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

Kathryn Ingram Thompson - Thompson Research Group LLC Rohit Seth - SunTrust Robinson Humphrey, Inc. Jerry Revich - Goldman Sachs & Co. Craig Bibb - CJS Securities, Inc. Blake Hirschman - Stephens, Inc. Adam Robert Thalhimer - Thompson Davis & Co. Garik S. Shmois - Longbow Research LLC Stanley Elliott - Stifel, Nicolaus & Co., Inc. Nicholas K.

Chen - Alembic Global Advisors LLC.

Good day, ladies and gentlemen, and welcome to the Martin Marietta Fourth Quarter and Full Year 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 call is being recorded.

I would now like to introduce your host for today's conference, Mr. Ward Nye, Chairman and Chief Executive Officer. Sir, you may begin..

world-class safety; ethical conduct; operational excellence; cost discipline; customer satisfaction; and sustainability. By doing so, we'll remain 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..

Our first question comes from the line of Kathryn Thompson with Thompson Research Group. Your line is open..

Hi. Thank you for taking my questions today. First, focusing on your most important markets contributing to overall volumes, Texas, Colorado, and North Carolina, for instance.

What color can you give in terms of large projects that have started over the past, say, three months that perhaps hadn't started six to nine months ago?.

Good afternoon, Kathryn. Several of them, if we want to go through them. We're looking in Rocky Mountain, for example. We're now seeing C-470 underway. I-70 is coming behind that in 2018. Between those two, it's going to be about $1.7 billion worth of work.

Keep in mind, too, that, that does take into account what's going on with the 2C tax referendum down in Colorado Springs. So, as we're looking at the Rocky Mountain division this year, again, another very healthy year. The only possible headwind we might see in that marketplace would be ballast, which is a carryover from where we've been this year.

But even when we look, Kathryn, this is a good data point for you, at our Asphalt and Paving business, the backlogs that we see in that business are 2x right now of what they were last year this time. And keep in mind, they've just come off a record year, so you have to feel pretty encouraged when you see that type of data.

When we're looking at the Southwest, again, another important division that you mentioned. And we're looking at a lot work on I-35 East. We're looking at a lot of work on I-75, U.S. 287 is going new work on the 410 loop in San Antonio. And there's a good work still coming on the Grand Parkway in Houston.

A contract has not yet been selected for portions of that, but again, impressive work there. If we pause for a second and think about the Southeast. And what I would encourage you to think about, Kathryn, the Southeast, is likely to have a year in 2017 that we thought, it was going to have in 2016. So, we're seeing I-85 widening in Atlanta.

In Florida, we're looking at 9B expansion and 295 widening. When we get down to Central Florida, I-4, which has been a big project for years, and we're looking at about 1 million tons of stone on that project over a five-year period. That continues to roll.

And at the same time, if we're looking even in Southwest Florida, more work that's relatively new on I-75 and portions of State Road 64 in that state. If we come here to the Mid-Atlantic, which is in North Carolina and South Carolina in our backyard, the Durham Freeway, which is running from Raleigh to the Durham Highway 147 is new and it's underway.

We've had I-295 that's starting shipments, we believe, in second quarter of 2017. We're seeing I-85 widening design build projects in this area as well. And if we go a little bit north to Virginia, we're seeing I-64 winding projects and an I-81 Potomac River bridge as well.

And then further south, towards Charlotte, I-77 hot lanes, we'll see materials going to that, that we didn't see last year. And we have an I-20 design build project. So, if we're looking at the divisions, as you said, Kathryn, that really makes a difference for us. And we're looking at what's going on relative to public works.

I would submit to you, it looks more attractive. Last year was the year, if you think about our volumes. It's the first time I can ever remember. I think going back in the data, we've never seen our infrastructure volumes at less than 40% for a year. They're usually 45%-plus.

And we're thinking these types of projects bring it back into a more natural balance.

So, I hope that helps, Kathryn?.

Yes, it does. Thank you. Maybe shifting gears to downstream.

Excluding Ratliff and other acquisitions, and perhaps looking in more on the apples-to-apples comparison, how did downstream volumes do in the quarter? And also were there any meaningful differentiation in pricing with acquired versus legacy pricing?.

That wasn't material, because in large part, when we bought Ratliff is we're buying ready mixed operations that were in the golden triangle. So, if you think about that, you're really looking at two different groups, one between i-35 DFW down to the Austin corridor and another from the I-45 DFW to College Station corridor.

So, that's really the void that you're filling with that. If we're looking at volumes for the quarter, it's a surprise to come out that we we're looking at about 2.2 million cubic yards. So, they were up over prior year, I'm going to say, about 0.5 million yards of that for the second half of the year were attributable to Ratliff.

If we're looking at ready mixed shipments for the full year, it was about almost 8.5 million cubic yards..

That's helpful. And just for Cement or kiln maintenance for 2017, could you....

Yeah..

...give a little bit more color on how that will progress, and any differentiation from how it hits from a quarter standpoint versus 2016?.

$6.2 million in Q1; $4.6 million in Q2; $1.9 million in Q3; and $7.8 million in Q4. So, again, that was 2016. If we look at the way they rack up right now for 2017, we're thinking it's going to end at about $17.2 million. And we think the spend is going to roll at about $4.2 million in Q1, $3.3 million in Q2, $2 million in Q3, and $7.6 million in Q4..

Okay. Thanks very much. I'll hop back in the queue..

Thank you, Kathryn..

Thank you. And our next question comes from the line of Rohit Seth with SunTrust. Your line is open..

Hey, thanks for taking my questions. My first question's on the BOLD Act. I read the outline. It looks like a successor to the FAST Act in 2021, but also seems it like suggest a big bump in federal highway spending over the next couple of years. So, I calculated about 45% growth in 2018 going forward and almost 100% from 2021.

Are these numbers still as is? I mean, is there any development since the summer? And how is the plan being received by lawmakers? Are you guys trying to link this to tax reform or like a infrastructure bill?.

The short answer is, I think, it's probably going to be more linked to tax reform than it is anything else. I think it's a practical matter. The rollout and the conversation around the BOLD Act is going quite well. And as you would imagine, we're going to talk to a lot of people about this. You're going to have to talk to the administration.

Dialogue's underway, you're going to have to talk to people in the House and in the Senate.

Perhaps, the most important part of the conversation to those is going to be with users, because while we want to go in and advocate from it, from people who supply infrastructure materials, what's even more important is, when you hear from UPS or FedEx or others, who are actually using the highways, bridges, roads and streets and be effective with this, what I'll tell you, that's been heartening about it is we haven't found anyone who looks at this act and feels like there's some major problem with it.

I mean, everybody sees something here or there. And they might want to tweak it in some respect. But if you think back to it, Rohit, the issue traditionally has been, people have said, look, we would like to spend more on infrastructure, just show us how.

And I think what's happened with the BOLD Act is most people, who have had the conversations around it have come away with the view that this is innovative, this is different. It attacks it in some ways that are important, and keeps it tied principally to user-type fees.

So, if you think back to really the way the BOLD Act is at least built from the ground up. You're looking at several different pieces of it. Number one, the initial notion is you can actually cut the gas tax. And that's something that usually gets some attention on the right to begin with.

Then we come back and look at least at putting in a 6.25% highway transportation services tax. It's really going toward those big trucks that are moving goods on the highways. And again, that ties very directly to what we've seen as a tax in air freight in the United States.

Then there was a component of it raising the oil spill liability tax to about $6.75 per barrel. And then there was also an aim to make sure that we're getting some degree of funding coming from electric vehicles.

Because if you think about the electric vehicles, they're wearing off the roads, the same way that the gasoline or a diesel car does, but they're not paying for that wear and tear. When we look at the different buckets of moneys that roll up from that, and PWC is looking at that for us, as we speak, it is a pretty meaningful contribution.

So, again, we think this rolls out with tax reform. The dialog is going well, the information sessions, we believe, are going well. And again, we haven't had anyone, who's looked at this, who feels like they have a fundamental issue with it..

So, if you're to be linked to tax reform, you get those revenues.

You still need a highway build actually spend them though, right?.

Well, I think, what you're looking to do is to have a mechanism. And it's part of what I referred to in my prepared remarks. We need to double what we're spending from the federal side on infrastructure rate now.

My last date that I kind of remember, if you look at what AASHTO has put out, if we can have truly $80 billion going in from the federal level, and then joined by, say, keep it where it is from the state level today with an additional $40 billion, that gets you to about $120 billion worth of annual expenditure.

And that $120 billion number is what's generally needed to maintain the system where it is today. So, again, our people want to be overjoyed, but simply maintaining a system that people view as tired, I mean, that's not the perfect answer to it, but it's a lot better than where we are today.

And again, part of what you heard me speak of in my prepared remarks was the fact that in some places, contractors are running into not having enough people working for them. And what I will submit to you is right now there is not a lot of reason for contractors to go out and hire more people, because they're busy, they're making money.

I think this type of further infrastructure investment is what's needed to have contractors go and hire those extra shifts or bring people into the construction trades as well. So, I think you've got several things that likely hit it.

One, the pure investment side helps; two, I think it also puts more people to work in important corridors in the United States.

Is that responsive, sir?.

Yeah. That's great. Yeah. That's great. I guess, some questions on the changes in reporting.

So, the pricing that you guys are reporting now, the average pricing, that's all freight adjusted, straight from the quarry?.

No. It's not. It's just....

Straight up..

...straight up. There's nothing new in that..

Okay. And then, in the gross profit line, is that all third-party profits, or does that include production costs from your internally-used volumes on the....

It's all third-party, yeah..

Okay. And then, your incremental gross margin in Aggregates....

Yeah?.

...with the changes in the reporting, the historical incrementals came down a bit and then the guidance implies about a 73% incremental in 2017. I think, you guys mentioned production costs, or you have favorable production costs going forward. I know you hedge your energy costs. So, given volumes are going up in 2017.

So, I would imagine if incrementals would fade a bit.

So, what's going on in the uptick there?.

Well, actually, I think the only thing that you saw for the quarter is you did see a different rhythm and cadence as we went through the quarter on the way the volumes worked on the months.

So, if you think about incrementals for the fourth quarter, number one, October, which is usually the industry's busiest month was not our busiest month or the industry's, because of weather and because of Hurricane Matthew. So, then what happens is suddenly November turns into the big month for the quarter.

November is obviously going to be effective, because you've got Thanksgiving, and you've got colder weather coming in, in November. And then we had a real winter in portions of December. Those will affect what the incrementals look like for the quarter all by itself.

If we pause and look at what the incrementals looked like for the entire organization last year, they were right at the 60%, which is entirely where we thought it would be. And then if you think about the parts of the country that should see stronger this year, Southeast will be stronger, the Mid-Atlantic will continue to be strong.

Those will be our friends as we go through and look at incremental margins for the year. Now, in fairness, we did have a hedge in place last year relative to diesel fuel. And the hedge actually was not our friend. So, as we pause and reflect on what did the hedge mean to us for the full year, the hedge actually cost us money last year.

We will not have that in place this year. So, as we go into the year, we feel like we're going to have a much better year relative to that piece of the energy. Now, it's possible you're going to see diesel or other things float up a bit.

And if it does, we will certainly feel some of that, but my guess is we will not feel it the same way others did, because again, we did have that hedge in place that went the wrong direction on us last year..

Got you.

I mean mid-point of the guide is 73%, but longer term, is there a target we should be thinking about?.

I think you just keep thinking about that 60%. So, if you think back to the way that we've talked about incremental margins, we said, from the peak of the last cycle at 205 million tons to the bottom at 125 million tons.

You had an 80 million ton delta from peak to trough, and that's from the Heritage business of Martin Marietta, and our view had always been on the first 40 million tons of recovery in the Heritage business, we should have incrementals on average of 60%. And that's exactly what we're seeing..

Got you. All right. Great. Thank you..

Thank you..

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

Hi. Good afternoon..

Hello, Jerry..

Ward, I'm wondering if you could talk about the M&A pipeline as it stands today. And you folks were big on acquisitions early in the recovery.

Can you just remind us by which point should we be thinking about you folks getting sizable acquisitions done, or you'll wait until the next cycle date? Can you just calibrate us around those factors today?.

Sure. I'll certainly try to, Jerry. I mean, the fact is we certainly do want to grow our business. And if you look at the capital priorities that we've been very consistent around, the right acquisitions are at the top of the priority list. We are seeing a good fit of activity right now.

I think you're going to see some transactions coming to the marketplace, some of which will be relatively large this year, and some of which will inevitably also be small that we will be interested in growing. We will be interested in making sure that we're putting our business in the right places.

I think that's been a big differential item for us here in the fourth quarter in particular. So, you should expect us to look at that.

The other thing that I would always encourage you to think about is if you're looking at businesses coming to the marketplace, you need to consider two things, number one, who has the financial capacity to do the transaction? And number two, who has the regulatory capacity to do the transaction? Obviously, I can't talk about individual specific transactions that we believe may be coming to the market this year.

But at least, from our view, Jerry, we don't think, there's another business in our sector, in the United States, who's better prepared both from a financial and a regulatory perspective than Martin Marietta is.

I think, the other thing that I would remind you is the transactions that we've done, whether it's been TXI, whether it's been River for the Rockies, whether it's been what we've done in Atlanta. The transactions we have done, the synergies that we have pulled from those have all met or exceeded our targets.

And we feel confident, if we go through a disciplined process, and I assure you we will, we'll be turning that same type of performance..

And word at the Analyst Day, you spoke about 10% to 15% of your footprint is areas where you're not top three.

Any of these acquisitions that you're evaluating today could drive you into that top three position, or is it more about the new markets?.

Most of them would tend to be in existing markets. And some of them would be aiming toward markets, where we don't have that one or two position. And you've heard me say before, if we have one or two in 85% of our markets, I would certainly like to see us as an organization, push that up toward 90%.

And so I think, we'll have an opportunity to swing at that..

And lastly, I'm wondering, if you could talk about the outlook for net pricing in asphalt and concrete, as net material margins get compressed in any of your businesses?.

Yeah. I think you're going to see it look differently in different parts of the country. The fact is if we look at ready mixed pricing in Colorado right now, Colorado ready mixed pricing is actually very good.

We think it will continue to get better, because, for example, we think there may well be aggregate shortages in parts of Colorado this year, which I think can help on ASP, both on the stone. And that's going to feed through and also help on the downstream.

We're also seeing what I think are pretty good cement prices in both the Colorado market going up and in the Texas market, which I think will help lift ready mixed pricing as well. There's more room for ready mixed pricing in the Southwest than there is in the Rocky Mountain.

And obviously we intend to make sure we're getting good value for those products. So, I think a couple of things are going to happen. I think we will continue to get price. I think the other thing that you will see us do is run those businesses in a very, very efficient fashion.

I did mention in my prepared comments that we were seeing some high margin projects fall off, in large part, projects down closer to the Gulf. Now, we're not putting anything into our plan right now relative to some other large projects that are also in the Gulf that may come on during the course of the year.

So, Jerry, we'll have to see how that goes. But I do think from a cost perspective, we'll do well. I think from a pricing perspective, we'll do well. And you will see some variation between the Rocky Mountain and the Southwest..

Thank you very much..

Thank you, Jerry. Take care..

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

Hi, Ward..

Hello, Craig..

How are you doing?.

So far, so good, Craig..

I can tell. I was hoping maybe you could summarize the cadence across the quarters in 2017. I know we're going to start the year with a really hard weather compares. And then it sounded like from your summary of highway projects that the FAST Act really is going to kick in, in Q2..

Well, look, the primary thing that I would really encourage you to do is to take a look at what a five-year average looks like in our business and think about that from a quarterly perspective. Because here's what happened in 2016. 15% of our volume (sic) [gross profit] really occurred in Q1. We're looking at 27% in Q2, 32% in Q3, and 25% in Q4.

So, that's a very different play than we would typically see. Ordinarily, you'd see about 7% in the first quarter and closer to 30% in Q2, call it 35% to 40% in Q3, and then 27% in Q4. So, I think part of what I would think about is, is a more second-half-loaded year this year.

I think that one is normal; two, it doesn't trouble us at all if that's the way that it goes. And it's usually the more effective way for the business to run. We've said historically for years that the last two weeks in March, either make or break the first quarter. And obviously, last year, it was simply very, very different.

Does that help, Craig?.

Yeah. That helps a lot.

And is it correct to assume that highway kicks in strong in Q2 based on what you guys can see now?.

Craig, you broke on me just a little bit, could you repeat that, please?.

Is it fair to assume that highway kicks in strong in Q2 based on what you can see now?.

Yeah. I think that's entirely right, because keep in mind, there are plenty of DOTs that aren't even going to get people relief to go in under their spec books until at least March 15. And so, in a lot of markets, you won't even see serious mobilization until May. So, that's certainly the right way to think about it, correct..

Okay. And both you and Vulcan are indicating that the electivity could tick up in 2017.

Is this anything larger than bolt-on deals?.

Again, I'm going to have to be careful, because there could be some dialogue. And I never want to go some place that I shouldn't. I think there's the prospect of some deals out there that could be more significant and bolt-on this year. I'll leave it to that, Craig..

Okay.

And last one, for Mag Specialty, you're looking for flat in 2017 because of that capacity?.

In large part, it is. And we'll have to see where steel is. Keep in mind steel was really running at just modestly over 70% capacity last year. Steel gets a little bit better than that. You might see some uptick there. The primary piece of that business that performed exceptionally well last year that pushed into records was the chemical piece of it.

So, the dolomitic lime didn't have the same year that chemicals did. If we see steel took up a little bit, you might see something better than that..

Okay. Thanks a lot, Ward..

Thank you, Craig. Take care..

Thank you. Our next question comes from the line of Blake Hirschman with Stephens. Your line is open..

Yeah. Good afternoon, Howard and Anne..

Hi, Blake..

Real quick.

You kind of touched on geographic mix and the incremental margins, but is there any geographic or product mix we should be thinking about that's baked into your pricing guide for the year?.

No, not particularly. I think it's pretty much straight up. As I said, I think you will see better volumes in portions of the Southeast this year. And that does tend to be a higher priced markets than some others. But again, I don't think you're going to see it on an average basis, moving it considerably. So, I wouldn't be concerned about that..

Got you. And just one more. Have you guys seen any notable pick-up in the oil and gas markets yet, or is that still a headwind to your business at this point? Thanks..

That's a great question. I'm not going to say, it's a headwind right now, because there are some places, like the Permian is actually quite good right now. And if we look at what's going on, we are seeing greater activity in portions of the shale fields right now.

But keep in mind, what I would say to you is normal shale demand for us should be 2 times to 2.5 times the current levels. So, if we go back to 2015, that was the last time oil was staying consistently over $50 a barrel. And if we look at what we sold into the shale fields that year, it was about 3.8 million tons.

And if we look at where it was this year, it's about 1.4 million tons. So, I guess, what I would say is, I have a hard time seeing it go really below where it was. I think it's bound bottom. I think something else to keep in mind, I think this is important is to remember that these wells do have a limited lifespan.

So, it's not like wells that you might see in the other parts of the world, with maximum production rates really occurring during the first 24 months. So, this is likely to be a phase of our business that if oil stays about $50, we will see it very slowly and very steadily come back over the next couple of years.

But again, candidly, I don't think it gets back to that 7.5 million ton number that we were in 2014. But equally, it shouldn't be at 1.4 million tons, which is where we finished in 2016 either..

Thank you. Our next question comes from the line of Adam Thalhimer with Thompson Davis. Your line is open..

Hi. Good afternoon..

Hi, Adam..

Ward, can you run us through the major markets in Texas, and what you're seeing there?.

Yeah, look, we can talk through those. Dallas/Fort Worth just continues to look like a very good market. If we think about Dallas almost in any sector, whether it's infrastructure, non-res or res, it's a market that's in very, very good shape in all them. I think Dallas is one of the country's and world's best markets today.

If we go a little bit farther south and go down to San Antonio, that's a market that I think is going to have probably a better 2017 than we had in 2016. I mentioned in one of the earlier answers, we're seeing Highway 1604, some other good work in that marketplace.

Keep in mind, you've got San Antonio and Austin that are very much growing together, in many respects. So, from an employment viewpoint and from an infrastructure perspective, that market looks pretty healthy. If we go to Houston, it's fascinating to me, Houston is actually still adding jobs.

Clearly, that is the marketplace that has felt the duress from energy more than the others. Keep in mind though, the way our business is built for that Golden Triangle is what's most important to us, the northern portion and central portion of that from a volume perspective is actually more critical than is Houston.

So, if you think about our business, are we the aggregate leader in Dallas and Fort Worth? Yes. Are we the ready mixed leader there? Yes. Are we the cement leader there? Yes. In many respects, that's same answer in San Antonio. We go to Houston, we don't have the downstream businesses, we simply have the stone business in that marketplace.

So, again, we're looking at what I think is going to be good, steady, solid public work in Houston this year. I think, private's going to feel very similar to what we saw last year. I think that's going to be a slower return.

But again, I'm still heartened by the fact that we're seeing job growth in Houston continue to tick up despite the overhang that energy can have in segments of that economy..

That's great. And then the Gulf Coast energy projects that you referenced that are not baked into guidance, what....

Yeah..

...when could those potentially come in?.

Yeah. Those are some big projects. And to give you at least a sense of how I think the rhythm and cadence of some of those could work, so what I would encourage you to think about is there are probably a handful of projects down there, Golden Pass LNG, Trunkline LNG, Port Arthur LNG, Rio Grande LNG, Driftwood LNG.

And when you look at those and really a couple of more, the potential project cost on those is about $47 billion. I mean, these again are enormous jobs. If you look at what the aggregates require on those jobs can look like, again, this is what our teams have pulled together, they think it's about 17 million potential tons of aggregates.

If you look at what the ready mix may tally up to, it could be about 1.6 million cubic yards. As we look at the timeframe, it looks like they could start anywhere from, let's call it, Q2 of 2017, all the way through 2018.

So, if we think back to those large jobs that we saw in South Texas before and how they just rolled off and rolled on over a period of years, I think, that's very much what we're likely to see here as well. And again, to your point Adam, none of this is baked into any guidance that we've given right now.

So, if any these come, then we're going to have to come back and revisit the guidance. I mean, part of what we try to do with our guidance this year is, in golfing terms, we're leaving it right in the middle of the fairway. I mean, we're trying to put something out there that we just feel like is very doable..

Okay. And then just I wanted to close the loop on Hurricane Matthew. I think you had guessed maybe that will be 1 million tons.

Where did that shakeout?.

Let's shake that closer to a deuce. So, probably closer to 2 million tons, Adam..

Okay. Perfect. Thanks so much..

Thank you. Take care..

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

Hi, Ward and Anne. It's PT (49:14) standing in for Timna.

How are you?.

Yeah. I'm doing fine, PT (49:17). Hope you are..

I'm good, thanks. Just wondering if we could talk a little bit more about the TxDOT delays, if you could expand on some of the comments you said about the delays occurring there.

You talked about what's behind them? Are they administrative delays, or are they labor shortages across Texas? And then for over what timeframe you see them getting solved? And we might see some sort of pickup in terms of TxDOT activity.

And then another, like mechanism question I have, the Prop1 and Prop 7 money, is that like a use it or lose it money, or is that there for whenever they can actually get those projects rolling regardless of timing?.

Okay. Let's try to go through what we see at TxDOT. Number one, if you think back to what we spoke of during much of last year, there were more administrative delays.

So, you had some delays coming from the office and you had some delays coming from what was going on or what wasn't going on relative to right of way utility and the like? Do I think TxDOT has hired a lot of people to address it? Yes. Is it getting considerably and notably better? Yeah. Is it completely cured? No.

Is it probably, let's call it, 75% cured? Probably so. If we look at 25 different jobs, taxes DOT project jobs that we have, and if I look at these 25 jobs, you're looking at original bid tons on these of almost 8.3 million tons. You're still looking at tons left to go on these of almost 5 million tons.

In other words you've still got about 60-ish percent of the percentage aggs on those jobs going. And of those 25, only 10 jobs were really shipping in earnest. So, what it tells you is exactly, where you're going PT. This ought to be a better story in 2017 than it was in 2016.

And, again, TxDOT's looking at about a $7 billion annual letting budget this year. So, again, you're seeing big numbers come behind big numbers with big backlogs. To give you a sense of what we're thinking on Prop 7 for a second, Prop 7, we believe, is going to contribute about $2 billion to $2.5 billion by the time we get to FY 2018.

And remember, August is when Texas' fiscal year starts. We think Prop 1 is going to be probably about $380 million in 2018. And that's going to be down from about $800 million in FY 2017. So, the issue isn't going to be, whether they can spend those dollars. They will certainly be able to do that.

So, I wouldn't be troubled by or spending anytime doing analysis on the use it or lose it piece of that, because, I don't think that even comes into question..

Yeah. That's helpful. Thanks, Ward. And then, could you help me out, too, on the FAST Act, right, we've been operating under continuing resolution, I think, through the end of March.

Assuming that does get lifted, do you see that providing some momentum on FAST Act projects? And you said that you saw some momentum in projects, but I'm wondering, how that translates into dirt being moved, right.

What the lag time is when we can actually see volume impact?.

I think you'll see good FAST Act activity as soon as we start getting towards the May timeframe. I mean, I don't think you're going to see a lot of dirt being moved in January, February, March.

But I think by the time we get to April and surely by the time we get to May, it'll be happening, which is why in large part, I think you hear people across the industry speaking to the notion of more of a back-half-loaded year. And I think that's one of your big reasons, PT (52:56)..

Thank you. And then final one from me. I wanted to turn to the private non-res side. I'm wondering if you can help us parse out those big energy projects that you had in 2016 that are rolling off, providing some headwinds in terms of comps for 2017, absent new project wins you just highlighted.

And then can you just talk about underlying trends in heavy versus light nonres as well?.

Yeah. We're seeing a lot of good light nonres, that's probably the bigger headlines. But what I'll tell you is, we're still seeing probably more of the heavy side than you would otherwise think. And it's funny to see how it rolls. For example, we're seeing a lot of big energy-type work going on in the Southeast right now.

So, if we're looking at what's going on in Florida and parts of Georgia, it's actually pretty attractive. There's the Big Bend power plant in Tampa. There's the FPL natural gas pipeline that they refer to as Florida Southeast Connection. Savannah River has some things going on as well.

And you've also got Georgia power plant, the McManus plant that's going through a demolition, some rebuild after that. So, again, we see fantastic work on the light side. And the way that I'd encourage you to think about that is really do it in a corridor-focused spot in your mind.

So, think about the I-25 corridor in the Rockies, think about I-35 in Texas. When you get to the east, really start thinking about 85, 95, Interstate 20, Georgia 400. All of those, we're seeing very good activity. And we're seeing good activity, too, in the Midwestern United States right now.

Part of what we've seen there, and this has really been a surprise to me and is part of what gives us even a more robust outlook, I believe, on what could happen on infrastructure. Historically, in places like Indiana and Ohio, the vast majority of our work there has always been public work. And what we saw this past year was a reversal of that.

We really saw a considerably more private work in those markets than public. And I think we're going to see a big pick-up in public there as well. But my point to you on that is I don't think the private is going away. And I think it's going to be healthy. I think that the light side will be healthier than the heavy side.

But I equally think the heavy side is going to be better than most people believe..

That's helpful. Thanks again, Ward. Appreciate it..

You're welcome. Take care..

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

Hi. Thanks. Just first off, on the 2 million ton shortfall because of Hurricane Matthew.

Is that incorporated in your 2017 volume guidance where you truly assume that, that volume just kind of floats away?.

No. Look, it won't float away. It's going to come in different ways throughout the year. The other piece that's hard to really gauge, Garik, is how some of the repair behind Matthew is going to work. Because there were some parts of South Carolina and North Carolina that stayed so inundated for so long.

It still strikes me as amazing to see what we're doing in Colorado behind the flooding there four years ago. Because Colorado still has flood repair work this year to the tune of $290 million of related projects in that state, that many years out. So what I would say to you, is, one I don't think any work that didn't happen due to Matthew goes away.

I think there's work caused by Matthew that's going to come. And I think there is likely to be work that comes from Matthew that's going to come candidly probably for the next 5, 6, 7, 8, 9, 10 years in the eastern part of North Carolina and parts of South Carolina..

Okay. That makes sense. Just wanted to pick on the West Group pricing. It showed a deceleration in momentum. But you've indicated on the call that you're expecting actually supply shortages in some parts of the West region.

So, I'm just wondering how we should think about the trend of pricing out West, as we move into 2017?.

I think the market in the Western U.S. that clearly has the most room for that is in Colorado, as we've discussed for a while. And we have been focused on that. And as you know, barriers to entry there are very high. And for us to come back and make sure that we can keep those long-term operations in place, it's a tough thing for anybody to do.

So, we want to make sure we're recognizing good pricing there. I do think that spot shortages up and down I-25 may/will lead to the opportunity to look at more mid-years in that marketplace than we've seen over the last several years.

If you reflect on what has happened to pricing in Dallas over the last several years, keep in mind, that was about 65% of our corporate average here 2.5 years ago. It's still not to our corporate average. So, Garik, I think there's still room for pricing to be had there. And look, I think the pricing story is still very much intact.

I don't see anything materially different on it today than I would have said to you a year ago or two years ago. Keep in mind, the metric that we've always said, and frankly, we've been ahead of that metric is you could look at volume growth on a percentage basis and look at ASP growth on a percentage basis and expect them to be relatively close.

And what I would remind you is we had a whopping 1.5% volume increase last year. But you saw what happened to pricing, so clearly, pricing got ahead of that. But again, if we think about what our story has been on incremental margins, it hasn't changed and we're doing exactly what we said we would do in incremental margins.

And if you think about the story that we've had for years on pricing, I think we're right there. And I don't see any material change there..

Okay. Last question is just on Cement. You gave a sales growth outlook of 4% to 10% for 2017. I didn't hear a breakout between volume and price.

Could you provide some visibility or some handholding on how you expect those two components to move?.

All right then. I'll talk a little bit more about price than I'll volume. I'm always sensitive to talk too much about our Cement business with granularity, because we've only got two. And when we talk too much about it, we tell the whole world, including our competitors what's going on with some of that.

If we look at pricing where it ended up at the end of the year, on an average, it was right at $102. We're looking adding $8 a ton price increase. We've got some confidence around that, particularly in North Texas. So, we're going to be very focused on that.

Again, if you look at the way Cement worked overall in Texas last year, cement shipments were modestly down across the state. Ours were actually modestly up, so we feel pretty good about where that's going this year as well.

The other thing that I would remind you on Cement, because I think volume is going to clearly be an issue that will be even more helpful on price going forward. I mean, clearly, people believe Texas is going to be better in 2017 than it was in 2016, and we agree. PCA actually believes Texas is going to better in 2018 than it's going to be in 2017.

So, we think we've got a forecast on Cement in Texas. PCA is saying up 3% in 2017. PCA is saying up 5% in 2018. So, if you've got those types of numbers up, and you still have a marketplace there that, I believe, has room on price, hopefully, directionally that gives you a sense of how we were thinking about it, Garik..

Yeah, it does. Thank you very much, and best of luck..

Thank you..

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

Hey, there. Thank you guys for taking my question..

Hi, Stanley..

A question for you guys.

How should we think about inventories on the ground, whether it's by product class, location? And what I'm thinking about more is just the ability from a manufacturing perspective or a production perspective to kind of deliver a lot of these larger projects that you guys have underway?.

Here is what I would say to you, we are not going to have a problem delivering base to people. I mean that's probably the safest way to think of it.

Because if you think back to the downturn, Stanley, so much of what was happening was you were having maintenance and repair works, so you're seeing more clean stone go out than you were seeing base project going up, because you weren't dealing with new projects.

We do believe the FAST Act and the state initiatives will drive not just in 2017, but probably 2017, 2018, 2019, probably into 2020 more new projects than we've seen. And they'll utilize a disproportionate amount of base. So, I don't think there are issues there.

I don't think in the majority of markets, but I think in some markets, you might be in a position to see some clean stone shortages this year. And I mentioned the fact that we might see some of that in Colorado.

And I can tell you there are locations today that we are working to crush and put stone on the ground at times of the year that we typically wouldn't. And that gives you a good sense of how much we feel like might be coming our way. So, I think at the end of it, Stanley, there may be some pocket shortages.

I don't necessarily see that as a bad thing in all respects. I do believe also that if there are significant issues not in given markets, but across the United States on whether demand can be met, it's going to be more of a contractor issue, as opposed to a producer issue. And that goes back to the comment that I made in one of the earlier questions.

I do think one of the things that can really benefit the United States if we see a new transportation and tax initiative that puts more money to the sector is you'll see more people come into it, and the ability for the contracting community to execute on jobs will be amped up pretty considerably.

Does that help?.

It absolutely does. And one other thing. So, CapEx another good year in terms of spending..

Yeah..

Can you highlight some of the growth initiatives you guys have underway just to kind of help us frame out that, as we're looking in longer term for the business?.

Yeah. I mean, a couple of things. One, we have had an acceleration of timing to complete the Highway 34 Rock & Rail project. As you recall, that's in Weld County. It's in north of Denver, because we want to make sure that we're meeting demand there.

So, we'd like to be able to move that from what would have been – 2020 back into 2018, so we're accelerating that. If we're looking at the way that we really spent money this last year, I want to say, $41 million went into growth projects, $145 million went into mobile, about $60 million on land, and then plant replacement at about $114 million.

Then you've got just a host of others. But that gives your sense of really how we're looking at this right now. So, if you look at those two things, you're seeing a disproportion spend on mobile, which makes good sense. That's incredibly safe capital. Because, if you got one market that's picking up and one market, that's slowing.

The beautiful thing about mobile equipment is it's mobile. And you move it from the slower market to the more robust market. The other thing that we saw towards the end of the year is we had some OEMs, who were looking to move some inventory. And the simple fact is, we were able to be in a place to get an awfully good deal at the right time of year.

So, what I believe, we did relative to CapEx is almost in keeping with conservation I was having earlier with respect to M&A. And that is we had the balance sheet, and we had the moment, and we seized the moment.

So, if you go back and think about the capital priorities that we have, keep in mind organic growth in running the business from that perspective is really a high one. And making sure we're taking down our cost of goods sold is an important one for us.

So, the short answer is, I think, we'll continue to invest capitally on a percentage basis, the same way that I've just discussed with you. And I do think this is a year that we might see even some enhanced opportunities..

And the last for me, in terms of the pricing outlook.

To hit those numbers, is that requiring any unusual amount of mid-year price increases? Is it requiring mid-year price increases, or how do we think about the framework with that as the year's going to unfold?.

Stanley, I don't know if you ever saw the movie Back to School, but Rodney Danger did the Triple Lindy in that, do you remember? Yeah, there's no Triple Lindy in this one. This one's just pretty much straight up. No, we've got a lot of conviction around the price of where we've got it right now.

I don't think, there's any downside in what we put out to you in pricing..

Perfect. Well, thank you guys, and best of luck..

Thank you..

Thank you. And our next question comes from the line of Nicholas Chen with Alembic Global Partners. Your line is open..

Hey, guys. You've got to most of my questions. So, thank you for that. Just a quick housekeeping item. Again, you talked a little bit about sort of what your M&A outlook might be.

Could you just go over your capital allocation priorities?.

I'll tell you what, Anne is here, and she is doing her best Kathleen Turner imitation today. So, let me let her walk through that for you..

Thanks, Ward..

Good Kathleen Turner..

Oh, my gosh..

Okay. Go to Whitney (01:07:02) when this is over..

Oh, my gosh. Our capital allocation priorities are really the first, being acquisitions that can bring value in the right quarters of growth. Organic capital investment, maintaining a sustainable meaningful dividend, which as a reminder, we increased our dividend in the third quarter of last year.

And then it's return cash to shareholders through share repurchases. And that capital allocation priority hasn't changed..

That's great. Thank you so much, guys. I'll jump back into the – oh, sorry, didn't mean to take off..

So, if you're wondering if we're ready to fight sick, we are..

That's great. Thanks so much. I appreciate it..

Thank you..

Thank you. And I'm showing no further questions at this time. I'd like to turn the call back to Mr. Nye for closing remarks..

our safety commitment; our strategically positioned assets in many of the nation's fastest growing regions; our ability to achieve continued and consistent pricing gains for our valuable products; and our relentless focus on cost containment.

Importantly, our strong performance throughout the slow and steady economic recovery demonstrates the powerful earnings potential of our business.

We're confident that the successful execution of our strategic approach of developing leading market positions, along high-growth corridors, possessing attractive near and long-term economic characteristics will continue to generate top and bottom line growth and enhance shareholder value in 2017 and beyond.

Rest assured, we'll continue to focus on the operations of the company, as well as the best practices needed not only to sustain Martin Marietta as a premier aggregates company, but continue our transformation into one of the world's best companies. We look forward to discussing our first quarter results with you in May.

Until then, thank you for your time and continued support of Martin Marietta..

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