Texas Industries' CEO Discusses F3Q 2014 Results - Earnings Call Transcript

Apr. 3.14 | About: Texas Industries (TXI)

Texas Industries, Inc. (NYSE:TXI)

F3Q 2014 Results Earnings Conference Call

April 03, 2014, 11:00 AM ET

Executives

Les Vines - Vice President, Treasurer, Corporate Controller

Mel Brekhus - President, Chief Executive Officer

Jamie Rogers - Chief Operating Officer, Vice President

Ken Allen - Chief Financial Officer, Vice President - Finance

Analysts

Kathryn Thompson - Thompson Research Group

Garik Shmois - Longbow Research

Ted Grace - Susquehanna

Chris Olin - Cleveland Research

Todd Vencil - Sterne, Agee

Seth Yeager - Jefferies & Company

Sachin Shah - Albert Fried & Company

Jim Barrett - CL King

Mike Betts - Jefferies & Company

Ben Oveson - D.A. Davidson

Alex Merchant - JPMorgan

Operator

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Texas Industries Third Quarter Results Conference Call. During today's presentation, all parties will be in listen-only mode. Following the presentation, there will be a question-and-answer session, and instructions will be given at that time. (Operator Instructions). As a reminder, this call will be recorded today, April 3, 2014.

I would now like to turn the call over to Les Vines, Vice President and Treasurer. Please go ahead, sir.

Les Vines

Thank you, Greg, and good morning, everyone. Thank you for joining us for our third quarter conference call and webcast. We appreciate your time and interest in TXI. On the call with me today are President and CEO, Mel Brekhus, CFO, Ken Allen and Chief Operating Officer, Jamie Rogers.

We will follow the same format as in previous calls with management providing comments for the quarter and then followed with your Q&A. In an effort to ensure that everyone has an opportunity to participate and ask a question, we would ask that you limit your initial question.

Before I turn things over to Mel, I need to remind you that certain statements contained in this conference call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements speak only as of the date hereof and we assume no obligation to publicly update such statements.

Such statements are subject to a broad range of risks, uncertainties, and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. I would refer you to our reports on forms 10-K, 10-Q, S-4 and 8-K for a more thorough discussion on some of the risks and uncertainties.

With that, I will turn it over to you, Mel.

Mel Brekhus

All right. Thanks, Les, and good morning, everyone. It is good to be in the construction and materials business in Texas. Shipments in Texas for the quarter were up 27%, 21% and 48% for cement, aggregates and concrete compared to a year ago after adjusting for last year's acquisition of concrete operations. With cement capacity we brought online in Texas last year is allowing us to grow shipments faster than the overall market which is up 13.5% through February this year, well ahead of the forecasted mid to high single-digit growth for 2014.

The improved shipments were realized despite the very severe winter in Texas and, for that matter, throughout our country. The Texas market responded to bad weather in ways that we have not seen in some time by working feverishly to maximize the construction put in place when weather permitted, thus allowing us to make up for some of the shipments lost due to inclement weather.

I believe this behavior shift may be the best indicator of the strong backlogs and outlook throughout the entire supply chain, but the best news is that there is still a lot of room left to improve. Texas, as strong as it is, still isn't forecast to get back to prior peak levels of cement consumption for another couple of years and it is forecasted to reach new peaks beyond that as a result of strong population growth and the resulting growth of the state's economy.

Having said all that, you won't be surprised to hear that my outlook regarding pricing is positive. Demand in excess of capacity, forecasted continued growth in demand and tightness throughout the supply chain, even with all the capacity expansions and competition that strong markets often attract, explains my positive outlook for margin enhancing price improvement. I expect pricing to ultimately exceed prior peak levels and the pace of price increases to pick up as we get further into this strong recovery.

Finally, as you know, in January we announced an agreement to merge with Martin Marietta Materials. The process is moving along as expected and we are excited about the prospects for the combined company.

And with that, I will turn it over to Jamie.

Jamie Rogers

Okay. Thanks, Mel. And as Mel mentioned, we are experiencing market conditions, particularly in Texas, that we have not seen in a while. We have come to the time when we are positioned like never before to benefit from a strong recovery in construction activity.

At Hunter, we brought the original kiln back online during the quarter and we continue to be pleased with how the new kiln is running. We took advantage of the added flexibility to accelerate the plant outage, originally scheduled for the fourth quarter to the third quarter. Coupled with the outage during the quarter at Midlothian, all of our kilns in Texas entered the busy shipping season now ready to run well. In fact, the new kiln at Hunter had 94% uptime in March coming out of the outage and Midlothian ran at 95% in March. This bodes well for us as we strive to meet our customers' growing need for cement.

The charges related to the outages which we recognized in the quarter incurred along with the short-term impact of restarting the original kiln at Hunter caused the bottom line results for the quarter to obscure the fundamental strength of this segment and earning potential. I expect to see better results in the fourth quarter as we run out in there full utilization rates and we don't have expenses associated with major outages.

The results for both aggregates and concrete do reflect our improved market conditions. Operating profit for aggregates improved 61% compared to the prior year and year-to-date operating profit is up 60% as well. Aggregate average sales prices for the quarter were up 17%, but more importantly gross profit per ton was up 38%. Year-to-date average sales price and gross profit per ton were up 14% and 35%, respectively.

The changes in operating profit for our concrete segment were even more dramatic. Operating profit of $4.9 million reflects $9.1 million improvement from a year ago. Year-to-date operating profit of $9.5 million reflects an $18.2 million improvement. Turning the prior year loss to a profit reflects improving conditions in all of our markets and the benefits of entering attractive East Texas markets via our asset swap that we did a year ago.

We expect demand for all of our products in all of our markets to strengthen through the remainder of the calendar year and beyond. With that, I also expect prices and margin to continue to improve, even with the capacity expansions and competition that strong markets often attract. I have the highest confident that I have had in years that the price increases previously announced in Texas will be realized. I am confident as well that we will realize a significant portion of the combined price increase in California announced.

Looking forward, I expect additional opportunities for increases this fall provided demand improves as expected. It is very satisfying to start to realize the benefits of the work we have done over the past several years to increase our capacity and strategically realign our operations and I look forward to seeing what we do over the next two years.

And with that I will turn it over to Ken for his comments.

Ken Allen

Thanks, Jamie, and good day. Net sales for the February quarter increased 47% compared to last year's winter quarter. Now after removing several one-time factors, adjusted EBITDA of $24.8 million was almost double the adjusted EBITDA from last year's prior quarter. Financial results for the third quarter then were very good and confirm positive year-over-year trend.

I will provide some detail on the one-time factors but first I think it's important to reemphasize that same-store shipments for TXI products in Texas increased by double-digit percentages compared to a year ago, and this far outpaced the forecasted consumption for cement. Some of the strong growth in TXI shipments reflect a better than expected construction activity but a good portion reflects the result of actions we have taken to improve TXI's competitive position in the region.

This is particularly true with the expansion of the Central Texas cement plant. Also as an example the augmentation of our ready mix truck fleet. The high level of shipments in the quarter also occurred in spite of very poor weather. This typically impedes construction activity. However this winter, contractors pushed to complete work despite tough weather conditions because there is so much work to be done and they just couldn't afford to let projects slide and work be delayed.

In addition, as another example, the last two weeks of December typically is very slow for construction due to the holiday season and this is true regardless of the weather. This year, however, construction in December second half did not slow down. The end result of all these indicators is that as we have entered the spring season, construction material demand is very strong and the supply of materials is clearly tightening in many of our markets and this presents a very positive environment for further price increases.

Now for some detail on the segment results. Cement shipments in Texas of 820,000 tons were up 27% compared to last year, while California shipments of 321,000 tons were up 12%. As we have said in past earnings calls, California private construction is clearly recovering but remains behind the rebound Texas is experiencing. A full recovery will take a little other than the recovery in Texas but the recovery in California is real.

Texas cement prices increased 5% compared to a year ago, while overall prices in California increased about 2%. As we have mentioned in prior calls, product mix and geographic mix this fiscal year have caused reported average prices in California to show lower increases than otherwise would be the case and as an example that illustrates this, the average price for our largest single cement products that we sell in California is up well over 5% year-over-year. It's just been offset by product mix and geographic mix in the market.

During the quarter, as expected, the North Texas cement plant maintenance outage occurred with the total impact of $8.4 million as we showed in the release. The direct maintenance costs of $6 million were in line with our expectations. The loss of production from the outage added $2.4 million to costs as fixed costs flowed through the P&L. This impact from lost production reflects the fact that we are now running the North Texas kiln at capacity to meet cement demand in North Texas and to supplement Hunter production for several more months. As a result, the lost production from the outage, as is always been the case in markets we are running at capacity, the lost production from the outage can't be recovered in the future and so that's the right reason for identifying the $2.4 million in cost.

Now this is all a good news. It reflects the strong market recovery we have been talking about. It also reflects the fact that the North Texas plant is ready for the strongest shipping season of the year that's coming up. In addition, the weather impacted more than just shipments as a result of construction activity. Extreme cold weather in North Texas caused our work in Texas cement plant to shutdown operations for two days so that electric power could be delivered to residential electric customers. Cold weather also, increased natural gas costs in the quarter compared to a year ago at the plants.

Turning to the Central Texas plant. The maintenance outage for the new kiln had a direct costs of $2.5 million and we stated this in the release. We originally expected the outage to occur in March, however, as Jamie has already mentioned, production from the recently activated Kiln 1 and good production from Kiln 2 allowed us to accelerate the outage in to February and this has enabled us to be in a better position for an expected upturn in spring shipments.

In addition, normal inefficiencies associated with the restart of Kiln 1 after the kiln was idle for several months and after extensive refurbishment for the Kiln 1 added to cost during the quarter. As the kiln has accumulated more operating time and as increasing demand requires increased rates of production on Kiln 1, these factors are already diminishing.

Lastly for the central Texas plant, it's worth recalling that depreciation expense in the quarter compared to last year increased $4.6 million as a result of the addition of the new Kiln 2. Now concluding for cement, and we called this out in the earnings release as well, we reported income of $700,000 related to vendor litigation settlement in the quarter.

Looking at Texas aggregate operations, and Jamie did a good job of summarizing them, but they did show much improved shipments despite the poor weather. Prices were up 17%. Net margins were up 38%. Freezing temperatures did reduce production of material as well. So, again, it wasn't just the cold weather impact in shipments, but the increase in profit in this challenging weather again reflects our strong cost and competitive position in this business segment.

Looking at TXI's ready mix operations. As we already mentioned, shipments were up due to the addition of operations acquired last spring and as a result both of market growth and our decisions to increase our ready-mix fleet. The primary reasons for the increase in profitability were higher shipments, the increase in selling price over material costs and very good control of delivery expense in a weather challenge environment. The integration of the new operations acquired last spring has gone very well and that has also strengthened our vertically integrated position in Texas considerably.

Looking at consolidated total SG&A expense as a percent of sales, SG&A expense declined from 12% last year to 8.8% this year, illustrating the economies of scale inherent in TXI's shared services platform as sales expand.

Finally, we also recognized $2.9 million in merger related costs during the quarter. We broke these costs out in the P&L and also highlighted them in the press release.

Now let's look at free cash flow for the nine months year-to-date. Free cash flow, this would be defined as net cash from operating activities less net cash used by investing activities all as shown on the cash flow statement. Free cash flow for the current year has improved by $50 million compared to a year ago. Now while the factors that we have already discussed have resulted in much of the improvement, this significant improvement also reflects the fact that our major capital projects to replace and improve our cement plants are now behind us.

As we look in the fourth quarter of the fiscal year, we are well-positioned for the seasonal upturn in construction activity, we expect no major cement outages this spring and as Mel and Jamie have already said, we expect positive price trends to continue.

With that, I will turn things back to Les.

Les Vines

All right. Well, Greg, we are ready for Q&A.

Question-and-Answer Session

Operator

Thank you very much. (Operator Instructions). Our first question comes from the line of Kathryn Thompson with Thompson Research Group.

Kathryn Thompson - Thompson Research Group

Hi. Thanks for taking my questions today. First on cement. You have been tracking the improvement, obviously, in California and Texas market for the past several quarters, but could you again go over what type of projects are driving end market demand and in particular, as you have done in the past for states that are emerging more like California, more color on the three major end markets: res, non-res and public in terms which is seeing the greatest year-over-year growth? Thank you.

Ken Allen

Kathryn, good morning. This is Ken. In Texas, we have actually seen public works be the strong underpinning driver of material construction over the last several quarters. We are beginning to see private construction begin to pickup. What's been interesting, particularly in other markets in Texas is that it's taken a while after the downturn for the infrastructure to get put in place so that housing starts could begin to accelerate. We actually have a shortage of new houses in Texas.

So as the infrastructure gets put in place there, we think we will see because there is a lot of pent-up demand and it is really just reflected by the fact that housing prices in Texas are up in double-digits here, it really shows that we have got a shortage of housing in Texas right now and we expect that to work its way through in terms of more housing construction near-term and as that occurs we expect non-residential construction to follow as well.

In California, private construction is really the piece that's driving things right now. When we talk about pent-up demand for construction, pent-up demand for needs in communities in the state California has got to be a place where with the population and construction that's taken place over time, there is a tremendous amount of pent-up need. We will see that come back. The state is healing in terms of its public finances. There will be a time when it comes back. Right now though, it's a good thing to see private construction beginning to recover.

Kathryn Thompson - Thompson Research Group

Once again on cement, maybe looking more backlogs, could you talk about the balance, pricing in your backlogs, where you see pricing up and also what's driving the volume on backlogs? I assume it's similar to what you just said but really what we wanted to get is just a balance of price versus volumes and driving your backlogs?

Jamie Rogers

Kathryn, this is Jamie. I would say, in Texas, it's reflective of what you said, which is more of the civil and infrastructure work and our backlogs are approximately 85% to 90% higher in cement this year than they were a year ago and the average sales price is $5 to $6 higher for that backlog. Aggregate is higher as well. I would say, close to 40% to 45%.

Kathryn Thompson - Thompson Research Group

And just when you said $5, $6 what is that on a percentage basis for cement and your aggregate pricing has been a little bit all over the board, excluding acquisitions what was that real raw price increase for aggregates?

Jamie Rogers

Can you have that one, Ken?

Ken Allen

Kathryn, on ready mix - I am sorry, on cement, $5 increase is a mid-single-digit percentage increase, 5%, 6%. On aggregates, if you were to take the acquired operations out of the picture, you are still probably looking at something in the near 10% increases.

Kathryn Thompson - Thompson Research Group

Okay, great. Thanks for taking my questions today.

Operator

Our next question comes from the line of Garik Shmois with Longbow Research.

Garik Shmois - Longbow Research

Thank you. Just first question on concrete; had very good profit improvement compared to last year, and also compared to the prior quarter, 2Q 2014. Just wondering, when you look at it sequentially, because I believe you have fairly stable revenues quarter-over-quarter, what explains the strong profit improvement quarter-over-quarter in the concrete business?

Jamie Rogers

Garik, I just think it’s reflective of few things and we are getting better efficiencies and cost as a result of operating better and as well as the demand, and Mel alluded to, I mean, I think what was interesting, with the weather we had, we had really cold and inclement weather starts to maybe all three months but certainly January and February, but the latter half they really came back. I mean the demand really came back and these guys got back on the jobs and made up for, maybe not all, but a lot of that shortfall that they experienced. And that's just something we haven't seen in our recent previous years and I think it really bodes well for the traditional strong shipping season this spring and summer.

Garik Shmois - Longbow Research

Okay.

Ken Allen

Jamie, if I could add one other piece, the ready mix segment had done a good job of pushing price ahead of material costs and we saw some of that benefit in the third quarter as well.

Jamie Rogers

Absolutely.

Garik Shmois - Longbow Research

Okay. Thanks. I guess just as a quick follow-on to some of the pent-up demand and the weather that you touched upon earlier and as well as in the answer to my previous question. I am just trying to reconcile a couple of statements. First off, you mentioned weather did have an impact on the quarter and you called out some of the of the cost, particularly in cement with some of the tie-ups with not being able to supplement volumes for Midlothian down to Hunter as much as you would like, but then you also talked about how contractors push through at an abnormally high rate despite the inclement weather. Just wondering, as you look forward, do you think most, or if not all, of the weather impact is already been made up for, given the very strong acceleration of late in demand or do you think there is still some of this catch up activity that is going to benefit the next one to two quarters?

Ken Allen

Garik, this is Ken. We are trying to figure that out ourselves. I tell you what we see in the spring time relative to the winter, spring shipments are always strong relative to the winter and we see and contractors see the spring recovering being very strong; whether some of that’s pent up demand or whether some of that is just the structural trend of market recovery. What we see is the spring time looks to be a very strong shipping season for us. It's a little hard to figure out what the exact drivers are.

Garik Shmois - Longbow Research

Okay. No, that's fair. I guess one last question. As we think about that the demand growth in Texas and you are talking about how strong it is, is there anything that we should be concerned about with respect to whether it's labor constraints or trucking constraints, we know about cement supply constraints, but is there anything else that may dampen the [picture] [ph] recovery?

Jamie Rogers

Garik, depending on what local market you are in, we have seen some of those constraints that has impeded our ability to service our customers. And they come, and again, it depends on what local market. I will give you an example. In North Texas, we have seen primarily sand availability constraints and a lot of that had to do with the fact that we were unable to build up inventories because of the cold weather in the winter which we typically do. And we have also seen some trucking shortages, both from a raw material standpoint, getting raw materials to the ready mix plants or the contractor plants, and a little bit on the ready mix trucking side as well. The demand in the winter quarter was stronger than what it typically would be, and I would say overall the demand has come back quicker in Texas. So we are seeing some of those constraints and we are working through them as best we can. And also they tend to have a positive impact on pricing as well as we are going into our April 1 price increases.

Garik Shmois - Longbow Research

Got it. Thank you.

Operator

Our next question comes from the line of Ted Grace with Susquehanna.

Ted Grace - Susquehanna

Hi, guys. How are you doing?

Jamie Rogers

Hi, Ted.

Ted Grace - Susquehanna

So this first thing I was hoping to ask is to come back to some of the questions Kathryn had on aggregate pricing. I know, on a reported basis you talked about it being up, what 17%? Assuming when she asked raw pricing, was that the underlying improvement? Is there a mix that skewed 17% because you numbers suggest that aggregate pricing in Texas is up 17%, apples to apples, year-on-year in your markets.

Jamie Rogers

First of all, here is how I would answer that. Some of that was certainly related to mix. We have a different portfolio of assets because of the swap we did last year.

Ken Allen

Yes, exactly.

Jamie Rogers

About this time than what we have now, but let me answer a different question and you what is happening in pricing in aggregates, and I some of this we alluded to in January with some confidence and I want to give you the updated report there, but we had a dollar increase in hot mix or asphalt aggregate pricing in January, which was successful. We have announced, we did announce and I think we alluded to this in January, $1 in coarse aggregates in North Texas for concrete products. It's early because it's early April, but if we had a good confidence in January, which we did, we have a lot more visibility towards that today. So that really bodes well as we go into, again, in shipping months in the spring and summer.

Ted Grace - Susquehanna

Okay, so your volumes are up, what, 21% year-on-year and you have got 17% in pricing. I realize some of that is mix but then what we are struggling to reconcile it is incrementals were pretty weak in the quarter on a year-on-year basis. So its hard reconcile the margins with anything close to that on a pricing basis when your volumes are still up comfortably double-digits. So can you just either walk through, again, how much of that was pricing as not a strong as it looks on the service versus were there cost items that were missing because you have still got 28% volume growth. So it is tough to square up that math.

Ken Allen

Ted, this is Ken. Good eye, but I would first start out with the fact that a year ago our gross profit per ton was $0.81, and this year it was a $1.12. So we are seeing unit gross margin improvement. Remember, we talked about the weather having an impact on production. I know if you are in the north, it's hard to imagine that we call out freezing weather in Texas as being a problem but we had some and it shut down some of our plants in production for a while. That had a cost impact as well also. So that had an impact that might explain some of your question.

Ted Grace - Susquehanna

Okay, that's super helpful. The second thing I was hoping to ask is, in the S-4, the document provided your future projections on the business in the 2014, 2015, 2016 and I was just wondering, could you just walk us through the core assumptions on the cement side? Just volume and pricing and how you are thinking about that? That trajectory over the next three years? Just a little more granularity there?

Ken Allen

Yes. Ted, this is Ken. Really that projection just reflects and it's consistent with what we have been saying for many years now, that we think the asset base we have put in place ought to, in an ongoing environment where our cement plants are sold out, all of them, we ought to generate about $400 million of EBITDA a year. What we have seen is that cement plants in an environment we are sold out, we have good equipment. Historically we have seen EBITDA margins in the 40% range. We think with our equipment that's in place today, they ought to be higher than that in future markets. The other parts of the business as well just reflects a recovery in markets and also the fact that we built much better positions, in ready mix for instance, in Texas than we had several years ago. You start with where we are today, figure where we think we will be when the market recovers, take our margin goals that we have experienced and take forecast for construction activity over the next several years and you pretty much come up with the numbers you see in the S-4.

Ted Grace - Susquehanna

Just a ball park numbers, do you remember what the assumed cement pricing increases were? Just maybe on average for 2014, 2015, 2016?

Ken Allen

No, I don't. I am betting they are mid single-digits. I don't remember exactly. But, Ted, I tell you the important piece is what the margins are in cement more than just the cement price because energy costs are being moved around, the other costs are being moved around. The important piece there are the margin assumptions and we are driving towards that above 40% EBITDA margins in cement. In fact over the last year our Midlothian plant at running less than full capacity has been generating around 40% EBITDA margins and prices are considerably less than they were before the downturn. I mean all of this just feels real good to it.

Ted Grace - Susquehanna

Okay, and that's exactly where I was going with this ultimately, because if I look at and you can debate the value of consensus estimates, but your internal sales estimates were actually below consensus expectations, and yet your EBITDA well above. So it seems like, to your point, you guys are really optimistic on your ability to kind of drive profitability, but from the standpoint of the market's expectations on the combination of price and volume, it seems like maybe expectations were off, were above your internal plan anyway? Do you think that's a fair statement?

Ken Allen

Yes, that's a good observation. People who are putting their models together will have their own view. I will just offer the opinion, that it's been tough if someone is on the outside looking in at the company with the environment we have operated in the last few years to really have a sense of what our recovery could look like and what our cost structure could look like with these plants running at full capacity. We had history prior to the downturn, particularly in Texas, that makes us feel very good about our assumptions on cost structure.

Ted Grace - Susquehanna

Okay, well, hopefully we can get one more quarterly call out of you guys but thanks so much and have a great quarter.

Operator

Our next question comes from the line of Chris Olin with Cleveland Research.

Chris Olin - Cleveland Research

How are you doing today? Good morning. Two questions. First regarding aggregates. Can you talk a little bit about aggregate pricing in the northern Texas market around the Dallas-Fort Worth area? I am just wondering how price compares to the rest of the states and has it been slower moving versus the region total? I know you talked about it a little bit before.

Jamie Rogers

Yes, Chris, I will just go through all of our markets that we serve. North Texas, coarse aggregate, I mentioned the dollar price increase in January for hot mix asphalt aggregate. Success there. April 1 coarse aggregate $1 price increase for concrete coarse aggregate. Very high confidence level in that. I think we also mentioned in January on sand, I think we alluded to $1 price increase expectation in April or announce in April. We actually achieved that earlier. We achieved that in March and it was closer to $2 and I think that reflects the specific local market dynamics of sand in North Texas, but it's a positive story and it's a more story than that we said in January.

Central Texas, where we participate in sand and gravel, $1 to $2 earlier this spring of price enhancement. So that's the snapshot of the major markets that we are in and the products that we serve. It's a good story now and I think it will continue to be good, looking forward.

Chris Olin - Cleveland Research

Just what I was getting at is, once we see the merged assets between you and Martin in the North, will there be more opportunity to get additional price because of the consolidation?

Mel Brekhus

Chris, this is Mel. That is not a subject that we can discuss on this call and feel as appropriate to discuss. Thank you.

Chris Olin - Cleveland Research

Okay, fair enough. Just last question. There has been some concerns of late regarding the Highway Trust Fund and where the bidding is at, going forward? Can you just talk a little bit about what you are thinking now in terms of federal spending?

Ken Allen

Chris, this is Ken. We know that there is an opportunity for federal spending to step up. We have seen for years now that it's sort of a pay-as-you-go. Positive trends are hard to capture. We are seeing pent-up demand all over the country for more spending. It will come. I will tell you what we really focus on, as you would expect, is Texas and there you have got a good state environment for funding roads. The state has been a leader in doing some forward thinking, public private partnerships to fund roads and toll roads as well. So whether or not we see, and we know it will come from increased federal spending. We are really focused on the fact that Texas has been able to take care of its own road system than depending on the federal system.

Chris Olin - Cleveland Research

Okay. Thanks a lot.

Operator

Our next question comes from the line of Todd Vencil with Sterne, Agee.

Todd Vencil - Sterne, Agee

Hi. Thanks. Good morning, guys.

Ken Allen

Good morning.

Todd Vencil - Sterne, Agee

So I would like to dig in a little bit back on that concrete question, and I understand that you guys have additional assets there now and I understand that you had good demand in the quarter but your reported cost of sales per yard sounded like $5 from the November quarter to the February quarter. You made almost $5 million in concrete and literally the only other time, going back 10 years, that you made money in the February quarter was in 2009 when, as I recall, there was an accounting some insurance accruals or something was in there in that quarter. So was there something, Ken, maybe in COGS that was a one-timer in the quarter in concrete?

Ken Allen

In COGS, nothing that really drives or moves the needle a whole lot. Just be careful in looking at quarterly price to quarterly price because it's going to be job dependent. In the markets where we are doing more volume, the material costs are going to be in line with those prices. Overall, price versus material costs was up almost $3 a yard. That's really a reflection of a good work our ready mix people have done in pushing price.

Todd Vencil - Sterne, Agee

Fair enough. Cost versus material cost is up $3, there is another $2 in there in the lower cost of sales, but so I guess I will leave that but does that mean we should be modeling $81 cost of sales in that business going forward?

Ken Allen

Remember, we have got a cement price increase coming but it came April 1, right.

Todd Vencil - Sterne, Agee

Yes.

Ken Allen

Okay. So there is going to be movement and timing differences as you go forward. Quarter-over-quarter, I think it's going to be a little difficult to try to track and to try forecast, but over the last several quarters, we have seen the ready mix operations do a pretty good job of getting the prices to outpace material price, material cost increases.

Todd Vencil - Sterne, Agee

Got it. Okay, that was my question. Thanks a lot.

Operator

Our next question comes from the line of Seth Yeager with Jefferies & Company.

Seth Yeager - Jefferies & Company

Hi. Can you hear me?

Jamie Rogers

We can, Seth.

Seth Yeager - Jefferies & Company

Okay, great, thanks. Good morning. On the ready mix side, are you seeing any competition on pricing from some of the other vertically integrated producers out there? Is that everyone is sort of on the same page as far as trying to really push through pricing on ready mix in your various markets at this point?

Jamie Rogers

Seth, this is Jamie. I think I can only answer that question from our perspective. And the pricing environment, it continued to improve and our ability to increase prices in selected markets in almost all of our markets actually but certainly selective markets is very positive.

Seth Yeager - Jefferies & Company

All right, and then it sounds like you are actually going forward a little bit of pricing from some of your announcements. I guess, just with the demand picture still being very healthy in California and Texas, is there a prospect that you guys may be able to push through additional pricing towards the latter half of the year?

Jamie Rogers

Yes, I think on the concrete side. I think that's a fluid opportunity to push pricing on a job-by-job basis and on a month-by-month basis, just because of the nature of that business, and how the jobs flow and the dynamics of the local market there. I do think on cement, there will be an opportunity to have additional prices in the fall. It's not a traditional kind necessarily where we have had price increases, but I think this market bodes well for opportunities to get pricing on cement as well in the fall.

Seth Yeager - Jefferies & Company

Excellent, and just last one for me on the merger Can you maybe give us an update on regulatory approval? And is the expectation, at this point, still to close it inside of the second quarter? Thank you.

Mel Brekhus

Seth, this is Mel. And the answer to your question is really pretty simple. The transaction is proceeding as we anticipated and we are still looking for a closing happening sometime this summer and the process will follow the course that I outlined and I hope that's where we end up, because as I said, I am excited about what this combination will be for our shareholders and our other stakeholders. And I also think that with this transaction, we will be fortuitously participating in this very strong market as we go forward.

Seth Yeager - Jefferies & Company

All right. Thank you very much. Best of luck.

Mel Brekhus

Thank you.

Operator

Our next question comes from the line of Sachin Shah with Albert Fried & Company.

Sachin Shah - Albert Fried & Company

Hi, good morning. Thanks for taking my question. Just wanted to get an update on the HSR. I know you guys refiled it on the 24 and it is set to expire, I believe, later this month, April 23. Is there any update on this? Are you expecting a potential second request? Or--

Mel Brekhus

There is nothing really to report other than what you have just stated.

Sachin Shah - Albert Fried & Company

Okay.

Mel Brekhus

And TXI has been requested to supply information and we supplied that information and we are going through o the process.

Sachin Shah - Albert Fried & Company

Okay, but do you feel good about the refilling? And also just an update on closing timing? Has that changed after the refiling or is it consistent with the timing that you mentioned before?

Mel Brekhus

The timing that I mentioned when I answered Seth's question, the same question, was we are hopeful for a summer of closing of this transaction.

Sachin Shah - Albert Fried & Company

Okay. All right, but as far as, has the refiling changed your view of that?

Mel Brekhus

No. If it had, I would have said that it did.

Sachin Shah - Albert Fried & Company

Okay. Thank you very much.

Operator

Our next question comes from the line of Jim Barrett with CL King.

Jim Barrett - CL King

Good morning, everyone. Can you tell us to what degree you increased the size of your ready mix fleet in the quarter?

Ken Allen

Jim, this is Ken. It wasn't high. It wasn't so much in the quarter. It's this year versus a year ago as this occurred and I want to say it's been 5% to 10% is the increase. I am glad you raised that point because it wasn't just an increase. When you think about the mix of trucks, the age of the fleet is important in the costs.

Jamie Rogers

And utilization.

Ken Allen

And utilization. So not only did we increase the fleet, added new trucks, but we also have replaced some older trucks with newer trucks and that's helped as well. But the net increase is 5% to 10%.

Jim Barrett - CL King

That's helpful. And, Ken, what is the lead time currently in terms of ordering new trucks?

Jamie Rogers

Its two to three months.

Jim Barrett - CL King

Okay, and on a separate issue, with North Texas close to selling out, is there any increased visibility on when you are likely to consider increasing the capacity of that plant?

Jamie Rogers

Jim, obviously if we get closer to a sold-out condition, that's a topic that we will discuss more and more but we don't have anything to announce at this moment.

Jim Barrett - CL King

Understood, and then finally, I know in a prior call you had indicated you would have to close the plant while the capacity addition was being made. Could you give us a general sense of how long the plant would be down in order to grow its capacity, if and when you chose to do that?

Jamie Rogers

Yes, I would rather give you a fuller answer. When we actually made that decision and then made that announcement, and I would rather give you a more comprehensive answer to that point.

Jim Barrett - CL King

Okay, well thank you very much.

Operator

Our next question comes from the line of Mike Betts with Jefferies & Company.

Mike Betts - Jefferies & Company

Yes, thank you much. I had three questions, if I could, maybe I do them individually. The first one was just on SG&A which, as Ken highlighted, you did a good job in keeping down as a percentage of sales. There must be some limit to what you can do there in terms of how much more of volume you have to pick up before you have to start adding significant SG&A cost? How much more leverage do we have before that situation arises?

Ken Allen

Mike, that's a good question. We have worked very hard over the last two years to put systems in and processes in throughout the company that really put in place a lot of capacity to allow our sales to increase. I believe you could see us move to the $1.5 billion sales level and see our SG&A as percent of sales move down from where we are today. That's the whole piece. Without getting into detail of when do significant things need to occur, of course we have got a merger in place. That's going to impact some of the timing on some of that as well.

Mike Betts - Jefferies & Company

Understood. Thank you. My second question relates to a Ore Grande in California. We haven't talked much about California. What sort of level of capacity utilization are you up to now at Ore Grande?

Jamie Rogers

Mike, I think, we are running a little bit under 70%, which is better than we were a year ago, but not where we want to be.

Mike Betts - Jefferies & Company

Okay, thank you. Then my final question just relates to, a number of my European companies are saying that they are trying to import more cement in to Texas, either through import terminals or from other states I guess it's a two-part question. Firstly, are you seeing more of that? And secondly, what are the indications to pricing? Does that, in reality, actually help the pricing picture because presumably their costs will be much greater, but just a little bit of discussion about how much you are seeing, as new supply, if I can call it as such, in to Texas and whether that is driving the pricing as well?

Jamie Rogers

Well, we certainly are seeing more imports as a result of the increased demand, and I think, Ken, in your comments maybe you alluded to the fact that we are a couple years away from reaching our previous peak in Texas, but we expect to go beyond that. The state is going to need the imports. The state is going to need the increased capacity and production that we will be in the best position to supply because of what we have done at Hunter, and the current pricing environment is as strong as we have seen in five or six years.

Mike Betts - Jefferies & Company

I guess, and I am showing my ignorance here, but if people have to put it on a truck and transport the cement several hundred miles from another cement plant in an adjacent state, is that what you are looking at or it is you guys are putting on a train? Just some idea of what the additional cost might be, Jamie, of having to transport the cement, what could be several hundred miles?

Jamie Rogers

Yes, if it is coming several hundred miles, it's coming by train. If it's coming several thousand miles, it's coming on a boat. And yes, those cost depending on shipping costs and what the local dynamic are from where it's coming from, will impact the total cost of the market where it is heading to you in Texas.

Mike Betts - Jefferies & Company

And by train would be like w$5, $10 a ton? Any idea of what the cost might be?

Jamie Rogers

Mike, it depends where it's coming from and where it is going to.

Mike Betts - Jefferies & Company

Okay, so it is easy to ask a simplistic question. I apologize for that. Thank you very much.

Operator

Our next question comes from the line of Ben Oveson with D.A. Davidson.

Ben Oveson - D.A. Davidson

Good morning. Could you just break out the difference in shipment from the increase from the Hunter plant to the Midlothian facility this quarter?

Ken Allen

This is Ken. We really don't do that. Obviously, they are still larger from the North Texas plant compared to the Central Texas plant, but we are increasingly looking at both plants as being almost connected in terms of serving the Texas market. So going forward, the sort of question about who is shipping more to where is going to be more of a detail that doesn't really move the needle.

Ben Oveson - D.A. Davidson

Great. Thank you very much.

Operator

Our next question comes from the line of Alex Merchant with JPMorgan.

Alex Merchant - JPMorgan

Hi. Thank you for the call. Two question for you. Did the volume growth in Texas mean that TXI grew market share significantly? And if so, could you quantify this?

Then my second question would be, could you just remind us of the announced cement price increases for Texas and California that you mentioned at the beginning of the call? Thank you.

Jamie Rogers

Okay, Alex, the second question is, $8 in Texas and $7 in California, is what it settled in to for April 1. I will answer the market share question this way. As you have seen probably from the Texas reports, we have regained the number one market share position in Texas, and as we go forward, as we have alluded to before we are in an excellent position to supply that additional demand that's required and to increase that market share further beyond that.

Alex Merchant - JPMorgan

Okay, many thanks.

Operator

Our next question is a follow-up question from the line of Ted Grace with Susquehanna.

Ted Grace - Susquehanna

I am actually good. I was asked subsequent to my questions. Thanks, guys.

Ken Allen

Greg, that probably is an indication that we are about ready to wrap up here.

Operator

At this time, there are no further questions.

Les Vines

Fantastic. Well, everyone, typically I would say that we are look forward to talking to you in July and discussing our fourth quarter results. I think Ted seems to be reading for that to occur. I will conclude by saying that we will do that, if necessary. If not, I would certainly take this opportunity to express our appreciation and the interest that you have exhibited in TXI over the years and tell you that we certainly have enjoyed all of our interaction with you. And if we don't have another call as TXI, we certainly look forward to realizing our potential that we have discussed today in the context of the combined company. I trust everybody would have a great day.

Operator

Thank you. Ladies and gentlemen, that will conclude the conference for today. We do thank you for your participation. You may now disconnect your lines at this time.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!