Martin Marietta Materials, Inc.

Good morning, ladies and gentlemen, and welcome to Martin Marietta's fourth quarter and full year 2019 earnings conference call. All participants are currently in a listen-only mode. A question-answer session will follow the company's prepared remarks. As a reminder, today's call is being recorded. I will now turn the call over to your host, Ms. Suzanne Osberg, Vice President of Investor Relations for Martin Marietta. Ms. Osberg, you may begin.

Good morning and thank you for joining Martin Marietta's fourth quarter and full year 2019 earnings call. With me today are Ward Nye, Chairman and Chief Executive Officer, and Jim Nicholas, Senior Vice President and Chief Financial Officer. To facilitate today's call, we have made available during this webcast and on the investor relations section of our website, 2019 supplemental information that summarizes our financial results and trends. As detailed on slide two, This conference call may include forward-looking statements as defined by securities laws in connection with future events, future operating results, or financial performance. Like other businesses, we are subject to risks and uncertainties that could cause actual results to differ materially. Except as legally required, we undertake no obligation to publicly update or revise any forward-looking statements whether resulting from new information, future developments, or otherwise. We refer you to the legal disclaimers contained in today's earnings release and other filings with the Securities and Exchange Commission, which are available on both our own and the SEC websites. Unless otherwise noted, all financial and operating results discussed today are for the full year 2019. Any comparisons are versus the prior year. Furthermore, non-GAAP measures are defined and reconciled to the nearest GAAP measure in our 2019 supplemental information and SEC filings. We will begin today's earnings call with Ward 9, who initially will discuss our full year operating performance. Jim Nicholas will then review our 2019 financial results, after which Ward will discuss market trends and 2020 expectations. A question and answer session will follow. I will now turn the call over to Ward.

Thank you, Suzanne, and thank you all for joining today's teleconference. Martin Marietta marked 25 years as a public company in 2019. Throughout our history, we positioned our business to outperform through the disciplined execution of a proven strategy, and our team shared commitment to the world-class attributes of our business, including safety, ethics, cost discipline, and operational excellence. Today's reported results clearly validate the importance of these strategic priorities. As Suzanne noted, today's discussion will appropriately focus on full-year results. However, as you read in our earnings release, we reported a much improved year-over-year fourth quarter that capped off a 12-month period of record-setting financial performance. In 2019, we once again established new records for revenues, profits, and adjusted EBITDA from improved shipments, pricing, and cost management across most of our building materials business. For the year, consolidated total revenues increased 12% to $4.7 billion. Consolidated gross profit increased 22% to $1.2 billion. Adjusted earnings before interest, taxes, depreciation, depletion, and amortization, or adjusted EBITDA, increased 15% to nearly $1.3 billion, and diluted earnings per share was $9.74, a 31% improvement. Our 2019 results marked the eighth consecutive year of growth in these financial metrics. Martin Marietta's ability to repeatedly translate revenue growth into increased profitability has been and continues to be a differentiator. Our strong earnings growth drove a total shareholder return of 64% in 2019, more than double the S&P 500, and strong outperformance relative to most of our sector. For those who have long followed Martin Marietta, you know our passion is operating our business safely. Safety is the core principle and the foundation of our strong financial performance. We're proud to have achieved world-class lost-time instant rate levels company-wide for the third consecutive year. Additionally, we've meaningfully improved safety performance at our legacy bluegrass materials operations acquired in 2018, our company's second-largest acquisition. From the boardroom to site operations, our teams have embraced our guardian angel and wingman-branded safety culture. This continued commitment has elevated safety awareness across the company, reducing downtime from workplace incidents and leading to higher revenues and profitability. Most importantly, working safely protects our employees and the more than 400 communities in which we live and work. Now let's take a deeper dive into the full-year operating performance for each of our product offerings. Aggregate shipments increased 12%, to 191 million tons, exceeding our original 2019 guidance for volume growth of 6 to 8 percent. These shipment levels benefited from solid underlying product demand, together with carryover work from an extraordinarily wet 2018. Notably, for the first time in four years, aggregate shipments to all three primary end-use markets increased, reflecting improved strength in public and private sector spending in our markets. Aggregate pricing improved 4 percent in line with our expectations. Importantly, all divisions contributed to this solid growth, a testament to the strength of our markets and the disciplined execution of our locally driven pricing strategy. We expect these dynamics, combined with recent positive industry trends, to support ongoing pricing momentum. Our cement operations established new four-year records for volumes and gross profits Shipments increased 10 percent to nearly 3.9 million tons, driven by robust Texas demand, 2018 weather-deferred projects, and an expanded distribution terminal footprint. Cement pricing improved 3 percent, consistent with our expectations. We expect our cement operations will continue to benefit from tight supply and healthy demand in Texas, supported by growing customer backlogs and our April 2020 price increases. Now, turning to our downstream businesses, despite solid fourth-quarter volume improvement, our full-year ready-mix concrete shipments decreased 2 percent. Our Southwest and Rocky Mountain divisions were unable to completely overcome weather challenges that intermittently hindered construction activity throughout the year. Average selling price increased modestly with solid gains in Colorado, partially offset by strategic customer segmentation that limited pricing improvements in Texas. Our Colorado asphalt and paving business enjoyed strong customer backlogs, a notable portion of which have been deferred into 2020. That said, shipments and pricing improved 7.5 percent and nearly 4 percent, respectively. Now, I'll turn the call over to Jim to discuss more specifically our full-year financial results. Jim?

Thank you, Ward. The building materials business achieved record products and services revenues of $4.2 billion a 12 percent increase, and record product gross profit of $1.1 billion, a 26 percent increase. Full-year aggregates product gross margin increased 360 basis points to 29.3 percent, driven by pricing gains and improved operating leverage from increased shipment and production levels. We also benefited from the absence of the negative impact from selling acquired inventory burdened by acquisition accounting in 2018 as part of the Bluegrass transaction. However, following months of robust shipment levels, we incurred higher late-year costs for contract services, repairs, and supplies to better prepare ourselves for future production needs. These costs negatively impacted our incremental margin, as did the disproportionately strong growth in long-haul distribution revenues, which have a lower margin than local or truck-served quarry revenues. Long-haul revenues grew at roughly double the rate of quarry revenues. I am pleased to report that gross profit per ton increased for both the long haul and local quarry operations. Our cement operations established all-time records for product revenues and gross profit. Product revenues increased 13% to $439 million, driven by volume and pricing growth. Notably, gross profit increased 14% to $143 million, even after accelerating $6 million of planned maintenance outage activities at our Hunter cement plant during the fourth quarter 2019. Revenue growth, coupled with production efficiencies from increased shipment and production levels, more than offset the higher maintenance costs, as product gross margin improved 20 basis points to 32.7 percent. Product revenues for the ready-mix concrete business decreased less than 2 percent. Despite lower revenues, gross margin expanded 60 basis points reflecting the benefits of our 2018 restructuring of the company's Southwest Ready Mix Concrete business. Magnesia Specialties product revenues decreased 7% to $250 million as chemicals and lime customers reduced inventory levels to align with the slowing demand trends experienced during the back half of the year. Our lime business was negatively impacted by the General Motors work stoppages in September and October. as steel manufacturers pull back on demand for the fluxing agent products we provide. We anticipate these current trends to be short-term in nature. Impressively, product gross margin actually improved 150 basis points to 39.8% as the business proactively responded with effective cost control measures. We ended 2019 with the strongest cash generation in our history. Operating cash flow of $966 million increased over 2018, driven by double-digit earnings growth and lower contributions to our already well-funded, qualified defined benefit pension plan. Martin Marietta continues to balance its long-standing disciplined capital allocation priorities to further enhance shareholder value and maintain financial flexibility. Our priorities remain value-enhancing acquisitions, prudent organic capital investment, and the opportunistic return of capital to shareholders through dividends, and shared purchases, all while maintaining our investment-grade credit rating profile. In 2019, we deployed $394 million of capital into our business and returned $228 million to shareholders through both an increased dividend and the repurchase of 416,000 shares of our common stock. Since the announcement of our share repurchase program in February 2015, we've returned more than $1.6 billion to shareholders. while at the same time growing our business profitably and responsibly. We also reduced debt by $350 million in 2019. Strong earnings growth and higher debt repayments allowed the company to return, as we said we would, to our target leverage ratio of 2 to 2.5 times. With that, I will turn the call back over to Ward to discuss our 2020 outlook.

Thanks, Jim. We're excited to build on our momentum in 2020 and beyond by capitalizing on attractive fundamentals that support sustainable and long-term construction growth. This underscores the importance of the notion we have long articulated, where you are matters. We have thoughtfully executed on our strategic analysis and operating review, known internally as SOAR, to position our business through aggregates-led expansion in high-growth megaregions. These mega-regions exhibit attractive market fundamentals, including population growth, business and employment diversity, and superior state fiscal position. Notably, Texas, North Carolina, Georgia, and Florida will account for nearly half of our nation's population growth between now and 2040. That's a staggering statistic in four of our top ten states by revenues. These states are experiencing and will likely continue to experience a significant influx of people requiring homes, schools, offices, restaurants, and roads. In short, population growth will drive increased consumption of Heaviside building materials in key Martin Marietta served markets for the next two decades. With that in mind, we're confident that construction activity in our top ten states will continue to outpace growth nationwide. The combination of strong infrastructure funding levels and healthy private sector activity is expected to drive both increased shipments and better pricing, resulting in record profitability for our company in 2020. The infrastructure market is our most aggregates-intensive end-use, but represented only 35% of our aggregate shipments in 2019, well below the company's most recent 10-year average of 45%. In 2020, We anticipate infrastructure shipments to meaningfully grow, driven by lettings and contract awards in our key geographies, strong state and federal funding levels, and proposed regulatory reform that, if approved, will reduce the permitting burden of large transportation projects. States continue to play an expanded role in infrastructure investment, which bodes well for Martin Marietta, as we have intentionally positioned our business in states with superior Department of Transportation programs. In Texas, our largest state by revenues, the DOT expects nearly $22 billion of construction contracts through fiscal year 2021 as part of its 10-year, $77 billion unified transportation program. Construction growth in Texas will benefit further from large-scale design-build projects in and around Dallas-Fort Worth. North Carolina, our third largest state by revenues, has an attractive overall fiscal position In fact, the state's treasury is very well funded in 2020 as tax collections continue to exceed projections. That said, we anticipate modest but transitory headwinds in road maintenance spending through the first half of 2020 as North Carolina DOT works through some temporary cash flow issues. More broadly, we expect incremental funding at the state and local levels to continue expanding at faster near-term rates than federal funding, which will lead to additional growth opportunities for our company. Voters approved 89 percent of state and local transportation initiatives on the November 2019 ballot, providing nearly $10 billion of targeted transportation funding across the nation. Of this total, 80 percent was approved for transportation initiatives in our key states of Texas, Colorado, North Carolina, and Georgia. Rebuilding our nation's infrastructure remains a national strategic priority, one that tends to enjoy bipartisan support in Washington. The expected enactment of a comprehensive federal infrastructure package to replace the Fixing America's Surface Transportation Act, or FAST Act, will drive multi-year infrastructure growth. Notable progress is being made on this front. In July 2019, the Senate Committee on Environment and Public Works issued America's Transportation Infrastructure Act. a draft highway authorization bill. The draft proposes $287 billion in federal highway funding over the next five years, a 28% increase over previous authorization's funding levels. Also, in late January, the House Committee on Transportation and Infrastructure unveiled the Moving Forward Framework, which includes $319 billion over five years for federal highway spending, a 41% increase. The President at last week's State of the Union Address endorsed the Senate's bill, urging Congress to pass infrastructure legislation. Legislative emphasis will now turn towards assuring a sustainable funding mechanism, and we're optimistic one will ultimately be agreed upon. Nonetheless, we're entering 2020 with the perspective that a successor bill is unlikely to be passed before the November 2020 election. We fully expect congressional continuing resolutions to maintain federal transportation funding at a minimum at status quo levels for any interim period following the FAST Act September 2020 expiration. We're confident that states have the necessary visibility and resources to advance planned and future construction projects, particularly in our key states, which tend to be less dependent on federal support for highway projects. Non-residential shipments, which accounted for 36% of our 2019 aggregate shipments, are at higher levels on a percentage basis than we have historically experienced. Nonetheless, we expect another year of healthy commercial activity in 2020, supported by projects for data centers, warehouses, distribution centers, and corporate relocations. Remember, we have purposefully positioned our business along major interstate growth corridors where land is readily available for the construction of these fulfillment and data centers. Additionally, the recent upward movements in the architectural billings and Dodge Momentum indices support a sustainable commercial construction outlook. Within the industrial sector, heavy building materials consumption should benefit from the incoming wave of large energy sector projects over the next several years, particularly along the Texas Gulf Coast. Construction activity on four projects is expected to begin in earnest in 2020 and continue for several years thereafter. Martin Marietta is well positioned to supply the aggregates, cement, and ready-mix concrete needs for these multi-year energy projects. Residential construction represented 22 percent of our 2019 aggregate shipments. While this end use is outperformed relative to the overall construction market, we expect continued gains across our leading southeastern and southwestern geographic footprint. Permit growth, which in our view is the best indicator of future housing construction activity for Martin Marietta, continues to be solid for single-family and multi-family housing units in our top 10 states. Keep in mind, multi-family construction generally begins early in an economic cycle and then transitions to more aggregates-intensive single-family construction. Healthy multifamily bodes well for continued residential growth across our footprint. Even more compelling, as previously mentioned, Texas, North Carolina, Georgia, and Florida, four of our top ten states, will account for nearly 50 percent of the country's total population growth over the next two decades as people migrate to areas with attractive employment opportunities, land availability, in overall business and tax-friendly environments. Importantly, notable population growth drives increased housing demand, which also supports future non-residential and infrastructure activity. In summary, we expect aggregate shipments to increase 2 to 4 percent in 2020, reflecting growth in all three primary construction end uses and notable upside in the infrastructure market. From a cadence perspective, shipment growth is expected to be weighted toward the second half of the year, given a strong first-half comparison and transient North Carolina DOT headlines. Annual price increases, which become effective from January 1 to April 1, have already garnered market support, most importantly in Texas, the Carolinas, and Southeast. To that end, we expect aggregates pricing to increase in a range of 4 to 6 percent. Combined with contributions from our cement, downstream, and magnesia specialties businesses on a consolidated basis, we expect total revenues of $4,875,000,000 to $5,075,000,000 and EBITDA of $1,348,000,000 to $1,453,000,000. To conclude, we're proud of our 2019 record financial results and industry-leading safety performance. We're equally optimistic about the future of Martin Marietta. As we move forward, Martin Marietta remains committed to positioning our business to be aggregates-led in high-growth geographies and aligning our product offerings to leverage strategic cement and targeted downstream opportunities. We will continue to be disciplined in our solid strategic plan and our team's commitment to the world-class attributes of our business, safety, ethics, cost discipline, and operational excellence. We look forward to continuing our strong momentum in 2020 and further strengthening our foundation for long-term success. If the operator will now provide the required instructions, we will turn our attention to addressing your questions.

Thank you. As a reminder, to ask a question, please press star then 1 on your touch-tone telephone. To withdraw your question, please press the pound key. In the interest of time, we ask that you ask one question and one follow-up. Any additional questions, please re-enter the queue. Our first question comes from Trey Grooms of Stevens. Your line is now open.

Okay. Thank you very much. Good morning.

Hi, Trey.

So, first off, thanks for all the detail, you know, that you gave us around the 2020 guide. And you guys are obviously facing a more difficult volume comp. And as you look at your volume assumption of, you know, kind of up 2% to 4%, I know you mentioned, you know, shipments might be towards the second half of the year there, but more specifically, you know, what are you seeing in your backlogs or what are you hearing from your customers that give you confidence in that 2% to 4% range, you know, despite the pretty tough comps you guys are facing?

No, Trey, that's a great question. Thank you for that. I mean, here's the quick tale of the tape. I mean, if we go down, I can tell you mid-Atlantic backlogs for our customers are up. If we look at Midwest that just had a killer year last year from a volume perspective, theirs are flat. If we look at Mideast, they're up. Southwest is up. Cement is up. And Rocky Mountain is up. I mean, the Rockies, really, it was an interesting trade because they had a 2019 that felt like 2018 did, I think, for much of the industry from a weather perspective. So as we're looking across our footprint and looking at most of our divisions, what I'll tell you is their backlogs in speaking to their customers actually look as good or better going into 20 than they did going into 19. And to your point, that's the primary driver that gives us the confidence in the volume prediction that we've put out so far today. We feel very comfortable with that.

Gotcha. Thank you. I guess for my follow-up, you know, the infrastructure in market in the 4Q was down slightly, you noted, in the press release. And I know there can be some delays and things like that, and we're aware of the short-term situation going on in North Carolina. But can you go into more detail about the public side, you know, what you saw in the quarter? And is that something that gives you any concern at all as you look into 2020?

Actually, Trey does not. What I would say is there were primarily two issues that I would call out. Clearly, there were some permitting delays in Georgia that slowed down two projects. Those were resolved. And really, you had some weather issues that drove some activity or lack of activity in Colorado. If we pause and look at it more broadly, here's what I'll tell you. If you look in Texas, you're looking at a letting schedule of $7.7 billion, which is very much in their sweet spot. I think they'll be very good with that. What's striking is if you look forward to 2021, it's a $14.1 billion placeholder right now. So those are huge dollars for this year and going into next because you'll see even more design build. Keep in mind we're going to start to benefit from the major mobility program in Georgia as well. They're going to come out with $12 billion of new projects to reduce congestion primarily around the Atlanta metro area where in a post-bluegrass world we have a much more significant footprint. Even in North Carolina, the fact is the state is in very, very good condition. If we look overall at the lettings that they've had over the last several years, they put us actually in a very attractive place, particularly in eastern North Carolina. I think the only thing that may happen for a period of months is we may see modestly less maintenance spend. But equally, if we look at Colorado DOT, and again, hitting these really hit our top leading states from an infrastructure perspective. The surface treatment budget is up significantly. It's up $84 million to $303 million. And the capital construction budget remained steady to last year when they were actually hit with pretty notable weather circumstances. So if we look at our states by revenue, number one, Texas, it looks really good. Number two, Colorado, it looks really good. North Carolina looks strong, actually. We're going to have some delays early. Georgia looks good. And Florida continues to have a budget in the $10 billion range. Again, when we're looking at numbers like that on the public side and we see what we think is coming, it gives us a lot of conviction around that biggest single part of our business trend. Okay. Well, that's encouraging. I'll pass it on, and thanks for taking my questions, Warden. You bet. Take care.

Thank you. And our next question comes from Catherine Thompson of Thompson Research Group. Your line is now open.

Hi, thank you for taking my questions today. First on pricing, if you could just give thoughts on trends in pricing and more in particular, how do you feel going into 2020 in terms of how the landscape sets up and how is this relative to last year? And if you could really look at it in terms of product line, that would be helpful. Thank you.

Sure, Catherine. A couple of things. One, pricing in the quarter actually looked quite good. It was up over 5%. Now, as Jim mentioned in his portion of the prepared comments, some of that was driven by the fact that we simply had more long haul in the quarter. Our rail business was actually up considerably. If you normalize volume, pricing would have been up a little bit over 4% for the quarter, which, again, is very much in keeping with where we thought. And, again, I think you can look at Q4 from a volume and pricing perspective and get some kind of play on how things are going to be as we start going into 2020. I think we're seeing a better price environment in aggregates than we've seen for a while, across our entire footprint. I know we're seeing a better pricing environment in cement than we've seen since we've owned those assets in Texas. So if we're looking at that pricing environment in particular, Katherine, You may recall that we had announced an $8 a ton price increase effective April 1. It looks like most of the rest of the market is there. There's one player that's actually come in, as we understand it, with a letter that has it at $9.50 a ton. So, again, we feel very good about where that is. Equally, if we look at the downstream businesses, I think we'll continue to see price increases for ready-mix concrete in the range of $6 to $8 per cubic yard. That's probably not a bad bogey for you to keep in mind in both Colorado and Texas right now. And keep in mind, part of what we called out in our prepared commentary is we had some segment changes modestly in concrete that actually gave us an optical headwind on pricing because we've made more of a play in Texas in particular to the housing market because we think that's actually more resilient to weather. So as you recall, coming into 19, we had said we were planning for a wetter than usual year, and that dictated some degree of the shift that we had in the way that we were lining up end uses as well. I hope that's responsive to your question.

Yes, it's very helpful. Then my second question really ties in the current quarter with your outlook. The current quarter is really with the puts and takes for the margin drag. with the aggregate segments and help us understanding more what's one time in nature versus ongoing, and kind of tying into that really into the 2020 outlook, as you mentioned, the long-haul volumes in the quarter were an impact, stripping costs were a Colorado impact. But in terms of the long-haul volumes, how do we think about that cadence going forward? In other words, is this more just a unique event in Q4, or is this something expected in 2020? 2020 and really kind of pulling it all together, help us understand kind of that aggregate backwards and then what it means going forward.

Sure. I'll do my best with that. That's a lot. Catherine, here's what I would say. When I was speaking to Q4 saying look at that as a prelude, I was really talking more about pricing and more about volume in that context. So here's what I would say with respect to the quarter itself. There were some very specific one-offs in the quarter that I think you need to keep in mind. One, we did have some catch-up on grading, and Jim referenced that, so let's call that $7.5 million, $8 million. We actually did bring some maintenance at our Hunter cement kiln forward during the quarter because part of what we're aiming for and what we feel like is going to be a very good year in cement is a higher degree of efficiency, and we feel like we positioned ourselves in Q4 for that. With respect to the Rocky Mountains, we had one capital project in Wyoming, and we're basically putting a new plant in at Granite Canyon because that's going to help us feed the northern Colorado market long-term into sales yards as we see aggregate depletion plays for the industry occurring in northern Colorado. That project finished several months later than we had planned, which is now finished. But between that project finishing later and weather being considerably different in Q4 in Colorado, that helped drive part of the difference that we see there. Just to give you some metrics around that, I think this is important for the quarter. If we're looking at Colorado all by itself, asphalt and paving had 57 percent more weather-impacted days in Q4. And by the way, they had 30 percent more full-year impacted days. So it gives you much clearer visibility into 2020. And then the last piece that I would call out is what we mentioned in the southeast. We had those two delays on projects on public works in and around Atlanta. And then as you recall, when Hurricane Dorian stopped over the Bahamas last year, we have an operation, as you may recall, in Freeport. And we were unable to take one boatload of stone out of Freeport that we otherwise would have in Q4. So really, if you look at the catch-up on grading, the item on cement that I mentioned earlier, issues relative to Rocky Mountain and weather and the capital project that's now been resolved, and those two issues in the southeast, that's your bridge in Q4. So as we look at the way Q4 lined up from that perspective. Now, the other part of your question, I think, was really relative to the margins. And what I'll say in that regard is that if we look at what happened in the quarter relative to rail volumes, they increased 20%. Now, remember, I view that as good in more ways than not. I like the fact that we're seeing the rail yards in that expanded network see the volume go through. But as you'll also recall, the margins that we get at the rail yards are not as attractive as the margins we get at truck-served quarries. So you had a modest mixed impact on that, and that was really the driver on what you saw on a change in margin. Now, as we think about what it's going to look like going into 2020, and I think that was the last piece of your question, we're anticipating we're going to see really in 2020 about the same degree of long-haul shipments that we saw in 2019. And to give you a sense of it, that was probably up over 4 million tons on long haul in 2019. So again, we're looking for what we feel like is going to be an attractive 2019, but we don't think we're going to see that type of shift relative to the other mix. Catherine, tell me if I hit the issues that you wanted me to address.

Yes, and really kind of the point is this is kind of a one-timer and how should we think about the cadence going forward. So that did answer my question. Thank you very much.

Okay, very good. Thank you.

Thank you. And our next question comes from Bill Nye, Jefferies. Your line is now open.

Hey, guys. Hi, Bill. Morning. Is there a good way to think about the impact on volumes in your agri-business to start the year with that short-term dynamic you called out in North Carolina? and embed it in your four-year guide. How are you thinking about weather this year and any other bottlenecks like labor and transportation?

You know, what I would say, Phil, is this. We're, again, in a wetter-than-usual year, and that's what we did last year as well. So we're taking the same approach to weather, saying let's plan for it to be wetter. So that's what you see in those numbers. I think with respect to North Carolina, As we said in the prepared remarks, we view that as wholly transitory. I think you might see some issues, but I think they're going to be modest in the first half of the year. It may be somewhere in the half a million to a million tons all-in worst-case scenario, Phil, if you're trying to look at it that way. But my guess is we're going to see that made up in some private work in the state, so it's something... that we wanted to make sure we spoke up, but it's not something that we're seeing as disruptive to the overall business. I think importantly on the last part of your question, and that was relative to what we see going on with contractors, supply chain, et cetera, I think trucking has clearly gotten better over the last couple of years. I think contractors could still use more labor than they entirely have. So I actually think contract labor served as a little bit of a governor on what growth was in 2019. I think I'd be foolish to say it wouldn't be some modest governor going into 20, but I do think labor has gotten better over time, in part going back to the commentary that we offered last year, and that was consistent with the notion that contractors were willing to pay more to get labor because they see an emerging public side work coming, and the penalties for not completing public work in a timely manner tend to be pretty notable. So I don't think you can totally dismiss it. I think they are issues. I think they are issues that are getting better. Is that responsive, Phil?

Yeah, that's really helpful. And in Ward, I mean, I think you guys have done an excellent job kind of highlighting your backlogs for the public side. But, you know, public builders have obviously reported pretty strong orders, double-digit increases. Just curious, have you seen that uptick in your business? And what's the typical lag from orders or starts onto your demand?

You know, well, it can vary a lot depending on the jobs. because you can certainly get orders. And then on occasion, just as we saw in North Georgia, you can see some permitting delays that may tie into environmental or other issues. So it can be anywhere from two months to six months, Phil. And again, there can be some noise around both of those. But I do think what we're seeing relative to public is a much healthier 20 than we've seen over the last several years.

Okay. That's helpful. And just one last one for me, Ward. I couldn't help Appreciate some of the commentary you said about Texas cement. It sounds like you're feeling a lot more upbeat about the pricing environment. What's embedded in your guidance and any early green shoots or read on the competitive landscape and how guys are behaving in that market? Thanks a lot.

Hey, you're welcome. Look, from what we can tell, obviously, we've come out with our price increase letter that was $8 effective April 20. From what we hear from From our customers in the marketplace, I think most others have come out with prices that sound like they're in that same range. I think there's one that has come out with a letter that's even in excess of that. But that's certainly what we're looking at, and it's something that going into the year we've got nice conviction around. Okay. Thanks a lot. You bet.

Thank you. And our next question comes from Anthony of City Group. Your line is now open.

Good morning.

Good morning, Anthony, and welcome to the call.

We're delighted to have you. Thank you, Ward. Thank you. Just following up on Phil's question on cement, you know, volumes were up double digits for another quarter, and I think you just talked about pricing expectations or the pricing opportunity. With regards to volume expectations, I think you referenced cement being up, but is it possible that we could see another strong quarter in one Q for volumes that's maybe comparable to what we saw in 4Q and 3Q?

One thing I try to stay away from is talking too much about the quarter that we're in the middle of, because if we ever talk about it one quarter and it was great, then we don't talk about it the next. You're almost indicating one way or the other. What I'll say is this. I think everything that we see in Dallas and Fort Worth and in San Antonio, and keep in mind that's where our two cement plants are, is a very healthy marketplace. We talked a little bit earlier in the call about what DOT budgets look like there. At the same time, if we come back and take a look at what residential looks like at that marketplace, I mean, it's really very, very attractive. Texas and Florida continue to be, for example, in the top ten for total permits. DFW has been leading the nation for a while in single-family and in multifamily. And what you wouldn't expect is to still see multifamily so strongly. this deep into a recovery, which tells us what we've long said, Anthony, and that is this has really not been a building-led recovery yet. So I think as we're looking at our cement business, we think it's going to be very busy this year. We think Texas is going to be a great place to be from a volume perspective and a profit perspective. The one thing I would say to you is we're going to be particularly focused this year on enhancing our efficiencies. If we can get efficiency levels at the levels that we believe are perfectly attainable in at both Midlothian and Hunter, and we can have a very special year in cement this year.

Okay, that's very helpful. And then, Ward, I was wondering if you could talk maybe broadly about how the M&A landscape looks here, especially in aggregates and some of these higher growth states that you're targeting. I guess it's almost been two years since Bluegrass, and you've leveraged quite successfully here.

Yeah, we have. We brought that leverage down very quickly, and as Jim said, as we said we would. But we're involved in a steady diet of conversations on M&A. And part of what we're doing, as you've heard us say before, we're an aggregates-led business. And that is what is going to drive our ability to grow the business the way that we would like to going forward. I also believe that two things. One, we have a very healthy balance sheet. Number two, we've got regulatory capacity, I think, in attractive markets today that others don't. What that means is you can expect us on the right deal to make sure that we get the right deals. At the same time, you should expect us to be very disciplined around transactions that, from a Martin Marietta perspective, don't fit what we want to do. And I think if you go back and take a look at what we did with TXI, what we did with Bluegrass, and what we've done with some of the tuck-in transactions we've done in Colorado in the aftermath of our River for the Rockies transaction, That is an area in which we are very, very disciplined, but I will tell you, very, very busy right now.

Okay, that's helpful. I'll turn it over.

Thank you, Anthony.

Thank you. And our next question comes from Jerry Reavich of Goldman Sachs. Your line is now open.

Yes, hi. Good morning, everyone. Hi, Jerry. I'm wondering if you could talk about your demand expectations for quarry-served markets versus rail-served markets. For 20, should we be looking for the mixed dynamic that we saw play out in the fourth quarter, continuing at least on a year-over-year basis through part of 20?

Jerry, I think what we anticipated is what we saw for the full year on rail should remain relatively static. So again, there was disproportionate growth on the rail side in 19. We think we'll see that pretty steady in 20, and we think we'll see more coming out of the truck surge. So, if you recall, Jerry, coming into 19, we had actually said we thought you'd see incremental margins in the aggregates business of around 55 percent, but we did not anticipate as strong a rail yard year as we did, which brought that down just modestly. If you take a look at what incrementals look like for the aggregates business going into 20, you'll see that we're planning for that 60% number as opposed to the 55% that we planned for last year. So I think the dialogue around really thinking more or less flat rail 19 into 20 is and then also going back and giving you that snapshot of where we were on incrementals last year and where we are this year. I think that answers your question.

It does, yeah. And, you know, to your point earlier on the call, look, very good volume year overall. You know, it looks like there are some puts and takes around the volumes, as you would expect, in 20 compared to, you know, generally robust across board and demand in 19. So from your experience on the pricing cycle, how should we think about the cadence of pricing over the course of the year, especially considering it sounds like there's going to be a different cadence to demand this year by market compared to what we saw in 2019?

You know, I think we've seen the price increases going in the way that we thought that they would, Jerry, and that is they've been going in anywhere from January 1 to April 1. And my guess is there's not going to be anything particularly striking in a difference relative to pricing other than the fact that I think it's going to be modestly stronger in 20 than it was in 19 because that's usually what healthy volumes do for you. So I wouldn't call out any particular difference relative to cadence.

And sorry, Ward, just a clarification. So you've obviously made the announcements of January and April price increases. What about the level of mid-year price increase that's embedded at the midpoint of guidance? Can you just give us a bit of context of how much work remains to be done over the balance of the year to get to the midpoint?

You know, we have not baked in any mid-years into that, Jerry. So really what we've done in the guidance, is anticipated a wetter than usual year. We've anticipated that the pricing is what the pricing is. And then if mid-years come along, that would add some momentum to that. And keep in mind, Jerry, one thing to remember, even if you do get mid-years, you're only going to recognize about 25% of a mid-year during the year in which you put the mid-year, because you still have to work off some backlog and other commitments before it really fully comes into play. So mid-years, help you a degree in the year in which you put them in, they actually end up being more of your friend in the following year.

Perfect. Thank you.

Thank you, Jerry.

Thank you. And our next question comes from Brent Dillman of VA Davidson. Your line is now open.

Great. Thank you. Good morning. A question on the magnesium specialties business under a little more pressure here in the fourth quarter. It looks like the outlook suggests that might level off here to some degree. Just curious kind of what you're seeing and hearing from customers there that gives you some confidence around that.

No, thanks for the question, Brent, because that's a business that is such a good business, and they just never get the airtime that they deserve. But they were faced with two things last year. One, Jim mentioned in his comments that there was a slowdown in steel, particularly around the GM facility. And then we saw some customers just rationalizing inventories from the chemical side, As you would imagine, we stay very close with those customers. I think we feel like largely that they will have worked through those issues, particularly by the time we get toward the end of the first quarter. So if you look at that business, I think we feel very comfortable with the guidance that we have out there right now. Part of what I was really taken with, though, is if you look at that business and you say, look, the revenues went down, the gross profit went down as well, but on a percentage basis didn't go down as much as the revenues. And then if you look at the margin of what you'll actually see last year is the margin went up. So I think that's just indicative of how well they run that business and how accurately they can forecast where the business is going when they need to. So, again, if we look directly to the dialogue with our customers, I think that's what gives us the confidence that it's going to end where we set.

Okay. Appreciate that. And then, Ward, just because it's in the release, you talked a bit about it, but any other details or kind of broader parameters we can sink our teeth into kind of around this SOAR 2025? You're obviously in this really enviable capital deployment position. You talked about kind of lessons learned over the last decade. Can you share what you learned from that and what might change kind of as we move forward in the next five years?

You know, what I would say in many respects is it worked pretty well. So there are a lot of aspects of that that we would not change as opposed to things that we would change. What do we believe? We believe this business is an aggregates-led business and we think it's aggregates-led for all the right reasons. We think really being focused on geographies with high population growth or either consuming significant aggregates is where we want to be. The notion that we've moved the business from one or two in 65% of our markets to one or two in 90% of our markets over a decade is a pretty heady statistic when you think about a big, heavy, slow-moving industry. And the ability to always remain profitable and never cut a dividend. These are things to us that are so fundamental to who we are. And what I would tell you is you should continue to look for us to do the types of things that we did when we exited the river and we went into Colorado. To do the types of things that we did as we bulked up our business in Atlanta and took a leading position in Maryland. And to the extent that we can do that in markets that continue to exhibit good population trends, good state fiscal health, multiple end-use drivers, those are the types of things that we're focused on. When we did SOAR 2020, Our aim was to be to the point that we had something that looked like an enterprise value of around $20 billion by the time we got to 2020. I think when we rolled that out, most people who were looking at it would have been too kind to have said, you can't do it, but they may well have thought it, and we largely did it. So as we think about SOAR 2025, we will continue to be, we'll probably put some numbers out that can look aspirational. We think they're doable, and that's how we intend to grow the business.

Okay, great. Thank you.

Thank you, Brent.

Thank you. And our next question comes from Derek Schmoy, Sibley Capital. Your line is now open.

Oh, hi. Thanks. Just wondering, as you look out to 2020, you came out with a preliminary volume outlook after 3Q, which was low to mid-single digits, and here you're out with a 2% to 4% increase. So pretty similar rate of growth. But just wondering, just over the last three months, has anything shifted significantly good or bad, just around your view of the end markets relative to when you came out with the preliminary outlook a couple months ago?

You know what I would say, Garrick, and this is – I will tell you, this is more gut than it is math. Okay, so forgive me for that. I would think the sentiment is broadly better now than it was three or four months ago. So if we're going back to the period of time when we would have been going through a planning or budgeting cycle in the fall – and took a poll of our division presidents and vice presidents and general managers and said, okay, how do you feel last October? How do you feel now? I think as a general rule, they feel better now than they felt then. And by the way, they didn't feel bad then.

Got it. Thanks for that. And then just to clarify, some of the expenses that hit in the fourth quarter, particularly related to grading, is there anything to call out as you look out just as far as the cadence of of some of these lumpier expenses into 2020, just how you're planning on some of these larger cost items?

No, actually, I don't think so. For example, I think our kiln expenses will actually be friendlier in 20 than they were in 19 for some of the reasons we discussed. I think we've actually... on some catch-up grading that we've done. I think we're sitting in the type of place that you would expect. I think the CAPEX that we've been putting into mobile equipment will continue to be our friend relative to maintenance and repair. So, Gary, there's not a cadence out there this year that I would be wanting to highlight to you right now. I think the big driver for a little bit of a stutter step there at year end was volumes were just up more than than people would have thought. And because of that, we had some catch-up to do. But we don't see that in 20 right now. Got it. Thanks again. Thank you.

Thank you. And our next question comes from Stanley Elliott of C4. Your line is now open.

Good morning, everybody. Thank you all for taking the question. Hey, on the capital spend side, I think you kind of touched on it a little bit. But you had been running elevated and close to depreciation. Can you talk a little bit about what the plans for CapEx are? I mean, is it rolling stock like you called out? Is it expansion projects? Just trying to get a flavor for where you see the most opportunity.

Hey, Stanley, it's Jim. So I would say in aggregate, in total, our CapEx is roughly constant as a percent of sales. We've been doing that in 2018 and 2019 and expect the same in 2020. We have been spending more on mobile in the prior years. We're shifting a bit now to plants. upgrades and efficiency improvements. So I would say we're close to, so most of it is maintenance capital, but it's efficiency improvement capital at the same time. So we see no start changes going forward there.

Perfect. And lots of questions on kind of the one-off stripping cost there. Are you seeing anything else within the cost environment that's concerning heading into 2020, be it labor or or energy costs or anything else that you would want to call out that we should be aware of?

Stanley, we're really not. You know, if you look back over the last several years, labor has never been an issue for us. It doesn't look like it's going to be this year either. And as we're looking at the other inputs, again, we feel very confident with it. So I don't see anything that would really move a needle in that respect. Perfect. Thank you all very much. Appreciate your time. Thanks. Thank you, Stanley.

Thank you. And our next question comes from Adam Dahomer of Thompson Davis. Your line is now open.

Hey, good morning, guys. Hi, Adam. Ward, I wanted to start on aggregates pricing. I just wanted to make sure I understood. I mean, pricing accelerated all throughout 2019. Yeah. You've got it accelerating again in 2020. And I'm just curious, what's really driving that?

You know, I think Volume is clearly a friend on that. And obviously in the fourth quarter, there was some degree of mix relative to rail that did that. But again, if we go back over time, part of what we've seen, Adam, when we've spoken of it, I think it surprised people that we would have the ability to get price in a down market, but we didn't. And part of what we indicated is we thought we would have even more ability to get price in an up market. And I think that's what you saw last year. Keep in mind, We end up being, at the end of the day, a relatively small piece of overall construction from a cost perspective. If you're 10% of the cost of building a road, 2% of the cost of building a home, and somewhere between those percentages on a non-res project, we are seldom the product that's going to make or break a general contractor or a sub on either getting the job, not getting the job, or being profitable. At the same time, we have a product in the ground that gets more valuable by the day And we want to make sure that we have the ability to capture that value because the barriers to entry continue to be very, very high. So I think you have all of those factors coalescing, and I think that's evidence in what you see in the pricing.

And then I think it was in your letter, Ward, you called out the wind projects being a slight headwind this year. Can you just give us some more color on that? How impactful is that?

So no pun intended on the wind projects being a headwind, right? So what we're seeing, Adam, is really the tax investment credits and if projects aren't under construction at the end of 2020. Really, that's been an issue in two areas for us, one in the Midwest and to a degree in the Southwest, more in the Midwest than in the Southwest. Right now, we don't see it as a notable headwind. We really just more called it out because we recognize that the tax credits are going away. and we want to be sensitive to it. And the other thing that we're sensitive to, I spoke about the fact that Midwest volumes going into the year look relatively flat to last year, but Midwest volumes last year were really up. So, you know, that's an area of the country on a percentage basis. We just want to be thoughtful around.

Okay. Great. Thanks, guys. Congrats.

Thank you, Adam.

Thank you. And our next question comes from Michael Dudas of Vertical Research. Your line is now open.

Good morning, gentlemen, and Suzanne. Good morning, Michael. In your release this morning, you talked about the potential positive on regulatory driven improvement in efficiency and trying to get projects let. Any sense on how confident you think that will come through given what's going on in politics-wise and how that could impact maybe the cadence and term on lettings in the next couple of years, even if you combine that with a maybe potential federal bill in, say, 2021 or 2022?

Sure. Michael, it's going to be scientific and anecdotal all at the same time. So have we seen some states go from taking seven years to get jobs out to being more like two years to get jobs out? We have. And has North Carolina, for example, been a part of that? Absolutely. Have we seen other states getting better at that? No doubt. And even in the president's draft budget that he's put out, of course, he's talking about the total $1 trillion infrastructure investment. So that's the broad picture that he's painted. At the same time, even he starts talking about in that broad-based budget more of what he would like to see done. And I think we've seen some edges of it in NEPA reform on what can happen on getting projects approved more quickly. So what I would tell you is, can I sit here today and give you definitive numbers on what we think they would be up? No, I can't. But at the same time, can I look over the past several years and say that North Carolina, for example, was able to go through $2 billion that had really been put on the shelves because they couldn't get jobs out as quickly as they wanted to because they had gotten more efficient at it? Yes. Do we think it will continue to get better at the federal level? Yes. And do we think that will likely be part of of a new highway bill, we think it probably will be.

That's great, great color. Thank you for that, Ward. Just one quick follow-up, tying back to M&A and how you're looking at or having active discussions with many folks. Are those folks also expectations moving higher given, you know, some of the publicly available data and the expectations that think most people have in the industry, and is that causing maybe some lockup relative to things maybe getting done in a more rapid environment in the next, say, six to 18 months?

You know, Michael, I think it can vary a lot. I think it can vary depending on are you talking granite, are you talking limestone, are you talking sand and gravel? Are you talking a pure play or are you talking a vertical play? Are you talking east coast or are you talking middle of the country or west? So I think it moves around. What I would say at the end of the day is people recognize these are very valuable businesses. Oftentimes they are justifiably pretty proud of them, which is one of the reasons that we have to make sure that we can get good synergies when we go and do these transactions. So again, I think there's a lot of dialogue. We will not overreach on things. We will continue to be responsible with it, but again, We're certainly seeing things today that if things come together, we can execute on and I think do quite well with them.

Excellent response. Thanks, Ward.

Michael, thank you. And again, welcome to the call. Thank you. I appreciate that.

Thank you. And our next question comes from Saladin Clark, Autosha Bank. Your line is now open.

Hey, guys. Thanks for the question. Just sticking with M&A, how much capacity do you think you have for the right deal and just Could you give us a sense of maybe how many deals you think are potentially out there that could still move the needle for you guys?

Well, I'll tell you what. Let me do this. I'll address the second part of it, and that is the quantum of deals. I'll let Jim come back and talk a little bit about firepower. The fact is we're always engaged in at least or probably more than a handful of dialogues. And, again, they can vary pretty considerably in size. So the conversations continue to be regular, and they continue to be rich in many respects. And rich, I don't mean numbers. I mean just in the form of dialogue. That said, let me turn it over to Jim, and he can talk a little bit about firepower.

Well, as you know, we acquired Bluegrass for $1.6 billion a few years ago. We did that comfortably and delivered rapidly. We could do that size and larger today readily. I'd say we have ample firepower. We can do larger deals. We can do multiple medium-sized deals. And, again, it is our top priority, getting the right acquisition at the right price. So we'll make it happen if we need to, but it would be very comfortable for us from a firepower perspective to do any deals that would be coming to fruition in the next two years. Okay, that's helpful.

And then just what's going on with elevated valuations if the right deal doesn't present itself? What do you think the right kind of leverage ratio is on a more ongoing basis, and how should we think about capital deployment ex-M&A?

Right. Well, our priorities have not changed, and so I'll answer the second part of the question first. Aside from M&A, the reinvesting in the business, then four more things. CapEx. We talked about that. Roughly 8%, 9% of sales is typically what we shoot for. It's what we've been doing. And beyond that, we're returning capital to shareholders in the form of higher dividends, which we've been doing the last couple of years, meaningful increases in the dividend rate, and then share buyback, which we've also been doing over the last few years. So we'll continue to do those two things. In terms of leverage, we have a stated target leverage of 2 to 2.5 times. We're currently at the lower end of that range. Of course, that's done in the context of M&A pipeline in the context of economic outlook and our expectations for the year. So there's no static view we take, but by and large, two to 2.5 times is our debt to EBITDA ratio.

So if we think about what's happened over the last 24 months, 18 months, we've done the second largest transaction in our company's history. The year before last, we raised our dividend by 9%. This past year by 15%. Obviously, the board will August. But to do a transaction the way that we did with Bluegrass, to delever as quickly as we did, to be in a position to take the dividend up and buy shares back is a very nice place to be. And I think that speaks well to the discipline that the team has shown overall on capital employment.

All right. I appreciate the questions. Thanks, guys.

Thank you, Southern. And again, thank you for joining our call today.

Thank you. And our next question comes from Adrian Heruda of JPMorgan. Your line is now open.

Thank you. Good morning. Two questions. One is on cement prices, specifically in Texas. What are your views on import parity prices for Texas? And if you think that that could drive potentially even higher increases on cement prices? And the second one is, On your guidance for cement gross profit, aside from prices, what else are you expecting to drive margins higher this year?

I guess, number one, Adrian, thank you for your question. Number two, if we just look at... Texas cement overall. And Texas consumed about 18.7 million tons of cement last year. About 13 and a half of that was from domestic producers in Texas. So the short answer is you're going to have to have some degree of import that's coming into the state right now simply to meet the needs. I think if you look at where our plants are very much by design in Dallas, Fort Worth, and in San Antonio, the ability for water imports to come in and meaningfully interdict our businesses is low. And again, that's by design. I think you will continue to see the need and the desire for cement to continue to go up in that state. I think the fact that we're talking about an $8 ton price increase there demonstrates that the demand supply band is going to be somewhere in our favor. Clearly, that is going to help drive our business. The other thing that I would say to your point, we will clearly have less kiln maintenance expenses in 20 than we had last year. And then the number that we know is going to be real, it's just a more elusive number, is what you get from the sheer efficiencies that we believe we will recognize at both Midlothian and at Hunter. Again, as I look across the business and think about the areas that I think have the potential to have a really pretty special year this year, I would put cement somewhere near the head of that list, Adrian. Excellent. Thank you, Ward. You're welcome. Thank you.

Thank you. And our next question comes from Paul Chabrin of On-Field Investment Research. The line is now open.

Hi. Good morning, gentlemen. Thank you for taking my question. Just one question, if I may. We are seeing more and more large aggregate producers nowadays moving towards recycled aggregates. I just wanted to understand whether it's something that you would be considering, and if so, what do you think could be the impact on the value of your aggregate reserves? And also a quick follow-up on, if I may, you mentioned that aggregate volumes have been hit by some delays in infrastructure projects in North Carolina, Georgia, and Colorado, if I remember well. Could you give us an idea of what your volumes would have been before excluding this impact?

I'll certainly try to. Let's deal with the recycle issue first. And what I would say, Paul, is Recycle is going to be an issue that's not going to hit all markets the same way it's going to hit different markets differently. So if you think about markets such as Los Angeles or markets such as Houston, that really in L.A. you've got depletion. In Houston you have no coarse aggregates that are indigenous there. which means that as you have certain destruction of buildings, you can have crushed concrete in that marketplace that can be used in some instances as a base material. Keep in mind, in many instances, recycle is going to be more usable in a commercial application as opposed to a DOT application because oftentimes it won't meet the more rigorous DOT specifications. So what I would say is at what I think today's pricing is, is in aggregates and what I frankly think they're going to be for the next decade. Will you see more recycle on the edges? I think you will on occasion. I don't think it's going to be a huge displacing factor. Keep in mind, even recycle that you see in recycled asphalt, commonly referred to as wrap, is really more used to pull the liquid out of millings as opposed to the stone. So I think we see it that way. Relative to the second part of your question, that was with respect to delays. What I would say is clearly we did see some delays in Georgia. We saw some delays in North Carolina. I don't want to quantify exactly how much I think that would have moved the aggregate tonnage. I think it would have moved it a bit. Importantly, those are high profit states, so I think it probably would have hit more bottom line on profits as opposed to bottom line relative to volumes.

Okay, thank you very much.

Thank you, Paul.

Thank you. And our next question comes from Paul Rogers of Exane V&P Paribas. Your line is now open.

Hi, hello. This is Rob Whitworth on for Paul Rogers. Very good. Hi there. I wanted to start by asking, is there scope to accelerate greenfield investment spending? And what returns do you typically make on these investments?

I'm sorry, relative to greenfields?

Yes, please.

Yes. I guess we would say several things. We think there's a role in what we do for greenfielding. At the same time, if we look at our volume this past year at 191 million tons and we look all the way through a cycle, I would ask you to remember this. At the peak of the last cycle, we produced and sold 205 million tons. At the bottom of the last cycle, 125 million tons and 191 last year. Of that 191, 40 million tons are due to acquisitions over the last decade-ish. So if we're comparing same on same all the way through a cycle, take the 190 that we just finished with in 2019, take 40 million tons from it, it puts us at 150 million tons, same on same, versus 205 at peak and 125 at the bottom. That's my long way of saying I don't think we're in a position today that adding greenfield sites is a particularly value-enhancing strategy for us. We have ample reserves in very attractive markets. Green fielding to me is when you want to go into a new market or you've got reserves that you're trying to protect. The other thing that I would say is most green field applications will probably take around seven years to put in. And again, you've got several components you have to be mindful of. Number one, environmentally, what you're dealing with with a delegated state authority from using federal statutes. But then more importantly, what's happening relative to local land use. Rob, that's the piece of it in the United States that I think most people miss because I think most people feel like the bigger issue is environmental. The bigger issue is, in fact, land use. So as we think about it, have we opened the single largest greenfield operation on the Union Pacific's vast network about five years ago? We have, but again, a very strategic play to make sure we can supply DOT spec stone into Houston for a generation. Have we looked at at opening underground mines at places like in the Midwestern U.S., we have. But we haven't taken on a slew of greenfields because at the end of the day, we don't think it's the best use of our capital.

Very clear. Thank you. And just as a follow-up, you did touch on this slightly earlier, but your asphalt margins disappointed a bit again. And I appreciate this is mostly bad weather in Colorado, but in terms of looking ahead, Do you see a big potential improvement in 2020, especially given a potential tailwind from IMO 2020?

No, I do think we'll see a potential tailwind. I mean, again, weather was the primary driver for the variants that you've seen. We talked a little bit about the sheer quantum of days that we lost because of the weather. If we look at the backlogs that we have in that business going into the year, they really look very, very good. If we look from a customer perspective, you know, we're looking at already over 50% of our backlog being booked for the year. And for me to be able to say that to you in the first half of February is a pretty heady place.

Brilliant. Thank you.

Thank you.

Thank you. And this does conclude our question and answer session. I would now like to turn the call back over to Ward 9 for any closing remarks.

Well, thank you for joining our fourth quarter and full year 2019 earnings conference call. We continue to focus on maximizing value for shareholders as we build on our strong results and strive to realize the company's full potential. Given Martin Marietta's world-class attributes and our expectation of a sustainable and steady public-private sector construction activity, we believe 2020 will be another record year for Martin Marietta. We look forward to discussing our first quarter 2020 results in a few months. As always, we're available to answer any follow-up questions. Thank you for your time and your continued support of Martin Marietta.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.