Page 59 - 2019 Annual Report
P. 59

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
           The nonresidential construction market accounted for 36% of
           the Company’s aggregates shipments in 2019. While national
           nonresidential construction  spending was  relatively flat, the
           Company’s shipments to this end use increased 22%
           compared with 2018,  reflecting growth  in the  construction of
           distribution centers, warehouses, data centers, wind turbines
           and energy-sector projects in key states.  The Dodge
           Momentum Index, a  twelve-month leading indicator  of
           construction spending for nonresidential building compiled by McGraw-Hill Construction and where the year 2000 serves as
           an index basis of 100, was 156.2 in December 2019 compared with 151.9 in December 2018. This suggests nonresidential
           construction activity will remain healthy over the next several years.


                                                               The residential construction market accounted for 22% of the
                                                               Company’s  aggregates shipments in  2019. Although private
                                                               residential  construction  spending decreased 5%  for  the
                                                               twelve months ended  December 31, 2019 compared  with
                                                               2018 according to the U.S.  Census Bureau, the Company’s
                                                               shipments increased 14% to this end use, reaffirming location
                                                               matters. The residential  construction market, like the
                                                               nonresidential construction market, is interest rate sensitive
           and typically moves in direct correlation with economic cycles. The Company’s exposure to residential construction is split
           between aggregates used in the construction of subdivisions (including roads, sidewalks, utilities and storm and sewage
           drainage), aggregates used in new single-family home construction and aggregates used in construction of multi-family units.
           Construction of both subdivisions and single-family homes is more aggregates intensive than construction of multi-family
           units. Through an economic cycle, multi-family construction generally begins early in the cycle and then transitions to single-
           family construction. Therefore, the timing of new subdivision starts, as well as new single-family housing permits, are strong
           indicators of residential volumes. Residential housing starts of 1.3 million units for the twelve months ended December 31,
           2019 were flat compared with the comparable 2018 period, and remain below the 50-year historical annual average of 1.5
           million units. For the twelve months ended  December  31, 2019,  national housing permits decreased 2.7%  over the
           comparable period. The Company expects continued growth in the residential market driven by low interest rates, favorable
           demographics, job growth, land availability and efficient permitting.


           The remaining 7% of the Company’s 2019 aggregates shipments
           was to the ChemRock/Rail market, which includes ballast and
           agricultural limestone. Ballast is an aggregates product used
           to stabilize railroad track beds and, increasingly, concrete rail
           ties are being used as a substitute for  wooden  ties.
           Agricultural lime, a high-calcium carbonate material, is used
           as a supplement in animal feed, a soil acidity neutralizer and
           agricultural growth enhancer. Additionally, ChemRock/Rail
           includes rip rap, which is used as a stabilizing material to control
           erosion  caused  by water runoff at embankments, ocean beaches, inlets, rivers and  streams, and  high-calcium limestone,
           which is used as filler in glass, plastic, paint, rubber, adhesives, grease and paper. Chemical-grade, high-calcium limestone is
           used as a desulfurization material in utility plants.
           Pricing Trends

           Pricing for construction projects is generally based on terms committing to the availability of specified products of a stated
           quantity at an agreed-upon price during a definitive period. Since infrastructure projects span multiple years, announced
           price changes can have a lag time before taking effect while the Company sells products under existing price agreements.
           Pricing escalators included in multi-year infrastructure contracts somewhat mitigate this effect. However, during periods of
           sharp or rapid increases in  production costs, multi-year infrastructure contract pricing may  provide only nominal pricing
           growth. Additionally, the Company may implement mid-year price increases,  on a market-by-market basis,  where
           appropriate. Pricing is determined locally and is affected by supply and demand characteristics of the local market.



           Celebrating 25 Years as a Public Company                                         Annual Report  ♦  Page 57
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