Q2 2019 Earnings Call
Greetings and welcome to summit materials second quarter 2019 earnings Conference call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star one on your telephone keypad as a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Mr., Brian Harris.
You may start.
Good morning. This is Brian Harris, and I would like to welcome you to summit materials second quarter 2019 results conference call.
We issued a press release before the market opened this morning.
Detailing our second quarter results.
This call will be accompanied by a second quarter 2019, investor presentation, and then updated supplemental workbook, highlighting key financial and operating data both of which can be found in the investors section of our website.
I would like to remind you that managements commentary and responses to questions. On today's call may include forward looking statements, which by their nature are uncertain and outside of summit materials control.
Although these forward looking statements are based on management's current expectations and beliefs actual results may differ in a material way.
For a discussion of some of the factors that could cause actual results to differ please see the risk factor section of summit materials latest annual report on Form 10-K , which is filed with the SEC.
Additionally, you can find reconciliations of the historical non-GAAP financial measures discussed in today's call in this mornings press release.
Today's call will begin with remarks from Tom Hill, who will provide an update on our business then I will provide a financial review and Tony will finish with an update on our management outlook.
At the conclusion of these remarks, we will open the line for questions.
With that I will turn the call over to Tom.
Good morning, everyone and thank you for joining our call.
Turning to slide four of the presentation.
Net revenue grew 0.6% and the second quarter and 2.3% in the first half supported by both organic and acquisition growth some deals completed in 2018.
Our aggregates business in particular continued to deliver strong performance through the first half with mid single digit organic volume increases and mid to high single digit organic price improvement versus the prior year period.
Adjusted EBITDA grew 3.8% in the second quarter and 4.4% in the first half supported by top line growth and stabilizing costs.
Excluding the impact of acquisitions adjusted EBITDA increased to 1.4% in the second quarter and a 1.0% in the first half as a strength of our diversified vertically integrated business model offset the negative impacts of the record precipitation and most of our markets and the catastrophic Mississippi River flooding.
Given the extremely challenging river environment. During the first half we are especially pleased with the resilience performance of our cement business.
We remain focused on prudent capital allocation, which overtime will reduce our leverage.
Organically, our aggregates Greenfield quarries, which we will discuss in more detail later are progressing and are expected to generate superior returns.
Although the pace of acquisitions has slowed relative to recent years, our pipeline remains active and we continue to evaluate compelling transactions, where we believe we can add meaningful value.
Turning to slide five.
Our strong aggregates performance through the first half has more than offset the cement shortfall severe flooding impacted both our cement business, where barge shipments were halted for several months and our Oklahoma aggregates operation, where our dredge sank due to high water levels. If you adjust for these two impacts we realized significant real price growth in the first half.
This pricing momentum is expected to continue through the remainder of the year and can in conjunction with pent up demand across our markets drive meaningful incremental earnings.
The foundation of our business isn't materials aggregates and cement, which comprise the majority of our adjusted cash gross profit.
These businesses have high barriers to entry with strong underlying pricing momentum and the long term reserves underwrite future value appreciation just like prepaying for 99 years of inventory, where the value of the inventory keeps going up.
And our vertically integrated model, we supply aggregates for the production of our downstream products ready mix and asphalt and supply aggregates and asphalt to our paving business this model and well structured aggregates markets extract greater value for our shareholders, our downstream products and services allow us to achieve market rate margins, along the entire value chain and expand our overall profitability per ton of material sold while also providing increased the avenues for growth within our markets.
Both organically and by acquisition.
Turning to slide seven.
You asked the aggregates consumption remains well below peak levels high barriers to entry diversified end use and strong pricing dynamics are contributing to the positive outlook for this industry.
Since our IPO, we have expanded and improved our aggregates business as a result between 2014 and 2018, we grew our adjusted cash gross profit at a 26% CAGR and increased our adjusted cash gross profit per ton by 35%. Our aggregates business now represents 39% of our total adjusted cash gross profit a 40% increase in contribution versus 2014.
Considering the growth in magnitude of our aggregate adjusted gross profit 222 million in 2018, we believe that the value of our aggregates business remains at a significant discount to our peer group.
Turning to slide eight our aggregates business has benefited from volume growth pricing momentum and stabilizing costs. The volume growth has been steady across all end markets, particularly the public segment.
This trend should continue with the rising DRG funding levels, the significant flood related levy repairs required in Missouri, and the increase in wind farm activity throughout the Midwest.
Organic pricing growth through the first half has been robust at 7.4%.
We anticipate strong real price increases to continue through the second half and into the next year and expect a meaningful expansion in our margins.
Further with several new aggregates capital projects coming online. This year, we expect to see additional cost reductions going forward.
Turning to slide nine over the past few years, we have increased our Greenfield Corey development efforts in light of the limited availability of pure play aggregates acquisition opportunities and increasing valuations.
Although greenfields can take years to develop and our capital intensive upfront they provide access to high growth markets and offer higher returns than many acquisitions.
Our primary geographic focus has been the southeastern us, which has multiple well structured high growth markets, but limited acquisition opportunities.
Targeting locations in this geography also complements our existing geographic footprint across Virginia, the Carolinas and Georgia.
Today, we have seven projects completed or under development with committed capital and several more in diligence with the seven completed or under development projects. Our reserve base has increased by approximately 390 million tons and we estimate that these projects will generate shipments of over 6 million tons.
40 million of adjusted EBITDA and mid teens free cash yield by 2024. Since 2014, we have spent $78 million and expect to spend an additional 128 million over the next few years.
While timing is uncertain, we could spend up to a quarter of the remaining investment in our second half capital expenditures, which would be incremental to our guidance range.
Greenfield development has been an important part of our capital allocation strategy to date and we expect this can to continue in the future.
Turning to slide 10.
We operate the two most northern cement plants on the Mississippi River, both of which are modern and highly profitable with run rate EBITDA margins in the low 40% range.
With over 500 million tons of reserves and a distribution network of nine terminal. It runs the length of the Mississippi River, We believe our cement segment will generate significant long term value.
Particularly in light of the industry's high barriers to entry U.S. consumption remaining well below peak levels and us pricing, having grown well in excess of inflation historically.
Turning to slide 11 flooding on the Mississippi River as a result of the wettest January to June period on record in the U.S. created significant challenges for our cement business.
In Davenport the river was above flood stage for a record 95 consecutive days double the prior record.
While on Hannibal The river was above flood stage were a record 106 consecutive days as a result of this extensive flooding and the issues previously highlighted in Q1, our cement business was negatively impacted by approximately 8 million through the first half.
Further with the shorten river shipping season decreased barge availability and increased traffic upon the river opening we expect to incur an additional $3 million to $5 million of flood related impact in the second half.
Despite a very challenging first half our plants are running well alternative fuels are exceeding expectations and underlying demand remains robust.
For the year. It is unlikely that cement, we will be able to recover the estimated 12 million adjusted EBITDA impact, but we do expect it to be offset by our strong aggregates performance and the anticipated acceleration of products margins in the second half.
Turning to slide 12, as I mentioned earlier, our products and services lines of business generate incremental earnings throughout the heavy side construction materials value chain, we focus our downstream business on select well structured aggregates markets in which summit is a top supplier.
The attractiveness of these businesses is their ability to support stable aggregates demand produce a higher relative return on invested capital and expand our acquisition target universe.
With that.
I will turn the call over to Brian for a discussion of our financial results.
Thank you Tom.
Turning to slide 14.
I would like to start with the quarterly revenue bridge.
In the West segment net revenue declined by $20.4 million, primarily resulting from the sale of a non core business in the third quarter of 2018.
And unfavorable weather in Texas, and Utah, which delayed the start of the season negatively impacted ready mix volumes.
This was partially offset by increases in organic aggregates volumes and average selling prices.
In the East segment net revenue increased by $21 million, primarily due to strength in both organic aggregates volumes and average selling prices.
There was a slight increase in net revenue from cement due to a 2.2% increase in organic volume. Despite the weather challenges that Tom described.
Turning to slide 15.
Here, we show the key GAAP financial metrics.
We reported a basic net income per share of 32 cents, which was the same as the prior year.
Operating income improved by about 3 million in Q2 over the prior year, but remains about 3 million below the prior year to date.
We reported a positive net income attributable to summit, Inc. Of 36.4 million in Q2, 2019, which was slightly ahead of the prior year.
Turning to slide 16.
Our adjusted cash gross profit margin for the second quarter improved slightly but is still slightly behind the prior year to date.
As Tom mentioned earlier, our gross margins were negatively impacted by the elevated costs associated with flooding in the period.
Adjusted EBITDA margin was above 25% in Q2, indicating a positive upward trend as we enter busiest period of the year.
Turning to slide 17.
You will notice that average selling prices in aggregate side of business showed a significant improvement over the prior year, both organically at plus 7.4% and in total at plus 8.5%.
Cement prices were flat with the prior year, reflecting a complex customer mix caused by the flood disruption and the ongoing competitive environment.
As the mix of our business shifts towards the northern markets in the second half, we expect some upward movement on average selling price and on a full year basis, we still expect pricing to improve over the prior year.
Despite the disruption caused by river flooding, we were able to service our customers needs.
In our products lines of business, we reported a volume decline in ready mix of 5.9%, reflecting the wet conditions in Texas and the slow start to the season in Utah.
Asphalt volume grew 2.9% over the prior year period, and average selling price increases were both positive plus 1.9% on ready mix and plus 5.9% on asphalt.
Turning to slide 18.
Although consolidated gross margins remained slightly lower year on year. This was largely due to the costs associated with flooding.
As we move into our peak selling season, we are encouraged by the positive volume and pricing trends, which we believe will drive margin expansion in the second half of the year.
As anticipated our leverage ratio decreased only slightly during Q2, reflecting the higher level of capital expenditure, which occurred during the first half.
Our cash balance increased slightly to 67.7 million, resulting in a leverage ratio of 4.7 times compared to 4.8 times at the end of Q1.
At the midpoint of our adjusted EBITDA guidance, we expect our net leverage at the end of the year to be below four times.
Fortunately modeling purposes in the remainder of 2019.
SGS day should be in a range of 65 to 68 million.
DDNA should be in a range of 53 to 55 million.
And interest expense should be in a range of $28 million to $30 million.
We anticipate paying minimal state and local cash taxes and know us federal income taxes.
Finally, with regards to total equity interest that standing.
As of June 29, we had a weighted average of 112.1 million class a shares outstanding.
And 3.4 million LP units held by investors.
Resulting in total equity interest says standing of $115.5 million and this is the share count they should be used in calculating the adjusted diluted earnings per share.
And with that I will turn the call back to Tom for his closing remarks.
Thanks, Brian turning to slide 20, our view on the U.S construction cycle and anticipated demand across all end markets remains unchanged from our May update as we continue to be encouraged by local market dynamics.
On the residential side, we see slow and steady growth in our markets supported by high employment low interest rates and reasonable affordability.
With respect to non residential demand the growth of the last few years has continued into 2019 as expected in the near term AA forecast growth of 3.8% and 2.4% in 2019 and 2020.
Over the longer term if I my forecast growth of 2.9% per annum through 2023 importantly, we do not see any overbuilding in the markets we serve.
On the public side, both the federal and state level funding outlooks remain positive with the fundamentals in place for a strong multi year growth in highway construction at the federal level. We are optimistic that the fast act will be expanded or replace prior to its October 2020 exploration.
Just this week the bipartisan America's Transportation Infrastructure Act was unanimously voted through the Senate Committee on environment and public works to the Senate floor. This proposed legislation would authorize 287 billion in highway funding.
28% above fast levels between fiscal year, 2021 and 2025.
Locally a majority of states have implemented their own self funding mechanisms. During the last few years, allowing them to significantly increase their DSP budgets in particular, Kansas is highway funding is finally, improving as fiscal year 2020 funding is expected to increase approximately 30% year over year and be more than double fiscal year 2017.
As a result of increasing funding public construction put in place is up 11% year over year through may and the Lettings and several of our key states continue to hit record levels in 2019.
Additionally, we are continuing to see pent up demand from weather related maintenance following the harsh winter in several of our states all of which are reflected in our improved asphalt and paving backlogs.
Looking ahead, a our TV a forecast to US Highway bridge and tunnel construction spend to grow at a 2.4% CAGR through 2023 without any additional help from Washington.
Turning to slide 21 in closing, we see stable underlying us economic growth continuing to underpin broad based demand across all our end markets. The vast majority of our 2019 price increases have held especially in aggregates, which were up 8% organically in the second quarter.
We are seeing strong cement demand with moderate pricing growth in what has been a very challenging river market year to date.
Further with an acceleration of volumes within our product lines of business. Following a slower start to the season and continued cost recoveries through price, we expect incremental margin expansion across all lines of business in the second half.
In addition, we estimate that approximately 65% to 70% of our full year adjusted EBITDA will be derived from materials.
With that I'd like to turn it over to the operator for questions operator.
Thank you.
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My first question comes from Kathryn Thompson. Please proceed with your question with Thompson Research.
Hi, Thank you for taking my questions today.
On the aggregate segment very nice pricing you get out in the quarter and also just a sequential momentum that we saw from the prior quarter.
On that pricing how much was impacted by just pure pricing actions versus mix and that would be the product and geography and then also in particular, when we look at the remediation and recovery efforts from the Mississippi River, how much maybe a clarification on how aggregates participated that not only from a volume but from a pricing standpoint. Thank you.
Yeah, Good morning, Karen.
You on them on the mix issue, if you adjust both her geography and product. It's a we're right around 5% and in the first half the levee work in the Midwest really didnt have that much of an impact we do believe that in the second half it will have a.
You know a significant impact on our results there as you know the the amount of damage done to county roads to Luvvies, So for us, especially in northwestern Missouri is pretty stunning.
In fact, I was out there last week and was really shocked at the amount of damage, but that will be.
A lot of incremental work for us and especially in the second half.
Okay, and then just follow up on cement appreciated the color you had on the impact to flooding and what this is meant for your business, particularly for SAP and as we look into the second half, but maybe help us better understand the cadence of.
Oh, yes, we would have expected maybe a little bit better cadence in the second half, but help us connect the dots understanding what we should expect in the second half also eaten up just assuming confirming that some that business isn't necessarily that lost it's just kicked down I can't it's kicked down the road and hoping to understand that in terms of volume's too. Thank you.
Yeah, Kathryn as far as cadence goes you know the I think our team did a remarkable job of servicing our customers, albeit at a higher cost as we had to use rail and truck versus barge. So in fact, we really didnt lose much volume.
If if any so we would expect to expect some real catch up of volume in the second half. So we're very optimistic about volume on the other hand pricing is is is sort of set.
And we'll do a little better than last year, but nowhere near where we had hoped so you know real strong volumes and a continuation of the same pricing pattern in the second half.
Okay. Thank you.
Thanks, guys.
Our next question comes from Jerry <unk> with Goldman Sachs. Please proceed with your question.
Yes, Hi, this is Jerry Revich Goldman Sachs. Good morning.
I'm wondering if you could talk about what really click for your aggregates business. This year I know you've been focused a lot on rolling out pricing tools to the individual business can you just expand on that.
Correct me, if I'm wrong, but I believe these are record pricing gains for.
A lot of your markets and can you talk about that.
How the discussions are going to be shaping up this year from a timing standpoint for 2020 as well when do you expect to go out to the field for 2020 price increases too.
Hi, Good morning, Gerry Yeah, we have certainly implemented a very.
Disciplined process.
Over the last several years.
Margins were a bit down the industry tends to recover that over the next few years. So I think its you know the record price increases are a result of a.
Very disciplined positive process and also just industry dynamics, where there is a bit of catch up from last year.
You know we have actually already begun our process to implement 2020 price increases and we would expect the pricing momentum to certainly continue.
If not improve into 2020.
And Tom just so we're on the same page when you say price momentum improved.
Is your point that price increases on a percentage basis could be higher in 2020 than what we've seen to date.
Yes.
And in terms of how broad based is that are there are a number of markets that are disproportionate drivers or is that across your footprint that you are seeing this level of increase.
No it's pretty much across the footprint.
It does vary from local market to local market, but in general it's across the board I would be very optimistic in you know some of our Midwest markets now with the Levy.
And repair work going on that there will probably be a shortage of aggregates in certain markets and that will be positive for pricing.
So you know I think but overall, we're very pleased with what what I would consider to be a broad based increase in AG pricing.
Okay, and lastly, prior cycles, when we see aggregates pricing moved sharply higher like we are seeing now we've seen.
Downstream and asphalt specifically pricing and margins move sharply higher as well is that how we should be thinking about this cycle unfolding are there any competitive dynamics, we should keep in mind.
In the downstream, we're seeing really positive.
[noise] signs on the ready mix side.
Asphalt side, it's not really about price it's about margin.
We have extremely good backlogs and we would expect to make some some progress on asphalt.
I actually don't recall Jerry in prior cycles that there was an acceleration in the downstream one we had aggregate pricing going up but I.
I'll go back and take a look at that.
But we are we're optimistic across all our ela abuse.
For for pricing and margin going forward.
Okay terrific. Thank you.
Okay Gary shares.
Our next question comes from filling with Jefferies. Please proceed with your question.
Hey, guys.
Good to see you reiterate your guidance for the full year, but some of these cost still lingering in the back half Im just curious how confident are you kind of shaking out towards the midpoint or should we kind of track closer to the low end and what are some of the big driver.
I wish for that acceleration in the back half.
Well you know we feel we're in really the exact same spot we were when we set our guidance and it's really around around weather if we get.
If we get really good weather will be towards the top of it if we get weather like we had last year will be towards the bottom of it.
On the puts and takes as far as our guidance goes I mean, certainly cement has faced.
Pretty serious tailwinds on the river sort of unprecedented Tailwinds and you know I think offsetting that has been aggregates.
You know both pricing and volume so really that takes us back to where we started which you know we think it's all about weather in the second half.
Projects, you kind of highlighted to ramp up by 2024.
Sounds really promising how should we think about the ramp up curve and the potential contribution as early as next year.
It's it's a few of them are going.
You know quite strongly and they've been.
In their second and third year of contribution.
We have one right now in northeast, Georgia that starting up we have a couple more that are committed capital.
I'm not sure if I have that off the top of my head Phil as far as it but you would certainly think that we would have at least half of it in place by next year.
Okay, great. Thanks, a lot.
Our next question comes from Trey Grooms with Stephens. Please proceed with your question.
Hi, good morning.
So $32 million or so is that kind of the cadence on capital spend for these projects, we should be expecting as well.
So two years or so on the spend.
I try let me I'll just start off and then hand, it over to Brian I mean, Unfortunately, these the greenfields you're dealing with local government agencies and I can tell you. It is.
Completely unpredictable.
And and tends to be longer rather than shorter, but it is you know the reason we don't have it in our guidance is because it's so unpredictable and Brian Yes, no and just to add to that however, we did want to just flag to people that.
There is a possibility.
That it could happen and obviously we've we've.
Highlighted in an amount that will spend over the next several years, but as Tom said the timing is.
Is uncertain and obviously, we will we'll report back on that as things develop.
Understood well, maybe I can ask it this way or this might help us detail anyway.
How much of the 6 million incremental annual.
Tons, you are talking about how much of that is currently permitted now and how much is still kind of.
Still on the come as far as getting the permits because like you said it well, we we don't commit capital without a permit so the full.
The full 6 million tons is permitted.
But you still have to get building permits some other things, but but but we would never commit capital without the actual permit being in place. It just takes a long time.
Some of them, we have to buy additional buffer property. There is theres all sorts of other regulatory hoops, which are not.
Not in doubt, it's just the timing is in doubt.
Understood.
Thanks for that and then.
I guess the next one would be.
Clearly the ready mix business was impacted from the Texas, whether you guys talked about is there any way to parse out of the organic.
Ready mix volume decline.
How much was Texas specific.
In that decline and then kind of with that obviously in Texas, where there has been pretty good in July it seems like it's been pretty dry and favorable if you can talk about any.
What you're seeing since since the weather started to cooperate there.
One thing on the ready mix side, Trey is that we had probably a bigger impact on Utah weather I think that had the wettest may on a record and.
Very late to this to the late start to the season.
In Utah, and Utica is almost as big as our Texas.
Operations.
I don't know any specifics you know the weather has definitely improved in July .
July is always a bit funky just because you've got July 4th.
I think it was on a Wednesday this year.
But certainly the weather has improved and Thats certainly help.
All right.
Thanks, a lot I'll pass it up.
Okay. Thanks.
Our next question is from Mike Dahl with RBC capital markets. Please proceed with your question.
Good morning, Thanks for taking my questions.
Thanks, Tom I wanted to ask a question Alex.
Margins all things considered a across the board really nice sort of.
Results in light of some of the challenges from a weather standpoint, I think in AG, specifically you also called out.
Basically loss of equipment, and some stripping costs as being contributors to margin headwinds.
On the aggregate side could you just give us a little more detail on quantification.
What.
What that meant in terms of EBITDA headwinds and with respect to then the stripping.
Was this just kind of a timing issue.
In terms of when you'd normally do the work or how else would you characterize it.
Yes, I mean the.
The biggest headwind we had was certainly in Texas and that was weather overall.
We had a dredge capsize and our sand and gravel pit north of Dallas on the Red River.
That was from.
Very high water levels, and then we just had really poor productivity around Texas due to a very wet spring.
That's especially true in central Texas, where you're dealing with limestone deposits that have a fair amount of fines and im so when it rains it basically turns to glu.
So you know if you look at if you take our aggregates business and you exclude Texas our AG.
Incrementals were right around 60%.
We would expect overall for our business to get back to that level.
By year end.
Okay. That's that's helpful and then.
My second question.
Was just relating to clarification on a pricing comment I think you said that price.
X. mix.
Was up 5% I wanted to make sure I heard that correctly and it wasn't actually that the mix impact itself.
Was 5% and then related to that when when you talked about potential for.
Greater pricing power into 2020.
Is that related to the.
Mix adjusted price I eat the 5% that you can do better then or is it from the.
The 8% or so run rate that you are at in the first half.
Yes, the 5% is the mix a job mix and geographic.
Product mix and geographic mix adjusted number.
And that's the number we focus on so when I say say momentum it's on the mix adjusted number.
Okay, great. Thank you.
Our next question is from Garik Shmois with Longbow Research. Please proceed with your question.
Hi, Thanks, I wanted to ask just on cement and cement pricing was there any mix impact.
From selling third party cement too.
Meet your customer needs and if so is it possible that cement pricing.
Moves.
Sequentially higher in the second half of the year some of the potentially mix impacts upside.
Not not really.
Unfortunately, garik I mean sort of the price is what it is when you buy third party cement you still sell it at the price you would have soldier.
Manufactured cement.
So you know we are.
You know certainly disappointed with our actual price realization and cement in the last couple of years.
And it's primarily been due to the actions of one large competitor who has focused on share and.
We really continue to believe that the.
That this pattern will change in 2020 and get back to a more rational basis.
Okay.
That makes sense.
Follow up is on.
The capital allocation program moving forward you are highlighting greenfields a bit more today than I think what we for previously which makes sense, but also recognizing.
That your target is still to get your leverage down below four times by the end of the year. So I'm just trying to understand if you look out over the next several years.
Should we continue to expect Greenfields is be a.
Greater focus or is there a possibility, but M&A comes back into the.
Before.
I think theres, a possibility of that but you know right now when you know when you get later in the cycle valuations go up and regardless of our leverage I mean, our deals are.
Acquisition spend would probably have come down because we just are very disciplined and we don't chase.
Expensive deals.
You know I think on the Greenfields. We're just we've since we started summit we have been working on Greenfields.
And it just they just take for forever.
To come to fruition. So we're just starting to see it in and we're starting to spend some money.
So we really wanted to highlight that to two two.
You know to everyone. We think it's a very exciting prospect it gets us into a high price high gross.
Markets that you can't enter by acquisition.
You know the returns are superior and.
It's to me, it's a very exciting part of the summit story.
Okay. Thank you best of luck.
Okay. Thanks.
Our next question comes from Scott Schrier with Citi. Please proceed with your question.
Hi, good morning, and nice quarter.
I wanted to ask one more on the X. Greenfields are you looking to vertically integrate these assets over time and create.
Typical summit type platforms or do they pulled onto existing platforms are you going to structure. These stone only place.
You know with as always Scott you know it really depends on the local market.
You know a lot of the southeast as an aggregates only a market and.
We probably would keep it that way.
Because most of our customers would be the downstream and it doesn't.
No. It doesn't normally work to compete with your customers, but you know we also look at at each market individually and see if its you know if it if it's worthwhile to be in the downstream so but I would say just thinking through the seven we have out there you know probably five of them, we would not look at going downstream.
But a couple of them we would consider it so it really it just it's this is such a local business.
Where the product shipped 40, or 50 miles and each of those local markets has different supply demand characteristics and we make the decision locally whether we go downstream or not but we certainly don't start with the idea that we have to go downstream.
Got it thanks for that Tom and secondly, Brian It looks like the ash DNA looked lower than the typical run rate and then what you've guided to in the <unk> for the balance of the year just curious if there's anything to highlight there.
Nothing major Scott, we had a slightly lower run rate on a.
Healthcare worker comp cost this time and we've obviously had some.
Little bit lower headcount in a in our fixed overhead in certain areas of the business, which has brought the run rate then.
Little bit but nothing.
Other than that.
I would highlight there Scott that we have made great progress on our safety program, we have a real passion for safety.
And keeping our employees safe at summit and as a result of that is Oh, a lower workman's comp number so we're pretty proud of that.
That sounds great. Thanks, a lot for the questions and best of luck.
Hi, Scott.
Our next question comes from Adam Thalhimer with Thompson Davis. Please proceed with your question.
First.
Adam are you there.
Yeah.
Oh, I'm, sorry, Hey, I was hoping you could give some additional color on the asphalt and paving backlogs.
Oh, let's see I believe our asphalt backlogs are up 17% and our paving backlog is up 12% and that's pretty much.
Texas, obviously with the deal to spend there is way up.
Were actually a bit down in Utah, and all our other markets are up a bit.
So.
I think with it looks very strong for the back half of the year.
And then Tom what are your expectations for ready mix volumes in H. too.
They will be quite good whether they are very weather dependent probably you know that an asphalt or are pretty weather dependent.
We should have good volumes in Houston and good volumes in.
Utah.
Utah, it's interesting with with the wet spring they will not catch up by the end of the year, but the volumes in the second half should be pretty good. There's just not enough days left to catch up what they.
What they lost in April and May and the first little bit of June .
But but overall I would think.
That we should see very good volumes on the ready mix side.
Houston I mean, some other players have characterized Houston like early stage market again very strong.
I've been saying that for three years and so on.
Trying to.
Be optimistic but not.
I'd like to see some volumes our volumes have been quite good recently there.
But it is just rain has just been very difficult there are over since late 17, so I'd like to see some I'd like to see some volumes. There certainly our backlogs are good our customers are saying all the right things and.
I do really believe that Houston is early stage.
In in all the segments I mean highways are very very strong.
The non res that we participate in the low rise.
Strip malls, and so forth that follow residential are quite strong and residential.
No all the stats are pretty good there. So we're we're we're hopeful.
Got it thank you.
Okay.
Our next question comes from Stanley Elliott with Stifel. Please proceed with your question.
Hey, good morning, guys. Thanks for taking the question.
I apologize if I missed it can you tell us what sort of EBITDA contribution you're expecting from the additional.
Kind of Levy work in the back half the year.
We're not going to we're not going to quote a number because it's in flux right now it's a lot of it is is not bid work. It's just they call. It. The you know the core says hey, I need material. So it should be pretty significant but it's hard to put a put a number on it.
And as we're looking at that market and it sounds like cement pricing will be up a couple of dollars maybe and.
With the chance of additional volumes.
On the river and around the river does it feel like that the cement pricing is actually going to be maybe a little bit better as we started to think about into next year.
Yes, but we've been disappointed for two years, so we're pretty careful in what we say there it's.
It should get back into the mid single digits, but you know I would have said that coming into this year I think capacity utilization is you know is getting.
A higher.
And.
There is no reason.
In my mind that we shouldn't be getting mid single digit price increases realized price increases we went up.
In the 18, we were up we announced the $8. This year, we announced 10 and we just have been unsuccessful in realizing that and as I said earlier, it's really been the actions of one large competitor that has has kept that down we we certainly hope that that corrects itself in 2020.
And EM on the Greenfield of the seven did you guys are working on is there a split between sand or more kind of granite limestone sort of assets.
But you could share.
Let me think about that I think they are all hard rock.
I can't tell you, which ones are granite and which ones are limestone, but they're they're all.
Yeah. The majority of them are our hard rock yeah that that that was fine I was really more looking for the delineation and then lastly.
I think.
Could you help us with the cadence of the EBITDA contribution coming from those.
I think you started to to answer one of the questions and and and my phone kind of cut out a little bit. So I didn't it didn't quite hear what the analysts.
Okay.
Mainly around the moving around the $40 million of EBITDA contribution you would just trying to get a a kind of a runway and I understand that the permitting process and project costs can differ but is it more ratable or is it kind of more back end loaded.
That's more back end loaded about about a third of it is you know in in our numbers for this year and you know it should you know.
Sure you can read it right through 2024 pretty much on an even basis.
Perfect. Thanks for the time and congratulations on navigating that Oh, another weather quarter.
Yeah. Thanks Stanley.
Our next question comes from Brent Thielman with D.A. Davidson. Please proceed with your question.
Hey, Thanks, good morning.
Clarification on the product side.
Yeah tracking below in terms of profit contribution is tracking below last year through this first half I guess beyond.
Whatever weather occurs.
Are you thinking that's going to reverse in the second half there's anything else on the cost side that you hold you back there.
No there really isn't we should see that you know improved through the third and fourth quarters I mean pricing.
It was quite good you know where weve costs are certainly much more stable than they were last year. So we should see an acceleration of products margins through the route the rest of the year.
Okay and Tom when you look at the split of the business today between kind of private public two thirds one third.
Given where you see the market.
Growing or funding coming from do you think you could see a 50 50 split in the business in the next few years or you just structurally different in that you would see that.
I think it'd be hard given our existing business to get to 50 50 could we get to 40% public yes, but 50 as a a stretch the only way we can get there is by acquisition I I would think.
Okay. Thank you.
[noise].
Our next question comes from fallen Mendez with JP Morgan. Please proceed with your question.
Hello, guys. Thank you so much for taking my question going back to the cement margins could you give me a little bit more color on how much of the 8 million dollar impact from flooding came from market share losses, how much came from buying third party product and how much from higher freight costs.
It's pretty hard to eight out to break that out very little market share loss.
Like as I said earlier, our team did a remarkable job of taking care of our customers.
The 8 million would be additional freight expense and also a little bit more purchase cement I don't do you have that split Brian Yes. If you look at the chart that we have on the slide deck, there youll see that of the $8 million in the first half about $4 million of it was attributed to the extended winter shutdown, we talked before about the failure of one of the major components and that cost is a number of extra days and then about 4 million.
That was flood related and the vast majority of that would have been freight costs and logistics.
Caused by the yen the disruption and the forced us to use rail and road significantly.
Great and if I could follow up.
In terms of energy prices are you seeing better comps in second half any specific.
Boost for margins coming from lower energy prices in the second half.
Not not really.
If it so it will be pretty limited.
We're we're seeing we do hedge our diesel for instance, so that was already in place.
Months ago and.
We might see it on the look well a bit on the liquid asphalt side, although liquid.
Dipped a little but not dramatically we might see a little gain on the on the asphalt side due to lower liquid asphalt, but in general I would say.
It'll be relatively immaterial either way.
Perfect. Thank you guys.
Thank you.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment, please while we poll for questions.
There are no further questions at this time I'd like to turn the call back over to Tom Hill for final closing remarks.
Thank you operator, and thanks, everyone for joining us that concludes our call.
Have a good day.
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