Good morning, ladies and gentlemen, and welcome to Martin Marietta’s First Quarter 2019 Earnings Conference Call. My name is Howard, and I will be your coordinator today. At this time, all participants have been placed in a listen-only mode. A question-and-answer session will follow the company’s prepared remarks. As a reminder, today’s call is being recorded. I will now turn the call over to your host, Ms. Suzanne Osberg, Vice President of Investor Relations for Martin Marietta. Ms. Osberg, you may begin.

Good morning, and thank you for joining Martin Marietta’s first quarter 2019 earnings call. With me today are Ward Nye, Chairman and Chief Executive Officer; and Jim Nickolas, Senior Vice President and Chief Financial Officer. To facilitate today’s discussion, we have made available during this webcast and on the Investor Relations section of our website, Q1 2019 supplemental information that summarizes our quarterly results and trends. As detailed on Slide 2, this conference call may include forward-looking statements as defined by securities laws in connection with future events, future operating results or financial performance. Like other businesses, we are subject to risks and uncertainties that could cause actual results to differ materially. Except as legally required, we undertake no obligation to publicly update or revise any forward-looking statements, whether resulting from new information, future developments or otherwise. We refer you to the legal disclaimers contained in today’s earnings release and other filings with the Securities and Exchange Commission, which are available on both our own and the SEC websites. As a reminder, all financial and operating results discussed today are for the first quarter 2019. Any comparisons are versus the prior year first quarter unless otherwise noted and all margin references are based on revenue. Furthermore, non-GAAP measures are defined and reconciled to the nearest GAAP measure in our Q1 2019 supplemental information and SEC filings. We will begin today’s earnings call with Ward Nye, who will discuss our first quarter operating performance as well as market trends. Jim Nickolas will then review our financial results. A question-and-answer session will follow. I will now turn the call over to Ward.

Thank you, Suzanne, and thank you all for joining today’s teleconference. Martin Marietta had a first quarter performance provides a promising start to what we expect to be another record year for our company. Consolidated total revenues increased 17% to $939 million, and earnings before interest, taxes, depreciation and amortization or EBITDA increased 28% to $159 million both new first quarter records. We also achieved strong gains and other key financial metrics including a 140 basis point expansion in consolidated gross margin and earnings per diluted share of $0.68. Notably, shipment volume and pricing improved across the majority of our building materials business including robust double-digit growth in aggregate shipments is more favorable weather allowed for an earlier onset to the construction season and our customers were able to begin addressing both prior year’s weather deferred projects and current backlogs. Consistent with our expectations, public and private sector construction growth in our leading markets is outpacing the nation as a whole and supports our view of continued pricing momentum. These trends bode well for increased construction activity and position Martin Marietta for improved shipments, pricing and profitability for the remainder of 2019. We have consistently maintained that attractive market fundamentals including continued employment gains, population growth and superior state fiscal health will promote sustainable and long-term construction growth across our geographic footprint. Our first quarter results clearly demonstrated that robust underlying demand, demand that failed to translate into higher shipment volumes in 2018 due to contract or capacity constraints, logistics disruptions, and most significantly poor weather. For example, our heritage mid-Atlantic division, which includes the Carolinas, Virginia and Maryland benefited from strong pent-up demand and more favorable weather conditions. These dynamics just to name a few resulted in heritage aggregate shipments that eclipsed the division’s 2007 peak first quarter volumes.…

Thank you, Ward. The building materials business achieved record first quarter products and services revenues of $809 million, an 18% increase. And gross profit improved 39% to $118 million. Aggregates product gross margin expanded to 550 basis points to 18% steadier and higher shipment and production levels provided improved operating leverage, which, in conjunction with higher prices, drove the majority of the margin improvement. as Ward highlighted, our cement operations benefited from strong volume and pricing growth. However, despite this top-line improvement, extended maintenance outages, higher rail freight costs and reduced operating leverage from lower production levels led to 1,270 basis point degradation in product gross margin. outages included planned and unplanned repairs at both cement plants and the acceleration of maintenance activities originally planned for later in the year. With over half of our 2019 planned maintenance completed, we are returning to normal production capacity at all kilns and are well positioned to benefit from the growing demand and the robust bidding pipeline throughout the remainder of the year. In late 2018, we initiated a restructuring of our southwest ready mix concrete business and are pleased with the initial results. These efforts contributed to the 100 basis point improvement in that business’s quarterly product gross margin despite relatively flat shipments and pricing. Magnesia Specialties continued to benefit from strong domestic steel production and increased global domain for magnesia chemical products, generating product revenues of $69 million, a new quarterly record. Additionally, the business achieved record first quarter product gross profit of $27 million. Product gross margins held steady at an attractive 38.5%. thanks to price improvements and production efficiencies that helped offset increased sales lower margin products in higher costs for supplies and contract services. Our consolidated results included the benefit of two non-recurring items. First, we reversed a…

(17:24) wetter: As we’ve often noted, the first quarter results are typically disproportionately driven by construction activity during the last two weeks of March. We will consider whether it’s appropriate to revisit our outlook later in the year. We believe attractive population and employment trends combined with positive momentum from state departments of transportation and continued private sector gains will support sustainable construction growth in our key regions for the rest of the year and for future periods as well. In 2019, we anticipate the growth in our top 10 states to outpace the nation as a whole and contribute to positive volume and pricing trends across all of our product lines underpinning our confidence that our company is on its way to posting another record year. As Martin Marietta celebrates 25 years as a public company this year, we’ll continue with the approach that it’s proven to be successful. Our focus on price, discipline, strategic geographic positioning and prudent capital allocation and underscored by our commitment to safety. That’s why we remain confident about Martin Marietta’s ability to achieve continued profitability growth and create value for our shareholders. If the operator will now provide the required instructions, we will turn our attention to addressing your questions.

[Operator Instructions] Our first question or comment comes from the line of Catherine Thompson from Thomson Research Group. Your line is open.

Hi, thank you for taking my questions today. The first question is on ASPs. A two-part question, first, could you confirm that there was not as great as an inventory build in Q1 2019 versus last year, because that certainly does seem to be the feedback from the field from the industry in general. And then the second follow-up with that, could you give more quantification of that commentary that you haven’t prepared comments about a greater mix of base stone, how – to what degree, did that impact? Q1, percentage of basis points, what does it mean for visibility going forward for volumes and what does it mean for mix going forward?

Good morning, Catherine. This is ward. Thanks for your question. A couple of things, one, yes, we did have actually inventory draw down in the first quarter of this year. So, we did not have to build that you saw last year. So that’s the first part of your question. I think the other part of your questions are really good one, and that’s what I’m happy to try to address, because I think this is an important notion for us to really hit very clearly. If we’re looking at the first quarter of 2018 relative to products that went out, here’s the way I would encourage you to think about it. About 25% of our product last year was base stone, somewhere between 28% and 29% of it this year was base stone. Last year, almost 52.5% of it was clean stone this year is 50%. here’s my point, Catherine. If you’re seeing more base stone glad today, that’s newer projects that are beginning from the ground up and are likely to last a longer period of time. At some point, you’re going to put asphalt or concrete on top of base stone. So, we’re going to get those clean stone sales as they come through. Greater base stone sales in my view is longer-term nice projects that pretend well for the balance of 2019 and really, I think start to tell a good story for 2020, but here’s what’s important to it as we go through that. if we take a look at what our ASP on our heritage business would have been this quarter, if we had had the same mix that we had last quarter, our ASP for heritage would have improved 6.1%. So that’s the 210 basis point improvement and we think seeing more base stone is attractive. We think that type of pricing growth, our heritage business is also attractive. And I do think I responded to your question relative to the inventories as well.

Yes. A follow-up on the cement. Just a clarification, could you quantify how perhaps a dollar impacts this quarter versus a typical Q1 or perhaps last year in terms of how higher maintenance cost was? And then you said there were some planned and the unplanned, maybe just a little bit more clarification on planned versus unplanned maintenance.

Well, let’s do it this way. I’ll ask Jim to help double team on this. Let me start the conversation in this regard. As we came into the year, Catherine, what I would say as we anticipated having about $19.2 million worth of expense relative to the kilns during the course of the year. What we’ve done in the first quarter is we spent or invested a $11.2 million of that. So, if you look at what that looks like over a period of years, that’s clearly accelerating a lot of that into the first quarter and our thought process is several for, but primarily driven by the notion that we want to be in an attractive place to run the business very aggressively as we go into the pure summer months in that Texas market. I’ll ask Jim to speak very specifically to some of the dollars around the maintenance inventory and some other issues that do affect the financials.

Good Morning, Catherine. The breakout between the maintenance expense was about $10 million more this quarter versus Q1 of 2018. That $10 million higher expense, $6 million of that was planned about a little under $4 million that was unplanned.

Okay, perfect.

So that’s about 10 percentage points on the gross margin side. The other items that impact the cement, let me just run out the whole cement gross margin for clarity. We did have, because we sold, we had good sales growth, the shipments, the production was lower, given the downtime. We had to dip into our inventory in a deeper way, which resulted in a $6 million headwind for the quarter again, versus prior year. Those are the two biggest impacts, maintenance and inventory draw down. The third item was increased rate was about $2 million as we had to supply two new distribution outlets. So, there’s about $2 million of extra expense. Those are the three biggest items that impacted the gross margin for the cement business.

And Catherine, what I would add onto that is obviously, the increased transportation is moving primarily into new Caney and Houston and moving out west to Odessa. So, those are some additional charges that we actually view is very welcome.

Okay. And final just quick cleanup question on guidance and changed, I appreciate that Q1 seasonally is a smaller contributor. We know that on average for the industry from the checks we’ve done maybe, 20% of your volumes, but could you remind us, perhaps on a historical basis how much of earnings typically hit in Q1? And I guess the one thing that I’m noticing; I just wanted to make sure that we’re right on the seat. It looks like, at the first time, a big difference this year versus last year, having all three end market res, non-res and public growing. Could you just for our sake, just ensure that there’s no change on conviction even though the numbers haven’t changed, but is there any change in the conviction for the year? Thank you.

Catherine, thank you again. Look, we feel very good about the year and we feel very good about the start. As we said in the prepared remarks and we don’t feel like it’s the right moment to come back and revisit guidance at all yet. And to your point, if we look at a five-year average, here’s what I would tell you, five-year average, which showed 19% of shipments occur in the first quarter, 19% of revenues in the first quarter, to your point, very specifically Catherine, 12% of gross profit and around 12% of EBITDA. So again, I think we’re sitting in a very attractive place. Everything that we see and everything that we hear from customers for the year looks wonderful at this moment and you’re certainly not hearing anything that tends to be a lack of conviction from us on the full year.

Thank you very much.

Thank you, Catherine.

Thank you. Our next question or comment comes from the line of Trey Grooms from Stephens. Your line is open.

Thank you. Good morning. So, the first question, I have is on aggregates incrementals, you guys saw an improvement and I think by my math, were about – the incrementals were about 38%, 39% and I know it’s difficult to look at incremental margins on a quarter-to-quarter basis, but you guys are, I believe looking for full year to be around the 60% range. So, can you talk about some of the factors impacting 1Q that maybe won’t be an issue in future quarters or how to think about the bridge and incrementals margins for aggregates, going to get into that 60% range to the year?

Good morning, Trey. Thanks for your questions. A couple of things, I do think it’s important to hit just what you said and that is remember, that’s 60% on average in the aggregates business. So, I want to make sure that we’re talking about that. Obviously, Q1 is a little bit different, because you don’t have significant portions of the aggregates business that are really running the way that we expect them two-fold full year. So, that is a caveat. let me turn it over to Jim to walk you through some of the math on where it looks like for the quarter and how we think that shakes out for the year.

Yes. good morning, Trey. Two things that I’d like to point out, one, the headline number is in fact 30% incrementals, but what that’s missing is the fact that we didn’t have Bluegrass in Q1 of 2018. if you were to do a pro forma calculation, including bluegrass, the incrementals would go to 51%. So, about a 13% improvement, just that simple math change. in addition, we increased the tons we ship predominantly the rail in this quarter by 17% and that led to higher freight cost for the quarter, which would account for another 13% incremental points to getting us to close to 64% just taking those two items into account.

Gotcha. Okay. And that’s still the case; just kind of looking on a full-year basis is for the overall business to get back to that kind of 60% range, that’s the outlook for…

That’s right. That’s what we’re still expecting.

The overall aggregate business is correct, right.

yes, yes, for aggregates. Thank you. And then secondly on the infrastructure side, up 2% I think, which it kind of lags some of the other end markets. And I think you’re looking for infrastructure now to be up kind of high single digits. Can you talk about what you’re seeing there on that end market and how we should see that progress as we go through the year with that kind of coming out of the gate a little slower?

Yes. I guess what I would say Trey, in many respects, if you think about the way DOT specifications work, there is not going to be a lot of asphalt paving in particular in most jurisdictions until after you get about March 15. So again, if we’re looking at the rhythm and cadence of the way that the years building, we’re not at all surprised by for infrastructure sets here at the end of the first quarter. I think if we go back to that commentary I gave you early on about seeing more base stone, I think that’s the type of work you’re going to see being driven toward infrastructure this year. And one I would say too is simply looking at the states that matter most to us, I mean Texas is looking at $8.2 billion worth of letting the share. that’s a very big job, very big number and we’re seeing a number of very attractive design build jobs in that state. If we look at Colorado that did not have a particularly great year, last year. 2019 looks a lot better. They’re looking at $2.2 billion DOT budget versus $1.6 billion last year and the state even more recently has transferred $650 million of FY2018 general fund surplus to transportation over the next couple of years. If you look at NCDOT here in our backyard, full year 2019 letting estimate $2.8 billion to $3 billion, and again, these are very – that was the big numbers. That’s a 35% increase over what we saw last year. And if we’re looking at Georgia, they’re looking at lettings of about $1.9 billion, that’s 2x of what we were seeing back in 2014. And if we’re looking at what they’re looking for in 2020, they’ve requested $2.1 billion in 2020, so that’s a 10% increase. So I think back to your point, I think seasonality is what has affected infrastructure as we’ve come out of the gate. We fully expected it though the letting activity that we’re seeing from the states is very good. And the backlogs that we’re hearing from our contractor clients are often at record levels. So, again, I think we’ve got enormous conviction and confidence around where infrastructure is going this year.

Right. That’s encouraging. And then if you look at, I guess last one from me was you’ve made a comment word about April 1st pricing in cement. Can you remind us how much you guys went out with, and I think you mentioned lots of res support in North and Central Texas, just any other granularity around that. And I know you don’t do a lot in Houston market, but just any other color on what you might be seeing in the Houston market particularly?

Now, happy to try to help with that. I mean, number one, same pricing up in Q1 is just nice to see period, because to your point, the price increases for us in that marketplace really don’t go on back to April 1, and by the way, same answer on ready mix concrete. So we’re talking about right now, North Texas is somewhere in that $6 to $8 per ton and South Texas $4 to $5 and that Houston and Central Texas popping in that $5 range, Trey. So again, it gives you a good steady snapshot of what it looks like. And again, it’s fairly consistent with what we’ve seen over the last years. Pricing tends to be a little bit better in North Texas, a little bit weaker by the time you get to the Gulf for reasons that you understand.

Got it. All right. Thanks for all the color and congrats on the nice quarter.

Trey, thanks so much. Have a great day.

Thank you. You too.

Thank you. Our next question or comment comes from the line of Scott Schrier from Deutsche Bank. Your line is open.

Hi, good morning. Thanks for taking my questions. Obviously, non-res was a pleasant surprise in the quarter, you had a significant year-on-year growth and understanding that it is a small quarter. but I’m curious if you could talk a little bit about, first, was there any impact from the Houston chemical plant incident. And second, was this non-res performance in line with your expectations or did outperform and was there some pull forward? Just want to get a sense for what the bidding process looks and the cadence of the non-res, which you know seems to be a pretty good surprise in the quarter.

Yes. Several things that I’d say Scott, now the Houston situation was not particularly a driver for that. If we come back and take a look at really what we were seeing in states that matter the most to us, non-res for us in North Carolina is up nicely, non-res for us in Georgia is up very, very nicely. So, I think that’s a lot of it. If we go and look at the nature of some of the non-res, it’s got a nice enduring quality to it. You’ve heard us speak over the last several years about warehouse and you’ve heard us speak about data centers. You’ve heard us speak increasingly about wind farms, that that level of activity continues to be really quite strong in our footprint. So, I think a lot of what you’re seeing on non-res, number one, it’s not a surprise to us, and number two is, really driven by some states that population trends and employment trends have been very strong over the last several years. But volume trends haven’t been as strong. And I think part of what we’ve been waiting for, and I think much of what the investor base has been waiting for is to see states like North Carolina and Georgia really start to before. So, remember one of the things that we’ve long talked about is the importance of that bottom right hand corner of the United States map to our business. And as we look at what one of the big differentiators were – has been in non-res for the quarter that was a piece of it. The other thing that I would tell you and it’s not so much a mover for the quarter, I think it’s going to be a mover for the year as you’re looking non-res will be what’s happening with those large energy projects in the Gulf. As you recall, we’ve been talking about a dozen-ish of those large jobs that are either in action or we believe coming into action in the not-too-distant future. Today, we’ve got two different jobs with Exxon and, and one at Cheniere LNG Train 3 in that marketplace. And we think more coming during the course of the year. But back to your point, Scott, those were the primary drivers that we’re seeing in non-res.

Got it. Great. And then I wanted to ask another one on cement and cement pricing and your comments suggested that you have some confidence in any environment, but I just want to ask a little bit about that confidence and especially near Houston, where you’ve had imports as a rescue, some of the global cement trade happenings that could influence multinationals willingness and the ability to import. We see the emergence of some independent cement terminals coming online in Texas. So, I’m wondering how all that plays into the environment for pricing in Texas. Given that of course, we know there’s that supply and demand imbalance, but just want to see if that throws a wrench in the mix a little bit.

Yes. I guess my comments would be two-fold. I think you finished with something that I think some important point and that is you do have supply demand imbalance there. You’ve got more demand than you have supply number one. Number two, in many respects with the exception really in one notable case, the people, who were importing are also domestic producers in that marketplace. And if you come back and reflect on it while Texas is in fact the only state in which we have cement, our cement operations strategy number one in Dallas, and number two in San Antonio. So, if we look at the large cities in Texas, our drivers are really going to be DFW, it’s going to be San Antonio and then two degrees South Texas and Houston. So, I would say the supply demand imbalance is very healthy for where we are. I think the pricing environment is more attractive. I think the fact that really, you’ve only got one non-domestic producer, who is coming in at any moment keeps things in a very steady state even in that part of the state right now. So again, if we’re looking at how we view Texas cement this year, we have a very robust view of how that business is going to perform.

Great. Thanks for that, Ward and good luck.

Thank you, Scott.

Thank you. [Operator Instructions] Our question or comment comes from the line of Nishu Sood from Deutsche Bank. Your line is open.

Thank you. I wanted to follow up first on the aggregates pricing. On a mix adjusted basis, the 1Q pricing was up around 6% year-over-year. So, above the 3% to 5% that you’re expecting for the year, are we already seeing some of the pricing tailwind benefit from the strong start to the year? How would that – how do you, would you expect that to carry forward as we go into the heart of that construction season?

Nishu, I would say maybe modestly, you’re seeing some of that, what I would say is really, if you think about the work that’s going early in the year, most of its going to be work that was put into back clock last year. So to the extent that things could be tighter in some markets before the end of the year is over, I don’t think you’re necessarily seeing that benefit just yet. Again, I think the mix effect does mass quite as the overall strength of the aggregates. I also think that in the fullness of time, particularly in some of the eastern markets, you’re likely to see a bit more tailwind on that. But again, if we’re coming back and saying, how do we see pricing right now, did we feel confident within the guidance that we put out? Yes, we do, and do we feel even better about the mixed that we’re seeing go out. I feel unquestionably better about that and mixed the more base from my perspective the better.

Got it. Great. And the second question, as you were discussing the improvement in performance relative to last year, one of the topics, which you brought up again in terms of 2018 was the issue of contractor labor constraints. As we think about this year so far, it’s still early in the construction season, but is your – is your 1Q and the momentum coming out of the quarter evidence that some of those contractor labor constraints have begun to ease or is it really more the weather, the early start to the construction season that you described in some parts of the country?

Nishu, I think it’s probably all of the above. Clearly, the weather was better. I think backlogs for customers, who are better. But if we look at construction employment to recruit 3.4% in March of 2019 versus the prior year, and it’s well above the national rate and building on a 4.3% growth last year and 3.4% growth in 2017. So, we’re simply looking at the sheer number of people who are now coming to work or coming back to work in construction. It’s growing. So, I think number one, that’s gotten better. Number two, weather was better. I think the other issue is we’re going to have better logistics this year with both truck and rail. So, I think a number of the bottlenecks that we saw last year, are they going to be 100% gone this year? I’m not – certainly not going to bet on that. Are we seeing labor better right now for contractors and we saw a year ago, absolutely we are, which is why I’ve come back and answered your question. I don’t think it’s one thing with the other. I think it’s a confluence of factors that are actually working the way that we thought that they would.

Great. Thank you.

Thank you, Nishu.

Thank you. Our next question or comment comes from the line of Phil Ng from Jefferies. Your line is open.

Hey guys, heritage pricing in aggregates and cement were very strong at the start the year and as you kind of flag a lot of the increases you guys have in place for spring, next don’t kick in until April. So, I guess based on what you realize thus far and as that kind of flow through and trickle through over the course of the year. It seems like there’s potentially some upside to the 3% to 5% of pricing that you've guided. Any color on that front would be helpful. And is there an opportunity, I guess, if things are really tight and strong, maybe certain market you guys go for a second round back half of the year?

Yes. It will be interesting, Phil. Again, I think we're just, at this stage, just sticking with the 3% to 5% on price. I do think there can be some places this year, depending on how weather cooperates, otherwise it might get tight. Could I actually see some tightness in parts of Eastern North Carolina? I think that's possible. Is it possible that you could see some tightness in some portions of Colorado? I think that's possible. Yes, possible, but you might see some tightness in some parts of the Midwest, and I think that could be. So I think we'll simply have to watch that. As a general rule, we don't talk much about the notion of midyears until we get closer to midyears. We discussed last year the fact that the contractors prefer to go ahead and see whatever the price is going to be early in the year and have some sense that that's what it's going to be throughout the course of the year. I think that is typically what you're going to see, but I do think tightness can make some individual projects bid differently as we get deeper into the year.

Got it. That’s helpful. And Ward, in your prepared remarks, you talked about how transportation activity in some of your key states like North Carolina, Georgia and Florida were starting like to pick up both from the letting standpoint. Just from a timing perspective, I just want to get a better appreciation, do you start seeing some of that flow through this year? Or is it kind of more of a 2020 event? And based on the backlogs you had coming into the year and how it's shaping up for 2020, do you stack things up from a growth standpoint? Do you think things accelerate even more in 2020 or kind of pretty steady 2019 versus 2020?

I think you’re going to see a good pickup in 2019. And part of what I'm taken by right now, Phil, and I haven't heard this as much in years past as I've heard this year, I've heard several contractors telling me early in this quarter – by this quarter, I mean Q1 in this instance – that they were already building work into 2020. So I think in many respects, the infrastructure that is there, that has been bid, that we know is coming, is, in many respects, baked for 2019. I think what you're looking at is, particularly on the public side, a level of bidding and letting activity that I think, at this point, starts building into a very steady 2020 as well. I think your commentary on that is entirely correct.

Okay. Thanks a lot. good luck in the quarter.

Thanks, Phil.

Thank you. Our next question or comment comes from the line of Jerry Revich from Goldman Sachs. Your line is open.

Hi, good morning everyone.

Hi, Jerry.

What I’m wondering if you can just expand on your pricing comments. So like-for-like, pricing is up 6% this quarter, and I'm just trying to square that up with the comments that – on the full year guide and the discussion you just had a moment ago. I guess it sounds like from a – just a spot market basis alone, there should be upwards pressure to the guidance. So I'm just wondering, is it – just back to your volume comment earlier on the call, is it too early in the year to revisit the pricing outlook? Or are we expecting the mix headwind to go from 200 to 300 basis points? I guess I'm trying to square that up. Is it just a function of it's early to the year, and let's just see how next quarter develops versus now the pricing is set, we have large work coming that's preset prices? Can you just help me square that up?

No, I can’t. And Jerry, I think you nailed it there in the middle. It's just too early in the year right now. We don't say anything that makes us lose our conviction on pricing. Pricing this year from our vantage point looks more attractive than pricing did last year. I don't see anything that's going to materially change that. I think your point is entirely on target, and that is it's the first three months of the year. And important markets like Colorado didn't even wake up because it's how I like to tell people they had a wonderful ski season and a really bad construction season this year. So we're going to wait and see what this looks like, where the entire business across our enterprise is really going. And the odd thing is, Jerry, that truly doesn't happen usually until the 1st of May because if you think about it, some of the Midwest is still simply coming out of a flooding circumstance as well. So, it's certainly not due to any lack of conviction, we're just not going to get in over our skis after just three months into the year.

Okay, understood. And then in terms of the results from a non-res standpoint, really strong in the quarter. Is that just an easy weather comp in a certain area? Or did you win one of the major infrastructure projects in terms of LNG and chemicals? Or how much was that in the mix? And your comment earlier, just a clarification on the infrastructure piece. So when exactly do you expect, based on shipment timing, to see an acceleration from the low single-digit range that we saw in the first quarter towards the – a high single-digit run rate that you expect the balance of the year?

Yes. With respect to your first question with respect to non-res, it was really more driven by just broad, solid non-res activity across the enterprise. But as I indicated earlier on, you did see a couple of states that are seeing particularly strong non-res gains. And again, that's North Carolina and Georgia. So when we're seeing that, that does help us pretty considerably. To the second part of your question, no, there was not any particular big project in the Gulf or otherwise that served to skew that or make it more look attractive. I just think we're sitting in a place that non-res for us is likely to be pretty attractive this year, and it came out of the box in a good, strong way. And I do think there has been some pent-up demand there, but I think there are also good backlogs that continue to be – being built by our contractor base right now, Jerry.

Okay. Thank you.

Thank you.

Thank you. Our next question or comment comes from the line of Stanley Elliott from Stifel. Your line is open.

Hey, good morning everyone. Thank you for taking my questions. A quick question on CapEx expectations. You've been spending above depreciation probably like four, five years now. How long should we think that, that continues? What do we think about kind of moderating that back? First part. And then second part, maybe speak to some of the cost savings programs that you all have underway, I think, which is probably due to some of the CapEx that you've been running at a higher level.

Stanley, good morning. Thanks for your question. A couple of things. You’re entirely right. If we look over the last several years, we have been spending CapEx at above DD&A levels. And oftentimes, we'll refer you to DD&A levels, because that's not a bad number for you to keep in mind on what a stay-in-business CapEx number would look like. What I think you'll see is if you look at the range that we set for CapEx this year, it's actually getting closer to our DD&A levels. So you've actually seen that very naturally and gradually. And I would submit to you down simply because we spend some money in some very careful ways, and the organization in many respects is as well capitalized today as it's ever been. What I'll do is turn it over to Jim to talk to you a little bit more about some of the specifics in the CapEx program, but I wanted to make sure, to your point, that we're level-set relative to history, the fact that we're below DD&A during the downturn, about now getting closer to DD&A.

Yes. As Ward mentioned, our DD&A is converged with our CapEx spending by and large five years ago. that wasn't the case we’re coming out of the recession, have to make up some loss ground. We've done that by and large, and if you look over time, our CapEx as a percent of revenues has ranged from 8% to 10% and we've been trending lower. So, last couple years, closer to 8% and we expect it to stay right around that spot. So we feel pretty good about that. Some of the specific projects, we've got – we've got some large mines that were moving underground has been ongoing. Those should be wrapping up in the next year or two. But we also want to keep some powder dry for opportunistic commercial activities that we have a chance to partner with a contractor in unique ways, we want to keep some dry powder for that. And we've been deploying and we'll be deploying some money on special projects that a) provide outsized returns, and b) help us ensure ongoing business with that contractor.

Perfect. Jim in your comments, you had mentioned M&A, I mean does that still seem to be kind of kind of a high pick item for the company right now or with that just kind of messaging more that you’re consistent with kind of the capital redeployment strategy that you've had in the past?

Stanley, I think if you go back and look at the capital allocation priorities, the right transaction continues to be at the top of the list for us. So, for example, when we look at the way bluegrass is performing for us, hitting the EBITDA margins that we thought we would see we're seeing synergies nicely in advance of the $15 million that we had indicated at marketplace that we'd be getting. That's my long way of saying. the right transaction continues to be the number one capital priority for us, investing in the business is pretty close behind that and making sure that we have it well done and then returning cash to shareholders, there were meaningful and a sustainable dividend and the share buyback. So, those have been staples to our dialogue over the last several years and they continue to be in that order.

Perfect. Thank you very much and congrats on the strong start for the year.

Thanks so much Stanley.

Thank you. Our next question or comment comes from the line of Garik Shmois from Longbow Research. Your line is open.

[Indiscernible]

Garik, I heard something, but I didn't hear your full question.

Sorry. Can you hear me now?

Yes, I can. Thanks. Good to hear your voice.

Yes. So, I want to ask you some volumes in non-res in particular, how much of the volume do you think might have been pulled forward into the quarter? And just given the favorable weather and do you characterize any risk that I have a vacuum in demand in the second half of the year just given the earlier start to the season?

I'm going to ask my partner in crime, Jim Nickolas to respond to, then I’ll circle back to you Garik.

Yes. I think it’s actually the reverse of being pulled forward, it’s a bit more of a carryover from Q4 that there's been a slowdown in from weather impacted delays. So, I think if there's any weather movement, it’s benefitting from the Q4 we had, I don't think it's as much a pull for from Q2 or Q3.

and Garik, I guess what I would say too is I think it's possible that you might start seeing some tonnage going to those large energy projects this year that we do not have specifically committed right now. So, I think if I'm looking at non-res across our enterprise at echo, but Jim said, but at the same time I don't see something relative to activity or inactivity there that causes me any degree of concern or pause as we’re looking at, I think non-res is going to be a very strong segment from Martin Marietta this year.

Okay. And then, my follow-up question is just on inventories. You talked about the draw down in Q1, I was wondering if there's any way to quantify that in aggregates and then as you rebuild inventories over the remainder of the year, how should that impact incremental margin? Should we perhaps [indiscernible].

You’re breaking up there, but I think I got the gist of your question, okay. So, we did draw down inventories to some degree this quarter and with a mild headwind, but as we build inventory in the remainder of the year, that should act as a tailwind for us. So that should be helpful.

Okay. thank you. Okay,

Thanks a lot.

Thank you. Our next question or comment comes from the line of Timna Tanners from Bank of America Merrill Lynch. Your line is open.

Yeah. Hey, good morning everyone.

Good morning, Timna.

I want to ask, I know you mentioned that your Cassie's party was debt pay down, but you did buy back shares in the second half of last year. And I just – when I, if you can remind us how you think about the timing decisions for $5.

Yes. So, we're focusing remaining investment grade and deleveraging as we stayed in when we bought bluegrass. But of course, we resumed the share buyback in the last year. And we're still – we're still on that path Q1 seasonally low or light quarter for us from a cash flow perspective. So we held off, but we expect to resume in the rest of the year by deploying some of our cash per share repurchases.

We try not to look at it just in a strictly rigid way either. We want to be realistic and if we can want it to be opportunistic with it. So we try to look at it in a very clear-eye fashion.

Okay. And then just wondering if you have any of your – if you could update us on your latest thoughts are, what's your sources in Washington saying about funding sources for the next highway spending program. I know it's a little bit early but was just starting to, we've been seeing more headlines about the two sides of the aisle perhaps coming together, different funding sources, whether it be gas tax increase or actually per vehicle kind of monitoring sources. So it just wondering if you have any updated thoughts on how that's going play out?

Well, I guess I know what you know and that is, I believe the President and Speaker Pelosi and Senate Democratic leader, Chuck Schumer, I think we're supposed to meet today to discuss infrastructure. I think there's several things to watch. I think between now and clearly August is going to be an important time. Clearly you've got the U.S. Chamber and others who were very focused on a near-term gas tax increase. And I think that's the important phraseology to put to it near term, because the simple fact is the United States is going to have to in the fullness of time move away from a gas tax and come up with other mechanisms. I think those mechanisms include vehicle mileage tax on trucking. I think it can include electric battery taxes. I think it can include to a degree an indexed gas tax. I think the table was fairly open on stuff those can be and I think what's going to be fascinating is to see how interested the Republicans and the Democrats are two actually work together on this. It is the one area that we believe there is bipartisan agreement. I think if they're going to get there, they need to get there sooner rather than later because once we get into election season it gets increasingly challenged.

I know the tough question asking you about politics, so I appreciate your thoughts on it. Thanks again.

You’re welcome, Timma.

Thank. Our next question or comment comes from the line of Rohit Seth from SunTrust. Your line is open.

Hey, thanks for taking my question. Just – what are the hot topics this quarter has been on the Mississippi River flooding and I know you guys have some exposure to Iowa, Nebraska and some of the neighboring states and your ChemRock/Rail volumes were a little bit weak. Just maybe you could speak on that and just gives a status of what’s going on over there.

Yes, I guess, what I would say. You’re right, there has been some flooding as you recall, we’re not up and down really that Mississippi River market anymore, but we do have some flooding that has hit sit our businesses in the Midwest. Now when I say that, we haven’t suffered in our quarries with flooding, but local communities have certainly suffered from it. And point, I’ll tell you too is there is tonnage that’s required to come behind these storms. If we’re looking that our current backlog or customer backlog in the Midwest specifically, it’s 59% over where it was in the prior year. And that’s a pretty big number. And a good bit of that has been some shot rock that has been required already to be used to help remedy some of the flooding and shot rock that we think will continue to be required over the next several months to do that as well. So at least last year when Hurricane Florence came through, we had flooded sits in the Midwest. We do not flooded bits, I’m going to be really clear on that point. But I do think from a business perspective it would generate some activity. It certainly creates individual pain and loss for families and our hearts and prayers and money and resource going out to them in many instances. But I do think that’s where we sit relative to a business snapshot on that issue, Rohit.

Gotcha. Okay. And then on variable costs on diesel and asphalt, maybe give us a sense of your outlook on those who are here?

Yes, I mean, here’s what I’ll say. If we look at really where diesel was first quarter, expense was relatively flat on a 7.4% reduction in pro gallon pricing. Now the difference was we also had 7.8% increase in usage simply due to Bluegrass. So we’re just kind of have to seek where that goes for the rest of the year. We are not hedged on diesel. The primary hedge we have on that, as you recall over years has been relative to what we contend to do with respect to average selling price. But at least as we look diesel in the first quarter, relatively well behaved. As reminder, last year for the full year we used a little bit over 47 million gallons of diesel fuel and that was not having Bluegrass with us in the first quarter. Obviously liquid asphalt is up for the year. We think that actually probably works relatively well do asphalt pricing. And we’ve seen relatively flat natural gas pricing and that can matter to us, particularly relative to costs with respect to our magnesia specialties business. So again, we’re, we’re looking at an overall input cost situation that we don’t think is unattractive at all.

Gotcha. Okay. And then final question on, we talked about the base stone potentially impacting the mix, but you had really good heritage pricing in the quarter. Is the guidance inclusive of that mix headwind? So all in, good underlying pricing but potentially some mix of base stone?

Yes. We do our best to look at the mix and see where we think it’s going to be. We felt like because of the increased infrastructure that there would be more based activity this year. I think we probably saw a little bit more base activity earlier than we thought we would have. So we have done our best to apply in many respects. What I hate to say is some art to that. So that’s where we are obviously by the time we get to have here, we’re going to have much better feel for it. But I think you get a sense of what the puts and takes are right now.

But then the base stone is not a margin headwind, it’s just a optics thing, right?

It is absolutely, positively an optics thing. That’s entirely correct.

All right. Thank you very much.

Thank you, Rohit.

Thank you. Our next question or comment comes from the line of Adrian Huerta from JPMorgan. Your line is open.

Thank you for taking my call and congrats on the results. Two questions if I may. One on M&A. If you’re starting to see valuations getting more expensive for – to acquire aggregate quarries. And my second question has to do with the Bluegrass prices, that they’re really – they – where already 15% below your prices and they seem to be at the same level. Do you see the opportunities for the coming quarters for that gap to close? Thanks.

Adrian, good morning and welcome to the call and welcome to covering our company. We’re delighted to have you. And just a couple of things. M&A what I would say, it’s a completely depends. It depends on sellers’ expectations, it depends on what we think can be done with the business. Do I think sellers’ expectations have gone up as the industry has very modest recover over the last several years they have. But at the same time in the right markets are we able to find M&A transactions that can be incredibly value creating for our shareholders? The answer is yes. Does it mean that you’re going to have to be a bit more selective on some of those? I think the answer to that is, yes as well. We’ve tried to be really disciplined in what we look at, and we try to be really disciplined in our due diligence process if it makes sense, we tend to move on it. I think if you go back and look at our history on transactions that we’ve done, they’ve tended to work very well. Now, what you don’t see are the transactions that we’ve walked away from. So are they more expensive today? Yes, they probably are. Is the good value there to be found? Yes, they are. Your other questions, so perfectly fair one is with respect to Bluegrass and how that looks relative to pricing. We’ve said in our headline numbers that their ASPs tend to be 10% to 15% below our heritage business. I think that’s entirely true. I think what you’ll see probably over the fullness of time issue, we’ll see things probably move a little bit better in the nearer term in places like Georgia. Yes, I think you’ll see them then move in medium term more in places like Maryland. I think markets such as Kentucky, which simply does not have the type of robustness in many respects that you have in places like Georgia and Maryland will move upwardly and a little bit slower rhythm and cadence, but nonetheless, I think in a rhythm and cadence that will be value creating very appropriate, and by the way, from, from our perspective, not at all surprising.

That’s great. Thank you so much. Appreciate your feedback.

Thank you Adrian.

[Operator Instructions] Our next question or comment comes from the line of Michael Wood from Nomura Instinet. Your line is open.

Hi, good afternoon. A mountain quarry typically see some losses in asphalt, so that’s not unusual, but there was no improvement since last year and last year, I know you, you were lagging the recovery of inflation. Can you just give some color there in terms of what you’re seeing on price cost and what pricing on asphalts looking like as the construction season gets underway?

Yes, I guess, I’d say a couple of things to your point. Q1 volumes were down 29%, but winter had the biggest impact on that simply due to temperature and specification. So the front range had a real winter this year. It was colder, it was wetter. And clearly we felt that. If we’re looking at pricing, Q1 asphalt pricing was actually up 4%. So we think that’s a nice harbinger of things to come for the year. If we’re looking at Q1 asphalt and paving backlogs and this is what I think is really important, Michael, there were up to 60%. So, I mean, that’s a very nice pipeline that we have on the business. If we look at the way it’s spread across the business too, that’s important because in keeping with the commentary we’ve had on the call so far, Q1 infrastructure up 46%. Q1 res up 39%, Q1 non-res up 15%, all of these versus the prior year quarter again in that Colorado business. So, if we’re looking at what the downstream businesses looking like they are, we think it really is very attractive. We talked about some of the cash flow issues the Colorado DOT had last year that we think that they’ve clearly found their way through. So we’re feeling very confident on that business right now. If we look at our overall infrastructure Q1 backlog in asphalt, it represents 50% of the total asphalt and paving backlog versus 46% last year. So it’s not just that we feel like we’ve got good work ahead of us, we’ve got good work ahead of us in areas that we anticipated that we would have good work.

Great. That’s very helpful. And then, in terms of the Texas cement market, just curious, what is needed there in terms of growth for the first demand outstrip domestic supply and roughly what can you tell us on the import price differential versus domestic pricing?

Yes, I guess what I would say is, would there be room to add a few hundred thousand tons here or there in Texas, they probably could at the same time, that’s a marketplace that, we’re pretty happy with whether that marketplaces is working right now. So we don’t feel the need to add much to that. I would think the input in Houston, the differential can be – let’s call it low-20s, the delta on occasion, but then you’ve got transportation logistics that they’d come into play once it gets there so it can move around pretty considerably, Michael. That’s a tough number to nail with precision.

Great. Thank you.

Thank you.

Thank you. Our next question or comment comes from the line of Adam Thalhimer from Thomson Davis. Your line is open.

Hey, good morning guys. Nice quarter.

Thanks Adam.

Hey, ward. April was a little wetter year-over-year. Did that give you any pause vis-à-vis the guidance?

Yes. I’ll tell you the one thing that you’ve always seen us do is draw a really bright line between the quarter just ended and the new quarter, it’s starting, because I know if I ever say anything about it, then people will think, well, he’s talking about it because he’s good. And if I don’t say something and they’re going to extrapolate, he’s not saying anything because it’s bad. I will tell you, part of what you’ve heard us say is, we feel really good about a year right now, Adam and I would – I feel really good about the year.

Okay, fair enough. And then, last thing, I was just hoping you could walk us around Texas. What are you seeing by the major – in the major metros for this year?

Look, I happy to try to do that. I think Dallas, Fort Worth is going to continue to be a really attractive marketplace. Being part of what I like about that marketplace is it stays good on both the public and the private side. We’ve talked about what’s happening there relative to the large design build work that’s coming, but here’s what’s important about that, Adam. I mean, you’ve got $1.6 billion worth of design build work around $635 million in Dallas, but, and there’s $520 million of it going on in Austin. There’s $4.2 billion of it in Houston in $1.8 billion coming in San Antonio. Actually, what I think we’re going to see this year and we’d like this is we’re seeing a much healthier Central Texas or San Antonio that we’ve seen over the last several years looking really at those marketplaces. That’s been one of the tougher ones in Texas, and what striking to me is still, if we’re looking at employment and metrics for the state, Texas is still ranked first as of March, 2019 in employment growth versus the prior year. But think of it in these terms too, I mean Texas with all the growth that it’s had is still second in total housing permits and second in single family permits and number one in multifamily. So when, when we look at all of that, then come back and say, what could the prospect of that state look like when these energy projects really come to some degree fruition with 24 million tons of aggregates, 2.9 million cubic yards of ready mix and 1.6 million tons of cement. These are all pretty striking numbers in a state where we’ve got the largest aggregates, cement and ready mix position in between Dallas, Fort Worth, Houston and San Antonio. So that’s a long way of saying. Yes, I’ve listened to economists four and five years ago, say Texas was going into a slow down. Our team all looked at each other at the time and said, we don’t see it, and we continue to see a very healthy Texas marketplace.

Great. Thanks Ward.

Thank you, Adam. Howard, are there any others in the queue?

I’m showing no additional audio questions in the queue at this time, sir.

Well, thank you for joining our first quarter 2019 earnings conference call with our steadfast commitment to safety, cost, discipline, and operational excellence. Martin Marietta as well positioned to deliver continued growth and enhance shareholder value. We believe 2019 will be another record year for Martin Marietta and we look forward to discussing our second quarter 2019 results in July. As always we’re available for any follow-up questions. Thank you for your time and your continued support of Martin Marietta.

Ladies and gentlemen, thank you for participating in today’s conference. This concludes the program. You may now disconnect. Everyone have a wonderful day.