Q3 2024 Martin Marietta Materials Inc Earnings Call
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Speaker Change: Hello, welcome to Martin Marietta's third quarter 2024 earnings conference call. All participants are now in a listen-only mode.
Speaker Change: A question and answer session will follow the company's prepared remarks.
Speaker Change: As a reminder, today's call is being recorded and will be available for replay on the company's website.
Speaker Change: I will now turn the call over to your host, Miss Jacklyn Rooker, Martin Marietta's director of Investor Relations. Jacklyn, you may begin. Good morning. And thank you for joining Martin Marietta's third quarter 2020 for earnings call.
Jacklyn Rooker: With me today, our Ward 9, Chair and Chief Executive Officer and Jim Nickolas, Executive Vice President and Chief Financial Officer.
Speaker Change: Today's discussion may include forward-looking statements as defined by United States Security Laws in connection with future events, future operating results, or financial performance.
Speaker Change: Like other businesses, Martin Marietta is subject to risks and uncertainties that could cause actual results to differ materially.
Speaker Change: We undertake no obligation, except as legally required, to publicly update or revise any forward-looking statements, whether resulting from new information, future developments, or otherwise.
Speaker Change: Please refer to the legal disclaimers contained in today's earnings release and other public filings.
Speaker Change: We have made available during this webcast and on the investors section of our website supplemental information that summarizes our financial results and trends.
Speaker Change: As a reminder, all financial and operating results discussed today are for continuing operations.
Speaker Change: In addition, non-GAP measures are defined and reconciled to the most directly comparable GAP measure in the Appendix to the Supplemental Information, as well as our filings with the SEC and are also available on our website.
Speaker Change: Today's earnings call will begin with Ward Nye, who will discuss our third quarter operating performance, our preliminary view for 2025, and supporting market trends.
Speaker Change: will then review our financial results and capital allocation.
Speaker Change: after which Ward will provide closing comments.
Speaker Change: A question and answer session will follow.
Speaker Change: Please limit your Q&A participation to one question. I will now turn the call over to Ward.
Ward Nye: Thank you, Jacqueline, and thank you all for joining this teleconference.
Ward Nye: During the third quarter, we experienced a series of well-chronicled extreme weather events, including significant July precipitation together with Tropical Storm Debbie in North Carolina, Hurricane Beryl in Texas, and Hurricane Helene across much of our southeast footprint.
Ward Nye: First and foremost we're grateful that our employees and their families are safe. Our thoughts, prayers and ongoing support remain focused on those who have suffered so disproportionately during these natural disasters.
Ward Nye: We're particularly mindful of our neighbors in western North Carolina as they begin the long process of rebuilding.
Ward Nye: Aside from the human cost of these events, we and a host of other businesses were affected by the storms.
Ward Nye: In our specific case, project delays and inefficiencies negatively impacted our financial results and, as a consequence, we revised our full-year 2024 adjusted EBITDA guidance to $2.07 billion at the midpoint.
Ward Nye: To help better demonstrate the severity of these weather events during the last two quarters to our upstream product shipments, we provided two case studies on page 8 of our supplemental information.
Ward Nye: The first case study is particularly revealing relative to cement.
Ward Nye: As you will recall, the second quarter's significant precipitation was particularly notable in Dallas-Fort Worth, our company's single largest market area, resulting in an 18% decline in our Midlothian cement shipments.
Ward Nye: Encouragingly, as the weather improved, so did Midlothian's third quarter shipments.
Ward Nye: Shifting now to aggregates.
Ward Nye: Our implied fourth quarter shipment guide reflects a 5% increase in shipments, a notable improvement relative to the third quarter's 4% decline.
Ward Nye: Our fourth quarter view is primarily based on October's trends and reasonable expectations for the remainder of the year.
Ward Nye: These statistics demonstrate the important irony of disruptive and destructive weather.
Ward Nye: Planned shipments are not generally canceled. They're delayed and depending on seasonality and severity, resumption of planned shipments usually occurs in the following months and or quarters.
Ward Nye: Despite these weather-related events, I'm pleased to highlight some of our team's accomplishments.
Ward Nye: First, we achieved the best year-to-date safety incident rates in our company's history, inclusive of our newly acquired businesses.
Ward Nye: Operationally, our teams achieved record quarterly aggregates gross profit per ton of $8.16, record third quarter cash flows from operations, and record third quarter revenues and gross profit in our Magnesia Specialties business.
Ward Nye: Given the totality of the quarter's uncontrollable and exigent circumstances, these are notable records upon which we intend to build.
Ward Nye: With respect to continuing to build, in October we acquired Pure Aggregate Assets in South Florida and Southern California, both attractive and growing Martin Marietta markets.
Ward Nye: Consistent with our strategic operating analysis and review, or SOAR, plan, these bolt-on acquisitions further enhance our gross profit contribution from the aggregates product line and improve the long-term durability of our business.
Ward Nye: Together, these accomplishments reflect our team's focus on matters we can control while underscoring the resiliency of our aggregates led business which is strategically positioned in the country's fastest growing markets.
Ward Nye: Importantly, these results reinforce our expectation that our aggregates price cost spread will continue to expand over time, driving improvement in unit profitability through macroeconomic cycles.
Ward Nye: As we look toward 2025 we remain focused on the long-term aspects of our business that we can meaningfully impact.
Ward Nye: World-class safety. The consistent and disciplined execution of our strategic plan. Resolute adherence to our leading commercial strategy and prudent cost management through ongoing operational excellence efforts.
Ward Nye: Equally, we expect product shipments will recover due to more normal weather patterns and an expected improvement in warehouse and residential construction.
Ward Nye: Preliminarily, we expect that 2025 overall aggregate shipments will increase by low single digits and aggregates pricing will increase by mid to high single digits.
Ward Nye: Moving now to End Market Trends.
Ward Nye: Regardless of the outcome of the upcoming elections, both rebuilding and maintaining our nation's infrastructure remains a bipartisan national strategic priority.
Ward Nye: Record levels of state and federal investment through the Infrastructure Investment and Jobs Act or IIJA continue to support attractive demand for highways and streets construction.
Ward Nye: And while growth rates and contract awards have predictably flattened, as reflected in the value of contract awards for the 12-month period ending August 31, 2024, the baseline for highway and street spending is well above historical levels.
Ward Nye: Looking ahead, funding certainty at the state and federal level will provide volume stability and support a healthy pricing environment in this aggregates-intensive, often counter cyclical, end market for years to come.
Ward Nye: Relative to heavy non-residential construction, the build-out of artificial intelligence infrastructure supports emerging growth trends in both data centers and related energy requirements.
Ward Nye: Moreover, aggregates-intensive warehouse construction appears to be cyclically bottoming in select markets, as indicated by recent project announcements.
Ward Nye: For example, Amazon is planning to build one of its largest North American distribution centers in the Dallas-Fort Worth metroplex.
Ward Nye: With our leading aggregates positioned, strategic and large capacity cement plant, and affiliated ReadyMix presence in this dynamic market, Martin Marietta is uniquely positioned to supply materials to this project, which is expected to begin later this year.
Ward Nye: Shifting now to light non-residential and residential activity, housing availability and affordability remain key issues impacting single-family demand.
Ward Nye: While a correction of these issues will not be immediate, we believe that loosening monetary policy is an important first step.
Ward Nye: It passed its prologue and we believe that to be the case. As residential construction recovers, light non-residential activity typically follows.
Ward Nye: In summary,
Speaker Change: I'll now turn the call over to Jim to discuss our third quarter financial results. Jim?
Jim Nickolas: Thank you, Ward and good morning. Everyone.
Jim Nickolas: For the third quarter, the building materials business generated revenues of $1.8 billion, a 6% decrease, and gross profit of $588 million, a 9% decrease.
Jim Nickolas: The decline in both metrics is due to the February divestiture of our South Texas cement and related concrete businesses, along with shipment declines in all product lines, partially offset by acquisition contributions.
Jim Nickolas: Aggregate's gross profit per ton improved 3% to a quarterly record of $8.16, notwithstanding lower shipment volumes.
Jim Nickolas: highlighting the efficacy of our value over volume commercial strategy.
Jim Nickolas: Aggregates pricing increased 7.7% or 8.9% on an organic mix-adjusted basis.
Jim Nickolas: Cement and concrete revenues decreased 30% to 296 million dollars and gross profit decreased 37% to 89 million dollars. Again, driven primarily by the divestiture of our South Texas cement plant and its related concrete operations.
Jim Nickolas: I'm pleased to report the construction of our new finish mill at Midlothian is complete, which will provide us with approximately 450,000 tons of incremental high-margin annual production capacity in the attractive North Texas market.
Jim Nickolas: Asphalt and paving revenues decreased 5% to $343 million, and gross profit decreased 8% to $61 million.
Jim Nickolas: Wet weather, project delays, and a softer, non-residential market drove the shipment decline, while lower revenues and higher aggregate costs negatively impacted profitability.
Jim Nickolas: Magnesia Specialties posted record third quarter revenues and gross profit of $82 million and $29 million respectively.
Jim Nickolas: as benefits from strong pricing and improved lime shipments more than offset lower chemical shipments.
Speaker Change: Turning now to Capital Allocation and Liquidity.
Speaker Change: As Ward mentioned, we achieved record third quarter cash flows from operations of $601 million, an increase of 32% as compared to the prior year quarter, due primarily to working capital improvements that more than offset lower net earnings.
Speaker Change: Consistent with our longstanding capital allocation priorities for the nine months ended September 30th, 2024.
Speaker Change: We deployed over $2.5 billion on PurePlay Accurates assets, invested $622 million to capital back into our business, and returned $591 million to shareholders through dividend payments and share purchases.
Speaker Change: In our 30 years as a publicly traded company, we have steadily maintained or increased our dividend, and this year is no exception.
Speaker Change: During the quarter, our Board of Directors approved a 7% increase to the quarterly cash dividend paid in September, reaffirming our confidence in the durability and sustainability of our company's future growth and free cash flow generation.
Speaker Change: We have now returned a total of $3.2 billion to shareholders through both dividends and share repurchases since the announcement of our share repurchase program in February 2015.
Speaker Change: Our net debt to EBITDA ratio was 2.0 times for the trailing 12 months ended September 30th at the low end of our targeted range of 2 to 2.5 times.
Speaker Change: preserving financial flexibility to continue actively pursuing value enhancing, high quality, accurate acquisitions and prudently reinvesting in our business, all while returning capital to Martin Marietta shareholders through dividend growth and opportunistic share repurchases.
Ward Nye: With that I will turn the call back over to Ward. Thanks Jim.
Ward Nye: As our third quarter and year-to-date results demonstrate, Martin Marietta remains focused on matters we can control, an unwavering commitment to safety and the environment.
Ward Nye: Commercial and Operational Excellence, and the Disciplined Execution of our Strategic Priorities.
Ward Nye: We have thoughtfully shaped and expanded our aggregates-led portfolio and deliberately built our business with leading positions in the nation's fastest-growing markets, making Martin Marietta an increasingly resilient, efficient, and cash-flow-generative business that can consistently drive shareholder value creation.
Ward Nye: With these attractive underlying fundamentals, our best-in-class teams.
Ward Nye: Unparalleled growth opportunities and proven strategic priorities. We're excited about the prospects in 2025 and beyond.
Ward Nye: If the operator will now provide the required instructions, we'll turn our attention to addressing your questions.
Speaker Change: Thank you. The floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. Please ensure that your phone is not on mute when called upon. Thank you.
Speaker Change: Your first question comes from the line of Catherine Thompson with TRG. Please go ahead.
Speaker Change: Hi, thank you for taking my questions today. You bet. Really...
Catherine Thompson: Having question is on weather and then looking forward. So how does weather impact q3 results?
Speaker Change: both from a volume and a pricing optic standpoint.
Speaker Change: And could you give color on how shipments have trended into October, and really looking at post-storms?
Speaker Change: Thank you.
Speaker Change: Catherine, thanks for the question. It's a good one, because that really does highlight much of what happened in the quarter. Several things that I would say. Number one, as we discussed before, Q2 in its own way was a washout. And Q3 was as well from a weather perspective, which is why we put that supplemental slide on page 8 in the deck today, because I think it does give good color.
Speaker Change: relative to how significant the weather events were to our shipments.
Speaker Change: So, as you can see, if you look at that slide, Q2 was really severe in DFW and as Q3 rolled around it wasn't as bad in DFW and you saw a really nice snapback in volumes at Midlothian. Now, Q3 was just tough across the southeast and much of the east. Look, here's your takeaway.
Speaker Change: We literally had a hurricane every two and a half weeks in Q3.
Speaker Change: and they were coming through and disproportionately hitting our eastern business and a lot of it, frankly, our southeastern business. And to your point, Catherine, if we're looking at businesses that have our highest ASPs, if we're looking at businesses that have our highest margins...
Speaker Change: That's the sweet spot. And that's the part that really was hit hard, hard, hard in the quarter. So if we're looking at it overall, did it affect the shipments? I think notably. Disproportionate driver shipments down? Absolutely.
Speaker Change: And then the other piece of it is it made it more difficult in some instances to get the same degree of mid-year price increases this year that we saw last year. So you really had almost a trifecta of issues that went through.
Speaker Change: Now, to the second part of your question, it's a good one. I was reading the Wall Street Journal this morning and it was talking about much of the country being in some degree of a drought in October.
Speaker Change: And the fact is, October has been much more normal.
Speaker Change: And what we've seen in October is really what is driving what you've seen relative to our aggregate forecast going forward.
Speaker Change: Because if you look at it what it's basically saying is we're anticipating aggregates to be up 5% in Q4 And that's really on the back of what we're seeing in October So several things I would note is I think about the durability and how real that is. One, we're seeing the tonnage
Speaker Change: We're seeing our customers continue to add to their backlogs. So we're seeing nice sequential build in customer backlogs. And the other thing to me that's telling is our customers are hiring right now, too. So when you're seeing good activity that we're seeing in October when we've seen dry weather.
Speaker Change: When we're seeing good activity from backlogs, from a customer perspective, and we're seeing contractors hiring right now, we think all of those together give a nice picture of what's to come.
Speaker Change: But when you step back from it, too, it answers, I think, the essence of your question. How much did weather matter? Answer, it mattered a lot.
Speaker Change: How much did it matter relative to volume? A lot. How much did it matter relative to profitability? Frankly, even more than it did relative to volume. So, Catherine, I hope that helps.
Catherine Thompson: It does. Thank you.
Catherine Thompson: Thank you, Catherine.
Speaker Change: Your next question comes from the line of Trey Grooms with Stevens. Your line is open.
Trey Grooms: Hey, good morning, Ward and Jim. Hope you're all doing well. Yes, sir. So, kind of a follow-on to that.
Trey Grooms: You know, clearly the Carolinas, particularly western North Carolina, which is, you know, right in the guy's backyard were Unfortunately devastated by Helene and you know, there's other areas as well, you know that have seen
Trey Grooms: pretty serious issues as a result of the extreme weather
Trey Grooms: If you could maybe talk about, you know, some of the recovery efforts that are going on there and what that could mean for Martin Marietta, you know, given that it is...
Trey Grooms: right here in your backyard.
Speaker Change: Yes, Trey, it is in our backyard, and you're right. And Western North Carolina did feel it. The words that I gave in the prepared remarks were disproportionate, so we are trying to make sure that...
Speaker Change: We're doing all we can to help that part of the state rebuild. I mean, here's some data points for you. NCDOT estimates that the Haleen recovery expenses will be between $5 and $6 billion, just relative to NCDOT.
Speaker Change: Now, to put some other color to that, typically the federal government reimbursement rate for that is between 60 and 65 percent.
Speaker Change: which means as a practical matter, North Carolina's share of that burden is going to be about two billion dollars. Now, as we think about how we're positioned to help rebuild that part of the state, several things I would point to.
Speaker Change: Number one, we have operations in North Carolina that go nicely west of Hickory. So we're getting into the foothills, getting into the Appalachians.
Speaker Change: with our North Carolina operations.
Speaker Change: It's important to remember too that
Speaker Change: with the blue water transaction.
Speaker Change: We actually acquired a number of sites in eastern Tennessee. So that now puts us in the position...
Speaker Change: that we can come into those areas, both from eastern Tennessee and western North Carolina.
Speaker Change: to make sure we're providing the work and the support that that area is going to need.
Speaker Change: Now, importantly, too, NCDOT has said it's going to be business as usual in terms of construction and maintenance activity outside of the work for Helene, so we're not going to see other parts of the state not continuing to advance. North Carolina can do that and take care of what's happening relative to Helene.
Speaker Change: And I think this is an important piece of it, too, Trey, because when we talk about SOAR and where we have built our business and why, one of the areas that we've long said is we want to be in states that are in a good physical condition because when these type things happen...
Speaker Change: We need to be in places that states can manage that, and it was interesting, I was reading a piece in the Pew Trust.
Speaker Change: last week, and it outlined that North Carolina was only one of a handful of states, literally,
Speaker Change: And the state currently has a surplus of $6 billion in that. And if you're keeping score at home, that's about $4.25 billion more than we saw in the last budget. So, will there be rebuilding? Yes. Is it going to be extensive? Yes.
Speaker Change: Not months or years, but probably the better part of a decade. My guess is that it will, and will we be there to help? Absolutely.
Speaker Change: Great. Thank you for all the color on that. I'll pass it on. Good luck. You bet. Thank you, Trey.
Speaker Change: Your next question comes from the line of Garrick Schmoys with Loop Capital. Your line is open.
Garrick Schmoys: Hi, thanks for having me on. I was wondering if you can go over the acquisitions that you made in a little bit more detail in South Florida and California. Any more color on the size of the acquisitions, the volume contribution?
Garrick Schmoys: how pricing looks in these markets and maybe help us think about if there's any benefit in 4Q or any kind of related headwinders you integrate and what the outlook for 25 looks like.
Speaker Change: Garrett, thanks for the question. Yeah, I can help you with that a little bit. So number one both these transactions are totally consistent
Speaker Change: with SOAR, and what I mean by that is you've seen us historically go into relatively new markets for Marietta like we did in California or Florida in this instance.
Speaker Change: and we basically do platform transactions and then we come behind them with a series of bolt-ons where we can augment our position. That's exactly what you're seeing in both of these deals. So, I would tell you several things. One, both are complementary.
Speaker Change: They're both pure aggregate bolt-ons, so again, one in Lehigh West in Southern California, one where we bought Blue Water.
Speaker Change: Equally, and I think this is important, both are percentage margin and unit margin accretives. So these are attractive, pure stone businesses.
Speaker Change: The combined reserves are over 150 million tons in areas with notable reserve shortages. So, again, we continue to augment our reserve position in those markets.
Speaker Change: integration is going to be complete very very quickly new pricing will be effective on January 1
Speaker Change: What's important is doing all of these together, and with both these transactions, it's still sub a billion dollars on what we've done. Our leverage remains completely within our target range, and the pipeline of aggregates acquisitions remains active, so we think there's more to come on that.
Speaker Change: relative to the guide for the rest of this year.
Speaker Change: We've effectively put nothing in the guide for the rest of this year for these businesses because as you recall the tyranny of purchase price accounting and this means that we have to take all of the inventory there and Mark it up to fair market value. So what you anticipate after transaction is for those early months You're not going to see that much from P&L perspective
Speaker Change: But these transactions and frankly Garrett like so much of this year
Speaker Change: has been a setup for 2025. This puts us in better positions in markets where we want to have these leading positions. These are attractive pure stone transactions and and again, we believe
Speaker Change: The commercial trends that we will see at these these operations will continue to be very attractive
Speaker Change: and part of what I think is worth noting as well.
Speaker Change: If we go back and take a look at even the blue water transactions that we've done and what we've done relative to getting those businesses back up to something that looks more like Martin Marietta market pricing.
Speaker Change: When you and I had this conversation at Q2, there was about a $5 a ton delta on ASP between the acquired operations and heritage at that point. Now, that's about $3 a ton. So I think if you take the overall philosophy that we have, look at the geographies in which we've made these transactions,
Speaker Change: What the reserve base looks like and what it can mean in our heritage business and acquired businesses We're as you can tell probably from my tone and words. We're pretty excited about these deals
Speaker Change: Yeah, sounds like it. Thanks again. Thanks, Gary.
Speaker Change: Your next question comes from the line of Jerry Revich with Goldman Sachs. Your line is open.
Speaker Change: Good morning, everyone.
Jerry Revich: I'm wondering if you could just talk about the pricing revision and guidance, so normally mid-year sets you folks up for pricing.
Jerry Revich: the following year, so can you just expand on the drivers of the...
Jerry Revich: Negative revisions to the pricing outlook this year and then as we think about the outlook for
Jerry Revich: with the high single digits.
Jerry Revich: In 25, you know, you folks have previously spoken about moving to higher sustainable pricing than what we've seen in the past, which would.
Jerry Revich: of the range. So I don't know if that's a mix of M&A that's driving that or other factors, but can I trouble you to expand on those areas, please?
Speaker Change: No, happy to. So several things. Answering the back part of your question first, I just think we're going to see good, steady, durable pricing going forward.
Speaker Change: I think that mid to high, probably with an emphasis on high, is probably the right way to think of it for next year because, one, we're just going to see more price in our heritage businesses. Number two, we're going to...
Speaker Change: continue to see the acquisitions move up nicely. If we think about what happened just here in the last three months, I mean several things very candidly. One, did weather-impacted delays from a geographic mixed perspective cost some headwinds? You bet.
Speaker Change: If we're looking also at what some of the geographic mix has been, meaning we're selling more fines or other lower priced materials, that was a piece of it as well.
Speaker Change: And when you take the weather-impacted delays and the other issues faced with the year, we did see a lower percentage of mid-year price increases this year than we saw last year. That's nothing that causes me any concern as I look at it. I think this year was faced with some very challenging near-term dynamics that helped drive that, which means the carryover next year is smaller than it was this year. So we're only looking at about 80 basis points.
Speaker Change: So I think that gives you a sense as we think about the build, the type of
Speaker Change: resolve we have around a very good marketplace next year with respect to pricing.
Speaker Change: and again...
Speaker Change: When I'm taken by Jerry's, it's hard to produce what we produce on a spec market basis.
Speaker Change: and put it out there and sell it for what we sell it for. I continue to believe that the value of what we're putting on the ground and the value that we add to overall construction...
Speaker Change: is still something that has some running room ahead of it for all the right reasons, but I hope that answers your question.
Speaker Change: It does. Thank you.
Jerry Revich: Thank you, Jerry.
Speaker Change: Your next question comes from the line of Anthony Pettinari with Citi. Your line is open.
Speaker Change: Good morning.
Anthony Pettinari: Good morning. Hey, you know, understanding the impact of the weather on 3Q and 24, as you look to 25, can you just talk about how, you know, backlogs have trended and if there's anything you can talk about from either an end market perspective or a geographic perspective?
Anthony Pettinari: for Rebound.
Speaker Change: Rooker, James Nickolas
Speaker Change: Thank you for the question, Anthony. I think it certainly does and if we're looking at current backlogs, I mean, they are up very nicely relative to the prior year quarter and sequentially as well, both in the mid-single digits range right now.
Speaker Change: So when you're sitting there at this point of the year with that degree of up with what I think is a lot of upside ahead of us
Speaker Change: That's what starts to give us a sense that next year clearly is going to be a much improved year relative to volume. If we think about end uses all by themselves...
Speaker Change: There's no reason from my perspective that we shouldn't expect public
Speaker Change: to be better, frankly, for the next couple of years, at least.
Speaker Change: If we look at the IIJA funds that are actually in the system today, I mean, what's been obligated is one thing. What's actually been spent and what's been reimbursed is actually considerably lower. And frankly, it's in the 20% range right now. So there's so much more of that to come. And then when we tackle that together...
Speaker Change: with state DOT budgets that are actually in a very good position. I gave a little bit of color a few minutes ago on where North Carolina is, just in a host of different perspectives. But again, if we're looking at our top ten states, 80-plus percent of those actually see their budgets up for next year.
Speaker Change: Equally, if we look at Resi, we believe clearly Resi is not going to be something that's going to turn on a dime, but we are seeing that, we believe, beginning to turn with some green shoots in a series of markets.
Speaker Change: and frankly we almost have to see it. The population dynamic trends have been so significant.
Speaker Change: in the states in which we have leading positions that the single-family housing market is in dire need of greater activity. But I think importantly too, and you heard me mention the prepared remarks, when we're seeing things like suddenly warehousing,
Speaker Change: showing some degrees of green shoots. Obviously that has been a sector of heavy non-res that has been looking for bottom for a while. We think it's really finding bottom and now when we're seeing Amazon put in the Dallas-Fort Worth Metroplex, one of its largest facilities in North America, we think that's a moment.
Speaker Change: But equally as we start thinking about AI and what that's going to mean and energy and what that's going to mean and the Reshoring that we know is coming
Speaker Change: These, to me, underscore what I believe will be a nice, steady, sequential, multi-year build.
Speaker Change: And then relative to the light non-res, keep in mind that's actually been better over the last couple of quarters on a percentage basis of our volume than heavy non-res has been.
Speaker Change: And that tells me, as we see a res recovery, we're likely to see a more quickly than usual recovery in like non-res. So I think those things, as we build them together, Anthony, is what gives us...
Speaker Change: a high degree of confidence next year in what we're talking about on volumes. You know, I do think as a company, I do think as an industry, we're usually pretty good at having a good feel for what's happening commercially. I'm not sure that we're always great.
Speaker Change: Unknown Precision, what's going to happen with volumes? I think if we've done anything, we've probably erred to the side of being relatively cautious with respect to our volume outlook next year, and that still has to stop.
Speaker Change: Okay, that's very helpful. I'll call her. I'll turn it over.
Anthony Pettinari: Thank you, Anthony.
Speaker Change: Your next question comes from the line of Angel Castillo with Morgan Stanley. Your line is open.
Angel Castillo: Hi, good morning and thanks for taking my question. Thanks for all that color. That was very helpful. Hi, just maybe wanted to switch over to the cost side or the kind of price cost dynamic and just give us a little bit more color on what you're kind of anticipating there as we head into 2025.
Speaker Change: I'm happy to, and I'll ask Jim to take you through what we're seeing from an inflation perspective and otherwise.
Speaker Change: Underlying inflation for this quarter was actually coming close to where we expected, about mid-single digits, call it 5%.
Speaker Change: The...
Speaker Change: The additional COGS per ton inflation we saw was largely due to our inventory drawdown for the quarter.
Speaker Change: And that will continue probably a little bit into next quarter, but for 2025 in total, I'm still sticking with my mid-single-digit cost-inflation view overall.
Speaker Change: which would be obviously well below where Ward clearly enunciated or ASB expectations are mid to high single digits so the the price cost spread should continue to be trend favorably
Speaker Change: And again, inflation, if anything, seems to be trending down. So more to come on that next year. We'll come up after Q4 earnings.
Speaker Change: Very helpful, thank you.
Speaker Change: Thank you, Andrew.
Speaker Change: Your next question comes from the line of Philip Ng with Jeffreys. Your line is open.
Philip Ng: Hey guys, Ward, great to hear that.
Philip Ng: You know, average volumes are turning up 5% in the fourth quarter.
Philip Ng: Now that water is cleared out.
Philip Ng: Does that number include some of the recent acquisitions?
Speaker Change: You just have to know, from a P&L impact, it doesn't have much, and when we look at the 2025, I think the low single-digit volume framework, is that on an organic basis as well, just trying to get a better handle what you're actually sitting at?
Speaker Change: out there.
Speaker Change: when we come back to you in February, Phil, and give you a better feel for what we think 2025 will look like. And that's where you will see the Southern California and South Florida transactions factored into it. I hope that helps. Okay. So fourth quarter volume up 5% and next year up those single digits.
Philip Ng: large organic okay that's that's encouraging to see that's that's correct yeah Phil you got it appreciate it thank you you bet take care
Speaker Change: Next question comes from the line of Tyler Brown with Raymond James. Your line is open.
Tyler Brown: Hey, good morning everyone. Hey, good morning Tyler. Hey, lots of good color on the call, but hey Jim, if I look at CapEx...
Tyler Brown: I think it's up to $875 million at the midpoint from $700 at the midpoint, I think, last quarter. Seems like a pretty big jump. And I'm just curious if there were some opportunistic land purchases, or was that Midlothian? Any colors there, and just any early thoughts on CapEx into 2025?
Speaker Change: Yeah, so it's largely a function of the two acquisitions that Ward mentioned. One of those is structured in a way that's being treated as CapEx and that is an operational acquisition. So that bump up in CapEx guy for the year is almost solely attributable to that deal.
Tyler Brown: And next year, you know, we typically guide to nine, nine and a half percent of revenues. So probably not a bad way to think about it to start for next year. We'll have more detail next year, though.
Speaker Change: Okay, perfect. Yep, that answers my question. Thank you. You're welcome. Take care, Tom.
Speaker Change: Your next question comes from the line of Brent Thielman with DA Davidson. Your line is open.
Brent Thielman: Hey thanks, good morning. Hey Ward or Jim, just with respect to the Midlothian expansion, I guess when you think about supply-demand dynamics in that region, would you expect to sell out that incremental capacity next year or is there a ramp-up period with that new capacity we need to consider?
Speaker Change: Thanks for the question. The short answer is there's going to be a ramp-up period for that. Look, that's an important marketplace to us. We want to go about that in a very thoughtful way.
Speaker Change: Midlothian is performing actually very well right now, I mean, it's been interesting.
Speaker Change: We actually saw improved gross profit per ton at mid-low we've seen.
Speaker Change: very constructive pricing and mid-low, which tells you...
Speaker Change: You know, put a different marketplace in North Texas' from many others. And so we will be very thoughtful, we'll be very careful, and we'll be very methodical about how we go about that at Bidlothian. So short answer is don't expect all of that next year, expect that over a period of time, and yes, it will ramp.
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Speaker Change: again.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line
Speaker Change: Yes, good morning everyone. Thanks for taking my question. Hi David. Hi, good morning. I guess I want to start with just a clarification on Garrick's question and and and then I have a question for you but on the clarification you had talked about the
Speaker Change: was a $5 to $3 a ton.
Speaker Change: I guess how many tons does that how many tons would you say just approximately
Speaker Change: would apply to.
Speaker Change: You know, I don't know the...
David Garrick: Yeah, no, I don't know that we've ever come out with precise tonnage on that But but what I would refer you back to take take a look at Blue Water and take a look at Frye Because those are really the two different transactions to which that metric applies So it's it's really going to mean Denver in one instance Central and Eastern Tennessee and another and in primarily portions of northern, Alabama Obviously the the Blue Water transaction covered more states than that, but from a gravity perspective That's most of it, David
Speaker Change: Great, so you're caught up in California now.
David Garrick: We are largely caught up in California, that's exactly right.
Speaker Change: Right, okay. And I guess my question was more regarding tariffs and cement and just mindful that in Midlothian, you're quite removed from the import market influence down in Houston. There's probably a $40 to $50 a ton price discrepancy between those two markets, which you alluded to a moment ago. How much would
Speaker Change: DFW benefit from cement.
Speaker Change: You know, that's a great question. I mean...
Speaker Change: There's just not a lot of import activity that goes into DFW to begin with.
Speaker Change: Because the transportation logistics become so complicated, getting it there by some form of either river or ocean-going vessel, then offloading, then going through the ports, then putting it on trucks, and then sending it a long way. So, look, I think Dallas-Fort Worth, simply because of its location that far from water, is different.
Speaker Change: I think Dallas-Fort Worth, because of...
Speaker Change: The Dallas-Fort Worth would probably be the best-looking, heavy-side building materials market in the United States for the next...
Speaker Change: 25 or 30 years.
Speaker Change: and we've been right on that, and I don't see anything that makes us change our view on it. So, is it already a good market? Yes. Do we anticipate it's going to stay a good market? Yes. Would I answer your question, look, if tariffs come in, does it make a really good market look even better? The answer is, yeah, I think it does.
Speaker Change: Thanks very much. Thank you, David.
Speaker Change: Your next question comes from the line of Mike Dudas with Vertical Research. Your line is open.
Mike Dudas: Morning Jacqueline, Jim, Ward. Hi Mike.
Mike Dudas: Um
Mike Dudas: Again, appreciate all the observations looking towards your business in 2025. Maybe you can maybe look at it from a geographic basis as you look at the...
Mike Dudas: for time and
Mike Dudas: 2025.
Speaker Change: Mike, thanks for the question. I would say several things. One, as we discussed earlier in the call, the pricing dynamic that we needed to address in California has largely been addressed.
Speaker Change: And now we have a more formidable business there with the M&A that we've done. So I would continue to think in particular that Southern California would be a marketplace that should be a relatively bright spot for us. Number two, I would say Texas is going to continue to be a bright spot for us.
Speaker Change: Clearly North Texas as I look at the markets, I really think of it North Texas, Central Texas, South Texas
Speaker Change: in those three buckets. I think North Texas is going to continue to be the strongest of those markets. I think Central Texas is going to be absolutely fine as well. And again, the TxDOT program there shows growth going into next year.
Speaker Change: Again, Florida will continue to be an important market for us for two different reasons. One, we've historically been the largest importer of granite into that market.
Speaker Change: So we've had a disproportionate infrastructure view in that marketplace. Now, though, that we're getting in-state operations that can really start feeding more concrete and feed more private work. We're going to see continuing attractive work in Florida.
Speaker Change: If we think about North Carolina, we've gone through that. One, the DOT program is up year over year. Number two, we've talked about what would...
Speaker Change: be of necessity a significant rebuild in the western part of the state.
Speaker Change: and we think that will continue to be attractive.
Speaker Change: But equally, if we look at Indiana, their budget's up next year. If we look at Georgia, their budget's up almost...
Speaker Change: It's over 7% next year. Colorado's budget is up 14%.
Speaker Change: Arizona's budget is equally up double digits next year. So if I'm thinking about overall end uses, I mean, that clearly addresses it relative to the public side. And I've said earlier, that ought to be good for at least a couple of years. Equally, as we think about private in those states, those are all fast-growing states that have seen significant population trends.
Speaker Change: So, so my view is...
Speaker Change: The long-term
Speaker Change: and medium-term and near-term volume picture ought to be increasingly attractive.
Speaker Change: and long-term, medium, and short-term, the commercial side and the pricing piece of it ought to outkick whatever historical coverage is. That's going to continue to perform in ways that I think will be a differentiator relative to other industrial sectors.
Speaker Change: Excellent, Ward, thank you. You're most welcome.
Speaker Change: Your next question comes from the line of Timna Tanners with Wolf Research. Your line is open.
Timna Tanners: Yeah, hey, good morning. I wanted to dig a little bit more into the end market outlook on slide 7 of your supplemental information. So
Timna Tanners: Specifically, I guess, starting with the non-res private sector piece, the data centers are generally pretty low single digits of total percent.
Timna Tanners: I was just hoping for a little more color on why you might have been more neutral on warehouses and manufacturing given some of the IRA projects, so just a little more color on that segment.
Speaker Change: That's very helpful. Thank you. If we're looking at data centers and what's coming from the build-out of AI in particular, I can look at a big Google project in Kansas City that has got significant tonnage with it. I can look at...
Speaker Change: Actually, Microsoft data centers, oddly enough, in western North Carolina, near Hickory and our quarries in Maiden.
Speaker Change: Google again is establishing two new data centers campuses in South Carolina those have a combined investment of about 3.3 billion dollars so again it's one thing to see that group data centers going in it's another to see the AI coming with or somewhere behind it
Speaker Change: But the energy piece of this is going to be real, and the energy piece of it is going to be very, very aggregates-intensive. And to your point, I'm shifting, going from data warehousing to just warehousing. I mentioned before, I do believe that warehouse construction...
Speaker Change: does appear to be cyclically bottoming right now. I mean, we talked about that Amazon facility that's being built in Claiborne, Texas. Again, if we just look at the quantum of aggregates and cement and concrete that will go into that, it's going to be really very, very significant.
Speaker Change: and then when we start thinking about the other light non-res demand that will likely come behind that, at least some those are some of the specifics. Temna, if you're just looking really from a...
Timna Tanners: micro perspective what do some of the markets look like and and what are we seeing from you know data that gives us a good sense of confidence around that that's part of what we're looking at
Speaker Change: Okay, thanks, and then on the infrastructure side. I wanted to ask kind of high-level I guess I don't want to make you go through all the different state budgets again but there has been disappointment as you know since the 2021 passage of I IJ a there's been kind of a trickle or or a slow Processing of some of those dollars what what is it about? 2025 that's really going to kick into gear and and how does that offset some of the cost inflation that's accumulated since it was passed Thanks, Tim. No, I would say a couple things one
Speaker Change: 2024 has really been the first year that we've seen significant, or frankly any, federal IIJA dollars coming through.
Speaker Change: So if you think about what that means as a practical matter, you're seeing it for the very first year in 2024.
Speaker Change: and you're going to have some of that carry over into 2025, then you're going to have new work that's being bid in 2025 as well.
Speaker Change: So, I think the states are moving forward, and of course the dialogue you and I were having a few minutes ago was largely built around those state budgets.
Speaker Change: at the same time I think here's the big surprise I think in some respects I think if somebody had said to us in 2021 hey by the time you're in the last quarter of 2024 do you think you will have only seen 20-some percent
Speaker Change: of those dollars that had been authorized moving through the system. I think the answer would have been, God, that feels a little bit slow, but we know the dollars are there, we know the dollars are coming. And that's why I have this sense that, look, if we're looking at the public side of it,
Speaker Change: Should that be almost irrefutably better in 25 and 24 and continue to build in 26?
Speaker Change: Frankly, Tim, I think it almost has to when we look at the federal dollars and we look at the state budgets and the geography in which we're operating. So that's the way that we've looked at that and basically handicapped it in our minds.
Speaker Change: Okay, very helpful. Thanks again. You're most welcome.
Speaker Change: Your next question comes from the line of Michael Sinegar with Bank of America. Your line is open.
Michael Sinegar: Thank you.
Michael Sinegar: Great. Thank you everyone for squeezing me in. Just a clarification question, Ward. Yeah. Your full year 24 shipment guide obviously down 2.5 to 4 percent.
Michael Sinegar: If it was flat, if underlying demand was flat, how much weather do you think 24 versus 23 weighed on growth? Was it 1%? 2%? I guess the genesis of the question, Ward, is if you're growing low single-digit growth in 2025, that's organic. Is the volume growth actually a little bit higher next year, barring weather just isn't a disaster?
Speaker Change: Bye. Bye. Bye.
Ward Nye: Michael, I think it certainly could be and I think if we've done anything I think we've taken...
Ward Nye: a relatively, um...
Ward Nye: Thoughtful, cautious view.
Ward Nye: up next year.
Ward Nye: Because I think if we go to it, I don't want to give percentages on what I think weather has done this year, but it would not be a small percentage.
Ward Nye: on what weather has done this year. And keep in mind, last year we had a weather year that was maybe normal to dry.
Ward Nye: This year we've had one that has been epically wet.
Ward Nye: If we just hit something next year that feels normal, particularly in geographies that are disproportionately important to us like the Southeast, look, I think there are a lot of moving parts that point to attractive trends and growth for next year.
Speaker Change: That's really helpful warden just to follow up on the pricing. Let's say you know
Speaker Change: posted a high single-digit range, potentially. Is that relatively even through the year? Does that not include mid-years? Is that more second-half weighted? Just any kind of
Speaker Change: you know, anecdotal.
Speaker Change: and they're going to be talking about the preliminary 25, and we're going to have a panel discussion on that. So, if you have any kind of commentary you would like to think about how we think about that preliminary 25 as that kind of moves through the year. Thank you.
Speaker Change: Thank you. As you said, it is preliminary and NOAA does not take into account mid-years for next year. And that's typically the way that we do that. Even when we'll come back to you and give you more precision in February, it's usually not taking into account mid-years. So that simply gives it some degree of tailwind as well. So that's how I would encourage you to think about that.
Speaker Change: Thank you.
Speaker Change: This concludes the question and answer session. I'll turn the call to Ward for closing remarks.
Ward Nye: Thank you again for joining our third quarter 2024 earnings call. Martin Marietta's future is bright thanks to the consistent and thoughtful execution of our strategic priorities by our world-class teams.
Ward Nye: Looking ahead, we're confident in our ability to continue delivering leading financial, safety, and operational performance while extending our long track record of delivering sustainable growth and superior shareholder value.
Ward Nye: We look forward to sharing our fourth quarter and full year 2024 results in February. As always, we're available for any follow-up questions. Thank you again for your time and your support of Martin Marietta.
Speaker Change: This concludes today's conference call. Thank you for joining. You may now disconnect.