And our shareholders like what we do from M&A. So will it continue to be our first call on capital if we’ve got the right deal? The answer is it will. So our capital priorities remain the same. The right deal is number one, investing in the business responsibly is number two, and returning cash to shareholders through a meaningful and sustainable dividend and through share repurchases remains number three. And my guess is those will be our priorities for quite a while. So again, I hope that’s responsive to your question.
Jatin Khanna: Very helpful. Thanks a lot.
Howard Nye: Thank you.
Operator: Your next question comes from the line of Angel Castillo from Morgan Stanley. Your line is open.
Angel Castillo: Hi. Thanks for taking my question and more just to build off of that last comment there. It sounds like nothing’s really changing there in terms of the capital allocation priorities. But curious as M&A, perhaps, or the opportunities to do things as attractive of multiples as you have done in kind of the last several quarters here. Just curious as you think about that valuation, one, how is it evolving in terms of the pipeline opportunities? And two, I think some of your peers have talked about the ability to do greenfields in kind of a shorter period of time since four years. So just help us understand, I guess, maybe how that’s evolving with rates where they are, with valuations where they are, just any kind of puts and takes there in terms of opportunities around greenfields as well as versus M&A?
Howard Nye: Yes, thank you for the question. Number one, what I would say is when we go through a transaction and look at what we can do from a synergy perspective on making the operations safer, on making the operations more efficient, and making sure that we can bring more products to market. The ability to go through a business and synergize it from those perspectives so it works for our customers is important. And that’s precisely what we’ve been able to do at Blue Water and that’s what we’re doing right now at Albert Frei. And through that type of process that we have, we can take what might otherwise look like a relatively high multiple. And by the time we’re done with it, bring it to a multiple that you look at, I look at, our shareholders look at and feel like that’s a very attractive multiple.
Our view is that’s the way that we’re going to continue growing our business. Now from a land use and planning perspective, look, we’re good at that, too. We’re good at identifying property. We’re good at going through the zoning, we’re good at going through special use permitting. But frankly, you’re going to see more of that adjacent to ongoing operations than you will from a greenfield perspective. And one reason I feel that way. Look, I think four years is a pretty heady timeframe to think about a greenfield operation. I think a more realistic timeframe is probably 7 years to 10 years. And if we think about the difference in cash flow, getting a meaningful profit in buying a business today, as opposed to greenfielding, we think that’s a more constructive way to do it.
The other thing to keep in mind is, we’re an awfully long way away from being anywhere near peak volumes in our business. So we’re looking at reserves in the ground today that are at nearly 70 years at current extraction rates. So our need to go out and put in greenfield locations is not terribly high. Our need in some instances, for example, in California and what we did in Colorado years ago in buying adjacent properties, bulking up what looks like a 30-year reserve position in California to something that’s going to be a lot longer, we think that’s a very sensible way to go through land purchase. And you heard me speak earlier in our CapEx number, we’re looking at some opportunistic land purchases. But I would expect us to do M&A. I would expect us to do it within multiples that to us, and I believe to you will look quite reasonable.
And I would look for us not to do so much greenfielding, but to be more focused in our Heritage business and adding reserves to existing locations.
Angel Castillo: Very helpful. Thank you.
Howard Nye: Thank you.
Operator: And your next question comes from the line of Garik Shmois from Loop Capital Markets. Your line is open.
Garik Shmois: Hi. Thank you. I was hoping if you could speak to what you’re seeing on the cost side. Obviously a good margin performance in aggregates in the quarter despite the weaker volumes. Just wondering if you could speak to any updated cost assumptions, if anything has changed since the beginning of the year?
Jim Nickolas: Yes. Hey, Garik. Jim here. I think I indicated in the last quarter’s call about 7% COGS per ton inflation. I think that’s still accurate for the full year. I would say that inflation rate will be higher in the first half of the year and lower in the back half of the year, but blended average of 7%. So I think it’s still consistent. We did have some decent tailwinds in Q1 that’s going to fade as the year goes on, but I think on an overall basis, I think 7% is still the right number.
Garik Shmois: Very helpful. Thank you.
Howard Nye: Thank you, Garik.
Operator: Your next question comes from the line of Keith Hughes from Truist. Your line is in.
Keith Hughes: Thank you. I just want to go back to the organic unit expectation for the year. I’m a little surprised at some of your comments, given that usually this weather gets pushed — weather shortfall gets pushed forward and with the highway money coming in, is the — is the non-resident offset that big? If you could just talk a little more about that?
Howard Nye: I think the overall private offset is what we’re more focused on at. I think we believe the heavy side of non-res will continue to be attractive, Keith. I think we believe that we’re going to see a continued build in public throughout the year with momentum going into next year. I think if we’re seeing degrees of softness, and we are, it’s going to be in the light, non-res, and the res, and of course, single family res is about 2 times to 3 times more aggregates-intensive than multifamily is. So I think as we’re just looking at it through those lenses with longer, higher interest rates and frankly, degrees of share, that we’re probably giving up and have given up with respect to our value over volume philosophy. I think as we’re looking at those things together, that leads us to the conclusion that I’ve offered to you relative to the organic overall volume on aggregates.
Keith Hughes: Okay. Thank you.
Howard Nye: Thank you, Keith.
Operator: Your next question comes from the line of Phil Ng from Jeffries. Your line is open.
Phil Ng: Hey, guys. Appreciating Texas cement a little smaller now the divestiture, the weather was obviously a little wet to start the year. So just curious, how is the April Texas cement increase coming along? You guys are obviously ramping up grinding capacity from Midloadian. Have you locked up some of that business? Any risk that it puts on perhaps pricing in the back half? And does the market, in your view support potentially a mid-year for Texas Cement, at least where you guys are situated?
Howard Nye: Well, thanks for the question. I’d say several things. One, if we’re looking at ASP, really looking at it on mix adjusted, it was up like 8.7%. I mean, number one, that’s a pretty good number, taking into account a lot of things happened in April. The other thing that I will tell you is, we have not given up the ghost on the prospect of a price increase in September as well. So, no, we continue to see North Texas being very healthy. We continue to see the pricing environment there very good. And keep in mind, we’ve got a big internal customer there of our own as well, and we treat our own business just like we treat other customers in that marketplace. So again, we feel like that’s going to be pretty attractive. The other piece of it that fits together, and I think this is worth saying as we look at it.
Equally, if we look at ASPs in ready mix, I mean, they were up 9% versus the prior year quarter. So again, the ready mix business, despite the fact that we had significant weather headwinds in the Southwest, we actually had nice weather or nicer weather in Arizona. And if we look at the overall gross profit for ready mix for the quarter, quarter-over-quarter, it was actually nicely up. And again, I read that through for you, Phil, because I think that’s a good indicator of what’s happening in cement as well.
Operator: And your next question comes from the line of Brent Thielman from D.A. Davidson. Your line is open.
Brent Thielman: Hey, thanks. Good morning. Howard, what inning or quarter, however, you’d like to describe, do you think you’re in with respect to the legacy Heidelberg assets, essentially the California business? I’m thinking in particular just around the pricing optimization strategy. And can we infer sort of a similar timeline for what you plan to implement in AFS and BWI?
Howard Nye: Brent, thank you for the question. I would say several things. One, I still think we’re in relatively early innings in California. I mean, that’s still a business that if we look at the overall average selling price, it’s below our corporate average. You can’t say that about many things in California. So I think that’s a piece of it. I think the other thing that we’re focused on is continuing to grow our business in aggregates in that state. And I think as we continue to do that, that business will mature, that business will become more profitable, our team will become more seasoned, and that business, from the perspective of what does it look like from a percentage of profit, look like, it looked like a lot of the rest of Martin Marietta.
So I would think we’re in relatively early innings there. If we think about the Frei business and the Blue Water businesses, yes, look, I mean, they’re clearly below a Martin Marietta average. We’re already talking obviously, about mid-years in the Blue Water transactions. Those are also more home markets for us. I mean, that’s — those are Southeastern markets and markets that we know well. I’m not sure what the rate and pace of those businesses will look like compared to California, but my guess is they will likely run in parallel, maybe modestly ahead. That would be the way I would think about it, Brent.
Brent Thielman: Okay. Very good. Thank you.
Howard Nye: Thank you.
Operator: Your next question comes from the line of Michael Dudas from Vertical Research. Your line is open.
Michael Dudas: Good morning, Jacklyn, Howard, and Jim.
Howard Nye: Hey, Michael.
Michael Dudas: I wanted to come back to your comment on data centers, relative to some of the other heavy non-res markets, it seemed a little bit more, at least in the presentation as well, bit more cautious. Is that a reflection of just the fact of power siting issues, lumpiness, and where these data centers are going to be in the areas that you participate is just, there’s so much demand. There just needs to be kind of a sorting out of this opportunity. I just want to get a sense from your standpoint, being a large vendor on the early stage of it.
Howard Nye: Yes, I would say several things about it. Number one, there was a really good piece in the Wall Street Journal about 10 days ago, talking about how prolific these data centers will be and talking to a degree about what some of the roadblocks have been and getting them in, and they’re multi-fold. One is land. I mean, what’s available. Two, is degrees of energy. And I think one reason we feel particularly good about that is the presence that we have in the central part of the United States. So as I’m sitting here today, there are four data centers under construction today in Eastern Nebraska and Western Iowa. I mean that — and those are actually really important markets for us. So again, as we’re looking at the long term secular, e-commerce, cloud, AI trends, but importantly the wear on that, I think that’s where we get to advantage Martin Marietta.
Because are we going to have to have more of that in the Southeast? Yes. Is land use going to be a bit more complicated here? Yes. Will they need more in Texas and the Southwest? Yes. And will land use, people, water, et cetera, be a bit more complicated? Yes. But again, as we’re looking in the Central United States today, where we have a very significant presence and a very attractive business, I think in the near term, meaning ’24, part of early ’25, I think that’s where we’ll see it, and I think that’s going to be our differentiator.
Michael Dudas: Thank you, Howard.
Howard Nye: Thank you.
Operator: Your next question comes from the line of Adam Thalhimer from Thompson Davis. Your line is open.
Adam Thalhimer: Hey, good morning, guys. Hey, Howard, can you comment on the value over volume strategy? Kind of, why is that sticking with us here and any additional color on why are we dealing with that issue?
Howard Nye: I guess one thing that I would say is, frankly, I think our products have been underpriced for a long time, and there’s no heavy side building activity that takes place without our product. And we’re 10% of the cost of building a road, we’re 2% the cost of building a home, and somewhere between those two numbers on a non-res project. But we’re also mining and putting something on the ground that takes a lot of skill to do it well and to do it safely. And from our perspective, making sure we’re getting good value for the product is really important. And if you look at the quarter that just ended, if ever there was a quarter that revealed why value over volume is so important, this has been it, right? I mean, you’re looking at ASPs up over 12%, you’re looking at volume down 12%.
