Vulcan, Martin Marietta look ahead

Sentiments about the aggregate industry’s health are largely positive as producers reflect on 2017 and prepare for 2018’s prime production months to come. Here’s how executives at three top aggregate producers were feeling as they turned the corner into the new year.

The view from Vulcan

Tom Hill, Vulcan Materials chairman and CEO, recently offered some thoughts on the company’s 2017 performance and looked ahead to the remainder of 2018 in a conference call with investors.

Hill characterized the pace of public construction activity last year as “frustrating,” as state Departments of Transportation adjust to new and higher levels of funding that’s led to a mix of large projects being delayed. Hill also detailed how Vulcan expected highway and infrastructure shipments to increase by 3 percent in 2017. Instead, they declined by 7 percent.

Still, Hill’s outlook for demand at Vulcan is largely positive.

“Customer confidence strengthened throughout the year and we’ve entered 2018 encouraged of what we’re seeing with ABI, the Dodge Momentum Index, long-term project pipelines and other leading indicators,” Hill says. “These, and other factors, suggest private demand in Vulcan-served markets should continue to grow faster across the nation as a whole.”

According to Hill, the long-term fundamentals for public demand also strengthened over the past year. Public demand is finally beginning to translate into an extended period of growth.

“Our order backlogs related to public infrastructure work have continued to build,” he says. “And importantly, we have recently seen public construction start activity return to year-over-year growth, signaling a better conversion of these backlogs into shipments.

“Now, it is certainly going to take multiple years for public construction activity to ramp up fully to these new higher levels of funding. But for many of our markets, 2018 should represent an inflection point at the front end of several years of sustained growth. Improved visibility reinforces a positive pricing plan,” Hill adds.

In terms of demand, Hill likes what he sees in the Southeast, as well as in Arizona, California and Texas.

“California will benefit significantly from increased public spending, and our reserve base holds tremendous value,” he says. “We are where the growth is, from San Diego to the Bay Area. In L.A. for example, we’ve added additional high-quality reserves in a huge market where reserves are lacking. In the Central Valley, we have permitted a major new quarry north of Fresno that will serve a region of [the] state that is expected to see the fastest growth over the next decade.”

After a tough year, Hill expects Vulcan’s Texas operations to benefit from more normalized weather patterns in Houston and other coastal areas.

“Backlogs of work continue to build as the demand environment keeps improving,” he says. “Public infrastructure began to kick in on top of the healthy private growth we were already seeing in key markets.”

Martin Marietta looks ahead

Like Hill, Martin Marietta’s Ward Nye offered an outlook for the months ahead upon his company releasing its full-year 2017 results earlier this year. Nye, too, is optimistic about the industry’s near-term and long-term outlooks.

According to Nye, the fundamental drivers for Martin Marietta’s expected growth remain intact as the current recovery continues on a steady and extended basis.

“Looking ahead to 2018, the fundamental drivers for broad-based construction activity support our optimism that we will continue to benefit from a steady, multi-year cyclical recovery across our geographic footprint,” says Nye, chairman, president and CEO of Martin Marietta. “Our leading positions in many of the nation’s most attractive and vibrant markets should allow us to capitalize on anticipated increased demand for infrastructure projects and private-sector construction activity in 2018 and beyond.”

This year, Martin Marietta expects infrastructure construction activity to see benefits from funding provided by the FAST Act as state Departments of Transportation and contractors address labor constraints and further regulatory reform emerges.

Additionally, state and local initiatives that support infrastructure funding, including gas tax increases and other ballot initiatives passed over the last 24 months, continue to gain overwhelming voter support and will play an expanded role in public-sector activity.

Third-party forecasts support increased infrastructure spending in 2018, as well, particularly spending for highways and streets, the company adds.

Martin Marietta expects nonresidential construction to modestly increase in both the heavy industrial and commercial sectors for the next several years as supported by third-party forecasts. Also, the company’s management expects new energy-related projects will bid in 2018 with construction activity in 2019 and beyond as permitting and final investment decisions are made and approved.

The company also expects residential construction to continue to grow, particularly in its key markets. Employment gains, historically low levels of construction activity over the previous years, low mortgage rates and higher lot development will drive the growth.

“While employment expansion has led to continued strength in private residential and nonresidential construction, we have yet to see meaningful and consistent growth in public heavy construction activity,” Nye says. “Infrastructure projects have been hindered by project delays and uncertainty concerning regulatory and other related reform.”

Martin Marietta is encouraged by the passing of the Tax Cuts & Jobs Act.

“Passage of this legislation provides positive momentum in Washington, D.C., to address the shortfall in sustainable funding commensurate with the nation’s need for infrastructure investment,” Nye says.

The recent release of President Trump’s $1.5 trillion plan to rebuild the nation’s infrastructure is another sign Martin Marietta welcomes.

“[This] provides additional momentum, increasing the likelihood that both infrastructure funding will be increased and regulatory burdens will be lightened,” Nye says. “While state Departments of Transportation and contractors are slowly addressing their labor constraints, we believe that were an enhanced infrastructure bill enacted, those efforts would be more rapidly addressed.

“However, even in the absence of such an enhanced infrastructure bill, strong customer confidence and improving sentiment lead us to believe that infrastructure activity for 2018 and beyond should benefit from the FAST Act, the 2017 Tax Act and state and local infrastructure initiatives,” Nye adds.

Summit Materials’ take

Summit Materials, another high-profile aggregate-producing company, is also excited about the months ahead.

“Within our public markets, we anticipate the impact of recently passed state funding measures, coupled with continued federal investment in transportation infrastructure through the FAST Act, will help to support ratable increases in road and highway investments,” says Tom Hill, Summit CEO.

“In Texas, a market that represented more than 20 percent of our total revenue last year, the state Department of Transportation has forecasted that infrastructure funding will increase by more than 50 percent between fiscal 2018 and fiscal 2020, an exciting opportunity that stands to benefit our operating companies in the region,” Hill adds.

Like Vulcan and Martin Marietta, Summit sees tax reform legislation as a positive development.

“As a result of this legislation, we estimate that our tax receivable agreement liability has been reduced by approximately 40 percent to $332 million,” says Brian Harris, CFO of Summit Materials.