Q1 2023 Martin Marietta Materials Inc Earnings Call
Yeah.
Good day and welcome to Martin Marietta's first quarter 2023 earnings conference call. All participants are now in a listen only mode. A question and answer session will follow the company's prepared remarks as a reminder.
This call is being recorded and will be available for replay on the company's website.
I will now turn the call over to your host MS. Jennifer Park, Martin Marietta, That's vice President of Investor Relations, Jennifer you may begin.
Thank you it's my pleasure to welcome you to our first quarter 2023 earnings call. Joining me today are ward Nye, Chairman and Chief Executive Officer, and Jim Nickolas, Senior Vice President and Chief Financial Officer.
Today's discussion May include forward looking statements as defined by the United States Securities laws in connection with future events future operating results or financial performance like other businesses Martin Marietta is subject to risks and uncertainties that could cause actual results to differ materially we undertake no obligation except as legally required to publicly update or revise any forward.
<unk> looking statements, whether resulting from new information future developments or otherwise please refer to the legal disclaimers contained in today's earnings release and other public filings, which are available on both our own and the securities and exchange Commission's website.
We've made available during this webcast and on the investors section of our website supplemental information that summarizes our financial results and trends.
A reminder, all financial and operating results discussed today are for continuing operations. In addition, non-GAAP measures are defined and reconciled to the most directly comparable GAAP measure in the appendix of the supplemental information as well as our filings with the SEC and are also available on our website.
What and I will begin today's earnings call with a discussion of our operating performance and Nicholas will then review our financial results and capital allocation after which we're looking to conclude with market trends and our outlook for 2023.
And answer session will follow please limit your Q&A participation to one question I will now turn the call over to ward.
Thank you Kenny welcome everyone and thank you for joining today's teleconference. I'm pleased to report that this year is off to a very strong start for Martin Marietta with first quarter records by nearly every measure give.
Given our focus on operating safely and responsibly, we're especially pleased that total and lost time incident rates were down, 21% and 50% respectively in the first quarter.
The exceptional quarterly performance is a testament to our team's focus on commercial and operational excellence and the resiliency of our differentiated business model that separates us from others in our industry.
We continue to adhere to a value over volume approach focusing on an aggregates led product strategy and carefully expanding and honing our service footprint, which today is national in scope.
In brief the results we've reported over the recent past, including the first quarter results announced today are attribute to our team's disciplined execution of our strategic plan.
Gives us confidence that we will deliver 2023, adjusted EBITDA of $1 $9 billion consistent with the high end of our previously announced guidance range.
As is common practice, we will revisit our guidance more formally.
Year.
That's where the first quarter for product demand remains robust we experienced a modest decline in aggregate shipments as historically wet weather in California was partially offset by a mild winter and the south East However, aggregates pricing momentum continued to build with a 12, 8% sequential.
Creased driven by the carryover effects of our 2022 inflation management actions and by broad acceptance of our January one 2023 increases which were pulled forward from April one and the vast majority of our markets.
These combined shipments and pricing results demonstrate.
To demonstrate the relative price inelasticity of aggregates demand, where customer service and availability.
Allergan materials tend to be a greater importance and product costs.
Our intentional approach to capacity expansion investments at key facilities across our footprint has positioned us well to better serve our customers. During this period of high product demand across many of our locations, including markets in the southeast and Texas.
Now, let's turn to our financial results.
We established a number of first quarter records for Martin Marietta, including consolidated total revenues of $1.35 billion, a 10% increase.
Consolidated gross profit of $303 million or 94% increase.
Diluted earnings per share from continuing operations of $2 16.
Our 454% increase.
Adjusted EBITDA of $324 million or 64% increase.
And $5.70 aggregates gross profit per ton.
134% increase.
These results demonstrate the advantages of our value over volume commercial strategy, which was paramount to offsetting continued albeit moderating inflationary pressures.
That said the April OPEC plus production cuts were broadly unexpected and are likely to put upward pressure on fuel expenses throughout the remainder of the year, which tends to flow through to other cost categories.
As such our teams are actively advising customers of mid year price increases, which we anticipate will be more widely accepted and larger in scope and magnitude than we were initially considering a few months ago.
Longer term Martin Marietta is well positioned to benefit from what is expected to be an increasingly favorable and extended pricing cycle.
Let's now turn to our first quarter operating performance beginning with aggregates.
We experienced solid aggregates demand across our geographic footprint with total aggregate shipments decreasing only 300000 tonnes. Despite an approximate 1 million ton shipment decline in weather impacted California.
Aggregates pricing fundamentals remain attractive with pricing, increasing 22, 6% or 19, 6% on a mix adjusted basis.
The Texas cement market continues to experience robust demand and tight supply amid near sold out conditions, particularly in the Dallas Fort worth Metroplex yet.
<unk> largely due to wet and cold weather to start the year first quarter shipments declined six 8% importantly, we delivered pricing growth of 32, 2% more than offsetting the effect of lower weather impacted shipments.
We fully expected favorable, Texas cement commercial dynamics will continue for the foreseeable future and accordingly have announced a $10 per ton price increase effective July one.
Shifting to our targeted downstream businesses ready mix concrete shipments decreased 37, 1% and pricing increased 22% as a reminder, our first quarter 2023 ready mix concrete results exclude the Colorado and Central Texas operations that were divested.
Nearly 13 months ago on April one 2022 impacting the comparability to the prior year quarter.
Asphalt shipments decreased 25, 1% driven primarily by wet weather in California, and Arizona pricing improved nine 9% following the increase in raw material costs, principally liquid asphalt arbitron.
Discussing our outlook for the remainder of 2023, I will turn the call over to Jim to conclude our first quarter discussion with a review of the company's financial results Jim. Thank.
Thank you art and good morning to everyone.
The building materials business posted first quarter revenues of $1 $2 7 billion.
A 10, 1% increase over last year's comparable period in our first quarter gross profit record of $276 million, a 99, 4% increase.
Aggregates gross profit improved 131, 7% relative to the prior year, resulting in a first quarter record of $238 million.
Aggregates gross margin improved 1250 basis points to 26, 1% as strong pricing growth more than offset modestly lower shipments and continued inflationary pressure impacting most cost categories.
Aggregates gross margin also benefited from geographic shipment mix, which reflected a larger contribution from the higher margin southeast markets.
Geographic mix is expected to normalize over the balance of the year.
Our Texas cement business delivered record first quarter top and bottom line results continuing its recent track record of exceptional performance.
Revenues increased 21, 9% to $169 million.
While gross profit increased 75, 4% to $47 million.
Importantly.
Execution of our disciplined commercial strategy drove gross margin expansion of 860 basis points to 28% as pricing gains and normalization of natural gas expenses more than offset lower operating leverage and higher raw materials and maintenance costs.
As we shared previously our Midlothian, Texas plant has several initiatives underway to increase production capacity.
The largest of those is the installation of a new finished mill that we expect to complete in the third quarter of 2024.
The new finished mill will provide 450000 tons of incremental high margin annual production capacity and today is nearly sold out marketplace.
At both Midlothian and Hunter, Texas plan, the process of converting our construction cement customers from type one type two cement to a less carbon intensive Portland limestone Tonight also known as type one L is substantially complete.
We expect those efforts to provide additional capacity of 5% this year as compared to 2022.
Our ready mixed concrete revenues declined 24, 4% to $220 million and gross profit declined 48, 9% to $11 million driven primarily by the divestiture of our Colorado and Central Texas operations last April impacting prior year comparability.
Our asphalt and paving revenues increased two 1% to $58 million is increased pricing offset weather impacted shipments in California and Arizona.
Consistent with the typical seasonality this business posted a $25 million gross loss is the Minnesota operations are inactive during the first quarter given that market's late spring start the construction season.
Ideally most asphalt installations occur when both ground and air temperatures are between 50 and 90 degrees Fahrenheit.
Magnesia specialties generated record first quarter revenues of $83 million at.
At eight 4% increase.
Despite top line growth gross profit declined two 7% to $25 million due to higher supplies and contract services expenses, resulting in a 330 basis point decline in gross margin to 30%.
We remain focused on the disciplined execution of our strategic plan, which emphasizes responsible growth through acquisitions.
Reinvestment in our business operations and the consistent return of capital to shareholders.
During the quarter, we returned $117 million to shareholders through both dividend payments and share repurchases.
We repurchased nearly 204000 shares of common stock at an average price of approximately $368 per share in the first quarter.
Since our repurchase authorization announcement in February 2015, we have returned a total of $2 4 billion to shareholders through a combination of meaningful and sustainable dividends as well as share repurchases.
Our net debt to EBITDA ratio continued its downward trend and ended the quarter at two four times within our targeted range of two to two five times.
With that I will turn the call back toward.
Thanks, Jim.
We like Martin Marietta's prospects in 2023 and beyond as we began this year with great promise.
We continue to experience healthy customer backlogs and are encouraged by a number of factors that support near medium and long term demand for our products across the infrastructure and heavy nonresidential construction sectors.
As indicated in our supplemental materials historic legislation, including the infrastructure investment and jobs Act or Iga inflation reduction Act and chipset are expected to provide funding certainty for large infrastructure manufacturing and energy projects through the current period of <unk>.
Crow economic uncertainty as such we expect the related product demand for these key end use segments to be largely insulated.
We will start with infrastructure, which accounted for 32% of first quarter aggregate shipments.
<unk> of state and local government Highway bridge and tunnel contract awards, a leading indicator for our future product demand is meaningfully higher year over year with growth of 16% to a record 104 billion for the 12 month period, ending March 31, 2023 importantly.
Importantly state departments of transportation or <unk> in key Martin Marietta States are well positioned from a readiness and resource perspective to utilize the full allocation of federal dollars received from the <unk> and.
In fiscal year 2023.
Also late last year, the president signed the fiscal year 2023 spending package, which included the <unk> amendment, allowing states and local municipalities to allocate unused COVID-19 relief dollars for infrastructure projects.
This amendment alone is estimated to provide an additional $40 billion of.
<unk> available infrastructure funding to Martin Marietta's top 10 states.
We expect a step change in public sector investment stemming from a number of historic legislative actions to drive sustained multi year demand for our products in this important often counter cyclical end market.
Moving now to nonresidential construction this quarter's largest end use representing 38% of our aggregate shipments.
The industrial projects led by energy onshore manufacturing and data centers continued to drive demand in this segment accounting for the majority of total nonresidential shipments for.
The large project pipeline remains robust as an example estimated aggregates requirements for key Gulf Coast petrochemical projects have increased by over 33% since our last earnings report.
The aggregates intensity of these Gulf coast projects is immense and importantly, we have the production capacity and the long haul logistics capabilities to suppliers specification products to these significant projects in a timely manner.
In addition to large petrochemical facilities electric vehicle and related battery plants semiconductor and other critical product domestic manufacturing projects will be supported by enhanced federal investment from the inflation reduction Act and chips Act, resulting in an extended cycle with the aggregate some.
Tensive heavy nonresidential sector.
With respect to the light nonresidential end market, we've yet to experience any notable weakness in this segment as shipments to in process projects continue with that said new projects may have more difficulty accessing capital if commercial lending conditions meaningfully tightened as such we expect a slowdown in product.
Shipments took of light nonresidential sector later this year.
Residential shipments accounted for 25% of total aggregate shipments this quarter, reflecting a modest two 6% decline from the prior year as resilient multifamily construction, partially offset the single family affordability Air pocket.
Importantly, recent public homebuilder sentiment has been notably upbeat with respect to single family housing and we have observed recent positive data indicative of a near term bottoming in certain of our sunbelt markets longer term the structural housing deficit, resulting from a decade of under building is.
To drive a base level of demand for single family homes across key Martin Marietta geographies for the foreseeable future.
To conclude our record setting first quarter performance provides excellent momentum going into the balance of the year. As a result, we're confident in our ability to achieve the high end of our previously announced 2023 financial guidance range and navigate the current macroeconomic backdrop.
Taking a broader view, we believe that our financial results validate the secular durability of our proven aggregates led business model as we continue along our path of building and maintaining the safest most resilient and best performing aggregates led public company.
If the operator will now provide the required instructions, we'll turn our attention to addressing your questions.
As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
<unk>.
The first question comes from Adam Thalheimer with Thompson Davis Your line is open.
Hey, guys amazing quarter.
Adam Thank you good to hear your voice.
Was there anything.
Maybe it's a question for Jim but was there anything in that specifically helped Q1 aggregates margins and how are you thinking about aggregates margins as we move into the middle of the year.
Yeah.
The main answer to the question is ASP growth.
That that carried a lot of the weight on it was just obviously a phenomenal performance. This year. So that really is the answer and of course, that's that's going to carry through into the subsequent quarters as well that's Texas as you know so no real no real changes or unusual items on the cost side Asps.
Yeoman's work plus as you know we advanced pricing increases from April one in the January one successfully this year and that had a big impact as well.
Adam one thing I'll add to that too to keep in mind.
What we've said on pricing so far this year does not take into account. The mid years that we think we're going to have in place. This year you heard me speak to them in the prepared remarks, we think we see more mid years, and we think we see higher mid years coming into this year than we thought we saw even in February . So I think there are a couple of different components as we think about it.
The margins going forward.
Thanks, guys keep up the great work. Thanks, so much Adam.
Please standby for our next question.
Our next question comes from Kathryn Thompson with Thompson Research Group. Your line is now open.
Hi, Thank you for taking our question today.
I appreciate the color that you gave previously on pricing and tagging on to that and just a bigger picture question. When we look at for big trends that are impacting the U S re shoring near shoring population shifts.
Increasing environmental.
Focus and then government support to Iga same question reduction Act and the chips at.
When you look at those four factors how does Martin.
Mariano win in this and what does that mean.
For for pricing realistically in the mid to long term. Thank you.
Catherine Thanks for your question and Catherine by the way happy anniversary to Tier group today. My recollection is if my head is right that Trc was launched about 14 years ago. Maybe this day. So congratulations to you and your team.
To your question as we think about pricing and we think about markets I think several things one Kathryn what you said I agree with I sum up much of what you said and these words. So I think we're looking at what can be a manufacturing Renaissance in the United States. The fact is we as a nation have to get back to building things and what we're going to see some nice combination public.
Pending relative to infrastructure or I should say investment, we're going to see a lot more manufacturing in the United States, whether its chips or otherwise and we're already seeing a nice burgeoning growth in energy. So let's take those three things and then step back away from it and think about the wear.
And I think that's where Martin Marietta is going to be uniquely positioned to win as you said going through this because as we think about the position that we built in the eastern United States, along the I 85.
90, 540 quarters, where we are in the central U S. Along the I 35 corridor in Texas, which remember that Carter in Texas, all by itself as more people than the Commonwealth of Pennsylvania. If you look at the slowest excusing, the smallest mega region, but fastest growing up and down the <unk> 25 corridor in Colorado again, we have.
<unk>, a very attractive position up and down 25, where a lot of people are coming in.
And now we have the position up and down the I four corridor in California as well so.
I do think the commercial aspect of what we're doing now and the commercial aspect of what we're doing going forward will be very attractive, but I think the way that we very intentionally built out this business in mega regions in the United States trading out of areas that were slower growth into areas that are faster growth and.
Will be that way for the long term, it's going to make the difference. Similarly keep in mind, we positioned ourselves in states that are in very good shape from a deal perspective, and we think that matters a lot.
If we're looking at public spend which we think is likely to be the single biggest driver of our business over the next several years.
Keep in mind, one third.
Of the 110 billion and the IHA, they're going to roads and bridges a full one third of that is going to our top 10 states. So we talk about housing a lot of times generally and it's all about location.
I would tell you this business too is about location in that location will drive volumes in that location will also drive the pricing. So Catherine I hope that gives you a good snapshot of how we look at it.
It does thanks very much thank you.
Please standby for the next question.
Okay.
The next question comes from Trey Grooms with Stephens. Your line is open.
Hey, good morning, everyone hope, you're doing well with great pride good to hear you.
Hi, guys so far.
First just as a point of clarity.
You mentioned more debt that your guidance doesn't include midyear increases I know for sure in aggregates, but is that also the case for the $10 cement price increase that you just talked about yes trade is so again, we've communicated with our customers in April that were looking for a $10 a ton increase at half.
Year, and again that is not yet included in our guidance, which we're saying we're going to revisit more formally at half year.
Okay. Thanks for clearing that up.
I wanted to ask about your Tahatchabe cement plant since the FTC recently put that deal to the sidelines and just would love to get some color from you on maybe your expectations for that asset going forward.
Happy to respond to that I think can trade.
Yes, it was interesting when.
The termination of our transaction with Cal Portland was announced we actually had a good bit of incoming and that was not a surprise to us. So we've heard from a number of parties expressing interest in that asset as you saw from our release today. We are also <unk>.
Transacted and sold the import cement business in California.
Stockton, So again consistent with our view of what is strategic cement strategic cement for US is that wonderful smit visits that you've heard about in Texas. We will continue to move forward with the process relative to <unk>, we feel confident that we will get very attractive value for that and we feel confident we are.
Transact on that this year. So that's the way we're looking at that right now Trey.
Got it thanks, and good work in the quarter and good luck going forward. Thank you. Thank you Trey.
Please standby for the next question.
The next question comes from Stanley Elliott with Stifel. Your line is open.
Hey, good morning, everyone and congratulations on the strong start to the year.
I guess kind of sticking on the Texas cement market. It's certainly been a differentiator for you all maybe can you speak to some of the confidence or some of the conversations you are having around the second increase with pricing up well.
Like 30% year over year, and then also kind of the health of the market and the ability to absorb the additional production on the plc side and then finally, maybe expectations around cost there.
Jamie. Thank you so much for the question. So we really think about what we're looking at from a volume perspective in that state, it's probably going to be around $4 2 million tons. This year keep in mind the need for cement in Texas is far greater than the ability to produce it domestically is in Texas. Today. So number one you start with that market fundamental and that sort of <unk>.
Very attractive place to be as you know the largest portion of our estimate business is in north, Texas. It's led by our Midlothian plant. So as we indicated for the quarter volumes were down six 8% overall largely due to weather, but if we're looking at north Texas. They were down about one 6%. So again the biggest single piece of our business.
And Texas remains very robust.
Relative to the pricing conversations that we're having with customers there theyre aware of where we're going they're aware of the cost inputs that we continue to see in portions of our business, particularly relative to supplies materials those types of things. So as we're sitting here today.
We recognized the vast majority of the price increase that we put in place relative to January one we're anticipating success on the ones that we're looking at on July one as well and we think the overall position of the Texas market and keeping in mind a lot of the infrastructure in that state is concrete.
Most of the roads in Texas, the concrete roads and about half of our cement finds its way to infrastructure. So I think when you take.
The way that state is literally built.
And where our positions are in central and North Texas.
Number one we feel confident in the durability of the business and number two we feel confident in what we're going to be able to do half year relative to pricing.
That's great guys. Thanks, so much best of luck. Thank you Stanley.
Please standby for the next question.
The next question comes from Jerry Revich with Goldman Sachs. Your line is open.
Yes, hi, good morning, everyone, Hi, <unk> nice to hear your voice Pal.
You too where thank you and nice quarter I wanted to ask aggregates gross margins.
Our like for like basis, you were essentially flat sequentially versus normal seasonality that where you'd be normally down 12 points and I'm. Just wondering as we consider building off of this margin run rate into QQ applying normal seasonality would suggest.
Gross margins in the low to mid Forty's.
That's excluding delivery revenues in the second quarter. So I just want to make sure we don't get up over our skis.
Run rating the performance here anything we should keep in mind relative to that normal seasonality that just mathematically suggest excluding delivery.
Revenues you'd be an aggregate gross margins in the low to mid 40% <unk>.
Gary Thank you for the questions. So, yes, so let's be careful with skis.
So the short answer is we're going to see a very nice continued build in margins. This year, but the normal build that you would see going from one to two that would be much larger than it is in most quarters you won't see that same quantum leap this year and in large measure because as you pointed out Q1 was so attractive so do we.
We intend to see and expect to see margin expansion going into Q, and then Q2 and for the balance of the year. The answer is we do.
Got it.
I would seriously urge you.
Don't go leaning in to that same degree of percentages that you would've seen in years past and keep in mind Jerry in many respects, we're seeing in EBITDA in Q1.
<unk> would've looked like our EBITDA for a full year in 2010, so so again, but we built the business very intentionally to be more durable through cycles and through quarters, but given this outstanding performance in Q1, I expect really attractive performance this year, but yes, let's not get it.
Get too far ahead of ourselves on this percentage as Jim anything you want to add to that in particular, yes.
And Jerry as you think about sort of Q1 Q2 Q3 Q4.
Our three or five year average would show a bigger bump in the line spiked in Q2 and Q3 I think for 2023, you should view the us a higher Q1, and a lower Q2 and Q3 vis vis <unk> percent of total profits for the year.
So 100% of profits over the four quarters more in Q1 this year than is typical.
Take a little bit out of Q2, and Q3 as a percent of total.
Yes.
Well done thanks.
Thank you Carrie.
Please standby for the next question.
The next question comes from Anthony Pettinari with Citigroup. Your line is open.
Hi, This is Ashley <unk> on for Anthony Thanks for taking my question. If I think about some of the possible drivers of what seemed like a better than expected realization on your January hikes, I think of it maybe like some combination of stronger backlog of demand, maybe some higher anticipated inflation in the industry or maybe some customer by customer rash.
Utilization in terms of the pricing you saw in <unk>, what would you point to ask maybe a bigger driver or maybe a combination of drivers and then highlight any differences there may be between your aggregates and cement.
Thank you for the question I think there are a number of different drivers I think number one clearly inflation just move very rapidly last year and what we've proven in this business through cycle. After cycle. As this is a very durable business if inflation spikes very very quickly we cannot keep up with it with immediacy, but we will catch up with it we will tend to pass.
And I think that's what you saw so I think you saw.
Cumulative action of several different builds from price increases last year number one number two we were very purposeful in moving a number of price increases from April one to January one that that was impactful as well keep in mind. The one thing that we've called out but I do think is really important is.
We have not built mid years into what we're looking at right now although we do believe mid years are coming so I think those are the primary drivers I think secondarily.
Is really where we've moved our business overtime. So if we're looking at a very strong business in portions of the southeast and mid Atlantic very strong business in Texas and in emerging business in California.
All of those help us as we think about the commercial aspects of what we're doing and the fact that aggregates is a relatively small percentage of the overall cost of construction.
And I think those factors coalesce together to put us in a position that we can expand margins in a business, where you have a depleting natural resource and what we recognize is the stone in the ground is worth more tomorrow than it is today and mindful of how difficult that can be to replace we want to make sure we're getting fair value for those products today.
Thank you that's very helpful I'll turn it over thanks.
Do you.
Please standby for the next question.
The next question comes from Michael <unk> with Bank of America. Your line is open.
Thank you for taking my question, where you talked about how pricing lagged inflation last year and the beginning now youre pricing well ahead of inflation, just how do we think about that spread of price versus cost inflation into 2024 cannot spread be outsized in 'twenty four as you.
You exit the year with double digit price increases.
The midyear price increases come through and we start to see cost inflation start to rollover such as oil and diesel. Thank you.
Michael Thanks for the question number one if we're looking at overall cost in place today, it's probably running let's call. It 7%. So that's not a bad way to think of it if we're looking at some of the big movers last year, obviously energy was a really big mover last year not as much on a quarter over quarter basis. So if we're looking at energy up let's call it high <unk>.
Single digits supplies and repairs to the ones that were actually up in supplies low teens repairs low twenties on a percentage basis.
At the same time, if we look at what we're doing relative to pricing. We think at this point we are likely to stay ahead of that we think we are likely to see margin expansion and it's certainly our aim to see that throughout 'twenty three and into 24 again back to the notion that were relatively small cost of the overall construction.
And we have a product that by its very nature is depleting.
And despite the fact that because of good planning, we have very long lived reserves and our operations today I think that's important to call out, but but nonetheless, I don't think prudent planning on our part should serve as something.
There would be a detriment on us utilizing.
Our positions to to make sure we're getting expanded margins through the cycle for the rest of this year and into next year.
Please standby for our next question.
The next question comes from Tien Timna Tanners with Wolfe Research Your line is open.
Yeah, Hey, good morning.
Two high level questions, if I could sneak them in one is.
Just given that nice.
Beat in the first quarter and EBITDA and <unk>.
Repeated confidence in mid quarter mid year price hikes, why just steer to the high end of guidance or is there something that's keeping you from changing the range and then similarly on.
When you think about Kashi is.
Really nice share buybacks does that.
Have any commentary on the M&A opportunities that youre seeing or is it just a combination of ways to use cash thanks a lot.
Good morning, Thank you for that relative to guidance.
We just feel like January February and March is really early to change guidance. Obviously, you can tell from my tone you can tell from our prepared remarks that we have a lot of confidence in the year. Obviously as we said it doesn't take into account mid years. So our view is let's come back at half year, let's revisit guidance then.
We can do it I think with much more precision thin. So our view is we'll just come back and do it then relative to the buybacks I guess several things.
Number one we obviously had some degree of dilution just through compensation, we'd like to address that on an annual basis clearly we've gone in more deeply than that in many respects timna frankly because.
We thought buying Martin Marietta and made a lot of sense to us given where the share price was so from the perspective of just general uses of cash.
That made sense to us it is not a reflection, let me be clear on how we're looking at the M&A marketplace right now because what I can assure you essentially the dialogue that we have ongoing in the pipeline actually looks as good as I've ever seen it look.
I think theres some potential transactions that we can discuss later in the year that will largely be pure aggregates in nature.
It will be attractive and there will be important so one of the nice circumstances that we have is this business is cash generative enough that we can look at multiple ways to return cash to shareholders and increase value share buybacks being one of them a solid dividend that continues to go up as another way to do it.
And then nicely accretive acquisitions as a third so that's how I would answer your questions very directly to them.
Helpful. Thank you very much thank you.
Please standby for the next question.
Yes, good morning, everyone. Congratulations thank.
Thank you David.
This is really turning.
More of a longer term view on how you put all of these which seems to work.
And I'll just give you my question I wanted to just parcel ESP growth obviously.
So strong performance, but how much of this is related to just volume growth in the east versus volume declines in the west this quarter.
And you talked about the timing of implementing pricing in January one this year versus <unk>.
April 1st last year would be great. Just if you could if you could bridge those points.
The reported number it would be a big help thanks happy to do what I can David. Thank you very much so let's talk first about capital allocation.
As we think about capital allocation to your point, we have not changed our priority. So our best use of capital is doing the right transaction and the right place one of the things that we find so remarkable about this business as we've gone out look in geographies, where we would have an interest in.
And booked in areas in which we believe we could also buy businesses.
Here's what I'll tell you we found what we think for 200 million tons, a year of business businesses on a per annum basis.
That we could acquire so think of it in these terms David that's another Martin Marietta that's out there. So if we're looking at modestly over 210 million tonnes of production or sales last year there.
There are businesses out there that a modestly bigger than that that we think would be attractive to us and the geographies that we said we want to grow number one number two if we think about the quarter that you just saw and again youre looking at something in the same way that I do and that is we think we're entering a series of years here with a very attractive.
Here's the way I would encourage you to think about the volume I'm just going to talk a little bit about what was weather affected in the first quarter and as we look at weather effects in the first quarter. What I would tell you is overall, if we're looking in the east where actually the weather was relatively normal and dry.
Volumes there were up about 570000 tonnes. If we look in the southwest again, our largest market by revenue profitability and otherwise actually they had almost two X. The rain that we saw in the prior year quarter separately, if we look at central and keep in mind central is never going to be a big contributor.
In Q1 with the possible exception of AG line, because people tend to put that on their fields in the winter.
They can do if it's cold they cant do if it's wet and central had the wettest Q1 since 2010.
And then the West had record range. So east was up about 570, California was down almost 2 million tonnes. So as I said in my prepared remarks, and the southwest was down about 320. So was there were there are degrees of movement there absolutely.
Did it really swing the quarter dramatically not so much but I think that does give you a sense of what was happening underlying weather and otherwise in the quarter. So hopefully I hope I hope that helps you build that bridge.
Yes, thanks for that detailed congratulation.
Thank you.
Please standby for the next question.
The next question comes from Rohit, Seth with Seaport Research Your line is open.
Hi, Thanks for taking my questions.
Volumes seem to be holding up better than expected can you discuss your expectations for volumes by end market.
Comment on what you've seen today with shipments of the highway projects.
What youre seeing with the ramp up thanks.
I won't go so much into what we're seeing right now on non volume in specific markets, because we'll talk more about that in.
In the quarter to come but here's what I would say if I go through and really think about our leading states and I'll do it. This way if I talk about infrastructure first txdot lettings are expected to exceed $11 $2 billion. This year.
That's an enormous amount and if we're looking even into next year. It's 11 7 billion. If we're looking in Colorado, which is an important state for US. The recently passed five 3 billion 10 year infrastructure Bill. We think is going to have great tailwind to it here in North Carolina part of what we've seen here one North Carolina has shifted sales.
Tax revenue to the highway fund so that's going to be an additional 2% this year, 4% and 24, 6% and 25 and.
And in large measure, we're seeing infrastructure increases by $7 billion in North Carolina over the next decade, obviously, North Carolina is hugely important to us in Georgia. Despite the fact that they had suspended the gas tax proportions of last year, we're seeing $1 $1 billion of surplus funds coming back into that.
In Florida record spending they've got a bunch of $13 billion again, Thats, an all time record and in California Governor Newsom has proposed in FY 'twenty four caltrans budget of $20 7 billion.
That's a five 6% year over year increase so that's on the federal side frankly, not taking into account what can come from corn and <unk> and other things. If we're looking at non res and Thats something that I think is just so important right now because as we look at those different markets in which we participate right now.
Samsung in Texas, the Texas instruments facility Golden pass CP Chem are all big projects equally if we go to Colorado High point logistics partner Aurora is something Thats important but in North Carolina, what we're seeing at both speed Microsoft Toyota.
Just a host of large industrial projects as well as port development in Georgia, We're seeing revenue coming into social circle, we're seeing the Huntsville plant and Savannah, So I think to your point Rohit.
If we're looking across volume and saying public we believe is growing in.
Into the second half, we think second half is where that's really going to show off we think non res as you heard in my commentary, 38% of our shipments the heavy side of that is good it looks like it's going to stay good.
We're seeing on those Petro Chem projects in South, Texas and Louisiana.
Is extraordinary right now and here's the other piece of it I think it's interesting I think for US housing is probably at its nadir right now as we're thinking about housing housing started slowing down last year, we're probably seeing the effects of that now we will still 25% of our volume and we think in the second half of this year multifamily.
He is going to start to be joined by single family with more activity. So.
So again as we think about the way the volume build is likely to go over the next few quarters, we think thats likely to be how it is I still think this tends to be more of a second half year story than a first half your story, but rohit I hope that gives you the color that you've been looking at largely on a state by state.
Yes, it sounds like the pipeline is pretty strong just on.
On the heavy side is there any risk from the tightened credit conditions.
On heavy projects being delayed.
It is hard to imagine on the heavy side, that's going to be an issue. It's interesting to me keep in mind about 55% of our nonresidents heavy about 45 of its of its light.
If we're looking at what we're seeing on heavy we're seeing energy sector volumes up pretty notably Lng's up over 300% renewables were up 82% wind energy, where we saw 300 permits pulled in Iowa for 2024. So again, if we're looking at these types of projects.
That I don't think tend to be uniquely finance driven.
We're in a pretty good place on that I did call it out relative to certain portions of light that we think might slow down in the second half of the year and frankly, it's been a little bit better so far than we would've thought that probably helps bridge to a degree what youre seeing relative to the overall goodness in the volumes in Q1.
Alright, Thank you great quarter.
Thank you Rohit. Please standby for the next question.
The next question comes from Adrian <unk> with Jpmorgan. Your line is open.
Hi, Jamie Thank you for taking my question.
Given what we're seeing on cost inflation for aggregates running in Romania to high single digits and given what we have seen on pricing and even not including a second price increase would you agree that gross profit per ton seems to be heading to north of $7 for this year.
Yes, I'll certainly tell your gross profit per ton has a very nice track record to it and I know if you go to the supplemental slides when you take a look at slide five it gives you a good sense of what that CAGR looks like over a three year five year and a 10 year period.
And frankly my sense is that's going to look better in the future than it's looked in the past so.
Look you've seen where it's come from FY 2013, when it was just modestly over $2 a ton.
What we're looking at relative to expectations this year north of $6.
I think our ability to grow that metric is.
Frankly better than others.
Think thats, what youre likely to see from US that's something that we're highly focused on it.
And look I see where you're going with it that I'm not necessarily in a position to debated with you.
And I think it's just a matter of what the timeframe is going to look like a dream.
Understand.
Thank you I appreciate it.
Thank you so much.
Please standby for the next question.
The next question comes from Dillon Cumming with Morgan Stanley . Your line is open.
Great. Good morning, Thanks for the question I'm, sorry to fixed pricing again, but I think reward you mentioned in your prepared remarks that some of your confidence in the midyear price increase.
Tied to the fact that oil had inflated prison difficultly post OPEC cut and again unfair probably given the volatility, but if you look at the spot crude pricing today is closer back to that point, where it was in March I think about freight rates I think are but were also down pretty significantly year over year. When you take those two kind of cost items are you still confident in your ability to get those major price increases given.
Thats kind of contemplated cost deflation, there or do you feel like it's not as much tied to what you've seen more recently.
Yes, I am confident we're going to see the midyear price increases now let me be clear I'm, not saying, we're going to get them in every market in every place, but I think we're going to see them more widely than we thought back in February I think theyre going to be bigger than we thought in February and I think you're right. I mean, there are some components of energy that arent moving with the same aggressiveness.
That we saw last year at the same time as I indicated before if we're looking at our supplies up nearly 13% if we're looking at repairs and some places up 21.5% ish.
Those are the types of inflation numbers that we're having to make sure that we can navigate in our business and for us to do that we're going to have to make sure. We're getting some help on the top line as well and again I think it's so important to remember as we said before we are a very low percentage of the overall cost of construction, where 10% of the cost of building a road 2% of the cost.
We're building a home and somewhere between those two percentages on a non res projects. So as a practical matter. We think this is going to be very durable and again. Despite the fact that if we look at today's extraction rates on average, we probably have 70 years of.
Preserves and Martin Marietta operations again, good planning should not put us in a point that we're going to be.
We'll be punitive to ourselves on Paul will do commercially. So again, we've got great resilience around that we'll talk more about that in the specifics at our call after Q2.
Very clear thank you.
Please standby for the next question.
The next question comes from Phil <unk> with Jefferies. Your line is open.
Hey, guys congrats on a very strong quarter.
Board. It was really helpful kind of highlighting all the great funding you have on the infrastructure side, particularly in your state.
Funding is there is no denying that I guess, what I wanted to get better color on is the timing of projects in the past or there could be some movement in supply chain labor staff, how is that lining up so far in terms of your expectations and how that's progressing and then separately on the heavy side you sound very bullish on that front.
In the past I would have thought it was more 50 50 I appreciate it a little more.
Aggregate intensive versus the light stuff.
How do you see that kind of that mix shaping up and any coming years with all the <unk>.
<unk> funding you have whether it's the chip tack or DRA Act sure. Thank you so much for that though so I would say several things historically would you have had about a 50 50 split between light and heavy on non res historically that is where we would have resided youre exactly right. The last couple of years has trended more toward that 50, 545 break and Thats, what we continue to see.
I think it's likely to stay that way profile in large measure because frankly, Phil the heavy projects are getting heavier and what I mean by that is there so aggregates intensive and now given the degree of manufacturing thats going to be coming with the chipset and the IRA and otherwise I think we're just going to see more of.
That and I think thats going to drive heavy and heavy literally is just that it's heavy.
To your question on infrastructure.
Got it.
But I still think it's a have to issue I'm still taken by the fact that when I look at our top 10 states.
And I look at an overall average of their budgets up year over year, 11%, but then when I look at Florida up.
38%.
North Carolina up 11%, South Carolina up 28%.
These are states that for us from an infrastructure perspective, really can move the needle and keep in mind, even a state like Iowa is up 10% and I was a state where we've got a very attractive position. So a number of these states have not had the historic spend and invest there we're going to see.
Going forward I do think again, it's a second half loaded issue I don't think logistics are the issue going into this year that they had been in years past rail is functioning much better trucking is functioning much better.
Contractors have hired more over the last 18 months they were able to previously so we think from a labor perspective, we're in a good space, we think from a D O T and best perspective, we're in a good place and we think again from a logistics perspective.
We're really very advantaged today, and again I think our ability for example to get into some of the petrochemical projects in South, Texas, utilizing <unk> and as well as Kansas City, Southern and ship places us in a position that's really unparalleled today and an area that is likely to see just image.
Vince work and again, even on the public side keep in mind if.
If we're looking at highway contract awards over the last three years.
Those were growing at a CAGR of around five 2%. If we look at where they are on an LTM as of at the end of March it's up 16, 2%. So again almost three X what we've seen historically, so I think by any measure if we look at infrastructure and we look at heavy non res and then back to.
That breaks that you identified between them.
I really I'm pretty enthusiastic about the way that looks for Martin Marietta right now.
Awesome great color.
Phil Please standby for the next question.
Our next question comes from Michael Dudas with vertical Research Research partners. Your line is open.
Hey, good morning, gentlemen, and Jennifer.
Hi, Michael.
Okay.
Hayward, just any thoughts on the performance of Magnesia specialties.
Any indications on the general economy, Youre seeing in that business any potential for upside this year and how the business looks moving forward given some of the you would think some of the positive demand trends, we're seeing tangentially for thrust years construction world. Thank you.
Thank you for the question on <unk>. So several things one it's a very good business too I think it is an important differentiator for us three.
Quarterly revenues again, the revenues were up eight 4% the biggest single issues. We have there we saw higher contract services, we had a little bit more killing downtime and frankly steel was running a little bit lower it's now running.
At about.
Let's call it 74% year to date, it's been about 71%. So based on some recent history, that's a little bit lower the other thing thats different in that business and we're in the process of remedying that they had longer term contracts with customers than we would typically see in aggregates, it's taken a little bit more time to move those up.
As we have with aggregates pricing. So the short answer is it's always ironic when we look at Mac and we feel like they didn't have the quarter that you would like to have seen we're still looking at margins with a three in front of it and my guess is as we go through time, we will see that business start moving margins back up to something that looks a lot closer to a four instead so michael.
I hope that's responsive.
Excellent. Thank you. Thank you.
Please standby for the next question.
The last question comes from Gerrick suites with loop capital Your line is open.
Hi, Thanks for squeezing me in and congrats of course on the quarter I wanted to ask on <unk>.
Non res one more time, just on the non res side and it sounds like it's holding in.
Better than expected, thus far im curious if youre seeing any change, though in the bidding environment. I know you indicated that you might expect a slowdown later this year, but have there been any recent signs whether it's data or backlog that's going to be the case.
Number one thank you for the question Eric.
So much really it's really more anticipating where we think thats going to go.
Maybe a very modest slowing but again those projects tend to move relatively quickly.
Non res you can see coming a long way away you know thats coming to light non res not as much. So if I told you we had good data on it.
It'd be leaning in a little bit more than I should but I think conversationally, what we're seeing in the world of banking and otherwise, it's just making us look at that.
With a little bit higher degree of caution, but again overall, if we think about non res and what's happening on the heavy side of it.
It really does serve as a very powerful counterbalance.
Yes that makes sense, thanks, again and best of luck. Thank you.
Okay.
I would like to turn the call back toward Nye for closing remarks.
Again, thank you so much for joining today's earnings conference call Martin Marietta's track record of success through various business cycles proves the resiliency and durability of our aggregates led business model. We continue to strive for the safest operations and remain focused on executing our strategic plan, while continuing to drive.
<unk> growth and value creation for all of our stakeholders in 2023 and beyond we look forward to sharing our second quarter 2023 results with you in the summer as always we're available for any follow up questions again. Thank you for your time and continued support of Martin Marietta have a great day.
This concludes today's conference call. Thank you for participating you may now disconnect.
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