Good morning, ladies and gentlemen. And welcome to Martin Marietta's Fourth Quarter and Full Year 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 Fourth Quarter and Full Year 2021 Earnings Call. With me today are Ward Nye, Chairman and Chief Executive Officer and Jim Nickolas, Senior Vice President and Chief Financial Officer.

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.

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 Securities Exchange Commission’s website.

We’ve made available during this webcast and on Investor section of our website 2021 supplemental information that summarizes our portfolio optimization efforts and financial results. For purposes of the clarity all financial and operating results discussed today are for continuing operations.

In addition, non-GAAP measures are defined and reconciled to the most directly comparable GAAP measures in the appendix to the supplemental information as well as our filings with the SEC and are also available on our website.

Ward Nye will begin today's earnings call with fourth quarter highlights and a discussion of our full year operating performance. Jim Nickolas will then review our 2021 financial results after which Ward will discuss market trends and 2022 expectations. 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’s diligent execution of our strategic operating analysis and review plan otherwise known as SOAR has been and continues to be the foundation of our long-term success differentiating us from our competitors.

This year was no exception as our impressive 2021 results continue to underscore the importance of disciplined strategic planning combined with functional excellence.

Our team steadfast commitment to our strategic priorities enabled Martin Marietta to extend our proven track record of delivering industry leading safety, growth and financial performance for our shareholders. Among our accomplishments, in 2021, we achieved the safest and most profitable year in Martin Marietta's history.

This year marked our 10th consecutive year of increases in consolidated product and services revenues, adjusted gross profit, adjusted EBITDA and adjusted earnings per diluted share. We also made significant progress on our SOAR 2025 initiatives, among them, successfully completing more than $3 billion in value enhancing acquisitions.

These transactions expanded our product offerings and attractive new and existing markets, establishing a formidable coast-to-coast geographic footprint supported by robust underlying demand we will continue to build on these achievements with a focus on delivering sustainable, long-term operational and financial success in 2022 and beyond.

Before discussing our full year results, I'll briefly highlight a few notable takeaways from our record fourth quarter and portfolio optimization efforts. Pricing momentum and growing product shipments aided in part by mild weather extending the 2021 construction season provided a strong finish to the year.

We completed the acquisition of the Lehigh Hanson's West Region business on October 1, which provides Martin Marietta with new growth platforms in three of the nation's largest mega regions in California and Arizona and will serve as a valuable platform for continued expansion in the years ahead.

And finally, in the fourth quarter, we achieved a 27% increase in products and services revenues and a 17.5% increase in adjusted EBITDA capping-off a 12-month period of continued growth, robust M&A activity and record setting financial performance.

Consistent with our SOAR 2025 priorities, we continually look for ways to optimize our portfolio through asset swaps and divestitures. To that end, following the closing of the Lehigh Hanson West acquisition, we received expressions of interest in the California based cement and concrete operations.

As we focus on the product mix of our business to enhance value for our shareholders, we're currently evaluating alternatives for these operations and have classified these assets as held-for-sale. We anticipate providing more clarity regarding our plans for these assets during the first half of 2022.

As I noted earlier, for the full year 2021, we established new financial records marking the 10th consecutive year of growth in each of the following metrics, products and services revenues increased 15% year-over-year to $5.1 billion. Adjusted gross profit increased 10% year-over-year to $1.4 billion.

Adjusted EBITDA of $1.53 billion increased 10% year-over-year or 14% excluding non-recurring gains and adjusted diluted earnings per share of $12.28 grew 6% year-over-year or 13% excluding non-recurring gains.

I'm especially pleased to note that Martin Marietta’s strong earnings growth and thoughtful SOAR execution provided our investors with a total shareholder return of 56% in 2021 more than double the S&P 500. Operating our business safely sets the foundation for achieving longstanding financial success.

I'm proud to report that we achieved a company wide world class last time and some great for the fifth consecutive year with a 7% reduction in the total reportable incidents Martin Marietta also reported a total entry incident rate of 0.8 rate of 0.84 exceeding world class rate levels for the first time in our history.

Even more rewarding is that our strong 2021 safety performance includes the safety results of our newly acquired operations. I'm incredibly grateful to our employees both new and tenured who embrace Martin Marietta’s guardian and angel culture each and every day. With that overview, let's now turn to the full year operating performance.

The building materials business experienced solid product demand across our geographic footprint, driven by single-family housing growth, infrastructure investment and continued strengthen warehouses and data centers.

Organic aggregate shipments increased nearly 4% to 193 million tones in line with the high end of our original 2021 guidance for volume growth and above 2019 pre -COVID levels. Acquired operations contributed an additional 8 million tons.

Organic aggregates average selling price increased 3% with realized price increases partially offset by higher sales of lower price base and excess fuel material shipments in the second half of 2021. Importantly, all divisions contributed to this growth.

Aggregates pricing fundamentals remain very attractive, underpinned by market support prior announced price increases and overall customer confidence we anticipate being well positioned commercially and otherwise to respond to strong demand and more than offset inflationary headwinds in 2022.

Our Texas cement business grew modestly to 4 million tons, establishing a new record for shipments supported by large projects, recovering energy sector activity and incremental pull-through from our interim downstream customers. Cement pricing grew 7% following multiple pricing increases during the year as the largest cement producer in Texas.

Our cement operations are well positioned to continue to benefit from tight supply and healthy demand supported by diversified customer backlogs and our announced April 2022 price increase of $12 per ton.

Turning to our targeted downstream businesses, organic ready-mix concrete shipments increased 16% reflecting the healthy Texas and Colorado demand environment, pricing grew modestly.

Despite solid fourth quarter volume improvement our Colorado asphalt and paving business was unable to overcome shipment declines from weather challenges and liquid asphalt supply disruptions that hindered construction activity during the traditionally productive summer months. Organic asphalt pricing improved 4%.

I'll now turn the call over to Jim to conclude our full year 2021 discussion with a review of our financial results and liquidity. Jim..

Thank you, Ward and good morning everyone. As Ward mentioned, we are evaluating our strategic alternatives as it relates to the California cement plants, related distribution terminals and California ready-mix operations. These assets, along with several parcels of land have been classified as assets held-for-sale on the balance sheet.

And the profits they generate are shown as earnings from discontinued operations on the income statement. Accordingly, the revenues and profits from these assets are not included in either 2021 reported earnings from continuing operations or our forward earnings guidance.

For our continuing operations, both the building materials and Magnesia Specialties businesses contributed to our record revenues and profitability, notwithstanding energy headwinds of almost $75 million which is nearly one-third higher compared with 2020 on an organic basis. Our aggregates pipeline established records for revenues and gross profit.

Product gross margin of 29.6% included higher diesel costs and a $25 billion negative impact from selling acquired inventory. There was marked-up the fair value as part of acquisition accounting. Excluding the acquisition impact adjusted aggregates product gross margin was 30.4% a 20 basis point decline versus the prior year.

Gross profit per ton shift improved modestly when excluding the impact of acquisition accounting. Improve cement profitability in the second half of the year was not enough to overcome production inefficiencies and incremental storm related costs from February deep freeze in Texas.

As a result, cement product gross margin declined 600 basis points to 31.8% despite top line growth. Increased raw material, energy and maintenance costs also pressured margins. Ready-mix concrete product gross margin was 8.3% relatively flat compared with prior year as shipment and pricing gains offset higher costs for raw materials and diesel.

Adjusted products and services gross margin for asphalt and paving business decreased 180 basis points to 16.4% from higher raw materials cost and operational disruptions from a summertime Colorado liquid asphalt shortage. Magnesia Specialties achieved record revenues and profitability.

Product revenues of $275 million increased 24% driven largely by demand for magnesia-based chemicals products used for cobalt extraction. Cobalt prices, which has doubled since the fourth quarter of 2020 are expected to remain at high levels and should support demand for chemicals products throughout 2022.

Product gross profit increased 23% to $110 million even though higher costs for energy and contract services resulted in a 40 basis point decline in product gross margin to 40.2%.

Martin Marietta ended 2021 with a strongest cash generation in our history, operating cash flow of $1.14 billion increased 8% driven by improvement in net working capital efficiency. SOAR continues to provide the framework to responsibly and sustainably grow our business and deploy capital for long-term success.

The company's long standing capital allocation priorities balance our value enhancing acquisitions with proven capital expenditures, and our goal of consistently returning capital to shareholders while preserving financial flexibility and an investment grade credit rating profile.

In addition to the $3.1 billion to deploy for attractive platform and bolt-on acquisitions in 2021, we also invested $423 million of capital into our business.

In November, we completed a capacity expansion project at our Bridgeport quarry adding over 3.5 million tons of aggregates annual production capacity and reducing our customers loading those cycle times. This project increases throughput at our flagship quarry in the fast growing Dallas/Fort Worth market.

We will continue to prioritize high return capital projects to drive large expansion in 2022. We also returned $148 million to shareholders, reflecting our most recent dividend increase announced in August.

Since a repurchase authorization announcement in February of 2015, we have returned nearly $2 billion to shareholders through combination of meaningful and sustainable dividends as well as share repurchases, while at the same time growing our business profitably and responsibly.

Our net debt-to-EBITDA ratio increased 3.2 times as of December 31 reflecting the debt financed acquisition of Lehigh Hanson West in the fourth quarter. Consistent with our past practice of reducing leverage following an acquisition, we expect debt ratio to be 2.5 times by year-end 2022.

With that, I'll turn the call back over to Ward to discuss our 2022 outlook..

Thanks, Jim. We're excited about Martin Marietta’s opportunities for sustainable long-term success in 2022 and beyond, as we build on our momentum and capitalize on favorable market fundamentals and underlying secular demand trends.

For the first time since our industry's most recent shipment peak in 2005 public and private construction activity are both poised to accelerate, supporting increased shipments and attractive multi-year pricing acceleration for construction materials. As we embark on what we view as this golden age of aggregates.

Martin Marietta has the ability and capacity to supply these needed products underpinned by our locally that pricing strategy. We will continue to do so in a manner that emphasizes value over volume.

The new Federal Infrastructure Law along with strong State Department of Transportation budgets in our key states of Texas, Colorado, North Carolina, Georgia, Florida, and now California, provide Martin Marietta with a long awaited runway for multi-year growth in infrastructure demand.

The recently enacted infrastructure investment in Jobs Act is the nation's most significant infrastructure action since the introduction of the Interstate Highway System in 1956.

This bipartisan legislation contains a five-year surface transportation reauthorization, plus $110 billion in new funding for roads, bridges, and other hard infrastructure projects. While this once in a generation investment in America's transportation networks stimulates economic growth and job creation immediately.

We expect product demand benefits to begin in late 2022 and become more pronounced in 2023. This new law will naturally favorably impact our results over an extended period of time and we expect this legislation to result in healthy State Department of Transportation budgets with estimated lettings above prior levels.

[Boarders] approved state and local transportation measures will also promote sustainable growth and product demand. In November of 2021, Boarders approved 89% of state and local transportation ballot measures.

These initiatives are estimated to generate an additional $7 billion in both one-time and recurring transportation funding with initiatives in Texas are top revenue generating state, accounting for over $4 billion of this total, these measures tangibly demonstrate the commitment of state and local governments to ongoing efforts to repair and improve our nation's aging infrastructure.

Importantly, DLTs for our top states are well equipped from both financial and resource perspective to put increased transportation dollars to work and advance the growing number of projects in their backlogs.

We expect enhanced infrastructure investment to provide volume stability and drive aggregates shipments to this end use closer to our 10-year historical average of 40% of total shipments for reference, aggregates to the infrastructure market accounted for 34% of 2021 organic shipments.

Non-residential construction should continue to benefit from e-commerce evolving work trends and supply chain complexities that drive increased investment in aggregates intensive heavy industrial warehouses, data centers, and reshoring of manufacturing to the United States.

Notably, commercial and retail construction throughout our [San Antonio] markets is poised to inflect in become a more significant demand driver in 2022 as it typically follows single-family residential development. Aggregates to the non-residential market accounted for 35% of 2021 organic shipments.

Residential construction remains robust, particularly for single-family housing, which is yet to return to normalize levels.

The National Association of Homebuilders forecast 2022 single-family housing starts to be 25% higher than pre-pandemic levels in 2019 despite longer material delivery times and labor shortages, Martin Marietta’s leading coast-to-coast footprint positions our company to benefit from single-family housing growth given undergo conditions, favorable population and employment dynamics and accelerated de-urbanization.

Single-Family Housing is two to three times more aggregates intensive than multi-family construction when factoring in the ancillary non-residential and infrastructure needs of new or expanding suburban communities. Aggregates to the residential market accounted for 25% of 2021 organic shipments.

In summary, we expect 2022 to be another record year for Martin Marietta.

Organic aggregate shipments are anticipated to increase 1% to 4% in 2022 is contractor labor shortages and logistics challenges continue to impact an otherwise robust demand environment underpinned by a value of a volume pricing strategy, we expect growth in organic aggregates pricing of 5% to 8%.

Annual price increases become effective from January 1 to April 1 and have already garnered market support. While inflationary pressures remain, we expect to expand upstream gross margins in 2022, supported by pricing acceleration and disciplined cost control.

Combined with contributions from our cement, downstream and Magnesia Specialties businesses, and a full-year results for acquired operations. We expect consolidated adjusted EBITDA for our continuing operations of $1.700 billion to $1.800 million. And to reiterate, our 2022 guidance excludes the businesses classified as assets held-for-sale.

To conclude we're extremely proud of our 2021 record setting safety, operational and financial performance supported by a growing demand environment and our consistently executed strategic priorities. We're confident in Martin Marietta’s long-term prospects.

Our team remains committed to employee health and safety, commercial and operational excellence, sustainable business practices and the execution of our SOAR 2025 initiatives as we built the safest, best performing and most durable aggregate slug public company.

We look forward to continuing our strong momentum and delivering attractive growth and superior value for our shareholders in 2022 and beyond. Operator will now provide the required instructions, we'll turn our attention to addressing your questions..

Thank you. [Operator Instructions]. And as a reminder, please limit yourself to one question. And if necessary get back in the queue for additional one. One moment while we compile the Q&A roster. Our first question comes from Trey Grooms at Stephens. Your line is open..

Hey, good morning, everyone..

Good morning Trey..

I wanted to first off Ward ask about your portfolio optimization efforts here. You're evaluating strategic alternatives for the California cement business and ready-mix.

How are you thinking about that any color you can share with us on the strategic reasoning behind that and any kind of impact that you could color around that for these businesses you're looking at maybe moving out?.

Happy to try. Thank you for the question. If you think about what our business is going to look like and what we now refer to as the Pacific region, [indiscernible] we're done with what we're talking about, we'll have 17 aggregate locations there, we're going to have ready-mix in Arizona and we will have asphalt in California and Arizona.

I think importantly, as we go back and take a look at from a tonnage or cubic yardage perspective, what that's going to look like, that's going to be around 13.5 million tons of stone in that marketplace, it's going to be about 1.1 million cubic yards, and run 8 million tons of asphalt.

If you think back to the way that we've long spoken about our business Trey, you've heard us say, this is an aggregate slug company. And we do have a strategic cement business, but we have that in Texas. I think the strategic cement fits the way we've spoken up your Texas extraordinarily well.

One of the things that we did identify for people, when we bought the Lehigh Hanson business is we were going to look at the cement business in particular to determine if we were the best owner.

And after we closed on that transaction, as I indicated in the prepared remarks, we received a number of inquiries from different parties interested in those businesses.

From our perspective, we owe it to our shareholders and others to engage in that dialogue obviously part of what I've indicated, we anticipate having more for you on that here in the first half of the year. But again, from an aggregate slug perspective, we'd like this type of direction.

The other thing that I think is so important to reiterate in California is well trend is we think the ability is very much ahead of us in that state to do more M&A on the aggregate side in California. And we think that's going to give us a very attractive long-term business. There obviously, we now have a platform position from which to grow.

So Trey I hope that's helpful..

Yes, absolutely. And so you're keeping the aggregates business being aggregates led, obviously.

But now that you've been in the driver's seat there for three or four months, any update you can give us around maybe the commercial efforts, particularly around the aggregates business there in California?.

No, I'm happy to. Trey, if we're looking at aggregate selling prices in that marketplace, generally, they tended to be about $0.70 a ton lower than Martin Marietta’s overall pricing. So if we look at pillar when we bought that business in Minnesota, those prices were for below Martin Marietta so for the prices in California.

So we're very focused commercially on getting that more in line. What we've done in California, I think this is important is we have been very intentional about going out with pricing increases in that market, effective January 1.

And the price increases from the customer feedback and from what we're seeing very directly have been received favorably the trends are actually quite attractive. We've indicated ASP increases across the enterprise of up 5% to 8% would be disappointed if California didn't outperform that. And in fact, that by January does not make a year.

That's certainly what we've seen thus far in January Trey. So I think the commercial undertakings that we've had in that state even with ownership just as in a matter of months actually gone quite well..

Great. Thanks Ward. Thanks for taking my questions. Take care..

You too Trey..

Our next question comes from Kathryn Thomson with Thomson Research Group. Your line is open..

Hi, thank you for taking my question today. Gave some great color just on end markets, but the one I'd like to focus in on a little bit more is on the commercial end market because that was one that we saw uncertainly you and others have started to see some improvement in the back half of 21’.

And given those are longer term projects in general, that can have a scaling, impact on pricing too.

So really kind of the question on commercial is, what are you seeing in terms of trends? How does that impact pricing now and also in the future as you're able to price up higher? And a little bit with that, in particular from a geographic standpoint Texas has been strong, but it's just a place that didn't need to get stronger did and how that impacts commercial and pricing for all of your [ups] in that market too? Thank you..

You bet, Kathryn. Thank you. So several things. If we go back about a year ago, when we had our Analyst Investor Day SOAR of 2025 to a sustainable future. Part of what we were talking about is we believe the Single-Family Housing state over that million year start that we would see in particular, the light portion of non-res continued to grow.

So now let's step back and assess what ‘22 looked like and how that forecast into ’21. ‘22 was, or ‘21 was the only year and second year in our history where non-res volumes were more than infrastructure volumes were.

So that tends to indicate that what we thought we were going to say see and what we outlined last February, in fact, happened throughout the year, meaning heavy non-res continued to be very good. It's incredibly aggregates intensive. And then as housing state solid, light non-res came behind that which led to the single largest end-use that we have.

To your point, if we look at overall non-res in a state like Texas, the Dallas/Fort Worth and Austin Carter along I-35 continues to be incredibly strong. What we're seeing on that last mile delivery centers is impressive, you said it was hard to imagine that getting better and by the way, I'm there too.

But as you noted, it has Samsung is looking to come in there with a $14 billion semiconductor plant in Austin, Texas Instruments is looking to build more in North Texas and Central Texas where we're seeing the high speed rail. So there are a number of projects on non-res that we think will continue to be really pretty most notable in that state.

The other thing that we're seeing is obviously LNG has been on the sidelines for a while we anticipated that it would be at the same time we're looking at some jobs right now at Rio Grande LNG at Chevron Phillips, and [it’s near] that we think might see some degree of go-- going into this year. So to your point, that's just in Texas.

The other thing that's notable is even seeing what's happening with rig counts, I mean rig counts have clearly been down. But the rig count at 610 at the end of January, was actually up 226 rigs, year-over-year. So we're seeing more activity and energy as well.

If we come back and look at other states, so that matter to us, whether it's Colorado, North Carolina, Georgia, Florida, we continue to see very good activity is that called on prepared remarks on warehousing and distribution.

But here's what we're seeing too and we're seeing this in North Carolina, we're seeing retail and hospitality sectors, beginning to inflect.

And obviously, there's been some recent activity in North Carolina with respect to Apple and Google and then Toyota has also come into the Greensboro High Point area, which actually in North Carolina has been a bit of a laggard. And seeing that type of activity there is really quite refreshing.

And then Atlanta continues to be a top five domestic warehousing and data center market, and it shows absolutely no sign of slowing. So we feel like non-res is attractive, it continues to be really durable.

And I think part of what's changed Kathryn is the heavy side of non-res particulars we're looking at these distributions have become so aggregates intensive and we've discussed before they tend to be in many respects almost concrete envelopes. To your point, you're selling relatively high priced clean stone into those concrete operations.

So again, your part of your question was not just what's happening with non-res but what could that do trending relative to pricing. And I do believe this non-res projects will continue to take more clean stone, if we look at the clean stone it's going to be a higher price.

So I think all of it adds up to a very attractive near-term, probably medium-term outlook Kathryn..

Thank you very much..

Thank you..

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

Hi, good morning everyone. Thank you actually for taking the call and the question. Can I piggyback it on a comment you just made a second ago where you talked about being underbuilt from a residential standpoint. Lots of investor concerns now around affordability rate increases, et cetera.

But how are you all balancing that? Or what are you seeing in your marketplace given that we were underbuilt or 7 million starts for 8-plus years?.

one, that will be back to 2003 levels. So we will have been away from that for 20 years, and the U.S. is going to have 40 million more people.

Now if we think about where those people are or where those people are going and we start thinking about the states that are impact states for Martin Marietta you think about them in orders being Texas and Colorado and North Carolina, Georgia, Florida and now add in California.

So if we look at a state like Texas, that's 34% of our sales, but we look at the overall population, it's about 30% of the population of the United States. If we look at that -- or we're looking at 29 million people in the state.

If we're looking at North Carolina, now 10.6 million people in the state, but we're looking to add 2 million people to North Carolina by 2040.

So again, if we're looking at population trends, even with a rising interest rate, you're still seeing historically low rates, and you're seeing people who simply need homes and people move into these parts of the United States that can afford the homes.

So we don't think single-family home building is going to go up to the numbers where it was back in 2005, 2006, we don't think that it should.

But we think this is a very sustainable level, and we think the sustainable level helps us not just on the housing because, as you know, that's 2 to 3 times more aggregates intensive than multi-family, but we think what that continues to do, going back to the previous question, on non-res is really very attractive Stanley.

So a lot of data, but it's our way of saying we feel like housing for our business in our leading state is going to be very durable for a while..

Prefect. Thanks so much. And best of luck..

Thanks Stanley..

Our next question comes from Anthony Pettinari with Citigroup. Your line is open..

Good morning..

Good morning, Anthony..

You're guiding CapEx up roughly $100 million year-over-year in '22. I'm just -- is that primarily Lehigh and Tiller? And are there any major kind of growth projects that you'd call out as part of the '22 CapEx guide? And any kind of rough view on how we should think about CapEx long term..

Yes, yes. It's Jim. Good morning. The answer is it’s mostly organic business. It's not Lehigh Hanson assets predominantly. The main project in 2022 is what we've outlined before is the large capacity expansion to melon. We refer to it as a -- that is the large projects that we've got going on next -- this year in 2022. So that's the main one.

We expect to have a very high return on that one, especially given the pricing outlook that we're seeing for cement in that market. So that's going to be I think, a very high returning project for us.

Otherwise, as I think about it in total, for modeling purposes, I think 9% of sales roughly is generally how I think about this business over time, and we're not too far off that, I think, in 2022..

Okay. That’s very helpful. I’ll turn it over..

Thanks, Anthony..

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

Great. Thanks for having me on. I was just wondering if you could speak to infrastructure demand for this year and specifically just with some of the reports out of D.C. with delays in federal funding just given the lack of a full year federal budget.

Are you anticipating any headwinds associated with that in your 2022 guide? And maybe speak more broadly as to the level of confidence that the projects that you thought are going to be moving forward with the passage of the infrastructure bill, the level of confidence that they're going to continue to move forward as expected?.

one, you still got significant COVID funding that's going to find its way into the system this year. And then thirdly, the last leg of that store, I would say is simply where the different DOTs themselves are.

So again, if we look at the DOTs that are the DOTs that matter most to Martin Marietta, again, it's going to be Texas, Colorado, North Carolina, Georgia, Florida and California. In Texas, we're looking at FY '22 lettings that are expected to exceed $10 billion, and that's going to be the highest in 5 years.

If we look in Colorado, they recently passed a $5.3 billion 10-year infrastructure bill, ensuring a consistent stream of funding in that state through FY '23. If we're looking here in our backyard in North Carolina, FY '22 lettings have returned to historic levels.

And if we're looking at the recently passed state biennium budget here in North Carolina, it's investing heavily in transportation with about $4.2 billion in FY '22. Similarly, in Georgia, we're looking for an expected increase of around $200 million or about 12%. In Florida, minings were up almost $2 billion.

And again, the story in California well, with a $17 billion [California’s] budget. And we think with where SB1 is providing $50 billion of total spending through 2030, with about 3.7% of it going directly to highways and streets on an annual basis.

We think that combination of the money that's been black box, what we think is going to be a fairly navigable appropriations process with the COVID money that's there and with what I've just outlined on those top 5, 6 states for North Carolina, we like what we're seeing relative to infrastructure and we believe that's going to be, Garik..

Great. I appreciate. That’s help enough..

Thank you, Garik..

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

Hi, good morning, guys. Thanks for the question. Can we just go back to the Lehigh assets again? And I believe those that are remaining are now incorporated into guidance.

But if you can just help us understand maybe the split between the sales that are -- sales and EBITDA that are in your guidance versus what is being held-for-sale? And then also, if you can talk about just how those assets are performing.

I guess I would have expected the aggregates volume growth -- or sorry, pricing growth associated with the Lehigh business to be growing a little bit faster than the overall business. So if you could just help us think about how that's performing relative to the business overall? Thanks..

Happy too. Courtney, thank you for the question. So I'm going to take the last part of your question first. And by the way, wholeheartedly agree with you.

And that as I indicated early on, if we're looking at the Pacific business and we're looking at overall aggregate selling prices there, I think what we've indicated is they tend to be about $0.70 a ton lower than heritage Martin Marietta. We've said across the board, you should expect ASP increases of 5% to 8%.

And what I'm indicating is we should expect California to outperform that. And frankly, if California is not seeing low double-digit price increases, I would be disappointed in that. So I think that's totally consistent with your thinking. And again, while January there's not a year make, we certainly like the numbers that we've seen in January.

If we think about what EBITDA contribution is going to look like in that group, here's the way I would encourage you to think of it. We've indicated again, we're going to be an aggregates-led business there with around 13 million tons of stone. We will have a ready-mix business in Arizona, and we will have hot mix in California and Arizona.

And if you think about EBITDA contribution, about 70% of the EBITDA contribution is going to be from aggregates in that business around 18% will be from ready-mix and around 13% will be from asphalt.

So if you go back and look historically at what would have been cement business in California, together with a ready-mix business in California and simply take those out.

And we put some pies together for you when we announced that transaction, showing how much was cement and aggregates and ready-mix and hot mix because at that point, we were talking about the upstream portion of it. And now what you're seeing in upstream at that time, by the way, Courtney, meant both aggregates and cement.

Now we're talking about a business that with nearly 70% of the EBITDA being from aggregates is in the lexicon that we typically use an aggregates-led business, which is what we're looking to number one, have in that state. But Courtney, I think even more importantly, that's what we intend to keep building in that state.

They are independent players there. There's a lot of potential M&A activity that's already underway in California. And so I'm trying to give you a snapshot of what it was, what it is right now. And what it is right now from an aggregate side perspective, we believe, will become even heavier..

Okay. Thanks.

And maybe -- could you just maybe just quantify how much that EBITDA contribution is from the acquisition? And then how much of that is now in discontinued operations? And if you could also just comment if there's any synergies as a result of the deal that we should be thinking about on either SG&A or other line items?.

Since it was a carve-out, really the synergies that will come from that transaction will be what we bring to it operationally, which we're in the process of doing and what we're doing commercially. And I think the commercial efforts are already evident. Relative to broken out EBITDA, we've actually not given that.

I think if you go back and look at some of the information that we gave at the time relative to the Lehigh Hanson transaction and Tiller because we spoke about those in connection with each other.

I think you can probably back into some of that, but we certainly had some arrangements with buyers and sellers that we would not talk about some of those numbers with greater specificity. So I'm not intending to be clever with you, not at all. I apologize on that. But I think overall, you can back into likely where those are.

But again, because you're not buying a public company, moving offices, et cetera, and it's a carve-out, the synergies end up being more commercial and operational excellence over time..

Okay. Great. That's helpful. And then just lastly, on the volume guidance. I think you made some comments that you're still seeing some constraints due to labor shortages and the demand environment.

And can you just help us think about your volume expectations for 1% to 4% growth, how much of that is being constrained by some of the supply chain issues that we're seeing in the market? And whether you're baking in any improvement in the back half of the year?.

There's going to be improvement. It will be in the back half of the year. I think a good example that we've been able to use in the past, Courtney, is we could probably see in the mid-single digits from a volume perspective, higher, for example, in the Dallas/Fort Worth market.

almost on a daily basis than we're seeing right now simply because of the lack of trucks. So I think if we look at supply chains right now, primarily, it's one of logistics. It's how quickly can people bringing their trucks or how efficient can rail be in moving product. Overall, supply chain on labor for us is not a particular issue right now.

Our supply chain itself is so domestically oriented. We haven't struggled with that. And equally, we're not struggling with putting adequate product on the ground. So we believe we can meet the demand. We believe we can do it in a very low cost way.

We do think we're going to be in a position that we can assure that we're getting fair value for our products. But I do think the single largest challenge will continue to be transportation logistics. And we do believe there will likely be some degree of ease on that in the second half of the year. But I would tell you, we have not built that in.

And the other thing that we have done, Courtney, and this is probably relative to say, in our pricing letters for this year, we have indicated to our customers that they should prepare for midyear price increases from us. At the same time, we have not factored that in to any of the guidance that we've given you.

So do I think there's potentially some upside relative to logistic easing in half 2, I do. And when I tell you very candidly, we've told customers to, in many respects, you prepare for midyears, and that's not in our numbers, that would be grown..

Great. Thank you..

Thank you, Courtney..

[Operator Instructions] Our next question is from Michael Dudas with Vertical Research. Your line is open..

Good morning gentlemen..

Good morning..

Ward, the other hot topic certainly is inflation. There is a pretty aggressive print this morning on CPI.

How is -- how do you see it from your angle internally? Are customers getting worried? And generally, when you put out your guidance for 2022, what were the levers or thoughts relative to energy materials? And is there any easing of that as we move throughout 2020? And what you're expecting for the year?.

Mike, thank you very much for the question. What I'm going to do is turn that over to Jim. I want him to walk you through what we're seeing relative to the labor M&R. And in particular, what we're seeing with respect to diesel.

The short answer, at least from my perspective, goes back though to the prepared remarks and push said, we expect to see better margins in our upstream materials business this year than we did last year. So that's going to give you the punchline. But let me let Jim walk you through at least what we're seeing in some discrete areas of the business..

Yes. Sure. So the labor services component is probably around 5%. The other elements, which are smaller, slice of the cost pie supplies, 5% to 10%; repairs and maintenance, probably 5% to 10% as well. But obviously, the main component of what we sell is our stone, that is -- we own that. There's no -- and we source that from the ground.

So that's going to help with the inflationary environment as well. So those costs are going up, but it's a smaller portion of our total cogs pie than other areas. And so on the aggregate piece, we're going to be growing margins, as Ward said overall. But again, those are the rough ways of thinking about it.

Diesel in particular is the one, it was a headwind this year for 2021. We expect it to be a headwind in 2022. We've built in around $25 million of additional diesel costs in 2022. We're hoping that's not enough. It looks like it is right now, but we'll modify that if we need to..

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

Yes, hi. Good morning everyone..

Good morning Jerry..

I wonder if you could talk about the length of your backlog in infrastructure based on the lettings that we're tracking, looks like we're above 2019 levels in terms of what's been awarded to your customers.

Has that translated to your backlogs recovering to where they were when we were talking about them in 2018 -- in 2019? And in terms of the pricing associated with some longer-term work, were you folks able to get out in front of the inflation in terms of putting through significant price increases on longer-term work specifically that's been awarded to you over the past 6 months?.

Fair enough, Jerry. So keep in mind, even on longer-term work, historically, at least over the last decade, we would have been building in price increases on longer-term work on an annual basis. So do we anticipate those price increases in the future of being greater than some of them have been in the past. The short answer is yes.

If we're looking overall at backlog, customer backlog, and that's the important way to try to remember it, what we're looking at right now is the backlog in aggregates, that's about 14% ahead of where it was in prior year.

And if I'm breaking it down even more granularly, what you'll find is in the East Group, it's up around 17% versus prior year and the West Group is up around 10% versus prior year. So I'm particularly heartened by that because as you'll recall, that East Group, which is a pure Stone business tends to have the highest margins in the company.

and they also have the largest backlogs in the aggregates group. The other thing that I think is worth adding to it as well, Jerry, is as we're looking at what's going on in MAG Specialties, they've got record backlogs across their business as well. Obviously, the chemicals portion of that business is doing exceedingly well.

It clearly had a few cost headwinds relative to natural gas and some degree of what was going to the steel business for a portion of Q4. And so it's always interesting to me when margins in that business are taking down a little bit to 38.5%.

That tends to give people's attention, but it's a solid 40% margin business, and customer backlogs in that business are records. And again, in aggregates they are up nicely ahead of prior year. And again, we're talking about midyears on those as well.

We do protect customers on the pricing that they've had in the past, but we do expect to get midyear this year, and we expect the midyear to be attracted..

Yes. If only all business was bottomed at 38.5% margins. Thanks..

You bet, Jerry..

Our next question comes from Michael Feniger with Bank of America. Your line is open..

Yes. Hi, guys. Thanks for taking my questions. Just you mentioned the margin expansion in the upstream business in aggregate, can you just help us understand the cadence there? I mean, diesel, energy prices are still kind of elevated right now on a year-over-year basis.

So how should we be thinking about just 2022? Is it -- are we down a little bit in the first half, reflecting in the second half to get it up full year? Just how should we kind of think about the cadence through the year?.

Ward Nye:.

this stuff:.

Sure. So Michael, we don't give out quarterly guidance. So I'm going to stick with sort of somatic ways of thinking about it. Back-end loaded, profit-wise, that is true, more than historically we've seen for two reasons, really. One, our price increases are larger this year than they were last year, and those are largely effective ever one.

So first quarter this year still hasn't really got the ticker from the accelerating price increases. So that effect is slightly delayed. Two, the diesel headwinds that you mentioned, those are more pronounced in the first half of the year than they will be in the second half of the year.

So those are the two main reasons we're seeing gross profits will be back-end weighted versus historical patterns..

Our next question comes from Adam Thalhimer from Thompson , Davis. I’m sorry, if I mispronounced Adam..

You are good. Thank you. Good morning, guys..

Good morning..

Ward, if I've gotten any pushback this morning, it's maybe on the volume guidance, particularly around the low end of -- could you maybe comment on upside, downside risk to the volume outlook for this year?.

What if you think back to it, Adam, that's exactly where we came out last February, too, right? And we said 1% to 4%. And obviously, we finished the year on the high end of that. If we're looking at overall total. And keep in mind, the 1% to 4% is on the organic. If we're looking overall, we're talking 7% to 10%.

So what I would say is, I think back to the dialogue I was having a few moments ago, can we meet the demand? Yes. Can we meet the spec requirements? Yes. Can we do that almost anywhere we need in the United States? The short answer is yes.

If you can give me a good snapshot of what's going to happen with transportation and logistics, I can probably tell you what's going to happen relative to volume. So if we're right that we're going to see some degree of easing logistically and have to Frankly, I think that certainly is trending you towards the higher end of that.

But if we think about what the issues are that may make that slower, it's not going to be an issue of demand and it's not going to be an issue of our ability to meet the demand. It's going to be what's happening relative to third parties and their ability to move this down..

Okay. Thank you..

You bet..

Our next question is from Timna Tanners with Wolfe Research. Your line is open..

Yes, hello everyone.

How are doing?.

Great. [indiscernible] hear your voice..

Likewise. Hey, just wanted to explore a little bit more the capital allocation comments, in particular, you mentioned of buybacks, but we haven't really seen much yet.

So I just wanted to ask you a little bit more about what you think about in terms of deploying that? And how you think about -- obviously, you keep flagging the opportunity to grow more. And I'm just wondering the timing of further acquisitions, I assume that's just a question of availability.

But are you looking at a particular leverage goal, debt leverage well before you deploy any of those opportunities? Thanks a lot..

Well, again, I'm going to kick that over to Jim. As part of what Jim told you in his prepared comments, basically looking at the business, as we're looking at it right now, we're going to be back to our 2.5 times debt-to-EBITDA ratio by the end of the year. So as you can tell, this is a business that de-levers very quickly.

If you think about our overall capital priorities, the short answer is, Timna, they haven't changed over time. I'd ask Jim to walk you through those, but M&A continues to be one that's been coming to us.

But Jim?.

Yes. So we wouldn't pass on an acquisition today if it came through based on our leverage. We have the ability to go after that opportunity and still deleverage. So that's not a roadblock for us at this point. And as we've mentioned, we do expect to get to 2.5 times by year-end on a net basis.

And even with that in mind, we will take a balanced approach to our capital -- so whether we buy back shares, that's on off the table this year, either even with those things, M&A and share buyback, et cetera, increasing dividend, hopefully in August. That is all in the cards, even with our leverage where it's at.

That's all contemplated with our stated forecasted end of year net leverage of 2.5 times. So hopefully that answers your question..

Okay. Thank you..

Thank you, Timna..

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

Hi, good morning everyone.

I just wanted to ask about -- just to build on -- you're answering to a previous question about the volume guidance of 1% to 4% and maybe this reflects the backlog, but do you expect more growth in the East versus the West? Can you just talk about how you're thinking about east versus west in that 1% to 4%? And then I guess just my question with respect to cement would be just on the profitability for 2022.

It seems like the volume upside is pretty limited. You're running those 2 plants pretty close to full capacity now, I would guess. So is it all just price cost at this stage? Or is there something else we should think about in terms of profitability, in terms of the puts and takes on profitability for 2022 cement..

David, thanks for the question. Good morning to you. So a couple of things. One, if we think about the way the country has recovered over the last several years, the East really took a harder fall in the downturn than the Southwest and in some respects on the West.

So we've seen markets like Atlanta recovering more vodantly right now as well as the Carolinas and up into Virginia. And now we're seeing a very attractive recovery in Maryland as well. So if I'm looking at east versus west broadly, I am thinking we're likely to see a more snap back in the East in many respects than we are in the heritage West.

I think California is going to be an attractive market for us. But again, I'm comforted by the fact that we're seeing good activity in the East. With respect to your cement question, look, you're internally right, I mean we're tapped out in many respects at about 4 million tons right now.

Obviously, we're adding capacity to what we're doing in Texas with the FM 7 capital project that Jim spoke to before. I guess several things. One, our efficiencies were not necessarily helped last year by that decrease that occurred last February.

So David, as you may recall, I know you're accustomed to it in Cleveland, but in Dallas and San Antonio, they're not accustomed to the type of weather that they had last year. That was there for an extended period of time that really not only slowed down sales, slowdown production and actually caused an oversized degree of M&R.

We don't think that's going to recur. So we do believe there are going to be efficiencies that simply come from that. If we're looking overall at what we think is going to happen relative to pricing, Again, we saw multiple price increases last year in cement. Right now, we're looking at a $12 a ton increase in April.

I think the other thing that can be a bit of a swing factor there, David, is where is some of that going to be as well. Obviously, DFW is a very healthy market, so is Central Texas. But part of what we saw in the quarter was more material heading to West Texas. Now granted, percentages in this concept sounds really big tonnages are huge.

So if we're looking at quarter percentages changes, we saw 215% more material head to West Texas. Now what does that mean? Is there a practical matter? 37,000 tons went to West Texas in the quarter versus 12,000 tons in the previous quarter.

But as we look at average selling price on those, that's at an average selling price of around $203 a ton versus a total cement all-in number of $127. So I would say several things. Do we anticipate a better year operation in Texas than we had last year? Absent another deep freeze, the answer is yes.

Do we anticipate a better pricing environment across the state? The answer is yes. And do we anticipate seeing more material, not massive amounts, but more going into West Texas year-over-year? The answer to that is yes as well, David. So I hope that helps..

All right. Moving to our last question from Zane Karimi with D.A. Davidson. Your line is open..

Hey, good morning guys..

Hi, Zane..

Thanks for the color so far. And then an extension on Courtney's question earlier, but I was just wanted to dive into the new regions that you're now in with the California and Arizona from the Lehigh transaction.

And in particular, get a better picture on any sort of new challenges you're experiencing in these spots? Any sort of labor constraints that are new or supply deficiencies or the challenges that you experienced in the region?.

That's a great question, Zane. And the good news is, look, we've had a highly enthusiastic team there that's delighted to be part of Martin Marietta.

One of the things that I outlined early on is we achieved world-class safety metrics on both lost time and total case despite the fact that we had really one of the largest years of M&A in our company's history. The reason that I start out with that is that, to us, is so cultural and so important.

And when we have colleagues who appreciate the importance of that to us, that's a really good starting point. I think something that we have clearly brought to that though, and I think it goes back to the portfolio optimization efforts. We are, first and foremost, in aggregates business.

So what I would tell you is we're assuring that our new colleagues in California understand that, that is for us the alpha and the mega of what this business is in so many respects. And being superb operationally is going to be important and vital and absolutely who we are.

Now from a timing perspective, saying, as you would imagine, getting operational improvements isn't as immediate at times as you can get commercial improvements.

So what are we happy with? We're very happy to see that the training that we put in place, the timing that we put in place and otherwise relative to commercial activity has worked really well. Do we have work ahead of us relative to bringing these sites up to Martin Marietta operational levels? We do.

And actually, that's what I see is the good news part of it because we think there's nice things that can be done with this business, not over the near-term, but near, medium and long.

The other piece, and it's not so much a challenge, but it's realistic is we need to make sure that the people who are in that state in business in that state know who we are because relationships are important, and we want to grow our business in that state. And we want to grow our business, first and foremost, in the aggregates line of it.

So again, no big surprises there. I think very much what we thought and importantly, the areas that we thought we could make some refinements that can make a difference have been happening so far. So I've been saying thank you for that question, and I hope that response is helpful..

Yes. Very much, sir. Thank you..

You bet..

Well, it looks like that's the end of the questions for today. So thank you all for joining today's earnings call.

Underpinned by our disciplined execution of our proven strategy and our long-standing capital allocation priorities, we're confident in Martin Marietta's prospects to continue driving sustainable growth and superior shareholder value as we saw it to a sustainable future. We look forward to sharing our first quarter 2022 results in just a few months.

As always, we are available for any follow-up questions. Thank you for your time and continued support of Martin Marietta. Please stay safe and stay well..

And with that, ladies and gentlemen, we thank you for participating in today's program. You may now disconnect. Have a wonderful day..