Martin Marietta Materials, Inc.

Good morning, ladies and gentlemen, and welcome to the Martin Marietta Second Quarter 2020 Earnings Conference Call. My name is Kevin, and I'll be your coordinator today. 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 Hausberg, Martin Marietta's Vice President of Investor Relations. Suzanne, you may begin.

Good morning, and thank you for joining Martin Marietta's Second 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. As a reminder, today's discussion may include forward-looking statements, as defined by the 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 website. We have made available during this webcast and on the Investor Relations section of our website due to 2020 supplemental information that summarizes our financial results and trends. 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 our second quarter operating performance, as well as current and emerging market trends. Jim Nicholas will then review our financial results and liquidity position, and Ward will then provide some closing comments. A question and answer session will follow our prepared remarks. I will now turn the call over to Ward.

Thank you, Suzanne, and thank you all for joining today's teleconference. We sincerely hope that you and your families are remaining safe and healthy as we continue to manage through these unprecedented times. As highlighted in this morning's release, Mark Marietta delivered outstanding operational, financial, and safety performance, notwithstanding some localized weather headwinds in the quarter and the broader uncertainties presented by the COVID-19 pandemic. This performance is a testament to our company's commitment to our values, the world-class attributes of our business, and the disciplined execution of our strategic plan. Martin Marietta established new profitability records for both the second quarter and the first half of the year, driven by favorable pricing and proactive cost management across the building materials business. For the second quarter specifically, consolidated gross margin expanded 200 basis points, despite slightly lower revenues as compared with the prior year period. Selling, general and administrative, or SG&A expenses as percentage of total revenues improved 10 basis points to 5.6%. Adjusted earnings before interest, taxes, depreciation, and amortization, or adjusted EBITDA, increased 7.5% to $407 million, and fully diluted earnings per share was $3.49, a 16% improvement. In addition to record financial performance, and despite the challenging conditions, we also achieved the best safety performance in our history. Company-wide, both our lost time and total injury incident rates are better than world-class safety levels. These superior results are directly attributable to our dedicated and talented employees who have continued to demonstrate resiliency during these uncertain times. I'm extraordinarily proud of how our team has adapted to our new health protocols while remaining steadfastly focused on caring for one another, working safely and efficiently, and seamlessly meeting our diverse stakeholders' needs. Though Martin Marietta, along with many of our customers, has operated as a designated essential business throughout the COVID-19 shutdowns and subsequent phases, we still experienced impacts from the macroeconomic slowdown. Despite these challenges, second quarter product demand for our building materials business remains strong across a number of our key geographies, including North Texas and the Front Range of Colorado, two of our leading vertically integrated markets. Contractors continued construction on projects already underway and have, in some instances, benefited from jobs that were accelerated to better leverage lower traffic volumes during shelter-in-place orders and new projects. In addition, we saw aggregate shipments growth in Georgia and Florida despite above-average rainfall in these states during the quarter and in Indiana. Overall, quarterly aggregate shipments declined approximately 4% compared with near record prior year period volume. As a reminder, our second quarter 2019 results benefited from weather-deferred carryover work, sizable energy sector projects, and Midwest flooding repair activity. Aggregate pricing improved 3.3%. All divisions contributed to this growth underscoring the health of our markets, and the importance of our locally driven pricing strategy. By region, the West Group posted a 5.5% increase, reflecting favorable product mix. Pricing for the Mid-America Group improved 2%. The Central Division, which has selling prices below the corporate average, contributed a higher percentage of the Mid-America Group shipments, consistent with the first quarter trends. Product mix limited Southeast Group's pricing growth as a higher percentage of lower-priced finds and base zone were shipped. Underlying demand for our Texas-based cement business remains largely stable. However, second-quarter cement shipments decreased 3%, driven primarily by the decline in energy sector activity that has resulted from lower oil prices. West Texas oil well cement shipments were down over 75% from pre-COVID expectations, a trend expected to continue until oil prices stabilize at a level that fosters additional investment and drilling activity in the Permian Basin. Throughout the quarter, we saw attractive and consistent pricing strength in our north and central Texas cement operations. Specifically, Cement prices in Dallas and San Antonio, the markets most proximate to our Midlothian and Hunter facilities, were up 4%. That said, notably lower shipments of higher-priced oil well specialty cement products found for West Texas limited overall pricing growth. Turning to our targeted downstream businesses, the ready-mix concrete shipments increased nearly 9%, excluding prior-year shipments from our southwest ready-mix divisions Arkansas, Louisiana, and eastern Texas business, known generally as Arcflow-Tex, which we divested earlier this year. Overall, concrete pricing increased modestly but was hindered by an unfavorable product mix. Our Colorado asphalt and paving business established a new quarterly record for asphalt shipments. Shipments increased 35% to 1.1 million tons. benefiting from market strength and pent-up demand following a weather challenge 2019. Asphalt pricing declined 1% as customer segmentation was weighted more heavily toward publicly bid municipal projects as opposed to negotiated private work. The company's magnesia specialties business experienced the most pronounced COVID-19 headwinds during the second quarter. Domestic and international chemicals demand declined as customers confronted COVID-19-related disruptions. Demand for our lime and paraplase products also slowed significantly as steel-producing customers temporarily idled their facilities in response to the COVID-19-induced shutdown of certain domestic auto manufacturers. Before discussing near-term and emerging trends, I'll now turn the call over to Jim for a review of our second quarter financial results and liquidity. Jim?

Thank you, Ward, and good morning to everyone. It is worth highlighting that the enterprise achieved a second quarter adjusted EBITDA margin of 32%. This is the highest EBITDA margin in the company's history. The driving force behind this accomplishment was the building materials, which achieved record second quarter products and services revenues of $1.1 billion, a 1% increase from the prior year quarter, and gross profit of $359 million, a 9% increase. Notably, all of our building materials product lines contributed to this record profitability. Solid pricing gains, production efficiencies, and lower diesel fuel costs drove a 230 basis point improvement in aggregates product gross margin to 35.5%, also an all-time record. This was accomplished despite lower volumes, demonstrating the cost flexibility and resiliency of our aggregates-led business. Our Texas cement operations benefited from improved kiln reliability as well as lower raw material and fuel costs. Product gross margin of 39.7% expanded 210 basis points despite a nearly 3% decline in cement revenues. As Howard mentioned, our targeted downstream businesses delivered outstanding operational performance during the quarter. Ready Mix Concrete product gross margin improved 270 basis points to 10.6%. driven by increased shipments, pricing improvements, and lower delivery costs. Equally impressive, our Colorado asphalt and painting business established second quarter records for both revenues and gross profit. Product revenues for the magnesia specialties business decreased 31% to $49 million, reflecting lower demand for chemicals and line products. Lower revenues resulted in a 420 basis point reduction of product gross margin to 37.3%. While we expect this business will face similar headwinds in the third quarter, a gross margin in the high 30s is impressive and indicative of superb cost management. Consolidated SG&A expenses included $3 million for COVID-19 related expenses, which included enhancements to cleaning and safety protocols across our over 400 sites. Turning now to capital allocation and liquidity. We continue to balance our longstanding discipline capital allocation priorities to responsibly grow our business, while maintaining a healthy balance sheet and preserving financial flexibility to further enhance shareholder value. Our priorities remain focused on value-enhancing acquisitions, prudent organic capital investment, and a consistent return of capital to shareholders, while maintaining our investment-grade credit rating profile. Four-year capital expenditures are now expected in the range of $350 to $375 million, a slight upward revision from the guidance provided last quarter as U.S. businesses were in the early stages of responding to the pandemic. Our current prioritized projects are expected to improve efficiency, capacity, and safety, all core principles and the foundation of a strong financial performance. While we typically invest in the business, We also look for appropriate opportunities to divest non-operating assets to maximize value. In this regard, earlier this month, we entered into an agreement to sell a depleted sand and gravel location in Austin, Texas for nearly $100 million. Since our repurchase authorization was announced in February 2015, we have returned nearly $1.8 billion to shareholders through a combination of share repurchases, a meaningful, sustainable dividends, Shared purchase activity remained temporarily paused during the quarter. However, your purchases can resume at management's discretion. In May, we repaid $300 million of floating rate notes that matured using proceeds from our first quarter bond issuance. The company has no additional bond maturities until July 2024. We are confident in our balance sheet strength and have ample liquidity and financial flexibility to continue profitably growing our business. Net cash, combined with the nearly $970 million available on our existing revolving facilities, provide a total liquidity of $1 billion as of the end of the quarter. Additionally, at a net debt to EBITDA ratio of 2.2 times, we remain well within our target leverage range as of the end of the second quarter. With that, I will turn the call back over to Warren for his market trends commentary.

Thanks, Jim. With the successful completion of an outstanding first half of 2020, we remain laser-focused on managing our business through the macroeconomic upheaval from COVID-19 and related governmental responses. While July product demand and pricing trends across our markets remain broadly consistent with second quarter, we feel it premature to reinstate full-year 2020 earnings guidance given the uncertainty regarding the pandemic, potential phase four stimulus, and infrastructure reauthorization. Nonetheless, we remain highly confident in the fundamental strength and underlying drivers of our business guided by our strategic operating analysis and review or SOAR plan. We expect pricing resiliency and disciplined cost management to continue supporting the company's near-term performance. As the economy resets from COVID-19, we believe favorable pricing trends for our products will continue supported by a disciplined, locally-driven pricing strategy and attractive geographic footprint. For aggregates specifically, we anticipate full-year 2020 pricing will increase 3% to 4% from the prior year. This range is slightly below our pre-COVID-19 expectations, given year-over-year geographic and product mixed trends and slightly delayed price increases in certain markets. Texas cement pricing is also expected to remain resilient due to the state's tight supply-demand dynamics and the fact that our key markets are, by design, largely insulated from waterborne imports. Healthy aggregates and cement pricing trends should benefit our targeted downstream operations. Existing customer backlogs support the company's shipment levels in the near term. In certain regions where we operate, This year's weather has been more disruptive of construction activity and project cadence than the pandemic. Yet we believe the industry will likely see a gradual but not precipitous temporary slowing in product demand over the next few quarters as businesses and governments address budget shortfalls resulting from COVID-19. That said, the degrees of decline and recovery will vary by end-use market and geography and will be influenced by future governmental actions. Infrastructure construction, particularly for aggregates-intensive highways, roads, and streets, is expected to be the most near-term resilient as contractors advance projects that have been awarded and funded. However, state departments of transportation, or DOTs, may decrease the scale or postpone the timing of future construction as they balance lower revenue collections and other short-term funding needs relating to the COVID-19 impact, particularly if there's no near-term federal assistance. These impacts will vary by state. For example, Texas DOT scheduled lettings for fiscal year 2021, which begins September 1st, are currently planned at $7 billion, comparable to fiscal year 2020 lettings. Earlier this month, Texas DOT also reiterated its $77 billion 10-year unified transportation plan, To ease funding shortfalls to its DOT budget, Colorado will issue certificates of participation to advance planned projects, the majority of which are concentrated along the mega region following the I-25 corridor, which has been the strategic focus of our Rocky Mountain business. Of our top ten states, North Carolina DOT faces the toughest near-term funding challenges. As a reminder, NCDOT temporarily suspended awards for certain projects in response to pre-COVID-19 funding issues and other factors. Since then, new contract advertisements have been further delayed. In the near term, NCDOT will benefit from $700 million in Build NC bond revenues to fund existing transportation programs. Longer term, we anticipate additional transportation ballot initiatives as well as new revenue enhancing recommendations from the NC-First Commission, which is tasked with evaluating North Carolina's growing transportation investment needs and ensuring that critical financial resources are available. Despite some near-term DOT headwinds, the passage of a reauthorized comprehensive federal infrastructure package would provide multi-year upside. While it's unlikely a successor bill will be agreed upon and signed into law prior to the Fixing America's Surface Transportation Act expiration on September 30th, we feel confident new legislation will be enacted and provide the first sizable increase in federal transportation funding in more than 15 years. When this occurs, it will be a big win for our industry and for Mark Marietta. While non-residential construction activity on existing projects has continued, Some commercial and institutional projects in the design or planning stages are being delayed or canceled. The Dodge Momentum Index, or VMI, a monthly measure of the first report for non-residential building projects and planning, which has historically led construction spending for non-residential building by a full year, is down 20% from its most recent peak in July 2018. However, To contextualize the June reading, the Great Recession's peak to trough DMI decline was 62%. Importantly, since the Great Recession, Martin Marietta has purposefully shifted our non-residential exposure to be more heavy industrial focus as we've expanded our geographic footprint along major commerce corridors. Aggregates-intensive warehouses, distribution centers, and data centers are expected to lead non-residential activity as businesses increase capacity for e-commerce activity, secure regional supply chains, and become more reliant on cloud and network services. Further, large liquefied natural gas, or LNG, projects along the Texas Gulf Coast that are actively underway have broadly continued. However, start dates for the next wave of projects have been postponed. Longer term, we believe non-residential construction activity could benefit from more companies streamlining their supply chains and repatriating manufacturing operations back to the United States, providing potential multi-year upside to heavy industrial construction. Residential construction is rebounding more quickly than anticipated by home builders and third-party forecasters. After decline in April, the National Association of Home Builders Housing Market Index, a widely recognized survey designed to measure sentiment for the U.S. single-family housing market, returned to pre-pandemic levels in July, signaling that residential growth may lead to an overall economic recovery. Consistent with recent home builder commentary, activity has strengthened as Martin Marietta Estates have reopened, demonstrating pent-up housing demand following the COVID-19-related pause in the spring selling season. Nationally, housing stocks remain below the 50-year annual average of 1.5 million, despite notable population gains. Freddie Mac estimates that 2.5 million housing units are needed to address the current nationwide housing shortage. This situation is particularly evident in states with significant undersupply, including Texas, Colorado, North Carolina, and Florida. which are all in our top 10 states. These trends, along with historically low mortgage rates, bode well for future expansion in single-family housing activity, which is two to three times more aggregates-intensive than multifamily housing, given the typical ancillary non-residential and infrastructure construction activity. Also longer term, we expect Martin Marietta to benefit across all three of our primary end-uses, from accelerated de-urbanization trends as stay-at-home orders and the shift to remote work encourage more prospective homebuyers to move to smaller metro or suburban locations. Our leading southeastern and southwestern footprint provides us a distinct competitive advantage in regions with diverse employment opportunities, land availability, favorable climates, and a lower cost of living. We're confident in Martin Arian's opportunities to build on our successful track record of financial and operational outperformance. Store 2025, our strategic plan for the next five years, will be finalized this year and provides the framework to support our capital deployment, price discipline, cost management, sustainable practices, talent development, and succession planning initiatives. We've already made great strides on these endeavors. Earlier this month, we streamlined our business structure into five operating divisions, East, Central, Southwest, West, and Magnetia Specialties. This new structure better aligns our business product offerings and geographies, provides experienced executives with increased responsibilities and opportunities, strengthens our ability to provide outstanding customer service, and further enhances our industry-leading cost profile. In closing, We're all living in unprecedented and dynamic times, and that will likely persist as the pandemic continues unabated. Moving forward, our attractive underlying fundamentals, strategic priorities, and world-class teams position Martin Marietta to responsibly navigate today's challenging environment and to drive sustainable long-term growth and shareholder value. Overall, we continue to feel confident about the future and our plan to continue building on Martin Marietta's long track record of success in delivering sustainable value creation and superior returns for investors. If the operator will now provide the required instructions, we'll turn our attention to addressing your questions.

Ladies and gentlemen, if you have a question or a comment at this time, please press the star then the one key on your touchdown telephone. If your question has been answered, you should put yourself in the queue. Please press the pound key. In the interest of time, we ask that you limit yourself to one question and one follow-up. Our first question comes from Trey Grooms with Stevens, Inc.

Hey, good morning, everyone.

Good morning, Trey.

Okay, so I guess first I want to focus on margins. You know, I guess the man's going to be what it's going to be, you know, but In the materials business, you saw gross profit improvement across the board, and that's even with down revenue in most segments. And Jim touched on some of the benefits there, but can you talk about kind of the puts and takes there? And we understand, you know, Diesel was your friend in the quarter, but, you know, even outside of Diesel where maybe you had some good guys that we could see continue going forward.

Trey, thanks for the question. You're right. Diesel was a friend. but we managed our labor, we managed SG&A, we managed our efficiencies and other things that we believe have the capacity to endure actually quite well during the quarter. Troy, what we're endeavoring to do, and I think what you've seen in the quarter, is we are building a business that has the ability and should be expected to outperform as we go through cycles. So to your point, volume is going to be what volume is going to be, and volume was down 4% for the quarter, but we saw profitability go nicely up. But pricing is a big piece of that, and that has been something that Mark Marietta has demonstrated, I think, extraordinary skill around managing. We have a depleting resource. We want to make sure we're getting good value for it. We're also going to flex very carefully on the labor side. And the other thing that I think you're seeing evidence of is we've been very thoughtful in the way that we deploy capital. So I think as we look at what CapEx has done relative to our ability to continue to gain efficiencies, that's been an important piece of it. One thing that I would call out to you in particular, and really the comments I just gave you went specifically to the aggregates business. But I think, too, if we look at our cement business that also saw down volumes for the quarter, we're seeing much better reliability numbers relative to our mid-loading operation and hunter facilities as well. So what we're seeing across our footprint is improved reliability, improved efficiencies, improved cost in a number of dimensions, but we're also getting the price stray, and that's something that matters.

Got it. Okay. That's helpful and encouraging, especially in the face of the volume that you're facing. And as a follow-up, you know, you mentioned that you could see additional demand slowing in the next couple of quarters or in the coming quarters. But, you know, if you could dive in that a bit more because, you know, you were looking for something similar or had some similar comments during the last earnings call. So that doesn't, you know, doesn't seem like a new outlook necessarily. But things have held in better, you know, than expected. And it sounds like July trends are still largely the same as the second quarter. So just trying to understand, you know, maybe high level timing, you know, and understanding you're not given guidance. But if you look over your three primary businesses, infrastructure, non-res and res, how you rank your outlook for those and where you see some potential for relative strength or weakness.

Sure, Trey. Happy to try to do that. And I'm with you. I mean, I don't think what we're saying today relative to outlook should be a surprise to anyone. I think it's actually a very consistent conversation to what we've been having. And if we look at it, volume is down 4% in aggregates for the quarter and profits were up. So I think that gives you a sense of it. Here's how I break down the end uses as you think of it. Look, infrastructure for the quarter is actually pretty steady. I think one of the questions is, what will phase four stimulus look like? Because it's been well documented with gas taxes going down, states clearly have had some degree of revenue challenges with respect to that particular dimension. It's fascinating to me to see where AASHTO is today. AASHTO is making an ask that there would be about $37 billion in the phase four stimulus that would go directly to state DOTs. If that happens, I have to tell you, state DOTs are going to probably be in a pretty good place. What I've tried to do in the prepared remarks, too, is give you a sense of where are our top three state DOTs, even irrespective of what may come from some form of COVID stimulus. And I think what you heard is Texas DOT is in a pretty good place. Colorado DOT is going to use certificates of participation to help themselves out. And NCDOT, despite having more challenges than those other two, I will tell you, the DOT we feel a lot better about today than we did when we were talking to you in the first quarter because now FY21 weddings are estimated there at $1.3 billion. That's really similar to a 2016 level and well above what we had seen before is about a $600 million estimate. So I think DOT and infrastructure is going to be relatively steady. I think a lot hinges on what Phase 4 looks like. I think RAS is going to be up. And I think RAS could be up relatively nicely in a number of markets. And I think the footprint that we have is going to help that pretty considerably. I think you're clearly going to see more single-family housing activity than we've seen for a while. And here's an interesting trend, Trey, that's worth noting. Potential single-family housing activities, we look at it at least prospectively. During the run from 1990 to 2009, single-family buildings, comprised about 80% of what we were seeing in the housing market. Over the last several years, the last 10 years, it's been modestly less than 70% of that. So, again, if we see single-family housing moving in a more normalized fashion, and we think we will, we think that's going to be a pretty attractive place. Non-res is likely to be the area in which you're going to see a bit more near-term softness in portions of it and probably strength in others. So as we think about non-res, what I would suggest is as follows. Heavy non-res is likely to perform relatively well. And what do I mean by that? Well, are we seeing more warehousing and data centers in the works? The answer is yeah. I mean, are we seeing more work with Facebook in places like Omaha and Des Moines? Yes. Are we seeing more work with Google? Yes. But are we seeing more work with Amazon and others? Yeah, we are. Do I think hospitality and retail shops may feel a little bit more near-term pressure. I think they probably will. But part of what you heard me say in the prepared commentary as well is we've been very careful to build our business in ways that we feel like major commerce corridors will continue to grow in an outsized way. So I think we're positioned well for there. The other thing that I'll say is the smallest piece of our business, Kim Rock and Rail, actually had a pretty attractive quarter and we saw ballast volume actually up, and we're not surprised by that. We saw that principally in the western United States, and we see that as something that is likely to be relatively stable to flat going forward. So, again, Trey, I've tried to hit all four of those end uses, but, of course, infrastructure, non-res, and res are the three big ones.

Okay. That all makes sense. Thank you for taking my questions, Ward. Very helpful. I'll pass it on. You bet.

Take care, Trey.

Our next question comes from Catherine Thompson with Thompson Research Group.

Hi. Thank you for taking my questions today. Just following on on the infrastructure piece, I appreciate the color that you had in your prepared commentary looking at Phase 4 stimulus and the looming highway reauthorization. But if you could, for listeners, really filter the noise in terms of what TNI committee and the House has presented versus EPW and the Senate and what that could mean and really kind of a scenario analysis of what really happens to infrastructure volumes if something happens and if something doesn't happen. Thanks so much.

Catherine, thanks for the question. So really we're going to look at that in two different buckets. So if you think about what reauthorization looks like. As I said in the prepared comments, we don't think that happens before September 30th. So we think they will probably issue a longer-term CR. That's nothing to be alarmed by, by the way. I don't think they're going to issue a longer-term continuing resolution because they think it's going to last for a long time. I think they may put in place optically what would be a longer-term continuing resolution simply to continue giving states the confidence to keep running projects. I don't think it means they slow down on coming up with a reauthorized bill. So to your point, there are two different starting points, Catherine. Last July, the Senate EPW came out with unanimity around the $287 billion plan, and that's basically a very nice percentage increase of where we were relative to the FAST Act. Now, to your more recent issues, House P&I released their plan. That was $319 billion. That was a 41% increase over the FAST Act. In nearer term, this is at least worth considering, and that is the House Appropriations Subcommittee on Transportation, Housing, and Urban Development passed legislation that would provide about $107 billion in resources for USDOT for FY21, including P&I. almost $62 billion for the core highway programs. That's up 33%. So one of the questions I think that's a fair one is, what does a CR look like? And so I think minimally you're looking at a CR that's probably flat for some period of time as they work toward what I think inevitably will likely be an increased multi-year highway bill. So, Catherine, to your point, worst case, you have a CR that's flat. Best case, you have a CR that actually has some growth to it. I think expected case is you get a bill next year that's a nice increase of where the FAST Act is. And I equally think the conversations that have been had recently relative to Phase 4 stimulus have led us to feel like the likelihood of seeing some very direct assistance going to state DOTs is actually better than we would have thought probably when we were having this conversation three months ago. And again, the AASHTO ask there is around $30 billion. So I've tried to outline what I think the steps are, and I've tried to handicap where I think they sit.

Okay, that's helpful. And then shifting gears to the pricing commentary and You went through a few puts and takes in terms of what impacted pricing for the quarter, but when you look at the bigger secular trends that are going to be coming up, importantly on the residential housing, what and how should we think about pricing from a geographic and a mixed standpoint if there ends up being a bigger mix of residential versus non-res and market exposure? Sure.

You know, I don't think end use is going to be a big driver on what we see relative to price increases. It's fascinating. For example, if you've got a single home builder and they're coming through, they're probably buying stone at a less price, which is frankly a pretty high price as things go generally. But I would think if you're seeing just standard growth along those different end uses and you're seeing it southeast and southwest, And clearly you've got higher ASPs in the southeast right now than you do in the southwest, so you might have some geographic issues if you come from that. But from a margin perspective or from a pricing increase perspective, I wouldn't expect to see anything that would be particularly notable in any of that. I think the primary thing that you're going to continue to see is good, steady price increases. because I think that's something that we just recognize the value of, and we have locations that put us in a position that we can get the value that we need for our shareholders.

Great. Thank you for taking my questions today. Thank you, Catherine.

Our next question comes from Anthony Pettinari with Citi. Good morning.

You know, just following up on pricing, Ward, you discussed 2020 X pricing up 34%, which is maybe slightly below your pre-COVID expectations. And you talked about mixed just now. But you also, I think, slightly delayed price increases in certain markets. I'm just wondering if those were, you know, purely a function of slack demand or maybe some increased competitive intensity or if there's any kind of other color you can give there.

Yeah, I guess I would say several things. The primary driver so far has really been product mix and geographic mix, just to be clear on that. And when we're talking about delays, we're not talking about delays that were more than in the 45- or 60-day range. And typically, the delay in the number, you had to delay, you didn't have to delay in the number. And it happens. Really quite sporadically. I want to say it happened in probably two or three different sub-markets. So I didn't view it as anything that made me feel remarkably different about the way the pricing situation works. The primary people who I'll observe pushed to at least see some deferment If you recall in the earliest, earliest stages of COVID, home builders, in some instances, were just walking away from subdivisions and taking about a 60- to 90-day timeout. I think in some of those instances, they were really afraid and looking for some just immediate help. And I think some competitors in some instances did that. And I think in some instances, too. you had some ready-mix concrete producers who were looking for some lower inputs. Frankly, we were not inclined to meet those, and we probably lost some modest share in some places. We've certainly done that before in cement. But, again, we very much have a value over volume philosophy that we bring to this. So from our perspective, Anthony, the delays were immaterial, but at the same time we tried to be resilient through those.

Okay, that's very helpful. And you talked about kind of gradual but not precipitous decline in second-half demand, and I'm wondering if you could distinguish just directionally between ags, cement, ready mix, and asphalt in terms of, you know, where second-half volumes might hold up a little bit better or maybe see some incremental pressure just based on what you saw in 2Q in July. Okay.

You know what, I think in many respects, if you look at the commentary that I gave on geography and the prepared remarks, that's probably a pretty fair way to think of it in the second half as well. What's interesting to me, Anthony, is we put up a record first half and a record second quarter, and actually one of the areas that had a tougher quarter was actually our mid-Atlantic division. And our mid-Atlantic division has both higher average selling prices and higher profitability. So it tells me that the balance of the business is actually performing extraordinarily well We see good business right now in Texas. We see good business in Colorado. We see good business in portions of the central United States. We're seeing, I think, good, solid business in Florida, and we think all of those will persist for the balance of the year. We're actually seeing very good business in cement in Texas right now as well. The first states I was giving you really were more geared toward aggregates. Obviously, the only hot mix business we have is in Colorado. It had a very, very good first half. We think it's going to have a good second half as well. And then Magnesia Specialties. It's fascinating when we say that business is hitting an air pocket right now. I think that's all it is. We think steel found bottom actually in June. We think it's going to slowly get better. We're not seeing a huge bounce back in magnesia specialties in the second half of the year. But even in a challenge first half, it had margins of 37%. So I think that gives you a pretty good snapshot of ags, cement, the downstream business, and then mag specialties as well.

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

Thank you, Anthony. Thank you.

Our next question comes from Jerry Revich with Goldman Sachs.

Hi, Jason. Good morning, everyone. Good morning, Jerry. How are you?

Doing well, thanks. And you, Ward?

Good. When I tell you you're coming through loud and clear, you really are.

Excellent. Well, really nice quarter. And, you know, I'm just wondering, Pete, can you just expand on the discussion of what went right this quarter? You know, normal seasonality would have you at about 27%. gross margins and, you know, you folks did about 10% better than that and, you know, I appreciate the comments about operating efficiencies. Can you just expand on those because, you know, volumes were obviously weaker than normal seasonality but margins stronger is just really notable and I'm just wondering can you just provide a little bit more context on the drivers of the sequential improvement and I realize you bridge the year over year but the sequential improvement really stands out to me.

No, I'm happy to try to do that. Look, obviously, energy was a piece of that. It wasn't everything, but it was a nice piece of it. I think controlling labor was a piece of it. I still think we can do that with greater efficiencies in some place. I do think overall efficiencies, by the way, were a piece of it. And we talked about the fact that we're seeing much higher efficiencies in our cement business all by itself. We've seen nice improvement over time at both Nickelodeon and Hunter. So that's certainly going to help. The other thing that I'll say, Jerry, and I mentioned it in the prepared time and it's in our release today as well, this was an extraordinarily safe quarter. And I think safety, and you've heard us speak to that as the core value of this business, drives increased efficiencies and simply makes your business better and makes your people better. And when we're sitting here at half year with total injury incident rates and lost time incident rates, both exceeding world-class standards. I think that really speaks to how teams are operating. The other thing that I'll say relative to efficiencies is we've been very careful with how we've looked at capital allocation and cap banks over the last several years. and I think we're starting to see some of the efficiencies from that as well, which is one reason that we're not at all shy, for example, to take the midpoint of the guidance that we've given relative to CapEx this year, and as I think you saw, we've taken that up by about $25 million. So, Jerry, I wish I could point to one thing and say this is it. I think it was a series of things, and I think when we go back to the notion that our aim is to continue to build an increasingly better business that can go through cycles and outperform in any of those. I think that's what we're seeing.

Okay, so it sounds like a number of sustainable pieces there. Okay, good. And then in terms of asphalt pricing, paving pricing, concrete, can you just talk about your competitive position in your key markets and whether with the volume drawdown that you're looking for over the next couple of quarters, what's your degree of confidence in being able to hold the line on pricing in those downstream businesses. Obviously, we know what you're going to do in aggregates, but can you comment on the downstream marketplace?

Sure, I can. If we think about asphalt and pavement, Jerry, the nice thing from our perspective is the only place we have that business is in Colorado. And last year, as you recall, Jerry, they had a very weather-impacted year, so they came into the year with very attractive backlogs. But again, we're seeing very good efficiencies. The asphalt and pavement we have is really running from northern Colorado through Denver down to southern Colorado. We've actually seen bidding opportunities accelerated and outpacing here in June after a slow first half relative to bidding activity. What's odd in many respects is that we're looking out farther. I think generally we feel better about the business today, for example, than we did even after Q1. So if we're looking at asphalt pricing, you know, liquid itself is about $420. That's down about 5% per ton. We think liquid is going to remain in that range. We think our bidding opportunities are going to stay attractive. We think we've got a very good business in Colorado. And, of course, one of the tricky things in Colorado is making sure that you're in a position to get good quality specification stone, and we're in a position to self-supply with that. So we feel good about that asphalt and paving business, and, of course, it had a very attractive first half. With respect to Leather Mix Concrete, They had a good first half, too. I mean, the downstream businesses performed really quite well. If you're looking life-for-life volumes, ReadyMix was up 8.7%, keeping in mind that's really pulling that Arfotex business out. If you're trying to look at it geographically, in Colorado, where we have ReadyMix, those volumes were up a little bit more than 14%. If we're looking in Texas, which is the other place that we have that particular business, they were up around 6.2%. And, again, part of what we're seeing is much better efficiencies in that business, delivery costs and efficiencies are better. And, again, these are not big surprises to us, and we think many of these, to your point, are sustainable as well, Jerry.

And in concrete, do you think you can hold the line on price with the volume outlook that you laid out?

You know, part of what I think is helping on that is aggregates and cement, in those markets. Aggregates and cement in Texas and aggregates in Colorado, which are obviously we self-supply, are going up. And when you're seeing the input costs, at least in my experience, in ready mix going up, those tend to be very helpful, actually, to the downstream businesses. And we're very mindful of that. Okay.

Terrific. Thank you. Thank you, Jared. Our next question comes from Paul Roger with Exane B&P Paribas.

Yeah, hi there. Good afternoon from London, guys. Nice to meet you. Thank you, Paul. Just moving, Ward, on to maybe away from the trade and the outlook, maybe on to capital allocation. Obviously, Jim mentioned the priorities, which you've talked about before. But you clearly do have a strong balance sheet. When do you think you could start to deploy some of that again? either by resuming a buyback or maybe by doing some distressed M&A? And what's the deal pipeline looking like right now?

Paul, thanks for the question. That's a good one. Because if you look at our capital allocation priorities, we've long said the right deal is our number one priority. And I'll say several things. One, I think our teams do an extraordinary job on transaction identification. I think they also do an extraordinary job on going through the transaction and looking at where we can get synergies And then our operating teams, if you go back and look at whether it's TXI or Bluegrass or the transactions in Colorado or otherwise, have outperformed relative to Synergy. So that's a long way of saying that we remain very focused on growing our business. When we look at growing our business, we're focused on two things in particular. What is the geography and what are the end uses? It's an aggregates-led business. but we're keenly focused on the where because the where really dictates how a business is going to perform. And a good example of that is we've had very good performance in Texas. You also saw very good performance in Colorado. But equally, we're having great performance in the central, which is pure stone. So we're seeing great performance all the way across. Relative to share buybacks and otherwise, I think the primary thing that we're waiting for right now, Paul, is just some modest visibility forward on what's going to happen, particularly with respect to some of these governmental actions. I think we'll have a much better sense very soon of what's going to happen with Phase 4. I think with what happens with Phase 4, it's going to give us a much better sense of how the infrastructure piece is going to look. So I think we're just a couple pieces of information away from being able to really look more at buybacks, and otherwise. But please remember, our primary aim is the right transaction going forward. Number two, assuring that we're investing in the business in a responsible way, and you've actually seen us take CapEx midpoint up $25 million, and then returning cash to shareholders through two different ways, a meaningful and sustainable dividend, and our board will obviously look at our dividend in August, so they'll be here next month and they'll look at that, And then relative to share buybacks, I think we've touched base on that, Paul.

In terms of the deal pipeline, Ward, I mean, are you seeing some distressed opportunities come on the radar, or is it all very quiet for the minute?

You know, there are not a lot of distressed opportunities per se out there, because particularly in the aggregates business, they tend to have pretty healthy balance sheets today. The family businesses are in pretty good shape. Our view has long been that succession tends to be a bigger driver of potential transactions in aggregates than not. So I don't want to give you a sense that there are people who are in trouble and they're knocking down our doors right now. That would not be accurate. But there are plenty of ordinary, typical, and sensible transactions that we are looking at right now, Paul.

That's great. Thanks a lot.

Thank you.

Our next question comes from Phil Henry with Jefferies.

Hey, guys. Impressive quarter, great execution. Ward, I guess you know the backlog should carry you through the near term, but, you know, the industry will see some decline in product demand. Can you kind of help parse that commentary a little more? Does that imply that you're expecting the year-over-year decline to back out to accelerate from TQ levels? And when you think about 2021, I appreciate a lot of moving pieces, especially on the policy front. How are you thinking about 2021? playing out on demand side.

Yeah, look, as we think about the back half of 20, I think, to your point, a lot can hinge on what does Q4 look like, frankly, from a weather perspective. It's interesting, if we look at our commentary, much of what happened in the first half was something that COVID-related, sure it was. Was more of that in half one weather-related than COVID? Probably so. You know, if we look at backlogs, it's interesting to me, if we look at mid-Atlantic, customer backlogs are actually up around 17%. If we look in southwest, customer backlogs are up around 30. If we look in cement, and this is the big one, I mean, they're up around 43%. At the same time, if we look at ready mix, those are down in the low double digits. But at the same time, we're seeing those backlogs improve in Q3, particularly related to infrastructure. And if we look in the west, we're seeing backlogs down in the low double digits of very high backlogs coming into the year because of the way that weather had been last year. So I think in many respects, we're sensitive to where will states be with their state funding and their revenues as we enter half to, and they're feeling potentially, in some respects, more COVID pressure than they've felt so far. number one. Number two, what's going to happen to portions of non-res, meaning particularly what happens to that wider piece of it. Look, obviously, if we see some stimulus come through, infrastructure is going to be in a pretty good place. But if we look at Q2 with volume down four, you know, that to me feels like modest volumes down. That feels like a normal, typical, cyclical reaction to something. And I think as we're looking at three and we're looking at four, four can obviously be weather affected. But, again, I think if we're just looking overall at what's happening in the United States and what's happening globally, for us to put our heads in the sand and say that there's not at least an opportunity for something that does not at all feel like the cycle did in the Great Recession, not at all. but could feel a bit like this quarter did, particularly as we go into Q3, which last year, as you recall, Phil, was a really big quarter for us. So you've got a tough compare. You know, I think the commentary that you've offered is probably right.

Got it. That's a really helpful color. And when you talked about non-res, you obviously framed up some puts and takes. Can you remind us what your exposure is, if you have any, on the high-rise side, and then office, hospitality and retail, that might be a little weaker, and some of the strength that you're seeing on heavy, is that enough to kind of offset some of those potential headwinds? Thanks a lot, and good luck in the court.

Thanks so much, Bill. The fact is we're a southeast-southwest driven business. We're not in downtown Chicago. We're not in downtown Manhattan. So the cities that we're in that are growing tend to grow out. They don't tend as much to grow up, if you know what I mean. And the other thing that I'll say, and we said it in the prepared remarks, is we have been very focused on moving our business intentionally over the last decade so that we're more focused on these heavy non-res projects. You know, if we look at the way non-res has held up, it's been in the high 30%s of our business. If we look at really what that ought to look like over a longer term, it ought to be closer to 30%. That's where it's been. Infrastructure should be more as a percentage than we've seen over the last several years. Non-res, candidly, should be modestly less. We think we may see some of that, but equally, as we look at the heavy projects that are really taking up a good bit of our time right now, we're seeing very attractive increasing bidding in that respect. I'm not sure that it totally offsets what the light side of it could be, but I think it's a nice counterbalance to it. Great. Thanks for the call. You bet, Phil.

Our next question comes from Selden Clark with Deutsche Bank.

Hey, thanks for the question. I know you've referenced 60% incrementals on aggregate gross profit in the past, but just given what you did in the second quarter and the divergence between volume and pricing that we're seeing, is there any way to break down decrementals or incrementals as it relates to volume and price and how we should think about cost inflation or Is there a level where pricing can't necessarily offset volumes where you wouldn't see aggregates, gross profit, gross margin expansion? Well, I think theoretically it's possible.

We don't anticipate that to be the case, though. So the pricing is one thing we can bank on. We get it every quarter. It's sustainable, and it does flow to the bottom line. So that's the most powerful thing. weapon in our quiver. So we've got that going for us. Additionally, this quarter, in the foreseeable few quarters, we've got lower diesel prices. So that's going to That benefited this year, this quarter. It will benefit next quarter for the rest of this year, I think. So those are things that we're expecting. Otherwise, it's just blocking and tackling with watching your variable costs, making sure you're flexing. The theoretical question that you're posing, I mean, the volume has dropped tremendously. Of course, your fixed costs, the absorption isn't there where you need it to be. And that's where you're running into some headwinds. But we don't see that happening, quite frankly.

In fact, Salvin, one thing just from a color perspective I'll add to that, and I think it's really important to underscore this. The recovery that ended with COVID was not a construction-led recovery, and we've not seen that before in your lifetime or mine. And the fact is, as we look particularly for housing and what the birth economy is required, we actually see a lot of things that lead us to believe that the post-COVID recovery is can and likely should be building lead. The other thing that I'll point out on Jim's commentary that was just entirely correct is we're seeing nice price with volume down and with energy down. Oftentimes when we see energy going up, we actually see that as something that helps push ASPs up as well. So I wanted to make sure that we shared that with you.

Okay, that's helpful. And then just piggybacking on an earlier question on volumes, How should we think about the dispersion, you know, on a relative basis across the various product categories for, you know, volumes in the back half?

Well, I think primarily, as I mentioned before, cement is being really resilient right now. I think we anticipate ready mix continuing to be quite resilient. I think asphalt is going to have a good year, and the primary thing that we're speaking of in most of our commentary tends to be around aggregates and where that's going to be near term and over the next few quarters. So that's how I would ask you to think about it right now, Solomon.

Okay, I appreciate the time. Thanks.

You bet.

Our next question comes from Gertz from Austin Seed Capital.

Great, thanks. Just one more question on aggregates margins in the second half of the year. I mean, you're painting a picture of volumes down, you know, kind of in this 3% to 4% range, you know, assuming no major kind of change in trend or deceleration in markets. you know, pricing up those single digits, you know, it seems like diesel is going to be a tailwind. Is there anything, you know, that you can see, be it, you know, from a comp perspective or stripping costs or inventories that could preclude margin expansion in the second half of the year that are really just kind of a function of how the volumes look?

Yeah, I think it's two things here. I mean, I think it's one, how do volumes look and where do volumes look, right? And I think part of what you're probably looking at, that you're pleased with, and I know I'm looking at it, I'm pleased with it, is to see margin expansions despite the fact that Mid-Atlantic had volumes down pretty considerably. So, you know, I think part of what I would ask you to keep in mind is Mid-Atlantic, particularly with some of the headwinds that NCDOT has right now, will probably have a more challenge year over year. volume than other parts of the business. And, again, that's a very high margin part of our business. So what you're seeing is great improvement in other parts of the business. We're seeing DOT in North Carolina putting itself in a position that really, as we start getting into next year, it's going to look and feel a lot more normal relative to what history has been. But I do think that geographic mix issue is one that you understand and is worth noting.

Great. Thank you. A follow-up question is on cement. How much of the cement volume goes into the West Texas oil and gas markets? And the headwind of cement pricing in Texas, is this mostly a function of mix, or are you seeing a more competitive landscape in the West Texas region that's impacting things?

Yeah, actually, that's a great question, Jerry. And here's what I would say. We don't send significant volumes to West Texas. You know, clearly the biggest volumes that we have will be in DFW and in San Antonio and in those related markets. So if we go back and look, I want to say for a full year last year, you're probably looking at 30,000 or 40,000 tons that would have gone into West Texas. Those would not have been notable numbers. If you look purely at pricing, though, here's what's worth noting. ASBs in West Texas are $200. And if we look at really what the numbers look like in North Texas and Central, we were seeing price increases in the range of around 4%, Derek. So if you're seeing a 4% price there, you're getting back to the numbers that you would have expected. It's not the $8 going into the year, but if we're looking at overall numbers, same on same, 4% price up in cement in Texas with down volumes, that's a pretty good number. So if you look at more profitability, volumes down, price up, actually much better efficiencies. And the other thing to keep in mind, Garrick, is we actually anticipate having less kiln downtime and maintenance spend on kilns this year than we did last year. We think it's probably going to be about $7 million less in 20 than it was in 2019. So when you really stack up the issues relative to the cement business, we think it's pretty attractive. And, Garrett, you were there at the time, too. You'll remember that one of the things that we thought was possible was to have particular pricing in cement in Texas look over time at least relative to a stability perspective, more like aggregates pricing did, and I think that's exactly what we saw in this quarter. And as you also know, we've been willing when we needed to to give up share in that marketplace to continue to be resilient in pricing. So if we go back to 2014, we had a 22% share in that market. If we look at it today based on controller numbers, you know, we're at about 19%, but pricing is behaving and profitability is going up. Jeff, did that help?

It sure did. Thanks for the help, and best of luck.

You bet. Our next question comes from Adam Pellheimer with Thompson Davis.

Hey, good morning, Ward team. Hey, Adam. Hey, Ward, how's private demand in North Carolina? Is that helping to offset weak DOT?

Yeah, private demand is pretty good. I mean, look, housing is good in this state. It's going to be good in this state. Private... Non-Rest is good in this state. It varies by geography. Charlotte's actually having a pretty good year. Raleigh-Durham is having a pretty good year. Greensboro is not having the year that Raleigh-Durham-Chapel Hill is having, and it's not having the year that Charlotte's having. And Greensboro is actually, from an ASB perspective, a very attractive market for us. But private is holding up pretty well in part because jobs have held up reasonably well here, Adam, And look, at the end of the day, you've got a lot of people moving to North Carolina, and population is always going to be your single biggest driver of aggregate consumption.

Okay. And then in Texas, how do your backlogs look in Texas? And Austin, I guess I was a little surprised to see you peel off from aggregates exposure in Austin. Can you talk about that, too?

Actually, we didn't peel off any aggregate exposure in Austin. We sold some businesses called Arclatex. And so the only thing we did in Austin is we sold a depleted standing gravel location. So that was purely an excess property. And that's what Jim was referencing. We entered into a purchase and sale agreement to sell a depleted site for $100 million. So actually, I'll tell you from From the way we look at that, that's a really nice win. So we did not get rid of any aggregates that were there. And again, back to your point, if we're looking at backlogs, and you asked specifically about Texas, southwest backlogs are up about 30 percent, and if we look in cement, they're up about 43 percent. And if we look in ready mix, they're down low double digits, but actually somewhat recovering right now due to some Q3 bidding activity.

Okay.

Thanks, Ward.

You're welcome, Adam.

Our next question comes from Stanley Elliott with Stifel.

Hey, good morning, everybody. Thank you all for fitting me in. Ward, can we talk about the infrastructure piece? It sounds like the states are doing better than what we would have guessed, kind of given the initial shock. There's some discussions around you know, the federal government providing monies to states. We're also talking about a CR, you know, kind of worst-case scenario being flat. Will that keep infrastructure volumes pretty consistent into next year? Because, like, in the past when we've had CRs, it's been up and down, up and down, and hard to get engaged. But it just feels different this time around, given all of those things I've mentioned, plus, you know, just the general higher level of funding coming in from the state side.

Yeah, I think two things, Stanley. One, I think if you really get some significant phase four stimulus, it's anywhere in the zip code of what AASHTO is looking for in that $37 billion, and it's going directly to state DOTs, I think that's actually a really important amount of money that would fill a hole. So we'll begin with that. I think to your second point relative to the CR, I think you raise a really good point, and I think part of what happened in the last downturn, and you'll remember it well, Stanley, because you were watching it, The CRs, and that ended up oftentimes being very short-term, and that's why I made the comment earlier, people shouldn't be surprised if you see out of the box a long-term CR. And a long-term CR does not mean it's going to be in place for long-term. It's simply done to make sure states continue to know that they can plan longer-term as Congress goes about the process of probably having a conference and then coming out with a new infrastructure bill. So I think to your point, yes, I think this does feel better than last time because I think whatever CR that will go in will be longer. I think whatever highway bill we get out will be larger, and I think one of your swing factors is what does Phase 4 look like relative to aid to the states, and I think we'll know that here in the next, I think by the end of August, we'll have a pretty good feel for what that's going to look like.

And another thing, I guess good news, we haven't seen a whole lot of wholesale project cancellations, but can you talk about how you all and really the rest of the industry have been able to manage inventory levels? How do you feel about them going into the back half of the year? And I think about that kind of in the context of pricing and then as we look out.

Hey, Stan, this is Jim. Our inventory levels have been relatively constant, slightly up from a year ago. and sequentially from Q1, but no outsized moves there. And so that's just roughly steady. It's good for steady production levels to offset the shipment levels. So that's pretty even keel. There's no shortages in sight. So everything is quite well balanced at the moment.

We don't see that having an effect good, bad, or otherwise on ASP. We think ASP is just always going to behave well.

Yeah, no, I agree. I was just trying to make sure that others within the space are being as diligent as you guys are. So I appreciate the commentary. Talk to you soon. Thanks, Dan.

Our next question comes from Devin McGregor with Longwell Research.

Yeah, good morning, everyone. Thanks for squeezing me in here. You bet, Devin. Yeah, Ward, congratulations on a strong quarter, 35.5 gross margins with that volume number. It was fantastic. And I guess I wanted to explore a little further. Maybe a question was asked earlier, and let me kind of from a slightly different angle, and that is, you know, you talked about infrastructure and non-res and res and what your longer-term target percentages or proportions might be within the business. You know, the mid-40s for the infrastructure and, you know, 30% for non-res and so on. I guess the question is, against that type of a proportional mix right now, what would be the variance from that 35-5 gross margin this quarter?

You know what? I don't think you'd see a big movement in that, to tell you the truth, David. The only thing that I think that may be different in that, I think housing might fill a bigger piece of our pie maybe for the foreseeable future than it would have historically. So if you think about it, David, if we looked at those numbers a decade-plus ago, they'd be numbers very similar to what you just said, probably 45% infrastructure, 30% non-res, probably low-teens, residential, and then the rest would be chemrock and rail. I think res can stay elevated for a while. I think that's actually going to be good for us because I do think, depending on the type of res – Yeah, that could actually be good for ASPs, and I think the more single-family housing that we see, that's going to be helpful. But, again, I think that might help a little bit on the margin side, but overall I think the margins that you've seen are – I don't think that was going to be any use driven.

Okay. And just my second question, I guess on the pricing, if we were to adjust out the bluegrass impact from a year ago, what would your pricing have been this quarter?

You know, but I don't know that we had that per se. You know, one thing that I'm happy to tell you is we saw pricing in Maryland up around 6.4%. So, you know, if you're looking to glean, you know, are we getting some nice synergies from that in Bluegrass? We are. But, you know, I'd really rather not go back and break up what that looks like because it's so integrated into our business, particularly in places like Georgia today. But, you know, that gives you a good snapshot of what, the Maryland business that really had very little synergy brought together operationally has done relative to Bryson.

Right. That makes sense. Well, thanks very much. Good luck.

Thanks so much, Dave.

The next question comes from Rohit Seth with SunTrust.

Hey, Roy. Thanks for taking my question. I was just listening to your CEO commentary. You talked about sort of 2025 and I was just curious, in the short term, if I do have any plans to rebalance the footprint, you know, footprint performed very well, the cycle of ESP gains and acquisitions, but the organic growth is only up maybe one of the past five years. So I'm just curious as we think in the context of, you know, an infrastructure bill, highway bill, you know, Texas has clearly had a very good run over the last, you know, seven years. How do you think about the portfolio and where the opportunities are?

Yeah, I guess what I would say is this, Rohit. We've got two opportunities. We've got the opportunity to keep doing just what you saw in this quarter, and that is make the Martin Marietta that we have better. And I think that's what you saw in the quarter from a performance perspective. I think the other piece is we've got white space on the map that we can continue to move toward. And what I mean by that is, you know, we've talked a lot, whether it was in SOAR 2020 and you'll hear it in SOAR 2025, Where people are going is going to be what drives aggregates consumption. And the mega regions across the United States is where people are going to be living. And we've demonstrated that, obviously, in an aggregates-led business, we can continue to expand margin. So part of what I like about the Martin Mariana story is we've turned this business into one of the great aggregate companies, I think, in the world. I think it's one of the great building materials companies in the world. We can continue to make it better, and we can continue to grow it. And that's something that if I'm you, I would continue to expect Martin Marietta to do, and I would just say go back and look at SOAR 2020, and we've given you a pretty good roadmap of places that we would like to grow. The other thing that I would say relative to rebalancing, when you look at a decade that went from one or two in 65% of our markets at the beginning of the decade to one or two in 90% of our markets by the end of the decade, We've long said we were looking for that leading position in markets that we find attractive. So we don't feel like in our heritage footprint that there's an enormous amount of work to be done. There's some careful work to be done on occasion, and an example of that would be what we discussed earlier, and that is the sale of the ArcoTex ready mix business. We didn't find that particularly a great fit for our aggregates-led business in Texas today. And so we pruned that. But that's the type of work you should expect on the heritage portfolio, and you should expect this to continue to look to grow in new markets where we can find our way to one or two.

All right. Thanks. That's all we have.

All right.

Thank you, Rohit.

Our next question comes from Michael Dudas with Vertical Research.

Good morning, afternoon, gentlemen, Suzanne. Just quickly, more in your prepared remarks, talk about in early this month, the restructuring internally. Maybe you can share a little more of the contract on that. Is that something towards your SOAR 2025 campaign? And, you know, is there, you know, just more efficiencies driven by that or different strategies on the pricing or business front? Just how you think through that as you're moving ahead towards your restructuring or your new campaign? Thank you, Suzanne.

Mike, that's a great question. Thank you for it. It's funny how timing works. We started talking to our board literally last August about the restructuring that was announced that was effective on July 1 of this year. And what we did is we skinnyed down some of our aggregate divisions. So what we have now is a western division that's run out of Denver. We have a southwest division that's run out of Dallas. We have an east division that's run here in Raleigh. and we have a central division that's run out of Indianapolis, and then we have our magnesia specialty business as well. So were retirements a part of that? They were. Were efficiencies a part of that? They were. And it's the ability for that structure to endure to give people, whether they're division presidents, VPGMs, or otherwise, expanded responsibilities and growth in their careers. All of those things help drive the decision. The nice thing is the corollary benefit is you get efficiencies from it. And we were very fortuitous to be in a spot that this is what we were looking to do, even in a pre-COVID world. And then COVID comes along, and the very thoughtful planning that we had, to your point, as a part of SOAR 2020 and as a part of SOAR 2025, coalesced very nicely with a timing need, and it simply could not have worked better.

Just my final follow-up would be, speaking of COVID, have you noticed anything with the lockdowns, the restarts in your important states, the tenor, the thought process from your private customers, from the government, of maybe some slowing in the pace of activity or bidding or letting because of some of the fears we seem to hear constantly from the media? Thank you.

Max, again, thanks for that question. The fact is, as I tried to mention, weather, at least for the quarter, was probably more impactful than COVID was, but we would be naive to say that there wasn't a COVID effect out there. So was NCDOT feeling some degree of duress pre-COVID? I'm sure they were. Are they feeling a little bit more post-COVID? Yeah, they are. And so has that affected volumes with that particular department? It has. Has it affected some other DOTs and modest rates? To be sure, it has. It's clearly affected some private businesses, too. It's tough to wholly quantify exactly what that is, but I do think people have recognized how to live and how to work with this. Part of what's been interesting to me is we've operated all the way through this as an essential business. In our nearly 9,000 employee count, we've had about 90 positive COVID cases, the vast majority of which have gone home, recovered at home, and come back to work. And we have only had literally a handful of what we've been able to identify as employee-to-employee COVID spread cases. So I think businesses, governments, and others have learned how to work with this. It's clearly had an effect. It's going to have an effect for a period of time. I think the actual field effect will become less, not more, and we'll have to watch and see what the physical effects are and how governmental stimulus works.

That's encouraging. Thank you.

Thank you, Mike.

Our next question comes from Zane Carimi with VA Davidson.

Hey, good morning or afternoon, and hope everyone is healthy and well.

Thank you, Zane.

So first off, on the cement side of things, do you have any commentary around the timing of planned maintenance expenses for cement this year, as well as any thoughts around a potential another cement price increase?

Well, what I would say is cement price increases will come out again next year. So our intention is to come out typically once a year and put the price increases in. So there shouldn't be any more on price increases this year. If we're looking at what cadence is going to be, you know, right now we're forecasting probably about $3.5 or $3.6 million worth of outage costs. So these are outage costs, and I think that's what you're asking about in Q3. We're looking at probably around half a million of those in Q4. And if you tally what we did in Q1 and Q2, that means our total kiln outage costs for the year will be in the zip code of around $19.5 million, and that's about $6.9 million less than we saw in 2019. Okay. Thank you.

And then also on SOAR 2025, are you guys thinking about providing some more specific parameters or financial aspirations related to that specifically here?

The short answer is, yeah, we will. But we've got one important step that we need to do before we do that, and that is we need to present it to our board of directors. And that's exactly what management is going to do when the board is here next month or here in just a few weeks. And I'm sure as we come out later in the year and early next year, we can give you a much clearer picture of what our goals and intentions are under SOAR 2025. Appreciate it.

Thank you, guys.

You bet, Zane.

And I'm not showing any further questions at this time.

Well, thank you for joining our second quarter 2020 earnings conference call. With our steadfast commitment to safety, cost discipline, and operational excellence, Martin Marietta has the right strategic priorities and best-in-class teams to responsibly navigate through these challenging times and drive sustainable long-term growth and shareholder value. We're moving forward with confidence and determination. We look forward to discussing our third quarter 2020 results in just a few months. As always, we're available for any follow-up questions. Thank you again for your time and your continued support of Martin Marietta. Please stay safe and healthy.

Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day.