Kathryn Thompson: Okay, yes. Okay. Just I didn’t know if there was something else along with that. Great. Thank you so much. Again, congrats on the quarter and best of luck.
Anne Noonan: Okay. Thank you, Kathryn.
Operator: Your next question comes from the line of Jerry Revich from Goldman Sachs. Your line is open.
Jerry Revich: Yes, hi. Good morning, everyone.
Anne Noonan: Hi, Jerry.
Jerry Revich: Hey, Anne. I’m wondering if you could just talk about the potential for cost per ton, both in Aggs and Cement, to come down for you folks, in terms of the pace of inflation? What we’re seeing in other labor-intensive industries is just improved productivity as turnover rates normalize and things generally normalize post-COVID and delivery of equipment and efficiency gains as a result. I’m wondering to what extent is it possible, based on the lead indicators that you track, that we could see unit costs inflation slow to the low-single-digit range over the coming quarters?
Anne Noonan: I’ll let Scott take the inflation and costs profile that we’re looking at for 2024.
Scott Anderson: You bet, Jerry. So, when we think of cost, you’re right, we see opportunity here to expand the margin in Aggs and bring down that cost. We’ve got a pretty aggressive playbook around operational excellence. But let me just tell you, kind of on the inflation side of it, when you look at labor, last year we were bumping up against that double-digits. But we’re definitely — we’ve got that model to come off, and now we’re looking more in that 4% to 5% for this year, which we think that’s going to provide some opportunity for us. As you go through some of the other areas on energy, our diesel fuel, our hedging program has put us in a really good place. So, we’ve got favorability on that for next year. As a matter of fact, we’ve got 50% of our diesel fuel already hedged at $2.79 a gallon.
And if you compare that to an average of last year, about $3.20, you can see we’ve got some favorability there. It would be easy for me — we use about 32 million gallons a year. It would be easy to come up with $6 million to $8 million in savings right there or a tailwind for us. So, we’ve got some — overall, though, when you think of cost, we do say, coming from the high-single-digits last year, really moderating down to that mid-single-digits overall is kind of where we’re looking at. And that’s just some of the big pieces there. I guess the last one I would mention is the supply chain cost. That’s the one we’re really watching closely. And as we get more into the Argos business, we’ll get a better visibility around that. But right now, last year, that was double-digits.
And when I say supply chain, I’m talking the repair and maintenance, I’m talking the equipment-related parts, the subcontracting. And that one is 25% of our overall COGS. So, that’s a big piece. And we’re watching that one closely. Where last year, we were double-digits, we’re seeing that more in that mid-to-high single-digits, so, maybe that 7% right now in an early view. So, hopefully, that gives you a little context, Jerry, on where we’re going. But definitely, Aggs margin expansion, the last two quarters, we’ve been focused on that, and we’re carrying that in. We’re going to be all over the cost coming into this year.
Jerry Revich: Thanks, Scott.
Operator: And your next question comes from the line of Mike Dahl from RBC Capital Markets. Your line is open.
Mike Dahl: Hi. Thanks for taking my question. And just back on the high-level bridge to the guide to put a finer point around things, can you specify what your assumed contribution is for Argos versus legacy standalone Summit? And maybe specifically call out what some of those dis-synergy quantifications were? Because obviously, you’ve got the $30 million in Good Guys from the synergies, but maybe just help us understand in a little bit more detail that.
Anne Noonan: Yes. Well, let me kind of give you the guide overall. So, if we think about — we’ve talked about the markets being essentially flat on volume. So, a lot of our — if you think about the synergies, the operational synergies, they’re about $30 million. They’re not — clearly not on the Summit side, right. So, that side will be coming from, except maybe the SG&A and procurement would be more at the SSC level. But you’re going to see it in Cement and in Ready-Mix. And if you think about Cement margins being in the low-30%s, we have a lot of confidence in growing those through the OEE improvement and putting Portland Limestone Cement in. In Ready-Mix, the ongoing fleet modernization completion gets to about 10%. We’ll have opportunity to grow there.
So, overall, if you just step back and look at the growth of our guide, exclude out the divestitures, you’ve got a 4% to 11% growth. You’ve got $30 million in synergies, a big chunk going into the Argo side of the business. And then some obviously shared between the two. You should see the base businesses growing in that high-single-digit growth range in our guide. So, there, I would say, we’re very confident in the 23% to 24% margin at the end of the year coming off at 22%, which as you recall in our proxy, we actually had dilution in the first year. So, we’re very encouraged by the ability to deliver the synergies, have continued price flexibility, grow our Aggs Op-Excellence is what’s going to drive — and improved contribution from green fields, will drive our Summit side of our business.
So, hopefully that gives you a little bit more color, Mike.
Michael Dahl: It does. Can I sneak in a follow-up?
Anne Noonan: Sure.
Michael Dahl: I guess if I plug in the high-single-digits on the legacy Summit, it gets me to about $610 million, which is kind of below where you expect it in the proxy, even though you just be on the quarter. So, is that just your conservatism on volume? Because it sounds like you’ve got pieces in place for the price and margin initiatives.
Anne Noonan: Yes. So, we are being conservative and guarded I’d say on volume. There is some upside there, but also remember pricing. So we only have first half pricing and we do not have any mid-year pricing in across the Summit platform. And as you know, Mike, we’ve been very strong at putting mid-year pricing in on Aggregates. Our customers are accustomed to it. And Cement, I believe demand will pick up in the second half and we’ll have some opportunity to go there also. So, think about it as a volume and price upside, particularly on the Summit side.
Michael Dahl: Thanks, Anne.
Anne Noonan: Okay. Thank you, Mike.
Operator: Thank you. And with no further questions, Anne Noonan, I’ll turn the call back over to you.
Anne Noonan: Thank you. I’d like to thank everyone for joining our call today. Our Summit team couldn’t be more excited about the opportunities that lay ahead of us. Our collective focus continues to be on high-quality execution against our financial, strategic, and safety goals. We see demand scenarios improving, commercial conditions remaining robust, and the unique opportunity to better our operational performance through productivity measures and integration efforts. We have every intention of meeting or beating our 2024 commitments and delivering the superior value creation our shareholders expect. We hope you can join us for our Investor Day on March 13th. And as always, we appreciate your ongoing support of Summit Materials. Thank you and have a great day.
Operator: Thank you. This does conclude today’s conference call. You may now disconnect.
