Producers, manufacturers reflect on 2017

By |  April 28, 2018

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


P&Q: Producers: Tell us about your construction materials sales in 2017 and how they compared with the previous year? What factors or developments contributed to the demand of your products in 2017? Manufacturers: Share your observations of the 2017 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?

Garrison

John Garrison (Superior Industries): It feels like the market has turned around with producers and manufacturers. I’d say things are very bright from a manufacturer’s point of view.

We’ve got a strong backlog. There seems to be a lot of demand for equipment. 2017 was a good year, and 2018 is already kicking off to be a very good year. I would say there are pockets of the market that are doing very well, and there are spotty areas where demand is kind of weak. But there are some really strong parts for frac sand. There’s been big demand for frac sand in the Texas market and Wisconsin area.

One thing we’ve seen that has been really exciting is a lot of new turnkey plants going in versus just capital equipment.

Paul Ross (Douglas Manufacturing): What we saw in June of last year was our sales increased, and they basically they never slowed down. We normally see a seasonal adjustment from November to December, and they haven’t slowed down since.

Overall demand is up significantly with demand in the aggregate market slightly behind other types. We anticipate 2018 to be a fantastic year.

Alexander

Scott Alexander (ACG Materials): We did have a fantastic year at our operations. We’re scattered [across the U.S.]. Even some mild markets – Oklahoma, Nevada and Washington – those states combined delivered us an excellent year.

We put our budget together with an increase in 2018. We finished January well ahead of budget. So we’re optimistic about 2018.

Probably the largest cloud over the whole business sector is what’s going to happen with the president and him getting any type of support. Because it seems like the divisiveness is keeping anything from really happening and getting a lot of momentum going forward. We’ve been fortunate to still see big construction work [and] road projects going on, but we think there’s a lot of opportunity for significantly more work if we could get some cooperation.

Alton Hudson (Trimble): I come from a little different angle. We see the industry as improving from the technology perspective. More producers are beginning to automate their operations and that’s where we fill that spot.

We had a good year in 2017 in that we’re seeing a lot of producers or people in my industry with equipment that communicates and sends data to the cloud. And so that’s pretty much where we fit in that void. We hope 2018 continues to see growth and that producers are more optimistic.

Duff

Ross Duff (Duff Quarry): We’re primarily dealing with limestone, sand and gravel, and ready-mixed concrete. We’re in a heavy-manufacturing area. Our manufacturing or commercial was red hot in 2017, and our residential was still pretty soft. Toward the end of 2017 it started to pick up. And then in just the last couple of months it’s back with a vengeance. We forecast residential to come roaring back this year in the foreseeable future.

We’re hoping commercial stays the same. The agricultural is up in the air. Right now, commodity prices are not great for the farm. I’m hoping that with tax reform, hopefully with the capital improvements in the farms and the aggregate industry in our area, we’ll be able to capitalize from that. We’re very optimistic.

Pat Jacomet (Ohio Aggregates & Industrial Minerals Association): Anecdotally, we’re projecting about a 10 percent increase from 2016 to 2017. Our official numbers are always a year late. I’m using our dues input as kind of an indicator.

We have plants that are still running. In Ohio when it gets to freezing, we shut down the wet plants. But we’ve still got the dry plants that are running, producing concrete 57s primarily. When you look at that from my point of view, we’ve still got producers out there crushing rock at the end of January. That’s a very positive thing.

Jacomet

We also attribute our success to ODOT’s (Ohio Department of Transportation) stewardship of the tax dollars we do have. They’ve done a good job of consolidating their services and putting more pavement out. So that’s been positive for us.

Also, the oil and gas plays in eastern Ohio have been huge. Pad construction takes hundreds of thousands of tons of aggregate. Right now, the industry is taking a little bit of a breather and we’re putting in pipelines, getting that natural gas to where we need it. That’s taking a lot of aggregate. And then there are infrastructure improvements that go along with moving those pipelines and those people around.

So on 2018, I think I can say from our standpoint that our members are as optimistic as I’ve ever seen them in my tenure with the Ohio Aggregates & Industrial Minerals Association.

Gary Hirsch (Bramco-MPS): Historically, we were very strong in coal. Really, we have changed around that focus into the aggregate industry, which created the Bramco-MPS side of the company. Typically we see some seasonality, but we just didn’t notice that at all in 2017. And we’re starting out strong again.

January historically is pretty slow for us. And even without coal, which was a big part of it, we were on top of where we were when we had coal by making that focus change.

Alexander Kanaris (Van der Graaf): We’re manufacturing power transmission equipment, basically conveyor drives for belt conveyors. We’re incorporating all the components inside the rubber and you have drum components. This is our main product.

We expanded about 25 years ago to cover the aggregate industry with lots of drives and with safety and efficiency. In the last eight years, although we were very strong in coal and aggregate, we lost approximately 60 percent of our coverage in the market. So it’s good that we have other industries to fall back on.

But what we saw beginning in February 2017 up to December 2017 was a 38 percent increase on our product over what we produced last year – specifically due to the demand in the aggregate industry. So we’re very optimistic.

We’re investing more money because of the optimism that exists, and we see interest. We are very comfortable this is going to increase. So therefore we invested for more capacity for production equipment to service the industry.
Although Van der Graaf is primarily a Canadian corporation, now we’re building plants in the United States and we’re moving production to the United States. We want to make our product a U.S. product, made in the USA.

Williford

Brian Hollrah (Alleyton Resource): We had a pretty challenging but encouraging year with Hurricane Harvey in August-September. I’m sure everybody is aware of the complete devastation. That was challenging between Harvey and the oil and gas prices the last couple of years but encouraging because we still have a significant influx into Houston – about 50,000 people moving there annually. That is really helping out our housing industry. We had about 36,000 new, single-family permits for the year (2017). I think that’s expected to go to about 41,000 this year.

The economy stayed fairly strong the last couple of years. With all the influx we’re having, whether it be Amazon or FedEx distribution centers – which really helped out – and then also going into [this] year, I was looking forward to potential Harvey rebuild that could help us out. We’ll see what happens.

Hal Williford (Memphis Stone & Gravel): We’re a small, regional producer of sand and gravel, and we have a sister company in the asphalt business. We saw 10 percent growth last year. Of course due to 2007-08, we got a lot leaner and meaner, so things are a lot better due to the 10 percent growth.

We passed a fuel tax increase in Tennessee, so we’re hoping to see some improvement there. We’re thinking this year is going to be about a 5 percent, maybe a 10 percent increase from 2017. I’ll take 2017 again personally.

Moore

We were seeing the majority of the growth in the last two to three years from the commercial sector. We’re starting to see a little bit from residential in 2017. Hopefully we’ll have that in 2018, too.

We’ve got a lot of trucking firms and small companies and FedEx, so it does help with the growth. If FedEx was to move then I think production would definitely hit the brakes.

Dave Ciszczon (Polydeck): We had a record year in aggregates, but I actually thought it would be more. The growth is spotty across the country, and I think it’s going to be a little more consistent with the new tax law that passed. I think there are some depreciation advantages to buying more equipment now. I kind of think there’s an avalanche coming, meaning there’s going to be some serious growth in our industry, especially if they can get something passed on infrastructure.

Don Moore (Craft Bearing Co.): We’re very optimistic. We’re seeing an increase in business and its because of the aggregate industry – our bearings are well suited for that.

Justin Mellott (Mellott Company): What we witnessed in 2017 is very similar to what all of you have actually seen as well. Good growth.

Mellott

We hit our projections, but if you look at the USGS (U.S. Geological Survey) statistics you can see since the [2016] election that production has been down or stagnant for the last six quarters.

Honestly, for how well we did it was kind of surprising to see that kind of [aggregate] production.

Dan Johnson (Anderson Columbia): We operate in the Southeast and Texas, and our volumes are actually off a little bit – mostly due to the storms. Absent that, we would have been up low to mid single digits.

We see both kind of a supply perspective and a demand perspective for the aggregates in the construction materials. We’re very optimistic going forward. I was just on a conference call a couple of weeks ago and they had people from California, Iowa – all over the country – they were trying to gauge the level of optimism or how people felt about the economy, and I think it averaged. The lowest number I heard was a seven. I dialed in a little late, but I would tell you, we’re probably a nine in our markets.

Johnson

Florida hasn’t done anything individually as a state, but Georgia passed a nickel-a-gallon gas tax in the middle of 2016, and we’re still not seeing the effects of that. They’ve got some legislative issues. They’ve got some issues where they have to have the money in hand before they start projects, but we’re looking for a really strong second half of 2018 in the state of Georgia.

South Carolina passed a two-cent-a-gallon gas tax each year for the next six years. So they’re kind of phasing it in, which I think is a good idea, because they’re just ramping it up, and things are going strong in South Carolina. Florida’s been spending $10 million a year on infrastructure every year.

Texas just went through a period where they lagged. They took that one-time slice of the oil and gas revenues, and then they passed a new [measure] to fund their state infrastructure efforts. And when I was out there a couple of months ago everybody was saying the state of Texas had more money than jobs. They’ve got quite a bit of visibility going forward.

What you’re seeing now is $200 million to $300 million, maybe $400 million a month in lettings, but come September, they’re going to be putting out $1 billion a month in lettings. But when the lettings come out, by the time the bids get done and winter comes a lot of that money probably won’t hit until next year.

Photo courtesy of Luck Stone

Although aggregate production was slightly down in 2017 based on USGS statistics, the industry at-large feels very good about last year’s performance and the potential for 2018. Photo courtesy of Luck Stone

I think the second half of 2018 will be a little stronger in Texas, but next year looks like gangbusters. I went to a presentation, and it really kind of put things in perspective for Florida and Texas. There are 1,000 people a day moving into Florida and 1,000 people a day moving into Texas. That’s equivalent to a Cincinnati or a Pittsburgh – some good-sized American cities every year.

In Florida, there’s 18 million people, so 350,000 is kind of incremental, but you think about a Cincinnati or a Pittsburgh and the schools, the universities, the government buildings, the public buildings, the parking garages, the commercial space, the retail space, all the residential space, condos, apartments. I mean, that’s what has to be built every year in the state of Florida and state of Texas.

We’re not the only ones benefiting. There are a lot of producers working in the state of Texas. There are a lot of producers working in the state of Florida, the states with no state income tax and low regulatory burdens, and I think a lot of people are fleeing. I think growth is strong in other states like Arizona and Nevada. Growth is coming. People are fleeing California and people are fleeing New York.

Jones

I’m not sure when that stops or how it stops, and I know interest rates are going up, and that’s always a damper on growth. But we’re really optimistic in our markets in the Southeast and Texas. Things haven’t really shown that much improvement to date, but things are really going to improve. When the federal government comes through with an infrastructure plan, I think it’s probably going to benefit those states disproportionately.

David Jones (McDonald Group): We’ve got three quarries in central Florida. We’re very optimistic about Florida with $10 million in a budget, and about half of that goes to either new construction, capacity, resurfacing. The rest of it is mass transit and those kinds of things. Normally, it’s somewhere in the average of about $3 billion a year for those kinds of improvements, and a lot of that’s got to do with one big job in central Florida right through the gut of Orlando.

So we haven’t seen much improvement in the budgets over a long period of time, except for just a pocket here and there. But we’re very optimistic.

We’re spending money on capital. We spent quite a bit of money on capital last year. We’re going to do the same thing this year.

Johnson: It just seems like all these markets are going strong in most of the states that I’m familiar with. But the infrastructure piece of it is so much more aggregate intensive, so much more construction materials intensive.

Reddin

As a heavy civil road builder, we just recently sold a cement mill and all the ready-mix operations to focus more tightly on asphalt and road building, which, in our experience, is asphalt. Ninety to 95 percent of all the land miles in the U.S. are paved with asphalt, and so it’s much more recession resistant. I think what we saw through this last downturn was all the cement producers and ready-mix producers really took a beating. That was the side of our business that took a beating. The cement mill would run a month and close down for two months, and the paving division just kept going and going. It scaled back some, but it kept going. So we’re kind of refocused on that.

But if the administration is putting together an infrastructure bill, it bodes very well for the aggregate and the sand and gravel producers, and, certainly, for the heavy civil, for the ready-mixed concrete, all the cement companies, everything else.

George Reddin (FMI Capital Advisors): I’ll give a perspective from the public companies in the sector. The story in 2017 aside from weather-related issues was volume is modest and revenue is a little bit better. They got some pricing, but profitability was significantly improving.

Lepp

So as we have gradually recovered in this recession, we’re getting to more optimal positions in our plants and we are starting to see the operating level. So I don’t think there was tremendous excitement about units. I think there was reasonable excitement about the pricing, but profitability of the industry did very well last year.

Matt Lepp (Van der Graaf): Last year we saw a definite increase in sales numbers, not just in mining and aggregate but across the industry.

Years ago during the recession, there was a bit of a mentality to make something work as opposed to a long-term solution. The last year to year and a half, we’ve seen a shift more toward producers looking for long-term solutions.

I’ll give you an example. We had great success last year with permitting slab stone. We have a customer that has a couple of plants in northern Michigan where they’re using conveyor drives that are about 80 years old. Four, five or six years ago the mentality was to put in a new motor. Last year, we worked with them on a fairly long project upgrading a lot of their drives and new technology where they looked at us. They looked at conventional drive systems, and I think they’re really putting trust in the technology a lot more these days.

McLaren

Paul McLaren (Kleemann): I can mirror what Matt said. If you compare 2017 with 2016, we saw a definite increase. The majority of that we saw going into the contractor market, not so much the quarries and mines with our equipment. But we see that’s starting to turn now. We’re getting more equipment going into the big producers. There was a definite uptick in 2017, and we see 2018 being a step above that again. We’re gearing up for a big 2018.

The area that I cover is Texas. You get out into West Texas and the oilfield businesses and they want it tomorrow. They don’t want to wait two months, three months. So you better make sure you have equipment available. Otherwise, [business] is going to be going somewhere else.

Availability of equipment is definitely a big thing, and producing that and forecasting that so you have it on the ground is always quite challenging when you see an uptick in the market like that.

Oliver Nobels (Schurco Slurry): I can agree with Paul there on the West Texas side. I’m relatively new to the industry, but what I’ve seen is all those frac sand claims for us – it’s ramped up our business, our pump sales massively, and we’re hoping it’s going to continue in 2018. But we see that happening just with the amount of plants they’re planning on building, and it’s been very beneficial for our company as far as sales.
I know Dan mentioned earlier about Texas infrastructure and trying to ramp it up. We’re seeing that. We’re a very small part of that, but it’s helping us as a company tremendously. I hope that continues.

Gray

Jeff Gray (Telsmith): Being that Telsmith is a 110-year-old company, the parts business is a big part of our total revenue. One of the things we monitor is the number of sales in excess of $50,000. It’s an indicator of the rebuild market. And a very distinct difference from 2016 to 2017 was a pretty big drop in the percentage of those orders.

So, to me, that tells us that there’s some long-term vision and confidence in the future of our business. And we expect – and probably most of the equipment manufacturers here – the opportunity for double-digit revenue is pretty strong for the next three to four years.

That’s a big indicator for us. We see a shift toward buying new equipment versus rebuild. I guess from 2010 through, probably, 2015 we saw some rebuild that didn’t make financial sense. In some cases they were with public companies, but they were spending in the 7 percent of the cost of a new piece of equipment [range] on a rebuild just because of budget constraints.

REDDIN: You may recall at this Roundtable in January 2016 that we just had the federal highway bill passed in December 2015. We had really gone since the fall of 2009 without realizing that.

We saw uncertainty. Residential was down – no highway build, the industry is down, lots of excess capacity, lots of excess equipment. People ran through that, extended their R&M (repair and maintenance) budgets and rebuilds that we talked about.

The federal highway bill was significant psychologically for people making capital expenditure decisions, and that took a little bit of time to get rolling. It hit, I think, for most of the big companies in late 2016, coming into 2017. Now, we’ve had some bits and starts with the infrastructure bill. Though, I would imagine, once we see visibility on the infrastructure bill, that again produces some uncertainty. It’s going to give the people the ability to go long-term.

Karen Hubacz-Kiley (Bond Construction Corp.): We’re a small, fourth-generation family producer in central Massachusetts. 2017 was the best year we’ve ever had. Profitability, to expound on that, George – a lot of that was the flat fuel pricing, the flat asphalt price, and the consumer confidence, I think, that that brought to everybody. You didn’t have those big swings where people were afraid to bid too far in advance, not being able to cover expenses and costs.

Charlie Baker is our governor. He is looking to do $200 million in Chapter 90 infrastructure for this year, which is huge for us.

Jarrod Felton (Superior Industries): Manufacturers have had to look at forecasting demand for construction aggregates. We anticipated it being higher in 2017 for several years. That came. That was as expected.

Sales were good in that category, but there was this very wishy-washy prediction for frac sand that came out of left field. Some folks were predicting it to be down and it was actually quite a bit up. So lead times for manufacturers that weren’t able to respond by bringing on more capacity or expanding their operations would affect the construction industry drastically last year. Maybe it will have a bearing on a 2018 discussion, too.

There’s a lot of equipment going into frac sand, and it’s the same type of equipment that we’re using for construction aggregate material.

Photos: Jeff Gray, Paul McLaren, Matt Lepp, George Reddin, David Jones, Dan Johnson, Justin Melott, Don Moore, Hal Williford, Pat Jacomet, Ross Duff, Scott Alexander and John Garrison

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