Good morning, ladies and gentlemen, and welcome to Martin Marietta’s Second Quarter 2021 Earnings Conference Call. All participants are now in a listen-only mode. [Operator Instructions] I will now turn the call over to Ms. Suzanne Osberg, Martin Marietta’s Vice President of Investor Relations. Suzanne, you may begin..

Good morning, and thank you for joining Martin Marietta’s second quarter 2021 earnings call. With me today are Ward Nye, Chairman and Chief Executive Officer; and Jim Nickolas, Senior Vice President and Chief Financial Officer.

As a reminder, today’s discussion may include forward-looking statements as defined by United States Securities Laws in connection with future events, future operating results, or financial performance. Like other businesses, Martin Marietta is subject to risks and uncertainties that could cause actual results to differ materially.

Except as legally required, we undertake no obligation to publicly update or revise any forward-looking statements, whether resulting from new information, future developments, or otherwise.

Please refer to the legal disclaimers contained in today’s earnings release and other filings with the Securities and Exchange Commission, which are available on both our own and the SEC websites.

We’ve made available during this webcast and on the Investor Relations section of our website, Q2 2021 supplemental information that summarizes our financial results and trends. In addition, any non-GAAP measures discussed today are defined and reconciled to the most directly comparable GAAP measure in our earnings release and SEC filings.

Ward Nye will begin today’s earnings call with a discussion of our second quarter operating performance and market trends as well as our recently announced acquisition. Jim Nickolas will then review our financial results after which Ward will provide some brief concluding remarks. A question-and-answer session will follow.

I’ll now turn the call over to Ward..

Thank you, Suzanne and thank you all for joining today’s teleconference. Martin Marietta has once again reported impressive results extending our strong track record of industry-leading performance and responsible growth. We delivered record profitability and the best safety performance in our company’s history to the first half of the year.

We’re also making notable progress on our SOAR 2025 initiatives to further enhance our ability to capitalize on growing construction activity and favorable pricing dynamics in the post-pandemic landscape. We’re confident about Martin Marietta’s prospects for the remainder of 2021.

In May, we announced an agreement to acquire Lehigh Hanson’s West Region. Those of you who joined us early this year for our Investor Day, we’re likely not surprised when you read the announcement.

The acquisition, which is consistent with and advances SOAR 2025 provides a new upstream materials led platform in three of the Western United States largest and fastest growing mega regions.

With this leading Pacific presence will be well positioned to capitalize on long-term demand drivers from increased state infrastructure investment in California and Arizona, as well as continued private sector growth across these regions.

This strategic acquisition also provides Martin Marietta with an enhanced coast-to-coast geographic footprint and serves as a viable platform for potential continued geographic expansion. We expect to close the transaction in the second half of 2021 following customary closing conditions.

We look forward to welcoming the Lehigh West Region team to Martin Marietta. We’re also very pleased with the performance of our recently acquired Tiller operations in the Minneapolis St. Paul region, which exceeded management’s initial expectations since closing on April 30.

Tiller contributed one million tons each of aggregates and asphalt during May and June, and provides Martin Marietta, an upstream materials platform in one of the largest and fastest growing Midwestern metropolitan areas, while also expanding and complementing our product offerings in our existing operations and surrounding markets.

Integration into our central division is underway and synergy realization is progressing as planned. This business remains on track to contribute $60 million of adjusted EBITDA this year.

Martin Marietta has established a long track record of superior value creation by prudently balancing inorganic growth opportunities, while maintaining our strong balance sheet and returning capital to shareholders.

Our latest acquisitions and successful growth initiatives demonstrate that SOAR and our discipline capital deployment strategy continue to deliver significant value to our shareholders, customers and other stakeholders, positioning our company for sustainable long-term operational and financial success.

Now let’s turn to the company’s second quarter performance. We achieved record second quarter revenues, gross profit, adjusted EBITDA and earnings per diluted share, driven by strengthening product demand, pricing gains across all product lines, and meaningful contributions from the recently acquired Tiller acquisition.

On a consolidated basis, products and services revenues increased 9% to $1.3 billion. Adjusted gross profit increased 3% to $393 million. Adjusted EBITDA increased 8% to $439 million, and adjusted diluted earnings per share increased 9% to $3.81.

Our Building Materials business continued to benefit from single-family housing growth, infrastructure investment, and heavy industrial projects of scale.

Adverse weather however, muted shipments, most notably in our top two revenue generating states are aggregates cement, and ready-mixed concrete operations in Texas, experienced lower than expected shipment levels as a result of excessive rainfall. In fact, the second quarter was Texas’s 11th wettest on record.

Additionally, Colorado home to our Front Range aggregates and downstream operations surpassed average annual precipitation levels during the first half of the year. Second quarter aggregate shipments increased 1.5% on an organic basis and 3% in total.

East Group total shipments grew 7% strong demand across all end use markets in the Carolinas, Georgia, Florida and Maryland combined with shipments from the acquired Tiller operations, more than offset lower shipments in the Midwest from weather induced project delays.

West Group shipments declined nearly 4% as Mother Nature interrupted otherwise robust construction activity in both Texas and Colorado. Organic aggregates average selling price increased over 3% supported by our value over volume pricing strategy led by the East Group.

Geographic mix from a lower percentage of higher priced long-haul shipments limited West Group’s reported pricing gains on a mix adjusted basis, West Group pricing increased 2.4%. We announced mid-year price increases in a number of markets, which should further contribute to favorable pricing trends heading into next year.

Our Texas Cement business delivered solid operating performance, despite significant precipitation that disrupted more than one-third of the quarter’s available shipping days. Second quarter shipments declined less than 2%. As major projects in South Texas, along with recovering energy sector activity helped mitigate weather impacts.

Notably, we established an all time record for monthly cement shipments in June, largely due to the robust demand and construction activity throughout the Texas triangle. Second quarter cement pricing increased 7% or 4% on a mix adjusted basis, as annual increases went into effect on April 1.

Additionally, we’ve announced the second price increase of $8 per ton on September 1 for both North and South Texas. This represents the first midyear increase since 2014.

Attractive demand drivers continued market tightness, and diversified customer backlogs will support sustainable construction activity and pricing for our Texas Cement operations over the next several years.

Turning to our targeted downstream businesses, ready-mixed concrete shipments increased to 8% despite significant weather headwinds driven by incremental volume from large non-residential projects and operations acquired last year in Texas.

Concrete pricing increased modestly reflecting geographic mix from a higher percentage of lower priced Texas shipments. Overall asphalt shipments increased 68% driven by contributions from the Tiller operations, which more than offset weather related shipment declines in our Colorado asphalt and paving business.

Colorado market fundamentals remain strong, supported by healthy bidding activity and overall customer optimism. Organic asphalt pricing improved 4%.

Looking ahead, we remain confident that Martin Marietta is attractive market fundamentals and accelerating long term secular demand trends across our three primary end-used markets will drive increased levels of building activity and continued favorable pricing trends in the second half of 2021 and into the future.

Demand for our construction products has grown. And we have both the ability and capacity to supply the needed building materials. However, transient contractor labor and supply shortages compounded by weather differ days that become increasingly difficult to recover is the year advances can govern the near term pace of overall construction activity.

Fortunately, we expect work not completed this year to simply be pushed into 2022 and foresee bottlenecks like these moderating and throughput improving as federal unemployment benefits expire in September.

We’re also in the midst of the most significant seemingly bipartisan national infrastructure debate in a long time, with a number of proposals from both political parties to advance and address much needed investment.

Regardless of the pathway to success or infrastructure legislation all proposals provide for sizeable increases in federal surface transportation funding over the fixing America’s surface transportation, or FAST Act.

We’re optimistic that meaningful progress in Washington DC will be made and a FAST Act replacement will be passed before its expiration in September. Such legislation would immediately stimulate economic growth, contractor optimism and job creation, while also driving meaningful product demand starting in late 2022 and beyond.

Our company’s top five States Department of Transportation or DOTs are well positioned to put increased transportation dollars to work more specifically, Texas, Colorado, North Carolina, Georgia and Florida, which accounted for over 70% of our 2020 building materials revenues have an abundance of projects in their backlog that would benefit from higher federal funding and generate growing demand for our products.

At the same time, increased visibility and funding certainty of the federal level supports a healthy pricing environment for construction materials. For reference, aggregate shipments to the infrastructure market accounted for 34% of second quarter shipments well below our 10-year historical average of 43%.

Non-residential construction continues to benefit from increased investment in aggregates intensive heavy industrial warehouses and data centers. We’re also beginning to see early signs of recovery in the more COVID-19 impacted wide commercial and retail sectors, notably in key markets such as Denver, Atlanta, and the Texas triangle.

Light non-residential activity should be a more significant demand driver in 2022 given the attractive drag along effects of strong single-family residential growth. Aggregate shipments to the non-residential market accounted for 36% of second quarter shipments.

Martin Marietta continues to be a beneficiary of single-family housing growth across the southeast and southwest. Single-family starch remains strong despite higher home prices and longer material delivery times supported by significant under building over the past decade, low mortgage rates and accelerated the urbanization trends.

Importantly, single-family housing is two to three times more aggregates intensive than multi-family construction given the ancillary non-residential and infrastructure needs to build out new or expanding suburban communities. Aggregates to the residential market accounted for 25% of second quarter shipments.

I’ll now turn the call over to Jim to discuss more specifically, our second quarter financial results.

Jim?.

Thanks, Ward, and good morning to everyone. The Building Materials business posted products and services revenues of $1.2 billion a 7% increase from last year’s second quarter and product gross profit of $357 million.

Aggregates established second quarter records for revenues and gross profit, higher diesel costs and a $6 million negative impact from selling acquired inventory that was marked up to fair value as part of acquisition accounting are reflected in product gross margin of 34%.

Excluding the acquisition impact adjusted aggregates product gross margin was 34.8% a 70 basis point decline versus prior year. In addition, gross profit per ton shipped, improved modestly when excluding the impact of acquisition accounting.

So net product gross margin declined 870 basis points despite top-line growth, driven by the timing and scope of planned kill maintenance, as well as higher energy and raw material costs. While our first half results were impacted by some weather related headwinds, our cement business is well positioned benefit from a growing demand and tight supply.

Ready-mixed concrete product gross margin declined 350 basis points to 7%, a shipment and pricing gains were offset the higher costs for raw materials and diesel.

Magnesia Specialties continued to benefit from improving domestic steel production and global demand for magnesia chemical products, generating product revenues of $70 million a 43% increase, revenue growth more than offset higher energy costs for energy and contract services, driving a 260 basis point improvement in product gross margin to 39.9%.

On a consolidated basis, earnings from operations included more than $9 million of acquisition related costs, as well as a $12 million gain on the sale of property. This gain is non-recurring in nature and should not be extrapolated for run rate purposes. Relative to often cited broader economic questions regarding supply chain and inflation.

We are pleased that our overall supply chain remains resilient with only a handful of indications of strain for some suppliers. On the cost inflation front, the only notable headwinds we have seen are from increased energy costs. For the second quarter alone, our total energy costs increased $24 million companywide.

Absent this headwind, our consolidated adjusted margins would have outpaced prior year, a testament to our team’s commitment to cost control and operational excellence.

We remain focused on the discipline execution of our proven strategy and our long standing capital allocation priorities that preserve our healthy balance sheet, financial flexibility and investment grade credit rating profile.

As Ward noted, we continue to balance value enhancing inorganic growth opportunities with prudent capital spending and returning cash to shareholders.

To that end, we have raised our full year capital spending guidance to $450 million to $500 million as you prioritize high return capital projects focused on growing sales and increasing efficiency to drive margin expansion.

Additionally, since our repurchase authorization announcement in February of 2015, we have returned $1.9 billion to shareholders through a combination of meaningful and sustainable dividends, as well as share repurchases. As of June 30, our debt-to-EBITDA ratio was 1.9 times.

In late June, we access the capital markets to finance the Lehigh West Region transaction issuing $2.5 billion of senior notes with a weighted average interest rate of 2.2% and weighted average tenure of 15 years. The bond sale settled in early July, and as such is not reflected in our second quarter results.

We expect pro forma leverage at year end to be above our target range. Consistent with our practice of repaying debt, following significant acquisitions, we are committed to returning to our target leverage range of 2 times to 2.5 times within 18 months following the closing of the transaction.

As detailed in today’s release, we’ve updated our full year guidance to reflect current expectations, the completion of the Tiller acquisition and the $2.5 billion bond offering. We now expect full year adjusted EBITDA to range from $1.465 billion to $1.535 billion. With that, I will turn the call back over to Ward..

Thanks, Jim. To conclude, we’re proud of our record first half results and industry-leading safety performance and remain highly confident in our outlook for the balance of 2021. Martin Marietta is well positioned to capitalize on emerging growth trends that are expected to support sustainable construction activity, both in the near and long-term.

As we soar to a sustainable future, our focus remains on building the safest, best performing and most sustainable aggregates lead public company, thanks to our disciplined execution of SOAR, commitment to safe and efficient operations and our dedication to both commercial and operational excellence. Today Martin Marietta is superbly positioned.

We’re confident in Martin Marietta’s ability to deliver sustainable growth and superior shareholder value in 2021 and beyond. If the operator will now provide the required instructions, we will turn our attention to addressing your questions..

[Operator Instructions] Our first question comes from the line of Stanley Elliott from Stifel. Your line is now open..

Hi, good morning, everyone. Thank you all for taking the question. Ward, you mentioned the strong pricing environment on the summit side in the $8 increase yield coming in September.

Can you talk about what you’re seeing on the aggregate side as well, and then also some of the downstream businesses?.

No, happy too, Stanley. Good morning and nice to hear your voice. So, you’re right September one is going to be an important date in cement. We’re taking that pricing up as you indicated $8 a ton.

But as we also indicated during it when we were at the end of the first quarter, we thought we would see more mid-year price increases than we’ve seen in years past. That’s entirely what’s happening.

If we’re looking on the aggregate side first and look at our East Division, we’re looking in a number of places for $1 a ton on clean stone, $0.50 a ton on based on all effective July 1. So that’s something that that we put into effect. But equally, we’re looking at aggregate price increases mid-year in the southwest division.

So for example, in North Texas, and for purposes of this read Dallas-Fort Worth, we’re looking at $0.50 to $0.75 of time on September 1. In Austin, we’re looking more at $1 a ton on August 1. At Hunter Stone, which was one of those sound centers Houston TX, where we have the quarry in conjunction with a cement plant in New Braunfels.

We’re looking $0.50 to $1 a ton on August 1 and a Garwood down just outside Houston, Sand Gravel facility looking at $1 a ton there. So that’s what we’re seeing on the stone side of it. Now equally, and I think this is important, Stanley. We’re looking for that also in readymix, particularly in Texas.

So, we’re looking for ranges anywhere from $4, a cubic yard in Austin, and in East Texas, up to $6 a cubic yard in North Texas. So, if we think about what we’re seeing in mid years, we’re seeing it in aggregates, we’re seeing it in the east, we’re seeing it in the southwest. We’re seeing it in cement and our uniquely Texas business today.

And we’re also seeing in readymix in Texas. So again, the type of backdrop that we anticipated, we will see Stanley I’m happy to report that to you..

That’s great.

And secondly, could you talk a little bit more about the inflation side that you saw in the summit? My guess is some of the maintenance is not a whole lot last year and kind of a normal cadence this year, but any other thing to call out? And then I guess one other thing, any update on the additional grinding capacity or expansion that you all had thought about earlier in the year there?.

Yes. So what I’ll say relative to the grinding capacity again, that’s something that we’re finishing that we’ll be adding to Midlothian. So you’ll hear more about that as we go into 2022. Again, that’s a market that we believe simply needs that. With respect to the maintenance in cement, you’re exactly right, if you think back to 2020.

Part of what we indicated coming into 2021 is that we would spend more in cement maintenance. In fact, we had indicated to the market early on, that we thought we would spend about $6 million more on kiln and finish mill outages in 2021 than we did in 2020. And really Q2 was the time to do that.

So if you’re looking at the delta, on what we did last year in Q2, and what we did this year in Q2, on cement maintenance, it was about $7.3 million difference. So, we spent that much more in Q2 than we did last year. So in other words, that full annual difference that we had anticipated that you should expect. We pretty much did that in Q2.

So what we’re expecting is a very comparable smooth run here in the second half of the year. And frankly, we’re expecting better margins in that business in the second half of the year as a consequence..

Perfect. Thank you all for the time. Best of luck..

Thank you, Stanley..

Thank you. Our next question comes from the line of Kathryn Thompson from Thompson Research. Your line is now open..

Thank you for taking my question today. It’s a little bit into the previous question.

Could you provide a stair step in terms of the guidance update in terms of puts and takes in terms of good guys bad guys? And then layering and on the price increases? What would have margins then excluding some of the costs from energy that you outlined? And how do these margins really play into the back half of the year and really into 2022 from a margin profile? Thank you..

No, you bet Kathryn. So several things. Let’s talk about the margin piece at first, because as Jim indicated, in his commentary and there was prepared, energy was up $24 million for the quarter. So I mean, that’s a big number. And if we look at diesel fuel all by itself that was up almost $15 million.

So, if we go and look at our diesel fuel usage that was a little bit over 12 and million gallons, excuse me a diesel fuel up about $1.11 per gallon. So if we go and pull that energy piece of it out and look at the margins, actually, what you’ll see on the margins across the enterprise is that adjusted gross margins actually improved over Q2, 2020.

What that tells me, Kathryn is the underlying performance of the cost side of the business is actually doing extraordinarily well. So, what I’m pleased with is the underlying cost is doing well. And we’re seeing the price move forward in a way that we thought that we would particularly as the economy continues to improve.

Now, with respect to your question on guidance, in particular, you’re right, some had some things moving around one, we did just drop in what we had indicated verbally before, and that was we expect $60 million of EBITDA contribution from the acquired Tiller operations.

Equally, if we’re looking at our cement business that has noted for intended, whether the deep freeze in Texas in February and then as we indicated an extraordinarily wet Q2. We’ve taken cement down a little bit and of course, readymix is going to follow that so we pulled that down a little bit.

And asphalt and paving in Colorado had a very challenging year-over-year or so we pulled those down. But we’ve equally taken Magnesia Specialties, backup. So those are some of the broader puts and takes that we have, if we look overall at the pricing, we’ve really not changed price.

And we’ve kept that very consistent with where we thought, keep in mind the mid years that we’re putting in will not affect pricing that much this year is setting the stage even more robustly for 2022. And we did pull aggregate volume down just a hair in large measure. We’re just looking at the days left in the year.

It’s not an indication of any lack of robustness in the market. At some point, today’s just get shorter. So Kathryn, I hope that answers your series of questions..

It does. Thank you..

You’re welcome..

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

Hi, good morning, everyone. This is Jatin Khanna on behalf of Jerry Revich.

Our questions around aggregate pricing, the midpoint of heritage pricing guidance implies about 5% organic pricing in the second half, was about 3% in the first half is that the extent to which you expect pricing to accelerate based on media prices increases? And also, what would have had to happen to hit the high end of the guidance range.

Thank you..

Thank you for the question. So a couple of things. One, if we think about volume guidance in the second half, whether it’s implying is basically about a 4% increase in volume in the second half. And you’re right, what we’re anticipating is we’re going to see some accelerating pricing.

A number of the things that we seen during the first half of the year that I think is important is we’ve seen considerably more bass work than we have before. I think that’s actually good, because as you may recall, base work ends up turning into finished work on top of that. So you’re going to see several things.

One, we believe North Carolina, Georgia, and the East will continue to perform actually quite well. If you’re looking overall at the volume. And again, the volume is going to have some degree of impact on ASP if you think about geographic mix. The East Group in the first half was up 7%, excluding, Tiller, it was up 4%.

But it’s important to note that Tiller’s pricing is about 30%, lower than heritage, Martin Marietta. So that actually gave us a modest headwind. So if we’re looking at what I think will be more clean stone sales most likely in the second half of the year have continued good performance in the East.

And in some instances, we were selling some products that were in reserve. And typically those tend to go for a relatively lower average selling price. I think it does back in triangulating around the number that you had indicated. And yes, we continue to have good confidence around that in the back half of the year..

Thank you very much..

You’re welcome..

Thank you. Our next question comes from the line of Trey Grooms from Stephens. Your line is now open..

Good morning. Thanks for taking my question. So, if you look at, the guidance again, digging into that just a little bit more. You talked about the energy costs that were obviously present, probably not going to change any talked about some pricing, obviously that follows that you guys are putting in place.

Ward you also mentioned that it will be probably more next year before this pricing really starts to impact, so as we look at the back half, your margins were impacted in 2Q. But I think Kathryn asked the question earlier, but maybe a little bit different angle on the back half margins as we looked through the balance of the year.

How are we looking at, the price versus some of these energy impacts that you’re seeing, and then how that flows through relative to what we saw in the 2Q?.

Well, I think you clearly will get some benefit from mid years in the second half. Now, the fact is, most of that, as we discussed, rate is going to play more into next year. I think the other thing that we saw a bit in the first half is we did see a bit more maintenance and repair. And some of that was tied in to the acquisition activity as well.

So we think that’s going to moderate itself. So I think that’s clearly going to come back and help on the margin piece of it. I think the other thing is, if we simply look at what was happening in Texas, and in Colorado, it’s difficult to be as efficient as you want to be when you’re dealing with those high degrees of rainfall as well.

So we’re entering a period of time that typically is drier, we’re entering a period of time that some of the mid years will play in, we’re entering a period of time where I think we’re going to see more clean stone going relative to base.

And I think we’re entering a period of time, that you’re likely to see less maintenance and repair because in many respects, people are simply blowing and going in Q3. So, I think you take that combination of factors, I think it comes back and addresses some of the margin questions I’ll turn to my colleague, Mr.

Nickolas, and he has anything he wants to add to that, Trey..

Sure. Thanks Trey, happy too. One notable thing and energy is our own guidance committee new guidance, we’ve increased energy expense by $34 million.

And despite that, your margin question our incremental for the year, once the year is all said and done, we’re expecting 50% incremental margins, still the accurate side despite that heavier energy expense. So by and large, we’re very happy with where things are ending up.

And just to put in perspective, 2021 to energy expense and diesel, while higher versus last year, it’s pretty much in line with what we saw in 2019. So for us, this is not much of a stretch to kind of keep putting and good margins in..

Great got, and thanks for clarifying some of that stuff. That was just some questions that getting in the weeds was definitely helpful. Thank you. And then if I could sneak one in just on the big picture, because you did mention it on the bipartisan bill.

I mean, this is kind of surprising, I think, to some that we’re seeing the folks in Washington actually, look like there may be coming together on something here. But, just a given kind of where they’ve outlined funds for street and highway and bridge, and other things. Which I think the bridge piece might have been taken up a little bit.

But I’d love to get your thoughts on this version of the bill Ward, and maybe what it could mean longer term for Martin Marietta?.

Look, thanks for the question very much on that. And obviously, we’re all watching what happened in the Senate last night? I guess the good news is I’m not sure that here we were that surprised by so look, based on the way that we see it. It’s that overall proposal, trillion dollars, five years $550 billion in new spending.

And really, if we’re looking at roads and bridges Trey, that’s going to be by our math, about $110 billion, that’s going to be around $39 billion for public transport, another $66 billion for rail, and keep in mind with the largest balance producer in the country, $25 billion for airports and about $17 billion for ports.

So, I mean, that’s going to be a lot of work. What does that mean? Overall? I think it means several things. One, its recognition that it’s overdue. Number two, it’s a recognition that at least from our perspective, Trey, and you heard in prepared remarks.

Having watched this business for a long time in this industry for a long time, typically 40 some percent of our products is finding its way to highways, bridges, roads and streets. And we’ve been in the 30s for the last several years.

And that’s really evidence of the fact that there’s not been the level of investment at the federal level that was needed. So if we’re looking simply the senate bipartisan plan, and we’re looking at what that means from a percentage up from baseline, FY 2021 appropriations and invest, it’s up about 46% from the baseline.

So this is not a trifling number. And what I really liked about it, too, is if you look at the vote last night on basically the closure motion, what you’re going to find is 67 senators voted for this, and among them was Mitch Mcconnell.

And so when we start looking at where Senate leadership is, and who really came along to move that vote along, it was some pretty notable players. And the other thing that I think is important is obviously the pay for us are going to matter.

And this and when we look at the pay for us at least, how they’ve been pulled together in the senate version, you’ve got a lot of repurpose, COVID relief that’s going into this. You’ve got some unused unemployment insurance that’s going into it.

And then obviously, they’re going to be looking at it degrees of economic growth that’s going to be derived from the program’s investment. In other words, dynamic scoring, that’s also going to be a piece of it. So the fact that it got that degree of a vote that it got that type of support from senators [indiscernible] Senator Portman is an McConnell.

We think it’s important and we think it helps put the industry in attractive place, not just from an infrastructure perspective going forward. But we believe residential is going to remain strong. We think heavy non-res is going to remain strong, and we think res is going to inflect. That light portion of non-res.

Long story short, we think this bill, if it’s pushed forward into law, and we believe it will be before the FAST Act expires, puts the industry in a very attractive place for a multiyear run trend..

That’s great color. Thanks for the thoughts there Ward and take care. Thank you..

You bet. Take care..

Thank you. Our next question comes from the line of Phil Ng from Jefferies. Your line is now open..

Hey, good morning, everyone. Ward this second round of price increase, you called out for aggregates in the East in Texas, I believe. Anyway, to kind of put that into context. What’s driving that is that more tightness in supply, demand versus inflation.

And if it’s more tight market conditions, we want to get a little flavor, and how broad basis this potentially as we kind of look out to next year? And if that’s the framework, should we expect, noticeable step up from, the 3% to 5% pricing we’ve seen in the last few years?.

Phil, that’s a great question. And I would submit to you it’s not so much driven by tightness right now. I think it’s driven more by what is anticipated; I think is driven by a much higher degree of confidence. If we’re looking at the condition of most DOTs in the East States, DOTS are actually in a very, very good place.

For example, if we look at where North Carolina Department Transportation is, I mean, their financial issues are very much in the past with 22 lettings a $2.7 billion. That’s up. I mean, if you can imagine 260% from the prior year.

So if we’re looking at what’s happening relative to homebuilding in these markets, if we’re looking at what’s going on with respect to infrastructure, if we’re looking at a very healthy non-res environment as well in the East, it all looks very, very attractive, whether that’s going to be in North Carolina, or Georgia or South Carolina or Florida as well.

The other thing that I think is really telling is when we pause and take a look at the backlogs and backlogs are always something funny in this industry because it’s a practical matter. They usually represent only around 25% or 35% of annual aggregates and cement going forward.

But it does give you a good dipstick into the tank to get a sense of where things are. And total aggregates backlogs is pretty attractive. It’s around 13% ahead a prior year levels.

So again, if we’re going back to the notion of overall contractor competence, if we’re looking at it, people who are going to be busy and they know they’re going to be busy, and then seeing broadly an overall inflationary market in a lot of different respects.

It’s actually a very appropriate and opportune moment for us to make sure that we’re getting the value for a spec material that not everybody can put on the ground..

That’s super helpful. And sorry to sneak one in. You mentioned you’re starting to see some improvement in like commercial any color on how trends have progressed the last few quarters are you starting to see shipments flattened out a little bit. Any color on the bidding activity be helpful as well..

Though, we that’s a great point, we clearly are starting to see better activity on white non-res I mean, If we’re looking Colorado, I mean, clearly office retail and hospitality is looking for a stronger inflection in half, two, if we’re looking here in our backyard in North Carolina, it’s been fairly fascinating to watch I mean retail and hospitality are both already beginning to inflect.

And we’re starting to see strong corporate reloads here. Population trends are following that. We’ve got Apple and Google making significant investments here. And again, as we’re looking at markets like Florida, office, hotel, retail, and industrial activity in that marketplace actually continues to really be quite strong.

A lot of what’s driving it and look we get. The U.S. is added since 2000, over 48 million people in population.

And what that’s doing is it’s driving, what we’re seeing now in single family housing and then single family housing is driving what we’re starting to see but basically the way that we thought we would during analyst Investor Day, here is we go into half to fill. So I hope that helps..

Yes, super up. Good luck on the quarter, guys..

Thank you..

Thank you. Our next question comes from the line of Garik Shmois from Loop Capital. Your line is now open..

Great. Thanks for taking my question. I think you mentioned that Tiller is the first couple months of ownership outperforming your expectations and just kind of curious as to what’s driving that. And then also, if I heard your right, you said Tiller pricing is about four points below the corporate average.

So can you speak to perhaps the commercial synergy opportunity there?.

No happy to number one, we’re thrilled to have Tiller as part of this organization, culturally and otherwise they have wonderfully for us, you’ve heard what I said in the prepared remarks. Basically, in May and June, they sold a million tons of aggregates and a million tons of hot mix.

By the way, I think their history that’s the fastest they’ve ever gotten to that million tons in hot mix. I think what you’re seeing is several things one, the Minneapolis St. Paul market is a good healthy Midwest market, it tends to be very steady. We’re seeing good activity there. We talked before about the fact that Minneapolis St.

Paul actually consumes more tons of aggregates in hot mix on a per annum basis, than even Charlotte does, which is a premier market here.

So again, I think from a timing perspective, and from a market perspective, and putting their business together with ours, in that important market to us, the timing was good, the operational synergies are going to be real. We have a lot that we can learn from each other there. Tiller is extraordinarily good.

On the asphalt side, they are already teaching us things that we can take from that. I think we can help them on the aggregate side. But I will tell you, they are very good on the aggregate side. So again, if we’re looking at margins in that business, they tend to start with a three.

So again, I think everything that we were hoping that we would see in that transaction is come through. Yes, the other thing that’s happening too is they have some very attractive real estate that they’ve been able to sell, we’ve been able to sell.

That actually takes the overall purchase price paid for the business and pulls it down, actually very nicely. So, I’m happy to report to you, Garik, there’s nothing about that transaction, that as you might be able to glean from my commentary that we’re not gushing about right now.

So, we’re very pleased with it, and think they’re great things to come..

Great. Thanks again..

Thank you, Garik..

Thank you. Our next question comes from the line of Michael Dudas from Vertical Research. Your line is now open..

Hi, good morning, gentlemen..

Hey, Mike..

Maybe you share some thoughts on a very good performance on Specialties Magnesia. Pretty impressive at times it appears like in the U.S. steel market and certainly demand for the products and chemicals going around the world.

What are your managers – are they – is there some sustainability to this very cyclical? Is there going to be maybe more of a sustainable aspect to what the business could be like and maybe looking in next couple years out? Or is it just a cyclical pop here that the markets will dictate a little bit even though we’re having some strong tightness in those downstream markets?.

Number one, thanks for the question. Because that’s an extraordinary business, it does not get the airtime that it is earned and it deserves. So, what I would say is several things, what you’re seeing in the business this quarter isn’t so much an unusual pop. This is more like returning to usual for that business.

So, if we think about what was happening globally, last year, this time, steel was in a very challenging place. Overseas chemicals was in a challenging place, because in many respects, markets were closed. So, if we go back to June of 2020, steel was running at about 55% capacity, today it’s running at around 83%. So that’s a good healthy number.

Everything that we’re seeing in that market tells us that we expect that business to run strong and remain strong, certainly for the rest of this year. The other thing that we’re seeing is cobalt. And that ends up being an important market for us overseas is up 52% since the end of 2020.

So, when we’re looking at how the business is performing on steel, where it’s performing relative to its chemicals business all that’s really quite good. And here’s what’s even more impressive, because if you keep in mind, energy has actually been going up during much of this year.

Keep in mind that is a large count driven business in portions of it, both in Woodville and in Manistee. And typically as nat gas goes, it can have a profound effect, why not have profound effects a notable effect on the way that business is operating. And basically what we’re seeing is their ability to manage their costs extraordinarily well.

They continue to get good pricing. And we believe that business back to the essence of your question is in fact very, very durable, Mike. So, we expect continued great things from Mag Specialties. But again, thank you for the question..

No, that’s excellent. Well said, thanks..

Thank you. Our next question comes from the line of David MacGregor from Longbow Research. Your line is now open..

Hi, this is Joe Nolan on for David MacGregor. I’m actually going to give Magnesia Specialties a little more airtime here.

Just wondering about capacity availability in that business, just wondering if you’re approaching constraints and if so you have any intention to invest in growth of new capacity? Or would you rather pursue de-bottlenecking increments just any details there?.

Yes, that’s a great question. And there can’t be enough Magnesia Specialties loss. So thank you for brought to the question. That is the business that in many respects is running at capacity right now. And we’ve recognized that so much of what that business is doing is several folds.

One is looking for ways to de-bottleneck and run things more efficiently. Number two, it continues to look at its product mix, and will continue to drive more of what it’s doing to its higher margin products. They’ve had a great history of doing that. I’m sure they have a very bright future of doing that as well.

Part of that so difficult about that business, and it’s one of the great things about the business is we produce 24% of the dolomitic lime in North America from our facility at Woodville and opening permitting and otherwise, the dolomitic lime plant is very costly, it is very time consuming.

Both our facilities in Manistee and in Woodville have title five operating permits, they operate very, very efficiently. So adding more capacity is something that it’s very difficult, we’re always looking for responsible ways to grow the business.

But I think in the near term, what you can anticipate is de-bottlenecking, focusing on higher margin products. And at the end of the day, we’re going to be focused on pricing in that business just as we are in the aggregates in cement business. So Joe, I hope that helps..

Very helpful. Thanks. And if I could just sneak another quick one in on North Carolina, if you could just talk about the growth you’re seeing in that market and how much of that may be state spending versus private sector construction and also just the extent to which you feel that pattern will continue in 2022? Thanks..

Yes, no, happy too. As I’ve indicated our FY 2022 learning’s just looking at NCDOT for a second are increasing 260%. So I mean, clearly, DOT in a much different, very healthy place right now. Keep in mind, that’s an overall DOT with an annual budget around $5 billion. So that’s on the public side. If we look on the non-res, I would say several things.

If you think about North Carolina really working from the middle of the state to a little bit farther west, you end up in Raleigh Durham. Then you farther west of Greensboro, high point Winston Salem into Charlotte, all markets in which we have leading positions.

So, if I think about what’s going on in Charlotte, for example, from a non-res perspective, Charlotte continues to be a significant beneficiary of a lot of warehousing activity. You’ve got I-77, I-85, and a host of large thoroughfares that are coming together in what’s effectively the capital of the Carolinas, if you think about it.

What’s important too is in places like Greensboro in the Triad again, we’re seeing good warehouse and we’re seeing good medical and surprisingly healthy retail activity there. But here’s part of what I think is driving that. So for example, D.R. Horton recently announced their plans to build a 1000 homes subdivision in Greensboro.

What I’m going to suggest to you Joe, if you go back in time and listen to the last time I was talking about somebody building 1000 homes subdivision in the Triad, it’s been a while. So the fact is, if you’re seeing that type of single-family housing growth in the Triad, you’re going to continue to see good non-res activity.

And I spoke just a few minutes ago about what’s happening here in the Raleigh Durham area, with Apple with Google with generally what’s happening in the Research Triangle Park.

And keep in mind, when you’ve got North Carolina State University in Raleigh, the University of North Carolina and Chapel Hill and Duke University in Durham, you’ve got three large universities that tend to drive a lot of economic activity, and you got state government here.

And so this is an area that in good times does extraordinarily well, in more challenging times. You’re not going to say it’s recession proof, but it’s pretty close. So those are the types of things that we’re seeing in North Carolina, Joe..

Thanks. I’ll pass it on. .

Thank you. Take care of rest of the day..

Thank you. Our next question comes from the line of Josh Wilson from Raymond James. Your line is now open..

Good morning. Thanks for taking my questions..

You bet, Josh. .

Wanted to clarify the pricing commentary that you gave in aggregates are those mid-year price increases include in the guidance or a potential source of upside, depending on how quickly they gain traction?.

Well, we’ve done our best to make those and as a practical matter of what you’re doing, Josh is you are protecting people who already have prices from you, as a general rule, what I would tell you is you’re going to recognize about 25% of a mid-year price increase, if in fact, you’re putting them in at mid-year in the year that they’re baked in.

So that’s how I’ve asked you to think about those, in many respects, the mid-years that I outlined for you on aggregates, at least in the East were effective on July 1. Now, keep in mind, when I went through those different portions of the Southwest, most of those were effective on August 1, somewhere effective September 1.

So we’ve done our best to bake that into what we have, but it can be a little bit elusive at times..

And just to sneak one other in on summit, there’s no maintenance differences in the rest of the year, then either good or bad?.

The balance of the year ought to be a pretty smooth run, because as I think I indicate in conversation with Stanley. We had indicated there was going to be a vast $6 million delta more in 2021 than there was in 2020. And again, we had outlined the fact that in Q2, the maintenance costs were up about $7.3 million..

Thanks, good luck with the next one..

All right, very good. Thank you so much. Take care, Josh..

And again, thank you all for joining today’s earnings call. We’ll continue to focus on maximizing value for shareholders as we build on our strong results and continue executing on our SOAR 2025 plan. We look forward to sharing our third quarter of 2021 results in a few months. As always, we’re available for any follow up questions you may have.

Thank you for your time and your continued support Martin Marietta. Please stay safe and healthy. We’ll speak to you soon..

This concludes today’s conference call. Thanks for participating. You may now disconnect..