Martin Marietta Materials, Inc.

Welcome to Martin Marietta's second quarter 2024 earning conference call. All participants are now 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. Jacqueline Rooker, Martin Marietta's Director of Investor Relations. Jacqueline, you may begin.

Good morning. It's my pleasure to welcome you to Martin Marietta's second quarter 2024 earnings call. With me today are Ward Nye, Chair and Chief Executive Officer, and Jim Nicholas, Executive Vice President and Chief Financial Officer. 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, Martin Marietta is subject to risks and uncertainties that could cause actual results to differ materially. We undertake no obligation, except as legally required, to publicly update 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 public filings, which are available both our own and the Securities Exchange Commission's websites. We have made available during this webcast and on the Investors section of our website supplemental information that summarizes our financial results and trends. As a reminder, all financial and operating results discussed today are for continuing operations. In addition, Non-GAAP measures are defined and reconciled to the most directly comparable GAAP measure in the appendix to the supplemental information, as well as our filings with the SEC, and are also available on our website. Board and I will begin today's earnings call with a discussion of our second quarter operating performance and our Blue Water Industries acquisition, as well as our outlook for the remainder of 2024 in current market trends. Jim Nicholas will then review our financial results and capital allocation, after which Ward will provide closing comments. A question and answer session will follow. Please limit your Q&A participation to one question. I will now turn the call over to Ward.

Thank you, Jacqueline, and thank you all for joining this teleconference. As indicated in today's earnings release, several dynamics impacted our second quarter financial results and particularly product shipments. The most notable driver was an historic 119% increase in precipitation in Dallas-Fort Worth, our company's single largest and most profitable metropolitan marketplace, as well as disproportionate rain and flooding in parts of the Midwest. Secondarily, the lag effect of restrictive monetary policy is pressuring interest rate-sensitive private construction demand more than previously anticipated. And while our value over volume philosophy also contributed modestly to the shipment decline, the benefits of our commercial strategy are clearly evidenced by the second quarter's strong unit profitability growth and adjusted EBITDA margin expansion. Moving forward, our team remains focused on what we can control and view the demand impacts from weather and high interest rates as temporary. That said, we expect slower shipment trends to persist in the year's second half, As a result, we revised our full year 2024 adjusted EPIDOT guidance to $2.2 billion at the midpoint. While second quarter shipments were below our initial expectations, there were notable highlights worthy of mention as foundational for Martin Marietta's long-term success, starting first with safety. I'm proud to report that we concluded the first half of 2024 with the best safety incident rates in our company's history, inclusive of our newly acquired businesses. Operationally, we expanded our adjusted EBITDA margin and achieved record second quarter organic and total aggregates gross profit, despite significant weather headwinds. Importantly, aggregates pricing fundamentals remain attractive, with aggregates' average selling price increasing 11.6% or 12% on an organic, mix-adjusted basis. We expect this commercial momentum and related margin expansion to continue following realization of our previously announced July pricing actions. These accomplishments underscore the resiliency of our aggregates-led business, reinforced by our team's fidelity to maintaining a safe workplace and our unrelenting commitment to both commercial and operational excellence. From a portfolio optimization standpoint, on April 5th, we completed the acquisition of 20 aggregates operations from Blue Water Industries and, in so doing, efficiently redeployed the cash proceeds from the South Texas cement and concrete divestiture. These high-quality, pure-play aggregates operations from Blue Water strategically complement our existing footprint in the southeastern United States and position us in attractive new markets including Tennessee and South Florida, for future growth. I'm pleased to report that the integration of both the Blue Water and Albert Fry & Sons acquisitions is complete. The combined financial performance has exceeded management's initial expectations, and the synergy realization will be increasingly compelling. Moving forward, the M&A pipeline remains active and largely focused on pure play aggregates businesses in attractive SOAR-identified geographies. Shifting now to end market trends, our single most aggregates-intensive end use is infrastructure, which continues to benefit from increased funding and investment levels. While highway and street spending is expected to remain well above historic levels, leading indicators are predictably starting to lap more robust comparable periods. This is evidenced in the value of state and local government highway, bridge, and tunnel contract awards for the 12-month period ending June 30, 2024, which declined modestly below 2023 levels to $114 billion. Funding certainty at the federal level through the Infrastructure Investment and Jobs Act, or IIJA, together with record state DOT budgets and constituent actions, support a healthy pricing environment for construction materials in 2025 and beyond. With the 2024 election process well underway, it's important to note rebuilding and enhancing our nation's infrastructure and manufacturing capabilities remain bipartisan, national strategic priorities, as revealed by the high passage rates on local infrastructure ballot initiatives and three key legislative actions, the IJA, the Inflation Reduction Act, and the CHIPS Act. Moving now to heavy non-residential construction, Reshoring activity for large manufacturing and energy projects continues to drive product demand. Aside from warehouse construction, which is contracting from its post-COVID peak, starts on a square footage basis remain well above what were healthy 2019 levels. While not wholly offsetting, construction spending for domestic manufacturing continues to trend positively with the June 2024 seasonally adjusted annual rate of spending at $236 billion and a 19% increase from the June 2023 value of $198 billion. Importantly, the breadth of restoring projects is expanding from automotive, batteries, and semiconductors to pharmaceuticals. For example, Nova Nordisk is investing $4 billion to build a 1.4 million square foot manufacturing facility near Raleigh, North Carolina, which we're well positioned to supply from our nearby quarries. In addition... While artificial intelligence is in its early stages, Martin Marietta is geographically well-positioned to capitalize on the related data center and infrastructure build-out led by big tech, including Amazon, who has announced plans to invest more than $100 billion over the next decade on data centers alone. Relative to light non-residential and residential activity, restrictive monetary policy continues to impact these interest rate-sensitive end markets, The lock-in effect of high mortgage rates and low inventory are only serving to exacerbate the well-chronicled housing affordability and availability issues in many of our company's key metropolitan areas. That said, recent inflation and employment data should provide the foundation for accommodative Federal Reserve policy actions later this year and into 2025. I encourage you to read more on this as discussed in the CEO Commentary and Market Perspective released earlier today. Beyond 2024, we expect that generational highway and streets investments, as the nascent reshoring and artificial intelligence infrastructure build-out, are very much expected to provide an extended multi-year construction cycle in these aggregates-intensive end markets. Equally, when the affordability headwinds recede, we fully expect an accelerated housing construction recovery, specifically in single-family homes. which will be required to address the structural deficit of homes in many of Mark Marietta's key markets. Importantly, as history informs us, growth in single-family construction bodes well for light non-residential activity, which typically follows with a lag, but in this instance, a lag which we believe will be more abbreviated than previous cycles. I'll now turn the call over to Jim to discuss our second quarter financial results. Jim?

Thank you, Ward, and good morning, everyone. As Ward mentioned and shown in today's release, we revised our full year 2024 adjusted event guidance to $2.2 billion at the midpoint, reflecting our first half results and revised second half shipments expectations. In the second quarter, the building materials business generated revenues of $1.7 billion, a decrease of 3%, and gross profit of $501 million, a decrease of 7%. The decline in both metrics is attributable to the divestiture of our South Texas cement and related concrete businesses, as well as shipment declines experienced in the quarter, most notably due to wet weather partially offset by contributions from the Albert Frey and Sons and Blue Water acquisitions. The net positive impact of acquisitions and divestitures in the second quarter was $7 million of adjusted EBITDA. Our aggregates private line established second quarter records for revenues and gross profit as contributions from acquired operations and strong pricing more than offset lower shipments. Aggregates gross profit per ton improved 9% to a second quarter record of $7.41. That number is inclusive of the $20 million or 37 cents per ton non-recurring, non-cash purchase accounting impact of the fair market value write-up of inventory related to the Blue Water acquisition, which was fully recognized in the second quarter. Excluding this purchase accounting impact, gross profit per ton increased 14%. These impressive results reveal and affirm how our disciplined commercial strategy and flexible cost structure yields higher profits despite lower volumes. Cement and concrete revenues decreased 37% to $261 million, and gross profit decreased 44% to $72 million, again driven primarily by the divestiture of our South Texas cement plant and its related concrete operations, and secondarily by significant wet April, May, and early June weather in Dallas-Fort Worth. Notably, our strategic Midlothian cement plant's daily shipping rates returned to near sold-out levels exiting the quarter. Remember, too, we expect our new finished mill to be operational in the third quarter, which has the capacity to add approximately 450,000 tons of incremental high-margin annual production capacity in the attractive North Texas market. Our asphalt and paving revenues and gross profit increased modestly to $245 million and $37 million, respectively, both second quarter records, in large measure due to pricing improvements and energy cost tailwinds. Magnesia Specialties revenues of $81 million were in line with the prior year quarter, while gross profit decreased 2% to $27 million. Strong pricing, improved maintenance cost management, and energy cost tailwinds helped counterbalance lower chemical and lime shipments. SOAR has long provided the framework we use to grow our business and deploy capital for long-term success. During the first half of this year, we deployed over $2.5 billion on pure play aggregates acquisitions, invested $339 million of capital into our business, and returned $542 million to shareholders through dividend payments and share repurchases. In the second quarter alone, we repurchased 530,000 shares at an average price of $566 per share. Since our repurchase authorization announced in February 2015, we have returned a total of $3.2 billion to shareholders through both dividends and share repurchases. Our net debt to EBITDA ratio was two times as of June 30th, at the low end of our targeted range of 2 to 2.5 times, providing balance sheet strength and ample flexibility to actively pursue our M&A pipeline, reinvest in our business, and extend our long track record of returning capital to Martin Marietta shareholders, all while preserving financial flexibility and our investment-grade credit rating profile. With that, I will turn the call back over to Ward.

Thanks, Jim. In 2024, Martin Marietta is proudly celebrating our 30th year as a publicly traded company. Our three decades of success has been the result of an unwavering commitment to safety and the disciplined execution of our proven strategy. As we plan for the next 30 years, we're confident Martin Marietta is well-positioned to continue leading our industry's evolution while at the same time navigating through inevitable macroeconomic cycles and driving sustainable, attractive growth. We remain committed to building and maintaining the safest, best performing, and most durable aggregates-led business and look forward to delivering superior shareholder value for our stakeholders for years and decades to come. If the operator will now provide the required instructions, we'll turn our attention to addressing your questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question? please press star followed by number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by number two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from the line of Catherine Thompson from Thompson Research Group. Your line is now open. Please ask your question.

Hi, thank you for taking my questions today. The first is focused on Q2 and just better understanding the impact of, you know, how much of it was market, maybe more color on the volume over volume and patching the quarter. And then part and parcel with that, how should we think about the balance of Q3 and Q4 in terms of how profitability should flow through given some of the obvious weather concepts you and your peers have been facing. Thank you.

Good morning, Catherine. Thank you for the question. So look, weather was a big deal in Q2. There's no doubt about it. So I said in the prepared remarks that it was 119% wetter in DFW this year than it was last year. And the fact is, if you look at what happened in North Texas all by itself, but then you couple that with what happened in the Central Divisions, And what I'll suppose is most people don't think about the Central Division as being impactful to us as it is. Really, if we're looking at Dallas itself and the Central Division together, those two areas of business typically represent nearly 40% of our Q2 shipments. So if we're looking at significant rain in Dallas and significant rain and flooding in the Midwest, that was really a serious body blow to the business. And what I liked about that is it took that blow and came in with record aggregates profitability, record unit profitability, and did all of that taking on the $20 million of inventory fair markup that we've totally absorbed in Q2. So seeing what happened in Dallas was important. Understanding what happened in the Midwest was important. But I was also taken with the resiliency of our cement business in North Texas. Again, we've long defined what equals strategic cement for us. And clearly what we have in that market is just that. I mean, we saw organic shipment volumes down about 18%. And again, that was all driven by rain, but pricing up nearly 10 and with very, very good performance. And as Jim indicated in his comments, we were seeing that marketplace turn to near sold out levels as soon as the rain abated. So again, Those were issues I think 50%, at least, of what we saw in the quarter was attributable to rain. Do I think a portion of it was attributable to the economy? Yeah, probably 25% of it. So what am I seeing there? It's really what we indicated. Private construction, because of what's happening with interest rates, are seeing degrees of modest pullback. But the important thing to remember there, Catherine, is we don't see markets that are overbuilt today in Marietta marketplaces. So we feel like that's going to be fleeting. But equally, value over volume costs us some tonnage during the quarter. But the fact is we're perfectly okay with that. Again, we monitor that. We're going to be thoughtful around it. But again, we're seeing continued, expanded, adjusted EBITDA margins in what we're doing. We feel like the breakdown we've had between weather at 50%, market at 25%, and value over volume at about 25% makes sense. But the other part of your question went to the cadence of how we think about the quarters. Let me turn that over to Jim to talk you through that a bit because that is going to change modestly.

Yes. Last year, Catherine, second half of the year, about 60% of consolidated EBITDA came through in Q3 and 40% came through in Q4. Because of what we're seeing this year with weather, et cetera, in July and even August, the split is probably closer to 55% Q3, 45% in Q4. So a little bit more Q4 weighted this year than normal.

Okay, perfect. And just one follow-up, if I may. Just on the outlook, when you look at backlogs or jobs in the queue, what are you seeing in terms of project types, and how is pricing on these type of projects, which obviously play into margins? Thanks very much.

Thank you, Catherine. If we're looking at customer backlogs, they're up sequentially, so they continue to build. Number one, I think that's important. Number two, if we're looking at the nature of the projects, look, infrastructure is going to be a good end use for several years, and we see that continuing. If we're looking at non-res, we're seeing degrees of shifts there, and by the way, that's not a surprise to us. So are we seeing more factories? The answer is yes. Are we seeing good pricing that goes with that? The answer is yes. Are we seeing good steady work and growing work, frankly, relative to energy? The answer is yes. Are we seeing growing work relative to data centers? For all the reasons that I indicated in the prepared remarks and in the commentary that we published today, that continues to grow. Obviously, warehousing is not. That's not a surprise to anyone. And what we're seeing is you almost have two lanes of travel. You have data centers in one lane, and they're going in a positive direction, and warehousing is going in the other, and you're seeing those percentages almost pass each other on a precise precision or percentage basis today. So that's the type of work that we're seeing. The other thing that we're beginning to see, and this is more in Georgia, it's in North Carolina, it's in South Carolina, we're seeing green shoots in degrees of single-family housing right now. And again, that's not a big surprise simply because of the population dynamics. And again, relative to housing, we're such a small portion of the overall housing population that traditionally in single-family housing, back to the essence of your question, that tends to be very attractive priced materials, Catherine. So I hope that's helpful.

Yes, thanks so much, and best of luck.

Thank you.

Your next question comes from the line of Stanley Elliott of STICO. If your line is now open, please ask your question.

Hey, good morning, everyone. Nice work, despite this difficult environment. Ward, could you maybe walk us through kind of the revised guide, some of the puts and takes and see maybe what will get us to the high end versus the low end, just as we're sitting here today, kind of halfway through the year?

You bet. Happy to. And Stanley, thank you for your comments. We appreciate it. I'm with you. I think that was actually very good performance given what our team managed through. So several things. Look, let's start with pricing. So as you've seen, we've reaffirmed our pricing guide of 11%, 13% up. And that includes the previously announced mid-years for California for the fry business for blue water locations, as well as a targeted product and market-specific mid-years in other geographies. And by the way, that's pretty typical for us. The one thing that I think is going to be important this year relative to the mid-years, so much volume that had already been bid at the January 1 pricing is still yet to go because of the deferral that we've seen. So typically in a year, I've always told you historically, look, you could probably see about a quarter of the mid-years really show up in any given year in which they're put in. I think the mid-years are going to be notably more impactful in 2025. In other words, when we come back to you in January and talk about our guide for next year, I think you're going to see more mid-years affecting that this year than not. So that's how we're thinking about the ASP and the guide. Relative to volumes, clearly that reflects an impacted first half result and early weather here in the second half of the year. Look, July was wet, and we're sitting here today as Tropical Storm Debbie is going through the Carolinas, so we're living that. And so we're trying to take our experience with those events and really build that into the volume guide for the second half of the year. So we feel confident that we've hit that with as much clarity as we can given these circumstances. Look, relative to what will be expected as lower shipment levels, our teams are going to be focused, as you would imagine us to, very much on cost control and making sure we're flexing our costs with demand. So we're very focused on that. The other thing that I think you'll see is given the inventory builds that we had with wet weather where we're producing but not selling, you know what, there's going to be a little bit of inventory drawdown and that's going to impact us a bit in half too. And it can provide a modest headwind to EBITDA. But again, we've taken that into account in what we put out there for you. One thing to keep in mind, too, is we're looking at the EBITDA guide, and I think this is something that's easy to forget. We grew EBITDA in 2023 by 33%. I mean, that's a really big number, and it gives you a difficult year to compare, but at the same time, we're seeing EBITDA margin grow. And even at the guide, we're looking at a two-year CAGR of high teens, getting close to 17%, getting close to 20%. So, again, numbers that we're very proud of, numbers that we feel good about as we're going into the second half of the year, and, again, a foundation, particularly relative to pricing, that we think puts us in a very attractive place as we start increasingly thinking about 2025, Stanley.

Perfect, Ward. Thanks so much for the color, and best of luck in the back half of the year.

Thanks, Stanley.

Your next question comes from the line of trade for Stevens. Your line is now open. Please ask your question.

Hey, good morning, everyone. And I'll echo Stanley's comment about good work in a tough environment.

Thank you, Trey, very much.

So I guess I've got really the main one I wanted to talk about was kind of, you know, you've seen some slowing down. or maybe a little bit of deceleration you mentioned, you know, kind of on the activity front in addition to weather. You know, there was some of that. And you've broken out in the past, you know, I think as recently as the last call, infrastructure and kind of your expectation for the year, I think, was kind of mid to high single improvement. Res was, I think, down low singles and non-res low singles to mid-single down. If we kind of look at your performance, your new view of the world and in light of kind of what we've seen with some of the activity out there, is there any way you can kind of help us kind of bridge back these kind of expectations for these end markets relative to kind of what you were looking for?

Sure. Happy to, Trey. And that's a great question. So if we think through it, I'll actually work from the bottom up. So we were previously in res. We were saying, look, res was going to be down low single digits to mid single digits. So now as we see it, look, we think it's going to be at mid. So we've gone to the lower end of the original guide, if you see what I mean, relative to res. If we're looking at non-res, we had previously said, look, that's going to be down mid single digits to high. So we've really taken the same view on that that we have relative to res. We said that's going to be down high single digits, not because we think Heavy is not going to be good. I think heavy is going to be increasingly good. These are going to be big jobs. It's going to take a little bit of time. But really what we've done, excuse me, we've looked at the public side of it. We had said we thought public would be up mid-single digits to high single digits. We actually think that's now going to be modestly down, and it's more of a timing issue than anything else. Because part of what we're assuming is, let's assume we're going to have a relatively normal weather calendar year this year. And if we go to businesses like the Central Division, once we get toward late October, frankly, you're rolling the dice a little bit on whether you're going to have good business. There won't be frozen weather impacted in November and December. So now we've pulled back a bit on infrastructure. And again, that's not work, Trey, as you know, that's going to go away. It's going to be work that's going to be pushed into 2025. And for a lot of reasons, we're perfectly okay with that. But relative to the guide and relative to the end uses. I hope that puts the specificity around it that will be helpful to you.

Yeah, absolutely. That was perfectly helpful. Just one last one, if I could sneak one in. I think you mentioned that the integration of Blue Water and Albert Fry & Sons are complete, and it sounds like they're performing at least as good as your expectations, if not better. If you could maybe go a little bit more, Collins, about kind of where you're seeing the outsized benefits or where they're exceeding expectations? And also just on the pipeline, you know, I mean, you just completed two deals this year, one pretty big one. Do you think we should, you know, what's the pipeline look like? And do you think we should be looking for more kind of tuck-in deals given that recent M&A activity you've been doing? Or, you know, could there still be the potential for some chunky deals out there for you guys?

Great questions, Tracy. Thank you for all of that. So we'll start with both Blue Water and Alfry relative to integration. So you're right. I mean, from our perspective, those integrations are done. They have been tucked in. They're pure bolt-ons. Our integration process is extraordinarily efficient, and we discussed that before. We typically integrate the back office systems and processes and onboard people literally over the course of a weekend. So our intention is typically to close on a Friday and and do a lot of training over the course of the weekend, open Monday, and have people going over our scales, getting Martin Marietta tickets, and having them in our systems. And that's exactly what happened. So as we think about what's happening with those businesses now, operationally they're performing really very well, number one. Number two, these are folks who know that they've got a forever home right now. I mean, we're an aggregates-led business. They're delighted to be a part of Martin Marietta. Number three, Their safety numbers have been extraordinary. I mentioned in my opening commentary that from an incident rate perspective, this was the safest quarter that Martin Marietta has ever had. And to be able to say that after we've done the degree of acquisitions that we've done, in my view, is pretty extraordinary. Now, if we think about what continued synergy realization is going to look like, Several things. Number one, we will continue to invest responsibly in these businesses, in fixed plant, rolling stock, et cetera, and we think that will continue to make the businesses more efficient. But equally important, the pricing at those locations is actually notably below a Martin Marietta corporate average. By that, I mean, let's call it four plus dollars a ton. So if I go back to the commentary that we had on targeted mid-years and the fact that they're coming through the way that we would have expected on the acquisitions, that's going to give us continued near-term upside on those businesses. We think that's likely to persist for a number of years. Operationally, they will continue to get better for a while. So we think there's going to be goodness that's going to be coming to us from Blue Water, from the Albert Fry and Sons, and by the way, from the continued acquisitions in California and Arizona for a while yet. Now, that leads into the second part of your question, that is, what does the pipeline look like? And the pipeline continues to look attractive. The pipeline continues to be almost entirely pure aggregates businesses. And they tend to be a bit of a blend of what you said. Some of them have a little bit of We hope we'll have more for you on some of that as the year goes on. As you know, between what's gone in and what's gone out this year, we've done well over $4 billion worth of transactions. But if we're sitting at a net leverage of two times as of June 30th, as you know, that gives us ample dry powder to continue doing what I think is really a core competency for Martin Marietta, and that is doing M&A and doing it well. M&A is something that's in our DNA. and we're very proud of that. So, Trey, thank you for that second question. I hope that cleared some of those items up, too.

Yeah, great color. Thanks, Ward. Best of luck.

Thank you. Take care.

Your next question comes from the line of Jerry Revich from Goldman Sachs. Your line is now open. Please ask your question.

Yes, hi. Good morning, everyone.

Good morning, Jerry.

I wonder if I can just ask you conceptually, right, this year you folks had excellent pricing based on the volumes that we're seeing from everyone across the board. You haven't had to secede market share to get this level of pricing. We're seeing stubborn inflation across repair and maintenance and elsewhere. How does that impact how you're thinking about 25? Obviously, we can't count on a volume ramp back up. So I'm wondering, based on what you're seeing, and the receptivity of price increases and inflation, I guess, what are the prospects for potential double-digit pricing year again in 2025 based on everything you've seen year-to-date?

You know what, obviously, we'll give you more of a definitive guide on that as we go into next year. But, Jerry, as I think about the building blocks for what we have, I think infrastructure is going to stay very attractive. I think housing and our markets – has more than found bottom. I think that's going to get attractive. I think heavy non-res is and is going to stay attractive. As I indicated in the commentary, I think the lag we've typically seen between non-res on the light side and res is going to be abbreviated. I think that sets us up for a really attractive 2025 and beyond relative to pricing. From my perspective, the pricing that you have seen in Martin Marietta for 30 years as a public company that I think you would look at and say historically has looked really good frankly, is seeing a step change. And I think the step change is appropriate, but for a number of reasons. And among others is people now are starting to think about this business on what does replacement costs look like for these hugely valuable reserves? I mean, if we look at the reserves we had today, 70-plus years at current extraction rates is a significant body of reserves. At the same time, I don't think that we should be punished for for having the discipline and having the vision to make sure that we've got adequate reserves. So does that tell me, and does that help inform you, that we think pricing will continue to be at what I think will be new levels? And probably in that zip code of what you're talking about, I think the answer is yeah, it probably will. And again, we'll come back with more definitiveness on that in February, but I would not encourage you to think about it materially differently.

It's super interesting. And can I ask you, Jim, in terms of the midpoint of the aggregates, gross profit, and top line parameters, it looks like on a year-over-year basis, you're guiding to about two points of gross margin expansion, back half 24 versus back half 23, which is better than the first half. Is that right? And can you unpack the drivers behind that, if that's the case? How much of that is the mid-years in Tennessee and California, et cetera, that's driving the acceleration in the outlook?

Yeah, no, you're right that those ballpark numbers are correct. The star of the show, as always, has been growing ASP. So that's flowing through in the second half of the year. That's the primary metric that's driving that improved margin, Jerry. Secondary impact is, as I mentioned in prior calls, inflation is abating. It's moderating as the year goes on. So The cost pressures are, by and large, coming back down, not to where they were pre-COVID, of course, but, you know, five to six percentage points on baseline cost inflation. So those two things are the main driver.

Thank you.

Thank you, Jerry.

Your next question comes from the line of Anthony Patinari of Citi. Please ask your question.

Good morning. Hi, Anthony. Hey, Ward, could you talk a little bit more about maybe state funding environments as you think about, you know, next 12 months in fiscal 25? I think there was some data that suggested, you know, general fund spending for the states could be down in fiscal 25, you know, after a number of years of very strong growth. Obviously, that's not one-to-one to DOT spending, but just wondering if you could kind of walk through the states and where you're maybe the most excited and seeing some growth versus which could be lighter. kind of as you think about next 12 months?

No, thank you for the question. I appreciate it very much. So let's just do a march together. So, look, if we're looking at Texas DOT lettings for FY24 lettings forecast of 13.7, you know, that's up 17% from the year before. But equally, you know, if we're looking to see where they are next year, again, they're looking to be up over that next year. If I'm looking at Colorado, you know, they passed a $5.3 billion 10-year infrastructure bill And that basically ensures consistent stream of DOT funding beginning in 2023, and that's going to go on for several years. And we expect, even going into 2025, that Colorado DOT is going to have at least $3.7 billion available to spend, and that's going to be a really attractive budget. If we're looking here in the backyard in North Carolina, we expect their budget to increase to $7.6 billion for FY25. Again, that's an increase over a prior year. And part of what's notable there, keep in mind, North Carolina started looking at different ways to fund their infrastructure a few years ago, and from 2025 thereafter, they're going to be using sales taxes at about 6% to fund infrastructure work here in North Carolina. That's going to make a nice difference. Equally, if we look at Georgia, their 2025 budget of $4.2 billion, that's a 7% increase over where it was in 2024. And this one's interesting to me. Even if we look at Florida, Florida's budget, if you look at it topside, looks like it's going down But that's only because FY24 had about $2.1 billion of one-time supplements that were in it. So if we're looking at a base budget in Florida of about $15.1 billion, we're looking at what we think is a base in FY25 of about $15.5 billion. The punchline is this. If we go and look at our top ten states, Texas is up, Florida is up from a base budget perspective, North Carolina is up, Indiana is up, Georgia is up, Colorado is up, Arizona is up, and Texas is up. So really, there are two states that are down. One is Minnesota. It's going from 4.5 to about 4. And to put that in some context, Minnesota is going to have a DOT budget next year that's rivaling about where Georgia is. I don't think that's a bad place for Minnesota to be. And California is going to be modestly down. And I think that's simply in keeping with what we see more broadly in the California budgeting process. But again, if I look at these top 10 states, it looks awfully attractive to me. But equally, When I look at the Highway Contract Awards over a period of time, like if we go back to, let's call it mid-year 2022 on an LTM basis and look at where it is this year in June at an LTM basis, it's up 25%. And that's the step change that we thought we would see on contract awards. And again, part of SOAR that Jim referenced in his comments dictated how Where we wanted to be and one of the places we wanted to be were places that had good, long, durable DOT budgets and had people moving to those states so they would have the imperative to continue to invest. And as we look at how those state DOT budgets look today and how they're going to look more importantly to your question tomorrow, we have a lot of confidence about that and have a very attractive outlook as we contemplate it. So, Anthony, I hope...

No, that's extremely helpful. I'll turn it over. Thank you.

Thank you.

Your next question comes from the line of Angel Castillo of Morgan Stanley. Please ask your question.

Hi, good morning. Thanks for taking that question. Just wanted to drill in a little bit more on the kind of 25% of the volume that the client was maybe more related to kind of the price over volume strategy. Could you just talk about is there any sense for kind of what markets that may be occurring more and or some of the competitive dynamics that might be driving that versus kind of a greater or increasing kind of discipline toward price over volume?

You know what? It was interesting because I took that same deep dive that you're trying to do intellectually just to make sure that there wasn't some overriding trend or something that we needed to be concerned about or alarmed by, and it wasn't. I mean, as you recognize and we do too, markets in our world tend to be an MSA because of the weight to price ratio that I spoke of in the CEO commentary. The material often doesn't travel very far. And what we see on occasion is somebody can be aggressive. Somebody can be long on any given product. There can be just a whole host of things that can drive different degrees of behavior in different markets. So we're not seeing anything that's overwhelming in any one market that causes us any concern. Obviously, we've stated a preference for value over volume. We believe in that. We see it in the numbers. We believe that it's proving its efficacy in what we're seeing in the financial results At the same time, we're always going to be thoughtful around are we pushing too hard on occasion and are we losing too much? And so it's a process we do go through. It's a dialogue that we do have here in this office. But more importantly, we have it with our division presidents and VPGMs. So there's no one area that if I were you, I would look at and have any concern about. Obviously, I don't want to talk about specific markets per se. It was really more of a weather event than anything else, degrees of softening, and then here or there on pricing. But, Angel, that's the best way that I can guide you to think about it right now.

That's very helpful. Thank you.

Thank you.

Yeah, of course. And maybe just to follow up on the cement business, you talked about that returning kind of being close to full, sold out in the quarter, or I guess shopped in the quarter, so just I was hoping you could give us a little bit more color or remind us, you know, how we should kind of be thinking about the flow through of the expansion in terms of ramp up of volumes and, you know, how you kind of see the profitability of that business as we kind of normalize from these weather impacts.

Sure. So I'll do a couple of things. One, I'll ask Jim to speak to the capital project that we have underway, and he can give you a bit more on that and the 450,000 tons that will be added through that, because we'll be thoughtful around the way that we do it. But obviously, if we're just looking at what happened relative to the weather in DFW, that was the driver, pure and simply. I mean, that took organic shipments down about 18%, but again, pricing was up 9.5%. And part of what we saw in that business is we actually saw gross margins expand in that business. And that's one reason that we speak to what we've long called strategic cement. It's where we're an aggregates leader, where the market's naturally vertically integrated, where we have a downstream business, and we do in Dallas, that takes about 30% of what we're doing there. And its ability to be interdicted by waterborne imports is really quite minimal. And so if we look at What strategic cement for us is, it's Midlothian. If we look at how the pricing behaved, it behaved well. Despite the fact that organic shipments were down, we still expanded gross margins, which is why we want to invest capital in that market. And for that, let me turn to Jim, and he can give you a sense of where we are in that process and how we think about volume.

Yeah, so that project, the Finish Bill 7, as we call it, will be completed this quarter. As you know, it's 450,000 tons per year of annual production capacity, so give or take 110,000 per quarter. We won't hit the market with that full speed on day one. We'll be responsible about feathering in those volumes to ensure we don't disrupt the commercial strategy we've been following in that marketplace. Some more to come on when that comes out, but that will be helpful to us, A, in terms of volume, but also, more importantly... Operational flexibility, wait times for customers, storage facilities, our ability to react to different events is enhanced as a result of this project. So we're looking for this to improve margins going forward and, of course, volumes as those become available to us.

Andrew, the last part of your question was what we see happening volumes here as the quarter ended, and I think we indicated as weather got better in Dallas-Fort Worth, we were back to near sold-out conditions at Midlothian. So I think that puts a bow around it.

Thank you so much.

Appreciate it. Thank you.

Your next question comes from the line of Gary Smoy of Loop Capital. Your line is now open. Please ask your question.

Good morning. It's actually Zach Pacheco on for Gary this morning. Thanks for taking my question. Appreciate you guys walking through the outlook on state funding moving forward a couple questions ago. Maybe just to dive into that real quickly. We've been hearing others citing inflation kind of eating into those IIJA base dollars, therefore causing some delays. Just curious if you guys are seeing that at all, or are the base dollars truly just flowing through nicely? Thanks.

I think we'd be naive to assume that degrees of inflation haven't eaten into that. And so when we went back over time, I've said before, if whatever the volume that people thought would come out of IIJA the year it was signed into law, Have you seen some of that being eroded by inflation? Yeah, I think so. But at the end of the day, very selfishly, from a Martin Marietta perspective, would we trade the volume that we see for the pricing that we're seeing? The answer is yes. I think part of what's so important to keep in mind, too, is I don't think IIJA is a one-hit wonder. In other words, I think we simply changed the floor in the way that the United States Congress and the government will continue to invest in infrastructure. Because keep in mind, we went a decade and a half with woefully underfunded infrastructure. So I think in many respects, yes, some degree of volume has been taken out simply because of inflation. At the same time, I believe when we see a reauthorization of this act, we're likely to see something at or above where this is, And, again, it will provide a nice extended period of time for the United States to invest in this much-needed infrastructure. At the same time, it will allow us to make sure that we're getting the appropriate return for our very valuable materials that are in the ground and that we work hard to turn into a spec product. So that's the way that we think about it. There's nothing per se new in that, but I think it's important to be able to articulate that to the investing public because I think from our perspective it works.

No, that makes sense. Thanks.

Thank you.

Your next question comes from the line of Keith Yu of Truist. Your line is now open. Please ask your question.

Thank you. A question back in cement. To your point, tremendous pricing. It's the best pricing increase I've seen during this earnings season from cement. Now that Midlothian is back to sold out, is there going to be further increases this calendar year, or is it something we'll have to contemplate for next year?

You know, look, we've certainly told the market that we are looking to have another dialogue in September. Obviously, it's not yet September. So we'll have to see how that goes, Keith. But again, there are a lot of different cement markets across the United States. And Dallas is a really good cement market. And obviously, Dallas had a strange market in Q2 simply because it was wet. But When Martin Marietta was buying TXI back in 2014 and 2015, I remember very clearly what I said to our board of directors at the time, and that was, I felt like Dallas-Fort Worth might well be the single most attractive Heaviside building materials market in the United States for the next 25 years. It has not disappointed. So... Have we told our customers that we're going to have a dialogue in September? Yes. Am I ready to tell you what that's going to look like? The answer is no. But in any event, to your point, as I've watched public data come out, I concur with your conclusion. I haven't seen a market that has reacted more attractively than DFW has on pricing on a percentage basis. Okay. Thank you. Thank you, Keith.

Your next question comes from the line of Adam Thalheimer of Thompson & Davis. Please ask your question.

Morning, guys. Hi, Adam. Share repurchases. That was a really heavy pace in the first half of the year. Curious how we should read that and what the outlook is.

Yeah. Well, simply, you know, there's a couple things that go into that. One is we were well below our target leverage ratio. and we had entered the quarter with over $2 billion in cash on the balance sheet. So that was part of it, but, of course, we thought the stock price was an attractive level as well. We thought it was undervalued. So really it's as simple as that. We're pretty opportunistic about our stock buyback. Try to avoid a lazy balance sheet at the same time, and those things just coalesce this quarter. Thanks, Jeff.

Thank you, Adam.

Your next question comes from the line of Phil Ng of Jefferies. Please ask your question.

Hey, good morning. This is actually a call in on for Phil. Thank you for taking the question. I just wanted to ask about the aggregate volume guide. What is baked into the aggregate 1 to 4 percent decline from an organic perspective? And how are you thinking about those organic trends in the back half of the year here, just given the wet start to the third quarter? and maybe some of the softer trends that you're seeing in the warehouse, office, and resi markets that you called out.

Yeah, thanks, Colin. Thanks for the question. We try at this point now that those operations are really fully integrated. I wanted to break some out for the quarter because we were going through the integration process, but now that they're fully integrated, we just think about it candidly at this point as all organic going forward. I mean, it clearly – I gave – I thought helpful color relative to end uses and what we thought the shifts were going to be relative to up, down, sideways, etc. But again, if we're looking second half of the year on infrastructure, we think it's going to be a busy second half of the year. At the same time, the biggest things that we're trying to get our heads around is what we're navigating right now. and what will be the fallout from, as I said, a wet July, and what has so far been a wet August, with a hurricane making its way literally from somewhere between Myrtle Beach and Charleston right now, eventually up through the Greensboro High Point area. So those are more the swing factors in the near term, and then the longer term this year, to the extent there can be longer term this year, it's really going to be more driven by when winter sets in and what the effects of that may be in certain markets. Look, I can remember years that we were doing asphalt and paving in Colorado in December. That doesn't happen very often, but it does happen. And those will be your swing factors, really, as we think about volumes, but more granularly as we think about infrastructure.

Great. That's helpful. And just one follow-up question, I guess. If we see some more accommodating monetary policy here in the back later this year, how quickly do you think that starts to show up in your shipments?

I think it starts to show up reasonably early in 2025, because I do think in portions of private, particularly in home building, et cetera, you've got to pin up demand. And it's interesting, as we have people looking to move to Raleigh, one of the issues that they chronically run into, and by the way, I'm using Raleigh as an example, but we could go across our footprint and say the same thing. The inventory is just really very low. And frankly, from our perspective, that's a pretty high class problem, Colin. Is it tough for people moving to the area because they can't find the home that they want? Yes. Does it mean, however, that once you have that more accommodating policy, that you're going to see home builders moving, we think with alacrity, to fill what's a needed hole right now? We think that's the case. And that tends to be particularly if they've made the investment in land, which in many instances they have, that they can move relatively quickly. And keep in mind, a portion of what we're going to caption as residential will be those streets. It will be that curb and gutter. It will be the sidewalks. It will be the utilities until those subdivisions are turned over to the local municipality for maintenance. So will we see it on the resi side? I think so. Does that mean that you're going to see light non-res come behind it in that more abbreviated period? I think so. And all that underlies what we think will be a continuing attractive infrastructure setting. So again, I hope that's helpful.

It is. Thank you for the caller.

You bet, Colin.

Your next question comes from the line of David MacGregor of Longbow Research. Please ask your question.

Hey, good morning. This is Joe Nolan. I'm for David. You touched on cost briefly, but I was just hoping you could provide an updated cost outlook for the year and discuss some of the moving parts within that. You also mentioned your focus on controlling costs. I guess I was just wondering, what are some of the areas that you can focus on with cost-cutting measures in a softer market?

So happy to. Jim, you want to go ahead and take the first time and come back on where we'll focus? Yeah. So the...

The full year guide on COGS per ton, well, second half rather, to be more precise, is up 7%, second half this year versus second half last year. It's reflective of, again, general inflation slowly coming down. There's a little bit of underabsorption in that as well as the volumes come down versus our old view. And the repairs and maintenance costs have remained elevated. We've seen some improvement as the volumes have come down on contract services. The outsource services have been reduced, lower overtime, and of course we do have a bit of diesel tailwind built in, so that's helpful too.

I think Jim really hit very nicely. A, what the percentages look like. B, what the emphasis is going to be. Obviously, we're going to be focused on maintenance and repairs because we've seen those up disproportionately, but we're also seeing general inflation come down. We are seeing some nice tailwinds coming from portions of energy. It's been a bit of a fabricated situation, though, because we've seen diesel clearly better. We've seen electric modestly up. But again, managing our hours, managing our overtime, keeping our people safe will be areas that we will have a unique focus, as we always do, in the second half of the year. But I think you will see a better trend on repairs in particular.

Great. Thanks for taking my question.

You bet. Good to talk to you, Jeff.

Your next question comes from the line of Tyler Brown of Raymond James. Please ask your question.

Hey, good morning. Hey, Warren, you talked a little bit about this earlier, but if I'm not mistaken, in conjunction with Blue Water, there was a notice of a July 15th mid-year. I believe you had already communicated mid-years out west early in the year. So I'm just curious, though, when you look at the portfolio, just how close are prices out west in those recently acquired operations to being harmonized to your heritage markets? Because I assume your heritage markets are also price increasing. Do you feel like there's still some catch-up work there? And why wouldn't this be a sizable tailwind to pricing over the next few years, just as you harmonize that whole portfolio?

So, Tyler, thank you for the question. So I would say two things. One, we are getting closer. We are getting ever closer to harmony in the western U.S. So pretty soon you can start humming that music. I think that's going to be there. But here's the other thought that I would have for you. I'm not sure we're looking for harmony in the west. I think the west ought to be a price leader. because as we look at the cost of doing business in California, as we look at barriers to entry in California, just a host of things, the West Coast businesses should never, in my view, have been businesses priced below a Martin Marietta heritage number. And I think there should be a premium associated with businesses in that geography because you've got, at times, some premium costs associated with that geography. Now, to the rest of your question, should there be recovery in places like Tennessee and elsewhere as we continue to go through the synergy realization process of the blue water operations, the answer is yes, there should be. And as I indicated, I think, in some of my earlier commentary, there's over a $4 a ton delta right now between the average in those locations and Heritage Mart Marietta. So to your point, Should there be an extended period of goodness in that? The answer is yes, because obviously the heritage footprint or price profile will continue to go up as we continue to move up at the blue water operations as well and get those closer to that harmony point that we spoke of before. It doesn't make a lot of sense to me as I look at our portfolio that North Carolina, Georgia, and Tennessee would or should look materially different in And that's where we're endeavoring to take the business.

Yeah, excellent. Okay, thank you.

Thank you, Tyler.

Your next question comes from the line of Michael Dudas of Vertical Research. Your line is now open. Please ask your question.

Good morning, gentlemen and gentlemen. Good morning. You know, you did notice in the presentation that the magnesium outlook is up for 2024 relative to expectations. So maybe spend a minute on that business and is there any reads or indications on general economic or business activity that can be helpful to, you know, thinking about how that business flows over the next several quarters?

No, happy to. And it's really a tale of two different businesses there. So if we're looking just at revenues, as Jim said in his comments, they were relatively flat. As we look at that, you know, Chemicals up around 7%. Lime, though, up 24%. And what we're seeing is pricing gains are more than offsetting lower chemical shipments, so chemical markets around the world. And keep in mind, this is not just a regional business. This is a business that we cover the U.S., and we have a double-digit international business there as well. So we obviously saw volumes down. We saw pricing up. So you're seeing a lot of the same dynamics in the magnesia specialties business that we're seeing overall in the aggregates business as well. Part of what I'm pleased with is steel utilization levels are remaining just above the 70% historical average. That's not a terribly high number. And what our team has been able to do there is several-fold. One, control costs really well. Number two, they're going about their commercial strategy in a fundamentally different way That's been a business that historically has had longer-term contracts, and they've been in a position to revisit those contracts, reset them, and make sure that, again, same circumstances, aggregates. We've got long-lived reserves at our facility in Woodville, Ohio. We have long-lived brine reserves in Manistee, Michigan. At the same time, we need to be getting good value for those, and Chris Zamborski and his team have managed both sides of that business, controlling cost well, and controlling pricing really well. And the EBITDA numbers that we're seeing in that business based on the volume in that business, frankly, looks fundamentally different today than it would have two or three years ago under the same economic circumstances. So I'm very pleased with that business. The other thing that I'll say, too, it wasn't part of your question, but I think it underscores the efficiency of the business. Their safety numbers have also gotten notably better. And And you just see that business going in a direction that we're very pleased with in what's probably one of the tougher economies that any sector of our business is dealing with. And they're likely to come in with a record EBITDA year this year. And that's the type of performance in this setting that makes us really excited about what Martin Marietta is going to look like in 25, 26, 27, et cetera.

Excellent. Appreciate that, Ward. Thank you.

Thanks.

Your next question comes from the line of Tina Tanners, Wolf Research. Your line is now open. Please ask your question.

Hey, good morning. One remaining one from us, if I could. Good morning. So I wanted to touch on the comments you had earlier about interest rates, and I wanted to ask something similar but about the election, because we are hearing that there's some pause in activity around the election, and So curious about that, but also if you could dive into maybe any risk to some of the IRA-related projects, especially as they relate to EB demand and given the potential outcome of the election. Thanks.

So, Tim, thank you so much. You know, what we're not seeing, I don't think we're seeing real slowdown on public relative to the election. So I think that just chugs along. I think that can have an effect on private, and I think that's probably some of what we've seen in the first half of this year. So I think that's probably just more of the same. Relative to public and what that could look like on IIJA reauthorization or the Inflation Reduction Act or otherwise, I would say several things. One, I think we're relatively agnostic, and here's why, Temna. Look, I think if you have a Democratic administration that's in power this next time, my guess is IIJA looks pretty similar. on a reauthorization basis, and then you continue to see things like the Inflation Reduction Act. I think if you have a Republican administration, honestly, you probably have a more amped up infrastructure law and probably less IRA. And again, from our perspective, they're probably almost a wash. And again, if we're looking at where the big investments are going to be made in highways, bridges, roads, and streets, it's going to follow where people are. It's going to be driven by what's happening with DOT budgets, and it's going to be happening driven by what happens at the ballot box, where most of these places that are seeing big population trends continue to pass initiatives at well over 80% rates of passage, and we think that's going to endure. Frankly, if we've looked at the last several elections and you look at what's passed in almost half of it tends to be in Texas. And again, it goes back to building that marketplace that we have in Dallas-Fort Worth and San Antonio and in Houston. And again, relative to what we see going on in energy and otherwise, I think that can move around a little bit depending on whether we have regime change. But if you built your businesses the way that we have on major commerce corridors, That's where the activity is going to be, whether it's factories, whether it's industrial, whether it's energy or otherwise. And that's why the positions we have along the I-85 corridor, the I-95 corridor, the I-25 corridor, the I-35 corridor, and the I-5 corridor are so important to us. And keep in mind, Timna, we're the largest shipper of crushed stone on the railroads for a reason. We're the largest shipper of stone on BNUP railroads. number one on CSX, number two on Norfolk Southern, and now number one on the Canadians after they bought the Kansas City Southern. And to the extent that this industrial build-out continues on either commerce by truck or commerce by rail, we're going to be well-suited by that. And I think that's why, from an election perspective, we're relatively agnostic and think we're going to be good either way, and we love that durability.

Okay. Appreciate the thoughts. Thank you.

We do not have any further questions at this time. I would now like to turn the call back to Ward 9.

Thank you all for joining today's earnings conference call. Martin Marietta has built a durable and resilient business poised to continue outperforming through dynamic macroeconomic cycles. Our compelling underlying fundamentals, dedicated teams, well-defined strategic plan, and carefully curated coast-to-coast footprint in the country's fastest-growing markets and unparalleled attractive growth opportunities reinforce our confidence in Martin Marietta's ability to continue delivering sustainable growth and superior shareholder value now and into the future. We look forward to sharing our third quarter 2024 results with you in the fall. As always, we're available for any follow-up questions. Thank you for your time and continued support of Martin Marietta.

This concludes today's conference call. Thank you for your participation and you may now disconnect.