Page 59 - 2019 Annual Report

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