Garik Shmois: Hi, thanks. Wondering about cement gross margin. It’s at an all-time high at this point. And I know you’re adding the finishing mill next year to Midlothian. But conceptually, has the margin structure in that business been changed for the long-term?
Jim Nickolas: Yes. Jerry, it’s Jim – Garik, sorry. It definitely has changed. I think the margins you’re seeing today are not anomalous. I would expect them to continue. The only thing that might affect that is if we saw a spike in natural gas prices, of course. But that’s – I would say at this point, it’s performing where we like it at. We think there is other ways to improve it further down the road, but I would view today’s margins as repeatable and enduring.
Ward Nye: And to that end, part of what the team has done so well in Texas. They have been focused on reliability. They have been focused on utilization. And they have also been focused on making sure commercially again, they are getting the right value for that product. And remember, that marketplace is largely sold out. So that certainly helps us. So then coming back as we will here over the next year, with the Midlothian FM 7 project and adding much-needed tonnage to that on top of reliability on top of utilization should put that business in an even more enviable position. And part of what I think we can be so proud of as a team has been the evolution of what that cement businesses look like in North Texas since the 2014, 2015 time frame. It’s consistently gotten better, and we think it can continue to do just that, Garik.
Garik Shmois: Makes sense. Thanks.
Ward Nye: Thank you.
Operator: Thank you. The next question comes from Keith Hughes of Truist. Please go ahead.
Keith Hughes: Thank you. The implied guidance in aggregates in the second half of the year, is there any way to tease out what infrastructure is going to be that. I’m really looking for the influence of the infrastructure law, what role it’s playing in the second half of the year?
Ward Nye: Yes. Thank you for the call, Keith. So, as we just think through the way that we think that’s going to look, we think infrastructure for the year is likely to be up mid-single digits. And previously, we had been at mid-single to high-single. So again, we continue to see this roll out. We think, particularly as we get towards the 3 and 4, and remember, we said we thought this would be a back half loaded from an infrastructure perspective. We see that continuing to play the same way. Again, when we came out early in the year, we said we thought single-family would be down low-double digits, I think that’s exactly what we are going to see, so no big surprise there. Again, if we look at non-res for the quarter that just ended, we had a basic breakdown of 55% heavy, 45% light.
And what we actually think we are going to see is that heavy piece of it is actually going to get heavier. So, as we watch that rollout and we see some of these large manufacturing jobs come in, again, we think that’s likely to be overall for the year, probably down mid-single digits. So, we do think looking at the end users, infrastructure is the one that’s really starting to move at this point. And we think the primary volume play is that switches that we talked about a minute ago, and that is where we are with housing found, we believe, having found bottom, but shipments not yet having caught up with that. So, Keith, I hope that helps you think about the end users and at least the way we are looking at it on a percentage basis.
Keith Hughes: Okay. Great. That’s helpful. Thank you very much.
Ward Nye: You bet.
Operator: Thank you. The next question comes from Phil Ng of Jefferies. Please go ahead.
Phil Ng: Hey guys. Congrats on a really strong quarter. Cement results were really good guys. Were there any one-time drivers maybe timing of maintenance that led to that upside, or can we just kind of take that run rate in the first half and build off of that? And then Jim, you talked about how you are unlocking potentially some storage capacity and the ramp-up on PLC. Will that be bigger contributors on the volume side in the back half of this year, or you already started seeing it this year already?
Jim Nickolas: No. It’s – well, to answer your first question, there is not really any one-time good guy in this quarter for cement. So, that’s why when I answered the question earlier, I think it’s enduring. Again, there is no anomalous things happening this quarter. So, we can expect these margins to repeat. As it relates to the cement storage capacity, that helps us throughout the year that we will going forward, it’s in our guidance. And then the, of course, finish mill seven to when it comes online next year, that will be another boost to our capacity and our volumes. But our guidance number includes those volumes at this point for this year.
Ward Nye: Just one quick note to that. As we said, the transition to PLC or Type 1 does give us modestly more volume this year as compared to last. But it’s not a huge mover. We are talking, again, mid-single digits on a percentage basis.
Phil Ng: Got it. And then sorry to sneak one more in. Implicit in your guidance, Jim, are you baking in midyear price increases for cement and agg in the numbers along with what are you assuming on your assumptions on energy? I think previously, you were talking about diesel being kind of flattish in the fourth quarter. How are you thinking about it at this point in your guidance?
Jim Nickolas: Yes. The first part of the answer to your question is yes, midyears are in for both agg and cement in the guidance. On energy, it’s, we use, again, really late Q2 energy levels and assume that continues for the rest of the year. So, that’s sort of the foundation for the guidance. Now of course, oil prices have come up a bit since then, but we don’t know if that’s going to stick or not, but that’s how we think about it. I would say, in total, this guidance versus prior guidance, energy is a bit of a larger tailwind than we thought. Non-energy costs were a bit of a larger headwind than we thought they kind of net out, leaving us with, the upside is largely price driven, and some of that’s taken back with lower volumes. That’s how I would think about it in the broad buckets, Phil.
Phil Ng: Okay. Really helpful. Appreciate it.
Ward Nye: Thank you, Phil.
Operator: Thank you. The next question comes from Timna Tanners from Wolfe Research. Please go ahead.
Timna Tanners: Yes. Good morning and thanks for the detail. I was wondering if you could provide a little bit more color on Slide 11. Two questions on these categories. One is if you could talk to us about the aggregates intensity of them, in particular, trying to focus on warehouses since that’s been such a big delta with some of the starts data coming through a lot lower. And then trying to also get color on each of these categories on what you are seeing in your order books or your backlogs, particularly in some of these big categories? Thanks a lot.
Ward Nye: Timna, thank you so much for that. So, I guess I would say several things. One, if we are looking at domestic manufacturing and energy and data centers. So, those are items one, two and three on Slide 11. What I would say is, number one, we capture all of those as heavy non-res. So, again, in today’s world, probably 55% of our non-res book of business. Number two, if we compare that to what maybe like commercial, retail and hospitality would look like, I have to tell you, it’s probably 7x to 9x more intensive than a single-standing big-box store maybe. So, if you are looking at the overall square footage, number one, and you are looking at the nature of the construction, number two, meaning what do the roads look like going in, they are almost all concrete.
What did the walls look like, they are almost all concrete. What did the floors look like, they are concrete. And then if we throw a bone to our Magnesia Specialties business, oftentimes, the roofing is TPO. So, these large domestic manufacturing and data centers are almost Martin Marietta envelope. So obviously, energy does not because it’s typically open. But if we also think about what’s going on with those very large energy projects along the Gulf Coast of the United States, Again, the notices to proceed are coming on those – the tonnage that’s required on those is very significant tonnage, and we are starting to see movement in lending of those contracts. So again, if we look at 11 and we look at the outlook for those top three that shows full green.
And we look at the outlook for the lighter piece of it that’s showing yellow. It doesn’t mean that those that are in yellow were not going forward, they are. It just doesn’t have the same rate and pace. But what we have at the top of the page tends to be some of the more aggregates-intensive. And again, from a percentage perspective, I would say oftentimes 7x to 9x more aggregate intensive than other light non-res activity.
Timna Tanners: Okay. That’s helpful. So, just to be clear then on the warehouses, in particular, we heard that was a huge contributor in the past several years to demand and now seeing those starts come down in the most recent data as much as over 50%. So, I am just wondering if you have seen kind of the big swing there. It doesn’t look like it from the yellow color, but I just wanted a little more information.
Ward Nye: No, I appreciate it. And in the prepared remarks, like we said that we haven’t seen even on the light side of it, that big a change yet. And we are watching it and we are sensitive to what could happen because of the way interest rates are moving because that tends to be something pay that’s more interest rate-sensitive. Obviously, some of that was driving simply because of COVID, the way that people are shopping and the way some of that work. Obviously, Amazon was very clear that they said they were pulling back on some of that. The fact is there were others who frankly had some catch-up that they needed to do. And I think one reason we haven’t felt as acutely as others, Timna, is how intentional we have been in building on corridors.
So, if you look at the Martin Marietta footprint, you are going to see I-5 as a major corridor. You can see I-25 and the Rockies is a major corridor. You are going to see I-35 through the middle of Texas is a major corridor, not to mention 85 and 95 on the East. And then another component of it that I think is important, we are the largest shipper of stone by rail in the United States. So, we will ship almost 2x what our closest competitor will by rail. The reason I mentioned that is distribution up and down rail networks, we think is going to be pretty notable as well. So, when we go through those and you see yellow in areas that you otherwise might think based on commentary, it might be trending towards red. I think a lot of that’s driven by the where and the how that we are moving our stone.
Timna Tanners: Okay. Great. Thanks for the detail.
Ward Nye: Thank you, Timna.
Operator: Thank you. The next question comes from Tyler Brown of Raymond James. Please go ahead.
Tyler Brown: Hey, good morning.
Ward Nye: Hi Tyler.
