“The infrastructure market comprised the remaining 47% of second-quarter aggregates shipments. Lower government spending and wet weather contributed to an 8% decline in quarterly volumes to this end use market and a 1.6% overall shipment decline for the Aggregates business. However, given the ongoing recovery of the U.S. economy that is reflected by the current employment growth, we remain optimistic for increased future public-sector construction activity. Similar to the pattern experienced in Texas over the last few years, growth in the residential sector within our company’s geographic areas is expected to stimulate growth in the nonresidential and infrastructure markets that will be necessary to serve an expanding economy and increased population. We see early signs of this cycle developing in both Colorado and Georgia. We are also encouraged by states’ recent initiatives to address long-neglected infrastructure needs. For example, the South Carolina Department of Transportation recently increased its budget by $500 million for repairs of existing roads, and the Indiana Department of Transportation approved up to an additional $415 million annually for construction of new roads and expansion of major highways. Additionally, Texas is expected to initiate work on several large highway projects in the second half of the year in connection with its increased state Department of Transportation budget. Texas is also one of the most proactive states in applications for funding under the Transportation Infrastructure Finance and Innovation Act, or TIFIA, a program with the ability to leverage up to $50 billion in financing for transportation projects of either national or regional significance. A number of TIFIA awards are currently expected to be announced later this year. Consistent with our previous viewpoint, given the timing of the initial awards, any meaningful impact of TIFIA is not expected prior to 2014.
“Our operations personnel continued their focus on cost control, as evidenced by a 20-basis-point expansion of our consolidated gross margin (excluding freight and delivery revenues), despite weather constraints that resulted in shipment and production reductions. The Mid-America Group, led by the performance of the Mid-Atlantic Division, which includes Virginia, North Carolina, and South Carolina, achieved a 150-basis-point improvement in gross margin (excluding freight and delivery revenues). The Mid-Atlantic Division leveraged a 10% increase in aggregates product line shipments into an incremental gross margin (excluding freight and delivery revenues) exceeding our publicly stated expectations.
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