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Text: Effective July 1, in connection with us streamlining our operating structure, we also changed our reportable segments.
Our Building Materials business now consists of the East Group, whose operations were previously reported in the mid-America and Southeast groups.
And the West Group, which had no significant changes.
In addition, the Magnesia Specialties business comprises our third reportable segment.
Prior year results have been revised to conform with this new reporting structure.
Today's earnings call will begin with Ward Nye, who will discuss our third quarter operating performance and market trends as we move toward 2021.
Jim Nickolas will then review our financial results and liquidity position, and then Ward will provide some closing comments.
We sincerely hope that you and your families are safe and healthy.
Martin Marietta's strong business execution and commitment to operational excellence provide the foundation for our company to consistently deliver record financial, operational and safety performance.
As highlighted in today's release, we established new profitability and safety records for the first nine months of 2020.
Year-to-date, gross profit increased to $927 million and adjusted earnings before interest, taxes, depreciation and amortization or adjusted EBITDA surpassed the $1 billion mark.
We have also achieved the best safety performance in Martin Marietta's history with a companywide lost time and total entry incident rates exceeding world class levels.
For the third quarter, increased pricing across all product lines and disciplined cost management helped mitigate anticipated shipment declines driven by the COVID-19 pandemic.
Third quarter financial highlights as compared with the prior year period included consolidated gross margin increased 100 basis points to a record 30.6%, despite a 7% reduction in revenues, demonstrating the resiliency of our business and our focus on cost control.
Selling, general and administrative, or SG&A, expenses as a percentage of total revenues improved 10 basis points to an industry-leading 5.4%.
Adjusted EBITDA was $502 million, inclusive of $70 million of nonrecurring gains.
And diluted earnings per share was $4.71.
For clarity, the nonrecurring gains contributed $0.87 per diluted share.
These results are a testament to our dedicated and talented employees who are managing through today's challenging public health and economic environment as well as the proactive steps we have taken to adjust the company's cost profile.
Now for a review of our third quarter operating performance.
Aggregate shipments declined nearly 9% versus a robust prior year comparison.
As anticipated, given the widespread COVID-19 disruptions across the United States, shipment declines were experienced across our footprint, with the East Group down 9% and the West Group down 8%.
Additionally, the East Group shipments were impacted by weather delayed projects in the Carolinas, Georgia and Florida, anticipated lower infrastructure shipments in portions of North Carolina and reduced wind energy activity in Iowa.
Wet weather in Texas and lower energy sector demand negatively impacted West Group shipments.
In line with broader macroeconomic trends, aggregate shipments to both the infrastructure and nonresidential markets declined.
Shipments to the residential market improved modestly.
Aggregates average selling price increased 2.7% or 4% on a mix-adjusted basis, underscoring this product line's resilient pricing power.
By region, the East Group posted a 4.4% pricing increase with strength in our key geographies of North Carolina, Georgia, Iowa, Indiana and Maryland.
The West Group average selling price declined slightly, reflecting a lower percentage of higher price shipments from distribution yards.
We continue to see attractive pricing in both Texas and Colorado.
On a mix-adjusted basis, the West Group average selling price improved nearly 4%.
As a reminder, we anticipate overall full year 2020 aggregates pricing growth of 3% to 4%.
Underlying demand for our Texas-based cement business remains positive, supported by diversified customer backlogs and large project activity.
Third quarter cement shipments, however, decreased 4%, reflecting continued energy sector headwinds.
Reported cement pricing increased 1%.
While average selling prices for our core cement products, namely, type one and type two cement were up $4 over the prior year period.
Lower shipments of oil well and lightweight specialty cements bound for West Texas disproportionately impacted overall price and growth.
As a reminder, specialty cements can sell for over $200 per ton.
On a mix-adjusted basis, overall cement pricing increased 3.4%.
Turning to our targeted downstream businesses.
Ready-mixed concrete shipments decreased 4% and excluding acquired shipments and third quarter 2019 shipments from our Southwest division's concrete business in Arkansas, Louisiana and Eastern Texas, which we divested earlier this year.
Texas construction activity was hindered by wet weather.
By contrast, Colorado shipments benefited from favorable weather and continued activity on a large Amazon fulfillment center.
Favorable geographic mix from robust Colorado shipments was the primary driver of the 2% increase in third quarter concrete pricing.
Asphalt shipments for our Colorado asphalt and paving business decreased 3% following near record levels in the prior year period.
Asphalt pricing increased 6%, reflecting a higher percentage of attractively priced specialty asphalt mix sales.
For our Magnesia Specialties business, weakness in chemicals and lime demand began to moderate during the quarter as steel utilization rebounded from June's trough.
We expect continued improvement through the balance of the year.
For the third quarter, the Building Materials business delivered products and services revenues of $1.2 billion, a 6% decrease from the prior year period.
And product gross profit of $384 million, a 3% decrease.
Aggregates product gross margin expanded 130 basis points to 36.4%, an all-time record despite lower shipment volume.
Strong mix-adjusted pricing gains, disciplined cost management and lower diesel fuel costs contributed to the 6.5% growth in aggregates unit profitability.
These results demonstrate the cost flexibility and resiliency of our aggregates led business.
Cement product gross margin was 40.2%, a 40 basis point decline.
Despite lower revenues, the cement business benefited from lower fuel costs and prior year tail investments that have improved reliability and throughput.
For our downstream businesses, ready-mixed concrete product gross margin declined 90 basis points, 9.7%, attributable to higher costs for raw materials.
Asphalt and paving achieved record gross profit of $32 million and a 140 basis point improvement in margin despite lower revenues.
Magnesia Specialties' third quarter product revenues increased $10 million to $55 million, reflecting lower demand for chemicals and lane products.
Lower revenues and reduced fixed cost absorption resulted in a 240 basis point decline and product gross margin to 38%.
Our consolidated results included $7 million of gains on surplus, noncore land sales and divested assets.
These gains which were recorded in other operating income net are nonrecurring and should not be extrapolated in a run rate calculation.
As a reminder, surplus land sales were part of the value proposition of our TXI acquisition, and that's exactly what you're seeing this quarter.
Since 2016, we have sold nearly $200 million of excess land that was not used for operations and did not contain operating assets.
While we cannot predict the timing of any future land sales, we expect additional noncore real estate divestitures as favorable opportunities develop.
We achieved the highest adjusted EBITDA margin in Martin Marietta's history, both inclusive and exclusive of the previously discussed nonrecurring gains.
We anticipate adjusted EBITDA to range from $1.35 billion to $1.37 billion, inclusive of the $70 million of nonrecurring gains for full year 2020.
Now turning 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 and prudent organic capital investment and a consistent return of capital to shareholders while maintaining our investment-grade credit rating profile.
In August, we acquired an exits and ready mixed concert company in Dallas/Fort Worth Metroplex.
These acquired operations complement our existing geographic footprint and expand our customer base.
They also enhance our aggregate and cement throughput to drive incremental upstream value.
We have widened our full year capital expenditures guidance and now expect it to range from $350 million to $400 million.
We are exploring additional life-kind exchange opportunities that would defer the package who would otherwise paid on this year's sizable land sales.
Since our repurchase authorization announcement in February 2015, we have returned $1.8 billion to shareholders through a combination of share repurchases and in meaningful, sustainable dividend.
Our Board of Directors recently approved a 4% increase in our quarterly cash dividend paid in September, underscoring its continued confidence in our future performance and cash generation.
Our annualized cash dividend rate is now $2.28.
Share repurchase activity remained temporarily paused during the quarter.
However, the purchases can resume at management's discretion.
With a debt-to-EBITDA ratio of 2 times, we are at the lower end of our target leverage range of two to 2.5 times.
We remain confident in our balance sheet strength, with $1.2 billion of total liquidity.
With our low leverage and ample liquidity to retain the financial flexibility to continue to profitably grow our business.
We're confident that our favorable pricing dynamics will continue and that attractive underlying fundamentals and long-term secular growth trends across our key geographies will remain intact.
To offer some specific color on how this is playing out, it's notable that both our upstream and downstream businesses have seen improvements in data shipment trends since July lows with October average daily shipments above prior year levels.
While we're cautiously optimistic about these trends, we believe COVID-19-related uncertainty will likely persist through the winter and spring seasons.
Keeping that in mind, we currently anticipate product demand will remain modest through the first half of 2021, and product pricing will remain strong.
As the U.S. economy resets from COVID-19 disruptions, the longer-term macroeconomic indicators, such as underbuild conditions, historically low interest rates and hourly workforce availability are favorable and should support a construction-led recovery.
We're seeing encouraging long-term trends across our three primary end-use markets and key geographies, including bipartisan support for a robust multiyear federal surface transportation reauthorization, heavy industrial activity to support e-commerce and remote work needs, and single-family housing expansion driven by accelerated de-urbanization.
We believe these trends bode well for a more aggregates intensive construction cycle than experience during the slow but steady recovery from the Great Recession.
Infrastructure activity, particularly for aggregates intensive highways, roads and streets, continues to be resilient.
With gas and tax sales revenue shortfalls less than originally anticipated, state departments of transportation, or DOT, budgets are in better condition than expected at the pandemic's onset.
For example, Texas DOT scheduled lettings for fiscal year 2021, which began September 1, and are currently planned at $10 billion, an increase of 35% over the comparable fiscal year 2020 lettings.
Updated Colorado DOT projections indicate relatively flat transformation spending levels for 2021.
And North Carolina DOT, which temporarily suspended awards for certain projects in response to pre-COVID-19 funding issues and other factors, recently revised its letting schedule upward and resume bidding for resurfacing work earlier this month.
As a reminder, these three key states represent over 60% of our Building Materials business revenues.
On the federal front, the President recently signed at the law, a continuing resolution that included a one-year extension of the Fixing America's Surface Transportation Act, or FAST Act, at current funding levels, which was consistent with our expectations.
In our view, this provides state and local governments the visibility needed to plan, design and let transportation projects through the 2021 construction season.
Over the medium to long-term future, we expect the industry to benefit from the passage of a reauthorized comprehensive federal surface transportation package, which we anticipate will be enacted by mid-2021.
Both the United States House and Senate of advanced federal highway legislation, underscoring bipartisan support to remedy the nation's crumbling surface transportation infrastructure.
Notably, both bills provide the first sizable increase in federal transportation funding in more than 15 years.
Regardless of the upcoming election outcomes, increased infrastructure investment should provide volumes stability and drive aggregate shipments closer to 45% of our total shipments, moving us toward our 10-year historical average.
For reference, aggregate shipments to the infrastructure market accounted for 38% of third quarter shipments.
Although certain sectors of nonresidential construction remain challenged in the near term, COVID-19 is driving a paradigm shift that should promote more diverse nonresidential demand than the previous cycle, fueling long-term aggregates growth.
Accelerating technology, e-commerce and remote work trends require increased investment in heavy industrial warehouses and data centers, which are generally more aggregates intensive than light commercial construction due to the size and scale of these projects.
Importantly, we have purposely shifted our nonresidential exposure over the last 10 years or so to be more heavily industrially focused as we've expanded our geographic footprint along major commerce carters.
Additionally, light commercial construction, despite its current weak demand, should benefit in the longer-term from the drag-along effects of strong single-family residential trends.
Aggregate shipments of the nonresidential market accounted for 33% of third quarter shipments.
Single-family housing is expected to lead this economic recovery as de-urbanization accelerates.
Prospective homebuyers are increasingly moving from large metropolitan cities to smaller metro or suburban areas amid the pandemic.
Recently, North Carolina, our third largest state by revenues, was identified as a top migration destination, ranking number seven among states that experienced the most inbound moves from March through August of this year, according to data from United Van Lines.
These trends extend beyond those moving from one state to another.
They also include existing residents opting to move farther out from city centers.
Across our Southeastern and Southwestern footprint, underbuilt conditions and favorable population and unemployment dynamics provide Martin Marietta with a distinct competitive advantage for outsized secular growth in single-family housing development.
Importantly, single-family housing is two to 3 times the aggregates intensity of multifamily housing given the ancillary nonresidential and infrastructure needs of new suburban communities.
Aggregate shipments to the residential market accounted for 24% of third quarter shipments.
In summary, as our third quarter and year-to-date results demonstrate, navigating challenging times and emerging from them stronger are hallmarks of our company.
We've executed a thoughtful strategy and taken deliberate steps to position Martin Marietta as a resilient, efficient and cash flow generative business that can consistently drive shareholder value creation.
We will continue to do what we do best: manage our business safely and responsibly, ensuring that we're prepared to seize profitable growth opportunities for the benefit of our stakeholders.
Martin Marietta remains well-positioned to capitalize on the emerging growth trends that are expected to support steady and sustainable construction activity over the long term.
With our attractive underlying fundamentals, strategic priorities and best-in-class teams, we're excited about our bright prospects for driving long-term sustainable growth and shareholder value in the fourth quarter, in 2021 and well into the future.

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qtrly earnings per share $4.71.
qtrly revenue $1,321.4 million versus $1,420.2 million.
remains confident that its favorable pricing trends are sustainable and durable.

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