Martin Marietta Materials Inc (MLM) — Q2 2024 Earnings Call Transcript

Good morning. It’s my pleasure to welcome you to Martin Marietta's second quarter 2024 earnings call. With me today are Howard Nye, Chair and Chief Executive Officer; and Jim Nickolas, Executive Vice President and Chief Financial Officer. Today's discussion may include forward-looking statements as defined by United States Securities Laws in connection with future events, future operating results or financial performance. Like other businesses, Martin Marietta is subject to risks and uncertainties that could cause actual results to differ materially. We undertake no obligation, except as legally required to publicly update or revise any forward-looking statements, whether resulting from new information, future developments, or otherwise. Please refer to the legal disclaimers contained in today's earnings release and other public filings, which are available both our own and the Securities and Exchange Commission's websites. We have made available during this webcast and on the Investors section of our website, supplemental information that summarizes our financial results and trends. As a reminder, all financial and operating results discussed today are for continuing operations. In addition, non-GAAP measures are defined and reconciled to the most directly comparable GAAP measure in the appendix to the supplemental information as well as our filings with the SEC and are also available on our website. Howard Nye will begin today's earnings call with a discussion of our second quarter operating performance and our Blue Water Industries acquisition, as well as our outlook for the remainder of 2024 in current market trends. Jim Nickolas will then review our financial results and capital allocation. After which, Ward will provide closing comments. A question-and-answer session will follow. Please limit your Q&A participation to one question. I will now turn the call over to Ward.

Thank you, Jacklyn, and thank you all for joining this teleconference. As indicated in today's earnings release, several dynamics impacted our second quarter financial results and particularly product shipments. The most notable driver was an historic 119% increase in precipitation in Dallas-Fort Worth, our company's single largest and most profitable metropolitan marketplace, as well as disproportionate rain and flooding in parts of the Midwest. Secondarily, the lag effect of restrictive monetary policy is pressuring interest rate-sensitive private construction demand more than previously anticipated. And while our value over volume philosophy also contributed modestly to the shipment decline, the benefits of our commercial strategy are clearly evidenced by the second quarter strong unit profitability growth and adjusted EBITDA margin expansion. Moving forward, our team remains focused on what we can control, and we view the demand impacts from weather and high interest rates as temporary. That said, we expect slower shipment trends to persist in the year's second half. As a result, we revised our full year 2024 adjusted EBITDA guidance to $2.2 billion at the midpoint. While second quarter shipments were below our initial expectations, there were notable highlights worthy of mention as foundational for Martin Marietta's long-term success. Starting first with Safety, I'm proud to report that we concluded the first half of 2024 with the best safety incidents rates in our company's history, inclusive of our newly acquired businesses. Operationally, we expanded our adjusted EBITDA margin and achieved record second quarter organic and total aggregates gross profit despite significant weather headwinds. Importantly, aggregates pricing fundamentals remain attractive, with aggregates average selling price increasing 11.6% or 12% on an organic mix-adjusted basis. We expect this commercial momentum and related margin expansion to continue following realization of our previously announced July pricing actions. These accomplishments underscore the resiliency of our aggregates-led business reinforced by our teams' fidelity to maintaining a safe workplace and our unrelenting commitment to both commercial and operational excellence. From a portfolio optimization standpoint, on April 5, we completed the acquisition of 20 aggregates operations from Blue Water Industries, and in doing so, we efficiently redeployed the cash proceeds from the South Texas cement and concrete divestiture. These high-quality pure-play aggregates operations from Blue Water strategically complement our existing footprint in the Southeastern United States and position us in attractive new markets including Tennessee and South Florida for future growth. I'm pleased to report that the integration of both the Blue Water and Albert Frei & Sons acquisitions is complete. The combined financial performance has exceeded management's initial expectations, and the synergy realization will be increasingly compelling. Moving forward, the M&A pipeline remains active and largely focused on pure-play aggregates businesses in attractive identified geographies. Shifting now to end market trends, our single most aggregates-intensive end use is infrastructure, which continues to benefit from increased funding and investment levels, while highway and street spending is expected to remain well above historic levels, leading indicators are predictably starting to lap more robust comparable periods. This is evidenced in the value of state and local government highway, bridge and tunnel contract awards for the 12-month period ending June 30, 2024, which declined modestly below 2023 levels to $114 billion. Funding certainty at the federal level through the Infrastructure Investment and Jobs Act, or IIJA, together with record state DOT budgets and constituent actions support a healthy pricing environment for construction materials in 2025 and beyond. With the 2024 election process well underway, it's important to note rebuilding and enhancing our nation's infrastructure and manufacturing capabilities remain bipartisan, national strategic priorities, as revealed by the high passage rates on local infrastructure ballot initiatives and three key legislative actions: the IIJA, the Inflation Reduction Act, and the CHIPS Act. Moving now to heavy non-residential construction, reshoring activity for large manufacturing and energy projects continues to drive product demand. Aside from warehouse construction, which is contracting from its post-COVID peak, starts on a square footage basis remained well above what were healthy levels in 2019. While not wholly offsetting, construction spending for domestic manufacturing continues to trend positively, with the June 2024 seasonally adjusted annual rate of spending at $236 billion, a 19% increase from the June 2023 value of $198 billion. Importantly, the breadth of reshoring projects is expanding from automotive, batteries and semiconductors to pharmaceuticals. For example, Novo Nordisk is investing $4 billion to build a 1.4 million square foot manufacturing facility near Raleigh, North Carolina, which we're well positioned to supply from our nearby quarries. In addition, while artificial intelligence is in its early stages, Martin Marietta is geographically well positioned to capitalize on the related data center and infrastructure build-out led by big tech, including Amazon, whose announced plans to invest more than $100 billion over the next decade on data centers alone. Relative to light non-residential and residential activity, restrictive monetary policy continues to impact these interest rate sensitive end markets. The lock-in effect of high mortgage rates and low inventory is only serving to exacerbate the well-chronicled housing affordability and availability issues in many of our company's key metropolitan areas. That said, recent inflation and employment data should provide the foundation for accommodative Federal Reserve policy actions later this year and into 2025. I encourage you to read more on this as discussed in the CEO commentary and market perspective, released earlier today. Beyond 2024, we expect the generational highway and street investments, as well as the nascent reshoring and artificial intelligence infrastructure build-out to provide an extended multiyear construction cycle in these aggregates-intensive end markets. Equally, when the affordability headwinds recede, we fully expect an accelerated housing construction recovery, specifically in single-family, which will be required to address the structural deficit of homes in many of Martin Marietta's key markets. Importantly, as history informs us, growth in single-family construction bodes well for light non-residential activity, which typically follows with a lag, but in this instance, the lag is expected to be more abbreviated than previous cycles. I'll now turn the call over to Jim to discuss our second quarter financial results. Jim?

Thank you, Ward, and good morning, everyone. As Ward mentioned and shown in today's release, we revised our full year 2024 adjusted EBITDA guidance to $2.2 billion at the midpoint, reflecting our first half results and revised second half shipment expectations. In the second quarter, the Building Materials business generated revenues of $1.7 billion, a decrease of 3% and gross profit of $501 million, a decrease of 7%. The decline in both metrics is attributable to the divestiture of our South Texas Cement and related concrete businesses as well as shipment declines experienced in the quarter, most notably due to wet weather, partially offset by contributions from the Albert Frei & Sons and Blue Water acquisitions. The net positive impact of acquisitions and divestitures in the second quarter was $7 million of adjusted EBITDA. Our aggregates pipeline established second quarter records for revenues and gross profit as contributions from acquired operations and strong pricing more than offset lower shipments. Aggregates gross profit per ton improved 9% to a second quarter record of $7.41. That number is inclusive of the $20 million or $0.37 per ton non-recurring, non-cash purchase accounting impact of the fair market value write-up of inventory related to the Blue Water acquisition, which was fully recognized in the second quarter. Excluding this purchase accounting impact, gross profit per ton increased 14%. These impressive results reveal and affirm how our disciplined commercial strategy and flexible cost structure yields higher profits despite lower volumes. Cement and concrete revenue decreased 37% to $261 million, and gross profit decreased 44% to $72 million, again, driven primarily by the divestiture of our South Texas Cement plant and related concrete operations and secondarily, by significant wet April, May and early June weather in Dallas-Fort Worth. Notably, our strategic Midlothian cement plants' daily shipping rates returned to near sold-out levels exiting the quarter. Remember, too, we expect our new finish mill to be operational in the third quarter, which has the capacity to add approximately 450,000 tons of incremental high-margin annual production capacity in the attractive North Texas market. Our asphalt and paving revenues and gross profit increased modestly to $245 million and $37 million, respectively, both second quarter records in large measure due to pricing improvements and energy cost tailwinds. Magnesia Specialties revenues of $81 million were in line with the prior year quarter, while gross profit decreased 2% to $27 million. Strong pricing, improved maintenance cost management and energy cost tailwinds counterbalance lower chemicals and lime shipments. SOAR has long provided the framework we use to grow our business and deploy capital for long-term success. During the first half of this year, we deployed over $2.5 billion on pure-play aggregates acquisitions, invested $339 million of capital into our business and returned $542 million to shareholders through dividend payments and share repurchases. In the second quarter alone, we repurchased 530,000 shares at an average price of $566 per share. Since our repurchase authorization announced in February 2015, we returned a total of $3.2 billion to shareholders through both dividends and share repurchases. Our net debt-to-EBITDA ratio was 2 times as of June 30, at the low end of our targeted range of 2 to 2.5 times, providing balance sheet strength and ample flexibility to actively pursue our M&A pipeline, reinvest in our business and extend our long track record of returning capital to Martin Marietta shareholders, all while preserving financial flexibility and our investment-grade credit rating profile. With that, I will turn the call back over to Ward.

Thanks, Jim. In 2024, Martin Marietta is proudly celebrating our 30th year as a publicly traded company. Our three decades of success have been the result of an unwavering commitment to safety and the disciplined execution of our proven strategy. As we plan for the next 30 years, we're confident Martin Marietta is well positioned to continue leading our industry's evolution while at the same time, navigating through inevitable macroeconomic cycles and driving sustainable, attractive growth. We remain committed to building and maintaining the safest, best-performing, and most durable aggregates-led business and look forward to delivering superior shareholder value for our stakeholders for years and decades to come. If the operator will now provide the required instructions, we'll turn our attention to addressing your questions.

Hi, thank you for taking my question today. The first is focused on Q2 and just better understanding the impact of how much of it was market, maybe more color on the volume impact in the quarter? And then part and parcel with that, how should we think about the balance of Q3 and Q4 in terms of how profitability should flow through, given some of the obvious weather content you and your peers have been facing? Thank you.

Good morning, Kathryn, thank you for the question. So look, weather was a big deal in Q2, there's no doubt about it. So I said in the prepared remarks that it was 119% weather in DFW this year compared to last year. And the fact is if you look at what happened in North Texas by itself, but then you couple that with what happened in the Central division. What most people don't think about is the Central division's impact on us is significant. Really, if we're looking at Dallas itself and the Central division together, those two areas of business typically represent nearly 40% of our Q2 shipments. So significant rain in Dallas combined with significant rain and flooding in the Midwest posed a serious body blow to the business. However, I was also impressed with the resiliency of our cement business in North Texas. Again, we've long defined what equals strategic cement for us. Clearly, what we have in that market is just that. I mean, we saw organic shipment volumes down about 18%, and again, that was all driven by rain, but pricing was up nearly 10% - coupled with very good performance. As Jim indicated in his comments, we were seeing that marketplace turn to near sold-out levels as soon as the rain abated. So those were issues. I think at least 50% of what we saw in the quarter was attributable to rain. Do I think a portion of it was attributable to the economy? Yes, probably about 25%. So what am I seeing there? It's clear that a modest pullback in private construction is evident due to interest rates. The important takeaway is we don't see markets that are overbuilt today in Martin Marietta marketplaces. So we feel like this is going to be a fleeting trend. However, value over volume also cost us some tonnage during the quarter, but we're perfectly okay with that. Again, we monitor that and we'll be thoughtful about it. We are seeing continued expanded adjusted EBITDA margins from what we're doing. We feel that breaking down the factors, weather accounted for 50%, market for 25%, and value over volume also for 25% makes sense. Regarding your second question about the cadence of the quarters, let me turn that over to Jim to talk you through that a bit because that is going to change modestly.

Yeah. Last year, Kathryn, the second half of the year, about 60% of consolidated EBITDA came through in Q3 and 40% came through in Q4. Because of what we're seeing this year with weather, etc., in July, and even August, the split is probably closer to 55% Q3, 45% in Q4, so a little bit more Q4 weighted this year than normal.

Okay. Perfect. And just one follow-up, if I may. Just on the outlook when you look at backlogs or jobs in the Q. What are you seeing in terms of project types and how is pricing on these types of projects, which obviously play into margins? Thanks very much.

Thank you, Kathryn. Look, if we're looking at customer backlogs, they're up sequentially, so they continue to build. That's important. Secondly, if we're looking at the nature of the projects, infrastructure appears to be a strong end use for several years to come and we see that continuing. If we're looking at non-residential, we're seeing degrees of shifts there. And by the way, that's not a surprise. We are seeing an increase in construction for factories, which indicates good pricing that accompanies that. We are also seeing steady growth and expanding work relative to energy. Additionally, data center projects are growing for the reasons that I indicated in the prepared remarks, and our commentary earlier today indicates that trend as well. Obviously, warehousing is contracting, which isn't surprising to anyone. We're witnessing almost two directions at this point: data centers trending positively while warehousing is trending negatively with an evident percentage crossover. The other thing we're beginning to see, especially in Georgia, North Carolina, and South Carolina, is the emergence of single-family housing starting to rebound. This is vital due to population dynamics and historically, single-family housing tends to utilize very attractive priced materials, Kathryn. Hope that provides clarity.

Thanks so much and best of luck.

Thank you.

Hey good morning everyone. Nice work despite this difficult environment. Ward, could you maybe walk us through kind of the revised guide, some of the puts and takes and see maybe what will get us to the high end versus the low end just as we're sitting here today halfway through the year?

You bet. Happy to. And Stanley, thank you for your comments. We appreciate it. I think that was actually a very good performance, given what our team managed through. So several things. Let's start with pricing. As you've seen, we've reaffirmed our pricing guide of 11% to 13% up, and that includes the previously announced midyears for California for the Frei business, for Blue Water locations as well as the targeted product and market-specific mid-years in other geographies. By the way, that's pretty typical for us. The one thing that I think is going to be important this year relative to the midyears, so much volume that had already been bid at the January 1 pricing is still yet to go because of the deferral that we've seen. Typically, in a year, I've always told you historically that you could probably see about 1/4 of the midyears really show up in any given year in which they're put in. I think the midyears are going to be notably more impactful in 2025. In other words, when we come back to you in January to talk about our guide for next year, I think you're going to see more mid-years affecting that this year than not. So that's how we're thinking about the ASP in the guide. Regarding volumes, clearly, that reflects impacted first half results and early – other – here in the second half of the year. July was wet and we're sitting here today as tropical storm Debbie is going through the Carolinas. So we're trying to create our experience from those events into the volume guide. We feel confident that we've hit that with as much clarity as we can, given the circumstances. Look, regarding what is expected as lower shipment levels, our teams are going to focus as expected on cost control and making sure we're flexing our costs with demand. We are very focused on that. Additionally, you'll see given the inventory builds that we had with wet weather where we were producing but not selling, there's going to be a little inventory drawdown impacting us modestly in half two. But again, we’ve taken that into account in what we put out there for you. Don't forget, we grew EBITDA in 2023 by 33%. That's a substantial increase and it gives you a challenging year compare. But we are still seeing EBITDA margin grow. Even at the guide, we are looking at a two-year CAGR of high teens, nearing 17%, getting close to 20%. Numbers that we are very proud of and feel good about going into the second half of the year. Importantly, regarding pricing, we believe this positions us well as we start increasingly thinking about 2025.

Perfect, Ward. Thanks so much for the color and best of luck in the back half of the year.

Thanks, Stanley.

Hey, good morning, everyone. And I'll echo Stanley's comment about the good work in a tough environment.

Thank you, Trey.

So I guess my main question revolves around the slowing or deceleration you mentioned on the activity front. Ward, you've broken it out in the past, as recently as the last call, infrastructure and kind of set expectations for the year, if I recall correctly it was mid- to high single-digit improvement for infrastructure; residential was down low singles; non-residential was mid-singles to low singles. If we look at your new view and the activity out there, can you help bridge back these expectations for these end markets relative to what you initially anticipated?

Sure. Happy to, Trey. That's a great question. Working from the bottom up: Previously, we indicated residential would be down low single-digits to mid-single-digits. Now we project it will trend toward mid-single-digit declines. For non-residential, we had previously projected down mid-single-digits to high. That remains unchanged, now expected to be down high single-digits. This isn't due to heavy construction not being positive; rather, it's driven by timing. You've observed that public projections show modest decline from previous mid-single-digit to now modestly down relative to expectations due to potentially more moderate conditions affecting private projects and infrequent positive indicators from states. So, we anticipate a lot of this activity will push into 2025. That said, it's critical to note that while timelines vary, the projects aren't disappearing—they are simply being postponed.

Yes, absolutely. That was perfectly helpful. Just one last one, if I could sneak one in. I think you mentioned that the integration of Blue Water and Albert Frei & Sons is complete and performing at or better than expectations. Could you provide more insights regarding where you’re seeing the benefits and also tell us about the pipeline? Should we anticipate more tuck-in deals given your recent M&A activity, or is there still potential for larger deals?

Great questions, Trey. Starting with the Blue Water and Al Frei integration, yes, it’s true. The integrations are complete. It's important to note that when we integrate, we typically do it efficiently—back office systems and processes are onboarded over a weekend. Operationally, the businesses are performing well. Those employees know they’ve got a long-term home at Martin Marietta, which has improved morale. We've noted extreme safety improvements, and we’re achieving a record safety incident rate this quarter, even after these acquisitions. Regarding synergy realization, we’ll continue investing in these businesses for improved efficiency. Notably, the pricing at those locations remains below Martin Marietta's corporate average. We've acknowledged a greater than $4-per-ton delta. So yes, there is room for growth. The acquisition pipeline looks good, containing primarily pure aggregates businesses, which includes both tuck-in and larger deals. We’ve executed over $4 billion in transactions this year alone while maintaining a net leverage of 2 times as of June 30. It’s a testament to our strong financial position to continue with M&A, which is a core competency for Martin Marietta.

Yes, great color. Thanks, Ward. Best of luck.

Take care.

Yes, hi good morning.

Good morning, Jerry.

I wonder if I can just ask you conceptually right this year, you folks had excellent pricing where volumes are down from everyone across the board. You haven't had to sacrifice market share to get this level of pricing, and we're seeing stubborn inflation across repair and maintenance elsewhere. How does that impact how you're thinking about 2025? Obviously, we can't count on a volume ramp back up. So I'm wondering, based on what you're seeing and the receptivity of price increases and inflation, what are the prospects for potential double-digit pricing in 2025 based on everything you've seen year-to-date?

Obviously, we'll provide a more definitive guide as we head into next year. However, in thinking around it, I believe infrastructure will remain attractive. Housing in our markets has certainly found its bottom. I expect heavy non-res to stay strong. Furthermore, as I indicated, the typical lag we see between non-res and residential is likely to be shorter. Overall, I anticipate 2025 to be solid for pricing. The pricing seen for Martin Marietta over the years illustrates a consistent positive trend, and what we are observing is a step change. This is due to various factors, including the rising replacement costs for valuable reserves. As it stands, we maintain 7-plus years of reserves at current extraction levels, hence I believe pricing will continue to rise to new levels. In essence, the indications are optimistic, and while we will confirm specifics in February, I do not anticipate major deviations from this outlook.

Super. And can I ask you, Jim, in terms of the midpoint of the aggregates gross profit and top line parameters. It looks like on a year-over-year basis, you're guiding to about two points of gross margin expansion back half 2024 versus back half 2023, which is better than in the first half. Is that right? And can you unpack the drivers behind that? How much of that is the mid-years in Tennessee and California, et cetera, that's driving the acceleration in the outlook?

Yeah. No, you're right, those ballpark numbers are correct. The star of the show, as always, has been growing ASP, which is flowing through in the second half of the year. That is the primary metric driving that improved margin, Jerry. Secondary impact is that inflation is abating; it’s moderating as the year goes on. So the cost pressures are by and large, coming back down, though not quite to pre-COVID levels, but averaging 5% to 6% on baseline cost inflation. Those two things drive our outlook.

Thank you.

Thank you, Jerry.

Hi. Good morning.

Good morning.

Hey, Ward. Could you talk a little bit more about state funding environments as you think about next 12 months in fiscal 2025? I think there was some data that suggested general fund spending for the states could be down in fiscal 2025 after a number of years of very strong growth. Obviously, that's not one-to-one to DOT spending. But just wondering if you could walk through the states where you're maybe the most excited and seeing some growth versus which could be wider as you think about the next 12 months?

No. Thank you for the question. So let's clarify things. If we look at Texas DOT lettings, for FY 2024, the forecast is for $13.7 billion, which is up 17% from the previous year. Furthermore, if we examine what lies ahead next year, it looks to be up over that amount next year. In Colorado, they passed a $5.3 billion ten-year infrastructure bill guaranteeing consistent DOT funding beginning in 2023, which will last several years. Consequently, we predict $3.7 billion in available funds for Colorado DOT in 2025. This budget promises to be very attractive. Closer to home in North Carolina, we are expecting budgets to increase to $7.6 billion for FY 2025, higher than in prior years. Notably, North Carolina started exploring alternative funding channels for infrastructure a few years ago, and in 2025 and beyond, they plan to employ sales taxes at a rate of about 6% specifically for infrastructure needs. Moreover, Georgia's 2025 budget is set to be $4.2 billion, a 7% increase from 2024. Interestingly, Florida's budget appears to decline, though that’s merely because FY 2024 had about $2.1 billion in one-time supplements. The basic budget in Florida for 2025 will probably see a base of about $15.5 billion. The bottom line is this: among our top ten states, Texas, Florida, North Carolina, Indiana, Georgia, Colorado, and Arizona are all trending up, while only Minnesota and California show signs of decline. To put that into context, Minnesota will have a budget relevant to Georgia now. Still, this is a positive place for Minnesota. In California, we expect a modest decline, reflecting broader trends in the California budgeting process. Overall, the DOT budgets in these top ten states appear very attractive to me, as shown by a 25% uptick in highway contract awards from mid-2022 to June 2023.

No, that's extremely helpful. I'll turn it over. Thank you.

Thank you.

Hi. Good morning. Thanks for taking my question. Just wanted to drill in a little bit more on the kind of 25% of the volume decline attributed to the price-over-volume strategy. Could you talk about any specific markets where this is occurring and competitive dynamics that might be driving that compared to a growing discipline toward price over volume?

You know what’s interesting? I took a deep dive on this very issue to ensure that no overriding trend was concerning. We're not observing anything alarming in any particular market. Markets in our sector are typically defined by metropolitan statistical areas due to the weight-to-price ratio; much of the material doesn’t travel far. Occasionally, we see others being aggressive or overstocked in certain products due to various factors. We don’t see anything alarming in any particular market, but we have been vocal about a preference for value over volume, and this is supported by financial performance. At the same time, we maintain dialogue with our division presidents and VP GMs to ensure we’re not overshooting with our value strategy. So, nothing alarming can be highlighted.

That's very helpful. Thank you. And then just as a follow-up on the cement business. You talked about that returning to close to being sold out in the quarter or in the third quarter. Could you provide more color on the flow-through regarding volume expansion and profitability normalization, considering the weather impacts?

Sure. First, I’ll have Jim speak to the capital project we have underway to provide greater insight into that. So Jim, why don’t you provide those details?

Yes. The finish mill 7, as we call it, will be completed this quarter and will add approximately 450,000 tons per year of annual production capacity (around 110,000 tons per quarter). However, we won't hit the market at full capacity immediately, as we intend to feather in those volumes responsibly to ensure we don't disrupt our current commercial strategy. More information will follow on when we expect to fully implement that, but this will enhance margins and volumes as they come online.

Regarding volumes, as we previously discussed, our shipments in Dallas Fort Worth were back to nearly sold-out conditions at Midlothian as the weather improved, which underscores our respective cement market dynamics.

Thank you so much. I appreciate it.

Thank you.

Good morning. It's actually Zack Pacheco on for Garik this morning. Thanks for taking my question. I appreciate you guys walking through the outlook on state funding moving forward. A couple of questions to go: to dive into that real quickly, we've been hearing inflation negatively impacting IIJA base dollars, causing some delays. Are you seeing that at all, or are the base dollars flowing through effectively?

I think it would be naive to assume inflation hasn’t affected it. There's been slight erosion, but for Martin Marietta, would we trade the volume we see for the pricing? Yes, without doubt. It's important to note that IIJA isn’t a one-time event; I believe it sets a higher floor for future infrastructure investments. We might see some volume taken out; however, I expect it to be addressed with increased reauthorizations at levels or above where we currently are. This ongoing investment is crucial to address our infrastructure needs. Our operations position us well to receive appropriate returns for our valuable materials.

No, that makes sense. Thanks.

Thank you.

Thank you. Questions back in cement. To your point, tremendous pricing—you're mentioning the best pricing increase I've observed during this earnings season from cement. Now that Midlothian is near sold out, should we expect further increases within this calendar year, or will that extend into next year?

We have certainly communicated with the market that we’re aiming for discussions in September. However, it is not yet September. Therefore, I cannot decisively comment. Dallas is a premium cement market, and while Q2 exhibited unique weather conditions, there's been high pricing dynamics in the DFW market—probably some of the strongest I’ve seen since our acquisition of TXI.

Okay. Thank you.

Thank you, Keith.

Good morning guys. Share repurchases. There was a significant pace in the first half of the year. How should we interpret that and what’s the outlook?

Certainly. Several factors contributed. We are well below our target leverage ratio, entering the year with over $2 billion in cash. Additionally, we believed the current stock price was attractive and somewhat undervalued, so we capitalized on that opportunity.

Thanks, Jim.

Thank you, Adam.

Good morning. This is actually Collin on for Phil. Thank you for taking the question. I just wanted to ask about the aggregate volume guide. What is baked into the aggregate 1% to 4% decline from an organic perspective? How are you thinking about those organic trends in the back half of the year here, especially with the wet start to the third quarter and softer trends in the warehouse office and residential markets?

Thanks, Collin, for your question. Now that operations are fully integrated, we consider it purely organic moving forward. Clearly, I provided some helpful color concerning end user shifts and market dynamics. If we focus on the second half of the year regarding infrastructure, we expect a busy quarter ahead. Yet, we need to stay attuned to the impacts arising from the rainy July and wet August as storm Debbie works through the Carolinas. Seasonal impacts will play a significant role; likewise, whether we encounter standard weather conditions heading into winter will have implications on certain markets. This leads to considerations for our asphalt and paving ventures during late fall and winter.

Great. That's helpful. And just one follow-up question. I guess if we see more accommodating monetary policy later this year, how quickly do you think that starts to reflect in your shipments?

I think this starts to show substantively early in 2025, as pent-up demand becomes evident—especially in homebuilding. A case in point lies in Raleigh, which reflects broader trends across our footprint. The inventory absorbability resulting from accommodating policies will fuel rapid recovery. Builders, particularly those invested in land, will act quickly to fill the existing gaps, and we’ll likely benefit directly in terms of roadwork and supporting infrastructure as these projects develop. The relationship here with residential and broader non-residential activity remains evident and provides a strong underpinning for infrastructure buildouts.

It is. Thank you for the color.

You bet, Collin.

Hey. Good morning. This is Joe Nolan on for David. You touched on COGS briefly, but I was hoping you could provide an updated cost outlook for the year and discuss some of the moving parts within that. You also mentioned your focus on controlling costs. Any areas where you might implement cost-cutting measures in a softer market?

Happy to. Jim, please take the lead on this.

The full-year guide on COGS per ton is roughly $7% up in the second half compared to last year. This increase is partly driven by general inflation, which is beginning to moderate. We’re seeing improvements in contract services as well as energy tailwinds. However, costs related to repairs and maintenance have remained elevated from prior periods.

Jim elaborated well on what the percentages reveal and what will be prioritized. We aim to focus capabilities around maintenance management, which we found to be disproportionately high. General inflation is falling, and energy costs have shown stabilizing trends. Thus, we will monitor fuel management closely and prioritize operational safety as we strive to maintain efficiency during the latter half of the financial year.

Great. Thanks for taking my question.

You bet, Joe.

Hey, good morning. You talked earlier about the July 15 midyear notice linked to Blue Water. Can you clarify how closely are prices at your West Coast operations now compared to your heritage markets? Should we anticipate sizable tailwinds due to price harmonization across the portfolio in upcoming years?

Great question; we are nearing closer to price harmony in the West. In fact, I argue that the West should be the price leader due to the geographical realities, and we shouldn't price beneath Martin Marietta heritage numbers. When considering pricing recovery strategies, yes, we anticipate upward pricing movement in our legacy markets, with current Blue Water operations being positioned at a greater margin. Expect to witness extended positive trends for years as we align the asset values properly.

Yes, excellent. Okay. Thank you.

You’re welcome, Tyler.

Good morning, gentlemen. I noticed the Magnesia outlook is promising for 2024 relative to previous expectations. Could you share insights into this business, including any signals regarding economic activity that would inform how that business will perform over the next quarters?

Happy to explain. There are two different facets to this business. In terms of revenues, as Jim noted, they’re relatively flat. However, chemicals are up about 7%, while lime saw a rise of about 24%. Pricing gains are indeed outperforming lower chemical shipments measured against prior performance. This market spans a wider geographical spectrum, which includes our international business segment. We are observing down-ticks in volumes, yet pricing increases are noticeable. Overall, our team is effectively managing costs as steel utilization levels hover slightly above average, currently just above the 70% mark. Our commercial endeavors here contrast older long-term contracts favorably, showcasing our management team's adeptness at cost and pricing controls.

Excellent. Appreciate that context. Thank you.

You’re welcome.

Hi. Good morning. One remaining question from us, if I could.

Good morning, Timna.

Good morning. I wanted to re-visit comments about interest rates. I've also been hearing about pauses in activities due to the upcoming elections. What are your views on that? Also, do you perceive any risk regarding IRA-related projects linked to EV demand grooves due to potential results from the election?

Timna, thank you for your inquiry. I don’t perceive significant slowdowns in public projects due to forthcoming elections, but it may be evident in private ones. However, in infrastructure funding, we remain optimistic. Regarding IIJA and IRA implementations, should there be a regime change, a Republican administration might amplify infrastructure investments while decreasing IRA funding. Either way, we anticipate growth in highways, bridges, and energy-related projects across the board. Our operations along key commerce corridors position us well regardless of political shifts, allowing us to continue solid contributions to infrastructure investments from population centers with proven momentum.

Appreciate your insights. Thank you.

Thank you all for joining today's earnings conference call. Martin Marietta has built a durable and resilient business poised to continue outperforming through dynamic macroeconomic cycles. Our compelling underlying fundamentals, dedicated teams, well-defined strategic plans, carefully curated coast-to-coast footprint in the country's fastest-growing markets, and unparalleled attractive growth opportunities reinforce our confidence in Martin Marietta's ability to continue delivering sustainable growth and superior shareholder value now and into the future. We look forward to sharing our third quarter 2024 results with you in the fall. As always, we're available for any follow-up questions. Thank you for your time and continued support of Martin Marietta.