Martin Marietta Materials Inc (MLM) 2009 Q1 法說會逐字稿

Good day and welcome to this Martin Marietta Materials Incorporated first quarter 2009 conference call. Today's call is being with 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 and Chief Operating Officer; and Anne Lloyd, our Chief Financial Officer. First quarter results exceeded our expectations, as good cost management was offset by low shipments volume and aggregates in our dolomitic lime product lines. Revenue for the quarter of $330 million was down 17% from the prior year period. Aggregate shipments declined 21% from prior year, while production volume dropped 25% as we adjusted to reduce our inventory level in line with demand. The revenue reduction, coupled with low production of aggregates and lime, created a loss of $0.14 per diluted share versus earnings of $0.50 in the prior year period.

Aggregates pricing improved 3.5% and was reduced about 100 basis points by geographic mix, as a higher ratio of shipments came from lower priced operations in the west and north central areas. The rate of shipments decline in the west was 18%, with Arkansas being the strongest area, with shipments up slightly. In the southeast group, our river district, which ships primarily into Louisiana, was down 1%, as compared to 12% for the group. South Georgia and Florida declined 16%. Atlanta also remained challenging with volume down 33%.

The Mideast group had the sharpest contraction, as volume in the Carolinas dropped 37%. The Greensboro and Charlotte areas had declines that exceeded 40%. In the Carolinas, poor weather in March exacerbated the general weakness in construction activity. Specialty product sales of $33 million for the quarter declined 23%, leading to a 30% drop in earnings from operations. Demand for dolomitic lime to the steel industry continued to be weak. The magnesia chemicals business also felt the impact of worldwide economic slowdown.

For the quarter, SG&A decreased $500,000 to $37.2 million, after absorbing a $1.8 million increase in pension costs. Our objective for the year continues to be to reduce SG&A expense despite the significant increase in pension costs. During the quarter, and into the months of April, we spent considerable time and effort working on capital structure. We believe that there will be a number of attractive acquisition opportunities available over the next 18 to 24 months. We want to be ready for those possibilities, as well as assuring that we're comfortably prepared to handle debt maturities in 2010 and 2011. We also want to manage our balance sheet in a manner that assures that we remain a solid investment grade credit.

As a starting point, we continue to generate very solid cash flow even in this weak economy. In 2009, we expect to generate free cash flow of $165 million to $175 million, based on our current forecast. To provide additional liquidity, we issued a little over 3 million shares of common stock for proceeds of $233 million. In addition, we entered into a three year, $100 million secured accounts receivable credit facility, with a floating rate of one month LIBOR plus 275 basis points. We also entered into a $130 million three-year term loan with a rate based on one month LIBOR plus 300 basis points. The $230 million of loan capacity covers our $225 million maturity in April 2010, while the equity capital and free cash are available for value-added investments.

As we look at the remainer of 2009, the key issue is the flow of stimulus money. With respect to surface transportation work, we continue to expect an incremental demand to Martin Marietta of 8 million to 10 million tons in the back half of 2009. With another 20 million tons in 2010. Through mid-April, the federal government has granted their approval on over 2,000 projects submitted by the states. With an estimated value of $6.7 billion or about 25% of this category of funding. The majority of projects identified to date are for resurfacing and lane widening, as expected. Based on current information, we continue to expect aggregates volume to range from down 9% to 12%, excluding the effect of economic stimulus. And pricing to range from 4% to 6%. Our outlook for the specialty products segment earnings has declined slightly, as the stell industry is weaker than expected. Therefore, we now expect 2009 earnings per diluted of $3.70 to $4.15, excluding the effect of stimulus. At this time, I'd be happy to take any questions.

(Operator Instructions). We'll take our first question from Kathryn Thompson at Thompson Research.

Hi. Thank you. Could you clarify -- just dig a little bit deeper into regional pricing differences?

Yes. I'd be happy to do that, Kathryn. I'll try to give you some flavor by state and in some cases, I'll break the states down. Iowa up about 6%. Indiana about 3.5%. Ohio was a negative, based on product mix, heavy sand sales. Virginia and Maryland, up about 2%. The river district, which flows most of its material down to Louisiana, was up 11%, very strong. When you get to the southwest, price increases in the major markets there range from slightly up less than 1% in Houston, up to some pretty strong increases down in the NAFTA corridor. But a good portion of that was driven by the fact that we're railing a lot more material down there, as opposed to the local product that we produce. North Texas, Oklahoma, up about 6%. South Georgia was up slightly, pretty close to flat and that included also Florida. Carolinas, up about 3%. And north Georgia was up about 7%. So that gives you the idea of the spreads, hopefully helpful.

Yes, absolutely. Just based on some survey work we've done, we've seen pretty aggressive bidding for projects as we've seen nonres slow down and that also trickles into bidding for stimulus work. Given aggressive bidding for stimulus work or really any other construction work, how much leverage do you have in pricing and how do you manage around this?

Well, keep in mind that with respect to pricing, you've still got in your pricing mix, work that was quoted quite awhile back. So one of the beauties of this industry is that you just roll forward and come to something that approximates current pricing. That's a nice plus for you. Our approach to stimulus work is to not be incredibly aggressive early on in our expectations at certain work. We've got a transportation advantage on and where that's the case, we would expect, in most cases, to get that or a majority of it. Given what is likely to happen with the economy in general and also the flow of the stimulus work, with a little bit of uptick in the economy as we get toward the back half and likely into 2010, expectation that there will be some more work out there.

So, we're just going to play it cautiously and carefully. We've got the bogeys that we laid out in terms of how much tonnage we expect to pick up. And with the small amount of work that has been left to date, it's pretty well tracking, on a percentage basis, the tonnages we've laid out. So, we're pretty happy with where we are.

Okay. On your volume side, just looking at your guidance, I think you said earlier, the unit guidance you gave does not include stimulus?

It does not include stimulus. We're going to -- we'll look at the stimulus and see what the flow actually turns out to be.

Okay.

There's certainly expectation, when you get to the back half of the year of, you've got much lighter compares and an expectation that we're going to see some bottoming and a little improvement on the housing side. And that we get some pick up, even without the stimulus, on a compare basis, on the infrastructure side. Keep in mind, that infrastructure dropped off sharply because of the price of liquid asphalt last year and you've got it going the other way. One of the positive things about the stimulus work that we have seen left to date, which obviously, is not that much. But it reflects your comment, in that, bid prices are running anywhere from 10% to 30% below engineers' estimates. Call it 20% as sort of a rough average. So the states are able look out and municipalities are able to buy considerably more work than they would have been able to last year. And that's going to mean more materials. It means there's going to be more projects done for the amount of money that's being put out there, than originally were estimated.

That's a good point. On the volume side, just based on your previous expectations, for -- on the volume side, it looks like these are volume trends have improved slightly, at least from your expectations. What has changed and how have volume trends been since the end of the quarter? And what gives you confidence about your volume projection?

Really haven't improved. In our view, it's the same outlook. We don't know enough to see anything that causes us to think differently about it right now.

Okay. Also, just a quick bookkeeping. I just want an update on your free cash and debt charges and interest expense.

Kathryn, this is Anne. The interest expense we expect for the year, after the consideration of the new financing, will be about $75 million for the year. At an weighted average rate of about 5.43% for the entire book. Estimated free cash flow for the year is between $165 million and $175 million.

All right. Thanks very much. I'll hop back in the queue.

Trey Grooms at Stephens Inc.

Good afternoon.

Hi, Trey.

Just a couple of questions. You guys mentioned in the press release and I know this probably goes with things you've said in the past but executing aggressive cost reduction plan, can you expand on that a little bit?

Certainly, we've taken head counts down dramatically. We've talked about what we did at the corporate headquarters, which was a minus 12%. We took about 8% of the total work force out last year. We continue to reduce head count. And that's going to be an on going effort until we truly find the bottom with respect to the volume. We've got a lot of plants on 30 and 32 hours. That's tough on people but it's a whole lot better than having the plants on no hours with respect to some of the work force. So, we're trying to spread the pain among our people and try to keep our core work force employed, skilled people with us. So we're working that hard.

We've got a significant purchasing initiative. We have some targets laid out there. Aside from the decline in diesel, in total energy, which we expected, we have a lot of other things that we're working where we are getting reductions in the cost of what we're buying. That is a major point of emphasis for us this year. So basically, what we're doing is we're taking and scrubbing the Company by line item. That's an exercise that goes on not just at the field level. It goes on in this office with your corporate officers, starting with me.

Okay. So --?

You don't miss much when you scrub by line item.

Right. So, you're improving productivity year-over-year despite the shipments being down 25%. So scrubbing it line item by line item, do you think that if we do continue to see volumes fall off over the next couple of quarters, that that improvement could continue?

It gets tougher.

Yes.

We were early to really go after the cost side of the business, I think, with respect to people in our industry. We had a more negative outlook earlier and we responded to it. There's not any low hanging fruit.

Right.

So, whatever you do is awfully tough to find and to execute on. And you really have to make decisions as to whether or not, in the interest of having a little bit better cost structure for one or two quarters; Are you going to injure yourself with respect to, when the volume begins to turn a little bit and be prepared to take advantage of it? So we're trying to measure that carefully but I can tell you everyone around here can spell the world cost and it's in capital letters.

So, can you talk a little bit about how we think about the leverage you guys are going to have off this base when things do start to pick up, whether it be third quarter or fourth quarter?

Well, we believe that we will have incremental margins in the 60% range. Depending on the geography, we've got places where that number will be higher, believe it or not. It could be 70%, maybe even a little better in a couple of spots. So the operating leverage is tremendous as you add back volume. We're operating at such low levels right now, we're down in the 60% capacity utilization range, with the low levels of production in the first quarter. If you can kind of run that out, we could easily take on another 40 million tons and that's going to be pretty much incremental.

Okay.

So, we have some tremendous yield with volume.

Okay. And then, can you talk a little bit about the M&A pipeline, the kind of size of deals that are out there and that you'd be interested in? And maybe update us on kind of valuations that are out there? And what makes sense, for you guys, as far as your tolerance for taking on any type of vertical integration within these deals?

First of all, there's pretty good deal flow out there and there's more coming. Expectation is over the next 30 to 45 days, we're going to have a lot to look at. If you sum up what we think is coming, what we're told is coming, well over $1 billion worth that's for sure, maybe it's in the $1.5 billion range. Different product areas, different geography areas, so we'll look at that and determine what it is that we think is truly interesting to us. We have -- obviously, we didn't go raise equity without a view that we had something we were going to do in the shorter term.

Sure.

We have one acquisition that we're in due diligence on right now. That due diligence has gone very well. Barring a surprise, expectation is we'll close that in Q2. It's not a big one but it's big enough to make a dent in the equity race. We had a second one that we were also doing work on and reality of that one was that as we looked at it more carefully, the financial metrics just weren't going to be where it was that we needed to be to make it work for us. So again, we're being very cautious, very careful about what we do. If we buy something, it's going to be because it makes sense for us, period and for our shareholders. So, I suspect we're going to be talking to you about acquisition deal flow for awhile.

Great. And with that, you made a comment about shareholders and you guys as well, would that be -- would that mean that if you did do a deal, given the equity you just took on, that it would it have to be accretive immediately or is there some time frame that you would tolerate some level of dilution?

Expectation is on an operating basis, it needs to be accretive immediately. The only caveat I would put out there, is that the way the accounting works these days, you've got to expense all of your up-front expenditures. And that might be a swing factor but even with that, expectation going in is that we want to be accretive.

Okay. Thanks, Steve. I'll hop back in the queue.

If we wanted to be dilutive, we could be announcing deals right now.

We'll take our next question from Garik Shmois at Longbow Research.

Hi, Garik Shmois. Thank you for taking my call.

Sure.

First off, if I could drill into the profitability in the west group. It was relatively low relative to the last three quarters and pretty similar to the year ago period. But last year, I think if I remember correctly, it was pricing mix, which had negatively impacted the results but this year pricing was up. Can you just provide a little bit more color on the profitability in the west group?

The profitability in the West group actually held reasonably well. Where we took the licking was in the southeast. We had some volume in the west. The wind farm projects continue to hold up. We've talked a lot about wind farms but we continue to ship a lot of material in south Texas on wind farms. That's been good to us. Railroad ballast in the southwest was exceptionally good in the first quarter. So we got some positives out of that. We're getting some reasonable price increases out there. So all in all, we feel pretty good about the west. The big problem spot was in the Carolinas. And the Carolinas' economy is certainly weakened but on top of that, the month of March is usually when the season really opens in the Carolinas and it was one wet March. So, we didn't really have an opportunity to see what was out there, even though we know it's down significantly.

All right. And I noticed pricing in the Carolinas, lower single digits, is that a function of the competitive environment now?

It is. It's a function of the fact that we have gotten some very good price increases in the Carolinas in recent years. And with the economic decline, pain that our customers are feeling, just not appropriate to do too much. That can be really detrimental to our customers and certainly the ready-mix customers in particular are struggling right now. We're trying to measure that carefully.

Okay. And just switching gears real quick. On inventories, it looked like on a dollar basis, it crept up a little bit during the quarter. And typically, you'd build inventory in the winter months. So, was that the plan or is there something else going on there?

You've got valuation moving up a bit, which really is impacted by the standards and the fixed costs. You've actually got tonnage coming down. We reduced inventory so much. And if you go back and look a year back, we're down 2.5 million tons or so.

Okay. And just lastly and if we can get the share count at the end of the quarter?

Yes, the actual share count at the end of the quarter was 44.5 million.

Okay. Thank you very much. That's all I have.

We'll take our next question from Arnie Ursaner at CJS Securities.

Hi. That answered the first question that I had on my mind. So you must have obviously priced this deal at the very end of the quarter, given the share count reflected did not count -- basically, you didn't build inventory shares.

Correct. You have a weighted average daily share count.

Okay. Have you done any additional issuance of shares past the quarter because you to have some remaining on your availability?

No.

What sort of tax rate guidance would you give us for the year, Anne?

30%.

And a couple of -- one more question on the SG&A line. Steve you mentioned you had the $1.8 million of pension expense this year but last year, I believe you had had some pretty hefty stock-based comp charges, so how should we think about SG&A on a go-forward basis from here?

We're going to continue to have some charges as people retire and phase out. So, as we put our budget together, we've included everything in there. And the real push factor, is in fact, the pension costs. We've obviously taken basic SG&A down, if you factor everything else in. And if you look at incentive compensation, that's come down sharply.

Arnie, we haven't --/

Will we have fiscal SG&A charges for the balance of the year at roughly the same level this quarter?

No, you always have some disproportionate impact in the first and second quarter. If you look at total SG&A for 2008, you have essentially cut in overhead, particularly bodies at the corporate office, that will -- should offset the pension increase, which on the SG&A line is about $6 million. Our goal, our target is to be essentially flat to down for 2009 on SG&A.

Steve, two questions for you if I can. Could you comment on the state of Georgia? I know there has been a change in the head of the DoT. They have had a fair amount of financing, even before the stimulus plan, which hadn't really come to market. And obviously, Georgia has been very weak for you. Can you comment on trends you're seeing there about some of this money finally being wet?

We don't know what's going to happen in Georgia right now. The Governor and the Legislature are still jawing each other. the Governor would like to totally reorganize the Transportation Board, change the powers and really vest more power in the Governor. So, that's in a state of flux. And it is unfortunate because Georgia does have a lot of monetary capability with stimulus and some ability to let other projects on their own. So, we're just going to have to wait and see how they get their political issues settled. Just don't know the answer to that one yet.

Steve, my final question for you. I know -- I could understand last quarter why you would have separated out the impact of the stimulus plan because at that point, it was unclear when or if we would have one and the magnitude. But now that we do have a stimulus plan, can you comment why you're still separating out your view of the plan from normalized guidance, if you will?

Well, what we've done is lay out a flow and that's our best estimate. We're going to have to see how that flow really works. So, that's the reason for breaking it out. When we get to the end of the second quarter, I think we will have a much better idea of where we are and logically, we would probably incorporate all of that into one number. I hope we know enough then to be able to do that.

Okay. Thank you very much.

We will take our next question from Mike Betts at JPMorgan.

Yes, hi, Steve and Anne. I had two questions. The first one is maybe a slighty cheeky question but in the press release, it refers to your first call to results exceeding your internal plan. Now obviously, your internal plan wouldn't have had the bad weather that occurred in the Carolinas. So, what I'm trying to find out, I think it is, you were somewhere behind what the Street was forecasting, what areas you, in your view, actually did much better than expected? And then secondly and more directly, given your expertise here, Steve, what's your view, if you could update us your view on the housing market and what you expect to see through aggregates demand for housing? Are you -- I think three months ago, your view was that it was bottoming. That's become a more consensus view. Is that your view now? Are you seeing people start opening up subdivisions now?

Okay. Let's start with the first question on first quarter. Bottom line on the first quarter was that volume was below expectation. Part of that was the weather and part of it was economic activity, we think. It's hard to totally separate it out. It appeared to be a bit below expectation but again back to being hammered pretty hard in the Carolinas, with a negative 37% volume and down 40% in Charlotte and more than 40% in Greensboro.

We did a better job on the cost side. So, that's what enabled us to push together in the first quarter in a better manner than we expected. And the other downer was negative on lime to the steel industry. We had anticipated that there would be a gradual ramp up of steel production. And what's going on, particularly in the automotive industry, the announcement of major shut downs, lengthy shut downs, there certainly isn't any desire on the part of the steel folks to load up the supply chain. So, they have pulled back pretty quickly and that's, in fact, in lime volume. So, that's what caused the first quarter to be what it was. We did marginally better. We didn't blow it away with respect to internal forecast but given the environment, we actually felt pretty good about that internally.

Okay.

With respect to housing, now that I'm a housing guru, (Laughter) it's beginning to improve a little. You're certainly seeing the rate of price declines start to -- it's going down at a lesser rate. Put it that way. And perhaps, we're even getting close to a bottom on pricing. My own personal feeling is that there's a little bit more down to go there. But you're beginning to get a convergence of low interest rates and people who can buy. Perhaps a feeling on their part that prices are bottoming and it's a good time to go into the market. You've got the $8,000 piece of stimulus money, which I can tell you with conviction is having an impact. It's turning out first time home buyers. Those who are actually creditworthy, have some savings, they see very good value, and they can get at that $8,000 piece of help. And in some states, they can get more from the state. So, that's beginning to spur activity.

So, if you look at the home builders, I think what they would tell you is that they're seeing more quality traffic, not just tire kickers but people who can buy. And that's being reflected in some of the order improvements that they're showing, rate of pull back on where people put down deposits, appears to be lessening. So, it feels like a bottom. If you listen to the home builders, they will tell you that they've got lot issues in some of these markets. We'll see whether or not that actually develops into stone tonnage, with a little bit of ground scraping and demand for our product. Certainly, it hasn't yet. But for it to develop, you've got to have the other part happening, which is reduction of inventory and sales relative to what's being built, picking up, which appears to be the case.

So, I continue to be perhaps a little bit more optimistic than most folks out there, that we're going to see some improvement. But it's not route the victory. Route to victory for the next five years, maybe longer, is going to be government with respect to our business. All types of government activity or government subsidized and mandated activity, even with respect to clean energy.

Okay. Thank you for that. And one follow on, just on specialty products because obviously, as you say, that's suffered from the problems in the steel industry. To get to your, I think the revised guidance is 30 to 32, from memory, of operating profit this year. Does that assume a rebound in that demand in the second half?

It does, but not anywhere close to our capacity. We're looking for a slack year, where we're going to have kiln shut downs periodically throughout the year. What we are getting though, Mike, is some very nice price improvement on the lime side. Lime pricing in the first quarter was up 11%. And you're seeing energy costs go down. So the combination of those two helps.

And how much of the business is lime?

Lime is about 40% of the revenue structure of specialty products but it's a bit more profitable, typically, than the mag chem side.

Okay. That's great. Thank you much.

John Fox at Fenimore Asset Management.

Hi. Can you hear me?

Sure can.

Okay. Operator cut out. I have a couple of questions. Number one, the free cash flow, $165 million to $175 million, that's before dividends, is that correct?

That's correct.

Okay. And what does that assume for a cash pension contribution for 2009?

$20 million.

$20 million. Okay. And then Anne, maybe, could you just talk about what the balance sheet looks like after March 31? And obviously, you did the offering, which we know about. The $100 million receivables facility, is there anything drawn on that at this point?

Yes. We drew all $100 million on the first draw. That was somewhat the expectation of the bank when we went into the relationship. But that will actually act, as I call it, our commercial paper, our ability to adjust our short-term needs. So if you look at April 30, we had $1.383 billion of debt, which includes the $100 million drawn as well as the $130 million term and cash of $289 million.

Okay. And the covenant that's 3.25 times, is that gross debt or do you get credit for the cash on that?

It's gross. We tried net debt, didn't work.

Okay. So how does that shake out at June 30? What -- obviously, you've added some debt here.

June 30, well, we are at 2.8 at the end of March and with that would be just right like 2.86. But we won't hold that whole $100 million outstanding the whole time.

Okay. That's really my question.

We'll pull that every two weeks.

Okay. Great. And then, Steve, maybe, could you just talk about the mechanics or a timetable or how this stimulus works? You read in some place that there are projects and then, other communities, you read articles about they're not seeing any of the money. So, could you just maybe just shed a little bit more light on the mechanics and how this all flows through?

It depends on the category of money that you're talking about. And obviously, we're focused heavily on the surface transportation category. And that's the one that we can track most precisely.

Okay.

If you look at individual states, you've got a wide range of activity between the states. In our states, the one that has done the best job most aggressive, early on is Iowa. Iowa has already taken bids on 55% of the money that they've been allocated. So they've been incredibly aggressive about getting the projects out there and taking the bids and awarding work. If you go to the other end of the spectrum in states that make a difference for us. Florida has been pretty slow. Florida has let very little work to date, less than $100 million, that they've actually put out there. Actually, they haven't bid any, they've obligated about $100 million, identified.

Okay.

So, they're being very cautious about it. At the same time, Florida with the initiative that they took to accelerate their roads program, they've got a very aggressive program already in place. So, the expectation is that they'll be a little later. They're obviously working it but Florida is one of the large states with respect to allocation. And the other states are in between. You just have to go state by state and look at the individual projects. What we do find, which I mentioned in the commentary, is that when you look at it project by project, it is overwhelmingly resurfacing and lane widenings.

Right.

We expected that, so that's good. And those projects are coming in roughly at 20% below the cost estimate. So, that's good.

Right.

It's still a volume.

Right. Okay. Thank you.

We'll take our next question from Jack Kasprzak at BB&T Capital Markets.

Good morning, Steve and Anne. This is Adam Thalhimer calling in for Jack. Anne, can you give us a sense, at all, for interest expense next year, any big changes from '09?

I would not anticipate any. I'll tell you, I have haven't calculated it at this point in time but we don't really have any -- based on where we are today, I would say it would make no changes. But it's all going to depend on what happens with any potential acquisitions that we could do.

Yes, that's the caveat. And obviously, anything we could do would be done predominantly with equity. And we've talked about accretive equity, as opposed to that term 'dilutive', which we don't like.

And then, any idea of DD&A for the year for '09?

Approximately, $180 million.

Okay. Steve, you mentioned in the press release, you were seeing some -- a weakness in alternative energy projects but you also said earlier in the call, that you saw some strength in wind farms still. Where are you seeing the weakness on the alternative energy side?

The Midwest slowed down a bit. There are a number of projects that had been pulled back, slowed down with respect to pace of moving along the left projects or in some cases, the projects have been bid and they've not moved forward. Our expectation is that that's going to be relatively short term. Certainly, there's a lot of impetus for wind energy projects. It's kind of interesting what's happened because the way it racks up now, with Texas being so aggressive, Texas has become the largest wind farm state in the country. California has dropped to three. Iowa has moved into the number two position and Iowa is very active. South Texas and the panhandle are very active. So I think, particularly those two states, are going to grow pretty dramatically. Although in the short term, in the next 60 to 90 days, we may not see the flow of that we'd like to see. But as get to the back part of the year, I think it's going to pick back up. In fact, we've got some projects that we're waiting on to hear about awards right now. And they're big projects. We're talking about --.

What's your sensitivity to a wind project?

1,500 tons per turbine, 200,000 to 700,000 tons per project so far. These are are sizable projects and we've got one that we're looking at right now, it's about 600,000 tons, that we're waiting to find out whether or not we're going to get all or share in.

Okay. And then lastly, can you just talk a little about state of demand in Texas?

Texas has certainly held up better than most of the country but Texas not avoiding recession at this point in time. You can see a marked pull back in Houston. San Antonio has also taken a hit. The NAFTA corridor continues to be very strong and that's wind energy, plus just a bit better economy down there. And when you get up to north Texas, the north Texas private construction economy has pulled back but there's a lot of toll work and other types of highway work up in north Texas. But particularly, the toll work is the dominant work up there that creates very big tonnages.

Great. Thanks for the time.

Next to Todd Vencil at Davenport and Company.

Thanks. Steve, Anne, how are you? Steve, I'm curious, you said there's $1 billion to $1.5 billion maybe of deals coming within the next 30 to 40 days or something to that effect. And I am wondering, when you say they're coming, what, this is -- just your color is always welcome, what do you mean, they're comming? Are the books due out or are the bids due or what should we be looking for there?

There should be information coming out. Certainly, when somebody gets ready to sale something ,they indicate to potentially interested buyers that there's something coming. And give you a general indication of what it is, to see if whether or not you would like to be a party to take a look at it. So you get a heads up in that regard. And then, it's followed by some time of information package. And we would expect to see some information packages flowing here very shortly.

Got it. Okay. Thanks for that. And a lot of my questions got answered, so I'm just going bounce around here a little bit. On the question of valuation, we talked to you a few months ago and you were talking about certain valuation ranges, EBITDA, that kind of made sense to you, were you thought things were going to be coming in. Can you kind of update us on where you think valuations stand or what you think you're going ultimately be able to get?

Well, it is not a 10 to 12 times EBITDA market off of peak EBITDA's, that's for sure. I think you're going to see much more realistic valuations, just based on the economy, a limited number of buyers. Valuations that are in the range of 7 to 8 would not be with out of line. So that would be our expectations, somewhere around there. It depends upon the particular area that we're looking at.

And just to clarify, is that 7 or 8 times this year or last year or '06 or what are you looking at?

It's going be -- it could be 7 to 8 times trailing, with some modest adjustment based upon SG&A that you would take out immediately. That's typically, the way we would look at it.

So, probably not a 2006 number?

2006, no, no.

Not 12.

Or 12, okay. Fair enough.

Now, it's going be awhile before you get back to 2006 volumes. So, there may be someone who wants to pay for that but I don't think it's going be us.

Fair enough. On that remaining 2 million shares, do you have plans to take those down or do to not take them down or are they sort of looking at that as an option to do, should the need arise or the desire arise?

It's an option. We're not interested in placing more equity than we think we can reasonably use, put to work for our shareholders in a productive way. We will measure the deals as they come and see whether or not we're successful. We could -- it's possible we're not successful because we're going to stick to our financial criteria on what we look at. But if we are, we'll measure the need and then, we'll go from there. The nice thing is that, we've demonstrated that there is quite a bit of appetite for our equity, given the association with something productive for the shareholder. And we're just going to stick to that. We're not going to ask the shareholder for equity money unless we can put it to work in a meaningful way.

Got it. On the other balance sheet sort of actions you guys have taken, do you feel like you're positioned where you want to be now or should we be looking for any more activity on the -- we know what could happen on the equity but on the debt side?

Todd, we feel pretty comfortable. Obviously, in April of this year, we had our maturity for April of 2010 become current, which is one of the reasons we felt like it was important to provide a little more cushion, essentially, on the balance sheet. And no reliance on the underlying cash flows of the business. So, we feel comfortable with where we are right now.

And we took down that $230 million, at a current interest rate that's less than 3.4%. So we think that was incredibly attractive. It's three three-year terms related to it. So it's an intermediate term. We think that was extremely attractive. So, we think we're pretty well taken care of there for anything that is currently on the platter. The fact of the matter is, if you sit down and go through the analysis, we've got over $0.5 billion of fire power right now, in hand.

Right. Indeed. Final question and this was sort of touched on before but switching gears off the balance sheet and strategy. Just on the profitability and the ability to continue to cut costs, you said before, that there wasn't any low hanging fruit left. But as you are projecting for volumes to keep coming down somewhat, do you feel pretty good about being able to continue to cut out sort of cash costs in line with what you're going to see for volumes?

Well, you're going to do that based on your production rate and that's a given. So, I don't jump up and down and take a great deal of pride in doing something that ought to be an automatic. We just consider that to be done.

Fair enough. Thanks a lot.

We'll go next to Chris Manuel at Keybanc Capital.

Good afternoon. This is Jason [Brown] on for Chris. A couple of quick questions for you. Can you quantify how much operating at lower production rates in the first quarter hurt your first quarter earnings?

Hang on a second and we will try to give you some reasonable numbers.

Okay.

If you look at the impact of volume on the business in the first quarter, when we file the Q this afternoon, there will be a reconciliation of margins for you. Volume weakness cost us about $65 million.

Okay. And how do we kind of think about that with -- you were operating at lower production rates than end market demand. So is there some lower fixed costs absorption associated with that, that won't continue going into the second quarter, assuming that you're operating at end market demand levels?

Right. If you're -- depending on, it's -- assuming end market demand levels flatten, you should be okay in that regard, if you've adjusted your productivity capacity, which we have, to equal that. But if it continues to decline, we'll have to continue to make those adjustments. Or if it goes the other way, then you'll have the margin pick up on the upside.

Okay. Well switching gears then. We've just got one question on guidance real quick. If you take into account first quarter results and then look at the remaining the last three quarters of the year, it basically implies that on average, the last three quarters of '09 will be up from '08. And just assuming that second quarter has to be down on a year-over-year basis, and without getting into quarterly guidance here, how are you thinking about the progression through the year? Are we looking for volume improvement in the back half and that making up a down second and third quarter? Or do you think you can get to earnings improvement before then based on cost reductions?

There a couple of drivers, I'll start with. In the second quarter, your biggest driver is going to be energy. You'll recall that the second quarter of 2008 is when energy rates really spiked. I think our rates were up between 60% and 80% actually, in absolute costs. But if you looked at the per gallon costs of energy in the second quarter, we were paying $3.57 a gallon last year. So you're going to have a nice swing from a compare, assuming the energy rates stay or diesel rates stay at where they are right now. From a volume perspective, we do see the rate of decline in volumes tapering off and then picking up on the solid compares in the back half of the year -- or the easier compares in the back half of the year.

The bottom line is, as we said earlier, it's back end loaded. So, the second half, we're looking for an improved scenario over the first half. As Anne indicated, we will get some significant energy cost relief in Q2.

Okay. That's helpful. Thanks a lot.

And we'll take our next question from Clyde Lewis at Citi.

Afternoon, Anne. Afternoon Steve. Two questions, if I may. Firstly on your sort of volume and price for the quarter against your peers, you've done a lot better in terms of volume and a fair better, as well, in terms of price. Is that all mix do you think, in terms of geography and maybe a bit of ballast on one or two other specific categories? Or do you think you've actually sort of gained share and sort of just performed better than your peers?

I think it's all of the above. Certainly, your geography plays a key role in this. We don't have the exposure to California, we do not have the exposure to south Florida, Arizona, Las Vegas, places like that. And that's helpful at this point. So we're in markets that are, for the most part, not impacted as severely. Certainly, from a pricing standpoint, we are seeing a little bit better pricing metric than most of our peers do, I think, related to it. If we picked up a little market share? The answer is, it appears to us that we have, based on working closely with some key customers. And it's a give and take game. You can identify specific plants, accounts where your competitors picked up some business and other places, situations where we have. And when we net it out, it looks to us like we've had some pick up there. And then we've talked a lot about the so-called other category of business with fuel, gas desulfurization and the railroad ballast and ag line. And that continues to be a much better marketplace than the construction related marketplace. So, we've got about 10% of our business in that category. And frankly, that's a nice place to be.

Okay.

So, it's a summation of things that give us a little bit different view.

Can I come back to -- you've probably seen comments there and sort of where you're sort of talking you'll be doing a little bit better. The figures you gave earlier, were they on this quarter-on-last-quarter or year-on-year? And can you maybe say a little bit about, how the sort of prices rises that you would have been putting through in the first quarter have been received by the customers?

The comparisons, to be relevant in our business, we really look at year-on-year on everything. Given the seasonality, I think it's the right way to do it. So, those were year on year numbers.

Okay.

What was the second part?

The other question was sort of really, wondering how the price rises that you would be putting through now and maybe a little bit earlier in the first quarter, how they've been received by the customer base?

Clyde, this is Ward Nye. I'll circle back with you. Actually, we went out last year, we told the customers where we were going to be. We gave them plenty of heads up on it and we reacted on a market by market basis. And as a consequence, there were no surprises to them. The price increases that have gone in, in most parts, quite effectively. And it's not been a surprise to us or to them.

And you don't see much of a change amongst the smaller competitors being more aggressive on pricing or any of the bigger players maybe breaking ranks at all?

You will see some activity, in some markets, on occasion, where you may see a small player making a move or in some instances, a big player making a move. But I think, as we roll it up and look across the United States, there hasn't been a lot of that type of activity.

Okay.

Don't take away that there's not active price competition because there is, in line with the economy. But at the same time, you have to keep in mind that transportation advantage is really what drives this business. A lot of customer plants are located on site, which is a big driver of the business. So the particular business that you're competing over is a much reduced portion of the whole, that you're competing over day-to-day. And that's a dynamic that a lot of people don't focus on in our industry.

Okay. Thank you. Two more. I've got one sort of fairly simple one, I think, probably for Anne, in terms of the asset disposal gains in the first quarter. Are you expecting to see much more of that in the rest of the year and presumably that figure is included in your full year guidance? Is it.

In the first quarter, obviously, we didn't have any big asset disposal gains. We did in the first quarter of last year, which effected the comparability. We usually assume other income of between $10 million and $15 million annually.

Okay. And the last one I had was probably for Steve on your nonresidential sort of construction outlook view for 2009, I think three months ago, I think you were looking for sort of 12% to 15% down. Is that still the case or has that sort of changed at all?

No, I think it's probably in that range. In the areas where we operate, it's going to be very bloody with respect to retail related construction and certainly, high raise office buildings. If you want to see some very tall unoccupied buildings, you can go to the north side of Atlanta. It's going be a long time before somebody builds another tall one in Atlanta. But the other side of it is the energy related projects our there, the capacity driven projects. And it's surprising to me, how much of that work continues on. We're looking at our business on a very regular basis, racking up projects that are being bid. Looking at things where we're picking up orders. And based on -- picking up the newspaper and reading about what's going on, and then, looking at some of the projects that are getting done, I actually feel a bit better about it than the press would lead you believe.

Okay. Thank you very much.

We'll take our next question from Timna Tanners at UBS.

Hi. Good afternoon. I think most of my questions have been answered. There's just one thing I really wanted to clarify. You made a comment about the M&A opportunities and said that you think valuations will be lower and that there's fewer competitors. But I just wanted to ask you about that, in light of the fact that CRH and [Holsum] have been kind of noisy about raising equity or capital in order to pursue M&A opportunities, specifically citing some in the US. So I was just wondering, how you think that might shape out? Are you looking for more mom and pops and smaller players, they might be looking for larger deals, is there something you can characterize there?

We're, obviously, not interested in the cement business. That's a differentiator between us and them. Many other things, they're interested in aggregate. We're interested in aggregate. There may be some other product opportunities where we're bough both interested. Certainly, they're big players, they've tried to get themselves ready for opportunity. I would expect that we'd bump into each other, with respect to some of these opportunities. But it's not like bumping into everyone in the universe of the space, which is what you would have done three years back.

Yes, that makes a lot of sense. I'll leave it there. The call is running long. So thanks very much.

We'll go next to Brent Thielman at D.A. Davidson.

Good afternoon. Actually, all my questions have been answered. Thank you.

And we will go next to Kathryn Thompson at Thompson Research.

(Inaudible) In the previous quarter, you had volume guidance for down 15% to 20%. And in quarter you just reported, volumes were down roughly 21%. And then current guidance for volume is down 9% to 12%. My question to you, what has changed since the previous quarter, in light of the 20% plus decline in the quarter just reported and the improved volume guidance for '09?

It's not improved guidance for the year. We've been at 9% to 12%. So there's some kind of disconnect there. 9% to 12% was the number that we came out with when we announced the end of year. So that is exactly the same guidance that we've put out. Maybe some confusion with the other large player. Although their numbers, if I recall, were actually more modest than ours. I think they had 5% to 10%, if I recall, was their original estimate and now they're at 10% to 15%. If I read their press release correctly. So, we've stayed the same.

All right. Perfect. I just wanted you to clarify that. Thank you so much.

There are no further questions left in the queue. Mr. Zelnak, I'd like to turn the conference back over to you for any additional closing or remarks there.

Okay. Appreciate everyone tuning in. A lot of good questions. Obviously, uncertain times. We're doing our best to predict and help you in that regard. And then, obviously, we're hunkered down, managing as hard and as tough as we need to make our way through the environment. Look forward to talking to you at the end of the second quarter. Thanks.

This concludes today's presentation. We thank everyone for their participation.