James Nickolas
Senior Vice President and Chief Financial Officer at Martin Marietta Materials
Thank you, Jenny. Good morning, everyone, and thank you for joining today's teleconference. I'm pleased to report that Martin Marietta delivered record results in the third quarter. This is despite current macroeconomic challenges that include persistent inflationary pressure across multiple cost categories, tighter monetary policies and heightened geopolitical tensions. Our quarterly performance is a testament to our team's commitment to commercial excellence and execution of our strategic business plan. The results also reflect our successful implementation of double-digit pricing growth across all Building Materials product lines. That, combined with acquisition contributions, drove record quarterly consolidated total revenues, gross profit, adjusted EBITDA and adjusted earnings per diluted share.
Importantly, too, our year-to-date safety and health performance inclusive of acquired operations remains at world-class levels as measured by both total injury and lost time incident rates. While we acknowledge and celebrate our continuous safety and health improvement, our work in this final dimension is never done.
In addition, on August 9, we entered into a definitive agreement to sell our Tehachapi, California, cement plant and related distribution terminals to CalPortland Company for $350 million, subject to regulatory approval and customary closing conditions. This transaction aligns with our commitment to an aggregates-led business, complemented by strategic cement assets in certain markets, improves the durability of our business through cycles and provides balance sheet flexibility to continue driving shareholder value. Our capital allocation priorities remain focused on prudent investment and attractive acquisitions, organic growth initiatives and returning capital to shareholders while reducing net leverage to within the company's targeted range.
As highlighted in today's release, we achieved a number of significant financial and operating records in the third quarter, including consolidated total revenues increased 16% to $1.81 billion. Consolidated adjusted gross profit increased 8% to $488 million. Adjusted EBITDA increased 9% to $533 million and adjusted earnings per diluted share from continuing operations increased 10% to $4.69. These results on flat organic aggregate shipments underscore the success of our value over volume commercial strategy through which multiple pricing actions were successfully implemented this year.
However, inflationary trends also impacted our operating costs and affected our adjusted consolidated gross margin, which declined 200 basis points to 26.9% for the quarter. Notably, this is both a moderated pace and sequentially higher as compared with the second quarter of 2022.
As a result of the current demand environment and persistently high inflation, we've advised customers of fourth quarter price increase in a number of our markets as well as broad-based January 1, 2023 increases. We believe these commercial initiatives, together with other inflation containment actions, position Martin Marietta well to expand margins in the fourth quarter and deliver another year of strong profitability in 2023. For our company, it past is prologue, and we believe that it is, inflation supports a constructive pricing environment for upstream materials, the benefits of which endure long after inflationary pressures abate.
Let's now turn to our third quarter operating performance, starting with aggregates. We continue to experience healthy aggregates demand across the company with total aggregates shipments, inclusive of acquisitions, increasing 5.6% to a quarterly record of 60.2 million tons. Organic aggregates shipments were largely flat as otherwise strong demand was offset by supply chain disruptions, inclement weather in certain key markets and most notably, logistics constraints and cement shortages, the latter curbing the immediate need for aggregates in the manufacture of ready-mix concrete.
Aggregates pricing fundamentals remain very attractive and organic aggregates pricing increased 11.9% or 11.3% on a mix-adjusted basis. The cumulative effect of multiple pricing actions continued to build in the third quarter. These disciplined actions, combined with overall customer confidence and demand visibility bode well for meaningful price acceleration in the fourth quarter and in 2023.
The Texas cement market continues to experience robust demand and tight supply, resulting in effectively sold-out conditions. Against that backdrop and combined with our cement team's focused execution on commercial and operational excellence, we delivered record third quarter shipments of 1.1 million tons and pricing growth of 21.4% as our second $12 per ton increase this year went into effect on July 1. We expect favorable Texas cement commercial dynamics will continue for the foreseeable future, supportive of our recently announced $20 per ton price increase effective January 1, 2023.
Shifting to our targeted downstream businesses, organic ready-mix concrete shipments decreased 16.8%, largely due to a historically wet August in North Texas as well as the completion of certain large projects in the quarter. Organic pricing increased 20.3%, reflecting multiple pricing actions, including fuel surcharges necessary to pass through raw material and other inflationary cost pressures.
Organic asphalt shipments increased 4.3%, driven primarily by strong demand in Colorado, while organic pricing improved 22% to help offset the increase in raw materials costs, principally liquid asphalt or bitumen. Notably, for comparative purposes, prior year asphalt volumes were constrained by a bitumen shortage in Colorado. Including contributions from our acquired operations in California and Arizona, asphalt shipments and pricing increased 31.3% and 26.1%, respectively.
Before discussing our preliminary 2023 outlook, I'll turn the call over to Jim to conclude our third quarter discussion with a review of our financial results. Jim? Thank you, Ward, and good morning to everyone. The Building Materials business posted an all-time record this quarter with products and services revenues of $1.61 billion, a 15.9% increase over last year and an adjusted product gross profit record of $467 million, an increase of 10.9%. Adjusted aggregates product gross profit improved 10.5% relative to the prior year's quarter to a record $330 million. Adjusted aggregates product gross margin declined 240 basis points to 32.5% as robust pricing growth had not yet offset the continued inflationary impacts of higher energy, internal freight, repairs and maintenance costs. Our Texas cement business delivered all-time quarterly records for top and bottom line results. Revenues increased 23.4% to $163 million, while gross profit increased 35.7% to $68 million. Importantly, execution of a disciplined commercial strategy drove a gross margin expansion of 380 basis points to 41.5%. That was despite notable energy cost headwinds, primarily related to natural gas and electricity. Domestic production capacity constraints and strong demand contributes to extremely tight supply in the North and Central Texas markets. As a reminder, we are taking two notable near-term steps to increase cement production capacity in Texas. First, we are in the midst of conversions at our Midlothian and Hunter plants to manufacture a less carbon-intensive Portland-limestone cement, also known as Type 1L. This eco-friendly product has been approved by the Texas Department of Transportation and we believe our customers will view it as providing significant stakeholder benefits. Once we've completed our transition to Type 1L, our cement production capacity will increase by approximately 10%. Second, we are installing a new finish mill at our Midlothian plant, which is expected to be completed by the end of 2023. This new finish mill will provide 450,000 tons of much needed incremental production capacity to the Texas marketplace. Our third quarter ready-mix concrete results exclude the Colorado and Central Texas operations that were divested on April 1 and include the acquired Arizona operations, impacting the comparability with the prior year quarter. On an as-reported basis, ready-mix concrete product revenues declined 29.1% to $227 million and gross profit declined 40.3% to $19 million, driven primarily by the divestiture, which was partially offset by contributions from the acquired operations. Increased raw material costs further weighed on the gross margin for the quarter. Our asphalt and paving results include the operations acquired on the West Coast, impacting comparability with the prior year quarter. On an as-reported basis, stable demand, improved pricing and acquisition contributions led to record revenues of $310 million, a 58.1% increase and record adjusted gross profit of $50 million, a 22.9% increase. However, continued liquid asphalt inflation contributed to the adjusted product gross margin decline of 470 basis points to 16.3%. Magnesia Specialties generated product revenues of $69 million, a 4% decrease, driven largely by lower demand from domestic steel industry customers for dolomitic lime products. Product gross profit declined 22.9% to $22 million as higher energy costs resulted in gross margin compression of 770 basis points to 31.3%. On a consolidated basis, other operating income net included $15 million in nonrecurring gains from the sale of surplus land and other assets. We saw sequential moderation in diesel costs in the third quarter. During the month of October, diesel prices have trended back up. While we anticipate additional volatility in diesel prices, we are forecasting that fourth quarter prices approximate current levels. As a result, with diesel costs no longer increasing sequentially, coupled with our disciplined pricing initiatives, we expect to return to expanding gross margins in the fourth quarter as compared with the prior year period. We remain focused on the disciplined execution of our strategic plan to responsibly grow through acquisitions and reinvest in the business while also returning capital to shareholders. During the quarter, we returned $141 million to shareholders through both dividend payments and share repurchases. We repurchased nearly 288,000 shares of common stock at an average price of approximately $347 per share in the third quarter. We also reduced gross leverage in the past quarter. On September 29, the company utilized cash on the balance sheet to satisfy and discharge a $700 million tranche of senior notes due July 2023. Our net debt-to-EBITDA ratio continued to trend down and ended the quarter at 2.6x. We continue to anticipate a return to the top end of our target net leverage ratio of 2x to 2.5x by year end. Additionally, the company's Board of Directors approved an 8% increase in our quarterly cash dividend paid in September, underscoring its confidence in our future performance and free cash flow generation. Our annualized cash dividend is now $2.64 per share. Since our repurchase authorization announcement in February 2015, we have returned $2.3 billion to shareholders through a combination of meaningful and sustainable dividends as well as share repurchases. As detailed in today's release, we have updated our full-year 2022 guidance to reflect our year-to-date results as well as the impact of lower expected aggregate volumes and continued inflationary pressure. As a result, we now expect full year adjusted EBITDA to range from USD1.610 billion to USD1.675 billion, which excludes the nonrecurring gain on the divestiture in the second quarter. With that, I will turn the call back to Ward.
