Summit Materials, Inc.

earnings call. All lines being placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on their telephone keypad. If you'd like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Andy Larkin, Vice President of Investor Relations. You may begin.

Hello and welcome to the Summit of Materials third quarter 2024 results conference call. Yesterday we issued a press release detailing our financial and operating results. Today's call is accompanied by an investor presentation and a supplemental workbook highlighting key financial and operating data. All these materials can be found on our investor relations website. Management's commentary and responses to questions on today's call may include forward-looking statements, which by their nature are uncertain and outside of Summit of Materials control. Although these forward-looking statements are based on management's current expectations and beliefs, Actual results may differ in a material way. For discussion of some of the factors that could cause actual results to differ, please see the risk factor section of Summit Materials' latest annual report on Form 10-K and quarterly report on Form 10-Q as updated from time to time in our subsequent filings with the SEC. You can find reconciliations of the historical non-GAAP financial measures discussed in today's call in our press release, an investor presentation, and supplemental workbook. With me today are Summit Materials CEO, Ann Noonan, and Summit CFO, Scott Anderson. Ann will discuss high-level highlights from the quarter and then provide our view on the business moving forward. Scott will follow with a detailed review over financial performance. Afterwards, we will open the line for questions. Out of respect for our analysts and the time we have allotted, please limit yourself to one question, and then we'll return to the queue so we can accommodate as many analysts as possible in the time we have available. I'll now turn the call over to Ann Noonan.

Thank you, Andy, and welcome to everyone joining today's call. As you saw in our press release, our third quarter demonstrated tremendous resiliency in the face of very difficult operating conditions. I'm incredibly proud of our collective efforts to act with agility, manage what we could, and deliver strategic progress and strong financial results. In Q3, we set an Elevate Era record for both quarterly adjusted EBITDA margin at 28.3% and training 12-month EBITDA margin at 24.3%, a strong endorsement of our high-quality execution and unwavering strategic focus. And true to our values, we executed the quarter with a safety at all costs mindset. When faced with imminent and dangerous storms, we prioritized the safety of our people, closing operations, securing equipment, and providing the resources necessary to ensure the health and wellbeing of our employees. I'll detail the impact from severe weather events in a moment, But what's most important is that through all of the hurricanes and tropical storms, we had zero safety incidents at any of our affected facilities. Turning now to slide four, let me provide the highlights from the quarter both strategically and financially. First, our strategic progress is on track. We continue to move through integration activities with a sharp focus on strengthening our cement platform. For example, planning for our Green America recycling expansion is underway at the Legacy Argos USA plants. We are establishing critical supplier relationships and advancing our capital planning efforts so that we can begin our installation during the 2025 winter shutdown at our Roberta, Alabama cement plant. A disciplined portfolio optimization approach also remains an important component of our Elevate playbook. Guided by market leadership and asset-light principles, we are taking action to strengthen leading market positions in targeted geographies while unlocking value through divesting non-strategic assets. Through Q3, we have completed four such dispositions, while adding two bolt-ons to amplify our market position in Phoenix, as well as add to our overall ags portfolio. With substantial liquidity and robustness, we will pursue accretive ags-oriented acquisitions to fuel greater growth and returns. Financially, we are taking decisive actions across the enterprise to drive sustainable margin growth. Our value pricing strategy continues to deliver results with double-digit pricing gains in aggregates and mid-single-digit organic pricing gains in cement expected for 2024. We are also identifying and attacking the most meaningful operational excellence opportunities across our footprint with an intense focus on ag's productivity initiatives. And finally, our team is adjusting our discretionary spend to align with the current volume environment, something every good business should do. As for factors outside our control, this quarter again, we contended with unprecedented and severe weather that translated into lower volumes and higher costs. Despite this, and inclusive of dilutive impacts from the Argos USA transaction, we were able to grow adjusted EBITDA margins in Q3 on a year-to-date basis and on a training 12-month basis. This speaks to our relentless focus on commercial and operational execution, and underscores a more durable portfolio that we believe is being undervalued in equity markets. We will hold closely to our Elevate Summit strategy and firmly believe our sound execution will be recognized and eventually rewarded by the investor community. On slide five, we present our Elevate Summit scorecard, which highlights our financial progress. As I mentioned, LTM adjusted EBITDA margin of 24.3% is a summit record for any 12-month timeframe since the launch of Elevate in 2021. This is our thesis playing out. Focus the portfolio on margin accretive ags and cement platforms, concentrate on geographies with market-leading positions, and consistently improve the commercial and operational capabilities of the enterprise. This is our formula, which in turn jumpstarts our cash flywheel and unlocks resources to reinvest in further growth and value creation. Net leverage at 2.2 times is down from 2.5 times last quarter, and well below target, providing sufficient optionality to pursue our highest return capital allocation priorities. ROIC at 8.9% will move concurrently with the improvements implemented at our Legacy Argos USA cement plants, as there is considerable daylight between Legacy Summit and Legacy Argos cement ROIC levels. This represents a cleared light path to close in on our ROIC minimum target. Across all financial measures, our actions and strategic priorities are driving the targeted and desired financial outcomes for our business. Now, from the macro to the micro. Slide six estimates the impact of specific weather events in Q3. Between hurricanes Beryl, Debbie, and Elaine, we incurred volume headwinds and elevated costs most prominently in Houston, western and northern Florida, the Carolinas, and to a lesser extent, Georgia and Virginia. As you can see, the most consequential event was Debbie, where the quarry that feeds our Harleyville cement plant near Charleston flooded as Debbie dumped significant rainfall over the area. Our teams quickly stood up mitigation measures, blunting the worst of it. But wet feedstock, inaccessible primary equipment, and customer-related ramifications resulted in approximately 120,000 tons of lost volume and $12 million of lost EBITDA. In isolation, Debbie would weigh on any quarter, But when combined with the overall precipitation across our footprint, it rose to a historic headwind for us and for the industry. In our footprint, precipitation days increased in 85% of our MSAs, and precipitation days were up 20% year on year. Precipitation totals were up 65% versus Q3 23, underlying the severity of third quarter storms. All in, we estimate the three discrete weather events cited. amounted to approximately $15 million in foregone EBITDA for the third quarter. Notably, this does not include the impact from Hurricane Milton, which we estimate will affect our fourth quarter by roughly $5 million. We'll work to make up as much as we can, but as always, that will depend on getting a good stretch of weather to close the year. Cumulatively, for 2024, our business has more than $20 million of weather-related EBITDA headwinds this year. and yet we are still positioned to grow EBITDA dollars and margins for 2024, a testament to our stronger portfolio and a collective focus to drive positive growth from areas within our control. Having fully incorporated these weather events, our updated 2024 outlook is on slide seven. The adjusted EBITDA range is being adjusted to 970 million at the low end and 1 billion at the top end. If achieved, the 985 million midpoint represents roughly 7% annual EBITDA growth on a pro forma basis, which compares favorably to the peer group and underlines both the momentum we have in the business and the growth opportunities unique to Summit. This outlook recast volume expectations for 2024. We now project organic volumes for aggregates to be done mid-single digits this year, implying fourth quarter ag volumes to be relatively flat the prior year. Cement volume expectations have been reduced to approximately 8.6 million tons this year, which translates to down roughly 250,000 tons in our river market and down 200,000 tons in legacy Argos markets. Of course, our fourth quarter outlook assumes normal weather conditions, knowing that the longevity of the construction season is the biggest swing factor for Q4 performance. Importantly, when given dry days in markets like Houston, we've been able to partially recoup storm-related impacts, a trend we are hopeful will continue as we close the year. Offsetting this more restrained volume environment is visibility to asset sale opportunities and potential adjustments to incentive compensation. On pricing, we are reaffirming our outlook calling for double-digit ag pricing in 2024 and mid-single-digit organic cement pricing with average selling price exiting the year in the mid-150s. And we are reiterating our previous cost outlook with mid-single-digit cost inflation this year and GMA expenses at or below $330 million. On CapEx, we have recalibrated our capital spent to maintain our 10% of net revenue commitment. As such, we expect our CapEx for this year will approximate $400 million at the midpoint. In summary, volumes are softer than anticipated, price is pacing with expectation, self-help is stronger than originally contemplated, and as a result, we are well positioned for top-tier 2024 growth and margins of at least 24%. When achieved, this would mean we will fully recover Argos' solution in the first year of integration, a fantastic achievement for our team. While we keep our sights firmly focused on 2024 execution, we are well into our planning cycle for 2025. On slide eight, we provide our high-level framework for next year, but as customary, we will refine and adjust as we move into 2025 with more detailed guidance presented in February. In summary, we think that 2025 is setting growth and margins for summits. First, we see enduring pricing growth across our upstream businesses. As ag pricing normalizes, I think we can and will do better than the 3% to 5% long-run historical average next year. For cement, while regional demand conditions will be considered, we have harmonized cement's go-to-market approach with January 1st pricing plan for all markets. This initial pricing alongside opportunistic mid-years means the pricing will remain a reliable lever for profitable growth in 2025. On demand, the picture is much more fluid. On one hand, the public end market appears poised to sustain elevated activity in 2025. For our top states, our DOT budgets are at historic levels and growing. Our leddings are outpacing the national average, and importantly, nearly half of IIJA formula funding has yet to be obligated. Pairing that with our advantage positions in geographies like North Texas, Utah, and Salt Lake counties, as well as Kansas and Missouri, We view public infrastructure as a source of steady, reliable activity heading into 2025. We view private ed markets, on the other hand, as more choppy, locally dispersed, and subject to reevaluation as we move into and through 2025. Mark Columbia, North Florida, and Kansas City are showing promising signs for next year. While activity in other geographies with significant commercial exposure, like Salt Lake City and Phoenix, is starting to pick back up, they remain somewhat subdued. On balance and consistent with our typical budgeting approach, we won't lean into volume growth prematurely. We need better visibility into our project pipeline and the key construction season before making definitive forecasts. That said, our current perspective suggests a more back half weighted volume profile for 2025, largely influenced by the hesitancy we're witnessing in the private end markets. From a self-help perspective, our full funnel of opportunities includes Argos USA synergies, operational excellence initiatives already taking flight across the footprint, and an evergreen process for portfolio optimization. These three areas provide unique and powerful margin enhancement opportunities for our business. And finally, with nearly $740 million in cash on hand and a capable balance sheet, we view growth-enabled CapEx and Ags-led bolt-ons as the accretive pathway to drive organic and inorganic growth next year. These four elements are the 2025 building blocks. We believe these elements, alongside high-quality execution, will push us into the Horizon 2 adjusted EBITDA margin range of 25% to 27%. In closing, our playbook is working, our team is executing, and we are poised to make further intros into our Elevate Summit financial commitments as we close 2024 and enter 2025. With that, let me invite Scott to walk you through our financial results in more detail.

Thanks, Anne. I'll pick up on slide 10, where at a high level, trends remain relatively consistent from prior quarters. Pricing remains robust and healthy, up roughly mid-single digits across our portfolio. Volumes, on the other hand, and to differing degrees, remain relatively subdued. On slide 11, profitability performance underscores several factors, including the durability of the portfolio, the attractiveness of our markets, the power of price, and the magnitude of our self-help initiatives. Adjusted cash growth profit margin increased approximately 50 basis points year-on-year, and adjusted EBITDA increased 20 basis points on a reported basis and more than 200 basis points on a proforma-like basis. Similarly, year-to-date adjusted EBITDA margins have increased 60 basis points versus the comparable prior year period and have increased proforma by more than 200 basis points. Bottom line is that our quality of earnings is improving, and we are well positioned to land the year with reported adjusted EBITDA margins above 24%. Adjusted diluted earnings per share of $0.75 was six pennies lower than prior year, primarily reflecting higher non-cash DVNA as well as higher interest expenses. Aggregates performance is detailed on slide 12. In Q3, we sold 15.4 million tons of aggregates, up 0.7% organically from a year-ago period. which considering the environment is respectable, but below our previous expectations. Volume growth was most prominent in Missouri and Key West segment markets like Salt Lake and British Columbia as easy comparisons along with project timing more than offset weather impacted volumes in East segment in Houston. Average selling price in Q3 was $15.34, up 7.4% versus last year and up 8 cents versus Q2 2024. Year-on-year, pricing was led by double-digit growth in the Carolinas, Arizona, and certain markets in Kansas and Texas. Sequentially, if you recall, second quarter benefited from mixed favorability that increased Q2 ASP and somewhat muted the impact of mid-year pricing actions. Nevertheless, commercial execution in 2024 has been strong as we bring our value pricing principles to each individual market. Adjusted cash gross profit margin decreased 50 basis points to 58.5%. due in part to one-off storm-related costs, but per unit aggregates profitability accelerated 46 cents sequentially and is up over 30% in 2024. On a year-to-date basis, adjusted cash gross profit margins have expanded 170 basis points, thanks in part to a sharp focus on operational excellence. Today, we've achieved nearly 15 million aggregates productivity savings, eclipsing our full 2023 amount and setting us on a course for greater value creation going forward. Operational excellence is a key value enhancer, especially for our ag line of business, and feeds our confidence that we will achieve substantial margin expansion this year and in 2025. Turning to slide 13 in our cement performance. Organic volumes were down 11.3%, reflecting moderating demand and a pullback in imported volumes. Import volumes in our river markets decreased more than 55% year over year in Q3. consistent with prioritizing margin-advantaged domestic volumes over imports when conditions call for it. Volumes in the southeast and mid-Atlantic were impacted by excessive rainfall, particularly in the Carolinas that Ann mentioned earlier. For the full year, pro forma volumes are expected to decline in the mid-segal digit range, with the mid-Atlantic and the southeast collectively exhibiting comparative better volume trends than our river markets. which we now expect to be down double digits in 2024. Pricing and synergies have combined for a very positive margin story. For cement pricing, growth has remained healthy with inland geographies fueling year-over-year organic pricing growth. Sequentially, cement average selling price increased $2.33 to $155.76 per ton, primarily reflecting Argos USA commercial synergies, and favorable geographic mix, with higher-priced markets commanding a greater proportion of our third-quarter volumes. Saman's third-quarter adjusted EBITDA margin increased 180 basis points year-over-year and 280 basis points on a year-to-date basis. Here, synergies combined with a greater mix of domestic volumes and the lower cost of kiln fuels is not only offsetting volume deleverage and the impacts from Argos dilution, it's actually powering margin expansion. For Q4, we anticipate that trend to continue with further margin enhancement as our less seasonal cement footprint will benefit from more all-season exposures in the Southeast and Texas. Lastly, downstream performance is on slide 13. Organic ready mix volumes remain soft as weather impacts and the sluggish private in-market environment weighed on third quarter activity. Asphalt's organic volume growth of 0.4% encompasses double-digit volume gains in North Texas mostly offset by unfavorable timing of activity in the Intermountain West and lower volumes in British Columbia. Products adjusted cash gross profit margin in the period was aided by positive pricing for ready mix and asphalt, as well as synergy generation, but more than offset by the inclusion of lower margin Argos ready mix businesses in Houston, Atlanta, the Carolinas, and Florida. Services margins grew year on year, mostly reflecting a healthy construction environment in our asphalt market. Stepping back, it's important to reinforce our Elevate approach to the downstream. We are materials-led and highly selective about where we compete in the downstream. We must be market leaders, and the downstream must help us achieve our Elevate Summit goals. Otherwise, we have continually demonstrated a proficiency of optimizing around our materials-led portfolio. Let me now turn it back over to Ann to conclude our prepared remarks.

Thanks, Scott. I'd like to briefly address the press release we issued last week, disclosing the non-binding acquisition proposal that we received. As we said in the release, Summit has held initial discussions with the interested party, and in consultation with its advisors, our board will carefully evaluate the proposal and act in the best interest of the company and our shareholders. As we said, there can be no assurance that any definitive agreement will be reached And we won't be making any further comment on this matter until the Board has reached a conclusion. That's really all we can say at this time. So I would appreciate it if you could keep your questions today focused on our strong performance. I want to reassure you that concurrent with that evaluation, we remain laser focused on executing our Elevate strategy and are steadfast in our conviction about our long-term vision and opportunities. As you can see on slide 15, our priorities are unchanged. Integration efforts aim to transform Summit into one high-performance organization. Accelerating growth in aggregates remains crucial to achieving a fair market valuation. Executing and realizing the complete set of Argo synergies and scope, and we are dedicated to strengthening and optimizing both our portfolio and balance sheet to support superior growth and value creation. With that, I'll now turn it over to the operator to provide the instructions and open the line for questions.

Thank you. We will now begin the question and answer session. If you've dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you'd like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. For today's session, we do request that you limit yourself to one question and re-queue for any additional questions. Again, press star one to join the queue. Our first question comes from the line of Phillip Ng with Jefferies. Please go ahead.

Hey, guys. Congrats on really strong results in an uneven environment. So kudos to the team. So appreciate you guys laying out the groundwork and framework for 2025. you kind of help us think through some of the uh moving pieces some of your peers have at least provided a framework in terms of demand and price you know appreciating and you're expecting demand to be more back half weighted next year but is your expectation for volumes be up and uh any more color on pricing i know you've announced uh price increases on cement uh how big how that's coming through and some of the uh opportunities kind of unlock um better commercial efforts on the argo side of things would be helpful yeah so

There's a lot packed in there, Phil. Thanks for the congrats on the quarter. Let me kind of step back and talk about what we're thinking with respect to pricing, first of all, and I'll do it by line of business is the best. So from an ag's perspective, obviously we have some nice momentum and we've gone out across the board on January 1st price increases consistent with what we did in 2024. That will vary according to geography. So for example, Phil, You know, last year, this year, actually, we went out in Kansas with a really strong January price increase. Midyear was more moderate. Virginia, on the other hand, it was balanced between the two. So we will do it a very much value pricing, dynamic pricing mentality into 2025, but expect it to be very strong. And I would be extremely disappointed if we weren't in the range of 6% to 9% in 2025 on ags pricing. Cement, as I said in my prepared comments, we expect another strong year of pricing in cement. And there I would look at the fact that demand does actually drive strong pricing in cement. We see that particularly in the second half, an opportunity to maybe even get a second price increase in addition to our January price increases. So think about as we go and cement a more harmonized approach across the board, January 1st price increases. And on top of that, we still have some contracts rolling off that are below market where we're working with our customers to get them back up to market pricing. That will be hand-to-hand combat as we go through, but we intend to be a price leader in this market consistent with our position in the marketplace. And then finally, all the commercial excellence efforts that we're putting in place to upgrade our people, processes, and tools in cement will drive more value pricing. Constructive pricing environment adds continued strength in that mid- to high-single-digit overall. From a demand perspective in 2025, we go in with very cautious volumes. That's just our planning stance. That has played out this year, Phil. That keeps our team focused on their controllables. So if I think about it from an end market perspective, public strong, private a little choppy. And then from a line of business perspective, ags, we'd go in with flattish volumes on a year-to-year basis, but that will drive much more performance. And that's kind of a mixed bag on ags. It's very divergent. So, for example, in Florida, we have more additional capacity coming on, so we'll grow there. On the other hand, if I look at Phoenix, our tilt-ups are down 75% in 2024 and residentials recovering. So as we get into February, we'll give you a much better view on volume, but we don't lean into that in our planning stance right now. For cement, if you look at PCA, we're looking at flat to low single digit right now. and with a second half recovery that should be supportive of additional price in the mid-years. So hopefully that gave you the color that you need, Phil, at this point.

That's really helpful, Anne. Appreciate it.

Our next question comes from the line of Trey Grooms with Stevens. Please go ahead.

Hey, good morning. And yeah, I'll have to echo the congrats on the quarter. Nicely done. So solid work on the margins. You know, and you mentioned in the prepared remarks you expect to hit Horizon 2 by the end of next year. Is there additional color maybe you could give us on, you know, how you see cost inflation maybe progressing in the next year and, you know, maybe how you're thinking about any more specifics around the margin improvement? I know Scott kind of touched on expectations for solid inflation. margin expansion to continue, but any additional color you can give us on how to think about that next year and maybe where the low-hanging fruit may be and what it would take us to see you get into that range.

I'll cover the margin improvements, what the key drivers are at a high level, and then Scott, maybe you'll address the cost of implementation part of the question. So really, Trey, it's a continuation of what we've been doing, and the team, as you can see, is obviously executing at a very high level. So if I think about ags, the margin improvement is going to continue to come from strong pricing, really accelerated operational excellence, which teams have been doing a phenomenal job in nearly eclipsing inflation at this point with the cost work that we're doing, and then continued portfolio optimization, investing in those ags both organically and inorganically. And then on cement, it's all about delivering the synergies, which we're well on track on. And it's also about continued commercial excellence there as we move forward from a pricing perspective. So they will continue to drive that margin and overall will continue to optimize this portfolio, which has been very margin-agreed to our business. Scott, maybe you'd address the cost inflation part of the question.

You bet. So, Trey, when you look at the cost, you know, this year we're mid-single digits. We've been kind of normalizing, moderating the cost inflation all year. And just as Ann pointed out, we're making progress on our OPEX improvements. We're really starting to cut into that inflation, so you've barely had any cost inflation this year because of the offsets we had in operational improvements. And that's going to carry on. We've got a lot of momentum around that on the ag side, especially when you look at the mine planning that's going on, the yellow iron thing. and then as well as inventory optimization, so around our critical products. But the efficiencies we're getting, Marshall Moore as our chief operations officer, and he's really building out a team, actually even having frontline training to really drive this culture to focus in on our costs. We believe next year you're going to see more of that carry on in the ags on the cost side. And just for inflationary, what we're seeing for next year on some of the key buckets, like diesel fuel is a big one, We're already hedged at 40%, and actually we're less than we were hedged this year. So I think we're hedged at 40% at $2.53 a gallon. If you looked at this year's, it was $2.77. So we've got some favorability on the diesel side. We're looking at increasing that hedge on up to 50% right now. So when you look at R&M and subcontracting and some of those categories, We do believe you're going to see the moderation of inflation continue from that mid to more of a low single digit next year as we go through the year, which will continue to help the momentum that we're building in the business. And then, you know, a separate bucket on the cement side would be the synergies and the cost improvements that we're doing there.

Got it. Okay. Just to make sure, and I'm not trying to pin you down or anything. I'm just more making sure I'm thinking about the right way. Is there... Are there any bad guys on the cost front that we need to be sure to kind of take into account or anything? Because it just seems like with the momentum you have and kind of looking at the 24-3 LTM EBITDA margin that you guys were able to put up with the pricing that we have in place, the kind of deceleration on the cost front, it seems like you ought to be able to get into that range, maybe even for the full year. Is there anybody? Any bad guys that we need to be aware of, or am I thinking about that wrong?

Trey, the only one that stands out to me, it's a little bit higher coming into this next year is natural gas, you know, that we use to fuel our kiln and offset some of the coal. It's still cheaper than the coal alternative, but we've locked in 37% of our usage next year on natural gas at about $3.55 per mm BTU. And just to compare, this year it was more like $3 per mbtu. So we do have a little bit of a headwind there with the natural gas usage, but we'll also be introducing more alternative fuels into the process next year as well. You know, Ann talked about the Roberta project. And just across, we're bringing in more feedstock to the plants on the alternative fuels.

Yeah, Trey, just to confirm, we are confident we'll be in that 25% to 27% range full year next year.

Okay, thank you for that, Ian, because in the slide deck it says by year end. I don't know if that was a run rate or for the full year. So thank you for confirming that. That's super helpful.

Our next question comes from a line of Garrett Schma with Loop Capital. Please go ahead.

Oh, hi. Thanks. Congrats on the quarter. I want to ask on cement. I was wondering if you could speak to what you're seeing on the supply and demand side across your footprint. Maybe talk a little bit as to your expectations around January price increases in a little bit more detail. And what conditions would you need to see occur in order to get the mid-years that you cited in your prepared remarks? Thanks.

Thanks for the question, Garrick. We see overall supply demand really being driven by strong public, which continues to be very robust for us, and then the private markets being a little more choppy. If we look at just our markets, you look at residential and non-residential are the ones that are more interest rate dependent. They will come back probably in second half. It's a matter of when and which geography they'll come in. We're already seeing some recovery in some of those geographies. But, you know, if you look at the PCA forecast, it's 1.4% with a back end loaded 2025 and a very strong 2026. I do believe that as we get to mid-years, you're going to see it's very plausible that that recovery comes back both in residential and the light non-residential. And we're seeing green shoots of that. You know, I'd give you an example of where you might see some uptick. We're looking at British Columbia currently recovering right now. And that's one where if you look at the Canadian Central Bank, they took the first rate decrease in June and they took a bigger one this month. And now we're seeing that work start to come out across the board that would impact cement. If the Fed follows the same timeline, it's very plausible that you'd see that same kind of recovery. And that's how we kind of look at that recovery coming in in the second half, and it should be a very positive environment for mid-years. That's not built into our thinking right now and our budgeting, but we would look for that upside, as we always do in mid-years. January price increase, we're strong across the board. It's dependent on market. It's dependent on geography, but the team's pushing hard. We are leaders in value pricing and cement, and we will continue to be so.

Our next question comes from a line of Anthony Pettinari with Citigroup. Please go ahead.

Hi, this is Asher Sonnen on for Anthony. Thanks for taking my question. Just first for a point of clarification, your ag price guide for, you know, above the historical growth rate, does that include mid-years, especially in the markets where they're more balanced between January and mid-years? And then for my question, just sort of I think you talked about trimming discretionary spend to align with demand. And I also think you trimmed your capex guys. I'm just wondering if you could talk a little bit more about that and then maybe where you're pulling back on that investment.

Okay. So let me address the mid years and then Scott can talk about the costs and the capex of where we're sitting on that. So from, um, when we look at ags, it is very much dependent by geography, how we approach our pricing. I will tell you across the board, we're out with January 1st price increases. In some markets, we may go really strong double-digit in January. In other markets, we may go moderate and then go with a moderate mid-year price increase. But I will tell you, all our markets will have both, and that's consistent. That's why I'm confident we will get in that 6% to 9% range next year. Scott, maybe you want to talk a little bit about trimming discretionary spend and the type of CapEx pullback we have.

Yeah, so when you look at the SG&A, you'll see it is coming off. We left the guide the same at 330 for the year. But we're going to probably come in below that. And part of it's the synergies, where we're going after the scale synergies and really accelerating that. And you'll see that on the synergy report out that we give at the end of the year. So those have went really well. And we're just controlling our spend. On the CapEx side, though, you saw the previous guide, 430 to 470. We've now lowered that to 390 to 410. And really, we're staying disciplined to our 10%. So we went through the list and found projects that we could defer without impacting the operations. Actually, some land purchases on some reserves that we were able to defer into next year and bring that down. So we're in a good place. We're going to come in and stay within our 10% threshold of revenue on the CapEx, and we're going to continue to watch our costs. And you'll see us beat that 330, even though we feel like that's a good guide at this point.

Great, thank you. That's very helpful. I'll turn it over.

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

This is Catherine Curtis calling in for Catherine Thompson. Thank you for taking my question today.

Thanks, Catherine.

With the weather impact to cement margins in the last few quarters, how should we be thinking about comps for next year going forward?

Weather impact. So, we got to be... So, when we look at weather, we did detail out what impact that had and, you know, just use rough numbers of about 20 million here. One of the things that you got to think about moving forward, there's two factors. One is there is some in-year recovery on volume. And I'll give you the example of Houston. So Houston, we gave you a number last quarter of about six and a half million adverse effect. And since then, that team's been firing on all cylinders and it's starting to eat into that six and a half. So the one thing I would caution Catherine is don't take that 20 million and pencil it in for 2025 because we got quite a scrappy group here at Summit and they've proven to be very agile. And I would hope that we continue with all our contingencies of work the team's doing to recover some of that from Milton and these other hurricanes as we go through the rest of the year. We'll be in a position to really update you with February on that, but don't go penciling that $20 million in because the team's executing at a very high level with their contingencies.

Thank you. Congrats on the quarter.

Thank you, Catherine.

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

Hi, good morning. Thanks for taking my question. And again, second, congrats on the quarter, strong results. Just wanted to go back to some of the commentary you gave around the project activity and maybe some of the green shoots you mentioned. Could you just maybe unpack that a little bit more as it relates to maybe elections or interest rate? Like, what are you hearing from contractors in terms of what may be holding up projects and to the extent that you are seeing green shoots in some markets? On the commercial front, what seems to be unlocking that activity? Is it greater certainty or kind of potential greater certainty from elections or what's kind of coming down from the messages?

Yeah, Angel. So let me kind of unpack that in the two markets that are most impacted here. So from a non-residential perspective, this is where we're seeing it's largely in a holding pattern for us. But we are seeing, for example, recovery in Virginia and British Columbia. We're seeing continued strength in the energy verticals. But contrasting against that, we're seeing, for example, our heavy commercial markets in Phoenix and Salt Lake City still are quite sluggish and sitting on the sidelines waiting to come in as interest rates come down. Now, I did quote earlier in my comments that, you know, we would expect a second half recovery if the Fed were to follow the same kind of timeline as the Canadian bank, and we would hope that there'd be some second half recovery. Now, where we are seeing the green shoots is in British Columbia. We're also seeing and very encouraged by the fact that we participate in states where the heaviest funding is and heaviest investment. So, for example, the IRA investment, the top three states are Georgia, South Carolina, and North Carolina. There's $45 billion in investment there, and we are participating in that on the heavy side. The CHIPS funding, we're a big position in Arizona where there's over $100 billion in So from a political perspective, we would hope bipartisan continued support of supply chain resiliency, onshoring and manufacturing, that that would continue to give that kind of funding moving forward. And then on the private side, the interest rates starting to come down, hopefully similar to what happened to British Columbia, where we're seeing some green shoots. Now, on the residential side, you've got a different impact there. It is around interest rates. being still hovering around 6%. We really feel you've got to get below that 5.5% to see any kind of movement in some of our markets. You've got the lock-in effect, and you've got the whole uncertainty and hesitancy, to your point, Angel, around the political and macroeconomic impact. That being said, leading indicators are improving in residential and the pent-up demand. Specific to single-family permits, they were very low in 2024. We're starting to see some pressure easing off those. And then if you double-click into our three end markets, they are operating a little differently. So Houston is the number one single-family permit market at 52,000 in 2024. There you've got high, good economy, you've got good in-migration trends, you know, solid permitting. And there we're seeing, really, it has... The days we get out post the weather, our south region's running really strong, and we are actually operating in the area where a lot of these permits are, so in that southwest portion. and Fort Bend County. Phoenix is our second best recovered market at this point. They have 24,000 in permits, still high employment from the CHIPS Act, and there we'll see continued recovery, and we're actually located in the best part of the recovery there in the west part of Phoenix. And then finally, Salt Lake City is the one that's the most sluggish, though it's a great market for us. There the permits are only at 3,000 versus a typical 4,000 to 5,000 rate, but we'll be very happy when that recovers and hopefully that second half of 2025 because that's by far a most profitable and heroic market. So we are positive about this coming back. We're just not leaning into that volume right now as part of our planning stance.

Very helpful. Thank you.

Our next question comes from the line of Timna Tanners with Wolf Research. Please go ahead.

Yeah. Hey, good morning. In the preliminary comments, I recall you saying that One of the offsets or several offsets to a few of the challenges you cited were the opportunities to divest some assets that perhaps were underperforming and some possible adjustments to incentive comp. A bit more on each of those and in particular, of course, on the divestitures, what those could look like. Any further detail there, please?

Thanks. Yeah, thanks, Tim, for the question. So the offsets, one of the things I will say is our team has, it's in the DNA of the team to constantly improve the return on invested capital of our business. And so ever since we launched Elevate, every year our team has a set of contingencies of asset sales. And they can vary from being businesses to your question, which we do report on. We did four of those this year. But really where the offsets are as we come into the end of the year are much more in the form of land and equipment. And each one of our regions has their list of contingencies, trying to sell those off and improve the ROIC and improve margin as we move forward. And we've got some of those built into our midpoint. We know we can do some of those. And then what would drive us up and to the right for 2024 would be increased number of those asset sales. Also, we're always adjusting incentive comp depending on where we land. And so there is some opportunity that offsets some of the volume declines. So that's how we were able to keep that $9.85 midpoint, just a refinement of it versus a big reduction. And we do believe, if you look at our guidance, Tim, that what would drive us up and to the right of that guidance would be extra days in our colder climate. So we talk kind of in the river markets. And so that's how you should really think about the offset. The teams have been executing at a very high level on their contingencies.

Okay. I'll leave it there if that's helpful. Thank you.

Thanks, Timna. Our next question comes from the line of Rohit Seth with Seaport Research Partners. Please go ahead.

Hey, thanks for taking my question. Great quarter, guys. Actually, a great year so far. This question you mentioned on the M&A front, you executed a couple of deals. Maybe just kind of elaborate on what moves you made and what markets and just sort of the dynamics in those markets. Thanks.

Yeah, so our two acquisitions that we did were both Ags deals, which is consistent with our strategy moving forward to continue to redeploy cash into the Ags in organic growth. And they're in our two growth platforms. One was in Florida and the other was in Phoenix. So that's just consistent with what we've said, how we will redeploy cash from our divestitures. And we did four divestitures and two acquisitions here today, but all Ags-oriented.

Any sense on things you can provide, like how much volume impact they contribute?

You should think of them more as bolt-ons. As we go into these areas, if you recall, when we went into Phoenix, we went in with a strong ready mix position underpinned by an ags position. And the very first acquisition we did there was an ags position that just grows out our aggregates volume. And we have probably five more targets we're going after in Phoenix now. Similarly, in Florida, this was one of the targets that we had that would further consolidate the market and increase that. We don't disclose the exact volumes on these for competitive reasons, but think about them more as bolt-ons that will continue to expand that position in our two growing platforms.

All right, thanks. If I can squeeze another one in on the cement synergies, maybe just provide a status update. How much do you realize this year and what's on the horizon for Q in 2025?

Yeah, so the team's executing really well on the cement synergies. I think Scott referred to some of these, but so for 2024, we're very confident of being at that $40 million or above, and they're driven largely by the scale synergies, which are procurement and SG&A, and then by cement synergies, both operational but also very much commercial, and by our ags pull-through. As we go into 2025, we've committed to $80 million over 2024 and 2025. In our planning, we're well on target to deliver that to our shareholders, and we're very confident of delivering the $130 million over time. Expect the synergies as we go into 2025 to become much more cement-oriented and operational with continued commercial synergies in that regard.

All right. Thank you. Best of luck.

Thank you, Ray. Our next question comes from the line of Keith Hughes with Truist Securities. Please go ahead.

Thank you. The cement pricing range you gave us earlier for 2025, can you talk about how much of that is market and how much of that is this harmonization with the Argos products?

Yeah. So, what we've said is when you think about the Argos synergies, we had overall commercial at 20 to 25 million when we started out on this journey. About half of that was contracts that were below market. And so we have been on that journey, as you know, Keith, since we closed in mid-January of trying to convert these below market contracts up. And we're making some progress there. And frankly, you know, most has been good progress. Some we've walked away from volume because the pricing is just too low and we will not drive pricing down in the marketplace. We are value pricing leaders. I would say we've done really good work around our existing, you know, the bunch that didn't go up high enough in January but went up in May and April. That pricing's gone. And now as you go into 25, think about it being more about a harmonized approach to January pricing and continuing to work with about half of that, you know, commercial part. I would say, you know, I can't give you exact numbers, but, you know, on synergies, probably on commercial, on cement, we're around that $7 million mark here today's. So definitely making the progress we thought we would keep on that.

Okay. Thank you.

Adam Solomon with Thompson Davis & Co. Please go ahead.

Hey, good morning, guys. I know it's your smallest business, but services is having a great year, and I'm just curious what's driving that and what the outlook is.

You want to do that, Scott?

Sure. Adam, you called it out. You know, services is really our construction activities. And it's really, it aligns with the public demand we're seeing out there. And when you look at our North Texas business, our construction is really booming well. So really good pipeline, good backlogs. You're going to see that continue, too. Now, the Intermountain West, the projects have been a little lumpy, so it hasn't flown through or shown through quite as strongly. But that North Texas is really driving that construction services. Perfect. Thanks, Scott.

Our next question comes from the line of Jerry Rebick with Goldman Sachs. Please go ahead. Yes, hi.

Good morning, everyone, and nice quarter. I wanted to ask what really is that to me on the sequential performance aspect In aggregates cash gross profit, you had similar growth sequentially 3Q versus 2Q this year as last year, yet operationally it was more challenging. And then you didn't get the uplift in pricing sequentially this year that you got last year. Can you talk about if there was a business mix towards maybe some similar margin, but lower priced markets and any other moving pieces just to help us understand that? sequential performance and pricing cadence as well, please.

Yeah, so I'll just address this, and then Scott, please feel free to come in any color on this. So Q2, we had a particularly positive mix, Jerry, on ags. And so when you look at that, we had a very strong just mix on Q2. So we knew we were sequential was going to be a little more muted. Also, you're lapping a year where we had very high mid-year price increases last year, so that's putting the comps a little funky on that one as well. So I would say volume-wise, you know, we did quite well into Q3 on ags, but coming up 0.7%. So that was driven largely by our central region has been very strong with Big I-70 project, and we have some recovery in British Columbia and Virginia. And then the south coming really back strong after the weather they had in the first half. So, Scott, maybe you want to add a little more color on that?

Yeah, not much more to add. And you've kind of called it. It's really related to geographic mix. You know, the margins in certain areas are just higher. And so we've had a more favorable geographic mix.

Super. And can I ask, as you folks think about pricing and aggregates for 2025, and you mentioned that above the historical average, Range, how are you thinking about in terms of the cushion that you need to build into your pricing commitments considering inflation over the past couple of years has been pretty volatile? Are you thinking of an extra cushion beyond your targeted price-cost gap that you're trying to achieve in the business?

Yeah, well, you know, Scott, there's been a couple of factors here. So we're always driving our team in their incentive on price net of cost. And they've done a really nice job in continuing to expand that. We've always said as costs moderate off, that price is, you know, that dislocation between price and cost has become even more favorable. Now, we kind of think about it in two buckets. So the first bucket is value pricing, Jerry. And as I said in my comments here, you know, we will go with, we'll have some carryover. We'll have January increases and we'll have mid-years. They'll vary a little bit by geography. But net, I would be very disappointed if we're not at 6% to 9%. Now, counteracting that is what Scott referred to earlier. We're also very disciplined in going after our costs, both having to moderate off, but the op-ex side. Think about us as attacking from two fronts here to get this continued growth, which is why we're very confident, frankly, we'll go into our 25% to 27% margins overall as a business in 2025. So really the execution rate momentum that we have right now is really the cushion I would talk to. That's really within our control.

Yeah, the only thing I would add, Jerry, is, you know, we came into the year saying we're going to try to hold the line on our costs this year in the ags. And, you know, despite the weather impacts, if you look at our ags cost profile, you know, inflation, with inflation and the offsets, it's only went up about 2%. So we've done a good job. We're making a lot of progress towards holding those costs.

Well done. Thank you.

Thanks, Jerry.

Our next question comes from Mike Dahl with RBC Capital Markets. Please go ahead.

Thanks for taking my question. It's just a level set on kind of understanding the fourth quarter when you talk about assuming normal weather seasonality or normal weather from here on out. What specifically does that assume or not assume in terms of recapture of some of the $20 million in in lost storm EBITDA, and can you talk about, as you look at the impact in parts of your footprint, which markets you have and have not been able to actually resume kind of normal shipping and operations?

Okay. So, overall, I'll try and address this question for you, Mike. You know, what's normal weather? Well, essentially, we've said ags, for example, are flat year on year, and that just assumes our normalized Q4. Cement, you'll see a slight uptick, you know, Q3 to Q4, which is just consistent with our more seasonal, you know, all season markets. So that's kind of a normalized pattern. What I would say is we have not, when we think about, we are not slowed down in any of our markets right now. We've resumed production in nearly, our team has been very resilient and we are delivering to our customers. We're out there when we have good weather days, that's where we're recouping. And I'd use Our south region, Houston, as an example, they are eating into that six and a half million in October. I will tell you, we had a strong October across all of our lines of business. And so we're quite positive about what we've seen in October. And, you know, if we can get good weather and extend, if we can get more days in the river markets, Utah and Kansas, we will go to the upside of our midpoint. On the other side, I would say the hurricane season isn't over until November, so that's why we kind of stayed flat. So I would be disappointed based on the execution rate the team's had. We couldn't recover some of Milton, but we're confident in our midpoint range and the way the team's executing. So we are resumed. We're performing at a high level in all of our markets right now, and we're going to do everything we can to recapture some of that $20 million that we've had this year on impact. Great. Thank you.

That concludes our Q&A session. I will now turn the call back over to Ann Noonan for closing remarks.

Thank you for joining today's call, and I'd like to leave you with the message that I've been sharing with my team. Having successfully navigated a very difficult operating environment, we have the opportunity to close this year from a position of strength with momentum building for 2025. Our challenge is laser focused on our controllables, deliver on our commitments, And in doing that, we will achieve our strategic priorities and position summit for superior value creation. We appreciate your continued support of summit materials. We thank you for your time, and we hope you all have a great day.

This concludes today's call. You may now disconnect.