Good morning, ladies and gentlemen, and welcome to the Martin Marietta's Second Quarter 2020 Earnings Conference Call. My name is Kevin, I will be your coordinator today. [Operator Instructions]. As a reminder, today’s call is being recorded and will be available for replay on the company’s website. I will now turn the call over to your host, Ms. Suzanne Osberg, Martin Marietta’s, Vice President of Investor Relations. Suzanne, you may begin.

Good morning, and thank you for joining Martin Marietta's Second Quarter 2020 Earnings Call. With me today are Ward Nye, Chairman and Chief Executive Officer; and Jim Nickolas, Senior Vice President and Chief Financial Officer. As a reminder today’s discussion may include forward-looking statements as defined by United States securities laws in connection with future events, future operating results or financial performance. 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. Please refer 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. We have made available during this webcast and on the Investor Relations section of our website, Q2 2020 supplemental information that summarizes our financial results and trends. In addition, any non-GAAP measures discussed today are defined and reconciled to the most directly comparable GAAP measure in our earnings release and SEC filings. Today’s earnings call will begin with Ward Nye, whose remarks will focus on second quarter operating performance as well as current and emerging market trends. Jim Nickolas will then review our financial results and liquidity position, and Ward will then provide some closing comments. A question-and-answer session will follow our prepared remarks. I will now turn the call over to Ward.

Thank you, Suzanne, and thank you all for joining today’s teleconference. We sincerely hope that you and your families are remaining safe and healthy as we continue to manage through these unprecedented times. As highlighted in this earnings released Martin Marietta delivered outstanding operational financial and safety performance, not withstanding some localized weather headwinds in the quarter and the broader uncertainties presented by the COVID-19 pandemic. This performance is a testament to our company’s commitment to our values, the world-class attributes of our business and the disciplined execution of our strategic plan. Martin Marietta established few profitability records for both the second quarter and the first half of the year driven by favorable pricing and proactive cost management across the building materials business, for the second quarter specifically consolidated gross margin expanded 200 basis points despite slightly lower revenues as compared with the prior year period. Selling, general and administrative or SG&A expenses as a percentage of total revenues improved 10 basis points to 5.6%. Adjusted earnings before interest taxes, depreciation and amortization or adjusted EBITDA increased 7.5% to $407 million and fully diluted earnings per share was $3.49, a 16% improvement. An addition to record financial performance and despite the challenging conditions, we also achieved the best safety performance in our history, companywide both our lost time and total entry, instant rates are better than world class safety levels. These superior results are directly attributable to our dedicated and talented employees who have continued to demonstrate resiliency during these uncertain times. I'm extraordinarily proud of how our team has adapted to our new health protocols, while remaining steadfastly focused on caring for one another safely and efficiently and seamlessly meeting our diverse stakeholders needs. Martin Marietta along with many of our customers has operated as a designated essential business…

Thank you, Howard and good morning to everyone. It is worth highlighting that the enterprise achieved a second quarter adjusted EBITDA margin of 32%. This is the highest EBITDA margin in the company’s history. The driving force behind this accomplishment was the building materials, which achieved record second quarter products and service revenues of $1.1 billion, a 1% increase from the prior year quarter and gross profit of $359 million a 9% increase. Notably, all of our building materials product lines contributed to this record profitability. Solid pricing gains, production efficiencies and lower diesel fuel costs drove a 230 basis point improvement in aggregate product gross margin to 35.5% also an all time record. This was accomplished despite lower volumes, demonstrating the cost flexibility and resiliency of our aggregate led business. Our Texas cement operations benefited from improved kiln reliability, as well as lower raw material and fuel costs. Product gross margin of 39.7% expanded 210 basis points despite a nearly 3% decline in cement revenues. As we have mentioned, our targeted downstream businesses delivered outstanding operational performance during the quarter. Readymix concrete product gross margin improved 270 basis points to 10.6% driven by increased shipments, pricing improvements and lower delivery costs. Equally impressive, our Colorado asphalt and paving business established second quarter records both revenues and gross profit. Product revenues for the Magnesia Specialties business decreased 31% to $49 million, reflecting lower demand for chemicals and lime products. Lower revenues resulted in a 420 basis point reduction of product gross margin to 37.3% or we expect this business will face similar headwinds in the third quarter. A gross margin in the high-30s is in practice, and indicative of superb cost management. Consolidated SG&A expenses included $3 million for COVID-19 related expenses, which included enhancements to cleaning and safety protocols…

Thanks, Jim, with the successful completion of an outstanding first half of 2020, we remain laser focused on managing our business through the macroeconomic upheaval from COVID-19 and related governmental responses. While in July product demand and pricing trends across our markets remain broadly consistent with second quarter, we feel it is premature to reinstate full-year 2020 earnings guidance given the uncertainty regarding the pandemic, potential phrase for stimulus and infrastructure reauthorization. Nonetheless, we remain highly confident in the fundamental strength and underlying drivers of our business guided by our strategic operating analysis and review or SOAR plan. We expect pricing resiliency and disciplined cost management to continue supporting the company’s near-term performance. As the economy resets from COVID-19, we believe favorable pricing trends for our products will continue supported by disciplined locally driven pricing strategy and attractive geographic footprint. For aggregates specifically, we anticipate full-year 2020 pricing will increase 3% to 4% from the prior year. This range is slightly below our pre COVID-19 expectations given year-over-year geographic and product mix trends and slightly delayed price increases in certain markets. Texas cement pricing is also expected to remain resilient due to the state’s tight supply demand dynamics. And the fact that our team markets are by design largely insulated from waterborne imports. Healthy aggregates in cement pricing trends should benefit our targeted downstream operations. Existing customer backlogs support the company’s shipment levels in the near-term and certain regions where we operate, this year’s weather has been more disruptive of construction activity and project cadence, than the pandemic. Yet we believe the industry will likely see a gradual, but not precipitous temporary slowing in product demand over the next few quarters as businesses and governments address budget shortfalls resulting from COVID-19. That said, the degrees or decline and recovery will…

[Operator Instructions]. Our first question comes from Trey Grooms with Stephens Inc.

Hey good morning everyone.

Good morning Trey.

Okay. So I guess first I want to focus on margins. I guess demand is going to be what it is going to be. But in the materials business, you know gross profit improvement across the board and that is even with down revenue in most segments and Jim touched on some of the benefits there, but can you talk about kind of the puts and takes there and we understand, diesel was your friends in the quarter, but you know, even outside of diesel where maybe you had some good guys that we could see continue going forward?

Trey thanks for the question. You are right diesel was the friends, but we managed our labor. We managed SG&A, we managed our efficiencies and other things that we believe have the capacity to endure actually quite well during the quarter. Trey what we are endeavoring to do and I think what you have seen in the quarter is we are building a business that has the ability and should be expected to outperform as we go through cycles. So to your point volume is going to be, where the volume is going to be, and volume was down 4% for the quarter, but we saw profitability going nicely up, but pricing is a big piece of that and that has been something that Martin Marietta has demonstrated, I think extraordinary skill around managing. We have a depleting resource. We want to make sure we are getting good value for it. We are also going to flex very carefully on the labor side and the other thing that I think you are seeing evidence of is we have been very thoughtful in the way that we deploy capital. So I think if we look at the CapEx has done relative to our ability to continue to gain efficiencies that has been an important piece of it. One thing that I would call out to you in particular and really the comments I just gave you went specifically to the aggregates business. But I think two, if we look at our cement business, that also saw down volumes for the quarter, we are seeing much better reliability numbers relative to our mid loading operation and hunter facilities as well. So what we are seeing across our footprint is profitability, improved efficiencies, improved costs in a number of dimensions, but we are also getting the price stray and that is something that matters.

Got it. Okay. That is helpful and encouraging, especially in the face of the volume that you are facing. And as to the follow-up you mentioned that you could see additional demand slowing in the next couple of quarters or in the coming quarters. But if you could dive into that a bit more because, you were looking for something similar or had some similar comments during the last earnings call. So that doesn't seem like a new outlook necessarily but things have held in better, you know than expected. And it sounds like July trends are still largely the same as the second quarter. So just trying to understand, you know, maybe high level timing and I'm understanding you are not giving exact guidance, but if you look over your three primary businesses infrastructure non-res and res, how you rank your outlook for those and where you see some potential or for relative strength or weakness.

Sure Trey, happy to try to do that. And I'm with you. I mean, I don't think what we are saying today relative to outlook should be a surprise to anyone. I think it is actually a very consistent conversation we have been having. And if we look at it, volume is down 4% in aggregate for the quarter profits were up. So I think that gives you a sense of it. Here is how I would break down the end users as you think of it. Look infrastructure for the quarter was actually pretty steady. I think one of the questions is what will phase four stimulus look like because it is been well documented with gas taxes going down state clearly have had some degree of revenue challenges with respect to that particular dimension. It is fascinating to me to see where AASHTO is today, AASHTO to making an ask that there would be about $37 billion in the phase four stimulus that would go directly to state DOTs. If that happens, I have to tell you state DOTs are going to probably be in a pretty good place. What I have tried to do with the prepared remarks too to give you a sense of where are our top three state DOTs, even irrespective of that may come from some form of COVID stimulus. And I think what you have heard is Texas DOTs in a pretty good place, Colorado DOT is going to use certificates of participation to help themselves out. And NCDOT despite having more challenges and those other two, I will tell you DOT we feel a lot better about today than we did when we were talking to in the first quarter. But there is now FY 2021 bedding are estimated there to…

Okay. That all makes sense. Thank you for taking my questions Howard very helpful. I will pass it on.

You bet. Take care Trey.

Our next question comes from Kathryn Thompson with Thompson Research Group.

Hi thank you for taking my questions today. Just following on, on the infrastructure piece and appreciate the color that you had in your prepared commentary. Looking at Phase 4 stimulus and the lending highway reauthorization. But if you could for listeners really filter the noise in terms of what T&I committee in the house presented versus EPW and the senate and what that could mean, and really kind of a scenario analysis of what really happens to infrastructure volumes, if something happened and if something doesn't happen?

Kathryn thanks for the questions. So really, we are going to look at that in two different buckets. Well if you think about what reauthorization looks like. As a sudden prepared comments, we don't think that happens before September 30th. So we think they will probably use your longer term CR. That is nothing to be alarmed by the way. I don't think they are going to issue a longer term continuing resolutions, because they think it is going to last for a long time. I think they may put in place optically what would be a longer term continuing resolutions simply to continue giving states the confidence to keep running projects. I don't think, it means they slow down on coming up with reauthorized bill. So to your point there are two different starting points, Kathryn. Last July vicinity PW came out with unanimity around the $287 billion plan. And that is basically a very nice percentage increase of where we were relative to the FAST Act. Now to give you more recent issues, house C&I released their plan, that was $319 billion, that was a 41% increase over the FAST Act. In the near-term, this is at least worth considering. And that is the House Appropriations Subcommittee on transportation, housing and urban development. Passed legislation that would provide about $107 billion in resources for U.S. DOT for FY 2021 including almost $62 billion for the highway programs, that is up 33%. So one of the questions I think is a fair one is what does a CR look like? And so I think normally you are looking at a CR, that is probably flat for some period of time, as they work toward, but I think evidently will likely be an increased multiyear highway bill. So Kathryn to your point. Worst case, you have a CR is flat. Best case, you have a CR that actually has some growth to it. I think expected case issue get a bill next year that is a nice increase several credit for the FAST Act does. And I equally think the conversations that have been had recently, relative to Phase 4 stimulus have not as to fear like the likelihood of seeing some very direct assistance. Going to state DOTs is actually better than we would have thought properly, when we were having this conversation three months ago. And again, the AASHTO asked there is around $30 billion. So I have tried to outline what I think the subs are, and I have tried to handicap where I think they sit.

Okay that is helpful. And then shifting gears to the pricing commentary and we went through a few puts and takes in terms of what patted pricing for the quarter. But when you look at the bigger secular trends that are going to be coming up importantly on the residential housing. What and how should we think about pricing from a geographic and a mix standpoint, if there ends up being a bigger mix of residential versus non-res in market exposure?

You know, I don't think end use is going to be a big driver and what we see relative to price increases. It is fascinating , for example, if you have got a single a home builder and they're coming through, they're probably buying stone at this price, which is frankly a pretty high price as things go generally. But I would think if you are seeing just standard growth along those different end users, and you are seeing in Southeast and Southwest, and clearly you have got higher ASPs in the Southeast right now from doing southwest you might have some geographic mix issues if you come from that. But from a margin perspective or from a pricing increase perspective, I wouldn't expect to see anything that would be particularly notable in any of that. I think the primary thing that you are going to continue to see is good, steady price increases, because I think that is something that would just recognize the value of, and we have locations that put us in a position that we can get the value that we need for our shareholders.

Alright. Thank you for taking my questions today.

Thank you Kathryn.

Our next question comes from Anthony Pettinari with Citi.

Good morning. Just following up on pricing or do you discuss 2020 ags pricing up 34%, which has maybe slightly below your pre-COVID expectations and can you talk about mix just now, but you also talked looking slightly delayed price increases in certain markets. And just wondering if those were purely a function of slack demand or maybe some increased competitive intensity or if there is any kind of other color you can get there.

Yes, I guess I would say several things. The primary driver so far has really been product mix and geographic mix. Just be clear on that. And when we are talking about delays, we are not talking about delays that were more than in the 45-day or 60-day range. And typically the delay and the number you had it late, you didn't have to lay in the number. And it happened really quite sporadically. I want to say it happened in probably two or three different sub markets. So I didn't view it as anything that made me feel remarkably different about the way the pricing situation works. The primary people who I would say pushed to at least see some deferment. If you recall in the earliest, earliest stages of COVID homebuilders in some instances were just walking away from subdivisions and taking about a 60-day to 90-day time out. I think in some of those instances, they were really afraid and looking for some immediate help. And I think some competitors and some instances did that. I think in some instances too, you had some readymix concrete producers who were looking for some lower inputs. Frankly we were not inclined to meet those. And we probably brought some modest share in some places, we have certainly done that before in cement. But again, we very have a value over volume philosophy that we bring to this. So from our perspective, Anthony, the delays were immaterial, but at the same time we try to be resilient through this.

Okay. That is very helpful. And you talked about kind of gradual, but not precipitous decline in second half demand. And I'm wondering if you could distinguish just directionally between ags, cement, readymix and asphalt in terms of you know where second half volumes might hold up a little bit better, or maybe see some incremental puncture just based on what you saw in 2Q and end of July.

No. I think in many respect, if you looked at the commentary that I gave on geography in the prepared remarks that is probably a pretty fair way to think of it in the second half as well. What is interesting to me Anthony is we put up a record first half and a record second quarter. And actually one of the areas that had a tougher quarter was actually our mid Atlantic division and our mid Atlantic division has both higher average selling prices and higher profitability. So it tells me that the balance of the business is actually performing extraordinarily well. We see good business right now in Texas. We see good business in Colorado, we see business in portions of the central United States. We are seeing, I think, good solid business in Florida. And we think all of those will persist for the balance of the year. We are actually seeing very good businesses in cement in Texas right now, as well. The first stage obviously really we are more geared toward aggregates. Obviously, the only hot mix business we have is in Colorado it is a very, very good first half we think it is going to have a good second half as well. And then Magnesia Specialties, it is fascinating when we say that businesses is hitting an air pocket right now, I think that is what it is. We think steel found bottom actually in June. We think it is going to slowly get better. We are not seeing a huge bounce back in Magnesia Specialties in the second half of the year, but even in a challenge, first half, it had margins of 37%. So I think that gives you a pretty good snapshot of ags, cement, the downstream business and the Magnesia Specialties as well.

Okay. That is very helpful. I will turn it over.

Thank you Anthony.

Our next question comes from Jerry Revich with Goldman Sachs.

Well, really nice quarter. And, I'm just wondering, can you just expand on the discussion of what went right this quarter, normal seasonality would have you had about 27% gross margins. And you folks did about 10% better than that. And I appreciate the comments about operating efficiency. Can you just expand on those because volumes were obviously weaker than normal seasonality, but margins stronger is just really notable. And I'm just wondering, can you just provide a little bit more context on the drivers of the sequential improvement? And I realized you breached a year-over-year, but this question really stands out to me.

Now, I'm happy to try to do that. Look obviously, energy was a piece of that. It wasn't everything, but it was a nice piece of it. I think controlling labor was a piece of it. I still think you can do that with greater efficiencies in some place. I do think overall efficiencies by the way and we are a piece on it. And we talked about the fact that we are seeing much higher efficiencies in our cement business, all that stuff we have seen nice improvement. Over time it goes Midlothian and Hunter so that that is certainly going to help. The other thing that I will say Jerry and I mentioned that in the prepared comments and it is in our released today as well. This was an extraordinary safe quarter. And I think safety and you have heard us speak to that as a core value of this business, drives increased efficiencies and simply makes your business better and makes your people better. And from we are sitting here and happier with total injury incident rates and loss time incident rates, both exceeding world class standards. I think that really speaks to how teams are operating. The other thing that I will say relative to efficiencies is we have been very careful with how we have looked at capital allocation and CapEx over the last several years. And I think we are starting to see some of the efficiencies from that as well, which is one of the reasons that we are not at all shy, for example, to take the midpoint of the guidance that we have given relative CapEx this year. And as I think you saw, we have taken that up by about $25 million. So Jerry I wish I could point to one thing and say, this is it, I think it is a series of things. And I think when we go back to the notion that our aim is to continue to build an increasingly better business, they can go through cycles and outperform in any of those. I think that is what we are seeing.

And then in terms of asphalt pricing, paving pricing concrete. Can you just talk about your competitive position in your key markets and whether with the volume drawdown that you are looking for over the next couple of quarters. What is your degree of confidence in being able to hold line on pricing in those downstream businesses? Obviously, we know, what you are going to do in aggregate, but can you comment on the downstream market please?

Sure I can and If we think about asphalt and paving Jerry, the nice thing from our perspective is the only question we have that businesses in Colorado. And last year as you will recall Jerry, they had a very weather impacted here. So they came into the year with very attractive backlogs. But again, we are seeing very good efficiencies. The asphalt and to paving we have is really running from Northern Colorado through Denver, down to Southern Colorado. We have actually seen bidding opportunities accelerated in an outpacing here in June, after a slow first half relative to bidding activity. What is odd, in many respects, is if we are looking out farther. I think generally, we feel better about the business today, for example, than we did even after Q1. So if we are looking at asphalt pricing liquid itself is about $420, that is down about 5% per ton. We think liquids going to remain in that range. We think our bidding opportunities are going to stay attractive. We think we have got a very good business in Colorado. And of course, one of the tricky things in Colorado is making sure that you are in a position to get good quality specifications stone, and we are in a position to start supplying with that. So we feel good about that asphalt and paving business and of course it had a very attractive first half. With respect to readymix concrete they had good first half too, I mean the downstream businesses performed really quite well, if you are looking like-for-like volumes. readymix was 8.7% keeping in mind that is really pulling that ArkLaTex business out. If you are trying to look at it geographically, in Colorado, where we have readymix, those volumes are up a little bit more than 14%. If we are looking in Texas, which is the other place that we have had that particular business, they were up around 6.2%. And again, part of what we are seeing is much better efficiencies in that business, delivery, costs and efficiencies are better. And again, these are not big surprises to us and we think many of these to your point are sustainable as well Jerry.

And Howard in concrete do you think you can hold the line on price with the volume outlook that you laid up?

You know part of that, I think is something on that is aggregates and cement in those markets. Aggregates in cement in Texas, and aggregates in Colorado, which obviously we saw supply are going up. And when you are see the input costs, at least in my experience, in readymix going up, those tend to be very helpful actually to the downstream businesses, and we are very mindful of that.

Okay. Terrific. Thank you.

Thank you Jerry.

Our next question comes from Paul Roger with Exane BNP Paribas.

Hi there, good afternoon form London guys. Nice quarter.

Thank you Paul.

Yes. Just moving Howard on to maybe away from the trade and the outlook, may be on to capital allocation obviously Jim mention the priorities which you talked about before. But you clearly do have a strong balance sheet and when do you think you could start to deploy some of that again. Are you resuming a buyback or maybe by doing some distress M&A and what is the deals pipeline looking like right now.

Paul thanks for the question. That is a good one, because if you look at our capital allocation priorities, we have long said the right deal is our number one priority. And I will say several things. One, I think our teams do an extraordinary job on transaction identification. I think they also do an extraordinary job on going through the transaction and looking at where we can get synergies. In our operating teams if you go back and look at whether it is [CXI] (Ph) or bluegrass, or the transactions in Colorado or otherwise have outperformed relative to synergies, that is a long way of saying that we remain very focused on growing our business. When we look at growing their business, we are focused on two things in particular, what is the geography and what are the end uses? It is an aggregate sled business but we are keenly focused on player, because the player really dictates how a business is going to perform. And a good example of that is we have had very good performance in Texas. You also saw very good performance in Colorado, but equally we are having great performance in the central which is just down, so we are seeing great performance all the way across. Relative to share buy backs and otherwise, I think the primary thing that we are waiting for right now, Paul is just some modest visibility forward on what is going to happen, particularly with respect to some of these government elections. I think we will have much better sense very soon. First going to have on Phase 4, I think what happens with Phase 4, it is going to give us a much better sense of how the infrastructure piece is going to look. So I think we are just a couple of pieces of information away from being able to really buybacks and otherwise. But please remember our primary aim is the right transaction going forward. Number two, assuring that we are investing in the business in a responsible way and you have actually seen us take CapEx midpoint up $25 million and then returning cash to shareholders through two different ways, a meaningful and sustainable dividend and our Board will obviously look at our dividend in August. So there will be here next month and they will look at that and then relative to share buy backs. I think we have touched base on that Paul.

The terms of the deal pipeline Howard, I mean are you seeing some distressed opportunities come on the radar or are they quiet coming in?

There are not a lot of distress opportunities per say out there, because particularly in the aggregates business, they tend to have pretty healthy balance sheets today. The family businesses are in pretty good shape. Our view has long been that succession tends to be a bigger driver of potential transactions in aggregates than been not. So I don't want to give you a sense that there are people who are in trouble and they are knocking down our doors right now that would not be accurate, but there are plenty of ordinary, typical and sensible transactions that we are looking at by now Paul.

That is great. Thanks a lot.

Thank you.

The next question comes from Philip Ng with Jefferies.

Hey guys, impressive quarter, great execution. Howard, I guess you noted backlog should carry through the near-term, but you know and as you will see some decline in product demand, can you kind of help parse that commentary a little more. Does that imply that you are expecting the year-over-year decline, the back half to accelerate from 2Q levels and when you think about 2021, appreciate a lot of moving pieces, especially on the policy front. How are you thinking about 2021 playing out on demand side?

Yes, as we think about the back half 2020, I think to your point a lot can hinge on what does Q4 looks like, frankly from a weather perspective. But it is interesting, if we look at our commentary, much of what happened in the first half with some of that COVID related sure it was more of that in half one weather related in COVID. Probably so. If we look at backlogs it is interesting to me if we look at Mid-Atlantic, customer backlogs are actually up around 17%. If we look in Southwest, customer backlogs where up around 30. If we look into cement, and this is a big one, I mean, there have been around 43%. At the same time, if we look at readymix, those are down in the low double digits, but at the same time we are seeing those backlogs improve in Q3 particularly related to infrastructure. And if we look into West, we are seeing backlogs down in the low double digits of very high backlogs coming into the year because of the way that weather had been last year. So I think in many respects, we are sensitive to where will states be with their safe funding, and their revenues as we enter half to end they are feeling potentially in some respects, more COVID pressure than they felt so far. Number one. Number two, what is going to happen to portions of non-res meaning particularly what happens to that that lighter piece of it? Look, obviously if we see some stimulus come through infrastructure is going to be in a pretty good place, but if we look at Q2, with volume down for, that to me feels like modest volume down, that feels like a normal typical cyclical reaction design. And I think as we are looking at three and we are looking at four, four can obviously weather affected, but again I think if we are just looking overall at what has happening in the United States, and what is happening globally for us to put our heads in the sand and say that there is not at least an opportunity for something that does not feel like the cycle did in the great recession, not at all. But could feel a bit like this quarter did, particularly as we go into Q3, which last year, as you will recall Phil, was a really big quarter for us. So you have got a tough compare. You know I think the commentary that you have offered is probably right.

Got it. And that is really a helpful color. And when you talk about now and non-res, you, you know obviously there are some puts and takes, can you remind us what your exposure is, if you have any on the high rise side and then office, hospital and retail that might be a little weaker in terms of strength that you are seeing and heavy. Is that to kind of offset some of are those potential headwinds? Thanks a lot.

Thanks so much Phil. The fact is we are a Southeast, Southwest driven business, we are not in downtown Chicago, we are not in downtown Manhattan. So the business - that are growing tend to grow out. They don't tend as much to grow up, if you know what I mean. And the other thing that I will say and we said it in the prepared remarks is we have been very focused on moving our business intentionally over the last decade, so that we are more focused on these heavy non-res projects. If we look at the way non-res is held up, it has been in the high 30% of our business. If we look at really what that look like over a longer term, it ought to be closer to 30%. That is where it has been. Infrastructure should be more as a percentage than we have seen over the last several years, non-res candidly should be modestly less. We think we may see some of that, but equally as we look at the heavy projects that are really taking up a good bit of our time right now. We are seeing very attractive increasing bidding in that respect. I'm not sure that it totally offsets, but the life side of it could be but I think it is a nice counterbalance to it.

Great. Thanks for the color.

You bet Phil.

Our next question comes from Seldon Clarke with Deutsche Bank.

They thanks for the question. I know you have referenced 60% incremental lump aggregate gross profit in the past. But just given we did in the second quarter and the divergence between volume and pricing that we are seeing. Is there any way to breakdown detrimental or incremental as it relates to volume and price and how we should think about cost inflation? Or is there a level where pricing can't necessarily offset volumes, where you wouldn't see aggregate gross profit gross margin expansion?

Well, I think theoretically, it is possible. We don't anticipate that to be the case. So the pricing is one thing we can bank on. We get it every quarter. It is sustainable and it does flow to the bottom line. So that is the most powerful weapon in our quiver. And So we have got that growing force. Additionally, this quarter into the foreseeable few quarters, we have got lower diesel prices. So that benefited this year, this quarter, it will benefit next quarter, the rest of this year I think. So those are things that we are expecting. Otherwise this is blocking, tackling with watching your variable cost, making sure you are flexing. The theoretical question you are posing. I mean, if volume drops tremendously, of course, your fixed costs, the absorption isn't there, where you need it to be. And that is where you run into some headwinds, but we don't see that happening quite frankly.

Seldon, one thing, just from a color perspective, I will add to that. I think it is really important to underscore this. The recovery that ended with COVID was not a construction led recovery. And we have not seen that before in your lifetime or mine. And the fact is, we look particularly for housing is and the throughout the birth economy is required. We actually see a lot of things that lead us to believe that the post COVID recovery can and likely should be building led. The other thing that I would pointed out on Jim's commentary that was just entirely correct, is we are seeing nice price with volume down and with energy down. Oftentimes when we see energy going up, we actually see that as something that helps push ASPs up as well. So I wanted to make sure that we share that with you.

Okay that is helpful. And then just piggybacking on an earlier question on volumes. How should we think about the dispersion on a relative basis across various product categories for volumes in the back half?

Well, I think primarily, as I mentioned before, cement is being really resilient right now. I think we anticipate readymix continuing to be quite resilient, I think, and it is going to have a good year in the primary thing that we are speaking about and most of our commentary tends to be around aggregates and where that is going to be near-term and over the next few quarters. So that is how I would ask you to think about it right now so.

Okay I appreciate the time. Thanks.

You bet.

Our next question comes from Garik Shmois with Loop Capital.

Great thanks. Just one more question on aggregate margins in the second half of the year. I mean you are painting a picture of volumes down kind of in this 3% to 4% range, assuming there is no major kind of change in trend or deceleration within markets? Pricing off low-single-digits, seems like diesel is going to be a tailwind? Is there anything that you can see be it from a comp perspective or stripping costs or inventories that could preclude margin expansion in the second half of the years, is it really just kind of a function of how the volumes look?

Yes. I think it is two things, I think it is what kind of volume look and where the volumes look right. And I think part of what you are probably looking at and you are pleased with. I know I'm looking at and I'm pleased with it, is to see margin expansion despite the fact Mid-Atlantic had volumes down pretty considerably. So I think part of what I would ask you to keep in mind is Mid-Atlantic particularly with some of the headwinds that NCDOT has right now. We will probably have a more challenged year-over-year volume than other parts of the business. And again, that is a very high margin part of our business. So what you are seeing is great improvement in other parts of the business, we are seeing DOT in North Carolina putting itself in a position that really is we start getting into next year. It is going to look and feel a lot more normal relative to what history has been. But I do think that geographic mixed issue is one that you understand and it is worth noting.

Great thank you. Follow-up question on cement. How much of the cement volume goes into West Texas oil and gas markets and the headwind of pricing in Texas is this mostly a function of mix or are you seeing more competitive landscape in the West region that has been packing things.

Yes. actually that is a great question Garik. And here is what I would say. We don't send significant volumes to West Texas. Clearly the biggest volumes that we have will be in DFW and in San Antonio and then those related markets. So if we go back and look I want to say full-year last year, you are probably looking at 30,000 or 40,000 tons of what's gone into West Texas those would not have been notable numbers. If you look purely at pricing though, here is what is worth noting. ASPs in West Texas are $200. If we look at really what the numbers look like in North, Texas and Central, we were seeing price increases in the range of around 4% Garik. So if you are seeing a 4% price there and you are getting back to the numbers that you would have expected, it is not the $8 going into the year, but if we are looking at overall same-on-same 4% price up in cement in Texas with down volumes that is a pretty good number. So if you look at more profitability, volumes down price up, actually much better efficiencies. And the other thing to keep in mind Garik is we actually anticipate having less - downtime and maintenance spend on terms this year than we did last year. We think it is probably going to be about $7 million less in 2020 than it was in 2019. So when you really stack up the issues relative to the cement business, we think it is pretty attractive. And Garik you were there at the time too. You will remember that one of the things that we thought was possible was to have particular pricing in cement in Texas, look overtime, at least relative to a stability perspective, more like aggregate pricing debt. And I think that is exactly what we saw in this quarter. And as you also know, we have been willing when we needed to give up share in that marketplace to continue to be resilient in pricing. So if we go back to 2014, we had a 22% share in that market. If we look at it today based on contract numbers, we are at about 19%, but pricing is behaving in profitability is going up. Garik does that help?

It sure did. Thanks for the help and that is all.

You bet.

Our next question comes from Adam Thalhimer with Thompson Davis.

Hey good morning Howard and Jim. Hey Howard how is private demand in North Carolina. Has that helping to offset weak DOT?

Yes, private demand is pretty good. I mean, look housing is good in the state and it is going to be good in the state, private non-res is good in the state. It varies by geography. Charlotte's actually having a pretty good year. Raleigh Durham is having a pretty good year. Greensboro is not having a year but Raleigh Durham Chapel Hill is happening is happening the year that Charlotte had. And going to it was actually from an ASP perspective, a very attractive market for us. But the private is holding up pretty well in part because Josh has held up reasonably well here Adam. And look at the end of the day you got a lot of people moving to North Carolina and population is always going to be your single biggest driver of aggregate consumption.

And then in Texas, how do your backlogs work in Texas and the Austin, I guess as a real surprise to see peel off some aggregates exposure in Austin, can you talk about that too?

Actually, we didn't see any aggregate exposure in Austin. We sold some businesses called ArkLaTex. And so the only thing we did in Austin is we sold a depleted standing gravel location. So that that was purely an excess property. And that is what Jim was referencing, we entered into a purchase and sale agreement to sell a depleted site for $100 million. So actually I have to tell you from the way we look at that, that is a really nice win. So we did not get rid of any aggregates that were there. And again, back to your point, if we are looking at backlogs and asked specifically about Texas, Southwest backlogs are up about 30%. And if we looked into cement, they are up about 43% and if we look in readymix, they are down low double-digits but actually somewhat recovering right now due to some Q3 building activity.

Okay. Thanks Howard.

You are welcome Adam.

Our next question comes from Stanley Elliott with Stifel.

Hey good morning everybody. Thank you all for fitting me in. Howard - the infrastructure piece, I mean it sounds like the states are doing better than what we would have guessed kind of given the initial shock. There are some discussions around, the federal government providing money to state, we also talked about a [CR] (Ph) kind of worst case scenario being flat. Will that keep infrastructure volumes pretty consistent into next year? Just like in the past, we have had CR just been up and down, up and down and hard to get a gauge, but it just feels different this time around, given all of those things I have mentioned plus, you know just a general higher level of funding coming in from the state side.

Yes, I think two things Stanley. One, I think if you really get some significant phase for stimulus there is - the zip code of what AASHTO looking in for that 37 billion, and it is going directly to state DOTs. I think that is actually a really important amount of money that would fill a hole. So we will begin with that. I think to your second point relative to the CR, I think you raised a really good point. And I think part of what happened in the last downturn and you will remember it well Stanley because you are watching it, the CRs in that ended up oftentimes being very short-term, and that is why I made the comment earlier, people shouldn't be surprised, if you see out of the box, a long-term CR. And a long-term CR does not mean it is going to be in place for long-term, is simply done to make sure states continue to know that they can plan longer term as Congress goes about the process of probably having a conference and then coming up with a new infrastructure bill. So I think to your point, yes, I think this does feel better than last time, because I think whatever CR going to go in will be longer. I think whatever highway bill we get out will be larger. And I think one of your swing factors is brought to space for look like relative to A to the space. And I think we will know that here in the next - I think by the end of August, we will have a pretty good feel for what that is going to look like.

Yes. I guess the good news is, we haven’t seen a whole lot of wholesale project cancellations. But can you talk about how you will and really the rest of the industry has been able to manage inventory levels, how do you feel about them going into the back half a year? And I think about that kind of in the context of pricing and then as we look out?

Hey Stan it is Jim. Our original levels as in both constant of slightly up from a year ago and question from Q1, but no outsize moves there. And so that is just roughly prefer study production levels to offset each shipment levels. So that is pretty even keel there's no shortage is in sight, so there is quite rebalances at the moment.

And we don't see that having an effect good better otherwise on ASP. We think ASPs just all is going to behave well.

I agree, I was just trying to make sure that others within the space are being as diligent as you guys are. So I appreciate the commentary. Talk to you soon.

Thanks Stanley.

Our next question comes from David MacGregor from Longbow Research.

Howard congratulations on a strong quarter 3.55 gross margins with that volume numbers fantastic. And I guess or I wanted explore a little further, maybe a question was asked earlier, let me try a slightly different angle. You know you talked about infrastructure non-res and res and what is your longer term target percentages or proportions might be within the business. The mid-40s for the infrastructure and 30% non-res and so on. I guess the question is, I guess that type of a proportional mix right now, what would be the variance from that 35.5 gross margin this quarter?

You know what, I don't think you would see a big movement in that particularly David. The only things that I think that may be different in that. I think housing might be a bigger piece of our pie, maybe for the foreseeable future than it would have historically. So if you think about it- David, if we looked at those numbers a decade plus ago, just the numbers very similar to what you just said, probably 45% of prospective 30% non-res probably low-teens, residential and then the rest would be ChemRock and Rail. I think res can stay elevated for a while, I think that is actually going to be good for us. Because I do think depending on the type of res, you know that could actually be good for ASPs. And I think the more single family housing that we see that it is going to be helpful. But again, I think that might help a little bit on the margin side. But overall, I think the margins that you have seen are - I don't think that was going to be end use driven.

Okay. Just my second question, I guess on pricing, if we were to adjust those Bluegrass impacts from a year ago. What's your pricing at the end of this quarter?

You know I don't know that we had that per se. One thing I'm happy to tell you is we saw pricing in Maryland, up around 6.4%. So if you are looking to glean, we are getting some nice synergies from that in Bluegrass, we are. But I would really rather not go back and break up what that looks like. Because it is so integrated into our business particularly in places like Georgia today, but it gives you a good snapshot of what the Maryland business that really had very little synergy brought together, operationally has done relative to pricing.

Alright. That makes sense. Well thanks very much and good luck.

Thanks so much David.

The next question comes from Rohit Seth with SunTrust.

Hey Howard, thanks for taking my question. I just noticed in your CEO commentary you talked about sort of 2025, and I was just curious in sort of 2025, do you have plans to rebalance the footprint performs very well the cycle, acquisitions with the organic growth is only up maybe one of the past five years. So just curious as we think in the front itself an infrastructure bill, highway bill, Texas clearly has very good run over last seven years, how you think about portfolio and where the opportunities are.

Yes. I guess what I would say is this Rohit, we have got two opportunities. We have got the opportunity to keep doing just what you saw in this quarter, and that is make the Martin Marietta that we have better. And I think that is what you saw in the quarter performance perspective. I think the other piece is we have got white space on the map that we can continue to move toward. And what I mean by that is, we have talked a lot, whether it was in sort of 2020 and you will hear in sort of 2025, where people are going is going to be what drives aggregate consumption and the mega regions across the United States is where people are going to be living. And we have demonstrated that obviously in an aggregates sled business we can continue to expand margin. So product what I liked about the Martin Marietta story is we have turned this business into one of the great aggregates companies in the world. I think it is one of the great materials companies in the world. We can continue to make it better and we can continue to grow it. And that is something that if I'm you, I would continue to expect Martin Marietta to do. And I would just say, go back and look at sort of 2020, and we have given you a pretty good roadmap of places that we would like to grow. The other thing that I would say relative to rebalancing when you look at a decade that went from one or two and 65% of our markets at the beginning of the decade to one or two and 90% of our markets by the end of the decade, also, we were looking for that leading position in markets that we find attractive. So we don't feel like in our heritage footprint, that there is an enormous amount of work to be done. There are some careful work to be done on occasion. And an example of that would be what we discussed earlier and that is the sale of the ArkLaTex ready-mix business. We didn't find that particularly a great fit for our aggregates led in Texas and so we pruned that. But that is the type of work that you should expect on the heritage portfolio. And you should expect us to continue to look to grow in new markets where we can find our way to one or two.

Alright. Thanks that is all I have.

Alright. Thank you Rohit.

Our next question comes from Michael Dudas with Vertical Research.

Good morning, afternoon, gentlemen. Just quickly, Howard in your prepared remarks you talked about in early this month a restructuring internally. Maybe you can share with more of the construct on that. That is something to toward your sort 2025 campaign. And is there just more efficiencies driven by that or just different strategies on the pricing or business front, just how you think through that as you are and even head towards your restructuring [Low Audio].

Mike that is a great question thank you for it. It is funny how timing works, we started talking to our Board, literally last August about the restructuring that was announced, that was effective on July 1, of this year. And what we did is we just - down some of our aggregate divisions. So what we have now is a Western division that is run out of Denver, we have a Southwest division that is run out of Dallas. We have an East division that is run here in Raleigh. And we have a Central division that is run out of Indianapolis and then we have our Magnesia Specialties business as well. So the retirements are part of that, where efficiencies are part of that, and it is the ability for that structure to endure to get people whether they are division presence, [PPGMs] (Ph), or otherwise, expanded responsibilities and growth in their careers, all of those things help drive decision. The nice thing is of course your benefit is you get efficiencies from it. And we were very fortuitous to be in a spot that this is what we were looking to do, even in a pre-COVID world, and then COVID comes along, and the very thoughtful planning that we had to your point as a part of sort of 2020 and as a part of sort of 2025 coalesced very nicely with a timing need, and it simply could not have worked better.

Just my final follow-up would be, speaking of COVID, have you noticed anything, with the lockdowns or restarts in your important state, that are the tenured - thought process from your private customers or from the government or maybe some slowing in the pace of activity or bidding or letting because of some of the fears we see and hear constantly, and then from the media? Thank you.

Again thanks for that question. The fact is, as I tried to mention, whether at least for the quarter was probably more impactful than COVID was, but we would be naive to say that there wasn't a COVID effect out there. So, NCDOT feeling some degree of the rest pre-COVID, I'm sure they were. Are they feeling a little bit more postcode? Yes, they are. And so has that affected volumes, and with that particular department? It has. Has it affected some other DOTs and modest rates? To be sure it has. It is fairly effective some private businesses too. It is tough to fully quantify exactly what that is. But I do think people recognize how to live and how to work with this. And part of what has been interesting to me as we have operated all the way through this as an essential business and our nearly 9000 employee count, we have had about [90] (Ph) positive probate cases, the vast majority of which have gone home, recovered at home and come back to work. And we have only had literally a handful of what we have been able to identify as employee to employee COVID spread cases. So I think businesses, governments and others have learned how to work with us. It has clearly had an effect, it is going to have an effect for a period of time. I think the actual steward effect there become less, not more. And we will have to watch and see what the physical effects are, and how governmental stimulus works.

That is encouraging. Thank you.

Thank you Mike.

Our next question comes from [indiscernible] D.A. Davidson.

So first off on the cement side of thing, do you have any commentary around the timing of planned maintenance expenses for cement this year, as well as any thoughts around a potential another cement price increase?

Well what I would say a cement price increases will come out again next year. So our intention is to come out typically once a year and put the price increases then so there shouldn't be any more on price increases this year. If we are looking at what cadence is going to be you know right now, we are forecasting probably about $3.5 million or $3.6 million worth of outage costs. So these are outage processes, I think that is what you are asking about in Q3. We are looking at probably around 0.5 million of those in Q4. And if you tell you that we did in Q1 and Q2, that means our total count outage costs for the year will be in the zip code of around $19.5 million, and that is about $6.9 million less than we saw in 2019.

Okay, thank you. And then also on SOAR 2025, are you guys thinking about providing some more specific parameters or financial aspirations related to that this fiscal year?

The short answer is yes, we will. But we have got one important step that we need to do before we do that and that is, we need to present it to our Board of Directors. And that is exactly what management is going to do when the Board is here next month, or here in just a few weeks. And I'm sure as we come out later in the year and early next year. We can give you a much clearer picture of what our goals and intentions are on the SOAR 2025.

Awesome. I appreciate it. Thank you guys.

You bet. Thanks.

And I'm not showing any further questions at this time.

Thank you for joining our second quarter 2020 earnings conference call. With our stead fast commitment to safety, cost discipline and operational excellence Martin Marietta has the right strategic priorities and best-in-class teams to responsibly navigate through these challenging times and drive sustainable long-term growth and shareholder value. We are moving forward with confidence and determination. We look forward to discussing our third quarter 2020 results in just a few months. As always we are available for any follow-up questions. Thank you again for your time and your continued support of Martin Marietta. Please stay safe and healthy.

Ladies and gentlemen, this does concludes today’s presentation. You may now disconnect and have a wonderful day.