Martin Marietta Materials, Inc.

Good morning, ladies and gentlemen, and welcome to the Martin Marietta's first quarter 2020 earnings conference call. All participants are currently in a listen-only mode. A question and answer session will follow the company's prepared remarks. As a reminder, today's call is being recorded and will be available for replay on the company's website. I will now turn the call over to your host, Ms. Suzanne Osberg, Vice President of Investor Relations for Martin Marietta. Suzanne, you may begin.

Good morning, and thank you for joining Martin Marietta's first quarter 2020 earnings call. With me today are Ward Nye, Chairman and Chief Executive Officer, and Jim Nicholas, Senior Vice President and Chief Financial Officer. We would like to remind everyone that today's discussion may include forward-looking statements, as defined by United States 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. Please refer 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's We have made available during this webcast and on the investor relations section of our website Q1 2020 supplemental information that summarizes our financial results and trends. We will reference this information during today's call. In addition, any non-GAAP measures discussed today are defined and reconciled to the most directly comparable GAAP measure in our earnings release and SEC filings. Today's earnings call will begin with Ward Nye, whose remarks will focus on the state of our business in light of the coronavirus pandemic, the actions we have and are taking, and the strengths of our positioning to manage the current environment. Jim Nicholas will then review our first quarter 2020 financial results and liquidity position, and then Ward will provide some closing comments. A question and answer session will follow Ward's closing remarks. I will now turn the call over to Ward.

Thank you, Suzanne, and thank you all for joining today's teleconference. First and foremost, we hope that you and your families are and remain safe and healthy as we confront the challenges and uncertainties presented by COVID-19. I also want to extend my sincere gratitude to our Martin Marietta team. I'm tremendously proud of how everyone is working together to manage through this unprecedented time and how the character of our employees has shown through. Day after day, Martin Marietta employees are safely and resolutely meeting the critical needs of our customers. They're also supporting their local communities in both large and small ways, donating vital supplies and equipment to healthcare workers and first responders, helping neighbors by picking up groceries and ensuring our colleagues are well cared for and safe. Our team has shown great courage, determination, and resilience as we successfully meet our stakeholders' needs while never losing sight of our core values of safety, integrity, excellence, community, and stewardship. These values define us and our character. We look to these foundational principles to guide our daily and long-term actions and decisions, particularly during difficult times. Martin Marietta remains open as an essential business. That designation means we're continuing to provide heavy building materials and services to our customers, even in those areas with shelter-in-place orders. Communities across the nation must maintain their vital infrastructure, and we're working hard to support that objective in a safe, efficient, and responsible way. Through the end of April, our workforce, operations, and supply chains have seen little disruption. We believe this is largely due to our company's decisive steps early to respond quickly to this pandemic, our domestic-focused approach to sourcing supplies and materials, and our expanded safety procedures, all of which are designed to protect Martin Marietta employees and the organizational health of the company. During this pivotal time, our focus is threefold, communication, resource management, and business continuity. We've implemented new robust protocols and practices, including remote working, social distancing, and enhanced equipment and facility cleaning, consistent with guidelines for the Centers for Disease Control and Prevention and the medical professionals who partner with the industrial hygienists familiar with our operations. These protocols were updated on an ongoing basis as public experts provide additional guidance. We also established a COVID-19 planning and communications task force, canceled all non-essential business travel and in-person meetings, and established contingency plans with respect to staffing. And we've been actively engaged enterprise-wide to enhance the substance and frequency of our communications to ensure the flow of the most accurate and timely information about our operations, thus enabling our employees, customers, suppliers, and other stakeholders to stay fully informed. Our operations teams have shown considerable agility, flexibility, and perseverance while keeping our business running smoothly. Among other things, they've taken timely and responsible steps to clean and disinfect their facilities while carefully screening necessary third-party visitors to minimize any COVID-19 exposure. Thanks to their dedication and effectiveness, our company has adapted extraordinarily well. Additionally, for our colleagues that typically work indoors in close proximity to one another, we're utilizing a combination of social distancing as well as work-from-home protocols. Our employees are dutifully meeting their job responsibilities and remaining fully accessible. Importantly, whether working at an operating site, an office, or remotely, our employees are empowered and encouraged to look out for one another. With our team safe and employee engagement high, we can be attentive to our other stakeholders, our customers, suppliers, creditors, shareholders, and communities as we have an essential business to run. As disclosed in this morning's release, Martin Marietta delivered strong first quarter financial and operational performance. Jim will discuss these results with you shortly. Let me first say that we're proud of these results, which underscore our commitment to operational excellence and to our disciplined strategies. While we had a promising start to what we believe would have been a record-setting 2020, we recognize this year will now be filled with an unprecedented level of uncertainty as the COVID-19 pandemic and related economic and societal outcomes continue to unfold. Accordingly, while we remain confident in the fundamental strength and underlying drivers of our business, we have withdrawn our 2020 four-year guidance issued back in February. We've not yet seen contractors and customers delaying or canceling building projects in a material way. While we typically do not comment on intra-quarter trends, these are atypical times. We're making an exception, and as highlighted on our supplemental information slides 13 and 14, we're sharing preliminary April shipment and pricing trends to provide greater transparency as to what we're now seeing in a COVID-19 impacted month. Specifically, for the month of April, aggregate shipments remained elevated in most areas but did not match the near record April 2019 volumes. We saw notable growth in North Texas, Colorado, and Indiana. Cement shipments continue to be strong and are currently trending close to prior year levels. The one notable exception is oil well cement shipments as demand continues to decline due to volatile and historically low oil prices. Ready Mix Concrete shipments are also trending near April 2019 levels, even as some home builders temporarily pause construction activity. April revenues for the magnesia specialties business are $10 million lower than the comparable prior year period. Demand for our lime and periclase products has slowed dramatically as steel-producing customers temporarily idled their facilities temporarily. in response to the COVID-19-induced shutdown of certain domestic auto manufacturers beginning in mid-March. In terms of April pricing trends, aggregates pricing improved mid-single digits over April 2019 as announced increases were broadly implemented earlier in the year. Cement pricing is up, even with several competitors announcing plans to delay price increases until June 1st. Prior to the COVID-19 outbreak, we were highly confident in realizing the full announced increase of $8 per ton implemented April 1, given overwhelming market support in a tight Texas cement environment. Ready Mix Concrete pricing is slightly higher than April 2019 levels. We'll have a clearer picture of Ready Mix Concrete pricing trends for the remainder of the year as the phased reopening of the Texas and Colorado economies unfold. Though ours is a basic and durable industry, it does not mean that we're immune to the disruptions caused by the pandemic. Our economy is interconnected, and dislocations in consumer behavior or other industries may impact Martin Marietta. As such, looking beyond April, we anticipate product demand will soften in the coming months, with the private sector feeling the effects sooner than the public sector. The timing, duration, and extent of weaker demand levels are presently unknown. Infrastructure, particularly for aggregates-intensive highways and streets, is expected to be the most resilient of the company's three primary end uses in the near term. The vast majority of state departments of transportation are operational and continue to advertise and award projects. Nonetheless, we expect many state DOT budgets will face temporary headwinds from lower fuel taxes, tolls, user fees, and other related revenue collections as much of the nation has been sheltered in place. The impact of lower funding levels is expected to become more meaningful in the second half of 2020, absent congressional action, and will vary considerably among the states. Florida DOT, for example, has accelerated over $2 billion of critical transportation projects to leverage construction efficiencies resulting from lower vehicle traffic, including closing additional travel lanes and performing more daytime hours work. To help mitigate state DOT funding risks, industry representatives are actively engaging with Congress to address surface transportation in the Phase 4 Emergency Relief and Economic Recovery COVID-19 legislation. The first recommendation is a federal backstop of nearly $50 billion in immediate flexible funding to offset the estimated 30% loss in state transportation revenues over the next 18 months. The second recommendation is the passage of a comprehensive major surface transportation reauthorization package. We believe our industry is better equipped than in recent history to execute on an infrastructure bill given the backlog of fully designed projects. Non-residential construction activity on existing projects has broadly continued in most regions. However, many commercial projects in the engineering or planning stages are being delayed or canceled particularly for office, retail, and hospitality. Some industrial activity, on the other hand, is not expected to experience significant near-term disruption from COVID-19. Warehouses, distribution centers, and data centers are expected to perform relatively well in the current environment as businesses increase e-commerce activity, secure regional supply chains, and become more reliant on cloud and network services. Similarly, Large energy sector projects along the Gulf Coast of Texas that are already underway are expected to continue. The residential market is expected to experience the most rapid and perhaps steepest decline from the impacts of COVID-19, as unemployment and general economic instability prompt homebuyers and home developers to delay plans. However, in contrast to the Great Recession, we do not anticipate a prolonged period of reduced residential activity, Today's housing inventories remain near all-time lows despite notable population gains in Martin Marietta states and the benefit from historically low interest rates. As we prepare for the secondary effects of the economic fallout from the coronavirus, we rely on our values-driven culture. As I emphasized earlier, the safety, health, and well-being of our employees, customers, communities, and other stakeholders remains our top priority. With established protections in place to accomplish this, we're focused on our business priorities of generating cash flow, preserving liquidity, and adjusting costs to align with product demand. Our team has developed extensive plans for a variety of economic scenarios, and we're ready to implement them with immediacy and integrity as warranted. In addition to strengthening our balance sheet through a timely $500 million bond offering in early March, We've cut non-essential costs, reduced capital spending for discretionary projects, and implemented hiring restrictions. We're tightening our belts and aligning our capacity with demand consistent with our commitment to being prudent stewards of shareholders' capital. We will reevaluate these actions as visibility improves. Having the right strategy, making the right decisions at the right time, and being able to safely execute them does matter. A lot. And Martin Marietta will do just that. We're well positioned geographically, financially, and otherwise to successfully manage through today's unprecedented environment and emerge more resilient and capable. How so? First, Martin Marietta has a much stronger geographic and competitive position today compared with any previous downturn in our more than 25 years as a public company. This is noteworthy, considering we navigated through the Great Recession and remained profitable throughout, never suspended or cut a dividend, and emerged with a healthy balance sheet. Today, we continue to generate record profitability on aggregate shipment levels much lower than our peak volumes in 2005, and with a geographic footprint that we've not only considerably expanded, but also improved. Moreover, we continue to thoughtfully execute on our strategic plans, carefully positioning our business through aggregates-led expansion in high-growth markets with attractive fundamentals and leveraging strategic cement and targeted downstream opportunities. These strategic plans not only provide Martin Marietta with new growth platforms, but also opportunities to expand our footprint to complement existing operations and build critical mass. We now have leading positions in 90% of our markets, up from 65% a decade ago, which supports favorable pricing trends, economies of scale, and cost flexibility. Second, we have experienced teams with decades of collective industry knowledge and expertise. Together, their leadership and contributions have produced strong and sustained financial returns for Martin Marietta and our shareholders, as recently demonstrated by our one, five, and ten-year cumulative shareholder return performance. This is largely the same leadership team that successfully formulated our operational response and prudently addressed our business needs during the Great Recession, the most challenging economic environment our industry ever experienced. In uncertain and evolving times, proven, cycle-tested leadership and experience is critical. In brief, Martin Marietta has the right strategies, priorities, experience, and teams to responsibly manage us through these challenging times. I'll now turn the call over to Jim for a more detailed financial review. Jim?