C. Howard Nye - Chairman of the Board, President and Chief Executive Officer Anne H. Lloyd - Executive Vice President and Chief Financial Officer.

Kathryn Ingram Thompson - Thompson Research Group LLC Timna Beth Tanners - Bank of America Merrill Lynch Garik S. Shmois - Longbow Research LLC Jerry Revich - Goldman Sachs & Co. James H. Armstrong - Vertical Research Partners LLC Adam R. Thalhimer - BB&T Capital Markets Mike F. Betts - Jefferies International Ltd. Craig Bibb - CJS Securities, Inc..

Good day, ladies and gentlemen, and welcome to the Martin Marietta First Quarter 2016 Financial Results Conference Call. As a reminder, this conference is being recorded. I would now turn the call over to your host, Ward Nye, Chairman and CEO. Please go ahead..

Good afternoon and thank you for joining us for Martin Marietta's quarterly earnings call. With me today is Anne Lloyd, our Executive Vice President and Chief Financial Officer. To facilitate today's discussion, we've made available during this webcast and on our website supplemental financial information, which we believe will be helpful.

As detailed specifically on slide two, please remember that today's teleconference 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 other filings with the Securities and Exchange Commission, which are available on both our own and the SEC websites. Also, as a reminder, any margin references in our discussion are based on net sales and exclude freight and delivery revenues.

These and other non-GAAP measures are explained in our supplemental financial information on our website and in our SEC filings.

As detailed in the release we distributed, Martin Marietta delivered record first quarter results, reflecting strong operational performance as we began to reap the benefits of a more favorable, broad-based construction-centric phase of recovery and some geographic areas and expansion in others.

Our impressive first quarter numbers included record net sales, record net earnings, consolidated gross margin expansion of 790 basis points and an increase in earnings per share of nearly nine times the $0.07 reported last quarter.

On a consolidated basis, our operations achieved a nearly 70% incremental gross margin, another notable highlight is our nearly 20% gross margin, mirroring the level attained in the first quarter of 2006, a time when the overall economy was near an all-time highs and annual housing starts in the United States were nearly 2 million units.

To deliver a similar performance in 2016, with an economy only in the early stages of construction recovery in many of our key markets, is indicative of the strength and benefit of our geographic positioning and strategic planning.

Against that backdrop, the aggregates product line delivered robust volume and pricing growth of 13% and 8%, respectively. The Mid-America Group lead with a 28% increase in aggregates product line shipments.

This performance was driven by the commencement of several large, principally state-funded highway projects across the Carolinas, together with increased residential and non-residential construction activity. The West Group reported a 5% increase in shipments and an 11% increase in average selling price.

Of particular note for the quarter, North Texas aggregates product line shipments and volume and pricing increased 28% and 12%, respectively. The Dallas-Fort Worth Metroplex is the fastest growing area in Texas, and one of the top nationally for both employment growth and residential construction.

Additionally, the Texas Department of Transportation has announced construction plans in excess of $8 billion per annum over the next several years.

This program, which together with the funding provided by the North Texas and Harris County Tollway Authority, should lead to further growth in customer backlogs, our attractive leading Texas market positions will allow us to capitalize on these opportunities for the balance of the year and indeed for years to come.

In addition to volume growth in the quarter, we benefited from a stronger pricing environment. Simply put, aggregate pricing is up broadly across the company's business. The ready mixed concrete product line enjoyed strong demand and much improved operating conditions in Texas.

This two-fold combination drove 31% increase in shipments and a nearly 12% increase in average selling price. The result, a 46% increase in net sales and an 810 basis point improvement in gross margin.

Texas-based ready mixed concrete operations are expected to contribute significantly to full-year profitability, following a profoundly weather-impacted 2015 that effectively masked the potential of this TXI-acquired business.

The stated aim and expectation is for profit margins in the Texas ready mixed concrete business to rival that of our Colorado-based business. We see these early 2016 results as a good start toward the fulfillment of that goal.

As a result of the September 2015 sale of our California cement business, comparability of results for the cement segment will be affected throughout the year. The 2015 impact of the California cement operations is detailed on slide five.

Our remaining cement business, which is entirely in Texas, benefited from considerably-better weather, but importantly strong demand, which is forecasted by the Portland Cement Association to continue for the next several years. For the quarter, the business generated nearly $70 million of net sales, and $33 million of gross profit.

This translated to a 47% gross margin, which increased over 1,000 basis points as compared to the prior-year period. EBITDA for the cement business was $37.8 million, a 37.5% increase from the prior-year quarter. Lastly, the Magnesia Specialties business delivered record first quarter net sales of $59.5 million.

The Magnesia Specialties team continues to diligently manage the cost profile of the business, and despite U.S. steel capacity utilization being nearly 2.5% lower than the prior-year quarter, our business delivered gross margin expansion of 430 basis points to a first quarter record, 38.6% gross profit margin.

Looking at our entire business, given the strong first quarter performance and increasingly positive outlooks for the Southeast, most of Texas, and our downstream businesses, we have raised our full-year EBITDA guidance.

We now anticipate a range of $1 billion to $1.05 billion of EBITDA, with increased profitability and margin expansion expected across nearly every business line. The broad-based acceleration in construction recovery is visible in all three primary-induced markets.

Again, first-quarter growth was driven by large projects in the Mid-America and Southeast Groups with a 25% and 11% increase, respectively, in infrastructure shipments. Notably, important cities in the Carolinas are enjoying the benefits of this trend.

Places like Charlotte are benefiting from the new I-77 HOT lanes P3 project and ongoing work at the Charlotte Douglas International Airport. Also, Charleston, South Carolina, has significant port growth as well as strong attendant infrastructure development.

Similarly, in the Southeast, the long anticipated I-4 activity in Florida contributed to the positive quarter-over-quarter change. Overall, aggregates product line shipments to the infrastructure end use market accounted for approximately 39% of our shipments and increased 13% over the prior-year quarter.

We're encouraged by solid growth across this end use market, resulting from state-level funding initiatives passed just last year. With the acceleration of projects in North Carolina, Georgia and Iowa, combined with another year of robust Texas Department of Transportation program lettings, we expect continued meaningful demand growth.

The non-residential end-use market comprised of two components, light construction and heavy construction, accounted for 33% of quarterly aggregate shipments and increased 14% as compared with the prior-year quarter. The light component is primarily office and retail, with demand generally tied to employment growth and residential demand.

Consistent with the drivers, light non-residential aggregates volumes increased 20%, led by nearly 26% growth in the Mid-America Group. Following several years of modest recovery in this area of our business, strong employment growth and residential activity in North Carolina is driving increased non-residential construction investment.

The heavy non-residential construction component is primarily industrial building, as well as energy and energy-related activity. These shipments represented 24% of quarterly aggregates product line volumes and increased 12% compared with the first quarter of 2015.

The residential market accounted for 18% of quarterly aggregates product line shipments and reported a 20% increase compared with the prior-year quarter. Strength in housing activity is evident across the United States, as housing permits, starts and completions are each up more than 10% for the trailing 12 months ended March 2016. Although U.S.

housing activity remains well below historic averages, the reacceleration of growth in our key states, particularly in the southeastern portion of the country, is expected to drive increased aggregates demand throughout the year. The chem-rock/rail market accounted for the remaining 10% of aggregates product line volumes and increased slightly.

Consolidated gross profit margin was nearly 20% and expanded by the previously mentioned 790 basis points over the prior-year first quarter, reflecting margin expansion in all reportable segments.

Robust demand and much improved weather conditions drove significant growth for the ready-mixed concrete and cement businesses, which increased gross profit margins by 810 basis points and over 1,000 basis points, respectively.

To summarize the growth in our consolidated results, first-quarter 2016 delivered record net sales of $734 million, an increase of $102 million, or 16%; gross profit of $145 million, an increase of $70 million, or 95%; record earnings from operations of $84 million, an increase of 228%; and EBITDA of $153 million, an increase of 67%.

Net earnings growth drove a 91% increase in operating cash flow in the first quarter, to $67 million compared with $35 million in the prior-year quarter.

During the quarter, we repurchased an additional 1 million shares of our common stock, in line with our stated capital allocation strategy, and together with our dividend, we returned $176 million to our shareholders. We have authorization to repurchase up to 20 million shares of our stock.

Since the initial share repurchase authorization in February 2015 through the end of the first quarter 2016, we repurchased 4.3 million shares, returning nearly $670 million to shareholders. As a result, 15.7 million shares remain under the current authorization.

Finally, our ratio of consolidated debt to consolidated EBITDA for the trailing 12 months ended March 2016 was 2.1 times, in compliance with our leverage covenant and in line with our targeted leverage of 2 times. As we also noted in today's earnings release, we have upwardly revised our 2016 guidance for aggregates volume and EBITDA.

Our improved outlook reflects additional strength in underlying demand and increased margin expansion from our original projections.

We're confident that continued positive employment growth in our key markets, strong contractor backlogs, and normal weather patterns will drive more than $1 billion of EBITDA in 2016, a new milestone for Martin Marietta.

You will also note that we increased our expectations for public sector growth from mid-single digits to mid-to-high single digit volume growth in 2016.

The growth reflects continued state and/or municipal-level funding initiatives that are positively impacting several of our key states, including Texas, North Carolina, Colorado, Iowa, Georgia, and Florida. To conclude, we are very pleased with our first-quarter performance and improved expectations for the balance of the year.

We're positioned to deliver record results as we continue to recognize the considerable benefits of our unwavering focus on our leading positions and economically-diverse, high-growth markets.

We remain committed to the diligent execution of our strategic plan, steadfast to our core foundational pillars, and dedicated to delivering increased shareholder value. If the operator will now give the necessary instructions, we'll turn our attention to addressing your questions..

Thank you. Our first question comes from Kathryn Thompson with Thompson Research Group. Your line is open..

Hi, thank you for taking my questions today. The first is going to focus on margin, excuse me, the guidance that you gave for quarter, first on end-market growth projections and then shifting to margins.

But in light of Q1 results and infrastructure non-res growth rates that you outlined in your guidance, and granted you did bump up your infrastructure end-market guidance, but the projections seem to be – could potentially be conservative in our view.

What is your best estimate as to the pull-forward in demand from Q1 from just easy comps and extremely warm weather throughout the U.S.? Thank you..

Kathryn, thanks for your question. I think, as we look at Q1 and we look at the rest of the year, and I think the primary things that I would say to you, it's Q1. So really we're not going to look at Q1 and let that necessarily dictate the way the entire rest of the year looks.

To answer your question very directly relative to what we saw as pull forward, as you recall when we ended the year last year, we thought we had probably 3.5 million to 4 million tons of aggregates that we felt like had some form of deferral because of the remarkably wet weather that we experienced in 2015.

Our best estimate is we saw about a 1 million ton pull-forward in Q1. Our guess as we are looking forward is that's probably not a bad number for you to think about relative to Q2 and Q3 with the number then getting marginally smaller as we go into Q4.

So again, from a timing perspective, based on what we see on infrastructure, we just feel like it's the first quarter, again trying to address the other piece of your question, what did we see pull forward, trying to address very specifically what we saw in the quarter and what we anticipate in the quarters going forward..

Okay. And sticking to the theme of infrastructure, and in particular, visibility, this is something you know that we've been focusing on for quite some time in certain states, some of which you noted on the call including Georgia, North Carolina, past changes in how states fund – approach funding infrastructure projects.

Are you yet seeing the impact of those dollars flowing through? Or realistically is this something that you'll start see flowing through later this year or even into next year?.

I think the answer is, yes, Kathryn. I think it depends on the states. I mean, here's the way for you to think about it. North Carolina has put forward a budget that could add up to $1.1 billion through the biennium.

And what we saw after North Carolina did that last fall was the acceleration of about 90 projects in North Carolina, some of those were going out as far as 2025 and even beyond. So, we are seeing that type of pull forward, not just here in our home state. We're seeing that to a degree in Georgia as well.

Governor Deal came forward with his series of projects that he would like to see accelerated. So I think we will see some of that this year. If you recall, last year, we had seen the gas price – the gas tax go up in Iowa that was going to add about 30% of what that state DOT could do.

We've also seen some near-term initiatives in Nebraska that'll clearly be more profoundly felt next year. We've also seen good activity, not just at the state level in Colorado, but we've also seen it at the municipal level in Colorado.

Colorado Springs has put some very specific plans in place that would help drive volumes we feel like in Southern Colorado to a degree even this year. So, Kathryn, what I would say our state and local initiatives helping in some places now? Yes.

Will that continue, I think, to be even more profound as we go into next year? I think the answer to that is yes as well. Remember, to the extent that we get benefit from the FAST Act that's going to principally be a 2017-and-after event. We will likely feel some of that in some discrete markets this year.

But we will likely feel more state impact in those markets and then probably the one-two impact of that beginning more in earnest in 2017..

And I'd assume that's the same for Texas Prop 7 which dollars hit in September this year so it will more be a 2017 impact....

If you recall, that's actually next year, Kathryn. So you're going to have a Prop 1 effect that will go through this year. Prop 7 is actually coming in really beginning September 1 of 2017. So that's how you're going to see that transition there..

Okay. Great. And final question is on margin guidance. Was a little ahead of our expectations, which is all a good thing. Maybe if you or Anne could go through the levers that drive the upside to your margin guidance. Thank you..

You know, Kathryn, it's just a couple things. One, volume always helps and more volume in the East always helps, too.

So if we come and take a look at really what had happened if we're just looking at margin guidance in the Eastern United States in particular, if we're seeing volumes obviously moving in a better direction, in North Carolina, South Carolina, and Georgia, that's an awfully nice help.

The fact is, if you look at incrementals for the business, we were right on target or ahead of target if you look at the numbers that we put forward. But interestingly, if you take a look at Mid-America, that group had margin improvement to 46% versus 37% in the first quarter of last year, but here's the trick to it, Kathryn.

The Mid-Atlantic division was almost 70%, Mideast was 42% and the Midwest, really this time of year doesn't make any money because they're caught up in winter. So again, as we're looking at the type of improvement that we think we can see, where that's going to come from is going to matter.

The other piece of it that matters is we were able to operate remarkably more efficiently in Texas, simply because it was dry. So if you pull together two different things, one, more normalized or friendly weather, which helps, and then a certain degree of geographic mix that helps as well.

The simple fact is, Kathryn, we could do something this quarter we haven't been able to do in a while. We had a dry track to run on and we just put the rings down and let the horse go and when you do that, those are the types of results that we think we can see..

And Kathryn, it's Anne. I think the supplement that you'd – we saw good profitability coming out of the ready mixed concrete business, and so that business line margin expanded as well as out of the cement business.

So it really was across the board and I would say Magnesia Specialties delivered a strong quarter and probably slightly ahead of our expectations for the year. Principally, energy, our steel demand at about 70% utilization, which is a critical factor, favorable natural gas costs, and then incredible cost control by that group of managers..

Great. Thank you very much..

Thank you, Kathryn..

Our next question comes from Timna Tanners with Bank of America. Your line is open..

Hey. Good afternoon, guys..

Hello, Timna..

Hello.

I wanted to get a little bit more color on the timing of the diesel tailwinds that have been helping and assuming more flattish prices going forward, is that a factor? And maybe margins tailing off a little bit, if you could elaborate on what you're seeing in diesel?.

I guess a couple of things, if we look at diesel, Timna, we used just about 10 million gallons of diesel for the quarter. And if we're looking at the prices, about $1.84 a gallon and keep in mind that does include the cost of the fixed price hedge if we have in that.

So really if we look at it and think of it in our numbers, the hedge actually gave us about $4.5 million headwind as we are going through the quarter. As a reminder, the hedge wraps up at the end of this year. But if we also look ahead, I can give you a good sense of what gallons looked like last year.

We did 9.9 million gallons Q1 this year versus 9.2 million gallons Q1 last year, and Q2 last year, we did a little bit more than 11 million gallons; in Q3, it was almost 12 million gallons; in Q4, it was a little bit over 10.1 million gallons for a total of almost 42.5 million gallons. So that'll give you a sense of it.

The other thing that I would say is if we're looking back to Q1 last year, diesel was at $2.04 versus $1.84 this year, and if somebody had told us last year in Q1 that we would still have energy as a tailwind and a friend overall, I'm not sure I would've believed it, but here we are..

Okay. That's helpful. Thanks for that. On the specialty – on the Magnesia segment, I was a little confused by the comments because steel demand is pretty low as you've mentioned and then you had pretty solid results.

So just wondering is that a structural changes, have you done some cost-cutting? Or does this mean that you can have higher profitability at a lower steel utilization going forward?.

If you think about it, Timna, the primary thing that we said are two things really drive that business, if you've got steel utilization at 70% or better, and if you've got natural gas prices that are well behaved, those two things will help that business pretty considerably.

If we're looking at what the cost of nat gas was, that was down about 32% for the quarter. So nat gas was giving that a tailwind, but even while steel was down 2.5% versus where it was last quarter, it was still at that 70% number that Anne referenced in the last conversation that we were just having with Kathryn.

And candidly 70% isn't an overheated number. I mean we've built that business with that very capable team recognizing that 70% was probably a pretty safe number to have out there. And look, are we awfully proud of seeing margins at 38% when you've got steel at 70%? I think those are tremendous numbers and I think that team really should take a bow.

So were we pleased with those results? I would say, very pleased. Have we changed anything structurally? The answer is no, we really built it to make sure that those levels would operate very well with where we wanted to take the business..

Well, just to supplement that, Timna, dolomitic lime really is the principal product that goes into the steel industry. The mag/chem business is actually seeing some good solid demand across really all the geographies that we serve, which is, as a reminder that is an international business..

Okay, great. If I could get one last in. I just wanted to know if you could characterize what you're seeing in M&A, because there's been some small deals and obviously your cash position is great. So just wanted to – or your balance sheet position in general – wanted to just get a sense of how are you are seeing the M&A environment for now. Thanks..

Thank you, Timna. We have a very busy team in strategy in development, so they are looking at a number of different transactions today. I think what you saw us announce at the end of last year and what you've seen us announce early this year, are the types of bolt-on transactions that you should expect us to continue to look at.

Specifically, I'm talking about what we did in Southern Colorado simply as an example. Those are markets that we feel like are going to be attractive near term and long term. So you should expect us to be active, looking for though importantly the right deals, because I think we're in a coveted space.

I think we're in a spot that we can participate in deals. We can add synergy to those deals, but we're also in a space that we can buy back our shares as well. And there are not a lot of companies who can do that one-two punch that we can offer right now. So that's our take on M&A as it pertains to third parties and M&A as it pertains to ourselves..

Okay, great. Thank you..

Thank you, Timna..

Our next question comes from Garik Shmois with Longbow Research. Your line is open..

Hi. Thank you. Congratulations on a nice quarter..

Thank you, Garik..

Sure. Just wanted to dig in a little bit on the gross profit guidance within the aggregates product line. If I could, you raised your volume guidance by about 1.5 million tons, kept the pricing guidance the same, but the profit guidance was raised by about $55 million.

So if you take the volume increase and apply the full drop-through, it would be about $20 million. So I was just wondering if you can maybe provide a little bit of color. You talked about efficiencies. You talked about geographic mix.

But how should we think about the maybe the $35 million bridge from the growth in revenues versus the growth in profits that you are expecting?.

Garik, I think you've hit the two drivers, very candidly. I think we anticipate if we have normal weather, the efficiencies will be much better, and that's a powerful lever. I don't want to undersell that lever.

I think candidly the more powerful lever right now is what's going on in Georgia, what's going on in Florida, what's going on in South Carolina and what's going on in North Carolina.

And keep in mind what you haven't really seen in any significant material way yet is what we feel like is going to be a pretty busy year in Indianapolis, in our Mideast business, and it's likely to be a very busy year in our Midwest business as well.

Garik, as I sit here and really just think about our aggregates business and take a measure of it, what I would say to you is, it wouldn't surprise me at the end of the year to have a record year in the Rocky Mountain division. It wouldn't surprise me to have a record year in our Midwest division.

I think we're going to have a record year in our Southwest division. We're going to have a remarkably better year in our Southeast division and we're going to have a remarkably better year in our Mid-Atlantic division, and candidly it's possible to have a record year in our Mideast division.

So if you're thinking about those different divisions, which ones of those are pure aggregates and the sheer number of those that are now transitioning to the eastern half of the United States, I think that type of activity both from an infrastructure perspective and frankly other perspectives combined with higher efficiencies really drives that delta that you're seeing in profitability..

And Garik, just to add a little color to that, our first quarter margins of 20% and then drilling down into the aggregates business even more, we actually had some acceleration of stripping cost and repair and maintenance cost in the first quarter, as our teams in the field are prepping for what they think, for the backlog that's out there for the balance of the year.

So, part of that margin expansion and efficiency too comes from a lot of those costs that have been incurred, and like Ward said, ready to let the horse run..

Got it. That sounds good. Thanks for the detail. Just wanted to follow up on cement. It seems like you won back market share in the first quarter. I'm just wondering how you feel your market share is positioned right now as you look at the Texas cement market through the remainder of the year.

And then also you did reduce your cement pricing guidance, so I just wanted to see how you are anticipating the April price increases to go and what that means with respect to the market share question that I asked previously..

Sure. I guess a couple of things, Garik. If we go back to the conversation that we had in February, and I think in large part the first quarter, I think the term we used was shaking out. It's probably shaking out about the way that we thought that it would.

I think we said we thought it would be an easier or better pricing environment in North Texas than it was going to be in South Texas, I think that's been entirely true. The Comptroller is very helpful in putting out the different numbers that the marketplace can see.

That 21% market share or in that ZIP code is not a place that we think is a bad place for our business to be. I've also referenced the fact that we, I believe, can be a remarkably efficient producer of cement in that marketplace as well.

I think one reason that you saw a modest pull-back perhaps in the pricing is, we've seen relatively good activity on volumes, as you saw. And what we've also done is we've had some wholesale sales, particularly in that North Texas market to other producers that are in that marketplace, and the wholesale prices clearly go at a different number.

So, if I'm looking at probably about 40,000 tons that we sold in the quarter that were wholesale tons, and then take a look at really what were some product mix issues, simply really selling more customers pick-me-up product, FOB the plant, and I would say that was more driven in South Texas than it was driven in North Texas.

And then back to, as we discussed in February, there are some competitive dynamics there that we're sensitive to. I think when you tally those together, it brings you to the point that you see in the full results.

What I believe is, if we have the weather in Texas that I think we're going to have, I think we're likely to have a very active year in Texas. I like the way I'm seeing our ready mixed business run. Frankly, I like the way I'm seeing other ready mixed businesses run in Texas right now.

I think the fact is, it's pretty conceivable that you could have cement shortages in Texas as we get to the main part of the year. And I'll let you draw your own conclusions on what that may mean relative to cement pricing going forward.

Again, as we're looking at this business from an efficiency perspective, on pricing, and really running it for profitability, I'm very comfortable with where that is. The other thing that's interesting to me, Garik, is to see what's going on with cement pricing in other parts of the United States as well.

So, if I'm looking in places like Colorado or the Carolinas or otherwise, I'm seeing cement prices in those markets that are at times $25 or more a ton of where we sit in Texas right now, which gives me a sense we've got some nice runway ahead of us on this.

But keep in mind, as we take a look at where we sit on pricing in cement in Texas today, we're 20% up in South Texas from where the prices were when we combined with TXI, and we're 30% up in North Texas, from where prices were. So, I've tried to give you some context. I apologize for the length of my response. But I think the context is important..

I appreciate the color and congratulations and we'll see you next week in Dallas..

Thanks, Garik. Look forward to it..

Our next question comes from Jerry Revich with Goldman Sachs. Your line is open..

Hi, good afternoon, Ward and Anne..

Hi, Jerry..

Hi, Jerry..

I'm wondering if you could talk about how you expect the pricing cadence to play out over the course of this year. Last year you opted for a major price increase on January 1, and I'm wondering if you see potential for sequential price increases this year as we go through the year..

And then we're talking aggregates, Jerry?.

In aggregates, yeah..

Yeah. As I look at aggregates pricing, here's what I would say. We've got 17 out of 20 districts where it's just remarkably positive. We've got almost half of those where it's up at least $1 a ton and several districts where we're up $2 a ton. So, we're seeing nice price movement in really important markets.

The only markets where we're not seeing remarkable price movement, it's fascinating to me we got some freight adjustments that we had to deal with in some and we simply have some mix issues in others. So, I'm looking quarry-by-quarry, product-by-product. I'm seeing good price increases in all of those.

What I would say, too, Jerry, is we're in a marketplace where volumes continue to go up. So pricing, as you know having watched us go through the cycle behaved exceptionally well even in a down market. From where I'm sitting right now, Jerry, I think trying to measure it going forward, if FW Dodge is a good indicator.

Dodge right now is looking at three good years ahead of us right now. We probably would've said the same thing last year and that was before we ended up with a five-year highway bill. So, as we're sitting here, Jerry, I think the rhythm and cadence, the price increases this year won't be dramatically different than they were last year, for example.

I think they've been very strong so far. I think you're going to have a geographic mix that's going to give a tailwind to the way pricing is looking.

But I also think that what we said for the last couple of years is entirely true and that is the Western United States on a percentage basis has more price power ahead of it than does the East, simply because the East is the more mature market, prices are higher, so your percentages up won't be as great.

But, again, as North Carolina continues to recover, as Georgia continues to recover, as Florida continues to recover, and as places like Dallas-Fort Worth, as I referenced in my opening comments, have the type of volume growth and pricing growth that they are experiencing.

The pricing story we think will continue to be a very good one, not just for a matter of quarters, probably for a matter of years..

And Ward, you've commented in the past that based on the reserve position in Colorado and Dallas markets, where you participate, you would look for aggregates pricing to approach company average pricing over time.

Can you just give us an update on where that stands today and how much do you think that gap could narrow in 2017?.

No, absolutely. If you recall, when we were looking at the transactions in Texas, particularly in North Texas, I want to say at the day and the hour, those prices were about 60% of the corporate average.

As we look at it today, it's about 75% of the corporate average and what we'd spoken of at the time, Jerry, is we thought it would probably take about three years for that to build to something that felt more like a corporate average. I think that's still not a bad place for us to be as we look at it.

The other thing that I would tell you is really it was starting last year that we saw aggregate pricing in Colorado start to move on percentages that were really better than what we're seeing across the corporate average. Now, do I think Colorado is going to be there from a time perspective, at the same time as Texas is? No, I don't.

It's going to move a little bit more slowly than Texas. But I still think probably over a five-year period, basically over what we look at as our strategic planning period, Colorado should be closing in on it. Texas very much should be there.

Is that responsive, Jerry?.

You also saw obviously the West Group pricing dynamics, and that's where the Dallas market and the Colorado market would be reported. And I think you can continue to expect those areas – that area of that country or that segment to report pricing at a higher rate than the balance of the country or the corporate average..

That's super helpful.

And, lastly, I'm wondering if you could talk about what proportion of your sales were out of your long-haul network within aggregates this quarter compared to last year and how do you expect the full year mix to look like the long-haul versus trucks or markets for you?.

You know, what, Jerry, I'd rather not go into specific percentages on that. But I'll tell you, for example, though, is the yards that we have in Florida right now are really some of the best businesses that we have in the East.

So if you think about what's going on in Florida and if you think about what's going on in South Texas, coming out of that new Medina Rock & Rail facility, those businesses to us look better than they did last year.

And when we come back and take a look at the full year, my guess is those are probably going to be somewhere in the teens overall from a volume perspective. Keep in mind, what we move by rail in the United States all by itself, ignoring everything else that's shipped by truck or otherwise, is a top 10 aggregates producer in the United States.

So it's a considerable piece of the business. But the areas that we have that business, it's performing exactly as we would have thought, maybe, modestly ahead..

Okay. Perfect. Thank you very much..

You're welcome, Jerry. Thank you..

Our next question comes from James Armstrong with Vertical Research Partners. Your line is open..

Good afternoon and congrats to a good start on the year..

Thank you so much, James..

My first question, you've talked about weather a little bit and if the weather holds up.

What are you seeing in Texas and in the South, in general, following the storms? Did that have any impact on the first quarter at all? And do you think it will impact the second quarter any on a volume basis?.

You know what the first quarter was relatively benign and I would tell you not that negatively weather impacted. Now in fairness, April is pretty wet. You saw pretty massive flooding in places like Houston. And does that slow work down for a while? Yeah, it does.

And at the same time, you're close enough to the Gulf in areas like Houston that you tend to have areas that can dry out relatively well, particularly if they have a windy circumstance. So I'll put it this way, James. May is an important month. It always has been.

The two months in the aggregates business that tend to be disproportionately important are May and October.

May, because it's the first time across the geographic footprint that you have every bit of your business usually really hitting on almost all cylinders and October because that's the last month that, A, is usually dry and a lot of contractors feel like by the time they get to Thanksgiving, in many respects, they'll be packing up their equipment for the year.

So, was April a wet month? Yes, it was. Does May need to be a relatively dry month for the industry? Yes, I would say that it does..

Extremely helpful. Thank you.

And then just coming back to ancient history, hopefully at this point, any leftovers from fracing falling off or was that pretty much completely gone at this level and what are you seeing in that market?.

Yes. And again, thank you for the question on that. I want to be really clear because really what we sell in the marketplace to the different shale energy players, just to be clear, is not frac material, so we're selling materials to the shale energy players who are building roads or building their pads. So I want to make sure we're clear on that.

What we had indicated, we thought, is that we would see relatively maintenance levels of stone going to these different shale plays in the United States. And what we said is for the year we thought that would probably be in the ZIP code of 2 million tons or about 0.5 million tons a quarter. That's what we viewed as maintenance.

So actually as we come back and take a look at exactly where we are in Q1, you know what? It's good to be right and we were right on that. So, it will – I guess we'll take that, we'll take being right, I'm sorry it's 500,000 tons, but I'd love to see three times that because that's where we were last year..

Perfect. Thank you very much..

Thank you, James..

Our next question comes from Adam Thalhimer with BB&T Capital Markets. Your line is open..

Hey, good afternoon..

Hi, Adam..

Kind of following up on that, the heavy non-res you had some nice growth in the quarter and I think that's a change from previously.

Was that due to some of the awards you talked about earlier this year?.

It's not that much of a change for us because a lot of what we're seeing is driven by work that we're seeing, not just in South Texas and that's where a lot of it is, but we are seeing good, nice, non-res and portions of South Carolina.

In fact, I called out South Carolina specifically on some infrastructure in our prepared remarks, but we're seeing good non-res in that market. We're also seeing good non-res in Dallas, in Denver, in Orlando, in College Station in Texas as well. So the non-res that we're seeing looks pretty good.

I think one data point that's probably worth knowing is six of the Martin Marietta states rank in the top 10 for growth in non-res starts. And two of the states include Florida and Colorado.

I think a lot of it, Adam, really comes back to this notion that we discussed I think a lot over the last couple of years, because we were hoping that it would come to fruition the way that it has. Where you are matters.

As we're looking at the states in which we have leading positions and keep in mind those leading positions today, one or two, are in 85% versus 65% of our markets five years ago. We've tried to position ourselves in states that have near-term and long-term growth and that tend to have multiple economic drivers in them as well.

So again, I don't think the non-res story is dramatically different, but we are seeing some of those very large projects, for example, in South Texas firm up. And we're sticking those backlogs even more capably in our hip pocket right now..

So are you still seeing projects to bid on, on the heavy side or?.

Absolutely. I mean, what I would tell you is our teams both in Martin Marietta as well as our customer base probably feel as optimistic right now as I've seen people feel in about 10 years.

And I think a lot of that's driven by the fact that the eastern United States lagged the west, not by a matter of months, but really by a matter of years, in coming back with some degree of non-res projects in particular.

And keep in mind, a lot of times we said those projects will follow varying degrees of housing recovery with a 9 to 18 month lag, and if we continue to see permits, starts and completions on housing, all in those double digits, and we also continue to see single-family housing ramp up, that's going to be more aggregate intensive and we're going to see the non-res both light and heavy, I think continue to follow that in a very constructive manner..

I think, Adam, one of the things that we've seen pretty consistently across the footprint is a lot of distribution activity. Distribution centers and channels like that, I would say uniformly across the footprint. That's been at accelerated level of activity over the past several months or at least reported activity that's on its way down the pipe..

Okay, that makes sense. And just lastly on the, and Ward, I don't know how fair this question is, but can you compare at all the FAST Act to these state-level initiatives? Just trying to get a sense for what's coming in 2017 from the FAST Act versus what we've gotten in 2016 from the state-level initiatives..

What I would say is this. I don't want to go into 2017 volumes yet as we look at it, but what I would say is you are going to see states continue to let more long-term aggregate-intensive projects over the next several years than they have over the last several years.

And I do think the FAST Act will give states who have not been coming out with very specific state initiatives a lot more runway than they've had for a while. I think the real blessing we're going to have, though, if you really pause and reflect on the key states for us, that we'll have both. I mean think of it in these terms.

Colorado is going to have both, separate and distinct from what's going on in Colorado Springs. Iowa has both. Nebraska has both. Texas has both. Remember, the extra funding that comes into Texas just from Prop 7 by the time we get to September 2017 is more money than the increase on a per annum basis than you see even in the FAST Act.

So the FAST Act is nice because it does put dollars there. But the primary component of the FAST Act that's going to be helpful is time. So what's going to happen, you're going to take extra state dollars and combine that with extra time from the fed.

It's going to be the confluence of those two factors that will be more profound, particularly beginning in 2017 and then in the out years..

Okay. Thanks so much. See you Monday..

All right. Thank you. See you then..

Our next question is from the line of Mike Betts with Jefferies. Your line is open..

Yes, thank you very much. My two questions, please. You sounded pretty positive on aggregate prices, Ward, but they averaged $13.04 in Q1, but the guidance for the year is only $12.75 to $13.00, so pretty flat.

Is there some change going on that you'd expect to offset some of the maybe underlying growth later in the year or am I just being maybe too picky by comparing those numbers? And then secondly, I don't think we talked much about the asphalt business.

I mean could you remind me was there a major divestment that impacted that volume number? And secondly, your old firm was commenting yesterday, it's just going to be much more difficult business this year because the escalator clauses were going to kick it, or the adjustment clauses, which would mean that the lower bitumen price would feed through and therefore there would be less pricing power.

Does that impact you at all?.

Well, first of all, Mike, I would never call you being too picky for asking the questions. That's not a problem. What I would say is this. When you look at Q1, don't ever take Q1 in a vacuum. It's really a good litmus test on exactly what's going on in pricing.

Going back to the conversation that we had a few minutes ago, the Midwest is not cranking during Q1. The Mideast is not cranking in Q1. So what you're seeing in Q1 is a lot of North Carolina, South Carolina, Florida, all of which and the eastern U.S. are pretty high-priced markets.

And then you're obviously seeing pricing in Texas, particularly in North Texas, move at very nice percentages.

So what I would tell you is you're going to continue to see good robust pricing but what's going to happen is when Mideast, which is principally Indiana and Ohio, in the Midwest which is principally Iowa and Minnesota and Nebraska, come in, those tend to be more corporate average-y on pricing.

So again I think we feel very comfortable with the percentages that we put out there. To your question on asphalt, here's the way I would think of it. If we look at asphalt, we did about 2.1 million tons of asphalt last year in the Rocky Mountain division. As you really look at it now, that's the only asphalt that we have left.

So we did sell frankly a pretty modest asphalt position that we had around the San Antonio marketplace. So the fact that we don't have that business anymore is not going to be a dramatic driver or not on what we're seeing relative to our business.

With respect to liquid asphalt or bitumen and where it is, Mike, my guess is that story is going to change a lot back to what I said before, depending on where you are in the marketplace. Here's the circumstance up and down the front range in Colorado, and when I speak of the front range, I'm really talking about the I-25 corridor.

That's where 80% of the people who live in Colorado reside. That market is very, very busy right now on public. It's very, very busy on private res and non-res and in large part you've got a good asphalt market, particularly on the subdivision side, and on the infrastructure side..

Okay..

And a lot of the work in Colorado, particularly a year, a year and a half ago was having to be let a couple sometimes more times, because they weren't having enough bidders who were available. That's going to be a tight market relative to aggregate. It's going to be a tight market relative to contractors who are able to do much of that work.

And again, I think it's – we are looking at our asphalt business that is principally a Colorado asphalt business, we feel pretty good about it.

Now, relative to your question on how did it do in the first quarter? It didn't really do much in the first quarter and we don't expect it to do much in the first quarter, again because you are there in the Rocky Mountains.

If we're looking at what asphalt sales were for us both internally and externally in the first quarter, it was 134,000 tons versus 147,000 tons in the prior year and the 147,000 tons in the prior-year had the Texas business in it as well..

No, no, the 147,000 tons excludes the Texas business, so, Mike, from an asphalt tonnage perspective it was about 123,000 tons in the first quarter of 2015 related to that divested business..

Did that help, Mike?.

It does. It helps greatly. Thank you very much..

You're welcome..

Our next question comes from Craig Bibb with CJS Securities. Your line is open..

Hi, Ward, and thanks for taking my questions. Your ready-mixed, 31% increase in volume was outstanding relative to the rest of the industry.

Could you maybe give us a little more color on what's going on there and what are the stronger end markets?.

No, Craig, I think the big issue that was going on there is we got rained on all last year. I mean the ready mixed business that really you're looking at when you look at these numbers is what's going on in Texas, and Texas just really never had the ability to show last year what it can do.

So again, as you're looking at volume up – volumes up 31%, the pricing's up 12%, you can see what's happened with gross profit, again, I think this is really more of a story that candidly we're not that surprised by. We think we've got a very good position in ready mixed both in Texas and in Colorado.

I'm particularly pleased to see what we're doing in Texas though relative to the EBITDA, because part of what we'd said before, we would like to see those margins in Texas approach what we see in margins in Colorado.

So if we're looking at EBITDA-ish this year in the Southwest of $38 million, if we are able to do in the southwest on margins what we've been seeing ourselves do in Colorado, that could translate at the right day and the right hour to about $75 million in gross margins, so one, it was a very good story in the first quarter; two, we expect it to be a good story for the rest of the year, but we also expect to see that Texas business continue to do better..

Okay. And you've got another easy weather compare coming in Texas. But I guess you're going to have more Colorado in the mix.

So stay close to that number in terms of volume growth later in the year?.

Well, I mean, we'll have to talk about that when we get together on the next call. I did reference early in my comments that April was wet, and I think you're hearing that from all the players in that marketplace.

But again, if you think about where the vast majority of our ready mixed is in Texas, it's in the Dallas-Fort Worth Metroplex that you and a host of others will see next week and I think you'll come away with that with a sense that that's a busy market today and it's going to be a busy market for a while..

Okay. And then last one, relative – in the context of this quarter your cement volume increase was modest relative to everything else but your gross margin increase was incredible.

So was there something going on there that drove such a large gross margin increase?.

It was seeing volume going through. It was seeing really the plant capacities working in large part in the 80%-ish. We did have some modest change in the way that some of the kiln maintenance worked, but it wasn't dramatic. So really, I'm not surprised with what we saw in cement.

I think everything is working there in large part the way that we thought that it would. I think we certainly anticipated that we would expect margin percentages in that business that rivaled what we see in the aggregates business.

And so again, you will see Midlothian here when we're together on Tuesday, and I think again you'll get a great sense of what that's going to look like..

Okay.

And the spiky shipments of cement within the quarter that was because of the wholesale sales that you were making?.

I certainly mentioned the wholesale sales. I just think again the marketplace was healthy. There was some activity that the ready mixed businesses were able to take and run with that they hadn't, and, yes, I did mention the wholesale sales to some other players in the marketplace, but I just think it was the healthier marketplace..

And Craig, I do think there was some not from our perspective, but it's my understanding some of the Texas cement reporting had some – perhaps some corrections that needed to be made to it that maybe they weren't – it wasn't counted appropriately..

Okay, great. I look forward to seeing you guys on Monday..

Thank you..

Thank you, Craig. We'll see you then..

Thank you. That does conclude the Q&A session. I will now turn the call back to Ward Nye for closing remarks..

Thank you again for joining our first quarter 2016 earnings call. We are poised for a great 2016. We continue to experience strong employment growth in our key markets, robust construction activity with increased materials demand and significant pricing opportunities. Many view that current United States construction market is among the world's best.

Martin Marietta's superior geographic positions and focused execution of its strategic plan should provide a firm foundation, enhancing long-term shareholder value. We look forward to seeing many of you next week at our 2016 Investor and Analyst Day in Dallas and to discussing our second quarter results with you in August. Until then, take care.

Thank you very much..

Thank you, ladies and gentlemen. That does conclude today's conference. You may all disconnect. And everyone have a great day..