Martin Marietta Materials Inc (MLM) 2010 Q3 法說會逐字稿

Good day ladies and gentlemen, and welcome to your Martin Marietta Materials Inc. third quarter 2010 conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will follow at that time. (Operator Instructions). This conference call is being recorded.

I would like to turn the call over to your host, Mr. Ward Nye, President and CEO. Please go ahead, sir.

Good afternoon, thank you for joining us our third quarter 2010 earnings call. With me today is Anne Lloyd, our Executive Vice President and Chief Financial Officer. We appreciate your interest in Martin Marietta and trust that this call will be helpful to you.

The third quarter represents our second consecutive quarter of aggregates volume growth, as shipments increased 6.3% over the comparable year period. Importantly though, we saw volume growth in each of our end use markets, led by a 14% increase in the nonresidential sector. The average selling price in aggregates declined 3.1% for the quarter due to some market pressure but also reflective of product mix and geographic mix changes. I'm pleased to report that our specialty products business continues to perform exceptionally well. Again, turning in record third quarter gross profit, and earnings from operations.

For the quarter, on a consolidated basis, our earnings per diluted share were $1.13 compared with $1.23 in 2009. Unusually wet weather in July and September contributed to an erratic shipment pattern that's atypical for the third quarter. This was particularly evident in Iowa and Texas. While it's difficult to precisely quantify the effect of weather in terms of missed volume, our approximately 25% increase in October shipments supports the fact that volume in September was delayed rather than lost.

Consistent with recent trends, infrastructure represents a more significant part of our business than we seen historically. For the quarter, 57% of our aggregate shipments were sold to the infrastructure construction market. Of note, infrastructure shipments increased 3% over the prior year quarter, despite a 32% decline in shipments for projects funded by the American Investment and Recovery Act or stimulus. In fact, excluding stimulus, infrastructure shipments increased more than 6% over the prior year quarter. This data support our view that the transportation component of state budgets in our core states enjoys a greater relative stability that will benefit us for the balance of this year and in 2011. Our nonresidential end use market reported the highest percentage volume increase in the third quarter. The 14% growth in the sector was again driven by shipments from our Arkansas and North Texas Oklahoma districts too support natural gas drilling and exploration projects at both the Haynesville and Barnett shale deposits in east Texas, southwest Arkansas, and northeast Louisiana.

Specifically, we shipped 1.3 million-tons used predominantly to build roads and pads for drilling rigs, more than double the shipments sold to these jobs in the prior year quarter. The Arkansas district alone reported one of the highest viewpoint increases in the Company, up 35%. We expect these energy projects will continue to provide steady aggregates demand for the remainder of the year. We are also monitoring activities at the Eagle Ford shale deposit in south Texas, as we are nicely positioned to supply aggregate to that project as well.

Our ChemRock/Rail market saw a 9% increase in shipments over the prior year quarter. This volume growth was fueled by railroad maintenance and expansion activity in our western division, which we expect to continue through the fourth quarter. Not only did shipments increase in each of our end use markets, but also in each geographic group. This volume growth was led by the Mideast group, with a 10% increase in shipments over the prior year quarter. Once again, our Indiana markets, with a 40% increase in shipments, were among the strongest in the company. Infrastructure demand was the driver in Indiana, as contractors benefited from highway work performed under that state's ten year, $12 billion Major Moves transportation program.

Our west group reported volume growth of 6%, driven by both the energy sector and the railroad industry. This increase is particularly compelling, considering the quarter's significant rain events and factoring in Iowa's aggressive approach to stimulus in the third quarter of 2009, which benefited the Midwest division greatly. The southeast group reported a volume increase of 1.4%, over the prior year quarter. Volume in this group continues to be hampered by delays in key projects.

Our aggregates average selling price declined 3.1%, compared with the prior year quarter. Pricing continues to reflect several previously noted trends, among them, shifts in geographic mix, project mix, and product mix. For example, our product mix trended heavier toward one of our lower priced products, base stone, which is used extensively in both new construction as well as the referenced energy projects.

In addition to product and mix shifts, higher price projects, having bid in more stable economic periods, are nearing completion, and being replaced by projects bid during a more challenging time. To better illustrate this circumstance, pricing on stimulus projects is approximately 10% lower than our Company average. Overall, we estimate this combination of product mix and more aggressively bid projects negatively affected quarterly pricing by 160 basis points. We anticipate this pricing pressure will ease as residential and commercial non-residential construction markets continue to either recover or reach levels of sustained stability.

Our aggregates operating teams maintained their focus on controllable costs and operating efficiency in the face of a 7.5% increase in aggregates tons produced. We continue to pay particular attention to our single largest cost item, personnel. In response to increasing shipment demand, we are using productive overtime as opposed to new hires. Our Arkansas district is a good example of this strategy in action, as they experienced a 35% volume increase, yet head count remains basically flat with the prior year. The result was a 24% increase in tons produced per working man hour, and an 8% decrease in personnel costs per ton.

Still, there are some costs we cannot wholly control. One of the them is diesel fuel. During the quarter, we experienced a 17% increase in the average price paid for diesel. Overall, higher energy costs negatively affected the third quarter gross margin by 200 basis points and earnings per diluted share by $0.06.

Our specialty products segment continued record performance in the third quarter. Net sales of $42 million, for the quarter represented a 7% increase versus the comparable prior year period. This increase was led by a solid demand for chemicals products as well as general resiliency in the steel industry during the first part of the third quarter. The resulting strong sales, together with cost control measures, produced record third quarter earnings from operations of $12 million.

Our focus on cost control extends also through our selling, general and administrative functions. For the third quarter, we reduced the expenses by $1.7 million, despite absorbing a $900,000 charge for certain retirement plan payments. As a percentage of net sales, SG&A expenses decreased 70 basis points to 7%, representing one of the lowest rates in the industry.

Our balance sheet remains strong, and provides financial flexibility that will serve us well during economic recovery. We ended the quarter with $60 million in cash and $423 million of borrowing capacity under existing short-term credit facilities. Our liquidity provides the necessary capital to actively pursue available opportunities, both internal and external, that will increase shareholder value. Our financial health and stability is underscored by the recent reaffirmation of our investment grade credit ratings by both Moody's and Fitch. Our ratio of debt to 12 month trailing EBITDA was 2.88 times, well within our leverage covenant of 3.5 times. In April 2011, we have $242 million of notes that mature. We presently have adequate credit capacity to satisfy this maturity.

For the first nine months of 2010, capital expenditures were $110 million, compared with $100 million in 2009. Our base of highly efficient, cost effective operating assets allows us to safely and appropriately flex our capital investment and provides opportunities to allocate capital in ways that maximize long-term shareholder value. Our CapEx target for the year remains at $135 million, basically flat with 2009.

Looking ahead, our full year guidance of a 4% to 6% increase in aggregate volume remains in place. However, given shipments through nine months of the year, it's appropriate to update our end use market guidance. We now believe infrastructure shipments will be up 4% to 6% for the year. Nonresidential shipments, driven by the energy sector activity, will increase 6% to 7%, residential shipments will be up 3% to 4%, and our ChemRock/Rail shipments will increased 2% to 3%. For the fourth quarter, we expect an increase in shipments over 2009, as we recoup weather delayed volumes for the third quarter.

For the reasons discussed, aggregates pricing will be challenging for the remainder of the year. We are therefore revising our pricing guidance for the full year to a range of down 3% to 4%. For the full year, we expect higher energy costs, to slightly increase aggregates cost per ton, compared with 2009, and SG&A cost to be no more than 8.8%, of our net sales. We also believe the specialty products segment will conclude a record year and contribute $46 million to $48 million in pretax earnings.

While it's too early to issue specific 2011 guidance, there are certain macroindicators that could be impactful for the year ahead. We believe stability in federal infrastructure funding is the most significant variable. We were pleased with President Obama's proposal of a six-year plan to rebuild infrastructure with an initial $50 billion investment. However future action related to winning transportation legislation would largely depend on the results of today's midterm elections.

The highway bill is currently operating pursuant to a congressional continuing resolution through December 31, 2010. We believe a similar circumstance will likely persist during calendar 2011, however some form of multiyear reauthorized infrastructure legislation may be passed next year. If so, the two primary motivating factors would be job creation, and the current state of infrastructure disrepair, from years of under investment. Finally, we anticipate approximately 30% of stimulus funds will be spent in 2011, in our critical states. We also expect improvement in both the non residential and residential sectors, with the bulk of percentage growth in nonresidential coming from the commercial component as opposed to the heavy industrial piece that experienced such significant 2010 growth due to the energy sector's natural gas activity.

We will provide 2011 guidance in conjunction with our fourth quarter and year-end earnings call scheduled for February, 2011. Again, thank you for your interest in Martin Marietta. If the operator will now provide the required instructions, we would be pleased to address any questions you may have.

Thank you. (Operator Instructions). Our first question comes from Arnold Ursaner with CJS Securities.

Hi, good afternoon, Ward. Can you expand on your discussion on pricing, I know you talked about mix, geography, and have added some competitive issues, but could you expands a little bit more about what specifically is causing some of the additional weakness you are seeing in pricing.

Sure. Arnie, if you recall, since the beginning of the year, what I said is pricing is really a stool with three different legs. We said that geographic mix was going to be an issue for us this year. We said product mix was going to be an issue. We also said you can't have volumes down on a percentage basis, as much as they are, and not have competitive pressures in some different markets.

Keeping things in varying degrees of context what we are seeing now, what we reported for the quarter was an ASP of $9.90. If we go back and look at what that looks like compared to where we were in 2006, the pricing is higher than it was in 2006. It's higher than it was in 2007, and relatively close to where it was in 2008. Really what we seen is a bit of a pull back here of late. In large part, Arnie, it's driven by the type of projects that we are seeing. Several things are happening, year two in stimulus, we are seeing much more new roads or new lanes built. That is sending out considerably more base that tends to be 30% less expensive than clean wash stone.

What you will see are the numbers, if you listen to the text as I was going through it. The two markets we seen the greatest percentage growth in are Indiana, and in Arkansas. What is driving Indiana is truly infrastructure projects, and what's going on in Arkansas and North Texas is really to a degree what is going on in the Haynesville and Barnett shale deposits. So what we are doing in the Texas Arkansas market is sending relatively low-priced base products to the natural gas fields, where we are building paths and roads, so that's a big piece up there, and Indiana, number one, tends to be a relatively lower priced market compared to others, and then you also have the product mix issues as well.

I think those are your big issues Arnie. On the competitive side of it, it's not so much you have markets, you have micromarkets, and of course, from a competitive perspective going up and down a highway 60 or 70 miles may change a competitive landscape rather considerably. If I look at our overall pricing, we are probably seeing numbers anywhere from up six in some markets to down eight, that's probably not a bad bookend to what we are seeing. But given the competitive pressures in some of those markets, and more importantly, what we seeing on the mix issue, because that's really half of the 3.5% that we are talking about, I'm not horribly surprised right now with what we have seen in the pricing.

Thank you for the additional color. One other question if I can. It is election day today and the House of Representatives, the Head of Transportation and Infrastructure Committee is a Democrat and I guess the next in line, the ranking Republican Jon Mica, to the extent Republicans do win the House, what do you think this could do in terms of creating getting a highway built through Congress, perhaps sooner in 2011, than you thought before.

I don't think, let's start this way, I don't think we see anything happen in a lame duck congress so we will begin with that. If you do see the Republicans take the House, I think you are right, I think John Mica, probably ends up chairing that committee . He has chaired the Aviation Panel the past, he's never chaired the full committee. If people looked at his philosophy versus Jim Oberstar's, I think that they're going to say, really from an approach perspective, it's not going to be remarkably different. I think there may be some ideological differences.

For example, what I've heard Congressman Mica speak to a lot is what he sites as his 437 day plan, and what he is referring to when he talks about that, I think this is constructive on his philosophy, is really what happened when they rebuilt the Interstate I-35 bridge in Minneapolis-St. Paul because what he saw there was how quickly and how powerfully you could move infrastructure forward if you could somehow streamline the environmental and other permitting processes.

I think you will probably see a little bit more of that type of legislative approach from Mica as opposed to Chairman Oberstar. The other thing that I would say on Congressman Mica, from my perspective, is he is really a back to the basics guy. For example, the current law requires that 20% of highway funds go towards transportation enhancements, what I mean by that is sidewalks, bike paths, road beautification projects and the like. When you take that and tally it up it's about $4 billion per annum, not an inconsequential number, and I'm thinking the emphasis on that type of projects would likely shift. I think those are more philosophical. I see a 450 to 500 type bill likely coming out of that committee and being steered by Congressman Mica if that's what we go

Thank you very much.

Thank you, Arnie.

Thank you, our next question comes from Todd Vencil with Davenport.

Perfect.

Todd, how are you.

I'm great thanks, and yourself?

I can't complain.

Perfect. Good timing, because I was thinking of a follow up to that last question which is in your last answer if we have a bill that's $450 billion, to $500 billion, as I understand, another one of the ideological differences that Mica might have is a bit of a stronger reluctance for raised gas taxes. Do you have a view on that, and do you have a thought to how he might get to $0.5 trillion?

Clearly, he is not going to be a guy who is going to be as gas tax driven as Congressman Oberstar was, one thing that is remarkable on that, Todd, is if you go back and look at what has been put to voters in the past and whether they are willing on a project by project or even wider basis to support some form of tax, I think usually they have been relatively inclined to do that.

But I think as a general rule, really coming out of the box, pushing that against taxes likely not to be something you are going to see Congressman Mica doing. I think he is going to be considerably more focused on private sector agreements. He may be more inclined to look at broader forms of taxes. I think part of what we as an industry have typically tried to do is have some form of line of sight between what the taxes are going to, and how it ties back in to transportation for those very reasons that I indicated at the beginning of the call, Todd, but I think if we see a Republican congress, the conversation we have had relative to a gas tax is likely to be dialed back realistically.

Just to be clear, you think Mica is sort of inclined to favor a big bill and perhaps creative enough to find a way there.

I do think that's the case. One reason I say that is they run for reelection every two years, and it's going to be impossible for Republicans or anyone else to take control of this congress and not have some responsibility for what unemployment looks like when it's time for everyone to run for reelection again. One of the issues that we are faced with Todd, as you know, unemployment in the construction sector today is sitting north of 17%. So it's just about double what we are seeing in most of the jurisdictions. I think putting people back to work is going to matter a lot.

Perfect, thanks for that. Switching to the sort of nonresidential success that you had in the quarter, with the energy projects, can you give us flavor, that was a big bump up in the quarter, and a big swing in terms of your annual composition of volume growth. Can you give me a flavor for how many projects really we are looking at in the energy business? Was the quarter and out look for the year driven by a relatively small number of big projects, or a relatively large number of small projects, how does that break down?

It's a relatively large number of small projects throughout those shale deposits. What we have primarily spoken to are the Haynesville and Barnett shale deposits and what we frankly would have anticipated was bit more slow down in that than we see, and for several reasons, probably including largely what is going on with lease commitments, that type of process has remained nicely robust through the year, and we are not seeing a sharp pull back on that either. I think the other thing that clearly is worth watching, is what may be happening in additional shale deposits in that part of the world as well. I don't think it's simply going to be confined to what we are seeing in Haynesville and Barnett shale.

When you think about the business that you guys generally categorize as non residential, at this point, what is the break down between what you would I think I heard you refer to in the past as private infrastructure where I put these energy projects versus buildings and commercial projects and things like that, how would you break that down?

Ordinarily, Todd, what I would have told you, if you had taken the commercial sector and cut it in half, half was office retail the other half was heavy. I'm going to say 65%-ish is what is going on in that sector that you would tie in to the heavy side of it, and energy would in this context clearly fall in the heavy side bucket.

Final question for me, you mentioned delays of projects in the southeast, anything in particular on your radar screen that we should keep an eye on and see how it moves forward?

There have actually been a few federal energy projects we would have been shipping material by rail to that would have been delayed that's the principal one right now that's been delayed, Todd.

Thanks for that.

Thank you.

Thank you. Our next question comes from Timna Tanners with UBS.

Good afternoon. You talked in the recent past about greater M&A activity potential, can you give us an update on what you are seeing there?

Yes, I can. Timna, as I said, I was suspicious that a lot of M&A activity was going to be back half driven, we have been accurate in that. I think most that we have had conversations with would like to see some form of closings before year end. Obviously, confidentiality agreements prohibit me from going no a great deal of detail on those, but I will tell you that we are engaged in diligence on a handful of different projects right now. Some of them look very attractive to us. At the same time, until you get to a point that you know you are really going to get a deal signed, closed, and tucked away, it's very difficult to note where they are going to go at the end of the day. But we are very busy, I don't think there are a lot of other people who are in the position to be very busy looking at these deals with us right now, we feel good about what we're looking at.

Are they bolt-ons, mom and pops, how can you characterize them?

It varies. It's a good different handful the one that we did close that we mentioned in the release is a small closely held business, and when we are looking at small closely held businesses, Timna, that's very much what we are looking at that you see in this transaction. It's going in to a market where we are, into a place like Charlotte, a market where we have a very attractive position, while we have a number of granite quarries in Charlotte, what we didn't have necessarily in Charlotte was a good natural sand resource, and now we do. That's important to come back in and add as a complement to our entire product menu in that market. When we are looking at small bolt-ons, that's the type of transaction we are looking at. Right now, in fairness, we are looking at some small bolt ons, and we're also looking at some larger transactions as well.

Okay. Thank you, helpful. The other question not to bring up sensitive ones, but you talked about looking out for typical October praise increase letter for next year, I'm sure that's also something you can't give a lot of detail on, but can you characterize how those discussions are going, are you still feeling confident in passing through higher prices with volume stability under your belt.

We have been very consistent. Number one we want to be disciplined but number two, pricing will come with varying degrees of stability. That's just the real world in this, Timna. If we go back, if I looked at prices over the quarter, as I said, somewhere between plus six, and minus eight, the places that we are seeing up pricing, are the places that you would expect based on the types of trends that we are seeing in volumes. Obviously with the volume trend that we saw in October, that continues to give us some degree of confidence on how volumes will be for the rest of the year, hopefully a little bit of a window in to what next year will be, but obviously, we will give you much more granular detail on pricing when we talk in February.

Okay. Fair enough, thank you.

Thank you.

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

Thanks, good afternoon. I wanted to ask about residential construction, which your volumes were up in the quarter, and you said are going to be up now in the fourth quarter. We all know that the tax credit came and boosted activity, but is now gone and there was a slump, what are we to make of your comments on residential? Is it the follow through the lag affect of that tax activity or do you guys think you're really seen some nascent recovery in residential development and construction.

I think you said it right. I would say nascent recovery is not a bad way to capture it, and it's not recovery that we are seeing in a host of markets, it is recovery that we are seeing in very specific markets for example, part of what we are seeing in the San Antonio market from residential perspective is some good good positive movements we haven't seep that in San Antonio for some time. The other thing I would tell you Jack is, keep in mind we are going to lag on this a little bit, because at the same time, about half of our product on housing is going into the house and about half of it is going into the subdivision. So what happened as a lot of subdivisions have been built out, you are waiting for the sticks and bricks to go up on the different lots. While we are happy to see some degree of recovery in the housing sector, it's not across the spectrum at all.

So we are not necessarily sounding the all clear on housing turn but rather some spotty improvement, and is it fair to say likely to be that way in to next year from what you know today.

Jack, I think those are relatively safe things to say. Obviously if you take a look at the housing forecast for next year, again they are showing big percentage movement for next year, but showing big percentage movements off relatively low numbers. So still not anywhere near the million starts that everyone would say is a good solid year in and year out number to deal with new households and obsolescence.

Fair enough. I wanted to make sure also, I caught the comment you made about SG&A, I believe 8.8% as a percent of sales, was that for the full year, 2010? I think is what you said.

That was for the full year 2010, and that's also taking in to account some of the expenses we will incur in Q4 on some pension liabilities as well.

Got it. That's it for me, Ward. Thank you.

Thank you, our next question comes from Garik Shmois with Longbow Research.

Thanks, good afternoon. Question on costs, in your release it mentioned that production costs were up $20 million, some of that was diesel and energy related, but it seemed like the costs outpaced the sales growth in the quarter, up $14 million, year-over-year, just wondering if there is anything more other than energy and diesel that was up in the quarter that we might be missing.

Diesel and energy was the single biggest component of it, if you had energy flat the quarter, to give you a sense of it on a unit basis, cost would have been down by about 1.5%. That was clear to your big swing factor. The other thing that we have done, Garik, as you know, we taken a number of sites, we have idled them, and if you are looking at a place like Arkansas, where suddenly you are having to ramp up production, what we've done is we have taken instances where we moved idle equipment from one facility to another facility and obviously when you do that, you are going to have some degree of up start costs in that, so there was probably a little bit more M&R in this quarter than you would ordinarily expect, I don't view that as a consistent run rate type issue. If you are looking at what the two different buttons would have been in really that cost delta, I would say A, is energy and little B is M&R.

A follow up to your last point, if we remember back last winter, you were moving around production capacity to best meet demand and there was inventory issues as a result. It sounds like you are maybe mobilizing your capacity a little bit earlier, this year to meet the winner, is that a fair characterization?

I don't think that's necessarily right, we are obviously controlling inventories carefully, what is happening is it's much like pricing, it's a market by market, or at times sub market by sub market type movement. Actually if you go to the quarter and see what we did, we reduced inventories by 2.5 million-tons. We continue to be aggressive in managing inventories and working capital because we do want to make sure that when the volume is there, and we really want to run with it, we potential to do that very quickly. But the other thing I'll tell you, to your question very directly, if you recall last year, we shut down places early, and we opened them late. The fact is, we will probably do that again this year, depending on what weather does, weather in October was very good. So far, weather in November has been good. But in much of our footprint, once you get around that Thanksgiving time, it gets a little bit dicey so you are not never sure exactly what you are going to have.

That's helpful. Last question on the tax for Anne, I think in the release, it said tax guidance of 26%, for the full year, does that imply the fourth quarter is somewhere around in the high 30s, low 40s?

Probably in the 30s. Basically the third quarter got affected by the settlement of the 2006 and 2007 tax return, so that pulled it down a little bit.

Okay. We shouldn't expect a material bump up in the fourth quarter relative to --?

You should not.

Okay, great. Thank you very much.

Thank you. Our next question comes from Kathryn Thompson with Thompson Research.

Thank you for taking my questions today. If volume falls price, we now see two quarters with better volumes, and I have to believe Q4 and Q1 comps are fairly easy, particularly Q1. When should we expect to see some improvement in pricing, in your opinion?

Kathryn, as I said in the last call, I said, stability is what is going to be important, stability is not going to be one or two quarters. Here we are at two quarters. I think one thing that's going to be important, Kathryn is to take the jobs that were bid during 2009 during that particularly dark period. And get them a chance to work their way through the system. If you are looking at larger infrastructure projects, which is what that was, most of those tend to have 12, 18, 24 months type of lives to them. If you go back and look at that type of period, and then you try to assess how long the jobs are, I would tell you that probably for a year-ish, you are likely to have varying degrees of head winds simply dealing with what was done late in 2009.

Okay. I wanted to get clarification, when you talked about October, you had about a 25% increase in volume, and some impact got pulled forward into September from adverse weather. What geographies were most impacted by weather?

I will give you much more color on that in February as well. I will tell you that the general trends that we have seen throughout the year, if you go back and look at it, tended to follow through reasonably closely, even in October, Kathryn.

Okay, but I think you said that September weather was particularly bad.

It was.

Any geographic areas that we should focus on?

It was particularly bad in portions of the Midwest, what is happening now in parts of the Midwest, and knock on wood on this Kathryn, if you recall we have been saying for a couple of years if we had a dry winter, we would have a good agg life -- we believe we will see that because weather is cooperating on that. Really, it was the parts of the Midwest and portions of Texas as well, if you look at south Texas and in particular, around San Antonio, we had pretty considerable flooding in San Antonio and even in a number of the private projects we are working on in south Texas were delayed as well.

The good news is, that's a part of the world that can push it a little bit to the right, weather is probably going to be pretty cooperative, at least in South Texas. It's really going to be more acute in what happens or doesn't happen in portions of the Midwest, and by that I mean Iowa, Nebraska, Minnesota, et cetera.

And pricing in terms of price competition, let's say over the past several months, who generally has been more aggressive, has it been the vertically integrated guys or is it just more your local quarry that is trying maintain cash flow.

It completely varies depending on in the words I used earlier, Kathryn, micromarkets. You can move 60 or 70 miles down a interstate and see remarkably different behavior. So I'm not sure that it's as easy now as it was say a year ago to step back and say it's really this group of competitors or this group of competitors that are making it look different in some markets. It's a project by project micromarket by micromarket issue for us.

Also, just as far as I know, you referenced earlier, return payouts Q3, one Q4, if you can say in the past it was maybe $2.5 million for Q4 is that still on --

That's about right, yes, Kathryn.

Also for your, you had $70 million for interest expense guidance for the year. Would imply sequential increase from Q3 to Q4, is that also accurate?

That forecast is $70 million for the year, so yes.

Okay. Thank you so much.

See you, Kathryn.

Thank you. Our next question comes from Jerry Revich with Goldman Sachs.

It's Jerry Revich from Goldman Sachs. Good afternoon. Last quarter, we saw a pretty tough pricing landscape for downstream customers, and can you talk about whether pricing trends for asphalt and concrete mix customers have improved recently.

I think it continues to be a pretty challenging world for contractors downstream right now. They clearly want to get some backlog and they are hungry to pick up some of that, and I think that circumstance certainly makes common theory with them on raising pricing a more difficult circumstance than three or four years ago. But again, I don't see a remarkable change in to downstream activity right now and the use they would have, Jerry.

Thanks Ward, and can you talk about pricing trends on a sequential basis, how is October, September tracking versus the third quarter, recognized mix can vary a lot but can you gives flavor there.

I can't so much talk about October pricing right now, obviously I don't want to go in to any specific geographies of it. But again what I want to encourage you to remember is what I said at the beginning of the call, if you go to the places where volume has been good, if you go to the places in many respects that went in to the downturn, the earliest, what you will find is if you go pack to the range that I suggested of somewhere plus six to down eight, in those areas where you have volume, many of which now are places that went down the first and are coming out earlier, that's where you will find stronger pricing right now.

Okay. Anne, you have some required pension cast contributions in the fourth quarter. Can you talk about what the P&L impact of the contribution.

There is no P&L impact of the cash contribution other than the calculation of whatever expected returns you get on that. It will be purely a cash impact.

Thanks. Lastly, specialty products, we saw some good sales growth but gross profits were flat year on year, can you talk about what were the cost headwinds in the business.

The cost headwinds weren't that significant. Natural gas is the biggest single one, we are in pretty good shape on that. What you saw there Jerry is, steel stayed stronger longer than we thought it would, but it started to soften a little bit after the first part of the third quarter, so when that came back, we anticipated it would pull off around 20%. That's what we think it's going to do here as we tail off into the back end of the year. The chemicals component of it continue to actually be quite strong, and again, all things considered, I am very pleased with the way that segment of our business has performed this year.

Thank you very much.

Thank you. Our next question comes from Keith Siegner with SunTrust.

One question, you refer in your 2011 outlook to 30% of the ARRA funds, being spent in 2011, how much do you think will be spent in 2010 when the year is all said and done?

Probably around 41% that will be spent in 2010, from a top-side perspective, around 30% probably in 2011, and it looks like 8% beyond that. If you really go and take a look at the top states and try to sort out what they look like beyond this year, part of what is compelling to me as I look at it, Keith, is even when we are done with 2010, we are going to have 52% of stimulus funds still to go in Florida, in Georgia, a top five state for us, 55%, Louisiana we still have 60% of it, Texas is going to be right at half of it still to go. And even here in our backyard in North Carolina, there's still going to be around 35% of stimulus funds in 2011 and beyond.

You broke up when you were giving about 40% would be spent in total? Here in 2010?

Yes. I think that's exactly right.

Thank you very much.

You're welcome.

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

Hey, guys. Most of the questions have been answered but Ward, and this is to go at the pricing question maybe a little bit different direction, as far as your expectation, a few years ago, you guys said that as a general rule, if we were to see volumes drop about 50% from the peak, that you could expect to possibly to see some declines and that's exactly what happened. Just generally speaking, how much of that lost volume there do you think the industry would need to recover in general, or even specific markets, the micro markets you are talking about, generally speaking, how much of that lost volume do you think needs to be recovered to get up off that line where people are fighting to kind of cover fixed costs and what have you, and I'm not talking about the mix and things like that, I'm talking specifically about areas that you operate in that have pricing, real competitive pricing pressure.

Again I think that is going to move around on you, Trey, remarkably from market to market, I think the most important thing, I think volume recovery will be a huge help, I think really what you need to have is just volume so it not falling anymore. And not falling anymore just in a most host of markets. In markets where we have seen volume come back at numbers well less than double digits, somewhere half of that, and maybe a little bit more than that. Then you start to see varying degrees of discipline come back on the pricing component. If I was trying to put a range to it for you, it would probably be somewhere around that, but at the same time, I think the primary thing that the market needs is stability. I think once that's there, I think the pricing will tend to follow. Again, you know what I said before Trey, if you can fine anything else that you want that you can buy for $9.90 a ton, I want to know what it is.

That's helpful. If I heard you right, the ASP of $9.90, was that as of 9/30?

It was, yes.

Okay. Thank you very much for your input on that it's real helpful and you guys have a great rest of the day.

You too, Trey.

Thank you. Our next question comes from Mike Betts with Jefferies.

Good afternoon. I have got three questions if I could. First one, there was quite a significant decline in the corporate charge in Q3, is there anything specific behind that? Specifically, looking at the southeast group, that pricing number does stand out given the relatively small volume increasing in Q3, I guess it's probably mix, but maybe you could give me a bit more explanation on that please, Ward. And then October, I would have thought was a pretty important month in the fourth quarter. I presume it's more than a third. Is October half of the volumes in the normal quarter.

It depends on, we will work from the back when we do that, Mike. It really depends on how weather holds up. Historically for Martin Marietta, historically for the industry, October is probably the biggest volume month. It didn't surprise me to see volumes strong in October, it probably surprised me to see their percentage strength in October. But it clearly is a disproportionately important month for the fourth quarter, but it's a disproportionately important month throughout the year. I will preface my comments with that.

As we go to the southeast, Mike and the volume growth that's there, keep in mind, what we are really focused on there when we look at those southeast markets, is it's going to be principally markets around Atlanta, some of the river markets and otherwise, those markets in the southeast that have been particularly hard hit, and I think what are seeing there and I referenced in my commentary is we have seen a number of delays in projects in South Carolina, and some in Georgia, and really a decline in portions of Alabama as well that has driven that decline so precipitously in the southeast. Relative to the corporate charge --

This is Anne, there is nothing remarkable there other than continued control of the costs really on almost every line.

Okay. Just back to the southeast, Ward, the 3% price increase, is there anything specific behind that?

Yes I think in large part it's probably a mix of product and where some of the projects are, Mike. There is certainly not any particular market issue that's gone on there.

Okay. That's great, thanks to both of you.

Thank you.

Thank you. (Operator Instructions). Our next question comes from Clyde Lewis with Citigroup.

Good afternoon Ward, good afternoon Anne. I think most of mine have been done, but I do have two small ones if I may. One on the acquisition in Charlotte and just maybe a rough idea of what an annualized volume profile from that business might be. Second one was for Anne on the likely tax rate for 2011 given the various tax adjustments that occurred so far this year, will it go back to a normal year or will it still be subnormal tax rate next year?

I will deal with Charlotte first and then we will turn it over. What we bought there, Mike, was a little bit over 1,000 acres worth of property, it's an active sand site. Those volumes in large part will be used to supplement our hard rock reserves as well. Sorry Clyde. That will end up finding its way over time more in to the ready mix market than anything else, in that Charlotte market, per se. That's a business that probably from a tonnage perspective, of slow ton, may be several hundred thousand tons, in more robust times in excess of a million tons, it can literally swing that much, depending on how that Charlotte market is working.

From a tax rate perspective Clyde, I'm going to say that all bets are off on what the tax rate might be for next year, depending on what the code says. Under our current expectations, we will probably be back up in to the 28% to 30% range. The tax rate was driven lower that year primarily because of some settlement of some IRS exams.

Lovely, thank you very much.

Thanks Clyde.

Thank you. I'm showing no further questions at this time.

Again, thank you for joining us on this earnings call and for your interest in Martin Marietta. We are obviously pleased with the volume trends in the last two quarters, and as an industry cost leader, we feel we are exceptionally well positioned to enhance our profitability. Also, our specialty products business should expand its profitability. We will continue as we do to focus on employee safety, together with managing our costs, production, sales and strategy for the long-term benefit of our shareholders. We look forward to discussing these and other items with you at our fourth quarter and full year call. We'll talk to you in February. Take care. Thank you very much.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the conference. You may now disconnect.