Q1 2022 Martin Marietta Materials Inc Earnings Call
Today's conference is scheduled to begin shortly please continue to standby and thank you for your patience.
[music].
Good morning, and welcome to Martin Marietta's first quarter 2022 earnings Conference call. All participants are now in a listen only mode a question and.
Answer session will follow the company's prepared remark as a reminder, today's call is being recorded and will be available for replay on the company's website.
I'll now turn the call over to your host Ms. Suzanne Osberg Martin Marietta's, Vice President of Investor Relations Suzanne you may begin.
Good morning, It's my pleasure to welcome you to Martin Marietta's first quarter 2022 earnings call. Joining me today are ward Nye, Chairman and Chief Executive Officer, and Jim Nickolas, Senior Vice President and Chief Financial Officer. Today's discussion May include forward looking statements as defined by the United States Securities laws and can.
And 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 statement, 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 Q1, 2022 supplemental information that summarizes our financial results and trends as a reminder, all financial and operating results discussed today are for continuing operations. In addition, non-GAAP measures are.
Fine 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 a discussion of our first quarter operating performance portfolio optimization announcements, our updated full year guidance and market trend. Jim Nickolas will then review our financial results and capital allocation after which ward will provide some brief concluding remark.
A question and answer session will follow please.
Limit your Q&A participation to one question.
I'll now turn the call over to ward.
You Suzanne and thank you all for joining today's teleconference, where it started about Martin marietta's opportunities for operational safety and financial success in 2022 and beyond we're off to a predictable start this year and our company's prospects for attractive growth and value creation are outstanding.
Public and private construction activity are set to expand concurrently for the first time since this industry's most recent shipment peak in 2005, supporting multi year demand and pricing acceleration for products.
Beyond the benefits of these notable industry dynamics and underlying market fundamentals were confident the continued disciplined execution of our strategic operating analysis and review or SOR. Meanwhile, we're responsible and sustainable growth of our coast to coast footprint as highlighted in today's release, we once again exceed.
At World Class safety metrics companywide, that's an important distinction as this performance includes operations that are relatively new to Martin Marietta as Guardian and through a culture. We also achieved a new first quarter record for consolidated total revenues, which increased 25%.
Pricing gains ahead of more broadly planned April increases organic upstream shipment growth in 2021 acquisitions all helped drive this top line improvement.
Cost inflation, however, outpaced revenue growth, resulting in reduced first quarter profitability and margins versus the prior year quarter.
This was expected in fact, our guidance provided in February weighted increased profit contributions to the second half of 2022 versus historical patterns. The reasons, we anticipated and articulated regarding the shift were twofold first our annual price increases which are some of the largest in Martin Marietta.
Recent history, mostly become effective on April 1st the benefit from which builds throughout the year second our costs, including energy headwinds were anticipated to be more pronounced earlier in the year since comparable periods in the previous year experienced relatively benign inflation.
What was unexpected though was the rapid escalation in energy prices and other cost inflation in recent months Nonetheless beyond achieved and yet to be realized annual price increases we're confident the disciplined execution of our commercial and operational excellence initiatives were more than offset these inflate.
<unk> headwinds.
It's important to remember that historically inflation supports a constructive pricing environment for upstream materials, the benefits of which endure long after inflationary pressures moderate.
Our teams are actively advising customers so mid year pricing actions, which we anticipate will be widely accepted and more aggressive and scope and magnitude than we were initially considering a few months ago.
Longer term Martin Marietta is well positioned to execute on our value over volume pricing strategy and benefit from what is expected to be an increasingly more favorable and extended pricing cycle confidence in our near and long term outlook is further underpinned by the disciplined execution of our soar 2025 priorities.
During the quarter, we continued to optimize and enhance our aggregates led portfolio.
We completed the divestiture of our Colorado, and Central Texas ready mixed concrete businesses to the nation's largest privately owned concrete producer on April one.
We also recently entered into an agreement to sell our Redding cement plant related cement distribution terminals and 14 ready mixed concrete plants in California to Cal Portland Company, we expect to complete this transaction in the second half of 2022.
Collectively these portfolio optimization actions, both strengthen the durability of our business through economic cycles and enhance our margin profile, we intend to deploy the proceeds from these sales to advance our long standing capital allocation priorities facilitating high return external and work.
Annick growth investments to further enhance shareholder value.
Before discussing our updated for your guidance, let's level set first quarter results relative to the rest of 2022.
Our profits were lower than last years for the reasons just discussed the key takeaway is that the first quarter does not represent the beginning of a price cost margin compression trend rather we believe it's the end of the margin compression dynamic for the company.
The scale frequency and efficacy of our price increases provide us the confidence to forecast full year margins for 2022 exceeding those of 2021.
In short, we believe better than expected aggregates pricing realization and contributions from our newly acquired West Coast operations will offset the divested earnings and expected inflationary headwinds as a result, we've reiterated our full year adjusted EBITDA midpoint guidance of $1 75.
Billion as pricing momentum continues to build during the spring construction season, we anticipate that further pricing upside as probable accordingly, we'll revisit our full year guidance after the second quarter.
Turning now to first quarter operating performance for our upstream and downstream businesses organic aggregates shipments increased two 5%, reflecting growing public and private demand at the onset of the construction season.
Encouragingly infrastructure shipments increased 6% the largest percentage increase we've seen in several years acquired operations contributed an additional 4 million tonnes.
Underpinned by our value over volume strategy organic aggregates pricing increased six 5% or four 6% on a mix adjusted basis and reflected improving long haul shipments from higher priced distribution yards. All divisions contributed to this pricing growth.
As the largest cement producer in Texas, we continue to benefit from tight supply and robust product demand shifts.
Shipments exceeded 1 million tons and increased 10% setting a new first quarter record cement pricing grew 12% for multiple actions taken in 2021 and the resurgence in demand for higher priced specialty products with a $12 per ton increase effective April <unk> and our recently.
Announced second round increase of an additional $12 per ton effective July one.
The Texas cement pricing outlook is extremely attractive.
Organic ready mix concrete shipments remained relatively flat. Despite the completion of several large and typically higher priced portable projects organic concrete pricing grew 8% following off cycle price increases and the implementation of fuel surcharges.
Organic asphalt shipments decreased 3% as significant snowfall in January and February hindered, Colorado construction activity organic asphalt pricing improved 6%.
Looking beyond the first quarter, we remain confident that attractive market fundamentals and strong demand across our three primary end use markets will drive aggregates intensive growth and favorable pricing trends for Martin Marietta for the foreseeable future.
Enhanced infrastructure investments should drive aggregate shipments to this end use closer to our 10 year historical average of 40% of total shipments for reference aggregates to the infrastructure market accounted for 32% of first quarter organic shipments.
Department of transportation budgets for our top states continue to be well funded through traditional revenue sources as well as $10 billion of Covid relief aid pushing estimated lettings nicely above prior year levels.
Increased funding from the infrastructure investment and jobs Act or IHA, a will further enhance the current strength of our state duty programs, providing dot's with increased visibility and certainty to advance their multitude of backlog projects with full IHA a allocation available for 2023.
<unk> D O T fiscal years, the majority of which began on July one we expect benefits to begin accruing in late 2022 and become more pronounced in 2023.
Yeah.
Nonresidential construction, which drove 36% of Martin Marietta's first quarter aggregate shipments continues to benefit from the paradigm shifts in consumer and worked preferences and supply chains as evidenced by increased investment in aggregates intensive warehouses data centers and re shoring of manufacturing facilities.
To the United States.
Commercial and retail construction throughout our sunbelt markets is expected to become more significant demand driver in 2022 is it typically follows single family residential development within nine to 12 month lag by way of example, Charlotte North Carolina office trends are returning to pre pandemic levels with more than two.
Two 6 million square feet of office space currently under construction in that area.
The residential construction outlook remains strong despite rising interest rates and inflationary pressures following more than a decade of historically low new housing construction expectations are that annual single family housing starts remain in line with early 2000 levels over the next few years that said that United States.
<unk> added over 30 million people in the intervening period.
Given our company's attractive footprint and destination metropolitan areas, we expect Martin Marietta to benefit disproportionately from new home construction for the foreseeable future.
As a reminder, construction of single family homes in subdivisions is nearly three times more aggregates intensive than multifamily construction given further community build out of white nonresidential and infrastructure aggregates.
Aggregates to the residential market accounted for 26% of our first quarter organic shipments I'll now turn the call over to Jim to discuss more specifically, our first quarter financial results and liquidity, Joe. Thank you Ward and good morning, everyone.
For our continuing operations the building materials business posted record product and services revenues of $1 $1 billion.
A 26% increase from last year's prior quarter.
And product gross profit of $137 million.
Aggregates product gross margin of 14, 9% declined 640 basis points.
Product shipment and pricing growth was not enough to offset increased costs for diesel internal freight.
Production costs, and depreciation depletion and amortization.
As ward indicated earlier, our Texas cement business is benefiting from growing demand and tight supply.
Cement product gross margin expanded 630 basis points to 23% on a relatively favorable comparison.
As a reminder, first quarter 2021 was negatively impacted by production inefficiencies and incremental storm related costs from the Texas deep freeze.
Partially offsetting this favorability were higher energy and raw materials costs. In addition to a nearly $9 million increase in planned maintenance costs.
Almost half of this year's planned killed outages and other maintenance occurred in the first quarter.
With that now behind US, we expect favorable comparisons for the next three quarters versus the prior year.
Okay.
We are pleased to report that both our Midlothian and Hunter cement plant became actively producing Portland limestone cement or plc during the quarter.
Plc, which relies on a limestone substitution of carbon intense clinker was not approved for use by the Texas Department of transportation until recently.
We now expect to ship roughly 425000 tons a plc this year.
Importantly in addition to the lower C O two emissions the production of PLT versus traditional type one and two cement creates an 8% to 10% increase in annual cement production capacity.
Importantly, no incremental capital spending is required as you ramp up PLT production.
Ready mixed concrete product gross margin declined 100 basis points to seven 3%.
Pricing gains did not fully offset higher costs for raw materials labor and diesel.
As a reminder, first quarter financial results included the Colorado and Central Texas operations that were divested on April one.
Consistent with seasonal trends and a relevant geographies minimal asphalt and paving activity occurs in the early months of the year.
In fact, our Minnesota based asphalt facilities, which we acquired in April 2021 were inactive during the first quarter given that market's late spring start to the construction season.
In line with our expectations, the asphalt and paving business posted a $13 million gross loss for the first quarter.
Magnesia specialties achieved record first quarter product revenues of $71 million and eight 5% increase driven by global demand for Magnesia based chemicals products.
Despite topline growth product gross profit decreased 6% due to higher costs for energy supplies and raw materials, resulting in a 570 basis point decline in product gross margin of 37, 8%. We remain focused on the disciplined execution of soar to responsibly grow our business and deploy capital.
In a manner that preserves our financial flexibility and investment grade credit rating profile.
As ward indicated earlier, we plan to use the proceeds from our recently announced divestitures to advance our long standing capital allocation priorities, which are focused on value enhancing acquisitions.
Prudent organic investments and returning cash to shareholders through both a meaningful and sustainable dividend and our share repurchase program, while maintaining a strong balance sheet.
We continue to expect full year capital spending of $525 million to $550 million as we prioritize high return capital projects focused on growing sales and increasing efficiency to drive margin expansion.
During the quarter, we returned $89 billion to shareholders through both dividend payments and share buybacks.
While we repurchased nearly 131000 shares of common stock at an average price of $383 per share.
We anticipate a return to our target leverage ratio of two to two five times by the end of the year.
Our net debt to EBITDA ratio was three two times as of March 31.
With that I'll turn the call back toward.
Thanks, Jim to conclude we expect 2022 to be another record year for Martin Marietta, we're well positioned to capitalize on infrastructure tailwind and strong private demand across our differentiated coast to coast geographic footprint.
Looking ahead, we expect this increasing demand environment to drive multi year shipment growth and attractive pricing for our products.
Our team remains committed to employee health and safety commercial and operational excellence sustainable business practices and the execution of our store 2000, 2025 initiatives as we build and maintain the worlds safest best performing and most durable aggregates led public company.
If the operator will now provide the required instructions, we'll turn our attention to addressing your questions.
Yeah.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question. Please press the pound key in the interest of time, we ask that you. Please limit yourself to one question. So that we can get to everyone in the queue.
Our first question comes from Trey Grooms with Stephens. Your line is open.
Hey, good morning, Jim and Suzanne.
That's right.
So you mentioned earlier, having a predictable start to the year thus far.
It could go into a little more detail on what you meant there and then with that what gives you the confidence to raise the guidance at this point in the year notwithstanding divestitures.
Maybe if you could go into more color on how higher pricing and then the performance of our recent.
We acquired operations are playing into this confidence.
Happy to try to answer the question I guess, a couple of things first we are actually comfortably ahead of plan right. Now. So that's part of what we think is much at predictable about this because we're sitting where we're not in a whole. We're actually ahead of where we thought we would be as you know the first quarter is never a big quarter for volumes so small.
<unk> can or small numbers can make a big percentages in the first quarter part of what I I think from my perspective was predictable as we didn't have tour last year in the first quarter, obviously, that's a Minnesota based business and Youre not going to put down a lot of basketball in Minnesota in January February and March.
The other thing that's important to Jim outlined in his commentary as well, we actually accelerated some of the maintenance of the kilns in Texas. This year. So we're about halfway through with dollars and more than halfway through with the dollar. So we're going to have all of that so I think both of those are important obviously, we did see degrees of inflation, but the other thing that we've seen and I think this is for you.
Points ramp what gives us confidence that you can take our guidance up a bit is what we're seeing commercially relative to pricing.
We obviously are seeing price increases go in April we would not take up the guidance in bus we were seeing what was happening in April and had a high degree of confidence in that.
The other thing trade that I think is different about right now, but in some respects predictable.
Is what we're seeing relative to mid year price increases as well. So number one the April price increases have come in the way that we thought number two we're looking at much more widespread mid year price increases across our footprint that we've seen in a while.
You recall last year, when we did that we talked about targeted mid year price increases this year, we're talking about widespread in other words.
If we're not going to have a mid year, that's going to be the exception this year.
And we're also seeing that in scope from a dollar a ton to $5 a ton depending on market, depending on product et cetera part of what we're seeing in this this is a bit of a fundamental shift customers are considerably more concerned today about getting product.
Relative to price so again on an attractive place for us to be if we're talking about cutting a bit here.
That's correct no matter their they're going to come in somewhere between July one in most markets as late as September one and others, but I mean to give you a sense of if this goes at least back to part of your question relative to the acquired operations.
If we're looking at the price increases that we're looking at in California, right. Now we're looking at $2. A ton is gonna be effective midyear July one and again that represents a double digit percentage increase versus the January one S. P. So youre seeing that nice building affecting that market, even if we go to our heritage market in la.
In Central Texas, what we're talking to customers about very candidly there is a 10% increase in July of one across the board.
Location is set on products.
So as we're looking at where we sit relative to the new acquisitions.
If we're looking at the investments that we've made.
And in the cement business here in the first quarter and we're looking at the overall price increases and we're looking at the fact that despite the inflation that we saw in Q1 were comfortably ahead of plan.
That gives you a sense of what was predictable about about it but hopefully it gives you a sense of where we are in areas that gives us the confidence to take the guidance up yep.
Yes that all makes sense to me and very encouraging, especially on the pricing front. Thanks for the color I'll pass it on.
Take care.
Thank you. Our next question comes from Kathryn Thompson with Thompson Research. Your line is open.
Hi, Thank you for taking my question today.
It's a little bit more on the outlook for that and customer perspective, what are your backlogs looking like from each of the main end markets res non res in public.
And touching on height availability, it's pretty.
You're pretty much at full utilization in Texas is still running short on products like Turkey to map, which has effectively stopped at all.
So see well how are we going to managers to abandon aggregate demand in light of what you have in backlog. Thank you.
Catherine Thanks for the question I guess several things one if we just look at customer backlog and that's important to think about that that's the way we speak to it.
We're looking at aggregates, it's up about 11% year over year. So again, a very attractive number if we're looking at something that to your point. It's basically sold out if we're looking at magnesia specialties chemicals has a record backlog right now so the customer backlog look very very attractive to us now.
Equally if we look at downstream or the different end uses.
Obviously, we look at Texas, Colorado, California, and North Carolina, Georgia, and Florida.
Those are our leading states, but here's the high class dilemma that we have we're looking at FY 'twenty two lettings in Texas at Txdot.
$10 billion is the highest in five years, if you look at Colorado D O T. As you recall Catharine they passed okay.
10 year infrastructure, Bill with $5 $3 billion tied up on that if we're looking at North Carolina.
Obviously, if we're looking at the recently passed state Biennium budget, it's got a $4 $2 billion number for FY 'twenty, two and it's growing up 17th well that's up 17% over where it was and it's going to be higher for 'twenty three.
This is my way of same state budgets are very good our ability to put the product on the ground to meet the customers' needs is there.
So we are not concerned about meeting their needs, but I think it's also important though is and I tried to address in my comments around non res.
We're seeing more office building, taking place, we're seeing more reassuring taking place and I think a lot of that is driven by where we are building our business and again, you've heard us speak for awhile, but where you are in this industry matters a great deal. So if we're looking at re shoring, whether it's Toyota.
I'm into Greensboro, we now have a Vietnamese car manufacturer in North Carolina, where looking at Samsung North of Austin. These are large significant commercial projects, but I also think the comment that I gave you in my prepared remarks around office and retail and what we're seeing in markets like Charlotte is important.
But again trying to close up at least in part what I'm, saying relative to end markets.
We continue to see even on the residential side under both conditions and we continue to see very attractive population inflow into our markets I.
I think some different states not Martin Marietta States may see some degree of pushback as mortgages move we're not seeing that and in fact as mortgage rates are up 200 basis points as you know versus the prior year quarter, but it's when we go back and even look at that there's no correlation between mortgage rates in single family starts over the past four years.
So what I've tried to do in response to your questions. Just give you a snapshot of what does it look like at the state level relative to infrastructure.
What are we seeing in non res spoke on light and heavy size and keep in mind on the heavy side of that we believe we're going to see increasing LNG activity in south, Texas, but why it is already better and again residential.
In our states with very high population inflows looks good.
Part of what we've done Kathryn as you know is our.
Our capital allocation priorities through cycles has had us in a position that we've added capacity for efficiencies, where we needed to.
And we're in a position today to meet customer demands and their needs at the same time, we recognize we have a very valuable product in the ground.
We're going to stick with our value over volume philosophy, I think the way all of that is going to coalesce, we will have product meet the customers' needs and will create it.
Enduring value for our stakeholders as well so Catherine I hope that helps.
It does thank you very much.
<unk>.
Thank you. Our next question comes from Stanley Elliott.
From Stifel. Your line is open.
Hey, good morning, everyone. Thank you all for taking the question.
Could you talk a little bit more into the commercial environment that you are dealing with right now I know you guys have.
Made a lot of investments there and and it really just trying to get a sense historically when conditions are good the larger players tend to outperform.
Some of the smaller regional players.
Curious if you could tie that into the pricing comments.
The investments that you made on the on the you discussed on the previous question.
Stanley Happy too good to hear your voice and thank you for the question part of what I think is helping US commercially Stanley is where we are and if we go back to the states that I was listing through when we look at the states that are most important to us from a revenue perspective. These are attractive places debate I mean being in Texas today being in Colorado being in California, North Carolina children.
BARDA, where population trends are very powerful helps us having leading positions in those states helps us as well.
I think to your point, yes.
We'd go back and look at the investments we've made whether it's in North Carolina, or Texas, or Colorado or someplace else.
As markets get tighter and customers need product, we are clearly going to be in a position to do that part of what we're seeing is some circumstances today.
As customers have gone out for quotes and the.
Suppliers are unable to meet those requirements at this time, we ended up having the ability to come back and and at times fill orders that we did not get in the first instance, because we are very consistent with a value over volume philosophy, and then again.
We're unapologetic about that so I think several things one it's about the location Stanley to it it's about the philosophy that we bring to it and three it does go back to the capital allocation priorities that we've had and you've heard us long say that our best first dollar spent is one of the REIT transaction. Our next best dollar spent.
Is on internal projects because if we're in the process of making the rocks at Big rocks. We're also going to destroy iron and we want to make sure. We keep these sites.
Well funded very safe very efficient and able to meet market demands, but also flex mismatched change.
So far we've been in a position to do that through a great recession and now through this expansion that we're at so I hope that helps you anyway.
Sure Doug Thanks, so much and best of luck. Thank you.
Okay.
Our next question comes from Garik <unk> with loop capital Your line is open.
Oh, hi, Thanks. Thanks for taking my question you mentioned that your guidance is back half weighted for aggregates gross margins, but given the magnitude of price increases you're putting through in January and April .
How should we think about I guess, two Q gross margins in aggregates.
We still expect that to be down compared to the prior year period, but maybe just help frame the type of margin expansion in the slope of the recovery in the second half of the year.
Sure Eric Let me turns out to Jim and he can walk you through that please.
As you know, we don't give out quarterly guidance so.
With that in mind, I'll kind of give you the broad brush strokes.
Q2 should be a relatively in line with history, but I think the acceleration we're going to see is more pronounced.
Pronounced in Q3 and Q4.
That's the reason are twofold, one the compounding and cascading effects of the price increases as obviously a greater effect.
And the longer you go into the year.
But what's also may not be appreciated is the cost base the inflation effect should moderate as the year goes on Q2 elements the.
The oil and energy inflation we're.
We're assuming for guidance purposes, it remains where it's at we don't see a reduction in oil or fuel prices were assuming for guidance purposes. They remain at their elevated levels that don't come down. So we built that in now that said last year's corresponding quarters saw increasing cost so on a year over year basis, we'll see improvement there the other element.
As our DD&A is a higher percent of sales in Q1 than typical because of the acquisitions, but meaningfully that will not increase that's pretty much a fixed cost. So Q2, Q3 Q4 that element.
And it will be fixed and kind of relatively flat, helping margin expansion in Q2, and Q3 and Q4. So we will get back we're going to see.
Either record or near record margins in the back half of the year on the aggregate side for those reasons that answer your question Gary.
No. It does thank you very much.
Thank you. Our next question comes from Adam.
Hi, Maher with Thompson Davis your line is open.
Hey, good morning, guys.
Hey, Ward I wanted to ask or zero in on the mid year price increases and my question would be do you think that there'll be a structural shift in the industry or do you think this is a one off due to the high.
High inflation, you know just in 2022.
Well look are you you know what I've always said there are very few things in your life that you want that you can buy for $16 a ton accept our product.
To put a spec product on the ground and set up for that is I think something that's pretty special.
I do think if we go over time and look at the durability of aggregates pricing one thing that it has shown us that does have the ability through cycles to continue to move up into the right even in down cycles.
I think you've got two things right now.
Adam I think you've got the.
The demand environment that is attractive is likely to stay attractive.
I think you layer on top of that a demand attractive that is.
Whiting in some very specific states, where we have purposely built our business.
And I think when you take those things together with inflation I think you do have something that is going to be more profound.
For a period of time certainly than it has been over the last several years.
In a marketplace that has either been flat or in some instances down in volume.
From where I'm sitting at them. This is the single most attractive.
Commercial moment during my time at <unk>.
Martin area. So it ended up 12 year period.
Haven't seen anything that looks more attractive than this does and obviously, we'll talk more about 'twenty three as we get closer to it next year, but keeping in mind, we're not going to feel meaningful input from the I I J a in this calendar year, you're going to start to see that next year. So there's nothing in what we're seeing that doesn't give me a sense of that.
We're going to be in a very attractive aggregates pricing cycle for a period of years.
Very clear thank you ward.
You bet.
Thank you. Our next question comes from Phil <unk> with Jefferies. Your line is open.
Hey, guys Ward I guess at this point, maybe you have a little more line of sight in terms of the lettings associated with the infrastructure built to kind of be helpful kind of help us think of the cadence of that ramp next year in 2020 threes again be.
Front end loaded in.
In the first year and kind of kicks in.
Meaningfully or is it going to be a little more gradual nature and it's been a while since you talked about these LNG projects certainly with oil prices are right now that's a pretty robust backdrop help us understand that potential contribution and an overall your ability to kind of.
Supply all that demand potentially coming through.
Yeah, No happy to Phil Thanks for the question. So let me go back over time and think about what we put on the ground back in 2005 2006, we put 205 million tons on the ground back in 2005, we've added let's call it $40 million ish tons or more of capacity. Since then and as you can see we were modestly over 200 million tons last year, that's my way of.
Saying as we see this ramp up we can meet whatever it is going to be required number two if we think about cadence I would say several things one.
Please remember there's about $10 billion of Covid relief aid that youre going to see going into the flow this year.
So I think that's gonna be helpful relative to cadence, particularly in the back half of the year.
The other thing to keep in mind from last year is there are about $7 billion of new voter approved initiatives that were passed last November at about four and a half of that was in Texas. All by itself. So what I would say to us here in half two this year, we're going to start feeling I would say a bit about how.
We're gonna field, a considerable amount of the $10 billion, we're gonna start to feel portions of that $7 billion as.
As we roll into 2023.
Typically if we think about the way a highway bill rolls out in year, one you're going to see about 20% to 25% spent so that's going to be in 'twenty three in a year or two it tends to be around 40%. So again, that's going to be in 'twenty four and then the balance of it over the <unk>.
Following years, so it's a practical matter if we're really looking at 'twenty three 'twenty four 'twenty five 'twenty six 'twenty seven.
Those are going to be the I R. J, a impacted years and I think that's likely to be the type of rollout that we're gonna see and I think remembering that that's gonna be augmented by what we've seen in Covid relief funds together with the voter approved initiatives is the right way to think of it. So hopefully those percentages at least gave you.
Some directional Nashville.
Anything on the LNG side of things, yes, I'm, sorry about that.
What we're seeing on the LNG side is several fold.
John .
As you recall filled there are several large projects in south Texas that combined have about $13 5 billion Touchstone thats going to be required right. Now we've got generally won one of those jobs. So we bought you've seen a change order on that that's what the Golden pass job.
So we're actively involved in that and the fact is whether it's port Arthur Rio Grande Chevron Phillips or Cheniere, a number of those either have final bids that are going in or theyre in the process of sorting out exactly where they're going to be.
We believe with energy prices at an elevated level, we're likely to see continued activity. There. The other thing that we're seeing it again I'm sure. This is not a surprise to you is we're seeing.
More wind activity across the United States. We're also seeing more solar activity across the United States. So energy is likely going to be an area that we will continue to see activity ramp up.
I've been comforted to see at least two different wind farms.
We are looking for product right now so I think between LNG wind farms and solar all of which are more aggregates intensive than you might otherwise I believe that's going to be a pretty attractive end use for us for a while with a lot of potential times.
Thank you our real exciting times, Thanks Bill agreed.
Our next question comes from Michael Dudas with vertical research your line is open.
Michael We don't hear you I'm not sure if youre on mute or out there.
Yes.
My finger gotten away I'm, sorry about that.
It can have a good year.
Morning.
We're just wanted to like maybe you could share some further observations on what you're seeing from your acquisitions out in the West coast.
<unk> gone through some portfolio optimization studies are there any other I assume these are ongoing but is there any others that are material that we might think about throughout the organization that we might see more in 2022.
Let's start first with what we've with what we've done what we brought in and I would say they are all performing at or better than we would've thought. So if we look at the Lehigh transaction, California again, it's ahead of internal expectations that Q1 and by that I mean on volume on price on EBITDA.
These assets, we believe have substantial earnings growth and ASP, but people control, but it's in the process of being unlocked, we're talking with our new teammates on the way that we like to think about.
The way, we're running one of those businesses looks like.
Talked about the fact that we've successfully put in attractive January one increases for all product lines in California, I think I also mentioned that we've got in mid years coming in at that marketplace as well.
Again, that's going to be around $2 a ton in California. So again, we're very pleased with what we're seeing there kilar has been a wonderful acquisition for us as well keep in mind in Q1 till there is not going to do much because Minnesota just doesn't have that much going on but if we look at what we've seen in that business number one is a very good business when we bought.
Got it.
Number two we think it's going to be one of the best in class in Martin Marietta relative to cash flow conversion, we think it's going to be that way for generations to come it's got a very attractive aggregates business, but it also has a very attractive part mixed business in the marketplace, which Minnesota has a very aggressive department of transportation budget.
The other thing Thats been important to us there and it's been a very nice value add is some of the excess properties that we've been able to sell that have come out of that business as well.
So all in all as we're mining there are a lot of it is sand and gravel and we're reclaiming property and turning it into very attractive commercial.
Operations or pads going forward.
That's been a very very attractive business for us. So I would tell you that there's been nothing in the major transactions that we did last year that has in any respect been a disappointment in fact, they they have all exceeded what we would have believed.
Relative to the optimization as you would imagine part of what we've been focused on is what we've long said we are in that is we are an aggregates led company.
At the same time, if we look at the portfolio that we have I will tell you very candidly we were very pleased with the portfolio that we have so I wouldn't be looking for enormous changes in that portfolio, but but.
You'll also see.
With the shifts that we've made and the sale of the ready mix business in Colorado, and Central Texas that we've done.
If you look at the initial portfolio breakdown and product line contributions on what it looked like before that transaction and what it looked like after that transaction. Obviously the aggregates led portion of it went up fairly notably and puts you'll also see is that we're looking for about 120 basis points of March.
An improvement with what we've done relative to the portfolio as well.
You and I know, it's different markets are built differently in some markets you need to be vertically integrated in some markets. You don't obviously, if we think about the business that we have in Texas. We are the largest aggregates player. We're the largest player and the largest readiness player and we think that's an important way to face the market equally if we look at it.
Business that we have in Arizona today.
The ready mix business that we have in Arizona is a very very attractive ready mix business.
So part of what we've done over a period of nearly 30 years now.
It is trying to be very purposeful in where we have built our portfolio is how we built it and what the products are.
And we believe with what we've already done and what we have pending right now relative to the sale of writing in Northern California, The ready mix in California, and then the preferred transaction that we have with Cal Portland relative to to hatch IP.
A lot of moving parts, but we think it's all value added if moving parts.
Okay excellent. Thank you.
So much more.
Our next question comes from Keith Hughes with Truest. Your line is open.
Thanks, Mike Porcelain plc, two two described earlier a couple of things on that.
So at a higher sales price to the customer and just traditional cement and you have a feel for how big of how big of a business could this be.
Well it was accepted.
With the Texas, Texas market.
No.
Thanks for the question on that so a couple of things one it doesn't sell for anything Thats markedly higher I mean part of what is happening with it Keith is different departments of transportation have gone about the process of either approving it or not approving it on different timelines. So frankly, its now allowed by Txdot.
The short answer is it performs very similar to the type one and type two sumit.
It certainly helps as Jim outlined with incremental capacity it does lower raw material costs and it puts you in a position that you can use less carbon intensive clinker overtime as well so they're just a series of components to it that from a cost input perspective from an environmental.
<unk> and a capacity perspective, but it ended up being actually very attractive and as you know Keith we're estimate producer in Texas and some of it is very tight in Texas, So from a timing perspective.
It is very very helpful. Because obviously F M seven which will add will bring significant efficiencies to that business will obviously get some other components from those efficiencies that we believe might help meaning the volume of that market's more combining that with what we see in plc.
That's a very attractive trifecta in a marketplace that is seeing increasing pricing right now.
Okay. Thank you.
Okay.
Our next question comes from Timna Tanners with Wolfe Research Your line is open.
Yeah, Hey, good morning, Thanks, Hey.
Hi, Timna.
Wanted to just explore that.
Shortage discussion a little bit more and what alleviates that there needs to be you know incremental capacity or if this is just a logistics shortages. There has been a little bit of imports from Mexico and I just wanted to get a little bit more of your perspective about how that plays out if I. If this is a two shortage or if it's just about like labor.
And logistics are are your thoughts there would be great.
Timna. Thank you for your question and in fact, I think it's going to be what it's real it's tied to I think it's going to stay tight for a while if we only look at the reports that come out from the controller I mean, what you will see as Martin Marietta's Marketshare and again. This is really Texas conversation with you and I are having.
It's usually around 20% in that marketplace, we see that move around a little bit to your point imported cement has seen its share move around over time as well historically imported cement in Texas has been 10% to 12% I think the most recent numbers have seen has it modestly over 17%. So that gives you a pretty good.
Sense of you know that that's what's having to happen as we speak to make sure that the market is actually said.
I think part of what happens in Texas to Timna. If you think about it when you're writing in New York you are writing on asphalt roads, when you're running in Texas, you're riding on concrete roads and part of the reason I mentioned that is infrastructure has always been one of the higher percentages in Texas of the downstream markets that we have we think it's going to be.
Tenure to be that way.
At the same time, if we're looking at the nonresidential projects that are underway in that marketplace. They to tend to be relatively concrete intensive because they are structural in nature nature.
So is it tight yes.
Are we actually going to add efficiencies and as I mentioned before have a byproduct of what we think might be capacity through F. M stuff and the answer is yes, do I think plc submit helps in that marketplace I think that answer equally as yes.
But here's something to keep in mind Timna.
West, Texas with the energy sector Havent been where it's been over the last several years has not been particularly boy. It we're seeing that market come back right now that some of the more attractive pricing in the state and at the same time.
Adding capacity is number one very expensive and number two regulatory quite challenging so.
That's my way of saying it is tight it's not manufacture tight it's not a labor tight is just tight and I think it's likely to be that way for awhile. So I hope that helps timna.
So between energy and infrastructure still on the come there was there's even more demand around the corner and not on any supply that's out there. It feels like Texas is a good place to be I don't know I think that's right.
Got it okay. Thank you. Thank you Tim.
Yeah.
Yes.
Our next question comes from David Macgregor with Longbow Research. Your line is open.
Yes, good morning, everyone and David warranted.
Good morning, it's nice to hear your characterization of the aggregates market right now is the most commercially encouraging you've seen or the best moment, you've seen in the past 12 years.
I think that says a lot I.
I guess my question was with respect to the midyear price increases I'm, just thinking back over the years.
But your price increase has always had kind of a limited second half benefit.
But certainly an important compounding benefits of the subsequent year.
Is there anything different this year with respect to how we would phase in those mid year price increases maybe your ability to price backlogs or maybe theres escalators.
And that business now that hadn't been there in the past, but I'm just wondering if there's anything different this year with respect to that crazy.
I think volume volume is clearly going to be growing in the back half of the year and it's going to be growing into next year. So I would say two things David if you think about the ASP increases that we've already seen in Q1.
<unk> has a major price increases that we're putting it on April one.
We encourage you to start thinking about this year's mid term mid years in that way as we think about next year as a general rule and there are always exceptions to general rules as you know as a general rule Youll recognize about 25% of a midyear price increase in the year, which you put it because you are protecting.
Customers on volume that you've already committed to them.
To the extent that they're going through product more quickly. This year you might recognize more I think the primary thing that I would say relative to the mid years, David back to my commentary that it's the most attractive commercial market that I've seen as CEO .
It's simply going to be at the with Brett and amount of them.
I just think we're in a place that we will see more of them at higher dollars than we've seen for a while.
Like I indicated early on where we're seeing good years that could be anywhere from a dollar a ton to $5 a ton depending on product and market dynamics and it's been a long time since you and I've had that type of conversation.
Yeah definitely congratulations on all the progress.
Thanks, so much.
Thank you we have a question from Courtney <unk> with Morgan Stanley . Your line is open.
Hi, Good morning, guys. Thanks for the question.
Just wondering you know obviously very exciting to see the the increase to pricing in the guidance but.
You didn't change your your volume outlook and I believe yeah. This is primarily due to that type of market and largely logistics constraints.
Can you help us just understand if you are starting to see any softness obviously, we're seeing you know freight rates come down and then you know.
Similarly, just on the job site, if theres any improvement in some of the supply chain constraints that we've been seen.
It's still too early to call at this point. According to it's a great question and Sadly I do think it's too early to call right now a lot of the same constraints that we're seeing last year. We continue to see right now I will tell you at least from supply chain to us relative to our own internal capital projects, we're not seeing big issues there in <unk>.
Large measure because most of our supply chain is a domestic supply chain instead of international but I do believe we're gonna be faced with for a while the same labor issues for contractors, though I think that is getting better I think transportation will continue to be constrained for a while the other thing too.
Jim mentioned, it's not so much the supply issue it is a cost issue.
We did go back and adjust basically where we had our fuel for the rest of the year. We came into the year as I think Jim has mentioned with about a $25 million headwind on fuel, we're assuming it's going to stay there. So actually in the guidance that we've given you we've assumed that there's about $75 million headwind of that.
So I wanted to make sure I spoke to you about that headwind as well as what we're seeing overall in supply chain, but.
I think the short answer is coordinates it's still too early to know for sure.
Okay, great. Thank you Youre.
Youre welcome. Thank you.
Our next question comes from Brent Thielman with D. A Davidson Davidson your line is open.
Hey, great. Thank you.
Ward I've heard you mentioned in a couple of occasions on this call how critical it is for the customers to get the product as quickly as possible in this sort of environment today, you've heard that from others as well.
Are you needing to make incremental investments at your sites to support that or it's just that's just the situation where scale and proximity.
Giving you a leg up right now.
It's a great question and I think it's the latter.
And I think its fortunate that we've been in a position that as we've gone through cycles with we've been able to very consistently invest in our business. We've never had to pull back on the capex stick for such an extended period of time at such a low base.
Base that we've done intrinsic harm to the business and in fact, if you go back over time and you see where we've been we've largely been around 9% of revenues relative to our capex and we've been pretty consistent with what we're doing inside our business. So I do think that puts us in a position that we can meet customer demand.
What other businesses that have not been as fortunate as we have from a capital allocation perspective on Acacia can't.
But again I think it's important to say too that we're going to be very careful in the way that we do that because we want to make sure we're recognizing the value of our product.
Yeah.
Okay. Thank you. Thank you Brent.
Thank you and we have a question from Michael.
Michael Feniger with Bank of America. Your line is open.
Yeah. Thanks for squeezing me in when we look at your updated pricing guidance for aggregates, the 9% to 11% and kind of where you started with the first quarter.
How youre going to build and it looks like you guys.
Is it the year above that range.
12% to 50% range. So just why can't double digit pricing in 2023 is that just the baseline that we should be expecting and with that level of pricing what type of incremental margin should we be kind of thinking about on that level of pricing is that cost base hopefully normalizes by 2020.
Thanks, everyone. Michael Thanks for the question I Love your vision.
The fact is we'll talk more about 2023, when we get closer to it.
Your point's a good one I'm going to ask Jeff to speak a little bit to that type of build that we think we're going to see where things are going to exit obviously, we would not have taken up the midpoint of guidance unless we had some confidence in what we're seeing here in April but Jim you want to address at least the bill yeah. So so youre right the exit momentum.
It'll be higher than today's Peter Brooklyn, anthem will be more accelerated more robust in the back half of this year versus today, leading to hopefully a continuation of good things into next year. So I think that'll make sense. What you just said and as a mathematical matter, yes that should imply very robust incremental margins in a scenario out there.
<unk> maintained those price increases, especially where you have a cost inflation cost inflation a mall.
Iteration scenario, which is.
Likely to occur.
Yeah.
Thanks.
Michael.
Yeah.
There are no other questions in the queue I'd like to turn the call back to Mr. Ward Nye for closing remarks.
Catherine Thank you and thank you all for joining today's earnings conference call. We're confident in Martin Marietta's prospects to continue driving attractive growth and superior shareholder value underscored by our consistently execute our strategic priorities and a supportive environment in terms of demand and pricing.
Integral to the long term success of our employees communities and stakeholders are sustainable business practices to learn more we invite you to read our recently published 2021 sustainability report, which is available on the sustainability section of our website. We look forward to sharing our second quarter of 2022 results in the late summer as always.
We're available for any follow up questions. Thank you for your time and continued support of Martin Marietta.
This concludes today's conference call. Thank you for participating you may now disconnect.
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