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Edited Transcript of MLM earnings conference call or presentation 29-Oct-19 3:00pm GMT

Q3 2019 Martin Marietta Materials Inc Earnings Call

Raleigh Oct 31, 2019 (Thomson StreetEvents) -- Edited Transcript of Martin Marietta Materials Inc earnings conference call or presentation Tuesday, October 29, 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. - CFO

* 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 & Director of Research

* Michael Robert Wood

Instinet, LLC, Research Division - Executive Director of Building Products

* Paul Barry Roger

Exane BNP Paribas, Research Division - Sector Head of the Building Materials Team & Analyst of Building Materials

* Philip H. Ng

Jefferies LLC, Research Division - Equity Analyst

* Rohit Seth

SunTrust Robinson Humphrey, Inc., Research Division - 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 the Martin Marietta's Third Quarter 2019 Earnings Conference Call. My name is Crystal, and I'll 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 Third Quarter 2019 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 Q3 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. Unless otherwise noted, all financial and operating results discussed today are for the third quarter 2019. Any comparisons are versus the prior year third quarter and all margin references are based on revenues. Furthermore, non-GAAP measures are defined and reconciled to the nearest GAAP measure in our Q3 2019 supplemental information and SEC filings. We will begin today's earnings call with Ward Nye, who will discuss our third quarter operating performance as well as market trends as we conclude 2019 and head into 2020. Jim Nickolas will then review our financial results. A question-and-answer session will follow. With that, 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. This morning, we released record-setting third quarter results. Martin Marietta's disciplined execution of our long-term strategic plan, together with our commitment to operational excellence, provides a foundation for our company to consistently deliver industry-leading performance. We were able to once again establish new quarterly company records for revenues and profits and year-to-date records for safety. We expect our trend will continue for the remainder of 2019, keeping us on track to announce record full year results when we report next quarter. In short, Martin Marietta is safer and more profitable than ever.

Driven by widespread improvements in shipments, pricing and profitability across most of our Building Materials business, we delivered outstanding third quarter performance. Consolidated total revenues increased 16% year-over-year to $1.4 billion. Consolidated gross profit increased 34% to $421 million. Adjusted earnings before interest, taxes, depreciation and amortization, or adjusted EBITDA, increased 27% to $439 million and fully diluted earnings per share was $3.96, a 39% improvement. Supported by the strong performance and encouraging trends, we raised the midpoint of our full year 2019 adjusted EBITDA guidance to $1.275 billion. We've consistently observed the attractive market fundamentals, including employment gains, favorable population trends and superior state fiscal health from a sustainable and long-term construction growth. Mindful of these vital attributes, we have purposefully positioned our business, geographically and otherwise, to be aggregates-led in high-growth markets. We've also aligned our product offerings to leverage our strategic cement and targeted downstream opportunities. This proven strategy, combined with our pricing discipline, underscores our continued ability to capitalize on the robust underlying demand in our key states. That's why we remain confident that increased infrastructure activity from state and local transportation funding initiatives, together with continued strength in private sector activity, will support steady, sustainable construction growth in our top 10 states that outpaces the nation as a whole for the foreseeable future.

With that as a backdrop, let's review our third quarter operating results in more detail. Robust product demand and favorable weather led to a 12% increase in aggregates shipments. Notably, all divisions and primary end-use markets contributed to this growth, demonstrating strong underlying demand and our ability to capitalize on it. Aggregates shipment to the infrastructure market increased 7%. As anticipated, shipments for transportation-related projects meaningfully accelerated in our key states of North Carolina, Iowa and Maryland, supported by funding provided by the Fixing America's Surface Transportation Act, or FAST Act, and numerous state and local transportation initiatives. We anticipate public construction, particularly for aggregates-intensive highways and streets to continue benefiting from the acceleration of state lettings and contract awards in our key states and ongoing federal and state funding.

While our successor infrastructure bill has yet to be fully agreed upon by our elected representatives, all indications are that federal transportation funding will continue at a minimum, at status quo levels even if the FAST Act expires by its own terms in September 2020 without the immediate passage of multiyear follow-on legislation. We see little appetite for a recurrence of the series of short-term continuing resolutions, seen prior to enactment of the FAST Act in December of 2015. This sentiment is evident in the Senate environment and Public Works Committee's July 2019 draft of a Highway Authorization Bill. This bipartisan effort, backed by both Republican Chairman John Barrasso of Wyoming and ranking member, Democrat Tom Carper of Delaware, proposes authorizing federal highway funding at $287 billion over the next 5 years, a 28% increase over the previous authorizations funding levels. Further, the expectation is that the United States House of Representatives Transportation and Infrastructure Committee will propose investment levels even higher than those offered from the Senate. Accordingly, we believe the necessary confidence and funding security is in place for states to continue to move forward on planned and future construction projects. Furthermore, particularly in the near term, state-level funding should continue to grow at a faster rate than federal funding, leading to additional infrastructure investment benefiting Martin Marietta. As a reminder, 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. The infrastructure market represented 38% of our third quarter aggregates shipments, which was below the company's most recent 10-year annual average of 46%. Since infrastructure is Martin Marietta's most aggregates-intensive end-use, the public works growth we're seeing and expecting is encouraging.

Aggregates shipments to the nonresidential market increased 19%, with broad-based strength in distribution center, warehouse, data center and wind energy projects in Texas, the Carolinas, Iowa and Maryland. Additionally, we benefited from the reemergence of several large energy sector projects along the Texas Gulf Coast, which accounted for nearly 500,000 tons of aggregate shipments during the quarter. Looking ahead, we believe continued employment and population gains will provide the impetus for sustainable commercial construction activity, particularly in our southeastern and southwestern regions. The nonresidential market represented 34% of our third quarter aggregates shipments.

Aggregates shipments to the residential market increased 16% led by attractive homebuilding activity in Texas, Colorado, the Carolinas, Georgia and Florida. Among other things, homebuilders are now noting improved demand from first-time buyers. We expect continued residential construction growth for both single and multifamily housing across our geographic footprint driven by favorable population demographics, job growth, land availability, attractive mortgage rates and efficient permitting. Currently, permit growth, which in our view is the best indicator of future housing construction activity, is outpacing the national average for both multifamily and single-family housing units in our top 10 states. The residential market accounted for 22% of our third quarter aggregates shipments.

To conclude our discussion on end-use markets, the ChemRock/Rail market accounted for the remaining 6% of aggregates shipments, volumes increased 4% driven by improved ballast shipments to the Class I railroads for continued repair projects from the flooding in the Midwest earlier this year. Based on recent trends and our year-to-date volume growth, we raised our full year 2019 aggregates shipments guidance from an increase of 8% to 10% to an increase of 11% to 12%.

Aggregates pricing improved 5%, reflecting our disciplined pricing strategy and the comparative strength of our markets. By region, the West Group posted aggregates pricing growth of 9%, which reflects favorable geographic mix and product mix. The Southeast Group achieved pricing growth of nearly 6% driven by market strength and the higher percentage of long-haul shipments from our higher price distribution terminals. Our focus on pricing led to a 3.5% improvement for the Mid-America Group. Full year 2019 aggregates pricing is anticipated to increase 4% to 5%. We expect continued pricing momentum in 2020.

Our cement shipments increased 21% to a new quarterly volume record of 1.1 million tons, driven by healthy Texas demand as well as weather-deferred projects from earlier in the year. Cement pricing improved nearly 2% despite unfavorable product mix from a lower percentage of oil well cement shipments. With a robust bidding pipeline, we believe our cement operations will continue to benefit from tight supply and healthy demand in Texas as well as our recently announced price increase effective April 2020.

Turning to our downstream businesses. Ready mixed concrete shipments increased 9% led by double-digit growth in the Southwest division. Our Rocky Mountain division experienced project delays, which tempered shipment growth. Pricing declined 2% overall as unfavorable product mix and a shift in Texas customer segmentation affected pricing and offset solid pricing gains in Colorado. Our asphalt and paving business, which operates solely in Colorado, benefited from strong customer backlogs and favorable weather conditions, resulting in a 34% increase in asphalt shipments. Asphalt pricing improved 3%. I'll now turn the call over to Jim to discuss more specifically our third quarter financial results. Jim?

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James A. J. Nickolas, Martin Marietta Materials, Inc. - CFO [4]

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Thank you, Ward. The Building Materials business achieved record quarterly products and services revenues of $1.3 billion, an 18% increase and record product gross profit of $396 million, a 37% increase. Notably, all the Building Materials product lines contributed to this broad-based growth.

Aggregates product gross margin increased 480 basis points to 35.1%. This margin expansion was driven by higher prices as well as improved operating leverage from increased shipments and production levels enabled by strong demand and improved weather. The absence of the negative impact through selling acquired inventory burdened by acquisition accounting in 2018 as part of our purchase of Bluegrass Materials was an additional tailwind. As Ward mentioned, our cement operations benefited from both volume and pricing growth, resulting in product revenues of $120 million and gross profit of $49 million, both all-time records.

Top line improvement, coupled with production efficiencies and lower fuel and maintenance costs, led to a 750 basis point expansion of product gross margin to 40.6%.

Magnesia Specialties product revenues decreased 13% to $59 million as chemicals and lime customers reduced inventory levels to align with current demand. However, despite the lower revenues, enhanced cost control measures contributed to the 120 basis point improvement in product gross margin to 40.4%. We lowered full year product revenues and gross profit guidance for the Magnesia Specialties business to reflect current customer activity.

Our business is generating significant cash. Operating cash flow for the 9 months ended September 30 increased nearly 50% over the comparable prior year period. This improvement was driven by growth in earnings and lower contributions to our already well-funded pension plan. We will continue with the balanced and disciplined capital allocation priorities we have long followed to further enhance shareholder value and maintain financial flexibility. Those priorities remain value-enhancing acquisitions, prudent organic capital investment and the opportunistic return of capital to shareholders through dividends and share repurchases while maintaining our investment-grade credit rating profile.

Building on my comments about our very strong cash flows, we are pleased to report that less than 18 months after the second largest acquisition in the company's history, we have delevered from the Bluegrass Materials transaction and returned, as we said we would, to our target leverage ratio range of 2 to 2.5x. For the trailing 12 months ended September 2019, our ratio of consolidated net debt to consolidated EBITDA as defined in our applicable credit agreement was 2.3x. In addition, we remain appropriately focused on returning cash to our shareholders through a combination of meaningful and sustainable dividends and share repurchases. Based on our confidence in the outlook for our business and our significant cash generation, our Board of Directors recently approved a 15% increase in our quarterly cash dividend paid in September, one of the largest increases in the company's history. Our annualized cash dividend rate is now $2.20. Together with our ongoing share repurchase program, we have returned more than $1.5 billion to shareholders since February of 2015, while at the same time growing our business profitably and responsibly. Based on recent trends and our strong performance to date, we have raised our full year 2019 outlook. And as detailed in today's release, we now expect consolidated total revenues in the range of $4.660 billion to $4.770 billion and adjusted EBITDA in the range of $1.245 billion to $1.305 billion. 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, thank you. To conclude, we're proud of the results we posted in the third quarter and while we're pleased with the numbers, we don't see the performance as surprising. That's because in nearly every respect, we have thoughtfully developed and consistently executed on our strategic plans, positioning our business as an aggregates leader in attractive, high-growth geographies. We didn't get here by accident. Over the past several years, through our steadfast improvement strategy and fidelity to the world-class attributes of our business, safety, ethics, cost discipline and operational excellence, Martin Marietta has positioned itself to outperform. With this in mind, we look forward to continuing our momentum in 2020. Supported by attractive underlying market fundamentals across our geographic footprint and region-specific third-party forecasts, we believe the current construction cycle will continue for the foreseeable future and expand at a steady pace in 2020. Our outlook is positive across each of our primary construction end-use markets. Our preliminary view anticipates low- to mid-single-digit growth in aggregates shipments and mid-single-digit growth in aggregates pricing in 2020. Martin Marietta remains committed to the steadfast improvement strategy we developed and executed during our 25 years as a public company. We will drive continued improvement and excellence as we responsibly manage and grow our business to create long-term value for our shareholders. If the operator will now provide the required instructions, we'll 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)

And we'll take our first question from Kathryn Thompson from Thompson Research Group.

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

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First, following up on 2020 guidance. Could you flesh out the drivers for the high-level volume and pricing guidance for aggregates, particularly on the volume side? Just what extent is it dictated by real demand versus just difficulty getting work done because of the tight labor market? And then also any thoughts on cement in Texas would be helpful. And in particular, what type of color of energy end-market projects have been driving the demand now and into 2020?

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

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Sure, Kathryn. Good morning. As we look at next year, one of the key drivers in our mind, Kathryn, is simply taking a look at where our customer backlogs are at this time of year versus where they were last year. So to give you a good sense of that, if we're looking at Q3 2019 backlog in Mid-Atlantic, our customers, it looks like were up about 57% versus where they were last year in backlog. If we're looking in the Midwest, major project backlog looks like it's up around 11%. Similarly, if we look in places like the Southwest in ready mixed, backlogs were up 12% driven by market growth in both the north and the south. And then to your point, cement backlog from what we can tell, is up over 65%, driven by major project work. That includes large DOT projects, Kathryn. So as we look at what our customers are telling us, that's giving us the confidence for the new year. It's the same type of thing we're seeing in Colorado right now, Rocky Mountain customers are saying their backlogs are up around 12%. So as we look at where the growth is coming, as we indicated, we see infrastructure better, we see nonres better, we see residential better, next year as well. Specifically with respect to the cement and, as I indicated, a lot of it's major project driven. It's very healthy both in North Texas and Central Texas. As you recall, the 2 cement plants we have are in Midlothian in North Texas and Hunter in Central Texas. Part of what I think is important in that marketplace, too, is what we're seeing relative to pricing in 2020. We have put out our pricing letter for next year. We're anticipating an $8 a ton increase in Texas, that's going to be effective April 1. So again, if we look at volume across the aggregates business, we see it being widespread, and we see it nice and steady, and we see good customer backlogs. We see the same thing in cement, and again, it's going to be more driven by public works, we believe, in Texas. And again, we think the pricing environment as we go into 2020, as I indicated in the prepared remarks, both in aggregates and cement looks better going into '20 than it did coming into '19. And it looked better coming into '19 than it did coming into '18. So a long answer, but I think you need that color on where the volume is coming from and how we see pricing as well.

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

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Okay, that's helpful. One follow up on North Carolina in particular. We understand that the North Carolina legislature is working on a $600 million transfer to DOT from the general fund to make up for, really a transitory issue related to storm damage and lawsuit. Our work is showing that this is more a transitory issue and not necessarily impacting revenue generation for new construction. Could you clarify if this is accurate? And thoughts on the likelihood of closing this gap?

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

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No -- Kathryn, thank you for the question. I can confirm. That's the way that we see it, too. The thing to keep in mind, Kathryn, NCDOT has incurred more disaster-related spending in the last 3 years than in the previous 12 years combined. So if you look at the business that we had last year and the flooding that we had in Eastern, North Carolina, that's exhibit A to it. Their issue is simply this, the theme of reimbursements are taking 4 or 5 years to come in. And the legislature understands that. So to your point, have we seen the North Carolina House already come forward with a $600 million proposed bill? We have. Do we anticipate that the North Carolina Senate will come up with its own formula? We believe that they will, and we think they're going to address that before they leave town. To your point, this is really just bridging something from late this year to early next year. We do view it as transitory. We do believe that the legislature understands this is something that they need to remedy, and we believe that they're committed to remedying it. So I think your word, transitory, is indeed the right word.

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Operator [6]

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Our next question comes from Trey Grooms from Stephens.

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Trey Grooms, Stephens Inc., Research Division - MD [7]

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So I guess, my main question, first question, I guess, is on ARPA. Some of the contract award data that we've been seeing there has been weakening a bit lately and I think it has created some concern with some folks over the health of the infrastructure market looking into next year. But it sounds like your customer backlogs look very good. You continue to expect public demand to continue to improve in the next year and I understand this data can be choppy and I think some of your states are lapping tough comps. But can you help us bridge the gap here with what the ARPA contract or data has been telling us over the last few months and kind of what you're expecting on the public side going forward?

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [8]

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Yes, sure. Trey, thanks for the question. And literally, I'm going to try to bridge it for you using some data that pertains directly to bridges because I think that will help get you there. Look, first of all, when you look at the ARPA data, I think one thing that you can't do is look at in a vacuum because you miss the longer run dynamics of what's happening with the marketplace. So to your point, you can see some issues on a month-to-month basis that can cause swings that actually belie the longer-term trends. So look, if you look in September of 2018, Colorado had $1.5 billion of awards versus an average of $40 million. So if you've got just a number and a month like that, it can move things around pretty considerably. So I think what you're referring to is when ARPA came out and said, look, we're looking at trailing 12 months of highways, bridges and tunnels and at the end of September, they said it's down 4.5%-ish. What's happening within that is this. If you look at bridges and tunnels, and that's back to my note, my observation with you on really bridging this, bridging in tunnel -- bridges and tunnels are down almost 13%. Trailing 12 months of highways, down 2.1%. But more importantly, if we look at current highway awards, they're 13% above 2017 levels. And one of the things that I think is important to remember is if you're sitting where we sit, and that's just part of an aggregates-led company, you're going to be much more focused on what's happening with highways than you are relative to what's happening with bridges. Equally, if you're coming out of a downturn, and you feel like you may have some safety issues with bridges, you're going to repair those bridges early on and then back off of that and pivot to the highways. So again, if we're looking at the pivot from bridges to highways, in my view, that's totally expected. And then more importantly, if you look at what the trend has been, I think your line should be very comfortable with the trend and I would encourage people, please don't overreact to just monthly swings because that type of lumpiness can just occur, and it's nothing in our view to be alarmed over. The long-term trend is quite positive, and as I indicated, the backlogs that our customers are speaking of on the public side is really very attractive.

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Trey Grooms, Stephens Inc., Research Division - MD [9]

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All right. Thanks for that. That is helpful. As for my follow-up, you gave us the backdrop here with your expectation of kind of mid- to high single-digit volume, mid-single-digit pricing in aggregates of next year. So can you talk about your expectations for cost inflation? Or maybe any geographic trends that you might be expecting that can impact pricing and margins? And maybe how you're thinking about profitability and incremental flow-through in that environment.

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [10]

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Look, obviously, we'll give you a much more granular look and see in 2020 when we come back in February. One note I would make, Trey, is on the volume, we're seeing low to mid-single. I think you misspoke on the percentages that you're speaking of in the premise of your question. That's quite all right. Part of what I would say is, look, do we see any components of our cost structure that we're troubled by? We're not. We're very focused on costs every day in our business. The single biggest cost driver we have is labor, and we believe we have labor well-controlled. So we don't see inflationary actions occurring there that we think that could be disruptive. Equally, we see energy as really quite well-behaved. If you look at the investments that we've made both in plant and in rolling stock over the last several years, we should continue to see nice trends relative to maintenance and repair. And remember, Trey, there are about 5 areas: labor, maintenance and repair, supplies, DD&A and energy, that are really the drivers of what's going to happen from a cost perspective in our business. So do we see things in that array that cause us any concern? We do not. Equally going back to the commentary that I offered just a few minutes ago, we believe the pricing environment continues to be attractive, and I think it's getting more attractive. One of the metrics that we've long spoken of is that while we tend to be in a position because of an array of factors, including reserves that you just have to take good care of, we intend to get pricing all the way through cycles. We do better after big volume years, too, and this is a volume year where we think we're going to be able to come in 2020 and actually do better on pricing in '20 than we have in '19. So again, our cost profile looks very attractive from our perspective, pricing looks increasingly attractive going into '20. We'll give you a more definitive view of how that's going to translate to EBITDA and gross profit, et cetera, when we speak again in February.

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

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And just the housekeeping, since you brought up repair and maintenance. Is there anything kind of looking into 4Q that we need to be aware of from a repair, maintenance or stripping cost or timing of anything that can swing around into 4Q that we should be cognizant of?

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

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I think we try to capture it in the guidance that we've given. One thing that we will be doing, obviously we have sold considerable amount of tonnage this year. And when you're selling tonnage, one of the high-class problems you have from that is you do have more stripping that you need to do, and we're going to try to do some of that in Q4 to stay ahead of it and to have us where we need to be as we enter 2020.

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Operator [13]

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And our next question comes from Stanley Elliott from Stifel.

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Stanley Stoker Elliott, Stifel, Nicolaus & Company, Incorporated, Research Division - VP & Analyst [14]

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Congrats on the nice quarter. Jim, this is more for you, you guys are 2.3x right now. The commentary from the field that we're hearing is very encouraging into next year, should be another year of good incrementals and another good year of cash flow. How are you all thinking about the use of that cash especially with opportunity for M&A has been fairly quiet year recently? But I would love to get your thoughts on that, whether you want to run that at lower leverage level or if you're more interested in putting it to work. And just kind of how you're conceptually thinking about the capital structure at this point.

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [15]

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Well, Stanley, thank you for the question. As you've noted, we've got a high-class worry because this business is delevering exactly the way that we thought it would after we bought Bluegrass. Let me turn that specifically over to Jim to talk through what our capital priorities are because what you'll hear is they haven't changed.

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James A. J. Nickolas, Martin Marietta Materials, Inc. - CFO [16]

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Yes, Stanley, thank you for the question. Our first call on capital is the right acquisition. I want to make sure we've got the dry powder to be in a position to take advantage of strategic and value-enhancing acquisitions. Of course, the next priority for us is investing in our business. Beyond that, you'll see -- you'll continue to see a balanced approach. We've meaningfully delevered this year as planned. I would expect some further delevering to continue next year but not to the same extent we saw this year. Return to cap -- returning capital to our shareholders beyond that in the form of higher dividends and share repurchases will likely play a larger role in 2020 assuming our leverage remains at the low end of our targeted range of 2 to 2.5x.

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [17]

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And Stanley, obviously, as Jim said, the first call on capital is doing the right deal. And I have to brag on our team. I think our team is very good at identifying the transactions. I think they do a superb job going through the contracting piece of it when we literally pay for the deal. And part of what we've been able to do very successfully is synergize the deals as well. So again, our priorities have not changed, and we're very pleased to be sitting here and at this leverage ratio within the relatively short period of time since we closed on Bluegrass.

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Stanley Stoker Elliott, Stifel, Nicolaus & Company, Incorporated, Research Division - VP & Analyst [18]

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Absolutely. With the higher volumes and some of the higher repair maintenance cost, does that mean CapEx will stay elevated next year? Or is it something that can be further contributor to our free cash?

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James A. J. Nickolas, Martin Marietta Materials, Inc. - CFO [19]

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I would think CapEx would be relatively constant as a percent of the size of the business. So I wouldn't view today as elevated, I think it's the right level and next year, it'll be consistently sized vis-a-vis the business size as well. So you can think about it in terms of percent of sales, we wouldn't expect it to change terribly next year.

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Operator [20]

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Our next question comes from Paul Roger from Exane.

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Paul Barry Roger, Exane BNP Paribas, Research Division - Sector Head of the Building Materials Team & Analyst of Building Materials [21]

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Congratulations on the strong results. So I just have a question, first of, going back to the cement business. You talked about the demand outlook and what you're currently seeing there. Maybe you could comment a bit more on the margin. Obviously, you had a very strong margin performance in Q3. Was there anything sort of specific in there, timing of maintenance cost or something like that? And is there any reason why the sort of high 30% to low 40% isn't sustainable going to 2020 for the cement division?

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [22]

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Yes. First of all, good morning to us and good afternoon to you. So nice to hear your voice, Paul. But there was nothing particularly extraordinary in the quarter. I mean obviously volume was really quite good. If we look at year-to-date pricing, that was up 3.3%. One of the big things that our team is focused on in cement right now is reliability and just making sure that those [cones] are running and -- sorry about that. I'm not sure what that was. Are you still with us, Paul?

(technical difficulty)

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Paul Barry Roger, Exane BNP Paribas, Research Division - Sector Head of the Building Materials Team & Analyst of Building Materials [23]

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Yes, I am. Yes, I can hear you.

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [24]

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Okay. Very good. We had some bad feedback here in the room. So we're focused on making sure we have reliability where it needs to be and we're focused on making sure that we can take care of our customers. And one of our biggest customers in that market happens to be us. So again, I think the cement business is having a very good business -- a very good year this year, I think it's going to have a very good year next year. When we bought this business, we anticipated that the cement business that we referred to as strategic cement could have the margins that are very similar to the types of margins that we see in our very attractive aggregates business. And I'm pleased to say that's exactly what we're seeing.

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Paul Barry Roger, Exane BNP Paribas, Research Division - Sector Head of the Building Materials Team & Analyst of Building Materials [25]

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Maybe just a quick follow-up on the big energy projects you're seeing on the Gulf Coast. Clearly, I think you said they accounted for about 0.5 million tons of shipments in Q3. So at the minute there, they're obviously a relatively small driver. Do you expect that to change as these schemes ramp up? And sort of how meaningful could this type of work be in the medium term?

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [26]

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No. You're exactly right. As we look at the quarter, there were nearly 500,000 shipments in Q3, and that's a little bit over 1 million shipments year-to-date, at least through September at the end of the quarter. Part of what I like looking at it, Paul, is it had a nice build throughout the year, so about 240,000 tons in Q1, about 450,000 in Q2. We're getting close to 500,000 obviously in Q3. We think we're going to continue to see good, steady energy work in South Texas for a while. I can tell you, we were down there with the team several weeks ago. These are mammoth projects and these are mammoth projects in wonderfully swampy wetland that's going to take a lot of aggregates to have it in the condition that needs to build. To give you a sense of what the scope can be, if we're looking at a series of projects that we're working on now, but more importantly, if we look at projects into the future that we should be good candidates for, including Driftwood LNG, continued work at Golden Pass, what we think is probably coming at Port Arthur, those 3 combined with others would demonstrate to us that there's still about 17 million tons worth of projects along the Gulf Coast that we should be well positioned to get our share of. So we think that's going to be busy work for us. The other thing that's going to be worth watching is what happens with high-speed rail in Texas because they're clearly very interested in putting in around a 240-mile lane of dedicated track high-speed between Dallas and Houston with a stop actually in College Station. This would be a very large project, it's not going to be a 2020 issue, but again, if we look at these large energy projects, there are 2020 issues and beyond 2020. If we look at this type of rail, high-speed rail that could be coming to Texas, those are good, attractive long-term projects as well. And I've heard people say that there could be upwards of 30 million tons of aggregates need on those types of projects. So we feel like nonres in our footprint will continue to be really attractive, and we think the Texas market in particular has been good, and we think it's going to stay very good.

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Operator [27]

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Our next question comes from Phil Ng from Jefferies.

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Philip H. Ng, Jefferies LLC, Research Division - Equity Analyst [28]

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Congrats on a strong quarter. You're obviously lapping a very tough comp this year just given the strength you've put up on volumes. But your comments on backlog sound quite good for next year. Could there be some upside on your low to mid-single-digit volume outlook for 2020? And if you had to rank the level of confidence between the 3 different end markets you're exposed to, how do you think about it for 2020?

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [29]

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Phil, you sly devil, you're trying to get me to talk more about 2020. We'll really give you some really good color on that when we get into February. If I'm thinking about the 3, obviously, the commentary said that we think well of all 3 of them going into 2020, which is true. I think what we will continue to see though is that good steady build in infrastructure. So if you go back to the commentary that we offered in the prepared remarks, we spoke about the percentage of infrastructure in our business today and what a 10-year average looks like. I'm not suggesting it's going to bolt back up to 10-year averages. I'm suggesting it's going to do a nice slow, steady climb back to some numbers that have a consistent 4 in front for them. We think that makes good sense. If we look at the year and really think about where nonres has been, nonres has been somewhere in the mid-30s this year. Those are, if based on a historical perspective, pretty high percentages. At the same time, we go back to the conversation I was having with Paul just a minute ago, and if you think about what some of those nonres projects can be, it's pretty big tonnage. And the other thing that I think, Phil, that's making a real difference for us, particularly on nonres and that's one of the reasons we have such confidence in that going into the new year is, the way we have built our businesses around corridors. So if we're in Colorado, we're talking about I-25, if we're in Texas, we're talking about I-35, if we're in the Southeast, we're talking about I-85 and these are major commerce corridors, and we think we'll continue to see good residential activity in those markets, and we think we'll continue to see good nonres activity in those markets. So I'll tell you, it was comforting to look at best year-on-year increases in homebuilding and see it in markets like Orlando where we have a presence in Charlotte, where we have a presence and in Houston where we have a presence. So that's my way of saying looking at the end uses, they all look reasonably healthy to me. They do not look, in any respect, overbuilt to me and if there's one place that I would tell you to watch in particular, let's watch the public works because we think that's going to continue to expand.

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Philip H. Ng, Jefferies LLC, Research Division - Equity Analyst [30]

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That's great color, Ward. I mean if there was any pocket that investors would be a little more cautious on, it would be nonres, and it sounds like you're quite bullish on that backdrop. And I guess for 2020, I think implicit on your full year guidance for aggregates volumes implies 4Q volumes would track closer to low single-digit growth. Did you see any pull forward in 3Q? Or anything notable that it could be a drag on the fourth quarter?

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [31]

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Let me turn that to Jim. We did see some modest but the other thing that we're doing, just before I turn it over to him, is we said coming into the year, we thought it would be a wetter than usual year. We're betting on a normal to early winter as well so with that backdrop, let me turn it to Jim.

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James A. J. Nickolas, Martin Marietta Materials, Inc. - CFO [32]

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Yes. I think we've got anecdotal evidence that a lot of customers are trying to rush to beat winter. And so, particularly in our more northern districts and division, so we do have some views evidence of that happening. They pulled some work into Q3 from Q4.

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Philip H. Ng, Jefferies LLC, Research Division - Equity Analyst [33]

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Okay. But there's nothing outside of that would kind of bog you down in the fourth quarter? Because your comps I think was not terrible, but it's probably fair to kind of bake in some conservatism because your shorter months are always tough to predict. Is that a good way to think about it?

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [34]

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If you think about it, the 2 businesses in particular in the third quarter that really did wonders on our aggregate volumes were the Mideast and the Midwest. So we're talking in those contexts: West Virginia, Ohio, Indiana, Iowa and Nebraska. And those are all parts of the country that can seasonally be much more impacted by the early winter. So we're just mindful of what that could be.

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Operator [35]

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Our next question comes from Adrian Huerta from JPMorgan.

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Adrian E. Huerta, JP Morgan Chase & Co, Research Division - Senior Analyst [36]

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Congrats on the results. My question was somewhat related to the previous one so you kind of answered that one. So my other question was just on cash taxes, if you're still expecting cash taxes to be somewhere around $90 million for the year and where they were so far in the first 9 months of the year?

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [37]

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You bet. I'll turn Jim over the cash taxes. He's got the tax background that I don't.

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James A. J. Nickolas, Martin Marietta Materials, Inc. - CFO [38]

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Yes. No. I think you're pretty close to spot on, Adrian, so I think that's the right number, low mid-90s for 2019. Is there a second question? I couldn't remember.

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Adrian E. Huerta, JP Morgan Chase & Co, Research Division - Senior Analyst [39]

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No. That was basically it. The first one was also on potentially conservative guidance on the 4Q but given what you just have said that they were probably projects that were advancing to 3Q, and that's what is going for the conservative fourth quarter.

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Operator [40]

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Our next question comes from Jerry Revich from Goldman Sachs. And we will move on from our next question from Michael Wood from Nomura Instinet.

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Michael Robert Wood, Instinet, LLC, Research Division - Executive Director of Building Products [41]

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First, just wanted to ask about cement and asphalt prices being down sequentially. If you could give us more color on that.

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [42]

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The answer what I would say is cement pricing was really -- it was down sequentially only because of mix issues because we actually sold less into West Texas in oil well this quarter than we did previously. One thing that I would call out, and this is something, Michael, that I'm really happy to see. Pricing actually did quite well in the south, meaning that the central part of Texas for us, if we look over the period of time that we've owned these assets, Midlothian pricing has always frankly, outperformed Hunter. And again, I feel very good about what we see in North Texas. What I like in this particular quarter is I'm seeing good solid performance in the south as well, so I think that's notable. With respect to -- were you talking about hot mixed or were you talking about ready mixed pricing? I want to make sure I'm addressing your next question appropriately, Michael.

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Michael Robert Wood, Instinet, LLC, Research Division - Executive Director of Building Products [43]

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I was talking about ready mixed.

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [44]

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Okay. I thought so. I think you'd said hot mixed, but I think you meant ready mixed. Here's the deal on ready mixed and it's easy to sort out. Our volume is nicely up for the quarter, our volume was up for the quarter 12% in the Southwest, and it was up about 1.5% in the Rocky Mountains and here's what that means. You've got a fairly notable geographic mix difference between the Southwest ready mixed and the Rocky Mountain ready mixed. And by that, I mean about $30 per cubic yard difference. And Rocky Mountain ready mixed is simply a higher-priced product. So when we're selling more ready mixed in Texas, as we were in this instance, that geographic mix that we've experienced will just give you frankly, optically a lower ASP. That's the primary driver of what you're seeing. There was some modest mix relative to where we're selling as well. If you go back to the beginning of the year, Michael, you recall that we said we were going to plan for a wetter than usual year. And part of what our team looked at is if we're going to plan for a wetter than usual year, what are the different end uses, particularly in ready mixed, that we can be more aligned with that are not as sensitive to rain. And frankly, homebuilding is one of those. So we ended up pushing modestly more ready mixed to homebuilding in Texas, and that tends to have a little bit lower ASP as well. So if we look at what's going on, was it driven by the fact that there was simply more ready mixed in Texas than there was in Colorado? Yes. Was it driven by the fact that we pivoted modestly to have it more residential? Yes. But here's the important thing at the end of the day, Michael, we made more money, and that's really what all those moves were about for us. So I wanted to give you the underlying specifics on what was happening with ASP, but I also wanted to tell you, at the end of the day, this is about creating higher returns for shareholders and stakeholders, and that's what we did.

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Michael Robert Wood, Instinet, LLC, Research Division - Executive Director of Building Products [45]

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Great. That's helpful. And then on the Magnesia Specialties business, is the inventory destock ended? Is that a multi-quarter destock? If you can give us more color on that.

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

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I think it is, it's winding its way down. I think we anticipate that will continue in 4, and that's in large part, what we try to do with the takedown in the guidance. So it's not an issue that we have long-term concerns about. As you'll see, the team in Magnesia, really, when they saw a modest slowdown, adjusted their cost profile very, very quickly. So to see that type of movement and actually see margins go up in that business is really a wonderful sign. So I would encourage you if you have warning lights on anything, you certainly don't have them on Magnesia Specialties. That business is sitting in a good place. It just has to work through some of these inventory issues that we do not see it as long term at all.

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Operator [47]

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And we'll take our next question from Jerry Revich from Goldman Sachs.

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Jerry David Revich, Goldman Sachs Group Inc., Research Division - VP [48]

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I'm wondering if you could talk about how pricing cadence played out over the course of the quarter. I think we typically see you folks layer on price increases over the course of the third quarter. Is that how it played out this year? Or was it more front-end loaded? Any color that you can share with us on the cadence would be helpful.

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

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No. Sure, Jerry. What there really -- as we've talked over the course of the year, there really not been that many mid-year price increases, so I think much of it was just driven by more volume and where some of the volume's coming from and the normal price increases that we would have. Now clearly, I'm not encouraging you to go and bake in a consistent 9% increase in the West either. I mean that was a very impressive pricing performance and that was driven by a couple of things. One, we do have good pricing in Colorado. And as we've discussed over the last several years, and that's a marketplace that as we look at our overall footprint, tends to have lower aggregate pricing, and we think we should get good value for that product, and we are. If we look at what's happening in the Southwest, we did move more stone by rail and moving them into higher-priced sales yards. And what I would say is I think that's actually a good sign. I think it's a good sign for a number of reasons. One that tells you that Central Texas is getting healthier, number one. But here's the other thing that it says, that the railroads are performing better, too. I mean one thing that I think is notably different this year versus last is we would have had a series of conversations last year around rail performance and how that was looking, and you have not heard that this year. And as we look at the year, we're probably going to send something in the range of mid-30 million tons by rail in the United States this year, and I think that's probably 2x our next closest competitor. So that clearly helped on the pricing side of it as well, and we did see some reasonable yard activity in Florida. So I would tell you, those were the primary issues that I would call out for you with respect to pricing, Jerry.

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Jerry David Revich, Goldman Sachs Group Inc., Research Division - VP [50]

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Okay. I appreciate the color. And then any mix difference versus normal seasonality? So if we look at over the past 10 years, your heritage pricing is typically up $0.20 sequentially fourth quarter versus third quarter. So if that dynamic plays out this year, your pricing cadence exiting the year will be up 6% just the way the math works out. Is that something that you expect to play out under normal seasonality? Or are there any moving pieces from this point that we should keep in mind?

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

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I guess what I would say is this, if you're trying to just look at Q3 ASP, and you're trying to just sort through what all the mix issues are. Instead of being modestly over 5, it probably would have been modestly over 4, that's probably just a pure straight up same-on-same type of comparison, Jerry.

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Jerry David Revich, Goldman Sachs Group Inc., Research Division - VP [52]

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Okay. And then in terms of the 2020 pricing conversations we're hearing from a couple of your competitors that those discussions for some are happening earlier in the season considering as you pointed out earlier in the call how strong the volume growth has been this year. So within mid-single-digit range obviously that you've spoken about for '20, that can be a really wide range. It does sound like pricing is accelerating into '20, and I'm just wondering if you can comment on what have been the magnitude -- the price increases that you've announced so far. And obviously, we'll see what they'll stick, but it sounds like the price ask is higher in '20 than what it has been over the past couple of years in terms of percent increase.

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

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No. Jerry, I think that's probably right. The only one that I'm really willing to talk to in specific dollar terms is what I'd spoken to relative to cement at the $8. Obviously, the aggregates can move pretty considerably depending on where you are and what the product mix is going to be. So again, we'll give you more specifics on that as we come into the new year. But if your premise is more people are having more conversations earlier and the numbers sound generally higher, I would agree with all of those basic premises.

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Jerry David Revich, Goldman Sachs Group Inc., Research Division - VP [54]

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Okay. And lastly, maybe we can talk about cement pricing specifically. You folks have done much better than the market over the past couple of years but for the market as a whole, it's been really disappointing pricing actions, I'd say, from past really 2-plus years. Are you more optimistic that the market will be more disciplined in cement overall heading into next year? And any data points that drive the confidence around the price increase that you had mentioned you had announced in cement?

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

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Well, again I think when I go back and refer you back to the backlog numbers that I gave you before on where cement sits today versus where it sat last year, I think that sort of gives us confidence around it. If we look at the sheer quantum of infrastructure work in Texas, that gives us confidence around it as well. And the other thing to keep in mind is we're not a nationwide cement player. We're a Texas cement player, and we're the largest producer of cement in a market that will likely have more need for cement than it can produce in Texas. And we think that's a fine recipe for success in that state.

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Operator [56]

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And our next question comes from Garik Shmois from Longbow Research.

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Garik Simha Shmois, Longbow Research LLC - Senior Research Analyst [57]

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Can you hear me? I'm sorry.

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [58]

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Garik, we can hear you now. Yes.

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Garik Simha Shmois, Longbow Research LLC - Senior Research Analyst [59]

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So I was wondering on nonresidential, looking out to 2020, you talked about energy projects being a potential source of acceleration. But you saw really good growth this year in data warehouses. Understanding that you've set up your asset footprint along some of these high-growth nonres corridors. So I was wondering if you can speak to that end market in particular into next year. And maybe a little bit more broadly, if you're expecting any change in the nonres composition of growth into 2020 by end market.

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [60]

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Garik, thanks for the question. I think it can move around a little bit, and I think it can vary. We've seen awfully attractive wind farm activity this year in Iowa. I think we might start seeing more of that type of activity further south next year. I think what we continue to see in warehousing will be very, very healthy, and I think the warehousing in particular is what's going to drive a good number of our volumes in those markets, Garik. I mean what you've seen relative to warehousing in places like Indianapolis and even in areas such as Des Moines has been really pretty impactful to our business, and we think it will continue to be. It goes back to the observation you made to the premise of your question, and that is if you build your business along these high corridors, you're going to see good nonres growth and again, Garik, we think that's going to be a very healthy in 2020.

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Garik Simha Shmois, Longbow Research LLC - Senior Research Analyst [61]

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Okay. And then just lastly, on the outlook, it's tough to handicap, but if you think about infrastructure, we get that a lot of the visibility that you have is based on the awards that have occurred really over the last several years. But we're getting some more questions just on rescission threat and what would happen if there's not a timely extension or passage of the new Highway Bill. So is there any contemplation about any potential disruptions on the federal side and how that might impact infrastructure demand next year?

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [62]

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I would tell you, I hear very little to nothing about a rescission threat from the federal side at all. I don't see it and I think the other thing that everyone that I speak to in Washington, not only representatives but people of the trade associations, come away with the view that the notion of short-term CRs is not a place that anyone wants to be and everyone understands that this is a much-needed area of consistent investment. So we're not seeing things in our dialogues, and we stay very close to it that gives us a sense that that's going to end up being an issue next year, Garik.

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Operator [63]

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And our next question comes from Timna Tanners with Bank of America Merrill Lynch.

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Timna Beth Tanners, BofA Merrill Lynch, Research Division - MD [64]

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Thanks, Ward, for all that great color. Only things I had left that I was hoping for a little bit more detail on was since you mentioned that M&A is your top priority for use of cash, if you could characterize the environment and the opportunities that you might have there.

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [65]

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Timna, thanks for the question. It is always a very active dialogue. I mean the question is, how far does it go beyond the dialogue? And what does the acquisition look like in a relative state because different acquisitions are going to have very different levels of attractiveness to us. What I will tell you is the dialogue that is underway with businesses directly and in some instances, the dialogue that's underway with people who are representing businesses tends to be a very active dialogue. Now where that leads, I can't predict right now, but it has continued to be a very consistent, positive, thoughtful dialogue. And part of what I like, Timna, is as Jim indicated, through our deleveraging, we're in a very good place today. And I think from the perspective of what we believe we can do from a regulatory perspective, we're in a very attractive place as well, and we like to think that's, from a competitive viewpoint, something that actually works in our favor.

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Timna Beth Tanners, BofA Merrill Lynch, Research Division - MD [66]

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Okay. Super. And the only other question that I had was on SG&A, raised the guidance. Just wondering if you can give some more color on that to help us think about the future.

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James A. J. Nickolas, Martin Marietta Materials, Inc. - CFO [67]

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Timna, is Jim. That's predominantly personnel expense, we have a few things, ongoing labor inflation standard, some incentive compensation given the outperformance of the business and a few IP initiatives as well.

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Operator [68]

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Our next question comes from Rohit Seth from SunTrust.

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

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Just on the infrastructure, you said the volumes were up 7% on transportation projects and reconstruction in the Midwest. Just if you could tell us where you're seeing the strength in the transportation side. And then if you can talk about what's actually happening in the Midwest with reconstruction efforts?

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

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I think part of what you run into in the Midwest is every year, when they go through a bad freeze-thaw, you still have more roads in the Midwest that tend to be far to market type roads that tend to be gravel roads. And so what you'll see after winter is a fairly significant need to repair those roads. What's happened this year is you had the freeze-thaw, you had winter, you had repair needs and then you actually had repair needs that were so acute, also driven by the flooding, that it tended to go much more deeply into the year than it typically does. So what I would say is you got traditional paving projects in that part of the world that you would expect to see year in and year out. And then we've seen considerably more just raw maintenance activity in that part of the United States because of some of the flooding situations that we saw last year. And by the way, that plays into part of what we've seen in the ChemRock/Rail piece of the business as well. I mean if you look at that, you'll also see that I talked about the fact that ChemRock/Rail shipments were up 4% for the quarter, and that was really led by ballast shipments. I didn't say them in the prepared comments but the fact is it's really in the Western United States and that ties very directly back into that part of the country that you're asking about right now.

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

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Okay. And then on the transportation projects, what states are we seeing the strengths?

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

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The fact is we're seeing strength in almost all of our top 10 states. And if you go back to it, and you think about what we discussed relative to those state DOT budgets and what they have done with their spending or investment levels over the last several years, it's been pretty considerable. I mean Texas is 37% of our revenue and if we look at what their project awards have looked like and where Prop 7 is kicking in and Prop 1, these are big numbers and then the other thing that we're seeing there is the return of very significant design build projects. Colorado, as I indicated before, has had very active bidding activity in that state. We're actually seeing a proposition that's called Proposition CC in that state. It could actually raise more than $10 billion for transportation over the next 15 years. Georgia DOT has lettings at $2 billion, which is 2x where it was in 2014. So these are all the types of initiatives that we've seen in our top 10 states that I think has these states outperforming the nation as a whole right now and probably for the foreseeable future.

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Rohit Seth, SunTrust Robinson Humphrey, Inc., Research Division - Associate [73]

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Okay. And then just building on that ARPA question earlier. Does this surprise you that the project flow has been more -- very lumpy? Perhaps there's been less large projects coming to the market than we've seen in the past?

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [74]

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No. It doesn't. Because I think if you look at the nature of some of these jobs, you're going to have that degree of lumpiness. And one of the things that I think is important is just as I indicated in response to the earlier question, what does the trend look like in a multiyear basis. And the other thing is if you talk to the people at ARPA, they, too, would tell you, we're not surprised by this. This is the type of activity that we would expect, and it's the type of longer-term dynamics that we're looking for that we actually think are helpful on where the market is going.

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Rohit Seth, SunTrust Robinson Humphrey, Inc., Research Division - Associate [75]

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Got you. So you have the view that maybe 2020, the ARPA awards will probably move back in a positive direction?

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [76]

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Well, again, if I'm looking at where awards are, and I'm looking at where they are from 2017 levels, and I'm thinking about the business over multiple years, again, they're 13% above 2017 levels. I mean I think if you go back and chart it, what you'll find is something that's not going to be alarming to you again. I think breaking down what's highways and what's bridges and then sorting out aggregates intensity is an important part of the conversation.

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Operator [77]

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Our next question comes from Brent Thielman from D.A. Davidson. We will move on to our next question from Adam Thalhimer from Thompson, Davis.

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Adam Robert Thalhimer, Thompson, Davis & Company, Inc., Research Division - Director of Research [78]

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I wanted to ask first and sorry if I missed this, I hopped on late but the Southeast Group with volumes up 1%, what would that have been ex the hurricane? And then just high-level thoughts on just core demand in the southeast.

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [79]

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Yes. Really, the southeast had a relatively tough comp. That's your biggest issue there. I would not put too much stock into what happened this quarter with Dorian in the southeast or Imelda. I mean Dorian interrupted a few days, it obviously shut down production in the Bahamas, and we've been working with our team there to make sure their lives are in order. And oddly enough, Dorian, the same storm that knocked around the Bahamas actually found its way before it's done up to Nova Scotia as well, but I would look at the southeast and say that was really more driven by a tough comp than anything else going on. I wouldn't describe significant Dorian effect to that.

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Adam Robert Thalhimer, Thompson, Davis & Company, Inc., Research Division - Director of Research [80]

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Okay. And then, hey, on high level on private construction, Ward, does it feel like private is still good everywhere? Or do you think -- are we at a point where some geographies are really, really good and some geographies are starting to slow?

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C. Howard Nye, Martin Marietta Materials, Inc. - Chairman, CEO & President [81]

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I guess if I'm going back to my earlier commentary, I don't see places that are overbuilt and I think that's a really important place to start. I think the other thing that I would point you to is if you're looking at the Dodge Momentum Index or the ABI, I mean part of what you'll see is, for example, in the ABI, the south, and the south and the ABI is a big swath of territory that's going from the Atlantic Coast to Texas. So you think about the ABI's south region, that's going to be a big piece of our business. It is consistently been a leader in the way the ABI has looked at it. It's also been a leader in the way we look at it through the DMI. So I think your point is a good one, Adam, and that is not all markets are created equal and some markets are better than others and part of what we have tried to do, and we outlined it in the prepared remarks is put ourselves very intentionally in markets that we feel like in every cycle will outperform. And I think that's what we've done and I think that's what we're seeing in the volume numbers and I think that's one reason that we have such confidence in nonres. They're not [out of built]. Population trends are moving in those directions. We see big projects coming, and we see steady medium projects ahead of us as well.

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Operator [82]

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And I am showing no further questions from our phone lines. And I'd like to turn the conference back over to Ward Nye for any closing remarks.

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

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Well, again, thank you for joining our Third Quarter 2019 Earnings Call. Our proven strategic planning and commitment to operational excellence and world-class attributes of our business position Martin Marietta for continued growth and enhanced shareholder value as we continue to benefit from the steady construction recovery. We look forward to discussing our fourth quarter and full year 2019 results in February. As always, we are available for any follow-up questions. Thank you for your time and your continued support of Martin Marietta.

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Operator [84]

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