Martin Marietta Materials Inc (MLM) 2003 Q2 法說會逐字稿

Good day, everyone and welcome to this Martin Marietta Materials Incorporated conference call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to the President and Chief Executive Officer, Mr. Stephen Zelnak. Please go ahead, sir.

Thanks for joining us today. I have with me Anne Lloyd, our Chief Accounting Officer. Janice Henry, our Chief Financial Officer is not here today. Her husband had some surgery, and she's taking a few days of personal leave.

We were pleased with second-quarter results. Net earnings of $39.7 million or 81 cents per diluted share was achieved despite the very poor weather and operating conditions in most of our markets. Net sales for the quarter increased 1 percent to $416 million compared to the prior year period. Earnings from operations for the quarter were $70.2 million compared to a record $80.9 million in 2002. Net earnings from continuing operations were $39.8 million or 81 cents per diluted share, versus $42.8 million or 88 cents per diluted share in the prior year.

In the prior year period, we realized significant income on the sale of quarries in the Columbus, Ohio and Northern Virginia areas. Inclusive of this other income and expense, earnings per share in the prior year period was $1.09 per diluted share. Net sales for the first six months were $699 million, up about 1% from the prior year. Operating earnings were $61 million versus 81 million in 2002. The governing factor for the quarter was extremely wet weather and a soft economy in most of our market areas, with the notable exception of Florida where strong business demand continued. We were severely affected in North Carolina, where shipments were down 14 percent compared to 2002, and in parts of the Southwest, which led to a 10 percent shipments declined in that area.

With conditions improved in the latter part of June, shipments increased significantly, which is encouraging. We had a strong level of shipments in our Southeast and Mid-America areas compared to the prior year. In June, shipments at our Bahamas limestone facility more than doubled over the prior year, based on strong demand in Florida and the Gulf Coast markets. Also our Nova Scotia granite operation experienced strong demand across Coastal markets in the Southeast and Gulf Coast.

For the quarter, aggregates pricing at Heritage locations was up 1 percent, while shipments volume declined 2%. Pricing was negatively affected by product mix weighted to lower value products. Year-to-date volume at heritage locations is down 3% due to the previously mentioned low shipping levels in North Carolina and the southwest. Average selling price was up about 2%. Many of our major customers continue to indicate strong work backlogs, which have been deferred by the weather issues. We remain cautiously optimistic that lost volume in the Sunbelt region may be recovered in the second half of the year, given reasonable weather conditions.

In July, the North Carolina Legislature passed a special $700 million spending bill for road construction for the state over the next two fiscal years which began this July 1st. This bill is specifically targeted at construction-ready projects. It is aimed at stimulating employment and the general economy within the state. Also, after lagging in its highways letting in the first half of 2003, the North Carolina DOT lead over $300 million of projects in July and has a strong letting schedule for the remainder of the year. As the largest aggregates producer in North Carolina, this should be very positive for us.

Also during the quarter we completed a restructuring of our aggregates business, which was initiated in the second half of last year. The objective is to increase operating and marketing efficiencies and reduce overhead costs. We consolidated seven units into four larger geographic operating units. We're already seeing operational and marketing benefits. In the second half of 2003, we expect overhead savings of approximately $1.5 million, with full-year 2004 savings anticipated to be about $4 million on a comparable basis. This will help in offsetting the cost pressures from pension and other benefits programs.

During the quarter we had positive performance from our magnesia specialties business, with sales up 12 percent to $22 million; and earnings from operations increasing from 1.5 million to $2.3 million. The results reflected increased demand for water treatment products, the new product line for the pulp and paper industry and strong lime shipments to the steel industry. Year to date magnesia specialties net sales were up 9%. Earnings from operations decreased from $2.9 million to $2.2 million due to the spike in natural gas prices in the first quarter.

During the quarter, we continued to make important progress in the development of our structural composites business. Our prototype composite truck trailer was displayed at major expos for the waste and forest products industries. We experienced strong interest based on the weight reduction and durability offered by this innovative technology. We continue to quote insulated composite liners to the rail car industry and recently received our first order. Our new factory facility in Sparta, North Carolina, which will manufacture and assemble composite bridge decks, our composite trailer product line and composite sandwich products used in flat-panel applications, is on track to begin production in the fourth quarter, with business ramping up to 2004.

During the quarter, we paid our first dividend at the new rate of $.18 per share, which was raised 20% from the $.15 per share level. We continue to expect strong positive free cash flow, based on improving earnings and reduced capital spending needs. The outlook for the remainder of 2003 continues to be someone uncertain. However, given current backlogs indicated by our measured customers, reasonable weather conditions, and no further weakening of the economy, we expect to generate positive operating results in the second half of the year as compared to 2002. As such, we expect third quarter net earnings in the range of $.80 to $.92 per diluted share, and for the full year 2003 earnings per diluted share in the range of $1.85 to $2.15, excluding the cumulative effect of adopting Phas (ph) 143. At this time, I'd be happy to answer any questions that you may have..

(CALLER INSTRUCTIONS) Jack Kelly with Goldman Sachs.

A of couple questions. In terms of the Bahamas operation production doubling, could you just give some additional color in terms of what's going on there. Obviously, that's a heck of an increase. But maybe give us some annual run rates as you look at them, and maybe, without getting specific in the profitability, where are we in the scheme of things versus the other? Are they significantly below in terms of profitability, the other quarries?

Secondly, the cost savings for next year, that incremental 2.5 million, can you give us any guesses on what you think the incremental pension expense would be for last year? And then third - and I know this is the difficult one - can you maybe parce the difference between the weakness in the construction markets and the weather as it related to your second quarter? So if Heritage was down 1 percent, or 1 to 2 percent, what is your guess on the weather versus the actual market conditions?

Let's go back and start with Bahamas. Bahamas' shipments were actually more than double. The production side was very, very good. The run rates, Jack, on both production and shipments exceeded 5 million tons annually. We are budgeted for the year at around 4 million tons, so that was very encouraging. We continue to ramp up there. We in fact have some customers on allocation; and we're trying to get more inventory built and increase the production rates, which have been steadily increasing, particularly during the last quarter. We made some management changes there. We've got some different people employed. We've got more management on the task -- that's working very, very well. I indicated in the press release that results from Bahamas and Nova Scotia were positive. You can separate those. Results from Bahamas were positive; results from Nova Scotia were positive. We think we are on our way here and expect certainly more improvement in the second half of the year.

So if you continue at this 5 million rate or even hit the 4 million, is there anything else you need to happen to get to your targeted profitability? Is there a cost issue, is there a pricing issue or we just need the volume now?

We just need the volume. If the volume comes, I think the economics of that facility will work very, very well just as we laid them out. So we are moving along quite nicely at this point.

You talked about the cost next year, and you asked about pension expense. It's too early to comment. We simply don't know, and we will not know until the end of the year. It depends upon investment performance. So you can speculate on that as well as we can. All I can comment on formally is that we've taken some overhead out of the structure, and I've laid that out for you pretty clearly. We weren't a fat overhead company to start with, but we found some more efficient ways to combine and operate going forward.

The question with respect to trying to break out weakness in construction economy versus weather -- it is a tough one. What I will tell you is that in North Carolina, certainly the vast majority of what we saw was in fact weather-related. In the southwest, it was more of a mix. And to give you a little bit further breakout in the southwest, the Houston area and south Texas were extremely strong; and, in fact, in Houston we had a double digit increase in volume. San Antonio was very weak - a lull in construction activity there but with expectation of ramping up pretty sharply in the second half, with some big jobs that we already have booked, and also Toyota breaking ground in the second half. So I feel positive about that going forward. North Texas and Oklahoma was down slightly, and that area has been weak. It drifted down just slightly more. And Arkansas, which is part of that unit, was down about 10 percent on average shipment volume. In that particular case, that was more weather driven than economy. So hopefully that'll give you a little bit of feedback.

Good. Thanks.

(indiscernible) with Smith Barney.

Actually, it's Steve Kim (ph) at Smith Barney. I wanted to ask you, if I could Steve, a few questions. Let's start off with the guidance. It seemed that your guidance for the year came down the top end by about 5 cents, which was interesting, considering you surpassed the high end of your guidance range this quarter by a penny. And certainly from your comments, strictly related to North Carolina and improving shipments when the weather broke, you'd think that maybe that high end would have remained the same or even gone up. So can you talk a little bit about that?

I think the bottom line, Steve, is that with the kind of weather overlay we've had for the last nine months -- and if you want to see that, go to the NOAA, National Ocean Atmospheric Web site, and take a look at it -- we're pretty cautious about that. If you can tell me what the weather is going to be, I think I can give you a pretty good idea of what volume is going to be and the earnings are going to be. But we've gotten nothing but surprises. So we want to try to make sure that we keep it within the bounds of something that looks achievable, not with the weather we've had in the last nine months, because that's been devastating, but with something that's more normal. So that's what we try to do. If we were to get very good weather in the fourth quarter then this scenario could change, but the fourth quarter's a wild card.

But there was nothing incremental that you learned in the last 3 months, in other words, that would have caused you to be more concerned and therefore have taken down your number based on that?

No, we just tightened up the reins a little bit, given that we're at mid-year.

Two more questions, if I could. One is you referred to North Carolina -- the positive impact that you could have forthcoming there. Could you quantify that in some way? Obviously, North Carolina was a real drag; but I was wondering if you could sort of quantify the drag that it was and sort of maybe the boost that it could be going forward?

If you take North Carolina and look at the first half of the year, our volume is down double-digits. I think that's the starting point. And again, as I indicated to Jack's question, the majority of that -- the vast majority is weather-related. As you look at the second year here -- the second half of the year, and look at the comparison, our expectation would be that volume in North Carolina is going to be approximately the same, maybe a little better than last year. So we would expect to see some reversal of the first half trend in North Carolina.

And underlying that and giving it some boost probably later in the year is in fact some of this rapid spend money, which it appears they intend to put out -- the state DOT. If you recall, there was a three-year resurfacing program that was brought out two years ago in North Carolina with about $470 million of extra money. They've got another 150 of that to let, which would be let probably in October, and some of that may get done this year. So I think the trends are positive with respect to the highway scenario based on where it's been.

The real question mark for North Carolina relates to the commercial economy, and specifically, commercial office building construction and other types of commercial construction. And the question there is are we at the bottom? And I can't tell you definitively we are, although certainly there are some indicators that we are way down in the trough is the best way to put it.

So in other words, we have to put the highway outlook in some sort of context because, of course, the commercial is very important.

Correct.

The third question I had and the last one is basically in your release when you talk about the prime breakout in your volume and pricing variance tables. In your break out shipments between Heritage aggregate operations and acquisitions [inaudible], are you including in those shipment numbers anything other than aggregate sales or are you including asphalt or ready-mix in any way?

No, we do not -- aggregates as a product line is such a dominant factor for us that we don't include asphalt tonnage, ready-mix cubic yards. We don't have any indicator in there for our construction lay down business and some other miscellaneous components.

So, therefore, by extension when your talking about pricing in Heritage aggregate operations in this three month period up 1%, you're strictly talking about aggregate?

That is correct.

Great. Thanks very much.

Our next question today comes from Arnie Ursaner with CJS Securities.

This is John Reilly if we're on the air, sir. Good afternoon.

Hi.

Just to focus for a moment on your composite business, how much [inaudible] did you spend on the new facility in Sparta, North Carolina so far and how much more can we anticipate?

The fact of the matter is on the building itself, that's a building that we took down under a lease with an option to buy at a later point. So we had no CAPEX involved there. If you ever wanted to buy or lease a big box, now is the time to do it. I think you can be assured that the rates on that are favorable. We have made some investment in the facility itself to get it ready to accept the kind of equipment and to take care of tooling that we would do. The expenditures there will be less than $3 million to set up the factory.

What kind of capacity does it have?

It depends upon which product lines we're manufacturing. It's going to be very flexible capacity, because we're going to be assembling bridge decks there. We're going to be manufacturing flat panel products, part of which will be used in the side panels of truck trailers, and then we will be assembling truck trailers. Expectation is that that's a factory that could sport well north of $100 million worth of revenue, just to give you a measure. So it's not going to be capital intensive relative to the revenue and potential profit opportunity, which is one of the attractive aspects of the composites business to us.

And one last broad follow-up. You mentioned that you had some strong interest in the new prototype trailer. How optimistic are you for the outlook of this business?

We feel pretty good about it right now. We're not bringing out a product that has not been put on the road. We have a license for North America to build what is called composite trailer. And composite trailer is in fact on the road in Europe. Our licensor introduced it this past year. He has a small facility -- rather modest in ambitions and capabilities compared to us. Our vision is much, much larger.

We are concentrating on specialty trailers, not the van trailers that haul around Wal-Mart distribution cargo, that kind of thing -- those are very inexpensive. We're concentrating on live floor and tipper (ph)trailers for the waste industry, pulp and paper industry in particular, moving of produce. Our expectation is we're going to move to the introduction of a flatbed trailer, and we're also going to move to the introduction of refrigerated trailers. The size of the market for those three components is about $3 billion annually out of a 5 billion or so annual truck trailer market. So that's the segment that we're focused on; and we don't need a lot of that to become very happy, very quickly.

So $3 billion, a huge potential market. When can we anticipate some sales from this?

Expectation is that we will see some sales in the first quarter of '04. Possibly we may see a small amount of sales in fourth quarter of '03. We certainly expect it by the first quarter of '04.

Great. Thanks.

And next we'll go with Jack Kasprzak with BB&T Capital Markets.

Good afternoon, Steve. My question relates to the divestiture program. Your 2002 annual report discusses the margin benefits that would accrue if your divestiture program is successful. Could you update us -- if you do the divestitures you are planning, could you update us on where we are? Have you done all the divestitures that you plan to do?

We are well along. We have done a couple of divestitures this year which are positives for us, a couple of quarries that were not part of our long-term plan. We have some other activity; and, in fact, we have a transaction that's scheduled to close tomorrow that would take us out of -- reduce our presence in one of the non-aggregate product lines. So we're just continuing to thin down some elements that we don't think are keepers for us so that we can be very, very focused on our core aggregates business. And the expectation is by the end of the year we should have most or perhaps all of that money.

So you seem to be on plan there for the end of '03. Would that indicate that 2004, all else being equal, we would see better margins on, what, a similar run rate of revenue that you had in 2002? Would that be the comparison we should be looking at?

I think that's a fair statement. It would take some revenue out of the equation; but it would also take marginal operations out, which is what we're dealing with. With the rapid rate of acquisition that we did, we picked up some things that we just don't view as keepers.

Okay. Second question on capital expenditures. Do we still think it's going to be in the range of 135 million this year? Do we have an update there?

We're looking at about 120 to 125. 120ish right now looks good. We were at 57 for six months; andthe fact is, with the program that we're coming off of, where we have put efficient capacities in key locations, the needs have gone down rather significantly. By the way, we're getting some excellent yield out of the projects that we've activated there. One of which I've discussed in the past is Jonesville down in Arkansas. In the second quarter, the cost reduction at Jonesville compared to the old operation and the prior year was $1.19 a ton. So that's pretty spectacular. (multiple speakers) very good results in our New Braunfels, Texas plant, and I've indicated that Bahamas is moving along and tracking nicely now.

With regard to the highway sector, you talked about North Carolina already. I think it's generally known that Florida is a good market for the highway business. How about some of your other markets -- are you seeing any incremental pick up with the late start to the highway season with the wet spring and funding being late being put in place or are there some markets -- I guess notably Virginia is a very difficult market that just seem like basket cases still?

Virginia, as you mentioned, continues to be very difficult. With the weather overlay on top of financial problems there, it's been tough to get work going. We do have some good work up in Virginia. If we can just get out from under the weather component there, I think we will be fine in the second half. Texas highway market continues to be positive, and our view is that Texas highway market ought to continue to be positive for the foreseeable future. Certainly a lot of demand out there, and they've got the capacity they've picked up in 2002 to go to a bond funding program and toll roads which they have not done yet. I would say that the best way to gage your comment related to the second half of deferrals is to go to the public company information furnished by APAC (ph), because APAC, a division of Ashland, is in fact our largest customer; and they've indicated to us as well as publicly that they have record backlogs. We know that their backlogs in our areas are very, very strong. It is just simply a matter of being able to do the work. And they, along with other major customers, are the ones that we're really referring to when we cite significant backlog of our major customer list. So yes, I expect some pickup in the second half, just based on work not being done.

Thanks, Steve.

Next, we'll take a question from Tripp Rogers (ph) with UBS.

Hi, Steve. Can you talk about what you've seen thus far in July and kind of the shipments you've experienced so far this month?

New quarter, really not appropriate to say much about it. I don't think there is anything out of the ordinary to comment on with respect to July at this point.

I'll just ask it a little differently then, I guess. The good 10 days you saw in June, did that seem to pare down a little bit the strong backlogs you'd seen out there, or are they still quite strong? Did you eat away some of that deferred work?

Ten days in June is not even going to scratch the backlogs that are out there. I mean, APAC alone has a $1.8 billion backlog. So that was just an early start on trying to nibble on some of these backlogs.

Okay. Can you talk about the impact you saw in diesel costs in the quarter and what you might expect the diesel comparison to look like in the second half?

Yes, all energy was about a 6 cent a share negative for us. Diesel prices for the quarter were in the -- they range from high 80s at the beginning of the quarter down to low 80s at the end. Average was right in the middle - per gallon cost; and in July it's ticked back up a little bit, but it's still hanging in the mid-80's.

What was the year ago comparison on that?

It was in the mid-70's.

On Mag Specialties, it looks like you improved there quite a bit. Can you give us some idea how you'd expect that business to trend in the second half?

Right now, we think the lime component of the business is going to continue to be positive. Demand there is quite good. We've had an excellent first-half in the lime business. The magnesia chemicals component of the business -- we expect continuing improvement in the sale of water treatment products and also ramp-up in the pulp and paper segment that I cited. The real key -- and that's centered in our Manistee, Michigan facility. The real key there is natural gas. And we are doing some hedging on natural gas prices to try to maintain that within some rational bounds, as opposed to having the volatility that we saw late last year in the first quarter. So I think the business demand is going to be pretty good; and, hopefully, we'd contain the natural gas component.

Finally, can you tell us what tax rate you are thinking might be appropriate for the second half?

I don't think we see any significant variance from the tax rate as it is today at 32.

Thanks.

And we'll go to David Weaver with Legg Mason Wood Walker.

Hi, Steve. On your Bahamas facility, you said that you're running at about 5 million ton rate. I know you've had problems with dry in the past. Is your production keeping up with that 5 million ton rate?

In fact, we produced in June at more than a 5 million ton rate. But, as I indicated, we've got some customers on allocation; and then we've got some customers that we have not taken on yet, specifically because of the issue you've mentioned. We want to make sure that we get inventories put up so that the material that we ship out is dry. So that's the constraint. We are containing to ramp up the per hour production rate. As we increase that, we will put more inventory on the ground. But that's all moving very positively.

Are there any other major issues to be solved in the Bahamas?

Not that I'm aware of.

Another follow-up question on your guidance. I guess if we look at your midrange, it seems like it's implying roughly a 60-cent fourth quarter which seems a pretty big move. Can you give us an idea what you are thinking on -- I know the comps are easy given the difficult fourth quarter of last year, but can you give us a little more insight?

I'm thinking that maybe for once we might have a reasonable fourth-quarter weather pattern. The reality is we've been well above that before. Also, some of the divestitures -- we are less weighted toward the north, which is a positive in that regard because those operations usually get shut down from about mid-November on. So it's a sum of all of those.

Could you provide the restatement for last year's fourth quarter to give us an idea of what the divestitures had in terms of an impact?

We don't have it. We haven't generated it. We will when we get to fourth-quarter reporting.

One last question. Could you quantify the increase in pension for the second quarter, or I guess pension and all benefits?

Well, for the year we're going to wind up making a contribution to our pension plan of a little over $20 billion in cash. So that's one element that you need to note. Pension cost was about $5 million, pension charge. So the cash and the charge will be comparable. We don't have to make that cash contribution until third quarter.

David, that's a 5 million increase over last year.

Thank you very much.

And we have a question from Bob Bridges of Sterling Capital Management. Please go ahead.

Can you quantify at all, just looking quarter to quarter on aggregates only -- it's about the same revenue base as a year ago, and cost of goods sold is up about 10 million. Can you quantify diesel energy, what components are going in to cause that cost base to be higher this year?

Let me see if I can give you something that would be helpful to you. The energy impact is about $3 million. So that's a piece of it right there. The key point for us, if you look at what really went on with the numbers with respect to the quarter, the biggest thing that kept us from having even a much better quarter which we had the opportunity to do was the underabsorption of fixed cost because of low production rates. In fact, our production was down for the quarter about 10 percent. So the driver on cost on a unit basis is really the fixed cost component. And if, in fact, we had sold and produced in North Carolina at anything close to reasonable rates, we wouldn't be having this conversation. It would have more than taken care of it.

On the consolidated basis, production was down 10 percent. What were shipments in the quarter?

Shipments were down about 2 percent.

Last quarter and in this call, we've just been talking about the growing backlog. Just directionally from where we were a month ago, is the backlog continuing to grow, or with better weather in the second quarter in Julyhas it topped off? You've got this letting in North Carolina. What about new bookings and some probable bookings as we go through the summer? Just directionally, is it getting bigger across your markets?

We don't keep an item by item backlog list. The fact is with contractors it's a futile exercise. But with respect to big work what I would say to you is that we have picked up some significant work in the last 45 days. The amount of work we're doing doesn't measure up to what we're picking up. So I would view that as a positive trend at this point. So I think the direction is a positive. Is it a huge positive? No, it's what I would call just a step at a time positive with an upward trend line.

Great. Thanks a lot.

Chris Von Karp (ph) with Sage Asset Management.

Good afternoon. Could you help me understand how the second half is going -- you see it playing out? And here's where I am a little bit confused. It sounds like you restrained production vis-à-vis sales to bring down inventory -- tell me if I'm right on that. And when you narrowed your guidance, you narrowed it towards the bottom end of the range rather than the top. But are those consistent with the idea that you're going to see an increase in activity in the second half?

We've got a lot of ground to cover in the second half based on where we are through the first half. We're going to have to make up ground in the second half in order to get into the forecast range. So we're saying we're going to have a much better second half. Question is, how much better? And part of that is that we are -- inventories have come down for two reasons. One, they've come down because shipments have come down; and, therefore, we've restrained production. Secondly, they've come down because it's awfully tough to produce when you're underwater.

Gotcha.

And we've been constrained by the weather component. So our view is in the second half of the year that our shipments and our inventory will probably be in balance as opposed to the drawdown of inventory we had in the first half. So that would be a positive for cost. It would be a positive for earnings. We think our volumes will be a little better, which would be a positive. And the sum of those two should get us to the improvement that we need to hit the forecast range. If we just do same same, we'd be well below the forecast range. We'd be 20 cents below it.

I understand. That makes sense. Second question, if you look at the states, especially in the Southeast, and let's say a state budget for highway purposes could be in three categories -- it could either be those states which seem to be the minority, but like Florida or Texas, that are actually -- or now North Carolina -- that are trying to spend a little bit more to stimulate their economy, states that have sort of no positive or negative so to speak in their fiscal highway issues. And then states that are -- like Virginia, that are struggling to pay the bill to keep the highway work going. How would you characterize the states you work in? How many fall into the strong category, the weak category, or the middle category?

Fortunately, there aren't any more Virginias. I mean, Virginia has got to be the worst right now. The states that we are in roadwise - Texas would be the strongest. South Georgia is very strong for us because the highway work has been shifted out of Atlanta into South Georgia, so that's quite robust. And then Florida, you mentioned. We're not a big factor in Florida; but we are an increasing factor based on our ability to put high quality granite and limestone in there, particularly granite for the asphalt paving site. So we get some benefits out of that. I would say that on average, our states are pretty much middle of the road to what the country's doing. The state that, other than Virginia, that has the most difficulty is South Carolina. South Carolina has not had a legitimate state resurfacing program now for three years. They been putting their money into large federal match programs, and the one that they're on right now is the Cooper River Bridge in Charleston, which is ultimately about a $600 million project, which consumes the highway budget. So I'd say Virginia and then South Carolina.

And you get beyond that, and there's some variation; but nothing that's as weak as those two states. North Carolina has been weak, but North Carolina is beginning to -- North Carolina had some very big lettings back in late 2001 and early 2002. And we've been living off of some of that and then the letting schedule dropped off sharply as we got into 2003. Now it's revving back up. So it's been somewhat erratic; but the overall program with the additional monies looks to be very sound and solid, so we're pretty excited about that.

Thank you.

(CALLER INSTRUCTIONS) And next we'll take a follow up question from Ni Chu Sun (ph) from, Smith Barney.

I just had a follow-up question. Just judging from the fact that your aggregates division revenues are roughly flat, and your crushed stone and sand and gravel volumes and pricing seem to be down somewhat, can we interpret from that that you had some strength in asphalt and ready-mix offsetting decreased shipments in aggregates?

No, you are incorrect in stating down price. Pricing was actually up, which was an offset. With respect to the other product lines, asphalt, which is not a big factor for us but is significant in Texas and a little bit in Louisiana, Arkansas -- volumes were down there about 20 percent. They are down about 20 percent for the first half, and that relates very much to weather conditions and being able to lay asphalt. We've got a pretty decent backlog of work there. The ready-mix business down slightly, nothing of consequence there. So aggregates pricing was up 1 percent; Heritage, we're about 2 percent overall for the year. And volumes were down 2 percent Heritage during the quarter; and we're about 3 percent down overall, inclusive of divestiture and acquisition.

I guess I was thinking more of the volumes down 4 percent overall for the aggregates division and pricing up 1.5 percent. So net you'd have down somewhat in terms of net sales for aggregates.

We've got some other product lines included too. We've got the construction and the lay down, we've got some miscellaneous product lines -- that would make up the difference.

Okay. Thank you.

It's not significant.

And we'll take a follow-up question from David Weaver (ph) with Legg Mason.

Could you give us -- or maybe you gave it; I had to take off for a second -- but volume and price expectations for the full year?

Volume for the year, David, I think is going to be pretty much in line with last year. We're negative at the midpoint, about 4 percent overall. We think we are going to do some make-up, as we've indicated, in the back half of the year. So expectation certainly same on same is that we're in the same range;and possibly even with the make-up on acquisition and divestiture, we could overcome that. So I think positive volume scenario second half. Pricing, we've indicated for the year we think we're going to be in the 1.5, 2 percent range. It's really going to depend on product mix. If you break out individual products, I think it's there. It just depends upon the mix, the weighting of the products we sell.

Could you comment on the residential portion of your market? Is that staying fairly flat at a high level, or are you still seeing that expand?

It's -- I'd say flat at a high level. Almost amazing is the way to put it. We wait to see some tapering; and every time we think we're seeing some signs, somebody begins to build more houses. So that market continues to hold up pretty strong. Obviously the bulk of it, the vast majority is on the low end. So in terms of aggregate consumption, it's not quite as attractive as it would be for higher priced homes, subdivisions with more roadway per house, more infrastructure per house. Seems to be solid.

Are there any unusual items coming up in the next two quarters in terms of adjustments or planned asset sales that are in your forecast?

The answer to that is no.

Thank you.

Gentlemen, we have no further questions in queue at this time; so I'll turn the conference back over to Mr. Zelnak for any additional or closing remarks.

Okay. I appreciate your joining us today. As we've indicated in the press release, we expect to see some positives in the second half as compared to last year, and the real factor continues to be the weather overlay, and hopefully, we're beyond what's happened the last nine months. Other than that, you can probably get the sense that we're more upbeat than we've been -- and we are. Thank you.

This does conclude today's conference call, and you may now disconnect. We do appreciate your participation.