Martin Marietta Materials Inc (MLM) 2007 Q4 法說會逐字稿

Good day, everyone, and welcome to the Martin Marietta Materials Incorporated fourth quarter and full year 2007 financial results 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 Chairman and Chief Executive Officer, Mr. Stephen Zelnak, please go ahead, sir.

Thanks for joining us today. I have with me Ward Nye, President, Chief Operating Officer and Anne Lloyd our Chief Financial Officer. The fourth quarter turned out to be much more challenging than we expected. Through October and November our aggregates volume was positive by 1% and our results were well on track for another record quarter. In December weather issues in the Middle East, Midwest and Mid Atlantic areas created a 19% drop in volume. Our Northern tier states from Iowa to West Virginia saw declines that range from 23% to over 50% as construction activity came to a quick halt for the year. And North Carolina, Virginia and Maryland shipments were down 28%.

As would you expect a drop of that magnitude coupled with rising energy prices caused us $0.09 per share had a very negative impact on profitability and margins. For the quarter earnings per diluted share of $1.33 was down $0.03 from the prior year period. Heritage aggregates volume was down 5% while pricing increased 5.5%. The geographic mix which was much more heavily weighted to truck markets in the west reduced the rate of sales price change by about 150 basis points. Our dolomitic lime business performed particular well, during the quarter while our magnesia chemicals business showed continuing growth. In our aggregates business we saw positive volume growth during the quarter in Iowa, north Texas and Oklahoma, Arkansas and East Texas as well as in south Georgia.

During the quarter we did a particularly good job of managing our SG&A expense which declined almost $2 million or 5%. With continue to streamline our organization with a reduction of some 40 jobs in the SG&A area, our continuing investment in information systems technology is enabling us create more effective ways to accomplish necessary tasks. For full year 2007 we turned in some notable achievements despite difficult economic conditions. Earnings we are per share of $6.06 was up 15% to a record level. Record EBITDA of $591 million increased 10% from the prior year. Record operating margin based on net sales increased 180 basis points for the year and is up 440 basis points over the past two years return on equity increased 370 basis points to a record 24%. All of this was accomplished against an 8% decline in aggregates volume which is the sharpest volume contraction we have experienced since a 10% decline in 1991.

During the year we adopted a new capital structure with leverage target of 2 to 2.5 times debt to EBITDA. We finish 2007 slightly under the target but expect to be in the target range in 2008. During the year we repurchased 4.2 million shares which included 604,000 shares in fourth quarter. Since the beginning of 2005 we have repurchased about 18% of our shares which we believe this has been very beneficial to our shareholders. At the same time we've been investing at record levels to expand our business with some very high return projects. Examples of such projects which typically have IRRs of 25% or more are recently completed new plant and underground mine at Weeping Water, Nebraska which increasing a annual capacity from 2 million tons to close to 4 million tons.

On to our new Augusta, Georgia plant is underway with completion scheduled in early 2009 and will take annual capacity from 2 million tons to 6 million tons. We will continue to invest in these types of growth and efficiency improvement projects. We also doubled our magnesium hydroxide powder product and our magnesia chemical business which is a very attractive investment given the growth in demand for flame retardant and additives.

Looking ahead to 2008 we expect a challenging year given the uncertainty in credit markets. We expect housing to drop significantly in the first half, followed by a bottoming in second half and nonresidential construction to be solid and energy projects and other capacity construction being strong and retail and office construction softening. Infrastructure demand should grow modestly as overwhelming demand chases funding. Geographically we expect north Texas, San Antonio [NAFTA] corridor , south Georgia and Iowa to be the strongest areas. Iowa is interesting because it's not an area of notable population growth. However, Green initiatives including Wind Farms, Ethanol and Bio Fuel plants along with a robust farm economy should make for a good year. In our specialty products segment we expect further growth in magnesia chemicals and also a very positive volume growth in our dolomitic lime business. The year in Aggregates we expect the rate of price increase to a range between 5.5 and 7.5% with a volume change ranging between up 1% to down 3%. In specialty products we expect pretax earnings from 36 million to 38 million versus 33 million in 2007. Given these assumptions we expect diluted EPS to be record $6.25 to $7, the first half being relatively weak with notable improvement in the seconds half. At this time, I'd be pleased to take any questions that you may

(OPERATOR INSTRUCTIONS) First, Mike Betts with JPMorgan.

A couple of questions if I could for me. Firstly could you maybe just comment a bit more on the success of the price increases that the start of this year? And secondly, could you give some idea of the underlying assumptions that you've made in cost inflation in your guidance for the year? And I guess what I'm particularly interested in if you could maybe talk about a growth number that you see cost going up and some indication of how much you're able to reduce that increase through the various initiatives that you've got going? Thank you very much.

Okay. We do have in place our 2008 pricing. We have certain areas where the price levels, right price increase will be very positive double-digit. The greatest opportunities we have in 2008 are in the Carolinas and down through Florida. When you get to other areas of the country you are going to see much more modest price increases in the mid single-digits that are ranging down to low single-digits in some of the markets that are pretty depressed, low single-digit markets would be places like Ohio, Indiana, where demand is relatively low. So that's the way the pricing shapes up for 2008.

And Texas, Steve, where would that be?

Texas ought to be in the mid single-digits but the caveat there is that Texas is greatly influenced by the balance of shipments between the long haul transport shipments and the truck quarries because the difference in pricing is very significant. It could be as much three to one in some cases.

So depending upon what that balance is it won't affect the average price in Texas either up or down depending upon how that compares to 2007. So I just leave you with that caveat with respect to Texas. We think that Texas marketplace is going to be a good marketplace in '08. We particularly think that north Texas is going to be strong. We expect good business in San Antonio in the [NAFTA] corridor. We think Houston will be a bit more challenging. But overall I think a nice year. East Texas which is predominantly rural is also a good marketplace for us and we think that's going to be a good place in 2008. With respect to cost inflation, Mike, it's always interesting to look back on where you've been and then try to figure it out. In 2007 we were dead on with our projections with respect to energy through the first three quarters and obviously the fourth quarter a huge ramp up in energy cost. And as we indicated that cost us $0.09 a share, not anything that you can react to in the short-term, you just have to eat it.

As we look at 2008 with the items other than energy that are available variable in nature I think we are going to be somewhere in the 4, 5% range. They are not totally variable and that's what it will push it up a little bit. But the big issue for 2008 is really going to be volume levels and production through the plants that go with that and the fixed cost amortization. If you look at our depreciation, depreciation is ramping up for us and that is a function of our decision to invest in our business where we see some great opportunities but the timing of that is not necessarily dead on. So we may have a few spots where we don't have as much volume as we'd like to amortize that investment. Just for you to put in your calculation for 2008, the DD&A that we are looking at is going to be about 165 million versus about 150 in 2007. The run rate in fourth quarter 2007 was about 157 million. So hopefully that's helpful.

It is. Thank you for that, Steve. Just one more question if I could, because one of the questions in 2008 is the budget situation of your three major states, the two Carolinas and Texas, and certainly the risk section of your press release mentions these. How serious are you seeing these? Are you seeing any cut backs or threat of cut backs in highway programs in those states because of that?

Texas has already taken some actions but at the same time there's an offset there with the toll road program. So we think overall Texas is going to be pretty strong. And I'm not particularly concerned about that. South Carolina has a new "Pennies-for-Progress" program which is pumping some more money into that state. I think South Carolina as we view it right now is going to be okay. North Carolina has come forward with the initial $300 million worth of Garvey bonds. That helps but the reality is that North Carolina is going to have to do more and we are in the throws right now politically trying to determine exactly what it is that the state is going to do. I think in 2008 North Carolina and the highway sector is going to be down a bit. We'll see whether or not the legislature takes interim action during the year to put some more money into the highway funds. I don't know the answer to that right now but there is a major effort underway to come forth with a recommendation to the legislation. The governor has a stay commission to do that which will report by May.

Okay. That's great. Thank you very much, Steve.

Sure next, Jack Kasprzak with BB&T Capital Markets.

I want to do ask first do you think housing will be as big a drag in '08 for your business as it was in '07?

If it is it will be nonexistent based on the rate of decline. Our expectations are that with the Federal reserves aggressive actions in what we would expect to see from them, they are going to alleviate some of what might otherwise happen. But if you look at the inventory overhang it is going to take awhile to work it off. And I would expect in the first half of the year that you are going to see starts drop down to, it could be 850 to 900,000 units. As you go through to the back half of the year I expect the bottom to perk up yet a little bit to get the year back to something that's closer to 1 million units, hopefully a little better than that. As you know historically after the Fed gets aggressive with rates one way or the other, about six months out you begin to see some impact. And not that inventory is going to clear that quickly but builders will go back to work and you have to remember that builders build if someone will left hand them money, they will build houses. And I think the environment should be much better in the second half for that.

I was also going to ask about in the fourth quarter, if you look at your volume and price performance by the way you break it up, your three segments geographically, the second that was down most in volume in the Middle East was up most in price and the segment that was up most in volume was the worse price performance if you want to say that can the west only up 1.3%. Can you talk about what goes on there and what figures in those dynamics?

Sure. The Middle East is a pretty broad swath of territory and it does include Indiana and Ohio which economically both of those I put into the category of basket cases. Certainly we saw very significant volume declines in both. And Indiana for the year volume down about 15%, Ohio volume down 27%.

So those volume changes that you're seeing in Middle East are heavily driven by the automotive belt, Indiana, Ohio. If you go out to the west and look at that correlation between the two, it comes back to where the business was. We had a very good year in South Texas. But South Texas has some very low priced material. Some nice margins in it but very low priced material. And also we had much more truck quarry sales relative to the long haul transportation. And just to give you an example, the truck sales might be on the order of $6, $7 per ton. If you put it on rail go through distribution yard, that number May be up in the $17, $18 range. So when you weight it all out you have a mix shift there that was pretty significant plus the ramp up in the [NAFTA] corridor down in South Texas. So on the surface it looks like there's a direct correlation, actually there are a lot of reasons behind that and it's not nearly as direct as the economists might think.

Last I just want to do ask with regard to the 2008 pricing guidance of 5.5 to 7.5%. Would you think that if it were toward the low ends of that range 5.5 % or so percent, that would be the low rate of increase for the cycle?

Given what's going on, if the Fed continues to be as aggressive as they have been, and if you've got a stimulus package thrown over the wall at the American consumer, would you expect that you are going to get some stimulus coming into the election that is going to carry over into 2009. Given that I won't say absolutely that that's the low point but I think you are beginning to coast along the bottom more than likely.

All right. Okay. Thank you very much.

Sure.

Next question, Todd Vencil with Davenport and Company.

Thanks a lot. Tom, on that $0.09 energy impact that you mentioned, just to clarify is that relative to your expectation or is that on a year-over-year basis?

Year-over-year, Todd.

Okay. Thanks for that. And just to sort of get a little more general, what was really driving the shift in the mix away from the higher price material which I guess is the long haul material? Was that weather or was that some sort of geographic shift?

Well, it's geographic. And if you look at the long haul markets, they are mostly markets in the southeast and the Gulf Coast. And as you know those markets have certainly pulled back. Housing was a major driver for significant piece of it. They've been pulling back. And we just saw it in a more pronounced way and we continue to see diminution in demand in those coastal markets but also we saw some increase in demand in other areas that were truck market, where we had truck market quarries. So it all comes back to the nature of this business which is very local and we happen to get demand in places like Iowa and Nebraska and South Texas and we didn't have as much demand in Houston and some of the Florida markets and down in the Gulf Coast.

So given that, I mean are you sort of anticipating that that's going to persist for awhile and is that sort of in your pricing guidance?

The answer is, yes, we think that's probably going to persist. The nice thing about the coastal markets as we go out is that people continue to flow in. The problem they have is selling their house where they are coming from or want to go make the plunge on a new one if they don't already own one. So we think that's going to continue for awhile. We cited the midwest in my comments particular Iowa, I'll put Nebraska with that, very interesting factors influencing that area which will make it very positive. We think the South Texas market is going to be very positive. A lot of winds farm activity in South Texas. Just to give you an idea of the magnitude of demands on specific projects with wind farms and ethanol, those wind farm projects that we've seen recently can range anywhere from 200,000 tons up to 700,000 tons, depends on the size of the wind farm. You've got concrete pads that they need to put under the turbines themselves and then what you have to do is create roadways to get out there and build and service those turbines. An ethanol plant is going to be connected to rail in virtually every case and when you take the plant and the rail connection not unusual that you are looking between 50 and 100,000 tons and could even be a little higher.

Got it. Thanks for that. That's.

Sure.

And one more question if I can. You're talking about the second half coming back and it certainly sounds like you're expecting that some of what the government is doing right now been helpful in that in the fiscal sense and a monetary sense but is there anything else that you're seeing out there that makes you feel like the second half is going to see an improvement or is it sort of based on this idea that the economy is just going to start coming back, the back half of the year?

I think it's that plus a key factor in all of this the confidence level of consumers which translates into the confidence level of developers and lenders. If in fact you have a higher confidence level you are going to see people much more inclined to move forward on projects. And the big swing factor for 2008 is in commercial construction in our view. And we already talked about housing. We think it will be down for the year. With a little bit of up trend in the back half. We think the infrastructure component of business will be up modestly. What swings our volumes between a slight plus and potentially 3% negative is as we see it today could be that nonrez construction and the level of confidence particularly as it relates to office building, distribution and retail will play a major role in that. So that that's what we are looking at.

And just if I can just follow up on that real quick you mentioned last quarter that a lot of the development markets seemed to taken a cautionary pause then seems to be could have the same language in terms of the confidence there. Have you seen some of that caution abate or is the caution still out there and you are just hopeful that it's going to abate going forward?

It's still out there right now and I don't think we are going to get a reasonable read on it until we get into the midst of the second quarter where based on seasonal patterns, volume typically picks up. I don't think we are going to get much of a read on anything in the first quarter.

Got it. All right. Thanks.

Sure.

Next up Longbow Research we have David MacGregor.

Garik Shmois for David. You mentioned Texas and the Carolinas with respect to infrastructure spending. Can you just talk about some of the other markets where you might be particularly positive for 2008?

I think Georgia infrastructure will have another good year. I think Indiana infrastructure will have another good year in the midst of all the other issues that are taking place around there in employment around automotive. Those would be the two most notable. Virginia I would throw in that category. They have a new $3 billion bond issue that has been approved and I think you are going to see Virginia begin to perk up after some pretty low levels of spending in that state. We don't have a big chunk of Maryland but Maryland likewise stepped up and increase their funding of highways by roughly $400 million. And that should be a plus there. A lot of activity going on in the States and I think over the next 12 to 18 months you are going to see many of the states take additional actions to fund their programs. They literally don't have much choice unless they want to be grazing cows on the interstate.

Can you talk about some of the actions that they are looking at?

Well, the actions that they are looking at are increased bond funding where they have the capacity to do that. Not only the state level but you continue to see local area bond funding initiatives both for transportation and particularly for schools at the local level. And those are good demand items for us. You are looking at just revenue, I think they like to refer to them as revenue enhances. I think it's called more taxes. The reality is that you are seeing is that you are seeing increases not on the gasoline taxes but registration fees, transfer taxes and I think you are going to see the states go do that pretty heavily. Because they know that over the long-term that the gasoline tax is not going to be the vehicle to pay for roads as it is structured today, particularly with the new fuel requirements that Congress has mandated.

Thank you for that detail. Can you talk about your CapEx forecast for '08?

Sure. CapEx in 2007, about 265 million, 2008 is going to be very similar. And it's going to be driven by the big project we have going on in Augusta which will be somewhere between 50, $55 million. And the significant majority of that spending will be in '08 and it's driven by relatively heavy expenditure on mobile equipment. Just based on aging issues, turn over that we have there. So we will see those if the leading elements. As we get beyond 2008, I would expect that mobile component to come down pretty significantly. We will continue to have some fairly heavy lands expenditures investing in the future of our reserve base and we will probably have at least one really big plant project going on at the same time. But getting beyond '08 you might see that number come down 10% or so.

And just lastly, you've talked about the (inaudible) basis point margin improvement forecast. Do you reiterate that forecast today and is there anything you can see out there that gives you pause or reasons for concern?

We really believe that that's there. If you get some truly appertinent behavior in the U.S. economy for an extended period of time that would make it more difficult. But what we said in the beginning was that we expected to get the thousand basis points over five years with 2005 as a base line. We are two years in and we are at 440 basis points. 2008 will be challenging in that regard, no question about it. With volume levels really being key there. I think we will do a pretty good job on our cost as we have been doing. But we also said in the very beginning that it's not 200 basis points a year. You are going to see more when the markets up and less when the market is down. And our view is an expectation that we see the market begin to trend upward certain until '09 and 2010; likely to be a very good year with respect to volume and margins. As we look at it today. So I would reiterate that we continue to have that as a primary focus point for us.

Great. Thank you very much and good luck.

Sure.

Moving on we'll take a question from John Fox with Fenimore Asset Management.

Hello everyone I have a couple of questions. I guess first Steve do you have break down of shipments by end market, infrastructure, residential, et cetera?

We haven't finalized that, John. We are working through the final stages of that. We will have a shortly what I can tell you is as you would expect housing dropped sharply and commercial ramped up sharply and a ramp up in the percentage that goes to infrastructure but we will get those final numbers very shortly.

Okay. Great. Can you just tell us what you know about the update in Florida and what's going on with pricing and aggregates in Florida?

Nothing new on the leg belt that you haven't already seen publicly. So we have no idea what the timing may be down there or what the ultimate decision will be. With respect to pricing, the Miami area producers have been pretty aggressive but when you take out 25% of the capacity you're in a position to do that and they have pushed prices. They had a $5 increase in the beginning of the fourth quarter and they announced another $5 in the beginning of the year. So we'll see how that all works out. There's been talk of an additional increase by mid year.

So to clarify, the buy back you said you wanted to continue that and get up into your range which would be 2 to 2.5 times debt to EBITDA, is that correct?

Well, you know us well. We layout targets and then we really seek to make the targets. And that's our target range. It's carefully thought through. Actually if we had, the only reason we weren't right there for 2007 is that share buy-back at the end of the year, the last three days didn't settle until calendar '08. Otherwise we would have been right at 2.0.

Okay. So you should have an expectation that we are going to be in the target range in 2008.

Okay.

And do you see given all the stress out there in the world today acquisition opportunities in this environment?

Not many. I mean, we continue to look at some small ones. We indicated we have an interest in what Wilkin's is going to divest. Sure, that's Wilkins call as to what they are going to do there. We continue to look. But we also continued to do what we've been doing and that is to invest organically where we think we just have exceptional opportunities and then when we weigh it out between buying Martin and buying some other things, we kind of like ourselves.

John, we've had some good opportunities to acquire additional properties in 2007 and also we expect that in 2008.

Reserved properties.

Reserved properties.

You mean land?

Yes. We continue to invest for the long-term in the business. I think we've made some key lands moves and we think some more in the plan for 2008, we are going to stay on that because that is your 50-year cash flow.

That's in the CapEx number, right?

Yes.

Yes.

All right. Thank you.

Sure.

Goldman Sachs, AJ Kejriwal.

Good afternoon. Wondering if you could maybe clarify a little bit on that pricing guidance, 5.5% to 7.5% sounds like you have the bottom end already implemented and could get to the top end if you get volume. Is that the right way to think about it or there is more that could be implemented later this year?

I don't think we will see additional price increases this year, certainly not anything significant. Much will rest on where the volume comes from. Because there is a significant disparity between pricing, between truck quarries and long haul distribution yards, and there is significant range between areas of the country. So it's going to be transportation mix and geographic mix I think that will be the determining factors as to where we wind up.

So, and this is more a hypothetical question. I want to understand the sensitivity around pricing with respect to volume. So if volume were to decline more than your 3% in the bottom ends of the range would you still get 5.5 pricing or that could be some leakages there?

Unless the world turns upside down totally, we think we've given you a valid range with any kind of reasonable assumptions about volume. The key consumer in this equation in terms of push back is the ready mix concrete producers. And if you look at what's happened to them in the last two years but particularly the last year, they've gone from being very busy with very attractive margins to a point where with the loss of the home building volume they have seen volumes come down sharp until just about every area of the country. So very difficult to pass along much in the way of price increases to ready mix concrete guys at this point. To the extent that we get some pick up in the economy it should benefit them first and actually make 2009 pricing a little bit more attractive or easier to implement, at least.

Moving to the Carolinas, sounds like volume declined in the 28% in December and part of that was weather related. Would you get of that back in the first quarter or is that more second, third quarter phenomena.

I don't think you are going to get it back in the first quarter and the reason is pretty simple. When the contractor versus overwhelming backlogs they work in weather conditions that normally would shut them down. Contractors have. They don't have overwhelming backlogs. That's just a fact of the economy. So I think what you are going to see the contractors do they are going to look for more optimal working conditions because when they crank up and go to work they want to get efficiency out of their work force. They want to feel comfortable that they are going to get long work days. So I would expect that they are going to push out in the first quarter. They are going to take their time as far as opening up to do projects that they have. And in effect face out the backlog to see if the second half develops in a positive way, just what we talked about earlier.

Great. Thank you.

Sure.

Next up with UBS, we have Timma Tanners.

Want to do ask if you can talk about volume discipline and it's been a couple of years now of volume easing a bit and wonder if your fellow quarry owners are also contracting volumes consistently as they have in recent years.

Certainly as far as we know you've seen a general down drift in aggregate demand. And that's a function predominantly of housing. I don't know of any of the significant players that haven't experienced that. You may have a small player somewhere who has a special situation but certainly the larger more geographically diverse players have seen it. Q4 '07 was the second consecutive down quarter of volume. And we would expect as we go into Q1 of '08 that that's going to be a down volume quarter. We've already said first half down volume, Q2 we will talk about it when we get here but certainly nothing rousing going on in the first half that's going to lift volumes up significantly. Everyone is seeing it and the nice thing about the aggregates business unlike let's say cement or lime where you have 24, 7 operations, is that you can shut your plants down. You can reduce hours. You can adjust your production schedule and, to some degree, your cost run rate based on the volume of demand. And certainly that's what we are doing and that's what we are seeing others do.

Okay. Great. And then also just wanted to ask about the very political, obviously, but can you talk about what the industry is doing and how preemptive you think the industry is doing regarding the highway trust funds and addressing the imbalance there?

Well, it's interesting to us that the Federal Government wants to throw somewhere between 150 and $180 billion at the consumer, which I personally view as a stimulus plan for China, as opposed to investing in America. And maybe that gives us some incite into the short term versus long-term nature of our politicians. We are sitting here with infrastructure needs that are just absolutely overwhelming. And the track record on infrastructure to us is $1 billion of that kind of investment creates 47,000 jobs and it's not $6 to $8 an hour jobs, these are jobs that can be 15 to $40 an hour. So certainly the industry is trying to make its voice heard. There seems to be a fair amount of deafness at the political level. And I'm sure that relates to the fact that we've got a November election coming. And politicians are what they are; particularly the once that are running for office right now. So we are going to continue to pound away at it at some point back to grazing cows on the interstate comment I made earlier, they are going to get it and they are going to make the moves. Historically they've done it. They've typically been late. We have the safety issue that has been pointedly around home with the I-35 bridge collapse in Minneapolis. So I think there's plenty of fire for discussion out there. I think the states are going to continue to lead as opposed to the Federal Government and frankly the states are leading on a lot of things. The Federal Government seems to be caught up in itself particularly with the political bickering that goes on between the two parties.

Thank you.

Where it all goes at the end of it historically they reauthorize late, but I would expect that the democrats are going to sweep at the Congressional level certainly based on everything we see today. If that is the case, and we were to get a republican president the democrats are generally much more infrastructure friendly and focused and I would expect that they are going to have a veto proof majority.

Very helpful. Thank you.

That bodes well.

Next, we will move onto Clyde Lewis with Citigroup.

Two questions, if I may. You were talking about the in the chemical grade aggregates looking pretty positive. (inaudible - background noise) Can you give us a little bit of detail in terms of some of the volumes you are talking about and the pricing versus the more and how attractive that is? (inaudible - background noise) And the second one I had was probably more in terms of the sort of other items, both on an operating and nonoperating level, can you just remind us what was a one off nature last year and is unlike to the repeat in 2008?

Okay. Why don't we start with the financial question, I'll let Anne answer that and I will come back to the market question.

Yes, Claude, particularly in the other operating kind of expenses under generally excess in property sales, land sales and also excess equipment or surplus equipment sales, that number ranges in that kind of 10 to $12 million a year guideline and we just actually had a couple more larger property sales this year than we had last. That's become sometimes opportunistic depending on the buyer.

Okay. And the nonoperating line, was that a (inaudible - background noise)

The nonoperating line is primarily revenue generation from our nonconsolidated investment, particularly the, our investment in a concrete company in North Carolina. They had a very good year and we get our share of their earnings. I don't consider that to be one off. They have a pretty good track record and have a good vision for 2008, also.

Okay. Okay. Great.

If you look at ballast ,chemical grade and other components of that other category, agriculture lime, the chemical grade opportunity for us should certainly should be 0.5 a million or 1 million tons better in '08 than it was in '07. We picked up some contracts in '07 but we didn't get full year benefit. So we are very positive about chemical grade stone going to flue gas desulphurization. Railroad ballast, the pressure on the railroads has eased off a little bit but the railroads continue to invest at a very significant level. And their trackage and actually they have an opportunity to do a little bit more if they choose simply because they have more leeway because of a little less traffic and opportunity to do it. So we expect a good year there.

The agriculture lime business is interesting because that's midwestern business for the most part. That's where the high demand is. And actually, that December weather hurt us pretty badly with respect to agriculture lime, out of Iowa in particular. When you get that kind of weather the farmers couldn't spread lime and they really can't get into the fields until the weather clears. Given the farm incomes, historically the farmers spend heavily on ag lime when their incomes are up. And certainly they have at record level incomes with the price of corn and soy beans. So we would expect a very good agriculture lime season. Pricing on those products, when you sum them up, they are in the range close to our average selling price for all products. They will be regional variances but they are not going to be much off the mark there.

Okay. One more if I may. A quick one. The weather patterns in generally '08 were they noticeably different to '07 most of the markets?

We won't comment on weather until we get to the ends of the quarter. We will let you look at the weather maps. You can get that off the national ocean and atmospheric administrations weather map and they will display that for you month by month. It's really a good way to look at it in terms of temperatures and precipitation. Rather than us comment I will send you to the genuine source and then if it's an issue, we will talk about impacts on us at the end of the quarter.

Thanks.

Next up, Steve Farley with Farley Capital.

I want to go back to the price increases in Florida which seemed quite significant. If I, if I do my math correctly if you do 2% of your volume in Florida it's something like 4 million tons and if prices have gone up $10 per ton in Florida that would be an extra $40 million to you which is almost $1 a share pretax. What are you assuming, in the guidance you've given us, what are you assuming with regard to prices in Florida and where in fact are your prices today in Florida?

First of all when I referenced pricing in Florida I was specific to talk about the Miami area. And we don't produce in the Miami area. So and we don't market significantly in the Miami area. So the benefits of that level of price increase goes directly to the producers who are there in that area because of the shut down of capacity. From there there are shipments that come out of the Miami area. There also are shipments into other parts of the state, into the central part even all the way up to Jacksonville and over toward Tampa. And then you began to have shipments coming in by water and shipments coming in by rail, which is where we participate. And certainly we are going to see some level of price increase, I referenced the fact that that is one of our better opportunities. But it's no where close to what the Miami area producers have an opportunity to get, just simply based on their location. So don't go doing quick math on that one and to the bottom line because that certainly will not be the case for us. It will be good but not that good.

But what have you done in your markets in Florida in prices both October 1 and January 1, if anything?

Well, we've raised prices but I'm not going to break it out for you specifically on those markets. I guess I will say that the rate of increase for us down there is certainly above our average that we have laid out as our target for the year.

And.

It's one of the better opportunities.

What's your outlook in terms of volumes in Florida? Might you increase your volumes also?

We think there's certainly a possibility of that depending upon what ultimately happens with this leg belt litigation. So we are poised to do that expectation that we will pick up some volume.

Thank you.

Next we will take Chris Manuel with KeyBanc Capital Markets.

Good morning or good afternoon, I guess.

Good, afternoon.

It's been a long day. First question I had for you was kind of a follow on to an earlier question, when we look at the comparisons in the first and second quarter of the year, your first and second quarter had you volumes that were down closer to 15% I think in the first quarter and a little under 10 in the second. When we kind of compare that to what you're anticipating for full year should we before they get pick up then later for '07 should we anticipate that vis-a-vis the down one to up three range for the full year that you could be down something closer to mid single-digits in the first couple of quarters of the year? Or can you help us a little bit of the timing?

Well, it's possible that we could be down that much. I would not expect that right now. I would hope that we would do better than that but that's a possibility. It's just, frankly quite unpredictable and not as much visibility as we would like particularly with when contractors are actually going to go to work on the backlogs that they have. When contractors. If you go back last year and look at the volume declines it was 15% first quarter, 9% second, 4% third, and 5%, a little better than that, 5.5 in fourth quarter. We had anticipated the fourth quarter was going to be better and that that progression of volume decline that it would have been less than the decline in Q3. And certainly as we've outlined it was well on track through October, November. We were plus one. We actually anticipated a down December. I would have expected volume would have been down three to 5% for that month and we've got the 19% volume decline which was predominantly weather driven. As we come into Q1 and Q2, I think what you've articulated hopefully is worse case and if we see something that is a little better than that as a starting point.

That's helpful.

Okay.

And that my second question was have you seen anything push back or deferrals in any of the infrastructure projects in other states than the once you've mentioned that -- let me come back it two ways. First you indicated there was some state budget issues which sounded like some projects may have been pushed back a bit, maybe I'm reading into that and the second question was have there been anything potential push a backs or delays in any of your industrial projects or other commercial projects?

On the infrastructure side, other than what we talked about, nothing that's really of note. On the commercial side, the answer is yes which is why we made the comment last quarter about seeing some things that were a little different. People are cautious right now. And developers are measuring very carefully when they get started. Because once they start and break ground, it's difficult for them to pull back. So we will see projects that are scheduled to start at a particular time and you are measuring these things in weeks or maybe even months in terms would have they actually begin of when they. In terms of projects going away, no, I don't see them going away, it's just a question of deferral and the timing for developers to build what they are building. And in some cases they are just not impacted at all because there are so capacity driven and the people that are doing the projects are so long-term that they are just going to move, refinery projects, lots of activity related to energy.

Okay. That's very helpful. Thank you.

Sure.

Dan Oppenheimer with Banc of America Securities.

Hi, this is Mike Wood. Can you talk about how closely you're monitoring the pricing strategies of competitors particularly maybe the private home builders and whether or not you've seen any change in the trends of how, what kind of price increases they are trying to get compared to yourself and if there's any specific examples of markets that would be helpful? Thanks.

Well, there's certainly no correlation between the pricing by home builders and pricing in the aggregates business.

I'm sorry, I meant the private aggregate companies.

Oh, okay. The private aggregate companies, historically in a downturn tend to be more aggressive. In fact ,that's just a reality for them. Have we seen anything that's unexpected? Not really. They do what they normally do. The nice thing that's happened over time is that there has been a lot of consolidation. The public players I think are much more financially oriented and probably spend a lot of time doing their market analysis, probably much better tuned into what's going on in a market as opposed to just looking at their core shipments by day and seeing them go down for five straight days and beginning to think that perhaps it's something that they are doing or not doing as opposed to the market changing. Soy it all comes back to analytic at the end of the day. We certainly spend a lot of time trying to assess the demand in our markets, trying to assess where our competitors are and certainly there is a lot of fire fighting going on around volume opportunities but at the same time if you run your math, there is only so far out where you can reach because of the transportation advantage where it makes sense for you on a cost basis. So that's one of the beauties of our industry. It's very much transportation sensitive. So if you have a location advantage then you have an opportunity to get the better pricing.

Thank you.

Sure.

Next question, Barry Vogel with Barry Vogel and associates.

Good afternoon, ladies and gentlemen. My questions have been answered. Thank you.

Okay, Barry.

There are no more questions in the queue now. I will turn the call back over to our speakers for any further or concluding comments they may have.

Well, again, we thank you for joining us today. I will just characterize it as interesting times. We are going to stay focused on the cost management. I think it's a time when that demands an ordinant focus. Certainly we are hopeful we are going to see a pick up in volumes by the second half at the latest. And with that we might now expect to turn in another good year and we will talk about about the first quarter results on about the end of April. Thank you for joining us.