Summit Materials Inc

NYSE:SUM

Earnings Call Analysis

Summit Materials' Q2 2024 Financial Highlights and Future Outlook

In Q2 2024, Summit Materials saw strong financial performance with EBITDA margins expanding over 200 basis points year-to-date, driven by price growth in Aggregates (up 11.8%) and Cement segments despite weather-impaired volume softness in Houston. The company anticipates mid-single-digit volume declines but reaffirms its adjusted EBITDA guidance of $970 million to $1.010 billion for 2024. Strategic acquisitions and cost management led to $17.5 million in synergies, targeting $40 million for the full year. Future projections include continuous double-digit Aggregates pricing growth and further Cement market stability.

Navigating Challenging Weather Conditions

The second quarter of 2024 was marked by challenging weather conditions that significantly impacted Summit Materials’ operations, particularly in Houston. Precipitation days were up 30% year-on-year, and precipitation totals increased nearly 40% compared to the previous year. This caused flooding that affected their quarries and led to electrical outages, forcing the shutdown of several ready-mix plants. Despite these obstacles, the Houston operations swiftly responded, ensuring zero safety incidents. However, the adverse weather led to approximately $6.5 million in lost or delayed EBITDA for the second quarter.

Strong Financial Performance Despite Adversities

Summit Materials demonstrated remarkable financial resilience despite the adverse weather conditions. Adjusted cash gross profit and adjusted EBITDA grew substantially in the quarter due to the inclusion of Argos USA assets. Although quarterly reported margins pulled back year-on-year to account for Argos dilution, both adjusted cash gross profit margin and adjusted EBITDA margins expanded over the first six months of the year by more than 200 basis points. This growth underscores the strength of a less seasonal portfolio and effective asset integration, alongside a favorable price-cost environment.

Pricing Power and Operational Excellence

Summit Materials continued to showcase robust pricing execution, with Aggregates pricing increasing by 11.8% in Q2 and sequential growth of 2.5%. This was driven by strong performance in markets like Kansas, Missouri, Houston, Virginia, and the Carolinas. Additionally, operational excellence initiatives contributed significantly, already delivering $8 million in savings this year and with more expected in 2024. This focus on efficiency and price-cost favorability played a substantial role in expanding the adjusted cash gross profit margin, which rose by 280 basis points year-to-date.

Strategic Integration of Argos USA

Summit Materials’ strategic integration of Argos USA is on track, delivering $17.5 million in synergies by mid-2024 and aiming for $40 million by the year’s end. The integration plan focuses on improving commercial positions and asset quality to enhance profitability. This, coupled with strong operational and commercial initiatives, has boosted Summit Materials’ confidence in achieving their synergy target of $130 million over the integration timeline. As a result, Summit reaffirmed their full-year 2024 adjusted EBITDA guidance range of $970 million to $1.010 billion.

Market Dynamics and Future Outlook

Despite slight volume declines due to weather impacts, Summit Materials remains optimistic about volume recovery in the latter half of the year, backed by substantial backlogs and demand in key markets such as Georgia, the Carolinas, and the Mid-Atlantic region. Cement segment performance was also impacted by weather and softer demand, but the company still anticipates mid-single-digit organic pricing growth for the year. Additionally, commercial synergies and capital improvement projects are expected to further bolster efficiency and profitability moving into 2025.

Guidance and Expectations

Summit Materials adjusted their volume outlook due to weather and market demand conditions, but they still expect strong financial performance driven by pricing actions and cost management. The full-year guidance includes an adjusted EBITDA range from $970 million to $1.010 billion, with adjusted EBITDA margins anticipated to land at or above 23% to 24%. The firm is also focused on pursuing Aggs-oriented bolt-ons in targeted geographies while optimizing the existing asset base, ensuring a resilient and profitable portfolio moving forward.

Earnings Call Transcript 2024-Q2

[Operator]

Thank you for standing by. My name is Danica, and I will be your conference operator today. At this time, I would like to welcome everyone to the Summit Materials Second Quarter 2024 Earnings Conference Call. [Operator Instructions].

I would now like to turn the call over to Andy Larkin, VP of Investor Relations. Please go ahead.

[Andy Larkin, executive]

Hello, and welcome to the Summit Materials Second Quarter 2024 Results Conference Call. Yesterday, we issued a press release detailing our financial and operating results. Today's call is accompanied by an investor presentation and the supplemental workbook highlighting key financial and operating data. All of these materials can be found on our Investor Relations website.

Management's commentary in response to questions on today's call may include forward-looking statements, which, by their nature, are uncertain and outside of Summit Materials' control.

Although these forward-looking statements are based on management's current expectations and beliefs, actual results may differ in a material way.

For a discussion of some of the factors that could cause actual results to differ, please see the Risk Factors section of Summit Material's latest annual report on Form 10-K, quarterly report on Form 10-Q as updated from time to time in our subsequent filings with the SEC.

You can find reconciliations of the historical non-GAAP financial measures discussed in today's call in our press release. Today, I am pleased to be joined by Summit Materials' CEO, Anne Noonan; and CFO, Scott Anderson. Anne will begin our discussion by touching on key takeaways from the quarter and then outline our go forward view on the business.

Scott will follow with a detailed review of our financial performance. Afterwards, we are opening the line for questions. Out of respect for the analyst and the time we have allotted, please limit yourself to one question and then return to the queue so we can accommodate as many analysts as possible in the time we have available.

With that, let me turn the call over to Anne.

[Anne Noonan, executive]

Thank you, Andy, and thank you to everyone joining us on today's call. Summit Materials and our 7,500 employees successfully navigated dynamic market conditions to accelerate our strategic agenda and deliver strong financial performance in the second quarter. Among and central to our progress has been a cohesive focus on safety. For 2024, we are tracking ahead of target on nearly all of our safety metrics. And while our goal of 100% zero harm remains aspirational, we believe our combined organization is capable of and is tracking towards setting the safety standard in our industry.

Before touching on our 2024 outlook, I want to briefly cover the key takeaways from our second quarter on Slide 4. From a strategic perspective, we are advancing all areas within our control. I'd highlight three in particular. First is the promulgation of commercial and operational excellence principles across our network, including the Argos USA assets, value pricing, upskilling our sales team and the implementation of core operating principles are foundational to improving the quality of business and critically, these initiatives can forge ahead regardless of the environment.

Second, are the integration-related activities that are generating synergies today and providing the runway for sustained synergy creation and value capture moving forward. And third is our ongoing efforts on both the buy and sell side to strengthen our footprint and furtherance of our Elevate Summit financial targets.

In the second quarter, we completed a bolt-on Aggregates acquisition in our recently entered Florida market, and shed a non-core asset in our south region. In all three of these strategic areas, we took action and ownership of our controllables and as a result, delivered solid financial results again this quarter.

In addition to substantially growing adjusted EBITDA dollars, we estimate that on a pro forma basis, we were able to expand adjusted EBITDA margins in the second quarter and on a year-to-date basis by more than 200 basis points. Continued margin progress towards our North Star Aggregates and Cement targets were the primary catalyst for this year-to-date growth, demonstrating the power of our materials dominant portfolio. We are driving sustainable growth by leveraging our national scale, enhanced geographic reach and leading positions in high-growth markets.

This renewed materials-oriented portfolio, combined with attractive and favorable geographic exposures are creating more economically resilient Summit materials, one built for today's environment and tomorrow's opportunities.

On integration, our Argos USA game plan is on track, having delivered $17.5 million in synergies through midyear, well on our way towards our $40 million full year target. Clearly, our momentum is building. We are putting points on the board and we are increasingly confident that we are taking all the right steps to improve the quality of the assets, improve our commercial positions and by extension, improve the profitability and growth profile of the Argos USA business. These strategic and financial advancements, together with the focused team and a fortified balance sheet enables us to confidently reaffirm our full year 2024 adjusted EBITDA guidance range of $970 million at the low end and $1.010 billion at the high end. Concurrently, 2024 adjusted EBITDA margin should land at the upper end or above our 23% to 24% expectations this year.

Slide 5 provides our updated perspective on 2024. And what you'll see is that many of our outlook components are virtually intact from where they were exiting the first quarter. On pricing with our midyear expectations incorporated, we are calling for double-digit Aggregates and mid-single-digit organic pricing growth in cement for 2024. I'll detail Argos USA synergies in a moment, but we are reiterating our goal of at least $40 million this year.

And from a portfolio perspective, we anticipate building an even more resilient portfolio as we pursue Aggs-oriented bolt-ons in targeted geographies while continuing to optimize our existing asset base.

Now what has adjusted in our guide is an updated perspective on volumes due to two factors. Scott will cover the specific Q2 weather impacts in Houston. But more broadly, wet conditions, severe weather events and constrained barge traffic along the Mississippi River has disrupted our ability to produce, sell and service key markets. Fortunately, when conditions cooperate, we are seeing activity pick up substantially. That is to say, we are cautiously optimistic that some or most of the lost volumes in markets like Houston can be recovered if we get a solid stretch of working days.

In addition to weather, we are now reflecting an updated view on demand in geographies that are skewed towards commercial activity. If you recall, we've left open the possibility that with second half rate relief would come a second half recovery in private end market demand.

While we think that situation is still on the table, we now think it's more likely a 2025 scenario, given a higher for longer interest rate environment and a notable lack of urgency to activate commercial jobs in some of our key markets like Salt Lake City and Phoenix. That said, we are encouraged by our customer conversations that indicate activity should pick up when financing conditions improve. Simply [indiscernible] demand in select markets is being pushed out.

Outside these markets, we are seeing volumes perform in line or better than anticipated. Take Georgia and the Carolinas, where we've been able to capitalize on large-scale manufacturing and green energy projects as well as residential resiliency to drive both volume and pricing growth this year. Our long-term view hasn't changed at all. We are bullish on all three end markets and feel we are playing in the right high-growth geographies with advantaged assets. But in the near term and consistent with our typical managerial posture, we are taking a realistic yet prudent approach to expectation setting, which has proven especially astute in this environment. Our updated outlook now incorporates low single to mid-single-digit organic volume declines on Aggregates and Cement for 2024. Offsetting this revision is inclusion of our midyear pricing expectations and an adjustment to our G&A expectations to $330 million for 2024.

For pacing, the midpoint of today's guidance implies nearly $575 million in year-to-go adjusted EBITDA, where we would expect approximately 60% occurring in Q3 and 40% in Q4 using round numbers.

In summary, we are able to confidently maintain our outlook due to three factors: one, we built a 2024 profile that's guarded and not reliant on volumes. Two, we've included the traction from our midyear pricing actions; and three, we are actioning discretionary spend contingencies this year. Net-net, our outlook is intact. We are demonstrating high-quality execution on our controllables, and we look forward to another year of strong growth and returns for our shareholders.

Turning now to Slide 6, where we outlined one of our unique growth levers, our Argos USA synergies. As you'll see, we achieved $17.5 million in first half synergies. This is tracking almost exactly in line with how we mapped our progress earlier this year. Additionally, the composition of these synergies aligns neatly with how we expected things to unfold. We moved quickly and efficiently to consolidate procurement tools and redundancies across the organization, thereby realizing sizable scale savings early in our integration game plan.

For Cement, our three primary operational metrics, Overall Equipment Effectiveness, or OEE, alternative fuel replacement and Portland Limestone Cement conversion are all tracking in line or ahead of targets this year. These combined with successful winter turnarounds and capital improvement provided the main thrust for synergy generation so far this year.

Ready-mix synergies driven by delivery, excellence and footprint consolidation as well as unlocking growth through greater Aggregates pull-through in Houston and the Carolinas were positive contributors to our first half progress as well. On a whole, we are delivering on our commitments with both operational as well as commercial initiatives fully in flight and providing the expected momentum for ongoing synergy capture.

Looking ahead, we have clear line of sight to at least $40 million in synergies, although we expect the composition of synergies to evolve over time. We anticipate that the Cement synergy bucket will grow as capital improvement projects take hold, commercial initiatives unfold, and our One Summit model is more fully implemented. The headline message we'd leave you with regarding synergies is that we are delivering on all value streams and we have even greater confidence today that we are to comfortably achieve our synergy target this year and at least $130 million over our integration time line. In addition to the synergy creation, the cash generation opportunity was core to our Argos USA investment thesis.

On Slide 7, we contextualize how we see that cash flow opportunity progressing as we move through integration. On the left, you see Summit Materials cumulative 5-year cash flow conversion, defined as free cash flow as a percentage of adjusted EBITDA. From 2019 to 2023, roughly $0.32 on every EBITDA dollar was converted to free cash flow.

Our new enterprise can and will do much better than that. Over time, we expect to convert greater than 40% of adjusted EBITDA into free cash flow. That will be driven by three factors. First is fueling greater cash from operations by having a more powerful portfolio. Due to its higher fixed cost nature, our Cement facilities will turn out greater cash flow. For context, our legacy Summit Cement assets consistently converted adjusted EBITDA into cash at a rate that was at least 10 points higher than the rest of the Summit portfolio.

As we work through the integration and exhibit our cement leadership, we will emerge as a cash-generative machine. Moreover, leveraging our company's greater scale and scope will help drive working capital management improvement and by extension, greater operating cash flow.

Second is the reduction of capital intensity over time. You've heard Scott say, and I'd reiterate, that we believe the long-term target of CapEx as a percentage of net revenue will moderate to approximately 8% over time. Reduced maintenance CapEx on Cement assets and better return opportunities overall will enhance our cash profile. When achieved, this lever alone would release more than $100 million of free cash flow annually.

And the last notable component is a continuous scrutiny on our assets to determine if they are more valuable than someone else's hand. Taken together and over time, these three factors drive a powerful flywheel. The business is positioned to drive even greater EBITDA growth, translate that growth into substantial cash flow and deploy that cash to high-return opportunities, including our top priority dialing up organic and inorganic Aggregates growth.

Let me close out on Slide 8 with our quarterly Elevate Summit scorecard. This schedule is the clearest demonstration on how our strategic execution is translating into our financial performance. On net leverage, we remain a half turn below our 3x target, providing sufficient optionality to strengthen the portfolio via price disciplined and Aggs-led bolt-on opportunities. As anticipated, ROIC at 8.9% incorporates the Argos USA assets. But over time, as we enhance our margin profile and execute against our [ tried and true ] portfolio optimization playbook, we fully expect to restore our ROIC to greater than 10% within two years.

And finally, with the last 12 months reported EBITDA at 23.8%, our profitability profile is trending to meet our 2024 margin expectations and we are taking solid steps towards our 30% Elevate Summit target. All of the credit for our achievements so far this year and those still ahead of us is due to the tireless efforts of our dedicated employees. We are privileged to have a combined workforce that is engaged and enthusiastic. They have moved quickly and safely to integrate our companies, align our cultures and make substantial progress towards achieving all of our stakeholder commitments. I want to say thank you to all Summit employees for your hard work you have a lot to be proud of.

I'll now hand it to Scott to conclude our prepared remarks.

[Scott Anderson, executive]

Thanks, Anne. Let's pick up on Slide 10 for a snapshot of our second quarter financial performance. On the surface and at a headline level, you can see our second quarter was characterized by strong pricing growth across lines of business with Aggregates and Cement up strongly in the period as commercial excellence remains a primary growth enabler for our business. This was offset to varying degrees by lower volumes that I'll unpack for you in a moment. Fortunately, as Anne mentioned, our 2024 profile is not volume dependent. And as such, we remain confident in achieving our financial goals this year.

Slide 11 isolates the primary weather impact that caused volume softness in the second quarter. For us, the brunt of the impact was felt in our Houston business, which comprises roughly 10% of the total company's EBITDA. Here, the frequency and severity of weather events negatively impacted our ability to produce, sell and complete jobs in the field. Precipitation days were up 30% year-on-year, and precipitation totals increased nearly 40% versus last year. Flooding mainly affected our quarries in Northeast Houston and electrical outages forced us to shut down several ready-mix plants for an extended period.

Operations were further hampered by damage infrastructure, limiting access to our sites and wet feed material slowing down throughput. Thankfully, our Houston operations swiftly responded to safeguard our assets, including, most importantly, our people. As a result, we had zero safety incidents during these weather events. Still, we did incur volume headwinds across Aggregates, Ready-Mix and Cement. And overall, we estimate that Houston alone accounted for approximately $6.5 million in lost or delayed EBITDA in the second quarter.

Two things to note. First, this estimate does not include the impact of Hurricane Beryl that struck Southeastern Texas in July. Second, pricing execution on Aggregates and Ready-Mix was not affected by Q2 weather in Houston or any other market.

Turning now to key metrics on Slide 12. Both adjusted cash gross profit and adjusted EBITDA dollars grew substantially in the quarter due to the inclusion of the Argos USA assets. For the same reasons, and as expected, quarterly reported margins did pull back year-on-year in the second quarter to account for the Argos dilution.

Importantly, If you zoom out, you'll note that both adjusted cash gross profit margin and adjusted EBITDA margins expanded year-over-year through the first six months of the year. And on a pro forma, like-for-like basis, adjusted EBITDA margins expanded both in Q2 and year-to-date by more than 200 basis points. This speaks to the power of a less seasonal portfolio our ability to improve the assets as we integrate and a favorable price cost environment.

On cost, outside weather-affected markets, we are seeing relief in some supply chain-related areas like repair and maintenance and subcontracting. And at the end of the day, we feel good about our prior estimate calling for mid-single-digit cost inflation this year. Adjusted diluted earnings per [indiscernible] was down $0.05 in Q2 and is up $0.10 year-to-date, reflecting strong operating performance and higher interest expense.

Moving to the line of business performance. Aggregates volumes in the quarter were negatively impacted in part by weather conditions we just discussed as well as relatively subdued private end market demand that Anne mentioned earlier. By our estimates, Houston weather negatively impacted volumes by 280 basis points in the quarter. Elsewhere, growth in Georgia and the Carolinas was more than offset by lower volumes in British Columbia, Kansas and Missouri.

Aggregates pricing, however, remained strong, increasing 11.8% in Q2 and sequentially increased 2.5% due in part to mix benefits. Year-over-year and by market, Kansas and Missouri let our pricing gains, followed closely by double-digit growth in Houston, Virginia and the Carolinas. Houston weather adversely affected Agg's adjusted cash gross profit margin by roughly 20 basis points but we were still up 50 basis points year-on-year, the fourth consecutive quarter of year-over-year margin expansion.

Unit profitability accelerated $1.80 per ton sequentially or 15% year-on-year as strong price/cost favorability persisted. On the cost side, our operational excellence initiatives are dropping real dollars to the bottom line with $8 million already achieved this year and plenty more in scope for 2024. This is helping the power adjusted cash gross profit margin expansion, which is up 280 basis points year-to-date and 320 basis points on an LTM basis. In all, and despite temporary volume softness, we are on pace for our strongest annual Aggregates margin expansion since 2017.

For Cement performance on Slide 14, second quarter organic volumes were negatively impacted by weather, large constraints and slightly softening demand that prompted reduced import volume in Southern River markets. In fact, nearly 40% of the organic decline is attributable to lower import volumes and weather in Minnesota and Iowa, two of our largest river markets experienced record rainfall in the second quarter, with rain days up 48% and 45% respectively versus Q2 2023.

Notably, outside the legacy Summit footprint, Argos USA markets in the Mid-Atlantic and the Southeast experienced second quarter volume growth. For the back half, as volume comparisons ease in jobs like a large EV project in South Carolina, a steel project in Memphis and others start to gain steam, we see an improvement in year-on-year growth trends materialize. In all, we anticipate selling roughly 9 million tons of cement this year, an amount nearly equivalent to the pro forma 2023 amount.

Strong traction occurred for our inland markets, fueling greater year-on-year pricing growth in Q2. And remember, despite some quarter-to-quarter noise, we are still calling for mid-single-digit organic pricing growth this year. Our commercial excellence approach is taking hold, and we are currently engaged in constructive customer conversations across Argos markets. Here, we are looking to move towards a more cohesive market supported and value-accretive go-to-market approach.

Reported Cement segment adjusted EBITDA margins took a step back in the quarter as the dilutive impacts from the Argos USA asset surfaced as anticipated. But on a year-to-date basis, Cement segment adjusted EBITDA margins are up 410 basis points. We're benefited from pricing, favorable natural gas costs, reduced seasonality and the early realization of cement synergies. Meanwhile, we are actioning all the foundational elements that will enhance profitability going forward.

Take the Martinsburg, West Virginia plant, for example, where during the planned outage this quarter, we successfully completed the $17 million kiln baghouse project that will improve plant production levels, reduce plant costs, improve our emissions profile and as a result, position Summit to better meet the growing demand in the Mid-Atlantic region. Similar projects are underway at each cement plant as we more fully implement the One Summit operating model.

Lastly, on our downstream businesses on Slide 12 (sic) [ Slide 15 ] organic ready-mix volumes remain under pressure from both weather and the higher for longer environment. As you would expect, weather in Houston, one of our largest Ready-Mix markets negatively impacted volumes and adjusted cash gross profit in the period. Our Asphalt business, which is trending towards being a smaller portion of the EBITDA mix based on favorable project timing this quarter, which was a primary driver of year-on-year volume declines in Q2. Not specifically reported, but asphalt margin did remain healthy despite lower volumes.

Therefore, the primary driver of lower product margins was the inclusion of lower margin Argos USA ready-mix assets in Houston, Atlanta, the Carolinas and Florida. Here, it's worth repeating that our approach to the downstream is highly selective and where we choose to operate, we need to be #1 or #2 in the markets we compete. If we can achieve that or the assets will not help us achieve our Elevate Summit financial goals. We have demonstrated a strong track record to proactively take steps to optimize and strengthen our materials-led portfolio.

I'll wrap up quickly by drawing everyone back to our near-term priorities on Slide 16. We are transforming into one high-performance enterprise through integration. We are accelerating Aggregates growth with year-to-date margins up over 280 basis points. We are on our way to delivering on our synergy commitments, and we are focused on strengthening the portfolio and balance sheet for superior growth and value creation.

With that, I'll ask the operator to provide the required instructions and open the line so that Anne and I can field your questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Trey Grooms with Stephens.

[Trey Grooms, analyst]

Well, first off, my question is not related to the synergies. Slide 6 did a great job of detailing that. But I did want to give you guys a hats off on the execution there, very impressive. So congrats on that. Maybe on my question, though, thanks for the color on the impacts from Houston weather in 2Q. But like you mentioned, a hurricane hit Houston and other markets in early July, and now we have a tropical storm moving through the Southeast. One of your competitors was talking about a kind of a tough start to 3Q a moment ago. So any color you might -- could give us on how 3Q is starting off and presumably, whatever you've seen thus far is taken into consideration in that updated guide, I'm guessing.

[Anne Noonan, executive]

Yes. Thanks for the question, Trey. Absolutely, Q3 started off to a rough start in Houston with Beryl. And no doubt the storm that's going through right now, honestly, our focus is 100% on keeping our people safe and our assets safe. We will update as we learn more.

The one thing I will point out, though, is that in Q3, these -- we can make up some time on these. These are all seasoned states where these are hitting, and we saw this in Houston too. As soon as we got a few good days, we were back with strong backlog. So the backlogs are there. It's not if it's when the business comes back. So right now, our guide assumes that we will -- we obviously did not have huge impacts from volume loss. We'll assume we'll catch up on most of those days. And one thing [indiscernible] or more work. And so if some of it falls into 2025, it will just make a better 2025 with better pricing.

I will point out, though, a lot of our confidence comes in our guide from what we can control. It's our -- we've done very well on pricing. The team has executed extremely well. The synergies to your point, are well ahead, and we continue to operate on our portfolio optimization and our operational excellence. So the controllables are well in play in the guide that you see today.

[Operator]

Our next question comes from the line of Garik Shmois with Loop Capital.

[Garik Shmois, analyst]

I am wondering if you could help us think of how Aggregates margins could look in second half of this year, recognizing the second quarter did have headwinds associated with the volumes and assuming some of that maybe comes back, maybe it doesn't, but you do have strong pricing momentum. Just any way to help contextualize how Aggregates margins could end up expanding in the second half of the year.

[Anne Noonan, executive]

Yes. Garik, thanks for the question. From the beginning, we saw Scott talked about in his commentary, the Aggs margins have increased by 280 basis points year-to-date. And we said at the beginning of the year in our guide, we'd add percentage points to our Aggs margins, we will continue to do so. So you can expect that play out as the year goes through. Our North Star Aggs margins, as we've called out on a trailing 12-month basis are 60% cash adjusted gross profit margin, and that's a North Star objective. We hit 51.4% versus 49% this quarter. So we're very encouraged by not only the price cost -- price net of cost from our commercial excellence, but also the op excellence work, which is having an impact and will continue to accelerate throughout the year. We've landed about $8 million to the bottom line from OpEx this year. We'll continue to accelerate that as we go through Marshall Moore and his team have been doing an exceptional job on the cost front. So I would be very disappointed if we didn't continue to add points to our Aggs margin expansion as we go throughout the year.

Scott, anything you might add?

[Scott Anderson, executive]

No. I think that captures it well. Four quarters in a row of Agg margin expansion. So we're building a track record here that we're going to continue on.

[Operator]

Our next question comes from Anthony Pettinari with Citi.

[Asher Sohnen, analyst]

This is Asher Sohnen on for Anthony. In terms of the midyear kind of contemplated in your updated Aggregates price guide, can you just talk about maybe the timing or magnitude of those? And like what kind of carry forward that could that maybe set you up for in 2025?

[Anne Noonan, executive]

So overall, we're very confident, as we said in our prepared remarks and delivering over 10% on Aggs on a full year basis for 2024. That was a bit of a mixed bag, if you look at how we did pricing this year. So if I talk about our central region, for example, Kansas, Missouri, we came out very strong in January there with double-digit price increases that have carried forward.

So if I look at the midyears for them, we talked about our mid-years being 2% to 7% across the entire network of Aggs operations. They would have been on the low end of that, but we'll finish the year very strong, probably until the mid-teens. And as we got into midyear, we started getting more traction on our East region, for example, and on Georgia, increasing those prices. So overall, we're confident in the 10% as we exit over 10% as we exit the year and see continued constructive pricing environment as we go into 2025.

[Operator]

Our next question comes from Kathryn Thompson with Thompson Research.

[Kathryn Thompson, analyst]

First one to focus on your Cement segment and on pricing. And you noted that inland -- so really, the Mississippi River drove pricing momentum. If you could shift to what you're seeing for cement pricing and other markets, including South Texas, a couple to your question. What are you seeing with pricing? And how has -- what changes, if any, have you seen with import terminals in terms of bringing product in? And with the rain delays and everything, that Houston market being impacted, how is that impacting just the overall sentiment dynamics in that market?

[Anne Noonan, executive]

So overall, to your point, I would say cement pricing for us as we anticipated would be -- is noisy this year. So to your point on our inland markets. So our river markets definitely drove that 7.3% organic pricing growth with the northern markets having very strong price realization for the traditional legacy Summit markets.

Now if you go then into your question on Houston. So a reminder that Houston for us is mainly an import market for cement as part of the Argos USA deal. And there, it's a small part of our business, but because of the weather pricing has been pushed out into the year. So our pricing will be delayed in Houston. Again, it's a small part of our business, but that because of the weather will be the case.

Now the third bucket I'd point you to is our legacy Argos assets there, it's more customer market by market. Pricing adjustments to try and get them back where they need to be from a value pricing perspective, and we continue to gain momentum. So overall, on the year, where I would guide everyone is on a full year basis, look at our price ending at like the mid-150s for the whole enterprise. And continuing to have that mid-single-digit growth on a full year basis year-over-year.

[Operator]

Our next question comes from Philip Ng with Jefferies.

[Philip Ng, analyst]

Congrats on a really strong quarter in a choppy environment. I guess, a question for Scott. Your back half guidance, I think if I heard you correctly, the full year both for Aggregates and Cement down low to mid-single digits. So it actually sounds like things pick up pretty nicely in the back half. So what I was trying to get a better handle of how to think about volume declines or increases, I guess, perhaps 3Q versus fourth quarter? And have you baked in this latest storm that's hitting the Southeast just because your competitor is assuming a much more cautious outlook on demand. So I just want to make sure it's properly calibrated. And then have you incorporated any perhaps elevated cost that you saw in 2Q from some of the wet weather, is that kind of spilling over in 3Q?

[Scott Anderson, executive]

Yes, Philip, let me start with -- just on the volume profile. When you think about the back half, we do have some pent-up demand with weather. And we have really strong backlogs. Anne has already touched on that. So when we look at the back half, we do see a little bit of an uptick in Aggs. In Q3, we've got that forecasted in. Some of that may push into Q4, but we'd really not heavily reliant on volumes, but definitely a slight step-up.

And if you look over our comparable from the prior year, in Q3, it was down 7.3% last year. So the comp gets a little bit easier on the prior year. So we definitely do believe it's achievable. We've got to get out of this weather pattern. But Philip, we definitely see Aggs coming on.

Now Cement on the other side, Anne talked about our Southeast and our Mid-Atlantic markets are actually, we do have good demand conditions there. So likewise, there we see that, that path, we don't need much growth there to get to that low-single digits on the growth side.

[Philip Ng, analyst]

What about the cost [indiscernible] to moderate in 3Q versus 2Q with some of the volume headwinds you saw in 2Q?

[Scott Anderson, executive]

Yes. So Philip, on the cost, let me categorize it like this. Really, we got three buckets on cost. And the first one is outright favorable, and that's our energy cost. Diesel fuel, we're hedged in a really good position. It's worked well for us this year. We've already dropped about $5 million savings to the bottom line. We will continue to do that through the back half as we're 55% hedged through the back half. So we have savings on the energy side as well as natural gas that will flow through to the kilns that we'll have savings as well on. We're 25% on hedged on natural gas. So energy is going to be favorable.

I would say the second bucket is your moderating cost. This is your R&M and subcontractor cost that we're seeing moderate throughout the year. So that front half was heavier weighted on inflation. You'll see that ease off this back half.

And then the third bucket are your sticky cost, and that's labor. For us, labor is still tight. I know you're hearing a lot in the market about labor, but it's still tight for us. That's probably our most sticky bucket. But we do see that coming off as we go through the latter part of the year. So we're still good with our range of that mid-single digits on the cost side, more front-weighted, less in the back half.

[Anne Noonan, executive]

The only thing I'd add to that, Phil, is that we are adjusting our discretionary spend according to our volume. So our team I've been incredibly impressed by the execution they've had as volumes have been challenging that they quickly adapt to adjusting discretionary spend as we called out in our prepared comments as well.

[Operator]

Our next question comes from Brent Thielman with D.A. Davidson.

[Brent Thielman, analyst]

Anne, Scott, just the revision in G&A expectations for this year, does that potentially mean any sort of deferral in certain costs that ultimately need to be realized beyond this year? Is this sort of a structural reset or run rate we can think about as we go into 2025?

[Anne Noonan, executive]

Yes. I'll just start on, Scott, if you want to add anything to it. No, there's no deferrals, number one. This is purely -- as we come into the integration, Brent, we took a very do-no-harm approach as you should, in an integration and we didn't cut SG&A heavily at the beginning. We wanted to understand what we had from a people talent perspective. And what markets we were truly serving and what we needed to serve those markets. And so we were able to quickly adapt and look at what our SG&A run rate was. So as we got into this second half, we said, okay, we're now at that point where we're at a run rate and we can continue to bring our SG&A down in many of our discretionary spend buckets. So it's really the way I would couch it for you is more just the synergies coming in a little faster on the scale side. That's the way I would couch it for you. And we're getting down to that run rate that we have targeted on SG&A overall that should come with the company our size.

[Scott Anderson, executive]

Yes. The only thing I would add, Brent, just on percentages that Anne is talking about, we were a touch over 8%. Now we're -- this quarter 7.8%. So we're trending down. We're going to attack those scale synergies.

[Operator]

Our next question comes from Timna Tanners with Wolfe Research.

[Timna Tanners, analyst]

I wanted to follow up on the cement pricing question. We are kind of hearing that cement volumes broadly looking a little softer this year and yet cement prices holding up really nicely. So I just want to get a little bit more color on what you're seeing in the terms of the pricing power in cement more broadly if all the players are being more disciplined. And I didn't hear the answer on the question earlier on imports. So if you wouldn't mind talking about any import threat? Or do you think imports come down with any weakness in domestic demand?

[Anne Noonan, executive]

So let me talk a little bit about pricing power, first of all. So as we said, just to reiterate, we're very confident in our mid-single digits as we go throughout the year. And all our conversations have been constructive with our customers to pass this price through the supply chain and get everything back to where it should be going into 2025, and we believe long-term supply-demand dynamics will support pricing power at Summit.

But just to give you a few stats around that. If you look back over the last -- we talk a lot about Aggs pricing power, but I think Cement is under-realized sometimes, Timna, because if you look over the last 75 years, Aggs pricing has increased over 70% of the time by mid-single digit by 6% on average. And the other 30% of the time it only went down 2%. So you take the structural and historic support, there really is support for Cement at mid-single-digit pricing moving forward. On top of that, I believe that the cyclicality has been overstated on cement when you consider the supply/demand dynamics, it being a net importer in the U.S. there's really a good case for persistent cement pricing power moving forward. And you're seeing that in the numbers that we're presenting here today. And that was part of our thesis as we invested in Argos.

To your question on imports, we are not heavily import exposed, obviously, we're seeing it in Houston. With the weather and the Aggs imports we're seeing more -- it's really more weather there, Timna, is the way I would call it out at this point that's pushing pricing back. We are not heavily import exposed to everywhere, so we're not seeing a great impact of imports on our business.

[Operator]

Our next question comes from Jerry Revich with Goldman Sachs.

[Jerry Revich, analyst]

I wanted to ask on Argos. So historically, they've had some longer-term contractual agreements. Can you just update us on what impact those agreements had on pricing in the quarter, I'm assuming it was a headwind. And what's the timing of when those agreements roll off if they are indeed still in place?

[Anne Noonan, executive]

Well, they're a bit of a mixed bag. As we said, it's going to be noisy, Jerry, on cement pricing. Some have rolled off and we've gotten the pricing up to market pricing. Others were in discussions as we go throughout. And I think we called out 12 to 18 months as the bulk of those contracts that will come up for repricing. That's all contained in our mid-single-digit price increase the year in that mid-150s that I spoke to that we'll get by the end of the year. Now some -- there'll be more in 2025. And I honestly believe the supply/demand dynamics are going to be more constructive in 2025 that will drive that pricing even higher. So you should expect mid-single-digit plus pricing as we go forward.

[Jerry Revich, analyst]

Well, the reason for the question, you're -- as good as the results have been, you're actually still under earning relative to market-based pricing just based on what you've inherited. So I'm wondering if we just mark to market today, and we didn't have these contracts will we be talking about pricing that was another Argos $5 higher, $10 higher? Can you just help us give an appreciation of how much we're underearning because of that construct?

[Anne Noonan, executive]

Well, we talked about when we first came out that there was about $10 to $15 a ton under pricing. So that's why we increased, if you recall, Jerry, the commercial synergies in our $130 million bucket. We brought that up to like I believe $10 million to $20 million as the targets go after at that point. So we're still going after that target. So that's kind of the price you should think of over the next 12 to, say, 24 months that we'll catch up on that and continue to drive from there.

[Operator]

Our next question comes from Keith Hughes with Truist Securities.

[Keith Hughes, analyst]

Can you give us any detail on the future synergy -- the pacing of the future synergies? Will it be consistent? Or will it be kind of buckets based on as you work on projects?

[Anne Noonan, executive]

Scott, would you like to address that one?

[Scott Anderson, executive]

Yes. Sure. Keith, when you look at synergies, we've already kind of talked about the progress we've made this year. But when you look at the grand total of $130 million what we committed to was $40 million this year, but we actually committed to $80 million over 2 years. So we have another $40 million planned for next year at this point in time. And really, what's happening is we got our scale synergies out of the gate, those will lessen over time on the scale side as we shift more to the Cement.

As you recall, the Cement is really the lion's share of the synergies here. And what you're going to see is that OEE is the primary mover. And what you'll see there is -- our plans that we're putting in place right now around preventive maintenance and just the access to critical spares. And then you're going to see the capital improvement projects start compounding. So you're going to see those really start growing in the months to come, and that's what I see next year as being a big mover.

[Keith Hughes, analyst]

But again, it's $40 million next year, is that correct?

[Scott Anderson, executive]

That's -- yes.

[Anne Noonan, executive]

Said we do $80 million within 2 years and over [ $150 million ].

[Keith Hughes, analyst]

I guess my question, particularly given what you're talking about on the [ PP&E ]. It seems like that would be lumpy. Is that fair and particularly in the off-season, it's a better time to do that. Is that the right way to look at it? Or it will be more consistent?

[Scott Anderson, executive]

I mean there's no doubt there's going to be some lumpiness to it. Over time, though, you'll see these projects dropping dollars to the bottom line. And we'll get to the extra $40 million next year. But yes, you're right. I mean, we've got to plan the CapEx projects during the shutdowns. So there are some timing elements that we got to work around. But definitely, on the longer term, you'll see the $80 million over the 2 years.

[Anne Noonan, executive]

Yes. The Green America is what you're talking about in lumpiness, just to be specific, Keith. That's where we'd be putting the capital in. We have to do that when we shut down because our plants are running flat out. So that will drive the lumpiness. But you'll be at a good run rate of $40 million per year coming out of this year and then $80 million within the first 2 because the scale synergies continue on, and we continue with the commercial excellence and then you get into the Green America as the last big lump into the Cement synergies.

[Operator]

Our final question for today comes from David MacGregor with Longbow Research.

[Joseph Nolan, analyst]

This is Joe Nolan on for David. I was just hoping, within your Aggregates volume outlook, can you just update us on what's embedded within that for residential, non-res in infrastructure?

[Anne Noonan, executive]

Yes. So Aggregates, we called down low to mid-single digit down on the year. And if I just talk to the end markets, I would actually put it residential, we're looking flat to down overall. And think about -- the way we're looking at our residential markets, they're a little more hesitant. And what I mean by that, the higher for longer interest rate, the fact there's a lock-in effect, there's a presidential election and jobs reports are keeping people hesitant from going out and buying houses. That being said, we have pent-up demand in all 3 of our very strong end markets of Houston, Phoenix and Salt Lake City. Houston. We have very strong backlogs right now. Phoenix has come back slowly. Salt Lake might be more '25 recovery than a '24. So we're not counting a lot of Aggs in for there. But it's worth waiting on because that's one of our highest margin residential markets. So that will come back. It's not a matter of if, it's a matter of when.

And then on public markets, we're assuming continued strength in our public markets. Our North Texas markets are up double digits. We've got some timing issues on some of our other public markets, but think about it as continued strong growth. In public overall, our state DOTs are up 3% already. They'll probably be up more than that by the time they finish their estimates. Our contract highway and paving awards were up 6.3%, which is over 7 points above the national average, and we're seeing it in our backlog. Specific to Aggs, if you look at our backlog right now, Joe, we are up 10 million tons per year over 70%. Our backlogs are up at 40% of those go into public markets. So real strength in public.

And as I said in my prepared comments, the nonresidential is where you've got a mixed bag. So you've got positives on your manufacturing, your energy verticals and data centers, which we're seeing some nice growth there. But then against that is the commercial weakness that I called out in Salt Lake City, Phoenix and British Columbia. So that's really what's driving that Aggs volume recommendation overall.

[Operator]

All right. I'm going to turn it back over to Anne Noonan, Summit's CEO, for closing remarks.

[Anne Noonan, executive]

Thank you for joining today's call, and I'll leave you with three final messages. First, our team and our business has demonstrated high-quality execution in a dynamic backdrop continuing a strong record of meeting or beating the expectations we've set externally.

Two, we are supremely confident that the levers within our control can and will drive strong margin and EBITDA growth this year.

And three, our capital allocation approach and strategic goals to continually strengthen our materials led portfolio as a chief priority and one that we know will promote superior long-term shareholder value.

We thank you for your time today. We appreciate your continued support of Summit Materials, and we hope you all have a great day.