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Text: As a reminder, today's discussion may include forward looking statements as defined by United States securities laws in connection with future events, future operating results or financial performance.
We undertake no obligation, except as legally required, to publicly update or revise any forward looking statements whether resulting from new information, future developments or otherwise.
Ward and I will begin today's earnings call with a discussion of our third quarter operating performance and our recently completed acquisition of Lehigh Hanson's West Region.
Jim Nickolas will then review our financial results.
After which, Ward will discuss market trends as we look ahead to 2022.
A question-and-answer session will follow.
Martin Marietta's continued growth and record results demonstrate our industry leading performance and disciplined execution of our proven strategic operating analysis and review, or SOAR plan.
And with fewer reportable and lost time incidents than this time last year, our company wide safety incident rates are surpassing world class levels.
I'm proud to report that we're on track to deliver the most profitable and safest year in our company's history.
We're also excited by the progress we're making on our SOAR 2025 initiatives to further position our company for sustainable, long term operational and financial success.
With this outstanding team, strong business and key assets now are part of our offering.
We're well positioned to benefit from favorable market dynamics and accelerating public and private construction activity in important California and Arizona regions, including San Francisco, Los Angeles, San Diego and Phoenix.
It also provides new growth platforms for our continued geographic expansion.
I'm grateful to our colleagues for their dedication and perseverance in their efforts to complete the acquisition, the second largest in our company's history.
We look forward to working together to seamlessly integrate the Lehigh West operations, quickly realize synergies and deliver significant stakeholder value.
Integration activities are progressing as planned from both an operational and customer-facing perspective.
As highlighted in today's release, we once again established record results for revenues and gross profit for both the quarter and year-to-date.
To recap, for the first nine months of 2021, our adjusted EBITDA increased 7% to a record $1.1 billion.
Both our Building Materials and Magnesia Specialties businesses continue to capitalize on the ongoing economic recovery.
During the quarter, organic shipment and pricing growth combined with value enhancing acquisitions more than offset higher than expected energy related costs and contributed to our record-setting results.
Specifically, on a consolidated basis, Products and Services revenues increased 18% to $1.5 billion.
Adjusted gross profit increased 11% to $450 million.
Adjusted EBITDA of $490 million increased 13% on a comparable basis, and adjusted diluted earnings per share of $4.25 grew 11% on a comparable basis.
As a reminder, the prior year quarter included $70 million or $0.87 per diluted share of non recurring gains on surplus land sales and divested assets that affect quarter over quarter comparability.
Now for a review of our third quarter operating performance.
We continue to experience growing product demand across our three primary end use markets.
Organic aggregate shipments increased 6%, notwithstanding contractor capacity constraints and wet weather in several markets that govern the overall pace of construction activity.
Notably, all divisions contributed to this solid growth, demonstrating our ability to capitalize on the strong underlying demand trends across our geographic footprint.
Total aggregate shipments, including shipments from acquired operations, increased 10%.
Organic aggregates average selling price increased 2%, reflecting a higher percentage of lower-priced base stone shipments during the quarter.
Additionally, our East division, which has selling prices in excess of our corporate average, had the opportunity to meet customer needs with a low priced excess fuel product that had we not shipped we otherwise would have incurred costs to relocate.
We expect shipments of this excess fill material, which are profitable and not a substitute for higher value products, to continue through the remainder of the year.
That's why we updated our full year 2021 organic pricing growth guidance to now range from 2.5% to 3.5%.
To be clear, aggregates pricing fundamentals remain very attractive.
In fact, supported by strong underlying demand and rapid cost inflation in the broader economy, we successfully implemented midyear price increases in the Carolinas and Texas.
These actions, combined with overall customer confidence and demand visibility, bode well for meaningful pricing acceleration in 2022.
Our Texas Cement business established a new quarterly record for shipments, which increased 4% to over one million tonnes.
Large and diversified projects, recovering energy sector activity and incremental pull through from our internal downstream customers, supported record monthly shipment levels in both August and September.
Cement pricing increased 8% as the second round of price increases this year went into effect on September first.
Turning to our targeted downstream businesses.
Ready mixed concrete shipments increased 23%, driven by large nonresidential projects and operations acquired late last year in Texas.
Concrete pricing grew 2% following the implementation of midyear price increases in Texas.
Additionally, we've announced a third price increase in the Dallas/Fort Worth market effective October first.
Asphalt shipments increased 116% overall, driven by contributions from our Minnesota based operations acquired earlier this year.
Our Colorado asphalt and paving business experienced shipment declines and supply disruptions from mid-summer liquid asphalt allocations throughout the Rocky Mountains.
This circumstance has now been resolved.
Despite these short-term issues, market fundamentals remain strong across the Colorado front range.
Organic asphalt pricing improved modestly.
Both the Building Materials and Magnesia Specialties businesses contributed to our double digit growth in product revenues and increased profitability.
That said, increased energy expense continues as a headwind, temporarily pressuring margins.
For the third quarter alone, total energy costs increased $28 million or nearly 50% company wide as compared with last year.
Absent this headwind, our consolidated adjusted gross margin would have outpaced the record set in the prior year quarter.
Aggregates product gross margin of 34.2% included higher diesel and other production costs as well as a $6 million negative impact from selling acquired inventory that was marked up to fair value as part of acquisition accounting.
Excluding the acquisition impact, adjusted aggregates product gross margin was 34.9%, a 150 basis point decline versus prior year.
Cement product gross margin declined 250 basis points driven by higher raw material cost and a $6 million increase in natural gas and electricity costs.
Ready-mixed concrete product gross margin improved modestly to nearly 10% as shipment and pricing gains offset higher costs for raw materials and diesel.
Magnesia Specialties continued to benefit from improving domestic steel production and global demand for magnesia chemical products, generating product revenues of $72 million, a 30% year over year increase.
Revenue growth more than offset higher costs for energy and contract services, driving a 100 basis point improvement in product gross margin to 39%.
As part of our long-standing capital allocation priorities, we continue to balance value enhancing acquisitions with prudent capital spending and returning cash to shareholders while preserving a healthy balance sheet, financial flexibility and investment-grade credit rating profile.
Consistent with SOAR 2025, we acquired a crushed concrete aggregates producer in the Houston area in late July.
These acquired aggregates operations expand our customer base and product offerings in one of the nation's largest addressable markets.
We have raised our full year capital spending guidance to $475 million to $525 million to include anticipated Lehigh West region capital expenditures.
We continue to prioritize high return capital projects, focused on growing sales and increasing efficiency to drive margin expansion.
Additionally, our Board of Directors approved a 7% increase in our quarterly cash dividend paid in September, underscoring its confidence in our future performance and a resilient and growing free cash flow generation.
Our annualized cash dividend rate is now $2.44.
Since our repurchase authorization announcement in February 2015, we have returned nearly $2 billion to shareholders through a combination of meaningful and sustainable dividends as well as share repurchases.
In early July, we issued $2.5 billion of senior notes with a weighted average interest rate of 2.2% and a weighted average tenor of 15 years, primarily to finance Lehigh West region transaction.
Our net debt to EBITDA ratio was 1.9 times as of September 30.
Leverage on a pro forma basis, inclusive of reach acquisitions, is modestly above 3 times debt to EBITDA.
Consistent with our practice of repaying debt following significant acquisitions, we are committed to return into our target leverage range of two to 2.5 times within the next 18 months.
As detailed in today's release, we have updated our full year 2021 guidance to reflect our year to date results that factor in higher energy costs and the fourth quarter contribution from the newly acquired Lehigh West business.
We now expect full year adjusted EBITDA to range from $1.500 billion to $1.550 billion.
Looking beyond 2021, Martin Marietta remains well positioned to capitalize on attractive market fundamentals and secular demand trends across our geographic footprint, expanded federal and state level infrastructure investment, single family housing strength, heavy industrial projects of scale and like nonresidential recovery should support growing construction activity and contribute to attractive pricing acceleration for heavy side building materials for years to come.
Importantly, we have both the ability and the capacity to supply these needed products and supported by our locally led pricing strategy will do so in a manner that emphasizes value over volume.
While navigating an imperfect legislative process, our nation is nonetheless on the cusp of achieving the most significant infrastructure action of this century.
The Infrastructure Investment and Jobs Act, which contains a five year surface transportation reauthorization and provides $110 billion in new funding for roads, bridges and other hard infrastructure projects passed the United States Senate in August with 69 bipartisan votes.
Though the United States House of Representatives did not take up the bipartisan infrastructure bill last week before the then current short term extension of the federal highway and public transportation programs expired on October 31, The House and Senate did approve a short-term program extension, keeping surface transportation funds flowing to the states through December 3.
The consensus opinion with which we strongly agree is that this important legislation will be signed into law before year end.
Aside from the overall economic growth, we expect to occur with the increased federal transportation investment, the steps we've taken over the past decade to responsibly grow and expand our footprint will also benefit Martin Marietta's near and long term outlook.
Project lettings for our company's top five states Department of Transportation, or DOTs, continue to positively trend.
Texas, Colorado, North Carolina, Georgia and Florida, which accounted for over 70% of our 2020 Building Materials revenues, are well positioned from both the DOT funding and resource perspective to efficiently deploy increased federal and state transportation dollars in advance the growing number of projects in their backlogs.
Notably, California, the nation's most popular state and the world's fifth largest economy becomes a top state for Martin Marietta, following the Lehigh West acquisition.
Caltrans, California's Department of Transportation, manages a $17 billion annual budget.
Additionally, the Road Repair and Accountability Act of 2017, commonly referred to as Senate Bill one or SB1, provides $54 billion or approximately $5 billion annually through 2030 to fund state and local road, freeway and rail projects.
For reference, aggregate shipments to the infrastructure market accounted for 36% of third quarter organic shipments, showing sequential growth since this year's second quarter, but still well below our 10 year historical average of 43%.
Nonresidential construction continues to benefit from increased investment in aggregates intensive heavy industrial warehouses and data centers.
We've also seen early signs of recovery in light commercial and retail sectors, notably in key markets such as Atlanta, Denver and the Texas triangle.
Like nonresidential activity should be a more significant demand driver in 2022, given that it typically follows single family residential development.
Aggregate shipments to the nonresidential market accounted for 35% of third quarter organic shipments.
Across our coast to coast footprint, single family residential starts are expected to remain robust despite higher home prices and longer material delivery times.
Significant underbuilding in commensurate with notable population gains over the past decade and accelerated the organization to support these trends.
Importantly, single family housing is two to three times more aggregates intensive than multifamily construction given the ancillary nonresidential and infrastructure needs to build out new or expanding suburban communities.
Aggregates to the residential market accounted for 24% of third quarter organic shipments.
In summary, we believe our industry is about to see public and private sector construction activity coalesce for the first time since its most recent 2005 peak, supporting both increased shipments and an attractive pricing environment for construction materials.
For 2022, our preliminary view anticipates organic aggregate shipments will increase in the low to mid-single digits as contractor labor shortages and logistics challenges continue to impact an otherwise robust demand environment.
Underpinned by our value over volume pricing strategy, we anticipate mid to high single digit growth in 2022 organic aggregates pricing.
To conclude, we're extremely proud of our record setting safety, operational and financial performance and look forward to continuing to build on that momentum into the fourth quarter and 2022.
As a result of our thoughtfully developed and consistently executed strategic priorities, our company's future is bright.
With our steadfast commitment to employee health and safety, commercial and operational excellence, sustainable business practices and store execution, Martin Marietta intends to build the safest, best performing and most durable aggregates led public company poised to deliver attractive growth and superior value for all of our stakeholders.

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qtrly total revenues $1,557.3 million versus $1,321.4 million.
qtrly adjusted earnings per diluted share $4.25.

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