Martin Marietta Materials, Inc. ( MLM)

Q4 2011 Earnings Conference Call

February 7, 2012 2:00 PM ET

Executives

Howard Nye – President and Chief Executive Officer

Anne Lloyd – Executive Vice President and Chief Financial Officer

Analysts

Arnie Ursaner – CJS Securities

Todd Vencil – Sterne Agee

Jack Kasprzak – BB&T Capital

Jerry Revich – Goldman Sachs

Trey Grooms – Stephens Inc.

Rodny Nacier – KeyBanc Capital Markets

Keith Hughes – SunTrust

Kathryn Thompson – Thompson Research

Adam Rudiger – Wells Fargo

Scott Levin – JP Morgan

Garik Shmois – Longbow Research

Ted Grace – Susquehanna

Bob Wetenhall – RBC Capital

Brent Thielman – D.A. Davidson

Mike Betts – Jefferies

Keith Johnson – Morgan Keegan

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Martin Marietta Materials fourth quarter 2011 and full year conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the call over to your host Howard Nye, President and CEO. Please go ahead.

Howard Nye

Good afternoon and thank you for joining Martin Marietta Materials’ quarterly earnings call. With me today is Anne Lloyd, our Executive Vice President and Chief Financial Officer. We’re please to share our full year and fourth quarter 2011 results.

Please be advised that this discussion may include forward-looking statements in connection with future events or future operating or financial performance. Forward-looking statements in this discussion are subject to a number of risks and uncertainties, which could cause actual results to differ materially from such statements. Except to the extent required by applicable law Martin Marietta undertakes no obligation publicly to update or revise any forward-looking statements whether as a result of new information, future developments or otherwise.

Martin Marietta refers you to the legal disclaimers contained in our press release relating to our fourth quarter results and to Martin Marietta’s other filings with the SEC, which can be found on the SEC’s website.

Our fourth quarter earnings exceeded market expectations and the prior year as we continued to execute against our clearly articulated strategic objectives. Adjusted earnings per diluted share for the quarter were $0.52 excluding business development costs not factored into analyst expectations or approximately $0.14 greater than the market consensus and 58% greater than the prior year quarter’s adjusted earnings per share. Inclusive of the $0.20 per diluted share charge for these expenses our earnings per diluted share were $0.32.

Our fourth quarter results reflect a 6% increase in the average selling price for our heritage aggregates product line. This increase cast a year where we saw steady pricing growth in each quarter and confirms our previously stated view that pricing momentum is sustainable. Moreover 2011 pricing trends validate one of our fundamental beliefs that despite depression like shipment declines over the past five years our aggregates product line has and continue to retain its ability to realize the inherent value of the in place mineral reserves.

Of note, we achieved fourth quarter pricing increases in each of our reportable groups led by an almost 8% increase in our West Group. This performance reflects double digit increases in our South Texas markets driven by increasing demand for material needed in drilling and related projects in the Eagle Ford shale. There is also an element of long haul mix in this price increase.

As you may recall we developed a new rail located sales yard in South Texas principally designed to meet Eagle Ford demand. The average selling price from that sales yard reflects transportation costs however; even excluding shipments from the new sales yard this market still reported a double digit price increase. Our aggregate product line pricing continues to vary by market. Nevertheless, with few exceptions nearly every market reported growth in the fourth quarter.

Looking ahead, we anticipate our average selling price to be affected by our recent asset exchange with Lafarge North America. In that transaction we acquired operations in Denver, Colorado a truck served market with typical sales transactions completed at producing quarries. This contrast with the Mississippi river facilities we divested, which primarily represented a long haul distribution market. Accordingly, these river operations had sales prices reflecting the varying cost of transportation from a producing location to a more distant sales yard. Overall, we are forecasting pricing trends to remain steady in 2012 with the increase in our heritage aggregates product line, ranging from 2% to 4%. Pricing will continue to vary by market and increases will not be uniform throughout our business.

Our operating performance continues to benefit from our Specialty Products segment, which completed a stellar year that exceeded our expectations. This business generated new fourth quarter records for both net sales and earnings. Net sales of $51.5 million represent a 16% increase over the prior year quarter reflecting growth in both the dolomitic lime and chemicals product lines. These increased sales along with effective cost management resulted in a 600 basis point improvement in this businesses gross margin over the prior year quarter despite higher energy costs. Earnings from operations for the quarter were $16.3 million in 2011 a 55% increase over the prior year quarter.

Cost control remains an area of focus as evidenced by our fourth quarter results and recent restructuring activities. Our SG&A expenses for the quarter declined $4 million excluding a $1.6 million charge for non-recurring termination costs. These organizational changes should provide approximately $3 million of annual cost savings beginning this year. Including the non-recurring termination costs our SG&A expenses as the percent of net sales was 8.5%. As we always have we continue to evaluate SG&A expenses in order to further enhance our industry leading performance in this area.

Fourth quarter direct product cost in our heritage aggregates product line increased 1% even after absorbing an 11% increase in non-controllable energy costs. As a reminder, diesel fuel remains the single largest component of our energy expenses and the price of diesel fuel increased 27% in the fourth quarter compared with prior year quarter and 39% when comparing the full year 2011 with 2010. Lower personnel and depreciation expenses helped offset the escalation in energy costs. Overall our cost of sales increased 9.5% reflecting higher raw material expenses as well as the higher energy prices mentioned earlier.

During the quarter, we incurred $15.1 million of business development expenses, which include costs for completed transactions and the cost associated with our proposal to combine Martin Marietta with Vulcan Materials Company. As mentioned earlier, we completed an asset exchange with Lafarge North America in December. As part of the transaction we exchanged Mississippi river locations operating in a market that did not provide the best opportunity for us to achieve our desired long-term rate of return on assets. The exchange of these assets does not signal a change in strategy related to our long haul distribution network. We remain fully committed to this unparalleled network of rail and water served operations.

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