Martin Marietta Materials Q4 2024 Earnings Call Transcript

AlphaStreet
Provided by AlphaStreet
February 12, 2025
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Operator

Welcome to Martin Marietta's 4th-Quarter and Full-Year 2024 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 conference over to your host, Ms. Jacqueline Rooker Martin, Director of Investor Relations. Jacqueline, you may begin.

Jacklyn Rooker
Director of Investor Relations at Martin Marietta Materials

Good morning. It's my pleasure to welcome you to Martin Marietta's 4th-quarter and full-year 2024 earnings call. Joining me today are Ward Nye, Chair and Chief Executive Officer; and Jim Nicholas, Executive Vice-President and Chief Financial Officer. Today's discussion may include forward-looking statements as defined by United States securities laws in connection with future events, future operating results or financial performance. Like other businesses, Martin Marietta is subject to risks and uncertainties that could cause actual results to differ materially.

We undertake no obligation, except as legally required to publicly update or revise any forward-looking statements, whether resulting from new information, future developments or otherwise. Please refer to the legal disclaimers contained in today's earnings release and other public filings, which are available on both our own and the Securities and Exchange Commission's websites. We have made available during this webcast and on the Investors section of our website, supplemental information that summarizes our financial results and trends.

As a reminder, all financial and operating results discussed today are for continuing operations. In addition, non-GAAP measures are defined and reconciled to the most directly comparable GAAP measure in the appendix to the supplemental information as well as our filings with the SEC and are also available on our website. With, Ward and I will begin today's earnings call with a discussion of our full-year operating performance, 2025 outlook and supporting market trends. Next, Jim Nicholas will then review our financial results and capital allocation, after which Ward will provide closing comments.

A question-and-answer session will follow. Please limit your Q&A participation to one question. I will now turn the call over to Ward.

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

Thank you, Jacklyn. Good morning, and thank you all for joining today's teleconference. Over the years, the disciplined execution of our proven strategic operating analysis and review or store plan has significantly transformed our company by providing Martin Marietta with a coast-to-coast footprint with the majority of our products and services going to areas exhibiting the highest-growth potential by demonstrating our ability to manage through uncontrollable circumstances.

By adhering to our value over volume approach to meet customers' needs without discounting the value of our own assets and generating a higher return on those assets and by showing the resiliency of our business model no matter the macroeconomic backdrop. As a result, our business is superbly positioned for near, medium and long-term success. 2024 was no exception to those themes as we once again delivered record aggregates financial performance and successfully completed nearly $6 billion of portfolio-enhancing transactions.

Operationally, our team successfully managed many exogenous factors, including persistent inclement weather, tighter than expected monetary policy and related modest private construction slowdown. The team's steadfast commitment to managing what they could control, namely commercial excellence, cost management and portfolio optimization enabled the 4th-quarter delivery of record profits, margin expansion and record cash-flow from operations.

Before discussing our full-year results and 2025 outlook, I'll highlight a few notable takeaways from 2024's 4th-quarter. First, with. With the weather better cooperating in 4th-quarter, earnings growth and margin expansion resumed, evidenced by a record 4th-quarter consolidated gross profit of $489 million, consolidated adjusted EBITDA of $545 million, reflecting an increase of 8% and consolidated adjusted EBITDA margin of 33%, an improvement of 210 basis-points.

Pricing gains more than offset the impact of inventory management efforts, driving 4th-quarter record aggregates gross profit per ton of $7.92, an increase of 12% and aggregates gross margin of 33%, an improvement of 120 basis-points. In addition to our impressive financial results, we successfully completed three aggregates bolt-on acquisitions in Southwest Florida, Southern California and West Texas, all of which are attractive identified geographies.

Our full-year results were notable given the year's extreme weather and a difficult macro-economy. Despite these headwinds, we established new aggregates and magnesia Specialties records, specifically, aggregates revenues and gross profit both increased 5% to $4.5 billion and $1.4 billion, respectively. Aggregates gross profit per ton increased over 9% to $7.58.

Magnesia Specialties revenues increased 2% to $320 million and Magnesia Specialties gross profit increased 10% to $107 million. Martin Mariotta's safety and enterprise excellence culture have long underpinned our financial results. I'm pleased to report we achieved our best full-year safety incident rates in our company's history, inclusive of our newly-acquired businesses. Notably, this marks our eighth consecutive year of a world-class lost-time instant rate and fourth consecutive year of world-class total injury incident rate.

2024 surpassed 2021 as our most active M&A year ever with nearly $4 billion of aggregates-led acquisitions and over $2 billion of non-core asset divestitures. We selectively pruned cyclical and non-strategic cement and concrete operations and redeployed the proceeds into pure aggregate assets in attractive markets, adding nearly 1 billion tons of aggregate reserves to our footprint. These proactive portfolio actions created a more durable business, increased the gross profit contribution from our core aggregates product-line and enhanced our margin profile, all while maintaining a strong balance sheet for continued acquisitive growth.

Looking ahead, we expect the Reshape portfolio, together with our 4th-quarter results will provide a solid foundation for profitable growth in 2025 and beyond. Specifically, our full-year 2025 aggregate shipment guidance of 4% Growth at the midpoint assumes that strong infrastructure and data center demand, a full-year of 2024 acquisition contributions and normalized weather patterns will all more than offset the slowdown in private construction, which is primarily interest-rate driven. Our full-year 2025 pricing guidance of 6.5% growth at the midpoint, while lower than the last three years of double-digit growth remains notably higher than the long-term industry average of 3% to 4%. These revenue drivers, combined with moderating cost inflation, contributions from our cement and downstream businesses, Magnesia Specialties and the full-year of contributions from our 2024 acquisitions underpin our 2025 full-year adjusted EBITDA guidance of $2.25 billion at the midpoint, a 9% improvement compared with prior year. Moving now to-end markets, we'll start with infrastructure, our most aggregates-intensive and often countercyclical end-market. Both building and maintaining our nation's heavy infrastructure remains a bipartisan national strategic priority. Three years into the five-year Infrastructure and Investment and Jobs Act or IIJA, nearly 70% of highway and bridge funds remain to be invested, indicating robust multi-year tailwinds. Importantly, according to the American Road and Transportation Builders Association or, public highway, payment and street construction is expected to continue to grow, reaching $128.4 billion in 2025 compared with $119.1 billion in 2024, an 8% increase. Notably, based on recent state and government contract awards, ARPA's 2025 transportation construction market outlook shows Texas, Florida, North Carolina and South Carolina, Keymart and Marietta States are among the largest markets expected to show growth. Thank you. Moving now to non-residential construction. Artificial intelligence or AI continues to drive unprecedented demand for digital and energy infrastructure as evidenced by recent announcements from Microsoft and the new administration in Washington. Microsoft expects to invest $80 billion in fiscal 2025 on the construction of data centers that can handle AI workloads with over half of that spend in the United States. Moreover, the new administration recently-announced Stargate, which aims to simplify permitting and significantly boost data center construction in the US through a massive investment of up to $500 billion. The build-out is already underway with the data center in, Texas that Martin Marriott is supplying from its December acquisition of Janes Gravel Company. Moreover, Dodge Construction Networks warehouse where footage starts for the 12 months ended November 2024 inflected positively for the first time since December 2022 and Martin Marietta was recently awarded the material supply for two large Amazon warehouse projects in North Texas and Fort Myers, Florida, respectively. Shifting to residential activity, affordability and availability remain key issues impacting single-family demand. Neither is expected to resolve in the near-term given the higher for longer interest-rate environment. Relative to the availability issue alone, realtor.com recently estimated that the US housing market is underserved by approximately 7 million homes. That said, when single-family residential construction inevitably rebounds, Martin Marietta's leading positions in key Sunbelt MSAs provide attractive opportunities to capitalize on structurally underbuilt markets with pent-up demand. In summary, record state and federal investments, reshoring, the artificial intelligence infrastructure build-out and the long-awaited single-family housing recovery should provide multiyear shipment stability and provide a healthy pricing environment for years to come. I'll now turn the call over to Jim to discuss our full-year financial results and liquidity. Jim?

James A. J. Nickolas
Executive Vice President and Chief Financial Officer at Martin Marietta Materials

Thank you, Ward, and good morning, everyone. The Building Materials business generated full-year 2024 revenues of $6.2 billion, a 4% decrease and gross profit of $1.8 billion, a 6% decrease. The decline in both metrics, which are comparing year-over-year results is due to the February 2024 divestiture of our South Texas cement and related concrete businesses, along with shipment declines in all product lines, partially offset by acquisition contributions. Our aggregates product lines achieved all-time record revenues, gross profit, gross margin and unit profitability in 2024.

Contributions from acquired operations and strong pricing more than offset lower shipments. Importantly, this was the second consecutive year of margin expansion and the fourth year in the last six experiencing a price-cost widening. Over those six years, margins have expanded 870 basis-points. In 2024, aggregates gross profit per ton improved 9% to a full-year record of $7.58 per ton. Cement and concrete revenues decreased 29% to $1.1 billion and gross profit decreased 40% to $260 million, again, driven primarily by the divestiture of our South Texas cement plant and its related concrete operations.

While cement margins held up nicely, the ready-mix business experienced margin compression from Q2 through year-end due to higher input costs, including aggregates and cement outpacing pricing growth. Asphalt and painting revenues decreased 2% to $869 million due to slower market demand. Gross profit decreased 7% to $101 million due to lower revenues and higher aggregates input costs, partially offset by lower liquid asphalt costs. Magnesia Specialties established all-time records for revenues and gross profit of $320 million and $107 million, respectively, as benefits from strong pricing more than offset lower chemical and lime shipments. Turning now to capital allocation and liquidity.

We achieved record 4th-quarter cash flows from operations of $685 million, an increase of 23% compared with the prior year quarter, driven by improvements in working capital and deferred income tax payments due to the Internal Revenue Service providing disaster tax relief for North Carolina businesses affected by Hurricanes Debbie and. Our capital allocation priorities remain focused on prioritizing value-enhancing acquisitions, reinvestment in our business and returning capital to shareholders. In 2024, we returned $639 million to shareholders through dividend payments and share repurchases. Even with significant M&A activity, we ended the year with a net debt-to-EBITDA ratio of 2.3 times, well within our targeted range of 2 to 2.5 times. Our strong balance sheet offers ample flexibility to execute on our active M&A pipeline and pursue value-enhancing investment opportunities.

Finally, I will close my prepared remarks with some views on tariffs. The depth, breadth and duration of tariffs actually levied remains highly uncertain. As a result, our 2025 guidance assumes no impact from tariffs. There are some situations where tariffs might enhance the company's profitability and others, which may lower it. The vast majority of our supply-chain is sourced from US locations. The company was served well by that during the supply-chain shocks of the COVID era and should serve us well going-forward.

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

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

Thank you, Jim. To conclude, we're proud of our strong 4th-quarter financial results and industry-leading safety performance. Thanks to our team's collective commitment to Martin Marietta's vision and strategic priorities, we have deliberately built an increasingly resilient, highly productive coast-to-coast aggregates-led business positioned to grow unit profitability through various end-market demand environments. We are enthusiastic about Martin Marietta's prospects in 2025 and beyond.

The fundamental strength and underlying drivers of our differentiated business, proven strategic plan, strong balance sheet with significant opportunities for growth and long history of successfully managing through economic cycles provide us great confidence in our ability to continue delivering strong financial, operational and safety performance. If the operator will now provide the required instructions, we'll turn our attention to addressing your questions.

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Operator

Thank you. We will now begin the question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. And if you'd like to withdraw that question, again press star one. And as a reminder, please limit yourself to one question. For any additional questions, please requeue. Your first question comes from the line of Trey Grooms with Stephens. Please go-ahead.

Trey Grooms
Analyst at Stephens

Thanks, and good morning, Ward and Jim.

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

Hi,. Trey, how are you?

Trey Grooms
Analyst at Stephens

Doing well. Thank you. As we look at the '25 guide, Ward, could you walk us through any of the puts and takes around the overall guidance for the year, including your aggregates price and volume outlook?

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

No, I'm happy to, Trey. Thanks for the question. Look, at, at the outset, I'd say we're taking a pretty measured approach to the guide this year. And look, there is uncertainty relative to monetary policy and whatever -- whatever the other policy fluctuations may be during the course of the year. Look, the guidance proves conservative and frankly, I hope that it is. We can come back and adjust for upside later. Relative to volume in the first instance, obviously, we're looking at low-single digits and that includes, by the way, Trey, a full-year of acquisition contributions.

So if you think about what that's going to look like, BWI closed last April. So we'll see that fully in the first-quarter. If we're looking at the transactions that we did in West Florida, in Southern California and Texas, those will clearly be additive to quarters one through three. So again, if you're just thinking about the cadence on that. But if we think about end-users right now, I mean, overall, I think we should expect mid to-high single-digits growth in infrastructure. I think we're probably looking at low-single digits at least right now relative to both non-res and res. And if we think about what the builders are under those, look, I do think infrastructure should stay strong. I mean, there's 70% of the dollars from IIJA that are still yet to come in our sector.

And it's a practical matter, that has to roll-out in '25 and '26. So that should be pretty constructive. The other thing that we're seeing is nice, steady, consistent and frankly growing activity relative to data centers. I know there was some concern, there was some blip the other week relative to Deep. We've actually seen most AI and others come back and double down since then. So we think that should be very healthy this year. Yeah, frankly, we're not planning for notable residential recovery in 2025 given the higher for longer mortgage rates that we're seeing because we think that will just continue to affect monthly affordability. That said, in some instances, we are seeing that homebuyers are simply getting accustomed to this higher interest-rate environment.

So we're going to see how that plays out. But here's something that I think is notable and I mentioned it in my prepared remarks. I mean, clearly, we're seeing green shoots in warehousing. The Claiburn, Texas facility that we have, the Fort Myers facility that we have are both large jobs and that's not the type of activity that you would have seen for the majority of last year. So we've been waiting for warehousing to find bottom. We think it has. The other thing that I think is important to keep in mind is, as we go throughout the year, we're going to start lapping some pretty weather-impacted quarters last year.

I mean, if you think about it, Q2 was really a washout in our Southwest division, particularly in Dallas-Fort Worth, which is the company's largest marketplace. And Q3 was a real challenge for us in portions of the East, including the Carolinas, which is a notable marketplace for us as well. So if you think about the way it rolls up, I mean the gross profit guidance shows double-digit unit profitability growth and nice gross margin expansion and it's going to be driven by pricing and what we think will be moderating inflation. Now relative to price, price is going to be a little bit different this year as you simply think about the cadence because particularly in the cement market, we saw most cement producers roll their first price increases back to April 1, which meant as a practical matter of lot of ready-mix players were looking for that.

So what we've seen in our world is most hot mix and others had price increases effective January 1, as you become accustomed to. There are portions of the ready-mix community, in fact, most of it that are seeing April 1 price increases. So the price increases will be outsized relative to what history has been. Pricing, I'm convinced, is still very solid, will be attractive for the year. But your cadence this year is likely to be a little bit different. So don't expect to see that same degree of pop-in Q1 that we've seen in the last several years. You'll start seeing building in two and three, etc.

So I hope that gives you a sense of it. One last thing I'd say is if we think about the estimated carryover effect from last year's pricing, it's about 80 bps coming into the year, Trey. So I try to give you a sense of end-markets. I try to give you a sense of volume. I try to give you a sense of pricing and how I think that's going to play relative to margins. So I hope that helped.

Trey Grooms
Analyst at Stephens

Yeah, that's extremely helpful. Thanks for the additional color. But just for some clarity and correct me if I'm wrong, that pricing in April movement there for aggregates, if I remember going back historically, that's -- but with the exception of the last few years, that's not unusual for the industry. It seems like that was kind of a normal kind of timing that maybe had kind of shifted a little bit more to January just in more recent years. Is that the right way to think about it?

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

That is the right way to think of it, Trey. I mean, you're -- you've been around this industry for a long-time and I have to. And that's the way that has typically worked. So yeah, I don't see anything there that's causing me any angst. But again, if you're looking at it and modeling, as I know you are, I just wanted to make sure that I was giving you and your colleagues the ability to model that with degrees of precision.

Trey Grooms
Analyst at Stephens

Yeah. Well, that was super helpful. Thank you. I'll pass it on.

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

Thank you,.

Operator

Your next question comes from the line of Catherine Thompson with Thompson Research Group. Please go-ahead.

Kathryn Thompson
Analyst at Thompson Research Group

Hi, thank you for taking my question today. I appreciated your -- the color on the tariff impact in your prepared commentary, but wanted to follow-up on that in a two-part way. One, just pull the string on what could be impacted from tariffs from your perspective. We certainly had some metals tariffs announced yesterday. But also two, what did Martin Marietta do to diversify its supply-chain in the wake of the first Trump administration? And how are you a little bit better prepared today versus, say, 2016? Thank you.

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

Good morning, Catherine. Thanks for the question. I'll take the last part first and say this. If we go back to the COVID years when really supply chains were a mess, we actually came through that pretty well. I mean, we were having record years during that period of time and we were not running into supply-chain issues largely because as Jim noted in his prepared remarks, most of our supply-chain is domestic.

There were some outliers where we had things coming in from overseas. And to your point, we have moved very carefully in the intervening period of time to make sure that we can look primarily to domestic production. And I think that's served us well before. I think if we see something that's amped up from a tariff perspective, we'll be even better served right now. To the second part of your question, what are some of the specifics?

Look, obviously, steel is something that we're going to watch. Steel tariffs, very frankly, could be pretty helpful to our Magnesia Specialties business. We're supplying a lot of that material to domestic steel producers. So if they see steel production ramp-up in the United States, that's going to help us a lot on volume. And if we think about the Magnesia Specialties business, look, they just had a record year and they had a record year with chemical and steel markets, frankly, in pretty low spots. So again, I think tariffs very selfishly for us on that could be helpful.

Equally, if we think about tariffs potentially on cement, look, we're a domestic cement producer. We're a long way away from water. But again, I think that would be helpful to our North Texas position. By the way, that business continues to perform extraordinarily well. So I think it would just get that business even more upside. Imports or tariffs relative to stone has a twofold effect. Number-one, I think it actually adds value to what we're doing with our long-haul network, particularly relative to rail. So keep in mind, we're shipping more rail -- more stone by rail than anybody else in the United States. That's about 30 million tons a year. It's going into coastal areas principally of the United States.

We think that could be helpful. And to be perfectly transparent about it, we do have an operation in Canada that's coming into the United States by boat. So that would be one of the headwinds that we could potentially see from that. But again, it's not going to be a material issue to the company, but in the -- just in-full disclosure, I think that's fair to say. If we think about more indirect impacts from tariffs, I mean, we could certainly see it drive more reshoring and more domestic manufacturing demand. And I think that goes back to your question relative to supply-chain.

And it could -- it could impact inflation in some degrees and that could lead to maybe higher for longer and that could have a negative impact on real-estate or residential as we look at it. And I think it goes back to the observation that I shared with the Trey. I think we have given a very measured guidance approach today. And the fact is, if we come back and adjust this, I sure would like to adjust it up. And I hope we put ourselves in the position that that's exactly what we can do,.

Kathryn Thompson
Analyst at Thompson Research Group

Great. Thank you very much. Good luck.

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

You're welcome. Thank you.

Operator

Your next question comes From the line of Jerry with Goldman Sachs. Please go-ahead.

Jerry Revich
Analyst at The Goldman Sachs Group

Yes, hi, good morning, everyone.

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

Hi, Jerry.

Jerry Revich
Analyst at The Goldman Sachs Group

Hi. Ward, Jim, I wonder if you just talk about the per ton cost cadence that you expect. Obviously, mix is moving around and, you spoke about timing of price increases normally price-cost credit is pretty consistent. Do you expect similar gross profit per ton growth in the first quarter as the full-year? Can you just give us a bit of color on the equation.

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

Yeah. I'll ask Jim to come back and give you some color relative to cadence. I want to come back to the very first notion that you raised and that is, let's talk about what's happening with respect to cost per ton because I think this quarter was a really good example of what you can and you should expect going-forward. And if you look at it, I thought we had good cost management. If we're looking frankly at organic COGS, they were flat despite revenue being up nicely in the organization. But what I like, Jerry, is when I go back and look at it, I mean, clearly energy was down and energy was down because diesel was better and a host of things. But what I'm moved by is I go through the different cost buckets, whether it was supplies or whether it was repairs or whether it was contract services or otherwise, they're all-in the green for the quarter.

So I like the way that that's shaping up. And the fact is we can continue to make these businesses that we bought increasingly efficient relative to ASP, but also relative to the cost profile. Now the other part of your question was relative to cadence. And so for that, let me turn it over to Jim.

James A. J. Nickolas
Executive Vice President and Chief Financial Officer at Martin Marietta Materials

Thanks,. Hey, Jerry. The cadence is going to be -- there's two dynamics. One is the P&L effects -- the temporary P&L effects of our inventory reduction, that will continue through the first-half. So that's already built into our guide, but that will show-up more in first-half -- not in the second-half really as much. Aside from that dynamic, the underlying COGS inflation are going to be pretty consistent throughout the quarters. So that will be pretty evenly balanced. Q1, Q2, Q3, Q4. We're not anticipating anything changing dramatically on the underlying inflation piece. But again, the inventory worked down the temporary P&L effects from that we'll see in the first-half and then that should abate thereafter. Does that answer the question?

Jerry Revich
Analyst at The Goldman Sachs Group

It does. So just to make sure we're on the same page with you, Jim. So it sounds like you're thinking of gross profit per ton up low-single digits maybe in the first-half and then in the back-half, maybe mid-teens given the comps on the inventory destock point. Is that the range of expectations?

James A. J. Nickolas
Executive Vice President and Chief Financial Officer at Martin Marietta Materials

Probably lower variation than what you just described. I would say, you know, low -- low-teens kind of consistently, maybe a little bit lower up plus or minus a couple of hundre basis-points, but low-teens growth I'd say pretty consistently quarter-over-quarter.

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

Yeah. And Jerry, let me add one more. Let me add one more footnote to that because Jim mentioned the inventory reduction or management efforts that we've been going through. I mean, for the quarter, that was about a $20 million P&L impact. And my point with that is, if you think about overall cost-control and if you think about pricing and you think about the margin expansion that we had in the quarter, given that $20 million headwind on inventory, that's my point. That was a pretty impressive quarter relative to cost-control.

Jerry Revich
Analyst at The Goldman Sachs Group

Thank you.

Operator

Your next question comes from the line of Anthony Pittinari with Citi. Please go-ahead.

Anthony Pettinari
Analyst at Smith Barney Citigroup

Good morning.

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

Good morning, Anthony.

Anthony Pettinari
Analyst at Smith Barney Citigroup

Hey, you referenced the recent acquisitions and I'm wondering if it's possible to put a finer point on the volume benefit that you expect in '25, you know, either in terms of tons or percentage volume benefit or however you'd -- how are you to be able to frame it?

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

No, happy to, Anthony. As a practical matter, if you're looking just at what would have been organic, it's probably up a percent. And then if you're looking at the balance of it, it's largely acquisition-driven. So I think on a percentage basis, that's probably not a bad way to think about it.

Anthony Pettinari
Analyst at Smith Barney Citigroup

Yeah. Got it, got it. Thank you.

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

Thank you.

Operator

Your next question comes from the line of Phil Ning with Jefferies. Please go-ahead.

Philip Ng
Analyst at Jefferies Financial Group

Hey, guys. I guess since Trump has stepped into office, certainly a lot of noise on the funding front on the public side, but seems more centered around EV charging stations and some of these IRA projects. So my question to you, Ward, have you seen any pause in projects and any slowdown in bidding activity for new projects? Just kind of help us kind of think through any choppiness and noise on the public side we look at '25.

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

No, I appreciate the question. We've not seen any slowdown in that. And in fact, we think that's probably going to continue to be pretty constructive and let's say for several reasons. One, if we just look at what we think is going to happen relative to non-res square footage starts, I mean, we're projecting 2025 recovery of somewhere between 8% and 9%. But to contextualize that, that's still down 19% from 2022's peak and still below a 2021 level.

And if we're looking at what we're seeing right now relative to Stargate that I mentioned in my opening comments at the investments that Amazon is making, we're simply not seeing a slowdown in those sectors right now. If we look in our footprint more specifically, I mean, Google has activity right now both in Kansas City, which is an important market for us as well as in South Carolina. Microsoft, we talked about how much investment they have ahead of them, but they've already got projects underway in North Carolina.

And obviously, I've already mentioned the Amazon projects in both Claiber and Texas and in Fort Myers. But part of what I moved by as we think about the non-res sector is, we think industrial construction is going to be pretty healthy. We think healthcare and education is going to be pretty healthy. And we think the broad commercial real-estate sector is going to be the one that's going to come behind that single-family sector that we said is underbuilt by around 7 million homes today, at least according to realtor.com. So we're not seeing a slowdown in that. We're actually seeing a nice steady pickup in that.

And again, so much of what's going to happen in our business is going to be driven by the locations that we have and the states in which we've built leading positions, we believe are going to be on the front-end of much of this development.

Philip Ng
Analyst at Jefferies Financial Group

The word, a lot of that commentary was more around private, but I guess in the public side, you haven't seen any choppiness in terms of funding being paused or any of that stuff. And then the IRA piece, I just don't have as great of appreciation how much of a good guy has it been and what it could -- what kind of impact?

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

Yeah, we're not seeing anything choppy on the public side. We think public is actually going to be really constructive and expected to stay that way for a period of time. I mean, the fact is if we're looking in Texas this year, lettings are going to be really robust. They were $13.5 billion last year and they're expected to be in that same range again this year.

Again, as you recall, Colorado actually has an approved budget of nearly $2.1 billion. North Carolina's budget is going to increase to -- I think it's about $7.6 billion. And part of that's driven by the fact that now we're seeing about 6% of sales taxes going into NCDOT today. So we think that's going to be attractive. Equally, if we go to Georgia, I mean, their budget is up 7%, Florida is at record levels if you take-out one-time supplements that they've had.

So if we're looking at our state DoT budgets in our top-10 states on a same on same basis, eight of the 10 year-over-year are up. So that's why when we're looking at the heavy-side, non-res and on big infrastructure. We don't anticipate choppiness there. We expect pretty healthy, good, steady diets of work.

Philip Ng
Analyst at Jefferies Financial Group

Oh, okay. Really helpful. Appreciate it.

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

Thank you.

Operator

Your next question comes from the line of Garik with Loop Capital. Please go-ahead.

Garik Shmois
Analyst at Loop Capital

Well, hi, thank you. Just a follow-up question and a new one for me. Just a follow-up just on the inventory drawdown. I was wondering if you could perhaps quantify how much you still have remaining in the first-half of the year? And then just broadly on the volume outlook, recognizing that it's -- you're looking for low-single-digit growth, has any of the components changed either for the better or for the worst since you provided the preliminary outlook back after the 3rd-quarter.

James A. J. Nickolas
Executive Vice President and Chief Financial Officer at Martin Marietta Materials

So a couple of things. So I would say relative to the inventory drawdown, if you think about it, it's about a $30 million headwind in Q3, a $20 million headwind in Q4. We do think we're going to be done with that by the time we get to half year. And what that -- Garrick, if you think about bookends, that's probably not a bad way to think about book-ending it. Yeah. And the other part of your question, repeat that again for me, Garrick?

Garik Shmois
Analyst at Loop Capital

Yeah. I was wondering if the volume outlook has changed at all since last quarter. Recognizing you're still speaking to low-single-digit growth, but has any component gotten better or worse, maybe infrastructure it sounds maybe to my early better than -- yeah, any other color there?

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

So what I would say is, I think people generally have felt like interest is higher for longer. So I think overall, there's a sense that degrees of public are probably going to be a little bit more muted now than we would have thought several months ago. I mean, I'm sorry, private. And but at the same time, I think we Feel like public is going to be pretty healthy. And I think we feel like it has to be for several reasons, Garrick. Number-one, you have to assume this administration is going to be looking at a reauthorization at the end of '26 and having 70% of those dollars still hanging around the hoop doesn't sound like a really good idea. So our sense is that's probably going to be a pretty aggressive play that we're going to see on public in '25 and '26. And so I think that probably feels, honestly, a little bit more robust and I think portions to private probably feels modestly slower for something that feels something like a wash.

Garik Shmois
Analyst at Loop Capital

Got it. Thanks for that. I'll pass it on. Best of luck.

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

Thank you,.

Operator

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

Angel Castillo
Analyst at Morgan Stanley

Hi, thanks for taking my question. And sorry to beat a dead horse here, but just wanted to clarify on the organic growth side, you talked about maybe 1% and then the rest was on the volume side was maybe driven by the M&A front. But when you walk-through your end-markets, you highlighted high-single-digits for infra and then low-single digit growth in resi, non-resi. So it seems to imply that the end-markets themselves are maybe growing closer to above that 1% if you kind of put that all together. So just curious, is that just conservatism or is there anything that we should kind of consider there as to why maybe that organic growth is only 1%?

James A. J. Nickolas
Executive Vice President and Chief Financial Officer at Martin Marietta Materials

Yeah, that was Jim. That was not organic. That was meant to be kind of a year-over-year view, inclusive of the acquisitions.

Angel Castillo
Analyst at Morgan Stanley

Sorry, the 1% on volume.

James A. J. Nickolas
Executive Vice President and Chief Financial Officer at Martin Marietta Materials

The slides that show mid-single digits for infra, et-cetera, low-single digits for the other categories that -- those were inclusive of acquisitions in July.

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

And I think to your point, look, as I said in my comments, we're trying to be really measured in this guide right now. Yeah. So if we come back to you, we'd like to be guiding up, not sideways or down.

Angel Castillo
Analyst at Morgan Stanley

Got it. Understood. That's helpful. And then I just wanted to go back to your comments around the industry pricing and in some pockets, perhaps are returning to April 1st and maybe a little bit more of a smooth cadence through the first-half. Should we take that to mean that midyears were kind of moving as an industry away from midyears or do you still expect to see midyears in aggregates?

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

I would say a couple of things. One, the guide that we've given you does not assume mid-years, but we believe that there will be degrees of midyears, just as they were last year. And keep in mind, where we saw them mostly last year were in the new acquisitions, we think we will likely see that again this year. And part of what we'll just have to watch for next year is to see, again, how does cement roll-out next year because what that did as this year came into play is it really made that January 1 more challenging, specifically relative to ready-mix concrete.

So again, the January 1 price increases are broadly in for products going into hot mix. So it's really more of a basically a ready-mix issue and a cement issue than anything else. But yes, it does not include in the guide. We do think there will be some mid-years. We'll be back to you to talk more about that.

Angel Castillo
Analyst at Morgan Stanley

Thank you.

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

Thank you.

Operator

Your next question comes from the line of Tyler Brown with Raymond James. Please go ahead.

Tyler Brown
Analyst at Raymond James

Hey, good morning.

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

Good morning, Tyler.

Tyler Brown
Analyst at Raymond James

Hey, Ward. Hey, as it relates to capital allocation priorities, can you guys talk a little bit about the M&A pipeline? Does a change in the regulatory environment impact anything there? And if that weren't not to materialize, what's the appetite on debt paydown versus the buyback just given the balance sheet health.

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

So number-one, if you think about it, Tyler, $6 billion worth of transactions. Last year, we ended the year at 2.3 times debt-to-EBITDA ratios. So we're in a very attractive place to continue growing our business, number-one. Number two, there's still a lot of work to be done in this industry relative to M&A. And look, I'm going to see it for the rest of my career, my successor will see it for the rest of their career. And my bet is my successor, successor will see that for a good part of their career as well.

As we've indicated before, we've firmly identified over 200 million tons of businesses on a per annum basis that are in geographies in which we would have an interest in being and then to your point, that we believe we can get cleared regulatorily. And look, do I think this is going to be a $6 billion year? No, probably not. If a few things break, could it be? I suppose it always could because it tends to be opportunistic. But my sense is, Tyler, we're looking just in a year in, year out circumstance that we're doing around $1 billion a year of transactions.

And we think that's a good steady number and there are going to be instances where you may well see it above that because you might have something opportunistically that comes along. Yeah. But if we think back to it as well relative to different administrations, et-cetera, one thing that Martin Marietta has always been very consistent in doing is being in a position that we look at the markets very thoughtfully and we understand businesses that we believe we can buy regulatory, ones that we can't, and we tend to move very purposely on the ones that we can.

Now relative to other uses of cash, let me turn it over to Jim, so he can talk to you a little bit about that.

James A. J. Nickolas
Executive Vice President and Chief Financial Officer at Martin Marietta Materials

Yeah, good question. Good question, Tyler. We do a bond coming due in December of this year. It's quite small. Yeah, whether that's repaid cash on the balance sheet or refinance, we'll see going-forward, but it's relatively small. And I would anticipate share buybacks to outstrip any kind of debt reduction, if there's any debt reduction at all. So we've been in the market last year, bought a fair bit of shares. We'll be in the market again this year as we are every year-on buying back stock, but that would come before debt paydown.

Tyler Brown
Analyst at Raymond James

Okay. Yeah. Okay. And then super quick, Jim, it sounds like there's a few dynamics in first-half versus second-half FIFO, pricing cadence, M&A, etc. Can you just shape first-half and second-half EBITDA mix? Will it slightly skew second-half? Just any help would be very helpful from the model? Thanks.

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

Yeah. I think it will skew second-half as it traditionally does, perhaps less so this year than last year, though.

Tyler Brown
Analyst at Raymond James

Okay. Okay. That's helpful. Okay. Thank you.

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

Thank you, Tom.

Operator

Your next question comes from the line of Michael Dudas with Vertical Research. Please go-ahead.

Michael Dudas
Analyst at Vertical Research Partners

Good morning, gentlemen, Jacqueline.

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

How are you?

Michael Dudas
Analyst at Vertical Research Partners

Yeah, I'm great, a little chilly here in the Northeast, but we're suffering through it. It's all. I would expect else. Yeah, thank you. Looking at the residential market, just a little bit more thought on -- it's been frustrating, I think for most of the industry that we've seen the affordability and the rate issues. Is it -- is there sensitivity on like if the economy picks up or rates fall just a little bit that there's this pent-up demand will flow-through? Are you anticipating that? And is there any shift in say multi versus single that you might portray, say, heading in I know you got to longer-term numbers, but certainly as things normalize, what kind of a benefit that could be in the regions that you're in?

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

Yeah. Michael, it's a great question. I would say several things. As we talk to customers or we talk to builders right now, they're focused on buying and entitling land. So number-one, I think that's a really good sign. Number two, that tends to be a really good sign relative to single-family residential. And selfishly, we like to skew toward that because that's two to three times more aggregates intensive than it's multifamily. The other thing that strikes me is, while it's been a long slug, builder confidence in places like Texas, Colorado, North Carolina and Georgia is clearly getting better. So we think that's a very good sign. And I think they believe starts and permits are expected to pick-up more broadly across the marketplace today.

And the other thing that I think is worth noting and I said it in the earlier response as well. I do think to degrees, buyers are adjusting to higher rates. And so I think to your point, I think cuts could actually see a pretty significant surge in-demand. It's all going to be a matter of timing because it's not going to turn-on with immediacy. But when we go back to the notion of 7 million homes that are underbuilt and a disproportionate number of them in states in which or MSAs in which we have a leading position.

That's a pretty attractive place to be. So I hope that helps. It sure does.

Michael Dudas
Analyst at Vertical Research Partners

Thank you.

Operator

Your next question comes fromthe line of David McGregor with Longbow Research. Please go-ahead.

David MacGregor
Analyst at Longbow Research

Yes, good morning, everyone. Thanks for taking the questions. Apologize for back I'm in an airport. I'm in an airport here. So Ward, I guess on infrastructure, I hear you when you say that you're not seeing any interruption in orders right now, but I guess some of the elephant in the room is how safe is federal funding for infrastructure construction projects? And I just wanted you to share with us how you would characterize the risk of federal government deobligating funds for state DOT projects.

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

David, it's a perfectly good question and I don't see that as a big threat. And here's one of the reasons why. I mean, if you think about the overall IIJA, $1.2 trillion, right, But $350 billion to Highways Bridges, Roads and Streets, the things that you and I look at is hardcore construction. And if we think back to when IIJA was going through its debate process in the Senate and in the House. Then former President Trump was not in favor of IIJA because he did not think enough of it was going toward what he would refer to as real infrastructure. So if we look at what's going on with that and we think about what I believe his marching orders have been to Secretary Duffy and that is to build big and build big in this context, I think means highways, bridges, roads, streets, airports and big heavy infrastructure in the United States. So I think if they do anything with that, I'm not sure that they will, I think it will be nuanced. And I think if it's nuanced, it's not going to be in those areas that you and I think about as being nicely aggregates intensive and oftentimes countercyclical. So I think if we think of IIJA through that lens, I think that's probably the right place to be. If we think about IRA, so many of those funds have already been obligated, obviously a much smaller program anyway. So as I'm sitting here measuring risk and thinking about the way the administration may be thinking about a reauthorization, I just view bad things happening there as having a relatively low likelihood. So David, I hope that helps.

David MacGregor
Analyst at Longbow Research

It does. Thanks very much, Warren.

Operator

Your next question comes from the line of Adam Thalhimer with Thompson Davis. Please go-ahead.

Adam Thalhimer
Analyst at Thompson Davis & Co.

Hey, good morning, guys. Congrats on the Q4 beat.

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

Thank you, Adam. Good to hear your voice.

Adam Thalhimer
Analyst at Thompson Davis & Co.

I have two things. I have some confused clients on pricing. And I think you said aggregates pricing up a little bit sequentially in Q1 with a bigger pop-in Q2.

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

Yeah.

Adam Thalhimer
Analyst at Thompson Davis & Co.

And then my other question was, vis-a-vis what somebody else said about the weather, it's been a pretty tough winter. Just curious if we should bake in a conservative Q1.

James A. J. Nickolas
Executive Vice President and Chief Financial Officer at Martin Marietta Materials

You know, I wouldn't go over your skis on baking in a conservative Q1. I think Q1 is going to be just fine. So I wouldn't lean too hard there. And look, I think you nailed it on the pricing. I'm not at all worried about pricing, as Trey indicated in his question too. I mean, an April price increase for some portions of a marketplace is where this industry has resided for a long-time. And my only commentary around pricing was, I'm trying to make sure from a modeling perspective, to your same point, yeah, I'm not wanting people to get over their skis on certain components as they go through on a month-by-month basis. But if I break yours down, no, I don't think you need to build anything draconian at all into Q1. And I do think if you've got price increases layering in a more robust way post Q1, your model will hold together in a in a better fashion.

Adam Thalhimer
Analyst at Thompson Davis & Co.

Perfect. Thanks, Ward.

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

Thank you, Adam.

Operator

Your next question comes from the line of Avi with UBS. Please go-ahead.

Avi Jaroslawicz
Analyst at UBS Group

Hi, good morning.

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

Good morning.

Avi Jaroslawicz
Analyst at UBS Group

But given all the volatility and fluctuations with policy-making these days, just curious how that's affecting your own capital planning and strategic decision-making. You know the nice thing about this industry is, I can tell you, this company has always been profitable. This company has never cut a dividend. And even when we went through the financial crisis and lost, let's Call-IT, 40% 45% of our volume, we always had pricing power. So when we look at history and let some of the history dictate how we look at the future going ahead, and look, there are going to be some policy things that will move around.

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

I think the policy issues that I believe we'll see from this administration relative to public and infrastructure will be constructive to what we're doing. I think the polished decisions we may or may not see from this administration relative to tariffs, whether it be cement, steel or otherwise, will probably be constructive to what we're doing. When I think about where I think this administration would like to see interest rates and what that can do to single-family housing, I think that ought to be constructive to what we're doing.

When I think about a company that has proven itself to be actually very capable at M&A. And yes, I think we're likely to be in a time with availability of potential transactions and an administration that's frankly going to be -- we will look more favorably upon transactions going-forward than we've seen in the more recent past. So are we watching carefully? Yes. Are we going to remain agile? Yes. But as we look at it and really start thinking about what are going to be potential pluses here, what are going to be potential modests here, we see a lot of pluses here and we see that relative to what M&A will look like. We see that relative to what we think monetary policy is going to look like. And frankly, I think we're likely to see it in the way a reauthorization works. And the way that I think about that is, I think this administration while they have control of a House of Representatives and a United States Senate are likely to want to get a reauthorization done before midterms because it passes prologue, usually midterms don't work terribly well for the party that's in the White House.

So the current administration is looking at having the White House and the Senate and the House of Representatives and is consistent with telling Secretary Duffy to build big. Again, as we're watching the policy decisions that have been announced and policy decisions that we anticipate, I think on a whole, we feel like they're going to be pretty positive for Martin Marietta

Very helpful. Thank you. You bet. Thank you.

Operator

Your next question comes from the line of Michael Feninger with Bank of America. Please go-ahead.

Michael Feniger
Analyst at Bank of America

Great. Thanks for squeezing me in guys. Just of course, Jim, you mentioned -- you mentioned price versus cost spread has widened in recent years. I'm just curious, Ward, if we are in a higher for longer rate environment and that private side is still somewhat under pressure, is it inevitable that as you turn the page of 2026 that pricing comes back-down to that long-term 3% to 4% average or you know, just qualitatively, do you think that price versus cost spread remains wider than maybe what we historically have seen outside of just the last three years.

James A. J. Nickolas
Executive Vice President and Chief Financial Officer at Martin Marietta Materials

So I'm going to answer your last question first. Look, I think the price-cost spread continues to work-in our favor. And I think for a couple of reasons, I think actually twofold in the. One, and Jim can talk to what we're seeing broadly on inflation. I think inflation is moderating, inflation is coming down. So that's going to help. But I think the bigger driver is pricing is going to remain in a fundamentally better place going forward than pricing was at least in my view, for all the years up until let's Call-IT the last two or three.

And I think that's a fundamental change. I don't see that changing. Look, if you're looking to face some financial statements, as I am, you're seeing ASPs around $22 a ton for aggregates. That's had a nice run. But Michael, I'm going to say again what you've heard me say in the past, there are very few things that you want in your life that you can buy for $22 a ton except our product. And I continue to believe that we're going to be in a position that we can get appropriate value for our product going-forward.

I think we'll see that spread continue. I'll ask Jim to give you a little bit of color relative to what we're seeing with respect to inflation.

Yeah. So it's -- as we indicated late last year, we're still of the same view. COGS per ton inflation is mid-single digits and then trailing by a fair bit of the ASP growth we're expecting. So you know, based on our guidance, I would say, we would expect gross margins to widen that spread by another 100 basis points. In 2025 over 2024, that's even after overcoming the temporary P&L effects of the inventory reduction.

So I think that bodes well for 2025, bodes well for 2026 and beyond. So over the arc of history, we've widened the price-cost spread. It's not a straight-line, but it's pretty consistent over-time, and I don't see why that would end.

Michael Feniger
Analyst at Bank of America

Great. Great, Jim. And Ward, maybe just to one of your earlier comments, I think you said on Q4, the cement margin was healthier relative to what you saw in Ready-Mix. Just how is that evolving in 2025? I mean, I think nat gas prices are a bit higher. Just kind of curious how we should kind of think about that cement versus ready ready-mix in 2025?

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

Well, I would say I think considerably better about cement than about ready-mix in 2025. Even as we're looking at cement for the quarter, I mean, pricing was constructive. The fact is the business really performed well despite pretty significant headwinds from a weather perspective in both November and December. And we saw nice revenues in cement. We saw good gross profit, we saw good gross margins, good EBITDA. Importantly, that FM7 operation that we opened, it was running at greater than 90% of availability There in the 4th-quarter after we opened that up. So again, we're not going to be cement every place. We're going to be cement where it's really strategic to us. And in Dallas-Fort Worth it is really strategic and is a fantastic cement plant. Now if you think about what's happening relative to Ready-mix, volumes relatively flat there. The dilemma that has is is taking significant aggregate price increases, it's taking cement price increases and it's hard for ready-mix to keep pricing ahead of that. So if we think about what the combination is going to look like, you're going to see some margin compression in ready-mix. But again, if we think about ready-mix, it's so much of a shock absorber for our company. We have it in very select markets. It's important to us in places like Dallas-Fort Worth and Arizona. But your question really was geared around Cement and I wanted to make sure I gave you a good robust snapshot of the way cement is performing because if you could really see it at a granular basis, you'd be very comfortable with it as are we.

Michael Feniger
Analyst at Bank of America

Thank you.

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

You're most welcome.

Operator

And that concludes our question-and-answer session. And I will now turn the conference back over to Ward Nye for closing comments.

C. Howard Nye
Chairman of the Board, President and Chief Executive Officer at Martin Marietta Materials

Thank you, Kristen. Thank you all for joining today's earnings conference call. As we close the chapter on our 30th year as a public company and look-forward to the next 30 years, you should expect Martin to continue building on its solid foundation of past successes. With our world-class teams and proven strategic priorities underpinned by our resilient aggregates-led business and unparalleled markets, Martin Mariott is well-poised to deliver sustainable growth and shareholder value for years to come. We look-forward to sharing our first-quarter 2025 results in a few months. As always, we're available for any follow-up questions you may have. Thank you again for your time and continued support of Martin Mariotto.

Operator

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect

Corporate Executives
  • Jacklyn Rooker
    Director of Investor Relations
  • C. Howard Nye
    Chairman of the Board, President and Chief Executive Officer
  • James A. J. Nickolas
    Executive Vice President and Chief Financial Officer
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