Q4 2022 Martin Marietta Materials Inc Earnings Call
[music].
Okay.
Hello, and welcome to Martin Marietta's for full year and fourth 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 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. Jennifer Park, Martin Marietta's, Vice President of Investor Relations, Jennifer you may begin.
Yeah.
Good morning, It's my pleasure to welcome you to our full year and fourth 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 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.
Undertakes 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 and exchange Commission's website.
We have made available during this webcast and on the investors section of our website supplemental information that summarizes our financial results trends and 2023 guidance.
As a reminder, 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 amounts in the appendix of the supplemental information as well as our filings with the SEC and are also available on our website.
I will begin today's call with a discussion of our operating performance.
Nicholas will then review our financial results and capital allocation after which ward will conclude with market trends and our 2023 outlook a question and answer session will follow please limit your Q&A participation to one question I will now turn the call over to ward.
Thank you Jenny good morning, everyone and thank you for joining today's teleconference. I'm pleased to report that in 2022, Martin Marietta delivered our most profitable year and our 11th consecutive year of growth for consolidated products and services revenues gross profit and adjusted EBITDA.
Martin Marietta also achieved a world class total injury incident rate for the second year in a row and a world class lost time incident rate for the sixth consecutive year.
We delivered these record results along with platform M&A integration and multiple portfolio optimization actions.
Challenging macroeconomic setting that included a housing slowdown monetary tightening and 40 year high inflation.
Martin Marietta's accomplishments are a testament to our team's steadfast commitment to the disciplined execution of our strategic plan.
Importantly, the company is well positioned to deliver another record year in 2023.
Before discussing our full year results I'll briefly highlight a few takeaways from the fourth quarter.
While pricing growth significantly accelerated product shipments were adversely affected by inclement weather and a number of key Martin Marietta geographies. As a reminder, we're comparing 'twenty to 'twenty two results against the fourth quarter of 2021, when we benefited from unseasonably warm and dry weather that extended the construction.
Season late into the year with this context aggregates shipments decreased 12% against the prior year quarter, yet as we began 2023 aggregates customers backlogs remain healthy and shipment trends. Thus far are ahead of planned levels.
Pricing in the fourth quarter of 2022 increased a robust 16, 5% a quarterly record or five 6% sequentially, providing attractive tailwind into 2023.
Further despite the weather impacts on operating leverage and acceleration of certain operating expenses pricing growth drove aggregates gross margin expansion and improved gross profit per ton shipped by 25% over the prior year quarter and.
In summary for the final quarter of 2022 poor weather was a literal headwind for 2023 stage has been set both operationally and commercially.
Now, let's turn to our full year 2022 results and the new financial Records, we set for an 11th consecutive year and each of the following year over year metrics.
Consolidated products and services revenues of $5 $7 billion, a 13% increase consolidated gross profit of $1 $4 billion, a 6% increase and adjusted EBITDA of one $6 billion, a 5% increase.
These results underscore the success of our value over volume commercial strategy through which we successfully implemented multiple pricing actions in 2022.
As a result, we achieved double digit pricing growth across all building materials product lines. However, we were not immune to the rapid and significant inflationary pressures.
Acted our operating costs and affected our product gross margin, which declined 160 basis points to 24, 9% for the year.
As an example, 2020 two's results included $178 million of energy cost headwinds on over 55% increase compared with 2021.
It bears repeating that inflation supports a constructive pricing environment for our upstream materials.
If it's a push long endure after inflationary pressures abate.
We believe our multiple commercial actions enacted in 2022, coupled with broad customer support of our January one 2023 price increases will drive meaningful pricing acceleration and margin expansion in 2023.
Let's now turn to our full year operating performance beginning with aggregates.
We experienced solid aggregates demand across our geographic footprint with total aggregate shipments increasing three 3% to 208 million tonnes aggregate pricing fundamentals remain very attractive as pricing increased 10, 6% or 10% on a mix adjusted basis.
The Texas cement market continues to experience robust demand and tight supply amid near sold out conditions.
Against that backdrop, and combined with our cement team's focused execution on commercial and operational excellence, we delivered record yearly shipments of $4 2 million tons and pricing growth of 16, 9%.
We expect favorable Texas cement commercial dynamics will continue for the foreseeable future based on market trends and the success of our January one price increases.
Shifting to our targeted downstream businesses prior year shipment comparability for ready mix concrete is notably impacted by last april's divestiture of our Colorado and Central Texas operations, and only partially offset by our Arizona acquisition.
Concrete shipments decreased 25, 4% and pricing increased 11, 3%, reflecting multiple pricing actions in the year, including fuel surcharges in order to pass through raw material and other inflationary cost increases.
Asphalt shipments increased 28, 4% driven by contributions from our acquired California, and Arizona operations, which also impacts the prior year comparability.
<unk> improved 23, 6% following the increase in raw material costs, principally liquid asphalt or bitumen.
Before discussing our 2023 outlook I will turn the call over to Jim to conclude our 2022 discussion with a review of the company's financial results Jim.
Thank you art and good morning to everyone.
The building materials business posted record products and services revenues of $5 $45 billion in <unk>.
14, 4% increase over last year, and our product gross profit record of 1.3 or $4 billion and eight 1% increase.
Aggregates product gross profit improved eight 3% relative to the prior year, achieving a record $980 million.
Aggregates product gross margin declined 160 basis points to 28%.
As robust pricing growth throughout the year did not serve to offset the continued inflationary impacts of higher energy internal freight repairs and maintenance costs until the fourth quarter.
A 2022.
Our Texas cement business delivered an all time record top and bottom line results.
Product revenues increased 21, 8% to $602 million.
Product gross profit increased 31% to.
$204 million.
Importantly, <unk>.
Execution of our disciplined commercial approach drove product gross margin expansion of 210 basis points to 33, 9%. Despite significant energy cost headwinds primarily related to natural gas and electricity.
2022 was a great year for our strategic cement business.
It's worth highlighting this business has growth and performance over the last three years.
Since 2019 shipments are up 8%, while product revenues are up 37%.
Revenue has grown over four five times faster than shipments demonstrating the team's commitment to commercial excellence.
Over that same timeframe gross profit is up 42% despite energy costs doubling.
And consistent operational improvements focus on reliability and efficiency have brought increased production and higher margins.
This journey of growth is far from complete.
As previously disclosed our Midlothian plant has several initiatives underway to improve production capacity.
The largest of those is the installation of a new finished meal now expected to be completed in the third quarter 2024.
The other initiatives remain on track and have already provided additional capacity.
At both Midlothian and Hunter plants, we have largely completed converting our construction cement customers from type one and type two cement.
To the less carbon intensive Portland limestone cement.
Also known as type one L.
The cumulative effort of our capital expenditures at Midlothian and the conversion to type one L resulted in growing production volumes by 5% in 2022 compared to 2021 levels.
We expect those efforts to provide an additional capacity expansion of 5% in 2023.
Our ready mix concrete product revenues declined 17% to $951 million.
And product gross profit declined 27, 2% to $70 million driven primarily by the divestiture of our Colorado and Central Texas operations, and partially offset by contributions from our acquired Arizona operations impacting prior year comparability.
Increased aggregates and cement costs further weighed on gross margin, which declined 100 basis points to seven 3%.
Our 2022 asphalt and paving results include the acquired California, and Arizona operations.
Packing comparability with the prior year.
On an as reported basis stable demand improved pricing and acquisition contributions led to record revenues of $775 million.
A 58% increase over the prior year.
Product gross profit increased $3 million to $82 million, while continued liquid asphalt inflation contributed to product gross margin decline of 480 basis points to 10, 6%.
Magnesia specialties generated product revenues of $278 million.
A one 2% increase over the prior year.
However.
Higher energy supplies and contract services expenses resulted in a product gross profit decline.
13, 5% to $96 million.
Product gross margin compression of 580 basis points to 34, 4%.
Our full year energy expense was $178 million or.
For 55% higher than the prior year and diesel fuel accounted for approximately half of that cost increase.
While diesel cost increases moderated in the fourth quarter they remain a headwind.
Our 2023 guidance assumes that the cost per gallon of diesel felt only modestly from current elevated levels.
We remain focused on the disciplined execution of our strategic plan to responsibly grow through acquisitions and reinvest in the business. While also returning capital to shareholders.
In 2022, we returned $309 million to shareholders through both dividend payments and share repurchases.
Since our repurchase authorization announced in February 2015, we have returned a total of $2 $3 billion to shareholders through a combination of meaningful and sustainable dividends as well as share repurchases.
As a reminder.
August 2022, we executed a definitive agreement to sell our <unk>, California cement plant and related distribution terminals to Cal Portland Company for 350 million subs.
Subject to regulatory approval.
Customary closing conditions.
Yes, kober, the Federal Trade Commission issued a second request for information related to this pending transaction.
And we continue to work towards closing this matter in a timely manner.
At December 31, 2021, our net debt to EBITDA ratio was three two times after a year of robust M&A activity.
In 2022, our stated focus was on integrating these new operations into our business.
Executing portfolio enhancing divestitures and deleveraging to within the Companys targeted range.
As a result, we achieved a net debt to EBITDA ratio of two five times by year's end.
Exiting the year with a strong balance sheet, our capital allocation priorities remain focused on prudent investments in attractive upstream acquisitions.
Organic growth initiatives and we.
Returning capital to shareholders.
With that I will turn the call back toward.
Thanks, Jim.
We're highly enthusiastic about Martin marietta's prospects in 2023 and beyond as we build upon the foundation established in 2022.
As indicated in our supplemental materials historic legislation, including the infrastructure investment and jobs Act or II JA.
Inflation reduction act and chipset are expected to support multi year demand for our products across infrastructure and heavy nonresidential construction sectors, thereby improving the durability of our business through the current period of macroeconomic uncertainty.
Starting first with infrastructure.
The value of state and local government Highway bridge and tunnel contract awards, a leading indicator of future demand grew 24% to a record $102 billion in 2022.
By comparison, the compounded annual growth rate for combined Highway and bridge awards from 2018 through 2021 was one 7%.
State departments of transportation or Dot's in key Martin Marietta States remained robustly funded with budgets all above or in line with prior year levels and are well positioned from a resource aspect and designer perspective to deploy the full allocation of federal dollars received from the <unk>.
In fiscal year 2023.
In addition to the multiyear funding from the <unk> in December 2022, the President signed the fiscal year 2023 spending package included in the package is the accordion Padilla amendment, allowing states and local municipalities to use unused COVID-19 relief dollars.
For infrastructure projects it's.
It's estimated this alone will provide an additional $40 billion of available infrastructure funding for Martin Marietta's Top 10 states.
Importantly investment in our nation's infrastructure maintains broad public support during their November 2022 election voters nationwide approved 87% of transportation related state and local ballot initiatives, representing approximately $23 billion of additional infra.
Structure funding.
A few notable funding initiatives include $15 billion in Texas $3 billion in San Francisco, One $3 billion in South Carolina to our sales tax addition, and $1 billion in Colorado through the renewal of our sales tax position.
We expect this significantly enhanced level of federal state and local infrastructure investment to yield multiyear demand for our products. In this important counter cyclical end market and drive aggregate shipments to infrastructure closer to our 10 year historical average of 39% of total shipments as compare.
To 35% in 2022.
Moving now to nonresidential construction industrial projects of scale led by energy onshore manufacturing and data centers continue to lead the segment accounting for the majority of total non residential product shipments.
Over the medium term, we expect that enhanced federal investment from the inflation reduction Act and chipset will further support and accelerate post pandemic secular growth trends.
This includes restructured manufacturing and energy supply chains via electric vehicle transition and continued adoption of digital and cloud based technologies, resulting in robust demand within the heavy nonresidential sector.
In our supplemental materials, we outlined examples of both in process and recently announced large industrial projects in our key markets reflective of these trends.
The aggregates intensive nature and multiyear duration of these projects are expected to extend the nonresidential construction cycle.
While we continue to see recovery in pandemic impacted like commercial retail and hospitality sectors. We expect these gains will moderate as these categories generally follow single family residential development with a lag.
Shifting to residential we expect this segment shipments to follow the trend in housing starts which remained weak. However, we anticipate medium term improvement as interest and mortgage rates stabilize.
Moreover, we expect comparatively positive trends in our sunbelt markets, where theres a significant structural housing deficit due to a decade of under building as a result, we continue to expect the current housing slowdown will be moderate and our key metropolitan areas as affordability headwinds recede.
In summary, we expect 2023 to be another record year for Martin Marietta.
We anticipate flat aggregates shipments at the midpoint of guidance as we continue to expect increased infrastructure investment coupled with robust activity from heavy nonresidential projects of scale, we're largely insulate product shipments from our residential slowdown and a related moderation and light commercial construction.
We now expect aggregates pricing growth of 13% to 15% underscored by attractive 2022 exit rates early 2023 pricing momentum and a steadfast commitment to our value over volume commercial strategy, which should more than offset continued inflationary pressure and result.
And expanded gross margins and accelerated unit profitability growth.
Combined with contributions from cement downstream operations in Magnesia specialties, we expect consolidated adjusted EBITDA of $1.800 billion to $1 billion $900 million or 15, 6% growth year over year at the midpoint.
As a reminder, this guidance excludes the businesses classified as assets held for sale.
To conclude we are proud of our 2022 record setting performance in a dynamic and challenging environment equally we're confident about our 2023 guidance and our ability to navigate the current macroeconomic headwinds while further demonstrating the resiliency of our proven aggregates led business model.
As such we expect the fourth quarter commercial and margin expansion momentum to accelerate in 2023, resulting in attractive earnings growth and superior value creation for our stakeholders. If the operator will now provide the required instructions, we'll turn our attention to addressing your questions.
Thank you.
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Please standby, while we compile the Q&A roster.
Our first question comes from the line of Kathryn Thompson with Thompson Research Group. Your line is now open.
Hi, Thank you for taking my question today.
Volume seems to be.
Pretty clear do you gave a lot of detailed shot but I wanted to focus my question today on pricing.
You had very strong double digit year over year pricing and the aggregates and cement and very strong sequential pricing on top of that.
Would you clarify your views just in light of price increases for cement.
Early in the year and for aggregates also are in the year without some resiliency acceptance.
And how timing differences this year may impact the cadence.
Versus prior years. Thank you.
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Hey, guys.
Kathryn can you hear me.
Alright, I can repeat the question again.
Technology is great when it works.
It's terrible when it does and so let's talk about things that work Whats your question Katherine.
Okay, Yeah, today's the day of technology for another time.
It said is our volume for the quarter.
And really kind of look toward makes a lot of sense in terms of what we've seen based on our primary research.
Wanted to focus the question on pricing.
Brazil, you had double digit strong double digit pricing.
And cement and aggregates Terry strong sequential pricing aggregates building on momentum.
Price increases in January for both cement and aggregates when does your commentary on resilient see differences in timing.
And then also acceptance.
Given the landscape that we have right now which is a little bit different.
All of it gets in to helping us better understand the cadence as we go through 'twenty three.
Thank you and thank you for the question Catherine So several things, let's talk about aggregates first then we'll talk about cement.
To your point 16, 5% up in the quarter for aggregates is impressive by any standards keep in mind too that was up five 6% sequentially.
And again it brought us very much within the range that we had started saying we thought we were going to hit during the year.
Obviously, when we look at <unk> now so 27% for the quarter up almost 17% for the full year. So a couple of thoughts on that.
One upstream materials pricing tends to be very resilient. So if we go back over time and look at what has happened in particular with aggregates and.
<unk> is not a space that gives back pricing.
Number two and I think this is important.
Keep in mind, we were moving to pricing as the year went on.
As I said in the prepared remarks, and inflationary environment is hugely helpful for upstream materials Whats a challenge is when it moves so rapidly and moves in big chunks and that's what happened in 2022.
So what I thought was particularly powerful in the quarter.
As to see margin expansion in Q4, despite the pack volumes were down 12%.
So do I think that shows good cost control, yes, do I think it shows the power pricing, yes, do I think pricing sticks going into the new year.
Not just that it sticks I think it continues to expand because.
Because keep in mind, we're going to continue to see degrees of inflation in our business from our suppliers as well the differences now we've caught up with it.
So I think those are important takeaways here is another important takeaway katherine or two hours.
Number one we have moved the vast majority of our customers to January one from a price increase as you may recall from years past.
Bifurcated somewhere in January somewhere in April the vast majority now are in January <unk>.
Two we indicated to our customers with our price increase letters coming into the new year that we were reserving our rights to come back and have a conversation relative to mid year price increases as well, we'll obviously talk more about that as we get closer to mid year, but here are some important.
Take away.
The pricing guidance that we have from 13 to 15, obviously with a mid 2014 does not have in it right now any mid year price increases so to the extent that we see those during the course of the year that would obviously trend to the upside on pricing. So Catherine. Thank you for the question I Hope that's broadly.
The responses.
Yes, thanks, very much I'll get back with you.
Thank you.
Our next question comes from the line of Trey Grooms with Stephens. Your line is now open.
Hey, good morning, Morgan Jim.
So thanks for the color in the deck that was very helpful. But I was hoping you could dive in a little deeper on your end market expectations, maybe a little more granularity around what is baked into your flat aggregates volume guide for.
Aggregate shipments this year.
Through each of your end markets and kind of how you get there.
Happy to try and thank you for that so several things.
One if we look at what we believe will be our largest end use in the year, that's going to be infrastructure, we think thats up mid single digits to high single digits for a number of reasons one.
We outlined in the prepared comments, we are very healthy state Dot's number one number two if we're looking at highway contract awards are up 24% to $80 billion.
That's a record number.
I mentioned that the corn and <unk> Act that went in really.
Not that long ago is going to add $40 billion just to Martin Marietta's top 10 states.
It's a big number we think states will put that money to use the other thing that I thought was notable as we look at the ballot initiatives from late last year passed at a rate of almost 90%, but importantly that adds another $23 billion. So when we're looking at already healthy state Dot's. We're looking at corn in video we're looking at a new long term highway bill.
State initiatives.
That's a pretty powerful mix for us and again much of what's driving our resilience and that is where so again. If you go back and look at the states that are so key to us of Texas, Colorado, and North Carolina, Georgia, Florida, California, and public. These states are all very good position relative to public infrastructure going forward.
As we look at non res we.
We see two somewhat different stories in non res, we think nonresidents broadly going to be flat.
And here's how we get there we think large projects of scale, whether it's manufacturing energy or others and again I think you go back to those states that I was referring to a minute ago.
We think those projects are going to stay very attractive and they tend to be very aggregates intensive work. So do we think heavy non res is going to be better. Yeah. We do do we think like non res may see some headwinds yes, we do.
But our view is the heavy piece of it overcomes the light piece of it leading us to something that we feel like is broadly flat.
As we look at residential it's our view is probably not that different than what you would see nationally the differences our footprint. So do we think single family rentals is going to be down. The answer is yes, we think it's going to be down in our footprint, probably 10% to 15% again. This is the smallest of our three large end uses.
Again, as we're looking in a number of our markets. The biggest issue that we're faced with.
It's not so much affordability, but rather availability, which tells us that housing is going to come under some pressure probably not as great in our markets as many the other thing that we think helps mitigate that as we think multifamily is likely to be quite good and we're seeing good multifamily activity and then lastly in our Tim rock in rail.
Segment, and again, that's going to be railroad balanced, it's going to be agricultural alignment, others, and we have a bigger end use there and most of our competitors, we feel like that's probably going to be up.
Mid single digits, so again as we take infrastructure up.
Non res sideways single family.
Down Tim rock in rail.
That leads us broadly to something that we feel like is going to be flat.
But importantly trade part of what we've done is we've gone on a state by state basis, and we've looked at infrastructure non res res and Kim rocket rail and we've tried to look at the jobs.
Either in our customers' backlog.
Or believe we believe that they are well positioned to get and as we go through that bottoms up analysis. It brings us from an end use perspective that we feel like this guide that we put out there is such a very responsible guide as we look into 2023.
Alright, Thank you board that Super helpful. Keep up the good work I'll pass it on thanks, so much strength.
Thank you.
Our next question comes from the line of Stanley Elliott with Stifel. Your line is now open.
Hey, good morning, everyone. Thank you all for taking the question.
Ward in the press release, you guys talked about some of the visibility that you are seeing in the customer backlog.
Let's get a little more context.
What youre seeing and then.
By the same token you mentioned a number of large scale projects. The large number of large scale kind of government funding initiatives.
I'd have to think to the visibility extending out pretty far right now but.
Would love to hear kind of how youre thinking about all that.
Stanley. Thank you so much for the question as we look at customer backlogs and we do try to get a good sense of where that sits year over year.
This is pretty heartening to see aggregate backlogs is up about 7%.
Where it was last year and perhaps even more importantly, even as we look at it sequentially from Q3. It continues to move in an attractive way.
And as we look at the geography, and the geography is not surprising to me, but I will tell you two it's actually comforting to me because the east which is such an important market to our Stanley as you know division the East Division backlogs are up around 3% as we look at the southwest again, where we have a very significant position.
Theyre up around 7% versus prior year quarter. The only places that we're seeing some modest movement not a big surprises and really parts of the central United States at the same time, it's very early there in the season, but even if we look in cement it's interesting.
When I look at our strategic cement business again, very focused on Dallas Fort worth very focused on Austin and San Antonio backlogs are really quite healthy and importantly, as we look at our downstream business is primarily in Texas, we're seeing ready mix backlogs very much in line with prior year.
Keep in mind to your point.
A lot of what we think is going to happen relative to nonresidential is actually ahead of us on these large energy related projects. So we think those numbers are likely to build during the course of the year.
I think it's always important to remember that as we look at these customer backlogs, particularly this time of year.
It only represents I want to say, 25% to 35% of annual aggregates and cement shipments. So it's not something that's no pun intended chiseled in stone, but nonetheless, it's actually a very good indicator of where we think the year is going and I think your question really ties back into a degree to what.
Trey asked when we're looking at our key states. We're looking at the summary, we're looking at all the end users.
We're looking at that and then going as a green is in yellow is at red the vast majority of our key states youre going to see green indicators on those sustaining I hope that's helpful.
Sure. Thanks, so much for the color and best of luck.
You bet. Thank you Sterling.
Thank you.
Our next question comes from the line of Anthony Pettinari with Citi. Your line is now open.
Hi, Good morning, Hi, Anthony.
Right.
Award or Jim.
Understanding you don't give quarterly guidance is there a way to think about how the cadence of earnings or volumes might flow over the four quarters of the year and I'm just thinking with the catch up on price cost.
Maybe taking some time to get those dollars spent.
Is it accurate to think earnings could be more second half weighted relative to previous years or is there any.
Any way, we can think about that.
I'm going to ask Jim to go through in just a second and give you a little bit more granularity on it I mean, several things that you know foundation right number one the two slowest quarter send up in Q1 and Q4 as we think about Q4 in the year that we just lapped and obviously volumes were down in Q4, 12% and margin expanded so oddly enough as you think about next year.
Year, one of the easier comps, we're going to have will likely be later in the year at the same time. If you think about the way some of this may flow through having accelerated pricing toward the beginning of the year. It might make Q1 look a little bit different but I'll turn it over to Jim to talk a little bit about the rhythm and cadence that we typically see.
On volumes, Jeff, Yes, so.
Thinking about a three year average if you look back three years and then comparing that to 2023, what we're expecting Q1 will be.
Better in 2023 versus the three year average.
And then I'd say, it's it's.
More leveling out at that point, so Q2, maybe a little bit worse than prior Q2s, but still better than prior year in terms of absolute performance and then back half should be.
Equally equal to what we'd seen in prior three years or so on average so Q1 disproportionately better than historical experience and then Q2, a little worse in the back half pretty similar and again. These are just percentage basis that we're talking about it every quarter every quarter to be clear will be better than the prior year quarter on an absolute basis.
Got it got it that's very helpful I'll turn it over thanks.
Anthony.
Yeah.
Thank you. Our next question comes from the line of Jerry Revich with Goldman Sachs. Your line is now open.
Yes, hi, good morning, everyone.
Morning, Jerry.
I Wonder if you could just continuing that.
Conversation around the volume comps in the first half of the year you had an outstanding <unk>.
First quarter of 'twenty, two seasonally adjusted run rate was closer to 218 million tons versus that two week run rate that we're looking for in the guide for 'twenty three so.
Yeah, correct correct me if I'm wrong.
It sounds like we should be expecting volumes to be down year over year, just based on the comps.
Through at least the first quarter, if not the second quarter I just want to make sure. We're calibrated on on the volume cadence over the course of 'twenty three yeah. That's right that's right, but the bigger difference is for Q1 outperformed outperformance relative to history for 'twenty three is I think the.
Price and price cost spread again.
Again versus versus last quarter or so.
That's right so Q1 <unk>.
Slightly down, but then growing and exceeding prior year for the remaining three quarters of the year.
Gerry if you reflect on the way these public dollars, they're going to come through I think thats actually pretty consistent with what we said last year on how we thought the year would likely build.
Throughout the year, so to Jim's point, we're talking two different things one volume.
Others financially and I think to Jim's point, we're going to see a much better year financial each quarter I think we're going to see a very attractive sequential build each quarter relative to volumes and I again, I think that's pretty consistent.
With where we've been and I'd be surprised if you're surprised by that.
Thank you.
Super I appreciate the discussion and outstanding performance gross profit per ton by the team.
Thanks, Amit.
Jerry.
Thank you.
Our next question comes from the line of Phil <unk> with Jefferies. Your line is now open.
Bill are you on mute.
So and your line is open please check your mute button.
Our next question comes from the line of.
Tyler Brown with Raymond James Your line is now open.
Hey, good morning, guys good morning.
Hey, I was just hoping to unpack the non aggregates gross profit guidance I think it implies maybe $60 million and growth at the midpoint of my math is right, but conceptually you got a lot of pricing momentum and cement natural gas has really rolled over from when we talked back in October . So if you had that backdrop shouldn't we.
See really strong gross profit growth in cement, where maybe youre in a hedge position that I'm missing, but does that imply that the downstream business.
Maybe youre expecting gross profit dollars, maybe flat or down or is that not the case.
I think in large measure what youre, saying is right youre going to see very attractive growth in cement and number two remember we divested about 3 million cubic yards of ready mix last year and the other thing that has weighed on the downstream businesses have had been the input costs among them aggregates and cement so in many respects we have.
By design pushed a lot of that to our upstream business. So again youre seeing a business overall, that's much more narrow and downstream much more focused as we've long been an upstream I do believe your points around cement are really well taken I think we anticipate a very impressive cement business. This year.
So I hope that answers your question, specifically did I hit what you needed.
Yes, that's exactly what I needed. Thank you okay. Thank you.
Thank you.
Our next question comes from the line of Keith Hughes with <unk>. Your line is now open.
Thank you.
The previous question you highlight your expectation by infrastructure nonresidential.
On your comments on wide nonresidential.
Negative I guess first of all what specifically do you mean by world wide nonresidential on what kind of indicators you look at that show on that.
And I think we're talking more there Keith about office retail the types of things that would typically follow single family housing.
And again.
We're not seeing and taking a deep negative dive, let me be really clear on that we think it's just going to follow <unk>.
<unk> for a bit of time and in fact, we think housing, particularly by the time, we get to 'twenty four is probably in a pretty reasonable recovery mode.
So we feel like the particularly light has never gotten particularly robust today. It's true. So we feel like it probably sees a bit of a dip, but if youre looking specifically at <unk>.
It's hospitality, it's retail it's degrees of office. So as we're looking at manufacturing as we're looking at energy as we're looking at warehousing or data or others. We see that actually is quite strong, but I just want to make sure im tying it for you back fairly specifically.
Those types of white things that would typically follow residential with depending on the market are nine to an 18 month lag.
Okay. One other question too on some that you have.
Cost headwinds in the quarter.
Okay.
Do you think those headwinds remain at the same level in the first half.
You said energy is expected to be kind of flattish is there anything else that's potentially coming.
That would be an offset dollars pricing you are getting.
I don't think theres going to be anything like energy was last year.
Jim's points when he was going through his commentary I mean overall energy was such a massive headwind to the to the enterprise and obviously cement is a big consumer of energy I mean keep in mind $178 million headwind for the year and energy now in fairness diesel was about half of that but again, if youre looking at our business in <unk>.
Well, if youre looking at our business even in Mag specialties.
No as portions of that energy was just up a lot more natural gas depending on the market last year was up around 30% Coke in some markets was up as much as 116% and coal was up nearly 20%. So to your point do we think we will see that degree of lapping again increase.
And energy no doubt.
But I think Jim has a little bit more he'd like to offer you a two two point Keith one.
Maintenance repairs will be higher in 'twenty three for the full year then in 'twenty two for cement. Despite that however, gross margin percentage I expect will be higher in 'twenty three in 'twenty two.
Okay. Thank you.
That case.
Thank you.
Our next question comes from the line of Phil <unk> with Jefferies. Your line is now open.
Hey, guys can you hear me now welcome back we missed you Phil. Thank you I mean are they have technology fund for both of us So.
Apologize for that.
Youre, telling know about the flood Phil.
Toward I mean, you sound pretty excited about the opportunity on the public infrastructure side and I just want to make sure.
We don't get carried away just because theres always labor issue supply chain and how this stuff could ramp up.
The level of confidence you are seeing from your customers, whether they're making investments on the labor side, just the visibility on how that kind of ramps up and you kind of highlighted some other longer term acts like the <unk> and then I think something you today Corning.
Three things how does that kind of ramp we would generally have a better feel for JA.
Yes, I think the others ramp very naturally throughout the year and Thats why I think going back to Jim's point, the cadence is going to be attractive financially all the way through the cadence from a volume perspective will likely be second half weighted.
And I think our competence around a lot of that is driven by some of the things that we've seen EBIT recently I'm sure you saw filled that governance standards as recently announced for example in new legislate proposal in Florida to allocate $7 billion to accelerate timing of critical road projects in that state I was actually in Florida last week and one of the big issues that.
They were indicating is we're concerned about in aggregate shortage and of course, we're going to do all we can to make sure that they don't have an aggregate shortage in Florida and as you may recall, Phil. It's so interesting to me to see that we did 208 million tonnes last year.
And remember this organization did 205 million tons back in 2005, 2006, and we've added 15 million tons of capacity on a per annum basis to what we've done since then.
So to your point, if theres a need can we put it on a spec product on the ground to meet it absolutely. We can number one number two I think contractors over the last year have done what they needed to impairing degrees to have a labor force that's ready for what's coming I think they have number.
Three I think the labor pool is moving around a bit and what I mean by that is even if they need to now go to the well and hire more I think the opportunities are going to be there so to your point.
The states have pretty heavy expectations on what theyre going to do importantly, they've got pretty heady budgets that can help further that number three we have the capacity to feed it and number four contractors has seen this pitch coming and I think they put themselves in a position to perform fill so.
Again, I hope that's helpful and responsive.
Yes, that's great color and sorry to sneak one in you gave us some color on how to think about demand for aggregate, Texas cement I mean, Texas is a different animal altogether, just giving the funding how should we think about the demand backdrop for Texas and met this year.
I think the demand backdrop will continue to be attractive in Texas and I think the thing that you need to remember I think about Texas through several different lenses.
As primarily on cement focused on on the Metroplex, Dallas Fort worth, which is where the biggest single piece of our cement business is going secondarily, it's going to be on central Texas, which is where let's call. It mid 30% of our cement is going so by the time, we get to South, Texas or West, Texas, We're talking about markets that from a percentage perspective.
<unk> are in the ZIP code of 10% if we look overall at the way cadence has typically gone in cement I mean, if we look at last year. For example, we sold a little bit over 1 million tonnes in Q1, $1 1 million in Q2 1 million tons in Q3, and then a very weather impacted Q.
Four nine.
950 million tonnes. So so much as cement is going to ready mix that is not as sensitive to weather for example, as asphalt and paving is you should see a pretty steady cadence to the cement shipments.
Obviously, youre going to see different pricing construct.
Early in the year and that in that business. So I hope that gives you a sense of the rhythm on how we think thats going to workflow.
Should we expect it to be up or kind of flattish to like aggregates.
On the shipment side, obviously, we're not giving shipment guidance, but we've talked about the fact that it's a sold out market and we sold four 2 million tons last year. So.
I'll put it this way Phil we're selling everything we make in that marketplace.
Thank you great color I appreciate it guys. Thank you Phil.
Thank you.
Our next question comes from the line of Michael Dudas with vertical Research partners. Your line is now open.
Yes.
Good morning, Jim.
Yes.
Hey, Mike.
Yes.
Or maybe for Jim if you could discuss you talk about.
Mike Mike I'm, sorry to interrupt you youll need to lean in just a little bit it's hard to hear you.
Can you hear me now, yes, there are much better.
Can you talk about capital allocation for 2023.
Any shift given that you've recently the acquisition from 2021, and maybe how cash flows trending working capital use because of the revenues improving and the capital expenditures you are thinking for 2023 any shifts.
Amongst the three buckets that we should be thinking about yeah. Let me, let me take the front end of that and talk about priorities, Jim will come back and give you. Some specifics on what different elements of that are looking like what I would say is this if you go back in time, you'll recall 2021 was a year of large transactions for us the largest transactions from a cash perspective the companies have.
Regarding 2022 was largely a year in that dimension of integrating businesses, making sure. They were looking feeling an acting like Martin Marietta businesses, making sure we had the price increases in and putting ourselves in a position that we could delever our balance sheet. So if you recall, we like to be in a two to two five times.
Position net debt to EBITDA.
Through a cycle, where the top end of that right. Now obviously, if we look at where we think we would be at year end absent M&A, we would be considerably lower than that we think from a cash flow perspective, and otherwise can be very attractive. So to answer your question directly have our priorities changed no. We want to continue growing this business we want to.
To continue.
<unk> continued to invest in the upstream business part of what I believe we've done two now with a coast to coast business is.
As we have even served to Derisk M&A going forward more and what I mean by that is most of the places in which we want to grow in large measure we have a footprint today, which means the integration that we're going to have going forward gets to be integration done with people, who work for our business, who understand our culture who understand.
Our operating philosophy, and who understand our commercial philosophy as well now Jim will take you through some of the other questions you had relative to capex and otherwise in cash flow and I think what you'll find is we have a series of very high class problems that we need to worry about so Jim yes. So our EBITDA is expected to grow meaningfully some of that.
Extra cash flow from the earnings will be deployed in Capex. So capex is growing we rates at four.
<unk> hundred 80, this year to closer to 600 next year so.
So that'll be a part of it of course, helping with future growth.
On that.
By and large the rest of the capital should be sure the cash flow should should flow through.
We have available for deployment pursuing our priority list of acquisitions upstream acquisitions first and then.
Returning capital to shareholders.
Mike If we get you what you need.
Thanks, gentlemen.
Very good thank you.
Thank you.
Our next question comes from the line of Michael Feniger with Bank of America. Your line is now open.
Hi, everyone. Thanks for taking my question clearly a nice pricing year or in 2023 building 2022, just curious ward.
If you think that volumes stay in this plus two minus two range cannot still support high single digit double digit pricing in 2020 for I know, it's early to think about 2024 already just curious what headwinds could lead to that price growth in 2023 rolling over in 2024.
Or Conversely.
Still support that level of pricing as we go into exit this year into next year. Thank you.
Michael Thank you for the question and you're right, it's probably too early to lean too far in 2024, what I'll remind everyone is this pricing and these upstream materials has always been very resilient number one number two we do not sell a discretionary product. These are products that people need number three we're a very small portion.
Overall construction.
Next much of the inflation contractors and others have seen on a percentage basis, particularly during 'twenty. Two we're actually ahead of where we were because we protect contractors on bids obviously, we were going to be chasing that for a good part of the year, then we caught up with it towards the end of the year, obviously, we would like not to be.
Behind that again part of what I've spoken to our team about is this notion of being in a position that we can look realistically and responsibly and at least two price increases a year I indicated before at that 13% to 15 that we have for this year does not have in it midyear price increases. Despite the fact that we've told our.
Customers in letters that we will be looking at that at mid year. So I haven't answered your question definitively relative to 'twenty four because at this point is simply can't but if I look at the building blocks that I believe you can look at and investors can look at and have a good way to think about it I think the color that I would put around that gives you a pretty good.
Runway toward how you can put a notion towards it.
Thank you operator.
Our next question comes from the line of Brent Thielman with D. A Davidson your line is now open.
Hey, Thank you.
Catherine here I guess, just one more.
As you look beyond that.
Impacted sort of inclement weather this quarter more from the view of what you've seen in the business.
During months, where you were able to get product out how would you characterize the headwind you've really seen from residential end market. So far is it is it already in the ZIP code of that.
10% to 15% decline youre talking about for 'twenty, three or have you been surprised with the resiliency.
It's been interesting I'll go to your point I think you raised a good question on what the underlying marketplace looks like and here's the here's the way that I've thought about it.
If we look at the fourth quarter, there was heavily weather impacted.
Infrastructure was down 11% non res was down 12% rest was down in that ZIP code that we think that we're saying is going to be down mid teens right.
And we still saw expanded margin, but here's what I know, there's gobs of infrastructure work to be done out there, which tells me when im looking at these numbers down those percentages.
It was more of a weather event in our markets as opposed to a market driven events in our markets. So to your point, what we kind of seeing as we go through it.
As we're looking at things right now I would tell you.
Business relative to plan on where we thought we would be.
Frankly business looks a little better than.
<unk> plan right now so again as we're looking at a very soft Q4 for all the reasons, we discussed as we've looked at and why we are guiding towards flat.
And as we look.
At least as much as you can tell in January and February with a big caveat that is January and February .
<unk>.
It looks pretty good.
Okay, great. Okay. Thanks, a lot. Thank you Brent.
Thank you. Our next question comes from the line of Garik <unk> with loop capital. Your line is now open.
Oh, hi, Thanks, just wanted to follow up real quick just on that last point you made word about the first quarter looking a little bit better than your plan.
I'd imagine that's more than just pent up demand from weather delays in the fourth quarter. So I just want to confirm that and then.
Maybe just on the cost side for aggregates.
Wondering if you could maybe provide some more color on what you're assuming outside of.
The diesel observation sure.
Then two way so I'm going to ask Jim to come back and talk to you a little bit about cost per ton or in the cost buckets.
Your point, if we think about what we've seen so far this year Karen.
California's had pretty epic rankings.
If you think about the cold weather that settled in on Texas here, a couple of weeks ago.
Was basically a week lost in Texas and of course, Texas is our largest state by revenue and.
But youre in the Midwest I mean, youre in Cleveland <unk> seen a very cold winter. So far this year. So it is as we're seeing activity in what has not been in many respects.
The kindness month and a half so far.
That degree of resilience that we're seeing that gives us the confidence do we have the guide right now and obviously, that's just looking at large measured at the level of activity. We're not speaking about the level of pricing in that context Garrick. So does that help you.
Yes, it does and the comment around the Midwest being quarter, Australia resumes.
I would imagine, let Jim come back and talk a little bit about the different cost bucket. Yeah. So so if you're holding energy aside.
I think he did in your question.
It's high single digits.
Cost inflation, where we're expecting for 2023.
And that's pretty broad based across personnel supplies repairs contract services et cetera. So.
Obviously, that's all contemplated in our guide we are happy to see our Asps outstripping that growth.
The margin expansion does that answer your question Garik.
Yes, it does.
Thanks for that and our best of luck.
Thank you.
Thank you. Our next question comes from David Macgregor with Longbow Research. Your line is now open.
Hey, Good morning. This is Joe Nelson on for David.
Hey, Joe.
Hi.
So I guess first just wondering transportation seem to be probably pretty problematic throughout 2022, just wondering how youre thinking about transportation heading into 2023, and how that might have factored into your guidance.
That's a great question and what I would tell you is we were waiting all year for it to get better and it did get better as we were seeing the year wrap up we were certainly seeing rail activities going better than they had for a while so we're heartened by that.
But I think the other thing that I was.
Really comforted by was really after what was a pretty challenging half one for trucking.
Trucking got better in the second half of the year. So as trucking clearly got better in half two we just rented winter and obviously the railroads had a difficult time for much of 2022.
Service picked up pretty notably as we got towards the end of the year and that's both in the east and the West and Youre question, such a good one Joe because youll recall, we shipped more stone by rail than any other aggregates producer in the United States, probably <unk> our closest competitor. So there is a <unk>.
Simpson, which.
Rail's performance in 2022.
Combined with what was a pretty tough half the one on trucking was going to serve to be a more meaningful impediment to us than it was two others. So as rail continues to get better and as trucking gets better I think we will certainly feel the benefit of that perhaps in ways that others won't Jeff.
That's great. Thank you.
And if I could sneak in one quick.
Follow up.
Mentioned earlier on a question that you do not have any mid year pricing actions factored into the guidance was that strictly for aggregates area for was that for other segments as well.
That was for everything.
Got it thanks.
Jeff.
Thank you.
Our next question comes from the line of Rohit, Seth with Seaport Research Partners. Your line is now open.
Hey, Thanks for taking my question.
Welcome back. Thank you so much I appreciate it.
So my question is on aggregate prices you mentioned.
The 13% to 15% increase does not include a second half increase.
And there's been broad acceptance of an increase.
Early in the year I'm, just curious is the confidence on realizing the increases are a reflection of.
Your internal downstream now operating separately as increased sources.
The market competition is going along with it and then the second part of that is is there any mix in your footprint that might be helping.
Martin versus say the broader market.
Yes, no thats a great question. Thank you Rohit, So I would say, let's say several things one.
The customer acceptance of the price increases has been good.
Let's start with that so we've seen widespread they understand it they they've seen their own input pressures. They know that we're feeling so number one it's been well received number two you're right, but keep in mind, we treat our business the same way that we treat outside businesses to the extent.
We're downstream so we know what thats, obviously going to look like number three to your point on whether theres any mix issues.
I mean, I would say that as I mentioned during the course of the dialogue that I was having earlier with respect to backlogs.
East from at least a mixed perspective, our some of our highest margin markets. So to the extent that that business continues to go an attractive way that could certainly be a help relative to mix obviously more to come. It's early I indicated thats typically 25% to 30% of our full year.
<unk> volume.
So more to come but I hope that answers your question Ravi.
Thank you. Thank you.
Thank you I'm showing no further questions at this time I would like to hand, the call back over to ward Nye for closing remarks.
Well again, thank you all so much for joining today's earnings conference call Martin Marietta's track record of success through various business cycles proves the resiliency and durability of our aggregates led business model. We continue to strive for the safest operations and remain focused on executing our strategic plan, while continuing to drive attractive.
<unk> and sustainable growth in 2023, and beyond we look forward to sharing our first quarter 2023 results in the spring as always we're available for any follow up questions that you may have thank you again for your time and your continued support of part Marietta.
This concludes today's conference call. Thank you all for your participation you may now disconnect.
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
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