Good morning, ladies and gentlemen. And welcome to Martin Marietta's Third Quarter 2021 Earnings Conference Call. All participants are now in a listen-only mode. A question-and-answer session will follow the Company's prepared remarks. As a reminder, today's call is being recorded and will be available for replay on the Company's website.

I will now turn the call over to your host, Ms. Suzanne Osberg, Martin Marietta's Vice President of Investor Relations. Suzanne, you may begin..

Good morning. It's my pleasure to welcome you to Martin Marietta's Third 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.

We've made available during this webcast and on the investors section of our website, Q3 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 other filings with the Securities and Exchange Commission. As a reminder, today's discussion may include forward-looking statements as defined by U.S.

Securities Law 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.

We undertake no obligation, except as legally required 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 public filings which are available on both our own and the SEC website.

Ward Nye will begin today's earnings call with a discussion of our third quarter operating performance and our recently completed acquisition of Lehigh Hanson's West Region. Jim Nickolas will then review our financial results after which Ward will discuss market trends as we look ahead to 2022. A question-and-answer session will follow.

Please limit your Q&A participation to one question. I will now turn the call over to Ward..

Thank you, Suzanne. And thank you all for joining today's teleconference. Martin Marietta has continued growth and record results demonstrate our industry-leading performance and disciplined execution of our proven strategic operating analysis and review or SOAR plan.

And with fewer reportable and lost time incidents than this time last year, our Company-wide safety incident rates are surpassing world-class levels. I'm proud to report that we are on track to deliver the most profitable and safest year in our Company's history.

We're also excited about the progress we're making on our SOAR 2025 initiatives to further position our Company for sustainable long-term operational and financial success. On October 1st, we welcome more than 1200 talented employees to the Martin Marietta team as we successfully completed the acquisition of Lehigh Hanson's West Region business.

With this outstanding team, strong business in key assets now a part of our offering, we're well-positioned to benefit from favorable market dynamics and accelerating public and private construction activity in important California and Arizona regions, including San Francisco, Los Angeles, San Diego, and Phoenix.

It also provides new growth platforms for our continued geographic expansion. I'm grateful to our colleagues for the dedication and perseverance in their efforts to complete the acquisition, the second largest in our Company's history.

We look forward to working together to seamlessly integrate the Lehigh West Operations, quickly realize synergies, and deliver significant stakeholder value. Integration activities are progressing as planned from both an operational and customer-facing perspective.

As highlighted in today's release, we once again established record results for revenues and gross profit for both the quarter and year-to-date. To recap for the first 9 months of 2021, our adjusted EBITDA increased 7% to a record $1.1 billion.

Both our building materials and Magnesia Specialties businesses continue to capitalize on the ongoing economic recovery. During the quarter, organic shipment and pricing growth combined with value-enhancing acquisitions, more than offset higher-than-expected energy-related costs and contributed to our record setting results.

Specifically, on a consolidated basis, products and services revenues increased 18% to $1.5 billion. Adjusted gross profit increased 11% to $450 million, adjusted EBITDA of $490 million increased 13% on a comparable basis, and adjusted diluted earnings per share of $4.25 grew 11% on a comparable basis.

As a reminder, the prior year quarter included $70 million or $0.87 per diluted share up non-recurring gains on surplus plan sales, and divested assets that affect quarter-over-quarter comparability. Now, for a review of our third quarter operating performance. We continue to experience growing product demand across our 3 primary end-use markets.

Organic aggregate shipments increased 6% notwithstanding contractor capacity constraints and wet weather in several markets that govern the overall pace of construction activity. Notably, all divisions contributed to this solid growth, demonstrating our ability to capitalize on the strong underlying demand trends across our geographic footprint.

Total aggregate shipments, including shipments from acquired operations increased 10%. Organic aggregates average selling price increased 2%, reflecting a higher percentage of lower-priced based on shipments during the quarter.

Additionally, our East Division, which has selling prices in excess of our corporate average, had the opportunity to meet customer needs with a low -priced excess fill product that had we not shipped, we otherwise would have incurred costs to relocate.

We expect shipments of this excess fill material, which are profitable and not a substitute for higher-value products to continue through the remainder of the year. That's why we updated our full-year 2021 organic pricing growth guidance to now range from 2.5% to 3.5%. To be clear, aggregates pricing fundamentals remain very attractive.

In fact, supported by strong underlying demand and rapid cost inflation in the broader economy, we successfully implemented midyear price increases in the Carolinas and Texas. These actions, combined with overall customer confidence and demand visibility, bode well for meaningful pricing acceleration in 2022.

Our Texas cement business established a new quarterly record for shipments, which increased 4% to over 1 million tons. Large and diversified projects, recovering energy sector activity, and incremental pull-through from our internal downstream customers, supported record monthly shipment levels in both August and September.

Cement pricing increased 8% as the second round of price increases this year went into effect on September 1st. Turning to our targeted downstream businesses, ready-mix concrete shipments increased 23% driven by the large non-residential projects and operations acquired late last year in Texas.

Concrete pricing grew 2% following the implementation of midyear price increases in Texas. Additionally, we've announced a third price increase in the Dallas, Fort Worth market effect October 1. Asphalt shipments increased 116% overall, driven by contributions from our Minnesota -based operations acquired earlier this year.

Our Colorado asphalt and paving business experienced shipment declines and supply disruptions from midsummer liquid asphalt allocations throughout the Rocky Mountains. That circumstances now been resolved. Despite these short-term issues, market fundamentals remain strong across the Colorado Front Range. Organic asphalt pricing improved modestly.

Before discussing our preliminary 2022 outlook, I'll turn the call over to Jim to conclude our third quarter discussion with a review of our financial results and liquidity. Jim..

Thank you, Ward, and good morning, everyone. Both the building materials and Magnesia Specialties businesses contributed to our double-digit growth in product revenues and increased profitability. That said, increase energy expense continues as a headwind, temporarily pressuring margins.

For the third quarter alone, total energy costs increased $28 million or nearly 50% Company-wide, as compared with last year. Absent this headwind, our consolidate adjusted gross margin would have outpaced the record set in the prior-year quarter.

Aggregate’s product gross margin of 34.2% included higher diesel and other production costs, as well as a $6 million negative impact from selling acquired inventory that was marked up to fair value as part of acquisition accounting.

Excluding the acquisition impact, adjusted aggregates product gross margin was 34.9%, a 150-basis point decline versus prior year. Cement product gross margin declined 250 basis points driven by higher raw material cost and a $6 million increase in natural gas and electricity cost.

Ready-mix concrete product gross margin improved modestly to nearly 10% as shipment and pricing gains offset 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 $72 million, a 30% year-over-year increase.

Revenue growth more than offset higher costs for energy and contract services, driving a 100-basis points improvement in product gross margin to 39%.

As part of our longstanding capital allocation priorities, we continue to balance value enhancing acquisitions with prudent capital spending, and returning cash to shareholders while preserving a healthy Balance Sheet, financial flexibility and investment-grade credit rating profile.

Consistent with SOAR 2025, we acquired a crushed concrete aggregates producer in the Houston area in late July. These acquired aggregates operations expand our customer base and product offerings and one of the nation's largest addressable markets.

We have raised our full-year capital spending guidance to $475 million to $525 million to include anticipated Lehigh West Region 's capital expenditures. We continue to prioritize high return capital projects, focus on growing sales, and increasing efficiency to drive margin expansion.

Additionally, our Board of Directors approved a 7% increase in our quarterly cash dividend paid in September, underscoring its confidence in our future performance, and a resilient, and growing free cash flow generation. Our annualized cash dividend rate is now $2.44.

Since our repurchase authorization announcement in February 2015, we have returned nearly $2 billion to shareholders through a combination of meaningful and sustainable dividend, as well as share repurchases.

In early July, we issued $2.5 billion of Senior Notes with a weighted-average interest rate of 2.2% and a weighted-average tenure of 15 years, primarily to finance the Lehigh West Region transaction. Our net debt-to-EBITDA ratio was 1.9 times as of September 30.

Leverage on a pro form basis, inclusive of recent acquisitions, is modestly above 3 times debt-to-EBITDA. Consistent with our practice of repaying debt following significant acquisitions, we are committed to returning to our target leverage range of 2 to 2.5 times within the next 18 months.

As detailed in today's release, we've updated our full-year 2021 guidance to reflect our year-to-date results that factor in higher energy costs and the fourth-quarter contribution from the newly acquired Lehigh West Business. We now expect full-year adjusted EBITDA to range from $1 billion, $500 million to $1 billion, $550 million dollars.

With that, I will turn the call back over to Ward..

Thanks, Jim. Looking beyond 2021, Martin Marietta remains well-positioned to capitalize on attractive market fundamentals and secular demand trends across our geographic footprint.

Expanded federal and state level infrastructure investment, single-family housing strength, heavy industrial projects of scale, and light non-residential recovery should support growing construction activity and contribute to attractive pricing acceleration for heavy-side building materials for years to come.

Importantly, we have both the ability and the capacity to supply these needed products, and supported by our locally led pricing strategy, we'll do so in a manner that emphasizes value over volume.

While navigating an imperfect legislative process, our nation is nonetheless on the cusp of achieving the most significant infrastructure action of this century.

The Infrastructure Investment and Jobs Act, which contains a 5-year surface transportation reauthorization and provides $110 billion in new funding for roads, bridges, and other hard infrastructure projects passed the U.S. Senate in August, with 69 bi partisan votes. Though the U.S.

House of Representatives could not take up the bipartisan infrastructure bill last week before the then current short-term extension of the federal highway and public transportation programs expired on October 31st, the house and senate did approve a short-term program extension, keeping surface transportation funds flowing to the States through December 3rd.

The consensus opinion with which we strongly agree is that this important legislation will be signed into law before year-end.

Aside from the overall economic growth we expect to occur with the increased federal transportation investment, the steps we've taken over the past decade to responsibly grow and expand our footprint will also benefit Martin Marietta 's near and long-term outlook.

Project lettings for our Company's top 5 States Department of Transportation or DOTs, continue to positively trend.

Texas, Colorado, North Carolina, Georgia and Florida, which accounted for over 70% of our 2020 building materials revenues are well-positioned from both the DOT funding and resource perspective to efficiently deploy increased federal and state transportation dollars and advanced the growing number of projects and their backlogs.

Notably, California, the nation's most popular state and the world's fifth largest economy, becomes a top state for Martin Marietta following the Lehigh West acquisition. Caltrans, California's Department of Transportation, manages a $17 billion annual budget.

Additionally, the Road Repair and Accountability Act of 2017, commonly referred to as Senate Bill 1 or SB1 provides $54 billion or approximately $5 billion annually through 2030 to fund state and local road, freeway, and rail projects.

For reference, aggregate shipments to the infrastructure market accounted for 36% of third quarter organic shipments, showing sequential growth since this year's second quarter, but still 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've also seen early signs of recovery in light commercial and retail sectors, notably in key markets such as Atlanta, Denver, and the Texas Triangle.

Light non-residential activity should be a more significant demand driver in 2022, given that it typically follows single-family residential development. Aggregate shipment to the non -residential accounted for 35% of third quarter organic shipments.

Across our cost-to-cost footprint, single family residential [Indiscernible] are expected to remain robust despite higher home prices and longer material delivery times. Significant under-building in commensurate with notable population gains over the past decade and accelerated deorganisation support these trends.

Importantly, single-family housing is 2-3 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 24% of third quarter organic shipments.

In summary, we believe our industry is about to see public and private sector construction activity coalesce for the first time since its most recent 2005 peak, supporting both increased shipments and an attractive pricing environment for construction materials.

For 2022, our preliminary view anticipates organic aggregates shipments will increase in the low-to-mid single-digits, As contractor labor shortages and logistics challenges continued to impact on otherwise robust demand environment.

Underpinned by our value over volume pricing strategy, we anticipate mid to high single-digit growth in 2022 organic aggregates pricing. To conclude, we are extremely proud of our record setting safety, operational, and financial performance, and look forward to continuing to build on that momentum into the fourth quarter and 2022.

As a result of our thoughtfully developed and consistently executed strategic priorities, our Company's future is bright.

With our steadfast commitment to employee health and safety, commercial and operational excellence, sustainable business practices in store execution, Martin Marietta intends to build the safest, best performing and most durable aggregates lead public Company poised to deliver attractive growth and superior value for all of our stakeholders.

If the Operator will now provide the required instructions, we will turn our attention to addressing your questions..

Thank you. [Operator Instructions]. We ask that you please limit yourself to 1 question. Please stand-by while we compile the Q&A roster. Our first question comes from Trey Grooms with Stephens Inc. Your line is open..

Hey, good morning, everyone. Nice work in the quarter, especially given some of these headwinds that are out there..

Thank you, Trey..

So, Ward, your initial outlook for '22 around aggregates pricing, looking for mid to high single digits, clearly an acceleration from what we've seen this year and in recent years. Can you talk about some of the drivers behind that expectation, your comfort level there? And maybe bridging that from this year.

Is it more reliant on more midyear increases or is this primarily a spring increase that's driving this and then as part of that, the pricing discussions -- summit price announcements that we've been hearing about for next spring are pretty healthy. So maybe if you could speak to what's your thinking on that front as well as we go into next year..

Happy to. Trey, thank you for your question. I think several things are worth noting. One, we saw a nice series of midyear price increases this year, and we saw that in two markets that matter a lot for us. We saw that in Texas and we saw that in the Carolinas. So that immediately starts setting the framework for next year.

Keep in mind as I outlined in the prepared remarks, part of what we've seen this year as an optimal headwind is frankly a higher degree of base sales that we've seen particularly in the East, as well as some [Indiscernible] sales that have gone out of the East.

What I think is important to keep in mind Trey is the pricing range that you see is really a heritage driven range. In other words, we're not taking into account what we believe is going to happen in California and that, we're not taking into account what we believe can happen in Minnesota and that.

As reminder, those markets historically have been below corporate average.

So, if I reflect on where we're positioning toward next year on the conversations that we have had with our customers to-date and what we believe the overall economic environment is likely to be, we have a very high level of confidence in the ASPS that we're talking about for next year.

You had also asked specifically about cement, which is the -- a perfectly fair question. As we look at cement, several things that are worth noting as we think about the year that's wrapping up as well as the year that we're going into. Keep in mind, several things have happened this year. 1. Our price increase in cement in Texas in April was $9 a ton.

We came back in September and the second price increase, that was at $8 a ton. That's the first time we've seen a mid-year of that sort since 2014. Again, I think underscoring nice overall pricing momentum. If we're looking at what we're anticipating next year, we're anticipating a price increase in cement up $12 a ton.

As a practical matter we're looking at that effective January 1 in California, we're looking at that relative to April 1 in Texas. So, a little bit of a different date between those 2 states, but still a very common number on focusing.

We also believe in total candor(ph) that if some of the governing aspects around the volume would go away, volume could actually be better. It's interesting is when looking at volume today and I'd mentioned this trait because I think this also has an effect on pricing from an emotional perspective as well as others.

But, what our team in Texas would tell us today is if there was more trucking available, say for example in the Dallas, Fort Worth market, We could be selling on a daily basis, 3% to 5% more tonnage than we're selling today.

So, I think all of those factors call us to underscore what we believe 2022 is lining up to be a very attractive pricing environment for the Company..

Thanks, Ward, that's all very encouraging and thanks for the color and thanks for taking my questions. Good luck..

You bet you. Take care..

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

Thank you, morning. This is actually Bryan Barros on for Kathryn and thank you for taking my question.

To the extent you can -- can you expand on what you're hearing on how your customers are thinking about next year, the makeup of their backlogs across projects or end markets? And you touched on it just now on the last question, but how would the current bottlenecks around labor and trucking are playing into that outlook in your initial thoughts on the 2020 volume guidance.

Thank you..

No, thank you, Brian. I'll start with the latter part first, and that is what we've done in looking at volume next year is assuming that we're going to continue to see same governors around volume that we have this year.

So again, I think we've taken a very responsible view at volume next year, and potentially, if you see some of these labor, transportation, and other backlogs or issues resolve themselves. It could be better next year.

If we're thinking about overall customer backlog and the way that they're thinking about their business, here is the way that I would at least encourage you to think about that. As we are looking over all across the aggregates business, we're seeing it about 15% ahead of prior year levels based on what our customers are telling us.

And there is a nice break. If we're looking in the East Group, again, that's up almost 14% based on what customers are saying to us. If we're looking in the West group, that's up around 18% based on customers are telling them. What I think is important as well, we came into the year with very attractive cement backlog.

Cement, year-over-year is modestly down but I think what's important is we have some very notable projects that are in the pipeline right now that we think actually adds to that pretty considerably.

And importantly, as we look at our Magnesia Specialties business, we're looking at record customer backlogs and we see very robust line business going into 2022 and we see some chemicals tailwinds going into the new year as well. So, it's consistent with the comments that you heard that I shared in my prepared remarks.

This is 1 of those instances where we feel like we're seeing public and private come together in a very attractive, very powerful way. And part of what I think is telling about this one is we believe it has the capacity, particularly if we got the new highway bill to be in place, not just for a matter of quarters, progress for a matter of years.

So, Bryan, I hope that helps..

I do. Thank you..

You bet..

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

Yes, Hi. Good morning, everyone..

Good morning, Jer..

If you could comment -- Hi, I'm wondering if you could comment for aggregates on the cadence of pricing that you expect to play out over the next couple of quarters as you lay out the pricing expectations for '22. Now does that assume that the exit rate on a year-over-year basis is higher than that entrant’s rate.

Can you maybe just talk about that if you don't mind?.

I'm not sure that I can give you something on that that's going to be precise and give you good direction on it, because I think so much of that's going to be driven. It can be particularly in fourth-quarter by seasonality and what's happening in some parts of the country as opposed to others.

What I will tell you is the conversations we've had with customers, or conversations that we've already had. The correspondents that we were going to have with customers to basically affirm for our pricing for next year has already gone out. Really, Jerry, I think if there's risk to pricing next year.

Frankly, it's more on the upside as opposed to the downside because the numbers that we gave you in the release and that I referenced in my prepared remarks are heritage numbers only.

And, obviously, part of what contractors are seeing today, and I'm sure they're seeing across a whole host of inputs, is an inflationary environment unlike anything that they've seen for a while.

The other thing to keep in mind is if you go back and look at whether it's CPI, PPI or otherwise over a long period of time and by that, I don't meet a year or 2, I mean decades. What you'll find is aggregate pricing has consistently outperformed that metric and this year actually was behind it just a bit.

So, I expect to see that gap made up next year, Jerry. So that's how I would think about that..

And Ward, in terms of the timing of the increases, a lot of times in year markets, your time increases for March and April instead of January 1 for aggregates. Is the thinking any different this year, given the extraordinary weather, or excuse me, inflation.

Are you folks -- the increase that have gone out were they for January 1, which would be I think sooner than normal..

But you're right. It does vary and there will be some markets that go January 1, there will be some that will go April 1. As a practical matter, Jerry. because there's not that much heavy-side activity that occurs in January and February. Keep in mind, we've launched that, for example, that the last 2 weeks of March can make or break the first quarter.

So, whether they go into effect in January or whether they go into effect in April, typically for us isn't that moving.

We're trying to make sure that we maintain your relationships with customers that are so important and don't put them in a position that they find themselves in anyway dislocated, so we've tried to remain relatively consistent from a timing perspective.

But again, we don't feel like the timing from January to April, given the seasonality effect of those period of months, is going to be at moment..

And lastly, I'm wondering, can you talk about the acquisitions in terms of the performance? So far, anything interesting that's come to light since you won assets and I know that California asset you haven't known all that long but maybe you could tell us how it's going so far versus your initial expectations?.

Thank you for the question, Jerry. I would say that the integration is actually going quite well in all of them. We've got a single process that we're utilizing for this integration, so 1 team continues to look at it. The nice thing about this is the integration are occurring, obviously in the West, in the Central and of the Southwest.

So, no particular team is overwhelmed with what's going on. Operationally, we're very pleased with the way that it's going. The teams that have become part of Martin Marietta team to this process, have proven to be every bit as good as we thought that they would.

I continue to be moved by what I feel we can do relative to bring commercial excellence to these operations. And I think particularly in California, that's likely to be the upside that we're going to see there. But again, if you think about what's happened this year, it's going over $3 billion worth of deals.

So, if we go back and look at Tiller, which came in at the end of April, SCC that can in at the end of July and again, Lehigh Hanson's came in at the beginning of October. By any stretch that's a big M&A year for Martin Marietta. And we're very pleased with the people and we're very pleased with the operations and very pleased with the site.

So, I appreciate the question. I'm happy to tell you there have been no negative surprises..

All right. Terrific. Thanks..

You bet. Take care Jerry..

Our next question comes from Phil Ng with Jefferies, your line is open..

Hey guys. How should we think about the annual sales and EBITDA contribution from some of your recent acquisitions, particularly high, given the size of it for 2022? And then Ward, I think your comments for aggregate pricing was -- for next year is largely on your legalese -- legacy side.

Is there reluctance to give a little more color on that front just simply because the deal just closed and you haven't had any real firm conversations with your customers or It could take a little time to begin -- to get that pricing more in line with the broader Company?.

Phil, thank you for the question. I think several things. 1. We're going to give you a good sense of where we believe those businesses will be when we come out in February next year.

Part of what you'll see if you go to the supplemental information with today's release is you'll get a good snapshot, particularly relative to The Lehigh West on what the tonnages look like in aggregate cement ready-mix and asphalt. So that will give you a nice way to back into some of that.

You will also see a nice '21 -- 2021 budget EBITDA contribution. So again, I think that can put you there. With respect to the overall pricing as you would imagine, we've got a nice blend of new products in Martin Marietta, but importantly, Heritage Martin Marietta’s players, particularly in California, that are working together in that marketplace.

I can tell you that our correspondents on pricing went out to our customers last week. These are live conversations -- by the way, they've all been very good conversations, as I indicated in one of the earlier questions, if I had to speculate today, my guess would be on a percentage basis.

We will likely see ASPS on a percentage basis on the newly acquired operations on percentages that will be higher than here in Martin Marietta. So again, I don't see a downside right there, I see potential upside opportunity in those markets.

And again, to your point, we can probably, if I really wanted to dig deep, be a little bit more specific with you on Lehigh Hanson's the same time on mindful that we've owned that business were about 32 days. And our sense is, let's have it for a little bit longer than 32 days before we get into too much detail on that.

But hopefully, the direction I've given you and the supplemental information relative to tonnage EBITDA contributions, where we are relative to the organic business on ASPS, in my view that the acquired operations will likely over-achieve that, gives you a sense of how we look at that..

And then just one follow-up on the pricing, Ward.

Pricing came in a little lighter this year and then a part of that is just mix from the [Indiscernible] business and the guidance you gave, if you had a level set that, is that mid-to-high single-digit still a good way to think about it, just given how it's a little lower this year?.

No. As I said, I certainly don't see downside to aggregate price in next year. And if we're looking at the film material that's gone out this year in the East in particular year to date, Phil, this will give you a sense of it. It's been about 900,000 tonnes.

And part of what's happened here over the last -- during the last quarter as well is we started shipping some stone on a large NCDOT project that's here and the Raleigh that was bid about 2 years ago. So again, those are just some of the more optical issues.

Something that I think is worth always keeping in mind, Phil, is, when [Indiscernible] is going in a year like this, what you know is going to happen, is the clean stones want to come either, because at some point you're going to put either asphalt or concrete on top of the clean stones.

And we actually see those clean stone pricings -- prices moving in a very attractive way..

Super. Thanks a lot, Ward..

Thank you, Phil..

Our next question comes from Stanley Elliott with Stifel. Your line is open..

Good morning, everyone. Thank you all for taking the question. I'll switch gears here a bit and ask about the Magnesia Specialties. Is that a business that you guys are capped in terms of your output or your tonnage? Just curious how you're thinking about that.

Is there a chance to expand it given how rich the margins are and the outlook for commodity prices being so good to those in-markets?.

Great question, Stan and thank you for asking that. That's a business that performs quarter-after-quarter extraordinarily well and never gets depressed that team deserves. Look, you saw what I did, too and that was record revenues through up 30% over the prior-year quarter.

I mean, several things were happening when it's a strong metal mining activity around world. We're seeing good activity in steel. To your point, in many respects, we are kept -- we're running at capacity on volumes than in that marketplace right now. Pricing was up nearly 4%. We think pricing may have some nice upside to it.

One thing that's worth noticing though, is if we look at where domestic steel is now, steel is running at about 80% -- almost 85%. That's up from Q2 last year when it found the bottom. It's up almost 51% since then.

The other thing that I think is really impressive in that business when you look at the margins at 39%, and you take into account that natural gas pricing for Q3 was up 26%. And if we look at really what natural gas pricing has looked at for a longer period of time than that.

If we go back to January 1 this year, I want to say in January, net gas pricing was at [Indiscernible], it's up almost $2.44 since then, almost a 146%. So, I guess what I would say is what we'd like to grow that business in particular? Point to your question, the short answer is we would.

We've looked at ways to grow that business in the past, we will continue to do that.

Are we largely at capacity at Woodville and Manistee today large that we are? Do we have the ability, on occasion, and will we continue to look at refining our products out of those 2 different facilities to make sure we're doing more high margin products? The short answer there is yes, we will.

So, the focus will be on continuing to control costs, which they do extraordinarily well. Being a price leader, which is something they've been focused on, continuing to look for ways to add to that business. We'd liked to do it but, in the meantime, making sure that we continue to refine the products that we're putting out.

So, I would suggest you, Stanley, it's probably a 4- or 5-fold approach to that business..

Perfect. Thanks so much and best of luck.

Thank you so much, Stanley.

Our next question comes from Courtney Yakavonis with Morgan Stanley. Your line is open..

Hi. Good morning, guys. Thanks for the question. If we could just talk a little bit about the cement business and the updated guidance, I think you increased revenues, but really no additional profit there.

Is that all higher energy costs or was -- it's some dilutive impact of acquisition? If you can just help us understand the guidance for the fourth quarter there and how to frame it for thinking about 2022..

Courtney, [Indiscernible]. Thank you for the question. What -- Jim and I will bifurcate this. I'm going to talk a little bit about what we're seeing going on in the market. I want Jim to come back and talk specifically about some of the issues that we had in maintenance this quarter and part of what we've seen in inventories.

But here's what I would say overall, if we look at the volume, the volume is not too very attractive, so it's a 4% overall increase. We've had some July rain that slowed things down in Central and South Texas. So, if we're looking at what was happening coming out of [Indiscernible], that was down about 3%.

Now, the flip side is we saw very nice volumes coming out of North Texas at Midlothian, up about 6.7%. We also saw, in a percentage basis, very nice percentages up in West Texas. Now, what I'll tell you is, percentages on West Texas and volumes on West Texas tell two different stories.

Because you can have a very big percentage, because the volumes have been overall quite low. But what I'm happy to see is at least on a year-to-date basis, is West Texas volumes were up almost 66% as we continue to see mining do better. If we look in North Texas again, all by itself in September, that was up 25%.

So, we saw a record volume quarter coming out of cement. Now we did have some maintenance issues that I want Jim to speak to, and I'll preface it with we're done with maintenance for the year on the big -- taking the kilns down.

And then we had some inventory issues that he can walk you through that, I think, will give you some great color so, Jim over to you, please..

Yeah. Sure. So, Courtney, so what we're really talking about is our old guidance to our updated guidance, right? So, what had happened there was we had a more downtime than we had planned on due some maintenance. So, there's $3 million more of higher maintenance. But the bigger effect for the year was the draw - down inventories.

So, we had record shipments as you heard on our prepared remarks. The record shipments -- but our production levels were below what we had expected. And so, when you have that situation, we have inventory draw - down into -- our fixed cost absorption was worse than we had forecast and that's the biggest piece of that headwinds for guidance.

And then separately, of course, energy headwinds are elevated higher than we had forecasted previously, These are non-diesel headwinds so nat -gas, as Ward mentioned earlier, electricity, and to a much lesser extent, coal, All those costs were higher. Our view of it now is higher cost than our view of that 3 months ago.

So, those were the real drivers of that.

Did I answer your question, Courtney?.

Yes. That was helpful. And I think you guys had also previously guided to what you thought energy costs would increase for the year.

You obviously mentioned that you're expecting higher cost now, but can you just update us on what the guidance is baking in for a total increase -- for the fourth quarter or for the year?.

Yes. So, we're -- we -- last quarter, our view for diesel was right. So, we're spot on Q3, Q4 versus forecast diesel costs we -- we're still comfortable at the currently forecast levels. What we're surprised by was the non-diesel energy costs in Q3 and the forecasts now reflects that.

So, I'd say it's up roughly depending on the fuel type, 35% to 60% year-over-year so that's what's now in our forecast. So that's in our new forecasts and we don't expect that to get worse at this point. Of course, we could be wrong and if we are wrong, the way to cure that is through midyear price increases down the road..

Okay. Great. And then just --.

Court, I have a quick comment..

Go ahead..

Could give you a quick snapshot on that. So really for Jim is 15% of the impact was from diesel. If we look at energy across the entire business, and then a $28 million almost 2X bet if we look all in on energy, so I just want to make sure you had those 2 numbers..

Great. Thanks.

And then just lastly, on the base material in excess fill that you sold this quarter, I believe you said you expect that to continue for the fourth quarter, are you baking in an assumption that that continues into 2022 or will that be fully cleared out by the end of the year?.

But it'll probably be largely cleared up by the end of the year. I think the fill will be gone. And again, I think a lot of it it's going to depend on how much space can contractors put down in effectively Q4, but yeah, that's going to be the only issue, Courtney.

And as I indicated before that the nice thing is you know what's going to go on top of the base at some point..

Good. Thank you..

Thank you..

Our next question comes from Brent Thielman with D.A. Davidson. Your line is open..

Hey. Great. Thank you. Good morning. Hey Ward, I just want to take a step back and thinking about your top 5 market, some of these labor constraints in supply deficiencies.

Can you talk about which of those markets you've seen these issues most challenging and there are any markets in there that have been relatively insulated from that?.

I think the good news is, Brent, where if we look at our top markets which are going to be Texas, Colorado, now California, North Carolina, Georgia, and Florida. They're all going to be pretty solid underlying economic markets and with most of those states having very high population inflows coming to them.

And from our perspective, it's not so much an issue of supply. We're in a position to supply the materials, I think to your point, it's going to be more matter of labor. And frankly, it's going to be a contractor timing perspective on when they're going to hire labor.

One of the things that I'm at least defining on, Brent, is I think that's going to be one of the great collateral benefits from the highway bill on its best. Because when contractors have a sense that there are backlogs and their backlogs for a period of years are going to look very good.

They're likely to hire, I think that's particularly true when we're looking at public works because public works, as you know, tend to come with liquidated damages if they're not finished in a timely manner. But I think it's a practical matter that's going to be driving some of that.

But again, if we look overall at the way our top states are positioned, they're positioned really well. If we're looking at TxDOT, their FY2022 lettings are set to exceed $10 billion. If we're looking at Colorado, they're looking at the DOT forecast that's up $850 million.

NCDOT has returned to historical averages which puts them in a $5 billion a year budget. Georgia infrastructure look strong with additional $225 million of infrastructure investment. Florida is near record levels with very attractive backlogs.

But here's some of the things that are moved by -- you heard me mention Caltrans there budget, SB1 in the prepared remarks. But I didn't speak to our issues like SB9 and SBI0 in California that's allowing property owners to split single-family lots into 2 lots and streamlining of zoning or rezoning process.

Because what we think that does in that market is it brings housing back in ways that that state hasn't seen for a while. And as you recall [Indiscernible], from our analyst and Investor Day, so much goodness in heavy-side space tends to follow what's happening with single-family with a lag.

If we see the highway bill, if we see the hiring that I think comes behind the highway bill, if we see the public work that I think we're going to see, and we continue to see that type of private work That's driven by revs. I think a lot of these supply chain and employee labor issues worked their way out. I don't think it's going to be immediate.

And again, I think that's part of the government we've put on next year, but that's a long answer, but you asked a really good question and I think it has a lot of moving parts..

I appreciate that, the comment. Thanks Ward..

Thank you, Brent..

Our next question comes from Paul Roger with Exane BNP. Your line is open..

Good afternoon, everyone. Thanks for taking the question. Just changing -- actually a bit, maybe onto the sustainability agenda. There's a lot of talk around the minute about the circular economy and in particular using things like demolition waste instead of virgin aggregates.

I guess it's a long-term question, but what impact do you think that could have on your volumes looking forward?.

No, Paul, thank you for your question very much. And Paul, I think that is something that we are cognizant enough that we're sensitive to I think in the fullness of time, recycle will play a bigger role than it's going to play in the next 5 or 10 years.

And what do I mean by that? That I think we are going to go have to be looking to utilize recycled concrete more as a base product. I think we're going to be looking at higher degrees of recycled asphalt or RAP that used an asphalt mixes. Today, in many respects, you might see RAP in the, let's call it 20% portions of asphalt.

I think you could see that going up into the 30% in the fullness of time. The primary driver of that being liquid, 1 reason I mentioned those 2 things in particular, Paul is if you look at the transactions at least 2 of the 3 that we've done this year, it's somewhat mindful of that.

If we're looking at the SCC Materials transaction that we did in July, That's basically buying a recycled business on concrete and selling that recycled concrete as an aggregate, and selling that in Houston, Texas where we have a significant presence and keep in mind part of what Tiller does for us in that marketplace -- I'm sorry, SCC is it adds a series of new yards for us.

More specifically, it adds around 10 and we had a very attractive position in that marketplace with the existing rail yards that we had. So, to your point, it expands our footprint, but importantly, it adds new product offerings.

Now similarly, if we look at the business that we've had in Minnesota at Tiller at the end of April, that's a stone business and it's a hot mix business, but it's not lay down business.

So again, part of what that's going to allow us to do is to make sure that we're looking at percentages of [Indiscernible], how we're going to utilize that going forward.

And the other piece of Tiller that I think has been important for us, is this part of that business we also picked up about a 100,000 tons worth of tank farm capacity in that marketplace, so we also have the ability to look at energy going forward in some modestly different ways with a fiscal hedge, because it allows us to hedge physically about 60% of our need for liquid in that relevant geographic market during the course of any one year.

So, do we think we will see more recycle? Yes. Are we ourselves -- positioning ourselves to more of that? Yes. Do I think spec aggregates in the near-term are in any concern of being spec out of jobs? Absolutely not. I hope that helps Paul..

Yeah, that [Indiscernible]. Just 1 very quick one, probably for Jim. I noticed you'd increase your capex guidance. Is that investment in Lehigh Hanson or is it something else? Just basically wondering how much capex Lehigh maybe needs going forward..

That's right. You've got it exactly right, Paul. That is -- the amount -- that mass amount that we increased it in a new guidance versus the old guidance is due to the acquired assets Lehigh Hanson West..

Great. Thank you..

Thank you. Paul..

Our next question comes from Adam Thalhimer with Thomson Davis. Your line is open..

Hey, good morning, guys. Great quarter. Hey, Ward, I wanted to ask you high level about the residential market. Some of the national numbers show, I guess you'd call it may be a leveling off in the data, but I was curious what you're seeing under the surface..

No look, that's such a great question. It goes back to a lot of what we spoke about at the Analyst Investor Day. So, I would say several things are worth knowing at least again, as we think about a Texas to Colorado, North Carolina, Georgia, Florida and now increasingly California.

We came into this period of time in ARPU with remarkably underbuilt conditions, particularly with respect to single-family. We think the population dynamics will continue to be strong in those states. I mean, here's some specific color, if we're looking at Texas population growth, the residential section, at least for us in Texas is red hot.

Texas comprises almost 9% of the U.S. population, but accounts for almost 34% of the country's population growth. And if we're looking at DFW, it's led the nation in the Metro growth for at least 4 years running. And by the way, the Houston area's second.

So, this is underscores again why we thought that move, that enhanced move in Texas is so important, in - housing is such a driver there. If we look in Colorado, the biggest issue that we have in Colorado is they frankly need more supply. The demand is there. Colorado population has grown 14% since 2010. So that's almost a million people.

They gained the house (ph) seat in this last few population. So again, we can -- we anticipate continued strong housing growth in Colorado. North Carolina just continues to grow dramatically. We see it here in our backyard every day between what's happening in Charlotte and in Raleigh, Durham.

When I moved by North Carolina, I think this is important, is places like Greensboro, I think I might have mentioned early in the year, D.R. Horton has announced a plan to build 1,000 homes, single-families subdivision there in [Indiscernible] -- and the triad are up 28% year-over-year. So again, these are powerful numbers.

If we're looking at Atlanta, the Atlanta single-family housing starts in our approaching 35,000. That's up on a trailing 12 basis, almost 38% but it's not just Atlanta, we're seeing that in Atlanta, we're seeing that in Savannah, and even in smaller markets like Augusta, that have continued to be very attractive.

And even single-family housing in Florida and keep in mind that's really not the market that we're in there. We are a niche player in Florida in basically public transportation or infrastructure. But single-family housing in Florida is up 37% on trailing 12 months. And again, Florida has added 2.7 residences since 2010.

So, if we look at those numbers, then come back and also lay on top of that those two different propositions that I spoke up just a few minutes ago relative to California. On SB9 and SBI0, if we are of the view that single-family housing is going to stay strong for a while and that aggregate tends to follow that with a very high correlative factor.

And if we're assuming, this is what we think is going to happen. We think single-family stats in '21 go to about $1.2 million. We think in '22, they probably go to around 1.4 million and in '23 to about 1.5 million. Those are heady numbers but here's what's important to remember.

If we're right and they go to 1.2 million in 2021, that's 2,000 levels, and the U.S. has added 48 million people since then. If we're right, and then go to 1.4 million in ' 22, that's a 2,003 levels. And if we're right and it goes to 1.5 in '23, that's 2,003 and 2,004 levels. again, on a much higher population base.

So, I've tried to give you some color around specific markets that matter to us. But I've also tried to give you some numbers broadly nationally that we think are relevant and we think are worth keeping in the back or front your mind..

Okay. Great color. Thanks, Ward..

Adam, thank you..

Our next question comes from Garik Shmois with Loop Capital. Your line is open..

Hey, thanks for squeezing me in. My question is on cement capacity. I think you're adding some finishing capacity in Texas. I think it's coming online in maybe 2 years.

But how about Lehigh assets from a utilization standpoint and how are you contemplating the need, if at all, for additional capacity there?.

We're going -- that's part of what we're looking at very carefully right now. Clearly, they don't have to fest in California that we have in Texas. Right now, we've got a million ton more capacity in Texas, and obviously adding more at Midlothian.

Part of what we're wanting to make sure right now is that we've got those facilities in California running optimally where they are. Our view is, we invest in the business once we know we've got it where it needs to be. So, we're going through the capital process and looking at it very carefully as we speak.

As Jim indicated earlier in his conversation with Paul, the increase in capex that you see is almost uniquely tied to what's going on at the Lehigh Hanson's West Region that we now have. And certainly, a significant portion of that is going to the Smith Business.

Jim, anything you want to add to that?.

No, I think you've nailed it. It should be in line with what you've seen historically from us, our CapEx spend in total. So as our sales grow, including Lehigh Hanson business, our CapEx will grow commensurately. So, there should be no -- nothing unusual versus past history.

Around 9% of sales is probably a good starting point to think about [Indiscernible] CapEx for us..

Okay, great. Thanks for the help..

Thanks, Garik..

Our next question comes from [Indiscernible] with Citi, your line is open..

Good morning..

Good morning [Indiscernible].

Ward, when you look at Lehigh and maybe Tiller, too, I understand you're excited about the opportunity. Are there any parts of the acquired businesses that might not be the best fit for Martin Marietta long term and then maybe going the other way.

Are there opportunities for further acquisitions and '22 or should we really think of you as being heads down and deleveraging mode until you get to 2.5 or below 2.5 returns..

Those are great questions. The thing that I would always say is where we've been. You further say that, if you were in an aggregate supply Company and that's the way we think about our businesses first. And so, I would always encourage you to remember that with us.

At the same time, for example, could we go in and bought the business in Minnesota, that is the Tiller business. That does have a hot mix component to it, but part of what's so different about that is it doesn't have to lay down component to it.

So, if you think about really what I think makes Martin Marietta different from many, is we're not so much in the contracting business. We will take that stone in Minnesota in some respects, add liquid to it turn it into black pavement and sell it FOB at the facility. So, it's our number 1. Aggregate [Indiscernible] is the right way to think of us, 2.

Being more focused on materials is the right way to think of u. Lastly, with respect to growing the business, Look, at the end of the transaction, clearly, our debt-to - EBITDA range is a little bit above 3 times. As you know, we like to stay in the range of 2 to 2.5 times.

We think that that's actually going to deleverage very nicely over the next year to 18 months. I think it's possible that if we get toward the end of next year, we could be back toward the high end of our range, that's really, I think doing great work can deleveraging the business.

I think we have added immense value to this business by doing not acquisitions, but by doing the right acquisitions. By doing these transactions that we've done, we have opened up a series of new corridors.

And if you go back in time and you look at the way that we've grown our business, we have been focused uniquely on corridors of growth, whether it's I-95, I-85, Interstate 40, whether it's I-25 in Colorado and now increasingly on I-5 in California.

So, aggregates [Indiscernible] the right way to think of us, a Company that wants to continue to do the right deals in the right markets is the right way to think of us and heavy-side oriented is where we will continue to reside, Anthony, so I hope that helps..

That's very helpful. I'll turn it over..

Thanks..

Our next question comes from Joshua Wilson with Raymond James, your line is open?.

Yes. Good morning. Thanks for taking my questions..

Sure, Josh..

Just to clarify some of the moving parts on energy, can you give the change in the energy dollar headwind for the 2021 guidance?.

For the guidance, it was about $10 million for the old guidance to new guidance..

$10 million incremental. Okay. Good.

And then you talked about green shoots on light non-res, any signs of moderation or any concerns on the heavy non-res?.

No, not particularly. In fact, I would say not at all. The heavy non-res has continued to be really quite good and part of what I'm encouraged by, for example the energy portion of that has actually not been particularly good. So, it's been more driven by warehousing data, warehousing etc.

As you may recall in some of the commentary I was sharing before, we're seeing more activity in West Texas on energy than we've seen for a while. At the same time, for example, the Port Arthur LNG facility that's been on some degree of hold for a while, are saying respectfully is really anticipating some bid refreshing on that, in this quarter.

And we may see some activity there as early as Q1 2022. Not a job that we'd want at this point but still, nonetheless, seeing that type of activity on heavy, we actually think is quite attractive, Josh..

Great. I'll turn it back over..

Thank you..

Our next question comes from David Meeker with Longbow Research. Your line is open..

Yes. Good morning, everyone. And great quarter, Ward. Congrats to the team..

Yeah. Good morning..

Thank you..

I guess I wanted to just ask about pricing here and, certainly, the outlook for 2022 is obviously very encouraging. But I guess I'm trying to understand what happened in Q3 and I fully appreciate the mix benefit or mix liability with the base stone and the excess fill material.

But you're attracting a 3.4% coming through the first half and you dropped out at 2.2 on organic basis, so I'm hoping you can give us some sense of what organic growth and pricing might have looked like excluding the base stone, the excess fill material, and -- just start with that if you would, please..

Yeah. Now, look quick answers. We've been very comfortably in those zones that we talked about earlier. And I think when, again, David, if it's 900 -- if it's almost a million tons of fill, and fill largely looked at broadly as almost a waste product.

Obviously, we sold it for profit because we didn't have it on the books for anything, but it is a fill product. And if you're looking at what was a fairly significant movement on base, particularly in that Raleigh market, Of all the things that I worry at night about, aggregate pricing is not on my list. Those -- purely simply those are the drivers.

The other thing and I know your question were on organic, but I do think it's important to keep in mind when you look at it all rolled up. Stone pricing in the acquired Tiller operations are about $5 a ton lower than our Heritage number. So again, when you do an all-in number with that, it's clearly has optically a dilutive effect.

And then when you feather in nearly a million tons of funds, again, it will have an optical effect. But I think to your point, the mid-years, I think really did underscore the strength of the market.

And to give you a sense of what we saw in the East Division, this really means in the Carolinas, was a bucket ton up on clean stone effective July 1 and even $0.50 on base effective July 1. And then Southwest, we saw in North Texas up $0.50 to $0.75 a ton on September 1.

In Austin, up a bucket ton and in Hunter Stone, which is in New Braunfels, $0.50 to up a bucket ton, and then in Garwood up a bucket ton on August 1.

So, I think all those at least in the way that I'm watching it and measuring the cadence, David, gives me a high degree of confidence in what we're anticipating next year that and probably more importantly together with conversations we've had with our customers. So, I hope that helps..

Yeah. So just to be clear, as you look at that organic number excluding the base stone in the excess fill material, you're saying that pricing would have been up sequentially excluding those items, but your price [Indiscernible] up sequentially..

Yes, it would..

And was there anything different in terms of the initial third quarter attraction rates on these third quarter price increases that -- Just comparing that with prior price increases, is there anything that was maybe different this time?.

No, not really. The only thing that I would say is probably consistent this time is whenever you do a midyear, you're only going to actually see a very limited portion of those go in the year and what inputs you put it.

I mean, historically, what I would've said, if you did a mid-year truly on July 1 or June 30, if you got 20% or 25% of it in the year in which you put it in, you'd be fortunate. So really, it's more of a play into the following year..

Great. Good. Thanks very much. That's all I got..

Thanks, David..

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

Shana (ph) thank you so much and thank you all for joining today's earnings conference call. To conclude our strong third quarter results underpinned by our record-setting safety, operational and financial performance, reinforce our confidence in Martin Marietta's opportunities to soar to a sustainable future and maximize stakeholder value.

We look forward to sharing our fourth quarter and full-year 2021 results in February as always, we're available for any follow-up questions you may have. Thank you for your time and continued support of Martin Marietta. Please stay safe and healthy. Good bye..

This concludes today's conference call. Thank you for participating. You may now disconnect..