Q4 2022 Summit Materials Inc Earnings Call
Yeah.
Hello, My name is Christian I'll be your conference operator today at this time I'd like to welcome everyone to the summit materials Q4, 2022 2022 earnings call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there'll be a question and answer session.
If you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad.
To withdraw your question. Please press star one again.
Thank you Andy Larkin, Vice President of Investor Relations for summit materials, you may begin.
Hello, welcome to semi materials.
Yesterday afternoon, we issued a press release.
And operating results today's call is accompanied by a investor presentation and southwest.
Highlighting key financial numbers.
All of these materials can be found on the Investor Relations website.
Management's commentary and responses.
Questions on today's call May include forward looking statements.
Not a major concern.
Thank you Jeremy.
Although these forward looking statements are based on.
The expectation I believe.
Our results may differ.
Sure.
For a discussion of some of the risks that can.
Cause actual results to differ please see the risk factors section seven materials latest annual report on Form 10-K.
Okay.
You can fire installation.
non-GAAP financial measures discussed in today's press release.
Today's presentation will begin with <unk>.
Brian .
Although New York.
And then conclude our prepared remarks with our view on it.
After that we will open the lines for questions. Please limit your ask one question and then return to queue.
That is possible.
Bill.
I'll now turn the call over to <unk>.
Thank you Andy and thanks to everyone. Joining today's call yesterday, we released our results and highlighted a number of smaller crackers are the ones I was proud of our safety.
You can see on slide four we certainly raised the bar on safety with all time records, a recordable and lost time incident rates.
We always improvements by dedicated employees truly internalized.
Safety first culture every day.
From an organizational standpoint, we maintenance shifts towards focusing on move forward looking data.
Empowering our people to full rate production processes.
So we're seeing an evergreen approach continuous safety improvement.
Our commitment to safety is a core summit.
I'd like to talk to you that our people our greatest asset.
Personally our responsibility to help safeguard the health and wellbeing of all 4800 colleagues.
Yes.
Turning now to slide five for a 2020 financial review, you'll see that our teams delivered.
And the mix dynamic caused by macro conditions, we set annual records for operating income net income and pricing across all lines of business.
Did you ever as you know was however negatively impacted by significant and overlapping cost headwinds.
Constraints.
April weather conditions.
With most of these factors outside our control and not particularly unique.
I am pleased we did an incredible job controlling what we could and progressing to elevate some of the strategic priorities.
On slide six you'll see our strategic priorities and enabling capabilities to set to capture but allow me to elaborate on two areas of focus and achievements for our business.
Slide seven is a snapshot.
Portfolio here, we have made further inroads towards reaching our horizon two objective of at least 75% of our last 12 months' adjusted EBITDA contribution from aggregates and Smith wait till 2020 came in at 70% up two percentage points from the prior year and seven points from 2020.
We plan to double down on both organic and inorganic growth opportunities to reach and eventually surpass our 75% targets.
For example, our portfolio divesting three lower growth, mostly downstream businesses in 2022, and then more recently attitude aggregates led acquisitions in <unk>.
Targeted high growth priority markets.
Such acquisition it sounds Salt Lake City was completed at the end of January alone elevates, our aggregates position strengthening our customer coverage and capitalized on our stroke risk expected in that market.
On the organic side driving towards our profitability northstar's aggregates and cement combined with outsized growth and contribution from Greenfield will help our path to 75% and improve our overall quality of earnings.
Moving to slide eight where we highlight the dimension.
Achievement of our comps that's meant to be the first in the industry to fully convert all of our cement production to support the lifestyle Smith <unk>.
Plc up some much needed capacity in a very tight Smith.
We sold one 5 million tons of plc in 2020 to 300000 tonnes ahead of our initial target as customer adoption.
Sure.
After that originally anticipated.
LC reduces our carbon emissions per tonne to such a level that is I would like to take a 25000 cars off the road.
Our plc attached with the margin profile of our cement business lowering our 2022 variable cost by approximately $2 3 million or <unk> 47 per ton. We highlight the success not to take a breath to emphasize TLC as an ongoing strategic imperative.
The environment marketing tactics.
Business and underlines our commitment to being the most socially responsible construction materials company in the industry.
I'll close my upfront remarks, with our solid scorecard on slide nine here's a afraid of central London.
Once again as expected we closed 2022 second elevate Southwark records for both leverage and ROIC.
With leverage at two one times, our attach it to be more aggressive pursuit of the tiers, but M&A is supported by a fortified our flexible balance sheet.
We remain price disciplined and dedicated to maximizing shareholder value as we evaluate deal opportunities.
Our <unk> 2022 was 91% 30 basis points better than the prior year and more than a full point better than slightly slightly less shedding underperforming assets moving towards a more asset light model and getting more from existing assets.
Improving our LLC.
Don't see any reason why we won't close the gap toward 10% elevate summit targets in the year ahead.
Finally in Q4, our LTM adjusted EBITDA margins improved 20 basis points sequentially to 22, 1% as solid.
Commercial and operational initiatives.
Partially offset historic levels of inflation and supply chain pressures.
Bottom line is that we ended the year improving each one of our elevate scorecard metrics happening in Europe tremendous progress while at the same time, providing significant strategic momentum heading into 2023 now before I get into our plans for 2020, let me first turn it over to Brian for a more detailed review of our financial performance.
Right.
Thank you Matt I'll begin on slide 11 for the full year by segment, our results were strongest in our west and cement segments.
Both cases price fueled revenue growth more than offset inflationary conditions to drive healthy levels of year on year adjusted EBITDA growth.
Yes.
FX weighed on our reported results and wet weather conditions combined with supply chain disruptions to hold back organic volume growth and lead to additional cost headwinds.
These factors more than offset high single digit pricing growth and led to lower adjusted EBITDA in 2022.
Segment.
Turning to slide 12 for pricing growth by line of business. In Q4, we were able to build on that pricing momentum with year over year pricing growth accelerating further across all lines of business in aggregates pricing increased 13, 9% in Q4 and registered eight 2% growth in 2000.
'twenty two.
Our expectations at the compounding effect of previous pricing actions, along with a fourth quarter increase in taxes drove a record aggregates pricing tier.
Our cement pricing accelerated to 16, 6% to claw back to double digit pricing year reflected a favorable demand conditions and various types of net supply in a river markets.
A little more we saw very strong price realization of two pricing actions in 2022, which is a positive signal for price reflection in the year.
Downstream fourth quarter pricing for ready mix and asphalt increased by $19 six and 22, 8%, respectively. Both quarterly records demonstrating our team's ability to swiftly pass through of higher input costs.
All in record pricing in 2022, underlines our value pricing focus.
The science is controlling what we can and at the same time provides a very strong exit velocity and carryover pricing momentum heading into 2023.
Volume bridges, our lines of business are provided on slide 13, with the impacts from acquisition and divestiture PRA quantified.
Fourth quarter organic volumes in aggregates ready mix and asphalt were negatively impacted by cold and wet weather in many of our markets.
For added context.
Top 20, Msas experienced 57 more days of precipitation and 52 more inches of precipitation versus Q4, 2021, with the harshest conditions affecting our Texas and southeast markets.
Because these markets had the largest construction season unfavorable weather experience there had an outsized impact on our fourth quarter volumes.
Aside from weather, we are seeing moderating residential demand impacted volumes, particularly in Salt Lake City, which also contributed to the sequential decline of organic volume growth for aggregates and recognized in the period.
Cement volumes on the other end continued to be strong.
One 7% in Q4, and four 2% in 2022, representing back to back years of mid single digit volume growth for continental cement.
Moving down the P&L to gross margins on slide 14.
Throughout my tenure with lines of business, we closed the year on a high note the expanded fourth quarter adjusted cash gross profit margins in aggregates and cement by 210, and 440 basis points respectively.
Accelerating pricing growth.
Variable cost inflation, while Q4 margins also benefited from higher one time costs incurred in the prior year period.
Fourth quarter service margins were relatively flat year on year, while products margins decreased 120 basis points relative to Q4 2021.
Lower product margins were driven predominantly by asphalt as adjusted cash gross profit margins in ready mix were up modestly in Q4 versus the year ago quarter, Thanks to Swift pass through pricing execution.
Asphalt gross margins were adversely impacted by elevated liquid asphalt costs, which can approach 50% of the total variable cost of the finished product.
We are largely index of liquid asphalt that can be a lag before price fully catches up those costs.
Stepping back like others in our industry 2022 was a challenging year for margins driven by unprecedented levels of inflation due in large part to supply chain disruptions.
And in many respects, our gross margins, we're able to hold up better than some thanks to portfolio optimization transactions that unlock.
Is it less profitable downstream businesses, while retaining targeted integrated operations to drive greater aggregates pull through and as a result, better end to end profitability.
No no moment, and we will discuss our views on the path of inflation, but in 2020 two as close as anything.
This dynamic operating environment, <unk> businesses that build organizational and operational resiliency.
With that in mind, we continue to press forward on our commercial and operational excellence initiatives in an effort to optimize operational costs and taking every opportunity further increased efficiencies without sacrificing growth.
I'll wrap up on slide 15, where we reported adjusted EBITDA margin in Q4 up 80 basis points year on year to 23, 3% driven primarily by materials cash gross margin growth I just discussed.
Adjusted diluted net income and adjusted diluted earnings per share for the year reflects growth in operating income and lower G&A expenses versus 2021 vessels.
Before turning the call back.
I'd like to quickly recap two recent moves we've made to strengthen our capital structure and liquidity.
First we amended and extended our 2024 term loan, which now comes due in 2027 and in the process converted so far as the benchmark reference rate.
And second we increased the size of our revolver from 345 million to $395 million. This together with the $520 million of cash on the balance sheet means we have access to approximately $900 million.
Liquidity to pursue the highest returning capital allocation opportunities and further our strategic objectives and the final housekeeping item for the purposes of calculating adjusted diluted earnings per share. Please use a share count of $119 7 million, which includes $118 4 million plastic.
Shares and $1 3 million LP units.
With that I'll now pass it back to Rob.
For our view of 2023, Thank you Brian before jumping into the specifics of our 2023 I'd like to first take a moment to characterize the singularity of the current operating environment.
If we are at the precipice of a recession as many of US think we are it will be the first recession in my memory that was not predominantly driven by demand disruption rather today's environment that Ics is the result of three interrelated factors.
First exceptional levels of uncertainty, particularly on cost trends.
The supply chain that has proven more fragile and less responsive than originally passed and third the shifting geopolitical landscape that inserts additional volatility into our system. Each of these in isolation with carry considerable challenges to our planning cycle and process, but when taken together it really created terrorists.
An unparalleled planning additions that certainly tested the mantle of our leadership team.
So the plan here to date is the result of it Richard scenario planning and is underpinned by what we believe are realistic if not conservative underlying assumptions, we've said before but it's worth reiterating our material posture as always is to reflect the reality as we see them today, but also to plan for downside.
In areas, which was our approach for the 2023 plan.
That said, we shouldn't lose sight of our other appreciate Howard portfolio lenders together, but sound strategic execution has enhanced our profitability strengthened our balance sheet and improve the economic resiliency of our company.
With that as important context, let's turn to slide 17 for an outlook by end market starting with residential.
Beginning in mid 2022, we have been bracing for a slowdown in the residential market as the <unk>.
Thats more restrictive policies fluids inevitably target the housing sector, thus far and that's a costless, we witnessed an orderly pullback in selling prices are substantial although not uniform decline in single family permits as well as an uptick in the amount of supply on the market.
By and large our observations as well as our conversations with customers indicate the housing market is functioning as intended and there is an ongoing recalibration on both the supply and demand side of the equation.
So let's leave adjusted by increasing our bid activity on non red and public projects and why we've been successful in shifting our end market mix there are certain limitations to how much volumes can be shifted.
Having said all that we still see near term demand supporting single family construction activity, albeit at a moderating pace.
Looking beyond the next few months. However, it's frankly, a challenge as visibility is clouded by a mix of data points on that.
Affordability remains stretched and rents have been declining on.
On the other hand mortgage interest rates have moved toward peak levels.
Mortgage applications have increased and wholesale just estimates they have passed.
We are hoping to gain better insight on the duration of the residential downturn as we move through the upcoming spring selling season.
Until then we have not seen enough evidence nor have we heard the confidence coming from our residential customers to call for robust demand in the back half of 2023.
Said another way until we have better visibility our residential outlook for Clearnet 23 includes a material decline in activity.
Ultimately, we won't know how the second half will shape up until we gather more data. So the prudent approach and what's factored in today's outlook is for a more protracted decline in residential activity for 2023, and later terms, we are expecting our residential end market volumes to decline at least 30% in 2023.
That's generally consistent with current industry forecast.
This viewpoint. However, it does not change our overall bullishness on residential, especially in our top two markets.
Houston and Salt Lake City, each of which has experienced healthy in migration trends. Shortly just in housing supply and both benefit from underlying economic conditions that would support strong residential growth over the long run.
In short we are responding with agility to the near term residential weakness by shifting volumes to grow cigarette market have taken a cautious planning.
The back half activity, but remain resolute in our bullishness for residential in the hall.
Shifting to nonresidential on slide 18, and what we're expecting here for growth trends to diverge between heavy and light vehicles.
On the heavy side secular tailwind supporting onshore critical parts of manufacturing as well as efforts to combat energy scarcity is creating strong private and public momentum to localize supply chain and improved overall domestic competitiveness.
<unk> spending for manufacturing grew 35% in 2022, a trend we expect to persist at legislation such as the inflation reduction Act and the chips Bill should provide a long runway of sustained investments in U S value chain.
Our view is only bolstered by a full heavy nonresidential pipeline in our markets.
Heading into 2023, several projects item other flavor emerging in our footprint.
Manufacturing semiconductor factories at least farms in the Midwest to large scale active LNG projects in Louisiana to warehousing and EV battery manufacturing and Georgia, and North Carolina, we have a high degree of confidence that heavy non red lipstick unhealthy levels of growth in 2023.
Because our markets are fueling a steep step ups in project activity.
Light non residential on the other hand is likely to face more challenges. This year light non risk tends to be the buildout retail hospitality and education facilities that follows behind new residential development.
Our expectation is that a high interest rate environment, along with the residential slow that will as a result weigh up light nonresidential activity in 2023.
Despite of this as on balance we expect the growth from the heavy nonresidential to offset the light non residential slowdown such that we expect non risk to be roughly flat in 2023.
Lastly, slide 19 on public infrastructure, where we have a high degree of conviction that mirrors. The general consensus surrounding the direction I'll get the sand market stable low questionably be the strongest contributor to our growth in the year ahead. The question. Therefore is around the magnitude of public growth for this year.
I'll ask that question, we look at trends on Highway awards that state Dot's for fiscal year 2023.
In both instances, we see very encouraging signs.
Looking at the valued Highway award contracts in 2020 to not only get contract awards increased materially last year, the accelerated substantially in the second half.
Starting around July of last year trailing 12 month awards growth slipped past.
Continued on that upward trajectory as we move through the remainder of the year such that our top five states. So highway diesel award contract values increased 22% in 2022 and up nearly 30% will be satisfied, Utah, where we typically do less public work.
Momentum award signals to us that <unk> assembled robust project list and have increased confidence to put their dollars to work that competence is broadly reinforced by state to EOG budgets for 2023, our top five states, which is the Texas, Utah, Kansas, Missouri, and Virginia and increase their dot budgets on average.
Slide 18% in fiscal 2023.
Similarly strong levels of funding growth as expected in some of our fastest growing states in our East region. For example, Georgia and the Carolinas will increase the budget nearly 13% on average in fiscal 2023 and.
In most instances, Steve budgets incorporate additional federal investments from the infrastructure investments and jobs Act, but in some cases like Utah. The current budget may not fully reflect increased federal funding under Iga, regardless the step up in state <unk> budgets points, the verity of public infrastructure.
In 2023 with the strongest tailwind in the second half consistent with private construction fees and capitalized.
Okay.
All in we expect public volumes to be up mid single digits in 2023 with further acceleration probable in 2024.
Having tougher to manage expectations planned arc, let's turn to the price cost picture on slide 20, coming off a year of double digit cost inflation, we arent yet seeing any meaningful signs of cost. So our planning stance is for cost to remain elevated for 2023, and if that proves to be overly conservative.
And that would represent upside to our 2023 expectations.
With ongoing inflation and supply chain constraints that our base case scenario, we need to remain focused on controlling what we can control both on price and on the operational excellence.
As Brian mentioned earlier, we expect tremendous exit philosophy from 'twenty to 'twenty, two pricing actions and when you combine that with widespread pricing actions implemented on January one we are well positioned to deliver significant pricing gains in 2023, particularly for aggregates and cement are particularly in the first half of 2000.
23.
And operationally we are pressing ahead with our continuous improvement projects across each line of business.
<unk> headed by our centers of excellence.
We expect these projects drop dollars to the bottom line this year and we've intentionally revised our internal incentive structure to focus behaviors on near term wins and reward results on this front that said supply chain pressures have not ECS and we expect certainly input costs to remain challenged through 2023, specifically.
Pain points include materials, namely Smith, as well as labor and our energy costs, which includes the hedged portion of detail.
On balance we do anticipate the price cost picture to improve the 'twenty two 'twenty three such that we land that you are in positive territory on a full year basis and that we can grow adjusted EBITDA margins for the year ahead.
Let's talk together everything on slide 21.
For 2023, we expect adjusted EBITDA to come in between $480 million and $520 million based on the following framework.
First due exclusively to the slowdown in residential we would expect organic volumes to be down this year.
As commercial and operational excellence efforts take hold we expect to return to a positive price net of cost relationship.
Third we will continue to manage our discretionary spend consistent with market conditions, such that we expect G&A spend to be essentially flat this year.
Embedded in this plan are two elements first we plan to meet or beat 2020, EBITDA margin levels with fewer call Twenty-twenty serves as the baseline records point for elevate some of the progress here pricing gains cost our projects.
Will more than offset volume declines and inflationary cost headwinds.
And second are wider than typical EBITDA guidance range accounts, the variability and uncertainty of two influential drivers residential volumes in the second half and cost trends if bolt out of its breaking in our favor we would expect to be closer to the top end of the range and vice versa in residential volumes that costs are unfavorable.
I think you'll agree that we've taken a balanced if not prudent approach to setting expectations into very achievable place for this year.
And while we will be focused on meeting beating this target in 2023, we are unlikely to have strong conviction to materially revise this outlook until we get fully into the prime construction season.
Only then will we have a more informed view critical volume cost and margin threat. Nevertheless in the meantime, we are sure to advance our strategic agenda, including extending our sustainability and innovation acumen aggressively pursuing accretive materials led M&A all while capitalizing on self help large.
Opportunities across the enterprise and uniquely available to summit materials, let me finish our outlook by outlining our capital allocation priorities, which have not changed we will first prioritize investments in high return organic and inorganic opportunities putting capital to work via Greenfields profit improvement Capex.
And the tears led acquisitions.
Then when we view our shares as undervalued, we will look to Opportunistically return capital to shareholders via share repurchases. We believe this approach coupled with sound operational execution is a powerful combination to drive attractive shareholder returns moving forward.
In closing, while we operate in an uncertain environment and contend with certain industry challenges, we do so from a position of strength.
We have built a talented high performance organization that is more capable than ever to navigate that acuity these opportunities and deliver on commitments, we can and will leverage a stronger more resilient portfolio and our balance sheet firepower to drive sports summit's strategic and financial goals to 20 <unk>.
Three in the years beyond finally before taking your questions I'd like to extend a special thank you to those who participated in our recent perception study we value the feedback with the investment community and believe the attaining a continuous dialogue will inform our decision, making and result of the stronger summit materials I'll now ask the operator.
To open the lines for Q&A.
Okay.
Thank you.
Wonder if you would like to ask a question. Please press Star then one on your telephone keypad.
The first question is from Trey Grooms with Stephens. Your line is open.
Hey, good afternoon, everyone.
Good afternoon.
First I wanted to I wanted to make sure I'm using the wrong numbers on the guide here.
And I think you've mentioned meet or beat 2020, EBITDA margin levels. So looking back it looks like $2022 seven on net Rev is that is that the margin you're referring to just to make sure.
Plenty to fix was and that was when we basically launched our elevate somewhat so thats, what we always guide against yes, yes, okay $22 six alright.
So that's.
That's implying if we get to the.
The midpoint of the EBITDA guide.
Use that 20, 263, and it should be at least that good if not better that's implying revenue about.
That's going to look a lot like 'twenty two.
If my math right.
And if I, if I understood kind of the mix you gave us and everything else.
Your outlook for those market trends.
I'm kind of backing into kind of a high single digit type.
Volume decline, which would imply something like a high single digit pre.
Price improvement.
Well to get to that flat.
Am I thinking about that right or am I way off.
Well Youre pretty close so let me take care of the volume first so from a volume perspective, I would guide you overall its mid to high single digit volume decline.
Where that's coming from Trey is if you think about the residential being down 30%.
60% of that is already mix goes into residential and 30% of our acts. So that's driving a lot of that obviously, our asphalt construction will be up high so thats not driven by public and then nonresidential is pretty much flat. So the volume Youre right you are pretty close but I would guide you to mid to high single digit now on the pricing obviously the.
Big drivers going to be in aggregates and cement, we've exited 2022, but tremendous pricing momentum.
I would look at AG as being in the high single digit to double digit across all geographies and our cement being more double digit price increases.
Perfect. Okay. Thank you for clearing that up for us.
As a follow up.
The Aro <unk>.
<unk> target of 10%.
You guys have made a lot of progress on that.
Youre getting close here I mean, you're over 9% I think of 'twenty two.
Target of 10%.
Any any thought on timing there or is that something you might be able to do you think you might be able to achieve this year or what.
Any update on the timing.
Well I think what we've said is the 10% is a what we said as part of our elevate some of those goals and we said we'd accomplish that over three to five years from the time, we launched to your point trade, we're well on track at nine 1% at the end of 2022.
We feel very confident that we'll achieve that overall goal that we set in place over that three to five year period.
We said, 10% is a floor that we've got to continually evaluate that and continue to expand our return on invested capital to our shareholders.
Right, Okay, well, thank you for that and I'll pass it on and keep up the good work. Thank you. Thank.
Thank you Terry.
Okay.
The next question is from Phil <unk> with Jefferies. Your line is open.
Bill.
Yeah.
Okay.
Yes.
Okay, we will move on to the next question, which is from Kathryn Thompson with Thompson Research Group. Your line is open.
Hi, Thank you for taking my question today.
Yes.
Top line environment <unk> seen.
We have some more comfortable without Logan I agree with everything that you outlined today.
From my perspective, given a choppy 2021 and 2022 in terms of the price cost balance.
As you look into 'twenty, three with your guidance and your general outlook.
What gives you comfort.
Our confidence in terms of.
The consistency and visibility.
<unk> earnings for each of your major operating segments in light of just the.
The cost.
Landscape, coupled with ongoing pricing actions. Thank you.
Thanks, Catherine So let me kind of address that a few different ways.
I would say look we have been very positive on the pricing as I said in my prepared remarks, and we see that continuing moving forward.
Team has done a very nice job on commercial excellence, while we said before is our ability to deliver margin expansion is really driven by three things. The first is where we've done a lot of heavy lifting it's around our portfolio mix, we rich and that mix such that we ended 2022 fourth quarter at 70% of our EBITDA being driven from <unk>.
Matt and aggregates and we have opportunity to further.
Enrich that by our investments in Greenfields, It's high growth high margin areas and also any accretive M&A. That's more material flat. So that gives us that has really stabilized our portfolio that wasn't the summit of the past so that gives us a lot of confidence that we're improving our consistency of earnings. The other two things are controlling what we can control value price.
Which I've talked a lot about on the call here and most importantly, as operational excellence. This is where we really we gained some momentum in 2022, but in 2023, we're really doubling down on that we've set very specific targets at a multitude of areas and we have set a special incentive plan to drive growth in that area and I would say.
Look across the board our aggregates, we have targets to continuous improvement events per month.
The teams very focused on production execution footprint optimization, our cement business is focused on grinding capacity and.
Expansion, which call it contributes to that.
That consistency of earnings and then ready mix has done a great job in 2022, not only just holding margins at high material inflation, but also in expanding margins and they're doing that through focusing on basically short load fees and also on their mix optimization. So we have a number of things ongoing and then the one other thing.
I would point out that we built in 2022 that will come into effect. In 2023 is we built a centralized procurement organization that now has the people processes and tools to fully leverage some expense. So we'll be really focused on those targets. So Netflix gave us the confidence to go back to say, we would be the 2020 EBITDA level.
Yes.
Okay, great. Thank you very much.
Thanks Catherine.
Yeah.
The next question is from Keith Hughes with <unk>. Your line is open.
Yes. Thank you question on the cost side, you highlighted elevated input costs coming into 'twenty.
<unk> 23 could you just talk about what kind of percentage gain do you think you'd be looking at at this point break it into the cost buckets. If you could please.
Yes, Thanks Keith.
Obviously going into 2023, we've got a little bit more visibility than we have.
At the very start 2022, so when we think about some of the biggest cost buckets.
So for example diesel.
Forward.
Actually hedged about 55% of our estimated usage for 2023 at a price that's very similar to the actual cost for 2022. So.
Puts and takes headwinds on that would be whatever happens to spot prices for the remaining 45%.
During the course of the year on labor.
We expect that to be around about mid single digit.
Uh huh.
We're in the process of putting a.
Annual review in place right now.
On cement, we're a big purchaser of cement again, we've seen the signals from.
Sure.
Suppliers of cement.
And as price increases.
Arrange of.
15% to $20 a ton.
So we've got good visibility into that is to say most of that cement goes into ready.
Our ready mix that screen, where we will pass that onto our customers.
Those would be the other major moving parts energy and hydrocarbon is still.
A lot of pressure there, particularly on the input cost.
And we see that.
Being significantly higher than it was in 2022.
And overall the supply chain issues have not gone away.
Still see those as providing.
Sources of inflation and uncertainty as we go through the balance of the year.
So would that be all in total high single digit type.
Type increases low double digit what would be the kind of final.
I think all in for Ed.
Keith I think all in for a total cost we'd say mid to maybe mid to high a little bit above mid.
Okay excellent. Thank you for your oil.
The next question is from Anthony Pettinari with Citi. Your line is open.
Good afternoon.
You talked about volume.
Talked about volume declines I think potentially in the mid single digit to high single digit range and I'm. Just wondering if there's sort of any finer point you can put on that looking across aggregates cement ready mix asphalt.
And then again.
Looking at your major markets, Texas, Utah, Kansas, Missouri is are there any specific markets that you would flag as.
Maybe being a bit.
Underweight or overweight, maybe based on resi exposure or anything else you Deb Nielsen Quad.
Yeah. So let me kind of take it on the volume I think the final point, we can put his platelet market. So.
Let's take the one that's declining some residential <unk>.
We said, 30% decline on that well, 60% of our ready mix goes into residential and 30% of our aggregate. So that's a big driver of that reduction if we look at non rate as we've said that's flat and then if we look at public we are calling for mid single digit growth.
As you translate that to the lines of business, obviously, the residential is going to drive ready mix and aggregates down.
The public is going to drive up our asphalt and construction.
And then the non res will be a mix of all that will drive up our cement actually source demand. When we look at volume growth for cement in 2022, we did mid single digit roughly volume growth.
We're out of capacity because we are running full out so when we look at into 2023 I would look at cement volumes that would be flattish as well. So hopefully that will give you a little more color there and with respect to your question about our geographies I would just say that our two biggest markets in residential or in Texas and Utah.
That's where you would see the biggest reductions on the residential side with respect to Bali.
Hopefully that answered your question.
That's very helpful I'll turn it over.
Thank you.
Yeah.
The next question is from Jerry Revich with Goldman Sachs. Your line is open.
Yes.
Good morning to you folks and good afternoon to everyone else.
I'm wondering if we could just talk about the margin cadence in the first quarter because you've got this interesting.
Dynamic, where you're going to have probably steeper price increases in the first quarter than the fourth quarter.
And.
At the same time, we're coming off of a switch.
Seasonally low margin comp.
Should we be looking for outsized.
Year over year margin expansion, just given the unique dynamic.
Hello basin pricing significantly.
Of course, as we start out 2000.
Great.
Well I mean, I would continue to as Brian pointed out we are assuming continued supply chain disruption and continued deflation now to your point I do think because we've ended at such strong velocity on pricing we've gone with the January one price increase.
Strong execution, our first half comps, we'll definitely look better or as we get into the second half the comps are a little tougher so.
That kind of informs our overall high single digit to double digit price.
FERC tags and double digit pricing for cement so definitely second half the comps will be a little tougher Jerry to your point.
Got it.
Just a quick follow up so you know a nice tailwind for price cost net.
Over the course of this year and I'm wondering if you think about what the industry. I was wondering given inflation are you optimistic that we could see price cost.
Continuing to be a tailwind for the industry in 24, given how tough inflation has been for everybody in 'twenty two.
Yeah, I'm not ready to talk about 'twenty four yet I got to tell you Jeremy.
2023, plenty uncertain for us as we go through.
And we have to plan for as an organization that inflation is going to continue high that's what's made our tea very agile around pricing, it's making us focus double down on operational excellence and that's how we get that price net of cost.
So I'll talk to you later in 2023 about 2024.
Thank you Bill fair enough.
Thanks.
The next question is from Brent Thielman with D. A Davidson your line is open.
Hey, Thanks, good morning.
And Brian .
I was interested on the slide on plc and specific rate at $1 47 per ton cost savings in 2022.
Yes. My question. The question is would you expect that per unit savings to grow in 'twenty three even on the same amount of plc I'm just wondering if you've realized all the cost.
Incentives associated with that product line that you got in 'twenty two.
I think we've realized that our per unit cost, but we will have more going through because we've convert we did one 5 million tons.
<unk> 2022, we'll do our full capacity in 2023, but the per unit cost I think that's a pretty good estimate that we have I wouldn't expect much more expansion from that.
And that was my follow up.
The sort of fallout on plc in 2003.
Yep Yep, we're looking forward to that and that will allow us to use more of our domestic production versus the high amount of imports that we had in 2022, so that obviously improves the margin and that's of course been teams goal moving into 2023.
Yeah.
Okay, Alright excellent. Thank you.
Thanks Brent.
The next question is from Garik <unk> with loop capital Your line is open.
Oh, Hi, Tec sports here, so wanted to follow up on the.
Margin target for good.
The goal to exceed our 2020 levels would you anticipate exceeding 2020 across all of your business lines or would it be.
Carried by quarter.
Yes.
Well just by the nature of where our portfolio has gone cement and aggregates will carriers.
But we do always required more margin expansion by all of our businesses. So I don't want to.
Over index that but really what we talked about if you remember during our Investor day, we talked about our aggregates Northstar going to 60% cash adjusted gross profit margin and getting our submit to sustainable 40% EBITDA margins. Our teams are extremely focused on driving.
Driving these operational excellence commercial excellence initiatives to drive towards that goal. So that's no different in 2023.
As I answered Catherine's question area.
The doubling down on operational excellence, because thats, what the team can control to drop dollars to the bottom line in 'twenty, three and continue with that value pricing excellence that we've really driven such strong execution in 'twenty, two and as we look into 'twenty three.
Come out with a strong January increase I wouldn't rule out multiple price increases given our stance on continued inflation in supply chain disruption.
Yeah.
Perfect I appreciate the color.
Thank you.
Okay.
The next question is from David Macgregor with Longbow Research. Your line is open.
Hey, Good afternoon. This is Joe Nolan on for David.
I just had one quick question.
Hi, just within the pricing guidance how much of the.
Pricing is from the January increase purchase versus how much of that is going to be carryover pricing.
And then you just mentioned the potential for a mid year pricing actions, but I'm, assuming that that's not baked into the guidance at this point.
Yes, So let me give you a little color on that so we're exiting 2022 with our aggregates full year price at eight 9% growth in Q4, we had 14, 4% with double digit and then we on top of that will go with the price increase in January our guide only has one price increase and it just put.
That perspective, and so as we move throughout the year, we would expect that that price would compound.
Isn't that high single digit to double digit range across our geographies for aggregates cement is obviously exiting a double digit price increase it and we've already gone with the $17 per ton price increase in our January increase and again that is all that's baked into the guidance, we have not baked in additional inflation and <unk>.
Additional price increases as we move throughout the year.
Great. That's very helpful. Thanks, I'll pass it on.
Thanks, Joe.
The next question is from Mike Dahl with RBC capital markets. Your line is open.
Alright, Thanks for taking my questions. A couple of quick follow ups on the price cost dynamics.
You mentioned that you expect it positive for the full year, when we think about the cadence and it seems like you've got good carryover price.
To start this year inflation, yes elevated but good pricing would you make that same comment in terms of first half also being price cost positive or was that intentional in terms of full year. Because you expect some early headwinds may be offset by a second half tailwind.
It's hard to fully tell at this point in time, but with what we see I think our comps in the first half will look pretty strong on pricing I think second half price cost will be a little bit more challenged because the comps are harder at that point in time.
So we will have to see as the year progresses, but overall, we don't give quarterly guidance, but we're very confident that we should be able to get our price net of cost with our improved portfolio focus on commercial excellence and focus on operational excellence as we end the year at 23.
Okay got it and then my second question is on the breathy piece. So it makes sense.
Looking at some of the declines recently and permits.
Obviously, it's different views out there for how the year progresses, but my question is when you think about that 30%.
<unk> seen that in starts.
Permits.
Usually your business might lag a little bit or is that already what youre seeing in your actual shipment trends or is that something where you're maybe not experiencing declines quite that severe.
But looking at kind of the writing on the wall as you get through <unk>.
Yeah. So great question. So as we Q4, we started to see in our two major metros with just basically Salt Lake City and Houston, we saw double digit volume declines in our residential now the good news is they're not a screaming stopped or I think it was kind of an orderly decline and we were able to pivot some of our <unk>.
You're meant to non res and public now the other thing we are looking at breakthrough. This time is the single family permits from 2022, and if you look on a full year basis on the national decline that was 13%, but a lot of the decline was in the second half. So it has accelerated in the second half on single family permits up lines.
But if you look on a full year basis, our Houston market fell much in line with a 10% decline with about $2. Two months of supply are Salt Lake City went down 30% at the single family permits went down 30% overall on <unk> data and so we're not terribly.
By that frankly, because if you look at both those metros as we started planning for 2023.
We had to look at a couple of factors one we're not big into multifamily were mainly single family. So that's where our numbers will come from the second factor is that we're coming off historic highs for both Salt Lake City and Houston.
And just to give you some color around that our salt Lake City exceeded the historic average for <unk>.
Permits single family permits my thousands per year since 2017, so think about coming off these really high residential residential build outs aren't this mine is going to be probably steeper. So that's what kind of informed our decision plus we're talking to our customers and they're not having a high degree of confidence and that really all of those.
Sectors on top of the fact that if you look at forecast from now, but Fannie Mae that are 25% plus decline. We felt that this was a prudent approach. So we are seeing some of this and we don't believe that we should be overly bullish about the second half.
Okay makes sense thanks, Dan.
Thanks, Mike.
The next question is from Adam Thalheimer with Thompson Davis Your line is open.
Hey, good morning, guys a quick question on.
Ready mix pricing, what's the range of outcomes, if residential does declined 30% plus this year.
Well you know it's it's it's interesting we always watch that very closely obviously if demand comes off will it impact our pricing, but the dynamic you have this year as these high cement prices driven by high input costs and generally in our markets when demand cement price stays high we're able to continue to pass that through keep our prices.
Hi that will.
Be more challenging this year, if demand drops off more than we think a 30% right now our planning stance is that we will pass through as our teams have executed all year long on passing through the higher material costs and in fact already mixed teams expanded margins in 2022, which was really quite an accomplishment given the cement.
Cadence that they had to pass through so we think cement stays up even though demand is down at 30%. Our teams can pass through but I would also say we have additional initiatives again controlling what we can control through our operational excellence centers of excellence for ready mix, where we're focused on short load additional fees for short loads are.
Team has done a great job using AI to optimize our admixtures, so that they can get value pricing break quality into the market. So the combination of all those factors. We believe it will hold but we will watch it very closely and our team is working very hard in that direction.
Thanks, Dan.
Thanks, Adam.
The next question is from filling with Jefferies. Your line is open.
Hey, guys, sorry about that technical issues. Unfortunately.
Yeah that color you gave on terms of how demand holding up on the resin side was quite interesting I guess, you've got some different factors right. Your comps are much easier on volumes in the back half and maybe the public stuff ramps up so in terms of your volume guidance for the full year help us think through the shape of the year in terms of the declines are due.
Few things kind of flatten out at some point.
Okay.
I want to make sure I'm answering your question there with respect your question totally unrealistic.
My question is just volume of World overall for you guys because you've got a confluence of factors you've got Rosie and it sounds like <unk> is holding up better than the 30% at this juncture. So maybe it's a bad guy in the back half, but infrastructure assume ramps up more in the back half. So just wanted to get a better sense of the shape of the year in terms of your volumes for 2023.
We saw Q4 double digit declines in resi volumes and we will.
That's not our biggest quarter.
Across the board. So when you think about the compounding effect of those declines as you get into our peak season, we that's where we got through our 30% overall declines in the peak season. So.
Why did they started to go down yes, it will probably go down a little bit more.
<unk>.
The rest of the volumes I think are driven largely just by the seasonality of our business.
Thanks, it into quarters, because remember Phil you know only 4% of our EBITDA is made in the first quarter generally if you look back over our historical averages. So our when you look at our business you've got to really look that made through September October that makes or breaks our year. So its that time. That's why in my prepared comments I made the comment that it's going to be we're not going to be at peak.
Seasons, we really understand the depth of the air pockets.
Okay. That's helpful and if I could sneak one more in last year from a productivity standpoint, you guys had some challenges because you couldnt get to me you need. It you mentioned supply chain still a challenge are you seeing any of that freeing up that gives your ability to kind of unlock some of the self help initiatives you guys have targeted.
We are still having problems with our supply chain. The equipment has not eased up at this point in time, we do we are hopeful that as the year proceeds, particularly with respect to our capital equipment that it would ease over time, but our R&M costs are still elevated at this point in time, Bryan maybe at a little more color around that that you'd like.
To add to what were planning there yeah.
Theres still delays from some of our suppliers and oftentimes it's not just.
One or two small components that can delay the delivery of an entire pieces of equipment.
It continues to be a challenge.
We did get some new equipment in Q4, but.
So quite a big carryover from.
Things that.
We want to get into 2022.
So that remains an issue and as long as it does.
Repair and maintenance costs have been elevated.
Just because of the delays in and having to run equipment for longer.
More hours on the on the club, but also because the costs.
The components frankly, whether they be major components overhaul components or consumable type items have also been higher due to inflation. So.
It did seem.
The challenge that it continues to be stone typically we would like to get your equipment underground Epsilon. The start of the season remains to be seen how we'll be able to get everything we want to buy it.
March April may timeframe.
Okay. Thank you great color.
Thanks Bill.
We have no further questions at this time I will turn it over to Anne Noonan for any closing comments.
Thanks, Chris I'll, just leave you with three takeaways.
2020, twos capped a year of tremendous strategic progress we ended the year with the strongest balance sheets in summit's history set a high watermark for ROIC began our margin recovery is set all time records across multiple safety measures will carry this momentum into 2023 by building on strong pricing growth, while focusing on those costs.
Levers within our control we are confident that our continued focus on value pricing principles, coupled with operational excellence initiatives across the enterprise.
Help counter inflation and over time deliver sustainable margin growth. Today's summit is a talent rich and materials led organization, that's better positioned to pursue attractive organic and inorganic opportunities than ever before armed with an exceptional balance sheet, we will continually optimize the portfolio invest to grow priority.
<unk> markets and strengthened the profitability and economic durability of our company as always we thank you for your continued support for summit materials and we hope you have a nice day.
Okay.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].
Yeah.
[music].