Page 165 - Martin Marietta - 2025 Proxy Statement

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Cost Structure

Costsofrevenues for the Building Materials business arecomponentsof costs incurredatthe quarries, mines,cementplants,
ready mixedconcrete plants, asphalt plants,pavingoperationsand distribution yards and facilities.Cost of revenuesalso
includesthe cost of resale materials, freightexpensestotransport materials froma producingquarry or cement planttoa
distribution yardor facility (internal freight),third-party freightand delivery costs incurred by the Company andthenbilledto
customers (external freight) and production overhead costs.
Generally,the significantcomponentsof costofrevenues for theaggregates productlineare (1) labor andbenefits; (2)
depreciation, depletionand amortization;(3) repairsand maintenance; (4) internal freight;(5) external freight; (6) supplies; (7)
energy; and(8) contract services. In2024, thesecategories represented 89% of theaggregates productline'stotal cost of
revenues.

Variable costsare expenses that fluctuate withthe levelofproduction volume, while fixedcosts areexpensesthat donot vary
based on production or sales volume. Production isthe key driver indetermining thelevelsof variablecosts, as itaffectsthe
numberofhourly employees and related laborhours.Further,componentsof energy, suppliesand repairsand maintenance
costs also increase in connectionwithhigherproduction volumes.Accordingly,the Company’soperating leverage canbe
meaningful.
Generally,when the Company investscapital in facilitiesand equipment, increasedcapacityand productivity reduce laborand
repaircosts servingtooffset increased fixed depreciation costs. However, the increased productivity and related efficiencies
may not be fully realized in alower-demandenvironment, resulting in under-absorption offixedcosts.

Wageand benefit inflation as well as other increases in laborcosts may besomewhat mitigated by enhanced productivity in
anexpanding economy. During economic downturns, the Company reviews its operations and, where practical,temporarily
idles certainsites. The Company thenservesthese markets withother open and proximate facilities. In certain markets,
managementcan create production “supercrews”that workona rotating basisatvarious locations. Forexample, withina
market, a crew mayworkthree days per week at one quarry andthe othertwo workdays at anotherquarry. Thishas allowed
the Company to responsibly manage headcountinperiods of lowerproduct demand.

Typically,diesel fuel representsthe single-largest componentof energy costs forthe Building Materials business. Theaverage
costper gallonwas $2.82 and$3.25 in 2024 and 2023, respectively. Changes in energy costsalsoaffectthe prices that the
Company pays for related supplies, includingexplosives, conveyor belting and tires. Further, the Company’s contracts for
shipping products on its railand waterborne distributionnetwork typically include provisions forescalations or reductions in
the amountspaidby the Companyif the priceoffuel moves outsidea stated range.

2024 Annual Report ♦ Page 57