Great expectations for the year to come

The following transcripts were edited from two concurrent discussions at this year’s Pit & Quarry Roundtable & Conference.

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P&Q: Producers: Tell us about your construction materials sales in 2018 and how they compared with the previous year. What factors or developments contributed to the demand of your products in 2018? Equipment suppliers: Share your observations of the 2018 construction materials market, and tell us about your equipment sales to the market in the last year. Did your sales to the aggregate industry meet or exceed your expectations? Additionally, what are your sales expectations for 2019 and beyond? Tell us about the dynamics at play in your state or region that will drive or hinder demand. Do you expect a drastic shift in demand compared with 2018, or a continuation of last year’s demand? Equipment suppliers: What are your expectations in terms of aggregate production for 2019, and how are you forecasting equipment sales to the aggregate industry to be?

Stewart Petrovits (Route 82 Sand & Gravel): 2018 was a good year. It was actually a little down from 2017, which was a phenomenal year. For 2019, we’ve talked to our customers, who are mostly ready-mixed [concrete] guys. They’re telling us they’ll be off probably 20 percent. But we’ve had some exceptionally large, once-in-a-lifetime jobs occurring simultaneously in our market. So, off 20 percent probably puts us right where we’re actually most comfortable.

Price wise, we’ve done well on some products. We’ve had to discount other products, though. It’s been a strange environment to work in the past few years. It’s starting to transition. For six or seven years, construction was more of a maintenance-based thing. There weren’t a lot of new construction projects going on that were taking large volumes of aggregate.

In 2018, we saw 40 or 50 percent increases on certain stone products that we just couldn’t give away in years past. I expect to be able to raise some of those discounted prices a little bit going forward.

On 2020, we feel fairly comfortable. There are some good long-term projects out there – three-to six-year projects that are funded.

Kevin Cadwalader (REMco): The strength of the Trump economy is good for business. I don’t think our industry or our business was any exception. We saw an increase in unit sales. We also saw a difference in what the producer was buying.

In years past, it was sort of ‘what’s the cheapest way I can make it happen and get it finished.’ Now, [customers] are going for more of the value-added options and automation, rather than just trying to keep the costs down.

2018 was our best year ever, and we’ve been around since 1983.

Ross Duff (Duff Quarry): We’re located in west central Ohio. As far as 2017 goes, it was a record year. We didn’t crush any records, but it was a record. Looking at closing out ‘18, it was exponentially more – another record year. And going into 2019, we were still crushing up to a couple days ago (in mid-January). For west central Ohio, that’s unheard of.

We’re anticipating demand that’s going to be absolutely fantastic for 2019. We’re seeing that driven a lot from heavy manufacturing.

Frank Suarez (Vulcan Materials): I’m based here in Miami. In 2017, it was a very unique weather year for Florida. We had one of the first hurricanes in 40 years I can remember that went from south to north, affecting the whole state. September (2017) was almost washed out for the entire state.

With that, 2018 had an extra push. The beaches eroded, so we had a little artificial bump. We captured that in 2018, supplying a lot of beach sand projects.

Residential continues to be strong in Florida. We still have plenty of land. Not having a state income tax favors snowbirds, who keep coming down to Florida. Plus, there’s the foreign money coming in from South America and Europe.

Our challenge in 2019 and 2020 is going to be that inventory is starting to build up for commercial projects, as well as residential and multi-family. On the flip side, our DOT (Department of Transportation) is very strong here, operating with a $9 billion to $10 billion operating budget.

We toll everything. And because our economy is driven by tourism – beaches, Mickey Mouse – we hit all of those tourists with tolls left and right.

Alex Kanaris (Van der Graaf): We manufacture drum motors for belt conveyors. 2017 was a very good year for us, and 2018 gave us the largest sales volume we ever had in the aggregate industry. I’m not sure if that had to do a lot with the demands of the product or if it had to do a lot with safety, because the products we manufacture address safety and reliability. We expect 2019 to be even higher than 2018.

Lee Heffley (Brandeis Machinery): We’re a distributor of mobile equipment in Kentucky and Indiana, with Komatsu being one of our leading brands. We saw significant growth, more than we anticipated in the market in 2018. We saw a lot of equipment shortages and demand for machines.

Karen Hubacz-Kiley (Bond Construction Corp.): We’re a sand, gravel and asphalt producer located in central Massachusetts. 2018 was a phenomenal year for us regarding aggregate and sales. It was terrible for asphalt. In New England, a lot of things are weather-driven. With the volume of rain we got, it was not conducive to run asphalt.

Looking to 2019, in our area, a lot of the growth was always toward Boston. We’re about 50 miles west. Now, there’s substantial growth in our area, especially in new home builds. A lot of people are deciding to drive into the city and do an hour-long commute or so each way. It’s much cheaper to live out near us.

Mike Newton (Fisher Sand & Gravel): We work out in 11 western states. We’re based out of Dickinson, North Dakota, and I work out of Glendive, Montana.

In 2017, we saw a downturn in the oil industry, which affected us in a huge way. 2017 wasn’t a good year. 2018 was a little better. We look forward to 2019 being a good year. Our owner, Tommy Fisher, says things are looking up. They’re looking better in the Southwest. We look forward to building the wall.

Dana Boyd (NALC): We’re based west of Indianapolis. In Indiana, we’re very much in the black for highway funding, but we just can’t get the projects out. Counties have a lot of money in their coughers to, more or less, spend. But they really don’t know how to apply that.

There’s been kind of a slow growth area in highway construction. Construction is picking up. A lot of counties and municipalities have diversified into doing some of their own laydown work, but they don’t have the expertise to deal with that. We’re all fighting for labor. That’s our biggest issue.

The other thing is lead times right now on equipment and services are staggering. We built my last plant in six months. Now, before we can even talk about equipment, we’re looking at nine months to a year out in large applications.

Still, we’re very, very optimistic. This last year for us was a record volume year.

Alan Maio (Cemex): Generally, 2018 brought pretty nice growth year over year. We expect 2019 to be a strong year. Beyond that is a question mark to us. Is 2020 the end of the bull run? Everybody talks about that.

Also, inflation is a concern. Costs are extremely difficult across the board. I run California and Nevada, but across the country we see high cost increases. I’ve got a larger capital project in California. We’re getting quotes for fab work or erection work, and they’re double what they should be because people are busy. They don’t need the work. And if they’re going to take the work, they’re going to get paid for it.

Dave Ciszczon (Polydeck): We’re in Spartanburg, South Carolina. Business was strong in 2018. We expect it to grow even more in 2019. But imagine the impact if we get a $1 trillion to $1.5 trillion infrastructure bill.

Don Moore (Craft Bearing Co.): We’ve had a very good year, and it’s the result of the aggregate business being good. The more machines are used, the more they need to be repaired properly. In the last two months (as of January 2019), we’ve sold far more than ever before. We have [equipment] in stock, and people appreciate that we provide the technical assistance that is needed.

Paul Ross (Douglas Manufacturing Co.): 2017 was a record year for us, and 2018 eclipsed that. Most of that was due to the aggregate industry.

Preparing for the increased demand – increasing inventories and buying equipment – kind of paid off before the crush hit our market. Machine equipment is harder to get because it has longer lead times, just like crushers.

We are looking forward to a very good 2019. Beyond that, it’s a little more questionable. I think a lot of different things could happen late 2019 to early 2020.

Mary Erholtz (Superior Industries): 2017 was great, 2018 was better and we have strong bookings going into 2019. Recruiting and retaining people is growing increasingly difficult. We have some technical programs that are local, so we partner up for welders and assemblers. That’s worked fairly well. We also have the high schools. They all have weld programs, so we’ll try to provide welders and do competitions and that sort of thing to keep them interested.

Kevin Hambrice (Syntron Material Handling): We’ve had phenomenal growth the last 36 months. We have spent millions of dollars in our factory. We’re highly automated.

When we look at this younger generation, we’ve partnered with community colleges. Many folks don’t want to be machinists or welders. They want to punch a CNC (computer numerical control) machine. When you think about that learning curve versus tradition, it has allowed us to partner with our backyard universities and community colleges, where kids want to come in and do a vocational trade.

We’re a very lean, driven business. We’re a data-driven business. We want to compete with lead times where you can’t get something out. We’ve been able to cut lead times in half in just about every single product line that we manufacture.

Kenneth Rogers (The Shelly Company/CRH): I’m based out of Ohio. We have three divisions: Southern, Northwest and Northeast. I represent the Northeast division. I’m an area manager, overseeing all of our aggregate, sand and gravel, and limestone operations.

2017 was a good year for us. 2018 also had some strong growth and positive trends. We are a vertically-integrated company, so our internal sales and external sales go hand in hand. Many suppliers for some of our aggregate quarries are internal asphalt sites. For some of our other quarries, more of our sales volumes are from our external customers. So we have a good balance.

When you see internal maybe might be down, then you see trends of our external picking up, or vice versa. That kind of helped us out to have a strong 2018 season. 2019 looks pretty positive, as well.

As far as trends go, we have a considerable amount of backlog that’s going to help us get a good start out to 2019. That’s a good thing to carry us as we start to pick up jobs.

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The following transcript was edited from a concurrent Pit & Quarry Roundtable & Conference discussion.

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Peter Kilmurray (Haver & Boecker): The last three years, we’ve seen some great growth machinery-wise. 2018 was a record year for us. Equipment wise, we are already booked up to the end of May for 2019, so we’ve seen some great growth.

Our sales split sort of 60/40 – 60 percent U.S. and 40 percent Canadian, so it’s been good for us. We are hoping that 2019, according to everybody that I’ve spoken to, is going to be a good year.

Rick Madara (Mclanahan Corp): We saw the same thing, another record year for 2018. We do a lot of work in the frac industry, which experienced an aggregate increase. Every indication is that 2019 will be more of the same. We have backlogs all the way through May of 2019, which is good. We’re doing a lot of work in Canada – there’s a lot going up there, too.

I’m hearing a lot of good things, and I don’t anticipate any slowdown coming anytime soon. I remember sitting here three or four years ago, and it wasn’t the same conversation. Hopefully, we can enjoy this next couple of good years.

Brian Hollrah (Alleyton Resource Company): This is a question to the manufacturers: How are your lead times now if you put in an order at this point?

Madara: We have several fabrication facilities, and they are all at 100 percent capacity. Our subcontractors are at 100 percent capacity, so our lead times have gotten pushed out. We see that trend happening probably through the first quarter of 2019 until we get caught up.

Our suppliers are also backed up, so it kind of backs us up. If something was eight weeks, now it is 10 weeks. If something was 14 weeks, now it’s 16 weeks. So there is definitely a little bit of drag right now. It’s a good problem to have for sure.

Kilmurray: For us, we took a look at our supply chain a lot more closely at the start of last year because we predicted this was going to happen. We’ve got a lot of standard components for our equipment. We have suppliers on the East Coast and West Coast of the U.S. and Canada, and it’s reduced our lead time considerably.

George Reddin (FMI Capital Advisors): Could either one of you comment on the demand side? Do you think it’s a function of the tax law change with the bonus depreciation changes, or are you seeing demand from the producer and their business?

Madara: Personally, I think producers have a lot of pressure on them to get things going as quickly as possible. We live in an Amazon world, and everything is wanted as quickly as possible – and it’s never quick enough.

Producers have a lot of pressure put on them, which puts a lot of pressure on the manufacturers, and this puts a lot of pressure on dealers, too. A lot of it is just from the demand right now of getting things going, and getting the return on investment going as quickly as possible.

It’s a never-ending downhill cycle, because once you start getting busy, it pushes things out. And the producers want things a lot quicker. They are not getting it in when they need it. I don’t see any relief in that anytime soon. We’re going to see that trend in 2019 with people being very busy and full.

John Garrison (Superior Industries): I’d say yes, that probably has helped out some. Similar to everyone else, we had a record year. We could see it in our budget in 2018, and we are booked far out this year. We were able to plan in the fall, and it slowed down a little bit – right at about year end. So we were able to build some inventory to try to help out with the long lead times – not just as manufacturers, but even as dealers.

A lot of dealers were sitting on inventory for years. They would put rental machines back, and in 2018 a lot of our dealers were selling a lot of their inventory and converting a lot of the rentals. That’s also a good indication that it is a healthy market right now.

One of the things we saw in 2018 that grew a lot was turnkey plants. There were a lot more greenfield sites or plant upgrades, so a lot of structural stuff for us. We got a lot of that booked for this year, as well. It’s a good indication that people are expanding operations and planning for long-term growth.

Hal Williford (Memphis Stone & Gravel Co.): We’ve seen very similar sales from 2017 to 2018. We had projected an increase, but due to record rainfall and just some weather, we didn’t hit the projections that we thought we were going to hit. It was still a good year.

Sales were good due to price increases and things of that nature, but our production was actually down from the previous year.

Where we’ve seen a downturn is sales to ready-mix from the housing industry. Commercial seems to have stayed positive, and our projection sales to highway have been pretty flat. I think a lot of that was due to the wet spring and fall.

Warren Hawkridge (Hinkle Contracting Co.): For us, 2018 was similar to 2017 on both sales and production volumes. I think it was negatively impacted by weather. We had record rainfall and, fortunately, we are carrying a bunch of work into 2019. I anticipate 2019 will be better, but 2018 and 2017 were almost dead flat for us.

Dan Goethel (Rogers Group): We saw some significant increases in residential, commercial and several of the metro areas, but from the rural standpoint they were relatively flat. We didn’t have as significant an impact in certain areas that we operate as other areas, weather related, so we kind of balanced it out a little bit.

P&Q: What other negatives came out of 2018, if any? What were some of the things that held you back a bit, or some unexpected speed bumps along the way?

Hollrah: The weather was really tough, but on top of that there was the driver shortage we have in Houston – not just on the aggregate side, but our downstream business with ready-mix really [struggles] trying to keep and retain quality drivers.

The market down there has been good, but to capture that volume you have to have the drivers to deliver.

You still have people moving there. The employment growth is hot. Distribution centers are coming in. You’ve got the Amazon and FedEx distribution centers popping up, the new Costco distribution center, which is great work, but you are also competing for drivers.

Hawkridge: One of the things we had that was a pretty major impact in our year was parts availability. We had a plant go down in August, and we needed two large gearboxes. All of the suppliers were saying eight to 10 weeks. One supplier said six weeks, and we placed the order with them. Three days before it was supposed to ship, they called back and said, ‘It is not going to ship. It is going to be another three weeks.’ That killed us. We had to shift some things around. I don’t think we lost sales, but it certainly impacted our cost.

P&Q: Let’s take a deeper look at 2019. What are your sales expectations for the year and perhaps even beyond?

Williford: Our sister company is in the asphalt paving business, and they’ve got a much larger backlog than they’ve had in the last two or three years. So that’s a positive sign for us in the aggregate industry. We’ve also seen an uptick in the highway work in Tennessee due to the user fee that was passed two years ago. Finally, we are starting to reap the rewards from that. So we are looking for a good year, but hopefully a little bit better than ‘18.

Jason Emch (The Shelly Company/CRH): We are looking at 2019 as kind of cautiously optimistic. The private side and residential seems flat.

The nonresidential seems to be very strong, [but] the concern is on the public side and the highway. If you look at some of the spending projections, they seem to fall off, yet when we are talking to our customers, everybody has a strong backlog.

Hollrah: We are expecting 2019 to be stronger, as well, due to a lot of the same factors. Another factor that we are looking at is all of the Hurricane Harvey relief funds. That took a long time to come into play, and I think there are a lot of infrastructure upgrade projects that were supposed to let already, but with the (early 2019) government shutdown, that’s been pushed a little bit.

Matt Lepp (Van Der Graaf): We are optimistic about 2019, as well. We’ve seen a surge of acceptance in new technology over the last couple of years, which we are expecting to move forward. We’ve also seen a lot of capital projects continue into 2019 and new projects continue to come up, which have given us a fair bit of optimism coming into the next year or so.

Tripp Hammett (Hammett Gravel Co.): My thoughts are pretty much in line with Hal’s: that we are excited about the new year. We’ve had quite a bit of calls about some upcoming projects that we are excited about – commercial and private. Of course, we are also waiting for some highway funding, but outside of that I am generally optimistic.

Goethel: What’s interesting is we are not back at the levels that we were in during 2006 and 2007. We expect to be at or above where we are at for this fiscal year. We are in the process of bidding our plans, as well, and see what our field guys bring to the table. We expect to be at that level or above, but still not to the highs of 10 or 12 years ago.

Garrison: It’s interesting hearing some of the numbers of aggregate growth only being like 5 percent, and some of the projections from the producers. Equipment providers all have very strong backlogs – maybe not back to the 2006 numbers, but I would say we are getting back there. It seems like the demand for equipment is outpacing the growth of aggregate production. Is that just the product of pent-up demand for equipment that needed to be replaced over the last few years, and [producers] are finally getting some capital money to do that? Or, are [producers] looking at long-term investment plans for growth in the years to come?

Reddin: I would say, from my clients’ perspective, when they had a good year in 2017 and expected a good year in 2018, I would not discount the tax law change, which allowed you to bonus depreciate everything. So you had great years where you were a private company, and you are making money, and now you have this ability to shelter taxable income and upgrade your equipment and plants. We saw a lot of people spending a lot of money.

Will that be sustainable is a question. That tax law is going to sunset here in a few years.

Josh Swank (Philippi-Hagenbuch): The first half was very strong for 2018. We saw a slowdown at midyear, but then October came, and especially for the independent producers – the ones that made good money – they couldn’t buy enough before the end of the year. They just blew our doors off in terms of filling that backlog of anything that we could produce the last quarter.

When we look at how it’s going to go this year, it looks to be pretty positive. We are expecting a good year. From a taxation standpoint, we have certainly seen a benefit from the current tax law.