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Martin Marietta Materials Inc
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Good morning, ladies and gentlemen, and welcome to the Martin Marietta's Fourth Quarter and Full Year 2019 Earnings Conference Call. [Operator Instructions] 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 fourth quarter and full year 2019 earnings call. With me today are Howard Nye, Chairman and Chief Executive Officer; and Jim Nickolas, Senior Vice President and Chief Financial Officer. To facilitate today's call, we have made available during this webcast and on the Investor Relations section of our website, 2019 supplemental information, that summarizes our financial 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.
Unless otherwise noted, all financial and operating results discussed today are for the full year 2019, any comparisons are versus the prior year. Furthermore, non-GAAP measures are defined and reconciled to the nearest GAAP measure in our 2019 supplemental information and SEC filings. We will begin today's earnings call with Howard Nye, who initially will discuss our full year operating performance. Jim Nickolas will then review our 2019 financial results after which Howard will discuss market trends and 2020 expectations. A question-and-answer session will follow.
I will now turn the call over to Howard.
Thank you, Suzanne, and thank you all for joining today's teleconference. Martin Marietta marked 25 years as a public company in 2019. Throughout our history we positioned our business to outperform through the disciplined execution of a proven strategy and our team shared commitment to the world-class attributes of our business including safety, ethics, cost discipline and operational excellence. Today's reported results clearly validate the importance of these strategic priorities. As Suzanne noted today's discussion will appropriately focus on full-year results. However, as you read in our earnings release, we reported a much improved year-over-year fourth quarter that kept off a 12-month period of record-setting financial performance.
In 2019 we once again established new records for revenues, profits and adjusted EBITDA from improved shipments, pricing and cost management across most of our building materials business. For the year consolidated total revenues increased 12% to $4.7 billion. Consolidated gross profit increased 22% to $1.2 billion. Adjusted earnings before interest taxes depreciation depletion and amortization or adjusted EBITDA increased 15% to nearly $1.3 billion and diluted earnings per share was $9.74 a 31% improvement.
Our 2019 results marked the eighth consecutive year of growth in these financial metrics. Martin Marietta's ability to repeatedly translate revenue growth into increased profitability has been and continues to be a differentiator. Our strong earnings growth drove a total shareholder return of 64% in 2019 more than double the S&P 500 and strong outperformance relative to most of our sector.
For those who have long followed Martin Marietta, our passion is operating our business safely. Safety is the core principle and the foundation of our strong financial performance. We're proud to have achieved world-class lost time instant rate levels company-wide for the third consecutive year.
Additionally, we've meaningfully improved safety performance at our legacy Bluegrass Materials operations acquired in 2018; our company's second largest acquisition. From the boardroom to site operations our teams have embraced our guardian angel and wingman branded safety culture. This continued commitment has elevated safety awareness across the company reducing downtime from workplace incidents and leading to higher revenues and profitability. Most importantly working safely protects our employees and the more than 400 communities in which we live and work.
Now let's take a deeper dive into the full-year operating performance for each of our product offerings. Aggregate shipments increased at 12% to 191 million tons exceeding our original 2019 guidance for volume growth of 6% to 8%. These shipment levels benefited from solid underlying product demand together with carryover work from an extraordinarily wet 2018. Notably for the first time in four years aggregate shipments to all three primary induced markets increased reflecting improved strength in public and private sector spending in our markets. Aggregate pricing improved 4% in line with our expectations. Importantly all divisions contributed to this solid growth. A testament to the strength of our markets and the disciplined execution of our locally driven pricing strategy. We expect these dynamics combined with recent positive industry trends to support ongoing pricing momentum.
Our cement operations established new four-year records for volumes and gross profits. Shipments increased 10% to nearly 3.9 million tons driven by robust Texas demand, 2018 weather deferred projects and an expanded distribution terminal footprint. Cement pricing improved 3% consistent with our expectations. We expect our cement operations will continue to benefit from tight supply and healthy demand in Texas supported by growing customer backlogs and our April 2020 price increases.
Now turning to our downstream businesses despite solid fourth quarter volume improvement our full-year ready mix concrete shipments decreased 2%. Our Southwest and Rocky Mountain divisions were unable to completely overcome weather challenges that intermittently hindered construction activities throughout the year.
Average selling price increased modestly with solid gains in Colorado partly offset by a strategic customer segmentation that limited pricing improvements in Texas. Our Colorado asphalt and paving business enjoyed strong customer backlogs; a notable portion of which had been deferred into 2020. That said shipments and pricing improves 7.5% and nearly 4% respectively.
And I'll turn the call over to Jim to discuss more specifically our full-year financial results. Jim?
Thank you Howard. The building materials business achieved record products and services revenues of $4.2 billion a 12% increase and record product gross profit of $1.1 billion a 26% increase. Full year aggregates product gross margin increased 360 basis points to 29.3% driven by pricing gains and improved operating leverage from increased shipment and production levels.
We also benefited from the actions of the negative impact from selling acquired inventory or written by acquisition accounting in 2018 as part of the Bluegrass transaction.
However, following months of robust shipment levels we incurred higher late year costs for contract services, repairs and supplies to better prepare ourselves for future production needs. These costs negatively impacted our incremental margin as did the disproportionately strong growth in long-haul distribution revenues which have a lower margin and local or truck served [quarry] revenues.
While our revenues grew at roughly double the rate of quarry revenues I'm pleased to report that gross profit per ton increased for both the long-haul and local quarry operations. Our cement operations established all-time records for product revenues and gross profit.
Product revenues increased 13% to $439 million driven by volume and pricing growth. Notably, gross profit increased 14% to $143 million even after accelerating $6 million of planned maintenance outage activities at our Hunters cement plant during the fourth quarter 2019.
Revenue growth coupled with production efficiencies from increased shipment and production levels more than offset the higher maintenance costs as product gross margin improved 20 basis points to 32.7%. Product revenues for the ready mix concrete business decreased less than 2%. Despite lower revenues gross margin expanded 60 basis points reflecting the benefits of our 2018 restructuring of the company's Southwest ready mix concrete business.
Magnesia Specialties product revenues decreased 7% to $250 million as chemicals and lime customers reduced inventory levels to line with a slowing demand trends experienced during the back half of the year. Our lime business was negatively impacted by the General Motors work stoppages in September and October as steel manufacturers pull back on demand the fluxing agent products we provide. We anticipate these current trends to be short-term in nature.
Impressively, product gross margin actually improved 150 basis points to 39.8% as the business pro-actively responded with effective cost control measures. We ended 2019 with a strongest cash generation in our history. Operating cash flow of $966 million increased 37% over 2018 driven by double-digit earnings growth and lower contributions to our already well-funded qualified defined benefit pension plan. Martin Marietta continues to balance its long-standing discipline capital allocation priorities to further enhance shareholder value and maintain financial flexibility.
Our priorities remain value enhancing acquisitions, prudent organic capital investment and the opportunistic return of capital to shareholders through dividends and share repurchases all while maintaining our investment grade credit rating profile.
In 2019, we deployed $394 million of capital into our business and returned $228 million to shareholders through both an increased dividend and the repurchase of 416,000 shares of our common stock. Since the announcement our share repurchase program in February 2015 we've returned more than $1.6 billion to shareholders while at the same time growing our business profitably and responsibly. We also reduced debt by $350 million in 2019. Strong earnings growth and higher debt repayments allowed the company to return as we said we would to our target leverage ratio of 2 to 2.5 times.
With that I will turn the call back to Howard to discuss our 2020 outlook.
Thanks Jim. We are excited to build on our momentum 2020 and beyond by capitalizing on attractive fundamentals that support sustainable and long term construction growth. This underscores the importance of the notion we have long articulated where [you are] matters. We have thoughtfully executed on our strategic analysis and operating review known internally as [SOR] to position our business through aggregate/expansion in high growth mega regions. These mega regions exhibit attractive market fundamentals including population growth, business and employment diversity and superior state fiscal position.
Notably, Texas, North Carolina, Georgia and Florida will account for nearly half of our nation's population growth between now and 2040. That's a staggering statistics in four of our top ten states by revenue. These states are experiencing and will likely continue to experience a significant influx of people requiring homes, schools, offices, restaurants, and roads. In short, population growth would drive increased construction, heavy side building materials in key Martin Marietta served markets for the next two decades.
With that in mind we are confident that construction activity in our top ten states will continue to outpace growth nationwide. The combination of strong infrastructure funding levels and healthy private sector activity is expected to drive both increased shipments and better pricing resulting in record profitability for our company in 2020.
The infrastructure market is our most aggregate-intensive venues but represented only 35% of our aggregate shipments in 2019 well below the company's most recent 10 year average of 45%. In 2020 we anticipate infrastructure shipments to meaningfully grow driven by lettings and contract awards in our key geographies, strong state and federal funding levels and proposed regulatory reforms that if approved will reduce the permitting burden of large transportation projects.
States continue to play an expanded role in infrastructure investment which bodes well for Martin Marietta as we have intentionally positioned our business in states with superior departmental transportation programs.
In Texas our largest state by revenues the DOT expects nearly $22 billion of construction contracts to fiscal year 2021 as part of its 10 year $77 billion unified transportation program. Construction growth in Texas will benefit further from large scale design build projects in and around Dallas, Fort Worth.
North Carolina the third largest state by revenues has an attractive overall fiscal position. In fact, the state's treasury is very well funded in 2020 as tax collections continue to exceed projections. That said we anticipate modest but transitory headwinds in road maintaining spending due the first half of 2020 as North Carolina DOT works through some temporary cash flow issues.
More broadly we expect incremental funding at the state and local levels to continue expanding at fast and near term rates than federal funding which will lead to additional growth opportunities for our company. Voters approved 89% of state and local transportation initiatives of the November 2019 ballot providing nearly $10 billion of targeted transportation funding across the nation. Of this total 80% was approved for transportation initiatives in our key states of Texas, Colorado, North Carolina and Georgia.
Rebuilding our nation's infrastructure remains a national strategic priority. When the [indiscernible] enjoyed by partition support in Washington. We expected an enactment of a comprehensive federal infrastructure package to our place for fixing America's Service Transportation Act or FAST Act will drive multi-year infrastructure growth. Notable progress is being made on this front. In July 2019 The Senate Environment and Public Works issued America's Transportation Infrastructure Act, a Draft Highway Authorization Bill.
The draft proposes $287 billion in Federal Highway Funding over the next five years, a 28% increase over previous authorizations funding levels. Also in late January the house committee on transportation and infrastructure unveiled the moving forward framework which includes $390 billion over five years for federal highway spending, a 41% increase. The president had last week stated the union address endorsed the Senate's Bill urging Congress to pass infrastructure legislation. Legislative emphasis will now turn towards assuring a sustainable funding mechanism and we're optimistic one will ultimately be agreed upon.
Nonetheless, we're entering 2020 with perspective that a successor bill is unlikely to be passed before the November 2020 election. However, we fully expect congressional continuing resolutions to maintain federal transportation funding at a minimum at status quo levels for any interim period following the FAST Act September 2020 expiration.
We're confident that states have the necessary visibility and resources to advance planned and future construction projects particularly in our key states which tend to be less dependent on federal support for highway projects.
Non-residential shipments which accounted for 36% of our 2019 aggregate shipments are at higher levels on a percentage basis than we have historically experienced. Nonetheless, we expect another year of healthy commercial activity in 2020 supported by projects for data centers, warehouses, distribution centers and corporate relocations. Remember we have purposefully positioned our business along major interstate growth orders where land is readily available for the construction of these fulfillment and data centers.
Additionally, the recent upward movements in the architectural buildings and dodge momentum indices support a sustainable commercial construction outlook. Within the industrial sector heavy building materials consumption should benefit from the incoming wave of large energy sector projects over the next several years particularly along the Texas Gulf Coast. Construction activity on 4 projects is expected to begin in earnest in 2020 and continue for several years thereafter. Martin Marietta is well-positioned to supply the aggregates, cement and readiness concrete needs for these multi-year energy projects.
Residential construction represented 22% of our 2019 aggregate shipments while this end use is outperformed relative to the overall construction market. We expect continued gains across our leading southeastern and southwestern geographic footprint. Permit growth which in our view is the best indicator of future housing construction activity for Martin Marietta continues to be solid for single-family and multi-family housing units in our top 10 states. Keep in mind multifamily construction generally begins early in an economic cycle and then transitions to more aggregates intensive single-family construction. Healthy multifamily bodes well for continued residential growth across our footprint.
Even more compelling as previously mentioned Texas, North Carolina, Georgia and Florida four of our top 10 states will account for nearly 50% of the country's total population growth over the next two decades as people migrate to areas with attractive employment opportunities, land availability and overall business and tax friendly environments. Importantly, notable population growth drives increased housing demand which also supports future non-residential and infrastructure activity.
In summary, we expect aggregate shipments to increase 2% to 4% in 2020 reflecting growth in all three primary construction end uses and notable upside in the infrastructure market. From a cadence perspective shipment growth is expected to be weighted towards the second half of the year given a strong first half comparison and transient North Carolina DOT headlines. Annual price increases which become effective from January 1 to April 1 have already garnered market support most importantly in Texas, the Carolinas and Southeast. To that end we expect aggregates pricing to increase in range of 4% to 6%.
Combined with contributions from our cement downstream at magnesia specialties businesses on a consolidated basis we expect total revenues of $4.875 billion to $5.075 billion and EBITDA of $1.348 billion to $1.453 billion.
To conclude we're proud of our 2019 record financial results and industry-leading safety performance. We are equally optimistic about the future of Martin Marietta. As we move forward Martin Marietta remains committed to positioning our business to be aggregates led in high-growth geographies and aligning our product offerings to leverage strategic cement and targeted downstream opportunities. We will continue to be disciplined in our solid strategic plan and our team's commitment to the world-class attributes of our business, safety, ethics, cost discipline and operational excellence.
We look forward to continuing our strong momentum in 2020 and further strengthening our foundation for long-term success.
If the operator will now provide the required instructions we will turn our attention to addressing your questions.
Thank you. [Operator Instructions] Our first question comes from Trey Grooms of Stephens. Your line is open.
Okay. Thank you very much. Good morning.
Hi Trey.
So first off thanks for all the detail that you gave us around the 2020 guide and you guys are obviously facing a more difficult volume comp and as you look at your volume assumption of kind of up 2% to 4%, I know you mentioned shipments might be towards the second half of the year there but more specifically what are you seeing in your backlogs or what are you hearing from your customers that give you confidence in that 2% to 4% range despite the pretty tough comps you guys are facing.
No, Trey that's a great question. Thank you for that. I mean here's the quick tale of the tape. I mean if we go down I can tell you mid-Atlantic backlogs for our customers are up. If we look at Midwest that just had a killer year last year from a volume perspective [they also] flat. If we look at Mideast they're up. Southwest is up. Cement is up and Rocky Mountain is up. I mean the Rocky is really it was interesting trade because they had a 2019 that felt like 2018 did I think for much of the industry from a weather perspective. So as we're looking across our footprint and looking at most of our divisions what I'll tell you is their backlogs and speaking to their customers actually look it's good or better going into ‘20 than they did going into ‘19 and to your point that's the primary driver that gives us the confidence in the volume prediction that we put out so far today. We feel very comfortable with that.
Got you. Thank you. And I guess for my follow-up the infrastructure in market in the 4Q was down slightly you noted in the press release and I know there can be some delays and things like that and we're aware of the short-term situation going on in North Carolina but can you go into more detail about the public side? What you saw in the quarter and is that something that gives you any concern at all as you look into ‘20?
Actually Trey, does not. What I would say is there were primarily two issues that I would call out. Clearly there were some permitting delays in Georgia that slowed down two projects. Those are resolved and really you had some weather issues that drove some activity or lack of activity in Colorado. If we pause and look at it more broadly here's what I'll tell you if you look in Texas you're looking at letting schedule of $7.7 billion which is very much in their sweet spot. I think they'll be very good with that. What's striking is if you look forward to 2021 it's a $14.1 billion placeholder right now. So those are huge dollars for this year and going into next because you'll see even more design-build.
Keep in mind we're going to start to benefit from the major mobility program in Georgia as well. They're going to come out with $12 billion of new projects to reduce congestion primarily around the Atlanta metro area where in a post Bluegrass World we have a much more significant footprint. Even North Carolina the fact is the state is in very, very good condition. If we look overall at the lettings that they've had over the last several years they put essentially in a very attractive place particularly in Eastern North Carolina. I think the only thing that may happen for a period of months is we may see modestly less maintenance spend but equally if we look at Colorado DOT and again hitting these really hit our top leading states from an infrastructure perspective the surface treatment budget is up significantly. It's up 84 million to 303 million and the capital destruction budget remains steady to last year when they were actually hit with pretty notable weather circumstances.
So if we look at our states by revenue in number one Texas, it looks really good. Number two, Colorado it looks really good. North Carolina looks strong actually. We're going to have some delays early. Georgia looks good and Florida continues to have a budget in the $10 billion range. Again when we're looking at numbers like that on the public side and we see what we think is coming it gives us a lot of conviction around that biggest single part of our business trend
Okay, that’s encouraging. I'll pass it on and thanks for taking my questions Howard.
You bet. Take care.
Thank you. And our next question comes from Kathryn Thompson of Thompson Research Group. Your line is now open.
Hi, thank you for taking my questions today. First on pricing, if you could just give thoughts on prints and pricing and in more particular how do you feel going into 2020 in terms of how the landscape setup and how is this relative to last year. And if you could really look at it in terms of product line, that would be helpful. Thank you.
Yes, sure Kathryn. A couple of things. One, pricing in the quarter actually looked quite good; it was sub over 5%. Now as Jim mentioned in his portion of the prepared comments, some of that was driven by the fact that we simply had more long-haul in the quarter.
Our rail business was actually up considerably. If you normalize volume, pricing would have been up a little bit over 4% for the quarter, which again is very much in keeping with where we thought. And again, I think you can look at Q4 from a volume and pricing perspective and get some kind of play on how things are going to be as we start going into 2020.
I think we're seeing a better price environment in aggregates than we've seen for a while across our entire footprint. I know we're seeing a better pricing environment in cement than we've seen since we've owned those assets in Texas. So, if we're looking at that pricing environment in particular, Kathryn, you may recall that we had announced an $8 a ton price increase effective April 1.
It looks like most of the rest of the market is there. There is one player that's actually come in as we understand it with the letter that has it at $9.50 a ton. So again, we feel very good about where that is. Equally, if we look at the downstream businesses, I think we'll continue to see price increases for ready mixed concrete in the range of $6 to $8 per cubic yard.
That's probably not a bad bogey if you to keep in mind in both Colorado and Texas right now. And keep in mind, part of what we called them in our prepared commentary is we had some segment changes modestly in concrete that actually gave us some optical headwind on pricing because we've made more of a play in Texas in particular to the housing market because we think that's actually more resilient to weather.
So, as you recall coming into '19, we had said we were planning for a wetter than usual year and that dictated some degree of the shift that we had in the way that we were lining up end users as well. I hope that's response to your question?
Yes, it's very helpful. Then my second question really ties in the current quarter with your outlook. The current quarter is really with the puts and takes for the margin drag, where the aggregates segments and help us understanding more with one-time in nature versus ongoing and kind of tag into that really into 2020 outlook as you mentioned a long-haul volumes in the quarter or it impacts stripping costs for Colorado impact or but --.
Yes.
In terms of the long-haul volumes, how do we think about that cadence going forward, in other words this is more to say unique events in Q4 or is it something to expect in 2020 and really kind of pulling it all together help us understand kind of that aggregates backwards and then what it means going forward?
Sure. I'll do my best with that, that's a lot. Kathryn, here's what I would say. When I was speaking to Q4 of saying look at that as a prelude, I was really talking more about pricing and more about volume in that context.
Okay.
So, here's what I would say with respect to the quarter itself, there were some very specific one-offs in the quarter that I think you need to keep in mind. One, we did have some catch up on grating and Jim referenced that. So, let's call that $7.5 million -- $8 million.
We actually did bring some maintenance at our Hunter cement kiln forward during the quarter because part of what we're aiming for and what we feel like this' going to be a very good year in summit. Yes, it's a higher degree of efficiency and we feel like we positioned ourselves in Q4 for that.
With respect to the Rocky Mountains, we had one capital project in Wyoming and we're basically putting a new plant and at Granite Canyon because that's going to help us feed the Northern Colorado market long-term into sales yards as we see aggregate push in place for the industry occurring Northern Colorado.
That project finished several months later than we had planned. So between that which is now finished. But between that project finishing later and weather being considerably different in Q4 in Colorado that helped drive part of the difference that we see there, just to give you some metrics around that I think this is important for the quarter.
If we're looking at Colorado, Iowa, and asphalt and paving had 57% more weather impacted days in Q4 and by the way that had 30% more full-year impacted days. So, it gives you much clear visibility into 2020. And in the last piece that I would call out is what we mentioned in the South East, we had those two delays on projects on Public Works in and around Atlanta.
And then as you recall when Hurricane Dorian stopped over the Bahamas last year, we have an operation as you may recall in Freeport and we were unable to take one boatload of stone out of Freeport that we otherwise would have been Q4. So, really if you look at the catch-up on grading, the item on summit that I mentioned issues related to Rocky Mountain in weather and that capital project that's now been resolved.
And those two issues in the South East, that's you bridge in Q4. So, as we look at the way Q4 lined up from that perspective. Now, to the other part of your question, I think was really relative to the margins. And what I'll say in that regard is that if we look at what happened in the quarter relative to rail volumes, the increased 20% -- now remember, I view that as good in more ways than not.
I like the fact that we're seeing the rail yards in that expanded network, see the volume go through. But as you'll also recall the margins that we get at the rail yards are not as attractive as the margins we get at truck served quarries. So, you had a modest mix impact on that and that was really the driver on what you saw on a change in margin.
Now, as we think about but instead look like going into 2020 and I think that was the last piece of your question. We're anticipating we're going to see really in 2020 about the same degree of long-haul shipments that we saw in 2019. And to give you a sense of it, and that was probably up over 4 million tons on long-haul in 2019.
So again, we're looking for what we feel like is going to be an attractive 2019 but we don’t think we're going to see that type of shift relative to the other mix. Kathryn, tell me if I hit the issues that you wanted me to address?
Yes. And really, kind of the point is, is this kind of a one-time or and how should we think about the cadence going forward. So, I -- that did answer my question. Thank you, very much.
Okay, very good. Thank you.
Thank you. And our next question comes from Phil Ng of Jefferies. Your line is now open.
Hey guys.
Hi, Phil.
Morning. Is there a good way to think about impact on volumes in your aggregates business to start the year, with that short-term dynamic you called out in North Carolina? And embedded in your full-year guide, how do you thinking about whether this year and any other borrow in next-cycle, labor and transportation?
No. what I would say Phil is this. We're again in getting wetter than usual year and that's what we did last year as well. So, we're taking the same approach to weather saying let's plan for to be wetter weather. So, that's what you see in those numbers.
And I think with respect to North Carolina, as we said in the prepared remarks, we view that as wholly transitory, I think you might see some issues but I think they're going to be modest in the first-half of the year. It may be somewhere in the 0.5 million tons to a 1 million tons all in worst case scenario, Phil if you're trying to look at it that way.
But my guess is we're going to see that made up and some private work in the States, so it's something that we wanted to make sure we spoke up but it's not something that we're seeing as disruptive to the overall business. I think importantly on the last part of your question and that was relative to what we see going on with contractors, supply chain, et cetera.
I think trucking has clearly gotten better over the last couple of years. I think contractors could still use more labor than they entirely have. So, as you think contract labor served as a little bit of a governor on what growth was in 2019. I think I'd be foolish to say it wouldn’t be some modest governor going into '20.
But I do think labor has gotten better over time. And in part going back to the commentary that we offered last year and that was consistent with the notion that contractors were willing to pay more to get the labor because they see an emerging public side word coming and the penalties for not completing public work in a timely manner tend to be pretty notable. So, I don’t think you can entirely dismiss it, I think there are issues, I think their issues going to getting better. Did that answers, Phil?
Yes, that's really helpful. And then award, I think you guys have done an excellent job kind of highlighting your backlogs. For the public side, that and the public builders have obviously reported pretty strong orders, double digit increases. Just curious, have you seen that uptick in your business and what's the typical lag from orders that starts onto your demand?
It can vary a lot depending on the jobs. Because you can certainly get orders and then on occasion just as we saw in North Georgia, you can see some permitting that delays that may tie into environmental or other issues. So, it can be anywhere from two months to six months fill in and again there can be some noise around both of those. But I do think what we're seeing relative to public is a much healthier '20 than we've seen over the last several years.
Okay, that's helpful. And just one last one from me, Howard, I couldn't help appreciate on the commentary you said about Texas and it sound like you're feeling a lot more upbeat about the pricing environment. What's embedded in your guidance in any early green shoots to read on the competitive landscape and how guys are behaving in that market. Thanks a lot.
Hey, you're welcome. Look from what we can tell, obviously we've come out with our price increase letter that was $8 effective April 20. From what we hear from our customers in the marketplace that I think most others have come out with prices that stand like there in that same range. I think there is one that has come out with a letter that's even in excess of that. But that's certainly what we're looking at and it's something that going into the year we've got nice conviction around there.
Okay, thanks a lot.
You bet.
Thank you. And our next question comes from Anthony Pettinari of Citigroup. Your line is now open.
Good morning.
Good morning Anthony, welcome to the call; we're delighted to have you.
Thank you, Howard. Thank you. Just following-up on Phil's question on cement. Volumes were up double digits for another quarter and I think you just talked about pricing expectations or the pricing opportunity. With regards to volume expectations, I think you referenced cement being up, is it possible that we could see another strong quarter in 1Q for volumes that maybe comparable to what we saw in 4Q and 3Q?
One think I try to stay away from is talking too much about the quarter that were in the middle of because if we ever talk about a one quarter and it was great, then we don’t talk about the next you're almost indicating one way or the other. But I'll say is that I think everything that we see in Dallas and Fort Worth and in San Antonio and keep in mind that's where two cement plants are -- is a very healthy marketplace. We talked a little bit early in the call of what the key budgets look like there.
At the same time if we come back and take a look at what residential looks like at that marketplace. I mean it's really very, very attractive; Texas and Florida continue to be for example in the top 10 for total permits. DFW has been leading in the nation for a while in single-family and in multi-family.
And what you wouldn’t expect is to still see multi-family so strong this deep into a recovery which tells us what we long San Antonio and that is this is really not been a building and let recovery at. So, I think is we're looking at our cement business. We think it's going to be very busy this year and we think Texas is going to be a great place to be from a volume perspective and a profit perspective.
The one thing I would say to you is we're going to be particularly focused this year on enhancing our efficiencies. If we can get efficiency levels at the levels that we believe are perfectly attainable at both Midlothian and Hunter and we can have a very special year in cement this year.
Okay, that's very helpful. And then, Howard, I was wondering if you could talk maybe broadly about how the M&A landscape looks here especially in aggregates in some of these higher growth states that you're targeting, I guess it's almost been two years since full graphs and you leveraged quite successfully here?
Yes, we have. We brought that leverage down very quickly. And as Jim said as we said we would. Look, we're involved in a steady diet of conversations on M&A and part of what we're doing is as you've heard us say before, we're in aggregate slow business and that is what is going to drive our ability to grow the business the way that we would like to going forward.
And I also believe that two things. One, we have a very healthy balance sheet, number two we've got regulatory capacity I think in attractive markets today that others don’t. What that means is you can expect us on the right deal to make sure that we get the right deals, at the same time you should expect us to be very disciplined around transactions that from a marginal order perspective don’t fit what we want to do.
And I think if you go back and take a look at what we did with TXI, what we did with Blue Grass and what we've done with some of the tuck-in transactions we've done in Colorado in the aftermath of our river for the Rocky's transaction. That is an area in which we are very disciplined but I would tell you very, very busy right now.
Okay, that's helpful. I'll turn it over.
Thank you, Anthony.
Thank you. And our next question comes from Jerry Revich of Goldman Sachs. Your line is now open.
Hi yes, hi good morning everyone.
Hi, Jerry.
I'm wondering if you could talk about your demand expectations for core reserve markets versus real serve markets versus real serve markets for ‘20? Should we be looking for them makes dynamic that we saw play out in the fourth quarter continuing at least on a year-over-year basis through part of ‘20?
Jerry, I think what we anticipated is what we saw for the full year on rail should remain relatively static. So again there was disproportionate growth on the rail side in ‘19. We think we'll see that pretty steady in ‘20 and we think we'll see more coming out of the truck serves. So if you recall Jerry coming into ‘19 we had actually said we thought you'd see incremental margins in the aggregates business of around 55% but we did not anticipate as strong a rail yard year as we did which brought that down just modestly. If you take a look at what incrementals look like for the aggregates business going into ‘20 you'll see that we're planning for that 60% number as opposed to the 55% that we planned for last year. So I think the dialogue around really thinking more or less flat rail ‘19 and the ‘20 and then also going back and giving you that snapshot of where we were on incrementals last year and where we are this year I think that answers your question.
It does, yes and to your point earlier on the call look very good volume year overall. It looks like there if some puts and takes around the volumes as you would expect in ‘20 compared to generally robust across more demand in ‘19. From your experience on the pricing cycle how should we think about the cadence of pricing over the course of the year especially considering it sounds like there's going to be a different cadence to demand this year by market compared to what we saw in ‘19.
I think we've seen the price increases going in the way that we thought that they would Jerry and that is -- they've been going in anywhere from January 1 to April 1 and my guess is there's not going to be anything particularly striking in a difference relative to pricing other than that I think it's going to be modestly stronger in ‘20 than it was in ‘19 because that's usually what healthy volumes do for you. So I wouldn't call out any particular difference relative to cadence.
And sorry just a clarification, so you obviously made announcements of January and April price increases. What about the level of mid-year price increase that's embedded at the midpoint of guidance? Can you just give us a bit of context of how much work remains to be done over the balance of the year to get to the midpoint?
We have not baked in any midyears into that Jerry. So really what we've done in the guidance is anticipated a wetter than usual year. We've anticipated that the pricing is what the pricing is and then mid years come along that would add some momentum to that and keep in mind Jerry one thing to remember even if you do get mid years you're only going to recognize about 25% of a mid-year during the year in which you put the mid year because you still had to work off some backlog and other commitments before it really fully comes into play. So midyears help you a degree in the year in which you put them in. They actually end up being more of your friend in the following year.
Perfect. Thank you.
Thank you Jerry.
Thank you. And our next question comes from Brent Thielman of D.A. Davidson. Your line is now open.
Great. Thank you. Good morning. Question on the Magnesia Specialties business, a little more pressure here in the fourth quarter. It looks like your outlook suggests that might level off here to some degree. Just curious kind of what you're seeing and hearing from customers there that give you some confidence around that?
Thanks for the question Brent because that's a business that is such a good business and they just never get the airtime that they deserve but they were faced with two things last year. One Jim mentioned in his comments that there was a slow density of particular around the GM facility and then we saw some customers just rationalizing inventories on the chemical side. As you would imagine we stay very close with those customers. I think we feel like marginally they would have worked through those issues particularly by the time we get towards the end of the first quarter. So if you look at that business I think we feel very comfortable with the guidance that we have that there right now.
Part of that I was really taken with though is if you look at that business and you say look the revenues went down, your gross profit went down as well but on a percentage basis did you go down as much as the revenues and then if you look at the margin what you'll actually see last year is the margin went up. So I think that's just indicative of how well they’ve run that business and how accurately they can forecast where the business is going when they need to. So again if we look directly to the dialog with our customers I think that's what gives us the confidence that it's going to end where we said.
Okay. Appreciate that and then Howard just because it's in the release you talked a bit about it but any other details or kind of broader parameters we can speak our sink our teeth into kind of around that [floor] 2025 you're obviously in this really enviable capital deployment position. You talk about kind of lessons learned over the last decade. Can you share what you have learnt from that and what might change kind of as you move for the next five years?
Yes, what I would say in many respects is it worked pretty well. So there are a lot of aspects of that that we would not change as opposed to things that we would change. What we believe, we believe this business is an aggregates led business and we think it's aggregates led for all the right reasons. We think really being focused on geographies with high population growth or either consuming significant aggregates is where we want to be. The notion that we've moved the business from one or two and 65% of our markets to one or two and 90% of our markets over a decade is a pretty heavy statistic when you think about a big heavy slow-moving industry and the ability to always remain profitable and never cut a dividend, these are things to us that are so fundamental to who we are and what I would tell you is you should continue to look for us to do the types of things that we did when we exited the [report] and we went into Colorado, to do the types of things that we did as we bucked up our business in Atlanta and took a leading position in Maryland.
And to the extent that we can do that in markets that continue to exhibit good population trends, good state fiscal health, multiple end use drivers those are the types of things that we're focused on. When we did sort of 2020 our aim was to be to the point that we had something that looked like an enterprise value of around $20 billion by the time we get into 2020.
I think when we rolled that out most people who were looking at it would have been too kind to have said you can't do it but they may well have thought it and we largely did it. So as we think about sort of 2025 we will continue to be, we'll probably put some numbers out that can look aspirational. We think they're doable and that's how we intend to grow the business.
Okay. Great. Thank you.
Thank You Brent.
Thank you. And our next question comes from [indiscernible] Your line is now open.
Hi, thanks. Just wondering as you look out to 2020 you came out with a preliminary volume outlook after 3Q which was low to mid single digits and here you're out with a 2% to 4% increase. So pretty similar rate of growth but just wondering just over the last three months has anything shifted good or bad just around your view of the end markets relative to when you came out with preliminary outlook [indiscernible]?
What I would say [Gareth] and I would say this is more gut than it is math. So forgive me for that. I would think the sentiment is broadly better now than it was three or four months ago. So if we're going back to the period of time when we would have been going through planning or a budgeting cycle in the fall and took a poll of our division Presidents and Vice Presidents and general managers said okay how do you feel last October, how do you feel now. I think there's a general rule they feel better now than when they felt that. And by the way they didn't go bad then?
Got it. Thanks for that. And then just to clarify some of the expenses that hit in the fourth quarter particularly related to grading. Is there anything to call out if you look out just as far as the cadence of some of these lumpier expenses into 2020 just how you're planning on some of these larger cost items?
No. I don't think so. For example I think our [Q1] expenses will actually be friendlier in ‘20 than they were in ‘19 for some of the reasons we discussed and I think we've actually on some of the catch-up grading that we've done. I think we're sitting in the type of place that you would expect. I think the CapEx that we've been putting into mobile equipment will continue to be our friend relative to maintenance and repair. So [Gareth] there is not a cadence out there this year that I would be wanting to highlight to you right now. I think the big driver for a little bit of a stutter step there at year-end was volumes were just up more than the people would have thought and because of that we had some catch-up to do but we don't see that in ‘20 right now
Got it. Thanks again.
Thank you.
Thank you. And our next question comes from Stanley Elliott of Stifel. Your line is open.
Good morning everybody. Thank you all for taking the question. Hey on the capital spend side I think you kind of touched on a little bit but you had been run an elevator in close with depreciation. Can you talk a little bit about what the plans for CapEx or I mean is it rolling stock like you called out? Is an expansion projects just trying to get a flavor for you see the most opportunity?
Yes. Hey Stanley it's Jim. So I would say in aggregates in total our CapEx is roughly constant as a percent of sales and we've been doing that in ‘18 and ‘19 and expect the same in 2020. We have been spending more on mobile in the prior years. We are shifting a bit now to plant upgrades and efficiency improvements. So I would say we're close to, most of it is maintenance capital but it’s efficiency improvement capital at the same time. So no searching is going forward there.
Perfect and then last questions on kind of the one off stripping your cost there. Are you seeing anything else within the cost environment that's concerning and heading into 2020 be it labor or energy costs or anything else that you would want to call out we should be aware of?
Stanley we're really not. If you look back several years’ labor has never been an issue for us. It doesn't look like it's going to be this year either and as we're looking at the other inputs again we feel very confident with it. So I don't see anything that would really move in that respect.
Perfect. Thank you very much. Appreciate that.
Thanks you Stanley.
Thank you and our next question comes from Adam Thalhimer of Thompson Davis. Your line is open.
Hey good morning guys.
Hi Adam.
Howard, I wanted to start on aggregates pricing. I just wanted to make sure I understood I mean pricing accelerated all throughout 2019. We got it accelerating again in 2020. I'm just curious what's really driving that?
I think volume is clearly a friend on that and obviously in the fourth quarter there was some degree of mix relative to rail and we did that. But again if we go back over time part of what we've seen Adam and we've spoken of it I think it surprised people that we would have the ability to get price in a down market but we did and part of what we indicated as we thought we would have even more ability to get price centered on market and I think that's what you saw last year.
Keep in mind we end up being at the end of the day a relatively small piece of overall construction from a cost perspective 10% of the cost of building road, 2% of the cost of building a home and somewhere between those percentages on a non-resident project we are [selling] the product that's going to make or break a general contractor or sub on either getting the job, not getting the job or being profitable.
At the same time we have a product in the ground that gets more valuable by the day and we want to make sure that we have the ability to capture that value because the barriers to entry continue to be very, very high. So I think you have all of those factors coalescing and I think that's evidence in what you see the pricing.
And then I think it was in their letter Howard you called out the wind projects being a slight headwind this year. Can you just give us some more color on that? How impactful is that?
So [no point intended on the] wind projects being a headwind right. So what we're seeing Adam is really the tax investment credits and if projects aren't under construction at the end of 2020, really that's been an issue in two areas for us one in the Midwest and to a degree in the southwest more in the Midwest than in Southwest. Right now we don't see it as a notable headwind. We really just more called it out because we recognize that the tax credits are going away and we want to be sensitive to it and the other thing that we're sensitive to it I spoke about the fact that Midwest volume is going into the year look relatively flat to last year but Midwest volumes last year were really up. So that's an area the country on a percentage basis we just want to be thoughtful around.
Okay. Great. Thanks guys. Congrats.
Thank you, Adam.
Thank you and our next question comes from Michael [indiscernible] Research. Your line is now open.
Hey good morning gentlemen and Suzanne.
Good morning Michael.
You called in your release this morning, you talked about the path potential positive on regulatory driven improvement in efficiency and trying to get projects let. Any sense on how company think that will come through given what's going on in politics wise and how that could impact maybe this cadence in term on lettings in the next couple of years and maybe you combine that with them maybe potential federal bill and say 2021 or 2022.
Sure. Michael it's going to be scientific and anecdotal all at the same time. So have we seen some states go from taking seven years to get jobs out to being more like two years to get jobs that we have and has North Carolina for example been a part of that? Absolutely. Have we seen other states getting better at that? No doubt. And even in the president's draft budget that he's put out of course he's talking about the total $1 trillion infrastructure investments. So that's the broader picture that he has painted at the same time even he starts talking about in that broad-based budget more of what he would like to see done.
I think we've seen some edges of it in NEPA reform on what can happen on getting projects approved more quickly. So what I will tell you is kind of sit here today and give you definitive numbers on what we think they would be up. No, I can't but at the same time can I look over the past several years and say that North Carolina for example was able to go through $2 billion that had really been put on the shelves because they couldn't get jobs out as quickly as they wanted to because they had gotten more efficient at it. Yes, do we think it will continue to get it better at the federal level? Yes. And do we think that will likely be part of a new highway bill? We think it probably will be.
That's great, great color. Thanks for that Howard. Just one quick follow-up when you talking back to M&A and how you're looking at or having active discussion so many folks are those folks also expectations moving higher given some of the publicly available data and the expectations that I think most people have in the industry and is that causing some of maybe, some lockup relative to things maybe getting done in a more rapid environment in the next say 6 to 18 months?
Michael, I think it can vary a lot. I think it can vary depending on are you talking branded, are you talking limestone and rock and sand and gravel, are you talking of pure play or are you talking to vertical play, are you talking East coast are you talking middle of the country or West. So I think it moves around. What I would say at the end of the day is people recognize these are very valuable businesses. Often times they are justifiably pretty proud of them which is one of the reasons that we have to make sure that we can get a good synergy when we go and do these transactions. So again I think there's a lot of dialogue. We will not overreach on things. We will continue to be responsible with it but we're certainly seeing things today that if things come together we can execute on and I think do quite well with them.
Excellent response. Thanks Howard.
Michael, thank you and again welcome to the call.
Thank you. Appreciate that.
Thank you and our next question comes from Seldon Clarke of Deutsche Bank. Your line is now open.
Hey guys thanks for the question. Just sticking with M&A, how much capacity do you think you have for the right deal and just could you give us a sense of maybe how many deals you think are potentially out there that could still move the needle for you guys?
Well I'll tell you what let me do this way. I'll address the second part of it and that is the quantum of deals. I'll let Jim come back and talk a little bit about firepower. The fact is we're always engaged in at least or probably more than a handful of dialogues and again they can vary pretty considerably in size. So the conversations continue to be regular and they continue to be rich in many respects and rich I don't mean numbers, I mean just in the form of dialogue. That's it and let me turn it over to Jim and he can talk a little bit about firepower.
Well, we did acquire Bluegrass for $1.6 billion a few years ago. We did that comfortably and delevered rapidly. We could do that size and larger today readily. So I say we have ample firepower we can do a larger deals. We can do multiple or medium-sized deals and again it is our top priority getting the right acquisition at the right price. So we will make it happen if we need to but it would be very comfortable for us from firepower perspective to do any deals that would be coming to fruition the next two years?
Okay. That's helpful and then just what's going on with elevated valuations, I mean if the right deal doesn't present itself? What do you think the right kind of leverage ratio is on a more ongoing basis and how should we think about capital deployment ex-M&A?
Well, our priorities have not changed and so I’ll answer the second part of the question first aside M&A the reinvesting in the business and CapEx we talked about that roughly 8%-9% of sales typically what we shoot for. It's what we've been doing and beyond that we are returning capital to shareholders in the form of higher dividends which we've been doing last couple years, meaningful increases in the dividend rate and then share buyback which we have also been doing in the last few years. So we'll continue to do those two things. In terms of leverage we have a stated target leverage of 2 to 2.5 times. We are currently at the lower end of that range. Of course that's done in the context of M&A pipeline, in the context of economic outlook and our expectations for the year. So there's no static view we take but by and large 2 to 2.5 times is our debt EBITDA ratio.
Seldon, if we think about what's happened over the last 24 months, 18 months we've done the second largest transaction in our company's history. The year before that we raised our dividend by 9%. This past year by 15%. Obviously the board will look at that again in August but to do a transaction the way that we did with Bluegrass to delever as quickly as we did to be in a position to take the dividend up and buy shares back is a very nice place to be and I think that speaks well to the discipline that the team has shown overall on capital requirement.
Fine. I appreciate the questions. Thanks guys.
Thank you Seldon and again thank you for joining our call today.
Thank you.
Thank you and our next question comes from Adrian Huerta of JPMorgan. Your line is now open.
Thank you. Good morning. Two questions one is on cement prices specifically in Texas. What are your views on impropriety prices for Texas and if you think that that could drive potentially even higher increases on cement prices? And the second one is on your guidance for cement gross profit. Aside from prices what else are you expecting to drive margins higher this year?
I guess number one Adrian thank you for your question. Number two, if we just look at Texas cement overall and Texas consumed about 18.7 million tons of cement last year. About 13.5 of that was from domestic producers in Texas. So the short answer is you're going to have to have some degree of import that's coming into the state right now simply to meet the needs. I think if you look at where our plants are very much by design in Dallas Fort Worth and in San Antonio they have ability for water imports to come in and meaningfully interdict our businesses is low and again that's by design.
I think you will continue to see the need and the desire for cement to continue to go up in that state. I think the fact that we're talking about an $8 ton price increase there, demonstrates that demand supply band is going to be somewhere in our favor. Clearly that is going to help drive our business.
The other thing that I would say to your point we will clearly have less kiln maintenance expenses in ‘20 than we had last year and then the number that we know it's going to be real it's just a more elusive number is what you get from the shear efficiencies that we believe we will recognize that both Midlothian and at Hunter. Again, as I look across the business and think about the areas that I think have the potential to have a really pretty special year this year. I would put cement somewhere near the head of that list Adrian
Excellent. Thank you, Howard.
You are welcome. Thank you.
Thank you. And our next question comes from Paul Chabran, of On Field Investment Research. Your line is now open.
Hi good morning gentlemen and thank you for taking my question. Just one question if I may. We are seeing more and more large aggregate producers nowadays moving towards recycle aggregates. I just want to understand whether it's something that you’d be considering and if so what do you think could be the impact on the value of your aggregate result? Another quick follow-up on coming on the -- you mentioned that aggregates volume have been hit by some delays in infrastructure project in North Carolina, Georgia and Colorado. If I remember well could you give us an idea of what your volumes would have been in Q4 excluding this impact?
Absolutely try to. Let's do the recycle issue first and what I would say Paul is recycle is going to be an issue that's not going to hit all markets the same way it's going to hit different markets differently. So if you think of our markets such as Los Angeles or markets such as Houston that really in LA you've got depletion. In Houston, you have no coarse aggregates that are indigenous there, which means that is you have certain destruction of buildings, you can have crush concrete in that marketplace that can be used in some instances as a base material.
Keep in mind in many instances recycle is going to be more usable in a commercial application as supposed to a DOT application because oftentimes they won't meet the more rigorous DOT specifications.
So what I would say is -- while I think today's pricing is in aggregates and what I think, frankly think they're going to be for the next decade when you see more recycle on the edges I think you will on occasion. I don't think it's going to be a huge displacing factor. Keep in mind even recycle that you see in recycled asphalt commonly referred to as wrap is really more used to pull the liquid out of buildings as opposed to the stone. So I think we see it that way.
Relative to the second part of your question that was with respect to delays what I would say is clearly we did see some of delays in Georgia. We saw some delays in North Carolina. I don't want to quantify exactly how much I think that would have moved the aggregate tonnage. I think it would have moved it a bit. Importantly those are high profit states. So I think it probably would have hit more bottom line on profits as opposed to bottom line relative to volumes.
Okay. Thank you very much.
Thank you Paul.
Thank you and our next question comes from Paul Roger of Exane BNP Paribas, your line is now open.
Hi, hello. This is Rob Whitworth on for Paul Roger.
Very good.
Hi there. I want to start by asking is this going to accelerate Greenfield investment spending and what returns you typically make on these investments?
I'm sorry Rob relative to Greenfield?
Yes, please.
Yes. I guess we would say several things. We think there is a role in what we do for green fielding at the same time if we look at our volume this past year at 191 million tons and we look all the way through a cycle. I would ask you to remember this at the peak of last cycle we produced and sold 205 million tons. At the bottom of the last cycle 125 million tons and 191 last year.
Of that 191, 40 million tons are due to acquisitions over the last decade-ish. So we're comparing same on same all the way through a cycle take the 190 that we just finished within 2019. Take 40 million tons from it, it puts us at 150 million tons same on same versus 205 at peak and 125 at the bottom. That's not a long way of saying I don't think we're in a position today that adding Greenfield sites is a particularly value enhancing strategy for us.
We have ample reserves and very attractive markets. Green fielding to me is when you want to go into a new market or you've got reserves that you're trying to protect. The other thing that I would say is most Greenfield applications will probably take around seven years to put in and again you've got several components you have to be mindful of number one environmentally what you're dealing with delegated state authority from using federal statutes but then more importantly what's happening relative to local land use.
Rob that's the piece of it in the United States, but I think most people miss because, I think most people feel like the bigger issue is environmental. The bigger issue is in fact land use. So as we think about it have we opened the single largest Greenfield operation on the Union Pacific's vast network about five years ago? We have but again a very strategic play to make sure we can supply DOT spec stone and to Houston for a generation. Have we looked at opening underground mines in places like in the Midwestern U.S.? We have but we haven't taken on a slew of green fields because at the end of the day we don't think it's the best use of our capital.
Very clear. Thank you. And just as a follow-up you did touch on this slightly earlier but your asphalt margins disappointed a bit again and I appreciate this is mostly bad weather in Colorado but in terms of looking ahead do you see a big potential improvement in 2020 given a potential tailwind from IMO 2020?
No, I do think we'll see a potential tailwind. I mean again weather was the primary driver for the variance that you've seen. We talked a little bit about the sheer quantum of days that we lost because of the weather. If we look at the backlogs that we have in that business going into the year they really look very, very good. If we look in from a customer perspective, we're looking at already over 50% of our backlog being booked for the year and for me need to be able to say that to you in the first half of February is a pretty heavy place.
Brilliant. Thank you.
Thank you.
Thank you and this does conclude our question-and-answer session. I would now like to turn the call back over to Howard Nye for any closing remarks.
Well thank you for joining our fourth quarter and full year 2019 earnings conference call. We continue to focus on maximizing value for shareholders as we build on our strong results and strive to realize the company's full potential. Given Martin Marietta’s world class attributes and our expectation of a sustainable and steady public private sector construction activity we believe 2020 will be another record year for Martin Marietta. We look forward to discussing our first quarter 2020 results in a few months. As always we're available to answer any follow-up questions. Thank you for your time and your continued support of Martin Marietta.
Ladies and gentlemen this concludes today's conference call. Thank you for participating. You may now disconnect.