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

Kathryn Ingram Thompson - Thompson Research Group LLC Trey H. Grooms - Stephens, Inc. Jerry Revich - Goldman Sachs & Co. LLC Timna Tanners - Bank of America Merrill Lynch Scott Schrier - Citigroup Global Markets, Inc. Stanley Stoker Elliott - Stifel, Nicolaus & Co., Inc. Robert F.

Norfleet - Alembic Global Advisors LLC Adam Robert Thalhimer - Thompson Davis & Co., Inc. Craig Bibb - CJS Securities, Inc..

Good day, ladies and gentlemen, and welcome to the Martin Marietta Q2 2017 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. And 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, President and CEO. Sir, you may begin..

drier in the near term and warmer as the construction season concludes. Additionally, as public pressure builds on elected officials to move legislation forward, construction activity will benefit, most notably through tax reform and a federal infrastructure improvement package, but also from reduced uncertainty.

We remain encouraged by the bipartisan support in Washington regarding the need for substantial investment in our nation's infrastructure. In fact, just last month, 206 House members signed a letter from the Graves-Norton Subcommittee on Highways and Transit to both the Chairman and Ranking Member of the House Ways and Means Committee.

These congressional signatories expressed their support for a permanent highway trust fund fix. In the near term however, we believe regulatory relief will benefit the pace of highway construction activity.

The ability for states to bring projects forward and expedite large project approvals should generate increased product demand in both the near and long term. Martin Marietta is dedicated to disciplined capital allocation to enhance shareholder value.

The company's capital allocation priorities remain unchanged and include the right value-enhancing acquisitions that enable the successful execution of the company's strategic growth plan, organic capital investment, and the return of cash to shareholders through a meaningful and sustainable dividend and share repurchases.

In line with these capital allocation priorities and in addition to announcing the Bluegrass acquisition, we invested $216 million of organic capital in our business during the first six months of 2017.

Since the February 2015 announcement of our share repurchase program, we've returned nearly $1.2 billion to shareholders through both share repurchases and dividends. Currently, we have 14.6 million shares remaining in our repurchase authorization.

Finally, our ratio of consolidated net debt to consolidated EBITDA for the trailing 12 months ended June 2017 was 1.8 times, in compliance with our leverage covenant. In summary, and as a reminder, in 2017, we expect aggregate's product line infrastructure shipments to increase in the mid-single digits.

Non-residential volumes are expected to increase in the low- to mid-single digits. Residential shipments are expected to increase in the mid- to high-single digits, and ChemRock/Rail shipments are expected to be stable.

Excluding any impact from the Bluegrass acquisition, on a consolidated basis, we expect a record year, with net sales ranging from $3.750 billion to $3.950 billion, a further expansion of gross profit and increased EBITDA ranging from $1.50 billion to $1.130 billion.

Additionally in today's release, we increased the low end of our capital expenditures guidance to a range of $450 million to $500 million, as we anticipate the acceleration of certain capital projects to further prepare our operations for increased customer demand.

In conclusion, we're proud of our record second quarter results and the ability of our team to manage through short-term disruptions while remaining focused on safety, and the long-term growth of our business.

Our leading positions in many of the nation's fastest growing, most vibrant markets reinforces our confidence in Martin Marietta's ability to capitalize on the durable, multi-year construction recovery, and benefit from the expected increased demand throughout 2017 and beyond.

With the relentless focus on world-class safety standards, diligent cost discipline and operational excellence, we remain committed to achieving industry-leading results and further enhancing long-term shareholder value.

This call began with the familiar refrain to every Martin Marietta earnings teleconference for over a decade by introducing Anne Lloyd. As you all know, Anne, will retire from our company this month. I want to take this opportunity to congratulate and thank Ann for her innumerable contributions to Martin Marietta.

Anne has played an integral role in the growth of this company, always maintained a relentless focus on accountability and in so doing, has helped to deliver exceptional returns to our stakeholders. On behalf of the Board of Directors and the entire Martin Marietta team, we wish Anne only the best in all things as she begins her next chapter in life.

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 now open..

Thank you for taking my questions today. Before I launch into questions, I just want to echo, Anne, Ward's comments, It's been a pleasure working with you these many years and we will miss you on the calls and working with you day-to-day and best of luck in retirement. We are all jealous..

Thanks, Kathryn..

Now on to the boring stuff, or not so boring stuff which is the quarter. You had discussed in Q1, some of the increases in personnel cost as you prepared for a big volume year. I guess two-part question.

First, let's focus on volumes, help walk through the volume flow-through intra-quarter and how – what came, what happened and where perhaps there were shortfalls in volumes.

And then the second part of the question, touching on the personnel, how much of the shortfall in volumes in the quarter coupled with higher personnel cost impacted margins? And if there's any other drivers to impact margins in the quarter, it would be helpful for additional color there. Thank you..

on days that the sun is shining, we're staffed just right. On days when it's raining, we're a little bit heavy on head count in some of these areas. The fact is, if we look at where that was compared to last year, it's probably about $0.10 a share delta, simply driven by the lower volume and the lack of absorption.

If we were looking at what we thought the quarter was going to be from a planned shipment perspective that we believe didn't happen because of rain, we would've been looking at about a 70% incremental margin on our stone business in the United States.

So, I think that gives you the bridge that you were looking for, Kathryn, on talking about volume flow in the quarter and relative to personnel..

That's helpful.

Are there any other factors such as inflation, which has been a big theme this quarter, that impacted margins meaningfully?.

No, inflation really has not been a big driver for us. One thing that did have a modest margin impact, and we'll have to see how that plays going forward, is what's happening with some degrees of transportation in the southeastern U.S. CSX Railroad has – they're finding their way right now.

They're clearly going through a model change, moving from unit trains to manifest trains. Their new CEO in fact sent out a communication to customers yesterday and while there's outlining that they have had some issue meeting customer demand up and down their lines, and we did experience some of that going into Florida and some other places as well.

So we would've had some of that, Kathryn. But aside from the volume issue which was the primary noise in the quarter, the rest of it's, candidly, a pretty clean quarter..

Okay, great. On the Bluegrass, just a couple of cleanup questions. I know that you had had in your prepared commentary that the low end of CapEx guidance was primarily driven by the acceleration of capital projects to meet customer demand.

To what extent do you anticipate having to spend additional CapEx or just basic capital for Bluegrass, or do you feel pretty good as they're integrated into the system late this year?.

Okay. Number one, we don't anticipate any CapEx going into Bluegrass this year. We anticipate really bringing it into the company in Q4. So, we'll go through a planning cycle on that really for next year. In our due diligence on the organization, we looked very carefully at what we believed their CapEx requirements would be.

We believe those assets have been very well run. We believe they were well invested and frankly, we looked at their assets from a CapEx perspective and viewed them very similar to ours in the eastern United States. So we don't believe that you will see a disproportionate spike in CapEx as we bring Bluegrass into the fold..

Great. Thank you very much..

Kathryn, thank you..

Thank you. And our next question comes from the line of Trey Grooms with Stephens, Inc. Your line is now open..

Hey, good morning, Ward and Anne..

Hello, Trey..

Hey..

Anne, and yeah, I want to echo what Kathryn said too on the retirement, Anne. It's been a pleasure working with you over the years. Wish you the best and you're going to definitely be missed..

Thanks, Trey..

And then I guess, I want to kind of touch on a few things and Ward, you mentioned earlier, I think you even touched on briefly your customers and their backlog and kind of at least directionally what they're seeing out there.

But reiterating that guidance after a pretty choppy first half, mostly as you mentioned due to weather, it's obviously implies a pretty aggressive ramp in the back half. If you could give us maybe a little bit more color on what you're seeing out there that gives you the confidence for the back half..

You know, Trey, I think you hit it, and that is, we've spent a lot of time – I have this year and the first half of the year, talking to customers where they are and I've been in an enormous amount of our geography this year. It's more than a dialogue just with our Division Presidents and VP of Operations and Sales.

These are operations very directly with customers talking about, and I said it in my prepared remarks, their near-term and medium-term outlooks. And by that what I would say is the typical dialogue I'm hearing from customers is, we have a backlog unlike a backlog we've ever had before.

We will go into next year with a backlog that we haven't really seen before going into next year. That ties back into some of the commentary that I've had earlier and I think I mentioned on the previous answer as well.

I think mentioned on the previous answer as well, 2017, to customers looks to be very busy as does 2018 and they're having a hard time understanding why 2019 shouldn't be.

Now, you raise a fair point Trey, and that is if first half was wetter than usual, part of what I said in the prepared remarks was, half two needs to be A, drier than usual and the season needs to last a little bit longer than normal.

And you've followed our business long enough to see, Trey, there've been some fourth quarters in particular where we have really been able to put up some impressive volume and profitability numbers if an October and a November go particularly well. So, looking at the back half of the year does the weather have to be good? Yes.

Does winter have to be pushed off just modestly? Yes, it does. If we have normal weather for the rest of the year, could that put some degree of volumes pressure on the rest of the year? I think it probably could. I think candidly the EBITDA picture that we're seeing right now actually looks pretty strong. I think we're really resolute about that.

At the end of the day, this is about keeping people safe, taking care of shareholders, and making money. And I think that's exactly what we're going to be able to do for the rest of the year. The primary thing that we need is we just need some good weather and we need to be able to let this business run..

All right. That makes sense. Also, you mentioned – you have mentioned before kind of hiring up in preparation for demand, which makes sense. But you also said that labor shortages in, I think kind of through the channel has played a role or was a factor, at least on the infrastructure side of things year-to-date as well.

And when we talk to folks in the channel, it seems like that's one kind of recurring complaint is labor. Obviously nothing new, but with the funding picture improving and the demand picture improving, obviously there's a lot of pent up demand, there's funding that's coming through, lot of things are clicking.

But do you think that the tight labor picture downstream really across the board from ready-mixed drivers to paving crews, do you think that that issue – or I guess I should ask it this way.

How does that labor issue in heavy construction play into your longer term thinking for the recovery?.

Yeah. I think it's more of a customer issue than it's going to be a Martin Marietta issue. I think that's the way to begin the conversation. I mean, here's the issue. Number one, it's longer term. Number two, if we look at what's going on on unemployment changes from Q1 of this year, I mean Texas itself is at 4.6% unemployment from 5%.

Georgia's at 4.8%, down from 5.1%. Indiana's at 3%, down from 3.9%. Tennessee's at 3.6%, down from 5.1% and Alabama's at 4.6% from 5.8%. What that tells us is number one, there's great job creation, which is going to help underlying construction.

Will it create some tightness in some places on getting qualified people who want to work in downstream positions? I think that's probably true. Are we seeing that on occasion in some places relative to ready-mixed drivers? Yeah, we have.

At the same time, what I'd say Trey, in many respects, that's going to end up being a high-class worry because I think those high-class worries will likely drive continued construction in these marketplaces.

I think some of this goes back to the dialog too that we're having with our contractor customers right now, because I think they're more willing to hire now than they have been. The other thing that I see from contractors is they're more willing to invest in capacity today.

And part of what we see in our business, and I'm sure what they're seeing too, is technology is being their friend. So part of what we've been able to do new plants that we've put up for example is we're watching our tons produced per working man hour go up pretty considerably, even when we may not be adding heads to those specific operations.

So, is it going to be something to watch? Yes. I mentioned it in the prepared remarks, I did. Do we see it as a significant stumbling block as we go through 2017, 2018, and 2019? Not significant. Will we talk about it on occasion? Probably so because our contractor clients will as well..

All right, well that all make sense, and I appreciate the color on that, Ward, and thank you and that's it for me. I'll pass it on..

All right, Trey. Take care..

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

Hi. Good morning, everyone..

Hi, Jerry..

And Anne, let me add my congratulations. We'll miss working with you. Thank you for all of your help over the years and the tremendous performance over your tenure. So thank you..

You're welcome, Jerry..

I'm wondering if we can talk about the M&A pipeline from here.

How are you folks evaluating opportunities, and at which point in the cycle, Ward, would you draw the line and say, okay, we're at the late stages of the cycle and going forward, it'll be more bolt-on acquisitions as opposed to larger scale M&A?.

Well. I guess a couple of things, Jerry. Always think about what we've said relative to capital allocation, because the way that we look at that hasn't changed. So the right acquisitions and then looking at organic investment and then looking at return of cash to shareholders. We've been very consistent with that for a while.

As you may recall, I think on the last earnings call, one of the things that I said was I thought this might be a year of large transactions. And as we sit here at a little past half year, and you look at the transactions that have at least been announced in our space, you've got nicely over $2 billion worth of transactions that have occurred.

Now, that said, one of the things that we're sensitive to as well is we look at our debt to EBITDA ratio, we've said where we want to be over a period of time. Obviously, if transactions come forward, we're going to look at transactions.

We're also committed to maintaining a healthy and appropriate balance sheet as we go through this period in the cycle.

As to the other part of your question on where are we in this cycle right now, keep in mind, it's an odd cycle because at the last peak, we at Martin Marietta produced and sold 205 million tons, and at the bottom we were at 125 million. Last year, even with the volume that we had brought in from TXI, we were about 156 million.

So, looking at where we are in the cycle from a tonnage perspective, it's still relatively early. We see continued growth in housing, and housing's still not back to a 50-year average. Based on what we're seeing in non-residential, light non-residential's going to be very good for the rest of this year. We think it's going to be healthy into next.

But we also think the heavy portion of non-res is likely to get healthier for us next year.

And then the other thing that's destined to happen, Jerry, is with the state-level initiatives that have been underway, in our largest states, and if we look at them by revenue, and we'd say number one is Texas, number two is Colorado, number three is North Carolina, number four is the combination of Georgia/Florida, number five is Iowa, number six is Indiana.

If we look at those states and say that's over 70% of our revenue, it's hard to look at where we are in the cycle from a tonnage perspective, to see where we are from a FAST Act perspective, to see where we are from a state initiatives perspective, to see where we are from a residential perspective, and then to measure where we are in non-res and feel like we're anywhere late in this cycle.

So do I think there will be more M&A? I think there will be. Do I think there'll be more large deals this year? If I'm speculating right now, I would say probably not. I think the year has seen that. Do I think people will be broadly more focused on bolt-on activity for a period of time? I think probably so.

Will we be focused on integration over the next X months? You bet. Will we thoughtfully consider transactions that we feel like fit Martin Marietta well and meet the needs of our long-term shareholders? Of course we will.

But right now we're awfully focused on, A, finishing this transaction with Bluegrass and making sure we're in a position to integrate it in the most thoughtful way, the same way that we did with TXI..

Okay. Thank you, Ward. And on permitting, you've been very vocal on the need to drive permitting times down.

I'm wondering based on the task force that was set up, are you seeing the executive branch moving fast enough in that direction, and what needs to happen at the executive branch level to really drive permitting times down? And I guess are you hearing that we're moving in that direction from your folks in D.C.?.

Yeah. I think it's certainly getting a lot better. I mean, the reform issues that we're most focused on is reduced project delays, reduced project costs, and less opportunities for frivolous litigation. And I think if we can get those, we'll see some serious progress that'll be made.

It was interesting, I was reading The Wall Street Journal last week, and it was giving an update really on what they were seeing from their view on regulatory actions, at least by this White House and the OMB, what their budget contained. This was interesting, Jerry; a little over 1,700 preliminary proposed refiner rules.

And you say that number at first glance and you go, well, 1,700 feels like a lot until you realize that was down 40% from its peak under the prior administration and a 17-year low. So in many respects, what we're seeing right now are reversals of earlier rules, and we saw 66 of those completed at the U.S. EPA, and a third of them were withdrawals.

So from that perspective, Jerry, it's interesting to look at where we aren't on healthcare today. It's interesting to see where we're not yet on tax reform, although that seems to be next.

And then you would assume infrastructure is next, but I do believe what the administration has done from a regulatory perspective has actually been helpful and has been somewhat unheralded..

Very interesting. And, Ward, on a short-term standpoint, you've always characterized the businesses as an outdoor sport, and obviously we had weather in the second quarter.

Can you talk about how much visibility you have on the high-single digit volume growth that we need to see in the back half to hit the full-year guidance, I guess? Did we start the third quarter on the right foot in that direction?.

Well, obviously, what I've tried to talk to, Jerry, is what we hear from our customers right now. And I think the other thing that's worthy of note, I did read the comments from some of our European friends who I know outlined that they anticipate a very busy back half of the year. I think that's what we anticipate as well.

As I said, two things need to happen. We need dry weather, and we need a late winter. And based on everything that our customers are saying, we can be and they will be very busy if those two things happen..

Okay. Thank you..

Thank you, Jerry..

Thank you. And our next question comes from the line of Timna Tanners with Bank of America Merrill Lynch. Your line is now open..

Yeah. Hey, good morning guys..

Hi, Timna..

We also want to echo the comments wishing Anne all the best and thanking her for all the help over the years..

Thanks, Timna..

Sure. So wanted to ask a little bit about the guidance if I could. We were interested to see that you kept full-year guidance despite the weather which you've addressed. But if you look at some of the items like SG&A and other components, it would appear that some of the costs are also going to fall off in the second half.

We just wanted to make sure that we understood what might be driving that..

Well. I think, one thing, if you're looking at SG&A, part of what we're doing this year on SG&A is accruing at a level that you saw us accrue up to toward the end of last year. So in large part, that just evens itself out over the year.

The other thing that I would come back and specifically address is we have added hourly head count as we discussed earlier in the call. If we get the volume pull-through that we anticipate, again, if we had had the volume in Q2 that we had anticipated, we would've had 70% incrementals in our aggregates business.

So, from a cost perspective, again, if I'm looking at planned production costs for the quarter, they were exactly where we thought that they would be. Volume was down. I think I know exactly why volume was down. I think we understand very much what's going on relative to SG&A as I just outlined for you.

So, from a cost perspective, and when you come back and measure in the fact that we have tried to do a good bit of stripping or grading in the early part of the year and some maintenance and repair, costs in the back half of the year should tend to be our friend..

Okay. That makes sense. Thanks for that detail. We were also wondering if you could elaborate a little bit on how to think about CapEx going forward given that as you pointed out, you think we've still got extended runway ahead of us.

What we're running at utilization wise, and what is the kind of CapEx that we should think about, maybe into the future years relative to what you've said through 2017?.

You know what? Clearly, we've taken CapEx up here in the near-term. But we've taken CapEx up here in the near-term really relative to two very specific items.

One, we feel like and believe that we have the ability to do some generational land purchases, at some very specific locations that we think are important to the long-term of our business, and we're focused on that.

The other thing that we've done is we have accelerated some work in the Rocky Mountains on a sales yard that we're trying to finalize that's going in in northern Colorado up near Fort Collins. So, here the near-term, those are the issues that we're looking at.

I think over the long-term, we've really not changed the view that we would've offered to you earlier in the year. We're probably looking at a standard run rate of $350 million to up. Let's call it $350 million to $450 million through this cycle.

And we don't think that that's a bad place to be given what we believe the volume trajectory is likely to be if we continue to see infrastructure non-res and res move in positive directions. Keep in mind, part of what the industry did, and we were no exception, although I don't think we cut as much as others.

The industry did pull back on CapEx during the downturn. And typically what you would see in a normalized time is companies spending on CapEx numbers roughly equivalent to DD&A, and we got below DD&A in the down cycle. Others got even farther below that than we did.

I think you will see most responsible companies spending CapEx above DD&A right now to make sure that they can run with effectiveness and meet customer needs. So I think that's responsive, Timna.

Did I hit your question?.

Yeah. Except for the part about, that a snuck in on the utilization, if you wouldn't mind updating us on where you are there please..

You know what? What we're really looking for now is great efficiencies on the organic CapEx that we're putting in. From a utilization perspective, back to the comment that I made before, at peak, before we had acquired TXI, we produced and sold 205 million tons of stone.

Now what I tell you back in 2006 when we were doing that, we were pushed pretty hard and were we in a position that we were bringing in temporary crushing equipment? Yeah we were. What I would tell you is based on the assets that we have really prior to TXI, 190 million tons is probably a good solid run area for us. We added 15 million tons with TXI.

That's going to take you very, very nicely up to that 205 million tons number before, then obviously we're coming in with this tonnage from Bluegrass. So, from a capacity perspective, we've got room to run, and as I outlined in my prepared commentary, the marketplaces that Bluegrass operates in are still 20% to 30% below where they were at peak.

So, had a meeting earlier this week with a very specific Department of Transportation and one of the issues that this specific DOT referenced is, what we've done some things over the last few years to amp up our ability to invest more in transportation. We want to make sure that you can be there for us.

And I said whatever you're worrying list is, don't have our ability to run at higher volume levels as one of the high items of worry on your list. We can do that..

That makes sense. Okay. Thanks again..

Thank you, Timna..

Thank you. And our next question comes from the line of Scott Schrier with Citi. Your line is now open..

Hi, good morning. Thanks for taking my questions and same things, Anne. Congrats on your retirement. I want to start off and ask about the back half of the year, possibly in a different way. You talked about the confidence you're getting in the volume growth.

And if we look at the guidance, it seems like you'll need some pretty impressive incremental margins to get there, which would obviously include a lot of pricing. And we're seeing that strong pricing in the Southeast. Possibly some of your other regions, pricing is a little lower.

So I just wanted to see how we can get some conviction that we're going to seek pricing in Mid-America and West accelerate a bit in the back half of the year so we can get those strong incremental margins..

Sure. Here's something, Scott, that I think's actually a really important point to bring out in more detail, and I mentioned it in my prepared remarks as well. We did have some sales of fill material in basically North Carolina on one job that made our AST look actually considerably lower than it was.

Keep in mind the fill material that we sold was really a waste product that we were selling to contractors on a bypass job in eastern North Carolina where they had run into unsuitable soils. So, what was happening here is it was a waste product, we needed to get it out of our way and they needed it for unsuitable soils.

That all by itself took the ASP down almost artificially. So, ex that fill product, we were at about 4.7% up in the Mid-Atlantic division, that really is North Carolina. And if we look at June ASPs for that division all by itself, it was at 5.1% ASP up.

So again, if we're looking at what I think will be tight supply later in the year in the Rockies in the West, what I think will be a very busy year in Texas, particularly in the north, when you look at good pricing in the Southeast at double digits and when you look at what's normalized in Mid-Atlantic now at about 5.1, I think that gives you a much better feel for accuracy on pricing, Scott.

Is that responsive?.

Yeah. That's very helpful. And then, I wanted to follow up on the comment you made on the customers talking about their massive backlogs that they were having.

Did you get any sense from those backlogs? Are those growing more on the private side or the public side?.

You know, what I think the short answer is, yes. I think they're seeing good growth across the spectrum right now.

Part of what I was encouraged by is, for example, on that bypass job in eastern North Carolina, somebody had asked a question earlier and they said, if you're selling fill material like that, isn't that more required on new construction? And the answer is, yes it is. And the fact is that's good new public works.

I think contractors are seeing more opportunities to bid on that. I equally believe in the markets that we serve, private work continues to be good. I mean we're clearly seeing a shift toward more single-family as opposed to multi-family. But multi-family in our markets still is a very healthy underlying market.

The other bidding that we're seeing a lot of activity on will be that next phase of large energy projects in South Texas and in the Gulf.

So again, I think as the FAST Act continues to mature, as state initiatives continue to move forward, and in our markets where private work continues to expand, yes, they're seeing both public and private activity get better, Scott..

Great. And one more, just wanted to ask quickly on the ready-mixed pricing. Just if you could talk about some of your conditions in Texas and Colorado, it looks like it was a little softer also this quarter..

Well, I guess a couple of things. One, what we saw in Texas was entirety what we expected in Texas.

So if you think back to the guidance that we gave on that business, we said that a lot of that high-margin, high-price work that we had had last year driven by some of those large LNG projects in the Gulf would be going through a trough period this year. So not to expect as much relative to geographic mix and raw profitability in the downstream.

What I did say in my prepared remarks is the type of pricing that we're broadly seeing in Texas right now is around that 5%, and again if we look at ready-mixed pricing in Colorado, I won't go into specific numbers there, but let's just say it's one of our better priced ready-mixed markets today..

Thanks. Appreciate you taking my questions..

All right. Take care, Scott..

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

Hi, good morning, guys. Thank you for taking my question. One quick question. So you're couple months into process of Bluegrass.

Are you guys hearing anything different from the regulators as it might relate to any divestitures, anything like that?.

You know what? As you recall, Stanley, we went through obviously what we thought was a very thoughtful process on that. And I think our team does analytics around that very, very well. We don't see any material divestitures coming out of that that we think will be value destructive to that transaction.

We have the same conviction around that transaction today that we had on the day that we discussed it. We have filed Hart-Scott and we're working our way, what I would suggest to you, in a very orderly, very workman like, very Martin Marietta way through the process.

So today, Stanley, no surprises, and we have a high degree of confidence that what we've outlined to you previously is still where we are..

Perfect. And then, how do we think about kind of capital structure post the deal? What are you thinking about in terms of duration or rate? Anything to help us, especially with the appetite for your type of credit in the marketplace being so good right now..

Well, yeah. Stanley, as we talked about when we announced the deal, we'll be financing this in the public marketplace. Our view is that we've got a long asset and there is a pull or a need for investment in 30-year notes out in the marketplace, and we think that that would be an attractive feature.

We want to balance that with the ability to have some pre-payable debt with the full intent of de-levering the business within 12 months to 18 months post acquisition. That would basically have us doing probably some 2, 7, 10 and – maybe 2, 7 and 30-year notes. We think that an average rate there will be just shy of 4%..

Perfect. And then, Ward, last one for me. You had mentioned some discussions around finding a permanent solution for the highway trust fund.

I mean, do you think that there's enough of an appetite for that? Is that something we could reasonably expect in the near future?.

You know what? It's fascinating to me because I've been at several meetings with administration members, members of Congress and others. And what they're all saying right now is, there are no options that are off the table. And I've heard among other people the Treasury Secretary say that as well.

So I think people are going to look at this in a eyes wide open fashion because I do think there's a general understanding that the investment is needed. And two, it does create very nice long-term middle class jobs. So I think you're going to see a fairly significant and I think healthy debate on this.

I think part of what helps, frankly, they have to do something. I mean, they literally – healthcare has not worked. Everybody needs a victory right now. It's fascinating. Go back if you can and take a look at a letter that Tom Donohue wrote in an open letter to the members of Congress here last week.

And he outlined to them very clearly what they were looking for. They at the U.S. Chamber are looking for people who will underscore and help promote growth in the United States and people who are interested in governing. And he made it very clear that when the U.S.

Chamber for example is coming back and taking score of who they're going to support or who they're not going to support in this next election, they're going to look at those two things. And he closed the letter with the words, members of Congress be warned, failure is not an option.

So, part of what I outlined in the prepared remarks is as we watch people move toward a higher degree of necessary governance, I believe our sense is this is part of the necessary governance..

Yeah, no. That sounds good. Well, thank you guys very much. Best of luck through the rest of the year. And Anne, best wishes to you. You certainly will be missed. Thank you..

See you, Stanley..

Thank you. And our next question comes from the line of Robert Norfleet with Alembic Global Advisors. Your line is now open..

Good morning or now afternoon. But again, I'd like to congratulate Anne on a great run and good luck in your future endeavors..

Thanks, Rob..

Just real quickly, most of my questions have been answered. But, Ward, I guess previously you've discussed some stone shortages in certain markets.

Could you kind of discuss what geographies that we're seeing in that in? And then secondly, obviously this is the second quarter where we saw a continued acceleration in obviously spending related to preparing for increased demand in the back half of the year.

Has that program basically run its course, or should we expect to see more of that in the second half of the year? Thanks..

I guess a couple of things, Rob. As we were talking about places that we thought you might have the potential for spot shortages, when we discussed on the last call, I think specifically we called out portions of the Rocky Mountains, portions of the Midwest, and some portions of the Carolinas.

So I guess what I would say at this point, I still think you could see that in portions of the Rockies. The Midwest got hit with some rain.

So part of the question is going to be how far ahead of inventories can they stay right now? My guess is after Q2, I'm not as concerned about tightness in that market as I would've been when we were having the call back in February.

And I equally would say to you one of the markets that I think we expected to be the busiest this year in North Carolina would've been Charlotte. And I think part of what I was outlining when I was going through my prepared remarks is when you're looking at a market like Charlotte, it was down on volume 14% in the second quarter.

I think that probably gives them some comfort there, Rob. So I do think there can be some tightness in some markets this year. I don't think as many as we thought earlier, simply because of what we weathered with the weather, no pun intended.

I do believe, to the next part of your question, that we have gotten ahead of what we think will be a very busy year for the rest of 2017 and 2018. So I don't anticipate significant more costs.

Part of what we're sensitive to, and you've heard us speak to it in tight labor markets, one of the real challenges is making sure you're getting the quality labor that you want, who come to your company with the values that matter, and we're in a position to train them to operate safely.

And we believe that's exactly what we've done with what we have in place today..

Perfect. Thanks so much..

Thank you, Rob..

Thank you. And our next question comes from the line Adam Thalhimer with Thompson Davis. Your line is now open..

Hi, Ward and Anne. Congratulations to you, Anne..

Thanks. Appreciate it..

Ward, I just want to make sure I understand what you're trying to say about the back half of the year and weather.

If we have normal weather, are you saying you would miss the EBITDA range entirely or just maybe trend towards the lower end?.

No. What I'm saying is if we have normal weather, we might have trouble meeting some of the volume expectations that we have for the full year right now, because obviously, to achieve the volume guidance that we have, we're going to have to be in a position to run hard.

And actually what I was saying is, as I'm looking at the way things are trending, if we had something that was more normal as opposed to better, I would think the volumes would be under more pressure than the EBITDA would be under. Now, of course there's a linkage between the two.

I'm not ignoring that, but I'm just looking at it on a relative basis, Adam..

Okay, that's helpful. And then lastly, you referenced in, I think, your letter some mid-year price increases.

Can you just provide some additional color on that?.

Yeah, the mid-year price increases had gone in in some markets. They're not hugely widespread. They're more project by project, size by size, sometimes location by location based.

Part of what we've heard very clearly from our customer base is from a planning perspective, it helps them considerably more if they can plan for that one time and do that coming into the year. And in many respects, we planned for that this year and they did as well. So they have not been as widespread as we would've seen in years past.

At the same time coming into the year, you were seeing relatively robust pricing..

Okay, thank you..

Thank you, Adam..

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

Hi, guys..

Hello, Craig..

I will chime in. Anne, you rock. You will be missed..

Thanks, Craig..

The volume you lost to weather happened in markets where you're not really capacity constrained and the construction industry overall I would think is not constrained in those markets.

So can you get caught up more quickly in the Carolinas and Georgia?.

Again, yeah, the short answer is you're right. We can crush plenty of stone in the Carolinas and Georgia today. I think we can certainly put it on the ground to meet the customers' needs. I think it's going to be how much can they take and how much can the weather permit. I think those are the issues that we're going to run into, Craig..

Okay.

And all the facility cleanups were done by the end of the quarter?.

Yeah. I mean from just rain events and otherwise, yeah, largely so..

Okay.

And then, is it fair to assume that you guys are in the middle of it with the pickup in highway volumes, or is it a little more muted than expected?.

I'll concede it has been slower than I would've thought. And I think it's been slower than a lot of people would've thought. I don't have any concern about what the end result will be because you've got the FAST Act, you've got the funding, and you've got the state initiatives. So I know that's coming.

But I will concede I think the work itself has moved slower. Now, in fairness, one of the things that we outlined is that work tends to be more weather sensitive than many. And think of it in these terms, Craig.

If you're pouring a concrete foundation for a non-residential use, you can go out there and pour that between storms if you've got a good sub-base that's in. By contrast, if you're building or constructing new highway or new lanes and you have significant earthwork that has to be undertaken, you can't do that when it's wet.

You literally can't move those heavy, wet, clayey soils. So, I do think the public work is probably disproportionally impacted by wet weather, and I do think there is disproportionate new public work that's coming in portions of those Southeastern markets as well.

So if we're looking at some of the work around Atlanta or the work on I-4 in Florida or part of what's going on on I-77 in Charlotte, those are big public jobs and they were clearly weather affected..

Okay. And since no one else has asked it, it's a small product line but you blew it out with asphalt and paving in the quarter.

Is there anything changing or can you give us more color around that?.

You know what? It was a great quarter. I think they're going to have a great year. Frankly, the expectations for 2018 in that business continue to be very strong. The outlook is good, the backlog is strong, strong demand from municipalities there. You know, keep in mind, that's really only a Colorado business for us.

So everything from Greeley down to Colorado Springs, which was really a new market for us as we went into it early last year, are really very attractive. I talked about the funding that we're seeing in places like Colorado Springs.

We've got an exceptional team running that business up and down the Rocky Mountains, and I just can't say enough good things about them. That's a business that has performed exceptionally well, and we continue to look for great things from them..

Okay. For all the things you just described, it would suggest that maybe the ag volumes in Colorado are similar to what you're seeing in asphalt and paving because there (01:06:36)..

Well, it goes back to part of the commentary that I had and that is, if there's a place that I think before the end of the year that might be tight on ag volumes in our footprint, it's most likely going to be Colorado, because what you've got in Colorado is an awfully powerful combination of public work that's good and private work that's good.

So what we're seeing in that marketplace, remember, that's the only place that we're vertically integrated all the way through from stone to ready-mix, to hot-mix and hot-mix paving right now. There's not a lot that's not working for us in Colorado today..

Great. All right. Thanks a lot, guys..

Thank you, Craig..

Thanks, Craig..

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

Hey, this is actually Jeff (1:07:28) in for Garik. I really appreciate you taking my questions. My first is following up on a question Scott had earlier about Mid-America pricing coming in a little lower than was expected and Ward, you mentioned the role mix played.

Are you expecting any other mix headwinds as we move into the back half of the year that could play a similar role in pricing coming in maybe a little lower than how people were expecting?.

The fact is there may be a little bit more fill work that we'll do in that marketplace. But again, what I would encourage you to remember, we're not cannibalizing aggregate sales with the fill work. I mean, this is the right absolute right financial operational and otherwise decision on that. It is purely an optical circumstance.

I mean, pricing in that division and in that part of the country is moving the way that you would expect.

So if you see some more fill in that marketplace, the way I would think about that if I were you is we're getting a waste product, we're being paid for it, we're moving it out of our quarries and most likely opening up more reserves in the process.

So could you see some of that in the second half particularly as you see more brand new construction? I think so. Is it anything in my view for you to be concerned about? I would certainly dissuade you from being concerned about that..

Got it, got it. Thanks. And you had a solid quarter in cement with 8% volume growth.

Can you get a little more color into how the quarter played out and any update on the potential mid-year price increase as well?.

Yeah. You're right. We think that was a good quarter. Volume was our friend, pricing was our friend, costs were our friend and gross profit all improved versus the prior year. Pricing was up 5% versus the prior year. Most of the gains were concentrated in the North, so they were largely ahead of expectations. The South lagged out a little bit.

By that I mean, really what's going in San Antonio. Part of what's going to be our friend on that as we go through the years is our kiln expenses are expected to be down. So, if I gave you a good sense of what they should look like for the rest of the year, that's probably helpful.

Obviously in Q1, we had kiln expenses of $4.2 million; in Q2, $3.5 million. In Q3, we're expecting $400,000. In Q4, we're expecting about $10.2 million. So we're looking for full-year kiln expenses there of about $18.3 million which is compared to $20.9 million in the prior year, so about a $2.6 million friendly number there.

Part of what I like about the cement business in Texas, if we're looking at what forecasts say going out as far as 2021, that's a marketplace that's anticipating about 19.6 million tons of need by the time it gets to 2021. That's versus about 16.2 million tons this year, so that market continues to grow. We're in a position that we can grow with it.

Our share has remained very steady at 20% to 21%. We are looking at we believe about a $12 a ton price increase as we come into the year next year. We have had some conversations about an October price increase, that's TBD. We'll just have to see how that goes. But again we feel very good about the $12 that we put in for next year.

Some of that ties back into the commentary that I offered before and that is people are much more moved by one price increase at the beginning of the year that they can plan for and the less mid-years, frankly, the better customers will feel about it..

All right. Thank you. Appreciate it, Ward, and Anne, congrats on your retirement..

Thank you..

Thanks, Jeff (1:11:17)..

Thank you and this does conclude today's Q&A session. I'd now like to turn the call back over to Mr. Ward Nye for any closing remarks..

Thank you again for joining us our second quarter 2017 earnings call. We remain confident in Martin Marietta's future and are poised to deliver solid results in 2017 and the next several years.

We continue to experience strong job growth in our key markets, robust construction activity with increased aggregates demand and notable commercial opportunities. Our team's disciplined execution of our strategic plan continues to provide a firm foundation to enhancing long-term shareholder value.

Additionally, we're excited to welcome Jim Nickolas to our team and look forward to introducing him to you in the coming months, and he and I will discuss our third quarter results in the fall. Until then, thank you for your time and continued support of Martin Marietta..