The operator welcomes participants to Martin Marietta's Third Quarter 2023 Earnings Conference Call and introduces the host, Jacklyn Rooker. The call will be recorded and available for replay. Ward Nye, Chairman and CEO, and Jim Nickolas, EVP and CFO, will be joining the call. The discussion may include forward-looking statements and the company is subject to risks and uncertainties. Non-GAAP measures will be defined and reconciled in the appendix to the supplemental information.

Martin Marietta had a successful third quarter, achieving record results in various areas and exceeding $2 billion in adjusted EBITDA for the first time. The company's focus on value over volume and commitment to customer satisfaction has led to a 42% improvement in aggregates gross profit per ton. Additionally, the company has reached world-class safety levels and completed the sale of a non-strategic asset, providing them with more flexibility for future growth.

In the third quarter, Martin Marietta achieved record financial results, including increased revenues, gross profit, earnings per share, and adjusted EBITDA. This demonstrates the strength of their aggregates-led business and their ability to navigate challenging economic conditions. Aggregate shipments decreased due to a focus on value over volume, but pricing increased significantly. Strong demand for cement in Texas also contributed to their overall performance.

In the fourth paragraph, the company discusses their expectations for favorable pricing dynamics for Texas Cement and announces a price increase. They also report on the performance of their downstream businesses, with increases in ready-mixed concrete and asphalt shipments and pricing. The financial results for the Building Materials business are also discussed, with record revenue and gross profit. The Texas Cement business also had outstanding performance, with increased revenue and gross profit despite production capacity constraints. The company has taken steps to increase their production capacity in Texas.

The company has converted its construction cement customers to a less carbon-intensive option, which has also increased production capacity. A new finish mill is being installed at one of their plants, which will increase production capacity. The company has also implemented new silos which have improved the customer experience and saved time for customers during peak shipping times. Revenues and gross profits have increased in the concrete and asphalt and paving segments, while demand has softened in certain Magnesia end markets. The company has reduced their full year gross profit guidance for Magnesia Specialties due to labor unrest and weak demand.

Martin Marietta has seen a 12% increase in their quarterly cash dividend and has returned a total of $2.6 billion to shareholders. They have a strong balance sheet and are confident in their ability to grow through acquisitions and investments while also returning capital to shareholders. The company's value over volume commercial strategy has led to record-breaking financial performance without the need for growing volumes. Despite headwinds in certain sectors, the company remains confident in their position and predicts that infrastructure demand will continue to be a major source of business.

The value of state and local government highway, bridge, and tunnel contract awards has significantly increased year-over-year, indicating a strong demand for aggregates. This is due to the Infrastructure Investment and Jobs Act, state transportation budgets, and transportation ballot initiatives. Non-residential projects, particularly in the heavy side energy and manufacturing sectors, continue to drive demand, although warehouse and data center construction has slowed. The Inflation Reduction Act and CHIPS act, along with private investments, provide funding for these large-scale projects in Martin Marietta markets. The company is well-equipped to supply these projects and expects to do so in a profitable manner. However, interest rate increases and tighter lending conditions may affect future demand in the white non-residential sector.

The decline in the residential market is expected to continue due to high mortgage rates, but this will be offset by the strength of the heavy nonresidential sector. The company expects flat aggregate shipments in 2024 due to increased infrastructure investment and strong demand in non-residential projects. They also anticipate a low-double-digit growth in aggregates pricing and profitable growth in 2024. Despite challenging economic conditions, the company has a history of adapting quickly and effectively to changes.

The company is proud of their safety, operational, and financial performance in the first nine months of 2023. They are confident that they will meet their full year adjusted EBITDA guidance and plan to continue driving responsible and profitable growth. During the question-and-answer session, the company is asked about their focus on value over volume and how it may affect their market share and business in the future. The company acknowledges that it may impact tonnage, but they are comfortable with their long-term reserves.

The company acknowledges that their reserves will increase in value over time and they are focusing on lower-margin products. They are also revisiting pricing twice a year and have the flexibility to shut down their operations at night. The volume typically comes back at higher prices and the company is committed to a value over volume strategy to protect their reserves and longevity. The sale of a non-strategic asset in California will not affect their strategic cement business in Texas.

The company has set strategic goals for its cement business in Texas, where it is a leader in aggregates and has a strong downstream business. The market in Texas is not easily disrupted by water and the company is largely sold out and anticipating a price increase for cement. The company's 2024 outlook for aggregates pricing includes low double digit growth, but does not factor in any mid-year price increases.

In the previous question, the speaker discussed how midyear pricing has become the norm and how customers have been informed about it through letters. California is an exception, with a projected increase of $4 per ton. Carryovers for next year are expected to be lower than this year, but there is confidence in the pricing for January 1. The speaker also mentioned the potential for upside in midyear pricing next year. The speaker was then asked about M&A activity and the company's history of strategic expansion.

Ward Nye, CEO of the company, discusses the strong free cash flow from cement sales and the potential for even better leverage by the end of the year. He also addresses the current state of the M&A market, stating that it is increasingly attractive and that the company is in a good position to pursue acquisitions due to their low debt-to-EBITDA ratio and strong cash flow. Nye expects to announce some potential M&A deals in the early part of next year. He also highlights the company's ability to offer competitive pricing, cost control, and attractive M&A opportunities as a key differentiator for investors.

Jerry Revich from Goldman Sachs asks Ward Nye about the company's growth projections for 2024. Nye confirms that the company is expecting double-digit pricing growth, flat volumes, and high single-digit COGS per unit growth, which would result in about $200 million of profit growth in 2024. He also mentions that the company has been steady and durable in all forms of markets, and even without the energy tailwind in the current quarter, they would have set new records. Jim Nickolas adds that the company had a powerful quarter, but it would have been strong even without the energy boost.

The company expects margins to expand next year as pricing growth exceeds cost inflation. Their ready-mix business has been performing well due to being in strong markets in Texas and Arizona, with a 20% increase in ASP. Their HMA business has also seen growth, with a record-breaking quarter in Q3, but liquid asphalt sales were down. Overall, the company is optimistic about their downstream businesses and expects continued success in the future.

During the quarter, there was some softness in the agricultural market in the Southwest and Midwest regions due to heat and timing of large energy projects. However, there is expected to be a rebound in manufacturing and energy projects in the future. Overall, the company is not concerned about the energy market, just the pace of projects.

The speaker discusses their company's performance in the third quarter and how it was in line with their expectations. They also mention their focus on controlling their business and meeting market demands, rather than being affected by competitors' behavior. They acknowledge a slight decrease in volumes compared to competitors, but are satisfied with their overall results.

The speaker believes that there will be more equilibrium in the future in terms of public funding for infrastructure projects. They mention specific states such as Texas, Colorado, North Carolina, Florida, and California that are currently seeing record budgets for transportation. They also mention a recent announcement from Toyota about adding $8 billion to a battery plant in Randolph County, showing continued growth in the industry.

The speaker discusses their confidence in the market for public and heavy non-residential projects next year and their belief that their company will get a fair share of that business. They also mention that the recent weakness in the market may be due to delays in energy mega projects and anticipate a ramp-up in public infrastructure projects in 2024, with several large projects already underway.

The speaker discusses the potential acceptance of materials on certain projects, acknowledging that timing has been a challenge but the projects are still expected to move forward. They also note that there are varying degrees of material tightness in certain markets, which reflects the overall economy in Texas. The speaker then addresses a question about potential delays and cost overruns, stating that they have not affected their geographies much and that inflation has actually been beneficial to their business.

The speaker discusses the strong real estate markets in states like Texas, Colorado, the Carolinas, Georgia, and Florida. They also mention the resiliency of markets in Indiana and Iowa, which has been a steady market for them even during the financial crisis. The speaker also mentions that they are currently in the process of potential mergers and acquisitions, but it is taking longer than expected due to the usual processes involved. Additionally, they mention that they have been selling more properties than usual in the past 1.5 years.

The speaker discusses the divestitures made by the company in Northern and Southern California, as well as in Colorado, totaling over $1 billion. They mention that the company is typically more focused on buying than selling, but in the past 1.5 years they have had more divestitures due to strategic reasons. The next question asks about cost and the speaker mentions that costs are slowly moderating, but still remain elevated compared to historical levels. They specifically mention supplies, repairs, and contract services as areas where costs are still high.

In summary, the labor market is stabilizing and the company expects mid- to high single digit growth for the rest of the year. The increase in highway contract awards is due to a combination of more federal funding and state budgets being built up over the past decade. This will likely lead to more new capacity being built in Martin Marietta states, which have seen an influx of new residents.

The paragraph discusses the population growth and resulting infrastructure needs in Texas, Colorado, North Carolina, and Georgia. It also mentions the lag in adding new lanes and roads, and how this is driving a different type of construction in these states compared to other states like New York and Chicago. The speaker believes that good things are coming from this growth, but it may take longer and be more aggregates intensive.

The speaker is discussing the potential for growth in the residential side of the business in important states. He mentions that there are two main issues affecting the housing market currently: affordability and availability. He believes that the company is well positioned to take advantage of any potential growth in this market, as there is a strong demand for housing in the states where they operate. He also mentions that homebuilders are looking to have their own mortgage companies in order to continue building in these areas.

Ward Nye and Adam Thalhimer discuss the company's performance and future plans. Nye mentions the importance of monitoring the housing market and the potential for growth in single-family housing. Thalhimer asks about the company's plans for expansion in other states, to which Nye responds that they see potential for growth in Texas and other markets such as California and Florida. He also emphasizes that the company will continue to prioritize their aggregates business.

The speaker discusses the durability of their business model and how it has led to strong third quarter results. They mention potential factors that could affect fourth quarter results, such as weather and cost timing. They express confidence in their company's ability to continue delivering growth and value.

The speaker thanks the audience for their time and support of Martin Marietta. They also announce the end of the conference call and ask participants to disconnect their lines.

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