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Text: Today's earnings call will begin with Ward Nye, whose remarks will focus on our second quarter operating performance, as well as current and emerging market trends.
Jim Nickolas will then review our financial results and liquidity position, and Ward will then provide some closing comments.
We sincerely hope that you and your families are remaining safe and healthy as we continue to manage through these unprecedented times.
This performance is a testament to our company's commitment to our values, the world-class attributes of our business and the disciplined execution of our strategic plan.
Martin Marietta established new profitability records for both the second quarter and the first half of the year, driven by favorable pricing and proactive cost management across the Building Materials business.
For the second quarter specifically, consolidated gross margin expanded 200 basis points despite slightly lower revenues as compared with the prior year period.
Selling, general and administrative, or SG&A, expenses as a percentage of total revenues improved 10 basis points to 5.6%.
Adjusted earnings before interest, taxes, depreciation and amortization, or adjusted EBITDA, increased 7.5% to $407 million.
And fully diluted earnings per share was $3.49, a 16% improvement.
In addition to record financial performance and despite the challenging conditions, we also achieved the best safety performance in our history.
Companywide, both our lost time and total injury incident rates are better than world-class safety levels.
These superior results are directly attributable to our dedicated and talented employees who've continued to demonstrate resiliency during these uncertain times.
I'm extraordinarily proud of how our team has adapted to our new health protocols, while remaining steadfastly focused on caring for one another, working safely and efficiently, and seamlessly meeting our diverse stakeholders' needs.
Though Martin Marietta, along with many of our customers, has operated as a designated essential business throughout the COVID-19 shutdowns and subsequent phases, we still experienced impacts from the macroeconomic slowdown.
Despite these challenges, second quarter product demand for our Building Materials business remained strong across a number of our key geographies, including North Texas and the Front Range of Colorado, two of our leading vertically integrated markets.
Contractors continued construction on projects already under way and have, in some instances, benefited from jobs that were accelerated to better leverage lower traffic volumes during shelter-in-place orders and new projects.
In addition, we saw aggregate shipments growth in Georgia and Florida, despite above average rainfall in these states during the quarter, and in Indiana.
Overall, quarterly aggregate shipments declined approximately 4% compared with near record prior year period volume.
As a reminder, our second quarter 2019 results benefited from weather-deferred carryover work, sizable energy sector projects and Midwest flooding repair activity.
Aggregates pricing improved 3.3%.
All divisions contributed to this growth, underscoring the health of our markets and the importance of our locally driven pricing strategy.
By region, the West Group posted a 5.5% increase, reflecting favorable product mix.
Pricing for the Mid-America Group improved 2%.
The Central Division, which has selling prices below the corporate average, contributed a higher percentage of the Mid-America Group's shipments, consistent with the first quarter trends.
Product mix limited Southeast Group's pricing growth, as a higher percentage of lower-priced fines and base stone were shipped.
Underlying demand for our Texas-based cement business remains largely stable.
However, second quarter cement shipments decreased 3%, driven primarily by the decline in energy sector activity that has resulted from lower oil prices.
West Texas oil well cement shipments were down over 75% from pre-COVID expectations, a trend expected to continue until oil prices stabilize at a level that fosters additional investment and drilling activity in the Permian Basin.
Throughout the quarter, we saw attractive and consistent pricing strength in our North and Central Texas cement operations.
Specifically, cement prices in Dallas and San Antonio, the markets most proximate to our Midlothian and Hunter facilities, were up 4%.
That said, notably, lower shipments of higher-priced oil well specialty cement products bound for West Texas limited overall pricing growth.
Turning to our targeted downstream businesses, the ready mixed concrete shipments increased nearly 9%, excluding prior year shipments from our Southwest Ready Mix Division's Arkansas, Louisiana and Eastern Texas business, known generally as ArkLaTex, which we divested earlier this year.
Overall, concrete pricing increased modestly, but was hindered by unfavorable product mix.
Our Colorado asphalt and paving business established a new quarterly record for asphalt shipments.
Shipments increased 35% to 1.1 million tons, benefiting from market strength and pent-up demand following a weather-challenged 2019.
Asphalt pricing declined 1% as customer segmentation was weighted more heavily toward publicly bid municipal projects as opposed to negotiated private work.
The Company's Magnesia Specialties business experienced the most pronounced COVID-19 headwinds during the second quarter.
Domestic and international chemicals demand declined as customers confronted COVID-19 related disruptions.
Demand for our lime and periclase products also slowed significantly, as steel producing customers temporarily idled their facilities in response to the COVID-19 induced shutdown of certain domestic auto manufacturers.
It is worth highlighting that the Enterprise achieved a second quarter adjusted EBITDA margin of 32%.
This is the highest EBITDA margin in the Company's history.
The driving force behind this accomplishment was the Building Materials, which achieved record second quarter products and services revenues of $1.1 billion, a 1% increase from the prior year quarter, and gross profit of $359 million, a 9% increase.
Notably, all of our Building Materials product lines contributed to this record profitability.
Solid pricing gains, production efficiencies and lower diesel fuel costs drove a 230 basis point improvement in aggregates product gross margin to 35.5%, also an all-time record.
This was accomplished despite lower volumes, demonstrating the cost flexibility and resiliency of our aggregates-led business.
Our Texas cement operations benefited from improved kiln reliability, as well as lower raw material and fuel costs.
Product gross margin of 39.7% expanded 210 basis points despite a nearly 3% decline in cement revenues.
As Ward mentioned, our targeted downstream businesses delivered outstanding operational performance during the quarter.
Ready mixed concrete product gross margin improved 270 basis point to 10.6%, driven by increased shipments, pricing improvement and lower delivery costs.
Equally impressive, our Colorado asphalt and paving business established second quarter records for both revenues and gross profit.
Product revenues for the Magnesia Specialties business decreased 31% to $49 million, reflecting lower demand for chemicals and lime products.
Lower revenues resulted in a 420 basis point reduction of product gross margin to 37.3%.
While we expect this business will face similar headwinds in the third quarter, a gross margin in the high-30s is impressive and indicative of superb cost management.
Consolidated SG&A expenses included $3 million for COVID-19 related expense, which included enhancements to cleaning and safety protocols across our over 100 sites.
Turning now to capital allocation and liquidity.
We continue to balance our long-standing disciplined capital allocation priorities to responsibly grow our business, while maintaining a healthy balance sheet and preserving financial flexibility to further enhance shareholder value.
Our priorities remain focused on value-enhancing acquisitions, prudent organic capital investment and a consistent return of capital to shareholders, while maintaining our investment-grade credit rating profile.
Full year capital expenditures are now expected in the range of $350 million to $375 million, a slight upward revision from the guidance provided last quarter, as US businesses were in the early stages of responding to the pandemic.
Our current prioritized projects are expected to improve efficiency, capacity and safety, all core principles and the foundation of our strong financial performance.
While we typically invest in the business, we also look for appropriate opportunities to divest non-operating assets to maximize value.
In this regard, earlier this month, we entered into an agreement to sell a depleted sand and gravel location in Austin, Texas for nearly $100 million.
Since our repurchase authorization was announced in February 2015, we have returned nearly $1.8 billion to shareholders through a combination of share repurchases and meaningful sustainable dividends.
Share repurchase activity remained temporarily paused during the quarter.
However, repurchases can resume at management's discretion.
In May, we repaid $300 million of floating rate notes that matured using proceeds from our first quarter bond issuance.
The Company has no additional bond maturities until July 2024.
We are confident in our balance sheet strength.
We have ample liquidity and financial flexibility to continue to profitably growing our business.
Net cash, combined with nearly $970 million available on our existing revolving facilities, provided total liquidity of $1 billion as of the end of the quarter.
Additionally, at a net debt to EBITDA ratio of 2.2 times, we remain well within our target leverage range as of the end of the second quarter.
With the successful completion of an outstanding first half of 2020, we remain laser focused on managing our business through the macroeconomic upheaval from COVID-19 and related governmental responses.
While July product demand and pricing trends across our markets remain broadly consistent with the second quarter, we feel it's premature to reinstate full year 2020 earnings guidance, given the uncertainty regarding the pandemic, potential Phase 4 stimulus and infrastructure reauthorization.
Nonetheless, we remain highly confident in the fundamental strength and underlying drivers of our business, guided by our Strategic Operating Analysis and Review, or SOAR, plan.
We expect pricing resiliency and disciplined cost management to continue supporting the Company's near-term performance.
As the economy resets from COVID-19, we believe favorable pricing trends for our products will continue, supported by our disciplined locally driven pricing strategy and attractive geographic footprint.
For aggregates specifically, we anticipate full year 2020 pricing will increase 3% to 4% from the prior year.
This range is slightly below our pre-COVID-19 expectations, given year-over-year geographic and product mix trends and slightly delayed price increases in certain markets.
Texas cement pricing is also expected to remain resilient due to the State's tight supply demand dynamics and the fact that our key markets are, by design, largely insulated from waterborne imports.
Healthy aggregates and cement pricing trends should benefit our targeted downstream operations.
Existing customer backlogs support the Company's shipment levels in the near term.
In certain regions where we operate, this year's weather has been more disruptive of construction activity and project cadence than the pandemic.
Yet, we believe the industry will likely see a gradual but not precipitous temporary slowing in product demand over the next few quarters, as businesses and governments address budget shortfalls resulting from COVID-19.
That said, the degrees of decline and recovery will vary by end-use market and geography and will be influenced by future governmental actions.
Infrastructure construction, particularly for aggregates-intensive highways, roads and streets, is expected to be the most near-term resilient, as contractors advance projects that have been awarded and funded.
However, state Departments of Transportation, or DOTs, may decrease the scale or postpone the timing of future construction as they balance lower revenue collections and other short-term funding needs relating to the COVID-19 impact, particularly if there is no near-term federal assistance.
These impacts will vary by state.
For example, Texas DOT scheduled lettings for fiscal year 2021, which began September 1, are currently planned at $7 billion, comparable to fiscal year 2020 lettings.
Earlier this month, Texas DOT also reiterated its $77 billion 10-year unified transportation planned [Phonetic].
To ease funding shortfalls to its DOT budget, Colorado will issue certificates of participation to advance planned projects, the majority of which are concentrated along the megaregion, following the I-25 corridor, which has been the strategic focus of our Rocky Mountain business.
Of our Top 10 states, North Carolina DOT faces the toughest near-term funding challenges.
As a reminder, NCDOT temporarily suspended awards for certain projects in response to pre-COVID-19 funding issues and other factors.
Since then, new contract advertisements have been further delayed.
In the near term, NCDOT will benefit from $700 million in Build NC Bond revenues to fund existing transportation programs.
Longer term, we anticipate additional transportation ballot initiatives, as well as new revenue-enhancing recommendations from the NC FIRST Commission, which is tasked with evaluating North Carolina's growing transportation investment needs and ensuring that critical financial resources are available.
Despite some near-term DOT headwinds, the passage of a reauthorized comprehensive federal infrastructure package will provide multi-year upside.
While it's unlikely a successor bill will be agreed upon and signed into law prior to the Fixing America's Surface Transportation Act's expiration on September 30, we feel confident new legislation will be enacted and provide the first sizable increase in federal transportation funding in more than 15 years.
When this occurs, it will be a big win for our industry and for Martin Marietta.
While nonresidential construction activity on existing projects has continued, some commercial and institutional projects in the design or planning stages are being delayed or canceled.
The Dodge Momentum Index, or DMI, a monthly measure of the first report for nonresidential building projects in planning, which has historically led construction spending for nonresidential building by a full year, is down 20% from its most recent peak in July 2018.
However, to contextualize the June reading, the Great Recession's peak to trough DMI decline was 62%.
Importantly, since the Great Recession, Martin Marietta has purposefully shifted our nonresidential exposure to be more heavy industrial-focused as we've expanded our geographic footprint along major commerce corridors.
Aggregates-intensive warehouses, distribution centers and data centers are expected to lead nonresidential activity as businesses increase capacity for e-commerce activity, secure regional supply chains and become more reliant on cloud and network services.
Further, large liquefied natural gas, or LNG, projects along the Texas Gulf Coast that are actively under way have broadly continued.
However, start dates for the next wave of projects have been postponed.
Longer term, we believe nonresidential construction activity could benefit from more companies streamlining their supply chains and repatriating manufacturing operations back to the United States, providing potential multi-year upside to heavy industrial construction.
Residential construction is rebounding more quickly than anticipated by homebuilders and third-party forecasters.
After decline in April, the National Association of Home Builders Housing Market Index, a widely recognized survey designed to measure sentiment for the US single-family housing market, returned to pre-pandemic levels in July, signaling that residential growth may lead to an overall economic recovery.
Consistent with recent homebuilder commentary, activity has strengthened as Martin Marietta states have reopened, demonstrating pent-up housing demand following the COVID-19 related pause in the spring selling season.
Nationally, housing starts remain below the 50-year annual average of 1.5 million despite notable population gains.
Freddie Mac estimates the 2.5 million housing units are needed to address the current nationwide housing shortage.
This situation is particularly evident in states with significant under-supply, including Texas, Colorado, North Carolina and Florida, which are all in our Top 10 states.
These trends, along with historically low mortgage rates, bode well for future expansion in single-family housing activity, which is two to three times more aggregates-intensive than multi-family housing, given the typical ancillary nonresidential and infrastructure construction activity.
Also, longer term, we expect Martin Marietta to benefit across all three of our primary end-users from accelerated deurbanization trends, as stay-at-home orders and the shift to remote work encourage more prospective homebuyers to move to smaller metro or suburban locations.
Our leading Southeastern and Southwestern footprint provides us a distinct competitive advantage in regions with diverse employment opportunities, land availability, favorable climates and a lower cost of living.
Moving forward, we are confident in Martin Marietta's opportunities to build on our successful track record of financial and operational outperformance.
SOAR 2025, our strategic plan for the next five years, will be finalized this year and provides the framework to support our capital deployment, price discipline, cost management, sustainable practices, talent development and succession planning initiatives.
We've already made great strides on these endeavors.
Earlier this month, we streamlined our business structure into five operating divisions: East, Central, Southwest, West and Magnesia Specialties.
This new structure better aligns our business product offerings and geographies, provides experienced executives with increased responsibilities and opportunities, strengthens our ability to provide outstanding customer service, and further enhances our industry-leading cost profile.
In closing, we're all living an unprecedented and dynamic times, and that will likely persist as the pandemic continues unabated.
Moving forward, our attractive underlying fundamentals, strategic priorities and world-class teams position Martin Marietta to responsibly navigate today's challenging environment and to drive sustainable long-term growth and shareholder value.
Overall, we continue to feel confident about the future and our plan to continue building on Martin Marietta's long track record of success in delivering sustainable value creation and superior returns for investors.

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martin marietta materials inc - qtrly earnings per diluted share $ 3.49.
martin marietta materials inc - will reinstate full-year earnings guidance when co has sufficient visibility.
martin marietta materials - believes co's industry will likely experience lower overall product demand over next few qtrs due to covid-19 pandemic.

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