Q4 2021 Martin Marietta Materials Inc Earnings Call

February 10, 2022

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You're speaking todays conference is scheduled to begin shortly please continue to standby. Thank you for your patience.

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Pardon me. This is the operator today's conference will begin momentarily. Thank you for your patience MTS continue to standby.

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Good morning, ladies and gentlemen, and welcome to Martin Marietta's fourth quarter and full year 2021 earnings Conference call. All participants are now in a listen only mode. A question and answer session will follow the company's prepared remarks as a reminder, today's call is.

Being recorded and will be available for replay on the company's website.

I will now turn the call over to your host Ms. Suzanne Osberg, Martin Marietta's, Vice President of Investor Relations.

You may begin.

Good morning, It's my pleasure to welcome you to Martin Marietta's fourth quarter and full year 2021 earnings call with me today are ward Nye, Chairman and Chief Executive Officer.

And Tim Nicholls Senior Vice President and Chief Financial Officer. Today's discussion May include forward looking statements as defined by the United States Securities laws in connection with future events future operating results or financial performance.

Like other businesses Martin Marietta is subject to risks.

Certainties that could cause actual results to differ materially we undertake no obligation except as legally required 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 today's earnings release, and other public filings, which are available on both our own and the Securities Exchange Commission's website.

We've made available during this webcast and on the investors section of our website 2021 supplemental information that summarizes our portfolio optimization efforts and financial results for purposes of clarity all financial and operating results discussed today are for continuing operations.

In addition, non-GAAP measures are defined and reconciled to the most directly comparable GAAP measure in the appendix to the supplemental information as well as our filings with the SEC and are also available on our website.

I will begin today's earnings call with fourth quarter highlights and a discussion of our full year operating performance. Jim Nickolas will then review our 2021 financial results after which ward will discuss market trends in 2022 expectations. A question and answer session will follow please limit your Q.

And a participation to one question.

I'll now turn the call over to award.

Thank you Suzanne and thank you all for joining today's teleconference. Martin Marietta as diligent execution of our strategic operating analysis and review plan otherwise known as <unk> has been and continues to be the foundation of our long term success differentiating us from our competitors. This year was no exception as our impressive 2000.

'twenty one results continue to underscore the importance.

A disciplined strategic planning combined with functional excellence, our team's steadfast commitment to our strategic priorities enabled Martin Marietta to extend our proven track record of delivering industry, leading safety growth.

<unk> performance for our shareholders.

Under our accomplishments in 2021, we achieved the safest and most profitable year in Martin Marietta's history.

This year marks our 10th consecutive year of increases in consolidated product and services revenues adjusted gross profit adjusted EBITDA and adjusted earnings per diluted share. We also made significant progress on our <unk> 2000, 2025 initiatives among them successfully completing more than $3 billion in value.

Enhancing acquisitions.

These transactions expanded our product offerings and attractive new and existing markets, establishing a formidable coast to coast geographic footprint.

Courted by robust underlying demand, we will continue to build on these achievements with a focus on delivering sustainable long term operational and financial success in 2022 and beyond.

Before discussing.

<unk>, our full year results I'll briefly highlight a few notable takeaways from our record fourth quarter and portfolio optimization efforts.

Pricing momentum and growing product shipments aided in part by mild weather extending the 2021 construction season provided a strong finish to the year. We completed the acquisition of the Lehigh Hanson West region business on October one, which provides Martin Marietta with new growth platforms and three of the nations largest mega regions.

In California, and Arizona and will serve as a valuable platform for continued expansion in the years ahead and finally in the fourth quarter, we achieved a 27% increase in products and services revenues and a 17, 5% increase in adjusted EBITDA capping off a 12 month period of continued grow.

<unk> robust M&A activity and record setting financial performance.

Consistent with our <unk> 2025 priorities, we continually look for ways to optimize our portfolio through asset swaps and divestitures to that and following the closing of the Lehigh Hanson West acquisition, we received expressions of interest in the California based summit and concrete operations.

We focus on the product mix of our business to enhance value for our shareholders. We're currently evaluating alternatives for these operations and have classified these assets as held for sale, we anticipate providing more clarity regarding our plans for these assets during the first half of 2022.

As I noted earlier for the full year of 2021, we established new financial records, marking the 10th consecutive year of growth in each of the following metrics Prada.

Products and services revenues increased 15% year over year to $5 1 billion.

Adjusted gross profit increased 10% year over year to $1 4 billion.

Adjusted EBITDA of one <unk>.

<unk> five 3 billion increased 10% year over year or 14%, excluding nonrecurring gains and adjusted diluted earnings per share of $12 28.

<unk> grew 6% year over year or 13%, excluding nonrecurring gains.

We are pleased to note did Martin Marietta's strong earnings growth and thoughtful store execution provided our investors with a total shareholder return of 56% in 2021 more than double the S&P 500.

A 7% reduction in total reportable incidents Martin Marietta also reported a total entry incident rate of 084 exceeding world class rate levels for the first time in our history.

Even more rewarding is that our strong 2021 safety performance includes the safety results of our newly acquired operations I'm incredibly grateful to our employees, both new and tenured who embraced Martin marietta's guarding in Haynesville culture, each and every day.

With that overview, let's now turn to the full year operating performance.

The building materials business experienced solid product demand across our geographic footprint driven by single family housing growth infrastructure investment and continued strength in warehouses and data centers organic aggregates shipments increased nearly 4% to 193 million tons in line with the high end of our original.

2021 guidance for volume growth and above 2019 pre COVID-19 levels.

Acquired operations contributed an additional 8 million tonnes.

Organic aggregates average selling price increased 3% with realized price increases, partially offset by higher sales of lower priced base in excess fill material shipments in the second half of 2021 importantly, all divisions contributed to this growth.

Aggregates pricing fundamentals remained very attractive underpinned by market support for our announced price increases and overall customer confidence, we anticipate being well positioned commercially and otherwise to respond to strong demand and more than offset inflationary headwinds in 2022.

Our Texas cement business grew modestly to 4 million tonnes, establishing a new record for shipments supported by large projects recovering energy sector activity and incremental pull through from our internal downstream customers cement pricing grew 7% following multiple pricing increases during the year.

The largest cement producer in Texas, our cement operations are well positioned to continue to benefit from tight supply and healthy demand supported by a diversified customer backlogs and our announced April 2022 price increase of $12 per ton.

Turning to our targeted downstream businesses organic ready mix concrete shipments increased 16%, reflecting the healthy, Texas and Colorado demand environment pricing grew modestly.

Despite solid fourth quarter volume improvement, our Colorado asphalt and paving business was unable to overcome shipment declines from weather challenges and liquid asphalt supply disruptions that hindered construction activity during the traditionally productive summer months organic asphalt pricing improved 4% I'll now turn the call over to <unk>.

Jim to conclude our full year 2021 discussion with a review of our financial results and liquidity Jim. Thank.

Thank you art and good morning, everyone.

As already mentioned, we are evaluating our strategic alternatives as it relates to the California cement plants related distribution terminals in California ready mix operations.

These assets along with several parcels of land had been classified as assets held for sale on the balance sheet.

And the profits they generate are shown as earnings from discontinued operations on the income statement.

Accordingly, the revenues and profits from these assets are not included in either 2021 reported earnings from continuing operations or our forward earnings guidance.

For our continuing operations, both the billing materials in Magnesia specialties businesses contributed to our record revenues and profitability notwithstanding energy headwinds of almost 75 billion.

Which is nearly one third higher compared with 2020 on an organic basis.

Our aggregate pipeline established records for revenues and gross profit.

Product gross margin of 29, 6% included higher diesel costs, and a 25 billion negative.

Negative impact from selling acquired inventory.

Marked up to fair value as part of acquisition accounting.

Excluding the acquisition impact adjusted aggregates product gross margin was 34% a 20 basis point decline versus the prior year.

Gross profit per ton shipped improved modestly when excluding the impact of acquisition accounting.

Improved net profitability in the second half of the year was not enough to overcome production inefficiencies and incremental storm related costs from February deep freeze in Texas.

As a result cement product gross margin declined 600 basis points to 31, 8% despite topline growth.

Increased raw material energy and maintenance costs also pressured margins.

Ready mixed concrete product gross margin was eight 3% relatively flat compared with prior year as shipment and pricing gains offset higher cost for raw materials and diesel.

Adjusted products and services gross margin for asphalt and paving business decreased 180 basis points to 16, 4% from higher raw material costs and operational disruptions from the summertime, Colorado liquid asphalt shortage.

Magnesia specialties achieved record revenues and profitability.

Revenues of $275 million increased 24% driven largely by demand for magnesia based chemicals products.

Used for cobalt extraction.

Cobalt prices, which has doubled since the fourth quarter of 2020 are expected to remain at high level and should support demand for chemicals products throughout 2022.

Product gross profit increased 23% to $110 million, even though higher costs for energy and contract services resulted in a 40 basis point decline in product gross margin to 42%.

Martin Marietta ended 2021 with the strongest cash generation in our history.

Operating cash flow of 114 billion increased 8% driven by improvement in net working capital efficiency.

<unk> continues to provide the framework to responsibly and sustainably grow our business and deploy capital for long term success.

The company's long standing capital allocation priorities balanced.

<unk>, our value enhancing acquisitions with prudent capital expenditures and our goal of consistently returning capital to shareholders, while preserving financial flexibility and an investment grade credit rating profile.

In addition to the $3 $1 billion of deploy for attractive platform and bolt on acquisitions. In 2021, we also invested $423 billion of capital into our business.

In November we completed the capacity expansion project at our Bridgeport quarry.

Adding over $3 5 billion tons of aggregates annual production capacity and reducing our customers loading those cycle times.

This project increases throughput at our flagship Corey in the fast growing Dallas Fort worth market.

We will continue to prioritize high return capital projects to drive margin expansion in 2022.

We also returned $148 million to shareholders, reflecting our most recent dividend increase announced in August .

Since our repurchase authorization announcement in February of 2015.

We have returned nearly $2 billion to shareholders through a combination of meaningful and sustainable dividend as well as share repurchases, while at the same time growing our business profitably and responsibly.

Our net debt to EBITDA ratio increased to three two times as of December 31.

Reflecting the debt financed the acquisition of <unk> west in the fourth quarter.

Consistent with our past practice of reducing leverage following an acquisition, we expect that ratio to be two five times by year end 2022.

With that I will turn the call back over to ward to discuss our 2022 outlook.

Thanks, Jim.

We're excited about Martin marietta's opportunities for sustainable long term success in 2022 and beyond as we build on our momentum and capitalize on favorable market fundamentals and underlying secular demand trends for the first time since our industry's most recent shipment peak in 2005 public and private construction activity.

Are both poised to accelerate supporting increased shipments and attractive multi year pricing acceleration for construction materials as we embark on what we view as this golden age of aggregates Martin Marietta has the ability and capacity to supply these needed products underpinned by our locally by pricing strategy, we will.

Continue to do so in a manner that emphasizes value over volume.

The new federal infrastructure law, along with strong state Department of transportation budgets in our key states of Texas, Colorado, North Carolina, Georgia, Florida, and now, California provide Martin Marietta with the long awaited runway for multiyear growth in infrastructure demand.

The recently enacted infrastructure investment and jobs Act is the nation's most significant infrastructure action since the introduction of the Interstate highway system and $19 56.

This bipartisan legislation contains a five year surface transportation reauthorization, plus $110 billion in new funding for roads bridges and other hard infrastructure projects. While this one center generation investment in America's Transportation networks stimulates economic growth and job creation immediately.

We expect product demand benefits to begin in late 2022 and become more pronounced in 2023.

This new law will naturally favorably impacted our results over an extended period of time and we expect this legislation to result in healthy state Department of transportation budgets with estimated lettings above prior year levels.

Voter approved state and local transportation measures will also promote sustainable growth in product demand in November 2021 voters approved 89% of state and local transportation ballot measures.

These initiatives are estimated to generate an additional $7 billion.

And both onetime and recurring transportation funding with initiatives in Texas, our top revenue generating state accounting for over $4 billion of this total these.

These measures tangibly demonstrates the commitment of state and local governments to ongoing efforts to repair and improve our nation's aging infrastructure.

Importantly, dot's for our top states are well equipped from both a financial and resource perspective to put increased transportation dollars to work in advance the growing number of projects and their backlogs, we expect enhanced infrastructure investment to provide volume stability and drive aggregate shipments to this end.

<unk> closer to our 10 year historical average of 40% of total shipments for reference aggregates to the infrastructure market accounted for 34% of 2021 organic shipments.

Non residential construction should continue to benefit from e-commerce evolving work trends and supply chain complexities that drive increased investment in aggregates intensive heavy industrial warehouses data centers and re shoring of manufacturing to the United States.

Notably commercial and retail construction throughout our sunbelt markets is poised to inflect and become a more significant demand driver in 2022 as it typically follows single family residential development.

Aggregates to the nonresidential market accounted for 35% of 2021 organic shipments.

Residential construction remains robust, particularly for single family housing, which has yet to return to normalized levels.

National Association of Homebuilders forecast 2022 single family housing starts to be 25% higher than pre pandemic levels in 2019, despite longer material delivery times and labor shortages.

Martin Marietta is leading coast to coast footprint positions, our company to benefit from single family housing growth given undergone conditions favorable population and employment dynamics and accelerated D organization <unk>.

Single family housing is two to three times more aggregates intensive been multifamily construction when factoring in the ancillary nonresidential and infrastructure needs of new we're expanding suburban communities.

Aggregates to the residential market accounted for 25% of 2021 organic shipments.

In summary, we expect 2022 to be another record year for Martin Marietta organic aggregate shipments are anticipated to increase 1% to 4% in 2022 is contractor labor shortages and logistics challenges continue to impact an otherwise robust demand environment.

Underpinned by our value over volume pricing strategy, we expect growth in organic aggregates pricing of 5% to 8% annual price increases become effective from January one to April one and have already garnered market support.

While inflationary pressures remain we expect to expand upstream gross margins in 2022 supported by pricing acceleration and disciplined cost control.

Bind with contributions from our estimate downstream and magnesia specialties businesses and a full year of results for our acquired operations. We expect consolidated adjusted EBITDA for our continuing operations of $1.700 billion too.

Two $1.800 billion.

And to reiterate our 2022 guidance excludes the businesses classified as assets held for sale.

To conclude we are extremely proud of our 2021 record setting safety operational and financial performance supported by growing demand environment and are consistently executed strategic priorities. We're confident in Martin Marietta. Its long term prospects our team remains committed to employee health and safety commercial.

And operational excellence sustainable business practices and the execution of our soar 2025 initiatives as we built the safest.

Best performing and most durable aggregates led public company.

We look forward to continuing our strong momentum and delivering attractive growth and superior value for our shareholders in 2022 and beyond if.

If the operator will now provide the required instructions, we'll turn our attention to addressing your questions.

Thank you and to ask a question you will need to press star one on your telephone to withdraw your question press the pound or hash key.

Sorry reminder, please limit yourself to one question and if necessary get back in the queue for additional lines.

While we compile the Q&A roster.

Our first question comes from Trey Grooms.

Yes.

Your line is open.

Hey, good morning, everyone.

Good morning Trey.

I wanted to.

First off wanted to ask about your.

Palio optimization efforts here.

Evaluating strategic alternatives for the California cement business in ready mix.

How are you thinking about that any color you can share with us on.

The strategic reasoning behind that.

Any kind of impact.

Good color around that.

For these these businesses youre looking at maybe moving out.

No happy to thank you for the question. If you think about what our business is going to look like and what we now refer to as the Pacific region. When we're done with what we're talking about we will have 17 aggregate locations. There we're going to have ready mix in Arizona, and we will have asphalt in California and Arizona.

Importantly, as we go back and take a look at from a tonnage per cubic yard age perspective, but thats going to look like that's going to be around $13 5 million tons of stone in that marketplace, it's going to be about $1 1 million cubic yards in run 8 million tons of asphalt.

If you think back to the way that we've long spoken about our business trends you've heard US say this is an aggregates led company and we do have a strategic submit business, but we have that in Texas I think strategic submit fits the way we've spoken up your Texas extraordinarily well.

One of the things that we did identify for people when we bought the Lehigh Hanson business is we were going to look at the Smith business in particular to determine if we were the best owner.

And after we've closed on that trend transaction as I indicated in the prepared remarks, we received.

Number of inquiries from different parties interested in those businesses from our perspective, we owe it to our shareholders and others to engage in that dialogue.

Obviously part of what I've indicated we anticipate having more for you on that here in the first half of the year.

But again from an aggregates led perspective.

We'd like this type of direction. The other thing I think is so important to reiterate in California as well trained as we think the ability is very much ahead of us in that state to do more M&A on the aggregate side in California, and we think that's going to give us a very attractive long term.

Business. There, obviously, we now have a platform position from which to grow so I hope that's helpful. Yeah, absolutely and so youre keeping the aggregates business being aggregates led obviously.

And now that you've been in the driver seat there for three or four months.

Any update you can give us around maybe the commercial efforts, particularly around the aggregates business there in California.

I am happy to as it <unk> you know, we're looking at aggregate selling prices in that marketplace generally they tended to be about 70, a ton lower than Martin marietta's overall pricing. So if we look at tiller when we bought that business in Minnesota those prices were below Martin Marietta. So the prices in California. So we're very focused.

Commercially on getting that more in line, what we've done in California. I think this is important is we have been very intentional about going out with price increases in that market effective January one and the price increases from the customer feedback and from what we're seeing very directly.

Had been received favorably.

<unk> are actually quite attractive we've indicated ASP increases across the enterprise are up 5% to 8% would.

Would be disappointed if California Disney to outperform that.

And in fact that while January does not make a year. That's certainly what we've seen thus far in January trade. So I think the.

The commercial undertakings that we've had in that state.

Even with ownership just as in a matter of months have actually gone quite well.

Great. Thanks, Thanks for taking my questions. Thank you Sir.

Q2 trends.

Our next question comes from Kathryn Thompson with Thompson Research Group. Your line is open.

Hi, Thank you for taking my question today.

Gave some great color just on end markets, but the one I would like to focus in on a little bit more is on the commercial end market because that was one.

What we saw in certainly.

There is just starting to see some improvement in the back half 'twenty. One can you give me those are longer.

Projects in general.

That can happen.

Mailing impact on pricing.

So really kind of a question on commercial is.

What are you seeing in terms of trends.

How does that impact pricing now I'll turn the T trends youre able to price up higher.

I'm, a little bit with that was taken from a geographic standpoint.

Texas has been strong, but it's just.

I think it gets stronger.

And how that impacts <unk>.

Actual and pricing for all of your answers.

And that market. Thank you.

You bet Catherine. Thank you. So several things if we go back about a year ago. When we had our analyst and Investor day sort of 2025 to a sustainable future part of what we were talking about is we believe the single family housing stayed over that million year start.

That we would see in particular, the light portion of non res continue to grow so now, let's step back and assess what.

What 'twenty to look like and how that forecast into 'twenty one.

22 was more of a 'twenty one was the only year in second year in our history, where non res volumes were more than infrastructure volumes were.

So that tends to indicate that what we thought we were going to say see what we outlined last February in fact happened throughout the year, meaning.

Meaning heavy non res continue to be very good it's incredibly aggregates intensive and then as housing stayed solid light non res came behind that which led to the single awards and use that we have to your point. If we look at overall non res in a state like Texas, the Dallas Fort worth and <unk>.

And Carter along I 35 continues to be incredibly strong.

What we're seeing on that last mile delivery centers is impressive to you said it was hard to imagine that getting better and by the way I am there too, but as you noted it has Samsung is looking to come in there with a $14 billion.

Semiconductor plant in Austin.

Texas instruments is looking to build more in north, Texas, and Central Texas, where were seeing the high speed rail. So there are a number of projects on non <unk> that we think we will continue to be really minimum.

Pretty notable.

State the other thing that we're seeing.

Obviously LNG has been on the sidelines for a while we anticipated that it would be.

At the same time, we're looking at some jobs right now at Rio Grande LNG.

Chevron Phillips and it's Cheniere.

We think might see some degree of go going into this year. So to your point that shift in Texas. The other thing Thats. Notable is even seeing what's happening with rig counts rig counts have clearly been down but the rig count at 610 at the end of January was actually up 226 rigs year.

Over year, so we're seeing more activity in energy as well if we come back and look at other states so that matter to us, whether it's Colorado, North Carolina, Georgia, Florida.

We continue to see very good activity as I called out in the prepared remarks on warehousing and distribution, but here's what we're seeing too and we're seeing this in North Carolina were seeing retail and hospitality sectors beginning to inflect.

And obviously there has been some recent activity in North Carolina with respect to Apple and Google and then Toyota has also come into the Greensboro High point area, which actually in North Carolina has been a bit of a laggard.

And seeing that type of activity. There is really quite refreshing and then Atlanta continues to be a top five domestic warehousing and datacenter market.

And it shows absolutely no sign of slowing so we feel like non res is attractive it continues to be really durable and I think part of whats changed Pan for them is the heavy side of non res, particularly as we're looking at these distribution centers have good comes so aggregates intensive and.

We've discussed before they tend to be in many respects.

Almost concrete envelope.

To your point you are selling.

<unk> high priced clean stone into those concrete operations. So again to your part of your question was not just what's happening with non res, but what could that do trending relative to pricing.

We do believe those non res projects will continue to take more clean stone and if you look at the clean stone it is going to be a higher price. So I think all of it adds up.

So a very attractive near term property medium term output Kathryn.

Okay. Thank you very much.

Thank you.

Our next question comes from Stanley Elliott with Stifel. Your line is open.

Hey, good morning, everyone. Thank you guys for taking the call and the question.

Kind of piggybacking on a comment you just made a second ago award you're talking about being under built.

From a residential standpoint.

Lots of Investor concerns right now around affordability rate increases et cetera, but how are you balancing that or what are you seeing in your marketplace given that.

We're under build or 7 million start for eight plus years.

What standard is essentially a good point because there is so much that still needs to be made up in housing.

And I think Thats one of the reasons that we've been so focused and saw not just in building our business.

Our business. So you need to think and think about what's happening with populations, where they're going so our view is several things one the under build conditions that you just outlined together with nice population dynamics puts us in a really attractive spot. So here are some numbers that I think are worth thinking about.

If we look at where seasonally adjusted rates for single family housing came in in 'twenty. One it was around $1 1 million starts thoughts are in 'twenty two around one two and 20 313 and in 'twenty for around one four.

But here's the math that I think we find compelling by the time, we get to $1 4 million single starts. If these numbers are right in 2020 for two things worth remembering one that'll be back to 2003 levels. So we will have been away from that for 20 years.

In the U S is going to have 40 million more people.

Now if we think about where those people are or where those people are going and we start thinking about the states that are impact states for Martin Marietta, you'd think about them in the orders being Texas, and Colorado, and North Carolina, Georgia, Florida, and now add in California.

If we look at a state like Texas, that's 34% of our sales, but we looked at the overall population.

About 30% of the population of the United States, If we look at that.

We're looking at 2000 29 million people in the state if we're looking at North Carolina, and now 10 6 million people in the state, but we're looking to add 2 million people in North Carolina by 2040.

So again, if we're looking at population trends, even with a rising interest rate youre still seeing historically low rates and you're seeing people, who simply need homes and people move into these parts of the United States that can afford the homes. So we don't think single family home building is going to go up to the number of square it.

It was.

Back in 2005, 2006, we don't think that it should but we think this is a very sustainable level and we think the sustainable level helps us not just from the housing because as you know that's two to three times more aggregates intensive than multifamily, but we think what that continues to do even back to the previous question.

Non res is really very attractive Stanley. So a lot of data, but it's our way of saying we feel like housing for our business and our leading states is going to be very durable for awhile.

Perfect. Thanks, so much and best of luck.

Stanley.

Our next question comes from Anthony Pettinari with Citigroup. Your line is open.

Hi, good morning.

Good morning, Anthony.

Youre guiding capex up roughly $100 million year over year, and 22, I'm just is that primarily Lehigh and pillar and are there any major kind of growth projects that you would call out as part of the 22 Capex guide in any kind of rough view on how we should think about capex long term.

Yes, it's Jim good morning.

The answer is it's mostly.

Organic business, it's not we got Hanson.

Corporately going into the assets predominantly the main project in 2022 is when we've outlined before is the large capacity expansion at Midlothian and refrigerated finished seven.

That is the largest project that we've got going on.

This year in 2022, so that's the main one and expect to have a very very high return on that one, especially given the pricing outlook that we're seeing for cement in that market so that to me.

I think a really high return project for us otherwise as I think about it in total from.

For modeling purposes, I think 9% of sales roughly is generally how I think about this business over time, and we're not too far off that I think in 2022.

Okay. That's very helpful I'll turn it over thanks.

Hey.

Our next question comes from Gary small with loop capital. Your line is open.

Great. Thanks for having me on I was wondering if you could speak to infrastructure demand for this year and specifically just with some of the reports out of D C with delays in federal funding.

Just given the lack of it.

Full year Federal budget are you anticipating any headwinds associated with that.

2022 guide, but maybe speak more broadly to the.

The level of confidence the projects that you thought were going to be moving.

Moving forward with the passage of the infrastructure Bill the level of confidence they're going to continue to move forward as expected no.

Thanks, So much for the question Garik, we feel pretty good about where that sits a couple of things to think about one the newbuild as ball now so the appropriations process has to go through its normal deal.

As I think you know if you go back and look at the appropriations process number one they're negotiating it right now number two if we go back and look at history.

Thats ever filmed.

Common ground is early in May which puts it comfortably ahead of the next fiscal year for the government. The other thing that I think is so important to remember.

He is a 118 billion was deposited into the highway Trust fund and its lockbox. So we know that money is going to be there. So if you think of it from a federal perspective through that lens Garik I think it gives you a pretty good foundation I think when you pivot and take a couple of other things into account one you still got significant Covid fund.

<unk>.

That's going to find its way into the system. This year and then thirdly, the last leg of that stool.

Say is simply where the different dot's themselves are.

So again, if we if we look at the <unk> that are the dot's that matter most to Martin Marietta again, it's going to be Texas, Colorado, North Carolina, Georgia, Florida and California.

In Texas, we're looking at FY 'twenty, two lettings that are expected to exceed $10 billion and thats going to be the highest in five years. If we look in Colorado with a recently passed a $5 3 billion.

10 year infrastructure, bill, ensuring a consistent stream of funding in that state through FY 'twenty three.

If we're looking here in our backyard in North Carolina.

By 'twenty two Lettings have returned to historic levels and if we're looking at the recently passed state by any budget here in North Carolina.

It's investing heavily in transportation with about $4 2 billion in FY 'twenty two similarly in Georgia, we're looking for an expected increase of around $200 million of about 12% in Florida Lettings were up almost $2 billion.

And again the story in California, well with the $17 billion Caltrans budget, and we think with <unk>.

One is providing $50 billion of total spending through 2030.

With about $3 seven of it going directly to highways and streets on an annual basis, we think that combination of the money. That's been blocked box. What we think is going to be a fairly navigable appropriations process with the COVID-19 money thats, there and with what I've just outlined on those top five six states for North <unk>.

Our lineup.

We like what we're seeing relative to infrastructure.

We believe that's going to be Garik.

Great I appreciate the help in all types of levels. Thank.

Thank you Garrett.

Our next question comes from Courtney <unk> with Morgan Stanley . Your line is open.

Hi, Good morning, guys. Thanks for the question.

Can we just go back to the Lehigh assets again, and I believe those that are remaining are now incorporated into guidance that you can just help us understand.

Maybe the split between the sales that our sales and EBITDA that are there in your guidance versus what is being held for sale.

And then also if you can.

Talk about.

Just how.

Those assets are performing I guess I would've expected.

The aggregates volume growth I'm, sorry pricing growth associated with our Lehigh business to be growing a little bit faster than them.

Then the overall business. If you can just help us think about how that's performing relative to the business overall.

Happy to accordingly, thank for the question, so I'm going to take the last part of your question first and by the way wholeheartedly agree with you and then as I indicated early on if we're looking at the specific business and we're looking at the overall aggregate selling prices there and I think what we've indicated is they tend to be about 70, a ton lower than heritage Martin Marietta, We've said.

Across the board you should expect to ASP increases of five to eight.

What I'm, indicating is we should expect California to outperform that and frankly of California's not seeing low double digit price increases I would be disappointed in that so I think that's totally consistent.

With your thinking and again, while January is not a year make we certainly like the numbers that we've seen in January if.

If we think about what EBITDA contribution is going to look like in that group.

Here's the way I would encourage you to think of it we've indicated again, we're going to be an aggregates led business there with around 13 million tons of stone, we will have a ready mix business in Arizona, and we will have hot mix in <unk>.

California, and Arizona, and if you think about EBITDA contribution.

About 70% of the EBITDA contribution is going to be from aggregates in that business around 18% will be for ready mix and around 13% will be from asphalt. So if you go back and look historically at what would've been.

Cement business in California, together with our ready mix business in California, and simply take those out and we put some pause to get it for you when we announced that transaction showing how much was cement and aggregates and ready mix and hot mix.

Because at that point, we were talking about the upstream portion of it and now what you're seeing in upstream at that time by the way Courtney met both aggregates and cement now we're talking about a business that with nearly 70% of the EBITDA being from aggregates is in the lexicon that we typically use an aggregates led business, which.

What we're looking to number one having that state, but accordingly, I think even more importantly, that's what we intend to keep building in that state.

They are independent players there there is a lot of potential M&A activity, that's already underway in California.

So I tried to give you a snapshot of what it was what it is right now.

Why what it is right now from an aggregates led perspective, we believe will become even heavier.

Okay. Thanks.

Maybe could you just maybe just quantify how much EBITDA contribution is from the.

The acquisition how much of that.

It is now in discontinued operation.

And if you if you could also just.

Just comment if there is any synergies as a result of the deal.

That we should be thinking about either SG&A or other line items.

Since it was a carve out.

The synergies that will come from that transaction will be but we bring to an operationally, which we're in the process of doing and what we're doing commercially.

I think the commercial levers are already evident.

Relative to broken out EBITDA, we've actually not given that I think if you go back and look at some of the information that we gave at that time relative to the Lehigh Hanson transaction and tiller because we spoke about those in connection with each other I think you can probably back in to some of that but we certainly had some.

Arrangements with buyers and sellers that we would not talk about some of those numbers with greater specificity. So I'm not intended to be clever with $200 I apologize on that but I.

I think overall you can back into likely where those are.

But again, because youre not buying a public company moving offices et cetera, and it's a carve out.

The synergies ended up being more commercial and operational excellence overtime.

Okay, Great. That's helpful. And then just lastly on the volume guidance I think you made some comments that you're still seeing some constraints due to labor shortages in the demand environment and can you just help us think about.

Your volume expectations for 1% to 4%.

Growth how much of that is being constrained.

By some of the supply chain issues that we're seeing in the market and whether you are baking in any improvement in the back half here.

If theres going to be improvement it will be in the back half of the year I think a good example that we've been able to use in the past gordy's, we could probably see in the mid single digits from a volume perspective higher for example in the Dallas Fort worth market.

Almost on a daily basis, and we're seeing right now simply because of the lack of trucks.

So I think if we look at supply chain right now primarily it's one of logistics, it's how quickly can people, bringing their trucks or how efficient can rail and.

And moving product overall supply chain on labor for US is not a particular issue right now our supply chain itself is so domestically oriented we have struggled with that.

And equally we're not struggling with putting adequate product on the ground. So we believe we can meet the demand. We believe we can do it in a very low cost way. We do think we're going to be in a position that we can assure that we are getting fair value for our products, but I do think the single largest challenge we will continue to be transportation.

And we do believe there will likely be some degree of.

He's on that in second half of the year, but I would tell you we have not built that Ed and the other thing that we have done Courtney This is property relative to say.

And our pricing letters for this year, we have indicated to our customers that they should prepare for mid year price increases from us at the same time, we have not factored that in to any of the guidance that we've given you. So do I think there is potentially some upside relative to logistics easing and have to do.

And when I.

Tell you very candidly, we told customers too in many respects to be prepared for mid years and thats not in our numbers that would be great.

Great. Thank you. Thank you Gordon.

And ladies and gentlemen, as a reminder, limit yourself one question and if necessary. Please re queue by pressing star one. Our next question is from Michael Dudas with vertical research. Your line is open.

Good morning, gentlemen.

Good morning.

Board the other hot topic, certainly is inflation there is a pretty aggressive print this morning on CPI.

How how do you see it from your angle internally.

<unk> getting worried.

And generally when you put out your guidance for 2022 what were the.

The levers are thoughts relative to energy materials and is there any.

Easing of that as we go throughout 2022, and what Youre expecting for the year.

Thank you very much the question put I've been wanting to do is turn that over to Jim I want him to walk you through what we're seeing relative to labor <unk> and in particular, what we're seeing with respect to diesel the short answer at least from my perspective goes back to the prepared remarks and push I said, we expect to see better margins in our upstream materials business. This.

This year than we did last year. So that's going to give you the punch line, but let me, let Jim walk you through at least what we're seeing in some discrete areas of the business.

Sure. So the labor, which is our biggest component is probably up around 5%.

The other elements of our smaller slices of cost pie supplies, 5% to 10% repairs maintenance, probably 5% to 10% as well.

But I think the main the main component of what we sell in our stone that is we own that there's now.

We started that from the ground.

That's going to help with the play.

Our environment as well so that those costs are going up but it's a smaller portion of our total.

<unk>.

Cogs by then.

And then other areas and so the <unk> piece, where it would be growing margins.

As Warren said overall, but again.

Just thinking about it diesel in particular is the one.

It was a headwind this year of 2021, we expect it to be a headwind in 2022, we have built in around 25 million of additional diesel costs in 2022.

We're hoping that's enough it is right now, but we'll modify that if we need to.

Yeah.

Thank you. Our next question is from Jerry Revich with Goldman Sachs. Your line is open.

Yes, hi, good morning, everyone.

Good morning, Jerry.

I'm wondering if you could talk about the length of your backlog in infrastructure based on the Lettings that we're tracking it looks like we're above 2019 levels in terms of what's been awarded to your customers. How has that translated to your backlogs recovering to where they were when we were talking about them in 2018.

In 2019.

In terms of the pricing associated with some longer term work.

You folks are able to get out in front of.

The inflation in terms of putting through significant price increases on longer term work specifically.

Been awarded to you over the past six months.

Fair enough Gerry so keep in mind, even on longer term work historically at least over the last decade, we would've been building and price increases on longer term work on an annual basis. So do we anticipate those price increases in the future being greater than some of them have been in the past. The short answer is yes, if we're looking overall at backlog.

Customer backlog and Thats the important way to to try to remember what we're looking at right now is a backlog in aggregate that's about 14%.

Where it was in prior year.

And if I'm breaking it down even more granularly, what youll find is that eastgroup, it's up around 17% versus prior year in the West group, it's up around 10% versus prior year. So.

Particularly heartened by that because as you will recall, but eastgroup, which is a pure stone business tends to have the highest margins in the company and they also have the largest backlog in the aggregates group.

The other thing that I think it's worth adding.

Two it is well Gerry is as we're looking at what's going on in Mag specialties, they've got record backlogs across their business as well obviously the chemicals portion of that business is doing exceedingly well.

It clearly had a few cost headwinds relative to natural gas and some degree of what was going to the steel business for a portion of Q4 and so it's always interesting to me when margins in that business are taken down a little bit to 38, 5% tends to get people's attention, but it's.

A solid 40% margin business and customer backlogs.

And that business, our records and again in aggregates. They are up nicely ahead of prior year.

And again.

Talking about mid years on those as well, we do protect customers on the pricing that they've had in the past, but we do expect to get mid years. This year, and we expect them videos to be attractive.

Polyol business has bottomed at 38% margins. Thanks.

You bet Jeremy.

Our next question.

Michael Feniger with Bank of America. Your line is open.

Yes, Hey, guys. Thanks for taking my question just you mentioned the margin expansion upstream business in aggregate could you just help us understand the cadence there I mean diesel energy prices are still kind of elevated right now on a year over year basis. So how should we be thinking about just 2022.

Down a little bit in the first half and flattening in the second half.

To get it up full year, just how should we kind of think about the cadence through the year.

Michael Happy to address that short answer is I think you are going to see that build throughout the year, but first of all welcome to the call. We're delighted to have you as part of this stuff. So thank you for being here and let me ask Jim to go and talk you through at least some pieces of it.

Why we think it's going to be more backend loaded suggest sure. So so Michael we don't we don't give out quarterly guidance I'm going to stick with term somatic ways of thinking about it backend loaded profit wise that is true.

More than historically, we've seen for two reasons really one our price increases are larger this year than they were last year and those are large effective April one so the first quarter of this year still hasn't really got the particular from the accelerating price increases so that effect is slightly delayed to the diesel headwinds that you mentioned those are.

More pronounced in the first half of the year I think we'll be in the second half of the year. So those are the two main reasons were worst thing.

Opex will be back end weighted versus historical patterns.

Our next question.

Adam.

Hammer.

Thompson Davis, I'm, sorry, if I mispronounce item.

Yeah go ahead. Thank you good morning, guys.

Good morning.

Or if you've gotten any pushback. This morning, it's maybe on the volume guidance, particularly around the low end up 1%.

Could you maybe comment on upside downside risk to the volume outlook for this year.

If you think back to that and Thats exactly where we came out last February two right and we said 1% to four and obviously we finished the year on the high end of that.

Looking at overall tow and keep in mind, the 1% for us on the organic if were looking overall, we're talking seven to 10, so what I would say as I think back to the dialogue I was having a few moments ago can we meet the demand yes can we meet the spec requirements. Yes can we do that almost anywhere we need in the United States. The short answer is yes.

If you can give me a good snapshot of what's going to happen with transportation logistics that could probably tell you what's going to happen relative to volume. So if we're right that we're going to see some degree of easing logistically in half two.

Frankly, I think that certainly is trending you toward the higher end of that.

But if we think about what the.

What the issues are that may make that slower it's not going to be an issue of demand and it's not going to be an issue of our ability to meet the demand it's going to be what's happening relative to third parties and their ability to can move to stone.

Okay. Thank you.

You bet.

Our next question is from.

Timna Tanners with Wolfe Research your line is open.

Yes, Hello, everyone. How are you doing.

Great So I'm not going to hear your voice.

Hey, just wanted to explore a little bit more of the capital allocation comments in particular mention.

But we haven't really seen much yet so I just wanted to ask you a little bit more about what you think about in terms of deploying that.

And how do you think about obviously you keep flagging the opportunity to grow more and I'm. Just wondering the timing of further acquisitions I assume that's just a question of availability but.

What are you looking at a particular leverage recall that leverage well before you deploy and it does.

Opportunities. Thanks, a lot, but again I'm going to kick that over to Jim as part of what <unk> told you in his prepared comments basically looking at the business as we're looking at it right now we're going to be back to two five times debt to EBITDA ratio by the end of the year. So as you can tell this is a business that deleverage very quickly. If you think about our overall excuse me capital priorities the short answer.

Timna, they havent changed over time and ask Jim to walk you through those but M&A continues to be one that is compelling to us, but yes, we would need to pass on the acquisition.

Today, if it came through based on our leverage we have the ability to go after that opportunity and still delever. So that's not that's not a robot for us at this point.

And as we've mentioned, we do expect to get to two five times by year end.

Our net basis and even with that in mind, we will take a balanced approach to our capital so whether we buy back shares that's on the table this year, either even with even with those things M&A and share buyback et cetera, increasing dividend hopefully in August that is all in.

In the cards, even with our leverage where it's at that's all contemplated with our stated forecasted.

End of year net leverage at two five times and hopefully I answered your question.

Okay. Thank you.

Thank you Timna.

Our next question comes from David Macgregor with Longbow Research. Your line is open.

Yes, good morning, everyone.

Just wanted to ask about just to build on your answer to a previous question about the volume guidance of 1% to 4%.

And maybe just reflects the backlog, but do you expect more growth in the east versus the West can you just talk about how youre thinking about east versus west in that 1% to 4% and then I guess just my question with respect to cement would be just on.

The profitability for 2022.

Seems like the volume upsides pretty limited Youre running those two plants are pretty close to full capacity now I would guess so is it all just price costs at this stage or is there something else. We should think about in terms of.

Profitability in terms of the puts and takes on profitability for 2022 Smith.

David Thanks for the question good morning, too. So a couple of things one if we think about the way the country has recovered over the last several years.

The east really took a harder fall and the downturn in the southwest and in some respects in the west. It. So we've seen markets like Atlanta recovering more importantly, right now as well as the Carolinas and up into Virginia, and now we're seeing a very attractive recovery in Maryland, as well, so if I'm looking at east versus West.

Broadly yes.

I am thinking we're likely to see a more.

Snapshots snap.

Chip snapback in the east in many respects than we are in the heritage West I think California is going to be an attractive market for us, but again I'm comforted by the fact that we're seeing good activity in the east.

With respect to your <unk> question.

You are entirely right I mean, we're tapped out in many respects it about 4 million tons right now obviously, we're adding capacity to what we're doing in Texas with the FM seven capital project that Jim spoke to four.

Several things one our efficiencies were not necessarily helped last year, but that decrease that occurred last February so David as you may recall, I know youre accustomed to it and Cleveland, but in Dallas, and San Antonio Theyre, not accustomed to the type of weather that they had last year that was there for an extended period of time that really not only slowed down.

Sales slowed down production and actually.

Caused an oversized degree of MLR, we don't think thats going to recur. So we do believe they're going to be efficiencies that simply come from that if we're looking overall at what we think is going to happen relative to pricing.

Again, we saw multiple price increases last year in cement.

Right now we're looking at a $12 a ton increase in April .

I think the other thing that can be a bit of a swing factor there David.

Is where is some of that going to be as well, obviously DFW. So very healthy markets, so with central Texas, but part of what we saw in the quarter was more material heading to west, Texas now granted percentages and this concept sounds really big tonnages are huge so if we're looking at quarter four.

<unk> changes, we saw 215% more material hedge at West, Texas now what does that mean as a practical matter 37000 tonnes went to west Texas.

In the quarter versus 12 in the previous quarter, but as we look at average selling price on those that's at an average selling price of around $203 a tonne versus a total submit all in number of 127. So I would say several things do we anticipate a better year operationally in Texas than we had.

Last year absent another day for US the answer is yes, do we anticipate a better pricing environment across the state. The answer is yes, and doing do we anticipate seeing more material not massive amounts, but more going into west Texas year over year. The answer to that is yes, as well David So I hope that helps.

<unk>.

Okay.

Moving to our last question from Zane Karimi with D. A Davidson your line is open.

Hey, good morning, guys.

Hey.

Alright, thanks for the color, so far and an extension on corning's questions earlier, but I was just wanted to dive into the new regions that you are now and with the California, and Arizona from the Lehigh transaction and in particular get a better picture on any sort of new challenges you're experiencing in these spot any sort of labor constraints that are now our supplier deficiencies or the <unk>.

Thank you.

Spirit in the region.

That's a great question Zain and the good news is look we've got a highly enthusiastic team. There that is delighted to be part of Martin Marietta, one of the things that I outlined early on as we achieve world class safety metrics on both lost time and total case. Despite the fact that we had really one of the largest years of M&A in our company's history. The recent that I saw.

Start out with that is that to us is so cultural and so important and when we have colleagues who appreciate the importance of that to us that's a really good starting point.

I think something that we have clearly brought to that though and I think it goes back to the portfolio optimization efforts. We are first and foremost an aggregates business. So what I would tell you is.

Assuring that our new colleagues in California understand that that is for us the alpha and the Omega of what this businesses in so many respects and being superb operationally, it's going to be important and vital and absolutely who we are now from a timing perspective, saying as you would imagine getting operational.

Movements isn't as the immediate at times.

You can get commercial improvements.

What are we happy with we're very happy to see that the training that we've put in place the timing that we put in place and otherwise relative to commercial activity has worked really well.

Do we have work ahead of us relative to bringing these sites up to Martin Marietta operational levels, we do and actually that's what I see is the good news part of it because we think there is nice things that can be done with this business, notably the near term, but near medium and long the other piece and it's not so much a challenge but.

It's realistic.

We need to make sure that the people who are in that state and business in that state know, who we are because relationships are important and we want to grow our business in that state and we want to grow our business first and foremost in the aggregates line of it. So again no no big surprises there I think very much what we thought and importantly, the areas that we thought we could.

Make some refinements that can make a difference had been happening so far so again, saying. Thank you for that question and I Hope that response is helpful.

Yes, very much so thank you you bet.

Well it looks like that's the end of the questions for today. So thank you all for joining today's earnings call underpinned by our disciplined execution of our proven strategy and our long standing capital allocation priorities. We are confident in Martin marietta's prospects to continue driving sustainable growth and superior.

Shareholder value as we sort to a sustainable future. We look forward to sharing our first quarter 2022 results in just a few months as always we're available for any follow up questions. Thank you for your time and continued support of Martin Marietta, Please stay safe and stay well.

And with that ladies and gentlemen, we thank you for participating in today's program. You may now disconnect have a wonderful day.

[music].

Yes.

[music].

It will be available for replay on the company's website.

I will now turn the call over to your host Ms. Suzanne Osberg Martin Marietta as Vice President of Investor Relations, Sir you may begin.

Good morning, It's my pleasure to welcome you to Martin Marietta's fourth quarter and full year 2021 earnings call with me today are ward Nye, Chairman and Chief Executive Officer.

And Tim Nicholls Senior Vice President and Chief Financial Officer. Today's discussion May include forward looking statements as defined by United States Securities laws in connection with future events future operating results or financial performance like other businesses Martin Marietta is subject to risks and uncertainties.

That could cause actual results to differ materially we undertake no obligation except as legally required 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 today's earnings release, and other public filings, which are available on both our own and the Securities Exchange Commission's website.

Now I will begin today's earnings call with fourth quarter highlights and a discussion of our full year operating performance. Jim Nickolas will then review our 2021 financial results after which ward will discuss market trends in 2022 expectations. A question and answer session will follow please limit your Q.

And a participation to one question.

I'll now turn the call over to ward. Thank.

Thank you Suzanne and thank you all for joining today's teleconference. Martin Marietta's diligent execution of our strategic operating analysis and review plan otherwise known as <unk> has been and continues to be the foundation of our long term success differentiating us from our competitors. This year was no exception as our impressive 2010.

One results continue to underscore the importance of disciplined strategic planning combined with functional excellence, our team's steadfast commitment to our strategic priorities enabled Martin Marietta to extend our proven track record of delivering industry, leading safety growth and financial performance for our shareholders.

Among our accomplishments in 2021, we achieved the safest and most profitable year in Martin Marietta's history. This year marks our 10th consecutive year of increases in consolidated product and services revenues adjusted gross profit adjusted EBITDA and adjusted earnings per diluted share. We also made significant.

On our <unk> 2000, 2025 initiatives among them successfully completing more than $3 billion in value enhancing acquisitions. These transactions expanded our product offerings and attractive new and existing markets.

Stablish and a formidable coast to coast geographic footprint supported by robust underlying demand. We will continue to build on these achievements with a focus on delivering sustainable long term operational and financial success in 2022 and beyond.

Before discussing our full year results I'll briefly highlight a few notable takeaways from our record fourth quarter and portfolio optimization efforts.

Pricing momentum and growing product shipments aided in part by milder weather extending the 2021 construction season provided a strong finish to the year. We completed the acquisition of the Lehigh Hanson West reaching business on October one, which provides Martin Marietta with new growth platforms and three of the nations largest mega region.

Growth robust M&A activity and record setting financial performance.

Consistent with our Soar 2025 priorities, we continually look for ways to optimize our portfolio through asset swaps and divestitures to that and following the closing of the Lehigh Hanson West acquisition, we have received expressions of interest in the California based cement and concrete operations.

As we focus on the product mix of our business to enhance value for our shareholders. We're currently evaluating alternatives for these operations and have classified these assets as held for sale, we anticipate providing more clarity regarding our plans for these assets during the first half of 2022.

As I noted earlier for the full year of 2021, we established new financial records, marking the 10th consecutive year of growth in each of the following metrics.

<unk> and services revenues increased 15% year over year to $5 1 billion.

Adjusted gross profit increased 10% year over year to $1 4 billion.

Adjusted EBITDA of one.

$3 billion increased 10% year over year or 14%, excluding nonrecurring gains.

And adjusted diluted earnings per share of $12 28 grew.

<unk> grew 6% year over year, or 13%, excluding nonrecurring gains, especially.

Im, especially pleased to note that Martin Marietta's strong earnings growth and thoughtful store execution provided our investors with a total shareholder return of 56% in 2021 more than double the S&P 500.

Operating our business safely sets the foundation for achieving long standing financial success I am proud to report that we achieved a companywide world class loss time incident rate for the fifth consecutive year with a 7% reduction in total reportable incidents Martin Marietta also reported a total <unk>.

<unk> incident rate of 084 exceeding world class rate levels for the first time in our history, even more rewarding is that our strong 2021 safety performance includes the safety results of our newly acquired operations.

Incredibly grateful to our employees, both new and tenured who embraced Martin Marietta as Guardian, and Haynesville culture, each and every day.

With that overview, let's now turn to the full year operating performance.

2021 guidance for volume growth and above 2019 pre COVID-19 levels.

Acquired operations contributed an additional 8 million tonnes.

All divisions contributed to this growth.

<unk> pricing fundamentals remained very attractive underpinned by market support for our announced price increases and overall customer confidence, we anticipate being well positioned commercially and otherwise to respond to strong demand and more than offset inflationary headwinds in 2022.

Turning to our targeted downstream businesses organic ready mix concrete shipments increased 16%, reflecting the healthy, Texas and Colorado demand environment pricing grew modestly.

<unk> solid fourth quarter volume improvement, our Colorado asphalt and paving business was unable to overcome shipment declines from weather challenges and liquid asphalt supply disruptions that hindered construction activity during the traditionally productive summer months organic asphalt pricing improved 4% I'll now turn the call over to Jeff.

To conclude our full year 2021 discussion with a review of our financial results and liquidity Jim.

Thank you art and good morning, everyone.

As already mentioned, we are evaluating our strategic alternatives as it relates to the California cement plants related distribution terminal and California ready mix operations.

These assets along with several parcels of land had been classified as assets held for sale on the balance sheet.

In the province, they generate are shown as earnings from discontinued operations on the income statement.

Accordingly, the revenues or profits from these assets are not included in either 2021 reported earnings from continuing operations or our forward earnings guidance.

For our continuing operations, both the building materials and Magnesia specialties businesses contributed to our record revenues and profitability notwithstanding energy headwinds of almost $75 million.

Which is nearly one third higher compared with 2020 and organic basis.

Our aggregate pipeline established records for revenue and gross profit.

Product gross margin of 29, 6% included higher diesel costs, and a 25 billion negative.

Negative impact from selling acquired inventory.

Marked up to fair value as part of acquisition accounting.

Excluding the acquisition impact adjusted aggregates product gross margin was 34% a 20 basis point decline versus the prior year.

Gross profit per ton shipped improved modestly when excluding the impact of acquisition accounting.

Improved cement profitability in the second half of the year was not enough to overcome production inefficiencies and incremental storm related costs from February deep freeze in Texas.

As a result cement product gross margin declined 600 basis points to 31, 8% despite topline growth.

Increased raw material energy and maintenance costs also pressured margins.

Ready mixed concrete product gross margin was eight 3% relatively flat compared with prior year as shipment and pricing gains offset higher cost for raw materials and diesel.

Adjusted product and services gross margin for asphalt and paving business decreased 180 basis points to 16, 4% from higher raw material cost and operational disruptions from the summertime, Colorado liquid asphalt shortage.

Magnesia specialties achieved record revenues and profitability.

Net revenues of $275 million increased 24% driven largely by demand for magnesia based chemicals products used for cobalt extraction.

Cobalt prices, which has doubled since the fourth quarter of 2020 are expected to remain at high level and should support demand for chemicals products throughout 2022.

Product gross profit increased 23% to $110 million, even though higher costs for energy and contract services resulted in a 40 basis point decline in product gross margin to 42%.

Martin Marietta ended 2021, with a strongest cash generation in our history.

Operating cash flow of 114 billion increased 8% driven by improvement in net working capital efficiency.

<unk> continues to provide the framework to responsibly and sustainably grow our business and deploy capital for long term success.

The company's long standing capital allocation priorities balanced.

In addition to the $3 $1 billion of deploy for attractive platform and bolt on acquisitions. In 2021, we also invested $423 million of capital into our business.

In November we completed the capacity expansion project at our Bridgeport quarry.

Adding over $3 5 billion tons of aggregate annual production capacity and reducing our customers loading those cycle times.

This project increases throughput at our flagship Corey in the fast growing Dallas Fort worth market.

We will continue to prioritize high return capital projects to drive margin expansion in 2022.

We also returned $148 million to shareholders, reflecting our most recent dividend increase announced in August .

Since our repurchase authorization announcement in February of 2015, we have returned nearly $2 billion to shareholders through a combination of meaningful and sustainable dividend as well as share repurchases, while at the same time growing our business profitably and responsibly.

Our net debt to EBITDA ratio increased to three two times as of December 31.

Reflecting the debt financed the acquisition of <unk> west in the fourth quarter.

Consistent with our past practice of reducing leverage following an acquisition, we expect that ratio to be two five times by year end 2022.

With that I'll turn the call back over to ward to discuss our 2020 outlook.

Thanks, Jim.

While both poised to accelerate supporting increased shipments and attractive multi year pricing acceleration for construction materials as we embark on what we view as this golden age of aggregates Martin Marietta has the ability and capacity to supply these needed products underpinned by our locally led pricing strategy we will.

Continue to do so in a manner that emphasizes value over volume.

The recently enacted infrastructure investment and jobs Act is the nation's most significant infrastructure action since the introduction of the Interstate highway system and $19 56.

This bipartisan legislation contains a five year surface transportation reauthorization, plus $110 billion in new funding for roads bridges and other hard infrastructure projects. While this once in a generation investment in America's transportation networks stimulates economic growth and job creation immediately.

We expect product demand benefits to begin in late 2022 and become more pronounced in 2023.

Voter approved state and local transportation measures will also promote sustainable growth in product demand in November 2021 voters approved 89% of state and local transportation ballot measures. These initiatives are estimated to generate an additional $7 billion.

And both onetime and recurring transportation funding with initiatives in Texas, our top revenue generating state accounting for over $4 billion of this total these.

These measures tangibly demonstrates the commitment of state and local governments to ongoing efforts to repair and improve our nation's aging infrastructure.

Importantly, dot's for our top states are well equipped from both a financial and resource perspective to put increased transportation dollars to work in advance the growing number of projects and their backlogs, we expect enhanced infrastructure investment to provide volumes took early and drive aggregate shipments to this end.

<unk> closer to our 10 year historical average of 40% of total shipments for reference aggregates to the infrastructure market accounted for 34% of 2021 organic shipments.

Aggregates to the nonresidential market accounted for 35% of 2021 organic shipments.

Residential construction remains robust, particularly for single family housing, which has yet to return to normalized levels.

National Association of Homebuilders forecast 2022 single family housing starts to be 25% higher than pre pandemic levels in 2019, despite longer material delivery times and labor shortages.

Martin Marietta's, leading coast to coast footprint positions, our company to benefit from single family housing growth given undergone conditions favorable population and employment dynamics and accelerated the organization.

Aggregates to the residential market accounted for 25% of 2021 organic shipments.

While inflationary pressures remain we expect to expand upstream gross margins in 2022 supported by pricing acceleration and disciplined cost control combined with contributions from our estimate downstream and magnesia specialties businesses and the full year results for our acquired operations we.

Expect consolidated adjusted EBITDA for our continuing operations of $1.700 billion to $1.800 billion.

And to reiterate our 2022 guidance excludes the businesses classified as assets held for sale.

To conclude we're extremely proud of our 2021 record setting safety operational and financial performance supported by growing demand environment and are consistently executed strategic priorities. We are confident in Martin Marietta as long term prospects our team remains committed to employee health and safety commercial.

And the operational excellence sustainable business practices and the execution of our soar 2025 initiatives as we built the safest.

The best performing and most durable aggregates led public company.

We look forward to continuing our strong momentum and delivering attractive growth and superior value for our shareholders in 2022 and beyond if.

If the operator will now provide the required instructions, we'll turn our attention to addressing your questions.

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While we compile the Q&A roster.

Our first question comes from Trey Grooms.

Your line is open.

Hey, good morning, everyone.

Good morning Trey.

I wanted to.

First off wanted to ask about Europe .

Our portfolio optimization efforts here.

Evaluating strategic alternatives for the California cement business in ready mix.

How are you thinking about that any color you can share with us on.

The strategic reasoning behind that and.

Any kind of impact.

Good color around that.

For these these businesses youre looking at maybe moving out.

Importantly, as we go back and take a look at from a tonnage of cubic yard age perspective, but thats going to look like that's going to be around $13 5 million tons of stone in that marketplace, it's going to be about $1 1 million cubic yards and around 8 million tons of asphalt.

If you think back to the way that we've long spoken about our business strategy you've heard US say this is an aggregates led company and we do have a strategic cement business, but we have that in Texas I think the strategic submit fits the way we've spoken up your Texas extraordinarily well.

One of the things that we did identify for people when we bought the Lehigh Hanson business is we were going to look at the Smith business in particular to determine if we were the best owner and after we've closed on that trend transaction as I indicated in the prepared remarks, we received.

Number of inquiries from different parties interested in those businesses from our perspective, we owe to our shareholders and others to engage in that dialogue, obviously part of what I've indicated we anticipate having more for you on that here in the first half of the year, but again from an aggregates led perspective.

We'd like this type of direction. The other thing that I think is too important to reiterate in California as well trend as we think the ability is very much ahead of us in that state.

Do more M&A on the aggregate side in California, and we think that's going to give us a very attractive long term business. There. Obviously, we now have a platform position from which to grow so Trey I hope that's helpful. Yeah, absolutely and so you are keeping the aggregates business being aggregates led.

Obviously.

And now that you've been in the driver seat there for three or four months.

Any update you can give us around maybe the commercial efforts, particularly around the aggregates business there in California, No Im happy to as fresh you know, we're looking at aggregate selling prices in the marketplace generally they tended to be about 70, a ton lower than Martin marietta's overall pricing. So if we look at tiller when we bought that business in Minnesota those.

Prices were below Martin Marietta, so the prices in California. So we're very focused commercially on getting that more in line. What we've done in California. I think this is important is we have been very intentional about going out with price increases in that market effective January one and the price increases from the customer feedback.

And from what we're seeing very directly.

<unk> has been received favorably the trends are actually quite attractive we've indicated ASP increases across the enterprise of up 5% to 8% I would be disappointed if California Disney to outperform that and in fact that while January does not make a year. That's certainly what we've seen thus far.

In January of <unk>. So I think the commercial undertakings that we've had in that state even with ownership just as in a matter of months have actually gone quite well.

Great. Thanks Ward, Thanks for taking my questions. Thank you Sir.

You too.

Our next question comes from Kathryn Thompson with Thompson Research Group. Your line is open.

Hi, Thank you for taking my question today.

Yes.

Gave some great color just on end markets, but the one I'd like to focus in on a little bit more is on the commercial end market because that was.

One what we saw certainly you are now.

They should start to see some improvement in the back half 'twenty, one and given those are longer.

Projects in general.

That can happen scaling impact on pricing.

So really kind of a question on commercial is.

What are you seeing in terms of trends.

How does that impact pricing now I'll turn the T trends youre able to price up higher.

And a little bit without taking it from a geographic standpoint.

Texas has been strong, but it's just.

The places that we could get stronger.

And how that impacts commercial and pricing for all of your ops.

That market. Thank you.

That we would see in particular, the light portion of non res continue to grow so now, let's step back and assess what.

<unk> 22 look like and how that forecast into 'twenty one.

22 was <unk> 21 was the only year second year in our history, where non res volumes were more than infrastructure volumes were.

So that tends to indicate that what we thought we were going to say see what we outlined last February in fact happened throughout the year, meaning heavy non res continue to be very good. It's incredibly aggregates intensive and then as housing stayed solid light non res came behind that which led to the single.

And use that we have to your point, if we look at overall non res in a state like Texas, the Dallas Fort Worth and Austin Corridor, along I 35 continues to be incredibly strong.

What we're seeing on that last mile delivery centers is impressive you said it was hard to imagine that getting better and by the way there too but as you noted it has Samsung is looking to come in there with a $14 billion.

Semiconductor plant in Austin.

Texas instruments is looking to build more in north, Texas, and Central Texas, where were seeing the high speed rail. So there are a number of projects on non <unk> that we think will continue to be really.

Pretty notable.

State the other thing that we're seeing.

Obviously LNG has been on the sidelines for a while we anticipated that it would be.

At the same time, we're looking at some jobs right now at Rio Grande LNG.

Chevron Phillips and it's Cheniere.

We think might see some degree of go going into this year. So to your point that shifts in Texas. The other thing Thats. Notable is even seeing what's happening with rig counts rig counts have clearly been down but the rig count at 610 at the end of January was actually up 226 rigs year.

Over year, so we're seeing more activity in energy as well if we come back and look at other states so that matter to us, whether it's Colorado, North Carolina, Georgia, Florida.

We continue to see very good activity as I called out in the prepared remarks.

On warehousing and distribution, but here's what we're seeing too and we're seeing this in North Carolina were seeing retail and hospitality sectors beginning to inflect.

And obviously, there's been some recent activity in North Carolina with respect to Apple and Google and then Toyota has also come into the Greensboro High point area, which energy in North Carolina has been a bit of a laggard.

And seeing that type of activity. There is really quite refreshing and then Atlanta continues to be a top five domestic warehousing and data center market.

And it shows absolutely no sign of slowing so we feel like non res is attractive it continues to be really durable and I think part of whats changed kind of offering as the heavy side of non res, particularly as we're looking at these distribution centers have.

It comes so aggregates intensive and we've discussed before they tend to be in many respects almost concrete envelope.

To your point you are selling.

Relatively high priced clean stone into those concrete operations. So again to your part of your question was not just what's happening with non res, but what could that do trending relative to pricing and do believe those non res projects will continue to take more clean stone into the clean stone it is going to be a higher price. So.

Thank all of it adds up.

Two a very attractive near term property medium term outlook Cantor.

Okay. Thank you very much thank.

Thank you.

Our next question comes from Stanley Elliott with Stifel. Your line is open.

Hey, good morning, everyone. Thank you guys for taking the call and the question.

Kind of piggybacking on a comment you just made a second ago award you're talking about being under Bill.

From a residential standpoint.

Investor concerns right now around affordability rate increases et cetera, but how are you all balancing data or what are you seeing in your marketplace given that.

We're under build or 7 million start for eight plus years.

And it is such a good point because there is so much that still needs to be made up in housing and I think thats one of the reasons that we've been so focused and saw not just in building our business, where we're building our business. So you need to think and think about what's happening with populations, where they're going so our view is several things one the <unk>.

Newbuild conditions that you just outlined together with nice population dynamics puts us in a really attractive spot. So here are some numbers that I think we're thinking about if we look at where seasonally adjusted rates for single family housing came in in 'twenty. One is around $1 1 million starts thoughts are in <unk>.

To around one two and 20 313, and a 24 around one four.

But here's the math that I think we find compelling by the time, we get to $1 4 million single starts. If these numbers are right in 2020 for two things worth remembering one that will be back to 2003 levels. So we will have been away from that for 20 years.

In the U S is going to have 40 million more people.

Now if we think about where those people are or where those people are going and we start thinking about the states that are impacts states for Martin Marietta do you think about orders being Texas, and Colorado, and North Carolina, Georgia, Florida, and now add in California.

If we look at a state like Texas, that's 34% of our sales, but we looked at the overall population, it's about 30% of the population of the United States. If we look at that.

We're looking at 2000 29 million people in the state if we're looking at North Carolina, and now 10 6 million people in the state, but we're looking to add 2 million people in North Carolina by 2040.

So again, if we're looking at population trends, even with a rising interest rate youre still seeing historically low rates and you're seeing people, who simply need homes and people move into these parts of the United States that can afford the homes. So we don't think single family homebuilding is going to go up to the number of square it.

Was.

Back in 2005, 2006, we don't think that it should but we think this is a very sustainable level and we think the sustainable level helps us not just from the housing because as you know thats two to three times more aggregates intensive than multifamily, but we think what that continues to do you go back to the previous question.

Non res is really very attractive Stanley so a lot of data.

But it's our way of saying, we feel like housing for our business and our leading states is going to be very durable for awhile.

Perfect. Thanks, so much and best of luck.

Stanley.

Our next question comes from Anthony Pettinari with Citigroup. Your line is open.

Hi, good morning.

Good morning, Anthony.

Youre guiding capex.

Roughly $100 million year over year, and 22, I'm just is that primarily Lehigh and pillar and are there any major kind of growth projects that you'd call out as part of the 22 Capex guide in any kind of rough view on how we should think about capex long term.

Yes, it's Jim good morning.

The answer is it's mostly.

Organic business, it's not we got Hanson.

Corporate against assets predominantly the main project in 2022 is when we've outlined before is the large capacity expense at Midlothian refrigerants finished seven.

That is the largest projects that we've got going on.

This year in 2022, so that's the main one and expect to have a very very high return on that one, especially given the pricing outlook.

We are seeing for cement in that market that can be.

<unk>.

A very high return project for us otherwise as I think about it in total.

For modeling purposes, I think 9% of sales roughly is generally how I think about this business over time, and we're not too far off that I think in 2022.

Okay. That's very helpful I'll turn it over thanks.

Thanks Anthony.

Our next question comes from Gary small with loop capital. Your line is open.

Great. Thanks for having me on I was wondering if you could speak to infrastructure demand for this year and specifically just with some of the reports out of D C with delays in <unk>.

Federal funding.

Just given the lack of it.

Full year Federal budget are you anticipating any headwinds associated with that.

2022 guide and maybe speak more broadly to the level of confidence the projects that you thought were going to be.

Moving forward with the passage of the infrastructure Bill the level of confidence they're going to continue to move forward as expected.

Thanks, So much for the question Garik, we feel pretty good about where that.

So it's a couple of things to think about one the newbuild as ball now so the appropriations process has to go through its normal deal.

I think if you go back and look at the appropriations process number one they're negotiating it right now and number two if we go back and look at history, the latest that thats ever filmed.

Common ground is early in May which puts us comfortably ahead of the next fiscal year for the government. The other thing that I think is so important to remember.

Is 118 billion was deposited into the Highway Trust fund and its lockbox. So we know that money is going to be there. So if you think of it from a federal perspective through that lens Garik I think it gives you a pretty good foundation I think then when you pivot and take a couple of other things into account one you've still got significant Covid fund.

<unk>.

Thats going to find its way into the system. This year and then thirdly, the last leg of that stool.

Say is simply where the different dot's themselves are so again, if we look at the <unk> that are the dot's that matter most to Martin Marietta again, it's going to be Texas, Colorado, North Carolina, Georgia, Florida and California.

In Texas, we're looking into FY 'twenty, two lettings that are expected to exceed $10 billion and thats going to be the highest in five years. If we look in Colorado. They recently passed a $5 3 billion.

10 year infrastructure, bill, ensuring a consistent stream of funding in that state through FY 'twenty three.

If we're looking here in our backyard in North Carolina.

By 'twenty two Lettings have returned to historic levels and if we're looking at the recently passed state by any budget here in North Carolina.

And again the story in California, well with a $17 billion Caltrans budget and we think we are.

One is providing $50 billion of total spending through 2030.

With about $3 seven of it going directly to highways and streets on an annual basis, we think that combination of the money that's been blocked box.

We think it's going to be a fairly navigable appropriations process with the COVID-19 money Thats, there and with what I've just outlined on those top five six states for North Carolina.

We like what we're seeing relative to infrastructure and we believe that's going to be garik.

Great I appreciate the help and I'll pass it on.

Thank you Garrett.

Our next question comes from Courtney <unk> with Morgan Stanley . Your line is open.

Hi, Good morning, guys. Thanks for the question.

Can we just go back to the Lehigh assets again, and I believe those that are remaining are now incorporated into guidance that you can just help us understand.

And maybe the split between the sales that our sales and EBITDA that are there in your guidance versus what is being held for sale.

And then also if you can.

Talk about.

Just.

How those assets are performing I guess I would've expected.

The aggregates volume growth I'm, sorry pricing growth associated with the Lehigh business to be growing a little bit faster than.

Then the overall business. If you can just help us think about how that's performing relative to the business overall.

Happy to accordingly, thanks for the question, so I'm going to take the last part of your question first and by the way wholeheartedly agree with you and then as I indicated early on if we're looking at the specific business and we're looking at it overall aggregate selling prices there and I think what we've indicated is they tend to be about 70, a ton lower than heritage Martin Marietta <unk> <unk>.

Set across the board you should expect to ASP increases of five to eight and what I'm, indicating is we should expect California to outperform that and frankly of californias not seeing low double digit price increases I would be disappointed in that so I think that's totally consistent with your thinking and.

While January is not a year make we certainly like the numbers that we've seen in January if.

If we think about what EBITDA contribution is going to look like in that group.

California, and Arizona, and if you think about EBITDA contribution.

Cement business in California, together with our ready mix business in California, and simply take those out and we put some pause together for you when we announced that transaction showing how much was cement and aggregates and ready mix and hot mix.

Because at that point, we were talking about the upstream portion of it and now what you're seeing in upstream at that time by the way Courtney.

Both aggregates and cement now we're talking about a business that with nearly 70% of the EBITDA being from aggregates is in the lexicon that we typically use an aggregates led business, which is what we're looking to number one having that state, but accordingly, I think even more importantly, thats, what we intend to keep building.

At stake.

They are independent players there there is a lot of potential M&A activity, that's already underway in California, and so I tried to give you a snapshot of what it was what it is right now and what it is right now from an aggregate sled perspective, we believe will become even heavier.

Okay. Thanks.

Maybe could you just maybe just quantify how much that EBITDA contribution is from the.

The acquisition how much of that.

It is now in discontinued operation.

And if you if you could also just.

Just comment if there is any synergies as a result of the deal.

That we should be thinking about either SG&A or other line items.

Since it was a carve out.

Really the synergies that will come from that transaction will be but we bring to an operationally, which we're in the process of doing and what we're doing commercially and I think the commercial efforts are already evident.

Relative to broken out EBITDA, we've actually not given that I think if you go back and look at some of the information that we gave at the time relative to the Lehigh Hanson transaction until her because we spoke about those in connection with each other and I think you can probably back in to some of that but we certainly had some.

Arrangements with buyers and sellers that we would not talk about some of those numbers with greater specificity not intended to be clever with $200 I apologize on that but.

I think overall you can back into likely where those are.

But again, because youre not buying a public company moving offices et cetera, and it's a carve out.

The synergies ended up being more commercial and operational excellence over time.

Okay, Great. That's helpful. And then just lastly on the volume guidance I think you made some comments that youre still seeing some constraints due to.

Labor shortages in the demand environment and can you just help us think about.

Your volume expectations for 1% to 4%.

Growth how much of that is being constrained.

By some of the supply chain issues that we're seeing in the market and whether you are baking in any improvement in the back half here.

Particularly if theres going to be improvement it will be in the back half of the year I think a good example that we've been able to use in the past gordy's, we could probably see in the mid single digits from a volume perspective higher for example in the Dallas Fort worth market.

Almost on a daily basis than we're seeing right now simply because of the lack of trucks.

So I think if we look at supply chain right now primarily it's one of logistics, it's how quickly can people, bringing their trucks or how efficient can rail and.

And moving product overall.

Overall supply chain on labor for US is not a particular issue right now our supply chain itself is so domestically oriented we have struggled with that.

And equally we're not struggling with putting adequate product on the ground. So we believe we can meet the demand. We believe we can do it in a very low cost way. We do think we're going to be in a position that we can assure that we're getting fair value for our products, but I do think the single largest challenge we will continue to be transportation.

Logistics and we do believe there will likely be some degree of EES on that in second half of the year, but I would tell you we have not built that in.

And the other thing that we have done Courtney this is property per se.

Do it.

And when I.

Tell you very candidly, we told customers too in many respects be prepared for many years and that's not in our numbers that would be great.

Great. Thank you. Thank you Gordon.

Good morning, gentlemen.

Good morning.

Board the other hot topic, certainly is inflation there is a pretty aggressive print this morning on CPI.

How how do you see from your angle internally.

<unk> getting worried and.

And generally when you put out your guidance for 2022 what were the.

The levers are thoughts relative to energy materials and is there any.

Easing of that as we go throughout 2022, and what Youre expecting for the year.

Thank you very much the question, but I'm going to do is turn that over to Jim I want him to walk you through what we're seeing relative to labor <unk> and in particular, what we're seeing with respect to diesel the short answer at least from my perspective goes back to the prepared remarks and push I said, we expect to see better margins in our upstream materials business. This.

This year than we did last year. So that's going to give you the punch line, but let me, let Jim walk you through at least what we're seeing in some discrete areas of the business yeah sure. So the.

The labor, which is our biggest component is probably around 5%.

The other elements, which are smaller slices of cost pie supplies side, the 10% repairs maintenance, probably 5% to 10% as well.

But I think the main the main component of what we sell ourselves that is we own that theres now.

We started out from the ground.

That's going to help with the.

Our environment as well so that those costs are going up but it's a smaller portion of our total.

<unk>.

Our Cogs by then.

And then other areas and so on the <unk> piece, we're going be growing margins.

Words that overall, but again.

Just thinking about it diesel in particular is the one.

It was a headwind this year of 2021, we expect it to be a headwind in 2022, we've built in around 25 million of additional diesel costs in 2022.

We're hoping that's enough it is right now, but we'll modify that if we need to.

Thank you. Our next question is from Jerry Revich with Goldman Sachs. Your line is open.

Yes, hi, good morning, everyone.

Good morning, Jerry.

I'm wondering if you could talk about the length of your backlog in infrastructure based on the Lettings that we're tracking it looks like we're above.

2019 levels in terms of what's been awarded to your customers has that translated to your backlogs recovering to where they were when we were talking about them in 2018.

2019.

In terms of the pricing associated with some longer term work.

You folks are able to get out in front of.

The inflation in terms of putting through.

Second price increase was on longer term work specifically thats.

<unk> been awarded to you over the past six months.

Fair enough Gerry so keep in mind, even on longer term work historically at least over the last decade, we would have been building and price increases on longer term work on an annual basis. So do we anticipate those price increases in the future being greater than some of them have been in the past. The short answer is yes, if we're looking overall at backlog.

Customer backlog and Thats the important way to to try to remember what we're looking at right now is a backlog in aggregate that's about 14% ahead of where it was in prior year.

And if I'm breaking it down even more granularly, what youll find is that the eastgroup, it's up around 17% versus prior year in the West group, it's up around 10% versus prior year. So.

The other thing that I think it's worth adding.

Two it is well Gerry is as we're looking at what's going on in Mag specialties, they've got record backlogs across their business as well.

The chemicals portion of that business is doing exceedingly well.

The solid 40% margin business and customer backlogs.

And that business are at records again in aggregates. They are up nicely ahead of prior year.

And again, we're talking about mid years on those as well, we do protect customers on the pricing that they've had in the past, but we do expect to get mid years. This year, and we expect them to be attractive.

Finally, all business has bottomed at 38, 5% margins. Thanks.

You bet Jeremy.

Our next question.

From Michael Feniger with Bank of America. Your line is open.

Yes, Hey, guys. Thanks for taking my question just you mentioned the margin expansion upstream business in aggregate can you just help us understand the cadence there I mean diesel and energy.

Prices are still kind of elevated right now on a year over year basis. So how should we be thinking about just 2022.

A little bit in the first half and flattening in the second half.

Get it up full year, just how should we kind of think about the cadence through the year.

Michael Happy to address the short answer is I think you are going to see that build throughout the year, but first of all welcome to the call. We're delighted to have you as part of this stuff. So thank you for being here and let me ask Jim to go and talk you through at least some pieces of it and why we think it's going to be more backend loaded so Jeff sure. So so Michael.

Give out quarterly guidance, so I'm going to stick with third thematic ways of thinking about it backend loaded.

That is true.

Pronounced in the first half of the year I think we'll be in the second half of the year. So those are the two main reasons for worsening.

Next will be back end weighted versus historical patterns.

Our next question comes from.

Adam.

Sir.

From Thompson Davis, I'm, sorry, if I mispronounce Adam.

Yeah go ahead. Thank you good morning, guys.

Good morning.

Or if you've gotten any pushback. This morning, it's maybe on the volume guidance, particularly around the low end up 1% could you maybe comment on upside downside risk to the volume outlook for this year.

Well, if you think back to that and Thats exactly where we came out last February two right and we said one to four and obviously we finished the year on the high end of that if we're looking at overall tow and keep in mind. The one to four is on the organic if we're looking at overall, we're talking seven to 10.

So what I would say as I think back to the dialogue I was having a few moments ago can we meet the demand yes can we meet the spec requirements. Yes can we do that almost anywhere we need in the United States. The short answer is yes.

If you can give me a good snapshot of what's going to have more transportation logistics that could probably tell you what's going to happen relative to volume. So if we're right that we're going to see some degree of easing logistically in half two.

Frankly, I think that certainly is trending you toward the higher end of that.

But but if we think about what the.

What the issues are that may make that slower it's not going to be an issue of demand and it is not going to be an issue of our ability to meet the demand it's going to be what's happening relative to third parties and their ability to move this down.

Okay. Thank you.

Beth.

Our next question is from Timna Tanners with Wolfe Research Your line is open.

Yes, Hello, everyone. How you doin' great Timna good to hear your voice.

Hey, just wanted to explore a little bit more of the capital allocation comments in particular mention of buybacks, but we haven't really seen much yet. So I just wanted to ask you a little bit more about what you think about in terms of deploying that.

And how you think about obviously you keep flagging the opportunity to grow more and I'm just wondering the timing of further acquisitions I assume that's just a question of availability.

But are you looking at a particular leverage recall that leverage well before you deploy in a downturn.

Opportunities, thanks, a lot, but again I'm going to kick.

Kick that over to Jim as part of what Jim told you in his prepared comments basically looking at the business as we're looking at right now we're going to be back towards two five times debt to EBITDA ratio by the end of the year. So as you can tell this is a business that deleverage very quickly.

You think about our overall excuse me capital priorities. The short answer is they haven't changed over time and ask Jim to walk you through those but M&A continues to be one that is compelling to us with Jim Yes, we wouldn't pass on an acquisition.

If it came through based on our leverage we have the ability to go after that opportunity and still delever. So thats kind of roadblock for us at this point.

And as we've mentioned, we do expect to get to two five times by year end.

On net basis and.

Even with that in mind, we will take a balanced approach to our capital so whether we buy back shares thats not off the table this year, either even with even with those things M&A and share buyback et cetera, increasing dividend hopefully in August that is all in.

In the cards, even with our leverage where it's at that's all contemplated with our stated forecasted.

<unk> ended the year net leverage at two five times and I hope that answers your question.

Okay. Thank you.

Thank you Timna.

Our next question comes from David Macgregor with Longbow Research. Your line is open.

Yes, good morning, everyone.

Just wanted to ask about just to build on your answer to a previous question about the volume guidance of 1% to 4%.

And maybe just reflects the backlog, but do you expect more growth in the east versus the West can you just talk about how youre thinking about east versus west in that 1% to 4% and then I.

Yes.

My question with respect to cement would be just on the.

The profitability for 2022, it seems like the volume upsides pretty limited youre running those two plants at pretty close to full capacity now I would guess so is it all just price costs at this stage or is there something else. We should think about in terms of.

Profitability in terms of the puts and takes on profitability for 2022 Smith.

David Thanks for the question good morning, too. So a couple of things one if we think about the way the country has recovered over the last several years.

<unk> really took a harder fall and the downturn in the southwest and in some respects of the Westin. So we've seen markets like Atlanta recovering more importantly, right now as well as the Carolinas and up into Virginia, and now we're seeing a very attractive recovery in Maryland as well so if I'm looking at east versus West brought.

Yes, I am thinking we're likely to see a more.

Snap should snap.

Chip snapback in the east in many respects than we are in the heritage West I think California is going to be an attractive market for us, but again im comforted by the fact that we're seeing good activity in the east.

With respect to your cement question.

You are entirely right I mean, we're tapped out in many respects it about 4 million tons right now obviously, we're adding capacity to what we're doing in Texas with the FM seven capital project.

Jim spoke to four.

Sales slowed down production and actually.

Cost of an oversized degree of MLR, we don't think thats going to recur. So we do believe they are going to be efficiencies that simply come from that if we're looking overall at what we think is going to happen relative to pricing again, we saw multiple price increases last year and some of that.

Right now we're looking at a $12 a ton increase in April .

I think the other thing that can be a bit of a swing factor there David.

Whereas some of that going to be as well, obviously DFW, so very healthy markets, so with central Texas, but part of what we saw in the quarter was more material heading to west, Texas now granted percentages and this concept sounds really big tonnages are huge so we're looking at quarter four.

<unk> changes, we saw 215% more material head to West, Texas now what does that mean as a practical matter 37000 tonnes went to west Texas.

In the quarter versus 12 in the previous quarter, but as we look at average selling price on those that set an average selling price of around $203 a tonne versus a total submit all in number of 127. So I would say several things do we anticipate a better year operationally in Texas than we had.

<unk>.

Okay.

Moving to our last question from Zane Karimi with D. A Davidson your line is open.

Hey, good morning, guys.

Hey.

This variance in our region.

Now with that is that to us is so cultural and so important and when we have colleagues who appreciate the importance of that to us that's a really good starting point.

Now from a timing perspective, saying as you would imagine getting operational improvements isn't as the immediate at times.

You can get commercial improvements.

What are we happy with we're very happy to see that the training that we've put in place the timing that we put in place and otherwise relative to commercial activity has worked really well.

It's realistic.

Make some refinements that can make a difference had been happening so far so again, saying. Thank you for that question and I Hope that response is helpful.

Yes, very much so thank you you bet.

Our shareholder value as we sort to a sustainable future. We look forward to sharing our first quarter 2022 results in just a few months as always we're available for any follow up questions. Thank you for your time and continued support of Martin Marietta, Please stay safe and stay well.

And with that ladies and gentlemen, we thank you for participating in today's program. You may now disconnect have a wonderful day.

Q4 2021 Martin Marietta Materials Inc Earnings Call

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