Martin Marietta Materials Inc (MLM) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Martin Marietta Q4 2015 and full-year conference call.

(Operator Instructions)

As a reminder, today's conference is being recorded. I would like to turn this conference call over to Mr. Ward Nye, Chairman, CEO and President. You may begin, sir.

Good afternoon. Thank you for joining us for Martin Marietta's quarterly earnings call. With me today is Anne Lloyd, our Executive Vice President and Chief Financial Officer. To facilitate today's discussion we've made available during this webcast and on our website supplemental financial information, which we believe will be helpful.

As detailed specifically on slide 2, please remember 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, which could cause actual results to differ materially.

Except as legally required we undertake no obligation to publicly update or revise any forward-looking statements, whether resulting from new information, future developments, or otherwise. We refer you to the legal disclaimers contained in our fourth quarter and full-year earnings release and other filings with the Securities and Exchange Commission, which are available on both our own and the SEC websites.

Also, as a reminder, 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 supplemental financial information, as well as on our website and in our SEC filings.

By leveraging a full year of acquired TXI operations with our Heritage business, 2015 enters the books as a record year. Specifically, we achieved record safety results, record net sales and profitability, expanded consolidated gross profit margin, exceeded incremental margin targets for the consolidated Heritage business, exceeded acquisition synergy targets in both dollars and time line, invested capital in our business, completed several bolt-on acquisitions, and returned nearly $630 million to shareholders through dividends and share repurchases.

These impressive results were achieved with both tail winds and headwinds. The tail winds, 2015 construction markets experienced continued growth in private activity, led by housing, as well as the emergence of enhanced public sector activity, as best revealed by a 7% increase in highway construction.

Nonetheless, we had a very significant headwind, as 2015 saw unprecedented amounts of precipitation in our core states of Texas, North Carolina, Iowa, Georgia, and Colorado, disproportionately impacting second- and fourth-quarter performance. By some estimates, and indeed our own calculation and internal plans, multiple sustained extraordinary weather events, combined with a downturn in energy sector shale development, likely cost us up to $200 million in sales for the year, masking the underlying strength of general construction.

That underlying strength is revealed in the solid growth we see across our business, with the market acceleration of the construction recovery in key southeastern markets fueled by steady employment growth, continued private sector activity, and expanded Department of Transportation programs. We thus enter 2016 with what we believe are very favorable market and operating tail winds, building upon our team's record 2015 results. These past results and future opportunities are tied to our strict and steadfast attention to cost discipline, further underscoring the positive result of years of improving our operating efficiency.

We're also specifically very proud of our 2015 record safety performance, a core foundational pillar of our Company. We concluded 2015 with incident rates better than what had been 2014's then-record results. Notably, we continued to see dramatic improvement in the safety numbers of the former TXI operations, further underscoring our successful operational and cultural integration -- safety is first at Martin Marietta.

In December, we completed construction of our state-of-the-art Medina rock and rail quarry near San Antonio, Texas. Shipments from Medina are expected to replace rail shipments from our Beckman quarry, as it transitions from a distance rail- and truck-served quarry to wholly focusing on the local San Antonio marketplace.

The Medina job was on time and on budget. The construction of this $160 million facility spanned three years, is the largest and most complex capital project in the Company's history, and is now the largest quarry on the Union Pacific Railroad's vast network. Medina began operation in January 2016 and we expect to ship nearly 6 million tons of aggregates this year.

As highlighted in today's press release, we continue to execute against our strategic objective of securing and solidifying leading market positions in economically diverse, high growth areas. In November 2015, we purchased Front Range aggregates. And last week, we acquired Rocky Mountain Materials in southern Colorado, near Colorado Springs.

These two bolt-on transactions complement our position in Metro Denver and Northern Colorado, a position we originally acquired in 2011 with our River for the Rockies asset exchange, and provide attractive and leading positions along the Front Range, the Rocky Mountains, home to over 80% of Colorado's population. Following these recent transactions, we've added an estimated 1 billion tons of aggregate reserves.

Strategically four years ago we had no Front Range position whatsoever. Today, we are a marketplace leader, with nearly 100 years of high-quality construction aggregates in a region with near- and long-term favorable employment and demographic conditions.

Turning to the fourth-quarter performance, we established quarterly records for net sales and profitability, driven by strong pricing, disciplined execution of our strategic plan, and steady growth in construction activity. Importantly, all segments in the aggregates business delivered increased net sales and gross profit while expanding gross profit margin.

We exceeded our incremental margin target on both a Heritage and consolidated basis. Heritage gross profit margin expansion was led by the West Group, with a 630 basis point improvement, largely resulting from strong pricing and realized TXI synergies.

As shown on slide 7, through the end of 2015, we've realized approximately $100 million of our $120 million synergy target, reflected in both the acquired business and Heritage West Group performance. We are on track to fully realize our $120 million synergy target by the end of this year.

On a more granular basis, our 2015 record results were driven by strong pricing across our aggregates, aggregates-related, and cement businesses, as shown on slide 8. Notably, the Heritage aggregates product line delivered an increase of more than 7% in average selling price, while Heritage ready-mix concrete prices increased nearly 10%. The acquired businesses, aggregates, ready-mix concrete and cement saw price increases of 13%, nearly 11%, and 10%, respectively, in line with our stated objectives.

For the year, Heritage aggregates product line volume increased 2% and total aggregates product line volume increased 7%. This is again despite record or near-record recurring precipitation in five of our largest states.

The Southeast and the Mid-America Groups led volume growth on the strength of recovery in Georgia, Florida, and the Carolinas. The West Group, which was most affected by the adverse weather conditions, reported an increase in aggregates volume of 1.2%, excluding TXI-related divestitures, which affect comparability with the prior year. Aggregates volume growth for the year was notable in North Texas, but was somewhat offset by declines in direct shale energy aggregate shipments in South Texas.

Volumes grew across all product lines with the exception of asphalt, where a Texas divestiture in the fourth quarter affected year-over-year comparability. Of note, asphalt margins expanded to 28%, or just over 1,000 basis points, clearly reflecting improved profitability in our core Colorado asphalt business.

Consolidated gross profit margin was 22% and expanded by 260 basis points for the year, led by margin expansion in all construction materials-related segments. Gross profit for the Heritage aggregates business increased $130 million over the prior year, with margins expanding 480 basis points to 23.8% of net sales.

Incremental gross margin for the Heritage aggregates business exceeded targeted objectives for both the fourth-quarter and full-year 2015. The incremental gross margin of 82% for the full year 2015 was led by growth in both the West Group and the Southeast Group, which achieved incremental gross margin of 135% and 78%, respectively. These are great testaments to our team's focus on controlling costs and delivering outsized results, despite extraordinary uncontrollable weather headwinds.

The acquired businesses' gross profit margin also expanded 300 basis points in 2015 led by acquired aggregates product line gross margin of nearly 27%, up from 4.6% for the comparable prior-year period, reflecting synergy realization and underlying strength in both volume and pricing. Due to the September 2015 sale of our California cement business, quarterly results for the cement segments are not comparable to the prior-year period and, in fact, comparability will be affected throughout 2016. Quarterly details for the cement business can be found on slide 9 for elimination of the California results.

However, the remaining cement business has benefited from Martin Marietta's significant pricing improvement in 2015. Average selling prices increased 10%, aided partly by the expiration of legacy TXI cement contracts at below market pricing and the divestiture of the California business.

For the year, the business generated $368 million in net sales and delivered a 28% gross profit margin, a 310 basis point improvement over the prior year. EBITDA for the business was $101 million, a $30 million increase.

The Magnesia Specialties business was negatively affected by a slowdown in the steel industry in 2015. Steel capacity utilization was down from approximately 78% in 2014 to 71% in 2015. Full-year net sales were $228 million, a decline of $9 million or 4% compared to the prior year.

The Magnesia Specialties team diligently managed the cost profile of the business during the year, and, despite steel capacity utilization declines, delivered an impressive 35% gross profit margin. On a consolidated basis, 2015 delivered record net sales of $3.3 billion, an increase of $589 million, or 22%; record gross profit of $722 million, an increase of $199 million, or 38%; record net earnings of $289 million, an increase of 86%; and record adjusted EBITDA of $766.7 million, an increase of 30%.

The significant improvement in net earnings, coupled with the absence of TXI-related costs, drove an increase in operating cash flow in 2015 to $573 million compared with $382 million in 2014. Operating cash flow per share of $8.55 improved 8% when compared to adjusted 2014, which excludes the cash impact of TXI-related expenses. We invested $318 million of capital during the year, including $78 million related to the new Medina rock and rail quarry.

For the year, we returned nearly $630 million to our shareholders through the combination of repurchasing 3.3 million shares of our common stock together with our dividend. As a reminder, we have Board authorization to repurchase up to 20 million shares. Finally, our ratio of consolidated net debt to consolidated EBITDA for the trailing 12 months ended December 2015 was 1.9 times, in compliance with our leverage covenant and below our targeted leverage of 2 times.

In summary, 2015 was a remarkable year for Martin Marietta. And despite being tempered by extraordinary weather that cloaked our true earnings potential, our team is poised for an even stronger 2016. We are confident we have the foundation in place for improved growth, profitability, and performance.

We will now look to the future and discuss our 2016 outlook, which we highlight on slides 11 through 13. Initially, you'll notice an improvement in our expected growth as compared to our very early thoughts provided in third quarter of 2015. Our 2016 outlook now reflects growing underlying demand and strong pricing across our entire geographic footprint.

National employment growth, the stimulus for construction activity, remained robust throughout 2015, surpassing the pre-recession peak by nearly 5 million jobs. These job gains, in addition to contractor backlogs, resulting from historic 2015 rainfall, should fuel growth and further recovery of the US construction industry in 2016 and beyond.

Public sector growth is expected to drive mid single-digit volume increases in our infrastructure business, which accounted for 41% of our aggregates demand in 2015. The growth reflects continued state level funding initiatives that are positively impacting several of our key states, including Texas, North Carolina, Iowa, Georgia, and Florida.

For example, in Texas, nearly $10 billion of Department of Transportation lettings are planned, up from $6.1 billion in 2015. Dallas/Fort Worth alone is the beneficiary of four major design build projects aimed at mitigating that area's congestion and improving traffic flow.

There is also significant and continuing infrastructure work in and around Houston. Additional evidence of state level infrastructure investment tail winds is revealed by recent project scheduling changes announced by the North Carolina Department of Transportation, or NCDOT. Specifically, after the passage last year of various new state funding initiatives, NCDOT announced an accelerated schedule for 90 highway projects.

This example is consistent with our articulated expectations around state construction project backlogs. In addition to state level initiatives, we now have the five-year, $305 billion Fixing America's Surface Transportation, or FAST Act, enacted in 2015 to provide states with the required funding certainty for the first time in nearly a decade to commit to a backlog of longer-term projects needed to improve and expand America's transportation network.

We believe the FAST Act, along with state level funding initiatives, will drive large multi-year aggregate intensive construction projects. Further, it's also likely we will see meaningful projects in rural areas that had been infrastructure-starved during the last decade and will now be better able to develop new avenues for growth and commerce.

Shipments to non-residential construction projects, 32% of our 2015 demand, is expected to increase in both the heavy, industrial and light commercial sectors, leading to an increase in aggregates volume in the high single digits. The light non-residential construction sector is primarily office and retail, with demand generally tied to employment growth and residential activity. Notably, the Dodge Momentum Index is near its highest level since 2009, signaling continued growth.

Further, core Martin Marietta states account for 5 of the top 10 and 9 of the top 20 in state level employment growth, including Florida, Texas, Georgia, North Carolina, Ohio, Indiana, South Carolina, Virginia, and Colorado. All positive catalysts for construction activity.

The heavy non-residential construction sector is primarily industrial building, as well as energy and energy-related activity. We are currently supplying several large energy-related industrial and infrastructure projects along the Gulf Coast and expect our project backlog to grow, thus largely offsetting the declines in direct shale exploration activity.

We believe direct shale activity reached a maintenance level in the fourth quarter of 2015 and should sustain at that level throughout 2016. Of course results for the first and second quarters of last year reflected higher than maintenance level consumption and are expected to affect comparability through the first half of 2016 results.

The residential end use market accounted for 17% of aggregate shipments in 2015 and increased 20% as compared to 2014. We expect double-digit volume increase again in 2016, reflecting the continued steady recovery of residential investment as a result of positive employment gains, historically low mortgage rates, significant lot absorption and higher multi-family rental rates.

New housing permit activity was up 12% in 2015, indicating further future gains in housing construction. Importantly, Texas, Florida, Colorado, Georgia and North Carolina each ranked in the top 10 states for housing starts.

Finally, to conclude our discussion of 2015 end-use markets, the ChemRock and Rail market represented the remaining 10% of aggregates volume, and is expected to remain relatively flat to modestly down in 2016. We'll now focus on Texas, where we continue to be encouraged by the resilience of the broader marketplace.

In short, we anticipate increasing overall demand, driven by solid population and employment growth. Construction activity in our larger-volume markets, principally being the vibrant corridor of Dallas, San Antonio, Austin, is expected to grow throughout 2016 and beyond, led by multi-year infrastructure activity, a strong residential marketplace, and solid non-residential construction.

South Texas, of course, has seen a decline in shale oilfield activity, thus reducing our direct shipments by 2.5 million tons in 2015. Again, much of this decline is expected to be offset by the combination of large multi-year energy projects, as well as new and ongoing energy corridor road repair work.

In late 2016 or early 2017, we'll open a new aggregates facility on Martin Marietta-owned property at the Hunter cement plant northeast of San Antonio. This undertaking will allow us to transition from our leased and nearly depleted New Braunfels quarry only 10 miles away to a permitted location with over 400 million tons of quality aggregate materials providing improved access to local markets. The Hunter aggregates quarry will be an additional synergy from the TXI acquisition that will benefit our Company in 2017 and beyond.

Our expectations for 2016 volume levels in Houston have moderated from 2015 levels, where we saw an 11% increase in aggregate shipments. We now expect aggravate volume in that marketplace to be broadly flat with any potential upside being spurred by large infrastructure projects, and any downside being driven by a sharper deterioration in the Houston economy. That said, it's important to remember that our principal Texas markets are located in North and Central Texas and not materially impacted by Houston market conditions.

The Portland Cement Association, or PCA, forecasts modest growth demand growth in Texas in 2016, followed by stronger growth in 2017. We currently expect 2016 cement volume to increase 8% to 11%. We have previously announced a cement price increase of $12 per ton effective April 1, 2016.

Based on the expected flow of shipments we'll likely realize a year-over-year average selling price increase of approximately 9%. Both volume and price growth forecasts exclude the 2015 results of the divested California cement business. Profitability is forecasted to increase by an estimated $30 million in 2016.

On a consolidated basis, 2016 is expected to deliver record-setting results, including net sales ranging from $3.5 billion to $3.7 billion, expanded gross profit and expanded EBITDA. As we've consistently stated, our capital allocation priorities remain unchanged. They are investing in aggregates-led acquisitions; organic capital investment to ensure safe, environmentally sound and highly efficient operations; and returning cash to shareholders in the form of a sustainable, meaningful dividend and share repurchases under our existing authority.

To conclude, we're optimistic and excited about 2016. We enter the year with an enhanced foundation for further growth, an outlook for improved business conditions across the vast majority of our markets, led by solid private sector construction activity, and a newly reinvigorated public sector. Our team remains focused on the careful execution of our strategic plan, wholly committed to our core foundational pillars, and dedicated to delivering increased shareholder value.

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

(Operator Instructions)

Our first question comes from Kathryn Thompson with Thompson Research Group.

Hi. Thank you for taking my questions today.

The first is just on visibility in general, particularly related to states that have passed new pieces of legislation that should -- we have already seen a significant increase in tax receipts for infrastructure. But the question I have for you, particularly for Georgia and North Carolina, given the changes in 2015, have you seen volumes flow through from these legislative initiatives that were passed last year? Thank you.

Kathryn, the short answer is we're going to see it. Think about North Carolina. They basically put in more money at the end of the year last year. And, to be specific, that was an additional $700 million over two years.

The other thing that North Carolina has that's pending that we'll see voted on later in the year is a $2 billion building bond proposed, as well. So, I think to answer your question very specifically, when our legislature came out with the additional $700 million, we did see the state implementation plan move forward 90 projects up into the year. We do anticipate seeing that. So yes, we're seeing activity that we believe will take aggregates volume later in the year.

And, clearly, with effectively doubling the Georgia budget, adding that additional $900 million to it, we will clearly see amped up activity in Georgia. Remember, we were going to be benefited, too, by the [tees-boss] planning that was put in, principally in south Georgia, a couple of years ago. So, now what we will see, I believe, is greater activity across the state of Georgia, buttressing the activity that we were seeing in south Georgia, increased activity in north Georgia, principally around Atlanta, and we know we'll see more activity in North Carolina, as well.

I think it's worth noting Iowa did put in a $0.10 a gallon gas tax increase last year. Nebraska did, as well. We're going to see the benefits of Prop 1 money in Texas. And we're seeing near record lettings in Florida this year.

So, we're seeing new money in a number of states and we think we see more money coming in a number of states, including states like Indiana, where Governor Pence has basically said he would like to see another $1 billion put to infrastructure in that state. And we've got 12 different states right now seriously considering gas tax increases, in addition to what Georgia and Iowa have passed. So that gives you a little bit of a feel across the patch, Kathryn.

And just to clarify, if you look at all these initiatives in aggregate, are we in the early innings, middle innings, of seeing the dollars flow through? I would assume the early innings, but you're the one in the field seeing the volumes flow through.

Kathryn, we are in the early innings. And I think part of what you're seeing, too, it's not just early innings, it's early innings of a different type of work. Think of it in these terms.

For much of the last decade, we have really been living more on private work than public work, and private work is not as aggregate intensive as public work is. And what we're seeing now is a transition away from repair and maintenance on public work to a very different type of public work that I do believe we're in the early innings of.

And I think you and I both have the sense that the more that we are building new lanes, the more that we are building new highways or new roads, and the more these rural parts of the state are looking to add capacity and open up new lanes and corridors for business, that's awfully powerful to our business and I think very much aggregate intensive. Early, yes. More aggregate intensive, yes.

Okay. And then next two questions -- one, I appreciate your giving some clarification on increasing your end-market growth projections from Q3. But could you frame the outlook that accounts for the relatively large increase or improvement in the difference?

And then the final question would be on cement margins, if you could just help us think about, it does look to be a big jump and maybe help us understand the improvement in cement margins. Thank you.

Sure, Kathryn. Let's talk about the first part of your question first.

I think what we're seeing is increased contractor backlogs across our entire footprint. We have also seen the awarding of several large energy-related industrial contracts, particularly along the Gulf Coast.

I think what we were seeing in the fourth quarter -- when it wasn't raining, the fourth quarter looked very powerful. I'll give you a sense of it. I've been in Texas three times over the last month and a half, and was down there for part of the holidays. When I'm talking to contractors in that marketplace, literally the week of Christmas when it was dry, they were saying they were having really record days even at that time of year, which, I'll tell you, is unusual, but it gives me a sense of what's out there.

And the other point, I think, goes back to the very beginning of the conversation that we had. And that's just simply more accelerated infrastructure activity in our key states. So we're looking at those $10.1 billion worth of activity potentially in Texas, more in North Carolina, more in Iowa, and more in Colorado.

And remember what we said about Colorado. The primary thing that was keeping us from doing more in Colorado is we needed more business in Colorado. And now what we've been able to effectively do is extend our march down the Front Range into the southern part of that, as well. So I think all of those together has put us in a position that we feel considerably good about the way 2016 is shaping up.

I think as we go back to the second part of your question, that is relative to cement, I think several things are going to happen. One, cement was badly affected last year by the rain. It's hard to run a cement business, which is a 24/7/365 business, if you need to take it down more than you would wish.

And keep in mind, our aim is to be a price leader in that state. And our view was we would rather take those kilns down rather than keep the kiln going and do something that we felt like was going to be foolish relative to the selling price in that marketplace. In large part, we believe we're going to have greater efficiencies in cement this year, but we also think we're going to see better pricing in cement this year.

You saw a little bit of share movement in our business in cement. And the yet the fact is we were willing to see that share movement move, because that was really driven by two distinct players in the marketplace. Holcim had brought on a kiln, again, that they had idled for a while at Midlothian, and they were coming back into the marketplace. And Argos, as we discussed, was bringing in some material into South Texas.

We believe as we go into the year that everybody is likely to be relatively full. We believe we're going to be efficient. We believe we're going to be successful on our price increases. And we think by the time we put all of that in place, we're looking at very nice improvement in the cement business.

And by the way, we're looking for a very nice improvement in the ready-mix business, as well. I think those are your principal drivers in Texas.

Kathryn, the only thing I would add is, when you're looking at comparability between 2015 and 2016, you've got to remember the impact of the California operations, which were really still not at any kind of recovery trajectory.

Perfect. Thank you very much.

Our next question comes from Adam Thalhimer with BB&T Capital Markets.

Good afternoon. I wanted to ask first about incremental margins. You guys had very strong margins in 2015, but your guidance for 2016 is in the 55% to 65% range, incremental gross margins for aggregates. Is it possible you're being conservative there?

We've always said that that was going to be on average, so we're really not changing what we said over time. Clearly, we exceeded it in this last quarter.

I think much of what we said in the past is that's what you're going to see on average across the enterprise. But we also said it would likely move much more aggressively if you saw growth coming in the eastern part of the United States, particularly in Mid-Atlantic and Southeast. And if you go back to, really, what some of those numbers look like that were most impressive, that's what you were seeing.

And to answer your question specifically, I think we're going to see the eastern United States on a percentage basis growing in ways that we haven't seen over the last several years. That's certainly the indications that we're getting on activity in Georgia and in Florida and in South Carolina and in North Carolina. And I think the quick answer is, Adam, if we see those areas of the country growing the way that we believe that they will -- I'll just say this much -- the incremental margins will be a nice story again.

Okay. And then I just want to ask on your end-market outlook for 2016, the infrastructure piece and the non-res piece improved from what you said in early November. I just wondered if you could expand on what got better, maybe it was just stuff that got pushed because of the weather.

I think several things. Number one, we didn't have a highway bill when we were talking about it before.

So, I think the fact that the highway bill is actually spurring a lot of increased activity. I don't know how much of that's going to hit in the early part of 2016, but I think you might see some of that actually coming through in the back end of 2016, which would be earlier than you would typically see.

But I think equally, when you come back and consider the significant state initiatives -- and again, we saw initiatives coming out of North Carolina late in the year, we're seeing a big Texas number. We're seeing that gas tax increase pull through in ways that we're excited about in Iowa, again another record, near-record letting year coming up in Florida -- I think all of that helps on the infrastructure side of it particularly.

I think if we go to non-res, here's a statistic that's striking to me. Think of it in these terms. Shale volumes were down 1.1 million tons in the quarter, as you heard me say in the telecon. But net South Texas shipments actually increased, and they increased by large infrastructure and large manufacturing projects.

And part of what we're seeing on the non-res side is an awfully nice surge in non-building. So I would encourage you to go and take a look at what's going on in other non-building. Again, power plants, gas, communications, those types are really very aggregate-intensive jobs.

Non-building, looking at the trailing 12 months through November, was up 19%, and a lot of that activity is concentrated in the Gulf. Again, if we're coming back and seeing what we feel like are really attractive DOT projects and awfully nice non-res projects, that helps.

The other piece of it, candidly, we saw a lot of projects awarded in the fourth quarter. And one of the things that I like to see is that at certain levels -- it's probably frustrating to our division presidents -- but we have to sign delegations from here to know exactly what they're bidding on. It's not that we don't trust what they are doing, we just like to see the sheer level of that activity. And we saw a lot of that activity in Q4.

Great color. Thank you.

Our next question comes from Todd Vencil with Sterne Agee.

Thanks. Good afternoon, Ward and Anne.

In the release, you guys said that your non-res market was 32% of your shipments in the fourth quarter and was up 3% for the year, and that light non-res was up 27% for the year. Can you split out light and heavy in terms of the volume split in the quarter and talk about which way each one went in the fourth quarter?

Here's the easy way to think about that, Todd. The primary thing that I would encourage you to think of on the heavy side is what has gone on relative to shale. That's really your show on what was going on on the heavy side.

To give you a sense of it, to walk through the quarters, in Q1, to shale, we sold about 1.2 million tons. In Q2 to shale, we sold about 1 million. In Q3 to shale, about 830 thousand. And in Q4 to shale, about 521 thousand.

Remember in my prepared comments, I said I thought we were getting to maintenance levels. We view that 500,000 tons a quarter as a maintenance level. And that goes back in part to the comment that I think I was sharing with Adam before when I said we saw shale volumes down 1.1 million tons in the quarter, but South Texas shipments actually up.

So, if you go to the one part of the country that would have felt more acutely the downturn in shale than anybody else, and you brush it away and you say but their volumes were up, that gives you a good sense of what's happening on that lighter side of it, Todd. And then back to that non-building piece of it, as well.

So, the resilience that we're seeing there across our marketplace is pretty comforting to us right now. And we're liking what we're seeing. Does that help?

It does. Thanks for that. Not to beat a dead horse, but just to make sure we're clarifying.

If you think about the swing factor from the non-res outlook up slightly in the preliminary outlook that you gave back in November to the high single-digit growth that you're talking about today, a big swing factor, it seems like it's not only resilience there on the light side, but also the fact that there was some significant actual contract signings that you saw in the fourth quarter. Is that fair?

That's very fair. It goes back to that notion that we talked about relative to delegations. We've been signing a lot of them.

And the other thing is, number one, it's what we're seeing. That's what's most important.

Equally, it's awfully consistent with what FW Dodge is seeing, too. If we look at their latest forecasts, which came out on January 26, they are seeing non-res up in those same types of percentages that we're talking about. Again, it's nice to see it. It's also nice to go to third parties and say that their data is same thing that our life experience is seeing.

Good. We like it when those things dovetail.

It's a beautiful thing.

Given the rain in the fourth quarter, and I don't think you said this, how many tons do we think got pushed into 2016 from the fourth quarter?

Todd, I think, let's just say for the year it's probably somewhere around 3.5 million to 4 million tons. I think we've got the vast majority of that obviously being in Texas.

There are places in the Midwest, for example, Q4 was wet and we've always discussed the fact that agricultural lime can go if it's really cold, but it doesn't go if it's really wet. There was a lot of stone sales principally in North Texas that got deferred. There was ag lime that was deferred in Iowa.

And, frankly, there was some stone deferral -- not to the same degree that we saw in Texas -- but we certainly saw some in the Carolinas. We mentioned the fact that we've got a quarry outside Columbia that had several billion gallons of water in it.

The other piece of our business, though, that was pretty profoundly affected by the rain was ready-mix concrete. Obviously Denver was somewhat affected by it. Texas was profoundly affected by it. And the fact is, we're expecting a much better year out of our ready-mix business this year.

If we get ready-mix to the point over time that it's gotten margins like we're seeing in Denver, you're looking at an extra $75 million that could come out of ready-mix if we have those margins in Texas like we have in Denver. Now, we're not looking for that this coming year, but, I'll tell you, we're looking for a nice down payment on it this year and I think we might get half of that. So if we can pull that off in a year, and I think we will and we should, it's another nice swing factor, Todd.

Good. Thanks for that.

Final one for me, and I don't want to get you too far out in front, but thinking a little bit longer term on the highway program and some of the comments you've made about it being early days, and so on, with the visibility we have now, is it fair to think that we may be able to see a pick up in the growth rate on highway spending in 2017 from 2016?

I think there's no question that it's likely that you'll see that because, again, even in Texas when we're talking about $10 billion worth of lettings, a lot of that work's going to not be occurring, in some respects, until 2017. You're still going to have Prop 1 moneys next year to the tune of probably $600 million or $700 million, and then suddenly you're going to have the Prop 7 money coming into that. And then North Carolina was putting in that extra $700 million over a couple of years to it. You're going to continue to have the gas tax hitting what's going on in Iowa.

And the other thing that's important is you're seeing a number of TIFIA projects. Let's not forget that while TIFIA is smaller in this newest highway bill, TIFIA isn't going away. And if we're simply taking a look at what's going on in Colorado relative to, I think it was Interstate 70 and Interstate 470, those are two significant TIFIA projects that I think are like $1.7 billion to $2 billion. To your point, I think this can be a good, slow, steady build, one that the industry can meet, but, two, fills, I think, an overhang of serious need for a long time.

Perfect. Thank you so much.

Our next question comes from Ted Grace of Susquehanna.

Good afternoon. What I was wondering, I want to make sure I understood how to think about the 2016 guidance for cement in Texas. I know you've talked about ceding some share, to some degree by design, but are we expecting to recapture all of that share in 2016? I want to make sure we appreciate what drives the volume guidance that you've framed out.

The fact is our share has moved around a little bit from, call it, the high teens to low 20%s. And the fact is, you're talking about 2% or 3% share in that marketplace. The fact is, Ted, we really believe that the pricing in that marketplace is more important than the share that we have given, in some respect, there.

The other thing that I've said to people before, we are very good cement operators in that marketplace, and if we need to compete in a way to make sure that we're protecting share, we're certainly willing to do that. But at this point, today I think we hold about a 20.5% market share. That's a reduction of 2 percentage points. To put math to it, it's about 325,000 tons, just to be really granular.

And again, I think we've got a good sense of where that break point is between share and price, and our sense has been price has been more important. And I think you can tell, and I've given what we've done relative to the business, that it's certainly shown that.

One important thing to remember, though, is weather needs to stabilize. As it stabilizes, I think part of what's going to happen is the imports in particular that were coming into South Texas that Argos is bringing in will suddenly start to be utilized for their own self supply. And I think the heavy rain in that state last year and their inability to utilize it wholly for self supply and going into the marketplace differently was part of what we were seeing relative to the volumes and to the share loss, if that helps, Ted.

It does. When we look at 8% to 11% volume growth, we should think about the large majority of that being underlying growth in the market that you participate in in Texas?

That's correct. I would say in particular in North Texas.

Okay. And then the related question would be just -- I don' t know if it's for Ward or Anne -- but when you bridge the gross profit improvement, a lot of it seems to be a function of pricing. Can you just bridge us on what the pros and cons will be to gross profits year on year?

You're talking about the cement business, Ted?

Yes, specific to the cement business.

Okay. Again, we said it was going to be up $30 million. The majority of that's likely going to be driven by the price component of it.

But we are going to get efficiencies out of that business if we just have normal precipitation in that state that would be pretty notable, as well. I'm not sure I've got a specific percentage breakdown on that, but I would say the pricing's going to be more notable, in some respects, than the volume.

Okay. And then the other thing I want to ask quickly is, in terms of the contribution on the volume basis from the Colorado aggregate acquisitions, can you just give a sense of what those are going to bring on in terms of production or realized volumes in 2016?

Yes, I can give you a sense of that. We're looking for probably about 1.5 million tons out of that business.

Again, what we picked up there, Ted, and what we are very careful that we're trying to do, it goes back to what we set out in our SOR process, our strategic planning. We wanted to make sure we had leading positions in attractive regions. That's what we've done. We wanted to make sure we were getting generational types of deposits in those areas. That's what we've done with nearly 1 billion tons in that marketplace.

Here's an important note for us to consider, because we haven't had a reason to talk to you about this in the past, but actually in November, voters in Colorado Springs actually put in sales and use tax increase of 0.62% to fund road repair and maintenance in that part of the state. We believe that's going to generate about $250 million over five years just in southern Colorado.

So, when we come back with what we feel like will be net sales of that business of about $90 million this year, EBITDA margins of probably 17% to 20%, which is below where we would like to see it, it's actually better than the business that we bought in the Rocky Mountains when we acquired it and we brought it up. With that very capable team that we have in Denver, I don't have any doubt that we will see those percentages move up nicely, and move up, I think, in trajectory in a much more quick timeframe than they did for us originally in Denver -- which, by the way, I don't think anyone ever complained about.

So, again, call it $90 million in net sales, EBITDA margin 17%, 20%, probably about 1.5 million tons of ags.

Okay. That's great. Congratulations on the acquisitions, and good luck this quarter.

Our next question comes from James Armstrong with Vertical Research.

Good afternoon. Thanks for taking my question.

The first one is, could you help us understand how to get comfortable with the 7% pricing guidance for 2016? Specifically, do you have any contracts in hand that really lead you to believe that the 7% in aggregates is in hand? And with the type of volume you're talking about, could it be conservative?

I guess what I would say is this -- the wonderful thing about the pricing story in our industry is I think this has held together so remarkably well all the way through a downturn. Our sense has long been that as we hit an upturn, the pricing story works even better. I think that's what we're seeing.

I think the other thing that I would say is, one of the earlier comments I made was we see the eastern United States recovering now at a faster rate than we've seen for a while. Eastern quarries are higher priced quarries.

What I would say is this, in answer to your question very specifically, James -- I don't have any concerns about being able to at least make sure we get our pricing. If I worry about things -- if I've got a worrying list from 1 to 100, I put pricing clearly at 101. So, I've got a lot of confidence around that.

Again, depending on what some of the geographic mix looks like, I'll leave it to your observations on whether there could be upside in that. But we certainly put a range out there that we have a high degree of confidence in.

That helps. Two follow-ups. Are you seeing any ability to ship further as diesel prices fall?

I'm sure people could. Here's what I think is more of an issue. I think the barriers to entry and the regulatory environment in which we operate have gotten so difficult that the notion of trying to ship product farther and deplete quarries faster is not something that I think most competitors are interested in doing.

So I think with cheaper diesel, could it happen? I suppose math could say it could happen.

Are we seeing that? And can I go to specific markets and call it out as instances where I'm concerned about it? Not really at all.

I think the other practical matter is twofold. One, people are having a hard time getting drivers in a marketplace -- just finding them. And then number two, actually paying for them on the wages that they are looking for.

So, I think you've got an industry issue relative to aggregates that I think makes taking cheaper diesel and hauling stone farther a bit of an anathema. And then I think you've also got a driver situation that makes it even more of a challenge. So, to date, not an issue, and really would not anticipate it being an issue this year.

That helps. Then lastly, is there a debt level you're comfortable at? At what debt level to EBITDA ratio would you be comfortable taking out to buy back stock?

Let me turn to Anne to talk about it.

James, as we've indicated pretty consistently we said we would keep a minimum 2 times debt to EBITDA. Obviously at the end of 2015, we ended with net debt 1.9 times. We'd indicated we would keep that level of debt and that we would continue to use excess cash over and above what we used, both for organic and inorganic capital, and use that in the form to buy back shares during the course of the year.

So, therefore, I think what you could think about is we likely are much more active in that market as we move through the second quarter and into the second half of the year. As we've indicated in the press release, we've used our available funds to do some acquisitions in the business.

James, one thing to remember, we like these acquisitions we've just done in Denver a lot. The other thing that we'll say is we like our sales a lot, too. We feel like we've got a good business.

The fact is, we believe this business continues to de-lever very quickly. We like ourselves when we were $30 a share higher than we are now, so we really like ourselves a lot right now.

Perfect. Thank you very much.

Our next question comes from Garik Shmois with Longbow Research.

Hi, thank you. First question is on your cement pricing guidance.

I'm just wondering if you can talk about how much of the price improvement that you're anticipating in 2016 is driven by improved mix in the lower-priced TXI contracts rolling off as opposed to securing a meaningful portion of the April price increase? As we think about cement pricing in general -- correct me if I'm wrong -- it does take a little bit of time to be fully realized in earnings. So, I'm just wondering if you can walk us through the price progression in 2016 and the different components?

Garik, you said it exactly right. Number one, to go back to your initial question, really, almost all of the legacy TXI facilities, those contracts are gone. In large part, what we're talking about here on these price increases are real price increases. It's what we anticipate putting into the marketplace in North Texas and South Texas.

Again, I think it's going to be easier, in many respects, to get pricing in North Texas than in South Texas. I think we'll see it in both, I think we'll get it in both, but it is going to be easier in North.

And I agree with you, as well, we are going to have some of our own contracts that we need to work through. Part of what I tried to do in the telecon is give some color on how that would play out over the year and put some specific percentages to it.

Will we go in and get $12 across the board on everything this year? No, we won't, because we do have to work through our own. But at least at this point, Garik, it is our own contracts now that we're working off and not TXI legacy contracts. Does that help?

Yes, it does.

You can see, Garik, where the pricing is at the end of 2015 such that by the end of the year, the guidance that we've provided you on average selling price per ton, that can give you a sense of the trajectory of realization through the course of the year.

Yes, of course. Thank you for that. Two more questions, if I could.

Just a point of clarification on the volumes that you picked up, the 1.5 million tons in Colorado. Just want to make clear whether or not that is included in your volume guidance for the full year, the 164 million -- or the 167 million tons.

The short answer is no, it is not, Garik.

Okay. And then lastly, in Magnesia Specialties, this is calling for growth in 2016. Fourth quarter did see some deceleration. Steel markets remain challenged.

Just wondering if you could walk us through your underlying assumptions in that business and what gives you the confidence that the market will turn around?

A couple things. One, if we're looking at where the American Iron and Steel Institute is right now relative to their forecast, they are basically seeing steel at a 70% utilization rate. And if you recall going back over time, that's been the point that we said was really an important one for this business. So at 70% or more, the business is going to do quite well.

The other input that's important to remember is we are going to end up having a decent amount of usage of natural gas in that business. If we look at what nat gas did last year for the year, it was 28% lower. Even if we look to the quarter, it was about 26% lower.

So again, if we're going into the year and the Steel Institute is right, it's 70%, that's hitting a magic number. If the input on gas is going to continue to be low, that's helpful.

To the extent that that business comes under pressure, the thing that I will tell you, too, is there's no team that we have in this Company that's better at managing costs, and managing their cost profile than our Magnesia Specialties business. When I go back to a Q4 and look at a 35% margin, even if that business came under some degree of duress -- and again, I'm not thinking that it will -- but even if it did, I think you're looking at a business that's still going to have a margin in the low 30%s. And from where I'm sitting, if we've got a low 30% margin, I'll take it every day.

Great. Thanks a lot. And best of luck.

Our next question comes from Trey Grooms with Stephens.

Good afternoon. With the pent-up demand that you were talking about from weather, how quickly could that come through, Ward? Should that impact Q1? Really just trying to think about quarterly cadence of volume.

I would think of it in these terms. Could it affect Q1? I suppose it could affect Q1. But remember what we've always said about Q1 -- Q1 is either made or broken in the last two weeks of March, in most instances, because you've got to have relatively warm weather to put down hot mix in most markets.

The other thing to remember, and we tried to outline it pretty clearly in the telecon, we are going to have that shale headwind, at least in the Southwest, throughout the first half of the year. But I think that clearly goes away once we're through with the first half.

That said, here's a good way to think of it. If you want to look at the midpoint of our guidance, what you're really saying is you're going to have aggregate volume at the midpoint at about 166 million tons. That's my quick math. If we want to say there was weather deferral of, call it, 3.5 million, 4 million tons, then you've got the shale maintenance level that could take you down another 1.5 million tons in that first half.

And then the other component that we're managing through -- and we'll manage through it, it will be just fine -- it's that transition from New Braunfels to Hunter. And any time you do a shift like that, it's never going to be a perfect handoff. There's going to be a little bit of shuffling that goes on because you're going from one large quarry to another large quarry.

As I look at that and start tallying it all up, I could see 2016 ag volume at that 7% end of our range, 167 million tons. And could you see some of that go in Q1? You could, but you do have that shale play that I would just encourage you to be mindful of during the first half of the year.

So if you think about it, Trey, last year Q1 was a pretty good quarter. Q2 was a rainy mess. Q3 was relatively normal weather, and I think the performance we saw in Q3 was what you would expect. And then Q4, we went back to building the ark.

So the fact is, if we end up with a good Q1 in normal weather, I think we would be very pleased with that, given what will be just the optical headwind on that portion of shale. Does that help?

Yes, absolutely. Very helpful color. Thank you, Ward.

And then on ready-mix, you mentioned a couple times that you're expecting a much better year for ready-mix. That segment's already -- well, the downstream is already putting up some pretty good margins.

What's driving the big margin improvement you're expecting there specifically in ready-mix? Is that primarily material spread improvement, or are there other drivers there that could be moving the needle?

It's going to be spread, it's going to be primarily efficiencies, it's going to be more volume. The fact is, you could see probably 900,000 cubic yards more volume in that business in Texas than we saw last year.

I think the other piece of it is, part of what we're seeing on some contracts now that are coming in in that South Texas area, we talked about those large projects, like [Shaneer] and others. The fact is, we'll see what we feel like is a good bit of that going this year, as well. I think just better costs, better efficiency.

Here's an interesting anecdote for you, Trey. At some point late in the fourth quarter, we actually got a call here in the corporate office. And we got a call from this poor guy who is trying to build a hotel and get concrete poured because he's opening the doors the next week and he couldn't get concrete poured. And here's why he couldn't get concrete poured -- because the four other times we have been ready to deliver concrete to the site, he couldn't take it because the site was so wet.

That's the type of backlog and back build that we see in that business. So, that type of carry-over, much better efficiency, new contracts going, and what we think will be continued price leadership in that market gives us the type of confidence we have in ready-mix.

That's very encouraging. Last one for me, on the share movement you mentioned in cement, the 325,000 tons, do you feel like that has pretty well run its course? I know the TXI legacy contracts have all rolled off. Do you feel like that's pretty well behind us at this point?

I think we're working our way through that. And I've always thought probably by the time we got to the end of Q1, it will have shaken itself out. The fact is, I go back in time and reflect on what TXI had done when they brought on more capacity prior to our ownership, and then that worked itself out, as well.

Candidly, I think that's a little bit of what we've seen, particularly in North Texas. And I think to the extent that Argos really becomes more of a self-supplier with their own cement in South Texas, I think those two bring the type of stabilizing effect that I would expect in both of those markets this year.

So, you still think end of Q1 is the target on that?

I do.

Okay. And just if I could sneak one more in for Anne, housekeeping here for modeling, the $102.44 you announced on cement pricing for the quarter, is that basically where you ended the quarter for pricing there in cement?

Effectively, yes.

Okay. Perfect. Thanks a lot, guys. Good luck.

Our next question comes from Timna Tanners from Bank of America.

Hi, guys. Good afternoon.

I wanted to touch base on the additional cement risk potential if the dollar continues to strengthen. How would you frame that risk or what extent do you see there?

I've got to tell you, I don't see the dollar strength as really being a big component of that. Most of the imports that could come into Texas are coming in through Texas through people who are domestic producers there. Argos is the exception, and Argos has really tapped out at 500,000 tons coming in through Houston. So, I don't see that as really something that I believe would be a driving force in that market, Timna.

Okay, that's helpful. Thanks.

Then I know you talked a lot about M&A being an important focus as of the investor day and I just wondered if you could update us on how you're seeing opportunities there, valuations, appetite? And if you would have to expand from your current geographies or if there's more opportunities from where you're already positioned.

What I would say is there continues to be a lot of just broad, general activity in M&A, period. I think we're seeing more approaches and we're having more approaches to others than we've seen in a while. I would expect that to persist.

I think the notion of private companies seeing -- hey, I've got a five-year highway bill, it looks more aggregate intensive. This is probably not a bad place for us to ask somebody to jump off on a modeling tour. In their minds, it's probably not a bad place to be.

Part of what I liked about the deals that we've just done is we were able to do those within EBITDA multiple ranges that make a lot of sense for our business. We are picking up hard rock reserves, at the end of the day, for what we feel like could be tonnage prices, at times, for sand and gravel type reserves.

You shouldn't expect us to be looking at M&A in marketplaces that really are outside of where we are, unless we have the ability to go into a new marketplace either as a leader or with what we feel like is a clear executable plan to be a leader. And what I would always draw you back to is what we did in Colorado in 2011.

We went into that market with the swap that we did with Lafarge and the other transactions we did literally back to back, and put ourselves overnight in a leadership position. And really have extended that march with this latest transaction.

But going into an attractive market and being a onesy-twosy in it, and really not having a good way to become a leader in that marketplace, is not consistent with our strategy. I wanted to articulate that to you because, as you watch for us to grow, those really should be the boundaries to it.

Got it. Okay. And the last one, if I could.

I just wanted to clarify what you said. I was confused on the making Magnesia Specialties segment because utilization lately in steel is 72% as of last year and it's 72% now. Is it fair to say that at the same utilization you would make the same profits or is there other driving forces that we should be aware of?

No, the same utilization would be the same profit. What I'm saying, last year -- we've got to be careful when I say last year because we're between years -- in 2014, it was 78%. In 2015, it was 72%.

So, what we're saying is we think it's probably going to be around that 70%. That's certainly what we are hearing right now. If it stays there, we're going to see something that feels relatively consistent, I think, back to your question, Timna.

Got you. Thank you so much.

Our next question comes from Jerry Revich with Goldman Sachs.

Good afternoon. This is actually Brandon Jaffe on behalf of Jerry.

Can you talk about how aggregates price increases for January 1 this year compare to last year and maybe how you expect the pricing cadence to play out? If I'm not mistaken, you had a bigger January 1 increase last year than typical seasonality would suggest, unless you had lower mid-year prices throughout the year.

What I would tell you is we've gone to the market pretty consistently with what we feel like the pricing needs to be. I've seen pricing anywhere on the low end from $0.50 a ton to the middle range of about $1 a ton to in some places $1.50 a ton, or more in some instances.

I think one of the best examples that I can give you, if you go back to when we did our acquisition of TXI, part of what we said was TXI's pricing was roughly 60% of our corporate average. And we said we thought it would probably take about three years to get that closer to our corporate average, mindful that our corporate average continues to move up during that same period of time. Right now, TXI is about 75% of our corporate average.

So again, from a rhythm and cadence perspective, that's certainly what we're seeing. Would I expect us to come back and talk about mid-year price increases again this year? The short answer is I would.

If we're seeing the types of volume increases and the more infrastructure-type work, honestly, I think you could find yourself in a position toward the latter part of 2016, certainly in 2017 that in some markets you could be short on some products. That was exactly what happened last year, principally because of flooding in North Texas with respect to sand in particular.

Again, I think the rhythm of it will be you'll see most prices in effect January 1. In some places, you're going to see some pricing that won't go into effect until March or April. The long and short answer is, that doesn't so much matter because there's not a lot of volume going on in Q1 anyway.

And we will come back at some point later in the year and talk to you more about mid-year price increases. But I think customers should expect those conversations.

Great. And then on the TXI cement business, now that you've had more time to run those assets, can you talk about the opportunities you see there to invest in that business? And maybe update us on the cement CapEx plans currently compared to what you laid out at the last analyst day?

I don't think the CapEx plans have changed materially since the last analyst day. Part of what we said that we could do, and we were talking at that point not just about the Texas plants, we were talking about California plants as well, because we were saying that we could take our capacity up over time. And clearly we're still believing that that's going to be the case.

This year in Texas, we're probably looking -- I'm trying to remember exactly what we're looking at -- give me one second on the additions this year -- I'm going to have to come back and probably talk to you about that offline.

No problem.

But, really, if we're looking, I can give you a good sense of what we're looking at on the kiln expenses for the year. That's probably a very worthy number for you to have right now.

If we're looking at kiln expenses for the year on downtime -- and these are important numbers -- we're looking probably in Q1 at about $6.6 million. We're looking in Q2 at about $3.7 million. We're looking in Q3 at about $2 million. And Q4 is always the heavy quarter, that's going to be right at almost $11 million -- $10.9 million.

And I now have found what I was looking for. I apologize for that delay. Relative to capital, what we had said we would do is we would add some additions because of capital in 2015, and add about 200,000 additional tons at Hunter and about 50,000 additional tons at Midlothian.

And then what we had spelled out at analyst day and beyond is that we thought we would come back in 2016 -- and these are in our capital plans, by the way -- and add an additional 140,000 tons at Hunter. Again, that's in San Antonio. Which brings you, if we're looking 2017 through the additional tonnage that we're looking to add, it would put us at capacity in Texas of 4.75 million tons. So, there's your build.

Great. Thank you very much.

Our next question comes from Stephen Kim with Barclays.

Thanks very much, guys. Most of my questions have been answered.

But earlier in the year, we heard you guys talking about labor constraints, particularly on the ready-mix side. And with all the rainy weather, it really wasn't much of an issue. But I was curious if you had any insight into how that situation has developed, has it improved, do you sense?

Because I assume that part of the 3.5 million, 4 million catch-up or deferment into Q1 would presume that you're going to be able to see some of those labor constraints not return or intensify. So, if you could just talk a little bit about what you're seeing there on the labor side?

Sure. If you go back particularly in Texas and look at what was going on in that marketplace, a lot of it tied back into what we talked about earlier, and that is simply what's going on with drivers, or what's not going on with drivers. A lot of drivers were, frankly, engaged in what was going on in the shale fields at the time. What's happening now is you've got more drivers who are available.

But here's the other piece of it that's important, and we went through this very carefully last October when we were going through our planning cycle. Our two ready-mix businesses are in Colorado and Texas. And what we were hearing from both of those groups is if we could get more trucks, then we would have the ability to come back and safely serve the market in the most efficient way that we could.

And the short answer is at this point we think we're able to, one, put more trucks in, in a thoughtful way; number two, put drivers in those trucks; and, three, be in a position, both in the Rocky Mountains, as well as in the metroplex. And I think that's going to be the primary marketplace that delivery can be tight at times.

So, I do think from a capital perspective we're where we need to be. And I do think from a labor perspective, it's going to feel in our world much better in 2016 than it did in 2015, in large part, if you just look at the rhythm and cadence of what has happened in those shale fields.

Remember what we were talking about in some of the earlier conversations about what it looked like last year, Q1 in the shale fields and what it looks like this year. I think we'll certainly be able to meet that demand.

Got it. That's very helpful.

Then, just lastly, I know that resi isn't a super high percentage of your business, but it's still almost 20%, I would guess. You talked a little bit about -- I think you put double-digit type numbers that you're forecasting, and I think you talked about reference permits being strong. Obviously in Texas, I was curious -- there's some concerns obviously about what permits might do in Texas. If you could just talk a little bit about what your guidance is assuming in terms of permit activity in Texas.

Let's talk about it in a number of different ways. Number one, permit activity that we see are up 12%, starts are up 11%, and completions up 9%. So, you've still got more starts than completions, which we feel like is an attractive place to be.

I think as we look at what most forecasts are saying for 2016, they are looking for starts up around 1.25 million starts number. That's up around 13%. I think most people -- now this is getting farther out -- are looking for starts to be up another 10%, even as we go into 2017.

If we look at Texas, more specifically to your question, Texas ranked number 4 in housing permit activity. Dallas/Fort Worth, which is our single-largest market in Texas, is ranking second in housing permits. And to us that continues to indicate good future strength in that market.

The other thing that's remarkable to look at, if you look at residential units in 2015 in Dallas, what I'm seeing is data that reveals there's about 43,000 unit starts. If you look at Houston's Sugarland, there's around 51,000 starts. You put those two together, that's almost 10% of total starts in the United States.

We're not seeing any slowdown in North Texas at all right now. And the fact is, housing inventory in Houston is still at about four months.

And, Stephen, I would just add as a point of clarification, residential is about 15% of our end use, which is actually a very healthy percentage. At prior peak, we knocked on the door of 20%, 22%, which tipped it a little bit out of balance. So, we feel like we're still in that, quite honestly, good sweet spot in the residential activity.

Okay, great. Thanks very much for that clarification. Thanks, guys.

Our next question comes from Mike Betts with Jefferies.

Thanks very much. Any question I've got left is on the asphalt. It's a two- or three-parter.

You've obviously sold the San Antonio asphalt business. I see that volumes are down 45% in Q4 in the external sales in asphalt. Is that entirely due to that disposal, or is that due to weather or contracts ending or anything like that?

Yes -- right.

What I'm really after is some guidance as to how much volume has gone with that disposal for the nine months that won't be in the next year.

And then just finally on the asphalt business, can you talk about the strategy for what you've got there? Are you looking to exit it? Because if is quite small now.

Mike, thanks for your question. A couple of things that I would say.

A few years ago, we had an asphalt business in Arkansas, which we no longer have. That was sold about a year and a half ago. Number two, what we did sell was basically an FOB asphalt business that was in San Antonio.

Here's the quick answer on that. We weren't the best owner of it.

We did with asphalt in San Antonio exactly what we did with cement in California. Somebody else was a better owner. It was not core to us in that marketplace. So we sold it.

From a tonnage perspective, you're probably looking somewhere, let's call it, 700,000 tons a year. The single biggest piece of our asphalt business is in Denver, and to Denver it is very much a core part of our business there. And the asphalt business does very well in Denver, so we do see it as core in that marketplace because that's the way that marketplace is built up and down the Front Range.

So, people tend to be in aggregates, they tend to be in ready-mix, and they tend to be in hot mix. We don't see it changing in that part of the world. As we sit here today, Mike, that's the only place that we have asphalt left.

So the acquisition in Colorado, will that add further significant asphalt volumes?

It does add some asphalt volume. Again, it tends to be an aggregates-led business. You're looking at probably about 340,000 tons in that southern Front Range marketplace that came with these transactions.

That's great. Thank you very much.

Our next question comes from Craig Bibb with CJS Securities.

Hi, Ward and Anne. Congratulations on opening the Medina quarry. That's a big deal. Could you give us a little color on the impact on production volume, profitability both in 2016 and beyond?

As we said, that's going to be about 6 million tons coming out of there. It's the largest quarry in the UP network. It's going to be going principally into Houston and South Texas.

The primary issue that you've got there is that's going to be an area of the state that's going to be starved for DOT specification stone. Number one, it's going to be a highly efficient operation to get material to that part of the state for a long time.

The other thing that it does, Craig, and this is important, if you ever fly into San Antonio, you're going to fly right over our Beckman quarry. Beckman, for several times over the last decade, has been the largest producing quarry in the United States and it's almost situated in Metro San Antonio.

And here's something I think most people don't appreciate -- San Antonio's actually the second largest city in Texas. Houston's largest. San Antonio is number two. San Antonio is larger than Dallas.

Our aim was to make sure we were utilizing Beckman quarry, which is really a diamond, in the most efficient way for that quarry, and to make sure we've got that quarry there for another 20-plus years. And we were also in a position to make sure that we could feed South Texas in the most efficient fashion -- and thus the move to Medina. That's probably a little bit more than you were looking for, Craig, but, again, the strategy and the operations around it are important.

What I can tell you is that plant opened on the day that we expected that plant to open. Railcars are going out of there on the day we expected them to go. As you recall, we've got several hundred car unit facilities not just in Houston but throughout South Texas and that's where that material is going.

And just as a point of clarification, Craig, as Ward indicated in the teleconference script, that 6 million tons is actually just replacing tonnage. We're going to lower the tonnage at the Beckman quarry and move it through Medina. As you look forward, that Medina quarry is capable of producing up to 10 million tons. But that is probably a couple years out.

How many years of reserves are left at Beckman?

We would expect to be at Beckman for another couple of decades.

Okay. You often highlight Georgia as an area where you dramatically added to your asset base during the downturn. I think Vulcan mentioned something like 22% same-store volume in Georgia.

Could you maybe give us a little more color there? It looks like there could be a lot of leverage.

What I'll tell you is it's funny to look at some of those numbers because the numbers look and feel awfully familiar. What I would tell you is that what I read in the transcript from Vulcan relative to Georgia looked very similar. I think we saw them up 23%-ish.

Okay. Then lastly, with Magnesia Specialties, what happens if utilization falls below 70%?

Then I think what you'll see is they will go into another mode of cost containment. And I think that really goes back to the point that I was raising before. Maybe you go from mid-30%s to low 30%s or high 20%s on a gross margin. Still, a very attractive business, even if that occurs.

Great. All right. Thanks a lot, guys.

And I'm not showing any further questions at this time. I would like to turn the call back over to Mr. Nye.

Thanks again for joining our fourth-quarter and full-year earnings call. Again, we are confident entering 2016, as I hope you can glean from our comments. We see strong employment growth in our key states, solid construction activity with increased materials demand, and attractive pricing opportunities.

We look forward to discussing our first-quarter results with you in May, and, importantly, seeing you at our recently announced investor and analyst day on May 9 in Dallas, Texas. We hope we'll see you then.

Thank you very much. And thanks for your support of Martin Marietta.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.