Summit Materials Inc. Q1 2023 Earnings Call
Hello, we are now ready to begin the summit Materials' first quarter 2023 conference call.
I'll now hand, the call over to Andy Larkin, Vice President of Investor Relations, Andy you may begin.
Hello, and welcome to the summit materials first quarter 2023 results conference call yesterday afternoon, we issued a press release detailing our financial and operating results. Today's call is accompanied by an investor presentation, and supplemental workbook, highlighting key financial and operating data all of these materials can be found on our Investor Relations website.
Management's commentary and responses to questions on today's call May include forward looking statements, which by their nature are uncertain and outside of summit Materials' control. Although these forward looking statements are based on management's current expectations and beliefs actual results may differ in a material way for a discussion of some of the factors that could cause actual results to differ please see the risk factors section of cemetery.
This latest annual report on Form 10-K, which is filed with the SEC.
You can find reconciliations of historical non-GAAP financial measures discussed in today's call in our press release.
Today, I'm joined by Summit's, CEO and unit and our new Chief Financial Officer, Scott Anderson and will provide a brief business update Scott will review our financial performance and then we'll conclude our prepared remarks with our view on the path forward. After that we will open the line for questions. Please limit your asked the one question and then return to the queue. So we can accommodate as many analysts as possible in the time, we have available.
I'll now turn the call over to Ann.
Thanks, Andy and Hello to everyone joining today's call before I start I wanted to publicly thank Brian Harris first graciousness and generosity. During this leadership transition I also want to welcome Scott to these quarterly calls as he settles into the CFO role. He is making an immediate and positive impact on our business and we look forward to more fully introducing him to the <unk>.
Bester community in the weeks and months that follow.
Now as you saw in our press release yesterday, our record first quarter results clearly indicate that we have a head start to 2023 as we enter our prime construction season.
This progress was not limited to just our financial results, but extended to our safety performance as well.
Through March our forward looking metrics are flashing green and most of our logging metrics are trending in the right direction recordable incidents are down year on year, and we are leveraging new technologies to make continuous safety improvement. We are tracking ahead of our 2023 goals. Our success as always will depend on our safety leadership across.
Our footprint and more importantly, the buy in from all summit employees.
As we aspire towards zero harm culture, I'm confident our great people will spearhead those efforts and deliver ongoing success on the safety front.
Moving to slide four for our first quarter financial review.
I'll highlight a few items, but ask Scott to cover our results in more detail.
First and foremost adjusted EBITDA of $41 2 million is at nearly 80% increase year on year and corresponds with a 420 basis point improvement to our adjusted EBITDA margins.
Mid teens or better pricing to growth across all lines of business was the primary catalyst that drove record first quarter net revenue and our outstanding profit performance in the quarter in fact, 26% organic aggregates pricing growth is the largest year over year quarterly growth rate in our history our teams.
Lastly, executed on our January 1st pricing actions in all markets.
This in combination with increased contribution from our operational centers of excellence is fueling our margin recovery.
Our fast start to the year, along with improved outlooks for demand and pricing has prompted us to raise our adjusted EBITDA outlook for the full year I'll go into more detail for you momentarily, but in short and consistent with our playbook, we are controlling our controllable.
And well positioned to deliver strong financial results amidst ongoing uncertainties in the marketplace.
One major way that we're controlling what we can this on slide five where we provide a glimpse into one of our unique self help margin opportunities.
Our aggregate center of excellence, if you recall, our Northstar cash gross margin target for our AG business is 60% on a trailing 12 month basis, we closed last year at 48, 5% and are intently focused on closing that gap in 2023.
Our center of Excellence led by our East region, President Barack Boyd is holding multiple onsite continuous improvement events monthly these.
These events aimed to diagnose sources of operational inefficiencies design and implement customized corrective actions and measure progress against their objectives.
This summit capability is rather new yes, we are already making significant progress for one we are identifying common themes across our quarries. These include modernizing long term mine planning.
Focusing on yield optimization conducting maintenance blitzes, debottlenecking plants, and better utilizing automation by identifying common operational pain points across our footprint, we can lift and shift proven solutions to deliver tangible results more quickly.
But the core he said have recently undertaking Dci events overall equipment effectiveness is up on average, 7% and tons per hour is up more than 9% versus baseline levels and this has translated into approximately 3 million of productivity savings, helping to offset input cost inflation, let's be clear we are still in the air.
Early innings on our operational excellence journey, but we are organized and incentivized around the strategic imperatives and very encouraged by the progress to date at this progress is enterprise wide and in every line of business. It's the math for example, we are in the process of installing a new innovative waste fuel technology in our Davenport facility.
This fueled flex system will be the first pre commercial installation in the world and a first of its kind technology within the United States. Construction is currently underway and the equipment will be commissioned in early 2024, when complete fuel flex will allow davenport to reduce its fossil fuel consumption by at least 50%.
And move summit that much closer to achieving its carbon reduction commitment at the same time by replacing coal and pet Coke with alternative fuels, we will drive significant cost savings for our business and increase our overall competitiveness in the marketplace.
Projects like these are underway across our footprint and they are feeding our collective confidence that the unique self help margin opportunities that we talk about are materializing. Our teams are working hard to gain ground operationally deliver substantive cost savings and take strides towards our elevate summit EBITDA margin target of 30%.
Passing to Scott, let's look at our elevate summit scorecard on slide six leverage remains well ahead of the elevate summit targets, providing ample firepower to pursue portfolio optimizing transactions ROIC at nine 6% is up 50 basis points sequentially and up 120 basis points from a year ago.
As our materials led strategy, coupled with a sharp focus on improving asset efficiency has put the elevate summit ROIC target of at least 10% within reach and finally, our first quarter boosted our trailing 12 month adjusted EBITDA margin to 22, 8% up 70 basis points sequentially.
At 30 basis points year on year with each of these metrics either ahead of target are moving in the right direction. It supports the view that our strategy is working we have transition towards a more materials led portfolio with 71% of our trailing 12 month adjusted EBITDA generated by our upstream businesses.
We chose to have a downstream presence, we have advantaged assets, leading market positions and attractive profitability profiles.
From continued and diligent execution of our four strategic pillars market leadership asset light sustainability and innovation, we are on a pathway towards a more economically durable and profitable organization with that let me hand, it to Scott to review our financial performance Scott.
Thank you Anne and let me start by saying, how generally excited I am to be joining everyone here today.
No Ann has promoted a strong level of shareholder engagement and transparency and my plan is to fully embrace that approach as we move forward, let's turn now to slide eight to review business segment results for the quarter.
In our West segment, which includes Salt Lake City net revenue was negatively impacted by wet and cold conditions in Utah as well as softer residential demand.
These factors more than offset pricing acceleration across all lines of business and very strong volume growth in asphalt adjusted EBITA was comparable to the prior year period as positive price cost offset lower volumes out in our east segment net revenue was up seven 7% as increased Greenfield contribution strong public activity in Kansas.
And favorable weather in the southeast fueled 18, 1% organic aggregates volume growth.
Aggregates pricing momentum continued across each market with strong double digit gains in the Carolinas and Missouri, followed by high single digit growth in all other markets.
Volume and pricing growth together with a benefit from 2022 divestitures helped drive adjusted EBITDA of $10 7 million year on year to $18 9 million and increased adjusted EBITDA margins by 250 basis points year over year, and while Q1 is traditionally a light volume quarter I will say that we are pleased by the <unk>.
The progress of our east segment and anticipate it being a major contributor towards achieving our growth and margin goals.
Finally on C met our continental team is executing on multiple fronts, including value pricing, where our January 1st pricing action saw strong traction further growth was sourced from Green America recycling, a key growth driver and margin enhancer for our cement business. These factors drove net revenue up more than 17% and increased adjusted EBITA by.
$5 million in the quarter.
Turning to slide nine for pricing by line of business and the headline message from US remains the same we are executing our pricing plan in all markets and all lines of business.
Pricing in Q1 was an all time summit high as 2022 carryover pricing combined with January 1st pricing actions to drive a 25% year on year increase.
By market, notably, Texas registered the strongest pricing gains as the market moved on price in January of this year versus April in the prior year.
Elsewhere, you Tal also delivered aggregates pricing growth in excess of 20%. The time series pricing chart is especially useful in understanding our pricing cadence for this year as the pricing comps get incrementally more difficult in the back half. Nevertheless, we now expect aggregates pricing growth to approach that double digit range for the full year.
For cement pricing sustained its momentum increasing nearly $19 per ton or 14, 8% year on year in the first quarter, we continue to face and therefore price through higher important trials, including kiln fuels ongoing inflation together with sold out supply conditions have prompted a midyear increase of 10.
A ton.
This pricing approach is consistent with our value pricing principles and reflects the value we bring to the market through the highest caliber product quality customer service and supply reliability.
Downstream, passing along higher cement cost ready mix prices increased by 15, 2% with both Houston and Salt Lake delivering mid teens or better pricing gains relative to Q1 2022, so far even with residential demand softening our ready mix pricing is persistent supported by our go to market approach.
Ours is an enhanced customer experience as well as higher quality mix is for our customers.
On asphalt price grew 24, 5% in Q1, the strongest growth rate in summit's history, and emblematic of strong demand backdrop, we're seeing in our public end markets, especially in North Texas.
Shifting the volumes on slide 10, where first quarter organic aggregates volumes were down three 4% a sequential improvement from second half 2020 to run rate levels as volume growth in each of our east region markets, mostly offset declines in our west region.
<unk> volumes were slightly down in Q1, which is traditionally our lightest volume quarter of the year and reflects in part lower import volumes versus the prior year ready.
Ready mix volumes declined 19, 3% organically only a modest rate of deterioration relative to what we witnessed in Q4 of 2022, we've seen more pressure in Salt Lake City, while Houston has held up relatively well and better than national trends asphalt on the other hand is beginning to feel the flow through from increased public activity.
Particularly in repair and rebuild work organic.
Organic volumes were up 38, 7%, a sharp reversal from prior trends and remember our largest asphalt concentration is in north, Texas, where txdot funding and activity is robust and poised for continued growth.
Turning now to gross margins on slide 11, while costs remain stubbornly elevated the compounding impacts of our previous pricing actions along with operational improvements has set us on the path towards margin recovery and eventually sustainable expansion.
As you can see the first quarter was a second consecutive quarter of gross margin expansion of approximately 280 basis points from the prior year as well as an improvement in sequential growth. This is proof we are executing with more agility and while market conditions remain dynamic we have the capability to drive towards and consistently achieved.
Positive price cost relationship.
By line of business aggregates gross margins, but the overall trend declining to 35% here, we're still feeling the brunt of higher variable costs, specifically higher equipment rental labor as well as repair and maintenance costs remain the most elevated.
Further impacts were from unfavorable geographic mix as lower volumes from our high margin West segment resulted in mixed headwinds in the quarter for.
For summit cash gross profit margins were positive in Q1 at nine 6% a first quarter high watermark for our business gross margins were bolstered by a combination of factors, including strong pricing growth favorable year on year distribution cost and a greater contribution from high margin Green America recycling as you know.
We target sustainable FEMA EBITA margins above 40% on a trailing 12 month basis and will rely on gross margin expansion to provide the primary thrust for us to achieve that northstar seem at target.
First quarter product margins increased 80 basis points to 12, 4% driven by asphalt gross margins, which expanded significantly on both strong pricing growth that we mentioned earlier as well as slight cost moderation relative to the prior year period.
Ready mix gross margins were up on a per unit basis as price net of cost was positive, but when factoring in down volumes ready mix gross margins were down modestly in Q1.
Services margins increased to 10, 2%, a 570 basis point improvement from Q1 2022.
And the strongest first quarter gross margin performance since 2018.
Zooming out for a moment to provide perspective on cost trends. If you recall from February we said that one of the big swing factors that could move us towards either end of our guide was how cost trend in 2023, recognizing that we're still early we have not seen a material or wholesale easing of our input costs, yes certain.
Buck, it's like diesel and liquid asphalt have come off peak levels and at the rate of inflation may have moderated, but we still believe our mid to high single digit cost inflation estimate is reasonable and appropriate for 2023.
Until we see enough evidence, we believe the higher for longer cost mentality reinforces our managerial approach to control, our controllable and more specifically execute on our commercial and operational excellence plans.
I'll wrap up on slide 12, where we reported Q1 adjusted EBITDA margin of 420 basis points year on year to 10, 1% driven.
Driven primarily by cash gross margin growth as well as tight management of our discretionary spend.
Adjusted diluted net income and adjusted diluted earnings per share improvement primarily reflects strong operating results, partially offset by higher interest expense versus the year ago period, and finally for the purposes of calculating adjusted diluted earnings per share. Please use a share count of $119 9 million.
Which includes $118 6 million class a shares and $1 3 million LP units.
With that I'll now pass it back to Ann for a look ahead.
Thank you Scott as you can see on slide 14 yesterday, we upgraded our 2023 adjusted EBITDA guide by increasing each end of the range by $10 million and consequently, increasing the mid point to $510 million at the midpoint represents roughly mid single digit year on year growth on a pro forma basis our fourth.
Cast for nonoperating items as well as G&A have not changed relative to our previous call nor has our expectations for capex changed versus what we discussed in February .
What has changed therefore, and where we have become incrementally more positive is our viewpoint on operating conditions, particularly residential demand slide 15 details our current outlook assumptions, if you'll allow me I'd like to take each one by one starting first with private demand our new outlook calls for residential volume.
<unk> to be down approximately 25% this year versus down at least 30% in our previous guidance.
This view brings us more in line with the consensus forecasts from major industry groups and differs from our previous view in two ways.
We're now incorporating a more resilient outlook for Houston, one of our largest residential markets here permit data reveals a shallower trough. This cycle in a local economy that should support a quicker recovery in single family rebound in.
In fact, some homebuilders saw record traffic in March we're more confident that Houston will fare much better than the national trend by.
By contrast, Salt Lake City is still seeing deterioration impairment activity. So we factored in a comparatively harder landing and the more delayed recovery for Salt Lake City.
In reality, our demand visibility in that market has been impaired by adverse weather conditions with 45 days of precipitation and more first quarter accumulation, it's very difficult to reliably determine what is weather related versus truly demand driven impacts affecting salt Lake city.
The second positive factor now incorporated into our outlook is not specific to any one market, but its trend data observed over the course of the year.
From our point of view and what's been corroborated by many of our customers is that the housing market is experiencing very strong demand elasticity buyer sitting on the sidelines or quickly reacting to moderately lower interest rates based on National Association of Homebuilders data each 25 basis points decline in 30.
Mortgage rates between 6% and 7% could price in an incremental $1 3 million households into the home buying market. This together with the lock in effect and record low levels of housing inventory are encouraging signs for single family construction activity could experience a more swift and more dramatic bounce back.
Either later this year or in 2024.
Partially offsetting this optimism is a somewhat more cautious view on nonresidential.
Lucidly, two potential ramification for tightening credit standards.
While it's too early to say what this will mean for our business with any level of specificity. So far we have not seen any impact our working assumption is that any impact is likely to be rather insignificant for 2023 and is more likely a 2024 or beyond event if.
If we were to feel it would likely be in light nonresidential construction, particularly in lodging office and smaller retail buildout.
Fortunately, our 2023 outlook doesn't depend on growth from like non res verticals and we don't believe these tighter conditions will materially impact the non res growth verticals on the heavy non res side in fact, the momentum on that heavy non res is picking up with projects in our Kansas, and Missouri markets, either underway or ready to <unk>.
Ground simply put we are monitoring and assessing the risk from bank failures, but we have not changed our overall expectations for the nonresidential end market in 2023.
Moving on to public demand, where we are still calling for mid single digit volume growth. In 2023. However, we are incrementally more positive on that end market. Thanks to letting activity that continues to grow and what we expect maybe faster flow through of Iga dollars to the type of work the benefits summit materials, while the data is.
Still early nearly half of the projects funded by <unk> are being devoted to repair and reconstruction work at summit specialty if this trend persists, which we think it should it would mean faster acceleration and realization of Iga $8 to our business.
Let me wrap up our outlook discussion with the price cost dynamic as Scott mentioned earlier higher costs from things like equipment rentals labor until deals are still flowing through the P&L, which we contemplated in our revised outlook today. The reality is we must adopt our higher for longer cost mentality. So we take all the right steps to mitigate their impact.
To that end, we are moving forward with a mid year price increase in cement effective July one and our value pricing planets and its multiple price increases in each of our lines of business as warranted by local market conditions and intentionally designed to maintain and extend our positive price net of cost relationship.
To sum it up and I hope it comes across is that we are incrementally more positive on the year ahead or bolster confidence is supported by a fast start to the year and improved outlook for demand strong year ago pricing plans and intense focus on operational excellence initiatives as well as project specific margin enhancing activities.
In a market that we acknowledged still has plenty of uncertainties. We will emphasize execution. Our teams have a proven track record of managing through difficult times, and we are collectively driven to deliver on our beat our 2023 commitments.
I'll close our remarks on slide 16 by re grounding everyone in our elevate strategy externally, we talk a lot about market dynamics and recent data points, but internally, we don't lose sight of our strategic progress advancing each priority strengthening each of our enabling capabilities.
We are confident that strategic execution inclusive of portfolio optimization will over time translate to higher growth and improved profitability.
That in turn should deliver superior shareholder returns and being rewarded with more premium market valuation.
We know we are well on our way towards that future, we havent materials oriented portfolio advantaged downstream assets, a fortified balance sheet and a high performance organization capable of powering our progress lastly, before taking your questions I want to extend my gratitude to my stomach colleagues throughout the country and in British Columbia.
For a strong start both financially and on our safety progress. The race is not yet won but we certainly have a substantial head start with that I'll now ask the operator to open the lines for Q&A.
Okay.
At this time, if you would like to ask a question. Please press star followed by the number one on your telephone keypad.
If you would like to withdraw your question again press Star one and.
In the interest of time, please limit yourself to one question. Thank you. Your first question is from the line of Stanley Elliott with Stifel. Your line is open.
Hey, good morning, everyone. Good.
Good afternoon, I guess, congratulations on the strong start to the year.
Good morning.
And you mentioned kind of on the on the non res side, that's something that we'll get a lot of questions about could you maybe talk about your business between light and heavy and then maybe think about how this cycle is different in terms of just the visibility that you may or may not have on some of these larger projects out there.
Yes Stanley. So if we think about our business between light and heavy roughly split 50, 50, I would say the one <unk>.
Diverging from that would be cement, where we're more heavily indexed towards the heavy side. So on the heavy side. We're seeing the same things we talked about last quarter a lot of projects in the onshoring of manufacturing, whether it's semiconductor electric EV.
EV battery factories, but also the energy verticals continue to be very strong for us. So we're really we've seen substantial tailwind on that we've got a very rich pipeline of projects.
The nonresidential side light as we mentioned in our prepared remarks, we did not put much in our guide nor has there been the revised guide and that was basically driven by interest rates slow down to residential and regional bank complications may occur, but we don't see that impacting us in 'twenty three that may be something there.
We look for in 2004, so overall I would sum up the very rich pipeline of projects right now whether it's varies from the Panasonic project in Kansas City to warehousing Love Our East region, we're seeing really very robust set of projects that gives us a lot of confidence for non res in the outlook you see today.
That's great. Thanks, so much best of luck.
Thanks Bentley.
Your next question is from the line of Trey Grooms with Stephens. Your line is open.
Good morning, everyone hope, you're all doing well.
Hi.
So.
First off.
Higher costs still flowing through the P&L, you talked about that and youre raising prices.
There are especially in I guess in aggregate is the one I'm specifically talking about here.
So are you are you contemplating midyear price actions in aggregate sorry, if I missed that.
To help with these higher cost and how should we be thinking about aggregates margins and the outlook there for the balance of the year.
Okay. So youre.
Youre right. We are adopting on the costs are higher for longer mentality and we saw that in the P&L. In Q1, we have been raising prices. The January price increases were very strong across the board. We went across every line of business and the execution was really flows that would have to say across our business. We are planning as we talked about.
Submit midyear price increases of $10 per ton.
And then across the rest of the business we have price increases planned from April through the end of the year multiple price increases. So it's not just a July one price increase a little bit more varian standby market.
Customer and region and geography, so when we think about it think about we're more positive price momentum and we plan to continue with that price as we go through with respect to aggregates Margie.
<unk> comments he talked about the fact that in Q1, they were lower what drove that was primarily.
It takes effect Salt Lake City has had as I mentioned in my comments 45 days of rain and record accumulation.
That particular market is 60% gross margin and we were down 40% in volume. So as you think about the impact of aggregates margins in Q1, while we were disappointed as it has been here where it came from but as we build through the year now we've got this price momentum that we're looking forward to we've got the mix now adjusting does I'm happy to report Salt Lake.
The city is now almost two weeks back in production.
And we've got our operational excellence, so as we build through the year I expect us to sequentially improve that margin and continue on our path to our 60% adjusted cash gross profit margin as our north star overtime.
Great. Thanks, and congrats on the quarter and good luck for rest of the year. Thank.
Thank you Terry.
Your next question is from the line of Keith Hughes with Truest. Your line is open.
Hi, Thank you just building on the last question with the.
West and the weather.
Okay.
Are you still have to get back to a normal quarter there in the second quarter.
With some of the some of the rain the disruption at the April Thats got all kind of play a role in whatever you report second quarter results.
Yes, I mean in reality, Keith we have literally be willing it's been running for two weeks at Salt Lake City.
We have that luxury and accumulation. So we've lost some days I will say, we've got one of our highest executing teams there and they are extremely focused on continued price momentum in operational excellence.
To continue the growth that we have.
Suddenly prepared comments is true we've kept our view on Salt Lake City for brands with Dan Mike Bearish, because we can't really see through the weather and demand right now as we get through a few more weeks and into Q2, we'll be able to give you more guidance in that direction.
And are your contractor customers I'd say able to get back to working or is there still a dry out a site that's going to have to go on before you get back toward normal run rate.
There are still some flooding.
Going on but everyone's starting to get back to work in Salt Lake.
Okay. Thank you very much.
Thank you Keith.
Your next question is from the line of Brent Thielman with D. A Davidson your line is open.
Okay.
Hey, Thank you.
Hey, Andy.
It seems just from the commentary.
Contributions of your new.
Yield investments, where we're pretty relevant in the east this quarter, obviously, you had market conducive with.
Good demand, but I guess, if we assume that continues going forward I would think these continue to drive some positive contributions through this year I guess I'm just wondering how all of this informs you about the capital allocation priorities right now towards these greenfield operations.
Over M&A at the end of the day.
Yeah, absolutely. So if you look at our guidance for the year Greenfield, we have been investing and we did call that out last quarter that you can count on the best 9 million per year EBITDA incremental EBITDA over the next three years and we have that built into our guidance. So we're pretty confident on that and we are starting to see these.
Mr. Jefferson Karnes little coming out of high margin high growth, let's very accretive to our margin less the.
The capital allocation perspective.
Really our priorities have not changed we're very focused organically really expanding our margins, whether it's through capital improvement projects such as our Davenport Dome read American recycling expansion. So we've got a lot of very good organic growth opportunities. But then we are also extremely focused on greenfield investments, which.
Basically term as organic growth in our governance and we will continue to invest over time and then after that I think about this as a growth story. It's M&A, we've got a very rich pipeline.
And I'm very happy to report that we have very strong balance sheet low leverage and is a great position to buy through the cycle. So think of us as a growth story and a capital allocation speak very focused we remain very disciplined as we've talked to our strategy over time.
Yeah very good thank you.
Thank you.
Your next question comes from the line of Adam Thalheimer with Thompson Davis Your line is open.
Hey, guys great quarter.
Hey, Andrew.
What's your expectation for ready mix pricing that tends to be.
Our business line, it's a little more sensitive to the volume component.
Yeah, you know ready mix our teams have done a great job frankly, they've all of last year for only 20 cement increases please expanded their margins and it's because we have our centre of excellence really focused on value pricing added value for our customers and quality and service our expectations moving forward is that we guess are.
Pass through of our cement that we add.
<unk> margin.
As we look at.
Where our markets are overall, we've said that residential will be done at 25%.
Q4, Q1, it was down 19%, we see salt Lake going down a little further I believe that pricing will hold for a couple of reasons one our cement pricing maintains very high submitted very tight in all markets. So we're going to have to pass that alone that's going to support that I also think our team's doing a great job with respect to value pricing the third I believe.
We're in very strong downstream markets. We've exited all of the markets that were weak for us and we have leading positions. So we remain pretty bullish on the ready mix pricing and that was demonstrated in our Q1 performance.
Good color thanks, Dan.
Thank you.
Your next question is from the line of Philip <unk> with Jefferies. Your line is open.
Hey, guys strong start to the year and Scott looking forward to working with you going forward.
My question is on cement.
If I look at cement prices sequentially. It was up only about six bucks a ton I don't know if there was any noise with mix or timing just wanted a little more color on.
That price increase.
Went through margins were actually quite good and I just wanted to get a little more color. If you saw the step up in an energy that you've talked about or was the big contribution coming from.
Better performance out of Korean America.
Yes, so it's all of the above.
So really just let me address the pricing first of all so the Q4 to Q1 sequential pricing we did a lot of imports in Q4, so that's what our pricing up to about 147 Bucks.
Per ton and so if you just look at the ASP. It looks like we got to your point about six months, we actually got $18 a ton and our base business. So the imports as you know our higher price lower margin, but from a dollar EBITDA perspective, you saw that flow through in our margins both from the strong pricing in our base business.
Strong read America recycling operations on operational Excellence was also very strong so the <unk>.
And that business is operating very well and we're seeing that price go through to the margins.
And you saw the step up in energy because I know the hedges roll off.
The energy savings.
Yes sure.
You guys to step up in energy is absolutely there.
And we continue to go mid year, because we continue to see cost escalation in our cement business and so we've gone for a $10 per ton mid year price increase and those costs have not subsided at all in that energy will persist over time.
Okay. Thank you.
Thanks, Phil.
Your next question comes from Dillon Cumming with Morgan Stanley . Your line is open.
Hey, good afternoon. Thanks for the question actually I wanted to build on that last one and I think you kind of mentioned in the prepared remarks, you were still kind of preparing for a higher for longer or for lack of a better return.
Im cost environment, I think I know that there are some hedging structures that limit the drug benefit to you for I guess.
A couple of quarters or so, but just thinking more structurally diesel prices follow them or we've had we're seeing I guess in spot crude oil recently, if you look that should be more of a tailwind. So look you've heard commentary appears about labor and freight costs being better.
Are you seeing any evidence of cost inflation that could make the margin outlook with more robust from here.
Limiting factor that was helpful to you guys.
I'm going to let Scott, bringing it through some of the specifics around our cost structure, what we've assumed in our guidance that might help answer your questions.
When you when you think about cost inflation, if you will.
See you guys.
<unk>.
And I think that stands for us.
When we look at diesel fuel for example, we're hedged at 50%.
And our hedging rate is really just a little bit higher than last year's average now Louis.
We feel like the other half of that spot pricing right now is a little more favorable so it should balance out.
But when you look at labor cost, we're still in that mid mid to upper digits single digits.
Our repair and maintenance as you saw in the first quarter in the AG business.
Really elevated on the repair and maintenance side, which is driving some of the rental costs as well.
I am an enhanced point about operational excellence I am excited.
Forward.
Our coes.
You can drive productivity.
Productivity gains.
We're already seeing business.
But not ready to change the cost inflation.
Okay. That's very helpful. Thank you.
Yeah.
Your next question is from the line of Anthony Pettinari with Citigroup. Your line is open.
Hi, good morning.
Good morning. Thank you pointed I think you'd pointed to infrastructure end markets up mid single digits. This year and I was just wondering if it's possible to talk about maybe the cadence of when incremental spending.
Spending may flow through to your volumes is there.
Order, where you expect that to really step up or did you see any of the <unk>.
And should we expect that to kind of accelerate each quarter of the year and further into 'twenty four.
Or kind of any limiters from contractor availability just any additional color you can give us an IHA flow through.
Yeah, I would say overall very positive on our state funding just as a base of funding across all of our states. We remain very positive on that but we are starting to see the flow through and if you look at <unk> data data. They estimated that 50% of those funds are going to repair and rebuild.
Which is some of the specialty right. So we are starting to see those that we saw that in our Q1 volume sporadically.
The other thing I would point you to is we look at our backlogs.
So our backlogs with respect to our public markets if.
If we look at asphalt.
It's up 21%, 23% and our construction is at 53% our aggregates are up 20% of our backlogs have improved year on year, and then specific to our north Texas market.
In Q1 that is 50% of our public revenue and it was up 40% in activity. So with respect to public funding. So we're starting to see those dollars bulk foods now I would expect more as we go through the second half of the year, but then as we go into 2024, we've talked before that.
The first year of fundings of about 25% Federal funding. The second is 40% it won't be an exact equation, but these projects tend to be nine to 12 months in duration with summit more balanced towards the repair and rebuild at the front end. So we are starting to see the dollars flow through we're very positive we're seeing in our backlogs we're seeing it in each.
One numbers on our asphalt volumes. So that is an area, where we feel pretty good about what's in the guide right now.
Yeah.
Okay. That's very helpful I'll turn it over.
Your next question comes from David Macgregor with Longbow Research. Your line is open.
Yes, good afternoon, everyone and congratulations on the really strong results.
I wanted to dig in on cement a little bit and you had noted in your press release that your import tons were down and then the previous question. You responded were down from <unk> into <unk>.
Is that weather related or was that.
Sort of it.
Based on market economics.
Just maybe as part of that talk about how the landed cost of imports may have changed versus the fourth quarter.
Maybe where you think terminal inventories are right now.
Yeah.
Won't give you specific are terminable inventories, but I will say, we were incrementally down in <unk> versus <unk> was the high in fourth quarter for US we were down in <unk> and a lot of that was driven frankly by what we had in our own domestic inventories and volumes and how we're running our plants.
As you know the margin is much lower on imports so as we're pushing towards 40% EBITDA margins and trying to grow our dollars EBITDA, it's always better for us to use our domestically produced material.
We also had material where it needed to be in <unk>. So that the importance of the Davenport facility et cetera, we were in good shape with respect towards Smith, the landed cost of imports were still seeing quite high.
And with Turkish imports down a little bit.
We're looking at multiple sources imports around Vietnam, Indonesia et cetera. So they don't expect imports to be that high this year, we will as always prioritize our domestic production.
Bench with imports to meet our customers' needs, but we're always going to drive more towards our domestically produced product hopefully that answers your question David.
Yeah. It does thanks for the detail and congratulations on results.
Your next question comes from the line of Kathryn Thompson with Thompson Research Group. Your line is open.
Hi, Thank you for taking my questions today.
Just stepping back in.
Appreciated the color that you gave on your cement.
And all the progress that you're making there.
Last year, as an industry and actually for the previous kind of a year and half two years.
They were just all the plants across the U S.
Working so hard and imports. We're also constrained somewhat that you were just seeing extended outages.
And candidly extreme tightness and demand.
To meet demand.
Given where we are.
Looking at your current capacity.
Do you feel like your plants are able to meet the demand for the year.
How do you think about holistically looking at the industry.
How do you think that the ability for the industry as a whole to meet demand and what that means for pricing. Thank you.
Thanks, Catherine So let me address first of all yes. Some of it is extremely tight across all markets and as you know we are both a producer of the buyer of Smiths, but we see that incidentally on both ends but I will answer first of all from a current capacity our plants are running extremely well we went through our annual turnaround we can.
Back up from that we're very focused on operational excellence expanded our capacity plc is running at 100% across both of our plants. So that's giving us some extra capacity and some little bit more flex that we have to spend this year, so operating very tight and will augment with imports as needed.
With respect to the industry I believe that overall whats been the industries to be a net importer of cement as it always has been.
But I do think it's going to be very tight for multiple years here and that's going to be driven heavily by nonresidential Blake public and by residential will rebound and as we said earlier, we're more positive on residential and we have.
So all three end markets are going to be starlets men will be tight over that timeframe.
Our planning mode is to continue to manage our uptime continue to put our plc conversion and expansion of Green America and expand our Gavin for flex fuel as we move forward.
Okay.
Okay.
Great. Thanks.
Thanks Scott.
Your next question comes from the line of Mike Dahl with RBC capital markets. Your line is open.
Alright, thanks for all the detail so far I.
I guess, just a quick clarification.
And then the new guidance.
You've obviously talked multiple times here on the call about the different price increases through the year, just as a point of clarification.
All of these price increases and the associated costs that you expect currently embedded within the updated guide.
Or how should we think about <unk>.
Pricing actions in the second half with respect to what's what's in guide.
Yes, So lets say guide is as you think about us overall.
We had high single digit price increases January price increases and really what drives the pricing in that is if you think about aggregates in the past, we've said high single digit I would call us bumping up on double digit percentages as we go throughout the year.
And as we talked about the $10 per ton what is not in the guide is multiple more price increases as we go out throughout the year. So very confident on the January what we see in front of us, but we are also planning, but that price momentum and what we see on demand at multiple more price increases so think about more incremental positive and we'll update you that as we.
Get through our prime season between May and October we'll see how much more price we can actually built in as we go through it.
Great. Thank you.
Thanks, Mike.
Your next question comes from the line of Jerry Revich with Goldman Sachs. Your line is open.
Yes, hi, good morning, good afternoon, Amscot, Andy nice quarter.
And I am wondering if we just pull a little bit on your comments about <unk>.
Another impact in the first quarter.
Volumes were still.
Pretty resilient, so I'm wondering based on.
The weather comments and normal seasonality.
Do you suggest volumes could actually be up slightly year over year in the second quarter curious what the demand trends look like in similar context given.
The margin performance of the quarter applying normal seasonality to it would get you to record <unk> EBITDA margins for summit with a three handle on it in the second quarter and I just wanted to make sure I understand the moving pieces around what the seasonality might look like this year versus a typical year.
Yes, So let me talk about the volumes first of all with respect to Q1 and the rest in the whole year, and then I'm going to let Scott kind of talk you through the margin cadence, where it makes sense. So with respect to the first quarter variable quarter, we had very strong and our all season market. So our central it ourselves or volumes for <unk>.
Robust.
And our cement was as anticipated our volumes were up in asphalt.
Where we were down in volumes was our highest margin such as Salt Lake City. So to your point, Jeremy We did surprisingly Glenn on volumes. So just think of that as a good quarter could've been a salt Lake City was that big operating so.
That's why we are confident we will improve margins sequentially over the remainder of the year of Salt Lake City gets up and running and we get the compounding effect of the price increase that they were very strong across the board are executing.
So volume wise on a full year basis, we are calling for it to be done across all product lines mid single digits that is different from what we had in our last night, which was mid to high single digit and that's largely driven by residential that difference that we talked about Houston.
Stan Bearish on Salt Lake City, Salt Lake City comes in better there could be some upside to our guide with respect to that just like we talked about pricing Scott how about you cover the margin cadence throughout the quarters.
You've kind of picked up on the Jerry.
When you think about firsthand first half comps.
Very favorable for us.
Margin expansion, especially once we get out from under snow in Utah, and then they start contributing.
And then as you move through the year, Jerry I would say that the comps get more difficult. If you recall the last half of last year really starting celebrating our pricing.
So that will make the comp a little more difficult in the back half of the year, but really excited.
What the pricing is doing this year.
We should see that margin expansion you're talking yes.
Yes, Jeremy I'd, just add to that overall on margins were as we said in our last guide that we were going to have a floor of back.
Back to 2020 levels, which was $22 six obviously, we started in Q1 was 22, eight which was a record for US Q1 does not make a year, but we are more positive on price, but more positive on residential volumes and then as we go throughout the year, we'll update you on margins because we'll see how salt lake picks up and our cost position works out over time that will give you.
Better guide on margins overall.
Well done thank you.
Your next question is from the line of Garik <unk> with loop capital markets. Your line is open.
Oh, hi, Thanks, I wanted to ask on cement.
Crude performance out of Green America is it possible.
Profitability was up.
In the quarter is at full capacity at this point and what could that mean for the rest of the year.
Well cement will add we had $9 million last year of contribution from EBITDA that will add another $4 million in 2023 with our expansion.
So the one thing about Smith.
Just think about it is.
Is $25 million of revenue and you have $40 million of EBITDA sales due to the 2023 guidance. That's how we always talk about it garik as being very margin accretive. So the team's doing a great job on really executing on that so I feel pretty confident we will deliver that as we go through 2023.
Okay.
That is all the time, we have for today's questions I will now turn the call over to Anne Noonan for closing remarks.
Thank you 2020 increased clearly off to a strong start for our business. We're ahead of the original plan and were more encouraged by trends in the operating environment as we enter into our claim construction season, our more positive outlook and raised guide incorporates a better outlook for residential demand stronger year to go.
Since items and the self help margin opportunities that are being actions across our business. The environment will remain dynamic and we as an organization must meet with agility in their own energy. We have plenty of work ahead of us, but our team is motivated by and focused on the strategic progress in delivering our 2023 commitments as always.
We thank you for your continued support for summit materials, and we hope you have a nice day.
Ladies and gentlemen, thank you for participating. This concludes today's conference call you may now disconnect.
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