Ward Nye - Chairman and CEO Anne Lloyd - Executive Vice President and CFO.

Todd Vencil - Sterne Agee Kathryn Thompson - Thompson Research Timna Tanners - Bank of America Merrill Lynch Garik Shmois - Longbow Research Drew Lipke - Stephens Jerry Revich - Goldman Sachs Craig Bibb - CJS Securities Ted Grace - Susquehanna Adam Thalhimer - BB&T Capital Markets Brent Thielman - D.A. Davidson Mike Betts - Jefferies.

Good day ladies and gentlemen, and welcome to the Martin Marietta First Quarter 2015 Financial Results Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions].As a reminder this call is being recorded.

I would now like to introduce your host for today's conference Ward Nye, Chairman and CEO. Mr. Nye, please go ahead..

Good afternoon, and thank you for joining Martin Marietta's quarterly earnings call. With me today is Anne Lloyd, our Executive Vice President and Chief Financial Officer.

As announced in this morning's release, we reported a first quarter profit for the first time since 2008, another validation of our recent growth initiatives and cost management programs.

Our results reflect aggregates product line volume growth, and a double-digit pricing increase, which we achieved despite severe late winter weather in many markets, and significant rainfall in Texas, which we estimate reduced West Group earnings by $13 million, or $0.12 per diluted share.

The Magnesia Specialties business generated first quarter record net sales and gross profit and the acquired operations provided a significant contribution to our earnings and cash flow.

Before providing specific comments on the quarter, I am pleased to tell you that the foundation, position and momentum within our business should translate into strong growth, as we expect to benefit from an environment of increasing demand for construction materials.

As a preparatory reminder, today's conference may include forward-looking statements, as defined by securities laws, in connection with future events, or future operating or financial performance, like other businesses, we're subject to risks and uncertainties which 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 our first quarter earnings release, and to our other filings with the Securities and Exchange Commission, which are available on both our own and the SEC websites. Also, any margin references in our discussion are based on net sales, and exclude freight and delivery revenues.

These and other non-GAAP measures are also explained in our SEC filings and on our website. Consistent with recent quarters, I'll discuss the results with the Heritage business separately from those of the acquired operations, which include the legacy TXI business, and two other small aggregates product line operations.

While it's currently important to consider the results of Heritage versus acquired operations, so that we're fully transparent with our results and you can analyze and evaluate the quality of our financial performance. This comparison becomes less meaningful as we complete the integration of the TXI operations into our core business.

In addition, to facilitate this discussion we've made available during this webcast and on our website, supplemental financial information that presents details of our performance.

First, as detailed on slide two, the Heritage Martin Marietta business, which includes Magnesia specialties, provides the same-on-same comparison to the prior year first quarter. Next, the results of the acquired operations by product line and in total are provided on slide four.

And finally, on slide six, we provide an analysis of the increase in earnings from operations. We believe this approach provides meaningful information to better analyze our current performance. Now let's review some of the underlying trends for the Heritage business.

Slide three provides volume and pricing metrics by product line for the Heritage aggregates business. First, we're pleased to report pricing growth across our entire company. It's important to note that the prior year first quarter includes shipments from three facilities in the West Group that were divested in the third quarter of 2014.

Consequently to obtain true comparable volume variances, shipments from these three locations should be excluded from the prior year quarter. After making this adjustment, West Group volumes were up slightly, while shipments from the Heritage aggregates business increased 7%.

Further, and as you're aware, our businesses is an outdoor undertaking, and weather can disproportionately affect quarterly results, particularly so in the first quarter. On the whole, winter weather was modestly better across our enterprise during the early portion of the quarter, as compared to last year.

However, Texas precipitation this year was above average near record levels, according to the National Climatic Data Center. In fact, we estimate approximately 1.4 million tons of aggregates product line shipments were deferred from the first quarter to the remainder of the year.

Heritage West Group aggregate volumes, excluding statements from the divested operations from the prior year quarter would have increased approximately 7.5%, had we not incurred weather delays.

Ready mix concrete shipments were reduced by approximately 200,000 cubic yards, naturally profitability from these product lines was also negatively affected by lower production and efficiency levels. As previously discussed, we estimate West Group earnings were reduced by up to $13 million during the quarter.

Despite these headwinds, our commitment to operational excellence, cost discipline, and continued synergy realization from the acquired businesses enabled us to post a very strong quarter. Aggregates product line growth was led by the infrastructure end use market, and driven by large projects.

Notable growth was experienced in North Carolina and Iowa. This trend coincides with indicators of further recovery in the eastern half of the United States as North Carolina, Georgia, and Florida all now rank in the top five states for job growth, a clear stimulus for construction activity.

Texas is second in the nation in job growth and the State Department of Transportation has the fiscal 2015 letting budget of nearly $9 billion. This amount includes funds provided by Texas' Proposition 1 constitutional amendment, which addresses needed road repairs, including infrastructure work in south Texas.

This amendment is expected to provide over $1 billion per annum for the foreseeable future and in fact over $1 billion has already been allocated to specific districts within Texas. This 2015 activity coupled with an existing backlog should generate robust infrastructure construction activity over the next several years.

Additionally on March 1, 2015, Iowa enacted a $0.10 per gallon increase in the state gas tax, which is expected to increase annual infrastructure funding by approximately $215 million. Several other states, including North Carolina and Georgia are considering additional legislative measures to increase state level funding.

We are pleased to see states continue to prioritize funding infrastructure initiatives while Congress deliberates the long-term Federal Highway bill.

The provisions of the Moving Ahead for Progress in the 21st Century Act, or MAP 21, have been extended through May 31st, and we anticipate another continuing resolution through the fall, while Congress works towards passage of a multi year bill.

Shipments to the non-residential end use market were up slightly, as the economic recovery enters a more construction centric phase. For us, this market is broadly comprised of two components, light and heavy construction. And importantly, we're beginning to see a nascent return to a 50/50 balance between these two categories, a normal equilibrium.

The light non-residential component is primarily office and retail, and demand of this component is generally tied more directly to residential demand with a 12 to 18-month lag. The heavy component is primarily industrial building and energy, with both direct and energy related shipments serving this area.

The heavy non-residential end use market represented 25% of quarterly Heritage aggregates volumes, and shipments increased 1% over the prior year quarter. Texas leads the country with $39 billion in non-residential starts during the trailing 12-months ended March 2015, and billions more expected to be started.

Further, diversified state economies have generated other non-residential and infrastructure projects to replace direct energy sector shipments, currently displaced by volatile oil prices.

The company expects energy related construction activity to remain strong, supported by more than $100 billion of planned projects along the Gulf Coast, including a significant portion in Texas. The residential end use market represented 15% of Heritage aggregate shipments and increased 4% compared with the prior year quarter.

The overall rate of residential growth has slowed compared with the last few years, in part due to an inventory reduction in the availability of unimproved building lots in our markets.

We were encouraged to see Georgia, Florida, and South Carolina join Colorado, in recording double-digit growth in housing starts for the trailing 12-months through March. This represents yet another sign of recovery in the eastern United States.

Finally, to conclude the discussion of end use markets for the first quarter, the ChemRock and Rail market represented the remaining 11% of our Heritage aggregates volume, and shipments were up slightly compared to the prior year quarter.

A positive trend for this end use is the increasing investment in capacity expansion and maintenance by major railroads, which should lead to higher demand for balanced shipments. Heritage aggregates product line pricing increased 10.5% over the prior year quarter.

Led by the West Group, based on what we're expecting for the remainder of the year, we're raising full year aggregates product line pricing guidance from what was a projected increase of 4% to 6%, to now an increase of 7% to 9% over our 2014 results.

Heritage Aggregates product line total production cost per ton shipped remain relatively flat compared with the prior year quarter. We continue to benefit from the decline in diesel prices and on average pay $2.04 per gallon, compared with $3.18 in the prior year quarter.

Heritage aggregates downstream related product lines increased their combined gross profit by $3 million, primarily driven by the ready mix concrete product line, where nearly 11% increase in average selling price, led to a 490 basis point increase in the product line gross margin.

Gross profit for the Heritage Aggregates business increased $27 million and was 9.7% of net sales, an improvement of 730 basis points over the prior year quarter. All reportable segments generated a higher gross margin, led by an increase of 1,040 basis points in the Southeast Group.

Continued economic recovery in Georgia, and better performance by our offshore operations contributed to this improvement. Our Heritage business generated an incremental gross margin of 76%, besting our incremental margin target of 60%. This performance was led by long-awaited recovery in both the Mideast and Southeast divisions.

We expect continued economic recovery in other geographic areas hardest hit over the past several years. The Magnesia Specialties business continues its exceptional performance and generated net sales of $58.8 million, and a gross profit of $20.2 million, both of which represent first quarter records.

For the quarter the business achieved a gross margin of 34.3%, an increase of 160 basis points over the prior year quarter. Slides four and five provide financial information and key metrics for our acquired operations.

For the first quarter, the acquired aggregates product line reported net sales of nearly $32 million, on external shipments of 2.5 million tons. Average selling price was $12.83 per ton, which reflects a product mix skewed towards higher priced sand and gravel and rail yard shipments, compared to our Heritage operations.

Despite the negative impact of weather during the quarter, we're pleased to deliver gross margin improvement compared with performance in the second half of 2014. Our recently acquired Ready Mix concrete business shipped nearly 1 million cubic yards during the quarter, at an average selling price of $88.75.

This reflects the $6 per cubic yard increase implemented last August in the north Texas market. As a reminder, pricing increases typically have a six-month lag before full realization. As indicated earlier, weather constraints during the quarter adversely affected operations, and reduced the profitability of this business by an estimated $6 million.

The cement business is benefiting from continued strength in our Texas markets, where demand is expected to exceed local supply again this year. However, first quarter operating results were negatively affected by wet weather, which delayed some shipments to the balance of the year.

For the first quarter, the business shipped 1 million tons of cement to external customers, at an average selling price of $93.41 per ton, resulting in net sales of more than $96 million. The business achieved a gross margin of nearly 20% after incurring $5.5 million of planned kiln maintenance costs.

We expect to incur $2 million of similar costs in the second quarter, with $11 million and $10 million of such expenses in both the third and fourth quarters respectively. During the first quarter, the company announced a price increase of $10 per ton in the Texas and California markets effective April 1.

Our consolidated selling, general and administrative or SG&A expenses were 7.8% of net sales, a decline of 120 basis points. This improvement reflects net sales growth outpacing the increase in SG&A, partially offset by higher pension expansion.

We also incurred net acquisition related expenses of $1.6 million, which reflects our estimated run rate for the next few quarters. As detailed on slide six, our reported earnings from operations for the quarter of $25.6 million improved $41.5 million from the prior year quarter loss of $15.9 million.

Our synergy expectations are consistent with our most recent guidance, we should complete the systems integration for the cement and Ready Mix concrete businesses during the second quarter, in line with our integration plan. We recorded a small income tax benefit for the quarter, driven by discrete events.

However, excluding the discrete events, our effective income tax rate would have been 31%, in line with our full-year guidance. For the year, we expect to fully utilize allowable net operating loss carry forwards of $363 million, which will reduce cash taxes.

For the quarter, we generated $35 million of operating cash flow compared with $7 million for 2014. The increase is due to higher earnings before depreciation, depletion, and amortization expense, partially offset by higher cash taxes paid in the first quarter of 2015 for the 2014 tax year.

The ratio of consolidated debt to consolidated EBITDA for the trailing 12 months ended March 31, 2015, was slightly less than 2.5 times in compliance with our leverage covenant, and within our targeted range. As a reminder, we have Board authorization to repurchase up to 20 million shares of our common stock.

We expect to complete the program over the next few years. However the actual time will depend on available cash and the market price of our stock during the time frame.

Moving to our full year guidance, we anticipate growth in nearly all of our markets, both geographically, particularly in areas with stronger employment gains, and construction end use. Further, we expect economic expansion in the western United States to continue, and importantly, the economic recovery in the East to accelerate.

Overall, in our geographies we expect growth in our three largest end use markets. Infrastructure market is expected to increase in the mid single digits. Non-residential construction is expected to increase in the high single digits.

The residential market is expected to experience a double-digit increase, and the ChemRock/Rail market is expected to remain relatively flat. Cumulatively, we expect aggregates product line shipments to increase 10% to 12%, with 4% to 7% growth in the Heritage business and the remainder coming from a full year of owning the TXI operations.

Again, we expect aggregate's product line pricing to now be up 7% to 9% over 2014. Aggregate's product line production cost per ton shipped is expected to decline slightly compared with 2014.

The aggregates related downstream operations are expected to generate between $875 million and $925 million of net sales, and $65 million to $70 million of gross profit. We expect net sales for the cement business to range from $475 million to $500 million, and gross profit to be $120 million to $130 million.

Magnesia Specialties net sales are expected to be between $240 million and $250 million, generating a gross profit of $85 million to $90 million. SG&A expenses as a percentage of net sales are expected to be less than 6%, despite an $18 million increase in Heritage pension costs over 2014.

On a consolidated basis we expect to generate earnings before interest, income taxes, depreciation, depletion and amortization expense or EBITDA, ranging from $835 million to $875 million. Interest expense should approximate $75 million to $80 million, and the effective income tax rate is expected to be 31%, excluding discrete events.

Capital expenditures are forecast to be $320 million, which includes $35 million of synergy related capital, and $80 million for the continued development of the new Medina limestone quarry, outside of San Antonio.

This capital project will provide a modern and highly efficient rail connected quarry, capable of shipping products to south Texas, including Houston, for generations. To conclude, we are very excited about the future of Martin Marietta Materials.

Our commitment to core foundational pillars, world class safety, operational excellence, cost discipline, ethical conduct, sustainability, and customer satisfaction, along with the growing demand for construction materials, should lead to improved profitability, and allow us to continue to increase shareholder value.

If the operator will now give the required instructions, we'll turn our attention to addressing your questions..

Thank you. [Operator Instructions] And your first question comes from Todd Vencil from Sterne Agee. Your line is now open. Please go ahead..

Good afternoon, guys..

Hello, Todd..

Let's talk about incrementals first. 76% is a pretty good number I would say. I'm guessing strength in the price increase was a big factor in that.

Can you talk about what else went into that?.

Yes, part of what you're seeing, Todd, you're just seeing that Southeast part of the United States come back a little bit. But you heard what those incrementals looked like in a state like Georgia, so you're entirely right. Does pricing help, yes it does. Does cost management help, yes it does.

Does geographic mix where you're starting to see some business comeback help a lot, it does. I mean, let's talk a little bit about what we saw relative to our production analysis just on the cost side.

I mean, the pricing side I think you can see with greater clarity, but if we're looking at total Heritage aggregates cost per ton, they declined 17%, or 2% after adjusting for increased production volumes.

What we did, Todd, is we were able to fully capture a 36% decline per gallon in diesel costs during the quarter, but we saw Heritage production volume go up 12%, or 2.9 million tons.

So what's happening at the end of the day, is separate and distinct from what's going on in pricing, is each incremental ton was produced at 20% lower than it was in 2014 from an actual cost per ton, so you're seeing it on both sides of the equation. The pricing I think from the release really jumps out and hits you in the face.

But I think what's happening on the cost side, and what's happening geographically is important in that 76%, as well..

Got it. That's great. And then one other for me, and I'll give other people a chance to ask questions. But you talked about a pick up in subdivision development.

Can you go into that a little more? Is there any quantifying you can do around that or at least talk about places where that’s strengthening up?.

We're clearly seeing better housing in the East than we seen for a while. I mean, housing is completely following the playbook that we thought we would see. Permits were up 5%. Starts were up 10%, completions at 12%. But here are the stats that move me. Permits are ahead of starts, starts are ahead of completions.

And even when we're sitting here with those types of metrics, housing still remains well below historical averages. So I think it gives us a great deal of upside. What we're seeing too is its being fueled by employment gains.

So if you go back to those states that we outlined in my comments, where we're seeing good employment movement, North Carolina, Georgia, South Carolina, Florida, that's what's driving a lot of that. The other thing that I'm moved by, Todd, is the very tepid recovery in housing has really spurred pricing.

So we can imagine what a really good market in housing is going to look like, but that's what we're seeing right now, Todd..

Just a follow up on that, am I right to think that subdivision development is sort of a lot steadier and longer tailed than the more sort of specifically related to, lot development or what goes on in a house?.

It is. One, it's a good early indicator. Two, it's longer lived. Three, it's more aggregate intensive because remember, Todd, when we talk about res, we are not just talking about the rock going into the lot development. We're talking about the lot going into the subdivision streets, the subdivision sidewalks, the subdivision utilities.

That's part of what drives the comment that I said about moving to a more construction centric phase of recovery, and that clearly is moving towards more subdivision development, yes..

Yes. Thanks a lot..

Thank you, Todd..

Thank you. And your next question comes from Kathryn Thompson from Thompson Research. Your line is now open. Please go ahead..

Hi, thank you for taking my questions today.

First question I have is around energy in Texas, just for practical purposes, the volumes that were impacted by weather particularly in March, do you view those as delayed or lost? And then the second tag that's related to Texas, could you give more color on trends that you've seen for shale play specific volumes, and in your opinion has Prop 1, or will Prop 1 be more than enough to offset those volume losses that were going to pad build out? Thank you..

Sure, Kathryn. Volume lost in Q1 is not gone. It's deferred, and it's deferred to the balance of the year. So I feel comfortable we'll capture all of that. And clearly a lot of that was driven by rain.

I mean, I don't want to turn into a weatherman here today, but I looked at something to me that I thought was moving on how weather affected particularly north Texas. If we look at water reservoirs in north Texas, a year ago they were 68% full. If we look at where they were three months ago, they were 64% full.

And if we look at where they are today, they're 94% full. I mean, that's remarkable rain in north Texas. That's what among other things gives me confidence that volume has been pushed to the right, it's not volume that's gone. What we are seeing in non-res in other parts of Texas continues to be very strong.

We feel comfortable that whatever weakness we're seeing in shale energy, yes, will be picked up by housing, and yes will be picked up by other components of non-res. And to answer your question really directly on what we're seeing relative to shale, it's an uneven story. I mean, here is what I see.

I see volumes down in first quarter in Eagle Ford shale 31%. I see volumes up in Haynesville 142%. Now, the short answer is do I think they're going to be down overall just pure shale volumes? Yes, I do. But here's my take on it, Kathryn. I think they're going to look a lot like they did in 2012.

And in 2012, all rolled in we sold about 6 million tons to the different shale plays and when I think back to 2012, number one, everybody liked the way 2012 felt. And nobody really thought they would be that good. So do we think it will be back in the 2012 level in 2015? We do. Are we seeing uneven movement in some of the plays? We are.

Do we think the volume that was lost in Q1 was simply deferred? We do. I think I answered your questions.

Is that responsive?.

Yes. Yes. And then my final follow-up question, just around guidance, fantastic growth in pricing.

Is the conservatism or the factors driving your decision not to raise EBITDA guidance more, is it driven by you were saying listen we just want to be conservative, or is there any other factor that we should take into consideration for that EBITDA?.

What Kathryn I guess what I would say to is, it's April. And pricing was just so strong, honestly. You just had to come back and adjust that. I talked through on the previous answer what we were look like on the cost profile. So what I would say to you is the cost profile looks good. The pricing looks good. The geography looks good.

And if someone wants to accuse us of being conservative, I'll probably take the accusation..

Kathryn, we did obviously bring up the lower end of that range. So….

That’s good thing, yes..

We did tighten it a little bit for you..

Yes, yes, absolutely. That’s a great point, I left that out. But yes, you did title the range.

But to your point, just being more conservative than getting over your skis too much?.

Yes, Kathryn, that's it..

Okay. Great. Thank you for taking my questions today..

Thank you, Kathryn..

Thank you. And your next question comes from Timna Tanners from Bank of America Merrill Lynch. Your line is now open. Please go ahead..

Yes, hello. Good afternoon..

Good afternoon, Timna..

I think along the lines of Kathryn's question, I think I was just wondering if you could provide a little bit more color around the aggregate pricing in particular, because if we were to trend the first quarter through the full year, then you would already be on the high end of your guidance, so I know the first quarter can be skewed by low volumes.

But do you think that's a good run rate, or is it just back to that just seeing how it goes kind of approach?.

It's funny, Timna. if I look across our enterprise, prices are up everywhere. And prices are up everywhere, there are some places that pricing is up over 30%. And obviously you don't want see that everywhere, but that gives you a sense of pricing, so it's actually very strong.

And mix in the first quarter did not have a profound effect on what was going on with this. So we do want to let this play out a little bit more. But clearly, when you're seeing volumes ramp up, we're going to see the pricing come behind that..

Okay. That makes sense. Thanks. So just switching gears to some item, I'm rusty on the topic, and you announced a price hike you said for April, you mentioned specifically that Texas was tight, so it sounds like that can pass, and usually if I recall it takes a little bit of time to see that flow through like you mentioned in Ready Mix.

Are you as confident on the price increase in California, and is the market tight enough to perhaps warrant a further increase, can you comment on that?.

Yes, we're certainly going to come back and we're going to look at more increases in cement pricing as we get into the year. What I can tell you right now up through Q1, cement pricing in north Texas it was up 11%, and in south Texas it was up 19%. In California it was up 15%.

So to your point those are pretty nice percentage moves that we're seeing in pricing in those markets. And again we have a leading position in the Texas markets, but even where we have the leading positions I think is important. This is not a west Texas cement play. This is a north Texas and south central Texas cement play.

So we continue to feel very confident about where we sit in pricing in those markets..

Okay. So just I had to clarify those, California is looking like it sounds like just as strong as Texas.

But I wasn't sure if it's not as tight a market, or if it is also looking quite tight?.

It is not as tight a market as Texas is, I'll certainly concede that. And the total pricing isn't right now as attractive as it is in Texas. But from a percentage perspective frankly it's moving somewhere on a percentage perspective, between where it is in south Texas and where it is in north Texas right now.

And I think that's a good sign for a market moving toward in a very steady fashion equilibrium between supply and demand..

Super. Thank you so much..

Thank you, Timna..

Thank you. And your next question comes from Garik Shmois from Longbow Research. Your line is now open. Please go ahead..

Thank you. Just a follow-up question on cement pricing. You indicated that you had I think I heard 19% year-over-year growth in north Texas.

Just wondering how much of that growth is related to lower price projects coming off backlog and being replaced by market pricing on current jobs? And also, if you could maybe provide a little bit of color on how to think about some of these low price TXI projects, how should they roll off as you look into 2015, and what the potential mix benefit would look like over the remaining three quarters?.

Yes, here is the way I look at that. The different TXI price projects should roll off by the end of the year. So I think we just have to continue to feather that in throughout the year. I think it's hard to give you a percentage on a quarter-by-quarter basis, but – so that's going to be something that we will see in varying degrees for 2015.

It will be gone at the end of 2015. If you think back to what was going on on some of those longer haul cement moves, that was really more of a south Texas issue, than it was a north Texas issue. And then if we're going back to the percentages that I spoke of, the increases that we're seeing in south Texas are 19%.

So I think that does come back and tie to a degree here..

Okay. Thanks. And my follow-up question, if there is a nit to pick we think on the quarter it would be on incremental margins in the West Group within the Aggregates business.

Just wondering if you maybe can provide a little bit of clarity on specifically what is happening in the West Group, and can we realistically see incrementals in the West Group come up to look a lot like the incrementals that you are showing in your other regions?.

Yes, the short answer is over time you can. Here is the West Group story. It was Colorado in January and February and March, which is winter in the Rockies, and it was really going back to a story in north Texas.

If you think about what we are in Texas today after the TXI transaction, yes, our position in Houston is important, our position in San Antonio is important. Our position in Austin is important. But the north Texas market is the biggest single market that we have there.

And when we're looking at the sheer degree of rain that we had in the days that we could not work in that marketplace, that's the single biggest driver. Now again we're seeing pricing move on a percentage basis in the West better than we are the East. That's not a surprise. In large part because it just has more room to go.

But what I would say is one, dry weather is your friend, pricing is your friend, but increased efficiencies will continue to be as well. And we think we'll see that. So with the incrementals in the West, be as attractive as the East with immediacy, no. They never really have. Do we think they'll close the gap over time? Yes.

And will it close the gap at different speeds and different markets? The answer to that is yes as well..

And Garik, this is Anne. I would remind you that we had about $13 million profit impact of weather on the West Group in the quarter..

That's really north Texas..

That's really north Texas. If you throw that, or add that back in, and you've got a pretty decent incrementals..

Okay.

So if we throw that $13 million back in assuming normal weather moving forward, that's a more realistic incremental that we should be thinking about?.

Garik, it should be that….

Directionally, yes..

Okay. Thank you..

Thank you, Garik..

Thank you. And your next question comes from Trey Grooms from Stephens. Your line is now open. Please go ahead..

Yes, good afternoon, guys. This is Drew Lipke on for Trey..

Hi, Drew..

My first question just kind of goes back to pricing in the West Group, you saw it up 17%, you mentioned volumes there relatively flat. I'm curious you talked about the Eagle Ford volumes being down 30% there, and I understand ASPs on that business are lower.

Can you talk about the mix within that piece and the impact that had on pricing overall?.

I can because we went and looked at mix overall in the business, and actually if anything, mix was a little bit of a headwind for us, not a tailwind for us, oddly enough. I think in part because you are seeing increased infrastructure activity in Texas. You are seeing different types of non-res.

So you're right, sometimes you're just swapping base for base. So if you're scratching there, and I understand why you would, if you're scratching there to try to find out is there some noise and what's going on from a mix perspective, that's either masking or otherwise confusing the pricing story there's really not….

Yes, if you look at the actual numbers Drew, it is like 2 basis points. So it's no impact..

Okay. Good to hear. And then on the EBITDA guidance, you raised the lower end, I am curious, you budgeted originally back in October, and you're using October diesel prices at the time, you said diesel was $2.09 in the quarter.

So does your current guidance, what kind of diesel impact does that reflect?.

We're capturing some of that, Drew, candidly we're not capturing all of that because none of us are so good to sort out exactly what we think that's going to be for the balance of the year. So again, perhaps there is an element of conservatism in that, and we're willing to take that.

And again we'll come back and talk to you more about it when we're back in half year. But that's really how we're approaching it right now..

Okay. Congrats on a great quarter. Thank you..

Drew, thank you very much..

Thank you. And your next question comes from Jerry Revich from Goldman Sachs. Your line is now open. Please go ahead..

Hey, good afternoon..

Hi, Jerry..

Hi, Jerry..

I'm wondering if you could talk about within the West Group is where you saw the most dramatic price increases.

How broad-based is that, is that really across the board, any mix contribution within that? And I guess when were the bulk of the price increases put through, and should we get a bigger tailwind in Q2 in that region?.

If you think back to last year we actually saw mid years in all the markets in Texas, and we came back and had price increases at the beginning of this year as well.

And what I would say Jerry, I'd rather not go market-by-market through Texas, but what I'll tell is the lowest one that I'm seeing even in sub-markets is 10%, and others are obviously considerably more attractive than that.

So we're seeing good solid pricing across that entire marketplace, which again I think is indicative of continued momentum there, and a continued positive outlook.

If contractors feel like they're seeing something awfully challenging coming their way, I don't think we would see that type of pricing momentum in every corner of our business in that state. And when we're speaking to West Group, I need to pause on Colorado too. We're seeing good movement on aggregate pricing in the Colorado market.

And again, part of what I believe we're going to see, Jerry, is more of a hard rock influence coming into markets north of Denver. Simply because they have alluvial plays they are playing out and again, we've got what I think is the premier hard rock position in that Denver market.

So both in Texas and Colorado, which really define in many respects the West Group on aggs, that's the story I see on pricing right now..

Thank you.

And then at times you put in price increases in April 1st instead of January 1st, should we look for a bigger price increase on a year-over-year basis as a result in 2Q in the West Group, or were most price increases effective January 1?.

I would say the majority of them were effective January 1. Frankly some did go in April, but remember Jerry, it's not usually, particularly markets like Colorado, not a lot of aggs are moving in January. And so I'm not sure in this instance, the timing would have made that big a difference.

I just still think the overall market and the movement in pricing to me it is really moving. I'll just put it that way..

Okay. And then philosophically can you talk about pricing in cement? Some folks are talking about an environmental surcharge of $5 per ton in mid-September.

What are your thoughts around that topic, are you planning something similar?.

Well, we certainly plan to come back and look at what we feel like the price increases need to be for later in the year. I think coming back at some point and looking at another $10 a ton is not unrealistic, and I think that's the type of conversation that we're going to be having with our customers.

Obviously I feel like, Texas will continue to be a sold out market. I mean, the way that we're seeing Texas, even with bringing on some additional capacity, we talked about that before, we thought that we would come back in 2014 and add some additional capacity in that state.

We're still seeing that Texas is going to be short on domestic supply by almost 3.8 million tons. Keep in mind last year they were short on domestic supply by 3.7 million tons. So what we're seeing is actually a tighter market in 2015 there than we saw in 2014. I think a tight market probably gives you a sense of what should happen with pricing..

Okay. Thank you..

All right. Thank you, Jerry..

Thank you. And your next question comes from Craig Bibb from CJS Securities. Your line is now open. Please go ahead..

Hi. Just one quick question. Shale aggregate volume in 2012 was 6 million tons.

What was it last year?.

Shale aggregate volume last year was about 7.5..

I am sorry, that was shale volume was….

Yes, in 2012, and that's when we say we feel like it will be like this year, we think its around little over 6 million, and for the full year in 2014 pure direct shale volume was 7.4 million..

Okay.

And feeling like 7.4 million on 2015 so far, but it's early?.

I'm sorry Craig, I missed that..

It sounded like from your comments that it's feeling like 7.4 flattish in 2015 per shale volume even with the oil uncertainty?.

That's what I thought I was saying, Craig. I think we'll be back close to 6 million tons..

Okay..

In 2012, 6 million tons felt pretty good..

Okay.

And the October $10 price increase for cement, how long did it take you to realize that?.

It's obviously going to vary from market-to-market, but give that a quarter to quarter and half usually..

And you realize all of it, is just takes a quarter to quarter half?.

It's going to take a quarter to quarter half..

Okay.

If US steel production turns down does that have an impact on Magnesia Specialty?.

Yes, what we're seeing right now is steel the quarter running modestly over 70%. We're still seeing a very good business there. We're seeing a very good chemicals business in particular. Keep in mind US steel demand grew by 13% in 2014 to 118 million tons, compared to 105 million tons in 2013.

So with this sheer amount of par manufacturing that we're seeing, with the strength that we're seeing in our chemicals business, and with some of the customer relationships that we have, we feel very good about where we're see sitting in mag specialties..

This is a reminder Craig, the dolomitic lime that we produce in mag specialties is the product that really most directly goes in to steel. We are actually a purchaser of dolomitic lime to supply our chemicals business. So we do believe if there is some dislocation there, we have got room to absorb some of that in our chemicals business..

Craig, the other element that's important separate and distinct from the steel is what's happening with energy there, and actually much of what we saw was natural gas prices for our kilns come down pretty considerably Q1 last year to Q1 this year.

We saw that come down about 30%, and we feel like that's going to stay at a pretty good steady number for the balance of the year..

And the last one, with Ready Mix do you have room to go ahead and take price there coincident with the cement price increase?.

Well again, I think that's going to be a market-by-market phenomenon, because you're going to see very different prices depending on whether you're in Denver or whether you're in Dallas or frankly even if you're in some community relatively close to Dallas, but outside of the Metroplex. So that’s going to be a sub-market by sub-market decision.

But if cement is going up Ready Mix is going to go up..

Great. Thanks a lot..

Thank you..

Thank you. And your next question comes from Ted Grace from Susquehanna. Your line is now open. Please go ahead..

Hey guys, nice quarter..

Thanks, Ted.

How are you?.

I'm great, how are you doing?.

I can't complain..

Good. As I typically do, Anne, could we go through a bridge on the aggregate operations? I know slide six on your deck gives a couple big pieces.

But I was just wondering if we could dig into the kind of like nuances within the volume pricing, and I guess the cost side, as well, which, can we start there?.

Well, Ted if you look at slide six, we break it down between the Heritage aggregate product line, the Heritage aggregates related downstream product line, which would be the Ready Mix business and paving, and the acquired businesses. So it's all laid out for you on slide six..

Could you go through what the cost factors were, that $14.3 million dynamic?.

Primarily it's because of increased production volume. As Ward indicated earlier production volume was up about 12% for the quarter. And so you've got costs, you've got costs just increasing from the sheer number of tons you're producing..

The other issue that's there Ted to be clear, we did pull some maintenance or repair forward and we did have some additional stripping in the quarter, as well, because we're anticipating a heavy volume year. So we accelerated a little bit of that, we believe. But I think those probably are the primary drivers that Anne outlined..

Okay. And then I guess, on a similar note to some other questions I know you have seen pricing up 29, and that gives you 10.5 points or so year-on-year, and just the way you reflected it looks like that's all true economic capture of pricing.

So I guess I come back to the question, if you flow through an extra 300 basis points, that's $30 million to $45 million of incremental EBITDA. I know there's the conservatism, but I mean, is there anything else we need to be aware of that has led to you.

I mean, just logically if you left all other aspects of your guidance unchanged as you did in the press release, and you flow through $30 million to $45 million of EBITDA, it's just hard to understand why we're keeping the numbers flat or $10 million the low end, excuse me..

No, Ted, look, I hear you. I mean, the only thing I can say is its still April. And I think just changing a full year EBITDA number, on last time I checked EBITDA numbers the people thought were pretty healthy EBITDA numbers, just didn't feel right in March, April. And as I said we can come back and revisit that here in the next quarter.

But we just felt like until we had one more quarter under our belts, let's just watch this..

Okay.

And on the pricing data you gave us, I think in Texas you said it was up 10% or better, did I hear that correctly, to Jerry's question?.

Yes, what I was saying is that if I was looking across major and minor markets, I think what I was essentially saying is, I wasn't seeing anything that wasn't up at least 10%. So I was really bracketing on the lowest end, just to give you that lowest denominator..

Yes, that’s rappel [ph] So I guess the question is, you bought a lot of assets in Texas, there is some debate whether they were kind of effectively pricing.

Can you talk about at 10%, was that kind of coming up to where the market is, was the whole market moving up at that rate? Just it would be helpful to get some context o what that 10% was in the broader context of what the markets are doing?.

I guess, Ted, what I would say is you still got in most markets in Texas markets that are below our corporate average. And so what I would tell you is you're seeing higher percentage movement in the West than the East. But you continue in my view to have more room in the West to move at higher percentages.

So if I'm looking at these percentages they're very attractive. If I'm looking at the prices, they're getting candidly to what I feel like is a much more acceptable and appropriate level. But I also still believe in a number of those markets you've got a lot of room ahead of you..

Sure. That's great to hear. Again, nice quarter and best of luck this future quarter..

Ted, thanks so much. We'll talk to you soon..

Thank you. And your next question comes from Adam Thalhimer from BB&T Capital Markets. Your line is now open. Please go ahead..

Hi, good afternoon. Congrats on a strong quarter..

Thanks, Adam..

Ward you brought up the Tx DoT spending budget for this year is $9 billion.

Do you have any sense for what that looks like for next year?.

It's going to continue to be strong in large part, because let's think of it two different ways Adam. Number one they continue to have the billion dollars from Prop 17 profile. Let's keep in mind too, Texas is a fiscal year that ends in August, not June. So it's different than many of our states.

We've got an $8 billion or call it $9 billion budget this year that's coming on the tail of a couple of three record DoT budgets in Texas.

So what I would tell you is anybody who tells you what they think Texas is going to be next year and the year after is going to be wrong, because if we looked at Texas, and we went back two or three years and did that same look forward, we too would have been wrong. It’s just consistently been better than anyone would have thought.

And part of what I find moving and what's going on in Texas right now that $1.1 billion that's already been basically dedicated for this year under Prop 1, when we come back and look at what that means it's $85 million in Austin. It's $82 million in Dallas. It's $206 million in Houston, and its $147 million in San Antonio.

So if we think back over the last several years on the part of Texas that was not getting as much infrastructure as some of the others, it was places like San Antonio that now have a toll system, and they didn't before and they're seeing a good slug from Prop 1.

So as we're looking at infrastructure in Texas right now, what our team in Texas would tell me is Ward we've got two, three or four years of good work ahead of us right now..

Okay. Great. And then I wanted to ask about the mix between res and non-res.

I think last quarter you said that you expected non-res to grow faster than res, this quarter you are saying res was a little faster than non-res, I'm just wondering if that's because the res outlook went up, and the non-res outlook came down a little bit?.

Actually if you think about it our outlook is for non-res to be in the high single digits, and for res to be in double-digit growth. So I see from a growth perspective I think what we're saying in our forecast is consistent with it.

What I would tell you too is the mix of business that we have from a pure bucket perspective, would call it 45% infrastructure, 30% non-res, and 15% res is a pretty normalized percentage. They all need to be lifted up, and that's what we're seeing.

But from a pure breakdown of business geographically and end use across our company and our business, we don't feel bad with those percentages. We're just looking forward to more volume. We think more volume continues to create an enduring good pricing story..

Okay. Thanks, Ward..

Thank you, Adam..

Thank you. And your next question comes from Brent Thielman from D.A. Davidson. Your line is now open. Please go ahead..

Hi, good afternoon. Thanks for taking my question. Ward, your optimism on Texas is crystal clear, but was curious in some of the other energy exposed regions around the country, Oklahoma, around the Marcellus, I know you don't have as much exposure there.

But are you seeing any evidence of slowing construction activities or starts?.

No, I mean, we're not. I mean, did we see some pure slow down in pure energy that's going in some of those? Yes, we do. But again, from a pure volume perspective, Texas just so much outweighs those.

And I think the other thing that gives me some optimism about Texas, is most shale plates break even at the $50 to $60 per barrel, and $50 is I think a key threshold of pain for a lot of different areas. Texas and what's going on in Eagle Ford, is really one of the more competitive areas.

So really one of the most competitive areas with the biggest volume for us, is again we think back to the 2012 level that we view relatively attractively. So could there be some headwinds in Niobrara? Maybe. Could there be some headwinds in Marcellus? Maybe.

Do we continue to believe those are offset by other non-res activity and res? We feel very strongly that it will..

Yes. Got it. Thank you..

Thank you, Brent..

Thank you. Our next question comes from Mike Betts from Jefferies. Your line is now open. Please go ahead..

Yes. Thank you very much. I had two or three quick questions if I could, please, Ward and Anne. First one you gave some, I think it was $11 million in Q3, and $10 million in Q4 of expected maintenance spend in cement.

Could you remind me what it was last year so I've got some idea in terms of modeling? Secondly, we have just received a Texas cement data, it was very weak in March.

Could you talk – did that have any impact at all on trying to put the price increases through, because presumably people were pretty disappointed by a double-digit decline in volumes, which appears to be the case in March.

And then thirdly, could you talk about what California volumes did? I don't know if the figures for the quarter a year ago, but some idea of what the trend in terms of shipments is going on there? Thank you..

Absolutely Mike. What we'll do, let's talk a little bit about what we think happens with kiln maintenance because as you outlined Mike, forecast $5.4 million, actually that is what we spent in Q1, $2 million forecast in Q2, $11.2 million in Q3, and $10.3 million in Q4.

What we had told you that we would do early in the year was around $33.3 million worth of kiln expense for the year. We think we're coming in now at $28.9 million. So it's going to be about a $4.4 million difference, as a practical matter that's just looking at the way the marketplace is moving.

I think the challenge is that you're seeing in cement in those March numbers were more weather and location driven than anything else. I do think west Texas is clearly a very different cement market than the cement markets in which we participate. So to the extent that those are almost purely energy driven, we are not going to feel that pain.

I think we come back to the notion that we discussed Mike, and that is almost under any mathematics we see, Texas is almost $4 million on domestic supply short this year. So from a pricing perspective, I think we're going to be in fine shape. That doesn't concern me..

Okay.

And the $11.2 million and the $10.3 million Q3 and Q4, what did that compare to last year?.

We were at $8.1 million in Q3 last year, and it looks like there was none in four last year, I believe those are the numbers. And then again there would have been spend in Q1 and Q2 last year, but we don't have those..

Okay.

And then some idea if you have what the California volumes are doing? I mean, I know you didn't own the business a year ago, but you have some idea of what they've done in the quarter roughly?.

Well, we feel like from a volume perspective, California volume was up 9%. So again, we're seeing good volume growth in California right now. I think that goes back to the question that Timna asked as well, relative to what are you seeing there, when do you think, what's going to happen with pricing in that market.

And that type of almost double-digit volume number up, is what gives us the continued confidence that market is on its way back to a supply demand equilibrium..

Last question, what utilization rates are you now running at in California?.

You are Mr. Cement today, Mike. And across what we're seeing across our enterprise right now is probably something in the low to mid-80s, particularly coming out of Q1. So we're obviously looking to ramp those up as you may recall from our Investor Analyst day. We view 90% as a world class number, and our aim is to get it there..

Understood. And thank you very much..

All right. Thank you, Mike..

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back to Ward Nye for any further remarks..

Danielle, thank you. And thank you all for joining our first quarter earnings call. We are excited about the first quarter trends in case you couldn't tell, and we're going to work hard to build on this momentum throughout the year. We look forward to discussing our second quarter results with you in July.

Thanks for your time today, and for your continued support at Martin Marietta..

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