Martin Marietta Materials, Inc. — 2024 Q1

Yes. Sorry about that for Kathryn. You all have clearly been very busy with acquisitions and overall portfolio optimization. And I know it's early days, but maybe if you could talk about kind of the integration of AFS and BWI. How that's going so far, maybe where you see opportunities there? And then with that, relative to the information you've given us in the past, I think you might be adjusting your view of the demand environment just a little bit, but taking up the ASP and maybe even the stand-alone EBITDA guide a bit. First off, do I have that right? And maybe could you help us out with that?

You do have it right. And thanks for the questions. I'll try to do with all 3 parts. So let's talk first about integration, and your question is a good one. And look, you've -- we closed on Frei. We closed on Blue Water. The transactions went well. And the nice thing from our perspective, one, our teams have done this and done a lot and done it well. Number two, we typically close on a Friday, and we open up on Monday morning and it's a Martin Marietta operation. It has our signs, it has our tickets, they're on our networks, and that's exactly what we've seen. So again, the blocking, the tackling and the people integration is complete, and it's exactly where you would expect it to be based on our history.

Yes. Ward, the one thing was just, again, there's a lot of moving pieces here. But just based on some of the information you've given us in the past about BWI in particular, it seems like maybe you're just in that kind of stand-alone EBITDA guide up a bit. Do I have that right?

No, we are. So if you look at the overall EBITDA midpoint, it's now $2.37 billion. Now that's 11% over where we were last year. So take that into account that basically, we're going to give you a year's worth of Blue Water in only 9 months. So that's one way to think of it. But the other thing that's important to state is we're also seeing improvement in the Heritage business as well. So we're getting a 2 for there. We're getting the benefit of Blue Water, by the way, which we think there's going to be more to come. We're also seeing improvement in the Heritage business you can see, among other things, we raised the aggregate pricing to 12% at the midpoint.

Yes. Very helpful color, Ward. Very encouraging, and good luck for the rest of the year.

Thank you, Kathryn. So a couple of things. One, if we're looking at the pricing guide that we've given for the rest of the year, I mean here's the direct answer. It's got some mid years. It doesn't have everything that we believe we're going to see. So what does that mean? It means that now that we bought Blue Water, we've already indicated to those customers, they're going to get midyears. So we've built that in. As you may recall, coming into the year, we had indicated that we had not put it in guidance. We had already indicated to our customers in California that they were going to get midyears, that has been worked on.

some very direct midyears, very nice realization of the beginning year increases that we put in. But the fact is, we still think we're going to see some more mid-years at midyear. So what that tells you is you should expect us to come back with more color on what that looks like. when we're reporting during the summertime. So that's the way I would ask you to think about that.

Stanley, thank you for the question. Happy to do so. I mean, look, let's start with infrastructure, which is our single largest end use and an end use that we think is going to get nicely larger. Look, we see that up mid-single to high single digits this year for several reasons. One, you've got the bipartisan infrastructure law that's going to be coming in, in a meaningful way this year. Build into '25 even more meaningfully. So we see that working in a very significant way in a multi-year fashion. Keep in mind, too, we've got very healthy DOTs in our chosen geographies.

I'd say several things. Number one, we are an aggregates-led company, and we've always told people that's what you should expect us to be. And the moves that we have made are totally consistent with that. So should you expect to see aggregates number go up largely because I think we'll be buying relatively aggregates pure businesses? I think the answer to that question is yes.

Good morning, everyone. This is Jatin Khanna on behalf of Jerry Revich. From a portfolio standpoint, what has driven significant deal opportunities for you? And is there a scope for further asset refinement for the industry? What's the range of additional M&A that's feasible based on your pipeline?

Thank you for the question. I would say several things. One, we have looked in the markets in which we want to grow and in the markets, most importantly, that we can grow. So we have several things that advantage is. Number one, the condition of our balance sheet. So if you look at our balance sheet, we are in a position that we can grow and we can continue to grow smartly. Number two, if you look at the transactions that we've done, I think you'll look at the transactions and say that we have done those in a wise and prudent fashion.

And Ward, just to build off that last comment there, it sounds like nothing is really changing there in terms of the capital allocation priorities. But curious, as M&A perhaps or the opportunities to do things at attractive multiples as you have done in kind of the last several quarters here. Just curious as you think about the valuation, one, how is it evolving in terms of the pipeline opportunities?

Yes. Thank you for the question. Number one, what I would say is when we go through a transaction and look at what we can do from a synergy perspective on making the operations safer, on making the operations more efficient and making sure that we can bring more products to market. The ability to go through a business and synergize it from those perspectives so it works for our customers is important, and that's precisely what we've been able to do at Blue Water, and that's what we're doing right now at Albert Frei. And through that type of process that we have, we can take what might otherwise look like a relatively high multiple. And by the time we're done with it, bring it to a multiple that you look at, and I look at our shareholders look at and feel like that's a very attractive model.

Yes. Garik, Jim here. I think I indicated at the last quarter's call about 7% COGS per ton inflation. I think that's still accurate for the full year. I would say that inflation rate will be higher in the first half of the year and lower in the back half of the year, but a blended average of 7%. So I think it's still consistent. We did have some diesel tailwinds in Q1 that's going to fade as the year goes on. But I think on an overall basis, I think 7% is still the right number.

I think the overall private offset is what we're more focused on. I think we believe the heavy side of non-res will continue to be attractive, Keith. I think we believe that we're going to see a continued build in public throughout the year with momentum going into next year. I think if we're seeing degrees of softness, and we are, it's going to be in the like non-res and the res. And of course, single-family res is about 2 to 3x more aggregates-intensive than multifamily is. So I think as we're just looking at it through those lenses with longer, higher interest rates. And frankly, degrees of share that we're properly giving up and have given up with respect to our value-over-volume philosophy. I think as we're looking at those things together, that leads us to the conclusion that I've offered to you relative to the organic overall volume on aggregates.

Appreciating Texas Cement a little smaller now for the divestiture. While it was obviously a little wet to start the year. So just curious, how is the April Texas demand increase coming along? You guys are obviously ramping up grinding capacity from Midlothian. Have you locked up some of that business? Any risk it puts on perhaps pricing in the back half? And does the market, in your view, support potentially a midyear for Texas Cement. I like to see where you guys are situated?

Well, thanks for the question. So several things. One, if we're looking at ASP, really looking at it on mix adjusted, it was up like 8.7%. So I mean number one, that's a pretty good number, taking into account a lot of things happened in April. The other thing that I will tell you is we have not given up the goes on the prospect of a price increase in September as well. So no, we continue to see North Texas being very healthy. We continue to see the pricing environment there, very good. And keep in mind, we've got a big internal customer there of our own as well. And we treat our own business just like we treat other customers in that marketplace.

Brent, thank you for the question. I would say several things. One, I still think we're in relatively early innings in California. I mean that's still a business that if we look at the overall average selling price, it's below our corporate average. You can't say that about many things in California. So I think that's a piece of it. I think the other thing that we're focused on is continuing to grow our business in aggregates in that state. And I think as we continue to do that, that business will mature. That business will become more profitable. Our team will become more seasoned. And that business from the perspective of what does it look like from a percentage of profit look like -- it looks like a lot of the rest of Martin Marietta. So I would think we're in relatively early innings there.

Yes, I would say several things about it. Number one, there was a really good piece in the Wall Street Journal about 10 days ago, talking about how prolific these data centers will be and talking to a degree about what some of the roadblocks we've had in getting them in and they're multifold. One is land. I mean what's available to is degrees of energy. And I think one reason we feel particularly good about that is the presence that we have in the central part of the United States. So as I'm sitting here today, there are 4 data centers under construction today in Eastern Nebraska and Western Iowa. I mean that -- and those are actually really important markets for us.

I guess one thing that I would say is, frankly, I think our products have been underpriced for a long time. And there's no heavy side building activity that takes place without our product. And we're 10% of the cost of building a road. We're 2% of the cost of building a home and some part between those 2 numbers on a non-res project. but we're also mining and putting something on the ground that takes a lot of skill to do it well and to do it safely. And from our perspective, making sure we're getting good value for the product is really important. And if you look at the quarter that just ended, if ever there was a quarter that revealed why value over volume is so important, this has been it, right? I mean you're looking at ASPs up over 12%, you're looking at volume down 12%.

David, thank you so much. You've watched it a long time. So you've been able to see it.

David, thanks for the question. I would say several things. You know what, to the last part of your question first, I don't think it puts a degree of 2Q pressure on that. And again, we think we're going to see degrees of midyears even beyond what we've already built into the guide right now. What I would say relative to the weather, it was really more of a Southwest issue than anything else because there was so much rain in Texas and it was so considerably different year-over-year. We did see degrees of deferrals in some places in Texas from January 1 to April 1. And that was part of the conversation that I was having a bit earlier relative to cement in particular. So I do think the weather in that unique circumstance played a bit of a role.

Yes. Good question, Timna. Look, I don't look at that and think of that as being anywhere outside of a normal fairway on what you'd expect on that type of a large commercial project in that type of space. So do I think that's pretty consistent with degrees of other large warehousing? Yes, I think it probably is because if you think about it, Timna, several things are happening. One, they're doing the normal site work that's going to take a good dealer base. At some point, they're putting in the floors that would typically be concrete. At some point, too, they're going to build the walls. And keep in mind, this isn't typically an exercise in aesthetics. In other words, it's not going to be brick. It's not going to be other things that are painted for beauty. In large measure, although I'm not saying there's not beauty in concrete walls. In large measure, these will be concrete tilt-up walls.

Thank you all for joining today's earnings conference call. In summary, we believe our commitment to world-class safety, commercial and operational excellence and sustainable business practices position us to provide compelling results for the foreseeable future. Thanks to our best-in-class teams, a differentiated business model, well-defined strategic plan and unrivaled growth opportunities, Martin Marietta is well positioned to continue driving sustainable growth and superior shareholder value as we build and maintain the world's safest, best-performing and most durable aggregates-led public company.