1 Martin Marietta Materials. 2 Changes in Aggregates Industry Fundamentals Industry consolidation...

1

Martin Marietta MaterialsMartin Marietta Materials

2

Changes in Aggregates Industry FundamentalsChanges in Aggregates Industry Fundamentals

• Industry consolidation

• Barriers to entry

• Scarcity of supply in the southern United States

• Limited transportation availability

• Limited distribution sites

3

Our Strategy – Our Strategy – Capture Value from Changing FundamentalsCapture Value from Changing Fundamentals

Loading barges at Three Rivers Quarry, Kentucky

4

StrategyStrategy

• Assemble leading set of assets in high growth Southeast and Southwest areas

• Focus on long haul transportation to build competitive advantage

• Focus on best practices and information systems to drive cost performance

5

Company Profile – 2005Company Profile – 2005

Aggregates Production and Sales

70% of 2005 net sales from

southern United States

Scarcity of Aggregate SupplyScarcity of Aggregate Supply

Limestone

Hard Rock

Information from the Department of Interior 6

7

Population MovementPopulation Movement

Percentage of 2005 net sales

Rank of percent change – population 2000 to 2030 (source: Census Bureau)

Rank – #3

Rank - #4

Rank – #7

Rank – #8

TX 18% GA 8%

NC 18%

FL 5%

8

Aggregates SupplyAggregates Supply

U.S. consumption = 3.2B tons annually *

Additional volume predominantly in

southern U.S.

Barriers to entry can limit new quarry openings

Average quarry

produces

1M tons annually

3% GDP growth

100M additional tons required annually

* Per U.S. Geological Survey

9

2005

Transportation ModeTransportation Mode

74%Truck

16%Rail

10%Water

1994

93%Truck

7%Rail

(71.2 million tons) (203.2 millions tons)

10

Transportation Economies of ScaleTransportation Economies of Scale

0 500 1,00013550

45,000 tons per ship45,000 tons per ship

1,800 tons per barge1,800 tons per barge

100 tons per rail car100 tons per rail car

20 tons per truck20 tons per truck

.4 - 1.2 Cents / Ton Mile.4 - 1.2 Cents / Ton Mile

2 - 4 Cents / Ton Mile2 - 4 Cents / Ton Mile



Transportation Mode – Cost Per Ton Mile

Producing LocationsProducing Locations

Major Shipping PointsMajor Shipping Points

Other Shipping PointsOther Shipping Points

Producing LocationsProducing Locations

Major Shipping PointsMajor Shipping Points

Other Shipping PointsOther Shipping Points

Maturing Distribution Network –Maturing Distribution Network –Water Markets Water Markets

St. Croix

Aruba

Trinidad

Guyana

SurinameSuriname

Nova Scotia

Prince Edward Island

New York City

Linden Philadelphia

Wilmington, DE

Sparrows Pt.

Wilmington, NC

CharlestonSavannah

Brunswick

Jacksonville

Freeport BahamasTampaPascagoulaNew Orleans

BeaumontBeaumontLakeLake CharlesCharles MobileMobile PensacolaPensacola

Panama City Port Canaveral

Three RiversThree Rivers

KaskaskiaKaskaskia

HoustonHouston

11

12

Scarcity = Increased PricingScarcity = Increased Pricing

192192203

197-201

189 190

3.7%

2.4%

1.3%

3.2%

8.2%

125

150

175

200

225

250

2001 2002 2003 2004 2005 2006

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

13.0%

Tons Percent increase in ASP

(Mill

ion

s o

f T

on

s)

Based on latest guidance of 1% - 3% volume decrease

(1) Selling price is established locally at the point of sale and is subject to competitive and other factors at each locality. ASP increases reflect the average of the Corporation’s selling price across all markets, some of which may have already been implemented. Local prices can vary significantly from this average.

(1)

12.5%-13.5%

13

Demand SegmentsDemand Segments

Other

9%

Residential

20%

Infrastructure45%

2005

Commercial26%

2006 2007

Infrastructure Commercial Residential Other

Estimated percentage of 2005 shipments

Note: These percentages do not vary significantly across markets, with the exception of Florida which is dominated by infrastructure demand.

14

Cost Reduction InitiativesCost Reduction Initiatives

Lemon Springs Quarry

15

Cost Reduction InitiativesCost Reduction Initiatives

• Excellent Best Practices Program

• Increased Plant Automation

• Overhead Reduction

• Better Information Systems

• Effective Management of Benefits Cost

16

Plant AutomationPlant Automation

• Sensors maximize efficient flow of material through crushing process

• Results in lower operating costs (cost per ton produced)

• Reduces headcount (allows one individual to run plant via sensors, cameras, etc.)

17

Headcount Reduction Headcount Reduction

0

1000

2000

3000

4000

5000

6000

7000

8000

2002 2003 2004 2005 2006E

Sales per employee up 81% over five years

64005900 5800

5550

HourlySalary

6900

Note: Sales per employee based on annualized September 30, 2006 sales.

18

Capital InitiativesCapital Initiatives

Bahama Rock

19

Capital Spending PrioritiesCapital Spending Priorities

• Capital spending has been focused on the long-haul distribution network

• Current priority-recapitalize the Southeast operations

• 2007 capital spending expected to be $235 million

20

Long-Haul Network - Three Rivers (KY)Long-Haul Network - Three Rivers (KY)

Second largest capital project - $48 million budget

New plant and load out provide variable cost savings

Forecasted after-tax Internal Rate of Return - 23%

21

Three Rivers (KY) – Strategic Location

• Key site in long-haul transportation optimization strategy

• Shipments and deliveries via barge, ship and rail

• Diversified products and transportation modes provide competitive advantage

22

Underground MinesUnderground Mines

• Largest operator of underground aggregates mines in the United States (15 locations)

• Neighbor-friendly alternative

• Production costs higher than surface mines

• Long-term capital focus

North Indianapolis Mine

23

Operating MarginOperating Margin

• Attain 30%+ operating margin in 5 years

• Continued pricing improvements

• Ongoing cost reduction initiatives:

– Plant automation

– Headcount and overhead reduction

24

Aggregates Financials ($M)Aggregates Financials ($M)

Nine Months Ended Percent Nine Months Ended Percent September 30, September 30, ChangeChange

20062006(1)(1) 2005 2005(1)(1)

Net SalesNet Sales $1,359 $1,219 11% $1,359 $1,219 11%

Operating Earnings $ 267 $ Operating Earnings $ 267 $ 220 21%220 21%

Operating Margin 19.6% 18.1%Operating Margin 19.6% 18.1%

(1) All amounts presented are from continuing operations. Prior period amounts have been recast for current year discontinued operations.

25

Aggregates Financials ($M)Aggregates Financials ($M)

Year Ended Percent Year Ended Percent December 31, December 31, ChangeChange

20052005(1)(1) 2004 2004(1)(1)

Net SalesNet Sales $1,625 $1,411 15% $1,625 $1,411 15%

Operating Earnings $ 299 $ Operating Earnings $ 299 $ 224 34%224 34%


(1) All amounts presented are from continuing operations as presented in 2005 Annual Report.

26

Magnesia SpecialtiesMagnesia Specialties

Market Overview – Industrial

27

Market Overview - Environmental

Thioguard®

28

Market Overview – Rubber & Plastics

29

Market Overview - Other

30

31

Magnesia Specialties Financials ($M)Magnesia Specialties Financials ($M)

2006 20052006 2005

Net Sales $ 109 $ 90Net Sales $ 109 $ 90 20%20%

Operating Earnings $ 26 $ 18 Operating Earnings $ 26 $ 18 42% 42%



32

Magnesia Specialties Financials ($M)Magnesia Specialties Financials ($M)

Year EndedYear Ended December 31, December 31, 2005 20042005 2004 20032003

Net Sales $ 123 $ 106Net Sales $ 123 $ 106 $ 86$ 86

Operating Earnings $ 24 $ 18Operating Earnings $ 24 $ 18 $ 6$ 6

Operating Margin 19.4% 16.6%Operating Margin 19.4% 16.6% 7.0%7.0%

33

Lime35%

Chemicals65%

Restructured Magnesia SpecialtiesRestructured Magnesia Specialties

Chemicals35%

Lime21%Refractories

44%

2000 2005

34

Financial InformationFinancial Information

Pensacola Yard

35

Selected Balance Sheet DataSelected Balance Sheet Data

$710 $717$745 $718 $715

$802

$69

$152$114

$13

44%

36%34%32%34%

41%

$0

$200

$400

$600

$800

$1,000

2001 2002 2003 2004 2005 At 9/30/06

0%

30%

60%

90%

Debt Net Cash in Banks Net Debt to Capitalization

($ M

illi

on

s)

(1)

(1) (1) The calculation of net debt to capitalization is available on the The calculation of net debt to capitalization is available on the Company’s website and in the Company’s annual report.Company’s website and in the Company’s annual report.

36

Materials Financials ($M)Materials Financials ($M)


2006 20052006 2005

Net SalesNet Sales(1)(1) $1,472 $1,311 12.3% $1,472 $1,311 12.3%

Operating EarningsOperating Earnings(1) (1) $ 286 $ 227 25.8%$ 286 $ 227 25.8%

Net EarningsNet Earnings $ 183 $ 145 26.3% $ 183 $ 145 26.3%

Earnings per Earnings per Diluted ShareDiluted Share $ 3.93 $ 3.06 28.4% $ 3.93 $ 3.06 28.4%

(1) (1) Net sales and operating earnings are from continuing Net sales and operating earnings are from continuing operations. Prior period amounts have been recast for operations. Prior period amounts have been recast for current year discontinued operations.current year discontinued operations.

37

Materials Financials ($M)Materials Financials ($M)

Year EndedYear Ended Percent Percent December 31, December 31, ChangeChange

2005 20042005 2004

Net SalesNet Sales(1)(1) $1,755 $1,521 15.4% $1,755 $1,521 15.4%

Operating EarningsOperating Earnings(1) (1) $ 309 $ 230 34.0%$ 309 $ 230 34.0%

Net EarningsNet Earnings $ 193 $ 129 49.2% $ 193 $ 129 49.2%

Earnings per Earnings per Diluted Share $ 4.08Diluted Share $ 4.08(2)(2) $ 2.66 53.4% $ 2.66 53.4%

(1) (1) Net sales and operating earnings are from continuing operations as Net sales and operating earnings are from continuing operations as presented in 2005 Annual Report.presented in 2005 Annual Report.

(2)(2)Earnings per diluted share includes the reversal of $5.9 million, or Earnings per diluted share includes the reversal of $5.9 million, or $0.12 per diluted share, of tax reserves upon the expiration of the $0.12 per diluted share, of tax reserves upon the expiration of the statute of limitations for federal examination of the 2001 tax year.statute of limitations for federal examination of the 2001 tax year.

38

Uses of Cash ($M)Uses of Cash ($M)

• Pension InvestmentPension Investment $ 12 $ 12 $ 15$ 15 $ 51$ 51

• Capital InvestmentCapital Investment $213$213 $221 $221 $163$163

• Share RepurchaseShare Repurchase $113$113 $176 $176 $ 75$ 75

• Dividends Dividends (20% per share increase in 9/06)(20% per share increase in 9/06) $ 34 $$ 34 $ 4040 $ 37$ 37

• Cash on HandCash on Hand $ 23$ 23 $ 77 $ 77 $162$162

YTD 9/30/06 2005 2004

Cash Returned to ShareholdersCash Returned to Shareholders

0

25

50

75

100

125

150

175

200

225

2001 2002 2003 2004 2005

$20$28

$49

$111

$216

In m

illio

ns

Dividends

Share Repurchases

39

40

The document attached represents one part of a presentation which has been or will be made. It is not a complete record of the presentation because it does not reflect the lengthy oral comments which will be part of the presentation. This document is not intended to be a substitute for our Form 10-K or other SEC filings. Further, while we may make presentations from time to time, please understand that we do not undertake any obligation to update any information contained in these materials. Finally, any forward-looking statements are, by their nature, uncertain and dependent upon numerous contingencies, including the accuracy of the assumptions underlying the statements, which could cause actual results and events to differ materially from those indicated in such forward-looking statements. If you have any questions or comments, please contact Investor Relations at 919-783-4660. Thank you.

1 Martin Marietta Materials. 2 Changes in Aggregates Industry Fundamentals Industry consolidation...

Documents

Transcript of 1 Martin Marietta Materials. 2 Changes in Aggregates Industry Fundamentals Industry consolidation...