Welcome to Martin Marietta's third quarter 2026 earnings conference call. All participants are currently 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. Jacklyn Rooker, Martin Marietta's Vice President of Investor Relations. Jacklyn, you may begin.
Good morning, and thank you for joining Martin Marietta's Third Quarter 2026 earnings call. With me are Ward Nye, Chair, President, and Chief Executive Officer; Michael Petro, Executive Vice President and Chief Financial Officer; and Chris Samborski, Executive Vice President and Chief Operating Officer. As a reminder, today's discussion may include forward-looking statements as defined by U.S. securities laws. These statements relate to future events, operating results, or financial performance and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Martin Marietta undertakes no obligation to publicly update or revise any forward-looking statements, except as legally required, whether due to new information, future developments, or otherwise.
For additional details, 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. Supplemental information summarizing our financial results and trends is available during this webcast and in the Investors section of our website. Definitions and reconciliations of non-GAAP measures to the most directly comparable GAAP measures are provided in the appendix to the supplemental information, in our SEC filings, and on our website. Today's earnings call will begin with Ward Nye, who will discuss our third quarter results and updated 2026 and preliminary 2027 outlooks. Michael Petro will then review our financial results, after which Ward will provide closing remarks. Please note that all comparisons are to the prior year's corresponding period. A question-and-answer session will follow these prepared remarks. Please limit your Q&A participation to one question.
I will now turn the call over to Ward.
Thank you, Jacklyn. Good morning, and thank you for joining today's earnings call. Martin Marietta delivered record financial performance in the third quarter while advancing the transformation of our portfolio. Importantly, we achieved these results in a more challenging macroeconomic environment, as strong acquisition performance more than offset elevated diesel and other energy-related cost inflation. The completion of our combination with Lhoist North America, or LNA, marked a defining milestone in our company's evolution, meaningfully expanding our differentiated upstream specialties platform and further diversifying our earnings and cash flow profile. LNA's performance since closing has provided early validation of the strategic and financial rationale for the transaction. For the August 21 through September 30 period, the business generated revenues and cash gross profit of $216 million and $115 million respectively, well ahead of our initial expectations.
Seventy-five days since closing, integration is progressing well, and we remain focused on capturing the synergy benefits of the combination while maintaining the business's operating momentum. Turning to our 2026 outlook, as announced in today's release, we are updating our full-year revenue and Adjusted EBITDA guidance midpoints to $7.8 billion and $2.48 billion respectively. This updated guidance reflects stronger acquisition contributions, partially offset by lower near-term expectations for our heritage operations, where softer shipment trends and current price-cost dynamics are anticipated to persist through the fourth quarter. Looking toward 2027, our preliminary outlook anticipates mid-to-high single-digit mix-adjusted aggregates pricing growth, reflecting already communicated January 1 pricing actions for fixed-based customers, fourth quarter 2026 pricing actions on new quoted work, and the mid-year pricing carryover across acquired businesses.
Since the acquired operations have lower average selling prices than our heritage business, acquisition mix will temper headline reported pricing growth in the first half of 2027, particularly through May 15, the one-year anniversary of the New Frontier Materials acquisition. We thus expect full-year reported ASP growth in the mid-single-digit range. Importantly, these acquired operations provide meaningful opportunity for continued pricing growth over time as we apply our commercial practices across the expanded network. Turning to the end market trends, infrastructure remains our most resilient and aggregates-intensive end market. At the federal level, current surface transportation programs have been extended through December 11, 2026, while work continues toward a longer-term extension and ultimately the next surface transportation authorization. We continue to see broad bipartisan support for infrastructure investment. Importantly, 40% of the Infrastructure Investment and Jobs Act funding remains to be spent, providing a multi-year runway for transportation investment.
At the same time, state Department of Transportation budgets across many of our key markets remain at historically elevated levels. More than 60% of funding across our top states is derived from state and other non-federal sources, providing a more stable funding base. Private construction presents a more mixed outlook, with Dodge Construction Network forecasting non-residential square footage starts of approximately 1.2 billion square feet in 2027, approximately 24% below the 2022 peak. While interest rate-sensitive private non-residential construction remains soft, data centers, power generation, and warehouse development remain areas of relative strength. Data center project shipments more than doubled in the third quarter versus the prior year's comparable period. Our extensive distribution network, particularly in Texas and Louisiana, positions us well to serve the scale and logistical complexity of these often geographically remote projects with both construction aggregates and lime for soil stabilization.
Power generation also represents a compelling longer-term opportunity, supported in part by the rapidly growing energy requirements associated with data centers and broader electrification. The U.S. Energy Information Administration projects U.S. electricity demand to increase 25%- 50% by 2050, requiring substantial additional generating capacity and related infrastructure. We are also encouraged by the ongoing recovery in warehouse construction, building on the inflection that began in last year's third quarter. Recently reported investments, including Amazon's Project Mercury, which contemplates expanding its same-day fulfillment network to more than 1,000 facilities by 2031, underscore the longer-term warehouse opportunity. Infrastructure, together with data centers, power generation, and warehouses, account for approximately 50% of our aggregate shipments, providing meaningful exposure to end markets supported by multi-year demand drivers. Single-family residential and light non-residential construction, however, softened in September and October following the notable higher move in interest rates.
We do not anticipate a near-term recovery in these rate-sensitive end markets absent a meaningful improvement in affordability and financing conditions. Heading into 2027, we remain confident and enthusiastic in Martin Marietta's positioning and future. The strategic actions completed in 2026 have strengthened our portfolio, enhanced our industry-leading margin profile, and increased the contributions from our resilient Central Division and specialties businesses, providing greater earnings durability through economic cycles. I will now turn the call over to Michael to discuss our financial results. Michael?
Thank you, Ward, and good morning, everyone. Our core aggregates business generated record revenues of $1.7 billion, an increase of 14%, and cash gross profit of $696 million, an increase of 6%, driven by acquisition contributions that more than offset a $25 million decline in the organic business. Aggregate shipments increased 15.9% to 67.1 million tons, as acquisition contributions were partially offset by an organic shipment decline of 1.1%. With respect to pricing, as expected, acquisition-related mix had a more pronounced impact on headline pricing due to a full-quarter contribution from New Frontier, which carries approximately 50% lower average selling prices than our heritage business. Excluding acquisition and geographic mix, our organic pricing increased 2.7%. Turning to cost of goods sold per ton, excluding external pass-through freight, increased 5.6%, or 5.1% on an organic basis, primarily reflecting higher cash costs, including diesel and other energy-related expenses.
Incremental depreciation, depletion, and amortization expenses represented an additional $0.52 per ton. Excluding the diesel headwind, cost of goods sold per ton would have increased 3%, or 2.6% on an organic basis, reflecting disciplined controllable cost management by our operating teams. Most notably, organic labor cost per ton, our single largest cost category, declined modestly in the quarter and was roughly flat year-to-date. Our specialties business delivered record quarterly revenues and cash gross profit of $362 million and $163 million, respectively. LNA's $216 million revenue and $115 million cash gross profit contribution since the August 21st closing date further demonstrates the resilience of lime and the transaction's margin accretion to the enterprise.
In a year characterized by significant acquisition and divestiture activity, related purchase accounting, and comparability impacts on reported results, our record third-quarter free cash flow of $426 million, an increase of 18%, demonstrates the strong underlying financial performance of the business. On a year-to-date basis, disciplined inventory management has unlocked $135 million, while capital expenditures are $157 million lower than the prior year period. These actions alone have contributed over $290 million of free cash flow improvement. Together with our strong year-to-date organic labor cost control, ongoing network optimization efforts, and other structural cost actions, we reaffirm our confidence in achieving the $350 million incremental cash flow target discussed during the second-quarter call. Turning now to our updated 2026 guidance and preliminary 2027 outlook. Our revised 2026 Adjusted EBITDA guidance midpoint of $2.48 billion includes expected contributions from LNA and reflects year-to-date performance.
October shipment trends, and an assumed normal winter. The outlook also incorporates continued inflationary pressure across diesel and other energy-related cost categories, as well as New Frontier's impact on reported volume and headline pricing. In 2027, we expect margin expansion, driven primarily by mid-to-high single-digit mix-adjusted aggregates pricing growth. Combined with ongoing network optimization, disciplined cost management, and a full-year contribution from LNA, we expect these benefits to more than offset continued inflationary pressure. Turning now to the balance sheet. We funded the cash consideration for the LNA transaction with a $1.5 billion prepayable term loan and $5.5 billion of senior notes issued across several maturities, with a weighted average coupon rate of approximately 5.5%.
As discussed when announcing the transaction, we are committed to deleveraging to our targeted range of 2.0-2.5x net debt to Adjusted EBITDA, and retaining our investment-grade credit ratings, with deleveraging supported by the significantly enhanced free cash flow generation of the combined business. Ward, back to you.
Thank you, Michael. What distinguishes Martin Marietta today is the deliberate reshaping of our earnings profile. Through portfolio optimization, we have built a more resilient and diversified business with increased contributions from our central division and our higher-margin Magnesia Specialties platform. At the same time, we're optimizing our aggregates network and aligning production with current demand conditions, creating a leaner cost structure and a more efficient operating platform. Combined with the pricing discipline that has long been a hallmark of Martin Marietta, these actions position us to expand margins while continuing to grow earnings and cash flow. Operator, please provide the required instructions, as we're now ready to take questions.
Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. In the interest of time, we ask that you please limit yourself to one question and rejoin the queue for any additional questions. Our first question comes from Trey Grooms from Stephens. Please go ahead, your line is open.
Hey, good morning, everyone. Thanks for taking my question. Ward, could you give us a little bit more detail on the puts and takes behind your preliminary 2027 pricing view of mid-to-high single digits, mix-adjusted? What's your end market outlook and could imply for organic aggregates volumes next year? With this, maybe what your outlook is for the gross profit contribution from ags, or cash gross profit contribution, given your outlook for continued higher costs in 2027? Thank you.
Trey, thanks for the question. Good morning to you. Trey, I'll take you through several puts and takes on that. Let's start to your question with pricing. Currently, we see a nice path to mid-to-high single-digit mix-adjusted aggregates growth in 2027, and I think there's several reasons for that. Number one, what we think we're going to see on January 1 price realization. I think that's important. Number two, what we're already seeing in quoting work that we're doing now in Q4 and on the 2027 projects that are coming next year. Lastly, the carryover pricing on acquired volumes at the mid-year price increases that we saw in the acquired businesses.
As I indicated in the prepared remarks, those markets tend to be 25%-50% below Heritage Martin Marietta, so that's important that we got those in mid-year, but equally, it gives us a nice track record going forward. What I'll say relative to pricing, and I mentioned it briefly in the prepared remarks, cadence is going to matter, because obviously, as we anniversary both the QUIKRETE transaction in February and the New Frontier acquisition in May, you'll see a nice bump when those two anniversaries roll by. But keep in mind, if we're really thinking about the business in two different chunks, I would say this. The Heritage business, about half of the shipments are fixed base and about half are quoted work. Again, if we're seeing nice quoted work pull through right now, I think that's important.
Relative to the other part of your question with respect to volumes, I guess I would say several things. Number one, the backlogs actually look very similar to what they did coming into this year. I think that's a really good place to start. At the same time, as you and I have discussed before, it's a dynamic market right now, so we're really just waiting to see the end of the year and have a much better feel on the precision of what volumes are going to look like. The thing that's important to remember relative to volume is we're going to have a really tough Q1 compare, because keep in mind, as we said last year, when Vail is having a bad winter, meaning they have no snow, we're having a great winter.
Keep in mind, the West and the Central divisions came out of the box early in 2026 very, very aggressively. We don't anticipate that happening again. That goes back to Michael's comment. We're really looking for more normalized weather. With respect to the other part of your question on end market outlook, I would say several things. One, I think the best way to think about that is it continues to be relatively bifurcated, and what I mean by that, residential and light non-res simply remain pressured because of what's going on with interest rates. As we saw those rates move here in the second half of the year, we saw both of those hit a bit of an air pocket. Not a big surprise. You would have expected it. I expected it too.
Frankly, as long as mortgage rates remain above 7%, single family housing is just not going to be in a terribly robust place. The converse of that is what we see going on in infrastructure and what we see in heavy non-res. If we're looking at that, keep in mind, those areas account for about half of our aggregates business. So, when we're going into the new year with those performing well, I think that's important. If we're looking at data centers, they remain an especially attractive opportunity. What we're seeing is year over year, our data shipment volumes more than doubled year over year in the third quarter. Again, Texas is expected to represent approximately 30% of projected U.S. data center capacity by 2028.
Our leading position in Texas, not just in stone, but in lime today, is going to put us in a really attractive place for those multi-year projects. We've also discussed what's been happening relative to warehouse, and we expect that recovery to continue. Again, if we're looking at warehouse and distribution construction, that's up approximately, in our world, about 51% today. Again, I mentioned what Amazon is doing between now and 2031, adding more than 1,000 facilities. We think, again, that gives nice momentum going into the new year. The last one I'll mention, Trey, in response to your question, then I'll ask Michael to come back and talk specifically about the profit numbers that you referenced, is power generation.
We are seeing that move in very considerable ways, both relative to LNG and what is happening in portions of the Texas market, but more broadly, what is happening in data and data warehousing as well, because we are seeing increasingly amounts of that going in behind the meter. I have tried to give you a sense of what do I think is happening with price, what do I think is happening with volume, how are the end markets behaving that I think lead up to those, and then Michael, I will ask you to come back and respond to the other portion of this question.
Trey, we will come back certainly with more specifics relative to our profit guide for next year. We are just giving the preliminary pricing now, but as you know, pricing is the disproportionate lever for profit growth. As Ward mentioned, we feel very confident about what we are going to be able to achieve January 1st there. The mid to high single digits on a mix-adjusted basis is definitely what you should be baking in. What I would say is, inflation, we expect to continue. Certainly with diesel where it is today, I think you can model a flat line there. We are seeing all in with acquisitions about a $25 million headwind per quarter for diesel. We will lap that in Q1 of next year, so we will have an incremental headwind going into next year in the first quarter until we start having same on same diesel comps.
Think elevated inflation, mid to high single digit pricing, and some of the commentary that Ward provided on volume ought to be able to get you to a preliminary profit number.
Our next question comes from Adam Thalhimer from Thompson Davis. Please go ahead, your line is open.
Hey, good morning, guys. Nice job in a tough environment.
Thanks, Adam.
Hey, can you update us on how the LNA integration is going, and why did they get off to such a fast start in Q3?
Adam, thanks for the question. The integration's going just fine, is the quick response. The work streams are well underway. The performance so far, to your point, has exceeded our initial expectations. The integration remains totally on track. If you're really looking at what's happened in the 40 days since closing, cash gross profit was $115 million, Adjusted EBITDA $104 million at a 48% + margin. Part of what I think people are now seeing is what we had long seen in that business and why we found it to be so compelling.
And keep in mind, we haven't even started to get the additional contributions that we believe we're going to see as we continue to integrate this, because we think the additional value creation that's going to come from cross-selling in hot mix or Texas mega projects or otherwise is going to be pretty considerable. To your point, are we really focused on capturing those synergies just as quickly and thoughtfully as we can? We are. Here's the other piece that we're really focused on. It's a great business. The last thing that we want to do is do anything that takes a really good business, a high-performing business, and puts it off track. But the integration is going well, the synergy realization is going well, the cultures have come together actually very nicely. Their safety culture and ours align the way that we would hope, Adam.
There's nothing that we're seeing in this that has been a negative surprise to us at all. Again, I think we'll continue to have results that the street will see and they will like, and the merits of this transaction will simply become self-evident.
Thanks, Ward.
Thank you, Adam.
Our next question comes from Kathryn Thompson from Thompson Research Group. Please go ahead, your line is open.
Hi, thank you for taking my question today. I appreciate your color on the 2027 outlook and also for LNA. Congratulations again on closing that. I think the next big subject are elections. We wrapped up elections yesterday, and we're looking forward to hopefully a reauthorization of the Federal Highway Bill next year. I would like to get your thoughts in terms of how the elections may or may not impact this process, what you're seeing right now with states in terms of their spending, and some of the inevitable things that happen, such as holding up lettings in advance of a highway bill, and are you seeing that in the states in which you operate? Thanks so much.
Kathryn, thanks so much for the question. I would say several things. One, to your point, if we're really looking at states in the first instance and the fact that in our world, given the fact that we've tried to build our business in states that have really good fiscal conditions, the state budget circumstances matter disproportionately. What we're seeing right now is very good, consistent expected performance from the states. What I mean by that is if I go and look at, and states are important to us, which means now California, Texas, Georgia, Missouri, South Carolina, Colorado, Iowa, they're all maintaining or increasing transportation investment. If we're looking at North Carolina and Florida, again, their funding is going to be perfectly adequate for what we're looking to do next year.
As we're going into 2027, I don't see anything in the states that are disproportionately important to us that lead us to believe that there are going to be any issues there. To your point, have we seen any delay in lettings? The short answer is no, we have not. If we're looking on the other part of your question relative to what's going on from the federal level, keep in mind when BUILD America 250 came out of the Congress, it came out with a 62 to two vote. That tells us from the outset that this is a bipartisan bill. Look, do I think it's still possible that we could see something in a lame duck Congress? Maybe. Do I think that's relatively unlikely? Probably.
Do I think a Democratic Senate might push even harder relative to highways, bridges, roads, and streets, and overall transportation? I think so. Long story short, do I think we should go ahead and plan for seeing probably a continuing resolution or two as the Congress goes through that process? I think that's probably realistic. Is that something that concerns me? I would suggest to you, frankly, not at all. Again, I think this is largely bipartisan. I think we've got a group likely coming in who will want to invest perhaps even more. Again, I'm not seeing anything from the states that's concerning to me. I see a process going forward at the federal government that I think we've seen before, and it's very navigable.
The last thing that I would say, and I think this is important, if we go back and look at the last peak in aggregate shipments several years ago, you know what that was in the middle of? A continuing resolution. I think what happens is people oftentimes sit back, look at a CR, and wonder, "What is this going to mean for this very fundamental product that rolls out?" The fact is, we simply go through these ebbs and flows, I think, in a very steady, very constructive way, and I don't see anything at the federal level or the state level that makes me think otherwise, Kathryn. I hope that's responsive.
That's very helpful. Thanks so much, and best of luck.
Thanks, Kath.
Our next question comes from Phil Ng from Jefferies. Please go ahead, your line is open.
Hey, guys. My question is for 2027, perhaps for Michael. If diesel prices and costs stay at these levels, is 3%-4% cost per ton increase reasonable when we think about 2027? Outside of M&A, any call-outs on mix, and does LNA creating noise in terms of that number as well? I know they produce some construction-grade aggregates as well.
Yeah. Thanks, Phil, for the question. I think the short answer to your COGS per ton and inflation estimate is probably in the general ZIP code. The best way to think about it for us on diesel is we will consume in the aggregates business, all in with QUIKRETE and New Frontier, about 50 million gallons, at current spot rates of about $4.70 a gallon. That is going to be the diesel comp that we will be looking at next year, and we are assuming for planning purposes internally and for what we are doing relative to price, that type of diesel level for the balance of 2027. You were breaking up a little bit. Can you repeat the rest of the question?
Sure. From a mix standpoint for pricing 2027, any call-outs outside of M&A that could create some noise for 2027? I appreciate New Frontier and QUIKRETE. LNA, I believe they have some construction-grade aggregates. I do not believe it is part of that equation, but does that have an impact in terms of how we think about mix for 2027?
Yeah. No. The Lhoist aggregates are certainly out of that. From a mix perspective, in Q1, you will have the acquisition mix of New Frontier and two months of QUIKRETE. So, on a reported basis, that will continue to be impacted by those tons flowing through. Of course, you get the benefit of the tonnage on volume in the Q1 comp on an as-reported basis. Then in Q2, you have about 45 days of New Frontier. So, we begin to lap the acquisition comps midway through Q2, and that's generally speaking the mix from an acquisition perspective. The other mix that we've had a lot of this year is the geographic mix on the organic business. That could very well turn in to be a mix tailwind next year. As Ward mentioned, we don't expect, or we're expecting more of a normal winter.
So, what we don't expect is for the Central Division and Colorado to come out of the gates with the volume growth that we saw those two divisions do this year. So, that means more contribution from the East and the Southwest, which tend to have higher average selling prices. That said, that's why we're guiding preliminarily to a mix-adjusted price metric of mid to high single digits. That would effectively capture all mix, whether it be organic and/or acquisition.
Hey, Phil, let me come back and add one more thing too, because the price conversation is really important. Thank you for the question. The other thing that I want to make sure we don't drive by in this quarter without talking about has been the cost performance of the business, because I think our teams have done that, in my view, extraordinarily well. So, if we're looking at organic COGS, and I'm going to exclude for these purposes external freight, it increased 5.1% in the quarter and 3.8% year-to-date. But excluding the diesel spike and the corresponding increases were limited to 2.6% and 2.2% respectively. One thing that I think is really important is if we're looking at labor cost per ton, which is our single largest cost category, that was flat for both the quarter and year-to-date.
So, I think your point's a good one, and that is making sure you have your head around what's that pricing cadence look like next year. But keep in mind, the thing that we can really control within our gates is what's happening with respect to cost. I like the setup relative to pricing, but I also like what I'm already seeing relative to cost. So, forgive me for parachuting that in, Phil, but I think that's an important one to get out.
Appreciate the call. Thank you, guys.
You bet.
Our next question comes from Angel Castillo from Morgan Stanley. Please go ahead, your line is open.
Hi, this is Esther on for Angel. I just had a question on the aggregates sold to ready-mix customers. Is mainly moved to April 1st increases. Do you see any changes in the ability to get price for ready-mix customers in 2027, like that timeline shifting to possibly twice a year versus that one time, April 1st?
Esther, thank you for the question. I would say several things. No, I do not. What I think we are broadly seeing from ready-mix customers is as follows. I think some will be January 1, I think some will be April 1. I think there is just going to be a primary difference in geographies. I think in geographies that are colder based, you will see April. I think in warmer based, you will see a January 1 price increase. Here is what we have heard very clearly from our concrete customers this year. It was very difficult for them, given what was happening in private non-res and res markets, to take a mid-year price increase this year. I think that is part of the pressure that you have seen this year. Their response has been, "I am seeing the same input issues you are. I know you are going to have to go up in the new year.
Do this for me. Give me one price increase. Hit me at the beginning of the year, and do not plan for mid-year next year." I think that actually helps them in their planning. Frankly, from our perspective, moving that forward is very helpful as well. I think your question relative to concrete is particularly well-placed, because I think that has been really one of the more challenging aspects of this year. Again, I think the answer is yes, we will see increases in some markets in January. Yes, we will see increases in some markets in April. We are going to treat both of those relative to concrete as if that is going to be the only one during the course of the year. Esther, I hope that is helpful.
Yes, thank you.
Our next question comes from Anthony Pettinari from Citigroup. Please go ahead, your line is open.
Good morning.
Hey, Anthony.
Hey. In the quarter, you saw ags organic shipments decline and organic pricing up, I think, 2.7%. Just wondering how that kind of compared with your expectations going into the quarter, and if there were any factors in terms of weather, I mean, you talked about geographic mix, that you'd call out when we look at Q3 and maybe think about Q4.
Yeah, I would say the primary thing that changed, Anthony, is number one, the concrete guys could not take mid-years this year. Just talked with Esther about that. I think that's one thing. I don't see that persisting. I think the other issue was, as interest rates moved, we simply saw the private work slow down. Again, not a big surprise. I think you've across the heavy side space. I'd be surprised if that's not a pretty consistent answer. Part of what I think we're doing is we're looking at what happened with volumes because of that interest rate increase in September, and then what we've seen in October on a days-affected basis. That's what's informed the way that we've looked at the balance of the year, particularly going into Q4.
Again, last year, for example, we had a November that was a pretty heady November from a volume perspective. I think we're trying to just be very thoughtful, maybe with a touch of conservatism as we're looking at Q4 this year.
Okay. That's helpful. I'll turn it over.
Thank you.
Our next question comes from Keith Hughes from Truist. Please go ahead, your line is open.
Thank you. When you were talking about 2027, you called out the dates, specifically anniversary New Frontier and QUIKRETE, in getting their prices up towards the Martin Marietta average. I assume you are not going to get it all the way. Do you have any feel for how much of the gap between the two entities' pricing you will be able to realize as we head to the second half of next year?
Keith, that is a great question, so thank you for that. I would say several things. One, did we see mid-years at the QUIKRETE operations and New Frontier this year, even though we closed New Frontier after the mid-year? The answer is yes, we did. Do I anticipate that those will likely be markets in which we will look for mid-years again next year? The answer is yes, I think we probably will. I think to answer your question more directly, typically what we have seen, Keith, is probably a 36-month runway from the time that we buy a business until the time that we can get it closer to something that looks like a Martin Marietta average. I do not think these are going to be dramatically different.
One reason I would say that in many respects is the markets that are really hitting it the hardest right now tend to be those markets in the center part of the country. If we are looking in markets in Missouri, in Kansas City, or others, those are markets that, from a volume perspective, have done very, very well this year. Again, back to the notion on backlogs, our backlogs in those markets also look attractive. I think I have given you, A, where they sit today, B, the timeframe that we think we are likely to see that gap closed, and what I think will happen in those markets with mid-years in 2027.
Okay, thank you.
You are welcome, Keith.
Our next question comes from Avi Jaroslawicz from UBS. Please go ahead, your line is open.
Hey, good morning.
Good morning.
I know you are expecting a positive price-cost for the year next year, but should we expect that the organic price-cost is going to turn positive early in 2027, or should we continue to see some headwinds there for some time into next year, maybe until we lap some of the higher cost comps from this year?
Yeah, no, we would think on an organic basis, so ex the reported mix impacts from the acquisitions, we should see price-costs coming out of the gate next year.
Okay, got it. Just quickly maybe, what are you expecting on that front for Q4? Should it look similar to Q3, or any differences?
Yeah, so on an organic basis for Q4, what we are seeing is implied in the guide is down high single-digit volume, up on a reported organic basis about 2% pricing. That is a step up from the 1% that we saw in Q3, so we are starting to see a little bit of momentum from the quoting work flowing through. But we expect to continue to have the elevated COGS inflation in Q4. So, we think Q4 is certainly still price-cost negative, but the inflection point being what we are going to do on January 1st.
Okay, very helpful. Thank you very much.
Thank you.
Our next question comes from Garrett Greenblatt from JP Morgan. Please go ahead, your line is open.
Hi, thanks for taking my question. I just wanted to touch back on the Lhoist transaction and talk about some expectations for 2027 there. What is the cadence of when we should expect to see some of this cross-selling volume start flowing through on the aggregate side? Maybe if you could talk about the timing of the royalty contracts you have. Then just on the price side of things, what are the dynamics expectations you see for lime in 2027?
Well, look, we will deal with the aggregate side in the fullness of time. I mean, those are contracts that are in place with companies that we and LNA have good relationships with, and we want to be very thoughtful about those. If we start looking at really what we expect from LNA next year, part of what is going to be attractive about that business, we are anticipating about $820 million worth of EBITDA for 2027. And part of what is really appealing about that business is how steady we think that is going to look across the year. And I think that is one of the things that we spoke of when we did the transaction, because it adds such nice, stable, consistent, predictable earnings. If we think about what that is going to look like, I mean, this is a pretty easy way to measure it.
Probably 23% of profits will come through in Q1, 27%-ish in Q2, 27% in Q3, and then back to 23% in Q4. So, really, you have it bookended with 23, you have 27 in the middle, which means you are getting about a 50/50 split during the course of the year. I think to the other part of your question, we are already having our sales teams working very collaboratively, looking at either DOT jobs, data center jobs, et cetera. Because keep in mind, part of what is going to happen now on either public works or big, heavy private non-res works is we can look at those jobs together. And in some instances, they are going to want base stone, clean stone, et cetera. In other instances, they may want the lime, particularly as they are working through, in some respects, unsuitable or challenging soils.
Or in some instances, we may want to push them one way or another for various reasons that are to the customer's benefit. So, you will clearly see the benefits of cross-selling coming through as we get into 2027. Frankly, I think we will start seeing some of that even here in the latter part of 2026. Again, I hope that answered your question.
Our next question comes from Ivan Yi from Wolfe Research. Please go ahead, your line is open.
Yes, good morning, guys. Thanks for the time.
You bet, Ivan.
You didn't break out specific, the volumes and the pricing for the lime business, but can you speak directionally about how LNA tonnage and pricing trended in 3Q, and also what you're seeing thus far in 4Q? Thank you.
Yeah, no, we're still looking at ultimately what's going to be the level of disclosure for the specialties business as we balance providing appropriate visibility so that the investing community can make informed decisions versus disclosing anything competitively sensitive. So, I think it's all part of the evaluation that we're taking a look at. But what I can say on volume and price, just on a percentage basis, both were up nicely with revenue in the period that we owned it in September was up about double digits. And I would say the trend in October on one less shipping day looked similar.
Thank you.
Our next question comes from Michael Dudas from Vertical Research. Please go ahead, your line is open.
Good morning, Jacklyn, Michael, Ward.
Good morning.
Maybe this one for Michael. You highlighted some positive operating and free cash flow metrics in the quarter and your outlook for the year. Maybe you can early look on 2027 on CapEx. Are you going to continue to get some working capital tailwinds as we move to 2027? Looking at relative to what free cash flow generation could be versus what you had thought coming into the Lhoist North America acquisition, how has it played through?
Yeah, so the Lhoist business, as you know, is just a cash generation machine because it doesn't require a lot of CapEx, given back to a question that we were talking about earlier. They largely outsource a lot of the mining, so crushing rock that wears down crushers, conveyors, mobile equipment, et cetera, is on a third party's dime. So, extremely good cash flow conversion from EBITDA generated from LNA, given the limited CapEx requirements. What I would say for next year, our CapEx guide, when we do come out with it, will include CapEx all in, inclusive of acquisitions, but we still expect that to be within that guide that we provided at the Capital Markets Day, which would suggest about 25% of EBITDA. So we don't see any difference in that.
Relative to working capital, we are getting a lot of the benefits this year in terms of working capital inflows relative to inventory. What we're going to look to do is stabilize that so that we don't have it swinging the other way into a working capital outflow, moving forward. So I wouldn't expect the same quantum of cash flow impact as a result of inventory management, but I wouldn't expect it to reverse and go the other way.
Ward, looking at some tuck-in acquisitions, you announced the close of one in September. How does that play out the next 12, 18 months, given the deleveraging focus on top of what I'm sure is a pretty interesting pipeline still for additions for your business?
It is. Michael, thank you for the question on that. Actually, the way that we structured the transaction between cash and equity was very purposeful because we didn't want to have ourselves on the sidelines if we saw attractive bolt-on acquisitions. That said, the delevering process is going to be important, and we're going to start that here in the fourth quarter with approximately $500 million of debt repayment coming up over the coming weeks. I think you'll see a nice blend. Will we invest in the business, to Michael's point, from a CapEx perspective, if we think it's appropriate? Absolutely. Will we be paying down debt? To be sure. Will we continue to be in the bolt-on business on the aggregate side, just as you saw with the Frazier transaction that was announced?
We will continue to do that, and we have the ability to do it. Thank you for the question.
Thank you, guys.
Our next question comes from Brent Thielman from Oppenheimer. Please go ahead. Your line is open.
Hey, thanks. Good morning. Ward, maybe just on LNA, it looks like you were low 40% gross margin ex the markup on a shortened quarter. Can you just talk about your ability to protect those margins or even expand on those margins in a kind of a dynamic cost environment?
Yeah, the nice thing about that business is, a big piece of their cost is energy. They have looked at that from a very different lens than we have historically in aggregates. We looked at it to a degree in this dimension in cement, because there is some hedging that goes on with that. Again, it tends to be very, very predictable. The pricing in that space tends to be pretty constructive as new work comes up. Keep in mind, the other thing that is different about that business is, in many respects, we have got contracts going forward that we know are in place that have built-in inflators in them. Again, it is a business that we talked about before from a quarter to quarter, from a year to year, and otherwise, you can actually model really very, very well.
Yeah, I think having the business positioned in the southern half of the U.S., where we continue to see remanufacturing, where we continue to see significant energy work, whereas I indicated in my prepared remarks, Texas is going to have 30% of the data center activity over the coming years. We see something in that business that we believe is highly durable and highly resilient, and that was one of the reasons that we were so attracted to it, frankly, for the last decade. Again, we have been watching that space. Keep in mind, even if we look at our heritage Woodville plant, I mean, that was the business that was seeing nice growth at the mid-single digits range for 20 years. Again, we love that business, but where that sits geographically does not have the same dynamism that the Lhoist North America business that we have acquired does.
I think when we look at the history of the lime business that we have had and how durable that margin has been, and then what this new business looks like in a more southern climate, and importantly, what those businesses can now do together under one roof, I think that leads us, Brent, to the overall durability of what we have. I do not look at that and lose any sleep over it in any respect.
Okay. Thank you.
Thank you.
Our next question comes from David MacGregor from Longbow Research. Please go ahead. Your line is open.
Yeah. Good morning. Thanks for taking my questions. Kind of late in the call here, but I wanted to just tap your thoughts on the M&A market, and you kind of responded a little bit to this to Michael's question earlier. But, I am just wondering to what extent you are seeing valuations maybe being impacted by higher rates or narrower price-cost performances and cost inflation. What are you seeing from sellers right now?
You know, it's interesting. My view has long been that once sellers determine what they think a business is worth, they usually reside there for an extended period of time. So I'm not seeing a lot of degrees of change in that right now. It may mean something on how receptive the market is to it in some respects, David. But I haven't seen any notable change. The other thing that happens is on occasion in those circumstances, rather than having a change in value, they just have a change in timing. So again, from my perspective, I don't see a change in the way sellers are thinking about value. We may see a degree of what they're thinking in timing, and all of that is fine. We're playing this in a very long ball fashion, and we want to grow our business really responsibly.
We think we have, and our track record indicates that, and I think we'll continue to do so. But I hope that helps, David.
It does. Thanks, Ward.
Thank you.
Our next question comes from Brian Brophy from Stifel. Please go ahead. Your line is open.
Yeah, thanks. Good morning, everybody. Appreciate you taking the question. Just a follow-up on the 2027 pricing discussion. Obviously, the cost outlook remains pretty fluid here. If we see any diesel inflation or inflation between now and year-end, to what extent does that change the outlook for January price increases, just given the timing of pricing letters and customer discussions? Thanks.
Brian, it's a great question. I would say probably several things. One, I think what changes in a more immediate circumstance is what overall bidding looks like. Keep in mind, about half of it's going to be fixed base, half of it's going to be some form of bidding. With the PreciseIQ tool that we have, part of what we're able to do is move that algorithm very, very quickly to make sure that we're taking into account what we're seeing change in the marketplace. To your point, do we recognize it's dynamic? Yes. Do our customers recognize it's dynamic? The answer to that is yes as well. Have we put in tools in the last 18 months that, in my view, allow us to navigate that with even greater agility going into 2027? To be sure, we have.
I think that's how we see that playing out, Brian.
Appreciate it. Very helpful.
You bet.
Our next question comes from Garik Shmois from D.A. Davidson. Please go ahead. Your line is open.
All right, thanks for squeezing me in. Wondering if you can update us on where you are on your aggregates network optimization program. Just for clarification, maybe I missed it, but can you identify how much LNA Adjusted EBITDA is in your 2026 revised guidance?
I will do a couple things. Yes, we did talk about LNA EBITDA. Mike, you want to come back and remind me about that?
Yes, just quickly, before I turn it over to Chris Samborski for the network optimization, about $290 million of EBITDA is the sub-period contribution to Q3, and then the balance of Q4.
We are looking for about 820 next year, Garik. That might have been your question as well. Garik, on the other part of your question relative to network optimization, as you heard in Jacklyn's opening comments, Chris Samborski is joining us on this call today as well. Keep in mind, part of what Chris is doing is overseeing that network optimization, in large measure, following up on what he did in the Colorado business when he was West Division president. I will turn it over to Chris to give you a snapshot of how that process is going and what he anticipates.
Garik, thanks for the question. As you know, we started that network optimization work in the West Division last year, and since that time, we have executed similar actions in roughly half of our divisions, and we continue to look for opportunities to do that across the remainder of the footprint. As we think about the benefits of network optimization, I would say really three things. One, there is the reduced operational expenses associated with headcount reduction, elimination of contract services, et cetera. There are also free cash flow benefits, and that comes twofold. One, from reduced capital expenditures related to plant and equipment, and also from the reduced inventory as we are able to sell down the stockpiles at those idled locations. I do think it is important just to highlight that network optimization is one tool in our toolkit, and we deploy it when the demand-supply environment is conducive to it.
But equally, we maintain the ability to restart those sites, and when the markets necessitate that, we will certainly do so. So, our teams continue to execute from a cost perspective very well. We mentioned earlier disciplined inventory management, CapEx reductions this year have yielded $290 million in cash flow, and as Ward said earlier, unitary labor cost this year is really down to flat on a year-over-year basis. So, we are certainly seeing the benefits of that network optimization work come through.
Great. Thank you.
Thank you, Garik.
Our last question today comes from Timna Tanners from Wells Fargo. Please go ahead. Your line is open.
Yeah, thanks for squeezing me in. I wanted to, if I could, just follow up on two quick items. One is the Magnesia Specialties legacy business was kind of flat year-over-year, but down quarter-over-quarter, so just wondering if there's anything you can call out there that we might have missed. Also, just on the fourth quarter guidance, is it just weather that drives the low end or high end, or anything else that we can watch? Thanks again.
Relative to the legacy Magnesia business, nothing of particular note to call out. I think you saw the cash gross profit kind of remaining flat. That was driven by stability in the lime business, and we do have the magnesia-based business, both from Premier and from our legacy Manistee business. So those are the two components of that. But what I would say is, Heritage Lime and, of course, LNA, Timna, and you know the lime business better than most, given your coverage relative to steel, is performing much better than initial expectations for us coming out of the gate. So we're very pleased with the combo of Heritage Woodville and LNA.
We have no further questions. I would like to turn the call back over to Ward Nye for closing remarks.
Again, thank you for joining today's earnings conference call. As we look toward 2027, we believe the actions we've taken to strengthen our portfolio and operating platform have created a structurally stronger Martin Marietta with a more balanced earnings profile than at comparable points in prior cycles. We're continuing to proactively align cost, production, and capital with evolving market demand while remaining focused on disciplined execution and pursuing attractive opportunities across our business. Our differentiated portfolio and proven track record of navigating dynamic macroeconomic environments reinforce our confidence in Martin Marietta's long-term prospects and ability to create compelling value for shareholders. We look forward to sharing our fourth quarter and full year 2026 results in February. As always, we're available for follow-up questions. Thank you for your time and continued support of Martin Marietta.
This concludes today's conference call. Thank you for your participation. You may now disconnect.