C. Howard Nye - Martin Marietta Materials, Inc. Anne H. Lloyd - Martin Marietta Materials, Inc..

Trey H. Grooms - Stephens, Inc. Kathryn Ingram Thompson - Thompson Research Group LLC Jerry Revich - Goldman Sachs & Co. Craig Bibb - CJS Securities, Inc. James H. Armstrong - Vertical Research Partners LLC Garik S. Shmois - Longbow Research LLC Stanley Elliott - Stifel, Nicolaus & Co., Inc. Brent Edward Thielman - D. A. Davidson & Co. Mike F.

Betts - Jefferies International Ltd..

Good day, ladies and gentlemen, and welcome to the Martin Marietta Q3 2016 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. As a reminder, this conference is being recorded.

I would like to introduce your host for today's conference, Mr. Ward Nye, Chairman and CEO. You may begin..

world class safety, ethical conduct, operational excellence, cost discipline, customer satisfaction, and sustainability. By doing so, we will be true to our aim of increasing long-term shareholder value. If the operator will now give the required instructions, we'll turn our attention to addressing your questions..

Thank you. And our first question comes from the line of Trey Grooms from Stephens. Your line is open..

Hey, good afternoon, Ward and Anne..

How are you doing, Trey?.

Hi, Trey..

Doing well. You know, the weather's been definitely a challenge for your guys this year, and Ward, you mentioned Hurricane Matthew obviously coming through some of your key markets. Can – and that you have tried to address that in your guidance.

Could you, could you talk about kind of how we should be framing that up for the 4Q? What the impact that could have had on the fourth quarter, understanding that October is a very important month for the quarter? Just how that hurricane's impacting you in the guidance?.

Sure, Trey. We'll try to wrap that up for you. As I said, we had about 1 billion gallons of water that founds its way into our Benson quarry. Remarkably, that quarry is still operating from some upper benches, and perhaps even more remarkably, we've removed about half of that water from that quarry since that quarry was hit with that.

And all of that started hitting the Bahamas around October 6, worked its way up at East Coast. Looking at precise volume impacts, I got to tell you, it's hard to sort that out, but here's the way that I would encourage you to think about it.

If we look over the last several years, in October, in the markets or the divisions that were affected by this storm, what we typically see per traditional work down here (21:06) volumes that could be going in those markets of about 200,000 tons.

So if we're starting the clock on October 6, when Matthew hit the Bahamas – and consider there are a lot of communities in Eastern North Carolina that are still very much dealing with storm and its aftereffects – the range of volumes could be in that 2 million ton-ish type of framework.

And again, this represents about 30% of a typical October volume from those affected areas. So it's hard to put science to it, Trey, but again, we tried to look at that, sort out what we believe the effect will be, and we think that's not a bad way to think about it. You raised a very good point, and that is, October's an important month.

It's an important month for the aggregates industry, it's an important month for Martin Marietta, because typically you have what we're seeing here in North Carolina today. It's temperate, it's dry. And clearly Mathew did not permit us to start the month under that normal recipe, but that's how we handicap it right now, Trey.

Did that help?.

Yeah, absolutely that was helpful. And then we've definitely been seeing volatility in non-res starts recently.

Could you talk about how you look at this, how you look at the starts data, the choppiness we've been seeing there this year? And what that means for you, as we move into the next year in your geographic markets?.

Sure, I'll try to. I mean, we look at the starts too, and what's odd, Trey, is the way that construction starts are – actually the score is kept on those. Because the stats, as you know, typically include a 100% of the total cost of a project in the month of the start.

So what happens in the stats is it completely ignores that construction spending covers a period of months or years after the start. So here's what happens with those. If we look at the first half of 2015, my recollection is there were around 13 different projects across the United States valued at a $1 billion or more.

So there was a $9 billion L&G project in Texas, there was an $8.5 billion petrochem plant in Louisiana, and I think there were two different office starts in New York, at in excess of $3.5 billion.

By contrast, if you roll forward, take a look at 2016, and you're looking even from the January to July period, as opposed to 13 in the previous year, there are only 4 valued at a $1 billion or more. But here's what happens.

As 2016 progressed, you see a growing number of those large projects reach the start stage, and you see the delta in starts suddenly start to close. So as we're sitting here looking in 2016, total construction starts in 2016 are estimated to be up 1% to, let's call it $676 billion. But they're expected to grow an additional 5% in 2017.

So again, as we're looking at this year that I think has been impacted by a number of very different issues relative to weather, relative to the timing of starts, number one, we are not concerned about what we see this year; and number two, as we're looking at what the third-party forecasters are saying, relative to non-res next year; again, that's part of what gives us the confidence that I tried to portray in my opening comments..

Got it. Last one from me. I know you guys aren't getting into a lot of detail here on 2017, but it does sound like you're looking for all of your end-markets to be up next year.

Can you talk about maybe high level, how we should be thinking about things as far as relative strength geographically, and also markets that might be more challenging next year for you? And then kind of with that, the timing of the FAST Act and then the tough comps in 1Q, how the – how we should be thinking about kind of the cadence as we look into next year? Thank you very much..

Right, thank you, Trey. I'd tell you what I'll do. I'll go through what I usually do in this call, and try to give you an overview what we're seeing on a market-by-market basis. Before I jump into that, I do want to tag onto what you just said, and here's what I'd say in that regard. Q3 last year set a high bar for Q3 this year.

And volume didn't equal what we did last year, profitability exceeded what we did last year. Equally, people need to remember the construction industry across the U.S. is going to have a very difficult Q1 compare.

We had remarkably warm and dry weather on a compared basis last year – or this year in Q1, which means the entire industry is going to have a tougher comp in Q1 next year. Remember what we've always said, too; in a lot of years, the last two weeks of March either make or break the first quarter.

So I would caution people just to think about that from a rational perspective as we go into the year. If I look at our business in summary fashion and go from west to east, and start in the Rocky Mountain division, I would tell you the economic outlook there continues to be very good. Private sector growth remains strong.

We're putting a lot of energy to work in that marketplace. The DoT program in Colorado is very healthy. In fact, one of the biggest issues CDOT has is having enough bidders on different projects. The only real headwind in this division are ballast (26:38) volumes.

And we've talked about that, and clearly they have been affected as the railroads have had more issues relative to energy throughout the year. Their profitability outlook, I think, is excellent; their ready mix business is performing at a very high level, as is their paving business.

One thing that I think is important to say about that business is, I think they are in a relatively early innings as far as maturity. I don't think they're even in the seventh innings stretch yet in Colorado. Midwest, and really we're talking in that context about Iowa, Nebraska, Minnesota, this has absolutely been our most consistent market.

Their downs are not very low, and their ups are really very steady. Presently, Iowa, which is our largest market in the Midwest, is going absolutely on all cylinders. As we go into 2017, we think there'll be more DOT money flowing through.

We think there is a continuing positive non-res outlook in that marketplace driven by data center activity that continues. And the other thing that we're seeing, and this has been a story that you heard about several years ago but you're going to hear about it more, I think, for the next several years, it's a reinvigorated wind farm market.

And those are very, very aggregates-intensive. The other piece of that market that strikes me as really quite good is, they have a very healthy residential market. So the only headwind we have in the Midwest is you are seeing lower farm net incomes.

I mean, to give you a sense of it, we're watching that move from several years ago at about $80,000 to more like $18,000, I mean that's a big fall. What I would tell you, too, is 15 years or 20 years ago, our market in that marketplace would have absolutely, positively followed ag, and that's not what it's doing here today.

And again, I would say that marketplace is similar to Colorado, I think it's probably in a sixth- inning-type phase. The Southwest in cement, you've really got a divide to a degree. You've got a North Texas economy that absolutely remains one of the best in the nation.

Infrastructure is very strong; we talked about the fact that res is leading the nation, as is non-res. The bulk of the I-35 corridor remains very, very positive from Dallas to San Antonio – and San Antonio, and what you're seeing in pricing there, to us, is a predictable, but a very good story.

I think one of the issues that they are going to have in North Texas is finding enough people to do the work. And I'm not talking about us, I'm talking more about contractors, subcontractors, materials suppliers and others. I think as you look at that market in North Dallas, it's going to be tight next year.

And frankly, our volumes, which were very high coming into this year, are even higher from a backlog perspective going into next year. I think if you get a little bit farther south in Texas, clearly Houston is feeling the effect of an energy downturn. And we have seen some of that in our business.

I think it's important to remember, as you think about Houston and Texas overall, 45% of our aggregates volume are in Dallas, 30% are in Central Texas and San Antonio and Austin, about 15% are in Houston. So do we feel some headwinds in Houston? We do. From our perspective, that's really not the big driver of our business.

So again, we think that's likely to be a good, steady, stable marketplace. Remember, TxDOT is going to have a very healthy budget, we believe, for the next decade, and about 50% of our volumes in Texas find their way to some form of TxDOT. Here's the important piece of it, Trey, and that is what we're seeing as we come across the Mississippi.

Because the Mid-Atlantic, which really encompasses North Carolina, Virginia, and South Carolina, is much healthier. We're seeing volumes up in that marketplace. We think we're going to continue to see volumes up in that marketplace.

It's notable to see that in Boulder, Colorado, today, a handful of years after 500-year-event flooding, they still have $35 million that they're putting to flood repair in Boulder, Colorado today.

That gives you some sense of the type of investment I think we're likely to see, not for a year or two, but maybe for the better part of a decade in parts of Eastern North Carolina. There were considerable parts of I-95 that were literally underwater, and that's clearly not a good thing for highways.

From our perspective, we think there's going to have to be a lot of maintenance and repair there. As we look at the Southeast in Georgia and Florida, those are two of the best economies in the United States today.

Plenty of room to grow in the Atlanta market, and part of what we're seeing is we believe we're going to see much more work along I-4 next year. I-4 was suffering from about six months' worth of delays this year.

So again, if we're looking at where parts of the country are as far as innings are concerned, I think that one's probably in the third or fourth inning. And finally, in the Mid-East, which is really what we have in Indianapolis and Ohio and West Virginia, you know what? In Ohio and West Virginia it's having a tough time.

I mean, I think that's a fair observation. Energy has made that market tough. At the same time, as we look at what's going on in Indianapolis today, it has been and it continues to be a very stable market. Good infrastructure work, better asphalt and better ready mix concrete work in that market than we've seen for a while.

And we have seen a remarkable absorption on warehousing space in that marketplace as well. So as we look at that, it's probably deeper in the innings, I would give that probably a seventh inning from a deepness perspective.

But that gives you your march, literally from East to West – or West to East, I suppose – and a sense on where we are in each one of those. I'm sorry for how long that was, but I do think that's an important march..

Absolutely, and thank you for all the detail and insight. There, Ward. It's very helpful as always..

All right, Trey, you take care..

You too..

Thank you, and our next question comes from the line of Kathryn Thompson from Thompson Research. Your line is open..

Hi, thank you for taking my questions today. A two-part Texas question. First, if you could give a little bit more color on your Central Texas acquisition.

And then second, could you just maybe give more color on project delays that you discussed in the quarter, how much do you believe were driven more by weather, or sheer project size, so megaproject size, or is there something else we should take into consideration for those project delays in Texas? Thank you..

Sure, Kathryn. Let's talk a little about the acquisition that we made. We purchased the remaining portion of Ratliff Ready-Mix. Ratliff was a company that TXI historically had a joint venture relationship with, so this is something that's been on the radar for a while.

We picked up about 1.1 million cubic yards, they've got 23 plants, and really it's in that golden triangle, Kathryn. It's on the I-35 and the I-45 corridor. So if you're looking at it, it's really in a couple of tranches. You're looking between DFW and Austin, and you're looking between DFW and College Station.

So this actually fits an important niche for us in Texas. As we come back to your question on delays, and again our primary delays are going to be in North Texas, as you may recall, in Q2, at half year, we had indicated that we came into 2016 with about a 3.5-million-ton backlog of TxDOT work and only 600,000 tons had shipped against that backlog.

What I would tell you is, again, in Q3 there was very limited activity on those projects, but we did start to see some movement later in the quarter. I mean, here's one way to think of it, back to your question with more color.

North Texas project delays, we've got 20 major projects there in the backlog, one dating back – get this, Kathryn – to the fall of 2012. Four finally started in September of 2016 and three began in October of 2016. Eight of the 20 have not yet begun shipping, and we have an infrastructure backlog now of about 5.4 million tons.

The other thing that's important for you to glean is TxDOT has hired several hundred additional people, and we think that's a moment, and we think that's a moment because I think there's a clear understanding within TxDOT that what they're faced with are administrative delays. We think that they are eager to remove those.

So I think we will see nice movement on that in 2017. As I've said, what we've seen in 2016 in Texas has been an anomaly relative to that DOT. It hasn't necessarily been that much of an anomaly relative to other state DOTs, but it has been relative to Texas.

So, I've tried to help you on Ratliff, and give you the additional color in North Texas in particular.

Is that responsive, Kathryn?.

Yes, it does help. Just the one follow-up, and you, I believe you answered it in a previous Q&A, but we were thinking about Hurricane Matthew, how to frame it.

Really wanted to get a better sense of similarities or differences of your experience in the Colorado; obviously there's a lot flooding in Matthew, but is there something that was unique about Colorado that – so Matthew impact wouldn't necessarily be as good as of a proxy?.

You know what? Not particularly. In fact, what I will tell you is, the flooding hit the Rockies then it had someplace to flow..

Yeah..

flooding was coming back in rivers, and it was – so you had rivers backing up in Eastern North Carolina. And you had rain in Western North Carolina fighting its way to the east. And it simply stayed there. And it stayed there for a very long time.

As I said in my commentary, we're going to go into the holiday season and still have people living in shelters in Eastern North Carolina. So my sense is, Kathryn, that from an impact and dollar and cents perspective going forward, it's likely to be more impactful in Eastern North Carolina than it was in Colorado..

Okay. Helpful. Just for your cement business, and understanding it's primarily Texas business, but could you – there've been some, a few changes in the competitive marketplace in Texas.

How has this impacted pricing in the near-term? How will it impact it in the mid-term? And any other color on your thoughts on overall capacity utilization as we look forward to 2017 and 2018?.

I think that's what I would say is severalfold, Kathryn. As we look at that Texas market, you still have a market that's broadly sold out. So I mean, let's start with the notion that you still don't have enough domestic production to meet domestic needs. Clearly there has been some sort of transaction.

South Texas at Argos we understand is not importing material into Houston any more. At the same time, what I will tell you, Kathryn, is we see two very different things, and back to your point, our Texas cement business isn't primarily in Texas, it's wholly in Texas. So that's all they have..

Yeah..

What we're seeing in Midlothian is a very healthy market. And what we're seeing there relative to volumes and what we're seeing relative to price, is it's a pretty good place. Volumes and price at Hunter have been more challenged, and at the same time what we have certainly spoken to our customers about is an $8 a ton price increase next year.

And we have some confidence around that. So that's where we are looking in that marketplace for next year. And we feel good about where we are, Kathryn..

Great. And I'm going to get out of Texas, and maybe hit another region.

Just would love to get a little bit more color on the primary drivers for your Mid-American group margin expansion?.

What's happening there is we're just getting some more volume, Kathryn. I mean, their cost structure is good, but they are simply getting more volume. Remember North Carolina lost about 40% of its volume from peak to trough.

So what's happening is you've got a Charlotte market that's relatively healthy; you've got a Charleston, South Carolina market that's relatively healthy; you've got a Raleigh market that's getting healthier; and we're seeing more infrastructure work in the Triad than we've seen for years.

So, when you are continuing to get good pricing in that marketplace – and in large part that's what we're seeing – and you're adding even incremental volume to it, it's very powerful. That goes back to that notion, Kathryn, as the East begins to recover, it's disproportionately impactful to our business.

The Southeast is important in that; candidly, portions of the Mid-Atlantic are even more important in that..

And Kathryn, just you give some context, you saw that aggregates volume was down for the whole quarter for the company as a whole, we actually saw volume activity up in double digits in those areas of the Mid-Atlantic..

Okay, perfect. Thank you very much..

Thank you, Kathryn..

Thank you. And our next question comes from the line of Jerry Revich from Goldman Sachs. Your line is open..

Hi, good afternoon..

Hello, Jim (sic) [Jerry] (40:02)..

Ward, can you talk about the price increases, actions that you announced to the market or thinking about for aggregates for 2017? You in the past have spoken about the need to structurally reprice the markets in Colorado, Texas and Florida, and I'm wondering if you've announced significant price increases to kick off in 2017 on that path?.

You know what, we'll give you much better guidance on that when we come out in February with full-year results and give you a real forecast for 2017 at that time. I think what you've heard us say in the past, though, is a completely fair way for you to think about it. And by that I mean, will you see consistent good pricing across the enterprise? Yes.

Will you see the Western United States on a percentage basis outperform at East? Yeah, I think you will. And will we continue to see Colorado get better? I think, the answer to that is yes. And part of what, candidly, I loved about this last quarter, that's exactly what you saw.

I mean those are commentary – very constant views that we've been offering for a couple of years. And as you'll recall, we said probably two years ago, guys, it's coming in Colorado, just give it time. And here you finally saw it in this quarter.

So what I would say is we'll give you more color on that in February, but if you just stick with that general theme, you're going to be fine..

And in terms of guidance for the year for the aggregates product line, just to make sure I understand your comment around cadence forward, so you mentioned the tough compare in the first quarter of 2017.

I think the implied guidance for fourth quarter volumes is year-over-year growth, so it sounds like we've lapped a bunch of the weather headwinds, and I just want to confirm that that triangulation of the path is correct.

So fourth quarter volumes up year-over-year, and then we'll see how the first quarter plays out, but the comps are tough?.

Jerry, I think you got it..

Okay. And in terms of the downstream business, you had a really nice positive revision for to gross profit outlook for the year.

A chunk of that I would imagine was acquisition, but can you talk about the organic improvement in unit margins, and what are the drivers?.

You know, what I would say is clearly some of that's going to be acquisition, but most of it's what we're doing with our internal business. And here is the way that's working, Jerry. I mean, our asphalt and paving business in Colorado is a very good business, and they continue to see nice year-over-year improvement in that marketplace.

Our ready mix concrete business in Colorado is a good, solid, mature ready mix concrete business. Here's what's happening. We said that you should expect our ready mix concrete business in Texas to continue to get better.

And over time, you should see it performing the way that we're seeing our business in Colorado perform, and if you look at that business, that's what's happening. The cost structure's better, we're seeing much better pricing activity in that business, and here's the other piece that's helping there.

You're seeing some headwinds in aggregate volume because you've got more brand new projects in parts of Texas, and you have to be working with wet soils. But when you've got concrete, and some other gets to be on more industrial or more mature type projects, concrete can actually go.

So here's the odd thing, we were seeing internal aggregates to our ready mixed business actually better in third quarter.

We're seeing stone going down on road projects coming down in the third quarter, which tells me the underlying business is good, but what you're seeing in Q3 on the downstream businesses is just the better performance that we were expecting to see..

Okay. Thank you very much..

Thank you, Jerry..

Thank you. And our next question comes from the line of Craig Bibb from CJS Securities. Your line is open..

Hi, guys. Congratulations on a record quarter..

Thank you, Craig..

Just back TxDOT a little bit, because it does move a lot of your volume around.

At this point, it sounds like they're gearing back up, but do you have enough visibility to say that Q2 volume really accelerates, or how should we look at that?.

I guess what I would say is this. I mean, we're looking right now at a record backlog in Texas, and TxDOT has committed to at least $66 billion over the next 10 years. So keep in mind, Craig, even when Prop 1 was at its absolute peak, spending from 2010 to 2015, those fiscal years for Texas, was trending at about $5.2 billion.

If we're looking at it right now, Prop 1 and Prop 7 should provide about $2.5 billion by 2018, rising to $3.1 billion by 2021.

So if we're sitting here right now, we're looking at what we feel like is going to be probably a plus-$7 billion program in 2017, very healthy on the out years, going into the year with some of the largest backlogs that we've ever had.

So, again, as we're looking at TxDOT and looking at a marketplace that 50% of our volume finds its way into infrastructure, we feel very confident, both in the near term and the long term there.

I've got to believe Texas DOT is going to find its way through these administrative delays, so that's one reason I wanted to give the metric that I did early in the dialogue about the fact that they've hired several hundred more employees..

Yes, and Craig, if you take a look at those big projects, I mean, as Ward indicated, several of them started late in September, some more started in October, and based on our conversations with the Texas DOT, if you look into 2017, looks like a pretty uniform distribution of those projects happening throughout the various quarters of next year..

Okay.

And then on a broader note, the FAST Act spending across your markets, that's supposed to kick in Q2?.

I'm sorry. Say that first part again, Craig, I didn't hear you..

How do – when will the FAST Act spending kick in across all of your markets?.

I think by the time we get to half-year next year, FAST Act ought to be pretty well flowing through all these markets.

And again, I think you need to remember too, there are going to a number of these markets, for example you're going to see better spend in Georgia next year, you're going to see better spend in Iowa next year, you're going to see probably modestly better spend in Indiana next year, probably modestly better in North Carolina next year, still a record spend in Florida next year.

So I think by the time we get to half-year next year, you're going to have a pretty good effect from both the federal and the state side in almost all relevant geographic markets..

Great. That's helpful. And just a last quick question.

Ballast, is it still down like 20% type decline?.

Yeah. Ballast is still down. I mean, if we look at where ballast is, I mean clearly the Class 1 railroads, with what they are not moving relative to energy, is pretty considerably off. And what I would say is, the railroads have done what you would expect any major industrial company to do.

And that is, they pulled back on maintenance and repair, and at the end of the day, you can only do that for so long. And what I would say as well is we're not going to see a host of other people come in and put quarries on rail to meet that demand.

We're going to be there, we're going to be ready for it, they are very good customers of ours, we want to supply their needs, and they are going to have some needs. But from a ballast perspective right now, it is one the more challenged areas of our business. I guess, the good news is, it's one of the smaller areas of our business..

All right. Thanks a lot guys..

Thank you, Craig..

Thank you. And our next question comes from the line of James Armstrong from Vertical Research. Your line is open..

Good afternoon, and thanks for taking my question..

Absolutely..

The first one is, back on to Texas, could you break out your estimate of the tonnage impact of the weather, versus the delayed projects? And on Texas, you mentioned the – they have hired significant number of people, but do you think they've hired enough to catch up on the announced projects, or do you think they – that there's probably still more to go?.

I think they've probably hired what they need to do to try to catch up. At the same time, I'm not completely inside baseball, so we're going to have to see what happens....

Well, we also know – we also know that they have a budget request for even more hires. So it'll be interesting to see how that gets resolved..

But....

Okay..

But back to your question. If we're looking at really what we're looking at relative to headwinds in Texas, I mean, clearly, you've got energy sector headwinds that probably – this isn't just Texas, this is beyond that – probably 700,000 tons that are attributable to that.

We mentioned earlier in the year that we were doing a transition from New Braunfels Quarry over to what will eventually be our Hunter Aggregates Facility, that's probably 600,000 tons. And if we're looking at just pure ballast sector as well, that's probably another 300,000.

And if we're looking at other headwinds and tailwinds, and this is principally answering your question, what does TxDOT Weather mean? It probably means, about a 1.2 million, relative to tonnage. So I think that probably gives you a pretty good bridge..

Okay, that helps.

And then just lastly, have you seen any rebound in the energy sector, as oil prices have started to come back, or is it you still think it's going to be lackluster for the time being?.

We have not seen a remarkable snapback yet, but what's remarkable to me is you do see more just early, early, early activity, once it starts peaking over $50. I can tell you the energy companies are really hoping it gets to about $65. I think if you see oil get to that $65 level, you're going to see pretty good activity there.

So in the back of our mind, that's really a marker that we have. But if I told you we were seeing much right now, that wouldn't be correct..

Perfect. That helps. Thank you very much..

Thank you, James..

Thank you. And our next question comes from the line of Garik Shmois from Longbow Research. Your line is open..

Thanks. Just wanted to get a little bit more color on how you're thinking about incremental margins going into 2017. Clearly had strong performance here in the third quarter.

How sustainable is this above 60% trend that you've been delivering on? And as you look at the different cost buckets moving forward, what are you seeing?.

So Garik, are you saying that the 90% worked pretty well?.

Yeah..

I guess what I would say, Garik, is what we've talked about was averages, right? And we said, when we saw our volume fall 80 million tons, we thought that for the first 40 million tons of recovery in our Heritage business, we would see it on average at 60% incremental margin. And clearly that's what we're seeing. We're seeing it plus that.

Here's what's happening. You are getting the incremental margin boost because you're seeing a shift to more in the East. And again, here I've got something that we've been very transparent on, and we've spoken about for years. Because we said, we couldn't even hit the 60% all by itself, if we were just counting on a Western recovery all by itself.

So if you believe, as I do, that we are in early innings in the Southeast, and in relative early innings in the Mid-Atlantic, then I think we're going to be certainly above that target that we've said. Now, do I think we're going to show up every quarter with 90%.

I'd like to say that I thought we would, but I think that would be a little bit ambitious, so I'm not encouraging you to go and model that.

But again, I think if you just come back, think about that average on 60%, and keep in mind, pricing's probably doing better than what we thought it was going to do as we went through this cycle, so maybe last a little bit longer than we thought it would when we said that first 40 million tons. So I would tell you, it has the capacity to endure.

I think geographic mix is our friend. Clearly pricing has been our friend, and our cost profile is very attractive. So I think we remain pretty resilient around that..

Garik, just to give you some color on capacity, if you look at those, kind of the Southeastern markets, those are just barely ticking above 50% of prior period peaks, although pricing there is still incredibly strong.

And then if you look at – through the Carolinas, those markets are probably between the 65% and 70% of prior peak, so they still have some of that operating leverage room to go. And again, pricing's, just like the quarter, pricing just falls directly through..

Yeah.

So, if we think about potential buckets of inflation for next year, whether it's labor or energy cost, the message is that the leverage plus the pricing should more than offset to continue...?.

Yeah, yeah, yeah..

Yeah..

Yeah, Garik, that should be. I don't think there is anything up that's going to remarkable. And keep in mind, in fairness energy has been the industry's friend for the last several years. I think energy is going to continue, on a compared basis, to be the industry's friend.

When we get to that point that energy is not the industry's friend, what you'll recall is historically, energy has been an impetus for pricing as well. So I don't see anything that I would think would be rocking your model from a material perspective on inputs next year..

So the one thing I would say that potentially could be deflationary as we move into next year, is we have made some good investment in mobile equipment to help with the repair and maintenance costs on the business, and are beginning to see trends of that – of decline in the per-ton cost of repair and maintenance.

So I think we would expect to see some future benefit into that, into 2017, Garik..

Okay. That's helpful. A quick follow-up question, just wanted to clarify on volume. If we look at the 2016 volume guidance for aggregates, backing into a 4Q projection of about 3% to 7% volume growth, just want to be clear that this does incorporate the initial impact from Hurricane Matthew.

There's been a lot of discussion about the event on the call today, recognizing it happened in October, which is the most important month of the quarter. So I just want to make sure....

Yeah..

...that my facts and figures are correct?.

Your facts and figures are correct..

Great. Thank you very much. Good luck..

Thank you, Garik..

Thank you. And our next question comes from the line of Stanley Elliott from Stifel. Your line is open..

Hey, Ward, Anne, thank you guys for taking my question.

A quick question on the pricing side, is there a way to kind of split out how much of that was mix, be it either regional or product mix, kind of when we're thinking about just the pricing environment overall?.

I'll tell you, we look at that very carefully every quarter, and I'm delighted to tell you that whatever the number was, it was immaterial. So what you're seeing tends to be what it does now..

Great, good news. And this is kind of more of a hypothetical, but lots of discussion out there now about some form of fiscal stimulus.

To the extent that whoever becomes President could get something passed, let's say in the first 100 days, what would be a realistic sort of timeframe to where projects would start moving forward, and we start to – you all would start to see volumes as a result of that?.

That's hard to say. I mean, I think you could go back over a usual highway bill and look at the rhythm and cadence on that, and say it takes probably 18 months for something really to start finding its way in a meaningful fashion. So I wouldn't expect it to be immediate, but I would expect it to be pretty impactful to our business, if that happens.

I think one of the big issues that we need to keep in mind is, looking at employment across the United States and sorting out those states that even when you put the stimulus in, who's going to be able to put workers out there who can put that down? And the good news is, there are some Martin Marietta states where we think that can very much happen right now.

But here's part of what what's different, I think it's interesting, Stanley, and it's a clear recurring theme that we're hearing from contractors, and that is, they're busy. And they haven't gone and hired a bunch of new people to come to work for them, because they're busy.

If they've got a heavy financial incentive to go and accelerate a project, they will. If they have a strong financial disincentive to get something done, they'll follow that as well. But I think there are a lot of contractors, who're just as busy as they want to be.

They're making good money, they don't want to overextend their businesses, and if they have can good multi-year backlogs and just continue to work that in 2017, 2018, 2019 and 2020, yeah, I think they're pretty pleased with that.

And if you're seeing what we did in this quarter with down volume, if we see just good, steady slow volume in this business, based on the enterprise that we've built, I think it's very powerful. And I think additional stimulus from whoever the next President is could be very powerful in this business. Do I think it's a 2017 event? No.

Do I think it could be a mid-2018 event? Yeah, probably so..

Great, guys. Thank you very much, and the best of luck..

Thank you, Stanley..

Thank you. And our next question comes from the line of Brent Thielman from D.A. Davidson. Your line is open..

Hi, good afternoon..

Good afternoon, Brent.

How are you?.

I'm doing well. Thanks. You made an – Ward, you made an interesting reference to single-family versus multi-family, and kind of differences in concrete intensity, I think, particularly coming down to subdivisions.

And obviously seeing that dynamic shift on a national basis, but was kind of thinking about your larger MSAs, Dallas, Denver, Atlanta, so on, are you seeing that dynamic develop at an equivalent pace, or even more?.

No, we are. But here's the way I would think about it if I were you, Brent, the West has already seen that happen, to a degree much more than the East has. So in my prepared commentary I think I mentioned Austin as one of those. But what you heard was then also somebody said Atlanta, and I said Charlotte, and I said places like Raleigh.

So now we're seeing the Eastern United States go through that same transition, frankly, that we saw the Western U.S. doing 18 or 24 months ago. So directly to your point, if we're building a multifamily facility, really it's going to take stone on the base and concrete that's going to go on the pads.

If we see new subdivision work, until those roads and streets are accepted by a local municipality for maintenance, everything that we're selling on the roads, everything that we're selling on the sidewalks, everything that we're selling on the utilities, everything that we're selling on the lot, counts as residential.

So when we see that type of turn hitting a city like Charlotte right now, and Atlanta right now, and Charlotte right now – by the way, all still in very early stages of that – it is much more aggregate-intensive, and we think it's much more powerful..

Sure. No, it is interesting. On Georgia, I didn't catch from your comments that you had necessarily seen much of an effect from infrastructure work yet, most of the growth was coming from some of the other sectors.

Is that accurate?.

I believe the best is yet to come in that state. Remember a couple of things here. One, they had the tax initiative that they referred to as TSPLOST that really ended up hitting three different geographic areas in South Georgia several years ago, which has given that part of the state a good, steady infrastructure ride.

What we believe is going to happen is, with the new $900 million that came through the House bill last year, we're going to see more overall Georgia DOT work, it's going to be more impactful in 2017 than it was in 2016 – and by the way, that's what we thought 2016 was going to be – and we think we're likely to see more of that in the early phases in North Georgia, read Atlanta, than in South Georgia.

So I think your take is right, Brent..

Okay. And then, it's obviously hard to detect any concern from you about Texas.

You just did another deal in the market, it looks like, and I guess the question is, do you like the size of the business or platform you have there today? Do you want to be careful about the proportion of exposure you have to Texas, and kind of still look for some more fillers like the one you just did?.

Yeah. I guess what I would say is, we're looking to grow our business in places that we have good, leading positions on, and we can do value-enhancing acquisitions. So the one that we just finished in Texas was really one that, given the JV status, we were going to do anyway.

But keep in mind, Stanley, it fits entirely – I meant Brent – it fits entirely in that marketplace that means a lot to us, and that's the golden triangle. So where we bought that business is exactly where our strategic plan dictates that we would buy it.

The other thing that I would tell you is, if you're looking at Texas and how that stake's going to grow between now and 2050, you're going to have 70% of the population in Texas living in the golden triangle. And remember, when you're looking at that, you're looking at a space that's roughly the size of Pennsylvania anyway.

And we will have, and we do have, the leading position in that marketplace. That said, do we want to grow in the Eastern U.S.? You bet, we do. Are we looking at transactions potentially there? We certainly are. Do we think we did the right transaction in Central Texas and North Texas with Ratliff? We believe we did..

And Brent, I do think, as we indicated earlier, the activity, the growth we're beginning to see in the early innings, where I think you characterized it as in the third or fourth inning, coming into the Carolinas, as we see the volumes come back there, I think the mix of the business actually will rationalize out a little bit more than the skew that it has been a little bit more to Texas, just simply because the Southeast and Carolinas have been down so long.

So that's part of what I think will be the balancing and diversification of our model..

Does that help, Brent?.

Absolutely. Thanks so much, and best of luck here closing out the year..

Thanks a lot. Catch you soon..

Yeah..

Thank you and our next question come from the line of Mike Betts from Jefferies. Your line is open..

Thank you very much. Yeah, just three quick questions, if I could, from me. First one just to help with the model building. Ratliff was a joint venture.

Were you consolidating half of the 1.1 million cubic yards, or was it off not being consolidated at all beforehand? Secondly, Ward, I think when you talked about the reduction in guidance in the cement business, you talked about the higher proportion of internal sales.

I would've thought you kind of transferred those across at market price, or am I misunderstanding your point you were making there? So maybe just a bit more explanation on that point. And then, there were no share buybacks in the quarter.

Maybe you're able to comment on why that might have been the case, given what the share prices did? Was it because you thought you may have to reduce the guidance, and therefore it wasn't appropriate to do it? You able to say anything on that? Thanks..

Mike, I'll try to say something on the all three of those, how about that? Here's what I would on the Ratliff piece, no we weren't consolidating anything..

No. it was a nonconsolidated entity, and all of its tonnage would've been included in external tons, so then now they've included in internal tons..

Relative to transfer ....

Yeah..

Yeah. Relative to transfer pricing, Mike, your question, we transfer at market. So I can answer that directly to you. And relative to the share buybacks, what I can tell you is, we have this bad habit, we joke about it, we try to do exactly what we say we're going to do.

And if you think back to what we said, we wanted to maintain that debt-to-EBITDA ratio of two times, but we've also said that our first priority are doing the right transactions.

So if you look at where we ended the quarter, and if you look at the transaction that we did, and if you look at where it left our ratio, it was exactly where we said we wanted to be. So what I will tell you is, if people are listening to our words, there should be no surprise on that. So that was the driver of the lack of share buybacks in Q3..

Okay.

And then lastly, are there any other major joint ventures that you have that could be in a similar situation to Ratliff?.

No. There are not any other major ones that I would anticipate having a similar conversation around..

Understood. That's great. Thank you..

Thank you, Mike..

Thank you. At this time, I'm showing no further questions in the queue. I would like to turn the call back over to Ward Nye for closing remarks..

Thanks again for joining our third quarter 2016 earnings call. We are excited about the future of Martin Marietta, and we're in a very advantageous position through our superior geographic locations in markets that continue to experience strong employment growth.

The favorable construction outlook, with significant pricing opportunities still to come, will benefit this company for many years. Martin Marietta's focused execution of its strategic plan should provide a firm foundation to enhance long-term shareholder value. We very much look forward to discussing our full-year results with you in February.

Thank you for your time and support of Martin Marietta..

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may now disconnect. Everyone have a great day..