Martin Marietta Materials Inc (MLM) 2015 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Martin Marietta third-quarter 2015 financial results conference call. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ward Nye, Chairman and Chief Executive Officer. 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.

By any measure this was an outstanding quarter for us. We recorded record net sales, gross profit and net earnings. Our performance in the third quarter reflects some basic realities about today's Martin Marietta.

Namely the growing demand for construction materials coupled with our operational excellence and synergy realization has enabled us to generate net sales that exceeded $1 billion, a milestone for us, as well as achieve our stated incremental margin objective by delivering $0.77 of gross profit on each incremental dollar of net sales over the prior year quarter.

Further to that point, we believe that we are in the beginning stages of a construction centric recovery that is taking place in our country and, most importantly for us, in those markets we serve. As a result we see further opportunities to increase our sales, profits and cash flow in the coming months and even years.

The past quarter also saw us complete the sale of our California cement operations in a cash transaction for $420 million. In anticipation of the proceeds from the sale we repurchased $158 million of our common stock during the third quarter giving us the opportunity to further enhance shareholder value. We anticipate returning the remaining net proceeds to shareholders with additional stock repurchases throughout the remainder of the year.

Before we discuss third-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 third-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.

In addition, to facilitate this discussion we have made available during this webcast and on our website supplemental financial information. We believe this provides meaningful data to better analyze our third-quarter performance. Let me briefly summarize the supplemental information.

Slide 2 provides comparative net sales and gross profit which helps illustrate our profit trajectory. Slides 3 and 4 provide product line volume and pricing metrics. We are pleased to report solid growth in each product line. Finally, slide 5 provides a roll forward of our earnings from operations. Now let's delve into some of the underlying details that support these metrics.

Aggregates product line shipments to the infrastructure end-use market account for approximately 43% of total volumes and increased more than 5% compared with the prior year quarter. We are encouraged to see states take increased responsibility for funding infrastructure investment. In fact, Highway awards for the trailing 12 months through July were at their highest level since 2000 with major project activity continuing to accelerate in the southeastern United States and Texas.

Additionally, today, voters in Texas are expected to pass Proposition 7, a ballot initiative that would dedicate an additional $2.5 billion annually for non-toll road projects beginning in 2017.

Last week federal highway funding was extended to November 20 with the passage of the 35th short-term patch since 2008. The roughly three-week duration of this continuing resolution increases our optimism regarding the passage of a multiyear federal highway bill this year, a move that has bipartisan support in Congress and which the President has indicated his willingness to sign.

To that effect, on October 18 Congressman Bill Shuster, Chairman of the House Transportation and Infrastructure Committee introduced the $325 billion Surface Transportation Reauthorization and Reform Act.

This means that together with the Senate's previously announced Developing a Reliable and Innovative Vision for the Economy Act, or DRIVE, for the first time in over a decade both chambers of Congress are readying to advance multiyear federal highway bills.

Should a federal highway bill be passed before the end of the year, any meaningful impact on our business would not be expected prior to the second half of 2016. But clearly its positive impact will be felt for several years thereafter.

The nonresidential end-use market is comprised of two components, light construction and heavy construction. The light nonresidential construction component is primarily office and retail with demand generally tied to employment growth and residential demand.

Consistent with these drivers light nonresidential aggregates volume increased 29%. Importantly each reportable group achieved double-digit growth in this component of construction with the largest percentage increase being reported in the Southeast division.

Light nonresidential shipments are benefiting from low energy prices and years of steady employment growth. In fact, non-farm employment in the United States is currently about 4 million jobs above the prerecession peak.

The heavy nonresidential construction component is primarily industrial building as well as energy and energy-related activity. These shipments represented 21% of quarterly aggregates product line volumes and declined 9% compared with the third quarter of 2014.

As expected shale energy-related volumes were down versus the prior year quarter. However, we expect large energy-related industrial and infrastructure projects during the remainder of the year and early 2016 to offset the decline in direct shale exploration activity.

Despite the reduction in shale-related shipments, domestic crude oil production is projected to reach 9.25 million barrels per day in 2015, an increase of more than 500,000 barrels per day over 2014 levels, all evidence of continuing energy sector transformation in the United States.

Nonresidential construction activity continues to vary by location. Texas again led the nation with more than $24 billion of starts for the trailing 12 months ended September 2015. Significant job growth -- significant growth is also being experienced in key southeastern states including Florida, North Carolina and South Carolina. Our leading positions in these markets should allow us to capitalize on these opportunities.

The residential end-use market represented 18% of aggregate shipments and increased 15% compared with prior year quarter. The overall rate of residential growth continues to be in line with the trend in housing starts. Texas leads the nation in single-family unit starts while Florida, Georgia, Colorado, North Carolina and South Carolina each rank in the top 10 in growth for the trailing 12 months ended September of 2015.

Finally, to conclude the discussion of end-use markets for the third quarter, the ChemRock and Rail market represented the remaining 9% of our third-quarter heritage aggregates volume. Shipments were up 7%, attributable to increased railroad ballast shipments which in part are driven by deferred maintenance from prior years when rail congestion and weather hindered such activity.

Aggregates product line pricing increased in all reportable groups, led by the West Group, consistent with our stated expectations. Overall we achieved a 5% increase. Aggregates product line total production cost per ton shipped was down slightly with lower energy prices benefiting the cost structure.

On average we paid $2.04 per gallon compared with $3.09 in the prior year quarter, contributing to an $11 million reduction in diesel fuel costs for the entire Company. During the first nine months of the year we have recognized a total of $16 million in diesel fuel savings despite a 22% increase in consumption driven by economic growth and the TXI acquisition.

The aggregates-related downstream product lines increased their combined gross profit by almost $13 million. Notably, the heritage ready-mix concrete product line reported a 19% increase in volume and a 9% increase in average selling price.

Gross profit for the Aggregates business increased $60 million and resulted in a gross margin increase of 500 basis points over the prior year quarter to 25.3% of net sales. In fact, we are very pleased to note that all of our reportable business segments expanded their respective gross margin led by a 780 basis point increase in the Southeast Group. Continued economic recovery in Georgia and better performance by our offshore operations contributed to this improvement. We expect further recovery to provide opportunities to expand profitability towards historical levels for the Southeast Group. Overall our Aggregates business exceeded our publicly stated target and generated an incremental gross margin of 68%.

The Magnesia Specialties business delivered strong performance and generated net sales of $57 million and a gross margin of 34%. For the quarter, the business' earnings from operations were $17 million, a slight decline compared with the prior year. Net sales and earnings were negatively affected by a decline in domestic steel production.

Our third-quarter Cement business results are impressive. Gross profit increased $14 million, as a 16% increase in average selling price to nearly $100 per ton, and synergy realization more than offset volume declines. Gross margin expanded 1,250 basis points to 34.5%. For the quarter the business incurred almost $5.5 million of planned kiln maintenance cost, which, as expected, will likely double in the fourth quarter.

For the third quarter the Cement business shipped 1.1 million tons to external customers. Over 70%, or 138,000 tons, of the decline in cement shipments during the quarter resulted from the sale of the California Cement business. Upon announcement of the sale of that business, as expected, certain customers realigned their volumes to other suppliers.

Excluding the California sale impact cement shipments declined 4% with half resulting from a loss of direct shipments to the energy sector and the other half from the well-publicized introduction of new cement capacity in Texas.

We remain diligent in achieving margin growth through a disciplined price structure. The aim is, as ever, to increase profitability and shareholder value.

The Portland Cement Association, or PCA, forecasts a favorable supply/demand imbalance in Texas over the next several years with continuing growth on an annual basis through 2019. We believe this forecast supports continued resilient growth. In that regard it is important to recognize and understand the diversity of the Texas economy.

Today's Texas is not the Texas of the early 1980s. In the 1980s, the Texas construction sector was overbuilt. On average from 1982 to 1984, when there were nearly 11 million fewer people living in Texas, annual housing permits were approximately 75,000 higher than during 2012 to 2014.

Importantly too, over the last decade, Texas has led the United States in terms of job growth creating 30% of new jobs across the country. This has led to near continuous positive net migration to the state, a trend that is expected to continue.

In addition to increased housing demands in the state, infrastructure spending, which represents our most aggregates intensive end use, is also crucial to continued growth. The strong Texas Department of Transportation budget coupled with the expected Proposition 7 annual contribution to state transportation initiatives should continue to provide a solid foundation for construction materials demand and extend the growth trajectory in Texas.

Moving back to our quarterly results, consolidated selling, general and administrative, or SG&A, expenses were 5.5% of net sales. The increase of 20 basis points compared with the prior year quarter reflects the impact of higher pension expense. For the quarter we incurred net acquisition-related expenses of $2.1 million, in line with our estimated run rate.

In connection with the California Cement business divestiture, we recorded a loss on the sale of $25 million and also incurred nearly $4 million of related expenses. Excluding the nonrecurring loss and related charges, our adjusted earnings from operations for the quarter were $208 million, an improvement of 36% over the prior year quarter's adjusted earnings from operations of $153 million.

For the first nine months of the year we generated $320 million of operating cash flow compared with $202 million in 2014. The 58% increase is due to higher earnings partially offset by working capital needs in 2015. As planned, we increased our organic capital investment including continued work on the Medina limestone rail quarry near San Antonio, a strategic project which we believe will be complete on time by year end.

On a year-to-date basis we have returned $339 million to our shareholders through the combination of repurchasing 1.6 million shares of our common stock together with our dividend. As a reminder, we have Board authorization to repurchase up to 20 million shares in total.

Also our ratio of consolidated debt to consolidated EBITDA for the trailing 12 months ended September 2015 was 2.2 times, in compliance with our leverage covenant and within our targeted range.

As we look ahead to completing a successful year we expect consolidated earnings before interest, income taxes, depreciation, depletion and amortization expense, or EBITDA, to range from $800 million to $820 million exclusive of the one-time loss on the sale of the California cement business.

The range also assumes we do not experience an early onset of winter weather in our key markets thereby ending the construction season prematurely. This represents the most significant risk for our fourth-quarter performance.

As you are likely aware, recent weather events in South Carolina and Texas have affected activity. At this time we do not expect a material impact on fourth-quarter results. However, operational inefficiencies, if not offset by demand, could affect results.

We have also started to frame our preliminary end use outlook for 2016. Based on our internal observations and external data published by Dodge Data & Analytics and the Portland Cement Association, we currently expect modest growth in the infrastructure and nonresidential markets and double-digit growth in the residential market. ChemRock/Rail shipments are expected to be relatively flat. Cement demand in Texas is expected to increase 4% over 2015 levels. Our forecast does not reflect any major benefit that would come from the passage of a multiyear federal highway bill as there will be a long lag time or a lag time before the bill provides meaningful impact to our business, thus the positive impact would occur beyond 2016.

To conclude, we continue to be excited about the future of Martin Marietta. We believe we are at the beginning stage of a construction centric recovery in many of our key markets and we are extremely advantageously positioned to benefit from the expected upturn.

Additionally, our third-quarter results illustrate our growth trajectory when price, volume and costs are all favorable. We are focused on the execution of our strategic plan while remaining committed to our core foundational pillars: world-class safety, operational excellence, cost discipline, ethical conduct, sustainability and customer satisfaction. These pillars should lead to increased shareholder value.

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

(Operator Instructions). Kathryn Thompson, Thompson Research Group.

I guess, first wanted to focus on your outlook by end market in 2016. And that outlook is a little bit more muted I think than we and others had expected. How should we think about margins, in particular, incremental gross margins, on a go-forward basis given the strong incrementals you report in the quarter and against the backdrop of maybe a little bit more muted end market growth in 2016? Thank you.

Sure, Kathryn. Let's talk about it in two different ways. Let's talk about the outlook, then let's talk about really what margin is going to look like. Because we are all talking about growth, we are just talking about how much growth there is going to be. Because I am sitting here looking at what I think next year looks like I think it is some of the best outlook we have seen in years.

We have broad-based state DOT initiatives that are in place. We have residential reacceleration underway. We see good private sector nonresidential work. There are some huge non-building projects and what I think will be continued great pricing dynamics.

But here is the way that I want to encourage you to think about the margin, Kathryn, here is a great way I think to think of it. If we look at the margins that we picked up in our business, incremental is 77 across the business. You see what we did in the aggregates space all by itself. Here is the way to think of it.

For the quarter -- I'm looking at heritage tonnage right now. For the quarter our heritage aggregates tonnage was 42.8 million, last year for the similar quarter 40.6, so a couple million tons. Let's look at it through nine months, 106.5 versus 104.3. Any way you look at it it is about 2 million tons. Let's put that in context and I think it helps with the margin.

2 million tons is about the size of what I would think is a really good quarry, one quarry. Here is the difference. The profit increase for the quarter -- from those 2 million tons for the quarter was $30 million. The profit increase through the nine months for those 2 million tons was $85 million.

Remember what my comments were at the end of the commentary -- when you have volume, price and cost all working in the right direction, it is very powerful.

Part of what we said on the incremental margins is when we get to the point that we have recovered half of the volume that we lost in the downturn, and remember that was 80 million tons, we thought we would see on average 60% incremental in the business. And clearly what we are seeing right now on the roll up business is far better than that.

If we are back to the notion of being at the beginning innings of a construction centric recovery and you are seeing that type of profitability over that small amount of tonnage, and keep in mind what this means, Kathryn, this is not with our most profitable business well yet. This is with our most profitable business starting to get well in Georgia and Florida and North Carolina.

So we see the type of acceleration in those markets that I hope we will see and the types of margins that you have seen in this quarter and otherwise I believe will continue to replicate themselves and we are more than comfortable with that 60% margin that we put out there. That is a long answer, but your question is a good one; I wanted to be thorough with the response.

That is helpful. Toward the end you were just -- I wanted to tag onto that regional focus. What are you seeing in terms of demand either on a state-by-state or, broadly speaking, region-by-region basis?

And if there are any differences in maybe you could focus a little bit more on the non-res end market and bifurcate between what is really more heavy industrial versus just traditional light commercial. Thank you.

Thank you, Kathryn. Let me approach it this way -- let's look at each side of the Mississippi River for a second and just think through. And let's start in Colorado which has been a great and important state to us for the last several years.

I really look at Colorado as a front running state right now with a lot of room ahead of it. The employment picture in Colorado is very good, Denver is ranked 23rd nationally. There is a private sector that is really very strong, it is ranked 11th in housing starts.

Their DOT program remains remarkably attractive, that is up 9% for the trailing 12 months. And again, what we are seeing there on downstream pricing continues to be very good. I think what our team in that marketplace has done with the ready mix business is really impressive.

If we come farther south and take a look at what is going on in Texas, remember it is third in employment, it is up almost 900,000 jobs over the last 36 months. We have got I-35 in North Texas going -- DFW and Dallas and Fort Worth and obviously the Grand Parkway in Houston. And then we have got what we believe is going to be the coming of the $2.5 billion really hitting in 2017 coming from Proposition 7.

Another state or two to think about as long as we are still west of the Mississippi are both Iowa and Nebraska. And Iowa has been a remarkably consistent performer for us. But here is the pop we are going to see in Iowa. We are seeing higher gas taxes there, we are going to see DOT dollars up 30%.

And we see a farm economy there this year that while some portions of the farm economy in fairness are down, we are seeing tremendous yields in the farm economy. So when we come back and we look at tremendous yields on what that could mean into Q4 or Q1, again weather dependent, very good ag lime circumstances.

If we transition across the Mississippi River, let's talk about Florida for a second: very positive, all segments are up, number two in job growth, very strong DOT program, number one in residential and number four in non-res, which I know you asked me about. We'll hit more about that in just a second.

The state of Georgia I believe finally, finally is starting to hit its stride. It has lagged Florida just a bit, but right now it is number nine in job growth, it is number three in residential. We are seeing a double of the DOT in that state and we're going to start to feel that impact really even more profoundly late in 2016 and the T-SPLOST program in South Georgia put some much needed volume in that part of the state.

And then lastly, but certainly not least, is what we are seeing here in our home state of North Carolina. What I would tell you is that state is really up-and-coming right now, number five in employment, it is just past Georgia, in fact.

It is number eight in single-family and what we are looking at right now on a trailing 12 months at least through August is we are seeing DOT awards up almost 47% and we are seeing good work come up on hot lanes in Charlotte right now.

So if we look at a new those six states that are disproportionately important to us right now, I think that gives you a pretty good sense of where it is.

Now the other part of your question, Kathryn, that I want to try to answer is really what is going on with non-res. Because again, if we are giving the sense that non-res is ill, that is not a sense that we are trying to give. Non-res particularly on the heavy side, and I think that is where your question was, tend to be good long-term multi-year jobs.

So think of it in these terms. If we are looking at non-res construction, again on a trailing 12 month basis, Florida is up 40%, North Carolina is up 18%, South Carolina is up 31% and Colorado, which began its recovery well ahead of others, is up 7%.

At the same time if we look at some of those states and the same percentage over a three-year period -- and again, I say that because they are multi-year, Florida up 54%, North Carolina up 11%, Georgia up 24% and Texas up 85%.

So again, if we are looking at heavy construction with years of tail to it, I think it's got a pretty good story. And then obviously the story of the quarter relative to the light side of it that tends to follow housing was really a very attractive quarter. And again, in the states that we believe are disproportionally important to us we think will continue to be a good story. Did I hit what you needed on that?

Yes you did. Thank you very much for answering my questions today. I will hop back in the queue.

Todd Vencil, Sterne Agee.

I want to circle back on that last question and that last answer, Ward, because I hear you on the amount of work that there is on the heavy side, this is specifically through the non-res. And on the fact that you are seeing the lighter non-res kind of fall through and certainly good performance in 3Q, but I mean that is where you trimmed the guidance for the year.

And the outlook, the preliminary outlook for next year has kind of a slower pace of growth implied than what you have seen this year in non-res going from sort of -- we were at high-single-digits, now we are at low- to mid-single-digits, I can't remember exactly. And then you are talking about sort of slight growth next year. So what is the disconnect? I mean why are we seeing a deceleration there?

Yes, I think you are just talking about what we are looking at relative to new projects. If you are looking at what is there and the volumes that we are likely to see on existing projects again that are multi-year, Todd, I think you are going to see a host of very strong multiyear projects that are already on the books.

So really what I would tell you is this, are we seeing a bit of a slowing in the trajectory of some of the growth in Texas? I think the answer is, yes. But if you are looking at the numbers and the way growth has been in that state over the last several years, it has been so heady that it almost has to naturally pull back while it is still growing.

Now here is what I think the wildcard is. If you want to tell me or others want to say that you know what, I think it's getting better in North Carolina and Georgia and Florida and South Carolina more quickly than you are saying. I will take that because I think there is going to be nice growth in those states as well.

But again, if you start seeing a higher rate of growth in heavy non-res in the Eastern United States, that is really going to be the swing factor in some of this. Because I think when we go to Texas and simply look at what is going on there, or Colorado, or Iowa or others, it is going to continue to be very healthy.

We are simply talking about rates of growth, and we are already seeing volumes and some of those states that are at very, very good levels.

So if you are doing a compare across our geography and trying to sort out where is there candidly continued room for growth, it is in the East much more so than it is in the West and the East has been a slower, steady growth pattern really for the last two years and you can see what the result is in the bottom line this year.

Well that's -- so thanks for that and that is very interesting, it leads us in interesting places. So if you are saying that you are going to basically see a handoff from growth in the West toward growth in the East, remind me, your margins and your average prices on aggregates are much higher in the East in general than they are in the West, is that still true?

That would still be true.

So that, going back to Kathryn's original question, would imply a bit of an, all else equal, a bit of a tailwind on price and margin and things like that next year if in fact that is happening.

Todd, I think that is true. I mean the pricing of the East has always been higher than it has been in the West. And, look, do we want to see as much volume go as possible? We absolutely do. The primary thing we really want to do is make sure that we continue to make more money and deliver more value for our shareholders.

And what I would suggest to you, I think the results from the quarter are spectacular. I think what we are having this year is an outstanding year, I think we are going to have a better year next year. And I think the parts of the country, to your point, that have historically been our most profitable parts of the country are continuing to get better. And I think the level at which they are getting better is starting to outpace other parts of the country. And by the way, they are overdue. That is not a surprise.

Excellent, thanks for that. Second question, we have heard some other companies and private companies -- I've asked this question a couple times today -- talk about bottlenecks in parts of their business from labor generally at their customers, whether it is concrete finishing crews for framing crews or what have you. Is that something that you are seeing in your business?

No, Todd, it absolutely positively is. And probably the parts of the country where you have less labor issues than others might be in parts of South Texas where you have some of the people who are directly involved in energy, not necessarily directly involved in some of that work.

But if we are in Colorado it is tight. If we are in Iowa it is tight. If we are here in the Carolinas, in Georgia, in South Carolina and increasingly in Florida it is tight. And that is one of the reasons that when we were talking about how much volume we could recover in half two relative to those torrential rains that occurred in half one in the United States or in Texas in particular, we had some concerns about that.

It is still a concern in markets like DFW and North Texas in particular because, again, that economy -- we talked about the fact that is the best single family housing market in the United States. So you can imagine the type of activity that can be there. So the supply chain, the ability to deliver, etc, is challenged in those marketplaces, no question, Todd.

And, Todd, I think if there was one uniform message that -- as you know, our planning process has us travel around the country. The one uniform message that we had really from almost every part of the geography was dealing with labor. And that impact on the supply chain.

And just to be clear, Anne, labor at your operations or labor at your customers?

Customers.

Downstream, Todd.

Got it, thank you.

Garik Shmois, Longbow Research.

First question is on aggregates pricing. You reiterated your guidance, but we are seeing some I guess deceleration in the reported growth in heritage aggregates pricing. Given the context of your volume outlook for 2016, we were just wondering how maybe we should start thinking about the rate of price growth as we look out to next year.

Sure, Garik. We have actually always been pretty consistent on that and that is in a circumstance where you believe you have more muted growth than others, meaning really sub 5%, then pricing as a percent and volume as a percent end up being relatively tied to each other particularly as you go up the ladder right now.

So what I would say is if I am looking at pricing across our group right now, you saw the up 5%. At the same time if I am looking at it on a group-by-group basis not surprisingly we are seeing bigger price increases on a percentage basis in the Western United States in large part because there is room for that in the West because it has been lower.

But what I would suggest, Garik, is the view that we have shared really for the last couple of years on pricing has not materially changed.

Okay, thanks. I guess just shifting to cement. A couple pricing questions. You indicated that fourth-quarter should be likely the last quarter that you'll see some of the low price TXI projects come through and then as they roll off you should benefit from higher pricing.

I was wondering if you could maybe provide some sequential guidance on cement pricing, how we should think about those low price projects rolling off.

And then secondly, you indicated some supply that has come onto the market in Texas. You also indicated 4% expected volume growth next year and there is an announced price increase in the market for the spring.

As you look out clearly a couple months away from the price increase being implemented next year, can you talk about some of the puts and takes around supply/demand in Texas, and your level of confidence of securing a pricing next year given some of the supply/demand balancing?

Yes, sure, we will try to do that. I mean here is the way that I would think about it first of all. Let's talk about some of the dynamic that simply occurs because we are not going to be in cement in California anymore. So let's start with that. And talk about the picture that you saw for the quarter, because I think that is important to really understand and have context around.

So, 70% of the volume decline for the quarter was attributable to Riverside in California. So what you had immediately is when the deal was announced, you had certain customers who were seeing a change in that marketplace, who were seeing a non-vertically integrated player, ourselves, going away and the downstream customers realigning themselves, that was what we really saw in the quarter. We back away from that, you know really you are looking at cement volumes down 4%. You know our quick snapshot is of the 4, about 2% of that is cement that's no longer finding its way to oil or the oil patch or others trying to find a home for some of that. And the other, I think is directly to your point, Garik, and that is you do have a new importer right now in South Texas and there has bene some share that has gone there. What I think we're focused on right now, to your point, we're looking at a $12 a ton price increase in April, we are the market leader in Texas and we have a lot of conviction around that.

As I look at what Texas capacity is and look at what Texas demand is both in 2016 and 2017 I am seeing something in 2016 that is going to be close to 2.8 million tons of deficit. I am seeing what people are projecting to be about a 3.2 million ton deficit as we go into 2017.

So as we are sitting here with what I feel like are very attractive and efficient plants both in North Texas and Central Texas, I mean here is what I will tell you. What we have done relative to the efficiencies at Midlothian and Hunter during the time that we have been there I think is impressive.

We can run plants in Texas as efficiently as anybody. If we want to go and get share we can go and get share, that is not how I think we are going to put value for our shareholders today. And we are resilient on making sure that we are getting the price in that marketplace, I am confident that we can. And the fact is at certain levels, and I think this is where we are, price is more valuable than volume.

So, if you come back and take a look at what our performance was in the quarter, remember what I said in my comments -- our cement results were impressive and we believe that. And I believe we have got a very good team. I think we have got superb locations. I think we have got great operations. And I think given the dynamic in that marketplace I feel pretty good about it if you can't tell.

Okay, thank you.

Keith Hughes, SunTrust.

Just building on the last discussion on Texas and cement. Can we talk about aggregates in Texas? Kind of what kind of volume pricing did you get during the quarter?

Yes, I mean if we are just looking at -- we will talk about the West group for a second. Because what we are really seeing if we look at the West group is we saw tonnage, 15 million tons versus 14 million in the prior year one thing to remember is North Troy tonnage is in there for last year, so that's going to throw that off pretty markedly. You know frankly, if we look at what we see in Texas for next year, I think that probably what you're pretty interested in too, I got to tell you, I feel pretty good about it. If we break it down and look at it this way Keith, I mean North Texas, I think the market there next year is better than it is this year in large part driven by very large projects.

The Horseshoe project in downtown Dallas as well as I-35 E and W are both going to be underway in North Texas in the Metroplex. State Highway 183 is very much underway. Even when we move farther south to Houston part of what I look at is not just what we have awarded, and by the way that is I-69 and farm-to-market roads 1488 and 1774, and some of the work that we have at Freeport LNG but really what is coming.

And I'm seeing good work relative to the Harris County Tollway authority, good Tex DOT work, good work also at Bush Airport. And then when we come down to South Texas and we are looking at the large energy and infrastructure projects that really in my view support good business in 2016 and beyond at Cheniere, at the pipe plants, Harbour Bridge and otherwise. And the volume that I think we are going to see in Texas on these long lived projects is really attractive.

The other thing that I am moved by in Texas right now is TXDOT already has a big budget. But if you spoke to the people at TXDOT what they would tell you is it looks good, backlogs are good, going forward with work it looks attractive. And by the way, when we start putting this Prop 7 money to it it is going to feel like it is on some degree of steroids.

So again, you are talking big numbers in a state that already has big numbers. But what it gives me a sense of, Keith, is it is likely to be healthy there for a good while going forward. Did you need more? I'm happy to talk more on Texas. I want to make sure I'm answering your --.

Well, that is a lot of information and without context it doesn't mean a lot. I guess my question really -- you saw cement volume down effectively 40%, as you were saying earlier. I assume aggregates would go along with that. But is that the case in the third quarter?

No, no, that was not the case. So if I am looking across our Southwest division I am seeing aggregate volumes up in almost every district and I am seeing many of them at or close to double-digits and I'm seeing price up without exception in every district just to be granular on that.

And the second quarter we had the torrential rains there. And of course it got better here in the third. It looks like we had I guess a little pickup in aggregates there, not in cement. What is the deviation there?

I just think you have got some of the supply chain issues with ready mix and other otherwise that we were actually talking to previously on the call with Todd. Actually I think in North Texas it was pretty good.

I think the issue that we discussed is really some of the import and other issues more focused on Houston right now. And as I said, did we give up a little bit of share in that part of Texas? Absolutely we did. Do I regret it? No, I don't. Do I think price is more valuable? I do.

And, Keith -- if you think about it, Keith, there is still some overhang from weather in the second quarter. If you recall, we talked about the fact that the clinker barns are full, the silos are full. So you have that coupled with some new capacity particularly coming into that South Texas area. That to us is really some of the dislocation during that period.

Thank you for that. I guess final question, we just talked about the initial question on the call, the delta between your commentary on nonresidential and growth -- the forecast in the press release of low-single-digit or modest growth, whatever you want to call it.

I guess Texas trajectory, is that the difference there versus what I think many would have expected you to say about nonresidential or are there others?

Yes, I think it probably is. When you go back -- and I think it is trajectory in multiyear nature of it. I think that is probably what people are reading or not reading into it. Because if the sense is that we feel like non-res is going to flip in Texas, that is not what we are seeing.

I think the bigger issue is what kind of pop are you going to see east of the Mississippi. I think there is going to be one. I think the question is we're going to quibble over how much and when. And at some point we will all look at it in our review mirrors and be right.

Okay, thanks very much.

Ted Grace, Susquehanna.

Ward, just as a point of clarity, you framed your outlook for 2016, you had mentioned that it was done in conjunction with McGraw-Hill's forecasts. And I very much interpret it to be Martin's outlook for those end markets. But obviously McGraw-Hill kind of models stuff nationally.

Is there a very specific Martin overlay so that those are very specific to your markets? And really the gist of the question is is there potential for you to outgrow the markets or do you think -- or should we very much interpret those as your volume guidance at this point in time?

Again, this is very, very preliminary guidance, Ted. So we will obviously come back in February and give you what we feel like is a much more detailed snapshot of it. I mean what we do is we go through a budgeting process. As we are going to use basically Dodge and we are going to use PCA as markers that we will have.

And then we will come back and say, let's talk about what form of deviation we may or may not see from that in any given market, because if you have done a lot of bridgework in a market that from a dollar perspective could pop a market pretty considerably. So we use those as markers and then we use what we are seeing in the field as something to really adjust and tune that a little bit with. Does that help?

Yes, that is very helpful. On the Texas cement topic, I know you talked about the markets running in deficit of about 3 million tons in 2016 and 2017 based off the most current analysis. I guess how do you -- what is the clearing mechanism for the market?

I mean is it a scenario where new imports find themselves into Texas to kind of clear the market? Is it demand destruction because pricing goes up? I mean just I think we have gotten a lot of questions on I think people's concerns that there will be more imports into Texas. So it would be helpful just to get your guys' kind of perspective on that issue and if you think that a likely source of incremental supply.

I guess my sense is obviously Argos is coming into South Texas right now with probably let's call it 500,000 tons of cement. I do think that is a tough move for a lot of people to make simply because of logistics. Clearly that is not something that is going to have any significant impact for example on a Dallas-Fort Worth type market.

I think you need to remember too that the vast majority of players who are in that market are also domestic producers. So the short answer is unless some cement comes in you simply can't meet the market demand.

That said, I think the plants that are in that state are good efficient plants. I think in large part the need for much advanced imports in that state will not be particularly acute. I would be surprised if we saw that. So I don't see a market change coming in that marketplace, Ted, at least from a logistics and a practical perspective.

Okay, thanks. And then the last question is for Anne. Anne, slide 5 of your deck you outline a $10 million headwind from net loss increases. You talked about energy being an $11 million tailwind in the quarter I think. Can you just bridge us on the key components of that cost increase just so we appreciate what they are?

Yes, Ted, you are looking at some increased repair and maintenance costs, some increased overhead -- I mean overtime cost of your employees as you ramp that up versus adding a lot of new heads. Those are probably the two principal drivers.

So, net think about those being about $20 million of headwind offset by roughly $10 million of diesel benefit?

Round numbers, yes.

Okay. All right, super, I will leave it there. I know there are other people in the queue. Good luck in this quarter, guys.

Trey Grooms, Stephens.

So, a quick -- I guess this would be a follow-up to Ted's question. As we look into next year can you talk about -- Anne, can you talk about some cost headwinds or tailwinds that you may be facing outside of diesel looking into 2016? So any other raw materials or SG&A or pension or just anything that we could kind of be aware of and watch as we enter next year?

I think -- we will start with pension because that one is really what is going to be the corporate AA bond rate at the end of 2015 will set whatever that pension cost is going to be. So you can look at the sensitivity that we have disclosed for 25 basis points movement there to tell you whether or not this should be anything that happens on the pension side.

I think we will see -- I don't think we will have big general wage inflation. I do think we will potentially see some increase in overtime. I think as we continue to invest in our rolling stock we should see maintenance and repair stabilize.

I would also expect that for some what I would call energy derivative consumables -- we consume a lot of rubber, we consume a lot of lubricants and other types of energy derivative cost explosives. I would expect that the benefit we have seen from diesel in 2015 begin to carry its way through those types of products as we move into 2016.

Okay good, that is helpful. And then switching gears to the legacy TXI cement contracts that are rolling off this year. Where are we in that process of these contracts rolling off? I guess how much more do we have as we are going here and going through the 4Q?

I mean, Ted, they will be substantially gone by the end of the year -- I mean Ted, I am sorry, Trey, they'll be substantially gone by year end.

And was -- as far as kind of how they rolled off, was 3Q a big chunk of it and then less in 4Q or how do we measure that?

Yes, the bigger chunk was in Q3.

Okay. And then my last question is I just want to make sure I understand some of the discussion around maintenance expense on the cement side. Am I accurate in taking that you guys have lowered your maintenance expense a little bit for the I guess taking into account 3Q and then 4Q?

Because I think the guidance was $6 million in 3Q, $14 million in 4Q. And I think you did just under that and expect that to double. So maybe it is a few million less in the 4Q than you originally expected? Is that accurate?

That is accurate, yes.

Okay, thanks a lot. I will jump back in queue, I know there is more. Thanks.

(Operator Instructions). Craig Bibb, CJ Securities.

And not to hammer on this same points -- I guess I am trying to really understand what changed from the second quarter to the third quarter. The first half you had lots of rain that was depressing volumes and then you have a lot less rain in the third quarter but volume growth slowed, price growth slowed. From what I have heard so far it sounds like energy volumes in Texas is a chunk of that or what am I missing here?

I think in large part what -- I am not sure you are missing anything per se, Craig. I think a lot of it goes back to how much can the market absorb right now given logistics and other downstream constraints that I think the market is just generally faced with as we speak.

And I think a lot of the makeup, if you can give me a good sense of how long weather will at least be warm and dry in Q4, honestly I think that is your big swing factor. So what I am more focused on is when I come back and take a look at pricing for the quarter I am not disappointed on pricing in the quarter. And again, I think pricing next year is going to be a very good story.

And if we can run effectively through Thanksgiving you can have a Q4 that could make up some of that volume. That is really your swing factor, Craig. I don't think we ever anticipated Q3 was going to be a period of time where you would see a lot of makeup on that.

And when you are looking at nonresidential, your forecast of a slight or modest growth in 2016, is that based more on your bottoms up process or the external data that you are using?

No, it is pretty broadly macro with a dash of what we are seeing. Again very preliminarily relative to some of the local markets. I mean obviously we are going to come back when we get in Q1 and we roll up full-year and give you a sense of how we feel like all of that is going to roll up.

But the fact is if you look at the way that we have done it over the years, I think what you are going to find, Craig, is we tend to be relatively conservative in the way that we roll that up. And I think that is one of the reasons we are good on costs as well.

I think good, slow, steady growth helps us relative to how we spend our dollars, how we hire people and how we plan. So I think if there is a bias there built in in Martin Marietta it is one for conservatism.

I guess the disconnect is we entered the year expecting to be on the cusp of an upturn in the construction cycle. And I think people are surprised to see volume growth expectations tapering down at this point.

I think the important thing to remember is we are talking about volume growth expectations. And I think the other thing to keep in mind is what we are doing with those volume growth expectations is putting some very serious money on the bottom line.

So if you are looking at the performance of this business and what our people do, if there is anything in the performance of the business that is disappointing to people I am at a loss on what that can be.

We can control a lot of things at Raleigh, Atlanta, Dallas, Denver, other places, volume isn't necessarily one of them. But when it comes our way we can make money with it and that is very much what we are doing.

And again, we are talking about growth, we are only quibbling over what the amount of growth is going to look like. And again, if we are tending toward conservatism and we have downstream markets that are tough to take increased volume simply because you have got trucking and other issues that are under some degree of duress, I am not sure that that is a fair view of a problem with the market. Because we don't see that right now.

Okay. And could they be other issues in the fourth quarter related to weather from South Carolina or any (multiple speakers)?

Well, I mean weather has been a challenge. I mean very candidly, we have got a quarry north of Columbia, South Carolina that has 4 billion gallons in it. I mean the -- the Broad River came out of its banks and filled it up. And we will pump it out and we'll put it right back in the Broad River.

The quarry happens to be a rail-connected quarry. And as you will recall, Craig, we have got the largest rail-connected quarry system in the United States in the Aggregates business. So we can go into the marketplaces that can now not be served by North Columbia by rail from other quarries and we can equally come into markets by boat.

So, from a market service perspective I don't think we are going to be that affected by it. From an efficiency perspective can we be affected by it? Yes. And I guess the other thing that I would say is insurance in circumstances like that is pretty difficult to have. So you in large part tend to be relatively self-insured.

And so, what I would tell you is there is going to be some capital that is going to be utilized in that as we go forward. And the other thing just in fairness, we did experience over the weekend pretty considerable rain events in Central and South Texas as well and at our Webberville facility outside of Austin we got a lot more water there than we typically would.

And at Garwood Sand & Gravel, which is typically a wet operation, we got more water there than usual. Again, do I view these as material? No, I don't. Are they issues that can affect pure efficiencies in some markets? Sure. But as we said in the commentary, relative to Q4 weather is the single most important variable on the way that quarter is going to play out.

And you will have the water back in the river by the end of the fourth quarter?

No, we will not. I mean when you have got a quarry that has got several billion gallons -- and that is what it has, several billion gallons of water in it, you can expect that to take the better part of half a year as opposed to a matter of weeks or months.

Okay. Well, thanks a lot, guys.

Trey Grooms, Stephens.

I just wanted to get (multiple speakers) I wanted to just get some color on the net proceeds. Can you remind us what were the net proceeds of the sale of Oro Grande?

Well, we sold OG for $420 million, we have got basically the $25 million that we referenced relative to some environmental indemnities and some inventory write-downs. So there is your quick math, Trey.

So that is it, there wasn't anything else. Okay, and you bought back $158 million of stock in the quarter and I think you mentioned using the net proceeds from the sale to repurchase stock. This sale didn't occur until the end of the quarter.

So how should we think about that net roughly -- just call it rough numbers, $400 million? Is that still incremental or was that $158 million kind of -- should we take that out as we look forward just as purely as it relates to the proceeds from the sale of Oro Grande?

Yes, Trey, as we indicated in anticipation of the sale we went ahead and accelerated the purchase against that $420 million.

So just net it out.

So you should net it out and it will have the expectations that we should complete the balance of that.

Okay, perfect. Thanks a lot for clearing that up.

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

Thanks again for joining our third-quarter earnings call. We are enthusiastic about the opportunities to generate strong cash flow and return value to shareholders through our dividend and the repurchase program that we were just discussing.

We look forward to talking with you more about our fourth-quarter and full-year results with you in February. Thanks for your time today and your continued support of our Company.

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.