Akamai Technologies Q2 2021 Earnings Call Transcript

Quartr
Provided by Quartr
July 28, 2021

There are 12 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to Martin Marietta's Second Quarter 2021 Earnings Conference Call. All participants are now in a listen only mode. 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 Ms.

Operator

Suzanne Osberg, Martin Marietta's Vice President of Investor Relations. Suzanne, you may begin.

Speaker 1

Good morning, and thank you for joining Martin Marietta's 2nd quarter 2021 earnings call. With me today are Ward Nye, Chairman and Chief Executive Officer and Jim Nicholas, Senior Vice President and Chief Financial Officer. As a reminder, today's discussion may include forward looking statements as defined by United States Like other businesses, Martin Marietta is subject to risks and uncertainties that could cause actual results to differ materially. Except as legally required, we undertake no obligation Please refer to the legal disclaimers contained in today's earnings release and other filings with the Securities and Exchange Commission, which are available on both our own and the SEC websites. We've made available during this webcast and on the Investor Relations section of our website Q2 2021 supplemental information that summarizes our financial results and trends.

Speaker 1

In addition, any non GAAP measures discussed Today are defined and reconciled to the most directly comparable GAAP measure in our earnings release and SEC filings. Ward Nye will begin today's earnings with a discussion of our Q2 operating performance and current market trends, as well as our recently announced acquisitions. Jim Nicholas will then review our financial results, after which Ward will provide some brief concluding remarks. A question and answer session will follow. I will now turn the call over to Ward.

Speaker 2

Thank you, Suzanne, and thank you all for joining today's teleconference. Martin Marietta has once again reported impressive results, extending our strong track record of industry leading performance and responsible growth. We delivered record profitability and the best safety performance in our company's history through the first half of the year. We're also making notable progress on our SOAR 2025 initiatives to further enhance our ability to capitalize on growing construction activity and favorable pricing dynamics in the post pandemic landscape. We're confident about Martin Marietta's prospects for the remainder of 2021.

Speaker 2

In May, we announced an agreement to acquire Lehigh Hansen's West Region. Those of you who joined us earlier this year for our Investor Day We're likely not surprised when you read the announcement. The acquisition, which is consistent with and advances SOAR 2025, Provides a new upstream materials led platform in 3 of the Western United States' largest and fastest growing mega regions. With this leading Pacific presence, we'll be well positioned to capitalize on long term demand drivers from increased state infrastructure investment in California And Arizona as well as continued private sector growth across these regions. This strategic acquisition Also provides Martin Marietta with an enhanced coast to coast geographic footprint and serves as a valuable platform for potential continued geographic expansion.

Speaker 2

We expect to close the transaction in the second half of twenty twenty one Following customary closing conditions, we look forward to welcoming the Lehigh West region team to Martin Marietta. We're also very pleased with the performance of our recently acquired Tiller operations in the Minneapolis St. Paul region, which exceeded management's initial expectations since closing on April 30. Tiller contributed 1,000,000 tons each of aggregates And asphalt during May June and provides Martin Marietta an upstream materials platform in one of the largest and fastest growing Midwestern metropolitan areas, while also expanding and complementing our product offerings in our existing operations and surrounding markets. Integration into our central division is underway And synergy realization is progressing as planned.

Speaker 2

This business remains on track to contribute $60,000,000 of adjusted EBITDA this year. Martin Marietta has established a long track record of superior value creation by prudently balancing inorganic growth opportunities, while maintaining our strong balance sheet and returning capital to shareholders. Our latest acquisitions and successful growth initiatives demonstrate that SOAR and our disciplined capital deployment strategy continue to deliver significant value to our shareholders, customers and other stakeholders, positioning our company for sustainable long term operational and financial success. Now let's turn to the company's 2nd quarter performance. We achieved record 2nd quarter revenues, gross profit, adjusted EBITDA and earnings per diluted share, Driven by strengthening product demand, pricing gains across all product lines and meaningful contributions from the recently acquired Tiller acquisition.

Speaker 2

On a consolidated basis, products and services revenues increased 9% to $1,300,000,000 Adjusted gross profit increased 3% to $393,000,000 adjusted EBITDA increased 8% to $439,000,000 and adjusted diluted earnings per share increased 9% to $3.81 Our Building Materials business continued to benefit from single family housing growth, infrastructure investment and heavy industrial projects of scale. Adverse weather, however, muted shipments, most notably in our top two revenue generating states, Our aggregates, cement and ready mix concrete operations in Texas experienced lower than expected shipment levels as a result of excessive rainfall. In fact, the Q2 was Texas' 11th wettest on record. Additionally, Colorado, home to our Front Range aggregates and downstream operations, surpassed average annual precipitation levels during the first half of the year. 2nd quarter aggregate shipments increased 1.5% On an organic basis and 3% in total, EastGroup total shipments grew 7%.

Speaker 2

Strong demand across all end use markets in the Carolinas, Georgia, Florida and Maryland combined with shipments from the acquired Tiller operations more than offset lower shipments in the Midwest from weather induced project delays. West Group shipments declined nearly 4% as Mother Nature interrupted otherwise robust construction activity in both Texas and Colorado. Organic aggregates average selling price increased over 3%, supported by our value over volume pricing strategy led by the EastGroup. Geographic mix from a lower percentage of higher priced long haul shipments Limited West Group's reported pricing gains, on a mix adjusted basis, West Group pricing increased 2.4%. We announced mid year price increases in a number of markets, which should further contribute to favorable pricing trends heading into next year.

Speaker 2

Our Texas Cement business delivered solid operating performance despite significant precipitation that disrupted More than 1 third of the quarter's available shipping days. 2nd quarter shipments declined less than 2% as major projects in South Texas, along with recovering energy sector activity helped mitigate weather impacts. Notably, we established an all time record from monthly cement shipments in June, largely due to the robust demand and construction activity throughout the Texas Triangle. 2nd quarter cement pricing increased 7% or 4% on a mix adjusted basis as annual increases went into effect on April 1. Additionally, we've announced a second price increase of $8 per ton on September 1 for both North and South Texas.

Speaker 2

This represents the 1st mid year increase since 2014. Attractive demand drivers, continued market tightness and diversified customer backlogs will support sustainable construction activity and pricing for our Texas cement operations over the next several years. Turning to our targeted downstream businesses, ready mix concrete shipments increased 8% despite significant weather headwinds Driven by incremental volume from large non residential projects and operations acquired last year in Texas. Concrete pricing increased modestly, reflecting geographic mix from a higher percentage of lower priced Texas shipments. Overall asphalt shipments increased 68%, driven by contributions from the Tiller operations, which more than offset weather related shipment declines in our Colorado Asphalt and Pavement business.

Speaker 2

Colorado market fundamentals remain strong, supported by healthy bidding activity and overall customer optimism. Organic asphalt pricing improved 4%. Looking ahead, we remain confident that Martin Marietta's Active market fundamentals and accelerating long term secular demand trends across our 3 primary end use markets will drive increased levels of building activity and continued favorable pricing trends in the second half of twenty twenty one and into the future. Demand for our construction products is growing And we have both the ability and capacity to supply the needed building materials. However, transient contractor labor and supply shortages Compounded by weather deferred days that become increasingly difficult to recover as the year advances can govern the near term pace of overall construction activity.

Speaker 2

Fortunately, we expect work not completed this year to simply be pushed into 2022 and foresee bottlenecks like these moderating And throughput improving as federal unemployment benefits expire in September. We're also in the midst of the most significant seemingly bipartisan national infrastructure debate in a long time with a number of proposals from both political parties to advance and address much needed investment. Regardless of the pathway to successor infrastructure legislation, All proposals provide for sizable increases in federal surface transportation funding over the Fixing America Surface Transportation or FAST Act. We're optimistic that meaningful progress in Washington DC will be made and a FAST Act replacement will be passed before its expiration in September. Such legislation would immediately stimulate economic growth, contractor optimism and job creation, while also driving meaningful product demand Starting in late 2022 and beyond.

Speaker 2

Our company's top 5 states' Department of Transportation or DOTs are well positioned to put increased transportation dollars to work. More specifically, Texas, Colorado, North Carolina, Georgia and Florida, which accounted for over 70% of our 2020 Building Materials revenues, have an abundance of projects in their backlog that would benefit from higher federal funding and generate growing demand for our products. At the same time, increased visibility and funding certainty at the federal level For reference, aggregate shipments to the infrastructure market accounted For 34% of 2nd quarter shipments, well below our 10 year historical average of 43%. Non residential construction continues to benefit from increased investment in aggregates intensive heavy industrial warehouses and data centers. We're also beginning to see early signs of recovery in the more COVID-nineteen impacted light commercial and retail sectors, notably in key markets such as Denver, Atlanta and the Texas Triangle.

Speaker 2

Light non residential activity Should be a more significant demand driver in 2022 given the attractive drag along effects of strong single family residential growth. Aggregate shipments to the non residential market accounted for 36% of 2nd quarter shipments. Martin Marietta continues to be a beneficiary of Single family housing growth across the Southeast and Southwest. Single family starts remain strong despite Higher home prices and longer material delivery times supported by significant underbuilding over the past decade, low mortgage rates and accelerated de urbanization trends. Importantly, single family housing is 2 to 3 times more aggregates intensive than multifamily construction, Given the ancillary non residential and infrastructure needs to build out new or expanding suburban communities, Aggregates to the residential market accounted for 25% of 2nd quarter shipments.

Speaker 2

I'll now turn the call over to Jim to discuss more specifically our Q2 financial results. Jim? Thanks,

Speaker 3

Ward, and good morning to everyone. The Building Materials business posted products And services revenues of $1,200,000,000 a 7% increase from last year's 2nd quarter And product gross profit of $357,000,000 Aggregates established 2nd quarter records for revenues and gross profit, Higher diesel costs and a $6,000,000 negative impact from selling acquired inventory that was marked up to fair value As part of acquisition accounting, are reflected in product gross margin of 34%. Excluding the acquisition impact, Adjusted aggregates product gross margin was 34.8%, a 70 basis point decline versus prior year. In addition, gross profit per tonne shipped improved modestly when excluding the impact of acquisition accounting. Cement product gross margin declined 8 70 basis points despite top line growth, driven by the timing and scope of planned kiln maintenance as well as higher energy and raw material costs.

Speaker 3

While our first half results were impacted by some weather related headwinds, Our cement business is well positioned to benefit from a growing demand and tight supply. Ready mix concrete product gross margin declined 3 50 basis points to 7% as shipment and pricing gains were offset The higher costs for raw materials and diesel. Magnesia Specialties continued to benefit from improving domestic steel production and global demand for Magnesia Chemical Products generating product revenues of $70,000,000 a 43% increase. Revenue growth more than offset higher energy costs for energy and contract services, driving a 260 basis point improvement and product gross margin to 39.9 percent. On a consolidated basis, earnings from operations included more than $9,000,000 of Regarding supply chain and inflation, we are pleased that our overall supply chain remains resilient with only a handful of indications of strain for some suppliers.

Speaker 3

On the cost inflation front, the only notable headwinds we have seen are from increased energy costs. For the Q2 alone, our total energy costs increased $24,000,000 company wide. Absent this headwind, our consolidated adjusted margins would have outpaced prior year, a testament to our team's commitment to cost control and operational excellence. We remain focused on the disciplined execution of our proven strategy and our long standing capital allocation priorities that preserve our healthy balance sheet, financial flexibility and investment grade credit rating profile. As Ward noted, we continue to balance value enhancing inorganic growth opportunities with prudent capital spending and returning cash to shareholders.

Speaker 3

To that end, we have raised our full year capital spending guidance to $450,000,000 to $500,000,000 as we prioritize high return capital projects focused on growing sales and increasing efficiency to drive margin expansion. Additionally, since our repurchase authorization announcement in February of 2015, we have returned $1,900,000,000 to shareholders through a combination of meaningful and sustainable dividends as well as share repurchases. As of June 30, our debt to EBITDA ratio was 1.9 times. In late June, we accessed the capital markets to finance the Lehigh West region transaction issuing $2,500,000,000 of senior notes with a weighted average interest rate of 2.2% and weighted average tenure of 15 years. The bond sale settled in early July and as such is not reflected in our 2nd quarter results.

Speaker 3

We expect pro form a leverage at year end to be above our target range. Consistent with our practice of repaying debt Following significant acquisitions, we are committed to returning to our target leverage range of 2 times to 2.5 times within 18 months Following the closing of the transaction. As detailed in today's release, we've updated our full year guidance to reflect current expectations, The completion of the Tiller acquisition and the $2,500,000,000 bond offering. We now expect full year adjusted EBITDA to range from $1,465,000,000 to $1,535,000,000 With that, I will turn the call back over to Ward. Thanks, Jim.

Speaker 3

To conclude, we're proud of

Speaker 2

our record first half results and industry leading safety performance and remain highly confident in our outlook for the balance of 2021. Martin Marietta is well positioned to capitalize on emerging growth trends that are expected to support sustainable construction activity, both in the near and long term. As we soar to a sustainable future, our focus remains on building the safest, Best performing and most sustainable aggregates led public company. Thanks to our disciplined execution of SOAR, Commitment to safe and efficient operations and our dedication to both commercial and operational excellence, today, Martin Marietta is superbly positioned. We're confident in Martin Marietta's ability to deliver sustainable growth and superior shareholder value in 2021 and beyond.

Operator

We ask that you please limit yourself to one question. Please stand by while we compile the Q and A roster. Our first question comes from the line of Stanley Elliott from Stifel. Your line is now open.

Speaker 4

Good morning, everyone. Thank you all for taking the question. Ward, you mentioned the strong pricing environment on the cement side, the $8 increase You're coming in September. Can you talk about what you're seeing on the aggregate side as well and then also some of the downstream businesses?

Speaker 2

No, happy to Stanley. Good morning and nice to hear your voice. So you're right, September 1 is going to be an important date in cement. We're taking that pricing up, as you indicated, dollars 8 a ton. But as we also indicated during when we were at the end of the Q1, we thought we would see more mid year price increases than we've seen in years past.

Speaker 2

That's entirely what's happening. If we're looking on the aggregate side first and look at our East division, we're looking in a number of places for $1 a ton on Cleantone, dollars 0.50 a ton Based on all effective July 1. So that's something that we put into effect. But equally, we're looking at aggregate price increases mid year in the Southwest division. So for example, in North Texas, and for purposes of this read, Dallas Fort Worth, we're looking at $0.50 to $0.75 a ton on September 1.

Speaker 2

In Austin, we're looking more at $1 a ton on August 1. At Hunter Stone, which was one of those found synergies from TXI, where we have the quarry In conjunction with the cement plant in New Braunfels, we're looking $0.50 to $1 a ton on August 1. And at Garwood, just outside Houston, Sand and gravel facility looking at $1 a ton there. So that's what we're seeing on the stone side of it. Equally, and I think this is important, Stanley, We're looking for that also in ready mix, particularly in Texas.

Speaker 2

So we're looking for ranges anywhere from $4 a cubic yard In Austin and in East Texas, up to $6 a cubic yard in North Texas. So if we think about what we're seeing in mid years, We're seeing it in aggregates, we're seeing it in the east, we're seeing it in the southwest, we're seeing it in cement in our uniquely Texas business today, And we're also seeing it in ready mix in Texas. So again, the type of backdrop that we anticipated we would see, Stanley, I'm happy to report that to

Speaker 4

That's great. And then secondly, can you talk a little bit more about the inflation side that you saw in the cement? My guess is some of the maintenance is

Speaker 2

Not a

Speaker 4

whole lot last year and kind of a normal cadence this year, but any other thing to call out? And then I guess one other thing, any update on the additional grinding capacity expansion that you all had thought about earlier in the year there.

Speaker 2

Yes. So what I'll say relative to the grinding capacity, again, that's something that we're finished That we'll be adding to Midlothian, so you'll hear more about that as we go into 2022. Again, that's a market that we believe simply needs that. With respect to the maintenance in cement, you're exactly right. If you think back to 'twenty, part of what we indicated coming into 'twenty one is that we would Spend more in cement maintenance.

Speaker 2

In fact, we had indicated to the market early on that we thought we would spend about $6,000,000 more on kiln and finish mill outages in 'twenty one than we did in 'twenty. And really Q2 was the time to do that. So if you're looking at the delta On what we did last year in Q2 and what we did this year in Q2 on cement maintenance, It was about $7,300,000 difference. So we spent that much more in Q2 than we did last year. So in other words, that full annual difference that we had anticipated that you should expect, we pretty much did that in Q2.

Speaker 2

So what we're expecting It's a very comparable smooth run here in the second half of the year and frankly we're expecting better margins in that business in the second half of the year as a consequence.

Speaker 5

Perfect. Thank you all

Speaker 4

for the time. Best of luck.

Speaker 2

Thank you, Stanley.

Operator

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

Speaker 6

Thank you for taking my question today. It feeds a little bit into the previous question. Could you provide a stair step in terms of the guidance update In terms of puts and takes, in terms of good guys, bad guys, and then layering in on the price increases, But what have margins been excluding some of the cost from energy that you outlined? And how do these margins really play into the back half of the year and really into 'twenty two from a margin profile. Thank you.

Speaker 2

No, you bet, Catherine. So, several things. Let's talk about the margin piece of the first, because as Jim indicated In his commentary that was prepared, energy was up $24,000,000 for the quarter. So I mean that was a big number. And if we look at diesel fuel all by itself, that was up almost $15,000,000 So if we go and look at our diesel fuel usage, that was about a little bit over 12,000,000 gallons Diesel fuel, up about $1.11 per gallon.

Speaker 2

So if we go and pull that energy piece of it out And look at the margins, actually, what you'll see on the margins across the enterprise is that adjusted gross margins actually improved over Q2 2020. What that tells me, Catherine, is the underlying performance of the cost side of the business is actually doing extraordinarily well. So what I'm pleased with The underlying cost is doing well and we're seeing the price move forward in a way that we thought that we would, particularly as the economy continues to improve. Now with respect to your question on guidance in particular, you're right, you had some things moving around. 1, we did just drop in what we had indicated verbally And that was we expect $60,000,000 of EBITDA contribution from the acquired Tiller operations.

Speaker 2

Equally, if we're looking at our cement business that has No pun intended, weathered the deep freeze in Texas in February and then as we indicated an extraordinarily wet Q2. We've taken cement down a little bit and of course ready mix is going to follow that. So we pulled that down a little bit. And asphalt and paving in Colorado We had a very challenging year over year quarter. So we pulled those down, but we've equally taken Magnesia Specialties So those are some of the broader puts and takes that we have.

Speaker 2

If we look overall at the pricing, we've really not changed pricing. We've That's very consistent with where we thought. Keep in mind, the mid years that we're putting in will not affect pricing that much this year. It's setting the stage Even more robustly for 2022, and we did pull aggregate volume down just a hair. In large measure, We're just looking at the days left in the year.

Speaker 2

It's not indication of any lack of robustness in the market. At some point, the days just get shorter. So Kevin, I hope that answers your series of questions.

Speaker 6

It does. Thank you.

Speaker 2

You're welcome.

Operator

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

Speaker 7

Hi, good morning, everyone. This is Jatin Khanna on behalf of Jerry Revich. Our question is around aggregates pricing. The midpoint of heritage pricing guidance implies about 5% organic pricing in the second half versus about 3% in the first half, is that the extent to which you expect pricing to accelerate based on media price increases? And also, What would have to happen to hit the high end of the guidance range?

Speaker 7

Thank you.

Speaker 2

Thank you for the question. So a couple of things. 1, if we think about volume guidance in the second half, what it's implying is basically about a 4% increase in volume in the second half. And you're right, What we're anticipating is we're going to see some accelerating pricing. A number of the things that we've seen during the first half of the year that I think is important Yes, we've seen considerably more base work than we have before.

Speaker 2

I think that's actually good because as you may recall, base work ends up turning into Finished work on top of that. So you're going to see several things. 1, we believe North Carolina, Georgia and the East will continue to perform Actually quite well. If you're looking overall at the volume, and again, the volume is going to have some degree of impact on ASP, if you think about geographic mix. The EastGroup in the first half was up 7%, excluding Tiller, it was up 4%.

Speaker 2

But it's important to note that Tiller's pricing is about 30% lower Then Heritage Mart Marietta. So that actually gave us a modest headwind. So if we're looking at what I think will be more clean Stone sales most likely in the second half of the year, continued good performance in the East. And in some instances, we were selling some products that were in reserve. And typically, those tend to go for a relatively lower average selling price.

Speaker 2

I think it does back in Triangulating around the number that you had indicated, and yes, we continue to have good confidence around that in the back half of the year.

Speaker 7

Thank you very much.

Speaker 2

You're welcome.

Operator

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

Speaker 5

Good morning. Thanks for taking my question. So if you look at Sorry, the guidance again, digging into that just a little bit more, You talked about the energy costs that were obviously present, probably not going to change any. You talked about some pricing, Obviously that follows that that you guys are putting in place. But Ward, you also mentioned that that it will be probably more next year before this pricing Really starts to impact.

Speaker 5

So as we look at the back half, your margins were impacted in 2Q, but I think Catherine asked the question earlier, but maybe a little bit different angle. On the back half margins as we look through the balance of the year, How are we looking at the price versus some of these energy impacts that you're seeing and then how that flows through relative to what we saw in the 2Q?

Speaker 2

Well, again, I think you clearly will get some benefit from mid years in the second No, the fact is most of that as we discussed straight is going to play more into next year. I think the other thing that we saw a bit in the first half is we did see a bit more Maintenance and repair. And some of that was tied into the acquisition activity as well. So we think that's going to moderate itself. So I think that's clearly going to come back And helpful on the margin piece of it.

Speaker 2

I think the other thing is, if we simply look at what was happening in Texas and in Colorado, it's difficult to be as Sufficient as you want to be when you're dealing with those high degrees of rainfall as well. So we're entering a period of time that typically is drier. We're entering a period of time that Some of the mid years will play in. We're entering a period of time where I think we're going to see more clean stone going relative to base. And I think we're entering a period of time That you're likely to see less maintenance and repair because in many respects, people are simply blowing and going in Q3.

Speaker 2

So I think you take that combination of factors and I think it comes back and addresses some of the margin questions. I'll turn to my colleague, Mr. Nicholas, and see if he has anything he wants to add to that, Trey.

Speaker 3

Sure. So hey Trey, I hope you're doing well. One notable thing on energy is our old guidance compared to new guidance, we've increased energy expense by $34,000,000 And despite that, to your margin question, our incremental for the year, Once the year is all set and done, we're expecting 60% incremental margins still on the accurate side despite that heavier energy expense. So By and large, again, we're very happy with where things are ending up. And just to put in perspective, 2021's energy expense and diesel, While higher versus last year, it's pretty much in line with what we saw in 2019.

Speaker 3

So for us, this is Not much of a stretch to kind of keep pulling these good margins in.

Speaker 5

Great. Got it. And thanks for Clarifying some of

Speaker 2

that stuff, it was

Speaker 5

just some questions that getting in the weeds was definitely helpful. Thank you. And then if I could sneak one in just on the big picture because you did mention it on the bipartisan bill. I mean this is It's kind of surprising, I think, to some that we're seeing the folks in Washington actually look like they may be coming together on something here. But Just given kind of where they've outlined funds for Street and Highway and Bridge and other things, which I think the bridge piece might have been taken up a little bit.

Speaker 5

But I'd love to get your thoughts on this version of the bill, And maybe what it could mean longer term for Mark Marietta.

Speaker 2

Look, thanks for the question very much on that. And obviously, we're all watching what happened at the Senate last night. I guess the good news is I'm not sure that here we were not surprised by it. So look, based on the way that we see it, it's an overall proposal $1,000,000,000,000 5 years, dollars 550,000,000,000 in new spending. And really, if we're looking at roads and bridges, right, that's going to be By our math, about $110,000,000,000 that's going to be around $39,000,000,000 for public transport, another $66,000,000,000 for rail.

Speaker 2

And keep in mind, we're the largest Ballast production in the country, dollars 25,000,000,000 for airports and about $17,000,000,000 for ports. So I mean that's going to be a lot of work. What does that mean overall? I think it means several things. 1, it's recognition that it's overdue.

Speaker 2

Number 2, it's a recognition that at least from our perspective, Trey, And you heard in the prepared remarks, you know having watched this business for a long time and this industry for a long time, typically 40 some percent of our products is finding its way to highways, bridges, roads and streets, and we've been in the 30s for the last several years. And that's really evidence of the fact that there's not the level of investment at the federal level that was needed. So if we're looking simply at the Senate bipartisan plan And we're looking at what that means from a percentage up from baseline FY 'twenty one appropriations under FAST, It's up about 46% from the baseline. So this is not a trifling number. And what I really liked about it too is If you look at the vote last night on basically the closure motion, what you're going to find is 67 senators voted for this And among them was Mitch McConnell.

Speaker 2

And so when we start looking at where Senate leadership is and who really came along To move that vote along, it was some pretty notable players. And the other thing that I think is important is obviously the pay fors Are going to matter in this. And when we look at the pay fors and at least how they've been pulled together in the Senate version, you've got a lot of repurposed COVID relief Going into this, you've got some unused unemployment insurance that's going into it. And then obviously, they're going to be looking at degrees of economic Growth that's going to be derived from the program's investment, in other words, dynamic scoring, that's also going to be a piece of it. So the fact that It got that degree of a vote that it got that type of support from Senators Manchin, Cinema, Portman and McConnell.

Speaker 2

We think it's important and we think it helps put the industry in an attractive place, not just from an infrastructure perspective going forward, We believe residential is going to remain strong. We think heavy non res is going to remain strong and we think res is going to inflect That light portion of non res. Long story short, we think this bill, if it's pushed forward into law, and we believe it will be before the FAST Act expires, Puts the industry in a very attractive place for a multi year run, Trey.

Speaker 5

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

Speaker 2

You bet. Take care.

Operator

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

Speaker 8

Hey, good morning, everyone. Ward, this 2nd round of price increase you called out for aggregates in the East and Texas, I believe, Any way to kind of put that into context what's driving that? Is that more tightness in supply demand versus inflation? And if it's more tight market conditions, we want to get a little flavor And how broad based is this potentially as we kind of look out to next year? And if that's the framework, should we expect a noticeable step up from the 3% to 5% Pricing we've seen in the last few years?

Speaker 2

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

Speaker 2

For example, if we look at where North Carolina Department of Transportation is, I mean, their financial issues are very much in the past with 22 lettings of $2,700,000,000 That's up, I mean, if you can imagine, 2 60% from the prior year. So if we're looking at what's happening relative to homebuilding in these markets, if we're looking at what's going on with Infrastructure, if we're looking at a very healthy non res environment as well in the East, it all looks very, very attractive, Whether that's going to be in North Carolina or Georgia or South Carolina or Florida as well. The other thing that I think is really telling When we pause and take a look at the backlogs and backlogs are always something funny in this industry because it's a practical matter. They usually represent only around 25% or 35% of annual aggregates in cement going forward, but it does give you a good dipstick into the tank to get a sense of And total aggregates backlogs is pretty attractive. It's around 13% ahead of prior year levels.

Speaker 2

So again, if we're going back to the notion of overall contractor confidence, if we're looking at people who are going to be busy and they know they're going to be busy, And then seeing broadly an overall inflationary market in a lot of different respects, It's actually a very appropriate and opportune moment for us to make sure that we're getting the value For a spec material that not everybody can put on the ground.

Speaker 8

That's super helpful. And sorry to sneak one in. You mentioned you're starting to see some improvement in light commercial. Any color on how trends have progressed the last few quarters? Are you starting to see shipments Flattening out a little bit, any color on the bidding activity would be helpful as well.

Speaker 2

No, that's a great point. We clearly are starting To see better activity on white non res. I mean, if we're looking in Colorado, I mean, clearly, office retail and hospitality is looking for a Stronger inflection in half 2. If we're looking here in our backyard in North Carolina, it's been fairly fascinating to watch. I mean, retail and hospitality Are both already beginning to inflect and we're starting to see strong corporate relos here.

Speaker 2

Population trends are following that. We've got Apple and Google making Significant investments here. And again, as we're looking in markets like Florida, office, hotel, retail and industrial activity And that marketplace actually continues to really be quite strong. A lot of what's driving it and look, we get it. The U.

Speaker 2

S. Has added since 2000 over 48,000,000 people in population. And what that's doing is it's Driving what we're seeing now in single family housing and then single family housing is driving what we're starting to see in flood Basically the way that we thought we would during Analyst Investor Day here as we go into half 2, Phil. So I hope that helps.

Speaker 8

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

Speaker 2

Thank you.

Operator

Thank you. Our next question comes from the line of Gerrick Schmois from Loop Capital, your line is now open.

Speaker 2

Great. Thanks for taking my question. I think you mentioned that Hiller is The first couple of months of ownership outperforming your initial expectations. I'm just kind of curious as to what's driving that. And then Also, if I heard you right, you said Tiller pricing is about 4 points below the corporate average.

Speaker 2

So can you speak to perhaps the commercial synergy opportunity there? No, happy to. Number 1, we're thrilled to have Pillar as part of this organization culturally and otherwise. They have fit Wonderful, Forrest. You heard what I said in the prepared remarks.

Speaker 2

Basically in May June, they sold 1,000,000 tons of aggregates and 1,000,000 tons of pot mix. By the way, I think in their history, that's the fastest they've ever got, got 1,000,000 tons in hot mix. I think what you're seeing is several things. 1, The Minneapolis St. Paul market is a good healthy Midwest market.

Speaker 2

It tends to be very steady. We're seeing good activity there. We talked before about the fact that Minneapolis St. Paul actually consumes more tons of aggregates and hot mix on a per annum basis Than even Charlotte does, which is a premier market here. So again, I think from a timing perspective and from a market perspective and putting their business Together with ours in that important market to us, the timing was good, the operational synergies are going to be real.

Speaker 2

We have a lot that we can learn from each other there. Tiller is extraordinarily good on the asphalt side. They are already teaching us Things that we can take from that, I think we can help them on the aggregate side, but I will tell you they are very good on the aggregate side. So again, if we're looking at margins in that business, They tend to start with a 3. So again, I think everything that we were hoping that we would see in that transaction has come through.

Speaker 2

The other thing that's happening too is they have some very attractive real estate that they've been able to sell, we've been able to sell That actually takes the overall purchase price paid for the business and pulls it down actually very nicely. So I'm happy to report to you, Garrett, there's nothing about that Transaction that, as you might be able to glean from my commentary, that we're not gushing about right now. So we're very pleased with it and think there are great things to come.

Speaker 7

Great. Thanks again.

Speaker 2

Thank you, Garrett.

Operator

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

Speaker 9

Good morning, Suzanne, gentlemen.

Speaker 2

Hey, Mike.

Speaker 9

Maybe Maybe share some thoughts on very good performance on specialty magnesia. Pretty impressive at times, it appears In the U. S. Steel market and certainly demand for the products and chemicals going around the world, what are your managers, are they is this some Sustainability to this, is it very cyclical? Is there going to be maybe more of a sustainable aspect to what the business could be like Maybe looking in next couple of years out or is it just a cyclical pop here that The markets will dictate a little bit even though we're having some strong tightness in those down and upstream markets.

Speaker 2

Number 1, thank you for the question on that Because that's an extraordinary business. It does not get the airtime that it has earned and it deserves. So what I would say is several things. What you're seeing in the business this Quarter isn't so much an unusual pop. This is more like returning to usual for that business.

Speaker 2

So if we think about what was happening globally last year at this time, Steel was in a very challenging place. Overseas Chemicals was in a challenging place because in many respects, markets were closed. So if we go back to June of 'twenty, steel was It tells us that we expect that business to run strong and remain strong certainly for the rest of this year. The other thing that we're seeing is cobalt And that ends up being an important market for us overseas, is up 52% since the end of 2020. So when we're looking at how the business is performing on steel, where it's performing relative to its chemicals business, all that's really quite good.

Speaker 2

And here's what's even more impressive, because if you keep in mind, energy has actually been going up during much of this year. Keep in mind that is a large kiln driven business and portions of it, both in Woodville and in Manistee. And typically as natgas goes, It can have a profound effect, well not a profound effect, a notable effect on the way that business is operating. And basically what we're Seeing is their ability to manage their costs extraordinarily well. They continue to get good pricing And we believe that business back to the essence of your question is in fact very, very durable, Mike.

Speaker 2

So we expect Continued great things from Mack Specialties. But again, thank you for the question.

Speaker 9

No, that's excellent. Well said. Thanks.

Operator

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

Speaker 10

Hi. This is Joe Nolan on for David MacGregor. I'm actually going to give Magnesia Just wondering about capacity availability in that business. Just wondering if you're approaching constraints and if so, you have any intention to invest in growth of new capacity Or would you rather pursue debottlenecking increments? Just any details there?

Speaker 2

Yes, that's a great question. And there can't be enough Magnesia Specialties love. So thank you for round through the question. That is a business that in many respects is running at capacity right now and we recognize that. So much of what that business is doing is several.

Speaker 2

1, it is looking for ways to debottleneck and run things more efficiently. Number 2, it continues to look at its product mix and will continue to drive more of what it's doing to its higher margin products. They've had a great I'm sure they have a very bright future of doing that as well. Part of what's so difficult about that business and it's one of the great things about the business We produced 24% of the dolomitic line in North America from our facility at Wiggle. And opening permitting and otherwise the Dolomotec line plant is very costly.

Speaker 2

It's very time consuming. Both our facilities in Manistee and in Woodville have Title V operating permits. They operate very, very efficiently. So adding more capacity is something that's very difficult. We're always looking for responsible ways to grow the business.

Speaker 2

But I think in the near term, what you can anticipate It's Debond Lekking focusing on higher margin products. And at the end of the day, we're going to be focused on pricing in that business Just as we are in the aggregates and cement business. So Joe, I hope that helps.

Speaker 10

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

Speaker 10

Thanks.

Speaker 2

Yes. No, happy to. As I indicated, our FY 'twenty two lettings, just looking at NCDOT for a second, are increasing 2 60%. So I mean, clearly, DOT is in a much different, very healthy place right now. Keep in mind, that's an overall DOT with an annual budget of around $5,000,000,000 So that's on the public side of it.

Speaker 2

If we look on the non res side, I would say several things. If you think about North Carolina really working from the middle of the state To a little bit farther west, you had up in Raleigh Durham, then you had farther west to Greensboro, High Point, Winston Salem, then to Charlotte, All markets in which we have leading positions. So if I think about what's going on in Charlotte, for example, from a non res perspective, Charlotte continues to be a significant beneficiary of a lot of warehousing activity. You've got I-seventy seven, I-eighty five and a host of large thoroughfares that are coming together And what's effectively the capital of the Carolinas, if you think about it. What's important too is in places like Green Star and the Triad, Again, we're seeing good warehousing.

Speaker 2

We're seeing good medical and surprisingly healthy retail activity there. But here's part of what I think is driving that. So for example, Doctor Horton recently announced their plans to build a 1,000 home subdivision in Greensboro. What I'm going to suggest to you, Joe, if you go back in time and listen to the last time I was talking about somebody building a 1,000 home subdivision in the Triad, it's been a while. So the fact is, if you're seeing that type of single family housing growth in the Triad, you're going to continue to see good non res activity.

Speaker 2

And I spoke just a few minutes ago about what's happening here in the Raleigh Durham area with Apple, with Google, with generally what's happening in the Research Triangle Park. And keep in mind, when you've got North Carolina State University in Raleigh, the University of North Carolina in Chapel Hill and Duke University in Durham, You've got 3 large universities that tend to drive a lot of economic activity and you've got state government here. And so this is an area that in good times does extraordinarily well in more challenging times. You're not going to say it's recession proof, But it's pretty close. So those are the types of things that we're seeing in North Carolina, Joe.

Speaker 10

Thanks. I'll pass it on.

Speaker 2

Thank you. Take care. Best of David.

Operator

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

Speaker 11

Good morning. Thanks for taking my questions. You bet, Josh. I wanted to clarify the pricing Commentary that you gave in aggregates, are those midyear price increases included in the guidance or a potential source of upside depending on how quickly they gain traction?

Speaker 2

Well, we've done our best to make those in. It's a practical matter of what you're doing, Josh, as you are protecting people who already have prices from you. As a general rule, what I would tell you is you're going to recognize about 25% of a midyear price increase if in fact you're putting them in at midyear And the year that they're baked in. So that's how I would ask you to think about those. In many respects, the mid years that I outlined for you on aggregates, At least in the East were effective on July 1.

Speaker 2

Now keep in mind, when I went through those different portions of the Southwest, Most of those were effective on August 1, some were effective September 1. So we've done our best to bake that into what we have, but It can be a little bit elusive at times.

Speaker 11

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

Speaker 2

The balance of the year ought to be a pretty smooth run because as I think I indicated in the conversation with Stanley, We had indicated there was going to be about $6,000,000 delta more in 2021 than there was in 'twenty. And again, we had outlined the fact that in Q2, the maintenance costs were up about $7,300,000 All right. Very good. Thank you so much. Take care, Josh.

Speaker 2

And again, thank you all for joining today's earnings call. We'll continue to focus on maximizing value for shareholders as we build on our strong results and continue executing on our SOAR 2025 plan. We look forward to sharing our Q3 2021 results in a few months. As always, we're available for any follow-up questions you may have. Thank you for your time and your continued support of Martin Marietta.

Speaker 2

Please stay safe and healthy. We'll speak to you soon.

Operator

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

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Akamai Technologies Q2 2021
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