Mary Andrews Carlisle: And I think just longer term, we think about that ready-mix business as kind of low double-digit gross margin. And I think as we move ahead, we’ll continue improving back towards that. On asphalt, same thing probably through the cycle, high single digits, maybe low double digits. We’re ahead of that right now, because of timing on energy, but the margin recovery in both businesses is exciting, and we’d expect that to continue.
Mike Dahl: Great. Thank you.
Tom Hill: Thank you.
Operator: The next question comes from Timna Tanners with Wolfe Research. Please go ahead.
Tom Hill: Good morning, Timna.
Timna Tanners: Morning, guys. Thanks for all the great detail. I guess, I know I asked yet, I figured I’d touch on the Mexican quarry updates, because there was some news recently that the government offered you something north of $300 million, and that was not accepted. So just wondering what the latest there is, what you’re holding out for. I know you’ve quoted some press reports of closer to over $1 billion, but just trying to get a sense of maybe any timing there or the latest in that process. Thanks.
Tom Hill: Yes. As far as – you got to remember, as far as a number is concerned, we have a confidentiality agreement with the NAFTA tribunal. So we can’t quote numbers. There’s been some quoted in the Mexican press. As far as the business value of that business is concerned, the simple story is that we’re waiting for the results of the NAFTA claim. The NAFTA tribunal heard the case in August. We like our position. We like how that hearing went. We should get those results sometime next year. And as far as the property rights and our property down there, we’ll protect our ownership – we’ll simply protect our ownership of our land in Mexico.
Timna Tanners: So them offering you something before the results of the NAFTA panel was just, what, to try to get around that ultimate result maybe? That seems strange.
Tom Hill: I can’t – I don’t want to predict the dealings of the Mexican government. I can’t explain that to you.
Timna Tanners: Understood. All right. Thanks again.
Tom Hill: Thank you.
Operator: The next question comes from Philip Ng with Jefferies. Please go ahead.
Tom Hill: Hi, Phil.
Philip Ng: Hi, guys. You guys called out some cross currents in your non-res business, notably between manufacturing and warehouse. Can you help size up these two end markets for you from a percentage of your business or tons? And any nuances between the aggregates intensity of these two different end markets?
Tom Hill: Yes. Well, I would tell you, first of all, both of them are really aggregate intensive because they’re big and they’re flat. But let me just kind of see if I can size up the non-res sector for you. I think, first of all, non-residential demand has been much better in ’23 than we originally anticipated back in February, really supported by warehouses and the large manufacturing projects. As we look to ’24, I think non-residential construction demand will have some segments up and some segments down. The larger manufacturing projects, which you pointed out, are really good for aggregates and particularly good for Vulcan. As I pointed out, so many of those are right in our footprint, and we are – we’ve already backlogged almost a dozen of them.
So we’ll service a little bit of that this year, but most of it will go into ’24. Warehousing demand held up really good in ’23. It’s at record levels, but we see some risk as starts are now slowing, as we had anticipated. We thought we’d get hit with some of that at ’23, but so far so good. But I think we’re probably anticipating some of that for ’24. We’ll continue to see some challenges to light because of macroeconomics. But even with some challenges to non-res, I think our markets outperform because of the big, large industrials and how many have we backlogged.
Mary Andrews Carlisle: Yes. And Phil, in terms of composition of shipments, we don’t necessarily track shipments to that level. But I think you could think about it in terms of contract awards. And so in private non-res, warehouses now make up probably close to 50% of the contract awards; and the industrial manufacturing, probably 10% to 15%.
Philip Ng: Okay. And then you guys gave us some good color for 2024 in terms of the big drivers, low single-digit volume declines potentially in aggs, double-digit price, and then potentially high single-digit cost inflation. Mary Andrews, I guess if I had to unpack that, I get to low-teen cash gross profit per ton growth next year. Am I generally in the strike zone?
Mary Andrews Carlisle: Well, I think it’s just too early for us to give you – to go there, really. We’ll come back in February with more specifics. But as we’ve talked about, we definitely see good opportunities for continued unit profitability growth next year.
Tom Hill: Yes. I think, overall, your assumptions are – again, we got – some of that could fluctuate by the time we get to February. But at this point, I don’t think your assumptions are way off.
Philip Ng: Okay. Thanks, Tom.
Tom Hill: Thank you.
Operator: The next question comes from Keith Hughes with Truist. Please go ahead.
Keith Hughes: Yes. A question on diesel. What role is that playing in the guidance for the fourth quarter? And at current prices, what would that look like to start next year?
Mary Andrews Carlisle: Yes. So in the quarter – in the third quarter, diesel was really up and down, but was a net benefit. Thinking as we move forward, if diesel stays at the levels we saw in September, fourth quarter would probably be essentially a push. Looking into next year, we think on average, diesel will be higher year over year, but it’s probably too early to call exactly what that will look like. As you know, for us, diesel can be a temporary challenge, but it’s also an opportunity.
Keith Hughes: And while we’re on cost, one other question, I know a lot of your other inputs, components in this kind of the world has been continued to stay high. Will – are you hearing from your suppliers more potential increases to begin calendar ’24?
Tom Hill: Yes. I think everything is sequentially staying up. We are in those negotiations. I think a little early to call that right now from – for the big movers. The one we think will be up will be energy. Both diesel and electricity will probably be up. But as far as the other inputs, I think that it’s stayed a lot more stubborn than we would anticipated. I don’t think we are – at this point, we call up probably high single for next year, but it’s really too early to call as we’re doing the operating plans and the negotiations with our suppliers at this point.
Keith Hughes: Okay. Thank you.
Tom Hill: Thank you.
Operator: The next question comes from Michael Dudas with Vertical Research. Please go ahead.
