Martin Marietta Materials Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 1, 2023

There are 11 speakers on the call.

Operator

Good day, and welcome to Martin Marietta's Third Quarter 2023 Earnings Conference Call. Website. I will now turn the call over to your host, Ms. Jacqueline Rooker, Martin Marietta's Director of Investor Relations. Jacqueline, you may begin.

Speaker 1

Thank you. It's my pleasure to welcome you to our Q3 2023 earnings call. Joining me today are Ward Nye, session is now in a listen only mode. A question and answer session is now in a listen only mode. Jim Nickolas, Executive Vice President and Chief Financial Officer.

Speaker 1

Today's discussion may include forward looking statements as defined by United States securities laws in connection with future events, will be recorded for future operating results or financial performance. Like other businesses, Martin Marietta is subject to risks and uncertainties that could cause actual results to differ materially. We undertake no obligation, except as legally required, to publicly update will revise any forward looking statements whether resulting from new information, future developments or otherwise. Please refer to the legal disclaimers contained in today's earnings release and other public filings, which are available on both our own and the Securities and Exchange Commission's websites we have made available during this webcast and on the Investors section of our website supplemental information that summarizes our financial results and trends. Session.

Speaker 1

As a reminder, all financial and operating results discussed today are for continuing operations. Session. In addition, non GAAP measures are defined and reconciled to the most directly comparable GAAP measure in the appendix to the supplemental information as well as our filings with the SEC and are also available on our website. Ward and I will begin today's earnings call with a discussion of our operating performance and the outlook for the remainder of 2023. Jim Nicholas will then review our financial results and capital allocation, after which Ward will conclude with end market trends and our preliminary view for 2024.

Speaker 1

A question and answer session will follow. Please limit your Q and A participation to one question. I will now turn the call over to Ward.

Speaker 2

Thank you, Jack, and welcome everyone and thank you for joining today's teleconference. Martin Marietta once again delivered record results across Nearly every financial and operational measure, extending our long track record of industry leading performance and responsible profitable growth. Thanks to the dedication of our colleagues across the enterprise, we achieved a compelling milestone by exceeding $2,000,000,000 in trailing 12 month adjusted EBITDA for the first time. Our exceptional third quarter is highlighted by a 42% improvement In aggregate's gross profit per tonne despite lower shipments, further validating the benefits of our value over volume commercial strategy and our commitment to operating with excellence while meeting and exceeding our customers' needs. Importantly, While our work in continuous safety improvement is never done, I'm proud to report the company concluded our safest third quarter on record with total and lost time incident rates surpassing world class levels.

Speaker 2

While not a 3rd quarter event, It's notable that just yesterday on October 31st, we finalized the sale of our Tehachapi, California cement plant, substantially completing the planned asset sales from the 2021 Lehigh Hansen West acquisition. Consistent with our SOAR 2025 initiatives, this divestiture of a non strategic asset provides us with additional balance sheet flexibility to advance our well articulated path of quality, aggregates led growth. As detailed in today's earnings release, We raised our full year 2023 adjusted EBITDA guidance to a range of $2,050,000,000 to $2,150,000,000 session is pricing momentum will more than offset lower shipments and recently increased energy and related costs. Turning now to Martin Marietta's 3rd quarter financial performance. We established all time quarterly records across a number of areas, including Consolidated total revenues of $2,000,000,000 a 10.1 percent increase.

Speaker 2

Consolidated gross profit of is $676,000,000 a 38.6 percent increase. Earnings per diluted share from continuing operations of $6.94 a 48.6 percent increase adjusted EBITDA of $705,200,000 a 32.3% increase and aggregates gross profit per ton of $7.89 a 42.4% session increase. These results reinforce the durability of our aggregates led business, which is strategically session is situated in well curated geographies. These record results also reflect our team's focus on what we can control despite heightened geopolitical tensions and persistent macroeconomic headwinds, including growth restrictive monetary policy and continued inflation. Shifting now to our 3rd quarter shipment and pricing results.

Speaker 2

Aggregate shipments declined 7.3%. Our value over volume strategy is clearly an unapologetic component of that result as is softening demand in certain Midwest and Southwest markets, which was partially offset by continued strength in key Southeast markets. Aggregates pricing fundamentals remain very attractive with pricing increasing 20% or 17.2% on a mix adjusted basis as we continue to expect fair value for our depleting resources. Near sold out Texas cement conditions, particularly in the Dallas Fort Worth Metroplex, continue to drive strong product demand in a favorable commercial environment. 3rd quarter cement shipments of 1,100,000 tonnes reflect to last year's comparable period and pricing grew 18.9% as we continue to largely sell as much as we can produce.

Speaker 2

We expect favorable Texas cement pricing dynamics will continue and accordingly announced a $15 per ton price increase effective January 1st. Turning to our targeted downstream businesses, ready mix concrete shipments increased 3.6%, While pricing improved a solid 20.9 percent, asphalt shipments increased 5.7% and pricing increased 6.7%. Before providing our outlook for the remainder of 2023 and a preliminary view of 2024, I'll turn the call over to Jim to conclude our Q3 discussion with a review of the company's financial results. Jim?

Speaker 3

Thank you, Ward, and good morning, everyone. The Building Materials business posted record quarterly revenue of $1,920,000,000 a 10.5% increase over last year's 3rd quarter and record quarterly gross profit of $649,500,000 a year over year increase of 38.4%. Aggregates gross profit improved 32.1% relative to the prior year period to a record $440,600,000 as pricing growth more than offset lower shipments and higher production costs, underscoring the strength and effectiveness of our value over volume commercial strategy as a distinguishing hallmark to grow profitability through economic cycles. The business also achieved an aggregate gross profit margin of 36.2%, setting a new all time profitability record Despite the shipment decline, our Texas cement business also extended its track record of outstanding performance. Revenues increased 18.3% to $199,100,000 while gross profit increased 61.5 percent to $108,700,000 session.

Speaker 3

Pricing growth and lower energy costs more than offset higher raw materials and maintenance costs. Domestic production capacity constraints and robust demand continue to drive extremely tight supply, particularly in North Texas. As a reminder, Martin Arrieta has taken 2 notable steps to increase our Texas cement production capacity to capitalize on the supply demand dynamics. 1st, we've wholly converted our construction cement customers from Type 1, Type 2 cement to less carbon intensive Portland limestone cement, also known as Type 1L at both our Midlothian and Hunter, Texas plants. This conversion not only reduces our carbon footprint, also expanded our production capacity by approximately 10%.

Speaker 3

2nd, our Midlothian Texas plant is installing a new finished mill providing 450,000 tons of incremental high margin annual production capacity. This project should be fully operational in the Q3 of 2024. As previously discussed, we began utilizing the new silos to load customer trucks in July. In addition to increasing cement storage capacity by over 60 session. These silos have considerably enhanced the customer experience by reducing loadout cycle times and are saving our customers up to an hour at peak shipping times each day.

Speaker 3

Our concrete revenues increased 25.3 percent to $285,200,000 and gross profit increased 81.8 percent of $34,100,000 driven primarily by steady volume growth, pricing gains and mega project contributions, which more than offset higher upstream raw material and delivery costs. Our asphalt and paving revenues increased 14.6 percent to $359,900,000 and gross profit increased 33 percent to $66,100,000 reflecting higher selling prices and lower Benjamin costs. Magnesia Specialties revenues totaled $75,500,000 in the 3rd quarter, is in line with the prior period and gross profit increased 3.6 percent to $21,400,000 Softening demand in certain Magnesia end markets including TPO Roofing and Metal Mining was more than offset by commercial and operational excellence initiatives and energy tailwinds. We expect demand to soften due to labor unrest in the automotive sector and Magnesia end markets remaining weak in the 4th quarter session and as such have reduced our Magnesia Specialties full year gross profit guidance. During the quarter, our Board of Directors approved a 12% increase to our quarterly cash dividend paid in September, demonstrating its confidence in the durability and sustainability of our company's future growth and free cash flow generation.

Speaker 3

Our annualized cash dividend rate is now $2.96 Since our repurchase authorization announcement in February 2015, we've returned a total of $2,600,000,000 to shareholders through a combination of meaningful and stable dividends as well as share repurchases. Our net debt to EBITDA ratio was 1.8 times as of September 30, representing balance sheet strength and flexibility to responsibly grow through quality acquisitions and prudent capital investments while returning capital to Martin Marietta shareholders. To conclude my prepared remarks, I want to emphasize that the record breaking financial performance of this quarter year to date has demonstrated that disciplined execution of our value over volume commercial strategy yields higher margins, higher profits and higher cash flow without the benefit of growing volumes. With that, I'll turn the call back to Ward. Thanks,

Speaker 2

Jim. Looking ahead to the remainder of the year and into 2024, we remain confident Martin Marietta is well positioned to capitalize on session. Attractive market fundamentals across our coast to coast footprint. Specifically, infrastructure demand from increased federal and state level investments And heavy industrial projects of scale should counterbalance headwinds in the light nonresidential and historically underbuilt residential sectors, which are more sensitive to tightening credit conditions and higher for longer interest rate expectations. In the 3rd quarter, infrastructure accounted for 39% of total shipments, predictably building to a higher and more normalized portion of our overall business.

Speaker 2

The value of state and local government highway bridge and tunnel contract awards, a leading indicator for our future product demand, is meaningfully higher year over year. These infrastructure contract awards grew 18% to a record $114,000,000,000 for the 12 month period ending September 30, 2023. Collectively, we anticipate that the historic increase in public sector investment from the Infrastructure Investment and Jobs Act or IIJA, record state departments of transportation budgets and Voter approved state and local transportation ballot initiatives will provide sustained multiyear demand to this aggregates intensive, is often countercyclical end market. Aggregate shipments to the nonresidential market accounted for 33% of our 3rd quarter shipments. Session.

Speaker 2

Heavyside Energy and Manufacturing Projects of Scale continue to drive demand in this segment as warehouse and data center construction continues to moderate from the post COVID period. Construction spending for manufacturing in the United States continues to trend favorably with the August ceasing adjusted annual rate of spending for 2023 at $198,000,000,000 A 66% increase from the August 2022 value of $120,000,000,000 The Inflation Reduction Act and CHIPS Act together with significant private investments provide funding certainty for these large scale manufacturing and energy projects that we believe will be disproportionately and positively impactful in Martin Marietta markets. Importantly, we have both the ability and capacity to supply these large projects and with the successful execution of our commercial and operational excellence strategies will do so in a manner that is margin accretive. Moving to light nonresidential, While 3rd quarter shipments remained resilient, we expect the recent interest rate acceleration together with tighter commercial lending conditions may impact future demand. Session.

Speaker 2

That said, the anticipated softness in this segment should be partially offset by the extended cycle and strength of the more aggregates intensive heavy nonresidential sector. Softening in the residential end market, which accounted for 23% of aggregate shipments this quarter, is expected to continue driven by current mortgage rates, which are nearing 23 year highs at 8%, While single family housing starts, a leading indicator of aggregates demand, signaled a near term bottom and inflection point over the summer, The current higher rates are exacerbating affordability challenges and driving our revised expectations of soft demand in this end market. Nonetheless, we fully expect this current single family housing slowdown will reverse once home prices and borrowing rates find equilibrium As demand far exceeds supply across key Martin Marietta markets, the result of significant underbuilding over the last decade and homeowners' reluctance to abandon low rate mortgages. As we look to 2024, Our preliminary view anticipates aggregate shipments will be effectively flat as increased infrastructure investment coupled with robust activity from heavy non residential projects of scale should help balance expected softness in interest rate sensitive private construction end markets. We remain confident that favorable commercial dynamics underpinned by our value over volume pricing strategy will be supported by 2023 exit rates as well as the realization of our previously announced January 1, is now in 2024 price increases.

Speaker 2

Together, we expect this will drive low double digit growth in aggregates pricing of our business against a challenging macroeconomic and geopolitical backdrop. 1 of Martin Marietta's enduring qualities is our proven ability to adapt quickly session and respond effectively and durably to changing circumstances. Accordingly, we're extremely proud of our company's exceptional safety, session will be available on our website. .Comparison:] Operational and financial performance through the 1st 9 months of 2023. Moreover, our record setting third quarter performance, together with our Q4 expectations reinforce our confidence that we will deliver our full year adjusted EBITDA guidance midpoint of $2,100,000,000 an organic improvement of $500,000,000 or 31 percent over 2022.

Speaker 2

Through the disciplined execution of our strategic plan, we intend to continue driving responsible and profitable growth in 2023 and into the future.

Operator

Session. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Session. Your first question comes from Kathryn Thompson with Thompson Research Group.

Operator

Please go ahead. Hi. Thank you for taking my question today. Just following up on the value over volume, which clearly is showing through with the pricing performance quarter and throughout the year. But it can have an impact on relative market share because it's principally you're willing to give up some volume session for secure pricing.

Operator

So could you discuss how it's working and speaks what it means to relative market share and how it affects your business, not just only now, but bigger picture over the next several years? Thank you.

Speaker 2

You bet, Catherine. Thanks for the question. So several things. Can it affect degrees of tonnage going out the gate? Yes, it can.

Speaker 2

So if we're looking at the tonnage down this quarter versus the prior year quarter, probably a little bit less than half of that was due to value over volume. And by the way, we're perfectly okay with that. We've got depleting reserves. That said, on average, we've got 70 years of reserves at current extraction rates. So we've got a long lived business.

Speaker 2

But we know the reserves are worth more in the ground tomorrow than they are today. And if we're looking at really where we're seeding some share on, it tends to be lower margin products. In other words, things like base and fines. So part of what we're trying to do is we're talking with our customers to make sure that they understand really twice a year is something that we're looking at on revisiting our pricing. The other thing that's important to keep in mind relative to aggregates and this is different from some other session functions as well.

Speaker 2

It doesn't have to be a 20 fourseven business. In fact, in most of our locations, it's not. And where you've got 20 fourseven businesses, incremental volume can give a high degree of operating leverage. That's just not something with which we are encumbered in aggregates. So we shut down each evening and open up each morning and that gives us an enormous amount of flexibility.

Speaker 2

And then Probably most importantly, Catherine, when the volume does come back, and by the way, it typically does, it typically comes back at higher pricing. So You can see the math. I mean the value over volume strategy works. It protects our reserves. It protects the longevity of our business.

Speaker 2

And it's something that we've been very clear with our team is important to us. And part of what you can see in the numbers is that it's is coming through. So I hope that's responsive, Catherine. Thank you for the question.

Operator

Yes. And just one quick follow-up with the sale of the California cement asset. Could you speak to session? Just got general state of your Texas cement operations, how are inventories relative to demand? Have you seen any changes, just to think of that business as you plan for next year?

Speaker 2

Thanks for the question. As you know, When we went into cement in Texas, we said we viewed that as a strategic cement business. And my prepared comments said we sold a non strategic session in California, and we said strategic cement for us met where we're an aggregates leader, where the market is naturally vertically integrated, where we have a downstream business taking a Significant portion of it in Texas, it's about 30% and where it cannot be meaningfully interdicted by water. Our Texas cement business is very solid. And part of the reason it's solid is, it's in Dallas Fort Worth and it's in San Antonio.

Speaker 2

So it's is removed from the vicissitudes of imports largely. So what we're seeing in that marketplace and what you saw in the quarter is volumes were largely flat Because we're broadly sold out and we continue to largely sell what we're producing and part of what we're anticipating and part of what we've announced is a $15 a ton price increase for cement effective January 1. So I think session. Those data points give you a good snapshot of where Texas Aument is today.

Operator

Great. Thanks very much. Your next question comes from Trey Grooms with Stephens. Please go ahead.

Speaker 2

Thanks and good morning. Session. Hey, Trey. Hey, Ward. So maybe sticking to the pricing theme here, particularly in aggregates, If you could maybe talk through your initial 2024 aggregates pricing outlook of low double digits growth session that you've laid out and maybe unpack how much you have coming from carryover at 2023 mid year increases and how you're setting the stage for low double digits price improvement in 2024.

Speaker 2

Happy to, Trey. Thanks for that. So we're thinking about the 2024 guide similar to the way that we did the 'twenty three guide. And what I mean by that is the guide that we've given, I think this is more of the state out immediately, does not include any mid years. And again, just as we saw in 2023, we think we're going to have mid years in 2024.

Speaker 2

But right now, the guide that we've given does not assume that. So I think that's important. Secondly, as I indicated in the previous question, we think mid years are becoming more and more the norm with our customers and we think the expectations have been set. The customer letters that have gone out indicate the pricing is largely effective from January 1 to June 30. So in the correspondence that has already gone, people know that we're going to protect them through mid year.

Speaker 2

Now In fairness, there's a footnote to that. And the notable exception is California, where our pricing letters already include announced mid years so that our customers can plan for that in that marketplace. We've long talked about what we inherited when we bought the business in California and we're trying to address that. Just to be clear, California totaled 20.24 increases right now look like that's going to be about $4 a ton across all products and markets. As we continue to implement that strategy in particular in what's a relatively new marketplace for Martin Marietta.

Speaker 2

Now to your point, If we're thinking about the way carryovers are going to work, carryovers next year are probably going to be in the low single digits, so a little bit lower than they were this year. But again, we've got a lot of confidence in what we think we will come out with on January 1. And then again, if we have something that even begins to replicate what we saw at mid year next year. And frankly, there's probably some upside to that, Trey. So I think that gives you a good build on the way that we see that working in 2024 Based off exit rates in 2023.

Speaker 2

Yes. Super helpful, Ward. Thank you so much and good luck. Great. Thanks so much.

Operator

Your next question comes from Stanley Elliott with Stifel. Please go ahead. Session.

Speaker 4

Hey, good morning everyone and congratulations. Or Jim, can you guys talk about what you guys are seeing on the M and A front? I mean historically you've done a nice job Strategically expanded the footprint, leveraged the 1.8%, free cash flow cement sale even better by year end. What is the M and A market looking like these days?

Speaker 2

Stanley, thanks for the question and for the comments in the quarter. The M and A market is actually Looking increasingly attractive, the level of dialogue has amped up in the second half of this year. From my perspective, that wasn't a tremendous surprise. As you know, 2021 was a big year for M and A for us. And part of what we've been doing since then is a lot of what you session So in today's announcements relative to the sale of Tehachapi, making sure we're getting our pricing right in different markets, making sure we're getting our hands around the operations.

Speaker 2

And now as we sit here today, several things are apparent. Number 1, we're looking at a debt to EBITDA ratio of 1.8 times. So that's below our targeted range too. You can see from the financials what the cash flow in this organization looks like that can clearly help fuel and will fuel some aggregates led, frankly, from my perspective, pure aggregate transactions. And then 2 or 3, when we had the proceeds that have just come in from Tehachapi, it puts us in a very attractive place.

Speaker 2

Do I think we'll have anything to announce here in the rest of this year? Probably not. Do I hope that we'll have some things that we can announce early next year? I think that we will. So more to come on that, Stanley.

Speaker 2

But again, we like financially where we're sitting. We like strategically where we're sitting. We like what we believe or what we know we can do from a regulatory perspective because we think that's a differentiator right now. So we believe that we can continue to give you price. We believe we can continue to give you really good cost control.

Speaker 2

And we believe we can keep giving you good solid attractive M and A. And we think that's a hat trick that very few can offer today.

Speaker 4

Great, guys. Thanks so much and best of luck.

Speaker 2

Thank you, Stanley.

Operator

Your next question comes from Jerry Revich with Goldman Sachs. Please go ahead.

Speaker 5

Session. Yes. Hi. Good morning, everyone.

Speaker 3

Hi, Jerry.

Speaker 5

Hi. We're just Pulling together what you shared on your preliminary comments, double digit pricing growth, flat volumes, embedding, You call it high single digit COGS per unit growth. I mean that essentially gets you to roughly $200,000,000 of aggregate profit growth 24 versus 23, which is I think broadly consistent with the consensus growth expectations for total company EBITDA, 24 versus 23. So I know you're not providing your full 24 outlook here, but it does feel like you're giving us the pieces to session. Get the consensus EBITDA numbers with probably higher profitability and lower volumes than what folks expect session.

Speaker 5

On a bottom up basis, is that fair? And any other puts and takes that you would add?

Speaker 2

Yes. I think that's relatively fair. And if you think about it, Jerry, I think that's what we did in Q2 and I think that's what we've done in Q3. I mean, I think part of what you're seeing is The world can go through different degrees of economic turmoil and this is a business that continues to be very steady, very durable In all forms of markets, so I don't disagree at all. I'll turn it over to Jim in just a moment, so he can add if there are any particular things that he wants to make sure he calls out.

Speaker 2

But One of the things that I think is worth noting, Jerry, I mean, did energy help us this quarter? Absolutely, it did. But I think part of what's so striking to me is even if we did not have the energy tailwind that we did this quarter, we would have set new records this quarter anyway. And I think it's so important because I know what you're looking for those puts and takes, I wanted to go ahead and address that one upfront because following the quarter that was powerful, it would have been a very powerful quarter even without that. Jim, anything you want to add?

Speaker 2

Yes.

Speaker 3

No, it's just that the cost inflation continues to moderate slightly, still elevated compared to historical levels. But again, as we've demonstrated this year, we expect it to happen next year, pricing growth exceeds cost inflation. So we do expect margins to expand next year.

Speaker 5

Super. And can I ask just a follow-up, the downstream businesses you folks are executing really well this year? How much of that has Because of the helpful move in diesel and liquid asphalt versus what's sustainable in the new portfolio, particularly on the ready mix

Speaker 2

session? Yes, Terry. Thanks for the question. I would say several things. One, if you think about our ready mix business, it's almost uniquely in Texas and Arizona.

Speaker 2

And those are 2 very good markets. And one reason that they're good is look here in New York, if you look out your window, you're going to see asphalt When you get to the bridges, you'll have concrete bridges. If you're in Texas, you're riding on concrete roads and concrete bridges and you're building things structurally with concrete as well. So those markets tend to be more durable from a supply perspective because again you've got that really non cyclical or often countercyclical infrastructure market that will play so meaningfully in our ready mix business. And clearly, ASP was up 20% in ready mix.

Speaker 2

That helped a lot. But frankly, volume was up very modest. And again, Texas is 80% of our volume in ready mix. Now alternatively, if you go to HMA, give you a sense of that's going to be full year probably about 9,000,000 tons. So it's a fairly notable business.

Speaker 2

Now practically speaking, it's in 3 places. It's in Minnesota, it's up and down the Rocky Mountains and it's in California. Session And what we saw there was ASP was up 6.7% because liquid wasn't moving as much. But the fact was Q3 was an all time record of Almost 3,900,000 tons for us in asphalt. And keep in mind, asphalt is going to be about 95% crushed stone.

Speaker 2

So from our perspective, that's a very attractive business, particularly in Minnesota, whereas you recall, Jerry, it's largely an FOB business. So it's is truly a materials business for us there. And of that 9,000,000 tons, Minnesota is going to be a little bit over 3,000,000 of it. So At least those are the quick puts and takes that we've got on that. Jim, anything you want to add on that?

Speaker 2

Yes.

Speaker 3

And the option the bitumen pricing costs did help the Assalom AD business improved margins. It wasn't wholly due to that of course. But on the ready mix side, I would say it was Very, very little added from the lower energy costs. So hopefully that answers the question to just rounding out what Ward has provided.

Speaker 5

Session? It does. Thank you.

Speaker 2

Thank you, Jerry. Take care.

Operator

Your next question comes from Anthony Pettinari with Citi. Please go ahead.

Speaker 3

Good morning. Hi, Anthony.

Speaker 6

Hey, Ward, you talked about some softness in ags in the quarter in the Southwest and the Midwest, if I heard that right. And I was just wondering if you could talk a little bit more about that. Was that weather driven or maybe a specific end market. Just wondering if there's any carryover into 4Q or potential reads into 2024?

Speaker 2

Session. Thanks for the question. You had a couple of things. 1, in the Southwest, frankly, you had a lot of heat and the heat slowed some things down. And you also had some timing Relative to the large energy projects as well.

Speaker 2

So I see a lot of that being pushed off to the right. I mean clearly and it's not just the Southwest or Midwest issue. There's Some degrees of softening relative to warehousing and data centers. I mean that's not a surprise. We anticipated that.

Speaker 2

But what we are seeing is a nice renaissance relative to manufacturing and then the timing of energy. Energy is coming. Energy is not one of those issues that we have any concerns about. It's just relative to pace. So I think more than anything we had degrees Timing and we had certain degrees of softness that from my perspective were broadly anticipated.

Speaker 2

And I think that's one of the reasons that when we were giving you our results at half year, part of what we indicated to you is we thought we would probably see a near term nadir in volumes In the Q3. So if we're looking at the way Q3 worked from our perspective, Anthony, honestly, No big surprises, including the way the pull through came through and some obviously some very attractive incrementals in the quarter.

Speaker 3

Okay. That's very helpful. I'll turn it over.

Speaker 2

Thank you.

Operator

Your next question comes from Phil Ng with Jefferies. Please go ahead.

Speaker 7

Hey, guys. Congrats on a really strong quarter and obviously your price your value over session. Volume approach is showing in your results. But I'm just curious, how much line of sight do you have on your average pricing in 2024? How are your competitors behaving in this environment?

Speaker 7

Is that value over volume approach potentially a riskier volumes? The reason why I ask is because 1 of your bigger competitors calling for perhaps weaker volumes than your flattish outlook. So I just want to understand how the session. Competitive landscape is behaving on pricing.

Speaker 2

Well, the thing that we stay focused on Phil is what can we control And how do we run our business and we do that based on what our needs are. So we're very focused on Martin Marietta. We're focused on where operations We're focused on what our inventories look like. We're focused on what our reserves look like in the ground. And we're focused on what we feel like the market can bear relative to these products.

Speaker 2

So From our perspective, those are really the unique drivers on that. As I indicated before, if you're looking at volumes for the quarter, volumes down a little bit more than others. Yes, probably so. Are we okay with that? You bet.

Speaker 2

Do I feel like that's probably going to find More degrees of equilibrium going forward? I think it probably will. At the same time, if I'm looking at the geographies in which session. We tend to be focused. Let's face it, we're talking about Texas that's going to be awfully good.

Speaker 2

I mean, we're looking at our TxDOT budget for FY 'twenty four session that exceeds $18,500,000,000 I mean that's just a massive budget. In Colorado, they recently passed a $5,300,000,000 10 year infrastructure bill that's going to be massive in that state. Here in North Carolina and it was something that I'm proud to have been a part of. We structurally changed the way that we're paying for infrastructure here. Now we're using a degree of sales taxes.

Speaker 2

And in FY 'twenty four, It's going to ramp up to 4% here in North Carolina because North Carolina recognized they needed to increase their spending by over $7,000,000,000 over the next decade. But even separate and distinct from that, if we're looking at Florida right now, Florida is looking at a $17,200,000,000 budget for FY 2024 And that's an all time record. And I feel like I've said for probably the last 6 or 7 years that every year is an all time record for transportation in Florida, largely because it has been. And in California, where we brought that new business, the Caltrans budget is $20,500,000,000 next year. Now to give you a sense of it, that's a 5.5 or 5.6% year over year increase with $12,100,000,000 designated for highway and bridge capital spending.

Speaker 2

So as we're thinking about what that public funding looks like and we're coming back and looking at what's happening industrially in places like Atlanta, What's going on in South Georgia? Literally just yesterday, Toyota announced they're adding $8,000,000,000 to What is already a large battery plant that's underway in Randolph County that's just outside of Greensboro. These are the types of things that we're seeing in our markets both in public and heavy non res that gives us a lot of confidence around the way that we think volumes will work next year. And the fact is with the footprint that we have, I don't have any doubt that we're going to get Our fair share of that business. I just want to make sure that we're doing what we feel like is fair value for that business.

Speaker 7

Super. And Ward, you mentioned maybe some of the weakness recently is tied to some of these bigger projects, whether it's energy mega projects getting pushed out. Can you give us a little perspective when you see that kind of ramping up? Is that early next year, middle parts of next year? And then on the public infrastructure side, we could all Appreciate there's a lot of money coming.

Speaker 7

How do you kind of see that ramping up and building into 2024?

Speaker 2

Yes, Phil, those are great questions. I think the public infrastructure side, we're session? Where we were, we said we thought we would start to see that building in 4 and then build into 2024. When I say 4, I mean Q4 of this year. And that was part of what led us to the commentary around the fact that we thought we'd probably see this type of dip in Q3.

Speaker 2

So again, very anticipated. If we're looking for example at the large LNG projects, part of what we're seeing right now is several projects that are already underway. Golden Pass is underway. Chevron Phillips has a large facility in Orange, Texas that's underway. Port Arthur LNG, at least portions of that are underway.

Speaker 2

Cheniere has a lot that's underway. But if we look going forward, I can think of at least 4 big jobs and I think this gives you a sense from a timing perspective in Texas session that we're watching. Cheniere has another one in Cameron Paris, Louisiana. Rio Grande LNG in Brownsville and Freeport LNG in Texas. All are looking at, we believe, 2024 start dates.

Speaker 2

We're actually anticipating Some acceptance of materials maybe as soon as this week on some of those projects. So it continues to be a live conversation. So if we think about it for the year, has timing been a little bit of a headwind on those? Yes, it has. Do we think they're going away?

Speaker 2

Absolutely not. Session. And part of what we're seeing and frankly in degrees this is helpful. You've got degrees of material tightness in some of those markets and that continues to underscore at least the notion of the overall economy in Texas today. So Phil, I hope that gives you a snapshot at least on some of the heavy non res pieces of it.

Speaker 7

Appreciate the great color.

Speaker 2

You bet.

Operator

Your next question comes from Timna Tanners with Wolfe Research. Please go ahead.

Speaker 8

Yes. Hey, good morning, everyone.

Speaker 1

Hi, Timna. Session. Okay. So just 2 things I want

Speaker 8

to follow-up on. One was just appreciate

Speaker 3

the Tim, I'm sorry

Speaker 2

to interrupt you. We're having a hard time hearing you. You lean in a little bit more please?

Speaker 8

Yes. Is that better?

Speaker 2

Yes, ma'am, it is. Thank you.

Speaker 8

Okay. Sorry about that. So we're I appreciate the commentary on big projects And starting up in 2024. We have heard some delays in cost overruns. Are those not affecting your geographies perhaps as much or are you budgeting for that as well?

Speaker 2

I don't think they're affecting, number 1, our geographies that much. Session. And 2, to the extent that inflation or varying degrees of it continues to go through, session? Frankly, if we can keep up with that or stay ahead of Aetemna, it's actually been an ally to our business, not an enemy to our business. So I do think if we had a strikingly different geographic profile than we have, I would probably feel differently about it than I do.

Speaker 2

But if we go back to that conversation I was having just a little while ago relative to our leading states And the degree of both public and private activity that we're seeing in Texas and Colorado and the Carolinas and Georgia and Florida, session? Those are very powerful steady markets right now. And I'm even taken too by the continued resiliency in markets like Indiana and in Iowa as well. Iowa is a state that has been Very steady all the way through cycles for us, including probably the single most steady market in which we participated during the great financial crisis. So I just call that out because it's one of those states that doesn't come to mind immediately.

Speaker 2

If you're in New York or Chicago or Dallas or Los Angeles thinking about this industry, but it's been one that for us that's been actually quite important and very durable.

Speaker 8

Okay, helpful. And then just on the commentary on M and A, I know in the past you would have hoped to have some done by the end of this year, now talking about next is that just a timing issue? Is there anything that you can share there?

Speaker 2

It's more of a timing issue than anything else Timna. Obviously, you know what the process looks like. You're going to have dialogue with a potential company you want to acquire. You'll go through evaluation process, you might go through letters of intent, contracting and then you also have regulatory processes that you have to go through. And none of that's easy, but our team is actually very good at it.

Speaker 2

But we're going to be thoughtful as we do it. So it's not The fact that you haven't seen more done is not indicative of anything other than it's just an ordinary process. Now part of what's been different too, in fairness, We're typically not in the selling business. And we've been in the selling business for the last year and a half more than we ordinarily would be. And you've seen what we've done relative to the Reading plant in Northern California, the tax free plant in Southern California and even relative to our ready mix business In Colorado, I mean, if you think back to it between Stockton, Reading, Tehachapi And our Colorado business that we sold, that's over $1,000,000,000 worth of divestitures And that's not ordinary for us.

Speaker 2

But again, we talk about the fact that it's an aggregates led business. And when we talk about cement, we talk about a strategic cement business. So session? Some years most years we're going to be busier buying than selling. Last year and a half, we've actually had more on the sell side than on the buy side For all the right

Speaker 1

reasons. Got

Speaker 8

it. Okay. Thanks again.

Speaker 2

Thank you, Timna.

Operator

Your next question comes from Tyler Brown with Raymond James. Please go ahead.

Speaker 2

Hey, good morning. Good morning, Tyler.

Speaker 9

Hey, Ward. I want to come back to costs

Speaker 2

a little bit. So it

Speaker 9

feels like costs are they're obviously remaining fairly sticky here. You mentioned a little bit of easing. So just Where are you seeing some of that moderation? Are you seeing it in labor, consumables? Is maintenance starting to roll?

Speaker 9

Just a little

Speaker 3

bit of color there would be helpful.

Speaker 2

Sure. I'll tell you what I'll do. I'll turn to Jim and ask him to come back and give you more granularity. If you think about overall costs, I mean, have we seen Slides go up mid single digits, yes. Have repairs gone up low double digits, yes.

Speaker 2

And contract services as well. But Jim can give you a little bit more color on that.

Speaker 3

Yes. It's largely the same story as before, which is A continuing slow moderation in cost inflation still elevated versus historical levels, Slowly coming back to normal from where it was very elevated, but it still remains elevated. I would say the most problematic areas are Parts costs are still quite high. I don't see those coming down for a bit. But labor is behaving More and more normal as we go on.

Speaker 3

But otherwise, I'd say high single digits

Speaker 1

mid to

Speaker 3

high single digits is the right way to think about it. For the rest of this year, Getting a little bit better moderating next year. Again, I'm holding aside energy, which is very volatile and just holding that one aside, because we don't know where that ends up going. Does that answer your question? Yes.

Speaker 3

That's very helpful. I appreciate it.

Speaker 2

Thank you, Tyler.

Operator

Your next question comes from David MacGregor with Longbow Research. Please go ahead.

Speaker 2

Session. David, are you there?

Speaker 3

Hey, I'm here now. Sorry about that.

Speaker 2

I apologize. Congratulations on a great quarter. Thanks so much, David. Yes, I just wanted to sort of revisit the slide in your deck on Highway contract awards up 18% and get your thoughts in terms of what's changing in the lag from awards session? To storm stone demand and stone shipments.

Speaker 2

Yes. No, I think it's been Dave from my perspective a fairly Predictable curve. And I think in large measure because we went for such an extended period of time without more money coming from the federal government and a meaningful way on that. So if you think about what happened, we had a decade plus Continuing resolutions. Then we had the FAST Act that didn't have more money, but it did have more time.

Speaker 2

And so now what's happened is you've had that very attractive double whammy of, hey, here comes more money, here comes more time. And you also had DOTs who had actually been building up their own budgets For about 15 years because they weren't getting more money and more time from the federal government. So I think what we're going to see particularly in Martin Marietta States is It's not so much driven by maintenance and repair. It's going to be more driven by bringing in new capacity. And that's important for a number of reasons.

Speaker 2

Number 1, our states have had a lot of people move to them. So if we're simply looking at overall population trends, I I mean, it's pretty eye popping to think about the fact that Texas has led all the states in population gains over the past decade, adding 4,000,000 people. If we're looking at Colorado, their population has grown 14.8% just since 2010. I mean, North Carolina has been one of the fastest growing states in the country. Georgia is going to move up to number 8 in the country in population.

Speaker 2

So if you think about why these states need to add capacity As opposed to maintenance and repair, that's a big reason. And if you're thinking about what happens from a lag perspective on rather than Putting new asphalt on top of old asphalt, but rather adding a new lane or building new roads, it frankly takes a little bit longer. Now the punch line is it ends up being considerably more aggregates intensive. So for us, It's like a big birthday. It's worth the wait sometimes.

Speaker 2

So we feel like good things are coming from this, but I think that's really driving that lag that we've seen. The dollars are there and you can see where they are. You can see what the state DOT budgets are. But again, I think it's those states, Those budgets, those population inflows that are driving a different nature of construction. What we'll see in Charlotte, what we'll see in Atlanta, what we'll see in Dallas is going to be a very different story than what you'll see in New York or what you'll see in Chicago.

Speaker 2

Great. Thanks very much. Thank you, David.

Operator

Your next question comes from Michael Dudas with Vertical Research. Please go ahead.

Speaker 10

Good morning, Jacqueline, Jim, Ward. You've been terrific observations about the markets and some of the puts and takes Heading into end of this year 2024. Just wondering, it seems

Speaker 2

as you look at

Speaker 10

the residential side of the business in your important states, session. It seems we're at a is that the flywheel that could impact positively Expectations on volume, given it seems like we're at a bottom or in this kind of longer base bottom given the affordability issues. Is that kind of where test. The help could come if volumes could get better. And is that a market that you'd be able to take advantage of given your positioning and your certainly your backlog and your Ability to, sir.

Speaker 2

Yes. Look, I think the answer, Michael, is yes and yes to all of the above. It's interesting because you've got 2 issues relative to housing in the United We've talked about one of them and that is affordability and clearly seeing mortgage rates move to 23 year highs drive some of The other issue that doesn't get the airtime that it probably should, but it does in our states is availability. And that's a big issue today. And Single family housing in the U.

Speaker 2

S. Is structurally under built. I mean, it's a practical matter. It ought to be trending comfortably over 1,000,000 starts a year, At least as we drill it down to the markets in which most of our business is, because again we're back to those population trends that I mentioned in the dialogue with Dave McGregor just few minutes ago, if you come to Raleigh, your biggest issue is can you find a house, same issue in Charlotte, same issue in Atlanta. In varying degrees, the same issues in Dallas Fort Worth and in Colorado today.

Speaker 2

So to the extent that there could be some upside there, could it be single family housing driven? I think so. And for example, several things are happening. Are homebuilders looking at having their own mortgage companies within homebuilding companies? They are.

Speaker 2

Are they doing that because they want to keep building? They do. Do they want to keep building because they know the market is there? Absolutely. And in some instances, are they building and basically building to rent even in the near term because they recognize that they can do that.

Speaker 2

So I think your point around a swing factor on housing is important. And I think it's relevant to say keep in mind single family housing is 2 to 3 times More aggregates intensive than is multifamily. So if you're watching housing, look, is it nice to see multifamily go? Yes. Is it really nice Single family go, the answer is yes.

Speaker 2

But I think what we've just described is worth watching and could be a build in 2024. And I hope that helps, Michael.

Speaker 10

Session? It sure does. Excellent, Ward. Thank you.

Speaker 3

You bet.

Operator

Your next question comes from Adam Thalmer with Thompson Davis, please go ahead.

Speaker 7

Hey, good morning, guys. Great quarter.

Speaker 2

Adam, Ben.

Speaker 7

Two quick questions. It's Two quick questions. One, where do you want us for Q4? Because the range is pretty wide. I'm just curious if we wanted to bake session?

Speaker 7

An early onset to winter, where would that put us? And then the second question is, do you ever see yourself recreating what you've built session? Texas and other geographies.

Speaker 2

Well, that's too big questions for a guy late on the call today, Adam. Session? A couple of things. I'll take the second part of that. I'll leave the first part to Jeff.

Speaker 2

Texas is a tremendous market. And when we bought TXI and when we've done some of the moves that we've made in Texas since then, frankly, we thought it was going to be that kind of a market. Session. But at the same time, we're in some other markets today that are enormously attractive. Do we think we can do some very Great things in California.

Speaker 2

Yes, I think we can. Can we continue to grow our business in places like Florida and Still in Texas and in Tennessee and others. The short answer is yes. But one thing I think so important for me to say Adam is you should expect us continue to be an aggregates led company. And I think that part of what is so evident in these numbers is again how durable that is.

Speaker 2

Now with respect to Q4, I'll pivot over to Jim and he can talk to you a little bit more about how we see some puts and takes on that. But session? Frankly, a lot of it is going to be driven by when does winter show up in different parts of our business. So Jim?

Speaker 3

Yes. So Q4, I would say, look, generally speaking, look at the midpoint of whatever we put out that sort of the best way to think about it. What could push it to the bottom end? Ward mentioned that obviously bad weather, rainy weather in Texas, early winter in the north parts of our footprint. And then of course there's big costs, Timing some shifts.

Speaker 3

There's nothing fundamentally happening that's sort of troubling. Session. Cost could shift from 1 quarter to the next causing volatility. If those slipped into Q1, that would help Q4. If they don't, that would hurt Q4.

Speaker 3

So I think I'd just stick with the midpoint for now, Adam, and go with that.

Speaker 7

Great. Thanks, guys.

Speaker 2

Thank you, Adam.

Speaker 1

There are

Operator

no further questions at this time. Please proceed.

Speaker 2

Thank you again for joining today's earnings conference call. To conclude, our strong Q3 results underscore the resiliency and secular durability of our aggregates led business model through various business cycles. Our focus remains on building the world's safest, most resilient and best performing aggregates led public company for the benefit of our shareholders, customers, employees and other stakeholders. Thanks to the disciplined execution of SOAR and the fidelity of our teams to safety, commercial and operational excellence, Martin Marietta is poised to continue delivering sustainable growth and superior shareholder value in 2024 and beyond. We look forward to sharing our Q4 and full year 'twenty three results with you in February.

Speaker 2

As always, we're available for any follow-up questions. Thank you for your time and continued support of Martin Marietta.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

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Earnings Conference Call
Martin Marietta Materials Q3 2023
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