Martin Marietta Materials Inc (MLM) 2009 Q4 法說會逐字稿

Good day and welcome to the Martin Marietta Materials Inc Q4 2009 and full year financial results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Ward Nye, President and CEO. please go ahead.

Good afternoon. Thank you for joining our fourth quarter and year-end 2009 conference call. With me is Anne Lloyd, our Executive Vice President and Chief Financial Officer. The fourth quarter provided vivid examples of both the perils and prospects of the current economic environment. The final three months of 2009 was a predictably difficult conclusion to a challenging year in the aggregates business. Quarterly shipment declines of 23% were driven by the both the weak economy and the wet and early onset of winter, muting October's historically strong volumes.

A different story, however, concluded in our specialty products business. Reasonable sales volume and product pricing in both our chemical and lime sectors complemented substantial in place cost controls, generating record quarterly and annual performance. Still, for the year, consolidated net sales for the Corporation declined over 19%, with earnings per diluted share of $1.91, including an $0.18 per share impact for legal reserve and the $0.11 per share diluted effect of common shares issued in 2009. In 2008, diluted earnings per share were $4.18.

We experienced down aggregate volume in all major geographic areas of the business, our 15th consecutive quarter of declining aggregate shipments. To put this in perspective, heritage aggregate volumes have declined 40% since the peak of the cycle in 2006, a cumulative peak to trough decline of 80 million tons. In 2006, at the aggregate industry's peak, 80 million tons represented the United States's fifth largest aggregates producer. For the quarter, specific geographic volume declines ranged from down 33% in our River, Southwest, and north Texas Oklahoma markets, to off only 6% in Indiana. Distinct from those particular shipment volume extremes, some of the hardest hit areas for our Company included Florida down 30%, Carolinas off 24%, with Charlotte and Greensboro off 30% and 26% respectively. Ohio was down 24%, North Georgia off 22%, and Iowa, which had been comparatively strong until winter's arrival, was off 20%. Aside from the areas just mentioned, most markets were off on a percentage basis in the mid to high teens.

Against that steep and prolonged volume backdrop, we saw 1% decline in aggregate pricing for the quarter, compared with the prior year period. However, following 15 quarters of aggregate shipment declines, we're pleased that on an annual basis, the vast majority of our geographic areas saw positive pricing movement. For the year ended December 31, 2009, pricing for the Corporation's aggregate products was up 2%. However, during the evolution of the year, we saw pricing extremes from up 23% to down 6%. That said, on an annual basis, most geographies increased average selling price on a percentage basis in the mid single digits, while the two negative geographic areas, Florida and River, were off 6% and 3% respectively. While for the fourth quarter, pricing was down 1%, the vast majority of our geographic markets were either flat or up compared to the prior year period. Most notably, North Carolina was flat, which alone provides a meaningful example of the importance of mix, both geographic and product, in the analysis of aggregate average selling price.

Cost management is and remains a top priority for the Corporation. During the fourth quarter, as well as the full year for 2009, our cost of sales were reduced in every significant controllable category. This includes labor, energy, supplies, maintenance and repair, and contract services. We have consistently and carefully reduced our workforce keeping with the decline our business. By way of example, the 123 million aggregate tons shipment level we experienced in 2009 closely approximates our 1997 shipment volumes. In comparing the Corporation's current cost structure to 1997, headcount is nearly identical, although we now have three times more assets. Yet volume and headcount is where the similarity ends. As compared with 1997, 2009's gross profit per ton was over 50% higher -- the result of improved pricing during the relevant time period as well as disciplined cost management and effective capital deployment.

Our specialty products business continued its outstanding performance, posting record earnings from operations and operating margin for both the quarter and full year. This stellar performance was driven by stringent cost controls, with notable spending reductions in labor, energy, contract services, and supplies. Gross margin as a percentage of net sales for the fourth quarter expanded over 1,100 basis points to a record 32.4%. For the fourth quarter, earnings from operations of $9.6 million increased by $8.9 million over the prior year period. For the full year, operating margin as a percentage of net sales expanded by more than 800 basis points to 24.9% despite a 14% decrease in net sales.

SG&A expenses declined by $1.4 million for the fourth quarter and $11.9 million for the year, compared with the prior year period. Total personnel costs declined $4.6 million for the year, despite absorbing $6.4 million in additional pension expense. This result is consistent with our stated aim during the course of the year. Even though 2009 was difficult, our Corporation continued to generate excellent cash flow. For the year, $318 million of cash provided by operating activities was only $27 million below 2008, despite consolidated net earnings that were $92 million below the prior year. The decline in net consolidated earnings was largely offset by a sharp pull-back in capital spending to $139 million, careful control of working capital, and lower cash taxes. Also, consistently protecting our balance sheet and liquidity, we closed both the quarter and the year in excellent shape. At December 31, 2009, we had $264 million in cash and cash equivalents, available borrowing capacity of $423 million, and an investment grade credit rating. We expect to use available cash and liquidity to satisfy our April 2010 maturities while thereafter retaining adequate financial flexibility to respond to marketplace opportunities. Lastly, we took a nonrecurring $11.9 million charge related to a legal matter as of December 31, 2009. This noncash charge was recorded in other operating income and expenses net, and reduced diluted earnings by $0.18 per share.

As we prepare for 2010, it's obvious that 2009 spending impact of the American Recovery and Reinvestment Act was well below expectations. This delayed economic infusion should mean that the 2010 combination of expected record federal investment in surface transportation and increased stimulus spending will help drive real infrastructure growth. According to forecast by the American Road Transportation Builder's Association, the value of 2010 infrastructure spending is expected to reach $90 billion, an increase of 8% over the estimated 2009 level. Although there are general concerns regarding state and local spending, states are expected to continue to provide matching funds per the traditional federal aid program investment and spend their stimulus funding.

As a result, our 2010 aggregates view is framed largely as follows. First, a very slow first quarter, as contractors delay project start-ups until winter weather has played out. Number two, increased infrastructure shipments as over 80% of stimulus money was obligated in our top five states in 2009, but less than 15% was actually spent. Third, moderate increases in shipment volume to the residential construction market, albeit from a historically low base number. Next, steady growth for what we now refer to as our ChemRock/Rail segment, formerly known as other, comprised of our desulfurization material, agricultural line, and railroad balance product. Lastly, declines in the commercial nonresidential area as customer confidence and credit issues continue to affect that sector.

As a result, aggregate volumes are expected to increase 2% to 4%. However, the measure of whether 2010 brings our expected volume growth is primarily dependent on the degree of the nonresidential downturn. Further, although geographic and or product mix together with competitive issues will make aggregate pricing a more challenged area, we currently anticipate flat to 2% increased pricing in 2010. Based on our current economic view, aggregates volume and pricing growth and a flat to deflationary cost environment should lead to an increased sales, improved gross margin, and profitability in aggregates in 2010. In specialty products, we expect a good year with an estimate of $40 million to $42 million in pretax earnings from that segment.

That concludes my prepared remarks. At this time, I'm pleased to take any questions you may have.

Thank you. Today's question-and-answer session will be conducted electronically. (Operator Instructions). We will take as many questions as time permits, and we will take your question in the order that you signal us. (Operator Instructions). And it appears our first question is from Arnie Ursaner with CJS Securities.

Good afternoon, Ward. My question relates to pricing. In your prepared remarks, you spoke to the fact that the majority of your markets did have have positive price increases for the year, but highlighted the Southeast group that in the fourth quarter saw a 7% decline in price year-over-year. Could you comment a little bit more on what the issues are that are affecting pricing in the Southeast and maybe what some of the dynamics are, both short term and long term, that are affecting that particular market?

Sure, Arnie. When you're looking at the Southeast in this context, you need to think of two things. You need to think of River and you need to think of Florida, because those are two markets that are really long haul markets for us that have very attractive absolute pricing. But then there are two dynamics that are underway in each of those markets. Number one, Florida is a relatively dislocated disjointed market right now. The competitive pressures in Florida are immense, and the volume pressures in Florida are considerable as well. The other issue that we're faced with in the quarter -- I didn't say much of it in my prepared remarks is weather was pretty rough, particularly in portions of the Southeast, and that clearly affects the River business considerably. So when you're dealing with a very different weather environment and market environment in River, and you have it in Florida as well, the combination of those two is powerful.

What I will tell you is in both of those markets, because of the absolute pricing numbers that you have due to the transportation component, if you can effectively capture the transportation component -- that was difficult to do in this quarter, particularly in River -- then you can take the pricing degradation that we saw in river all by itself and probably cut that just about in half, Arnie. And if you took that and cut that in half all by itself, it would really almost move that pricing for the quarter to look considerably more flattish. So in large part, it was a distance market issue. The other concept that I would suggest to you is keep in mind about 30% of our market tends to be a long haul distribution market. And we've done that very much by design because our view is this is a long-term business. If you want to be in this business for the long term, and you don't have that capability, you're going to be at a competitive disadvantage. We feel like what you saw with pricing in this quarter is simply a one-time snapshot event that you have to deal with to have the type of business that we believe we want to have and our investors want us to have for the long haul. No pun intended, by the way.

Thank you very much. My other question is a real quick one related to the cost side of your equation. Can you highlight what your diesel costs were for the year in 2009, where they are currently? And I think one of the real questions I'm leading to is your view that you hope to keep these costs flat over the course of the upcoming year. It seems surprising, given the fairly rapid rise and increase we've seen in the price of diesel over the last few months.

Here's where we are. For the year, diesel was at $1.62. For the quarter, diesel was at $1.94. Really what we've done is we've said we think it's going to be more next year as it was here toward the end of the year. We're not diesel speculators. The fact is it may be more than that, it may be less than that. If the moves in large part, it simply moves. I would remind you of a couple of things about diesel. When energy pricing moves, it isn't always a bad thing for this industry. At times, pricing will tend to follow that. The other thing that it does -- if you have very well located positions, as we do, it certainly tends to make it more difficult for others to interdict those markets. But that's our approach right now on diesel, Arnie.

Thank very much.

Thank you.

Our next question comes from Trey Grooms with Stephens, Inc.

Just a couple of questions. First off, for the markets that you're planning a price increase for 2010, has this already been implemented? And then I guess with that, do you expect the flat to up 2% price for the year to pretty much be throughout the year, or should pricing improve as the year progresses?

What obviously you won't see much of anything, at least in the first quarter of the year, and in large part what you will see, Trey, is pricing will start to ease during Q2 in particular. It it will be fully in place once we get to that part of the year, and it will roll through the balance of the year. It's not going to be the same in all markets, Trey. There's some markets that are down this year, other markets as you heard that were remarkably up. I'm not sure that you will see the types of extremes next year that you saw this year. But in large part, the pricing that we're looking at for 2010 has been communicated in all the varying markets in which we participate.

Okay. And then do you have any sense at all of what impact the product or geographic mix had on price in the first quarter, given -- or in the fourth quarter, rather? This was the first time we've seen a slight decline in pricing out of you guys, and just wondering what impact those two things -- product mix and geographic mix -- could have had.

The geographic mix clearly would have had an impact, because you've seen the biggest degradation in volumes really hit two different places. The Mideast, which is going to include Carolina, so when we see more volumes move out of Carolina, we obviously deal with that. As we discuss what was happening in Florida, and what was happening in River, which are both distance markets, also had an impact on that. So really more of what we would have seen would have been going toward portions of the Southwest that overall tends to have lower product pricing. So I think you really had more of an issue in this quarter of geographic mix than otherwise.

Okay. And then looking into the first quarter, with the -- I guess it's going to be a tough quarter, you said, weather and everything -- going to be a very difficult quarter. Is there any reason to think that that geographic mix could shift any during the first quarter?

To tell you the truth, it's really hard to see anything shifting in the first quarter, but frankly it's hard to see much going on in the first quarter. Contractors are not coming into this year with an enormous book of business. Typically they're not faced with anything that may look like liquidated damages for their business, so they don't feel a need to get back particular early. And I think what contractors are going to do, Trey, is they're going to wait, as I tried to indicate in my remarks, until they really feel like they can operate incredibly efficiently and then go to work. So I'm not sure that you will see geographic products or other type of mix change in Q1. I think those are your drivers in Q1.

Then my last question is, could you give us an update on M&A? Last quarter you mentioned I believe it was $150 million in LOIs that you had out. Can you give us a progress report?

We have a series of LOIs out. As you would imagine, knowing us as well as you do. We look very carefully at what we're contemplating buying. We're still looking at a series of transactions. It's unclear precisely when or if any of them will close. I will tell you there's not a huge amount of M&A activity out there right now. But that said, Trey, we do continue to see a steady diet of transactions in our relevant geographic markets that to us are attractive.

Thanks, Ward, I will get back in queue.

Our next question comes from Garik Shmois of Longbow Research.

I was wondering if you could talk a little bit more about your outlook for infrastructure spending. Ward, you mentioned that -- really the principal risk that you see right now to your volume guidance comes from commercial construction declines. But what would happen if -- we're seeing the Senate convene here with possibly introducing a jobs bill and shoring up federal spending, what if that doesn't materialize? What kind of risk is there to the downside?

I guess what I would say is I don't think there's a huge risk of the Senate really doing that to begin with. I think everyone realizes they need to go and swing this thing. That said, this is going to be a year that's all about stimulus in many respects. So -- really that is going to be the focus from an infrastructure perspective, even if our government continues to operate in certain fashions that at times appears dysfunctional. I think we can still function. We just can't function as well as we would like.

Okay. And just a question regarding the capped inventory. Is it possible to give us an update of how much volumes perhaps would have to come back before you have start booking the excess inventory that you've been expensing?

Garik, this is Anne. It's not a question of the volumes coming back on inventory that's already been capped on the ground. I mean, it will be -- renewed production that's out there. That's really not the relevant issue with that excess inventory. It will be sold when volumes come back, probably my philosophy is it takes from 18 to 24 months to get that back into the system.

That's helpful. Thank you very much.

Our next question comes from Jack Kasprzak with BB&T Capital Markets.

How are we doing, Jack?

Can you hear me?

I can hear you now.

Sorry about that. I was going to ask the follow-up to that. Could you update us on the amount of that expensed inventory that you have for the year?

The inventory that we have for the year, it's a little bit over 15 million tons. That's up, I want to say, Jack, about $1.5 million from prior year, and, of course, part of the issue that you're facing from an operating perspective is one that you know well. We had a strong push to produce clean wash stone, primarily for asphalt products during the course of the years, and when you're making that, you're making product at times that you're not going to be able to sell immediately, but still products that you're going to sell in long term. But it was that $1.5 million year-over-year delta that I think you were asking about.

And I assume it's spread over a variety of markets. Is it over that 18 to -- ?

It is, Jack. It's spread throughout the entire enterprise.

Secondly, in the press release, there's just a reference in the risk section to the 2010 outlook that the outlook is in part based on -- that a federal highway bill will be reauthorized. Is that as straightforward as it seems? In other words, if there is no new six-year bill, that you guys feel like there's downside to the volume guidance?

I'm not sure that there's so much downside to volume guidance in 2010. That probably ends up being much more of an 2011 issue. The one thing that does it do, Jack, is it does tend to constrain DOTs to undertake longer term planning for projects. And so what you are not seeing as aggressively as we would otherwise would be good solid projects coming out of their pipeline. They may not necessarily be projects that would go this year, but it does make the program run much more smoothly and efficiently.

Got it. Thanks very much.

Sure, Jack.

Our next question comes from Jerry Revich with Goldman Sachs.

Can you help us reconcile your prior comments on limited M&A opportunities with the capacity that you've created on your balance sheet this quarter by renegotiating the debt covenant and also issuing a little bit of equity?

Yes, Jerry, the capacity that we created on the balance sheet with the debt covenant really was in response to ensuring that we kept adequate cushion between what we anticipated to be our leverage ratio. It purely was driven by that factor, as opposed to providing extra capacity to go out and issue debt.

Okay. And just to clarify, in answer to the prior question, so the $150 million of acquisitions that you were looking for a quarter ago -- are those still in play, or were you not able to come to terms on a good chunk of that -- of those LOIs?

Well, I'll tell you, Jerry, we continue to be involved in a handful of different activities. We're obviously constrained by confidentiality agreements on those, so we can't go into a great deal of detail. But, again, Jerry, it would be a number of some significance if we brought them all to closure and to conclusion. My guess is we will not bring them all to closure and conclusion, but we're going to look at all of them very carefully and move on the ones that we think good sense in the short term and the long term for our business.

Thank you for the clarification. And can you please rank order for us which regions you are most optimistic on pricing in 2010?

Jerry, the long and short of it is, the best pricing outlook probably in 2010 is going in to some portions of the Southeast, then to the Southwest, and then probably down the River and the Midwestern markets.

Thank you very much.

Our next question comes from Keith Hughes with SunTrust.

Thank you. First question -- on the guidance, you talk about -- what kind of nonresidential slowdown due expect in those numbers?

We're thinking non-res may be down in the 20% ish category.

And that would be among all sectors, is that correct?

I guess the question that I've got is really how does non-res look as the year goes on. Here's the component that I would throw out there for you to ponder, because we have as well, and that is I think the office and retail sector is particularly hard hit. I think the question is, what does heavier industrial look like for the end of the year? Because if we're going to be in a deflationary cost environment for much of the year, as I believe we will, at some point if you're industry and you have projects, and you have financial capacity, you may want to move on them. Take, for example what you see going on in infrastructure right now. Much of the infrastructure bidding work that has gone on over the last year has come in 20% to 25% to sometimes 30% below engineers' estimates. So clearly the states and governments are getting good value for the projects that they're awarding right now. At some point, you may see that on the heavy side. So I guess our view is we see non-res as a whole down 20% ish. We think the heavy side of that, maybe not so much.

Okay, that clarifies it. Second question. I was a little surprised by your comments earlier about a reauthorization of the Highway Bill. If we continue to see the Congress drag its feet on this, and we just get these month to month patches or two-month patches, would that not cause volume problems sometime during the paving season in 2010?

I'm not sure that would it cause a huge issue in 2010. I think 2010 in many respects is about projects that are there and about stimulus work that's coming behind it. I see the reauthorization issue as a much broader long-term issue.

Okay. That wouldn't take away from some of the stimulus spending by taking away some of the normal spending?

I don't think materially so, at least in 2010.

And to follow up on your comments on the debt covenants and the cushion, given the view that you've laid out of volume growth and profit growth, it seems as though the ratios would just be coming down. I'm just a little confused by your comments.

Keith, they will be coming down. As a reminder, we don't have net debt covenant, and we have a maturity due in april, and we've got the cash available to pay that off. But until we pay it off, it's still considered part of debt. So we're trying to make sure we maintain enough cushion. We asked for a net debt covenant, but were unsuccessful in achieving that. We just went for an increase in the actual leverage covenant itself.

Thank you.

Our next question comes from Kathryn Thompson with Thompson Research.

Hi, thank you very much. I want to focus on your end markets looking forward. First, do you have a projection of what you think your end market mix will be in 2010, understanding that public spending will understandably be higher on a percentage basis? And then also, you just mentioned you gave your projection for non-res being down in the 20% ish. Could you also clarify where you see public and residential for your markets in 2010?

Kathryn, back to your first question. You see where we were in 2009, the way our business broke down. We're not in a point that we want to project what we think that's going look like in 2010. Honestly, I don't think it's going to be remarkably different than we've seen in 2009, but aside from that, I don't think we can be any more specific. Going to those different buckets and giving you a sense of the movement, the way we would tally that up, I think we see infrastructure up probably around 8%. I think we think residential is likely to be up around 20%. Our ChemRock/Rail component, after the [Semmich] transaction, you think you're probably up around 10%. And then as you reference, we had already discussed non-res or commercial down 20%.

And thinking about volume improvement, I wanted to see, are you seeing improvements in volumes in certain markets, particularly ones that have seen a greater relative percentage of your stimulus flow even directionally? Any other color about that, those certain regions would be helpful.

Well, obviously so far in 2010, there no color to offer anywhere. But what I would tell you, go back and take a look at what we said in Q3. With what we had had seen in Iowa, and the way volumes had had moved there, I think what is demonstrated to us, Kathryn, to try to answer your question, but hit something I think is even more compelling -- is how powerful this business is when even varying degrees of volume come back to the with the leverage that we have over this business right now. Keeping in mind that we're probably looking at a 60% or more incremental margin on new tonnage when it comes back into the system. I think that's something to be incredibly sensitive to, but it's hard for me to tell you right now in early February what markets we see coming back and what type of strength in particular we could note for you.

It sounds as though reasonably it really won't be until Q2 until you see any realization of this.

My guess is, Kathryn, it's going to be April before people really go back to work in earnest, and I think there are a couple of months in the aggregates business, not so much for Martin Marietta, but rather for the industry. I think May is a month worth watching, and I think October is always a month worth watching. October this past year, as you know, was a pretty miserable month in this part of the world.

Oh, great, thank you so much.

Thank you, Kathryn.

Our next question comes from John Baugh with Stifel Nicolaus.

Thank you. Had a question on North Carolina. I think you said volumes down in the mid-20s, but if you could just cover that again? And pricing was flat there. I was curious as to your outlook in 2010 and what impact weather or other unusual things in North Carolina, and particularly an update on their state situation in terms of funding?

Well, North Carolina did have an ugly October, as did most of the Southeastern united states. As you recall, we break it down into three different groups. We have Charlotte area, we have Greensboro area, then one in Raleigh as well. Charlotte has clearly felt the economy in a very acute way. The banking industry has profoundly affected Charlotte. I don't think that's a surprise to anyone. Greensboro high point, Winston-Salem. The triad has been in more of a recession than any other major part of the state for an extended period of time. Raleigh, you see considerably more infrastructure work in this part of the state than you do in other parts of the steady. And the other thing that you are going to see this year in particular is you are going to start seeing work in earnest going on with respect to our first toll roads here in North Carolina, and we have a couple of contracts on that. So we feel like on the infrastructure piece of it here in North Carolina, particularly as you get to Raleigh and you move east, it's going to be a pretty fair picture.

In a word, will North Carolina or the Company in general see increased paving work, road work, which has higher margin to it? How do you see the mix playing out in your pricing guidance for 2010?

What the interesting thing on the mix is, mix isn't really a driver on margin for us. Mix ends up being an issue really more for you. When you're tallying up ASP at the end of the quarter, for us, really the margin that we would make on the base or the margin that we would make on clean wash stone isn't remarkably different, but the ASP for those product can be remarkably different. If you're moving from product to product even within a geography, it can move as much as 20% to 40%. You can have that same type of movement on the same product from different geography to different geography. So will we see different products going this year as stimulus is more mature? Yes, we probably will. Will be see more base going in some jurisdictions than we did last year? Yes, we probably will. Is that base a lower priced product? Yes. Is that going to affect margin? No, it's not. And one thing that it's going to do for us is it's going to help us keep our plants in remarkably better balance, because clearly you're making a host of products as you're trying to meet the asphalt needs anyway. So I think we will see the mix shift around a little bit. I'm not sure from a profit perspective or from where you sit that matters. I think it does optically.

And my last question was on residential, you said up 20%. Can you help us again understand where the demand for aggregates comes relative to the timing of the housing start, and I guess my concern or question really is, how much development work has been done already where home builders are waiting to build homes, but you've already laid out the cul-de-sac with the aggregate?. How does that all timing-wise happen, and help with us the 20% number?

Well, I'll give you a sense of the way it works, then I'll let you do your math. How about that? As a practical matter, about half of what we sell to residential is going to find its way into the subdivisions. So if we're looking at, say -- let's use easy math. Say it's 10% res. 5% of that is going to go to streets, curb, gutter, water, sewer, et cetera, and the other 5% to your point is going to find its way into the structure. So really what you're needing to do to get a sense of it is how are these different communities in the Southeast and Southwest looking from a maturity or an absorption perspective? Because if they're building new homes and bulldozers are going in, we're going to be on the front end that, and we're going to put more into it. To your point, if they have put in all the roads, all the infrastructure, and all they need to do is build the houses, then basically half of it is already done from our perspective.

Thank you.

Sure.

Our next question is from Ted Grace with Avondale Partners.

How are you doing, guys?

Good.

Great. First question would be on fourth quarter pricing. Could you just comment on the reported number relative to where your expectations would have been intraquarter, beginning of the quarter, and even in January? Was there any deviation? I'd say based on my interpretation of guidance, and I think clearly the stock's reaction, the market is looking for something better than negative 1% -- just wondering if could you clarify that point first.

I think we've been pretty clear that pricing was becoming more and more challenged. I don't think this is a huge surprise. And that's really going back to the first question that I tried to address with Arnie, because I don't see what's happening here as this remarkable dislocation. I think what you have are some very discrete issues that are primarily driven by our long haul and distance markets. If I go through and tally up the different markets that we're in, and in my own mind, the way I take a snapshot of it, there are about 21 different markets that I look at, as I'm determining how price moves -- I can tell you that in the vast majority of those, I see green numbers as opposed to red numbers. So if I want to give you at least some direction on where it is, that would certainly give you a sense of it. Again, if you took Florida and River out of that, those clearly skewed it. Even, as I said, if you were able to do nothing more than capture the transportation costs in River, you're back flat.

Okay. And just in terms of -- one of the things that we've talked about from time to time is competitive behavior. You had one competitor with a lot of geographic overlap that reported negative 9% pricing. Just wondering if you have any comments on if you're seeing more discipline in the market, if it's more the status quo, or any change in that regard?

You know what, I don't see remarkable changes. As we've said, it is very competitive. There are a number of players who are playing for some cash costs right now. And they have been very clear about that, and I think you can look at the numbers in these different market areas and have a pretty good feel for how that works.

Okay. Then the last question would just be, on the M&A side, I guess my sense as I think about Steve's philosophy on M&A, was focused on the upstream side of the business. Any reason to think you may have different philosophy or greater appetite to consider the downstream side of the business?

Well, I tell you what, I'm an aggregate guy at heart, so I will begin my comments with that. My aim and the Company's aim is to be in what we feel like are attractive long-term marks, and we want to be in a number one or number two market position in those markets. What we feel and what we believe is that aggregates is the common denominator in all the different products, and that's where we want to be. I will answer your question this way. If someone comes to us and they tell us that they have a fantastic ready mix business for sale, but it doesn't have an aggregate component to it, we're probably not that interested in it. On the other hand, if somebody has a very attractive aggregates business and it may have appended to it an attractive downstream business, that's probably something that we're going look at. Now, whether we maintain that downstream business after the transaction, that's another question and another set of analyses. But that's really the take that we have.

Okay. Great. That's helpful to understand. Thank you much.

One last thing I would offer to you -- as you look at downstream businesses, no one has mentioned it, but I will take what we have in [mag] specialties, day in and day out, over ready mix business or hot mix business today.

But the opportunity to expand that on the acquisition front is probably less so, right, more organic and product growth?

That's entirely correct, but we do recognize that, too.

Sure. Okay, great, thank you much.

Thank you much, see you.

Our next question comes from Clyde Lewis with Citi.

Good afternoon, Ward. Good afternoon, Anne. One last, if I may. Just coming back to safety and the renewal process, can you say a little more about the timing? You've actually alluded to a renewal in 2010. What are the dangers that goes through into 2011? But also, if you can talk a little bit more about what sort of scale do you think it could end up being?

Well, Clyde, probably the good news and the bad news about that is it seems to change pretty regularly on it. Here's what I suppose we believe, Clyde. From a timing perspective, the administration has always been clear, they wanted from the get go an 18-month extension to that anyway. Our guess is that when the Senate and others come back, they will probably extend what we have to the end of the year. I think the other thing that people recognize is they have to find a way to pay for whatever is next, and as a practical matter, the way for pay for that is likely going to be through a gas tax or some sort of user fee. That's going to be a pretty unattractive prospect for them to consider prior to mid-term elections. Our guess is, Clyde, what you'll see is some serious movement on that after the midterms. I think in any event, whatever happens with that this year really doesn't have a profound effect whatsoever on 2010. I think it's going to matter to a degree in 2011, only because it puts states in a position that they can start planning more meaningfully, because right now they can't. And actually they're very clear in telling us and in telling their elected representatives that they can't do that, and their hands are tied.

Okay. In terms of scale, again, there's obviously so much to play for. Post-midterms everything could change a fair bit. But the $450 billion to $500 billion that was talked of being the upper end, do you think that's a pipe dream now?

I'm not sure that that's a pipe dream. I think everyone understands that the infrastructure is tired. I think everyone understands they have to find a way to create jobs, and if the administration and others don't recognize that really that's what this is all about at this point, then they're missing what was a very clear message the people of Massachusetts surprisingly said the other week. So my guess is, that's likely to be what we'll see, and a bill in that mid $450 billion range, I don't think, Clyde, is out of the realm of possibility whatsoever.

Okay. Thanks much.

Sure. Take care.

Our next question is from Chris Manuel with KeyBanc Capital Markets.

Good afternoon.

Hi, Chris.

Couple questions for you. I know this is incredibly difficult to do, but could you maybe give us some sense of -- well, what your thoughts from 2009, what you had from stimulus oriented aggregates volumes, and what in your 2010 assumption a stimulus component to volumes would look like within there?

You know what, Chris, I don't know that we could really break it down for you at this instant, to give you a snapshot of entirely what that looks like. As you said, that's a pretty difficult thing to look at and try to capture. And honestly, I'm not sure for 2010 how much it really matters. I hate to say that, but I think in large part that volume component is going to be what that volume component is going to be, and whether it's funded from stimulus or whether it's funded from the normal programs. So I don't think that particularly matters.

It's a good point. But what I'm more I guess trying to get after, is as you look out to 2011 to 2012, some of those programs begin to roll off. Ideally, the new highway bill would augment or pick up some of where that left off. But how do you view that as a risk as you look out over the next couple of years?

Well, Chris, I agree with that. I think we do need to have a highway bill for the long term to provide stability there. I think the other thing that's worth thinking about, too, and while we're first to say you're going to see most of stimulus spent in 2010, there's likely to be more spent in 2011 and maybe a dribble over into 2012 than people would have thought. Back to the point that we made a little while ago, and that is projects are being bid 20%, 25%, 30% below the engineer's estimate. The fact is they're going to have more money and be able to push it through more projects and go farther than they thought they would have in the first instance. That's going to give us a nice tailwind even ex the highway bill going into 2011 and into 2012, but your point is not missed. We do need that highway bill and there's no question about it.

Is it your impression, and I recognize this is a moving target as well, but is it your impression that the next component of a bill would likely be able to pick up that incremental $25 billion to $30 billion ish a year that above and beyond where [saying you would] like to keep that level intact?

It it's tough to say, Chris, but I think you can certainly come up with the math to answer that question yes. And I don't think it's a stretch.

The last question I had, as you look at what you're doing this year with pricing, a couple points is very important, but as you think about inflation, clearly as we look today, diesel costs would appear to be above where we were as an average last year. I know you guys have done an outstanding job, and I commend you for what you've done getting costs out of the system. As you look at 2010, do you think that -- you've enjoyed over the past few years some significant net price move. Do you think that putting into balance inflation and what you have got in price that you will be able to maintain at least a neutral position in 2010?

I like to think that we will, and in large part because we always find a way on the cost side to keep tackling it, and I think we will continue to do that, Chris. I have to commend the operating team in this organization here on the call, because they have done absolutely a fantastic job. So I think they will -- I think we will be able to continue to tackle that with effectiveness. The other thing that you have to believe happens at some point is some degree of volume comes back to this. Again, Chris, to imagine not losing market share, and I don't believe we've lost market share, but we've seen 80 million tons just go away because that's what the market has done. I think the conversation perhaps you and I have had in the past before -- if we simply recover half of that volume that we've lost with the cost structure that we have without making huge moves in pricing, we can be back to record profitability. So I think it's really taking the cost structure that we have, recognizing price is going to come back when some degree of volume comes back, but still the leverage is what I'm focused on at this instant, because I think it's so powerful.

That's helpful. Thanks for the color, Ward.

All right, see you.

Next question comes from Kevin Bennett with Davenport & Company.

Thanks for taking my questions.

Sure.

The first question is on the specialty product segment. You guys have done a great job of getting the gross margins into the low to mid-30s, and it looks like the 2010 guidance is in that range as well. Looking past 2010, is that level sustainable? Provide some color on that, or your thoughts about that?

I don't see anything that makes that not sustainable for that business. We -- our operating team there has done a great job, beginning with the (inaudible). At the same time, we've moved more and more into the specialty products of that. The component of it that's most cyclical is the steel component of it. Really, that's going to be about 30% ish of that business. So you do to have stay focused on that directionally to get a good feel for it. But that said, we've been very careful to move that business into different products that have the type of scope and growth to them that we would like over the long term, and we think that business is positioned remarkably well, not just for next year, but for a good long run.

Okay, great, thanks for that. Second question, you mentioned in the release this morning that you thought SG&A would be flat this year, excluding I guess some pension contributions. Can you provide an amount to that, or just some comments on that?

Our SG&A costs this year, Kevin, we do think will be flat, excluding those one-time costs. We do have some supplemental retirement plans here that we'll have to do some payout and accrual of costs related to those this year.

Can you comment on the magnitude of those contributions?

The total pension contribution this year is expected to be about $35 million in cash, with $20 million in the normal recurring pension contribution, about $15 million for some other payouts under that supplemental plan. I think the cost will translate -- expense will translate into about $5 million.

Okay. Great. Thanks for that, Anne. And my last question following on to what Chris was talking about earlier was the pricing growth -- looking longer term into 2011 and 2012 as volumes do come back, what are you looking for in terms of year-over-year pricing growth out there? Do you think you can get back to the mid to high single digits? Anything -- you could comment on looking farther out than 2010 would be helpful.

The farther out we get, the tougher it is today.

Yes.

Realistically looking out a year or two. Really, the volume is what matters. You nailed it. Some degree of volume comes back. Pricing in the 4%, 5%, 6%, and that mid single digits range is not something that I feel like is a huge stretch at all to see that consistently throughout. And I think really, as you have a longer term form of recovery, you might see better than that. But I think realistically in the timeframe that you're talking about, provided you have volume, I don't think that's unrealistic.

Thank you guys very much.

Thank you.

And we'll take our final question from David [Tepper] with Greenlight Capital.

I think our question was answered, thanks.

With no other questions in the queue, I would now like to turn the conference back over to Mr. Nye for any additional or closing remarks.

Thank you for joining us today and for your interest in Martin Marietta. I think it's no secret that 2009 was a challenging year. But as I believe you know, despite the year's many headwinds, we made money in 2009. Importantly, we did it by managing the near term but not sacrificing the long term. Accordingly, I want to make sure I congratulate our team for a job well done in 2009. And I want to assure our shareholders of our total commitment to do it again and all the while be in a position to avail ourselves of market opportunities as they become available. We will speak to you again at the end of Q1. Thank you all very much.

That does conclude today's conference. Thank you for your participation.