Martin Marietta Materials (NYSE:MLM) reported third-quarter financial results on Wednesday. The transcript from the company’s third-quarter earnings call has been provided below.
This transcript is brought to you by Benzinga APIs. For real-time access to our entire catalog, please visit https://www.benzinga.com/apis/ for a consultation.
View the webcast at https://edge.media-server.com/mmc/p/prsroayu/
Summary
Martin Marietta Materials reported record financial performance in Q3 2026, with strong acquisition performance offsetting elevated energy costs.
The strategic acquisition of LWAS North America has exceeded expectations, contributing significantly to revenue and profit, and integration is progressing well.
Updated 2026 guidance includes revenue and adjusted EBITDA midpoints of $7.8 billion and $2.48 billion, reflecting acquisition contributions and softer heritage operations.
For 2027, the company anticipates mid- to high-single-digit growth in aggregates pricing, with continued opportunities for pricing growth over time.
Infrastructure remains a resilient market, supported by federal and state funding, while private construction presents a mixed outlook due to interest rate pressures.
The specialties business delivered record revenues and profit, demonstrating the resilience and margin accretion from the LNA acquisition.
The company is committed to deleveraging following the LNA acquisition, supported by enhanced free cash flow generation.
Network optimization efforts continue, contributing to disciplined cost management and free cash flow improvement.
Full Transcript
OPERATOR
Welcome to Martin Marietta Materials’ 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. Jacqueline Rooker, Martin Marietta Materials’ Vice President of Investor Relations. Jacqueline, you may begin.
Jacqueline Rooker (Vice President of Investor Relations)
Good morning and thank you for joining Martin Marietta Materials’ 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 Zamborski, Executive Vice President and Chief Operating Officer. As a reminder, today’s discussion may include forward-looking statements as defined by United States 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 Materials 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.
Ward Nye (Chair, President and Chief Executive Officer)
Thank you, Jacqueline. Good morning, and thank you for joining today’s earnings call. Martin Marietta Materials 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 LWAS 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 operating momentum. I thank our teams for their tremendous dedication and hard work in supporting the successful closing and ongoing integration. Turning to our 2026 outlook, as announced in today’s release, we’re 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 base 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, customers’ 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 nonresidential square-footage starts of approximately 1.2 billion square feet in 2027, approximately 24% below the 2022 peak. While interest-rate-sensitive private nonresidential 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% to 50% by 2050, requiring substantial additional generating capacity and related infrastructure. We’re 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 nonresidential 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 Materials’ 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’ll now turn the call over to Michael to discuss our financial results.
Michael Petro (Senior Vice President and Chief Financial Officer)
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, 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 21 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 to 2.5 times 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.
Ward Nye (Chair, President and Chief Executive Officer)
Thank you, Michael. What distinguishes Martin Marietta Materials 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 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 Materials, 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.
OPERATOR
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.
Trey Grooms (Analyst at Stephens)
Hey, good morning, everyone. Thanks for taking my question. So, Ward, could you give us a little bit more detail on the puts and takes behind your preliminary ’27 pricing view of mid- to high-single digits mix-adjusted, and what your end-market outlook could imply for organic aggregates volumes next year? And 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 ’27.
Ward Nye (Chair, President and Chief Executive Officer)
Thank you. Trey, thanks for the question. Good morning to you, Trey. I’ll take you through several puts and takes on that. So 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 ’27, and I think there are several reasons for that. Number one, what we think we’re going to see on January 1st 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 ’27 projects that are coming next year.
And then, lastly, the carryover pricing on acquired volumes at the midyear price increases that we saw in the acquired businesses. As I indicated in the prepared remarks, those markets tend to be 25% to 50% below heritage Martin Marietta Materials, so that’s important that we got those in midyear, 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.
So, again, if we’re seeing nice quoted work through right now, I think that’s important. Relative to the other part of your question with respect to volumes, I’d 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. So 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. And 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. And, frankly, as long as mortgage rates remain above 7%, single-family housing is just not going to be in a terribly robust place. Now, 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, and what we’re seeing is, year over year, our data center volumes more than doubled in the third quarter.
Again, Texas is expected to represent approximately 30% of projected U.S. data center capacity by 2028, and 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 multiyear projects. But 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, by 51% year to date. And again I mentioned what Amazon is doing between now and 2031, adding more than 1,000 facilities. We think that gives nice momentum going into the new year. And the last one I’ll mention, Trey, in response to your question, is power generation.
We’re seeing that move in very considerable ways, both relative to LNG and what’s happening in portions of the Texas market, but more broadly what’s happening in data and data warehousing as well, because we’re seeing increasing amounts of that going in behind the meter. So I’ve tried to give you a sense of what I think is happening with price, what I think is happening with volume, and how the end markets are behaving that I think lead up to those. And then, Michael, I’ll ask you to come back and respond to the other part of your question.
Michael Petro (Senior Vice President and Chief Financial Officer)
Yeah, Trey, we’ll come back certainly with more specifics relative to our profit guide for next year. We’re just giving the preliminary pricing now, but as you know, pricing is the disproportionate lever for profit growth. And as Ward mentioned, we feel very confident about what we’re going to be able to achieve January 1st there. So the mid- to high-single digits on a mix-adjusted basis is definitely what you should be baking in. What I would say is, we expect inflation to continue, certainly with diesel where it is today. I think you can model a flat line there. We’re seeing, all in with acquisitions, about a $25 million headwind per quarter for diesel. So we will lap that in Q1 of next year, so we’ll have an incremental headwind going into next year in the first quarter until we start having same-on-same diesel comps. So 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.
OPERATOR
Our next question comes from Adam Thallheimer from Thompson Davis. Please go ahead. Your line is open.
Adam Thallheimer (Analyst at Thompson Davis)
Hey, good morning, guys. Nice job in a tough environment. 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?
Ward Nye (Chair, President and Chief Executive Officer)
Adam, thanks for the question. And look, that’s obviously a bright spot in almost any circumstance. The integration is going just fine. It’s a 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. So if you’re really looking at what’s happened in the 40 days since closing cash, gross profit was $115 million. Adjusted EBITDA at 104 million at a 48 plus percent 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, 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.
So to your point, are we really focused on capturing those synergies just as quickly and thoughtfully as we can? We are, but here’s the other piece that we’re really focused on. It’s a great business. So 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. So there’s nothing that we’re seeing in this that has been a negative surprise to us at all. And 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.
Adam Thallheimer (Analyst at Thompson Davis)
Thanks, Ward.
OPERATOR
Thank you. Our next question comes from Katherine Thompson from Thompson Research Group. Please go ahead. Your line is open.
Katherine Thompson (Analyst at Thompson Research Group)
Hi. Thank you for taking my question today. Appreciate your color on 2027 outlook and also for LNA. Congratulations again on closing that. I think the next big subject are elections. So we wrapped up elections yesterday and we’re looking forward to hopefully a reauthorization of the federal highway bill next year. We’d 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,
Ward Nye (Chair, President and Chief Executive Officer)
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 and what we’re seeing right now is very good consistent expected performance from the states. And what I mean by that is if I go and look at states that 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. So 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.
And 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, that came out with a 62 to 2 vote. I mean, that tells us from the outset that this is a bipartisan bill. So 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. And do I think a Democratic Senate might push even harder relative to highways, bridges, roads and streets and overall transportation?
I think so. 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 want to invest, perhaps even more so. 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. And 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. And I think what happens is people oftentimes sit back, look at a cross and wonder what is this going to mean for this very fundamental product that rolls out. And 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. So I hope that’s responsive.
Katherine Thompson (Analyst at Thompson Research Group)
Very helpful. Thanks so much and best of luck.
Ward Nye (Chair, President and Chief Executive Officer)
Thanks, Katherine.
OPERATOR
Our next question comes from Phil Ng from Jefferies. Please go ahead. Your line is open.
Phil Ng (Analyst at Jefferies)
Hey guys, I guess my question for 2027, perhaps for Michael: if diesel prices and costs are at these levels, is a 3 to 4% cost-per-ton increase reasonable when we think about 2027? And it’s been really noisy this year outside of M&A. Any callouts on mix, and does LNA create any noise in terms of that number as well? And I know they produce some construction-grade aggregates.
Michael Petro (Senior Vice President and Chief Financial Officer)
Yeah. Thanks, Phil, for the question. I think the short answer to your COGS-per-ton inflation estimate is probably in the general zip code. The best way to think about it for us on diesel is we’ll 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. With that, that’s going to be the diesel comp that we’ll be looking at next year. And we’re assuming for planning purposes internally and for what we’re doing relative to price that type of diesel level for the balance of 2027.
Now you were breaking up a little bit. Can you repeat the rest of the question?
Phil Ng (Analyst at Jefferies)
Sure. From a mix standpoint for pricing 2027, any callouts outside of M&A that could create some noise for 2027? And appreciate New Frontier and Quikrete. And then LNA—I believe they have some construction-grade aggregates. I don’t believe it’s part of that equation, but does that have an impact in terms of how we think about mix for 2027?
Michael Petro (Senior Vice President and Chief Financial Officer)
Yeah. No. So the LNA’s 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 into be a mix tailwind next year. As Ward mentioned, you know, 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.
Ward Nye (Chair, President and Chief Executive Officer)
Hey Phil, let me come back and add one more thing too, because the price conversation is really important and thank you for the question. The other thing that I want to make sure we don’t drive by in this quarter that I’m 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 cost of goods sold, 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.
And 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 is 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. And 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.
Phil Ng (Analyst at Jefferies)
Appreciate the color. Thank you, guys.
OPERATOR
Our next question comes from Angel Castillo from Morgan Stanley. Please go ahead. Your line is open.
Esther (Analyst at Morgan Stanley)
Hi, this is Esther on for Angel. I just had a question on the aggregates sold to ready-mix customers. It’s mainly moved to April 1st increases. So 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 first?
Ward Nye (Chair, President and Chief Executive Officer)
Esther, thank you for the question. I’d say several things. No I don’t. And what I think we’re broadly seeing from ready-mix customers is as follows. I think some will be January 1st, I think some will be April 1st. I think there’s going to be a primary difference in geographies. I think in geographies that are quota based, you’ll see April, I think in more based, you’ll see a January 1st price increase. And here’s what we’ve 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. And I think that’s part of the pressure that you’ve seen this year. Their response has been I’m seeing the same input issues you are. I know you’re 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 don’t 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. So 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. But 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. And we’re going to treat both of those relative to concrete as if that’s going to be the only one during the course of the year. So Esther, I hope that’s helpful.
Esther (Analyst at Morgan Stanley)
Yes, thank you.
OPERATOR
Our next question comes from Anthony Pettinari from Citigroup. Please go ahead. Your line is open.
Anthony Pettinari (Analyst at Citigroup)
Good morning. Hey. In the quarter you saw aggregates organic shipments decline and organic pricing up, I think 2.7% now. Just wondering how that kind of compared with your expectations going into the quarter. And if there were any factors in terms of weather—you talked about geographic mix—that you’d call out when we look at 3Q and maybe think about 4Q.
Ward Nye (Chair, President and Chief Executive Officer)
Yeah, I would say the primary thing that changed, Anthony, is, number one, the concrete guys could not take midyears this year. I just talked with Esther about that, so I think that’s one thing I don’t see persisting. I think the other issue was, as interest rates moved, we simply saw the private work slow down. And again, not a big surprise—I think across the heavy side space, I’d be surprised if that’s not a pretty consistent answer. And 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-effective basis. That’s what’s informed the way that we’ve looked at the balance of the year, particularly going into Q4. And again, last year, for example, we had a November that was a pretty heady November from a volume perspective. So again, I think we’re trying to just be very thoughtful, maybe with a touch of conservatism, as we’re looking at Q4 this year.
Anthony Pettinari (Analyst at Citigroup)
Okay, that’s helpful. I’ll turn it over.
Ward Nye (Chair, President and Chief Executive Officer)
Thank you.
OPERATOR
Our next question comes from Keith Hughes from Truist. Please go ahead. Your line is open.
Keith Hughes (Analyst at Truist)
Thank you. When you were talking about 2027, you called out the dates, specifically anniversary New Frontier and, I guess, Quikrete and getting their prices up towards the Martin Marietta average. I assume you’re 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 hit the second half of next year?
Ward Nye (Chair, President and Chief Executive Officer)
Keith, that’s a great question, so thank you for that. So I’d say several things. One, did we see midyears at the Quikrete operations and New Frontier this year, even though we closed New Frontier after the midyear? The answer is yes, we did. Do I anticipate that those will likely be markets in which we will look for midyear again next year? The answer is yes, I think we probably will. I think to answer your question more directly, typically what we’ve 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 don’t 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.
So if we’re looking in markets in Missouri and Kansas City or others, those are markets that, from a volume perspective, have done very, very well this year. And again, back to the notion on backlogs, our backlogs in those markets also look attractive. So I think I’ve given you A) where they sit today, B) the timeframe that we think we’re likely to see that gap close, and what I think will happen in those markets with midyears in 2027.
Keith Hughes (Analyst at Truist)
Okay, thank you.
Ward Nye (Chair, President and Chief Executive Officer)
You’re welcome, Keith.
OPERATOR
Our next question comes from Abby Yaroslavic from UBS. Please go ahead. Your line is open.
Abby Yaroslavic (Analyst at UBS)
Hey, good morning. Good morning. So I know you’re expecting 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?
Michael Petro (Senior Vice President and Chief Financial Officer)
Yeah, no, we would think on an organic basis—so, ex the reported mix impacts from the acquisitions—we should see price‑cost coming out of the gate next year.
Abby Yaroslavic (Analyst at UBS)
Okay, got it. And just quickly, maybe what are you expecting on that front for Q4? Should it look similar to Q3, or any differences?
Michael Petro (Senior Vice President and Chief Financial Officer)
Yeah. So on an organic basis for Q4, what we’re seeing—implied in the guide—is, you know, down high single‑digit volume, up on a reported organic basis about 2% pricing. So that’s a step up from the 1% that we saw in Q3. So we’re 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’re going to do on January 1st.
Abby Yaroslavic (Analyst at UBS)
Okay, very helpful. Thank you very much.
Michael Petro (Senior Vice President and Chief Financial Officer)
Thank you.
OPERATOR
Our next question comes from Jarrett Greenblatt from JPMorgan. Please go ahead. Your line is open.
Jarrett Greenblatt (Analyst at JPMorgan)
Hi, thanks for taking my question. I just wanted to touch back on the Lhoist transaction and talk about some expectations between 2027 there in terms of that. What’s 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, and then just on the price side of things, what are the dynamics and expectations you see for lime in 2027?
Ward Nye (Chair, President and Chief Executive Officer)
Well, look, we’ll 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’s going to be attractive about that business—we’re anticipating about $820 million worth of EBITDA for 2027. And part of what’s really appealing about that business is how steady we think that’s going to look across the year. And I think that’s one of the things that we spoke of when we did the transaction because it adds such nice, stable, consistent, predictable earnings.
So if we think about what that’s going to look like, 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’ve got it bookended with 23, you’ve got 27 in the middle, which means you’re getting about a 50/50 split during the course of the year. I think to the other part of your question, we’re already having our sales teams working very collaboratively looking at either jobs—data center jobs, etc. Because keep in mind, part of what’s 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’re going to want base stone, clean stone, etc. In other instances they may want the lime, particularly as they’re 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’ll start seeing some of that even here in the latter part of 2026. So again, I hope that answered your question.
OPERATOR
Our next question comes from Ivan Yee from Wolfe Research. Please go ahead. Your line is open.
Ivan Yee (Analyst at Wolfe Research)
Yes, good morning, guys. Thanks for the time. You didn’t break out specifically 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 are you seeing thus far in 4Q? Thank you.
Michael Petro (Senior Vice President and Chief Financial Officer)
Yeah, no, we’re still looking at ultimately what’s going to be the level of disclosure for the specialties business as we balance, you know, providing appropriate visibility so that the investing community can make informed decisions versus, you know, disclosing anything competitively sensitive. So I think, you know, 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 up about double digits, and I would say the trend in October, on one less shipping day, looked similar.
Ivan Yee (Analyst at Wolfe Research)
Thank you.
OPERATOR
Our next question comes from Michael Dudas from Vertical Research. Please go ahead. Your line is open.
Michael Dudas (Analyst at Vertical Research Partners)
Good morning, Jacqueline. 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 could early‑look on 2027 on capex. Are you going to continue to get some working capital tailwinds as we move to 2027? And looking at relative to what free cash flow generation could be versus what you had thought coming into the Lhoist acquisition, how does it play through the LNA business?
Michael Petro (Senior Vice President and Chief Financial Officer)
As you know, it 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, etc., is on a third‑party dime. So extremely good cash flow conversion from EBITDA generated from LNA, given the limited capex requirements. But 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, you know, 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.
Michael Dudas (Analyst at Vertical Research Partners)
And we’re looking at some tuck‑in acquisitions you made. 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.
Ward Nye (Chair, President and Chief Executive Officer)
It is. And 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. Now, 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.
So I think you’ll see a nice blend. Will we invest in the business, to Michael’s point, from a capex perspective that we think is appropriate? Absolutely. Will we be paying down debt? To be sure. And will we continue to be in the bolt‑on business on the aggregate side, just as you saw with the Fraser transaction that was announced? We will continue to do that and we have the ability to do it. So thank you for the question.
OPERATOR
Our next question comes from Brent Thielman from Oppenheimer. Please go ahead. Your line is open.
Brent Thielman (Analyst at Oppenheimer)
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?
Ward Nye (Chair, President and Chief Executive Officer)
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. So again, it tends to be very, very predictable. The pricing in that space tends to be pretty constructive as new work comes up. And keep in mind, the other thing that’s different about that business is in many respects we’ve got contracts going forward that we know are in place that have built-in inflators in them.
So again, it’s 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. And I think having the business positioned in the southern half of the United States, where we continue to see remanufacturing, where we continue to see significant energy work, where, as 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’ve been watching that space and keep in mind, even if we look at our Heritage Woodville plant, that was the business that was seeing nice growth at the mid-single digits range for 20 years. And again, we love that business, but where that sits geographically does not have the same dynamism that the LNA business that we’ve acquired does. So I think when we look at the history of the lime business that we’ve 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 to the overall durability of what we have.
So I don’t look at that and lose any sleep over it in any respect. Okay, thank you. Thank you.
OPERATOR
Our next question comes from David McGregor from Longbow Research. Please go ahead. Your line is open.
David McGregor (Analyst at Longbow Research)
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’m just wondering to what extent you’re seeing valuations maybe being impacted by higher rates, narrower price-cost performances, and cost inflation. What are you seeing from sellers right now?
Ward Nye (Chair, President and Chief Executive Officer)
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.
David McGregor (Analyst at Longbow Research)
It does. Thanks, Ward.
Ward Nye (Chair, President and Chief Executive Officer)
Thank you.
OPERATOR
Our next question comes from Brian Brophy from Stifel. Please go ahead. Your line is open.
Brian Brophy (Analyst at Stifel)
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 and price increases, just given the timing of pricing letters and customer discussions?
Ward Nye (Chair, President and Chief Executive Officer)
Thanks, Brian. It’s a great question. I would say probably several things. One, I think what it changes in a more immediate circumstance is what overall bidding looks like. So keep in mind about half of it is going to be fixed base. Half of it’s going to be some form of bidding. And with the precise IQ 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.
So to your point, do we recognize this dynamic? Yes. Do our customers recognize it’s dynamic? The answer to that is yes as well. And 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. So I think that’s how we see that playing out. Brian, appreciate it.
Brian Brophy (Analyst at Stifel)
Very helpful.
OPERATOR
Our next question comes from Garrick Schmoy from DA Davidson. Please go ahead. Your line is open.
Garrick Schmoy (Analyst at DA Davidson)
All right. Thanks for squeezing me in. Wondering if you can update us on where you are in your aggregates network optimization program. And just for clarification, maybe I missed it, but can you identify how much LNA EBITDA is in your 2026 revised guidance?
Ward Nye (Chair, President and Chief Executive Officer)
So, yeah, I’ll do a couple of things. Yes, we did talk about LNA EBITDA. Michael, you want to come back and remind them of that?
Michael Petro (Senior Vice President and Chief Financial Officer)
Yeah, just quickly before I turn it over to Chris Zamborski for the network optimization. About 290 million of EBITDA is the stub period contribution to Q3 and then the balance of Q4, and we’re looking for about 820 next year. Garrick, that might have been your question as well. And then, Garrick, on the other part of your question relative to network optimization, as you heard in Jacqueline’s opening comments, Chris Zamborski is joining us on this call today as well.
And 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. So I’ll turn it over to Chris to give you a snapshot of how that process is going and what he anticipates.
Chris Zamborski (Executive Vice President and Chief Operating Officer)
Garrick, thanks for the question. As you know, we started that network optimization work in the West Division last year. And since that time, we’ve 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’d say really three things. One, there’s the reduced operational expenses associated with headcount reduction, elimination of contract services, et cetera.
But there’s 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’re able to sell down the stockpiles at those idled locations. I do think it’s 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’re certainly seeing the benefits of that network optimization work come through.
Garrick Schmoy (Analyst at DA Davidson)
Great. Thank you.
Ward Nye (Chair, President and Chief Executive Officer)
Thank you, Garrick.
OPERATOR
Our last question today comes from Tim Nataners from Wells Fargo. Please go ahead. Your line is open.
Tim Nataners (Analyst at Wells Fargo)
Yeah, thanks. 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. And 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.
Ward Nye (Chair, President and Chief Executive Officer)
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, you know, 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, you know, Heritage Lime and, of course, LNA, Tim—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.
OPERATOR
We have no further questions. I would like to turn the call back over to Ward Nye for closing remarks.
Ward Nye (Chair, President and Chief Executive Officer)
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 Materials 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 Materials’ 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 Materials.
OPERATOR
This concludes today’s conference call. Thank you for your participation. You may now disconnect.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.