The operator introduces Jennifer Park, Martin Marietta's Vice President of Investor Relations, who welcomes everyone to the company's second quarter 2023 earnings call. She is joined by Ward Nye, Chairman and Chief Executive Officer, and Jim Nickolas, Senior Vice President and Chief Financial Officer. Jennifer Park explains that the call may include forward-looking statements and that Martin Marietta is subject to risks and uncertainties that could cause actual results to differ materially. She also mentions that supplemental information is available during the webcast and on the company's website. Ward Nye will then begin the call with a discussion of the company's operating performance.

In the second quarter of 2023, Martin Marietta reported exceptional performance in terms of safety, financial, and operational measures despite a challenging macroeconomic environment. The company also finalized the divestiture of their Stockton, California cement import terminal to improve their margin profile and business durability. Martin Marietta raised their 2023 adjusted EBITDA guidance to range from $2 billion to $2.1 billion, which is a 28% increase from the prior year. They assume that accelerated commercial momentum will more than offset lower shipments and higher costs as they manage historic inflation. Aggregate shipments are expected to find a bottom in the third quarter of 2023.

Martin Marietta achieved strong second quarter results in a number of areas, including a 11% increase in consolidated total revenues and a 32% increase in consolidated gross profit. Aggregates shipments declined 5.7% but pricing increased 18.6%. The Texas cement market is experiencing robust demand and tight supply, resulting in record shipments of 1.1 million tons and a 21.8% increase in pricing. Ready-mix concrete shipments decreased 1.7% but pricing increased 21.9%. Asphalt shipments increased 1.7% and pricing improved 7.9%. The Building Materials business posted record second quarter revenues of $1.74 billion and a quarterly gross profit record of $536.1 million.

Aggregates gross profit improved 20.7% year-over-year, setting a quarterly record of $370.9 million. The Texas cement business saw a 21.7% revenue increase and an 84% gross profit increase. The Midlothian, Texas plant is installing a new finish mill that will provide additional production capacity and reduce load-out cycle times. Ready-mix concrete revenues increased 19.7% and gross profit increased 142.3%, while asphalt and paving revenues increased 11.7% and gross profit increased 37.9%.

In the second quarter, Magnesia Specialties revenues totaled $80.5 million, with a 13% increase in gross profit and a 440 basis point increase in gross margin due to pricing growth and moderating energy expenses. Martin Marietta also returned $116 million to shareholders through dividend payments and share repurchases, and their net debt-to-EBITDA ratio ended the quarter at 2.1x. The company is confident in their prospects for the remainder of 2023, as demand for their products is supported by a number of factors in the infrastructure and heavy non-residential construction sectors.

In the second quarter of 2023, infrastructure and non-residential construction accounted for 36% and 35% of aggregate shipments respectively. The Infrastructure Investment in Jobs Act (IIJA) is expected to provide funding certainty for large infrastructure, manufacturing and energy projects. State and local government contract awards are 25% higher year-over-year, and states such as Texas, North Carolina and Florida are committing considerable investment to transportation projects. Warehouse construction has moderated, but onshore manufacturing and energy projects are still driving demand in the non-residential segment. Construction spending for manufacturing has accelerated to record levels, with the MACE seasonally adjusted annual rate of spending for 2023 being $194 billion.

Private companies have announced over $500 billion in commitments to invest in sectors such as semiconductors and electronics, electric vehicle and related batteries and clean energy. Martin Marietta's light non-residential end markets have yet to experience any notable weakness, while residential shipments accounted for 24% of total aggregate shipments in the past quarter. Recent public homebuilder sentiment and single-family starts data suggest a near-term bottoming and inflection point, with new home construction driving available home inventory. Martin Marietta is optimistic about the future, with a record-setting second quarter performance providing momentum for the rest of the year.

In the most recent quarter, cement volume was up slightly year-over-year despite unfavorable weather in Texas. This is likely due to the fact that cement is primarily used in vertical construction, which can weather better than aggregates and asphalt. Ward Nye also mentioned that they expect favorable traction on the midyear cement increase.

Ward Nye and Jim outlined that the cement business in Texas is running at capacity and there has been a midyear price increase of $10 per ton. They discussed the performance of Midlothian and Hunter as well as the inflation in different parts of the business. Trey Grooms expressed his appreciation for the information.

Ward Nye states that the SOAR '25 program is on track, with Martin Marietta ahead of plan in terms of value over volume, operational excellence, safety, throughput, and tons produced. They have also bought Tiller and Lehigh West, and have decreased their leverage to 2.1x. They have an attractive pipeline to continue growing their business, with a focus on aggregates.

Ward Nye explains that the revised EBITDA guidance is largely due to the increase in average selling prices, rather than a decrease in volume. He also notes that the increased pricing is seen across multiple end markets, such as Texas and North Carolina, and is more powerful than volume in today's market.

The Southeast remains strong, with the Carolinas, Atlanta, and East Coast markets performing well. Texas is also doing well, particularly in Dallas-Fort Worth and Austin, while San Antonio and Houston are feeling some residential weakness. Colorado had a wet June, the wettest on record, which cost the company roughly 1.5 million tons of volume in the quarter. The company has intentionally given up some volume in order to hold firm on pricing that is fair to shareholders.

Ward Nye discusses the demand for Martin Marietta in different parts of the United States, stating that the demand is strong in Phoenix and Southern California but weaker in the San Francisco Bay Area and Midwest. He also mentions that the company has been intentional in building their business in areas with good population inflows, public spending, and private growth. In response to a question from Kathryn Thompson, he estimates that weather has displaced 1 million tons of business, and David MacGregor asks how much of this can be recovered in the second half of the year and how much transportation and handling infrastructure capacity is available to support a fourth quarter surge.

The speaker states that they believe that the revised guidance has captured how they expect volume to play out for the rest of the year. They also note that pricing is likely to be a bit of an optical headwind in the second half of the year due to the fact that costlier markets such as Charlotte are rolling in. They are confident that volume will build going into the fourth quarter and that pricing will remain favorable.

Ward Nye and David MacGregor discussed the mid-year price increases that Martin Marietta experienced in over half of their markets, with the majority of the benefits to be seen in 2024. Nye believes that the pricing will look good for the year and that they may even be close to a 20 figure by the end of the year. MacGregor asked if the traction rate on the mid-years would be higher this year, to which Nye replied that it would likely be good and that they may be a bit light on the pricing guide.

Ward Nye discussed the pricing cycle that Martin Marietta is seeing, and how it will outkick the coverage that was seen historically. He believes that the midyear help and the price increases in January will help build on this, and that Martin Marietta will continue to see good sticking on the midyears they have put in place. He also mentioned that the pricing starting point in California on the assets they acquired is low.

Ward Nye discussed the pricing path for a business they acquired, which saw aggregate prices increase by $4.50 a ton since acquisition. He also expects an additional $2 a ton increase by January 2024. He also noted that the team has been successful in managing discontinued operations. Lastly, Jim discussed that COGS per ton for aggregates were up 14% year-over-year in the second quarter.

Jim Nickolas and Ward Nye discussed the impact of diesel on their business, noting that energy costs were a good factor while non-energy cost inflation and higher rail shipping rates were headwinds. They then discussed the cement gross margin, which is currently at an all-time high. Jim believes that the margins are repeatable and enduring, and the team has been focused on reliability and utilization in Texas to improve it further.

Ward Nye discusses the success of their cement business in North Texas since 2014-2015 and how they are expecting mid-single digit growth in infrastructure for the second half of the year. He also notes that single-family construction is expected to be down low-double digits and that non-res for the quarter ended with a 55% heavy and 45% light breakdown.

Cement results in the quarter were strong and not due to any one-time drivers. Going forward, the margins can be expected to be repeated due to storage capacity being unlocked and Finish Mill 7 coming online next year, which will increase capacity and volumes.

Jim Nickolas explains that the guidance for the year includes midyear price increases for cement and agg, as well as energy levels from late Q2. He states that energy is a larger tailwind than previously thought, but non-energy costs are a larger headwind, which nets out to the upside being largely price-driven with some of it taken back by lower volumes.

Ward Nye explains that domestic manufacturing, energy and data centers are all categorized as heavy non-res and are much more intensive than a single-standing big-box store. He also notes that these projects often require a lot of concrete, TPO roofing, and other materials. Furthermore, he mentions that energy projects along the Gulf Coast are starting to see movement in lending of contracts and the outlook for these three categories is full green.

Ward Nye explains that Martin Marietta has been intentional in building on major corridors like I-5, I-25, I-35, 85, and 95 on the East. He also mentions that they are the largest shipper of stone by rail in the United States. Despite the decrease in warehouse starts, they have not seen a large change yet in the light side of the market, though they are aware of the potential impact of interest rates on the sector.

Jim Nickolas states that the expected non-fuel unit cost inflation for the fiscal year is expected to be in high-single digits, but is expected to taper off and be closer to normal next year. He also states that the repairs expense incurred this year is not likely to have a significant impact on comparisons for next year.

Ward Nye and Jim Nickolas discussed supply chain improvements and the potential for moderation in supply levels in the coming year. They also praised the team for reducing the leverage ratio to 2.1x and discussed portfolio optimization and the potential for acquisitions.

Ward Nye discussed the company's recent de-levering and future growth opportunities. He noted that the company has opened up its aperture to bolt-on transactions, which offer a quick return on investment. Nye also mentioned that the company is engaged in meaningful conversations regarding its aggregate side, and has an appetite for growing its aggregates footprint. He concluded by complimenting the team's ability to identify, contract for, and integrate businesses.

Ward Nye explains that ready-mix saw its best margin since 2016 due to pricing, the largely warm weather states it operates in, and the fact that Martin Marietta is selling aggregates and cement to its own ready-mix business. He also notes that the strength in infrastructure and non-res served to offset residential softness in certain areas. He states that the business is back to a point consistent with the company's expectations, and that they have curated the business to make the most sense for the enterprise.

Martin Marietta has a unique position as a large-scale supplier of both cement and aggregates to large Texas projects, allowing them to benefit from a synergistic margin. This has allowed them to strategically build a successful cement business in North and Central Texas, with notable downstream businesses and projects such as Testa. This success was not accidental, but a carefully planned and executed strategy.

Ward Nye thanked everyone for joining the earnings conference call and discussed Martin Marietta's track record of success and their aggregates-led business model. He expressed confidence in the company's prospects to drive attractive growth and enhanced shareholder value into the future, and concluded by thanking everyone for their time and support.

This summary was generated with AI and may contain some inaccuracies.