Good day, ladies and gentlemen and welcome to the Martin Marietta Q4 2015 and full year conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today's conference is being recorded. I would like to introduce your host for today's conference call, Mr. Ward Nye, Chairman, CEO and President. You may begin, sir?

Good afternoon and 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 have made available during this webcast and on our Web site, 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 if it's legally required, we undertake no obligation to publically 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 Web site 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 timeline, 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 tailwinds and headwinds. The tailwinds, 2015…

[Operator Instructions] Our first question comes from Kathryn Thompson with Thompson Research Group.

The first is just on visibility in general, particularly related to states that have passed new pieces of legislation that should -- we already have 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 are going to see it. Think about North Carolina, they have 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 year. The other thing that North Carolina has that spending that we will see voted on later on the year. It's 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. So we do anticipate seeing that. So, yes, we are seeing activity that we believe will take aggregates volume later in the year. And clearly, what's 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 benefitted too by the [indiscernible] 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 will 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 are going to see the benefits of Prop 1 money in Texas and we are seeing near record lettings in Florida this year. So we are seeing new money in a number of states and we think as 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 have got 12 different states right now seriously considering gas tax increases in addition to what Georgia and Iowa ask. So that gives you a little bit of a feel across the patch Kathryn.

And just to clarify. So 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.

No. Kathryn, we are in the early innings. And I think part of what you are 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 are 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 in the early innings of. And I think you and I both had to sense that the more that we are building new lanes, the more that we are building new highways or new roads and the more of 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 very much aggregate intensive. So 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 are seeing is increased contracted 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 will give you a sense of that. I have been in Texas three times over the last month and a half and was down there for part of the holidays. And when I am talking to contractors in that marketplace, literally in the week of Christmas when it was dry, they were saying they were having really record days even at that time of the year, which I will tell you is unusual but guessing 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 are 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 have 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 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…

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

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

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?

No. We have always said that that was going to be on average, so we are really not changing what we said over time. Fairly we exceeded it in this last quarter. I think much of what we said in the past is that’s what you are 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 put some of those numbers look like they were most impressive. That’s what you are seeing. And to answer your question specifically, I think we are 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 are getting on activity on 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 will just say this much, the incremental margins will be a nice story again.

Okay. And then I just wanted 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. So I just wondered if you could expand on what got better, maybe it was just stuff that got pushed because of the weather.

You know what, I think several things. Number one, we didn’t have a highway bill when we were talking about it before. And 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 '16 but I think you might see some of that actually coming through at the backend of '16, 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 are seeing a big Texas number. We are seeing that gas tax increase pull through in ways that we are 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, I mean here is 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 are 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. So, again, if we are coming back and seeing what we feel like a really, really attractive DOT projects and awfully nice non-res projects, that’s 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 would like to see is at certain levels it's probably frustrating to our division presidents, but we have signed delegations from here to know exactly what they are 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 before.

Our next question comes from Todd Vencil with Sterne Agee.

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?

You know, here's the easy way to think about that Todd. The primary thing that I want to think of on the heavy side is what was going on relative to shale. I mean that’s really your show on what was going on on the heavy side. I mean to give you a sense of, 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 and in Q4 to shale about 521. Remember in my prepared comments I said I thought we were getting to maintenance levels. We view that 500,000 tons a few quarter as a maintenance and that goes back in part to the comment that I think I was sharing with Adam before, when I said look, we saw shale volumes down 1.1 million tons in the quarter but South Texas shipments actually up. So if you go the one part of the country, they would have felt more acutely the downturn in shale than anybody else. And you brush it away and you say that 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 are seeing there across our marketplace is pretty comforting to us right now. And we are liking what we are seeing. Does that help?

It does. 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 were 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 have been signing a lot of them. And the other thing is, number one, it's what we're seeing. And that's what's most important. Equally, it's awfully consistent with what FW Dodge is seeing. So if we look at their latest forecast which came out on January 26, they are seeing non-res up in those same types of percentages that we are talking about. So, again it's nice to see it. It's also nice to go to third parties and said that their data is saying the same thing that our life experience is saying.

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 is probably somewhere around 3.5 million to 4 million tons. I think we have got the vast majority of that obviously being in Texas. I mean there are places in the Midwest, for example, Q4 was wet and we have always discussed the fact that agricultural lime can go if it's really cold but it doesn’t go if it's really wet. So 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 did in -- that we saw in Texas but we certainly saw some in the Carolinas. We mentioned the fact that we have had 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. And obviously Denver was at some point 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 $75 million extra that could come out of ready mix if we have those margins in Texas like we have in Denver. Now we are not looking for that -- up in the year and I think we will and we should. That’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 '17 from '16?

I think there is no question that it's likely that you will see that. Because, again, even in Texas when we are talking about $10 billion worth of lettings. A part of that work is going to be really not occurring in some respects until '17. You are still going to have Prop 1 monies even next year to the tune of probably $600 million or $700 million and then suddenly you are going to have the Prop 7 money coming into that. And then North Carolina was put in that extra $700 million over a couple of years to it. You are going to continue to have the gas tax hitting what's going on in Iowa. And the other thing that’s important is you are seeing a number of TIFIA projects. Let's not forget that while TIFIA is smaller in this newest highway build, TIFIA isn't going away. And we are simply taking a look at what's going on in Colorado relative to, I think it was highway, 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 needs for long term.

Our next question comes from Ted Grace with Susquehanna.

What I was wondering, could you just -- 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 that share in 2016? I want to make sure we appreciate what drives the volume guidance that you've framed out.

Yes. The fact is, our share has moved around a little bit from call it the high teens to low 20s. And the factors you are talking about, 2% or 3% share in that market place. The fact is, Ted, we really believe that the pricing in that market place is more important than the share that we have given in some respect there. The other thing that I have 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 are protecting share, we are certainly willing to do that. But at this point, today, I think we hold about 20.5% market share, that’s a reduction of 2%. To put math to it, it's about $325,000 tons, just to be really granular. And again, I think we have got a good sense of where that breakpoint is between share and price and our sense has been, price has been more important and I think you can tell, given what we have done relative to the business, it has certainly shown that. I mean one important thing to remember there is whether needs stabilize. And 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 only 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. But 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 Texas?

That’s correct. And I would say, in particular in North Texas.

Okay. And then the related question would be, I don’t if it's for Ward or Anne, but when you bridge the gross profit improvement...

The business, Ted?

Yes, specific to the cement business.

Okay. And again, we wish that was going to be up $30 million and 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 had normal precipitation in that state, that would be pretty notable as well. I am not sure I have got a specific percentage breakdown on that. But I would say the pricing is going to be more notable in some respects than with the volume.

Okay. And then the other thing I just 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?

I can give you a sense of that. I mean we are 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 are trying to do, it goes back to what we said out in our shore process. Our strategic planning. We wanted to make sure we had leading positions in attractive regions. That’s what we have done. We wanted to make sure that we were getting generational types of deposits in those areas. That’s what we have done with nearly 1 billion tons in that market place. Here is 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 a 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 about net sales of that business of about $90 million. 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 then 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 margins of 17%-20%, probably about 1.5 million tons of [indiscernible].

Our next question comes from James Armstrong with Vertical Research.

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?

You know what, I guess what I would say is this. The wonderful thing about the pricing story in our industry is that 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 are seeing. I think the other thing that I would say is one of the earlier comments I made was, we see that eastern United States recovering now at a faster rate than we have seen for a while. Eastern quarries are higher priced quarries. So I guess what I would say is this, 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 have got a worrying list from 1 to 100, I will put pricing clearly at 101. So I have got a lot of confidence around that. And, again, depending on what's some of the geographic mix looks like, I will 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 degree of confidence on.

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

You know, I am 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 interest 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 am concerned about it? Not really at all. I think the other practical matter is two-fold. One, people are having a hard time getting drivers in the marketplace. Just finding them. And then number two, actually paying for them on the wages that they are looking for. So I think you have got an industry issue relative to aggregates that I think makes taking cheaper diesel and hauling stone further a bit of an anathema. And then I think you have also got a driver situation that makes it even more of a challenge. So today not an issue and really would not anticipate it being an issue this year.

That helps. And then lastly, is there a debt level you're comfortable at? And 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.

James, as we have indicated pretty consistently, we have said we would keep a minimum two times debt to EBITDA. Obviously at the end of 2015 we ended at a net debt of 1.9 times. We have indicated we would keep that level of debt and then that we would continue to use excess cash over and above what we use 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 if you could think about it that 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 have indicated in the press release, we have used our available funds to produce some acquisitions in the business.

You know, James, one thing to remember. We like these acquisitions we have just done in Denver a lot. The other thing that we will say is, we like ourselves a lot. We feel like we have got a good business. So the fact is we believe this business continues to delever very, very quickly. And if we like ourselves when we are $30 a share higher than we are now, so we really like ourselves a lot right now.

Our next question comes from Garik Shmois with Longbow Research.

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. Because 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. So in large part what we are talking about here on these price increases, are real price increases. And that’s what we anticipate putting into the marketplace, in North Texas and South Texas. Now, again, I think it's going to be easier in many respects to get price in North Texas than in South Texas. So I think we will see it in both. I think we will 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. And part of what I have try to do in the telecon is give some color around how that would play out over the year and put some specific percentages to it. But I mean, would we go in and put all dollars 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 that we are working off and not TXI legacy contracts. Does that help?

Yes. It does.

And 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 have provided you on average selling price per ton is kind of 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 that whether or not that is included in your volume guidance for the full year, the 164 million to 167 million tons.

Short answer is, no, it's 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?

Now, I guess a couple of things. One, if we are 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 if we are 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, is 28% lower. Even if we look for the quarter, it was about 26% lower. So, again, if we are 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 would tell you too is, there is no team that we have in this company that’s better at managing costs and managing their cost profile in our magnesia specialties business. So when I go back to Q4 and look at a 35% margin, even if that business came under some degree of duress, and again I am not thinking that it will but even if it did, I think you are looking at a business that’s still going to have a margin in the low 30s. And from where I am sitting, if we have got a low 30 margin, I will take it as a [gain] [ph].

Our next question comes from Trey Grooms with Stephens.

So with the pent-up demand that you were talking about from weather, how quickly could that come through, Ward? Should that impact 1Q or, really just trying to think about quarterly cadence of volume.

You know, I guess 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. I mean that's my quick math. If we want to say there with 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'll 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. So 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 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 of 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?

You know what, 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 have talked about those large projects, like [indiscernible] and others. So 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 cost, better efficiency. Here's an interesting anecdote for you, Trey. I mean 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 carryover, 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 from 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?

You know what, I think we're working our way through that. I think 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 kind of end of Q1, is the target on that?

Yes. I do.

Okay. And just if I could sneak one more in for Anne. Just kind of 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.

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

I wanted to just 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?

You know what, I've got to tell you, I don't see the dollar strength as really being a big component of that. I mean 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. And then I know you talked a lot about M&A being an important focus as of the investor day and I just wonder 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.

I guess, 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 that 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. So 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 want to clarify what you said. I was confused on the magnesia specialties segment because utilization lately in steel saw another like 72% as of last year and it's 72% or so now. So 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. I guess what I'm saying, last year -we've got to be careful when I say last year because we're between years...

2015.

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. And if it stays there, we're going to see something that feels relatively consistent. I think, back to your question, Timna.

Our next question comes from Jerry Revich with Goldman Sachs.

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, and also you had lower mid-year prices throughout the year.

Well, What I would tell you is, we've gone to the market pretty consistently with what we feel like the pricing needs to be. And 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 '16, certainly in '17 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?

No, I don't think the CapEx plans have changed materially since the last analyst day. I mean 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 for -- try to 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. So 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 '16, 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.

Our next question comes from Stephen Kim with Barclays.

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 I guess 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 to not return or intensify. So, could you just talk a little bit about what you're seeing there on the labor side?

Sure. I mean if you go back particularly in Texas and then 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. So 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 the 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. And 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, I think 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 '17. So if we look at Texas, more specifically to your question, Texas ranked number four 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 Sugar Land, there's around 51,000 starts. You put those two together, that's almost 10% of total starts in the United States. And 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 just 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 kicked 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.

Our next question comes from Mike Betts with Jefferies.

The only question I've got left is on the asphalt and I guess 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? I guess, 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 left there? I mean are you looking to exit it because it 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. So 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. So 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. And 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.

Our next question comes from Craig Bibb with CJS Securities.

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 '16 and beyond?

You know what 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. So 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 is largest. San Antonio is number two. San Antonio is larger than Dallas. And 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. So 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 that 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. And 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? I mean are we...

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. So 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. And then lastly, with magnesia specialty, 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-30s to low 30s or high 20s on the gross margin. Still, a very very attractive business even if that occurs.

And I am 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.