Good morning, and welcome to Martin Marietta's First Quarter 2022 Earnings Conference Call. All participants are now in a listen-only mode. A question-and-answer session will follow the company's prepared remarks. As a reminder, today's call is being recorded and will be available for replay on the company's website. I will now turn the call over to your host, Ms. Suzanne Osberg, Martin Marietta's Vice President of Investor Relations. Suzanne, you may begin.
Good morning. It's my pleasure to welcome you to Martin Marietta's first quarter 2022 earnings call. Joining me today are Ward Nye, Chairman and Chief Executive Officer, and Jim Nickolas, Senior Vice President and Chief Financial Officer. Today's discussion may include forward-looking statements as defined by United States securities laws in connection with future events, future operating results, or financial performance. Like other businesses, Martin Marietta is subject to risks and uncertainties that could cause actual results to differ materially. We undertake no obligation, except as legally required, to publicly update or revise any forward-looking statements, whether resulting from new information, future developments, or otherwise. Please refer to the legal disclaimers contained in today's earnings release and other public filings, which are available on both our own and the Securities and Exchange Commission's websites.
We've made available during this webcast, and on the investors section of our website, Q1 2022 supplemental information that summarizes our financial results and trends. As a reminder, all financial and operating results discussed today are for continuing operations. In addition, non-GAAP measures are defined and reconciled to the most directly comparable GAAP measure in the appendix to the supplemental information, as well as our filings with the SEC, and are also available on our website. Ward and I will begin today's earnings call with a discussion of our first quarter operating performance, portfolio optimization announcements, our updated full year guidance, and market trends. Jim Nickolas will then review our financial results and capital allocation. After which, Ward will provide some brief concluding remarks. A question-and-answer session will follow. Please limit your Q&A participation to one question. I'll now turn the call over to Ward.
Thank you, Suzanne, and thank you all for joining today's teleconference. We're excited about Martin Marietta's opportunities for operational, safety, and financial success in 2022 and beyond. We're off to a predictable start this year, and our company's prospects for attractive growth and value creation are outstanding. Public and private construction activity are set to expand concurrently for the first time since this industry's most recent shipment peak in 2005, supporting multi-year demand and pricing acceleration for our products. Beyond the benefits of these notable industry dynamics and underlying market fundamentals, we're confident the continued disciplined execution of our strategic operating analysis and review or SOAR will allow for responsible and sustainable growth of our coast-to-coast footprint. As highlighted in today's release, we once again exceeded world-class safety metrics company-wide.
That's an important distinction as this performance includes operations that are relatively new to Martin Marietta's Guardian Angel culture. We also achieved a new first-quarter record for consolidated total revenues, which increased 25%. Pricing gains ahead of more broadly planned April increases, organic upstream shipment growth, and 2021 acquisitions all helped drive this top-line improvement. Cost inflation, however, outpaced revenue growth, resulting in reduced first-quarter profitability and margins versus the prior year quarter. This was expected. In fact, our guidance provided in February weighted increased profit contributions to the second half of 2022 versus historical patterns. The reasons we anticipated and articulated regarding this shift were twofold. First, our annual price increases, which are some of the largest in Martin Marietta's recent history, mostly become effective on April 1st, the benefit from which builds throughout the year.
Second, our costs, including energy headwinds, were anticipated to be more pronounced earlier in the year since comparable periods in the previous year experienced relatively benign inflation. What was unexpected, though, was the rapid escalation in energy prices and other cost inflation in recent months. Nonetheless, beyond achieved and yet to be realized annual price increases, we're confident the disciplined execution of our commercial and operational excellence initiatives will more than offset these inflationary headwinds. It's important to remember that historically, inflation supports a constructive pricing environment for upstream materials, the benefits of which endure long after inflationary pressures moderate. Our teams are actively advising customers of mid-year pricing actions, which we anticipate will be widely accepted and more aggressive in scope and magnitude than we were initially considering a few months ago.
Longer term, Martin Marietta is well-positioned to execute on our value over volume pricing strategy and benefit from what is expected to be an increasingly more favorable and extended pricing cycle. Confidence in our near and long-term outlook is further underpinned by the disciplined execution of our SOAR 2025 priorities. During the quarter, we continued to optimize and enhance our aggregates-led portfolio. We completed the divestiture of our Colorado and Central Texas ready-mix concrete businesses to the nation's largest privately owned concrete producer on April 1st. We also recently entered into an agreement to sell our Redding Cement Plant, related cement distribution terminals, and 14 ready-mix concrete plants in California to CalPortland Company. We expect to complete this transaction in the second half of 2022. Collectively, these portfolio optimization actions both strengthen the durability of our business through economic cycles and enhance our margin profile.
We intend to deploy the proceeds from these sales to advance our long-standing capital allocation priorities, facilitating high return external and organic growth investments to further enhance shareholder value. Before discussing our updated full-year guidance, let's level set first quarter results relative to the rest of 2022. While profits were lower than last year's for the reasons just discussed, the key takeaway is that the first quarter does not represent the beginning of a price cost margin compression trend. Rather, we believe it's the end of the margin compression dynamic for the company. The scale, frequency, and efficacy of our price increases provide us the confidence to forecast full year margins for 2022 exceeding those of 2021. In short, we believe better than expected aggregates pricing realization and contributions from our newly acquired West Coast operations will offset the divested earnings and expected inflationary headwinds.
As a result, we've reiterated our full year adjusted EBITDA midpoint guidance of $1.75 billion. As pricing momentum continues to build during the spring construction season, we anticipate that further pricing upside is probable. Accordingly, we'll revisit our full year guidance after the second quarter. Turning now to first quarter operating performance for our upstream and downstream businesses. Organic aggregate shipments increased 2.5%, reflecting growing public and private demand at the onset of the construction season. Encouragingly, infrastructure shipments increased 6%, the largest percentage increase we've seen in several years. Acquired operations contributed an additional 4 million tons. Underpinned by our value over volume strategy, organic aggregates pricing increased 6.5% or 4.6% on a mix adjusted basis and reflected improving long-haul shipments from higher priced distribution yards. All divisions contributed to this pricing growth.
As the largest cement producer in Texas, we continue to benefit from tight supply and robust product demand. Shipments exceeded 1 million tons and increased 10%, setting a new first quarter record. Cement pricing grew 12% from multiple actions taken in 2021 and the resurgence in demand for higher priced specialty products. With a $12 per ton increase effective April 1st and our recently announced second round increase of an additional $12 per ton effective July 1st, the Texas cement pricing outlook is extremely attractive. Organic ready-mix concrete shipments remained relatively flat despite the completion of several large and typically higher priced portable projects. Organic concrete pricing grew 8% following off-cycle price increases and the implementation of fuel surcharges. Organic asphalt shipments decreased 3% as significant snowfall in January and February hindered Colorado construction activity. Organic asphalt pricing improved 6%.
Looking beyond the first quarter, we remain confident that attractive market fundamentals and strong demand across our three primary end use markets will drive aggregates intensive growth and favorable pricing trends from Martin Marietta for the foreseeable future. Enhanced infrastructure investment should drive aggregate shipments to this end use closer to our 10-year historical average of 40% of total shipments. For reference, aggregates to the infrastructure market accounted for 32% of first quarter organic shipments. Department of Transportation budgets for our top states continue to be well-funded through traditional revenue sources as well as $10 billion of COVID relief aid, pushing estimated lettings nicely above prior year levels. Increased funding from the Infrastructure Investment and Jobs Act, or IIJA, will further enhance the current strength of our state DOT programs, providing DOTs with increased visibility and certainty to advance their multitude of backlogged projects.
With full IIJA allocation available for 2023 DOT fiscal years, the majority of which began on July 1, we expect benefits to begin accruing in late 2022 and become more pronounced in 2023. Non-residential construction, which drove 36% of Martin Marietta's first quarter aggregate shipments, continues to benefit from the paradigm shift in consumer and work preferences and supply chains, as evidenced by increased investment in aggregates-intensive warehouses, data centers, and reshoring of manufacturing facilities to the United States. Commercial and retail construction throughout our Sun Belt markets is expected to become more significant demand driver in 2022, as it typically follows single-family residential development with a 9-12 month lag.
By way of example, Charlotte, North Carolina office trends are returning to pre-pandemic levels with more than 2.6 million sq ft of office space currently under construction in that area. The residential construction outlook remains strong despite rising interest rates and inflationary pressures. Following more than a decade of historically low new housing construction, expectations are that annual single-family housing starts remain in line with early 2000 levels over the next few years. That said, the United States has added over 30 million people in the intervening period. Given our company's attractive footprint in destination metropolitan areas, we expect Martin Marietta to benefit disproportionately from new home construction for the foreseeable future. As a reminder, construction of single-family homes and subdivisions is nearly three times more aggregates intensive than multi-family construction, given further community build-out of light non-residential and infrastructure.
Aggregates to the residential market accounted for 26% of our first quarter organic shipments. I'll now turn the call over to Jim to discuss more specifically our first quarter financial results and liquidity. Jim?
Thank you, Ward, and good morning, everyone. For our continuing operations, the building materials business posted record product and services revenues of $1.1 billion, a 26% increase from last year's prior quarter, and product gross profit of $137 million. Aggregates product gross margin of 14.9% declined 640 basis points. Product shipment and pricing growth was not enough to offset increased costs for diesel, internal freight, other production costs, and depreciation, depletion, and amortization. As Ward indicated earlier, our Texas cement business is benefiting from growing demand and tight supply. Cement product gross margin expanded 630 basis points to 20.3% on a relatively favorable comparison. As a reminder, first quarter 2021 was negatively impacted by production inefficiencies and incremental storm-related costs from the Texas deep freeze.
Partially offsetting this favorability were higher energy and raw materials costs, in addition to a nearly $9 million increase in planned maintenance costs. Almost half of this year's planned kiln outages and other maintenance occurred in the first quarter. With that now behind us, we expect favorable comparisons for the next three quarters versus the prior year. We are pleased to report that both our Midlothian and Hunter cement plants began actively producing Portland limestone cement, or PLC, during the quarter. PLC, which relies on a limestone substitution of carbon-intensive clinker, was not approved for use by the Texas Department of Transportation until recently. We now expect to ship roughly 425,000 tons of PLC this year.
Importantly, in addition to the lower CO2 emissions, the production of PLC versus traditional Type 1 and Type 2 cement creates an 8%-10% increase in annual cement production capacity. Importantly, no incremental capital spending is required as we ramp up PLC production. Ready-mix concrete product gross margin declined 100 basis points to 7.3% as pricing gains did not fully offset higher costs for raw materials, labor, and diesel. As a reminder, first quarter financial results included the Colorado and Central Texas operations that were divested on April 1st. Consistent with seasonal trends in relevant geographies, minimal asphalt and paving activity occurs in the early months of the year. In fact, our Minnesota-based asphalt facilities, which we acquired in April 2021, were inactive during the first quarter, given that market's late spring start to the construction season.
In line with our expectations, the asphalt and paving business posted a $13 million gross loss for the first quarter. Magnesia Specialties achieved record first quarter product revenues of $71 million, an 8.5% increase, driven by global demand for magnesia-based chemicals products. Despite top line growth, product gross profit decreased 6% due to higher costs for energy, supplies, and raw materials, resulting in a 570 basis point decline in product gross margin to 37.8%. We remain focused on the disciplined execution of SOAR to responsibly grow our business and deploy capital in a manner that preserves our financial flexibility and investment grade credit rating profile.
As Ward indicated earlier, we plan to use the proceeds from our recently announced divestitures to advance our long-standing capital allocation priorities, which are focused on value-enhancing acquisitions, prudent organic investments, and returning cash to shareholders through both a meaningful and sustainable dividend and our share repurchase program while maintaining a strong balance sheet. We continue to expect full-year capital spending of $525 million-$550 million as we prioritize high-return capital projects focused on growing sales and increasing efficiency to drive margin expansion. During the quarter, we returned $89 million to shareholders through both dividend payments and share buybacks.
While we repurchased nearly 131,000 shares of common stock at an average price of $383 per share, we continue to anticipate a return to our target leverage ratio of 2-2.5 times by the end of the year. Our net debt-to-EBITDA ratio was 3.2 times as of March 31st. With that, I'll turn the call back to Ward.
Thanks, Jim. To conclude, we expect 2022 to be another record year for Martin Marietta. We're well positioned to capitalize on infrastructure tailwinds and strong private demand across our differentiated coast-to-coast geographic footprint. Looking ahead, we expect this increasing demand environment to drive multiyear shipment growth and attractive pricing for our products. Our team remains committed to employee health and safety, commercial and operational excellence, sustainable business practices, and the execution of our SOAR 2025 initiatives as we build and maintain the world's safest, best performing and most durable aggregates-led public company. If the operator will now provide the required instructions, we'll turn our attention to addressing your questions.
Thank you. As a reminder, to ask a question, you'll need to press star one on your telephone. To withdraw your questions, please press the pound key. In the interest of time, we ask that you please limit yourself to one question so that we can get to everyone in the queue. Our first question comes from Trey Grooms with Stephens. Your line is open.
Hey, good morning, Ward, Jim and Suzanne.
Hi, Trey.
Ward, you mentioned earlier having a predictable start to the year thus far. If you could, go into a little more detail on what you meant there. Then, you know, with that, what gives you the confidence to raise the guidance at this point in the year, notwithstanding divestitures? You know, maybe if you could go into more color on how higher pricing and then the performance of, you know, recently acquired operations are playing into this confidence.
You know, happy to, Trey. Thanks for the question. I guess a couple of things. First, we are actually comfortably ahead of plan right now, so that's part of what we think is nicely predictable about this because where we're sitting, we're not in a hole. We're actually ahead of where we thought we would be. As you know, the first quarter is never a big quarter for volumes. So small percentages can or small numbers can make for big percentages in the first quarter. Part of what I think from my perspective was predictable is we didn't have Tiller last year in the first quarter. Obviously, that's a Minnesota-based business, and you're not gonna put down a lot of asphalt in Minnesota in January, February and March.
The other thing that's important, and Jim outlined it in his commentary as well, we actually accelerated some of the maintenance on the kilns in Texas this year, so we're about halfway through with the dollars or more than halfway through with the dollars that we're gonna have on that. I think both those are important. Obviously, we did see degrees of inflation. The other thing that we've seen, and I think this is to your point, Trey, on what gives us confidence to actually take our guidance up a bit, is what we're seeing commercially relative to pricing. We obviously are seeing price increases go in in April. We would not take up the guidance unless we were seeing what was happening in April and had a high degree of confidence in that.
The other thing, Trey, that I think is different about right now, but in some respects predictable, is what we're seeing relative to midyear price increases as well. Number one, the April price increases have come in the way that we thought. Number two, we're looking at much more widespread midyear price increases across our footprint than we've seen in a while. As you recall, last year when we did that, we talked about targeted midyear price increases. This year we're talking about widespread. In other words, if we're not going to have a midyear, that's gonna be the exception this year. We're also seeing that in scope from $1-$5 a ton, depending on market, depending on product, et cetera.
Part of what we're seeing, and this is a bit of a fundamental shift, customers are considerably more concerned today about getting product than they are relative to price. Again, an attractive place for us to be if we're talking about timing of midyears. As a practical matter, they're gonna come in somewhere between July 1 in most markets, as late as September 1 in others. I mean, to give you a sense of, and this goes at least back to a part of your question relative to the acquired operations. If we're looking at the price increases that we're looking at in California right now, we're looking at $2 a ton that's gonna be effective midyear July 1. Again, that represents a double-digit percentage increase versus the January 1 ASP. You're seeing that nice building effect in that market.
Even if we go to a heritage market and look at central Texas, you know, what we're talking to customers about very candidly there is a 10% increase on July 1 across the board at locations and on products. As we're looking at where we sit relative to the new acquisitions, if we're looking at the investments that we've made in the cement business here in the first quarter, and we're looking at the overall price increases, and we're looking at the fact that despite the inflation that we saw in Q1, we're comfortably ahead of plan. That gives you a sense of, you know, what was predictable about it, but hopefully it gives you a sense of where we are in areas that gives us the confidence to take the guidance up.
Yep. That all makes sense to me and very encouraging, especially on the pricing front. Thanks for the color, Ward. I'll pass it on.
Thanks, Trey. Take care.
Thank you. Our next question comes from Kathryn Thompson with Thompson Research. Your line is open.
Hi. Thank you for taking my question today. I'd like to focus a little bit more on the outlook from a end customer perspective. You know, what are your backlogs looking like from each of the main end markets, res, non-res and public? And touching on tight availability, it's pretty much at full utilization in Texas and still running short on products like charged cement, which has effectively stopped. But you could also see, well, how are you going to manage your cement and aggregate demand in light of what you have and backlogs? Thank you.
Kathryn, thanks for the question. I guess several things. One, if we just look at customer backlog, and that's important to think about that's the way that we speak to it. If we're looking at aggregates, it's up about 11% year-over-year, so again, a very attractive number. If we're looking at cement, to your point, it's basically sold out. If we're looking at Magnesia Specialties, chemicals has a record backlog right now. The customer backlogs look very, very attractive to us now. Equally, if we look at downstream or the different end uses, obviously if we look at Texas, Colorado, California, North Carolina, Georgia and Florida, those are our leading states. Here's the high-class dilemma that we have. We're looking at FY 2022 lettings in Texas, a TxDOT of $10 billion. That's the highest in five years.
If you look at Colorado DOT, as you recall, Kathryn, they passed a ten-year infrastructure bill with $5.3 billion tied up in that. If we're looking at North Carolina, obviously, if we're looking at the recently passed state biennium budget, it's got a $4.2 billion number for FY 2022, and it's going up. Well, that's up 17% over where it was, and it's gonna be higher for 2023. This is my way of saying state budgets are very good. Our ability to put the product on the ground to meet the customer's needs is there. So we are not concerned about meeting their needs. What I think is also important, though, is and I tried to address in my comments around non-res. We're seeing more office building taking place. We're seeing more reshoring taking place.
I think a lot of that is driven by where we could build our business. Again, you've heard us speak for a while, but where you are in this industry matters a great deal. If we're looking at reshoring, whether it's Toyota coming to Greensboro, we now have a Vietnamese car manufacturer in North Carolina. We're looking at Samsung, north of Austin. These are large, significant commercial projects. I also think the comment that I gave you in my prepared remarks around office and retail and what we're seeing in markets like Charlotte is important. Again, trying to close up, at least in part, what I'm saying relative to end markets, we continue to see, even on the residential side, underbuild conditions, and we continue to see very attractive population inflow into our markets.
I think some different states, not Martin Marietta states, may see some degree of pushback as mortgages move. We're not seeing that. The fact is, mortgage rates are up 200 basis points, as you know, versus the prior year quarter. As we go back and even look at that, there's no correlation between mortgage rates and single-family starts over the past four years. What I'm trying to do in response to your question is to give you a snapshot of what does it look like at the state level relative to infrastructure? What are we seeing in non-res, both on light and heavy sides? Keep in mind, on the heavy side of that, we believe we're gonna see increasing LNG activity in South Texas, but light is already better. Again, residential in our states with very high population inflows looks good.
Part of what we've done, Kathryn, as you know, is our capital allocation priorities through cycles has had us in a position that we've added capacity or efficiencies where we needed to, and we're in a position today to meet customer demands and their needs. At the same time, we recognize we have a very valuable product in the ground, and we're gonna stick with our value over volume philosophy. I think the way all of that is gonna coalesce, we will have the product, we will meet the customer's needs, and we'll create enduring value for our stakeholders as well. Kathryn, I hope that helps.
Yes, it is. Thank you very much.
Thank you.
Thank you. Our next question comes from Stanley Elliott from Stifel. Your line is open.
Hey, good morning, everyone. Thank you all for taking the question. Where could you dig a little bit more into the commercial environment that you're dealing with right now? I know you guys have you know made a lot of investments there, and really just trying to get a sense, you know, historically, when conditions are good, the larger players tend to outperform say some of the smaller regional players. Curious if you could tie that into the pricing comments, you know, the investments that you made on the you discussed on the previous question.
Stanley, happy to. Good to hear your voice, and thank you for the question. Part of what I think is helping us commercially, Stanley, is where we are. If we go back to the states that I was listing through, and we look at the states that are most important to us from a revenue perspective, you know, these are attractive places to be. I mean, being in Texas today, being in Colorado, being in California, North Carolina, Georgia, and Florida, where population trends are very powerful, helps us. Having leading positions in those states helps us as well.
I think to your point, if we go back and look at the investments we've made, whether it's in North Carolina or Texas or Colorado or someplace else, as markets get tighter and customers need product, we are clearly gonna be in the position to do that. Part of what we're seeing in some circumstances today is customers have gone out for quotes and the suppliers are unable to meet those requirements at this time. We end up having the ability to come back and at times fill orders that we did not get in the first instance because we are very consistent with a value over volume philosophy. Again, we're unapologetic about that. I think several things. One, it's about the location, Stanley. Two, it is about the philosophy that we bring to it.
Three, it does go back to the capital allocation priorities that we've had. You've heard us long say that our best first dollar spent is on the right transaction. Our next best dollar spent is on internal projects, because if we're in the process of making the rocks out of big rocks, we're also going to destroy value, and we wanna make sure we keep these sites, well-funded, very safe, very efficient, and able to meet market demands, but also flex as demands change. So far, we've been in a position to do that through a great recession and now through this expansion that we're in. I hope that helps, Stanley.
It sure does. Thanks so much, and best of luck.
Thank you.
Our next question comes from Garik Shmois with Loop Capital. Your line is open.
Hi. Thanks for taking my question. You mentioned that your guidance is back half weighted for aggregates gross margins. But given the magnitude of price increases you're putting through in January and April, how should we think about, I guess, 2Q gross margins in aggregates? Would we still expect that to be down compared to the prior year period? Maybe just help frame the type of margin expansion and the slope of the recovery in the second half of the year.
Sure, Garik. Let me turn that to Jim, and he can walk you through that, please.
Yeah. Now, as you know, we don't give out quarterly guidance. With that in mind, I'll kinda give you the broad brushstrokes. Q2 should be relatively in line with history. I think the acceleration we're gonna see is more pronounced in Q3 and Q4. The reasons are twofold. One, the compounding and cascading effects of the price increases has obviously a greater effect the longer you go into the year. What also may not be appreciated is the cost base, the inflation effects should moderate as the year goes on. Two elements. The oil, the energy inflation, we're assuming for guidance purposes, it remains where it's at. We don't see a reduction in oil or fuel prices.
We're assuming for guidance purposes, they remain at their elevated levels. They don't come down. We've built that in. Now that said, last year's corresponding quarters saw increasing costs. On a year-over-year basis, we'll see improvement there. The other element is our DD&A is a higher % of sales in Q1 than typical, because of the acquisitions. Meaningfully, that will not increase. That's pretty much a fixed cost. Q2, Q3, Q4, that element, will be fixed and kind of relatively flat, helping margin expansion in Q2 and Q3 and Q4. We'll get back. We're gonna see, either record or near record margins in the back half of the year on the aggregate side for those reasons. Does that answer your question, Garik?
No, it does. Thank you very much.
Thank you. Our next question comes from Adam Thalhimer with Thompson Davis. Your line is open.
Oh, hey, good morning, guys. Hey, Ward, I wanted to ask you to zero in on the midyear price increases. My question would be: You think this will be a structural shift in the industry, or do you think this is a one-off due to the, you know, high inflation, you know, just in 2022?
Well, look, you know what I've always said. There are very few things in your life that you want that you can buy for $16 a ton except our product. To put a spec product on the ground and sell it for that is, I think, something that's pretty special. I do think if we go over time and look at the durability of the aggregates pricing, one thing that it has shown is it does have the ability through cycles to continue to move up and to the right, even in down cycles. I think you've got two things right now, Adam. I think you've got a demand environment that's attractive, that's likely to stay attractive.
I think you layer on top of that a demand attractive that is mighty in some very specific states where we have purposefully built our business. I think when you take those things together with inflation, I think you do have something that is gonna be more profound for a period of time, certainly than it has been over the last several years, in a marketplace that has either been flat or in some instances, down in volume. From where I'm sitting, Adam, this is the single most attractive commercial moment during my time as CEO of Martin Marietta. In a 12-year period, I haven't seen anything that looks more attractive than this does. Obviously, we're talking more about 2023 as we get closer to it next year.
Keeping in mind, we're not going to feel meaningful input from the IIJA in this calendar year. You're gonna start to see that next year. There's nothing in what we're seeing that doesn't give me a sense that we're gonna be in a very attractive aggregates pricing cycle for a period of years.
Very clear. Thank you, Ward.
Thank you, Adam.
Thank you. Our next question comes from Philip Ng with Jefferies. Your line is open.
Hey, guys. Ward, I guess at this point, maybe you have a little more line of sight in terms of the lettings associated with the infrastructure build. Help us think of the cadence of that ramp next year in 2023. Is it gonna be, you know, front-end loaded in the first year and kinda kicks in pretty meaningfully, or is it gonna be a little more gradual in nature? It's been a while since you talked about these LNG projects. Certainly with where oil prices are right now, that's a pretty robust backdrop. Help us understand that potential contribution and in overall, your ability to kinda, you know, supply all that demand potentially coming through.
Yeah, no, happy to, Phil. Thanks for the question. Phil, if you go back over time and think about what we put on the ground back in 2005, 2006, we put 205 million tons on the ground back in 2005. We've added, let's call it 40 million-ish tons or more of capacity since then. As you can see, we were modestly over 200 million tons last year. That's my way of saying, as we see this ramp up, we can meet whatever is going to be required. Number two, if we think about cadence, I would say several things. One, please remember there's about $10 billion of COVID relief aid that you're gonna see going into the flow this year.
I think that's gonna be helpful relative to cadence, particularly in the back half of the year. The other thing to keep in mind from last year is there were about $7 billion in new voter-approved initiatives that were passed last November, and about $4.5 billion of that was in Texas all by itself. What I would say to you is here in half two this year, we're gonna start feeling, I would say, a bit of IIJA. We're gonna feel a considerable amount of the $10 billion. We're gonna start to feel portions of that $7 billion. As we roll into 2023, typically, if we think about the way a highway bill rolls out, in year one, you're gonna see about 20%-25% spent. That's gonna be in 2023.
In year two, it tends to be around 40%. That's gonna be in 2024. The balance of it over the following years. As a practical matter, if we're really looking at 2023, 2024, 2025, 2026 and 2027, those are gonna be the IIJA impacted years, and I think that's likely to be the type of rollout that we're gonna see. I think remembering that that's gonna be augmented by what we've seen in COVID relief funds together with the voter-approved initiatives is the right way to think of it. Hopefully, those percentages at least gave you some direction on that, Phil.
Anything on the LNG side of things?
Oh, yes. I'm sorry about that. Look, what we're seeing on the LNG side is severalfold. One, as you recall, Phil, there are several large projects in South Texas that combined have about 13.5 million tons of stone that's gonna be required. Right now, we've actually only one of those jobs. We've actually seen a change order on that. That's on the Golden Pass job. We're actively involved in that. The fact is, whether it's Port Arthur, Rio Grande, Chevron Phillips or Cheniere, a number of those either have final bids that are going in or they're in the process of sorting out exactly where they're going to be. We believe with energy prices at an elevated level, we're likely to see continued activity there.
The other thing that we're seeing, and again I'm sure this is not a surprise to you, is we're seeing more wind activity across the United States. We're also seeing more solar activity across the United States. Energy is likely going to be an area that we will continue to see activity ramp up. I've been comforted to see at least two different wind farms that are looking for product right now. I think between LNG, wind farms, and solar, all of which are more aggregates intensive than you might otherwise believe, that's gonna be a pretty attractive end use for us for a while, with a lot of potential tons.
Thank you, Ward. Real exciting times.
Thanks, Phil. Agreed.
Our next question comes from Michael Dudas with Vertical Research. Your line is open.
Michael, we don't hear you. We're not sure if you're on mute or not there.
Oh, yes.
There we are.
My fast finger got in the way. I'm sorry about that.
It can happen.
Good morning. Ward, just wanna, like, maybe you could share some further observations on what you're seeing from your new acquisitions out in the West Coast. You've gone through some portfolio optimization studies. Are there any other. I assume they're ongoing, but is there any others that are material that we might think about throughout the organization that we might just see more in 2022?
Yeah. Let's start first with what we've done, with what we brought in. I would say they are all performing at or better than we would've thought. If we look at the Lehigh transaction in California, again, it's ahead of internal expectations at Q1. By that, I mean on volume, on price, on EBITDA. These assets, we believe, have substantial earnings growth and ASP potential that's in the process of being unlocked. We're talking with our new teammates on the way that we like to think about the way running one of those businesses looks like. We talked about the fact that we've successfully put in attractive January 1 increases for all product lines in California. I think I also mentioned that we've got midyears coming in in that marketplace as well.
Again, that's gonna be around $2 a ton in California. Again, we're very pleased with what we're seeing there. Tiller has been a wonderful acquisition for us as well. Keep in mind, in Q1, Tiller's not gonna do much because Minnesota just doesn't have that much going on. If we look at what we've seen in that business, number one, it was a very good business when we bought it. Number two, we think it's gonna be one of the best in class in Martin Marietta relative to cash flow conversion. We think it's gonna be that way for generations to come. It's got a very attractive aggregates business, but it also has a very attractive hot mix business in a marketplace in which Minnesota has a very aggressive Department of Transportation budget.
The other thing that's been important to us there is a very nice value add, some of the excess properties that we've been able to sell that have come out of that business as well. So all in all, as we're mining there, a lot of it's sand and gravel, and we're reclaiming property and turning it into very attractive commercial operations or pads going forward. That's been a very attractive business for us. I would tell you that there's been nothing in the major transactions that we did last year that has in any respect been a disappointment. In fact, they've all exceeded what we would have believed. Relative to the optimization, as you would imagine, part of what we've been focused on is what we've long said we are, and that is we are an aggregates-led company.
At the same time, if we look at the portfolio that we have, I will tell you very candidly, we're very pleased with the portfolio that we have. I wouldn't be looking for enormous changes in that portfolio. But you'll also see with the shifts that we've made and the sale of the ready-mix business in Colorado and Central Texas that we've done, if you look at the initial portfolio breakdown and product line contributions on what it looked like before that transaction and what it looked like after that transaction, obviously, the aggregates-led portion of it went up fairly notably. What you'll also see is that we're looking for about 100 basis points of margin improvement with what we've done relative to the portfolio as well. What you and I know is different markets are built differently.
In some markets, you need to be vertically integrated. In some markets, you don't. Obviously, if we think about the business that we have in Texas, we're the largest aggregates player, we're the largest cement player, and the largest ready-mix player, and we think that's an important way to face the market. Equally, if we look at the business that we have in Arizona today, the ready-mix business that we have in Arizona is a very, very attractive ready-mix business. Part of what we've done over a period of nearly 30 years now is try to be very purposeful in where we have built our portfolios, how we built it, and what the products are.
We believe with what we've already done and what we have pending right now, relative to the sale of Redding in Northern California, the ready-mix in California, and then the preferred transaction that we have with CalPortland relative to Tehachapi. It's a lot of moving parts, but we think it's all value-added moving parts.
Excellent, Ward. Thank you.
Thank you so much, Mike.
Our next question comes from Keith Hughes with Truist. Your line is open.
Thanks. My question is on PLC, which you described earlier. A couple of things on that. Does that sell at a higher sales price to the customer than just traditional cement? Do you have a feel for how big a business could this be? How well is it accepted specifically in the Texas markets?
No, look, thanks for the question on that. A couple of things. One, it doesn't sell for anything that's markedly higher. I mean, part of what is happening with it, Keith, is different departments of transportation have gone about the process of either approving it or not approving it on different timelines. Frankly, it's now allowed by TxDOT. The short answer is it performs very similar to Type 1 and Type 2 cement. It certainly helps, as Jim outlined, with incremental capacity. It does lower raw material costs, and it puts you in a position that you can use less carbon-intensive clinker over time as well. There are just a series of components to it that from a cost input perspective, from an environmental perspective, and a capacity perspective, could end up being actually very attractive.
As you know, Keith, we're a cement producer in Texas, and cement is very tight in Texas. From a timing perspective, this is very, very helpful because obviously FM7, which we will add, will bring significant efficiencies to that business. We'll obviously get some other components from those efficiencies that we believe might help meeting the volume of that market some more. Combining that with what we see in PLC, that's a very attractive trifecta in a marketplace that's seeing increasing pricing right now.
Okay, great. Thank you.
Thank you, Keith.
Our next question comes from Timna Tanners with Wolfe Research. Your line is open.
Yeah. Hey, good morning. Thanks.
Hi, Timna.
Wanted to just explore the cement shortage discussion a little bit more and what alleviates that, if there needs to be you know incremental capacity or if this is just logistics shortages. There's been a little bit of imports from Mexico, and I just wanted to get a little bit more of your perspective about how that plays out, you know, if this is a true shortage or if it's just about like labor and logistics. Your thoughts there would be great.
No, Timna, thank you for the question. The fact is that I think it's gonna be, one, it's real, it's tight. Two, I think it's gonna stay tight for a while. If we go and look at the reports that come out from the comptroller, I mean, what you will see is Martin Marietta's market share, and again, this is really Texas conversation that you and I are having, is usually around 20% in that marketplace. We see that move around a little bit. To your point, imported cement has seen its share move around over time as well. Historically, imported cement in Texas has been 10%-12%. I think the most recent numbers I've seen has it modestly over 17%.
That gives you a pretty good sense of, you know, that that's what's having to happen as we speak to make sure that the market is actually fed. I think part of what happens in Texas, too, Timna, if you think about it, when you're riding in New York, you're riding on asphalt roads. When you're riding in Texas, you're riding on concrete roads. And part of the reason I mention that is infrastructure has always been one of the higher percentages in Texas of the downstream markets that we have. We think it's going to continue to be that way. At the same time, if we're looking at the non-residential projects that are underway in that marketplace. They too tend to be relatively concrete intensive because they're structural in nature. Is it tight? Yes.
Are we actually going to add efficiencies and as I mentioned before, have a byproduct of what we think might be capacity through FM7? The answer is yes. Do I think PLC cement helps in that marketplace? I think that answer equally is yes. Here's something to keep in mind, Timna. West Texas, with the energy sector having been where it's been over the last several years, has not been particularly buoyant. We're seeing that market come back right now. That's some of the more attractive pricing in the state. At the same time, adding capacity is, number one, very expensive, and number two, regulatorily, quite challenging. That's my way of saying it is tight. It's not manufactured tight, it's not a labor tight, it's just tight, and I think it's likely to be that way for a while.
I hope that helps, Timna.
Between energy and infrastructure still on the come, there's even more demand around the corner and not a lot of new supply. Is that fair?
It feels like Texas is a good place to be. I think that's right.
Got it. Okay. Thank you.
Thank you, Timna.
Our next question comes from David MacGregor with Longbow Research. Your line is open.
Yes. Good morning, everyone.
Hi, David.
Ward, it's good morning. It's nice to hear your characterization of the aggregates market right now. It's the most commercially encouraging you've seen or the best moment you've seen in the past twelve years. I think that says a lot. I guess my question was with respect to the midyear price increases, and I'm just thinking back over the years, you know, midyear price increases always had kind of a limited second half benefit, but certainly an important compounding benefit to the subsequent year. Is there anything different this year with respect to how we would phase in those midyear price increases? Maybe your ability to price backlogs or maybe there's escalators in that business now that hadn't been there in the past.
I'm just wondering if there's anything different this year with respect to that phasing.
Yeah. I think volume is clearly gonna be growing into that half of the year and is going to be growing into next year. I would say two things, David. If you think about the ASP increases that we've already seen in Q1 ahead of the major price increases that we're putting out on April 1, I would encourage you to start thinking about this year's midyears in that way as we think about next year. As a general rule, and there are always exceptions to general rules, as you know, as a general rule, you'll recognize about 25% of a midyear price increase in the year in which you put it because you're protecting customers on volume that you've already committed to them. Now, to the extent that they're going through product more quickly this year, you might recognize more.
I think the primary thing that I would say relative to the midyears, David, back to my commentary that it's the most attractive commercial market that I've seen as CEO, it's simply going to be on the width, breadth, and amount of them. I just think we're in a place that we will see more of them at higher dollars than we've seen for a while. As I think I indicated early on, we're seeing midyears that could be anywhere from $1 a ton to $5 a ton, depending on product and market dynamics. It's been a long time since you and I have had that type of conversation.
Yeah, definitely. Congratulations on all the progress.
Thanks so much, David.
Thank you. We have a question from Courtney Yakavonis with Morgan Stanley. Your line is open.
Hi. Good morning, guys. Thanks for the question. Just wondering, you know, obviously very exciting to see the increase to pricing in the guidance, but you didn't change your volume outlook, and I believe, you know, this is primarily due to, you know, that tight market and largely logistics constraints. Can you help us just understand if you are starting to see any softness? Obviously, we're seeing, you know, freight rates come down. And then, you know, similarly just on the job site, if there's any improvement in some of the supply chain constraints that we've been seeing, or is it still too early to call at this point?
Courtney, it's a great question, and sadly, I do think it's too early to call right now. A lot of the same constraints that we were seeing last year, we continue to see right now. I will tell you, at least from supply chain to us relative to our own internal capital projects, we're not seeing big issues there in large measure because most of our supply chain is a domestic supply chain instead of international. But I do believe we're gonna be faced with, for a while, the same labor issues for contractors, though I think that is getting better. I think transportation will continue to be constrained for a while. The other thing that Jim mentioned, it's not so much a supply issue, it is a cost issue.
We did go back and adjust basically where we had our fuel for the rest of the year. We came into the year, as I think Jim just mentioned, with about a $25 million headwind on fuel. We're assuming it's gonna stay there. Actually, in the guidance that we've given you, we've assumed that there's about a $75 million headwind on that. I wanted to make sure I spoke to you about that headwind as well as what we're seeing overall in supply chain. I think the short answer is, Courtney, it's still too early to know for sure.
Okay, great. Thank you.
You're welcome. Thank you.
Our next question comes from Brent Thielman with D.A. Davidson. Your line is open.
Hey, great. Thank you. Hey, Ward, I've heard you mention on a couple occasions on this call how critical it is for the customers to get the product as quickly as possible in this sort of environment today, and I've heard that from others as well. Are you needing to make incremental investments at your sites to support that? Or is this just a situation where your scale and proximity give you a leg up right now?
Brent, it's a great question, and I think it's the latter. I think it's fortunate that we've been in a position that as we've gone through cycles, we've been able to very consistently invest in our business. We've never had to pull back on the CapEx stick for such an extended period of time at such a low base that we've done intrinsic harm to the business. In fact, if you go back over time and you see where we've been, we've largely been around 9% of revenues relative to our CapEx, and we've been consistent on what we're doing inside our business. I do think that puts us in the position that we can meet customer demands when other businesses that have not been as fortunate as we have from a capital allocation perspective on occasion can't.
Again, I think it's important to say too that we're gonna be very careful in the way that we do that because we wanna make sure we're recognizing the value of our product.
Okay. Thank you, Ward.
Thank you, Brent.
Thank you. We have a question from Michael Feniger with Bank of America. Your line is open.
Yes, thanks for squeezing me in. When we look at your updated pricing guidance, the sort of aggregates of 9%-11%, and kind of where you started with the first quarter, how you're gonna build, and it looks like you're gonna exit the year above that range in the 12%-15% range. Just why can't double-digit pricing in 2023, is that just a baseline that we should be expecting? With that level of pricing, what type of incremental margins should we be kind of thinking about on that level of pricing as that cost base hopefully normalizes by 2023? Thanks, everyone.
Michael, thanks for the question. I love your vision. You know, the fact is we'll talk more about 2023 when we get closer to it. I think your points are good, and I'm gonna ask Jim to speak a little bit to the type of build that we think we're gonna see and where things are going to exit. Obviously, we would not have taken up the midpoint of guidance unless we had some confidence in what we're seeing here in April. Jim, you want to address at least the build?
Yeah. So you're right. The exit momentum, it'll be higher than, you know, the ASP growth momentum will be more accelerated, more robust at the back end for this year versus today, leading to hopefully, continuation and good things into next year. So I think that all makes sense what you just said. As a mathematical matter, yes, that should imply a very robust incremental margins in a scenario that maintains those price increases, especially where you have a cost inflation moderation scenario, which is likely to occur in 2023.
Thanks.
Thank you, Michael.
There are no other questions in the queue. I'd like to turn the call back to Mr. Ward Nye for closing remarks.
Katherine, thank you. Thank you all for joining today's earnings conference call. We're confident in Martin Marietta's prospects to continue driving attractive growth and superior shareholder value, underscored by our consistently executed strategic priorities and a supportive environment in terms of demand and pricing. Integral to the long-term success of our employees, communities, and stakeholders are our sustainable business practices. To learn more, we invite you to read our recently published 2021 sustainability report, which is available on the sustainability section of our website. We look forward to sharing our second quarter of 2022 results in the late summer. As always, we're available for any follow-up questions. Thank you for your time and continued support of Martin Marietta.
This concludes today's conference call. Thank you for participating. You may now disconnect.