Martin Marietta Materials, Inc.

Welcome to Martin Marietta's fourth quarter and full year 2024 earnings 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 conference 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 fourth quarter and full year 2024 earnings call. Joining 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 on both our own and the Securities and Exchange Commission's websites. We have made available during this webcast and on the Investors section of our website supplemental information that summarizes our financial results and trends. 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. Ward and I will begin today's earnings call with a discussion of our full year operating performance, 2025 outlook, and supporting 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. Good morning, and thank you all for joining today's teleconference. Over the years, the disciplined execution of our proven strategic operating analysis and review, or SOAR plan, has significantly transformed our company by providing Martin Marietta with a coast-to-coast footprint with the majority of our products and services, going to areas exhibiting the highest growth potential, by demonstrating our ability to manage through uncontrollable circumstances, by adhering to our value over volume approach to meet customers' needs without discounting the value of our own assets, and generating a higher return on those assets, and by showing the resiliency of our business model no matter the macroeconomic backdrop. As a result, our business is superbly positioned for near, medium, and long-term success. 2024 was no exception to those themes, as we once again delivered record aggregate financial performance and successfully completed nearly $6 billion of portfolio-enhancing transactions. Operationally, our team successfully managed many exogenous factors, including persistent inclement weather, tighter-than-expected monetary policy, and a related modest private construction slowdown. The team's steadfast commitment to managing what they could control, namely commercial excellence, cost management, and portfolio optimization, enabled the fourth quarter delivery of record profits, margin expansion, and record cash flow from operations. Before discussing our full year results in 2025 outlook, I'll highlight a few notable takeaways from 2024's fourth quarter. With the weather better cooperating in fourth quarter, earnings growth and margin expansion resumed, evidenced by a record fourth quarter consolidated gross profit of $489 million, consolidated adjusted EBITDA of $545 million, reflecting an increase of 8%, and consolidated adjusted EBITDA margin of 33%, an improvement of 210 basis points. Pricing gains more than offset the impact of inventory management efforts, driving fourth quarter record aggregates gross profit per ton of $7.92, an increase of 12%, and aggregates gross margin of 33%, an improvement of 120 basis points. In addition to our impressive financial results, we successfully completed three aggregates bolt-on acquisitions in southwest Florida, southern California, and west Texas, all of which are attractive SOAR-identified geographies. Our four-year results were notable given the year's extreme weather and a difficult macro economy. Despite these headwinds, we established new aggregates and magnesia specialties records. Specifically, aggregates revenues and gross profit both increased 5%, to $4.5 billion and $1.4 billion, respectively. Aggregate's gross profit per ton increased over 9% to $7.58. Magnesia Specialty's revenues increased 2% to $320 million, and Magnesia Specialty's gross profit increased 10% to $107 million. Martin Marietta's safety and enterprise excellence culture have long underpinned our financial results. I'm pleased to report we achieved our best four-year safety incident rates in our company's history, inclusive of our newly acquired businesses. Notably, this marks our eighth consecutive year of a world-class lost-time incident rate and fourth consecutive year of a world-class total injury incident rate. 2024 surpassed 2021 as our most active M&A year ever, with nearly $4 billion of aggregates-led acquisitions and over $2 billion of non-core asset divestitures. We selectively pruned cyclical and non-strategic cement and ready-mix concrete operations and redeployed the proceeds into pure aggregate assets in attractive markets, adding nearly 1 billion tons of aggregate reserves to our footprint. These proactive portfolio actions created a more durable business, increased the gross profit contribution from our core aggregates product line, and enhanced our margin profile, all while maintaining a strong balance sheet for continued acquisitive growth. Looking ahead, we expect the reshaped portfolio, together with our fourth quarter results, will provide a solid foundation for profitable growth in 2025 and beyond. Specifically, our full-year 2025 aggregate shipment guidance of 4% growth at the midpoint assumes that strong infrastructure and data center demand A full year of 2024 acquisition contributions and normalized weather patterns will all more than offset the slowdown in private construction, which is primarily interest rate driven. Our full year 2025 pricing guidance of 6.5% growth at the midpoint, while lower than the last three years of double-digit growth, remains notably higher than the long-term industry average of 3% to 4%. These revenue drivers, combined with moderating cost inflation, Contributions from our cement and downstream businesses, magnesia specialties, and a full year of contributions from our 2024 acquisitions underpin our 2025 full-year adjusted EBITDA guidance of $2.25 billion at the midpoint, a 9% improvement compared with prior year. Moving now to end markets, we'll start with infrastructure, our most aggregates-intensive and often counter-cyclical end market. Both building and maintaining our nation's heavy infrastructure remains a bipartisan national strategic priority. Three years into the Five-Year Infrastructure and Investment in Jobs Act, or IIJA, nearly 70% of highway and bridge funds remain to be invested, indicating robust multi-year tailwinds. Importantly, according to the American Road and Transportation Builders Association, or ARTBA, public highway, pavement, and street construction is expected to continue to grow, reaching $128.4 billion in 2025, compared with $119.1 billion in 2024, an 8% increase. Notably, based on recent state and government contract awards, ARPA's 2025 Transportation Construction Market Outlook shows Texas, Florida, North Carolina, and South Carolina, key Martin Marietta states, are among the largest markets expected to show growth. Moving now to non-residential construction, artificial intelligence, or AI, continues to drive unprecedented demand for digital and energy infrastructure, as evidenced by recent announcements from Microsoft and the new administration in Washington. Microsoft expects to invest $80 billion in fiscal 2025 on the construction of data centers that can handle AI workloads with over half of that spend in the United States. Moreover, the new administration recently announced Stargate, which aims to simplify permitting and significantly boost data center construction in the U.S. through a massive investment of up to $500 billion. The build-out is already underway with the data center in Abilene, Texas, that Martin Marietta is supplying from its December acquisition of R.E. Jane's Gravel Company. Moreover, Dodge Construction Network's warehouse where footage starts for the 12 months ended November 2024 inflected positively for the first time since December 2022, and Martin Marietta was recently awarded the material supply for two large Amazon warehouse projects in North Texas and Fort Myers, Florida, respectively. Shifting to residential activity, affordability and availability remain key issues impacting single-family demand. Neither is expected to resolve in the near term, given the higher-for-longer interest rate environment. Relative to the availability issue alone, Realtor.com recently estimated that the U.S. housing market is underserved by approximately 7 million homes. That said, when single-family residential construction inevitably rebounds, Martin Marietta's leading positions in key Sunbelt MSAs provide attractive opportunities to capitalize on structurally underbuilt markets with pent-up demand. In summary, record state and federal investments, reshoring, the artificial intelligence infrastructure build-out, and the long-awaited single-family housing recovery should provide multi-year shipment stability and provide a healthy pricing environment for years to come. I'll now turn the call over to Jim to discuss our full-year financial results and liquidity. Jim?

Thank you, Ward, and good morning, everyone. The building materials business generated full-year 2024 revenues of $6.2 billion, a 4% decrease, and gross profit of $1.8 billion, a 6% decrease. The decline in both metrics, which are comparing year-over-year results, is due to the February 2024 divestiture of our South Texas cement and related concrete businesses along with shipment declines in all product lines, partially offset by acquisition contributions. Our aggregate's product line achieved all-time record revenues, gross profit, gross margin, and unit profitability in 2024. Contributions from acquired operations and strong pricing more than offset lower shipments. Importantly, this was the second consecutive year of margin expansion, and the fourth year in the last six experiencing a price-cost widening. Over those six years, margins have expanded 870 basis points. In 2024, aggregate gross profit per ton improved 9% to a full-year record of $7.58 per ton. Cement and concrete revenues decreased 29% to $1.1 billion, and gross profit decreased 40% to $260 million. Again, driven primarily by the divestiture for South Texas cement plant and its related concrete operations. While cement margins held up nicely, the ready mix business experienced margin compression from Q2 through year end due to higher input costs, including aggregates and cement, outpacing pricing growth. Asphalt and painting revenues decreased 2% to $869 million due to slower market demand. Gross profit decreased 7% to $101 million due to lower revenues and higher aggregate input costs, partially offset by lower liquid asphalt costs. Magnesia Specialties established all-time records for revenues and gross profit of $320 million and $107 million, respectively, as benefits from strong pricing more than offset lower chemical and lime shipments. turning now to capital allocation and liquidity. We achieved record fourth quarter cash flows from operations of $685 million, an increase of 23% compared with the prior year quarter, driven by improvements in working capital and deferred income tax payments due to the Internal Revenue Service providing disaster tax relief for North Carolina businesses affected by Hurricanes Debbie and Helene. Our capital allocation priorities remain focused on prioritizing value enhancing acquisitions, re-investment in our business, and returning capital to shareholders. In 2024, we returned $639 million to shareholders through dividend payments and share repurchases. Even with significant M&A activity, we ended the year with a net debt to EBITDA ratio of 2.3 times, well within our targeted range of 2 to 2.5 times. Our strong balance sheet offers ample flexibility to execute on our active M&A pipeline and pursue value-enhancing investment opportunities. Finally, I will close my prepared remarks with some views on tariffs. The depth, breadth, and duration of tariffs actually levied remains highly uncertain. As a result, our 2025 guidance assumes no impact from tariffs. There are some situations where tariffs might enhance the company's profitability and others which may lower it. The vast majority of our supply chain is sourced from U.S. locations. The company was served well by that during the supply chain shocks of the COVID era and should serve us well going forward. With that, I will turn the call back over to Ward.

Thank you, Jim. To conclude, we're proud of our strong fourth quarter financial results and industry-leading safety performance. Thanks to our team's collective commitment to Martin Marietta's vision and strategic priorities, we have deliberately built an increasingly resilient highly productive, coast-to-coast aggregates-led business positioned to grow unit profitability through various in-market demand environments. We are enthusiastic about Martin Marietta's prospects in 2025 and beyond. The fundamental strength and underlying drivers of our differentiated business, proven strategic plan, strong balance sheet with significant opportunities for growth, and long history of successfully managing through economic cycles. provide us great confidence in our ability to continue delivering strong financial, operational, and safety performance. If the operator will now provide the required instructions, we'll turn our attention to addressing your questions.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. And if you'd like to withdraw that question, again, press star 1. And as a reminder, please limit yourself to one question. For any additional questions, please re-queue. Your first question comes from the line of Trey Grooms with Stevens. Please go ahead.

Thanks, and good morning, Ward and Jim.

Hi, Jim. Trey, how are you?

Doing well, thank you. As we look at the 25-guide, Ward, could you walk us through any of the puts and takes? around the overall guidance for the year, including your aggregates price and volume outlook?

I'm happy to, Trey. Thanks for the question. Look, at the outset, I'd say we're taking a pretty measured approach to the guide this year. Look, there's uncertainty relative to monetary policy and whatever the other policy fluctuations may be during the course of the year. Look, if the guidance proves conservative, and frankly, I hope that it is, we can come back and adjust for upside later. Relative to volume in the first instance, obviously we're looking at low single digits, and that includes, by the way, Trey, a full year of acquisition contributions. So if you think about what that's going to look like, BWI closed last April, so we'll see that fully in the first quarter. If we're looking at the transactions that we did in West Florida, in Southern California, and Texas, those will clearly be additive to quarters one through three. So again, if you're just thinking about the cadence on that, But if we think about end uses right now, I mean, overall, I think we should expect mid to high single digits growth in infrastructure. I think we're probably looking at low single digits, at least right now, relative to both non-res and res. And if we think about what the builders are under those, look, I do think infrastructure should stay strong. I mean, there's 70% of the dollars from IIJA that are still yet to come in our sector. And as a practical matter, that has to roll out in 25 and 26. So that should be pretty constructive. The other thing that we're seeing is nice, steady, consistent, and frankly, growing activity relative to data centers. I know there was some concern. There was a blip the other week relative to DeepSeq. We've actually seen most AI and others come back and double down since then. So we think that should be very healthy this year. Frankly, we're not planning anything. for a notable residential recovery in 2025, given the higher for longer mortgage rates that we're seeing, because we think that will just continue to affect monthly affordability. That said, in some instances, we are seeing that homebuyers are simply getting accustomed to this higher interest rate environment. So we're going to see how that plays out. But here's something that I think is notable, and I mentioned it in my prepared remarks, and clearly we're seeing green shoots in warehousing. The Claiborne, Texas facility that we have, the Fort Myers facility that we have, are both large jobs, and that's not the type of activity that you would have seen for the majority of last year. So we've been waiting for warehousing to find bottom. We think it has. The other thing that I think is important to keep in mind is as we go throughout the year, we're going to start lapping some pretty weather-impacted quarters last year. I mean, if you think about it, Q2 was really a washout. in our Southwest Division, particularly in Dallas-Fort Worth, which is the company's largest marketplace. And Q3 was a real challenge for us in portions of the East, including the Carolinas, which is a notable marketplace for us as well. So if you think about the way it rolls up, I mean, the gross profit guidance shows double-digit unit profit, ability growth, and nice gross margin expansion. And it's going to be driven by pricing and what we think will be moderating inflation. Now, relative to price, Price is going to be a little bit different this year as you simply think about the cadence. Because particularly in the cement market, we saw most cement producers roll their first price increases back to April 1, which meant as a practical matter, a lot of ready mix players were looking for that. So what we've seen in our world is most hot mix and others had price increases effective January 1, as you become accustomed to. There are portions of the ready mix community, in fact most of it, that are seeing April 1 price increases. So the price increases will be outsized relative to what history has been. Pricing, I'm convinced, is still very solid. It will be attractive for the year. But your cadence this year is likely to be a little bit different. So don't expect to see that same degree of pop in Q1 that we've seen in the last several years. You'll start seeing it building in Q2 and Q3, et cetera. So I hope that gives you a sense of it. One last thing I'd say is if we think about the estimated carryover effect from last year's pricing, it's about 80 bps coming into the year, Trey. So I tried to give you a sense of end markets. I tried to give you a sense of volume. I tried to give you a sense of pricing and how I think that's going to play relative to margins. So I hope that helped.

Yeah, that's extremely helpful. Thanks for that additional color. But just for some clarity, and correct me if I'm wrong, that pricing in April movement there for aggregates, If I remember going back historically, with the exception of the last few years, that's not unusual for the industry. It seems like that was kind of a normal kind of timing that maybe had kind of shifted a little bit more to January, just in more recent years. Is that the right way to think about it?

That is the right way to think of it, Trey. I mean, you've been around this industry for a long time, and I have too, and that's the way that has typically worked. So, yeah, I don't see anything there that's causing me any angst. But, again, if you're looking at it and modeling, as I know you are, I just wanted to make sure that I was giving you and your colleagues the ability to model that with degrees of precision. Yep. Well, that was super helpful. Thank you. I'll pass it on. Thank you, Trent.

Your next question comes from the line of Catherine Thompson with Thompson Research Group. Please go ahead.

Hi. Thank you for taking my question today. I appreciated the color on the tariff impact in your prepared commentary, but wanted to follow up on that in a two-part way. One, just pull the string on what could be impacted from tariffs from your perspective. We certainly had some metals tariffs announced yesterday. But also, two, what did Martin Marietta do to diversify its supply chain in the wake of the first Trump administration, and how are you a little bit better prepared today versus, say, 2016? Thank you.

Good morning, Catherine. Thanks for the question. I'll take the last part first and say this. If we go back to the COVID years when really supply chains were a mess, we actually came through that pretty well. I mean, we were having record years during that period of time, and we were not running into supply chain issues largely because, as Jim noted in his prepared remarks, most of our supply chain is domestic. There were some outliers, where we had things coming in from overseas. And to your point, we have moved very carefully in the intervening period of time to make sure that we can look primarily to domestic production. And I think that served us well before. I think if we see something that's amped up from a tariff perspective, we'll be even better served right now. To the second part of your question, what are some of the specifics? Look, obviously steel is something that we're going to watch. Steel tariffs, very frankly, could be pretty helpful to our magnesia specialties business. We're supplying a lot of that material to domestic steel producers, so if they see steel production ramp up in the United States, that's going to help us a lot on volume. And if we think about the magnesia specialties business, look, they just had a record year. And they had a record year with chemical and steel markets, frankly, in pretty low spots. So, again, I think tariffs, very selfishly for us on that, could be helpful. Equally, if we think about tariffs potentially on cement, look, we're a domestic cement producer. We're a long way away from water. But, again, I think that would be helpful to our North Texas position. By the way, that business continues to perform extraordinarily well, so I think it would just get that business even more upside. Imports or tariffs relative to stone has a twofold effect. Number one, I think it actually adds value to what we're doing with our long-haul network, particularly relative to rail. So keep in mind, we're shipping... more stone by rail than anybody else in the United States. That's about 30 million tons a year. It's going into coastal areas principally of the United States. We think that could be helpful. To be perfectly transparent about it, we do have an operation in Canada that's coming into the United States by boat. So that would be one of the headwinds that we could potentially see from that. But again, it's not going to be a material issue to the company. But again, just in full disclosure, I think that's fair to say. If we think about more indirect impacts from tariffs, I mean, we could certainly see a drive for more reshoring and more domestic manufacturing demand, and I think that goes back to your question relative to supply chain. And, you know, it could impact inflation in some degrees, and that could lead to maybe higher for longer, and that could have a negative impact on real estate or residential as we look at it. I think it goes back to the observation that I shared with Trey. I think we have given a very measured guidance approach today. And the fact is, if we come back and adjust this, I sure would like to adjust it up. And I hope we put ourselves in the position that that's exactly what we can do, Catherine.

Great. Thank you very much. Good luck. You're welcome.

Thank you.

Your next question comes from the line of Jerry Rivich with Goldman Sachs. Please go ahead.

Yes, hi. Good morning, everyone.

Hi, Jerry.

Ward, Jim, I wonder if you could just talk about the per ton cost cadence that you expect. Obviously, Mix is moving around, and Ward, you spoke about timing of price increases. Normally, price-cost spread is pretty consistent. Do you expect similar gross profit per ton growth in the first quarter as the full year? Can you just give us a bit of color on the cost of the equation?

Yeah. I'll ask Jim to come back and give you some color relative to cadence. I want to come back to the very first notion that you raised, and that is let's talk about what's happening with respect to cost per time because I think this quarter was a really good example of what you can and you should expect going forward. And if you look at it, I thought we had good cost management. You know, if we're looking, frankly, at organic cogs, they were flat despite revenue being up nicely in the organization. But what I like, Jerry, is when I go back and look at it, I mean, clearly energy was down, and energy was down because diesel was better and a host of things. But what I'm moved by is I go through the different cost buckets, whether it was supplies or whether it was repairs or whether it was contract services or otherwise. They're all in the green for the quarter. So I like the way that that's shaping up. And the fact is we can continue to make these businesses that we bought increasingly efficient relative to ASP but also relative to the cost profile. Now, the other part of your question was relative to cadence. And so for that, let me turn it over to Jim. Thanks, Ward. Hey, Jerry.

The cadence is going to be two dynamics. One is the P&L effects, the temporary P&L effects of our inventory reduction. That will continue through the first half. So that's already built into our guide, but that will show up more in the first half, not in the second half really as much. Aside from that dynamic, the underlying COGS inflation are going to be pretty consistent throughout the quarters. So that will be pretty evenly balanced, Q1, Q2, Q3, Q4. We're not anticipating anything changing dramatically on the underlying inflation piece. But, again, the inventory work down, the temporary penal effects from that we'll see in the first half, and then that should abate thereafter. Does that answer the question?

Yes. It does. So just to make sure we're on the same page with you, Jim, so it sounds like you're thinking of gross profit per ton up low single digits maybe in the first half and then in the back half maybe mid-teens given the comps on the inventory destock point. Is that the range of expectations?

Probably lower variation than what you just described. I would say low teens kind of consistently, maybe a little bit lower, up plus or minus a couple hundred basis points, but Low teens growth, you know, I'd say pretty consistently quarter over quarter.

And, Jerry, let me add one more footnote to that because Jim mentioned the inventory reduction or management efforts that we've been going through. I mean, for the quarter, that was about a $20 million P&L impact. And my point with that is if you think about overall cost control and if you think about pricing and you think about the margin expansion that we had in the quarter, given that $20 million headwind on inventory, That's my point. That was a pretty impressive quarter relative to cost control. Thank you.

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

Good morning.

Good morning, Anthony.

Hey, you referenced the recent acquisitions, and I'm wondering if it's possible to put a finer point on the volume benefit that you expect in 2025. either in terms of tons or percentage volume benefit or however you'd be able to frame it.

Happy to, Anthony. As a practical matter, if you're looking just at what would have been organic, it's probably up a percent. And then if you're looking at the balance of it, it's largely acquisition-driven. So I think on a percentage basis, that's probably not a bad way to think about it.

Got it. Got it. Thank you. Thank you.

Our next question comes from the line of Phil Ning with Jefferies. Please go ahead.

Hey, guys. I guess since Trump has stepped into office, certainly a lot of noise on the funding front on the public side, but it seems to be more centered around EV charging stations and some of these IRA projects. So my question to you, Ward, have you seen any pause in projects and any slowdown in bidding activity for new projects? Just kind of help us kind of think through any projects choppiness and noise on the public side when we look at the 25?

No, I appreciate the question. We've not seen any slowdown in that. And, in fact, we think that's probably going to continue to be pretty constructive, and I would say for several reasons. One, if we just look at what we think is going to happen relative to non-res square footage starts, I mean, we're projecting 2025 recovery of somewhere between 8% and 9%. But to contextualize that, that's still down 19%. from 2022's peak and still below a 2021 level. And if we're looking at what we're seeing right now relative to Stargate that I mentioned in my opening comments, at the investments that Amazon is making, we're simply not seeing a slowdown in those sectors right now. If we look in our footprint more specifically, I mean, Google has activity right now both in Kansas City, which is an important market for us, as well as in South Carolina. Microsoft, we talked about how much investment they have ahead of them, but they've already got projects underway in North Carolina, and obviously I've already mentioned the Amazon projects in both Claiborne, Texas, and in Fort Myers. But part of what I'm moved by as we think about the non-res sector is we think industrial construction is going to be pretty healthy. We think health care and education is going to be pretty healthy. And we think the broad commercial real estate sector is going to be the one that's going to come behind that single family sector that we said is underbuilt by around 7 million homes today, at least according to Realtor.com. So we're not seeing a slowdown in that. We're actually seeing a nice steady pickup in that. And again, so much of what's going to happen in our business is going to be driven by the locations that we have and the states in which we've built leading positions we believe are going to be on the front end of much of this development.

So, Ward, a lot of that commentary was more around private, but I guess in the public side you haven't seen any choppiness in terms of funding being paused or any of that stuff. And then the IRA piece, you just don't have as great of an appreciation, you know, how much of a good guy has it been and what it could

Yeah, we're not seeing anything choppy on the public side. We think public is actually going to be really constructive and expected to stay that way for a period of time. I mean, the fact is, if we're looking in Texas this year, TxDOT lettings are going to be really robust. They were $13.5 billion last year, and they're expected to be in that same range again this year. Again, as you recall, Colorado actually has an approved budget of nearly $2.1 billion this North Carolina's budget is going to increase to, I think it's about $7.6 billion. And part of that's driven by the fact that now we're seeing about 6% of sales taxes going into NCDOT today. So we think that's going to be attractive. Equally, if we go to Georgia, I mean, their budget is up 7%. Florida is at record levels if you take out one-time supplements that they've had. So if we're looking at our state DOT budgets in our top 10 states today, on a same-on-same basis, 8 of the 10 year-over-year are up. So that's why when we're looking at the heavy side, non-res, and on big infrastructure, we don't anticipate choppiness there. We expect pretty healthy, good, steady diets of work.

Oh, okay. Really helpful report. Appreciate it. Thank you.

Your next question comes from the line of Garrick Schmoy with Loop Capital. Please go ahead.

Well, hi. Thank you. Just a follow-up question and a new one for me. Just a follow-up just on the inventory drawdown. I was wondering if you could perhaps quantify how much you still have remaining in the first half of the year. And then, you know, just broadly on the volume outlook, you know, recognizing that you're looking for low single-digit growth. Has any of the components changed either for the better or for the worst since you provided the preliminary outlook back after the third quarter?

So a couple of things. So I would say relative to the inventory drawdown, if you think about it, it's about a $30 million headwind in Q3, a $20 million headwind in Q4. We do think we're going to be done with that by the time we get to half year. And, you know, what that, Garrick, if you think about bookends, that's probably not a bad way to think about bookending it. And the other part of your question, repeat that again for me, Garrick.

Yeah, I was wondering if the volume outlook has changed at all since last quarter, you know, recognizing you're still speaking to low single-digit growth. But, you know, has any component gotten better or worse? You know, maybe infrastructure sounds maybe to my ears a little bit better. Got it. You know, yeah, any other comment there?

So what I would say is I think people generally have felt like interest is higher for longer. So I think overall there's a sense that degrees of public are probably going to be a little bit more muted now than we would have thought several months ago. I mean, I'm sorry, private. But at the same time, I think we feel like public is going to be pretty healthy, and I think we feel like it has to be for several reasons, Gary. Number one, you have to assume this administration is going to be looking at a reauthorization at the end of 26th. and having 70% of those dollars still hanging around the hoop doesn't sound like a really good idea. So our sense is that's probably going to be a pretty aggressive play that we're going to see in public in 2025 and 2026. So I think that probably feels, honestly, a little bit more robust, and I think portions of private probably feels modestly slower for something that feels something like a wash.

Got it. Thanks for that, Pastor Allen. Best of luck.

Thank you, Garrett.

Your next question comes from the line of Angel Castillo with Morgan Stanley. Please go ahead.

Hi, thanks for taking my question. And sorry to be a dead horse here, but just wanted to clarify on the organic growth side, you talked about maybe 1% and the rest was on the volume side was maybe driven by the M&A front. But when you walk through your end markets, you highlighted high single digits for infra and then low single digit growth in resi, non-resi. So it seems to imply that the end markets themselves are maybe going closer to above that 1% if you kind of put that all together. So just curious, is that just conservatism or is there anything that we should kind of consider there as to why maybe that organic growth is only 1%?

Yeah, that was not organic. That was meant to be kind of the year-over-year view inclusive of the acquisitions.

Sorry, the 1% on volume?

No, no, the slides that show, you know, mid-single digits for infra and et cetera, low-single digits for the other categories, those were inclusive of acquisitions.

And I think to your point, look, as I said in my comments, we're trying to be really measured in this guide right now. So if we come back to you, we'd like to be guiding up, not sideways or down.

Got it. Understood. That's helpful. And then I just wanted to go back to your comments around the industry pricing, and in some pockets perhaps you're turning to April 1st and maybe a little bit more of a smooth cadence through the first half. Should we take that to mean that we're kind of moving as an industry away from mid-years, or do you still expect to see mid-years in aggregates?

I would say a couple of things. One, the guide that we've given you does not assume mid-years. But we believe that there will be degrees of mid-years, just as there were last year. And keep in mind, where we saw them mostly last year were in the new acquisitions. We think we will likely see that again this year. And part of what we'll just have to watch for next year is to see, again, how does cement roll out next year? Because what that did as this year came into play is it really made that January 1 more challenging situation specifically relative to ready-mix concrete. So again, the January 1 price increases are broadly in for products going into hot mix. So it's really more of basically a ready-mix issue and a cement issue than anything else. But yes, it does not include mid-years in the guide. We do think there will be some mid-years. We'll be back to you to talk more about that. Thank you.

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

Hey, good morning.

Good morning, Tyler.

Hey, Ward. Hey, as it relates to capital allocation priorities, can you guys talk a little bit about the M&A pipeline? Does a change in the regulatory environment impact anything there? And if that were not to materialize, what's the appetite on debt pay down versus the buyback just given the balance sheet health?

So number one, if you think about it, Tyler, $6 billion worth of transactions last year. We ended the year 2.3 times debt to EBITDA ratios. So we're in a very attractive place to continue growing our business, number one. Number two, there's still a lot of work to be done in this industry relative to M&A. And look, I'm going to see it for the rest of my career. My success will see it for the rest of their career. And my bet is My successor's successor will see that for a good part of their career as well. As we've indicated before, we've firmly identified over 200 million tons of businesses on a per annum basis that are in geographies in which we would have an interest in being, and then to your point, that we believe we can get cleared regulatorily. Look, do I think this is going to be a $6 billion year? No, probably not. If a few things break, could it be? I suppose it always could because it tends to be opportunistic. But my sense is, Tyler, we're looking just in a year-in, year-out circumstance that we're doing around a billion dollars a year of transactions. And we think that's a good, steady number. And there are going to be instances where you may well see it above that because you might have something opportunistically that comes along. Yeah. But if we think back to it as well relative to different administrations, et cetera, one thing that Martin Marietta has always been very consistent in doing is being in a position that we look at the markets very thoughtfully and we understand businesses that we believe we can buy regulatorily, ones that we can't, and we tend to move very purposefully on the ones that we can't. Now, relative to other uses of cash, let me turn it over to Jim so he can talk to you a little bit about that.

Yeah, good question. Good question, Tyler. We do a bond coming due in December of this year. It's quite small. Whether that's repaid cash and balance sheet or refinance, we'll see going forward, but it's relatively small, and I would anticipate share buybacks to outstrip any kind of debt reduction, if there's any debt reduction at all. So we've been in the market last year, bought a fair bit of shares. We'll be in the market again. this year as we are every year in buying back stock. But that would come before debt pay down.

Yeah, okay. And then super quick, Jim, it sounds like there's a few dynamics in first half versus second half, FIFO, pricing cadence, M&A, et cetera. Can you just shape first half and second half EBITDA mix? Will it slightly skew second half? Just any help would be very helpful from the model.

Thanks. Yeah, I think it will skew second half as it traditionally does. Perhaps less so this year than last year, though. Okay. Okay.

That's helpful. Okay. Thank you. Thank you, Tom.

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

Morning, gentlemen. Jacqueline. How are you? Yeah, I'm great. A little chilly here in the Northeast, but we're suffering through it. It's all good.

I would expect nothing else.

yeah thank you um uh look at the residential market just a little bit more thought on you know it's been frustrating i think for most of the industry you know that we've seen the affordability and the rate issues um is it is there sensitivity on like if the economy picks up or rates fall just a little bit that there's this pent-up demand will flow through are you anticipating that and uh is there any shift in say multi versus single that you might portray heading in, I know you only go out to longer-term numbers, but certainly as things normalize, what kind of a benefit that could be in the regions that you're in?

Yeah, Michael, it's a great question. I would say several things. As we talk to customers or we talk to builders right now, they're focused on buying and entitling land. So number one, I think that's a really good sign. Number two, that tends to be a really good sign relative to single-family residential. And selfishly, We like to skew toward that because that's two to three times more aggregates intensive than is multifamily. The other thing that strikes me is, while it's been a long slog, builder confidence in places like Texas, Colorado, North Carolina, and Georgia is clearly getting better. So we think that's a very good sign. I think they believe starts and permits are expected to pick up more broadly across the marketplace today. And the other thing that I think is worth noting, and I said it in the earlier response as well, I do think to degrees buyers are adjusting to higher rates. And so I think to your point, I think cuts could actually see a pretty significant surge in demand. It's all going to be a matter of timing because it's not going to turn on with immediacy. But when we go back to the notion of 7 million homes that are underbuilt, and a disproportionate number of them in states or MSAs in which we have a leading position, that's a pretty attractive place to be. So I hope that helps. Sure does. Thank you. You're most welcome.

Your next question comes from the line of David Mickrigger with Longbow Research. Please go ahead.

Yes, good morning, everyone. Thanks for taking the questions. I apologize for the background noise. I'm in an airport here. Ward, I guess on infrastructure, I hear you when you say that you're not seeing any interruption in orders right now, but I guess kind of the elephant in the room is how safe is federal funding for infrastructure construction projects? And I just wanted you to share with us how you would characterize the risk of federal government de-obligating funds for state DOT projects.

David, it's a perfectly good question, and I don't see that as a big threat, and here's one of the reasons why. I mean, if you think about the overall IIJA, $1.2 trillion, right, but $350 billion to highways, bridges, roads, and streets, the things that you and I look at is hard core construction. And if we think back to when IIJA was going through its debate process in the Senate and in the House, Then former President Trump was not in favor of IIJA because he did not think enough of it was going toward what he would refer to as real infrastructure. So if we look at what's going on with that and we think about what I believe his marching orders have been to Secretary Duffy, and that is to build big. And build big in this context I think means highways, bridges, roads, streets, airports, and big heavy infrastructure in the United States. So I think if they do anything with that, I'm not sure that they will, I think it will be nuanced, and I think if it's nuanced, it's not going to be in those areas that you and I think about as being nicely aggregates-intensive and oftentimes counter-cyclical. So I think if we think of IIJA through that lens, I think that's probably the right place to be. If we think about IRA, so many of those funds have already been obligated to obviously a much smaller program anyway. So as I'm sitting here measuring risk and thinking about the way the administration may be thinking about a reauthorization, I just view bad things happening there as having a relatively low likelihood. So, David, I hope that helps.

It does. Thanks very much, Warren. You're most welcome.

Your next question comes from the line of Adam Thalheimer with Thompson Davis. Please go ahead.

Hey, good morning, guys. Congrats on the Q4 beat.

Thank you, Adam. Good to hear your voice.

Two things. I have some confused clients on pricing, and I think you said aggregates pricing up a little bit sequentially in Q1 with a bigger pop in Q2. Yeah. And then my other question was vis-a-vis what somebody else said about the weather. It's been a pretty tough winter. Just curious if we should bake in a conservative Q1.

You know, I wouldn't go over your skis on baking in a conservative Q1. I think Q1 is going to be just fine. So I wouldn't lean too hard there. Look, I think you nailed it on the pricing. I'm not at all worried about pricing, as Trey indicated in his question, too. I mean, an April price increase for some portions of marketplaces where this industry has resided for a long time. And my only commentary around pricing was, I'm trying to make sure from a modeling perspective. To your same point, I'm not wanting people to get over their skis on certain components as they go through on a month-by-month basis. But if I break yours down, no, I don't think you need to build anything draconian at all into Q1. And I do think if you've got price increases layering in in a more robust way post-Q1, your model will hold together in a better fashion.

Perfect. Thanks, Ward.

Thank you, Adam.

Your next question comes from the line of Avi Yaroslavic with UBS. Please go ahead.

Hi, good morning. Good morning. Given all the volatility and fluctuations with policymaking these days, Curious how that's affecting your own capital planning and strategic decision-making.

You know, the nice thing about this industry is I can tell you this company has always been profitable. This company has never cut a dividend. And even when we went through the financial crisis and lost, let's call it 40%, 45% of our volume, we always had pricing power. So when we look at history and let some of the history dictate how we look at the future going ahead, look, there are going to be some policy things that will move around. I think the policy issues that I believe we'll see from this administration relative to public and infrastructure will be constructive to what we're doing. I think the policy decisions we may or may not see from this administration relative to tariffs, whether it be cement, steel, or otherwise, will probably be constructive to what we're doing. When I think about where I think this administration would like to see interest rates and what that can do to single-family housing, I think that ought to be constructive to what we're doing. When I think about a company that has proven itself to be actually very capable at M&A, I think we're likely to be in a time with availability of potential transactions and an administration that's frankly going to be... will look more favorably upon transactions going forward than we've seen in the more recent past. So are we watching carefully? Yes. Are we going to remain agile? Yes. But as we look at it and really start thinking about what are going to be potential pluses here, what are going to be potential minuses here, we see a lot of pluses here. And we see that relative to what M&A will look like. We see that relative to what we think monetary policy is going to look like. And frankly, I think we're likely to see it in the way a reauthorization works. And the way that I think about that is I think this administration, while they have control of a House of Representatives and the United States Senate, are likely to want to get a reauthorization done before midterms. Because it passes prologue, usually midterms don't work terribly well for the party that's in the White House. So if the current administration is looking at having the White House and the Senate and the House of Representatives and is consistent with telling Secretary Duffy to build big, again, as we're watching the policy decisions that have been announced and policy decisions that we anticipate, I think on a whole, we feel like they're going to be pretty positive for Martin Marietta. All right. Very helpful. Thank you.

You bet. Thank you.

Your next question comes from the line of Michael Finninger with Bank of America. Please go ahead.

Great. Thanks for squeezing me in, guys. Of course. You mentioned price versus cost spread has widened in recent years. I'm just curious, Ward, if we are in a higher for longer rate environment and that private side is still somewhat under pressure, is it inevitable that as you turn the page at 2026 that private pricing comes back down to that long-term 3% to 4% average? Or, you know, just qualitatively, do you think that price versus cost spread, you know, remains wider than maybe what we historically have seen, you know, outside of just the last three years?

So I'm going to answer your last question first. Look, I think the price-cost spread continues to work in our favor. And I think for a couple of reasons. I think actually twofold in this instance. One is And Jim can talk to what we're seeing broadly on inflation. I think inflation is moderating, inflation is coming down, so that's going to help. But I think the bigger driver is pricing is going to remain in a fundamentally better place going forward than pricing was, at least in my view, for all the years up until, let's call it the last two or three. And I think that's a fundamental change. I don't see that changing. Look, if you're looking to face some financial statements, as I am, you're seeing ASPs around $22 a ton for aggregates. That's had a nice run. But, Michael, I'm going to say again what you've heard me say in the past. There are very few things that you want in your life that you can buy for $22 a ton except our product. And I continue to believe that we're going to be in a position that we can get appropriate value for our product going forward. I think we'll see that spread continue. I'll ask Jim to give you a little bit of color relative to what we're seeing with respect to inflation.

Yeah, so as we indicated late last year, we're still of the same view. COGS per ton inflation is mid-single digits. And then trailing by a fair bit the ASP growth we're expecting. So based on our guidance, I would say we would expect gross margins to widen that spread by another 100 basis points. In 2025 over 2024, that's even after overcoming the temporary P&L effects of the inventory reduction. So I think that bodes well for 2025, bodes well for 2026 and beyond. So over the arc of history, we've widened the price-cost spread. It's not a straight line, but it's pretty consistent over time, and I don't see why that would end.

Great. Great, Jim. And Ward, maybe just to one of your earlier comments, I think you said on Q4, you know, the cement margin was healthier relative to what you saw in ready mix. Just how is that evolving in 2025? I mean, I think NAC gas prices are a bit higher. Just kind of curious how we should kind of think about that cement versus ready mix in 2025.

Well, I would say I think considerably better about cement than about ready mix in 2025, even as we're looking at cement for the quarter. Pricing was constructive. The fact is the business really performed well despite pretty significant headwinds from a weather perspective in both November and December. We saw nice revenues in cement. We saw good gross profit. We saw good gross margins, good EBITDA. Importantly, that FM7 operation that we opened, it was running at greater than 90% of availability there in the fourth quarter after we opened that up. So Again, we're not going to be cement every place. We're going to be cement where it's really strategic to us. And in Dallas-Fort Worth, it is really strategic. And Midlothian is a fantastic cement plant. Now, if you think about what's happening relative to ReadyMix, your volume is relatively flat there. The dilemma that ReadyMix has is ReadyMix is taking significant aggregate price increases. It's taking cement price increases. And it's hard for ReadyMix to keep pricing ahead of that. So If we think about what the combinations can look like, you're going to see some margin compression in ready mix. But again, if we think about ready mix, it's so much of a shock absorber for our company. We have it in very select markets. It's important to us in places like Dallas-Fort Worth and Arizona. But your question really was geared around cement, and I wanted to make sure I gave you a good, robust snapshot of the way cement is performing, because if you could really see it at a granular basis, you'd be very comfortable with it, as are we. Thank you. You're most welcome.

And that concludes our question and answer session, and I will now turn the conference back over to Ward Nye for closing comments.

Thank you, Kristen. Thank you all for joining today's earnings conference call. As we close the chapter on our 30th year as a public company and look forward to the next 30 years, you should expect Martin Marietta to continue building on its solid foundation of past successes. With our world-class teams and proven strategic priorities underpinned by our resilient aggregates-led business and unparalleled markets, Martin Marietta is well poised to deliver sustainable growth and shareholder value for years to come. We look forward to sharing our first quarter 2025 results in a few months. As always, we're available for any follow-up questions you may have Thank you again for your time and continued support of Martin Marietta.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.