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Edited Transcript of MLM earnings conference call or presentation 30-Apr-19 3:00pm GMT

Q1 2019 Martin Marietta Materials Inc Earnings Call

Raleigh May 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Martin Marietta Materials Inc earnings conference call or presentation Tuesday, April 30, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* C. Howard Nye

Martin Marietta Materials, Inc. - Chairman, CEO & President

* James A. J. Nickolas

Martin Marietta Materials, Inc. - Senior VP, CFO & Principal Accounting Officer

* Suzanne Osberg

Martin Marietta Materials, Inc. - VP of IR

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Conference Call Participants

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* Adam Robert Thalhimer

Thompson, Davis & Company, Inc., Research Division - Director of Research

* Adrian E. Huerta

JP Morgan Chase & Co, Research Division - Senior Analyst

* Garik Simha Shmois

Longbow Research LLC - Senior Research Analyst

* Jerry David Revich

Goldman Sachs Group Inc., Research Division - VP

* Kathryn Ingram Thompson

Thompson Research Group, LLC - Founding Partner, CEO and Director of Research

* Michael Robert Wood

Nomura Securities Co. Ltd., Research Division - Research Analyst

* Nishu Sood

Deutsche Bank AG, Research Division - Director

* Philip H. Ng

Jefferies LLC, Research Division - Equity Analyst

* Rohit Seth

SunTrust Robinson Humphrey, Inc., Research Division - Associate

* Scott Evan Schrier

Citigroup Inc, Research Division - Senior Associate

* Stanley Stoker Elliott

Stifel, Nicolaus & Company, Incorporated, Research Division - VP & Analyst

* Timna Beth Tanners

BofA Merrill Lynch, Research Division - MD

* Trey Grooms

Stephens Inc., Research Division - MD

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to Martin Marietta's First Quarter 2019 Earnings Conference Call. My name is Howard, and I will be your coordinator today. (Operator Instructions)

As a reminder, today's call is being recorded. I will now turn the call over to your host, Ms. Suzanne Osberg, Vice President of Investor Relations for Martin Marietta. Ms. Osberg, you may begin.

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Suzanne Osberg, Martin Marietta Materials, Inc. - VP of IR [2]

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Good morning and thank you for joining Martin Marietta's First Quarter 2018 Earnings Call. With me today are Ward Nye, Chairman and Chief Executive Officer; and Jim Nickolas, Senior Vice President and Chief Financial Officer.

To facilitate today's discussion, we have made available during this webcast and on the Investor Relations section of our website Q1 2019 supplemental information that summarizes our quarterly results and trends.

As detailed on Slide 2, this conference call may include forward-looking statements as defined by securities laws in connection with future events, future operating results or financial performance. Like other businesses, we are subject to risks and uncertainties that could cause actual results to differ materially. Except as legally required, we undertake no obligation to publicly update or revise any forward-looking statements, whether resulting from new information, future developments or otherwise. We refer you to the legal disclaimers contained in today's earnings release and other filings with the Securities and Exchange Commission, which are available on both our own and the SEC websites.

As a reminder, all financial and operating results discussed today are for the first quarter 2019. Any comparisons of versus the prior year first quarter, unless otherwise noted, and all margin references are based on revenues. Furthermore, non-GAAP measures are defined and reconciled to the nearest GAAP measure in our Q1 2019 supplemental information and SEC filings.

We will begin today's earnings call with Ward Nye, who will discuss our first quarter operating performance as well as market trends. Jim Nickolas will then review our financial results. A question-and-answer session will follow. I will now turn the call over to Ward.

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [3]

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Thank you, Suzanne, and thank you all for joining today's teleconference.

Martin Marietta's strong first quarter performance provides a promising start to what we expect to be another record year for our company. Consolidated total revenues increased 17% to $939 million, and earnings before interest, taxes, depreciation and amortization, or EBITDA, increased 28% to $159 million, both new first quarter records. We also achieved strong gains in other key financial metrics, including a 140 basis point expansion in consolidated gross margin and earnings per diluted share of $0.68. Notably, shipment volume and pricing improved across the majority of our Building Materials business, including robust, double-digit growth in aggregates shipments as more favorable weather allowed for an earlier onset to the construction season and our customers were able to begin addressing both prior year's weather-deferred projects and current backlogs.

Consistent with our expectations, public and private sector construction growth in our leading markets is outpacing the nation as a whole and supports our view of continued pricing momentum. These trends bode well for increased construction activity and position Martin Marietta for improved shipments, pricing and profitability for the remainder of 2019.

We have consistently maintained that attractive market fundamentals, including continued employment gains, population growth and superior state fiscal health, will promote sustainable and long-term construction growth across our geographic footprint. Our first quarter results clearly demonstrated that robust underlying demand, demand that failed to translate into higher shipment volumes in 2018 due to contractor capacity constraints, logistics disruptions and, most significantly, poor weather. For example, our heritage Mid-Atlantic Division, which includes the Carolinas, Virginia and Maryland, benefited from strong pent-up demand and more favorable weather conditions. These dynamics, just to name a few, resulted in heritage aggregates shipments that eclipsed the division's 2007 peak first quarter volumes.

While winter weather traditionally limits the ability of outdoor contractors to perform work, modestly improved weather in the first quarter of 2019 provided contractors the opportunity to advance both new and delayed projects. The notable exception was in Colorado, the company's second-largest state by revenues. Colorado experienced one of its harshest winters on record in terms of precipitation and temperatures, limiting construction activity and negatively affecting the aggregates, ready mixed concrete and asphalt and paving businesses of our Rocky Mountain division. Heritage aggregates shipments increased 12.5% led by double-digit volume gains in the Mid-America and Southeast groups.

Importantly, all divisions, with the exception of Rocky Mountain, contributed to this robust shipment growth, demonstrating the strength of Martin Marietta's markets and breadth of accelerating demand.

Heritage aggregate shipments to the infrastructure market increased 2% as modestly improved weather, particularly in the Southeast, allowed customers to commence transportation-related projects earlier in the construction season. Importantly, our North Carolina, Georgia and Florida operations saw increased infrastructure activity during the quarter following the recent acceleration in public lettings and contract awards in these key states.

Consistent with our expectations when we established 2019 guidance, we believe public construction particularly for aggregates-intensive highways and streets, is poised for meaningful growth in 2019 and beyond, driven by funding provided by the Fixing America's Surface and Transportation Act (sic) [Fixing America’s Surface Transportation Act], or FAST Act, and numerous state and local funding initiatives.

Our top 10 states, which accounted for 85% of total Building Materials revenues in 2018, have all introduced incremental transportation funding measures within the last 5 years. Increased state-level funding through bond issuances, toll roads and tax initiatives is expected to continue to grow at a faster rate than near-term federal funding, leading to additional growth opportunities for our company.

The infrastructure market represented 33% of our first quarter heritage aggregates shipments, which is below the company's most recent 10-year annual average of 46% but consistent with first quarter historical trends.

Heritage aggregates shipments to the nonresidential market increased 33% as we continued to benefit from robust distribution center, warehouse, data center and wind turbine projects in key geographies including Texas, the Carolinas, Georgia and Iowa.

Looking ahead, our nonresidential construction outlook remains positive with third-party forecasts, including the Dodge Momentum Index, projecting healthy commercial construction activity, particularly in our Southeastern and Southwestern regions. Additionally, large energy sector projects along the Texas Gulf Coast are expected to increase demand for heavy building materials.

Throughout the balance of 2019, the company will continue to supply products for 3 previously awarded energy projects. Five additional projects are pending regulatory approval or awaiting contractor and/or supplier selection and are expected to begin in earnest in 2019 and continue for several years thereafter. Martin Marietta is well positioned to provide the aggregates, cement and ready mixed concrete needs for these multiyear projects. The nonresidential market represented 37% of first quarter heritage aggregates shipments.

Heritage aggregates shipments to the residential market increased 8% driven by weather-deferred homebuilding activity in the Carolinas, Georgia and Florida. Despite the recent slowdown in housing unit starts at the national level, the residential outlook across Martin Marietta's geographic footprint remains positive driven by favorable demographics, job growth, land availability, steady interest rates and efficient permitting. Currently, housing unit permit growth for our top 10 states is outpacing the national average for all 3 residential categories: total, multifamily and single family. In our view, the issuance of these permits represent the best indicator of future housing construction activity. The residential market accounted for 23% of first quarter heritage aggregates shipments.

To conclude our discussion on end-use markets, the ChemRock/Rail market accounted for the remaining 7% of first quarter heritage aggregates shipments. Volumes to this sector decreased 9%, reflecting lower ballast and agricultural lime shipments.

Heritage aggregates pricing improved 4% following the implementation of annual price increases throughout the majority of our geographic footprint. We were able to achieve this solid growth despite unfavorable product mix from increased shipments of lower-priced base stone, which reduced first quarter heritage average selling price by $0.29 per ton or 210 basis points. Keep in mind an increase in base stone shipments is only unfavorable from an average selling price optics viewpoint. In fact, given that base stone is typically the initial material needed for early-stage construction activity and higher-priced clean stone shipments subsequently follow, we're encouraged by the strength.

Drilling down to geographical trends, we achieved heritage pricing growth of 3% for the Mid-America Group. This was accomplished through continued price discipline, offset by product mix from base shipments. Price discipline led to 6% heritage pricing growth for the Southeast Group. Product and geographic mix, particularly from weather-impacted Colorado shipments, limited West Group pricing growth to 3%. Acquired operations shipped 3.5 million tons at selling prices approximately 15% below the corporate average. As a reminder, beginning in the second quarter, results for the legacy Bluegrass operations will be classified as heritage for reporting purposes.

Cement shipments improved 7% driven by the strength of the Texas market, increased shipments of oil well products and the addition of our New Caney sales yard in Houston. First quarter cement pricing benefited from favorable product and geographic mix, increasing 4%. Annual price increases went into effect on April 1 with widespread support in both North and South Texas. We believe our cement operations will continue to benefit from a tight supply environment in Texas as forecasted demand is expected to exceed domestic production capacity by 10% in 2019.

Turning to our downstream businesses. Ready mixed concrete shipments decreased 4% as Colorado's harsh winter hindered early construction activity in that state. First quarter pricing improved modestly for the ready mixed business in total, led by a 3% increase in Colorado. As a reminder, the majority of annual price increases became effective on April 1 in both Colorado and Texas.

Our Colorado asphalt and paving business lost production days from extreme winter weather, including freezing ground temperatures, resulting in reduced asphalt shipments. First quarter asphalt pricing in Colorado improved 4%. Importantly, bidding activity and customer confidence remain strong, and we're highly confident in the strength of the Colorado market.

I'll now turn the call over to Jim to discuss specifics of our first quarter financial results. Jim?

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James A. J. Nickolas, Martin Marietta Materials, Inc. - Senior VP, CFO & Principal Accounting Officer [4]

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Thank you, Ward.

The Building Materials business achieved record first quarter products and services revenues of $809 million, an 18% increase. And gross profit improved 39% to $118 million. Aggregates product gross margin expanded 550 basis points to 18%. Steadier and higher shipment and production levels provided improved operating leverage, which, in conjunction with higher prices, drove the majority of the margin improvement. As Ward highlighted, our cement operations benefited from a strong volume and pricing growth.

However, despite this top line improvement, extended maintenance, outages, higher rail freight costs and reduced operating leverage from lower production levels led to a 1,270 basis point degradation in product gross margin. Outages included planned and unplanned repairs at both cement plants, and acceleration of maintenance activities originally planned for later in the year.

With over half of our 2019 planned maintenance completed, we are returning to normal production capacity at all kilns and are well positioned to benefit from growing demand and a robust bidding pipeline throughout the remainder of the year.

In late 2018, we initiated a restructuring of our Southwest ready mixed concrete business and are pleased with the initial results. These efforts contributed to the 100 basis point improvement in that business' quarterly product gross margin despite relatively flat shipments and pricing.

Magnesia Specialties continued to benefit from strong domestic steel production and increased global demand for Magnesia chemical products, generating product revenues of $69 million, a new quarterly record. Additionally, the business achieved record first quarter product gross profit of $27 million. Product gross margin held steady at an attractive 38.5%, thanks to price improvements and production efficiencies that helped offset increased sales of lower-margin products and higher costs of supplies and contract services.

Our consolidated results included the benefit of 2 nonrecurring items. First, we reversed a $4 million purchase accounting accrual related to the TXI acquisition, which is recorded in other operating income net as an increase to earnings from operations. Second, we recorded a discrete income tax benefit of $13 million from a change in the tax status of a subsidiary from a pass-through entity to a C corporation, which reduced tax expense for the quarter. Neither of these items should be extrapolated in a run rate calculation. Excluding the first quarter tax benefit and other discrete events, we expect our estimated tax rate for full year 2019 to range from 20% to 22%.

As we move through the rest of the year, our capital allocation priorities remain unchanged with a continued focus on creating shareholder value through value-enhancing acquisitions, prudent organic capital investment and the opportunistic deployment of free cash flow through dividends and share repurchases, all while returning to our target leverage ratio. Capital expenditures are expected to range from $350 million to $400 million for the full year as we invest in high-return projects focused on increasing efficiency to drive margin expansion.

Since the announcement of our share repurchase program in February 2015, we returned more than $1.4 billion to shareholders through a combination of share repurchases as well as meaningful and sustainable dividends that were increased 9% last August. For the trailing 12 months ended March 2019, our ratio of consolidated net debt-to-consolidated EBITDA, as defined in our applicable credit agreement, was 2.7x. While this remains modestly above the top end of our target leverage ratio, we expect to continue deleveraging and return to our target leverage ratio of 2 to 2.5x by year-end. With that, I will turn the call back over to Ward.

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [5]

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Jim, thanks.

To conclude, we remain highly confident in our outlook for the balance of 2019 and, as outlined in today's release, have reaffirmed our full year guidance. Remember, our outlook contemplates an improvement in weather conditions from the extreme conditions we experienced in our regions in 2018 but nonetheless wetter than historic norms.

While we are pleased with our first quarter performance and are confident in our outlook for the rest of the year, we believe it's premature to raise full year guidance based solely on these results. As we have often noted, the first quarter results are typically disproportionately driven by construction activity during the last 2 weeks of March. We will consider whether it's appropriate to revisit our outlook later in the year.

We believe attractive population and employment trends, combined with positive momentum from state departments of transportation and continued private sector gains will support sustainable construction growth in our key regions for the rest of the year and for future periods as well.

In 2019, we anticipate the growth in our top 10 states to outpace the nation as a whole and contribute to positive volume and pricing trends across all of our product lines, underpinning our confidence that our company is on its way to posting another record year.

As Martin Marietta celebrates 25 years as a public company this year, we'll continue with the approach that has proven to be successful: a focus on price discipline, strategic geographic positioning and prudent capital allocation and underscored by our commitment to safety. That's why we remain confident about Martin Marietta's ability to achieve continued profitability growth and create value for our shareholders.

If the operator will now provide the required instructions, we will turn our attention to addressing your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

Our first question or comment comes from the line of Kathryn Thompson from Thompson Research Group.

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Kathryn Ingram Thompson, Thompson Research Group, LLC - Founding Partner, CEO and Director of Research [2]

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First question is on ASPs. A 2-part question. First, could you confirm that it was not as great of an inventory build in Q1 '19 versus last year? Because that certainly does seem to be the feedback from the field, from the industry in general. And then the second, follow-up to that, could you give more quantification of that commentary that you have in prepared comments about a greater mix of base stone? How -- to what degree did that impact Q1 either on a percentage or basis point? What does it mean for visibility going forward for volumes? And what does it mean for mix going forward?

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [3]

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This is Ward. Thanks for your question. Couple of things. One, yes, we did have actually inventory drawdown in the first quarter of this year. So we did not have the build that you saw last year. So that's the first part of your question.

I think the other part of your question is a really good one, and it's one I'm happy to try to address because I think this is an important notion for us to really hit very clearly.

If we're looking at the first quarter of 2018 relative to products that went out, here's the way I would encourage you to think about it.

About 25% of our product last year was base stone. Somewhere between 28% and 29% of it this year was base stone. Last year, almost 52.5% of it was clean stone. This year, 50%. Here's my point, Kathryn. If you're seeing more base stone glut today, that's newer projects that are beginning from the ground up and are likely to last a longer period of time. At some point, you're going to put asphalt over concrete on top of base stone, so we're going to get those clean stone sales as they come through. Greater base stone sales, in my view, is longer term nice projects that portend well for the balance of 2019 and really, I think, start to tell a good story for 2020.

But here's what's important to it as we go through that. If we take a look at what our ASP on our heritage business would have been this quarter if we had had the same mix that we had last quarter, our ASP for heritage would have improved 6.1%. So that's a 210 basis point improvement. And we think seeing more base stone is attractive. We think that type of pricing growth to our heritage business is also attractive, and I do think I responded to your question relative to the inventories as well.

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Kathryn Ingram Thompson, Thompson Research Group, LLC - Founding Partner, CEO and Director of Research [4]

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Yes. And a follow-up on the cement, just a clarification. Could you quantify how perhaps a dollar impact this quarter versus a typical Q1 or perhaps last year in terms of how higher maintenance cost was? And then you said so there were some planned and unplanned. Maybe just a little bit more clarification on planned versus unplanned maintenance.

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [5]

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Let's do it this way. I'd -- I'll ask Jim to help double-team on this. Let me start the conversation in this regard. As we came into the year, Kathryn, what I would say is we anticipated having about $19.2 million worth of expense relative to the kilns during the course of the year. What we've done in the first quarter is we spent or invested $11.2 million of that. So if you look at what that looks like over a period of years, that's clearly accelerating a lot of that into the first quarter. And our thought process is (inaudible) but primarily driven by the notion we want to be in an attractive place to run the business very aggressively as we go into the pure summer months in that Texas market. I'll ask Jim to speak very specifically to some of the dollars around maintenance, inventory and some other issues that do affect the financials.

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James A. J. Nickolas, Martin Marietta Materials, Inc. - Senior VP, CFO & Principal Accounting Officer [6]

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The breakdown between maintenance expense was about $10 million more this quarter versus Q1 of '18. Of that $10 million higher expense, $6 million of that was planned. About -- a little under $4 million of that was unplanned. That's about 10 percentage points on the gross margin side. The other items that have impacted cement -- let me just round out the whole cement gross margin walk for clarity. We did have -- because we sold -- we had good sales growth, the shipments -- the production was lower given the downtime. We had to dip into our inventory in a deeper way, which resulted in a $6 million headwind to the quarter again versus prior year. Those were the 2 biggest impacts: maintenance and inventory drawdown. The third item with increased rate was about $2 million as we had to supply 2 new distribution outlets. So those are about $2 million of extra expense. Those are the 3 biggest items that impacted gross margin for the cement business.

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [7]

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And Kathryn, what I would add on to that is obviously increased transformation is moving primarily into New Caney and Houston and moving out west to Odessa. So those are some additional charges that we actually view as very welcome.

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Kathryn Ingram Thompson, Thompson Research Group, LLC - Founding Partner, CEO and Director of Research [8]

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Okay. And final -- just a quick clean-up question on guidance. And James, appreciate that Q1 seasonally is a smaller contributor. We know that on average for the industry from the checks we've done, maybe 20% of your volume. But could you remind us perhaps on a historical basis how much of earnings typically you had in Q1? And I guess the one thing I'm noticing, I just want to make sure that we're right on this, it looks like for the first time, I think there was -- this year versus last year, having all 3 end markets, res, nonres and public, growing, could you just for our sake, just ensure that there's no change in conviction even though the numbers haven't changed? But is there any change in the conviction for the year?

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [9]

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Kathryn, thank you again. Look, we feel very good about the year, and we feel very good about the start. As we said in the prepared remarks, we don't feel like it's the right moment to come back and revisit guidance at all yet. And to your point, if we look at a five-year average, here's what I would tell you. 5-year average would show 19% of shipments current first quarter; 19% of revenues in the first quarter to your point very specifically, Kathryn; 12% of gross profit; and around 12% of EBITDA. So again, I think we're sitting in a very attractive place. Everything that we see and everything that we hear from customers for the year looks wonderful at this moment, and you're certainly not hearing anything that tends to be a lack of conviction from us on the full year.

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Operator [10]

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Our next question or comment comes from the line of Trey Grooms from Stephens.

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Trey Grooms, Stephens Inc., Research Division - MD [11]

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So the first question I have is on aggregates incrementals. You guys saw an improvement, and I think by my math were about -- the incrementals were about 38%, 39%. And I know it's difficult to look at incremental margins on a quarter-to-quarter basis, but you guys are, I believe, looking for full year to be around the 60% range. So can you talk about some of the factors impacting 1Q that maybe won't be an issue in future quarters? Or how to think about the bridge in incrementals margins for aggregates kind of getting to that 60% range through the year?

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [12]

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Thanks for your question. Couple of things. I do think it's important to hit just what you just said, and that is remember that 60% on average in the aggregates business. So I want to make sure that we're talking about that. Obviously, Q1 is a little bit different because you don't have significant portions of the aggregates business that are really running the way that we do expect them to for full year. So with that as a caveat, let me turn it over to Jim to walk you through some of the math on where it looked like for the quarter and how we think that shakes out for the year.

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James A. J. Nickolas, Martin Marietta Materials, Inc. - Senior VP, CFO & Principal Accounting Officer [13]

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I'd -- 2 things that I'd like to point out. One, the headline number is in fact 30% incrementals. But what that's missing is the fact that we didn't have Bluegrass in Q1 of '18. If you were to do a pro forma calculation including Bluegrass, the incrementals would go to 51%. So about a 13% improvement, just kind of simple math change. In addition, we increased the tons we shipped predominantly via rail in this quarter by 17%, and that led to higher freight costs for the quarter, which would account for another 13% incremental points, getting us to -- closer to 64%, just taking those 2 items into account.

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Trey Grooms, Stephens Inc., Research Division - MD [14]

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Got you. Okay. And that's still the case, just kind of looking on a full year basis, is for the overall business to get back to that kind of 60% range. Is that -- that's the outlook for...

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James A. J. Nickolas, Martin Marietta Materials, Inc. - Senior VP, CFO & Principal Accounting Officer [15]

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That's right. That's what we're expecting.

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [16]

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The overall aggregates business. That's correct, Trey.

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Trey Grooms, Stephens Inc., Research Division - MD [17]

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Yes, yes. For aggregates. And then secondly, on the infrastructure side, up 2%, I think, which it kind of lagged some of the other end markets. And I think you're looking for infrastructure now to be up kind of high-single digits. Can you talk about what you're seeing there on that end market and how we should see that progress as we go through the year with that kind of coming out of the gate a little slower?

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [18]

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Yes. I guess what I would say, Trey, in many respects, if you think about the way DOT specifications work, there's not going to be a lot of asphalt paving in particular in most jurisdictions until after you get by March 15. So again, if we're looking at the rhythm and cadence of the way that the year's building, we're not at all surprised about where infrastructure sits here at the end of the first quarter. I think if we go back to that commentary I gave you early on about seeing more base stone, I think that's the type of work you're going to see being driven toward infrastructure this year. And what I would say, too, is simply looking at the states that matter most to us. I mean Texas is looking at $8.2 billion worth of lighting this year. That's a very big job, very big number. And we're seeing a number of very attractive designed bill jobs in that state. If we look at Colorado, they did not have a particularly great year last year. 2019 looks a lot better. They're looking at a $2.2 billion DOT budget versus $1.6 billion last year. And the state even more recently has transferred $650 million of FY 2018 general funds surplus to transportation over the next couple of years. If you look at NCDOT here in our backyard, full year 2019 letting estimate of $2.8 billion to $3 billion. And again, these are very -- those are big numbers. That's a 35% increase over what we saw last year. And if we're looking at Georgia, they're looking at lightings of about $1.9 billion. That's 2x what we were seeing back in 2014. And if we're looking what they're looking for in 2020, they're -- they've requested $2.1 billion in 2020. So that's a 10% increase. So I think back to your point, I think seasonality is what has affected infrastructure as we've come out of the gate. We fully expected it. The Letting activity that we're seeing from the states is a very good, and the backlogs that we're hearing from our contractor clients are often at record levels. So again, I think we've got enormous conviction and confidence around where infrastructure is going this year.

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Trey Grooms, Stephens Inc., Research Division - MD [19]

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Right. That's encouraging. And then if you look at -- I guess last one for me was you've made a comment, Ward, about April 1 pricing in cement. Can you remind us how much you guys went out with? And I think you mentioned lots of right support in North and Central Texas. Just any other granularity around that. And I know you don't do a lot in Houston market but just any other color on what you might be seeing in the Houston market basically.

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [20]

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No. Happy to try to help with that. I mean number one seeing pricing up in Q1 is just nice to see, period, because to your point, the price increases for us in that marketplace really don't point it back to April 1. And by the way, same answer on ready mixed concrete. So what we're talking about right now, North Texas is somewhere in that $6 to $8 per ton; in South Texas, $4 to $5; and that Houston and Central Texas, probably in that $5 range, Trey. So again it's gives you a good, steady snapshot of what it looks like. And again, fairly consistent with what we've seen over the last years, pricing tends to be a little bit better in North Texas, a little bit weaker by the time you get to the Gulf for reasons that you understand.

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Operator [21]

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Our next question or comment comes from the line of Scott Schrier from Deutsche Bank (sic) [Citi].

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Scott Evan Schrier, Citigroup Inc, Research Division - Senior Associate [22]

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Obviously, nonres was a pleasant surprise in the quarter. You had a significant year-on-year growth. And understanding that, it is a small quarter. But I'm curious if you could talk a little bit about, first, was there any impact from the Houston chemical plant incident? And second, was this nonres performance in line with your expectations? Or did it outperform? And were there some pull forward? Just want to get a sense for what the bidding process looks and the cadence of the nonres, which seems to be a pretty good surprise in the quarter?

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [23]

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Yes. And several things that I would say, Scott. Now that the Houston situation was not particularly the driver for that, if we come back and take a look at really what we're seeing in states that matter the most to us, nonres for us in North Carolina is up nicely, nonres for us in Georgia is up very, very nicely. So I think that's a lot it. If we go and look at the nature of some of the nonres, it's got a nice, enduring quality to it. You've heard us speak over the last several years about warehousing. You've heard us speak about data centers. You've heard us speak increasingly about wind farms. That level of activity continues to be really quite strong in our footprint. So I think a lot of what you're seeing on nonres, number one, is not a surprise to us; and number two, it's really driven by some states that population trends and employment trends have been very strong over the last several years, but volume trends haven't been as strong. And I think part of what we've been waiting for and I think much of what the investor base has been waiting for is to see states like North Carolina and Georgia really start to perform. So remember, one of the things that we've long talked about is the importance of that bottom right-hand corner of the United States map to our business. And as we look at what one of the big differentiators were -- or has been in nonres for the quarter, that was a piece of it. The other thing that I would tell you, and it's not so much a mover for the quarter, I think it's going to be a mover for the year as we look at nonres, will be what's happening with those large energy projects in the Gulf. As you'll recall, we've been talking about a dozen-ish of those large jobs that are either in action or we believe coming into action in the not-too-distant future. Today, we've got 2 different jobs with Exxon and one at Cheniere LNG Train 3 in that marketplace, and we think more coming during the course of the year. But back to your point, Scott, those were the primary drivers that we are seeing in nonres.

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Scott Evan Schrier, Citigroup Inc, Research Division - Senior Associate [24]

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Got it. Great. And then I want to ask another one on cement and cement pricing. And your comments suggested that you have some confidence in the environment. But I just want to ask a little bit about that confidence in -- especially in your Houston where you had -- import has a risk. You have some of the global cement trades happening that could influence multinationals' willingness and ability to import. We see the emergence of some independent cement terminals coming online in Texas. So I'm wondering how all of that plays into the environment for pricing in Texas given that, of course, we know there's that supply-and-demand imbalance. But just want to see if that throws a wrench in the mix a little bit.

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [25]

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Yes. I guess my comments would be twofold. I think you finished with something that I think is an important point, and that is you do have supply/demand imbalance there, you've got more demand than you have supply, number one. Number two, in many respects, with the exception really in one notable case, the people who are importing are also domestic producers in that marketplace. And if you come back and reflect on it, while Texas is in fact the only state in which we have cement, our cement operations are actually #1 in Dallas and #2 in San Antonio. So if we look at the large cities in Texas, our drivers are really going to be DFW, it's going to be San Antonio and then to a degree South Texas and Houston. So I would say the supply/demand imbalance is very healthy for where we are. I think the pricing environment is more attractive. I think the fact that really we've only got one nondomestic producer who's coming in at any moment keeps things in a very steady state even in that part of the state right now. So again, if we're looking at how we view Texas cement this year, we have a very robust view of how that business is going to perform.

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Operator [26]

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(Operator Instructions) Our next question or comment comes from the line of Nishu Sood from Deutsche Bank.

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Nishu Sood, Deutsche Bank AG, Research Division - Director [27]

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I wanted to follow up first on the aggregates pricing. On a mix-adjusted basis, the 1Q pricing was up around 6% year-over-year. So above the 3% to 5% that you're expecting for the year. Are we already seeing some of the pricing tailwind benefit from the strong start to the year? And how would that -- how do you -- would you expect that to carry forward as we go into the heart of the construction season?

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [28]

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I would say maybe modestly you're seeing some of that. What I would say is really, if you think about the work that's going early in the year, most of it is going to be work that was put into backlog last year. So to the extent that things could be tighter in some markets before the end of the year is over, I don't think you're necessarily seeing that benefit just yet. Again, I think the mix effect does mask what is the overall strength of the aggregates. I also think that in the fullness of time, particularly in some of the eastern markets, you're likely to see a bit more tailwind on that. But again, if we're coming back and saying how do we see pricing right now, do we feel confident within the guidance that we've put out, yes, we do. And do we feel even better about the mix that we're seeing go out? I feel unquestionably better about that mix. The more base from my perspective, the better.

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Nishu Sood, Deutsche Bank AG, Research Division - Director [29]

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Got it. Great. And the second question, as you were discussing the improvement in performance relative to last year, one of the topics which you brought up again in terms of 2018 was the issue of contractor labor constraints. As we think about this year so far, it's still early in the construction season, but is your 1Q and the momentum coming out of the quarter evidence that some of those contractor labor constraints have begun to ease? Or is it really more the weather, the early start to the construction season that you described in some parts of the country?

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [30]

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Nishu, I think it's probably all of the above. Clearly, the weather was better. I think backlogs for customers were better. But if we look at construction employment, too, it grew 3.4% in March of 2019 versus the prior year, and it's well above the national rate and building on a 4.3% growth last year and 3.4% growth in 2017. So if we're simply looking at the sheer number of people who are now coming to work or coming back to work in construction, it's growing. So I think, number one, that's gotten better; number two, weather was better.

I think the other issue is we're going to have better logistics this year with both truck and rail. So I think a number of the bottlenecks that we saw last year, are they going to be 100% gone this year, I'm not -- certainly not going to bet on that. Are we seeing labor better right now for contractors than we saw a year ago? Absolutely, we are, which is why I come back and answer your question. I don't think it's one thing or the other. I think it's a confluence of factors that are actually working the way that we thought that they would.

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Operator [31]

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Our next question or comment comes from the line of Phil Ng from Jefferies.

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Philip H. Ng, Jefferies LLC, Research Division - Equity Analyst [32]

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Heritage pricing in aggregates and cement were very strong to start the year. And as you kind of flag, a lot of the increases you guys have in place for spring next don't kick in until April. So I guess based on what you've realized thus far and as that kind of flow through and trickle through over the course of the year, it's seems like there's potentially some upside to the 3% to 5% of pricing that you've guided. Any color on that front would be helpful. And is there an opportunity, I guess, if things are really tight and strong, maybe certain market you guys go for a second round back half of the year?

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [33]

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Yes, it'll be interesting, Phil. Again, I think we're just, at this stage, just sticking with the 3% to 5% on price. I do think there can be some places this year, depending on how weather cooperates, otherwise it might get tight. Could I actually see some tightness in parts of Eastern North Carolina? I think that's possible. Is it possible that you could see some tightness in some portions of Colorado? I think that's possible. Yes, possible, but you might see some tightness in some parts of the Midwest, and I think that could be. So I think we'll simply have to watch that. As a general rule, we don't talk much about the notion of midyears until we get closer to midyears. We discussed last year the fact that the contractors prefer to go ahead and see whatever the price is going to be early in the year and have some sense that that's what it's going to be throughout the course of the year. I think that is typically what you're going to see, but I do think tightness can make some individual projects bid differently as we get deeper into the year.

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Philip H. Ng, Jefferies LLC, Research Division - Equity Analyst [34]

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Got it. That's helpful. And Ward, in your prepared remarks, you talked about how transportation activity in some of your key states like North Carolina, Georgia and Florida were starting like to pick up both from the letting standpoint. Just from a timing perspective, I just want to get a better appreciation, do you start seeing some of that flow through this year? Or is it kind of more of a 2020 event? And based on the backlogs you had coming into the year and how it's shaping up for 2020, do you stack things up from a growth standpoint? Do you think things accelerate even more in 2020 or kind of pretty steady '19 versus 2020?

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [35]

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I think you're going to see a good pickup in '19. And part of what I'm taken by right now, Phil, and I haven't heard this as much in years past as I've heard this year, I've heard several contractors telling me early in this quarter -- by this quarter, I mean Q1 in this instance -- that they were already building work into 2020. So I think in many respects, the infrastructure that is there, that has been bid, that we know is coming, is, in many respects, baked for 2019. I think what you're looking at is, particularly on the public side, a level of bidding and letting activity that I think, at this point, starts building into a very steady 2020 as well. I think your commentary on that is entirely correct.

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Operator [36]

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Our next question or comment comes from the line of Jerry Revich from Goldman Sachs.

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Jerry David Revich, Goldman Sachs Group Inc., Research Division - VP [37]

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Ward, I'm wondering if you can just expand on your pricing comments. So like-for-like, pricing is up 6% this quarter, and I'm just trying to square that up with the comments that -- on the full year guide and the discussion you just had a moment ago. I guess it sounds like from a -- just a spot market basis alone, there should be upwards pressure to the guidance. So I'm just wondering, is it -- just back to your volume comment earlier on the call, is it too early in the year to revisit the pricing outlook? Or are we expecting the mix headwind to go from 200 to 300 basis points? I guess I'm trying to square that up. Is it just a function of it's early to the year, and let's just see how next quarter develops versus now the pricing is set, we have large work coming that's preset prices? Can you just help me square that up?

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [38]

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No, I can. And Jerry, I think you nailed it there in the middle. It's just too early in the year right now. We don't say anything that makes us lose our conviction on pricing. Pricing this year from our vantage point looks more attractive than pricing did last year. I don't see anything that's going to materially change that. I think your point is entirely on target, and that is it's the first 3 months of the year. And important markets like Colorado didn't even wake up because it's how I like to tell people they had a wonderful ski season and a really bad construction season this year. So we're going to wait and see what this looks like, where the entire business across our enterprise is really going. And the odd thing is, Jerry, that truly doesn't happen usually until the 1st of May because if you think about it, some of the Midwest is still simply coming out of a flooding circumstance as well. So it's certainly not due to any lack of conviction, we're just not going to get in over our skis after just 3 months into the year.

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Jerry David Revich, Goldman Sachs Group Inc., Research Division - VP [39]

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Okay. Understood. And then in terms of the results from a nonres standpoint, really strong in the quarter. Is that just an easy weather comp in a certain area? Or did you win one of the major infrastructure projects in terms of LNG and chemicals? Or how much was that in the mix? And your comment earlier, just a clarification on the infrastructure piece. So when exactly do you expect, based on shipment timing, to see an acceleration from the low single-digit range that we saw in the first quarter towards the -- a high single-digit run rate that you expect the balance of the year?

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [40]

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Yes. With respect to your first question with respect to nonres, it was really more driven by just broad, solid nonres activity across the enterprise. But as I indicated earlier on, you did see a couple of states that are seeing particularly strong nonres gains. And again, that's North Carolina and Georgia. So when we're seeing that, that does help us pretty considerably. To the second part of your question, no, there was not any particular big project in the Gulf or otherwise that served to skewed that or make it more look attractive. I just think we're sitting in a place that nonres for us is likely to be pretty attractive this year, and it came out of the box in a good, strong way. And I do think there has been some pent-up demand there, but I think there are also good backlogs that continue to be -- being built by our contractor base right now, Jerry.

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Operator [41]

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Our next question or comment comes from the line of Stanley Elliott from Stifel.

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Stanley Stoker Elliott, Stifel, Nicolaus & Company, Incorporated, Research Division - VP & Analyst [42]

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A quick question on CapEx expectations. You've been spending above depreciation probably like 4, 5 years now. How long should we think that, that continues? What do we think about kind of moderating that back? First part. And then second part, maybe speak to some of the cost savings programs that you all have underway, I think, which is probably due to some of the CapEx that you've been running at a higher level.

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [43]

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No, Stanley, thanks for your question. A couple of things. You're entirely right. If we look at it last several years, we have been spending CapEx at above DD&A levels. And oftentimes, we'll refer you to DD&A levels because that's not a bad number for you to keep in mind on what a stay-in-business CapEx number would look like. What I think you'll see is if you look at the range that we set for CapEx this year, it's actually getting closer to our DD&A levels. So you've actually seen that very naturally and gradually. And I would submit to you appropriately come down simply because we spend some money in some very careful ways, and the organization in many respects is as well capitalized today as it's ever been. What I'll do is turn it over to Jim to talk to you a little bit more about some of the specifics in the CapEx program, but I wanted to make sure, to your point, that we're level-set relative to history, the fact that we're below DD&A during the downturn, about now getting closer to DD&A.

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James A. J. Nickolas, Martin Marietta Materials, Inc. - Senior VP, CFO & Principal Accounting Officer [44]

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Yes. So we -- as we're mentioning, our DNA is converged with our CapEx spending by and large. Five years ago, that wasn't the case. So you're coming out of the recession and had to make up some lost ground. We've done that, by and large. And if you look over time, our CapEx as a percent of revenues has ranged from 8% to 10%, and we've been trending lower so last couple years closer to 8%, and we expect it to stay right around that spot. So we feel pretty good about that. Some more specific projects, we've got some large mines that we're moving underground. Those have been ongoing. Those should be wrapping up in the next year or 2. But we also want to keep some powder dry for opportunistic, commercial activities. If we have a chance to partner with a contractor in unique ways, we want to keep some dry powder for that. We've been -- and we'll been deploying some money special projects that, a, drive outsized returns; and b, help us ensure ongoing business with that contractor.

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Stanley Stoker Elliott, Stifel, Nicolaus & Company, Incorporated, Research Division - VP & Analyst [45]

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Perfect. And then, Jim, in your comments, you had mentioned M&A. I mean does that still seem to be kind of a high-pick item for the company right now? Or was that just kind of messaging more that you're consistent with the kind of the capital redeployment strategy that you've had in the past?

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [46]

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Stanley, I think if you go back and look at the capital allocation priorities, the right transaction continues to be at the top of the list for us. So for example, when we look at the way Bluegrass is performing for us, hitting the EBITDA margins that we thought we would see, we're seeing synergies nicely in advance of the $15 million that we had indicated at marketplace that we'd be getting. That's my long way of saying the right transaction continues to be the #1 capital priority for us. Investing in the business is pretty close behind that and making sure that we have it well done. And then returning cash to shareholders through a meaningful and a sustainable dividend and the share buyback. So those have been staples to our dialogue over the last several years, and they continue to be in that order.

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Operator [47]

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Our next question or comment comes from the line of Garik Shmois from Longbow Research.

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Garik Simha Shmois, Longbow Research LLC - Senior Research Analyst [48]

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(inaudible)

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [49]

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Garik, I heard something, but I didn't hear your full question.

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Garik Simha Shmois, Longbow Research LLC - Senior Research Analyst [50]

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Sorry. Can you hear me now?

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [51]

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Yes, I can. Thanks, Garik. Good to hear your voice.

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Garik Simha Shmois, Longbow Research LLC - Senior Research Analyst [52]

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Yes. So I want just some volumes in nonres in particular. How much of the volume do you think might have been pulled forward into the quarter and -- just given the favorable weather? And do you characterize any risk that have a vacuum in demand in the second half of the year just given the earlier start to the season?

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [53]

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I'm going to ask my partner in crime, Jim Nickolas, to respond to them. Then I circle back to you, Garik.

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James A. J. Nickolas, Martin Marietta Materials, Inc. - Senior VP, CFO & Principal Accounting Officer [54]

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Yes. I think it's actually the reverse of being pulled forward. It's a bit more of a carryover from Q4 that there's been a slowdown and some weather-impacted delays. And so I think there's been a -- if there's any weather movement, it's benefiting Q1 from the 4 -- Q4 we had. I don't think it is much a pull forward from Q2 or Q3.

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [55]

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And Garik, I guess what I would say, too, is I think it's possible that you might start seeing some tonnage go into those large energy projects this year that we do not have specifically committed right now. So I think if I'm looking at nonres across our enterprise, I'd echo what Jim said. But at the same time, I don't see something relative to activity or inactivity there that causes me any degree of concern or pause as we look out. I think nonres is going to be a very strong segment for Martin Marietta this year.

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Garik Simha Shmois, Longbow Research LLC - Senior Research Analyst [56]

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Okay. My follow-up question is just on inventories. You talked about the drawdown in Q1. I was wondering if there's any way, Jim, to quantify that in aggregates. And then as you rebuild inventories over the remainder of the year, how should that impact incremental margins? Should we perhaps realize incremental (inaudible)

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James A. J. Nickolas, Martin Marietta Materials, Inc. - Senior VP, CFO & Principal Accounting Officer [57]

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You're breaking up there, but I think I get the gist of your question, Garik. So it did -- we did draw down inventories to some degree this quarter, and that was a mild -- I call it a mild headwind. But as we build inventories in the remainder of the year, that should act as the -- a tailwind for us. So that should be helpful.

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Operator [58]

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Our next question or comment comes from the line of Timna Tanners from Bank of America Merrill Lynch.

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Timna Beth Tanners, BofA Merrill Lynch, Research Division - MD [59]

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I wanted to ask -- I know you mentioned that your cash use priority was debt paydown. But you did buy back shares in the second half of last year, and I just wonder if you can remind us how you think about the timing decisions for buybacks.

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James A. J. Nickolas, Martin Marietta Materials, Inc. - Senior VP, CFO & Principal Accounting Officer [60]

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Yes. So we're focusing on remaining investment grade and deleveraging, as we stated, going about Bluegrass. But of course, we resumed our share buyback last year, and we're still on that path. Q1, seasonally low or light quarter for us from a cash flow perspective, so we held off. But we expect to resume the rest of the year buying -- deploying some of our cash for share repurchases.

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [61]

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And Timna, we try not to look at it just in a strictly rigid way either. We want to be realistic. And when we can, we want to be opportunistic with it. So we try to look at it in a very clear-eye fashion.

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Timna Beth Tanners, BofA Merrill Lynch, Research Division - MD [62]

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Okay. And then just wondering if you have any of your -- if you could update us on your later thoughts or what your source in Washington saying about funding sources for the next highway spending program. I know it's a little bit early, but we're just starting to - we've been seeing more headlines about the 2 sides of the aisle perhaps coming together, different funding sources, whether it be a gas tax increase or actually per vehicle kind of monitoring sources. So I was just wondering if you have any updated thoughts on how that's going to play out.

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [63]

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Well, I guess I know what you know, and that is I believe the President and Speaker Pelosi and Senate Democratic leader Chuck Schumer, I think, are supposed to meet today to discuss infrastructure. I think there are several things to watch. I think between now and clearly august is going to be an important time. Clearly, you've got U.S. Chamber and others who are very focused on a near-term gas tax increase. And I think that's the important phraseology to put to it near term because the simple fact is the United States is going to have to, in the fullness of time, move away from a gas tax and come up with other mechanisms. I think those mechanisms include the mileage tax on trucking. I think it can include electric battery taxes. I think it can include, to a degree, an indexed gas tax. I think the table is fairly open on what those can be. And I think what's going to be fascinating is to see how interested the Republicans and the Democrats are to actually work together on this. It is the one area that we believe there is, by far, some agreement. I think if they're going to get there, they need to get there sooner rather than later because once we get into election season, it gets increasingly challenging.

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Operator [64]

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Our next question or comment comes from the line of Rohit Seth from SunTrust.

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Rohit Seth, SunTrust Robinson Humphrey, Inc., Research Division - Associate [65]

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Just one of the hot topics this quarter has been on the Mississippi River flooding, and I know you guys have some exposure to Iowa, Nebraska and some of the neighboring states and your ChemRock/Rail volumes were a little bit weak. Just maybe if you can speak on that and just give us a status on what's going on over there.

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [66]

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I guess what I would say, you're right, there has been some flooding issue. Recall we're not up and down really in that Mississippi River market anymore, but we do have some flooding that has hit our businesses in the Midwest. Now when I say that, we haven't suffered in our quarries with flooding, but local communities have certainly suffered from it. And what I'll tell you, too, is there is tonnage that's required to come behind these storms. So if we're looking in our current backlog or customer backlog in the Midwest specifically, it's 59% over where it was in the prior year, and that's a pretty big number. And a good bit of that has been some shot rock that has been required already to be used to help remedy some of the flooding and shot rock that we think will continue to be required over the next several months to do that as well. So at least last year when Hurricane Florence came through, we had flooded bits in the Midwest. We do not have flooded bits. I'm going to to be really clear on that point. But I do think from a business perspective, it would generate some activity. It certainly creates individual pain and loss for families, and our hearts and prayers and money and resource go out to them in many instances. But I do think that's where we sit relative to a business snapshot on that issue, Rohit.

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Rohit Seth, SunTrust Robinson Humphrey, Inc., Research Division - Associate [67]

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Got you. Okay. And then on variable costs on diesel and asphalt, maybe give us a sense of your outlook on those relative to the year.

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [68]

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Yes. I mean here's what I'll say. I mean if we look at really where diesel was first quarter, expense was relatively flat on a 7.4% reduction in per gallon pricing. Now the difference was we also had 7.8% increase in usage simply due to Bluegrass. So we're just going to have to see where that goes for the rest of the year. We're not hedged on diesel. The primary hedge we have on that, as you'll recall over years has been relative to what we can tend to do with respect to average selling price. But at least as we look at diesel in the first quarter, relatively well behaved. As a reminder, last year for the full year, we used a little bit over 47 million gallons of diesel fuel, and that was not having Bluegrass with us in the first quarter. Obviously, liquid asphalt is up for the year. Now we think that actually probably works relatively well with asphalt pricing. And we've seen relatively flat natural gas pricing, and that didn't matter to us particularly relative to costs with respect to our Magnesia Specialties business. So again, we're looking at an overall input cost situation that we don't think is unattractive at all.

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Rohit Seth, SunTrust Robinson Humphrey, Inc., Research Division - Associate [69]

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Got you. Okay. And then a final question on -- we talked about the base stone particularly impacting the mix, but you had really good heritage pricing in the quarter. Is the guidance inclusive of that mix headwinds? So all in, good underlying pricing but potentially some mix of base stone?

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [70]

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We do our best to look at the mix and see where we think it's going to be. We felt like because of the increased infrastructure that there would be more base activity this year. I think we'll price a little bit more base activity earlier than we thought we would have. So we have done our best to apply, in many respects, what I hate to say is some art to that. So that's where we are. Obviously, by the time we get to half year, we're going to have a much better feel for it. But I think you get a sense of what the puts and takes are right now.

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Rohit Seth, SunTrust Robinson Humphrey, Inc., Research Division - Associate [71]

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But then the base stone is not a margin headwind, it's just a optics thing, right?

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [72]

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No. Just -- it is absolutely positively an optics thing. That's entirely correct.

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Operator [73]

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Our next question or comment comes from the line of Adrian Huerta from JPMorgan.

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Adrian E. Huerta, JP Morgan Chase & Co, Research Division - Senior Analyst [74]

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Two questions, if I may. One on M&A. If you're starting to see valuations getting more expensive for -- to acquire aggregate quarries. And my second question has to do with the Bluegrass prices, that they're really -- they -- we're already 15% below your prices. And they seem to be at the same level. Do you see the opportunities for the coming quarters for that gap to close?

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [75]

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Adrian, welcome to the call, and welcome to covering our company. We're delighted to have you. Just a couple of things. M&A, what I would say is it completely depends. It depends on sellers' expectations, it depends on what we think can be done with the business. Do I think sellers' expectations have gone up as the industry has very modestly recovered over the several years? Yes, they have. But at the same time, in the right markets, are we able to find M&A transactions that can be incredibly value creating for our shareholders? The answer is yes. Does it mean that you're going to have to be a bit more selective on some of those? I think the answer to that is yes as well. We try to be really disciplined in what we look at, and we try to be really disciplined in our due diligence process. If it makes sense, we tend to move on. I think if you go back and look at our history and transactions that we've done, they've tended to work very well. Now what you don't see are the transactions that we've walked away from. So are they more expensive today? Yes, they probably are. Is there good value there to be found? Yes, they are.

Your other question is a perfectly fair one. It's with respect to Bluegrass and how that looks relative to pricing. We have said in our headline numbers that their ASPs tend to be 10% to 15% below our heritage business. I think that's entirely true. I think what you'll see probably over the fullness of time is you'll see things probably move a little bit better in the nearer term in places like Georgia. I think you'll see them then move in medium term more in places like Maryland. I think markets such as Kentucky, which simply does not have the type of robustness in many respects that you have in places like Georgia and Maryland, will move upwardly in a little bit slower rhythm and cadence. But nonetheless, I think in a rhythm and cadence, that will be value creating, very appropriate and, by the way, from our perspective, not at all surprising.

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Operator [76]

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(Operator Instructions)

Our next question or comment comes from the line of Michael Wood from Nomura Instinet.

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Michael Robert Wood, Nomura Securities Co. Ltd., Research Division - Research Analyst [77]

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A mountain quarry typically see some losses in asphalt, so that's not unusual. But I -- there was no improvement since last year. And last year, I know you were lagging the recovery of inflation. Can you just give us some color there in terms of what you're seeing on price/cost and what pricing on asphalt is looking like as the construction season gets underway?

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [78]

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Yes. I guess I would say a couple of things to your point. Q1 volumes were down 29%, but winter had the biggest impact on that simply due to temperature and specifications. So the Front Range had real winter this year. It was colder. It was wetter. And clearly, we felt that. If we're looking at pricing, Q1 asphalt pricing was actually up 4%, so we think that's a nice harbinger of things to come for the year. If we're looking at Q1 asphalt and paving backlogs, and this is what I think is really important, Michael, they're up 60%. So, I mean, that's a very nice pipeline that we have on the business. If we look at the way it's spread across the business, too, that's important because in keeping with the commentary we've had on the call so far, Q1 infrastructure, up 46%; Q1 res, up 39%; Q1 nonres, up 15%. All these versus the prior year quarter, again, in that Colorado business. So if we're looking at what the downstream business is looking like there, we think it really is very attractive. We talked about some of the cash flow issues that Colorado DOT had last year that we think that they've clearly found their way through. So we're feeling very confident on that business right now. If we look at our overall infrastructure Q1 backlog in asphalt, it represents 50% of the total asphalt and paving backlog versus 46% last year. So it's not just that we feel like we've got good work ahead of us, we've got good work ahead of us in areas that we anticipated that we would have good work.

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Michael Robert Wood, Nomura Securities Co. Ltd., Research Division - Research Analyst [79]

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Great. That's very helpful. And then in terms of the Texas cement market, just curious what is needed there in terms of growth for the -- for demand to outstrip domestic supply? And roughly, what can you tell us on the import price differential versus domestic pricing?

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [80]

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I guess what I would say is would there be room to add a few hundred thousand tons here or there in Texas. There probably could. At the same time, that's a marketplace that -- we're pretty happy with the way that, that marketplace is working right now. So we don't feel the need to add much to that. I would think the import in Houston, the differential can be, let's call it, low-20s, the delta, on occasion. But then you've got transportation logistics that come into play once it gets there. So it can move around pretty considerably, Michael. That's a tough number to nail with precision.

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Operator [81]

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Our next question or comment comes from the line of Adam Thalhimer from Thompson, Davis.

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Adam Robert Thalhimer, Thompson, Davis & Company, Inc., Research Division - Director of Research [82]

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Ward, April was a little wetter year-over-year. Did that give you any pause vis-a-vis the guidance?

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [83]

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Yes. I'll tell you the one thing that you've always seen us do is draw a really bright line between the quarter just ended and the new quarter that's starting because I know if I ever say anything about it, then people will think, well, he's talking about it because he's good. And if I don't say something, they're going to extrapolate, he's not saying anything because it's bad. I would tell you part of what you've heard us say is we feel really good about the year right now, Adam. And I would -- I feel really good about the year.

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Adam Robert Thalhimer, Thompson, Davis & Company, Inc., Research Division - Director of Research [84]

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Okay. Fair enough. And then last thing. I just hope you could walk us around Texas. What are you seeing by the major -- in the major metros for this year?

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [85]

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Oh. look, I'm happy to try and do that. Look, I think Dallas-Fort Worth is going to continue to be a really attractive marketplace. I mean part of what I like about that marketplace is it stays good on both the public and the private side. I mean we've talked about what's happening there relative to the large design-build work that's coming. But here's what's important about that, Adam. I mean you've got $1.6 billion worth of design-build work around 635 in Dallas. But there's $520 million of it going on in Austin, there's $4.2 billion of it in Houston and $1.8 billion coming in San Antonio. Actually, what I think we're going to see this year, and we'd like this, is we're seeing a much healthier Central Texas or San Antonio than we've seen over the last several years. Looking really at those marketplaces, that's been one of the tougher ones in Texas. And what's striking to me is still, if we're looking at employment metrics for the state, Texas is still ranked first as of March 19 in employment growth versus the prior year. But think of it in these terms, too. I mean Texas, with all the growth that it's had, is still second in total housing permits and second in single-family permits and #1 in multifamily. So when we look at all of that then come back and say what did the prospect of that state look like when these energy projects really come to some degree of fruition with 24 million tons of aggregates, 2.9 million cubic yards of ready mixed and 1.6 million tons of cement, these are all pretty striking numbers in a state where we've got the largest aggregates, cement and ready mixed position in between Dallas-Fort Worth, Houston and San Antonio. So that's a long way of saying yes, I listened to economists 4 and 5 years ago say Texas was going into a slowdown. Our team looked at each other at the time and said, we don't see it, and we continue to see a very healthy Texas marketplace.

Howard, are there any others in the queue?

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Operator [86]

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I'm showing no additional audio questions in the queue at this time, sir.

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [87]

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Well, thank you for joining our first quarter 2019 earnings conference call. With our steadfast commitment to safety, cost discipline and operational excellence, Martin Marietta is well positioned to deliver continued growth and enhanced shareholder value. We believe 2019 will be another record year for Martin Marietta, and we look forward to discussing our second quarter 2019 results in July. As always, we're available for any follow-up questions. Thank you for your time and your continued support of Martin Marietta.

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Operator [88]

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Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.