Page 61 - 2019 Annual Report
P. 61
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
other two workdays at another quarry. This has allowed the Company to responsibly manage headcount in periods of
lower demand.
The Company’s ready mixed concrete and asphalt product lines require the use of raw materials in the production of their
products. Cement and liquid asphalt are key raw materials in the production of ready mixed concrete and asphalt,
respectively. Therefore, fluctuations in prices for these raw materials directly affect the Company’s operating results. Liquid
asphalt prices were 14% higher in 2019 versus 2018, but may not always proportionately follow changes in the prices of other
energy products (e.g., oil or diesel fuel) because of complexities in the refining process when converting a barrel of oil into
other fuels and petrochemical products.
Cement production is a capital-intensive operation with high fixed costs to run plants that operate all day, every day, with the
exception of maintenance shutdowns. Kiln and finishing mill maintenance typically requires a plant to be shut down for a
period of time as repairs are made. In 2019 and 2018, the cement operations incurred outage costs of $26.3 million and $17.3
million, respectively. The increase in outage costs in 2019 compared with 2018 is primarily attributable to timing of scheduled
maintenance shutdowns. The Company adjusts production levels in anticipation of planned maintenance shutdowns.
Diesel fuel represents the single largest component of energy costs for the Building Materials business. The average cost per
gallon was $2.08 and $2.29 in 2019 and 2018, respectively. Changes in energy costs also affect the prices that the Company
pays for related supplies, including explosives, conveyor belting and tires. Further, the Company’s contracts of affreightment
for shipping products on its rail and waterborne distribution network typically include provisions for escalations or reductions
in the amounts paid by the Company if the price of fuel moves outside a stated range.
The impact of inflation on the Company’s businesses has not been significant. Historically, the Company has achieved pricing
growth in periods of inflation based on its ability to increase its selling prices in a normal economic environment.
Building Materials Business’ Key Considerations
Celebrating 25 Years as a Public Company Annual Report ♦ Page 59