Taiwan Semiconductor Manufacturing Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
October 31, 2024

There are 11 speakers on the call.

Operator

you for standing by. My name is Mandeep, and I'll be your operator today. At this time, I'd like to welcome everyone to the Summit Materials Inc. 3rd Quarter 2024 Earnings Call. All lines being placed on mute to prevent any background noise.

Operator

After the speakers' remarks, there will be a question and answer session. Thank you. I would now like to turn the call over to Andy Larkin, Vice President of Investor Relations. You may begin.

Speaker 1

Hello, and welcome to

Speaker 2

the Summit Materials' 3rd quarter 2024 results conference call. Yesterday, we issued a press release detailing our financial and operating results. Today's call is accompanied by an investor presentation and a supplemental workbook highlighting key financial and operating data. All of these materials can be found on our Investor Relations website. Management's commentary and responses to questions on today's call may include forward looking statements, which by their nature are uncertain and outside of Summit Materials' control.

Speaker 2

Although these forward looking statements are based on management's current expectations and beliefs, actual results may differ in a material way. For a discussion of some of the factors that could cause actual results to differ, please see the Risk Factors section of Summit Materials' latest Annual Report on Form 10 ks and Quarterly Report on Form 10 Q as updated from time to time in our subsequent filings with the SEC. You can find reconciliations of the historical non GAAP financial measures discussed in today's call in our press release and investor presentation and supplemental workbook. With me today are Summit Materials CEO, Ann Noonan and Summit CFO, Scott Anderson. Ann will discuss high level highlights from the quarter and then provide our view on the business moving forward.

Speaker 2

Scott will follow with a detailed review of our financial performance. Afterwards, we will open the line for questions. Out of respect for other analysts and the time we have allotted, please limit yourself to one question and then return to the queue so we can accommodate as many analysts as possible in the time we have available. I'll now turn the call over to Ann Noonan.

Speaker 3

Thank you, Andy, and welcome to everyone joining today's call. As you saw in our press release, our Q3 demonstrated tremendous resiliency in the face of very difficult operating conditions. I'm incredibly proud of our collective efforts to act with agility, manage what we could and deliver strategic progress and strong financial results. In Q3, we set an Elevate Era record for both quarterly adjusted EBITDA margin at 28.3% and trailing 12 month EBITDA margin at 24.3%, a strong endorsement of our high quality execution and unwavering strategic focus. And true to our values, we executed the quarter with a safety at all cost mindset.

Speaker 3

When faced with imminent and dangerous storms, we prioritized the safety of our people, closing operations, securing equipment and providing the resources necessary to ensure the health and well-being of our employees. I'll detail the impact from severe weather events in a moment, but what's most important is that through all of the hurricanes and tropical storms, we had zero safety incidents at any of our affected facilities. Turning now to Slide 4, let me provide the highlights from the quarter, both strategically and financially. First, our strategic progress is on track. We continue to move through integration activities with a sharp focus on strengthening our cement platform.

Speaker 3

For example, planning for our Green America recycling expansion is underway at the legacy Argos USA plants. We are establishing critical supplier relationships and advancing our capital planning efforts so that we can begin GAR installation during the 2025 winter shutdown at our Roberta, Alabama cement plant. A disciplined portfolio optimization approach also remains an important component of our Elevate playbook. Guided by market leadership and asset light principles, we are taking action to strengthen leading market positions in targeted geographies, while unlocking value through divesting non strategic assets. Through Q3, we have completed 4 such dispositions, while adding 2 bolt ons to amplify our market position in Phoenix as well as add to our overall ags portfolio.

Speaker 3

With substantial liquidity and robust growth, we will pursue accretive ags oriented acquisitions to fuel greater growth and returns. Financially, we are taking decisive actions across the enterprise to drive sustainable margin growth. Our value pricing strategy continues to deliver results with double digit pricing gains in aggregates and mid single digit organic pricing gains in cement expected for 2024. We are also identifying and attacking the most meaningful operational excellence opportunities across our footprint with an intense focus on Ag's productivity initiatives. And finally, our team is adjusting our discretionary spend to align with the current volume environment, something every good business should do.

Speaker 3

As for factors outside our control, this quarter again, we contended with unprecedented and severe weather that translated into lower volumes and higher costs. Despite this and inclusive of dilutive impacts from the Argos USA transaction, we were able to grow adjusted EBITDA margins in Q3 on a year to date basis and on a trailing 12 month basis. This speaks to our relentless focus on commercial and operational execution and underscores a more durable portfolio that we believe is being undervalued in equity markets. We will hold closely to our Elevate Summit strategy and firmly believe our sound execution will be recognized and eventually rewarded by the investor community. On slide 5, we present our Elevate Summit scorecard, which highlights our financial progress.

Speaker 3

As I mentioned, LTM adjusted EBITDA margin of 24.3% is a summit record for any 12 month time frame since the launch of Elevate in 2021. This is our thesis playing out: focus the portfolio on margin accretive ags and cement platforms, concentrate on geographies with market leading positions and consistently improve the commercial and operational capabilities of the enterprise. This is our formula, which in turn jumpstarts our cash flywheel and unlocks resources to reinvest in further growth and value creation. Net leverage at 2.2 times is down from 2.5 times last quarter and well below target providing sufficient optionality to pursue our highest return capital allocation priorities. ROIC at 8.9 percent will move concurrently with the improvements implemented at our legacy Argos USA cement plants, as there is considerable daylight between legacy Summit and legacy Argos Cement ROIC levels.

Speaker 3

This represents a clear glide path to close in on our ROIC minimum target. Across all financial measures, our actions and strategic priorities are driving the targeted and desired financial outcomes for our business. Now from the macro to the micro. Slide 6 estimates the impact of specific weather events in Q3. Between Hurricanes Beryl, Debbie and Helane, we incurred volume headwinds and elevated costs most prominently in Houston, Western and Northern Florida, the Carolinas and to a lesser extent Georgia and Virginia.

Speaker 3

As you can see, the most consequential event was Debbie, where the quarry that feeds our Harleyville cement plant near Charleston flooded as Debbie dumped significant rainfall over the area. Our teams quickly stood up mitigation measures, blunting the worst of it, but wet feedstock, inaccessible primary equipment and customer related ramifications resulted in approximately 120,000 tonnes of lost volume and $12,000,000 of lost EBITDA. In isolation, Debbie would weigh on any quarter, but when combined with the overall precipitation across our footprint, it rose to a historic headwind for us and for the industry. In our footprint, precipitation days increased in 85 percent of our MSAs and precipitation days were up 20% year on year. Precipitation totals were up 65% versus Q3 2023, underlying the severity of 3rd quarter storms.

Speaker 3

All in, we estimate the 3 discrete weather events cited amounted to approximately $15,000,000 in foregone EBITDA for the 3rd quarter. Notably, this does not include the impact from Hurricane Milton, which we estimate will affect our Q4 by roughly $5,000,000 We'll work to make up as much as we can, but as always that will depend on getting a good stretch of weather to close the year. Cumulatively, for 2024, our business has more than $20,000,000 of weather related EBITDA headwinds this year, and yet we are still positioned to grow EBITDA dollars and margins for 2024, a testament to our stronger portfolio and a collective focus to drive positive growth from areas within our control. Having fully incorporated these weather events, our updated 2024 outlook is on slide 7. The adjusted EBITDA range is being adjusted to $970,000,000 at the low end and $1,000,000,000 at the top end.

Speaker 3

If achieved, the $985,000,000 midpoint represents roughly 7% annual EBITDA growth on a pro form a basis, which compares favorably to the peer group and underlines both the momentum we have in the business and the growth opportunities unique to Summit. This outlook recast volume expectations for 2024. We now project organic volumes for aggregates to be down mid single digits this year, implying 4th quarter aggs volumes to be relatively flat to prior year. Cement volume expectations have been reduced to approximately 8,600,000 tonnes this year, which translates to down roughly 250,000 tonnes in our river market and down 200,000 tonnes in legacy Argos markets. Of course, our Q4 outlook assumes normal weather conditions, knowing that the longevity of the construction season is the biggest swing factor for Q4 performance.

Speaker 3

Importantly, when given dry days in markets like Houston, we've been able to partially recoup storm related impacts, a trend we are hopeful will continue as we close the year. Offsetting this more restrained volume environment is visibility to asset sale opportunities and potential adjustments to incentive compensation. On pricing, we are reaffirming our outlook calling for double digit ags pricing in 2024 and mid single digit organic cement pricing with average selling price exiting the year in the mid-150s. And we are reiterating our previous cost outlook with mid single digit cost inflation this year and G and A expenses at or below $330,000,000 On CapEx, we have recalibrated our capital spend to maintain our 10% of net revenue commitment. As such, we expect our CapEx for this year will approximate $400,000,000 at the midpoint.

Speaker 3

In summary, volumes are softer than anticipated, price is pacing with expectation, self help is stronger than originally contemplated, and as a result, we are well positioned for top tier 2024 growth and margins of at least 24%. When achieved, this would mean we will fully recover Argo's dilution in the 1st year of integration, a fantastic achievement for our team. While we keep our sights firmly focused on 2024 execution, we are well into our planning cycle for 2025. On Slide 8, we provide our high level framework for next year, but as customary, we will refine and adjust as we move into 2025 with more detailed guidance presented in February. In summary, we think that 2025 is setting growth in margins for some of this.

Speaker 3

First, we see enduring pricing growth across our upstream businesses. As ags pricing normalizes, I think we can and will do better than the 3% to 5% long run historical average next year. For cement, while regional demand conditions will be considered, we have harmonized Cement's go to market approach with January 1 pricing plan for all markets. This initial pricing alongside opportunistic mid years means that pricing will remain a reliable lever for profitable growth in 2025. On demand, the picture is much more fluid.

Speaker 3

On one hand, the public end market appears poised to sustain elevated activity in 2025. For our top states, our DOT budgets are at historic levels and growing. Our lettings are outpacing the national average and importantly, nearly half of IIJA formula funding has yet to be obligated. Pairing that with our advantaged positions in geographies like North Texas, Utah and Salt Lake Counties, as well as Kansas and Missouri, we view public infrastructure as a source of steady reliable activity heading into 2025. We view private end markets on the other hand as more choppy, locally dispersed and subject to reevaluation as we move into and through 2025.

Speaker 3

North Florida and Kansas City are showing promising signs for next year. While activity in other geographies with significant commercial exposure like Salt Lake City and Phoenix is starting to pick back up, they remain somewhat subdued. On balance and consistent with our typical budgeting approach, we won't lean into volume growth prematurely. We need better visibility into our project pipeline and the key construction season before making definitive forecasts. That said, our current perspective suggests a more back half weighted volume profile for 2025, largely influenced by the hesitancy we're witnessing in the private end markets.

Speaker 3

From a self help perspective, our full funnel of opportunities includes Arbose USA synergies, operational excellence initiatives already taking flight across the footprint and an evergreen process for portfolio optimization. These three areas provide unique and powerful margin enhancement opportunities for our business. And finally, with nearly $740,000,000 in cash on hand and a capable balance sheet, we view growth enabled CapEx and ag led bolt ons as the accretive pathway to drive organic and inorganic growth next year. These four elements are the 2025 building blocks. We believe these elements alongside high quality execution will push us into the Horizon 2 adjusted EBITDA margin range of 25% to 27%.

Speaker 3

In closing, our playbook is working, our team is executing, and we are poised to make further intros into our Elevate Summit financial commitments as we close 2024 and enter 2025. With that, let me invite Scott to walk you through our financial results in more detail.

Speaker 1

Thanks, Ann. I'll pick up on Slide 10. We're at a high level, trends remain relatively consistent from prior quarters. Pricing remains robust and healthy, up roughly mid single digits across our portfolio. Volumes on the other hand and to differing degrees remain relatively subdued.

Speaker 1

On Slide 11, profitability performance underscores several factors including the durability of the portfolio, the attractiveness of our markets, the power of price and the magnitude of our self help initiatives. Adjusted cash gross profit margin increased approximately 50 basis points year on year and adjusted EBITDA increased 20 basis points on a reported basis and more than 200 basis points on a pro form a like some of the other items. Similarly, year to date adjusted EBITDA margins have increased 60 basis points versus the comparable prior year period and have increased pro form a by more than 200 basis points. Bottom line is that our quality of earnings is improving and we are well positioned to land the year with reported adjusted EBITDA margins above 24%. Adjusted diluted earnings per share of $0.75 was $0.06 lower than prior year, primarily reflecting higher non cash DD and A as well as higher interest expense.

Speaker 1

Aggregates performance is detailed on Slide 12. In Q3, we sold 15,400,000 tons of aggregates, up 0.7% organically from a year ago period, which considering the environment is respectable, but below our previous expectations. Volume growth was most prominent in Missouri and Key West segment markets like Salt Lake and British Columbia as easy comparisons along with project timing more than offset weather impacted volumes in East segment in Houston. Average selling price in Q3 was $15.34 up 7.4% versus last year and up $0.08 versus Q2 2024. Year on year, pricing was led by double digit growth in the Carolinas, Arizona and certain markets in Kansas and Texas.

Speaker 1

Sequentially, if you recall, 2nd quarter benefited from mix favorability that increased Q2 ASP and somewhat muted the impact of midyear pricing actions. Nevertheless, commercial execution in 2024 has been strong as we bring our value pricing principles to each individual market. Adjusted cash gross profit margin decreased 50 basis points to 58.5%, due in part to 1 off storm related costs, but per unit aggregates profitability accelerated $0.46 sequentially and is up over 30% in 2024. On a year to date basis, adjusted cash gross profit margins have expanded 170 basis points, thanks in part to a sharp focus on operational excellence. To date, we've achieved nearly $15,000,000 in aggregates productivity savings, eclipsing our full 2023 amount and setting us on a course for greater value creation going forward.

Speaker 1

Operational excellence is a key value enhancer, especially for our Ags line of business and feeds our confidence that we will achieve substantial margin expansion this year and in 2025. Turning to Slide 13 and our cement performance. Organic volumes were down 11.3%, reflecting moderating demand and a pullback in imported volumes. Import volumes in our river markets decreased more than 55% year over year in Q3, consistent with prioritizing margin advantaged domestic volumes over imports when conditions call for. Volumes in the Southeast and Mid Atlantic were impacted by excessive rainfall, particularly in the Carolinas that Ann mentioned earlier.

Speaker 1

For the full year, pro form a volumes are expected to decline in the mid single digit range, with the mid Atlantic and the Southeast collectively exhibiting comparatively better volume trends than our river markets, which we now expect to be down double digits in 2024. Pricing and synergies have combined for a very positive margin story. For cement pricing, growth has remained healthy with inland geographies fueling year over year organic pricing growth. Sequentially, cement average selling price increased $2.33 to $155.76 per tonne, primarily reflecting Argo's USA commercial synergies and favorable geographic mix with higher priced markets commanding a greater proportion of our 3rd quarter volumes. Cement's 3rd quarter adjusted EBITDA margin increased 180 basis points year over year and 2 80 basis points on a year to date basis.

Speaker 1

Here, synergies combined with a greater mix of domestic volumes and the lower cost of kiln fuels is not only offsetting volume deleverage and the impacts from Argo's dilution, it's actually powering margin expansion. For Q4, we anticipate that trend to continue with further margin enhancement as our less seasonal cement footprint will benefit from more all season exposures in the Southeast and Texas. Lastly, downstream performance is on Slide 13. Organic ready mix volumes remain soft as weather impacts and sluggish private end market environment weighed on 3rd quarter activity. Asphalt's organic volume growth of 0.4% encompasses double digit volume gains in North Texas, mostly offset by unfavorable timing of activity in the Intermountain West and lower volumes in British Columbia.

Speaker 1

Products adjusted cash gross profit margin in the period was aided by positive pricing for ready mix and asphalt as well as synergy generation, but more than offset by the inclusion of lower margin Argos ready mix businesses in Houston, Atlanta, the Carolinas and Florida. Services margins grew year on year, mostly reflecting a healthy construction environment in our asphalt markets. Stepping back, it's important to reinforce our elevate approach to the downstream. We are materials led and highly selective about where we compete in the downstream. We must be market leaders and the downstream must help us achieve our Elevate Summit goals.

Speaker 1

Otherwise, we have continually demonstrated a proficiency of optimizing around our materials led portfolio. Let me now turn it back over to Anne to conclude our prepared remarks.

Speaker 3

Thanks, Scott. I'd like to briefly address the press release we issued last week disclosing the non binding acquisition proposal that we received. As we said in the release, Summit has held initial discussions with the interested party. And in consultation with its advisers, our Board will carefully evaluate the proposal and act in the best interest of the company and our shareholders. As we said, there can be no assurance that any definitive agreement will be reached, and we won't be making any further comment on this matter until the Board has reached a conclusion.

Speaker 3

That's really all we can say at this time. So I would appreciate it if you could keep your questions today focused on our strong performance. I want to reassure you that concurrent with that evaluation, we remain laser focused on executing our Elevate strategy and are steadfast in our conviction about our long term vision and opportunities. As you can see on slide 15, our priorities are unchanged. Integration efforts aim to transform Summit into 1 high performance organization.

Speaker 3

Accelerating growth in Aggregates remains crucial to achieving a fair market valuation, executing and realizing the complete set of ARGO synergies and scope, and we are dedicated to strengthening and optimizing both our portfolio and balance sheet to support superior growth and value creation. With that, I'll now turn it over to the operator to provide the instructions and open the line for questions.

Operator

Thank you. We will now begin the question and answer session. Our first question comes from the line of Philip Ng with Jefferies. Please go ahead.

Speaker 4

Hey guys. Congrats on really strong results in an uneven environment. So kudos to the team. So appreciate you guys laying out the groundwork and framework for 2025. Can you kind of help us think through some of the moving pieces?

Speaker 4

Some of your peers have at least provided a framework in terms of demand and price appreciating and you're expecting demand to be more back half weighted next year, but is your expectation for volumes to be up? And any more color on pricing? I know you've announced price increases on cement. How big? How that's coming through?

Speaker 4

And some of the opportunities kind of unlock better commercial efforts on the Argo side of things would be helpful.

Speaker 3

Yes. So there's a lot packed in there, Phil. Thanks for the congrats on the quarter. Let me kind of step back and talk about what we're thinking with respect to pricing, 1st of all, and I'll do it by line of business is best. So from an ags perspective, obviously, we have some nice momentum and we've gone out across the board on January 1 price increases consistent with what we did in 2024.

Speaker 3

That will vary according to geography. So for example, Phil, last year this year actually, we went out in Kansas with a really strong January price increase. Mid year was more moderate. Virginia, on the other hand, it was balanced between the 2. So we will do it a very much value pricing dynamic pricing mentality into 2025, but expect it to be very strong.

Speaker 3

And I would be extremely disappointed if we weren't in the range of 6% to 9% in 2025 on ags pricing. Cement, as I said in my prepared comments, we expect another strong year of pricing in cement. And there, I would look at the fact that demand does actually drive strong pricing in cement. We see that particularly in the second half, an opportunity to maybe even get a second price increase in addition to our January price increases. So think about as we go in cement, a more harmonized approach across the board, January 1 price increases.

Speaker 3

Then on top of that, we still have some contracts rolling off that are below market, where we're working with our customers to get them back up to market pricing. That will be hand to hand combat as we go through, but we intend to be a price leader in this market consistent with our position in the marketplace. And then finally, all the commercial excellence efforts that we're putting in place to upgrade our people, processes and tools in cement will drive more value pricing. Constructive pricing environment, ags continued strength in that mid to high single digit overall. From a demand perspective in 2025, we go in with very cautious volumes.

Speaker 3

That's just our planning stance that has played out this year, Phil. That keeps our team focused on their controllables. So if I think about it from an end market perspective, public strong, private a little choppy. And then from a line of business perspective, Ags, we'd go in with flattish volumes on a year to year basis, but that will drive much more performance and that's kind of a mixed bag on Ags. It's very divergent.

Speaker 3

So for example, in Florida, we have more additional capacity coming up, so we'll grow there. On the other hand, if I look at Phoenix, our tilt ups are down 75% in 2024 and residential is recovering. So as we get into February, we'll give you a much better view on volume, but we don't lean into that in our planning stance right now. For cement, if you look at PCA, it's about we're looking at flat to low single digit right now and with the second half recovery that should be supportive of additional price in the mid years. So hopefully that gave you the color that you need, Phil, at this point.

Speaker 4

That's really helpful, and appreciate it.

Operator

Our next question comes from the line of Trey Grooms with Stephens. Please go ahead.

Speaker 5

Hey, good morning. And yes, I'll have to echo the congrats on the quarter. Nicely done. So solid work on the margins. And you mentioned in the prepared remarks you expect to hit Horizon 2 by the end of next year.

Speaker 5

Is there additional color maybe you could give us on how you see cost inflation maybe progressing in the next year? And maybe how you're thinking about any more specifics around the margin improvement? I know Scott kind of touched on expectations for solid margin expansion to continue, but any additional color you can give us on how to think about that next year and maybe where the low hanging fruit may be and what it would take us to see you kind of get into that range?

Speaker 3

Yes. So I'll cover the margin improvements, what the key drivers are at a high level. And then Scott, maybe you'll address the cost inflation part of the question. So really, Trey, it's continuation of what we've been doing. And the team, as you can see, is obviously executing at a very high level.

Speaker 3

So if I think about Ags, the margin improvement is going to continue to come from strong pricing, really accelerated operational excellence, which the teams have been doing a phenomenal job in nearly eclipsing inflation at this point with the cost work that we're doing. And then continued portfolio optimization, investing in those Ags, both organically and inorganically. And then on cement, it's all about delivering the synergies, which we're well on track on. And it's also about continued commercial excellence there as we move forward from a pricing perspective. So they will continue to drive that margin.

Speaker 3

And overall, we'll continue to optimize this portfolio, which has been very margin accretive to our business. Scott, maybe you'd address the cost inflation part of the question.

Speaker 1

You bet. So Trey, when you look at the cost, this year, we're mid single digits. We've been kind of normalizing, moderating the cost inflation all year. And just as Anne pointed out, we're making progress on our OpEx improvements. Really starting to cut into that inflation.

Speaker 1

So you barely had any cost inflation this year because of the offsets we had in operational improvements. And that's going to carry on. We've got a lot of momentum around that on the ag side, especially when you look at the mine planning that's going on, the yellow iron, and then as well as inventory optimization, so around our critical products. But the efficiencies we're getting Marshall Moore as our Chief Operations Officer and he's really building out a team, actually even having frontline training to really drive this culture to focus in our cost. We believe next year you're going to see more of that carry on in the ags on the cost side.

Speaker 1

And just for inflationary, what we're seeing for next year on some of the key buckets like diesel fuel is a big one, we're already hedged at 40% and actually we're less than we were hedged this year. So I think we're hedged at 40% at $2.53 a gallon. If you looked at this year's, it was $2.77 So we got some favorability on the diesel side. We're looking at increasing that hedge on up to 50% right now. So when you look at R and M and subcontracting and some of those categories, we do believe you're going to see the moderation of inflation continue from that mid to more of a low single digit next year as we go through the year, which will continue to help the momentum that we're building in the business.

Speaker 1

And then a separate bucket on the cement side would be the synergies and the cost improvements that we're doing there.

Speaker 5

Got it. Okay. And just to make sure and I'm not trying to pin you down or anything, I'm just more making sure I'm thinking about the right way. Is there are there any bad guys on the cost front that we need to be sure to kind of take into account or anything? Because it just seems like with the momentum you have and kind of looking at the 20 fourthree percent LTM EBITDA gross EBITDA margin that you guys were able to put up with the pricing that we've had in place, the kind of deceleration on the cost front.

Speaker 5

It seems like you ought to be able to get into that range maybe even for the full year. Am I is there any bad guys that we need to be aware of? Or am I thinking about that wrong?

Speaker 1

Trey, the only one that stands out to me, it's a little bit higher that coming into this next year is natural gas that we use to fuel our kiln and offset some of the coal. It's still cheaper than the coal alternative, but we've locked in 37% of our usage next year on natural gas at about $3.55 per MMBtu. And just to compare, this year it was more like $3 per MBtu. So we do have a little bit of headwind there with the natural gas usage, but we'll also be introducing more alternative fuels into the process next year as well. Anne talked about the Roberta project.

Speaker 1

And just across, we're bringing in more feedstock to the plants on the alternative fuels.

Speaker 3

Yes, Trey, just to confirm, we are confident we'll be in that 25% to 27% range full year and next year.

Speaker 5

Okay. Thank you for that. And because in the slide deck, it says by year end, I don't know if that was a run rate or by for the full year. But so thank you for confirming that. That's super helpful.

Operator

Our next question comes from the line of Garik Shmois with Loop Capital. Please go ahead.

Speaker 6

Hi, thanks. Congrats on the quarter. I want to ask on cement. I was wondering if you could speak to what you're seeing on the supply and demand side across your footprint. Maybe talk a little bit as to your expectations around January price increases in a little bit more detail.

Speaker 6

And what conditions would you need to see occur in order to get the mid years that you cited in your prepared remarks? Thanks.

Speaker 3

Thanks for the question, Garik. Yes, we see overall supply demand really being driven by strong public, which continues to be very robust for us. And then the private markets being a little more choppy. And if we look at just our markets, you look at residential and non residential are the ones that more interest rate dependent. So they will come back probably in second half.

Speaker 3

It's a matter of when and which geography they'll come in. We're already seeing some recovery in some of those geographies. But if you look at the PCA forecast, 1.4% with a back end loaded 2025 and a very strong 2026. I do believe that as we get to mid years, you're going to see it's very plausible that that recovery comes back both in residential and the light non residential. And we're seeing green shoots of that.

Speaker 3

I'd give you an example of where you might see some uptick. We're looking at British Columbia currently recovering right now. And that's one where if you look at the Canadian Central Bank, they took their 1st rate decrease in June and they took a bigger one this month. And now we're seeing that work start to come out across the board that would impact cement. If the Fed follows the same timeline, it's very plausible that you'd see that same kind of recovery.

Speaker 3

And that's how we kind of look at that recovery coming in, in the second half. And it should be a very positive environment for mid years. That's not built into our thinking right now in our budgeting, but we would look for that upside as we always do in mid years. January price increase, we're strong across the board. It's dependent on market.

Speaker 3

It's dependent on geography, but the team's pushing hard. We are leaders in value pricing and cement, and we will continue to be so.

Operator

Our next question comes from the line of Anthony Pettinari with Citigroup. Please go ahead.

Speaker 7

Hi, this is Asher Sonnen on for Anthony. Thanks for taking my question. Just first for a point of clarification, your ag price guide for above the historical growth rate, does that include mid years, especially in the markets where they're more balanced between January mid years? And then my question just sort of, I think you talked about trimming discretionary spend to align with demand. And I also think you trimmed your CapEx guide.

Speaker 7

So I'm just wondering if you could talk a little bit more about that and then maybe where you're pulling back on that investment.

Speaker 3

Okay. So let me address the mid years and then Scott can talk about the costs and the CapEx of where we're sitting on that. So from when we look at Ags, it is very much dependent by geography how we approach our pricing. I would tell you across the board we're out with January 1 price increases. In some markets we make a really strong double digit in January.

Speaker 3

In other markets we may go moderate and then go with a moderate mid year price increase. But I will tell you all our markets will have both and that's consistent. And that's why I'm confident we will get in that 6% to 9% range next year. Scott, maybe you want to talk a little bit about trimming discretionary spend and the type of CapEx pullback we had.

Operator

Yes. So when you

Speaker 1

look at the SG and A, you'll see it is coming off. We left the guide the same at $330,000,000 for the year, but we're going to probably come in below that. And part of it's the synergies, where we're going after the scale synergies and really excel reading that. And you'll see that on the synergy report out that we give at the end of the year. So those have went really well.

Speaker 1

And we're just controlling our spend. On the CapEx side though, you saw the previous guide, 430 to 470. We've now lowered that to 390 to 410. Really, we're staying disciplined to our 10%. So we went through the list and found projects that we could defer without impacting the operations.

Speaker 1

Few actually some land purchases on some reserves that we were able to defer into next year and bring that down. So we're in a good place. We're going to come in and stay within our 10% threshold of revenue on the CapEx and we're going to continue to watch our cost and you'll see us beat that 330,000,000 even though we feel like that's a good guide at this point.

Speaker 7

Great. Thank you. That's very helpful. I'll turn it over.

Operator

Our next question comes from the line of Kathryn Thompson with Thompson Research Group. Please go ahead.

Speaker 8

This is Kathryn Curtis calling in for Kathryn Thompson. Thank you for taking my question today.

Speaker 3

Thanks, Catherine.

Speaker 8

With the weather impact to Cement margins in the last few quarters, how should we be thinking about comps for next year going forward?

Speaker 3

Weather impact. So we got to be, so when we look at weather, we did detail out what impact that had and just use rough numbers of about $20,000,000 here. One of the things that you got to think about moving forward, there's 2 factors. One is there is some in year recovery on volume, and I'll give you the example of Houston. So Houston, we gave you a number last quarter of about $6,500,000 adverse effect.

Speaker 3

And since then, that team has been firing on all cylinders and it start to eat into that $6,500,000 So the one thing I would caution, Catherine, is don't take that $20,000,000 and pencil it in for 2025, because we got quite a scrappy group here at Summit and they've proven to be very agile. And I would hope that we continue with all our contingencies of work the team's doing to recover some of that from Milton and these other hurricanes as we go through the rest of the year. We'll be in a position to really update you with February on that, but don't go penciling that $20,000,000 because the teams execute at a very high level with their contingencies.

Speaker 8

Thank you. Congrats on the quarter.

Speaker 3

Thank you, Catherine.

Operator

Our next question comes from the line of Angel Castillo with Morgan Stanley. Please go ahead.

Speaker 9

Hi, good morning. Thanks for taking my question. And again, second, congrats on the quarter, strong results. Just wanted to go back to and some of the commentary you gave around the project activity and maybe some of the green shoots you mentioned. Could you just maybe unpack that a little bit more as it relates to maybe elections or interest rate?

Speaker 9

Like what are you hearing from contractors in terms of what may be holding up projects? And to the extent that you are seeing green shoots in some markets, on the commercial front, what seems to be unlocking that activity? Is it greater certainty or kind of potential greater certainty from elections? Or what's kind of coming down from the messages?

Speaker 3

Yes, Angel. So let me kind of unpack that in the 2 markets that are most impacted here. So from a nonresidential perspective, this is where we're seeing it's largely in the holding pattern for us. But we are seeing, for example, recovery in Virginia and British Columbia. We're seeing continued strength in the energy verticals.

Speaker 3

But contrasting against that, we're seeing, for example, our heavy commercial markets in Phoenix and Salt Lake City still are quite sluggish and sitting on the sidelines waiting to come in as interest rates come down. Now I did quote earlier in my comments that we would expect the second half recovery if the Fed were to follow the same kind of timeline as the Canadian Bank, and we would hope that there'd be some second half recovery in that. Now where we are seeing the green shoots is in British Columbia. We're also seeing and very encouraged by the fact that we participate in states where the heaviest funding is and heaviest investment. So for example, the IRA investment, the top 3 states are Georgia, South Carolina and North Carolina.

Speaker 3

There's $45,000,000,000 in investment there, and we are participating in that on the heavy side. The CHIPS funding, we're a big position in Arizona, where there's over $100,000,000,000 So from a political perspective, we would hope bipartisan continued support of supply chain resiliency, onshore and manufacturing that, that would continue to give that kind of funding moving forward. And then on the private side, the interest rates starting to come down, hopefully similar to what happened to British Columbia, where we're seeing some green shoots. Now on the residential side, you've got a different impact there. It is around interest rates being still hovering around 6%.

Speaker 3

We really feel you've got to get below that 5.5% to see any kind of movement in some of our markets. You've got the lock in effect and you've got the whole uncertainty and hesitancy to your point, Angel, around the political and macroeconomic impact. That being said, leading indicators are improving in residential and the pent up demand. Specific to single family permits, they were very low in 2024. We're starting to see some pressure easing off those.

Speaker 3

And then if you double click into our 3 end markets, they are operating a little differently. So Houston is the number one single family permit market at 52,000 in 2024. There you got high good economy, you got good in migration trends, solid permitting. And there, we're seeing really a hazard recovery. The days we get out post the weather, our south region is running really strong, and we are actually operating in the area where a lot of these permits are, so in that southwest portion at Fort Bend County.

Speaker 3

Phoenix is our 2nd best recovered market at this point. They have 24,000 in permits, still high employment from the CHIPS Act, and there we'll see continued recovery as and we're actually located in the best part of the recovery there in the west part of Phoenix. And then finally, Salt Lake City is the one that's the most sluggish, though it's a great market for us. There, the permits are only at 3,000 versus a typical 4,000 to 5,000 rate, but we'll be very happy when that recovers and hopefully that second half of twenty twenty five because that's by far our most profitable and high ROIC market. So we are positive about this coming back.

Speaker 3

We're just not leaning into that volume right now as part of our planning stance.

Speaker 9

Very helpful. Thank you.

Operator

Our next question comes from the line of Timna Tanners with Wolfe Research. Please go ahead.

Speaker 8

Yes. Hey, good morning. In the preliminary comments, I call you saying that one of the offsets or several offsets to a few of the challenges you cited were the opportunities to divest some assets that perhaps were underperforming and some possible adjustments to incentive comp. Can you give a bit more on each of those and in particular, of course, on the divestitures, what those could look like? Any further detail there, please?

Speaker 8

Thanks.

Speaker 3

Yes. Thanks, Timna, for the question. So the offsets, one of the things I will say is our team has it's in the DNA of the team to constantly improve the return on invested capital of our business. And so ever since we launched Elevate, every year, our team has a set of contingencies of asset sales. And they can vary from being a businesses to your question, which we do report on, we did 4 of those this year.

Speaker 3

But really where the offsets are as we come into the end of the year are much more in the form of land and equipment. And each one of our regions has their list of contingencies trying to sell those off and improve the ROIC and improve margin as we move forward. And we've got some of those built into our midpoint. We know we can do some of those. And then what would drive us up into the right for 2024 would be increased number of those asset sales.

Speaker 3

Also, we're always adjusting incentive comp depending on where we land. And so there is some opportunity that offsets some of the volume decline. So that's how we were able to keep that 985 midpoint, just a refinement of it versus a big reduction. And we do believe if you look at our guidance, Timna, what would drive us up into the right of that guidance would be extra days in our colder guidance. So we're not kind of in the river markets.

Speaker 3

And so that's how you should really think about the offset. The team has been executing at a very high level on their contingencies.

Speaker 8

Okay. I'll leave it there. That's helpful. Thank you.

Speaker 3

Thanks, Timna.

Operator

Our next question comes from the line of Rohit Seth with Seaport Research Partners. Please go ahead.

Speaker 10

Hey, thanks for taking my question. Great quarter, guys. Actually a great year so far. This question you mentioned on the M and A front, you did execute a couple of deals. Maybe just kind of elaborate on what moves you made in?

Speaker 10

And what markets and just sort of the dynamics in those markets? Thanks.

Speaker 3

Yes. So our 2 acquisitions that we did were both ags deals, which is consistent with our strategy moving forward to continue to redeploy cash into the ags inorganic growth. And there are now 2 growth platforms. 1 was in Florida and the other was in Phoenix. So that's just consistent with what we've said how we will redeploy cash from our divestitures.

Speaker 3

And we did 4 divestitures and 2 acquisitions year to date, but all ags oriented.

Speaker 10

Any sense on things you can provide like how much volume impact

Speaker 2

they contribute?

Speaker 3

You should think of them more as bolt ons as part of as we go into these areas, if you recall, when we went into Phoenix, we went in with a strong ready mix position underpinned by an ags position. And the very first acquisition we did there was an ags position that just grows out our aggregates volume. And we've probably 5 more targets we're going after in Phoenix. Similarly, in Florida, this was one of the targets that we had that would further consolidate the market and increase that. So we don't disclose the exact volumes on these for competitive reasons, but think about them more as bolt ons that will continue to expand that position in our growing 2 growing platforms.

Speaker 3

All right. Thanks.

Speaker 10

If I can squeeze another one in on the cement synergies, maybe just prior status update. How much you realize this year and what's on horizon for 4Q in 2025?

Speaker 3

Yes. So the team is executing really well on the cement synergies. I think Scott referred to some of these, but so for 2024, we're very confident of being at that $40,000,000 or above. And they're driven largely by the scale synergies, which are procurement and SG and A, and then by cement synergies, both operational, but also very much commercial and by our ags pull through. As we go into 'five, we've committed to $80,000,000 over 2024 2025.

Speaker 3

In our planning, we're well on target to deliver that to our shareholders, and we're very confident of delivering the $130,000,000 over time. Expect the synergies as we go into 2025 to become much more cement oriented and operational with continued commercial synergies in that regard. All right. Thank you. That's all.

Speaker 3

Thank you, Wright.

Operator

Our next question comes from the line of Keith Hughes with Truist Securities. Please go ahead.

Speaker 6

Thank you. The cement pricing range you gave us earlier for 2025, can you talk about how much of that is market and how much of that is this harmonization with the Argos products?

Speaker 3

Yes. So what we've said is when you think about the Argos synergies, we had overall commercial at $20,000,000 to $25,000,000 when we started out on this journey. About half of that was contracts that were below market. And so we have been on that journey, as you know, Keith, since we closed in mid January of trying to convert these below market contracts up. And we're making some progress there.

Speaker 3

And frankly, most has been good progress, some we've walked away from volume because the pricing is just too low and we will not drive pricing down in the marketplace. We are value pricing leaders. I would say we've done really good work around our existing, the bunch that didn't go up high enough in January, but went up in May April, that pricing is gone. And now as you go into 2025, think about it being more about a harmonized approach to January pricing and continuing to work with about half of that commercial part. I would say, I can't give you exact numbers, but on synergies, probably on commercial on cement, we're around that $7,000,000 mark year to date.

Speaker 3

So definitely making the progress we thought we would, Keith, on that.

Speaker 1

Okay. Thank you. We'll now take

Operator

our next question from Adam Thalhimer with Thompson, Davis and Co. Please go ahead.

Speaker 3

Hey, good morning, guys. I know it's your smallest business, but services is having a great year and I'm just curious what's driving that and what the outlook is? You want to do that, Scott?

Speaker 1

Sure. Adam, you called it out. Services is really our construction activities. And it's really it aligns with the public demand we're seeing out there. And when you look at our North Texas business, our construction is really booming well.

Speaker 1

So really good pipeline, good backlogs. You're going to see that continue too. Now the Intermountain West, the projects have been a little lumpy, so it hasn't flown through or shown through quite as strong, but that North Texas is really driving that construction services.

Speaker 3

Perfect. Thanks, Scott.

Operator

Our next question comes from the line of Jerry Revich with Goldman Sachs. Please go ahead.

Speaker 1

Yes. Hi. Good morning, everyone, and nice quarter. I wanted to ask what really is that to me on the sequential performance in aggregates cash gross profit. You had similar growth sequentially 3Q versus 2Q this year as last year, yet operationally it was more challenging.

Speaker 1

And then you didn't get the uplift in pricing sequentially this year that you got last year. Can you talk about if there was a business mix towards maybe some similar margin but lower priced markets and any other moving pieces just to help us understand that sequential performance and pricing cadence as well, please?

Speaker 3

Yes. So I'll just address this and then Scott, please feel free to comment any color on this. So Q2, we had a particularly positive mix, Jerry, on Ags. And so when you look at that, we had a very strong, just mix in Q2. So we knew we were sequential was going to be a little more muted.

Speaker 3

Also, you're lapping a year where we very high mid year price increases last year. So that's putting the comps a little funky on that one as well. So I would say volume wise, we did quite well into Q3 on Ags with coming up 0.7%. So that was driven largely by our central region has been very strong with Big I-seventy project and we've some recovery in British Columbia and Virginia and then the South coming really back strong after the weather they had in the first half. So Scott, maybe you want to add a little more color on that?

Speaker 1

Yes. Not much more to add. And you've kind of called it's really related to geographic mix. The margins in certain areas are just higher. And so we've got a more favorable geographic mix.

Speaker 1

Super. And can I ask, as you folks think about pricing in the aggregates for 2025, and you mentioned that the above the historical range, how are you thinking about in terms of the cushion that you need to build into your pricing commitments considering inflation over the past couple of years has been pretty volatile? Are you thinking of an extra cushion beyond your targeted price cost gap that you're trying to achieve in business?

Speaker 3

Yes. Well, Scott has there's been a couple of factors here. So we're always driving our team and their incentive on price net of cost, and they've done a really nice job in continuing to expand that. We've always said as costs moderate off, that price is that dislocation between price and cost has become even more favorable. Now we kind of think about it in 2 buckets.

Speaker 3

So the first bucket is value pricing, Jerry. And as I said in my comments here, we will go with we'll have some carryover, have January increases and we'll have mid years. They'll vary a little bit by geography, but net, I would be very disappointed if we're not at 6% to 9%. Now counteracting that is what Scott referred to earlier, we're also very disciplined in going after our costs, both having to moderate off, but the OpEx side. So think about us as attacking from 2 fronts here to get this continued growth, which is why we're very confident, frankly, we'll go into our 25% to 27% margins overall as a business in 2025.

Speaker 3

So really the execution rate momentum that we have right now is really the push that I would talk to. That's really within our control.

Speaker 1

Yes. The only thing I would add Jerry is, we came into the year saying we're going to try to hold the line on our costs this year in the aggs. And despite the weather impacts, if you look at our aggs cost profile, inflation with inflation and the offsets, it's only went up about 2%. So we've done a good job. We're making a lot of progress towards holding those costs.

Speaker 1

Well done. Thank you.

Speaker 3

Thanks, Jerry.

Operator

Our next question comes from the line of Mike Dahl with RBC Capital Markets. Please go ahead.

Speaker 6

Hi, thanks for taking

Speaker 3

my question. I guess just

Speaker 1

to level set on kind of understanding the Q4 when you talk about assuming normal weather seasonality or normal weather

Speaker 6

from here on out. What specifically does that assume or not assume in terms of recapture of some of the $20,000,000 in lost storm EBITDA? And can you talk about as you look at the impact in parts of your footprint, which markets you have and have not been able to actually resume kind of normal shipping and operations?

Speaker 3

Okay. So overall, I'll try and address this question for you, Mike. What's normal weather? Well, essentially, we've said, ags, for example, are flat year on year, and that just assumes our normalized Q4. Cement, you'll see a slight uptick Q3 to Q4, which is just consistent with our more seasonal all season markets.

Speaker 3

So that's kind of a normalized pattern. What I would say is we have not when we think about we are not slowed down any of our markets right now. We've resumed production in nearly our team has been very resilient and we are delivering to our customers. We're out there when we have good weather days, that's where we're recouping. And I'd use our South region, Houston, as an example.

Speaker 3

They are eating into that 6,500,000 dollars in October. I will tell you we had a strong October across all of our lines of business. And so we're quite positive about what we've seen in October. And if we can get good weather and extend, if we can get more days in the river markets, Utah and Kansas, we will go to the upside of our midpoint. On the other side, I would say the hurricane season isn't over till November.

Speaker 3

So that's why we kind of stayed flat. So I would be disappointed based on the execution rate the teams had. We couldn't recover some in Milton, but we're confident in our midpoint range in the way the team is executing. So it's really we are resumed. We're performing at a high level in all of our markets right now, and we're going to do everything we can to recapture some of that $20,000,000 that we've had this year on impact.

Speaker 2

Great. Thank you.

Operator

That concludes our Q and A session. I will now turn the call back over to Ann Noonan for closing remarks.

Speaker 3

Thank you for joining today's call, and I'd like to leave you with the message that I've been sharing with my team. Having successfully navigated a very difficult operating environment, we have the opportunity to close this year from a position of strength with momentum building for 2025. Our challenge is to be laser focused on our controllables, deliver on our commitments, and in doing that, we will achieve our strategic priorities and position Summit for superior value creation. We appreciate your continued support of Summit Materials. We thank you for your time and we hope you all have a great day.

Operator

This concludes today's call. You may now disconnect.

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