Phil Ng: Congrats on a really strong quarter, particularly on the margin side, I think both Cement and Aggregates, but my question is on Aggregates. Strong margins in a seasonally slower quarter and yet some wet weather. So a big part of that was the improvement or actually relatively flattish type costs per ton. Scott, perhaps, what were the key drivers there? And how do you kind of think about maintaining a pretty contained cost front through the year? And can you kind of build off of the margins you kind of delivered in 1Q on the Aggregates side? And once again, pretty impressive here.
Scott Anderson : Yes, Phil. Glad you picked up on the cost. That is a focus for us. And right out of the gate this year, we said operational excellence. We’ve been going through, side by side, doing these continuous improvement projects. We dropped $15 million to the bottom line last year. We’re going to double down our efforts this year. We’re building out those capabilities. We’re very focused, what we call as an STVC, sub variable cost, which is our unit cost per ton of aggregates produced. So you’re going to see throughout the year, we’re going to be very focused on just the efficiencies, and it’s side by side. When you got 230 quarries, there’s a lot of sites to cover. But we’re making good progress there. We’re putting more resources to it.
So you’re going to see continued progress on the cost side, and that’s how we’re countering that inflation. And then you picked up on the margins. Certainly, price is coming through, but with price and the cost relationship here, we’re really going to see that margin this year expansion. So that’s what we’re excited about. As you saw, 51% cash gross profit margins is our LTM. We’re back in the 50s. We ended last year at 49.9%. So we’re moving in that direction toward that 60% North Star, and we’re going after it.
Phil Ng: Scott, any more color on the cost per ton guidance for this year for aggs and how that kind of plays out this year quarter-by-quarter?
Scott Anderson : Well, I’ll tell you this, Phil. We’re going to try to hold our costs flat per ton. So we’re going to try to offset that inflation. That’s our goal. And so you’ll see us working towards that endeavor throughout the year. Now I will tell you, costs are not moderating as fast and you guys haven’t asked me about the cost inflation outlook, but it’s more of the same. We keep saying it’s going to moderate and — but it’s been very gradual on that moderation. We came off of a 9.5% inflation cost factor last year and we’re not coming down fast. We still are convicted it will moderate, but it’s definitely probably going to be more in the back half. So we do have some energy tailwind but other than that, we’re still facing some inflationary pressures.
Operator: Our next question comes from Brent Thielman from D.A. Davidson.
Brent Thielman: Just wanted to level set back on Aggregates. Is it the current view that you could still see a little pressure on volume, I guess, organic into the second quarter just as some of these kind of private sector headwinds linger for longer? And then maybe you get some flattening out in the second half, I guess, relative to last term. I’m just trying to think about what is sort of embedded for the Aggregates demand outlook kind of sequencing
Anne Noonan: Yes. I think, Brent, you’re right on there. So if I look at our full year on Aggregates right now, kind of think about us as down and to guide low single digits. We could see a way to flat. But what’s in the guide is basically that, and that’s we had a very rough Q1 with respect to weather in some of our Aggregates intense businesses and April was a bit less. So I would say Q2 we could still see some pressure on the volumes. Second half, though, you’ll see some recovery on Aggregates, no doubt our team has that built in. And that’s driven really by our biggest part of our year is in Q2 and Q3. Q3 is our absolutely biggest quarter of the year, and we’re more in all-season business moving forward. So definitely some second half improvement.
And that’s – we haven’t a lot built in there, though I will reinforce that to you in my comments to Stanley earlier. We do have some upside on volume that could potentially happen for 2 reasons. One, if we catch up on some of this Q1 weather, that would help. But secondly, if we get any kind of relief on volume uptick in the private end markets with any kind of interest rate softening at all, we would see some volume pickup. But what’s baked into our guide is pretty conservative right now.
Operator: Our next question comes from David MacGregor from Longbow Research.
David MacGregor: Anne, I wanted to go back to your comments around commercial opportunities, commercial synergies. And I realize that’s something you couldn’t really get your arms around until you close the transaction and are able to sort of pull everybody together. Can you talk a little further about kind of your learnings there and why you’re feeling more confident? Is there any way to size that opportunity just on a Canada basis? That would be helpful. And obviously, it’s going to be big for 2025, but how significant could it be to 2024 in terms of its contribution and maybe what you’ve got in the guide?
Anne Noonan: Yes. So David, one of the things, when we brought the synergies up to $40 million, the primary reason for that was our plants came up really fast and really well, and OEE was running above by about 5%. In addition to that, the ready-mix synergies are coming in. But to your point, we also got really confident because we saw specifically some aggs pull-through synergies that we hadn’t anticipated in the original number. And specifically in Houston, just to give you an anecdotal point here, Houston used a 40% [indiscernible] is now 69%. So that’s significant, something we hadn’t identified. The other commercial synergies I’d point you to, and there’s a multitude of these in our pipeline, but I’d point to cement, the pricing that we’ve talked about there.
We didn’t have our arms around that at the beginning. And if you recall on Investor Day, we brought that number up, that synergy number up. And the reason for that was we said, look, we got all these underpriced — we’ve got 3 buckets, one of contracts that were done part of divestitures that are below market. We had larger customers that have more leverage on Argos as a stand-alone unit. Those 2 buckets alone were below market by about $10 a ton. And so think about those at about 15% of our volume. So we said, hey, those Cement synergies are going to be $20 million to $25 million, about half of those, so the $10 million to $12 million is coming from increased commercial synergies. So that’s a big chunk of it. And as I referenced in my comment to Trey about these April, June, July increases, we’re going after those right down.
We’re pretty confident in our ability to deliver on the pricing. There’s a lot of other commercial synergies. If you were to think about procurement, we’re getting a lot of those as well. The teams are identifying this pipeline every day. So I’m more and more encouraged. And Scott, maybe you want to talk a little bit about the cadence of the synergies, that $40 million in ’24 to give David a little bit more.
Scott Anderson : Yes, David, when you think about that pace of the $40 million, Anne mentioned, we’re getting really good traction. But while we’re getting good traction on the synergies, I will say more weighted towards that back half, the second half of the year. It’s just going to take some time for these synergies to really drive through to the results. So I wouldn’t expect half of them in June. We will give — in the second quarter results, we will give you an update on the synergies. But I would expect less than half in the first year and then building as we move out through the year.
Anne Noonan: Yes. We’re seeing also the combined footprint, David, this exposure of adding our Aggs business with Cement and ready-mix, we’re seeing some real customer interest in where we play now and the portfolio that we have. And we’ll give more color on that as we proceed throughout the year.
David MacGregor: Congrats on all the progress.
Operator: Your next question comes from Jerry Revich from Goldman Sachs.
Jerry Revich: Congratulations on the strong quarter. I want to ask on the Argos cement business, really phenomenal margins in the quarter of 35% EBITDA. Your stand-alone business last year was 38% and 35% in the seasonally weakest quarter has really jumped out of me. I’m wondering, could you just talk about how you expect the sequential margin cadence to play out in Cementos Argos from here, just the cement part of the business? And were there any moving pieces that surprised you in the outstanding first quarter margin performance for the acquired Cement business?
Scott Anderson : Yes, Jerry, let me start. When you talk about the margins, we are focused on the EBITDA margins. We’ve got a North Star target on the Cement of 45%. So we feel like we’re just getting started on that journey. When we added the Argos assets, it did dilute us. They were closer to that 35% where we were up there, like you had mentioned, more the 38% to 39%, well on our way to that 40%. And so out of the gate, it’s really about these operating — get these plants to operating performance. We’re investing in them. We’re working on the cost side of the business. If we can take cost out of these plants, Anne has already talked about the pricing and the momentum we have there. So that will continue. And Cement margins, we think there’s a lot of opportunity as we will build in our processes into these new Argos plants and on our way to that 45%.
Jerry Revich: Super. And Scott, can I ask a follow-up from an accounting standpoint. With the higher synergy numbers and the better performance out of the gate, it sounds like some of the balance sheet numbers related to the acquisition moved out — moved around. It sounds like depreciation moved up, goodwill moved down. I’m wondering, can you just expand on that because it’s a good indicator for how the performance is tracking?
Scott Anderson : Yes. I will tell you, on the purchase accounting side, Jerry, we just – it’s very standard. You go through in an acquisition like this, you’ve got to revalue everything. So once they did their appraisals, we got all the outside appraisals and the values put in. It did move from where their book values were. It did move up. These plants were more valuable than what they had them on the books. And so anytime you reset that value, you reset your depreciation figure. So that’s driving the increase in the DD&A that you saw from the $330 million to $380 million. And it’s just – it’s pretty standard. And then the goodwill at $700 million, pretty expected with the basic synergies we have, we feel pretty good about that as well.
Operator: I’d now like to hand back over to Anne as we don’t have any questions for now. Thank you.
Anne Noonan : Great. Thank you. We appreciate everyone’s time and attention on today’s call. Our impressive results and our upgraded 2024 outlook underscore that Summit Materials is operating at a very high level with strong coordination and strategic focus across our businesses. I would reiterate that conditions exist for a strong margin and EBITDA growth this year, commercial excellence and value pricing being the primary growth driver. A cost moderation and material cost savings via synergies and operational improvements will also contribute positively to our 2024 growth plans. And when you consider our capacity to add Aggs-oriented targets to our portfolio, we have plenty of optimism around 2024. We are positioned and confident we can deliver superior value creation for all Summit stakeholders, and we hope you share our optimism for the year ahead. Thank you for your continued support of Summit Materials, and we hope you have a great day.
Operator: Thank you so much for attending today’s conference call. We hope you have a wonderful day. Stay safe.
