Martin Marietta Materials Inc (MLM) 2015 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Martin Marietta second-quarter 2015 financial results call. (Operator Instructions). As a reminder, this conference call is being recorded.

I would now like to introduce 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, our second-quarter results reflect continued solid performance and disciplined execution against stated objectives, controlling those things that we can and dealing effectively with those circumstances over which we have no control, such as extraordinary weather conditions. I will touch upon that later, but let me first initially discuss our results.

Strong pricing, cost reductions in our heritage business, coupled with continued synergy realization and profit contributions from the acquired businesses, drove record net sales and record earnings from operations, as well as a 100 basis-point expansion in our consolidated gross margin. In fact, significantly improved gross margin in all heritage aggregates reportable segments led to incremental gross margin contributions well above our stated objectives. Remarkably, these results were achieved despite those things we cannot control, principally historic levels of rainfall throughout the United States and particularly in Texas.

In short, we believe these weather patterns reduced second-quarter consolidated gross profit by nearly $40 million. We feel it is important that we provide some perspective on these weather challenges, not in an effort to simply state the obvious, that indeed our second-quarter results could have been stronger, but rather so you can more fully evaluate our results and get a clearer picture of our earnings potential.

That said, the National Oceanic and Atmospheric Administration, or NOAA, has tracked precipitation levels for 121 years. For that period, the second quarter of 2015 was the second wettest for the entire United States. Focusing solely on the state of Texas, NOAA reported the second quarter, as well as the first six months of the year, were the wettest ever recorded.

Contextually, Dallas, Houston, and Austin experienced rainfall in May alone of 17, 14, and 17.5 inches, respectively. To put this amount of monthly rainfall in perspective, the Washington Post reported that the water that flowed into Texas reservoirs alone, a tremendous 8 million acre feet, would be enough to meet New York City's water needs for seven years.

Beyond Texas and the impact on the Southwest and cement divisions, five additional key states had among their top 10 wettest second quarters ever recorded, impacting both sales and productivity in our Midwest, Rocky Mountain, and Mideast divisions. We estimate nearly 3 million tons of aggregates, with 1.8 million tons in Texas alone; 450,000 cubic yards of ready-mix concrete; and 215,000 tons of cement shipments were deferred until later in the year and into 2016 as a result of weather.

Notwithstanding the significant weather impact during the first half of 2015, we believe underlying demand for our products remains strong, driven by steady, ongoing economic recovery, and we fully expect to capture delayed business in the last half of the year and into 2016, assuming more normal weather patterns.

This morning's release also contains important strategic and shareholder value enhancing developments related to our TXI acquisition. First, we were pleased to once again raise our annual synergy guidance to $120 million by the end of 2016, more than 70% above our initial estimate at the acquisition date a little over a year ago.

Second, we signed a definitive agreement to sell our California cement business, which we expect to close later this quarter. We intend to use the proceeds from this divestiture to repurchase additional shares of our common stock under a program initiated during the second quarter.

Before we discuss second-quarter results further, please be reminded that 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, including the impact of weather patterns, 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 second-quarter 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 freight and delivery revenues. These and other non-GAAP measures are also explained in our SEC filings and on our website.

To provide transparency into our second-quarter results, I will discuss the heritage business separately from those of the acquired operations, which include the legacy TXI business and two other small aggregates product line transactions completed during the year's first quarter.

While it is currently important to understand the results of heritage versus acquired operations, this comparison is becoming increasingly less meaningful as we successfully complete the integration of TXI operations into our heritage business.

In addition, to facilitate this discussion, we have made available during this webcast and on our website supplemental financial information. We believe doing so provides meaningful information to better analyze our current 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 are pleased to report pricing growth across our entire Company. When evaluating aggregates product line volume variances, it is important to note that the prior year's second quarter includes shipments from three facilities in the West group, a quarry in Oklahoma and two related sales distribution yards that were divested in the third quarter of 2014.

Consequently, to obtain true comparable volume variances, shipments from these three locations should be excluded from the prior-year quarter. After making this adjustment, West group volumes were down 3% while shipments for the heritage aggregates business increased slightly. Both of these metrics were negatively impacted by excessive rainfall during the second quarter meaningfully impacting the West group and also the Mid-America group.

Slide 4 presents gross margin by product line for acquired operations. In addition to delayed shipments, profitability for these product lines was also negatively affected by weather, which resulted in lower production and efficiency levels.

Heritage aggregates product line shipments to the infrastructure end-use market accounted for approximately 43% of total shipments and declined 3.6% compared with the prior-year quarter. This decline is attributable to the impact of wet weather and, to a lesser degree, uncertainty regarding the Federal Highway Trust Fund. We continue to see state-level funding initiatives come to fruition in numerous states, a sign of pent-up demand.

Texas leads the nation in highway contract awards and expects to let nearly $7.5 billion in fiscal 2015. In November, Texas voters will decide on Proposition 7, a ballot initiative that would dedicate an incremental $2.5 billion of revenue from the sales and use tax annually to the state highway fund beginning September 1, 2017. Given our significant existing backlog, we anticipate Texas infrastructure shipments to report growth over the next several years.

Major project activity is also accelerating in North Carolina, Georgia, and Florida, with all three states, along with Texas, being actively engaged in TIFIA-funded projects. Each of the states continues to be among the top states in the country for employment growth, a catalyst for construction activity.

Further, we believe the recently passed funding initiatives in Georgia and Iowa will have a meaningful long-term impact on infrastructure activity in both states.

Recently, both houses of Congress passed and the President signed a continuing resolution extending the provisions of the Moving Ahead for Progress in the 21st Century Act, or MAP-21, through October 29, 2015. During this period of extended funding, we expect Congress to work toward passage of a new multiyear bill.

There is broad bipartisan support and recognition of the importance of long-term investment in our nation's infrastructure. These include discussions between Congress and the White House evaluating whether a reduced income tax rate or other incentive for multinational companies to repatriate earnings could provide a source of funding for a long-term federal highway bill.

We believe the Senate's proposed six-year highway bill will likely provide the framework for broader congressional debate following the August recess. We and others have long believed that the passage of a long-term infrastructure program for our nation is a top priority. It is gratifying to see that Congress and the President seem to be moving along a path that will provide our citizens with legislation that will accomplish a goal that most Americans consider to be critical to our quality of life.

The nonresidential end-use market is comprised of two components, light and heavy. The light nonresidential component is primarily office and retail and demand in this area is generally tied more directly to employment growth and residential demand. We expect light nonresidential-related volumes to continue to increase, driven by improved economic fundamentals, which is coinciding with some of the reemergence of speculative construction activity.

The heavy component is primarily industrial building and energy. The heavy nonresidential end-use market represented 22% of quarterly heritage aggregates product line volumes and declined 11%. However, we believe this decline is driven in part by weather and expect to recoup the delayed volumes within 12 months.

As expected, shale energy-related volumes have declined versus the prior-year quarter, but are believed to be stabilizing. We continue to expect energy-related construction activity to remain strong, notably along the Gulf Coast. As one example, the port of Corpus Christi continues to prepare for long-term energy activity. Of note, a port official indicated the decline in oil prices has not reduced either the output of oil in Texas or the volumes transported via the port.

Overall, United States crude oil production is projected to reach 9.5 million barrels per day in 2015, an increase of 800,000 barrels per day over 2014 levels.

In summary, we believe underlying nonresidential demand continues to strengthen as starts for the nation are up 12% over the trailing 12 months ended June 2015. Texas continues to lead the nation with growth of $6.5 billion or 19% for the same period. Additionally, non-building construction activity, most notably related to liquefied natural gas products, is up over $30 billion nationally, including more than $18 billion in Texas.

The residential end-use market represented 16% of heritage aggregate shipments and increased 4% compared with the prior-year quarter. The overall rate of residential growth continues to be relatively consistent with the trend in housing starts. Texas, Florida, and Georgia lead the nation in single-family unit starts, each with nearly double-digit growth for the trailing 12 months ended June 2015.

Finally, to conclude the discussion of end-use markets for the second quarter, the ChemRock and Rail market represented the remaining 9% of our second-quarter heritage aggregates volume. Shipments were down slightly, primarily related to excessive rainfall in Colorado and Iowa.

Heritage aggregates product line pricing increased 7.6% over the prior-year quarter, led by the West group. We view this level of continued strength in aggregates product line pricing as an indication of underlying product demand and increased contractor confidence.

Heritage aggregates product line total production costs were negatively affected by weather-related inefficiencies. The resulting decrease in operating leverage led to a 3% increase in cost per ton shipped.

We continue to benefit from the decline in diesel prices and, on average, paid $2.12 per gallon, compared with $3.13 in the prior-year quarter, resulting in a $9 million reduction in diesel fuel costs for the heritage business.

The heritage aggregates related downstream product lines increased their combined gross profit by $3.5 million. Notably, the heritage ready-mix concrete product line reported a 10% increase in average selling price.

Gross profit for the heritage aggregates business increased $33 million and was 26% of net sales, an improvement of 530 basis points over the prior-year quarter.

All reportable segments expanded their respective gross margin, led by an increase of 810 basis points in the Southeast group. Continued economic recovery in Georgia and better performance by our offshore operations contributed to this improvement.

Our heritage aggregates business generated an incremental gross margin of 214%, besting our incremental margin target of 60%. We expect further economic recovery in the southeastern United States to provide continued margin expansion.

The magnesia specialties business delivered strong performance and generated net sales of $60.5 million and a gross margin of 35.1%. For the quarter, the business's earnings from operations were $18.8 million. Net sales and earnings were negatively affected by a decline in domestic steel production and the timing of typical maintenance costs.

Slides 4 and 5 provide financial information and key metrics for our acquired operations. For the second quarter, the acquired aggregates product line reported net sales of $36 million on external shipments of 2.8 million tons. Average selling price was $13.52 per ton, reflecting a product mix skewed by sand and gravel, as well as railyard shipments.

The acquired ready-mix concrete business shipped 1.1 million cubic yards during the quarter at an average selling price of $86.80. As indicated earlier, weather constraints during the quarter adversely affected the business and reduced the profitability by an estimated $9 million.

The cement business is benefiting from continued strength in our Texas markets, where demand is expected to exceed local supply again this year. Second-quarter operating results were also negatively affected by wet weather, which delayed some shipments through the balance of the year and into 2016. For the second quarter, the business shipped 1 million tons of cement to external customers at an average selling price of $98.86 per ton, resulting in net sales of more than $100 million.

The business achieved a gross margin of over 30%, after incurring almost $6 million of planned kiln maintenance costs. We announced price increases effective April 1. However, there was a lag time before we realized the full benefit.

Our consolidated selling, general, and administrative, or SG&A, expenses were 6.7% of net sales, an increase of 60 basis points. This reflects the impact of weather-driven lower net sales and higher pension expense. We incurred net acquisition-related expenses of $2.1 million, in line with our estimated run rate for the next few quarters.

As detailed on slide 6, our consolidated earnings from operations for the second quarter of $137 million improved more than $40 million from the prior-year earnings of $96 million.

Our employees continued to work diligently on maximizing the synergistic value of the TXI acquisition. In that regard, as previously noted we now expect annual synergies to reach $120 million by the end of next year. Consistent with our integration plan, we completed the remaining systems integration for the cement and ready-mix concrete businesses during the second quarter and I do want to thank our employees for their commitment to and patience with that process.

For the first half of the year, we generated $127 million of operating cash flow, compared with $70 million for 2014, efficiently converting increased earnings into cash.

As planned, we increased our organic capital investment, including continued work on the Medina limestone rail quarry near San Antonio, a strategic project we believe will be substantially complete by year-end. Further, during the first half of the year we returned $154 million to our shareholders, both through the repurchase of 670,000 shares of our common stock, together with our dividend.

As a reminder, we have Board authorization to repurchase up to 20 million shares.

Also, our ratio of consolidated debt to consolidated EBITDA for the trailing 12 months ended June 2015 was 2.4 times, in compliance with our leverage covenant and within our targeted range.

In this morning's press release, we announced a definitive agreement to sell our California cement business, which is consistent with our strategic observations and time frame when we acquired TXI. Our Oro Grande cement plant in southern California is a state-of-the-art facility operated by a talented and committed workforce. However, the plant and its two related distribution terminals are neither proximate to other Martin Marietta core assets, nor complemented by downstream operations in California's traditionally vertically integrated marketplace.

Thus, after careful consideration and evaluation, we determined the best avenue to maximize shareholder value is to sell these operations. The sales price is $420 million and, as previously mentioned, we intend to use the proceeds to repurchase additional shares of our common stock.

Looking ahead to our full-year guidance, we expect economic expansion in the western United States to continue and, importantly, the economic recovery in the east to accelerate, fueling an emerging construction recovery. During the second half of the year, we anticipate capturing a significant amount of weather-delayed shipments from the first half of the year. However, market capacity constraints will shift some of the delayed project activity into 2016.

Accordingly, we modified our guidance to reflect this shift, as well as the pending sale of the California cement operations. Currently, we expect aggregates product line shipments to increase 7% to 10% over 2014, with 3% to 5% 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 7% to 9% over 2014. Aggregates product line production cost per ton is expected to decline slightly compared with 2014.

On a consolidated basis, we expect to generate earnings before interest, income taxes, depreciation, depletion, and amortization expense, or EBITDA, ranging from $810 million to $850 million, with the change from prior quarters' guidance directly related to weather-deferred profitability and the planned California divestiture.

To conclude, we continue to be very excited about the future of Martin Marietta, which by virtually any measure reflects a very positive growth trajectory. We believe the economy is in a construction-centric phase in both the residential and nonresidential sectors, and we also feel the prospects for a multiyear transportation bill is greater this year than it has been for nearly a decade.

Importantly, our Company is well positioned to capitalize on the many opportunities we see. From a geographical and operational approach, we are poised to deliver high-quality products, which in turn translates into increased revenues, profits, and value for Martin Marietta and our investors. All the while, we remain committed to our core foundational pillars -- world-class safety, operational excellence, cost discipline, ethical conduct, sustainability, and customer satisfaction, which together should lead to increased shareholder value.

If the operator will now give the required instructions, we will turn our attention to addressing your questions.

(Operator Instructions). Kathryn Thompson, Thompson Research.

Thank you for taking my questions today. The first question is focused on the fundamentals. How much of the incremental margin performance in the quarter was driven by lower cost -- in other words, the $9 million that you outlined earlier -- versus pricing or any other factor?

And along the pricing line, what we're trying to get a better sense is are there certain markets that are seeing greater pricing leverage and essentially are you seeing the benefit yet from a geographic mix, or are you just mainly seeing improvement purely from price increases? Thank you.

Kathryn, thank you for your question. What I would say is several things are really hitting that.

Number one, pricing is falling right to the bottom line, in many respects, so let's start with that notion. The other piece that I think is important is we are talking about an emerging recovery in the southeast right now, and we discussed in the past, in places like Georgia saw 70% of their volume decline and North Carolina saw 50% of its volume decline. Volume coming back in those markets is very, very powerful.

When we are looking at job rate recovery and growth right now and we are seeing North Carolina and Georgia in the top five and top seven, that will drive volumes in those states.

You have to remember there was a day and an hour that we made $100 million in the southeastern United States and when we were making $100 million in the southeastern United States, we didn't have the type of presence or geographical location that we do today.

So Kathryn, to your point, pricing is helping. We are clearly seeing very good cost control in the heritage business and, yes, we are getting a mix help from the southeast coming back.

To the other part of your question relative to what we are seeing relative to price increases, it is entirely consistent with what we have been discussing for the last several quarters. We've said that you should expect the west to outpace the east for a while. That continues to be what we are seeing.

Texas, we continue to see very nice double-digit price increases. That said, we are seeing double-digit price increases in Indiana. We are seeing double-digit price increases in Ohio. We are seeing double-digit price increases in portions of the southeast as well. So we have got a good spread of price increases throughout our entire operation. That's something that, again, with volumes recovering and contractor confidence, we anticipated that we would see.

Thank you. My second question relates to your California asset divestiture, just a couple of housekeeping questions related to those. What was the EBITDA -- trailing 12-month EBITDA contribution from California? I know this historically had been a pretty big laggard, but is it -- what is EBITDA for trailing 12 months? How much G&A is associated with these assets and thoughts on tax treatment of the transaction? Thank you.

Kathryn, I will give it to you this way. If we look at the six months that we owned the California cement operations last year, we had about a $5 million EBITDA on that.

Obviously, that tells you the EBITDA contribution that you're looking at in the second half of the year isn't something that I want you to spend a lot of time adjusting your model for. So, I think that would be entirely fair.

I think with respect to the tax treatment, on the federal side we will be able to utilize the NOLs we have to basically take care of any federal tax there. We anticipate there might be $10 million to $11 million worth of state tax that may be captured out of that $420 million number, so again what we feel like as we have a very tax efficient transaction under the structure that we put forward.

And G&A, how much should we expect that will go away?

But, again, Kathryn, very little G&A associated with that facility. So I would tell you from a EBITDA and G&A perspective, it is not going to be enough to move any needle.

Great, thank you so much.

Timna Tanners, Bank of America Merrill Lynch.

It is actually PT Luther standing in for Timna today. I was wondering if you could just give a better sense of the demand traction that you are seeing in the southeast. Is it continued steady improvement or would you say the cadence or the trajectory has changed of late?

No, I think it's a very good, steady improvement. Here is the way that I would think of it. If you look at Florida, from where I am sitting it is very positive. We are seeing all segments up. It is number three in job growth, which is really fueling construction. It has got a very strong DOT program. It is near record levels.

The I-4 Ultimate job is very much underway, and again, only 25% of the funds in Florida come from the federal government, so they have got a good, strong program there. They are number one in res right now and number three in non-res, so all of that feels very good for Florida and our import business there.

Georgia, we believe, is really starting to hit its stride, if we are looking at Georgia at number five in job growth, number three in res, number 10 in non-res, effectively a doubling of DOT construction in that state that, candidly, won't even really start to impact it until 2016. But we are seeing the benefits of the TSPLOST program in south Georgia as well, which I think is a good precursor on what we will see in the northern parts of the state.

And what I would say on North Carolina, and I think this is disproportionately important, is now we are seeing North Carolina really as an up-and-comer. I mean, think of it in these terms -- number seven in employment. Get this, though, number 51 in housing, but number 10 in single-family housing. We are starting to see more single-family housing and more subdivision work in North Carolina, and number 18 in nonresidential.

And then, if I'm looking at DOT just over a trailing 12-month period, awards are up 29%, but here's something you can take away as well. We have a Republican governor, House, and Senate, and one of the biggest single fights that we have in North Carolina right now is how much more we're going to spend as a state on transportation.

So to your point, looking at those southeastern states, and those three tend to be disproportionately important to us, that really is a strong driver for us. Does that answer your question?

Yes, that's helpful, thanks. And then, also, if I could dig a bit more into demand on the energy-related side, we have got oil at sub $50. You made some positive comments on your initial commentary, but just wondering if you could talk about a little bit more you are seeing there in terms of demand related to shale, if that has stabilized, if you see any LNG projects at risk, things of that sort?

Yes, I think it has either stabilized or it is stabilizing. When we spoke at the end of Q1, we said we thought it would look a lot like it looked in 2012, which was about a 7 million ton level, as opposed to about -- I mean, a 6 million ton level as opposed to 7.5 million last year.

I think you have got a couple of things. One, it has continued to slow. Weather has clearly affected it. If I had to sit here today and give you a sense of it, I think it will probably be somewhere between 4.5 million and 5 million tons of product going directly to the shale plays, and I think that's probably real.

As we come back and answer the second half of your question relative to the large projects going on in south Texas, I guess I would say several things in that regard. Number one, I think the LNG projects are clearly starting up. Freeport is now shipping. The Cheniere project will be next.

If we're looking at what we think those volumes may look like over a multiyear period, I could see it over 1 million tons going to that in the back half of this year, and just looking at what we see right now, I can see at least 0.5 million or more than 0.5 million per year really through 2019. So again, if we are looking at what's going on there for a multiyear period, it looks pretty attractive.

If we're lucky at non-building just period across the United States, it's up 30%, but it is overwhelmingly still driven by what we are seeing in Texas. So Texas is up 18.5 billion and that's over half of the national increase.

So, we see something in that portion of non-res that continues to be healthy and we think what we are seeing also in office and retail, up 22% for the quarter, doing exactly what we thought. We believed that the portions of non-res that were going to be strong this year would overpower the weakness in shale and we think that -- those two things coming together with simply lower energy pricing is actually a pretty healthy mix for us right now.

Great, thanks for that. And last question, then I will hand it over. Diesel prices, I think you've assumed a rather high price relative to where spot has been of late. So, I am wondering if you can give us any more color on the diesel price that is assumed in the guidance for the back half.

If we're looking -- I can give you a sense of where we are now, and then really what we've said is we thought we would have full-year savings of a little bit over $39 million.

So if we look at where we are now, obviously we had $9 million worth of savings in heritage in Q2, just a little bit over $11 million for the full business. We had about $10 million in Q1, so again if you want to just carry that out at a fairly normal cadence and come up with about $39.2 million savings for the full year, you wouldn't be a mile off.

Thanks again, Ward.

Garik Shmois, Longbow Research.

Just on the synergy update for the TXI acquisition, you bumped up your target again here today. Just wondering if you could provide a little bit more color what bucket these additional synergies are coming from, and how much more potential upside is there, given that you have taken up your synergy targets several times already?

Well, Garik, if we go back and look at what the synergies looked like at the beginning, it was $70 million. We said about $34 million would come from SG&A and about $36 million operationally.

You are right. We did take it up earlier in the year, and when we did that, the SG&A savings that we were seeing at that point had gone up to about $41 million and we think that's the show on that.

The operational savings had gone up to around $86 million. And again, these are operational issues. It is what we are seeing combining Chico and Bridgeport. What we're seeing pulling together their former Mill Creek and our former Mill Creek.

So the operational synergies that we saw when we came back in January were about $86 million. Now going forward, we think again the SG&A is staying static at about $42 million. We are seeing operational synergies really filling the balance of that at about $82 million, and then tallying it all up to around that $120 million number.

Okay, thanks. Switching onto cement, you saw good sequential improvement in cement pricing. I was wondering if you could provide any additional color about potential price increases later in this fall. And also as a follow-up, would there be any impact to the divestiture on reported pricing, meaning is there any mix implications from exiting California as it relates to the consolidated price?

Garik, here is what I would say. If we're looking at pricing for the year -- Q2 pricing, it was up 17% in Texas. It was also up 17% in California.

Now there is a bogey between those two numbers, so if you're looking at Texas pricing for us at $102.85 and California pricing at $89.45, that pretty much gives you the mix on how that is going to look. So, yes, it certainly would make an ASP on cement better without the California numbers in there.

With respect to pricing, I guess I have got a couple of observations. Weather slowed everything down mightily in Texas and you know that and I do, too. If we're looking at volumes, north Texas volumes for the quarter were down for us 22%. South Texas, they were down 18%. I think at that type of environment we would be looking for some price increases later in the year. We will certainly be looking for it, I think, as the practical matter the fact that price increases have done so far what they have done in that type of a weather-challenged volume environment is actually a very good story.

We are more focused right now on what we're going to be doing with pricing as we come out early in 2016, as opposed to the latter part of 2015.

Makes sense. Last question is on a point of clarification in the press release. I believe you indicated additional cement maintenance expected in the fourth quarter. You had some here in the second quarter. I was just wondering maybe you could provide an annual expected maintenance expense or I guess, in other words, how much are you expecting the fourth quarter to incur?

Just relative to the kilns themselves, is that your -- I missed the first part of your question. Is that where you're going, Garik?

I read in the press release there was -- you were anticipating additional maintenance in the fourth quarter in cement, so I was just wondering if you could quantify that.

If we look at what the 2015 numbers look like, Q1 was $5.4 million, Q2 $5.9 million. We are looking at a Q3 forecast of $6.1 million and we're looking at a Q4 forecast of $14.1 million, which brings you to an all-in kiln forecast of $31.5 million.

Super helpful. Thanks.

And that's for the total cement business, Garik.

Okay.

Garik, that's got everything rolled in, so that's Texas and California for your purposes, just for clarity.

Okay.

Craig Bibb, CJS Securities.

This will be the last question on California. The revenues at the sold California cement operation were -- do you know that?

I didn't understand your question.

What are the annual revenues of your California cement operation?

We haven't disclosed what those annual revenues were. We will obviously come back and talk more about the transaction once we are done, but I think giving a sensitive -- we have got about, call it, an average 1.5 million tons of capacity there. I think with what we have given on the capacity numbers and the EBITDA numbers, until the transaction is done I think that's probably as much detail as I feel comfortable offering on that.

Okay, and you have been performing about 80% of capacity there?

In California, it's been under capacity for quite a while, and we have certainly discussed that. If we were looking, in Texas it is going to be somewhere in the mid-80s. In California, it would have been considerably under that, yes.

Okay. In the press release, you noted $18 million in added pension expense from lower discount rate assumption. Is that all in the second quarter or how was that --

Craig, this is Anne. That will be throughout the course of the year, and about 60% of that flows through SG& -- excuse me, production overhead. The balance flows through SG&A because it follows on a per-capita basis.

Okay, and so the run rate, I assume you're going to run that throughout the year, so the run rate SG&A is comparable to what we are looking at in the second quarter?

Correct.

Okay. All right, thank you very much.

Trey Grooms, Stephens.

You guys purchased $100 million of stock in the quarter, expect to buy back more with the Oro Grande sale, and I think you mentioned it was $420 million. Are you expecting to use all $420 million on the buyback or is that just a general number? And can you give us any color at all on potential timing, just roughly?

You know what, our good friends in the state of California, as I said, will take a little bit of that, so we will have to assume some of the $420 million comes off, but that's only going to be about $10 million or $11 million.

The short answer is we do intend to use all of that to repurchase the stock. In the exact way that we will do it, we are going to play that carefully as we go through the balance of the year, but we certainly intend to utilize that during the year to buy back the stock, yes.

Okay, through the year, great.

And then, along the same lines, but from an M&A standpoint, you guys are obviously very committed to buying back stock. But how are you thinking about potential M&A with your current buyback goals and with some potential opportunity possibly coming available from some pending consolidation out there in the market?

Trey, I hear you and I agree with you. We are excited about continuing to grow our business; we are looking at a number of different transactions right now. Most of them tend to be, in my view, very attractive bolt-on transactions that we are looking at in existing markets.

The nice thing is with our balance sheet and the shape that it is in, we can do multiple things. We could continue to return money to shareholders and the fact that we returned $154 million to shareholders in the first half of the year is something that we are proud of. But I can tell you, too, at the end of the year I would be surprised if we don't have some very attractive bolt-on acquisitions.

Remember for us now, Trey, a turn of leverage is $850 million. Before we did this transaction with TXI, the largest deal we had ever done was Redland and that was $270 million. So our ability to fund through our balance sheet, cash flow, or otherwise very attractive bolt-on transactions is great and our interest is great as well.

All right. That's real helpful. Ward, thank you.

And then, Anne, this one might be for you. And correct me if I am wrong, but I believe your guidance last assumed diesel prices were around $3.39 a gallon. Can you give us an update what your average diesel price was in the quarter, and then any update on what is baked into that guidance -- the updated guidance that you guys gave us on EBITDA for the full year?

Yes, the average diesel price was $2.12, as I think Ward had indicated in the opening comments. As we indicated, we will have about $39 million to $40 million of savings that we have got built into the guidance for the year and we have recognized about $20 million of that through the first six months.

All right, thanks a lot. I guess I missed that part of the comments. Thank you.

Trey, just to add a little bit more color, to give you a sense of it, we burned about 11.2 million gallons in Q2 and you can imagine in Q3 is usually our heaviest usage quarter, so if that helps.

Great, yes, it does. Thanks a lot. Good luck.

Jerry Revich, Goldman Sachs.

Ward, can you talk about, as we enter year-end, any other significant market repricing opportunities that you see heading into next year? Obviously, we have got a big structural improvement and a big chunk of the West group this year. Can you in rough terms talk about any opportunities that are high on your radar screen heading into January 1 announced price increases?

You know what, absolutely, and number one we will come out with January 1 price increases in all of our geographies.

What I will tell you, too, is either between midyear price increases or simply helping what we are doing on bidded work, we are seeing price increases in all of our districts and divisions right now.

Now, it may be captured or put out in different nomenclature; in some places, you will actually see midyear price increases. For example, we have seen that very specifically in portions of the Southeast. We have seen that very specifically in portions of the Southwest, but other places we are seeing it on a job-by-job, bid-by-bid basis, again preparing not just for the second half of the year, but preparing as we go into next year.

Again, I have seen at least some of the Dodge data that has come out over the last few days, and as I look at that, this gives me a sense again that we will be looking at a pretty high degree of contractor confidence going into next year. Again, this is not our guidance. I am just giving you what Dodge is saying, but Dodge is seeing total construction up in 2016 12%. It is seeing nonresidential up 11%. It is seeing residential up 20%.

And you have often heard what I have said in the past, and that is at a certain point as volume continues to grow more than that 5% basis, you should be able to see your percentage pricing and your percentage volume growth linked up and moving in some degree of tandem together, with pricing having a little bit of a lag.

So I have tried to answer your question relative to what we are seeing on a division-by-division basis, how we are going about it, and also at least what people who do forecasting for a living, like FW Dodge, are saying about next year and how that is going to relate to pricing. I hope that helped.

Yes, I appreciate the color. And as you think about the price increases midyear, I know you went after a more significant beginning of the year price increase this year. Can you just give us an update on what kind of midyear price increase cadence we should be thinking about?

You know, it's going to vary pretty considerably. There are some products -- sand is short, for example, in the DFW marketplace right now. There are a number of sand operations along the Red River that were so flooded out that operators are truly not going to be in a position in some instances, as I understand it, to open them until the fall of this year. So, sand prices in DFW may be up $2 a ton.

Again, we are looking to take ready-mix up $8 a yard in DFW on or around September 1, so those are pretty heady movements.

At the same time, there are parts of the southeast where we are going in and seeing some customers going up as much as $1 a ton, and part of what I think is moving to me is I'm seeing the way midyear's forward thinking about next year look like. We're getting out as much of that nomenclature around cents and we're talking more about dollars. And I think that's an important transition to the conversation.

Okay. And lastly, on the last count, I think there were a dozen or so states that have fairly recently increased highway spending in absence of better federal spending. Can you talk about are there any states, based on your local folks, where you think the increase in state funding is close to moving forward? I know you have a good handle of the political landscape there.

Yes, but, I mean, here is what we have seen and here is what we will see. I mean, Iowa took their gas tax up $0.10 March 1. That is going to put another $215 million annually in what they're doing. That is about a 30% increase.

Again, Georgia is coming back, adding almost $1 billion to their DOT budget. That is almost a doubling of it. To give you a sense of it, our quick math says $900 million of new spending consumes probably around 7 million tons of crushed stone. We have talked about how powerful incremental stone is in a market like that.

Florida has got just shy of a record DOT budget. Again, we talked about the fact that North Carolina right now with a Republican legislature and governor is going through the process, but our Senate, who would like to stop seeing funds diverted from a highway trust fund to the general fund, put several hundred million dollars a year more to North Carolina highways. We're certainly a fan of that. Our governor would like to come back and borrow money at historically low rates, put a couple of different bond issues out there on the ballot for later this fall. We will see how all of that goes.

But again, Iowa is a Republican state. Nebraska is a Republican state. North Carolina is a Republican state, and these are all states, as is Texas with their Prop 7, looking to put more money into highways right now, separate and distinct from what may happen on the federal side.

One thing that I think we need to remember, too, Jerry, is if we get a highway bill, part of what's going to happen is we're going to see parts of the United States and, in my view, more rural areas have more highway money to spend. And I think that's going to be important, one, for economic development, and number two, some of the rural operations we have can be very profitable operations and those are the operations throughout this downturn that have suffered disproportionate.

So I think the fact that DOT initiatives are really taking over at the state level and they're doing a lot of it for themselves, and we have got this great prospect, I believe, of getting a highway bill this year, that's a one-two punch that could be notable.

Thank you.

Ted Grace, Susquehanna.

So I apologize if I missed this earlier, but can you -- I know overall heritage volumes were up just about 1%. Can you say what Texas did in isolation?

Yes, Texas, and we talked about what Texas was when we took out North Troy and the yards -- I don't want to say it was (multiple speakers)

Yes, we really looked at the West group, Ted. We have not really given any specific guidance, individuals, other than about 1.8 million tons of shipments were deferred out of the total 3 million tons in the state of Texas alone.

But if you look at reported volume in the West group, take out the divested assets that we divested of last year, but they are still included in the numbers, and look at the impact of the rain or the weather-deferred shipments in the West group, adjusting for all those items, our volumes would have been up about 11%. Those two, those together add up to about 3.1 million tons.

Okay, that's super helpful.

And so, I think everybody on the call appreciates all the things going in Texas's favor, whether it is res or non-res, on the public side. I guess what I am just curious is, how do you see momentum building in the back half and then when we hit 2016 in the state of Texas specifically? And then, what would be the implications on pricing? What kind of framework would you encourage people to embrace?

Ted, again, I guess what I would say is if we start with our largest end use there, which is going to be infrastructure, and we begin with the $7.5 billion worth of lettings, and that is on the heels of two previous record budgets -- it goes back to my commentary when I said I can see volumes being very aggressive in Texas, not just for this year and next, but really for years out.

Then when we are coming back and looking at the sheer level of non-res activity that continues to be there and the emerging presence now that we are seeing in office and retail in that state and the continued mature housing market that is there, and what I mean by that is we are seeing new subdivisions built. So Ted, that is simply going to be more aggregate intensive undertaking relative to residential than multi-family or otherwise.

So what I would say is our outlook for volumes in Texas continues to be quite good, and we have been consistent that you should expect pricing in the West to generally outpace pricing in the East at least on a percentage basis. And I don't see anything right now that dissuades me from that view.

Okay, on the $7.5 billion of lettings, can you put that in context? What was lettings in calendar 2014, so -- or their fiscal 2014, just so we can dimensionalize what that change is?

Yes, if you go back and look at it, remember they're on a fiscal year that ends in August, and what Texas has done over the last several years is they've come out with a much bigger budget than they are typically able to spend, so they came out this year looking at something that started in the $9 billion to $10 billion range, came back and said they're going to be at about $7.5 billion. That is reasonably consistent with where they were last year as well.

So now if you are taking those two, building on that, what we believe is going to be a passed Prop 7 that is going to come back and put another $2.5 billion. And we think we're going to see a nice run rate probably in that zone, may be as low as the $5 billions, maybe as high as the $8 billions or $9 billions over a period of time.

Okay, that's helpful. The second thing I just wanted to ask you was on the guidance side. So you take EBITDA guidance down $25 million. It sounds like cement is about $10 million. You could back into aggregates being about $25 million. Could you walk through all the components, the headwinds and the tailwinds, just so we understand exactly? I guess it sounded like the embedded diesel benefits were upsides versus what was embedded in the prior guidance, but maybe I misunderstood that. I just want to make sure we understand --

No, I think the big issue, Ted, is you have got -- I think it was around 13 million tons of profit that was deferred from Q1.

$13 million.

Yes. And then you have got about $40 million in Q2, and the fact is you take that, let's call it, $53 million and come back to the view it's going to be impossible to make all of that up.

And I think one of the issues that we've been faced with, but I think the industry has been faced with in Texas, if it rains for a while, it impacts your sales. If it rains for a long while, it impacts your sales and it impacts your production, and I think several things are happening.

One, I think the logistics and supply chain is going to be really stretched in Texas for the rest of the year. And by that, I mean, can people find enough trucking to get aggregates to locations? I think the short answer is going to be they can't.

I think the other issue, we talked a little bit about sand plants that continue to be flooded right now. The ability to come and really push product out of those sites the way that we would wish is going to be challenged as well.

And I think the last piece of it is, can people even keep up with some of the clean stone requirements going forward? Now, some of the good news for us is a lot of the work that we see both in north and south Texas can be relatively new work.

So think about it in these terms, I-35 in north Texas and the Grand Parkway in south Texas, we're going to see more base going on those jobs for a while, so the clean stone needs won't be as acute, but they're still going to be pretty serious, particularly as we roll into next year. It is simply the inability of the industry to meet what I think the demand could be.

The other issue is this, Ted. What is weather going to look like in Q4? If we have a good, long fall, frankly like we did last year, we can probably cover a lot of that ground, but we are counting on a more normal Q4 this year, so that is really what takes down the EBITDA guidance.

Okay, so I just want to be sure I understand this. There is $53 million of profit pushed from one half into two half and beyond. Do you think you will capture half of that, which is the net $25 million, and then another $10 million on cement?

You know (multiple speakers). That's probably close enough for government work, Ted.

Yes, that's a nice synopsis, Ted.

Are there any other offsets we should be thinking about? Did diesel benefit embedded get upside or did I misunderstand that?

I think the diesel benefit is pretty much there on what we've said on the, let's call it, $40 million full-year benefit. I don't see that moving dramatically, Ted.

Okay, and there is no acceleration in realized synergies? And then, I will get back in queue.

Look, I am just going to take the $120 million and be really happy with that. So, I think we are where we are.

Okay, so either that is a nonanswer or it is not getting realized sooner in 2015?

Look, I think there will be some synergies that will be realized in 2015. I am just not prepared to quantify precisely what that will be in 2015.

Okay, great. Thanks for the clarification.

Adam Thalhimer, BB&T Capital Markets.

You guys lowered your outlook for sales to the infrastructure market. I am just curious if that is a reflection of the weather in the first half or what your expectations are for the back half.

You know what, I think it is more a reflection of the weather in the first half and it is a reflection of the drying out that is required in some markets.

I was just talking with Ted on the last question. You do need a period of time not just for it not to rain after you have had this degree of dampness, but you frankly need some time for it just to dry out. And we are seeing some of that on barge dirt work that is going on particularly in the Southwest right now.

So, again, it is not a concern of what is going on from an underlying perspective, but it is just simply looking at where we are after Half 1 and some of the issues that I think we will be faced with as an industry in the Southeast in Half 2 -- Southwest, I mean.

Okay, and then for Texas, in that last year you had an October price increase. Is that something you might do again this year?

Yes, part of what I think we need to be sensitive to, you had so many kilns when it was wet simply just shut down. And part of what I was gratified by during the shutdown, you didn't see a lot of erosion in pricing in that marketplace, and I think part of what we need to be focused on is really taking care of our customers here in the second half and being more focused on what we are going to do relative to price in that Texas cement market going into 2016, as opposed to the back half now this year.

Fair enough. Thank you.

James Armstrong, Vertical Research Partners.

Thanks for taking my question. Most of my questions have been asked, but could you comment on the slight pricing decline sequentially in aggregates? Obviously, weather played a role there, but was there -- was it more due to mix shift or a move of where aggregate was actually sold?

It probably would have been a little bit of both, but the simple fact is if we are going location by location, product by product, everything is going up, which is why I would tell you it is going to be a little bit of both on geographic mix and product mix as well.

Okay, and thank you very much.

Keith Hughes, SunTrust.

This is Judy Merrick for Keith Hughes. I was just wondering if there is anything else you could add about the underlying growth in the nonresidential market. You addressed the energy impact and took that out, but particularly in light and nonresidential, was there some weather impact also? You mentioned that Texas has a big component or was all of the growth seen in the Florida/Georgia other states?

Yes, there was some component to weather in other states. If we go back and take a look at places like Colorado and Iowa and Indiana and others, they had some of the wettest quarters in history, so clearly weather was an issue there.

But back to your point on really what's happening in non-res, for example, we are seeing the first speculative commercial building in Atlanta since before the crash. We haven't seen that in a while.

So, clearly, we feel like Georgia, North Carolina, Florida, Texas, and Colorado is actually doing quite well in non-res. Again, if we go back to what we are seeing, too, in non-building, the non-building activity is pretty strong. Now, granted, this is going to tend to be the heavier as opposed to the office and retail type of work, but we are seeing good power plant, bridges, other non-building type activity, but we are clearly seeing the speculative office. And again, that portion of our business for the quarter was up 22% and we feel like the states in which we have a presence are really helping drive that.

Okay, great. And on the decline in the heavy nonresidential, is that a mix of both energy and the weather?

Yes, it was. Principally, I would say clearly you are seeing a slowdown in shale, as we anticipated, so that's some of it, and the other half was the weather. So I think that's clearly your one-two punch there.

All right, great. Thank you.

Thank you, and I am showing no further questions at this time. I would like to turn the call back to Ward Nye for closing remarks.

Thank you, again, for joining our second-quarter earnings call. We continue to be enthusiastic about the outlook for the balance of the year and expect to generate strong cash flow and return value to our shareholders through the repurchase program. We look forward to discussing our third-quarter results with you in October. Thanks for your time today.

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