Martin Marietta Materials Inc (MLM) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Martin Marietta Q4 2014 and full-year financial results conference call.

(Operator Instructions)

As a reminder, today's call is being recorded. I would now like to introduce you to your host for today's conference, Mr. Ward Nye, Chairman and CEO. Sir, you may begin.

Good afternoon and thank you for joining Martin Marietta's quarterly earnings call. With me today is Anne Lloyd, our Executive Vice President and Chief Financial Officer. As announced in this morning's release, we were pleased to complete a transformational year in 2014 for Martin Marietta culminating with a 77% increase in fourth-quarter net earnings over the prior-year quarter.

Our results reflect growth in the Heritage Aggregates business, the expanding contribution from the acquired TXI operations, and the consistently strong performance by our Magnesia Specialties business. Additionally, we also announced a 20 million share repurchase program on which I'll further elaborate later in the teleconference.

In addition to earnings growth, we were pleased to announce positive developments related to TXI synergies. First, we exceeded our previously announced guidance for 2014 by 53%, or nearly $10 million. Second, based on our integration progress to date, we now expect to achieve annual synergies of $100 million by 2016, more than 40% over our previous guidance.

This rate of synergy realization made the TXI acquisition modestly accretive to 2014 earnings, excluding of course the one-time costs related to the transaction. This accretion should continue into 2015 and beyond, based on incremental synergy realization, coupled with continued growth in the underlying business. These developments confirm our ability to deliver on our objectives and create additional shareholder value.

Before further discussing the quarterly and full-year results, as a reminder today's teleconference may include forward-looking statements as defined by Securities Laws in connection with future events or future operating or financial performance. Like other businesses, we are subject to risks and uncertainties which could cause actual results to differ materially. Except as legally required, we undertake no obligation to publicly update or revise any forward-looking statements, whether resulting from new information, future developments, or otherwise.

We refer you to the legal disclaimers contained in our fourth-quarter and full year earnings release and our other filings with the Securities and Exchange Commission, which are available on both our own and the SEC websites. Also, any margin references in our discussion are based on net sales and exclude rate and delivery revenues. These and other non-GAAP measures are also explained in our SEC filings and on our website.

To continue to provide transparency into our fourth-quarter results, we will again discuss the results for the Heritage business separately from those of the acquired operations. To facilitate this discussion, we have made available during this webcast and on our website supplemental financial information that is consistent with how Management analyzes the business.

First, as detailed on slide 2, the Heritage Martin Marietta business, which includes Magnesia Specialties, provides a same-on-same comparison to the prior fourth-year quarter. Next, the results of the acquired operations by product line and in total are provided on slide 4. Finally on slide 7, we provide an analysis of the increase in earnings from operations. We believe this approach provides meaningful information to better understand the drivers of our performance.

Now let's review some of the underlying trends for the Heritage business. Slide 3 provides volume and pricing metrics by product line for the Heritage Aggregates business. We're pleased to report volume growth in all product lines and in all reportable groups within the Aggregates product line. Additionally, pricing strength was notable in both Aggregates and ready mixed concrete product lines.

Consistent with trends seen throughout 2014, fourth-quarter Aggregates business growth was led by robust activity in our West Group, primarily in Texas and Colorado. Texas continues to benefit from a strong state Department of Transportation; with a cumulative budget of $20 billion over FY13 to FY15, Texas has created a sizeable project backlog. This public work is naturally separate and distinct from a very healthy private sector in Texas.

Thus, while the Aggregates product line shipment increase in the West Group was approximately 8.5%, the same-on-same comparison reflects growth of more than 15%. This comparison excludes shipments from the prior-year quarter from the North Troy Quarry in Oklahoma and two rail yards in the Dallas area, which were divested in the third quarter of 2014. This transaction was actually the only required divestiture for the approval of the TXI acquisition by the United States Department of Justice in connection with its Hart-Scott-Rodino review.

North Carolina, Georgia, and Florida all rank in the top five states for employment growth, a catalyst for construction activity. Consistent with this trend, recovery in the construction market is underway in the eastern half of the country, although currently lagging the west. Heritage Aggregates product line volumes in the Mid-America Group, which increased 7.7%, reflects growth throughout North Carolina. The Southeast Group benefited from increased activity in Florida with a TIFIA-funded I-4 project is beginning and the housing market is also improving.

Heritage Aggregates product line shipments reflect growth in all end use markets. The infrastructure market represented 44% of quarterly volumes and the shipments to this sector increased 12%. This growth reflects double-digit improvement in each reportable group, and notably, was achieved while the Federal Transportation funding is being provided under a continuing resolution through May 31. During this time, we have seen increasing momentum for a multi-year federal highway bill. The executive and congressional branches of government each recognize the need to invest in the country's aging and deficient infrastructure. Despite bipartisan support for a new bill, the main area of debate continues to be the funding source.

The non-residential end use market represented 32% of quarterly Heritage volumes and shipments increased 4% over the prior-year quarter. Growth was achieved in the commercial and energy sectors. While declining oil prices caused concern about the sustainability of energy-related projects, we don't expect a significant impact on our business, based on both the backlog and the momentum of committed projects, as well as $100 billion of anticipated projects along the Gulf Coast, a significant portion of which are in Texas. Additionally, late last year, Texas voters approved Proposition 1, which authorizes annual disbursements from the state's existing oil and gas production tax collections to the State Highway Fund. An estimated $1.7 billion will be transferred this fiscal year alone.

The residential end use market represented 15% of quarterly Heritage Aggregates product line volumes and shipments increased 5% over the prior-year quarter. We continue to experience significant residential construction growth in our western markets. By way of example, for the 12 months ending December 31, 2014, residential starts rose 33% in San Antonio, 10% in Houston, and 37% in Austin. This reaffirms our view of the value of the Company's strategic growth initiatives made over the last several years, which should continue to benefit our future demand. Finally, to conclude the discussion of end use markets, ChemRock/Rail represented the remaining 9% of our Heritage Aggregates product line volume and shipments, increasing 5% versus the prior-year quarter. This growth reflects an increase in ballast shipments, partially offset by a slowdown in agricultural lime shipments.

Heritage Aggregates product line pricing remains strong and we're pleased to achieve increases in each geographic group. Pricing increased 6% over the prior-year quarter, led by a 9% increase in the West Group. For the full year, Heritage Aggregates product line pricing increased 4%, in line with our guidance. Aggregates product line cost per ton shipped declined 2% compared with the prior-year quarter. The reduction reflects increased operating leverage and an 11% decline in energy costs driven by lower oil prices.

The Heritage Aggregates-related downstream product lines increased their total gross profit $5 million. The ready mixed concrete product line experienced pricing and volume increases of 11% and 2%, respectively, which led to an 840 basis point increase in the product line gross margin. Additionally, the asphalt business reported a 16% increase in its net sales.

Gross profit for the Heritage Aggregates business increased $27 million, and was 21.7% of net sales, an improvement of 370 basis points over the prior-year quarter. Notably, the Heritage ready mixed concrete business gross margin expanded 570 points. These are primarily the operations acquired in the Denver market at the end of 2011, which have demonstrated steady improvement since the acquisition. We expect a similar trend in the acquired TXI ready mixed business.

Our Specialty Products business posted record fourth-quarter net sales of $58.2 million and a gross margin of 39%, contributing earnings from operations of $19.8 million. Slides 4 through 6 provide financial information and key metrics for our acquired operations. For the fourth quarter, the acquired Aggregates product line reported net sales of nearly $31 million on shipments of 2.5 million tons. Average selling price was $12.13 per ton, helped by increased rail distribution yard and sand and gravel shipments. Performance in the Aggregates business should improve at an accelerated pace, given the strength of underlying market demand and synergy realization.

The acquired ready mixed concrete business shipped 1.3 million cubic yards during the quarter, at an average selling price of $82.74. In the Southwest, fourth-quarter selling prices and production costs are typically lower than in the warmer months when temperature control measures are required during the production process. Such measures are passed on as additive pricing when incurred. A $6 per yard price increase was announced in the North Texas market on August 1. Full realization of the increase will likely take six months as we work through the current backlog.

As a reminder, the cement business includes a leading position in the Texas markets and a state-of-the-art rail-located cement plant in Southern California. The Texas plants continue to operate in markets where demand currently exceeds local available supply, a trend expected to continue for the near future. In the fourth quarter, we shipped 1 million tons of cement. Cement pricing of $93.02 per ton is $7.07, or 8.2%, higher than the third quarter. For the fourth quarter, the cement business generated $100 million of net sales and $28 million in gross profit.

The Texas plants are operating between 75% and 85% utilization and the California plant is operating in the low 70%s utilization, reflective of a slower Southern California construction economy recovery. We continue to anticipate California markets should reach a supply/demand equilibrium during 2016. Our cement group leadership is implementing strategic plans regarding inter-plant efficiencies, plant utilization and efficiency, thereby creating a road map for significantly improved future profitability.

A remaining key area of emphasis is to increase and accelerate the synergistic value of the TXI acquisition. We are thus pleased to announce our revised expectations of $100 million of annual synergies by 2016. For the second half of 2014, we achieved synergies of nearly $28 million, 53% above our guidance. These results are not possible without the relentless and effective efforts of our workforce. I'm proud to thank and commend our employees for their stellar progress. We plan to complete the systems integration for the cement and ready mixed concrete businesses no later than June of this year. Accordingly, and as planned, certain duplicative Corporate overhead costs will continue through that time.

As previously announced, we acquired over $500 million of TXI's net operating loss or NOL carry-forwards. We used $48 million of these benefits to reduce our cash taxes to 17% of our income tax expense. We expect to utilize the remaining NOLs over the next two to three years. For the fourth quarter, consolidated SG&A was 6.4% of net sales, a 120 basis point reduction compared with the prior-year quarter. This improvement reflects both lower pension expense, as well as net sales growth, which outpaced the increase in SG&A. We incurred net acquisition-related expenses of $1.7 million, which reflects our estimated quarterly run rate related to TXI going forward.

As detailed on slide 7, our consolidated earnings from operations were $119 million. This compares to $63 million in the prior-year quarter and represents an improvement of nearly 90%. For the full year, we generated $382 million of operating cash flow compared with $309 million for 2013. Importantly though, excluding payments for acquisition-related expenses, adjusted operating cash flow was $452 million. This increase is due to higher earnings before depreciation, depletion, and amortization expense, and less cash taxes, partially offset by cash utilized for working capital. The ratio of consolidated debt-to-consolidated EBITDA for the trailing 12 months ended December 31, 2014 was slightly less than 2.5 times, in compliance with our leverage covenant and in line with our target as of year-end.

Our ability to generate cash has provided us the opportunity to increase our return to shareholders, in addition to the quarterly dividend. Consistent with this objective, this morning, we announced a new share buyback program that includes authorization to repurchase up to 20 million shares of our common stock. To provide context of this number, this represents nearly 30% of our outstanding shares, as well as the number of shares issued on our July 1, 2014 acquisition of TXI. We expect to complete the program over three years; however, the actual timing will depend on available cash and the market price of our stock during the time frame. Our balance sheet strength has allowed us to provide this return to our shareholders, while also continuing to invest in our business responsibly.

Moving to our 2015 guidance. We anticipate growth in nearly all of our markets, both geographically, particularly areas with strong employment gains, and construction end use. Further, we expect economic expansion into western United States to continue and the economic recovery in the east to accelerate. Overall in our geographies, we expect growth in our three largest end use markets. The infrastructure market is expected to increase in the mid-single-digits. Non-residential construction is expected to increase in the high single-digits. The residential market is expected to experience a double-digit increase and the ChemRock/Rail market is expected to remain relatively flat.

Cumulatively, we expect Aggregates product line shipments to increase 10% to 12% with a 4% to 7% growth in the Heritage business, and the remainder coming from a full year of owning the TXI operations. We expect Aggregates product line pricing to be up 4% to 6% over 2014. Aggregates product line cost per ton shipped is expected to decline slightly compared with 2014. The Aggregates-related downstream operations are expected to generate between $875 million and $925 million of net sales and $65 million to $70 million of gross profit. We expect net sales for the cement business to range from $475 million to $500 million and gross profit to be $120 million to $130 million. Magnesia Specialties net sales are expected to be between $240 million and $250 million, generating a gross profit of $85 million to $90 million.

SG&A expenses as a percentage of net sales are expected to be less than 6%, despite an $18 million increase in Heritage pension cost over 2014. On a consolidated basis, we expect to generate earnings before interest, income taxes, depreciation, depletion, and amortization expense, or EBITDA, ranging from $825 million to $875 million. Interest should approximate $75 million to $80 million and the estimated effective income tax rate is expected to be 32%, excluding discrete events. Capital expenditures are forecast to be $320 million, which includes $35 million of synergy-related capital and $80 million for the continued development of the new Medina limestone quarry outside San Antonio. This capital project will provide a modern, highly efficient, rail-connected quarry capable of shipping products to South Texas, including Houston, for generations.

To conclude, we're grateful to our shareholders for their support throughout an exciting and transformational year. The TXI acquisition strengthened and broadened our foundation, and we are well positioned to benefit from the growing demand for building materials, and to continue delivering enhanced shareholder value. Additionally, for those of you who have registered, we look forward to seeing you at our Investor and Analyst Day this week on Thursday, February 12, at the Plaza Hotel in New York City. For those of you who cannot attend, the event will be webcast and our website contains more details.

Again, thanks very much for your interest in Martin Marietta. If the operator will now give the required instructions, we'll turn our attention to answering your questions.

(Operator Instructions)

Our first question comes from Kathryn Thompson with Thompson Research. Your line is open.

Thank you for taking my questions today. First couple questions are focused on TXI, and in particular, for the quarter, what was the switch between Q3 and Q4 in terms of realizing the upside from TXI synergies? And to that end, what inning are we in terms of cost take-out for TXI?

Kathryn, thank you for your question. Two components to that. Number one, you have to remember when we went into the transaction and closed it on July 1, because of the anti-trust process, our operating teams had really only had about a couple of weeks with that business before we closed, so from a practical matter, their time on the ground and their time looking for what we find or what we term found synergies, was really pretty short. So what's happened is you're seeing really the result of having our teams in there for a more expanded period of time.

That's what's really driven the acceleration of these synergies, so I'm not that surprised by it. I knew if we could get our good people on the ground, they would capture those and we would see them quickly and I do think they did a fantastic job with that.

To the next part of your question where are we in the innings? We're in the early innings of this game. Again, we've own this business for a little bit over one-half a year.

You're seeing that type of synergy realization that quickly. You have to assume that we, as a combined workforce, and that's what we are now, will continue to work very effectively to find more and you should expect us to find more.

One other follow-up question on TXI. What were the -- could you remind me the total aggregate volumes for calendar 2014 and what is TXI earnings contributing to 2015 in terms of the guidance you outlined today?

I can give you exactly what they were for the -- we're looking at 3.5 million tons of TXI really for the quarter and that's stone side, we're looking at about 1.3 million on the cement side for the quarter, Kathryn. Again, the full year, we had never gone back and had talked about that but we're giving good guidance on that going forward.

Okay, perfect. In terms of the volumes related to energy, in the past you'd said it was roughly 7 million tons related to the energy industry or region specifically impacted by that. How much of the volumes -- two tiers -- one, what are you seeing now in terms of trends? You alluded to that in your prepared commentary.

Then the second half is how much of those volumes are more related directly to the energy industry, so for instance, building out a pad versus any other type of construction projects, which might be, for instance building a road in a region that would be building a road anyway, but happens to be in the oil patch?

Understood. Here is what we saw in energy in the fourth quarter to give you a sense of. We saw fourth-quarter sale volumes of about 1.7 million tons and that was down about 350,000 tons for the quarter. We saw a pullback in the Eagle Ford. Oddly enough, or maybe not oddly enough, we saw Haynesville actually up, so what you're seeing is a little bit of a play on gas versus gas and oil, Kathryn.

If we go back and look at the full year, it was around 7.5 million tons, so you're just about dead on, on that. Most of that is going to either roads or pads or otherwise, but here is the take that we have on it. What we're seeing is a strong enough recovery in other areas of non-res, that we think that's going to offset whatever bumps there may be in some elements of the products simply going to the different shale plays.

So from where we're sitting, the shale play has always been in non-res all by itself. We're just seeing other portions of it that are growing so rapidly, we think it's likely to offset that.

But the other piece of it, Kathryn, though, that is important is the way energy has been moving, particularly in a state like Texas, to put some metrics to it, we use, I want to say, 17 million gallons of diesel fuel in the southwest last year, so as we're watching oil prices come down, can it affect some degree of volume going to the shale fields? The answer is yes.

Do I think it's going to be horribly dramatic? The answer to that is no.

Do I think the cost benefit that we're likely to see from that is much better than the downside on the volume? The answer to that is absolutely.

Last question. Touching on lower diesel, what was the benefit in the quarter if you can quantify that?

Kathryn, it was around $4 million for the quarter. To give you a sense of what a run rate is looking like, in Q3, we burned about 11.5 million gallons of diesel fuel. In Q4, about 10.4 million and that goes back to heritage numbers.

Q1 we were 6.4 million and Q2 we were 8.5 million, so if we're looking at a run rate for this combined Martin Marietta-TXI business, we're probably in that 40 million to 44 million gallons of diesel per year. That's not a bad way to think about it.

Thank you so much.

Thank you, Kathryn.

Our next question comes from Trey Grooms with Stephens. Your line is now open.

Hey good afternoon, Ward and Anne.

How are you?

I'm doing well. How about yourself?

Can't complain.

Good. Just a follow-up on that, on the last question about energy. If you look at your Texas business overall, what is the mix of -- is the mix of Texas any different than the mix that you have for your overall Company that you outline here?

No, it's not dramatically different. The one thing that I would say that we need to think about is they've got a record letting program in Texas this year, Trey. So the simple fact is if you look at a record infrastructure letting program this year, close to $10 billion, and then that doesn't include a lot of the P-3 work that's going on in that state, from an infrastructure perspective, it's simply getting larger.

Keep in mind, even the energy Carter Road work that started last year, about $150 million worth of that work was let, but Texas would tell you they've got $1 billion issue there all by themselves. So my point is this: more and more of that work, probably for the next two, three years, at least in Texas, will tend to be infrastructure-driven, simply because that market is so immense right now.

So the comment that you made about seeing some areas of non-res, seeing those areas grow rapidly in your expectation to -- for those to offset any slowdown you would see in energy-related demand, can you talk more specifically about what you're seeing, where you're seeing that rapid improvement?

Here is a quick way to think of it. It continues in some respects to be highly concentrated in Texas, because if you're looking at non-residential starts -- so these are projects that aren't completed, these are projects that are underway and starting -- the change from 2013 to 2014 was nearly $17 billion. So you've just got an enormous amount of activity in that marketplace that's moving in that fashion.

At the same time, when we come back and take a look at more traditional commercial -- in other words what's going on in office, what's going on in retail, what's going on in shopping centers -- what we're seeing right now, Trey, is considerably more work in that space than we have seen over the last several years. What you'll remember is we've seen a lot of heavy work in non-res over the last two to three years, but not a lot on the lighter side of commercial. Now we're starting to see that turn, but we're also starting to see that turn in other states are important to us, South Carolina up 14%, Colorado up 17%, so again, very good non-res activity across the board.

Okay, thanks for that, Ward. Then shifting gears on the share repurchase program. Are you guys expecting to fund the majority of that or all of it or how much of it with free cash flow versus are you thinking you may need to lever up some and bring on some debt to fund the buyback?

I'll take the first part and let Anne come back and give some color to that, but our view is we can do this using our excess free cash flow. We can go through this; we can take care of the requirements of the business; we can take care of the requirements of the dividend; and as we come down to that targeted range of between 2 and 2.5, and as you heard in my opening remarks, we're now below 2.5. As we get toward that 2 range, Trey, if our projections are right, the free cash flow or excess free cash flow that this business is going to kick off is pretty considerable and that's something that we've had a lot of conversations about, but Anne, do you want to add some color to that?

Yes, the free cash flow alone could fund the program. Our view, however, is that you can preserve your leverage as your acquisition fire power. If you think today that a turn of leverage is $850 million, that can do some pretty good M&A activity funding, so we would target that 2 times leverage, use all of our excess cash flow, assuming other capital priorities aren't there, and preserve our fire power for financial flexibility.

Great. I'll go ahead and turn it back over, but thanks a lot and congrats on a great quarter. Look forward to seeing you in a few days.

Thanks, Trey.

Our next question comes from Garik Shmois with Longbow Research. Your line is open.

Hi, thank you and congratulations. First question is a follow-up to the free cash flow generation that you're expecting over the next several years. Could you maybe talk about the CapEx requirements that you anticipate over the next, call it, two to three years?

You identified a large project that you're putting into the budget for 2015. Does that go into 2016 and 2017 or how should we think about CapEx when we're footing that against some pretty strong free cash flow potential?

Let's do this. Let me come back and talk about capital spending for this year. Anne will come back and talk a little bit more about CapEx in the out years. If we're looking at $320 million for this year, really the way that we're looking at that is probably around $184 million is an Aggregates; we're seeing probably around $40 million in cement; as I mentioned in my comments, around $35 million on synergy; around $28 million in ready mixed concrete; and then of course, we're buying land and otherwise.

Back to your very specific question, the Medina quarry project that we have outside of San Antonio, we're looking to put about $80 million into that this year. We expect that project to be substantially complete this year, so we expect to turn the switch and have that process very much underway as we go into 2016.

Total spend on that Medina project is about $150 million, so we've already acquired the property and done initial work there. As we look at 2016 and beyond from a capital allocation perspective, we've put a placeholder in our forecasting of about $350 million annually for the combined business.

If you can look back over the pattern of our capital spending, Garik, we generally are counter-cyclical. When the markets are rising, recovery is rising, we generally are investing in Martin Marietta, expanding capacity upgrading facilities and then generally we do most of our M&A activity as the market is down.

Garik, one thing to remember there, is you'll remember, when we were really spending at a maintenance level, at that point we were looking at DD&A numbers closer to $175 million to $180 million and we're looking at DD&A numbers today closer to $270 million, just to put some scope to that.

Thanks for the color. Switching to cement and cement pricing, you saw a nice sequential increase in the second quarter of ownership of the TXI assets. Just wondering if you can help parse out how much of the sequential price increase was just low-priced legacy projects rolling off, so you had favorable project mix as opposed to organic price increases that were put in the market throughout the course of calendar 2014?

Garik, it's tough to parse much of that. I can tell you obviously the older projects are rolling off now with pretty quick rapidity. Obviously, we came in and put a $10 a ton increase in that market, and Texas is a sold out market, and we're going to do more of same, and we've made that clear to our customers. We're in very good places in that marketplace, so I would tell you the older prices are rolling off and what you're seeing going forward should be just true, real sequential movement.

Okay, thank you. Then my last question is, with respect to your cost guidance, you've provided some of the sensitivities around diesel in your consumption, but your unit cost guidance is for a small decline. Just wondering how much of the potential diesel benefits you do have embedded in your formal guidance for costs in 2015?

Garik, we have included, I would say, about $20 million of embedded diesel improvement in our forecast. We actually -- you think about when we do our planning, we do our planning in the October time frame, so we're going to use energy prices as of that time. So there's been obviously a rapid decline from that point in time to the end of 2014, but we've kept that diesel price in our plan with all but about $20 million of that.

Great. Thanks so much and see you soon.

Thanks, Garik.

Our next question comes from Jerry Revich with Goldman Sachs. Your line is open.

Good afternoon.

Hi Jerry how are you?

Doing well, thanks. How are you?

I'm doing great.

I'm wondering if you could talk about which chemicals and LNG projects are within your target markets in Texas and maybe you could outline which of them are via truck versus rail, just to help us get an understanding of how you're positioned on those?

I'll tell you what. I don't want to talk specific project-by-project. What I can tell you is, if we're looking in South Texas, there are four major energy projects, there's one major DOT project, and if I just look at those all by themselves, I can see the prospect of 2.5 million tons of aggregates on those.

If we look at Houston, I can see 11 different projects there, with well over 2 million tons required. Houston road projects, separate and distinct from those other private projects, 6 major road projects, over 4 million tons on those. Then back to the conversation we were having around infrastructure and specifically what's going on in North Texas, we're looking at projects in Dallas and Fort Worth in North Texas that will call for almost 9 million tons of aggregates, so these are big projects all over the state, big tonnage, and it makes us feel awfully good about where we are.

How long are the infrastructure projects? We're hearing from some of the REITs around Texas that new activity for them in 2016 will slow and I'm wondering, do you have enough visibility on the public side to really drive growth into 2016 off of 2015, at least based on what you see, even if the private side slows?

If I'm looking at I-69 in Houston, just starting to supply the project; on US-290 in Houston, just starting to supply the project; on State Highway 288 in Houston, we're just starting to take bids; on the Grand Parkway, on another leg of it, we'll be coming out again in May. So a lot of these projects, Jerry, that I'm talking about are projects that have multiple years ahead of them and they're just starting, so I'm not really speaking to jobs that I feel like could be going away in the near-term. These are jobs that have legs to them.

Okay, and then I'm wondering if you could just talk about the pricing actions in cement and aggregates. I believe you were planning a significant increase on January 1 for aggregates in Texas?

And then maybe you can comment on when did you notify customers of a next price increase in Texas cement? The general market expectation is for another round of increase or around margin. I'm wondering is that consistent with your schedule?

That's the conversation we certainly been having with customers. Again, going back to the conversation we had a minute ago, these are markets that are in large part sold out. DFW, in particular, it is a market that's short on sand, and a market that's long on really big projects. So we will certainly continue to push price along in these markets, simply because of where they are and the effectiveness with which we can supply them.

And would you care to comment on the magnitude of those price increases in aggregates and cement?

Yes, in cement, we're looking another $10 a ton in the Dallas -- in the Texas markets. In aggregates, in that marketplace, we came back at a mid-year price increase in Dallas-Fort Worth last year. We're coming into this year, it's going to vary by product, but you could be looking anywhere from on the low end of $0.50 a ton to high end of closer at times to a couple of bucks a ton.

And then in terms of just the path to get to full utilization in the Texas cement operation, based on the bookings in hand, do you anticipate you'll be at full production rate in 2015? Can you just give us some more color there please?

We'll continue to drive toward full production rate. Here is what full production rate is going to look like for us, Jerry. We're looking to be at 7 million tons by 2017, so here is the way that I would think about it. We're going to look in 2015 to add probably 250,000 tons in Texas. That should be about 200,000 tons at Hunter and 50,000 at Midlothian.

In 2016, looking to come back and add another 300,000 tons, probably about 140,000 at Hunter, 160,000 at Midlothian. And by 2017, looking to add another probably 250,000 tons in Texas. That's going to give you your bridge to what we say is 7 million in 2017.

And Jerry, just as a reminder, you don't just get those efficiencies at the drop of a hat. You have to work through them as you go through planned outages at the various plants and facilities.

Okay. Maybe you could just say a bit more on that last point, just calibrate us on how we should think about seasonality. For the cement business, 2015 versus 2014, you had a very good fourth quarter, despite the maintenance work. Can you just help us understand which are the seasonally weaker versus stronger quarters in 2015 since the TXI reporting was a bit off schedule from yours?

Jerry, it's really going to be more driven, to Anne's point, when the outages are. If you look at total outages in 2014, we had about $30.5 million spent at the cement operations in 2014. You should expect similar costs, call it little bit north of $31 million in 2015.

So what we're looking at is in Q2 and Q4, we're probably looking at major outages. In Q1 and Q3, we're looking at smaller outages. So the way that I would say a major outage, define that as something that's in the zip code of plus $4 million, and a small outage somewhere being between $1 million and $2 million.

Yes. If you look at -- and the $30 million number that Ward gave you for 2014 was obviously annualized. We didn't incur $30 million in the second half of 2014, so the TXI business had $30 million of calendar 2014 outages, expect $31 million in 2015.

Okay, perfect. Well thank you for all of the color. Safe travels and we'll see you in New York.

Thanks, Jerry.

Our next question comes from Keith Hughes with SunTrust. Your line is open.

Thank you. Wanted to address this in a couple days at the Analyst Day, but I was intrigued with your question of using cash flow to fund this repurchase program. If that something you're going cover, I am not going to make you go over the numbers on the call, but generally, how are you going to get there? I'm having a hard time with the math?

I don't have your model in front of me, but just based on our view of the cash flow projections of the business, you've got to take into consideration the minimal cash taxes that we will be paying over the next two years. We believe that there will be sufficient excess free cash flow to generate the $1 billion to $2 billion over the next three years that we would need to execute against this repurchase. We can talk more about details.

Keith, remember the other piece of that, as well. We did identify excess properties at TXI, and as we come through and sell those excess properties too, that will play into this.

Do you have an estimate of what those are going to be?

We've talked about them at the time of the transaction, said they would be $100 million, plus, minus.

So that hasn't changed. Your view hasn't changed?

Correct.

Okay, second question, you've got some very bullish non-residential discussions here. We talked a lot about Gulf Coast and Texas construction. Is there any other areas of non-residential that you feel will be improving in 2015 versus what you saw in 2014?

What we're seeing is we're seeing it across the Enterprise now, Keith, because what's happened and you've seen it too in Atlanta and other markets, that's going to tend to follow housing with a lag. In markets that you're seeing good employment dynamics, and now you've got North Carolina and Georgia and Florida all with good employment dynamics, all with much better housing dynamics, and now what we're seeing is we're seeing the change on non-res moving in those states exactly as we would have anticipated. So we continue to see strong momentum and growth in markets like Texas; good momentum and growth in markets like Colorado; increasing momentum and better growth in markets like Georgia, South Carolina, North Carolina, and Florida.

Thank you.

Thank you, Keith.

Our next question comes from Ted Grace with Susquehanna.

Great, guys, congratulations on a very impressive quarter.

Ted, thank you.

I was hoping just to talk about the 2015 EBITDA guidance and really focus on the core Aggregates business. Either Anne or Ward, could you just walk through how you would encourage people to think about the flow-through rate just for the Aggregates business? You've helped dimensionalize what diesel dynamics will be, but from a standpoint of when we normally think about, call it, 50% to 60% flow-through rates for the core business, ex-pricing, and you said that over normalized, you've never said that's the target for the given year.

But could you just give us a little hand-holding, either how people should be thinking about 2015 and/or the key variables that get you between $825 million and $875 million. Is that volume-dependent more than anything? Is it synergy dependent more than anything? Just to the degree you can flesh that out, that would be great.

The primary thing some of that is. Synergy certainly helps with that. The more powerful element of that really is when you're coming back and you're starting to see the eastern United States perform a little bit better. Here is a way that you can think about it. We actually for the full year in the Mid-Atlantic division sold less tonnage in 2014 than we sold in 2013.

We're seeing that market get much stronger going into 2015. We made more money in Mid-Atlantic on less tonnage in 2014 than we did in 2013. So our point is simply this, with that type of volume momentum now in those markets, and with that type of performance in those markets, we feel like that can be awfully powerful to this business.

Again, what we're seeing, particularly in North Texas, around infrastructure, we think is a great story. Again, to your point, we're seeing lower occupancy rates in non-res than we've seen in Dallas in close to a decade right now, so when we look at what's going on in sold out cement market, what we can do with pricing in that market.

But to your point what we can do in Aggregates with synergies from TXI and an emerging strength in the southeast and a Mid-Atlantic Group that's performing more strongly, that's the key to it. That's the part of the country, as you know, Ted, that has been the slowest to come out of this and that's the part of the country that's the most disproportionately profitable for us, particularly in heritage Aggregates when it's performing in a more normalized way.

If we look at the bookends of $825 million to $875 million, Ted, obviously wherever energy costs land for the course of the year -- if energy costs were to say exactly as they were at the end of 2014 throughout the course of 2015, that $875 million number is pretty easily achievable. Pricing up or down one way or the other.

And then really, it's back to Ward's point. It's the improvement that we began to see in the back half of the year in that southern, lower right quartile of the United States, if that continues, you can see a stronger recovery in that EBITDA line. And I would point out, Ted, if you don't mind, one of the challenges I believe that we're going to have as we move through the course of 2015 is the fact that our integration of TXI is progressing very smoothly to the point where it's becoming difficult to discern one operation from the other.

Which is the way it should be.

Which is the way it should be. So parsing out where those synergies are, they're there and you can see them in the results, but whether they are coming from the fact that we're using the TXI Bridgeport quarry or the Martin Marietta Chico Quarry, it's getting tougher and tougher to tell because those operations are becoming more and more seamless.

That makes sense. Would you be willing to plant a flag stake, just to give us at the mid-point, this is the flow-through rate on the Aggregate business people should use?

No.

No, okay. Fair enough.

(Laughter) I've got one, Ted, but that's your job.

True, true. My second question would be, just following up on a couple of others. We're the second highest estimates on The Street and I understand and appreciate the tax shield related to the NOL, but cumulatively we would have you generating $1.7 billion of cash over the next three years, which based on your comments, sounds too low. I know you talked about $1 billion to $2 billion of free cash, but you're talking about, at $135 it's $2.7 billion of buyback so that's what we're trying to struggle with that math.

The question is are you actually implicitly telling us at the mid-point -- you said $1 billion to $2 billion of free cash, it's more like $2.5 billion is what you're thinking you're of generating if you can fund this whole thing organically? Or does that include asset sales beyond the $100 million. Oro Grande, if you were to sell that, or lever--?

That's what people are trying to square up today, is you're talking about buying back $2.7 billion of stock at today's market price, and what you've outlined is not a free cash number that is even close to $2.7 billion so maybe can you just talk about that a little more to help us understand it?

Ted, when we did our evaluation of $1 billion to $2 billion of share buybacks, if you'll recall this stock price happened today, so the $133 mark got hit today. I said we looked at $1 billion to $2 billion buyback, that we thought we would generate that cash flow and at the market price before today, that very easily got 20 million shares, right?

But obviously, we'll reassess and evaluate. We have said that excess free cash flow that we would generate from the business after organic capital and dividends, we will add back any proceeds from non-strategic, non-operating asset sales for TXI, and that would be what we would deploy for share repurchases.

Okay maybe I'm really slow today, but just to be clear, were you saying when you set the goal of $1 billion to $2 billion, that backed into a 20 million share count number at a lower stock price?

I don't know how to answer your question, Ted. I'm sorry. But as we looked at the free cash flow available for the business that we thought we would generate, it would be $1 billion to $2 billion and that is what we had believed that we could allocate to share repurchases over the next two to three years.

Okay, that's what we were trying to understand so thank you for that clarity. Good luck. Looking forward to seeing you this week, guys.

All right. Thank you, Ted.

Our next question come from Brent Thielman with D.A. Davidson. Your line is open.

Hi, good morning. Thanks for taking my questions.

Hi, Brent.

Ward, just back on the quarter, the 12% increase from the infrastructure end market in Q4, was the majority of that from Texas or is it evenly distributed among Colorado, Florida, some of the other markets you talked about?

It was relatively evenly distributed. Here is what we've got. If you're looking in North Carolina, we're seeing some good projects that are underway and good projects that are coming. In particular, we're seeing work coming up in Charlotte and work coming up in Greensboro, but again, we saw better infrastructure work in North Carolina than we've seen for awhile.

Georgia, remember, as you well know the T-SPLOST program has put $1.8 billion over 10 years in south Georgia primarily so now that is starting to pull through to a degree.

The Florida program, as you referenced, is really very, very strong. It's the largest DOT budget in that state's history. One thing that's important about a state like Florida, and it's a good model for the rest of the country, less than 30% of their DOT money actually originates from federal coffers, which gives that nice staying power all the way through.

Of course, Colorado, as we discussed, has a good DOT program, supplemented by their ramp program, supplemented by a lot of FEMA spending in that marketplace right now. So you've got a series of markets in addition to what's going on in Texas that have actually done quite well.

As you'll recall, when we actually gave guidance last year at this same time for 2014, we anticipated that infrastructure would be up, and I really a lot of people had some skepticism about it at the time, and we said where you are really matters on these DOT programs and that's exactly what happened in 2014. That's what we think is going to happen in 2015, as well.

Okay. On that, can we look at your mid-single-digit assumption for infrastructure for 2015 as a base level, and then depending on these larger projections, there may be upside, or timing of these projects?

Depending on the timing of large projects, that is probably the case. The other thing that I would tell you is if we can come through with a multi-year highway bill, in some respects that could change everything. Remember, we've been doing this, in many respects living hand to mouth on a DOT program for the better part of a decade.

We haven't had a clear run on a multi-year bill. If we get a multi-year bill, then you're clearly looking at something that we put out that's a very, very safe number and it would likely be popped up. Part of what I'm encouraged by is right now when you've got members of the Tea Party like Rand Paul looking hard to find a way to put a multi-year bill out there, that gives us a pretty good sense of where the year may be going.

Sure, it's interesting. If I just annualize the cement gross profit this last quarter, you're nearing the low end of your 2015 guidance for that segment already. Clearly you had some positive near-term drivers in front of you for that business. I just want to be sure there aren't any unusual expenses or other things we should consider as we're thinking about that for 2015?

Brent, as you annualize that, you need to consider the fact that in that quarter there were about $10 million of outage costs that would only replicate likely in two of the four quarters in 2015.

Okay.

And that was back to the comment that I gave before on Jerry, and that was really, if you're looking, you should expect all-in similar costs on outages, but in 2015 you should look for Q4 and Q2 to have some major outages and Q1 and Q3 to have smaller outages. Does that help?

Very much so. Thanks and good luck.

Okay, thank you.

Our next question comes from Craig Bibb with CJS Securities. Your line is open.

Amanda, we must have lost our guy Craig.

(Operator Instructions)

Here you go.

There we go.

Good to be with you on the phone. Could you -- your estimate of Texas Industries synergies is now 40% above your initial estimate. Can you give us a breakdown of the $100 million in savings that you expect now?

The primary thing that's happening, SG&A numbers haven't changed. What's gotten more robust, procurement has gotten more robust, operations has gotten more robust, so those are the primary areas that you would imagine. If you think about it in these terms, the two big quarries that we picked up, the Bridgeport operation that is literally next door to our Chico operation and their Mill Creek operation, and cleverly, our Mill Creek operation literally next door to each other, other those now operate as single quarries.

The efficiencies that we're getting from that operationally and otherwise are very significant, in addition to procurement. So basically the markers that we put down on SG&A and otherwise, that we knew we would be getting, they've done exactly as we would have thought. The operational side of it has come through better and has come through faster.

Great. The planned buyback is sizeable. You have given us some guidance in terms of maintaining your debt-to-EBITDA coverage, but you're buying back a lot of stock. Do you have goals across the three years of the planned buyback. Do you think in terms of 2% a quarter or any broad strokes of the where you would like to climb up?

We'll give you a good read out of it on a quarter-by-quarter basis. A lot of it is going to depend on how the underlying business is performing. A lot of it is going to depend on what opportunities are out there, as well, because the primary thing we want to make sure we do is create value and buying share back creates value.

Doing the right transaction creates value, as well, so it may not be a perfectly linear buyback. You shouldn't expect it to be, but we will come back and we'll tell you quarterly what it looks like.

Great, thank you.

All right, thank you.

This concludes our question-and-answer session. I would now like to turn the call back to Ward Nye for any closing remarks.

Again, thanks for joining our fourth-quarter and full-year earnings call. We remain committed to what we like to call our pillars of shareholder value: world-class safety, ethical conduct, sustainability, operational excellence, cost discipline, and customer satisfaction. We look forward to discussing these and other highlights with you in our first-quarter results in April. See you then. Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day.