Steve Zelnak, 65, became president of Martin Marietta Corp.’s aggregates division 27 years ago and led it through its spinoff and initial public offering as Martin Marietta Materials Inc. in 1994. The Raleigh-based company is among the nation’s three largest producers of construction aggregates — including crushed stone, sand and gravel. Zelnak hands over the CEO title to Ward Nye, 47, this month but will continue as executive chairman. Next summer, he’ll become nonexecutive chairman.
Can you put the past year into context?
This downturn is the most severe, in terms of percentage of volume decline, since the 1930s. When I came into the business in the early ’80s, that was the most severe downturn since the 1930s, and we’ve gone deeper this time.
You’ve stayed profitable — netting $176 million last year and $57 million in the third quarter — despite declining sales. How?
We began to pull in our cost structure in late 2006, a good year before most players in our industry. We pulled in discretionary expense. We reduced hours. We cut personnel, and we’ve been doing that steadily ever since. In December 2005, we had 5,757 employees. In September 2009, we had 4,643. We’ve never had to reduce employment like this, but those are the times we’re in, so we have to make the moves that keep us profitable.
Overall, your costs don’t seem to have changed much.
Some are freight-related, which are not controllable in the same way. It just depends on which customers were shipping. Our mix tilted toward higher costs simply because of the freight that was embedded in it. Also, we had a big spike in energy costs.
What parts of your business suffered most?
We’ve taken the toughest hit in the Southeast, in the Carolinas and Georgia. With the decline in housing and industrial/commercial construction and also problems the states had with their transportation budgets, we’ve seen very sharp retrenchment.
Where have you been strongest?
The farm belt in the Midwest. That economy has been much steadier. We had a record third-quarter profit there. Volume was down, but we did a good job on our costs.
Alternative-energy projects helped you?
Wind farms have played a major role for us. Iowa has become the second-largest wind-farm state in the country. We’re the largest producer in Iowa, so we’re a big beneficiary. Texas is the largest wind-farm state, and we’re a big player there. We saw some pullback on wind-farm projects, but with the stimulus money that is targeted toward alternative energy, we’re seeing some of those projects come forward again. We’re confident that wind-farm work is going to be robust over the next five to 10 years.
What about residential construction?
As we go into 2010 we’re going to see some pickup in residential, but it’s coming off a very low level.
What are some of the major problems your customers face?
They are very pressured. They’ve had to lay off large numbers of people. The ready-mix concrete industry has been hurt badly with home building and industrial/commercial pulling back. The asphalt producers have been hurt badly by the pullback in road construction, maintenance and repair — even with the stimulus money, which hasn’t come out as fast as we thought it would. But probably two-thirds of the stimulus money ought to hit in 2010, so that will be helpful.
2010 will be better than 2009?
We expect all of our demand sectors to be up — other than nonresidential, which is industrial/commercial construction primarily. That will be down.