nearly 9% excluding prior year shipments from our southwest ready mix divisions, Arkansas, Louisiana, and Eastern Texas business known generally as arc Floteks, which we divested earlier this year overall concrete pricing.
Increased modestly but was hindered by unfavorable product mix.
Our Colorado asphalt and paving business established a new quarterly record for asphalt shipments shipments increased to 35% to 1.1 million tons benefiting from market strength and pent up demand following a weather challenge 29 team.
Asphalt pricing declined 1% as customer segmentation was weighted more heavily toward publicly bid municipal projects as opposed to negotiated private work.
The company's magnesia specialties business experienced the most pronounced covert 19 headwinds during the second quarter domestic and international chemicals demand declined as customers confronted covert 19 related disruptions demand for our lime inherit place products also slowed significantly as steel producing customer.
<unk> temporarily idled their facilities in response to cope with 19 induced shutdown of certain domestic auto manufacturers.
Before discussing near term and emerging trends are now I'll turn the call over to Jim for review of our second quarter financial results and liquidity Joe.
Thank you were in good morning to everyone.
It is worth highlighting that the enterprise achieved a second quarter adjusted EBITDA margin of 32%.
This is the highest EBITDA margin in the company's history.
The driving force behind this accomplishment was the building materials, which achieved record second quarter products and services revenues of $1.1 billion, a 1% increase the prior year quarter and gross profit of $359 million, a 9% increase.
Notably all we're building materials product lines contributed to this record profitability.
Solid pricing gains production efficiencies and lower diesel fuel costs drove a 230 basis point improvement.
Aggregates product gross margin to 35.5% also an all time record.
This was accomplished despite lower volumes, demonstrating the cost flexibility and resiliency of our aggregates led business.
Our Texas cement operations benefited from improved killed reliability as well as lower raw material and fuel costs.
Product gross margin of 39.7% expanded 210 basis points, despite nearly 3% decline smit revenues.
As a word mentioned our targeted downstream businesses delivered outstanding operational performance during the quarter ready mix concrete product gross margin improved 270 basis points to 10.6% driven by increased shipments pricing improvements and lower delivery cost.
Equally impressive our Colorado asphalt paving business demolition second quarter records, both revenues and gross profit.
Product revenues for the Magnesia specialties business decreased 31% to $49 million, reflecting lower demand for chemicals and line products.
No revenues resulted in a 420 basis point reduction product gross margin to 37.3%.
Well, we expect this business will face similar headwinds in the third quarter.
Gross margin in the high Thirtys is impressive and indicative of superb cost management.
Consolidated SGN a expenses included $3 million for Cobot 19 related expenses, which included enhancements to cleaning and safety protocols across our over 400 sites.
Turning now to capital allocation and liquidity.
We continue to build our longstanding disciplined capital allocation priorities to responsibly grow our business, while maintaining a healthy balance sheet and preserving financial flexibility to further enhance shareholder value.
Our priorities remain focused on value enhancing acquisitions.
Prudent organic capital investment and the consistent return of capital to shareholders, while maintaining our investment grade credit rating profile.
Full year capital expenditures are now expected in the range of 350 $375 million a slight upward revision the guidance provided last quarter as U.S. businesses were in the early stages of responding to the pandemic.
Our current priorities projects are expected to improve efficiency capacity and safety.
Core principles and the foundation of our strong financial performance.
Well, we typically invest in the business. We also look for appropriate opportunities to divest non operating assets to maximize value.
In this regard earlier this month, we entered into an agreement to sell it depleted sand and gravel location in Austin, Texas pretty nearly $100 million.
Since our repurchase authorization was announced in February 2015, we have returned nearly $1.8 billion to shareholders through a combination of share repurchases a meaningful sustainable dividends.
Sure repurchase activity remain temporary pause during the quarter. However, your purchases can resume at management's discretion.
In may we repaid $300 million a floating rate notes that matured using proceeds from our first quarter bond issuance.
The company has no additional bond maturities until July 2024.
We are confident in our balance sheet strength, NIM ample liquidity and financial flexibility to continue profitably growing our business.
Net cash combined with a nearly $970 million available on our existing revolving facilities.
Provided total liquidity of $1 billion as of the ended the quarter.
Additionally, at a net debt to EBITDA ratio of 2.2 times, we remain well within our target leverage range as at the end of the second quarter.
With that ill turn the call back over to award for his market trends commentary.
Thanks, Jim.
With the successful completion of an outstanding first half for 2020, we remain laser focused on managing our business through the macroeconomic upheaval from koby 19 and related governmental responses on July product demand and pricing trends across our markets remained broadly consistent with second quarter, we feel that premature.
Were to reinstate full year 2020 earnings guidance, given the uncertainty regarding the pandemic potential phase four stimulus and infrastructure reauthorization. Nonetheless, we remain highly confident in the fundamental strength and underlying drivers of our business guided by our strategic operating analysis and review.
We're sort of plan.
We expect pricing resiliency and disciplined cost management to continue supporting the company's near term performance as the economy resets from Cobot 19, we believe favorable pricing trends for our products will continue supported by our disciplined locally driven pricing strategy and attractive geographic footprint.
For aggregates, specifically, we anticipate full year 2020 pricing will increase 3% to 4% from the prior year. This range is slightly below our pre covert 19 expectations given year over year geographic and product mix trends and slightly delayed price increases in certain markets.
Texas cement pricing is also expected to remain resilient due to the states tight supply demand dynamics and the fact that our key markets are by design largely insulated from waterborne imports healthy aggregates and cement pricing trends should benefit our targeted downstream operations.
Existing customer backlogs support the company's shipment levels in the near term in certain regions, where we operate this year's weather has been more disruptive of construction activity and project cadence and depend demick, yes, we believe the industry will likely see a gradual but not precipitous temporary slowing in product demand over the next.
Two quarters as businesses and governments address budget shortfalls, resulting think over 19 that said the degrees of decline and recovery will vary by end use market and geography and will be influenced by future governmental actions.
Infrastructure construction, particularly for aggregates intensive highways roads and streets is expected to be the most near term resilient as contractors advanced projects that had been awarded and funded however state department of transportation or DRTV may decrease the scale or postpone the timing of future construction.
As they balance lower revenue collections and other short term funding needs relating to the cobot 19 impact, particularly if there is no near term federal assistance.
These impacts will vary by state for example, Texas Deo T. scheduled Lettings for fiscal year 2021, which began September 1st are currently planned at $7 billion comparable to fiscal year 2020 lives.
Earlier this month, Texas DRC also reiterated its 77 billion dollar 10 year unified transportation plan.
To ease funding shortfalls to its DRG budget, Colorado will issue certificates of participation to advance planned projects. The majority of which are concentrated along the Mega region. Following the 25 corridor, which has been the strategic Pfos focus of our Rocky Mountain business.
Our top 10 States North Carolina, DRTV faces the toughest near term funding challenges as a reminder, NC duty temporarily suspended awards for certain projects in response to pre covert 19 funding issues and other factors. Since then new contract advertisements have been further delayed.
In the near term and see duty will benefit from $700 million and build in see bond revenues to fund existing transportation programs longer term, we anticipate additional transportation ballot initiatives as well as new revenue enhancing recommendations from the NC First commission, which is tasked with evaluating.
North Carolina is growing transportation investment needs and ensuring the critical financial resources are available.
Despite some near term giotti headwinds the passage of a reauthorize comprehensive federal infrastructure package would provide multiyear upside.
Well, it's unlikely a successor Bill will be agreed upon in signed into law prior to the fixing America's surface transportation ex exploration on September Thirtyth, we feel confident new legislation will be enacted and provide the first sizable increase in federal transportation funding in more than 15 years. When this occurs it will.
Big when for our industry and for Martin Marietta.
While non residential construction activity on existing projects has continued some commercial and institutional projects and the design or planning stages are being delayed or canceled.
The Dodge momentum index or DMR by a monthly measure of the first report for nonresidential building projects in planning, which has historically, but construction spending for nonresidential building by a four year is down 20% from his most recent peak in July 2018.
However to contextualize the June reading, the great recessions peak to trough DMR decline was 62%.
Importantly, since the great recession, Martin Marietta has purposefully shifted our non residential exposure to be more heavy industrial focus as we've expanded our geographic footprint along major commerce corridors.
Aggregates intensive warehouses distribution centers and data centers are expected to lead nonresidential activity as businesses increased capacity for E commerce activity secure regional supply chains and become more reliant on cloud network services further large liquefied natural gas.
LNG projects, along the Texas Gulf Coast that are actively underway at broadly continued however start dates for the next wave of projects have been postponed.
Longer term, we believe nonresidential construction activity could benefit from more companies streamlining their supply chains, and repatriating manufacturing operations back to the United States, providing potential multiyear upside to heavy industrial construction.
Residential construction is rebounding more quickly than anticipated by homebuilders and third party forecasters.
After decline in April the National Association of Homebuilders housing market Index, a widely recognized survey designed to measure sentiment for the U.S. single family housing market returned to pre pandemic levels in July signaling that residential growth may lead to an overall economic recovery.
Consistent with recent homebuilder commentary activity has strengthened as Martin Marietta States of reopened demonstrating anup housing demand following the covert 19 related pause in the spring selling season.
Nationally housing starts remain below the 50 year annual average of 1.5 million. Despite notable population gains Freddie Mac estimates. The 2.5 million housing units are needed to address the correct nationwide housing shortage. This situation is particularly evident in states with Cigna.
Terrific, an undersupply, including Texas, Colorado, North Carolina, and Florida, which are all in our top 10 states. These trends along with historically low mortgage rates bode well for future expansion in single family housing activity, which is two to three times more aggregates intensive than multi.
Family housing given the typical ancillary nonresidential and infrastructure construction activity.
Also longer term, we expect Martin Marietta to benefit across all three of our primary end uses from accelerated to your organization trends as stay at home orders and the shift to remote work encourage more prospective homebuyers to move to smaller metro or suburban locations are leading south eastern and southwestern.
Brian provides us a distinct competitive advantage in regions with diverse employment opportunities land availability favorable climates, and a lower cost of living.
Moving forward, we're confident in Martin marietta's opportunities to build on our successful track record of financial and operational outperformance sore 2025, our strategic plan for the next five years will be finalized this year and provides the framework to support our capital deployment price disciplined cost management.
Sustainable practices talent development and succession planning initiatives, we've already made great strides on these endeavors.
Earlier this month, we streamlined our business structure into five operating divisions East Central southwest West and Magnesia specialties.
This new structure better aligns our business product offerings and geographies provides experienced executives with increased responsibilities and opportunities strengthens our ability to provide outstanding customer service and further enhances our industry leading cost profile.
In closing, we're all living an unprecedented and dynamic times and that will likely persist as depend demick continues unabated.
Moving forward, our attractive underlying fundamentals strategic priorities are world class teams physician Martin Marietta to responsibly navigate today's challenging environment and to drive sustainable long term growth and shareholder value.
Overall, we continue to feel confident about the future and our plan to continue building on Martin Marietta's long track record of success and delivering sustainable value creation and superior returns for investors.
The operator will now provide the required instructions will turn our attention to addressing your questions.
Ladies and gentlemen, if you have a question or comment at this time. Please press Star then one key on your touched on telephone. If your question has been answered you should result from the Q. Please press the pound cake.
And the interest of time, we ask that you limit yourself to one question and one follow up.
First question comes from Trey Grooms with Stephens, Inc.
Hey, good morning, everyone.
Good morning Trey.
Okay. So.
I guess first I want to.
Focus on margins.
I guess demand is going to be what it's going to be.
But.
In the materials business you saw gross profit improvement across the board.
And that's even with down revenue than most segments and Jim touched on some of the benefit there, but can you talk about none of the puts and takes there and we understand diesel was your friend in the quarter, but you know even outside of the though where maybe you had some good guys that we could see continue going forward.
Try thanks for the question you're right diesel was a friend, but we managed our labor we managed SGN, a we managed our efficiencies and other things that we believe have the capacity to endure actually quite well during the quarter Trey footwear endeavoring to do and I think what you've seen in the quarter.
Is we are building a business that has the ability and should be expected to outperform as we go through cycles. So to your point volume's going to be able to volumes going to be in volume was down 4% for the quarter, but we saw profitability going nicely up but pricing is a big piece of that and that has been something that Martin Marietta has demonstrated.
I think extraordinary skill around managing we have a depleting resource we want to make sure we get getting good value forward. We're also going to flex very carefully on on the labor side and the other thing that I think you're seeing evidence of is we've been very thoughtful and the way that we deployed capital. So I think as we look at what Capex is.
Done relative to our ability to continue to gain efficiencies that's been an important piece of it one thing that I would call out to you in particular and really the comments I just gave you when specifically to the aggregates business.
But I think to if we look at our cement business that also saw down volumes for the quarter, we're seeing much better reliability numbers relative to our Midlothian operation and hunter facilities as well so what we're seeing across our footprint is improve reliability improved efficiencies improve cost.
A number dimensions, but we're also getting the price Trey and thats something that matters.
Got it okay.
That's helpful and encouraging, especially in the face in the volume at your patient.
That's a follow up.
You mentioned.
Got you could see additional demand slowing in the Cup book on the next couple of quarters or in the coming quarters.
But.
If you could dive in that a bit more.
We're looking for something similar had some similar comments during the last earnings call so that doesn't.
Doesn't seem like a new outlet fairly but.
I think they've held in better than expected and it sounds like July trends are still largely the same as the second quarter. So.
Just trying to understand maybe high level.
Timing.
And.
And understanding you're not giving guidance, but if you look over your three primary businesses infrastructure non resin ready.
Your outlook for those and where you see some potential or for relative strength or weakness.
Sure try happy to try to do that and I'm with you I mean, I don't think what we're saying today relative to outlook should be a surprise to anyone I think it's actually very consistent conversation to what we've been having and if we look at it volume was down 4% in aggregates for the quarter and profits were up so.
That gives you a sense of at here's how I'd break down the end uses as you think of it.
Infrastructure for the quarter Sachi pretty steady I think one of the questions is what will phase four stimulus look like because it's been well documented with gas taxes going down states clearly have had some degree of revenue challenges with respect to that particular dimension. It's fascinating to me to see where Asheville was today Ashton.
Making an asked that there would be about $37 billion in the phase four stimulus that would go directly to stay deities.
If that happens I have to tell you stay duties are going to probably be at a pretty good place what I tried to do in the prepared remarks to is give you a sense of where our top three state deities, even irrespective of what may come from some form of cobot stimulus and I think what you heard is Texas do you have to some pretty good place.
Colorado due to its going to use certificates of participation to hold themselves up and NCT OTI. Despite having more challenges in those other two I will tell you is the DMC, we feel a lot better about today than we did when we're talking to you in the first quarter because now f. wide 21 buddies our estimated there at 1.3 billion that's.
Really similar to a 2016 level and well above what we had seen before is about a 600 million dollar estimate so I think deo t. and infrastructure is going to be relatively steady I think a lot hinges on what phase for looks like I think rest is going to be up I think rest could be up relatively nicely in a number.
Markets and I think the footprint that we have is going to help that pretty considerably I think you're clearly going to see more single family housing activity than we've seen for awhile and here's an interesting trend to trade, it's worth noting potential single family housing activity as we look at at least prospectively during the run from 1990 it.
2009 single family building comprised about 80% of what we're seeing in the housing market.
Over the last several years the last 10 years, it's been modestly less than 70% of that so again, if we see single family housing moving in a more normalized fashion and we think we will we think thats going to be a pretty attractive place nonres is likely to be the theory, and what you're going to see a bit more.
Near term softness in portions of it and probably strength and others. So as we think about non Reds, what I would suggest is as follows.
Heavy non res is likely to performed relatively well and what do I mean by that well are we seeing more warehousing and data centers in the works. The answer is yes. I mean are we seeing more work with Facebook in places like Oman des Moines, Yes are we seeing more work with Google, Yes, but are we seeing more work with Amazon.
Others, Yes, we are due I think hospitality and and.
Retail shops may feel a little bit more near term pressure I think they probably will but part of what you heard me say in the prepared commentary as well as we've been very careful to build our business in ways that we feel like.
Major Commerce Carters, we'll continue to grow in an outsized way. So I think we're positioned well for there.
The other thing that I'll say is the smallest piece of our business Kim rock and rail.
Actually had a pretty attractive quarter, and we saw ballast volume actually up and we're not surprised by that we saw that principally in the western United States and we see that is something that is likely to be relatively stable to flat going forward. So again trap tried to hit all four of those.
And uses but of course infrastructure nonresident raz are the three big ones.
Yes, Okay that all makes sense. Thank you for taking my questions were very helpful. I'll pass you back take care tracker.
Our next question comes from Kathryn Thompson with Thompson Research group.
Hi, Thank you for taking my questions today.
Just following on the infrastructure piece and appreciate the color that you had in your prepared commentary looking at phase four stimulus and lending highway reauthorization, but if you could for listeners really filter the noise in terms of what.
Hi Committee in the House has presented versus DPW Senate.
And what that could mean and really kind of a scenario analysis of what really happens to infrastructure volumes, if something happened in something doesn't happen.
Thanks, so much Katherine thanks for the question. So so really we're going to look at that in two different buckets. So if you think about.
What reauthorization looks like as a sudden to pair prepared comments, we don't think that happens before September thirtyth. So we think they will probably issue a longer term CR, that's nothing to be alarmed by by the way I don't think they're going to issue a longer term continuing resolution because they think it's going to last for a long time I think they may put in place.
Optically what would be a longer term continuing resolution simply to continue giving states the confidence to keep letting projects I don't think it means by slowdown on coming up with reauthorized Bill So to your point, they're two different starting points Catherine last July the Senate APW came out with unanimity around to 200.
$87 billion plan and Thats basically a very nice percentage increase over where we were relative to the fast Act now to your more recent issues. How CMS released their plan that was 319 billion that was a 41% increase over the fast Act.
And nearer term this is at least worth considering.
And that is the house appropriations Subcommittee on transportation housing an urban development passed legislation that provide about $107 billion and resources for Usdforty for F. Slide 21, including almost 62 billion for the core highway programs that's up 33.
For suck so one of the one of the question. So I think Thats a fair one is what does the CR look like and so I think minimally you're looking at a CR, that's probably flat for some period of time as they work toward.
I think in evidently will likely be an increased multi year highway bill So Catherine to your point worst case, you have a CR. That's flat best case, you have a CR that actually has some growth to it I.
I think expected case issue get a bill next year, that's a nice increase several CWIP, where the fast that does and equally think the conversations that had been had recently relative to phase four stimulus have led us to feel like the likelihood of seeing some very direct.
Assistance going to state the Otcs is actually better than we would have thought probably when we were having this conversation three months ago and again the ash. So ask there is around $30 billion. So I I've tried to outline what I think the steps are and I've tried to handicap, where.
I think they set.
Okay. That's helpful and then shifting gears to.
The pricing commentary and you went through a few puts and takes in terms of what Pat to pricing for the quarter, but when you look at the bigger secular trends that are can be coming up and importantly on the residential housing.
What and how should we think about pricing from a geographic mix standpoint, if they're into being a bigger mix residential versus.
Non rice and markets patient.
What I don't think end use is going to be a big driver on what we see relative to price increases.
It's fascinating. It for example, if you got a single home builder and they're coming through there probably buying stone analysts price, which is which is frankly of.
Pretty high price as things go generally, but I would think if you're seeing just standard growth along those different end uses and you're seeing in southeast and southwest and clearly you've got higher asps in the southeast right now can do in the southwest. So you might have some geographic mix issues that could come from that but from a more.
Margin perspective, or from a pricing increase perspective, I wouldn't expect to see anything that would be.
Particularly.
Notable in any of that I think the primary thing that you're going to continue to see is good steady price increases because I think thats something that we just recognize the value of and we have locations that put us in a position that we can get the value that we need for our shareholders.
Hi, Thank you for taking my questions. Thanks.
Thank you Catherine.
Our next question comes from Anthony Pettinari with Citi.
Hi, good morning.
Just following up on pricing word you discussed 2020 ex pricing up 3% to 4% wishes maybe slightly below your pre cobot expectations can you talk about mix just now but you also I think.
We delayed price increases in certain markets and just wondering if those were purely a function of slack demand or maybe some increased competitive intensity or if there's any kind of other color you can give there.
Yes, I guess I'd say several things if the primary driver. So far has really been product mix and geographic mix would just be clear on that.
And when we're talking about delays were not talking about delays there were more than into 45 or 60 day range and typically the delay and the number.
You headed Les you Didnt have delay in the number and it happened really quite sporadically I want to say it happened been probably two or three different sub markets. So I didnt view it as anything that made me feel remarkably different about the way the pricing situation works the price.
Three people who.
Observe pushed to at least see some deferment. If you recall in the earliest earliest stages of Covidien homebuilders in some instances, where just walking away from subdivisions and taking about a 60 to 90 day time out I.
I think in some of those instances they were really afraid and looking for some just immediate helping I think some competitors in some instances did that I think in some instances to you had some ready mixed concrete producers who are looking for some lower inputs.
Frankly, we were not inclined to to meet those and we probably boss some modest share in some places we certainly done that before in cement, but again, we very much have a value over volume.
Philosophy that we bring to us so from from our perspective, Anthony to the delays were immaterial, but at the same time, we tried to be resilient through those.
Okay, that's very helpful.
You talked about kind of gradual but not precipitous decline in second half demand and I'm wondering if you could distinguished just directionally between.
Cement ready mix and asphalt in terms of.
Our second half volumes might hold up better or maybe see some incremental pressure just based on ways to Q in July.
No what I think in many respects if you look at the commentary that I gave on geography in the prepared remarks, that's probably a pretty fair way to think of it in the second half as well what's interesting to me Anthony as we put up a record first half and a record second quarter and actually one of the areas that had a tougher quarter was that your mid Atlantic Division.
And our mid Atlantic Division has both higher average selling prices and higher profitability. So tells me that the balance of the business is actually performing extraordinarily well, we see good business right now in Texas, We see good business in Colorado, we see good business and portions of the central United States, We're seeing I think.
Good solid business in Florida, and we think all of those will persist for the balance of the year.
We're actually seeing very good business and summit in Texas, right now as well.
The first states I was giving you really were more geared toward aggregates, obviously, the only hot mix business. We have is in Colorado. It had a very very good first half we think it's going to have a good good second half as well.
And then magnesia specialties, it's fascinating when we say that business is hitting an air pocket right now I think thats. All it is we think steel found bottom actually in June we think it's going to slowly get better we're not seeing a huge bounced back in magnesia specialties in the second half a year, but even in a challenge first half.
It had margins of 37%. So I think that gives you a pretty good snapshot of Ags summit, the downstream business and been Mac specialties as well.
Okay. That's very helpful I'll turn it over.
Thank you Anthony.
Our next question comes from Jerry Revich with Goldman Sachs.
Hi, just side good morning, everyone.
Good morning, Jerry how are you.
Well. Thanks award good when I tell you are coming through loud and clear you really are.
Excellent.
Well really nice quarter.
Wondering can you just expand on the discussion.
What went right this quarter normal seasonality would have you had about 27%.
Gross margins.
You folks.
10% better than that and I appreciate.
The comments about operating efficiencies can you just expand.
On those because volumes were obviously weaker than normal seasonality margins stronger is just.
Really notable and I'm just wondering can you just provide a little bit more context on.
The drivers of the sequential improvement and I realize you bridge the year over year, but the sequential improvement really stands out.
No happy to try to do that look look obviously.
Energy was a piece of that it wasn't everything but it was nice piece of it I think controlling labor puts a piece of it I still think we can do that with greater efficiencies in some place I do think overall efficiencies by the way we're a piece of it and we talked about the fact that we're seeing much higher efficiencies in our cement business all by itself, we've seen nice improvement.
Overtime, it both Midlothian and Hunter. So that's certainly going to help the other thing, but I'll say, Jerry and I mentioned that.
In the prepared comment it's and it's in our release today as well and this was an extraordinarily safe quarter, and I think safety and you've heard us speak to that as a core value of this business drives increased efficiencies and simply makes your business better and make sure people better and when we're sitting here at home.
Half year with total injury incident rates and lost time incident rates, both exceeding world class standards.
Think that really speaks to how teams are operating the other thing, but I'll say relative to efficiencies as we've been very careful with how weve.
But the capital allocation and Capex over the last several years.
Think we're starting to see some of the efficiencies from that as well, which is one reason that we're not at all shy of for example to take the midpoint of the guidance that we've given relative to Capex. This year and as I think you saw we've taken that up by about $25 million. So Gerry I wish I could point to one thing and say this is it.
I think it was a series of things and I think when we go back to the notion that our aim is to continue to build an increasingly better business that can go through cycles and outperform in any of those I think thats what were saying.
Okay. So sounds like a number of sustainable pieces there okay. Good and then in terms of.
Asphalt pricing paving pricing concrete can you just talked about.
Our competitive position in your key markets and whether with the volume drawdown.
You are looking for over the next couple of quarters, what's your degree of confidence in being able to hold line on pricing.
Those downstream businesses, obviously, we know what you're going to do in aggregates, but can you can you comment on.
The downstream markets plates.
Sure I can if we think about asphalt paving Jerry the nice thing from our perspective is the only place we have that business is in Colorado.
And last year as you recall, Jerry they had a they had a very weather impacted year. So they came into the year with very attractive backlogs, but again, we're seeing very good efficiencies. The asphalt paving we have is really running from northern Colorado through Denver down to southern Colorado, we've actually seen bidding opportunities accelerated.
And and outpacing here in June.
After a slow first half relative to two bidding activity what's odd in many respects is if we're looking out farther I think generally we feel better about the business. Today for example than we did even after Q1.
So if we're looking at asphalt pricing liquid itself is about four to $420. That's down about five 5% per tonne, we think liquids going to remain in that range. We think our bidding opportunities are going to stay attractive.
We think we got a very good business in Colorado and of course, one of the tricky things in Colorado is making sure that you're in a position to good good quality specifications stone and we're in a position to self supply with us. So we feel good about that asphalt and paving business and of course, it had a very attractive for us tests with respect to.
Ready mix concrete.
They had a good first half to meet the downstream businesses performed really quite well if you're looking like for like volumes ready mix was up 8.7% keeping in mind, that's really pulling that our floteks business out.
If you are trying to look at a geographically.
In Colorado, where we have ready mix those volumes were up a little bit more than 14%. If we're looking in Texas, which is the other place that we have had that particular business they were up around 6.2%.
And again part of what we're seeing is much better efficiencies in that business delivery cost inefficiencies are better and again. These are not big surprises to us and we think many of these to your point are sustainable as well Gerry.
And were Duncan in concrete E. Thank you can hold the line on price.
With the volume outlook.
It up.
Part of what I think is helping on that is aggregates and cement in those markets aggregates and cement in Texas and aggregates in Colorado, which obviously, we sell supply are going up and when you're seeing the input costs at least in my experience in ready mix going up those tend to be very helpful.
Actually to the downstream businesses and we're very mindful of that.
Okay.
Thank you.
Thank you Gerry.
Our next question comes from Paul Roger with Exane BNP Paribas.
Hi.
Hi, guys nice.
Okay.
Thank you Paul.
Just moving.
Maybe away from the trade and the outlook.
Capital allocation.
Sure.
But you talked about before.
Okay.
Strong balance sheet.
Thank you could.
So.
I.
Bye bye.
Doing some distress.
The deal pipeline looking like.
Paul Thanks for the question that's good because if you look at our capital allocation priorities. We've long said the right deal is our number one priority and I'll say several things one I think our teams to an extraordinary job on transaction identification.
I think they also do an extraordinary job on going through the transaction and looking at where we can get synergies and then our operating teams. If you go back and look at whether its txi or bluegrass, where the transactions in Colorado or otherwise have outperformed relative to synergies. That's a long way of saying that we remain very focused on growing our business.
When we look at growing our business, we're focused on two things in particular, what is the geography.
And what are the end uses its an aggregate sled business, but we're keenly focused on the where because the we're really dictates how business is going to perform and a good example of that as we've had very good performance in Texas. You also saw very good performance in Colorado, but equally we're having great performance in the central which is pure stone. So we're seeing great.
Great performance all the way across.
Relative to share buybacks and otherwise I think the primary thing that we're waiting for right now Paul is just some modest visibility forward on what's going to happen, particularly with respect to some of these governmental actions I think we'll have a much better sense very soon of what's going to happen with phase for I think what with what happens with phase for its going to give.
It's a much better sense of how the infrastructure piece is going to look so I think we're just a couple of pieces of information away from being able to to really look more ed buybacks and otherwise, but please remember our primary aim.
Is the right.
Transaction going forward number two assuring that we're investing in the business in a responsible way and you've actually seen us take capex midpoint up $25 million and then returning cash to shareholders through two different ways, a meaningful and sustainable dividend and our board will obviously look at our dividend and in August.
So there will be here next month and they'll look at that and then relative to share buybacks I think we've touched based on that Paul.
In terms of the the deal pipeline.
In some distressed opportunities come on.
Quite.
But they're not a lot of distressed opportunities per se out there because particularly in the aggregates business. They tend to have pretty healthy balance sheets today. The family businesses are in pretty good shape.
View has long been that succession tends to be a bigger driver of potential transactions in aggregates been not so I don't want to give you a sense that that there are people who are in trouble in their knocking down our doors right now that would not be accurate, but there are plenty of ordinary typical and such.
CIBIL transactions that we are looking at right now Paul.
Thanks, a lot.
Thank you.
Our next question comes from Phil Ng with Jefferies.
Hey, guys impressive quarter great execution.
Lord I guess, he noted backlog should carry through the near term, but as you will see some decline in product and that kind of help parse that commentary a little more does that imply that you're expecting the year over year decline the back half to accelerate from Teekay levels and when you think about 2020 Twond appreciate a lot of moving pieces, especially on the policy fried hi.
Thank you got 21, playing out on demand. So yes, yes look as we think about the back half of 20, I think to your point a lot can hinge on what does Q4 look like frankly from weather perspective, it's interesting.
If we looked at our commentary much of what happened in the first half with some of that coping related short was was more of that in half one weather related than cobot, probably so if we look at backlogs. It's interesting to me. If we look at mid Atlantic customer backlogs are actually up around 17%, if we look in southwest customer backlog.
Sure up around 30, if we look at summit and this is the big one I mean, they're up around 43%.
At the same time, if we look at ready mix those are down in the low double digits, but at the same time, we're seeing those backlogs improved in Q3, particularly related to infrastructure and if we look into west we're seeing backlogs down in the low double digits off very high backlogs coming in.
The year because of the way that weather had.
And last year, so I think in many respects, we're sensitive to wearable states be with their state funding and their revenues as we enter half two and they're feeling potentially in some respects more coated the pressure than they felt so far number one number to what's going to.
I happened to portions of non res, meaning, particularly what happens to that lighter piece of it.
Look obviously, if we see some stimulus come through infrastructure is going to be in a pretty good place, but if we look at Q2 with volume down for that to me feels like.
Modest volumes down that feels like a normal typical cyclical reaction to some and I think is we're looking at three and we're looking at for Fourq, and obviously weather affected but again I think if we're just looking overall at what's happening in the United States, what's happening globally.
For us to put our heads in the San and say that there is not at least an opportunity for something that does not it all feel like the cycle did and the great recession not at all but could feel a bit like this quarter did particularly as we go into Q3, which last year as you recall, Phil was a really big quarter for us So you've got a tough compare.
Yes, I think the commentary that you've offered is probably right.
Got it and Thats really helpful color.
And when you talked about Nonresi you August framed up some puts and takes can you remind us. What's your exposure is if you have any on the high rise side, and then office I stat hospitality retail that might be a little weaker.
And send to shrink that you're seeing on heavy is that enough to kind of assets out of that those potential headwind. Thanks, a lot and good luck in core hey, thanks. Thanks, So much Phil Yes. The fact is where we're a southeast southwest driven business you know we're not in downtown Chicago, we're not in downtown Manhattan. So the because the cities that we're ended or grow.
Showing tend to grow out they don't tend as much to grow up if you know what I mean and the other thing that I'll say and we said it in the prepared remarks as we have been very focused on moving our business intentionally over the last decade. So that we're more focused on these heavy non res projects. If we look at the way Nonres itself.
It up it's been into high 30 percents of our business. If we look at really what that ought to look like over a longer term it ought to be closer to 30%, that's where it's been infrastructure should be more as a percentage than we've seen over the last several years non res candidly should be modestly less.
We think we may see some of that but equally as we look at the heavy projects that are really taking up a good bit of our time write down winners were seeing very attractive increasing bidding in that respect.
Im not sure that it totally offsets what the light side of it could be but I think it's a nice counterbalance to it.
Great. Thanks, Thanks, Nicole.
You bet Phil.
Our next question comes from Seldon Clarke with Deutsche Bank.
Hey, Thanks a question.
I know you've referenced 60% incremental aggregates gross profit.
Given we didnt second quarter, and the divergence between volume and pricing that we're seeing.
Is there any way to break down Decrementals are incrementals as it relates to volume and price and how we should think about costs inflation.
Is there a level where pricing can't necessarily offset volumes.
The aggregates gross profit.
Gross margin expansion.
Well I think theoretically it's possible, we don't anticipate that to be the case the pricing. It's one thing we can bank on we get it every quarter, it's sustainable and it does flow to the bottom line. So thats the most powerful weapon in our in our inner quiver. So we've got we've got that going force. Additionally, this quarter and for the first.
A few quarters, we've got lower diesel prices, so thats going to.
That benefited this year this quarter it'll benefit next quarter. After the rest of this year I think so those are those are things that we're we're expecting.
Otherwise, it's blocking and tackling with watching your variable costs, making sure flexing.
The the theoretical question your posing volumes dropped tremendously of course your fixed costs. The absorption is isn't there where you needed to be.
And that's we run into some some headwinds, but we don't see that happening quite frankly in fact over one one thing just from a color perspective, I'll add to that I think it's really important to underscore. This the recovery that ended with cobot was not a construction led recovery and we've not seen that before in your lifetime or mine and the fact is we look particularly warehousing.
As and what the the built economy is required we actually see a lot of things that lead us to believed that the post cobot recovery.
And likely should be building led the other thing that I'll point out on Jim's commentary that was just entirely correct.
As we're seeing nice price with volume down and with energy down oftentimes when we see energy going up we actually see that as something that helps push asps up as well. So I wanted to make sure we share that with you.
Okay. That's helpful. And then just piggybacking on an earlier question on volumes.
How should we think about the dispersion.
On a relative basis across the various product categories for.
Volumes in the back.
Well I think primarily as I mentioned before cement is being really resilient right. Now I think we anticipate ready mix continuing to be quite resilient I think asphalt is going to have a good year and the primary thing.
That we're speaking of.
In most of our commentary tends to be around aggregates, and where thats going to be near term and over the next few quarters. So thats, how I would ask you to think about it right now so.
Okay I appreciate the time, thanks, you bet.
Our next question comes from gaps for most profitable.
Great. Thanks.
Question on aggregates margins in the second half of the year I mean, you're painting, a picture of volumes down kind of in this 3% to 4% range.
Assuming no major kind of changing trend or deceleration in markets.
Turning up low single digits seems like deal was going to be able tailwind is there anything.
That you can see be it from it from a comp perspective.
Stripping costs are inventories that could for collude margin expansion in the second half for the years are really just kind of a function of how.
How did volumes look.
Yes, I think it's two things here I think it's 100 volumes looking where to volumes look right.
And I think part of what you're probably looking at that you're pleased with that I know I'm looking at it I'm pleased with it is to see margin expansion. Despite the fact that mid Atlantic at volumes down pretty considerably.
So I think part of what I would ask you to keep in mind is mid Atlantic, particularly with some of the headwinds that NCD OTI has right now.
Probably have a more challenged year over year.
Volume than other parts of the business and again Thats, a very high margin part of our business. So.
What you're seeing is great improvement and other other parts of the business, we're seeing giotti in North Carolina, putting itself in a position that really as we start getting into next year, it's going to look and feel a lot more normal relative to what history has been but I do think that geographic mix issue is one that you understand it's worth noting.
Great. Thank you follow up questions on some Meg how much of the cement volume goes into a west, Texas oil and gas markets and are the headwind the cement pricing in Texas.
Is this mostly a function of mix or are you seeing more competitive landscape in the window and region Thats impacting thanks, Yes, no thats actually Thats, a great question, Gerry and here's what I would say, we don't said significant volumes to West Texas.
Clearly the biggest volumes that we have will be in DFW and in San Antonio and in those related markets. So if we go back and book I want to say four for full year last year, you're probably looking at.
30, or 40000 tons that would have gone into west, Texas. So those would not have been notable numbers. If you look purely at pricing, though here, here's what's worth, noting asps in west, Texas or $200, yes.
And if we look at really put the numbers look like in North, Texas and Central we were seeing price increases in the range of around 4% Garik. So if you're if you're seeing a 4% price there you're getting back to the numbers that you would have expected, it's not the $8 going into the year, but.
We're looking at overall same on same 4% price up and summit in Texas with down volumes. That's a that's a pretty good number. So if you look it more profitability volumes down price up.
Actually much better efficiencies and the other thing to keep in mind Garik is we actually anticipate having less killed downtime in maintenance spend on kilns. This year than we did last year, we think it's probably going to be about $7 million less in 20 than it was in 2019.
So when you really stack up the issues relative to the cement business, we think it's pretty attractive and Eric you were there at the time to you'll remember that one of the things that we thought was possible was to have particular pricing and summit in Texas look over time at least relative to us to build a.
More like aggregates pricing debt and I think thats exactly what we saw in this quarter and as you also know we've been willing when we needed to to give up share in that marketplace to continue to be resilient in pricing. So if we go back to 2014, we had a 22% share in that market. If we look at it today based on contract.
Our numbers were at about 19%, but pricing is behaving in profitability is going up character that help.
Yes, sure David Thanks for the health data.
You bet.
Our next question comes from Adam Thalhimer with Thompson Davis.
Hey, Good morning Award Tim.
Yes.
Hey word house private demand in North Carolina is that helping to offset weak deity.
Yes, probably demand is pretty good I mean look housing is good in the state and it's going to be going in this state private.
Nonres is good in this state it varies by geography, Charlotte's actually having a pretty good year Raleigh Durham is having a pretty good year Greensboro is not having the year that Raleigh Durham Chapel Hill, as having a start having a year that Charlotte static and and Greensboro Saatchi from an ASP perspective, a very attractive market.
Yes.
But but private is holding up pretty well in part because jobs have held up reasonably wealthier Adam and look at the end of the day you got a lot of people moving North Carolina and population is always going to be your single biggest driver of aggregates and consumption.
Okay, and then in Texas.
How do your backlogs look in Texas and.
And the Austin, I guess has a little surprised to see appeal awesome.
Aggregates exposure in Austin can you talk about that sale.
Actually we Didnt, we didn't peel off any aggregates exposure in Austin, we sold some business it was called architects and and so the only thing we did in Austin as we sold a depleted sand and gravel location. So that was purely in excess property and thats what.
Jim was referencing we entered into a purchase and sale agreement to sell a depleted site for $100 million. So.
I'll tell you from the way we look at that that's a that's a really nice win.
So we did not get to get rid of any aggregates. There were there and again back to your point, if we're looking at backlogs and you asked specifically about Texas.
Southwest backlogs are up about 30%.
And if we look in cement, they're up about 43% and if we look in ready mix there down.
Low double digits, but actually.
Somewhat recovering right now due to some Q3 bidding activity.
Okay. Thanks.
You're welcome Matt.
Our next question comes from Stanley Elliott with Stifel.
Hi, Good morning, everybody. Thank you all for fitting me in.
What we're talking infrastructure piece of it.
It sounds like the states are doing better than what we would've guessed kind of given the initial shock.
Some discussions around you the federal government, providing monies to states for also talk about a CR, you'll kind of worst case scenario being flat.
Well that keep infrastructure volumes pretty consistent into next year.
I would like in the past, we've had CR, just been up and down up and down and hard to get a gauge, but it just feels different this time around.
Given all of those things I've mentioned plus.
The just the general higher level of funding coming out from the state side.
Yeah, I think too thin Stanley one I think if you really get some significant phase four stimulus it's anywhere in the ZIP code of what ash those looking point of that 37 billion and it's going directly to stay duties I think thats actually a really important amount of money that would fill a hole. So we'll begin with that I think to your second point relative to the.
We are I think you raised a really good point and I think part of what happened in the last downturn in you'll remember it well stand that because you're watching at the C. Ours in that ended up oftentimes being very short term.
And Thats why I made the comment earlier people shouldn't be surprised if you see out of the box a long term CR and a long term CR does not mean, it's going to be in place for long term, it's simply done to make sure states continue to note that they can plan longer term as Congress goes.
But the process of probably having a conference and then coming out with a new infrastructure Bill. So I think to your point, yes, I think this does feel better than last time, because I think whatever CR been will go and will be longer I think whatever highway bill we could out will be larger and I think what are your swing factors is what to space for.
Or look like relative to aid to the states and I think we'll know that here. The next I think by the end of August will have a pretty good feel what thats going to look like.
Yes.
Thank you I guess good news that we haven't seen a whole lot of wholesale project cancellations, but can you talk about how you all and and really the rest of the industry had been able to manage inventory levels. How do you feel about them going into the back half the year I think about that kind of in the context of price again then.
As we look out.
Hey, Stanley, it's Jim our inventory levels have been relatively constant slightly up from a year ago.
Men and sequentially from Q1, but.
No outsized moves there and so thats just roughly study it's good for good steady production levels Dick to offset these shipment level. So that's pretty even keel theres no shortages insight.
So every is quite quite well balanced at at the moment.
And so we'd like to that effect and we don't see that having an effect good bad or otherwise on ASP, we think Sps just always going to behave well.
Yes, I agree I was just trying to make sure that others within this space or is being diligent as you guys are so I appreciate the commentary I talk to you soon.
Thanks, Dan.
Our next question comes from David Macgregor with Longbow Research.
Good morning, everyone. Thanks for squeezing me in here.
You bet, David Yes work congratulations on a strong quarter 35, five gross margins.
With that volume numbers fantastic and I guess I wanted to explore a little further maybe a question was asked earlier, let me come at a slightly different angle and that is you talked about infrastructure nonresident RASM, what your longer term target percentages are proportions might be within the business.
The mid Fortys for the infrastructure and 30% for Nonres and so on I guess the question is.
Against that type of a proportional mix right now what would be the variance from that 35 gross margin this quarter.
What I don't think you'd see a big movement in the country. The true David the only thing that I think that that may be different and that.
I think housing might fill a bigger piece of our pie maybe for the foreseeable future than it would have historically, so if you think about it.
David if we looked at those numbers a decade plus ago they'd be numbers very some too, but you just said probably 45% infrastructure, 30% nonresi properly.
Low teens.
Residential and then the rest of become rock and rail yet I think I think rest can stay elevated profile I think thats actually going to be good for us because that I do think depending on the type of raz that could actually be good for Sps and I think the more single family housing that we see that's going to be helpful.
But again I think that might help a little bit on the margin side, but overall I think the margins that you've seen our.
I don't think that was going to be end use driven.
Okay and just my second question I guess on pricing.
If we were to adjust out the bluegrass impact from a year ago that wouldn't have would your pricing has been this quarter.
I don't know that we have that per se I, one thing I'm happy to tell you as we saw pricing in Maryland, upper and 6.4%. So if you're looking to glean are we getting some nice synergies from from that and then bluegrass, we are but yes, I'd really rather not go back and breakout what that looks like because it's so.
Integrated into our business, particularly in places like Georgia today, but it gives you good snapshot of what the Maryland business, but that really had very little synergy brought together operationally has done relative to pricing.
Makes sense well, thanks very much good luck.
Thanks, so much that.
Next question comes from Rohit, Seth with Suntrust.
Hey, Thanks for taking my question.
I was just listen you're seeing your commentary you you talked about sort of 2025 and I was just curious in store between surprised you have in and plans to rebalance the the footprint footprint performed very well this cycle within speaking is acquisitions with the organic growth.
The only up maybe one of the past five years. So just curious as we think in the context. So an infrastructure Bill Highway Bill, Texas. It clearly has a very good run over the last.
Seven years.
Are you thinking about portfolio and where the opportunities are.
I guess, what I would say is this rohit.
We've got two opportunities we've got the opportunity to keep doing just what you saw in this quarter and that is make the Martin Marietta that we have better and I think that that's what you saw in the quarter from performance perspective, I think the other pieces.
We've got white space on the map that we can continue to move toward and what I mean by that is we've talked a lot whether it was in store 2020, and you'll hear it in sort of 2025, where people are going is going to be what drives aggregates consumption and the mega regions across the United States is where people are going to be less.
During and we've demonstrated that obviously an aggregate sled business. We can continue to expand margin. So part of what I would like about the Martin Marietta story is Weve turned this business into one of the great aggregate companies I think in the World I think it's one of the great building materials companies in the World. We can continue to make it better and we can continue to grow it.
And Thats something that if I'm you I would continue to expect Martin Marietta to do it and I would just say go back and look at sort of 2020 and we've given you are pretty good roadmap of places that we would like to grow the other thing that I would say relative to rebalancing.
When when you look at a decade that went from one or two and 65% of our markets at the beginning of the decade to one or two a 90% of our markets by the end of the decade. We've long said, we were looking for that leading position in markets that we find attractive. So we don't feel like in our heritage footprint that there's an enormous amount of work to be done.
John.
There's some careful work to be done on occasion, and an example of that would be what we discussed earlier and that is the sale of the architects ready mix business, we didnt find that particularly a great fit for our aggregates led business in Texas, and so we prone to that but that's the type of work you should expect.
On the heritage portfolio and you should expect us to continue to look to grow.
In new markets, where we can find our way to one or two.
Right. Thanks, that's all we have.
Right. Thank you Bobby.
Our next question comes from Michael due to us with vertical research.
Good and good morning afternoon, the gentleman Suzanne.
As quickly more in your prepared remarks talk about in early this month or restructuring internally, maybe you can share with more of the contract on as it something to towards your store 2025.
Campaign, and and so is there.
Just more efficiencies driven by that were different strategies on the pricing or business front, just how you think through that as you're moving ahead towards the restructuring.
[music].
Mike Thats Great question. Thank you for it.
It's funny, how timing works, we started talking to our board literally last August about the restructuring that was announced that was effective on July.
One of this year and what we did as we just we skinny down some of our aggregate divisions. So what we have now as a western division. That's that's run out of Denver, We have a southwest division that's run out of Dallas, We Havent East Division that's run here in Raleigh, and we have a central division that's run out of Indianapolis and than we have our magnesia specialties.
Business as well so we're retirement so part of that they were efficiencies as part of that they were.
And is the ability for that structure to endure to give people, whether theyre division presidents, VPG, EMS or otherwise expanded responsibilities and growth in their careers. All of those all of those things helped drive the decision. The nice thing is a corollary benefit as you get efficiencies from it and.
We were very fortuitous to be in a spot. The this is what we were looking to do even in a pre cope with world and then cobot comes along and the very thoughtful planning that we had to your point is supportive so were 2020 and as a part of sore 2025, coalesced very nicely with a timing need and it's.
Simply could not have worked better.
The here and just like Pollack would be.
As you speaking of Colgate.
If you noticed anything.
With the Lockdowns, the restarts and your certain states, where the tenor to the thought process from from your private customers. It from the governments.
Of the on maybe some some.
Slowing in the pace of activity or or bidding or letting because of some of the for years, we seem to us here.
And then from the bank.
Mike again, thanks for that question, but the fact is as I tried to mention whether at least for the quarter was probably more impact than co bid was but we would be naive to say that there wasn't a cobot effect out there. So was NCD OTI feeling some degree of duress pre code sure there or are they feeling a little bit more.
Postcode, yes, they are and so has that affected volumes and with that particular department. It has.
Has that affected some other dts and modest rates to be sure. It has its clearly affected some private businesses too it's tough to wholly quantify exactly what that is but I do think people are recognized how to live and how to work with us a part of what's been interesting to me as we've operated all the way through this.
As an essential business and our nearly 9000 employee count we've had about 90 positive cobot cases, the vast majority of which have gone home recovered at home and come back to work and we have only had literally a handful of what we've been able to identify as employee.
Employee cobot spread cases, so I think businesses governments and others have learned how to work with US. It's clearly had an effect it's going to have an effect for a period of time.
I think the actual field effect will become less not more and we'll have to watch and see what the physical effects are and how governmental stimulus works.
That's encouraging thank you. Thank you Mike.
Our next question comes from very encouraged me with da Davidson.
Hey, good morning, or afternoon, and help everyone as healthy as well.
Thank you say.
So first off on this and then side of things.
Commentary around the timing of planned maintenance expenses system atmosphere.
As well as any thoughts around potential.
This increase.
Well, what I would say as cement price increases will come out again next year. So what are our intention is to come out typically once a year and with the but the price increases and so there shouldn't be any more on price increases this year.
We're looking at what cadence is going to be right now, we're forecasting probably about three and a half for $3.6 million worth of.
Outage cost. So these are outage costs I think thats, what you're asking about in Q3, we're looking at probably around half a million of those in Q4 and if you tell you. What we did in Q1 in Q2 that means our total killed outage cost for the year, we'll be in the ZIP code of around $19.5 billion and that's about six.
Point $9 million less than we saw in 2019.
Okay. Thank you then also on solar 2025 thinking about providing some more parameters of financial aspirations.
In the short answer is yes, we will but we've got one important step that we need to do before we do then that as we need to presented to our board of directors and Thats exactly what management is going to do when the board is here next next month or here in just a few weeks and I'm sure as we come out later in the.
Year, an early next year, we can give you a much clearer picture of what our goals and intentions are under sort 2025.
Appreciate it thank you guys.
You bet.
And I'm not showing any further questions at this time.
Well. Thank you for joining our second quarter 2020 or earnings conference call with our steadfast commitment to safety cost discipline and operational excellence Martin Marietta has the right strep strategic priorities and best in class teams. The response will be navigate through these challenging times and drive sustainable long term growth and shareholder value.
We're moving forward with confidence and determination, we look forward to discussing our third quarter 2020 results in just a few months as always were available for any follow up questions. Thank you again for your time and your continued support of Martin Marietta, Please stay safe and healthy.
Ladies and gentlemen. This concludes today's presentation you may now disconnect and have a wonderful day.