Business Breakdowns
· Rob Hansen
[00:00:00] S1: No, I mean, that makes sense. There's actually data in this industry from the USGS, the U.S. Geological Survey that goes back until 1900. The long-term volume trend is about 3%, going all the way back. And then if you look at the last 10 years, it's a little more like 2%. And then they actually have price data as well. And the long term for that is around 2% to 3%. But if you look in the last 10 years, it's actually accelerated more to around 4%. So the industry in general, you should think about growing about 5%, 6% just in general for the entire United States. Now if you're in a good market where there's population growth, employment growth, household formation, then you should be getting a higher growth profile than that because if you're building a new residential community, then you're going to have to build in some strip malls. And I don't think you're building regular malls anymore, but maybe you need an Amazon warehouse, so it tends to follow. And they're very generally long cycles. It is cyclical during the last -- the GFC volumes were down 55% for these guys. But I think that's not really a normal downturn. If you look back in the early '90s was the last time volumes for this industry really came down. And it took about two to three years, and it was maybe 15% to 20%. Again, that was the ROTC crisis. So it was another crisis. But what's more normal in terms of that is what's happening today where you have nonresidential declining, residential's improving and then you have the government piece slowly, steadily rising. So for example, this year, I think the aggregates players have been talking about flat to down volumes for the industry. And I'm sure 2024 is going to be something similar because it's very similar dynamics.
· Matt Reustle, Rob Hansen
[00:00:00] S0: When you think about something like the '15, '16 time frame, industrial recession, but it didn't really feel like a massive recession in the economy, did that put pressure on the business, just thinking about that more recent example? [00:00:00] S1: During '15 and '16, they actually did okay. Volumes continued to rise slowly. They get price every single year without fail. And what's great about -- too, about this industry is when they're raising prices, 40% of the business is project-based business. So they know what's going to happen with price for at least 40% of the market next year. So that's why we're looking at another year of high single-digit, low double-digit prices this year. But that part of the business, it's nice. There's some visibility into it in terms of the big project business. [00:00:00] S0: The pricing charts are absolutely incredible. So in going back over time, what is the driver there? I think you laid it out just in terms of an industry that has fewer players, and you have your geographical locations. But is there anything else that's allowing them to really to capture those price increases and seemingly pass on inflation while they're doing it from year-to-year?
· Matt Reustle, Rob Hansen
[00:00:00] S0: The pricing charts are absolutely incredible. So in going back over time, what is the driver there? I think you laid it out just in terms of an industry that has fewer players, and you have your geographical locations. But is there anything else that's allowing them to really to capture those price increases and seemingly pass on inflation while they're doing it from year-to-year? [00:00:00] S1: If you think about it, it's a very fragmented customer base. And then the other thing is that supply is less. You can turn off the aggregate facility in 15 minutes, if you need to. So it's not a factory where you just have to keep pumping out things. That's one key difference between cement and this business. Cement, you've got to keep that kiln fired up. You've got to keep it operating. And whether it's a recession or not, you're just going to keep pumping out cement. And if need be, you're going to ship it by barge to wherever you can to unload it anywhere in the world, and it's a much higher -- because it's a much higher price. I mean that goes for $100 a ton at least. So it's really just the fragmented customer base, the fact that you can turn on and off the factory, so to speak. And then like I mentioned, too, and other factors, just that being #1 or #2 in the market, whether it's maybe three to four players, it's just a little more rational in general.
· Rob Hansen, Matt Reustle
[00:00:00] S1: If you think about it, it's a very fragmented customer base. And then the other thing is that supply is less. You can turn off the aggregate facility in 15 minutes, if you need to. So it's not a factory where you just have to keep pumping out things. That's one key difference between cement and this business. Cement, you've got to keep that kiln fired up. You've got to keep it operating. And whether it's a recession or not, you're just going to keep pumping out cement. And if need be, you're going to ship it by barge to wherever you can to unload it anywhere in the world, and it's a much higher -- because it's a much higher price. I mean that goes for $100 a ton at least. So it's really just the fragmented customer base, the fact that you can turn on and off the factory, so to speak. And then like I mentioned, too, and other factors, just that being #1 or #2 in the market, whether it's maybe three to four players, it's just a little more rational in general. [00:00:00] S0: And is there anything else that they can offer to a customer that maybe a smaller player wouldn't be able to offer? Is there anything -- just being a large player, having this business that spans wide geographical, is there anything they can offer just at a local level that differentiates them?
· Rob Hansen
[00:00:00] S1: Yes, for sure. These guys have done a really good job at incorporating technology into their business. I mean this business is super old. The way it was done before is you have your paper ticket, you get the weight, you tell them what you want, where to deliver it, whatever, it was very slow. And then you end up delivering it maybe at the wrong address and it costs you money, these truckers get upset. These guys have been able to incorporate this technology right down to the customer level and into their plant. And one interesting example of their ability to monitor their inventory position at their customers is they actually have technology where they go and they dump the rock at the customer site. And the customer will take it and do what they want when they need it. But they can monitor that, for example, and see when they need to deliver more. So it's kind of like where you have your printer and it automatically orders more ink when your ink gets low. That's exactly what this is, except a giant truck of rock shows up at your facility when you need it. So they can keep replenishing their rock for their customers. But even beyond that, simple things like giving an accurate coordinate of where you're going to deliver the rock because if you think about it, sometimes, there is no road there yet. You're building the road. So there was no ability to say, "Go on Google Maps, and it's right there." This didn't exist. So being able to have a coordinate and deliver it exactly where it needs to be when it needs to be on the exact time. They have this app that they use on an iPad or an iPhone, and it shows all of the stats with that and helping the truckers with utilization, too, because it costs them fuel. Those guys are paid differently in that respect. That's probably on the selling side where they've really helped their customers, but they've also used technology in their operations as well. That's fascinating, too, because basically, they've created almost like a digital twin of all their rock crushing machines, and they can analyze it. If you open your FactSet and you look in the green and red and it's blinking and flashing, that's what they have for their plants. And they can see, "Okay, there's an issue at this specific spoke of the crusher.
· Rob Hansen
We need to fix this or else our plant's going to have less throughput." So they've been able to basically run the plants less hours, generate more tons, and so you have better throughput. And it's this enterprise-wide performance tracking where you can pull this up. Or if there's an issue, instead of having to call somebody, an expert, and have them come on a plane in a week later and fix it, and so there's all this downtime, they can actually just do it over the phone and tell the person, "Go into this location, find that, fix this," whatever. And they like to talk about how the number of Sundays they worked has gone down from 20 to 2 or something like that. Working on Sunday is expensive because it's all overtime. So if you can reduce that and incorporate technology into there, super important.