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Why Is Martin Marietta (MLM) Down 6.2% Since the Last Earnings Report?

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It has been about a month since the last earnings report for Martin Marietta Materials, Inc. (MLM - Free Report) . Shares have lost about 6.2% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Martin Marietta Beats on Q1 Earnings, Margins Down

Martin Marietta’s first-quarter 2017 adjusted earnings per share of $0.67 surpassed the Zacks Consensus Estimate of $0.62 by 8.1%. However, earnings declined 2.9% from the prior-year quarter.

Total revenue (excluding freight and delivery) of $791.7 million surpassed the Zacks Consensus Estimate of $724.7 million by 9.2% and increased 7.9% from the year-ago quarter. Freight and delivery revenues were $52.2 million, down 4.7% year over year.

Segment Discussion

The Building Materials business includes aggregates, cement, ready mixed concrete, asphalt and paving product lines.

Building Materials’ net sales grew 8% to $728.4 million on the back of pricing gains in aggregates, cement and ready mixed concrete.

Aggregates’ net sales grew 4.8% to $451.4 million. Ready Mixed Concrete net sales rose 18.9% to $222.4 million while Cement net sales of $93.7 million decreased 3.3%. Net sales of Asphalt and Paving business were $26.6 million, compared with $13.8 million in the prior-year quarter.

Shipments (volume) in the aggregates product line were flat. Geographically, Mid-America and West Groups aggregate volumes declined 1.5% and 1.3%, respectively, whereas the Southeast Group reported a 16% increase in volume.

Revenues at the Magnesia Specialties segment, which includes magnesium oxide, magnesium hydroxide and dolomite lime products, increased 6.4% year over year to $63.3 million, driven by chemicals and lime product lines.

Steel capacity utilization increased approximately 74%, compared with the prior-year utilization rate of approximately 72%.

Margins Down        
                                       
Total adjusted gross margin (excluding freight and delivery revenues) decreased 120 basis points (bps) to 18.6%.

Building Materials business' gross margin (excluding freight and delivery revenues) of 17.2% decreased 150 bps owing to investments to boost demand, the fixed cost nature of the business during a seasonally lower volume quarter and carefully executed inventory management plans.

Financials

Martin Marietta ended the quarter with cash and cash equivalents of $55.4 million, as of Mar 31, 2017, compared with $27.2 million as of Mar 31, 2016 and $50 million as on Dec 31, 2016.

In the first quarter, the company repurchased 458,000 shares, returning $126.6 million to shareholders. As of Mar 31, 2017, there were 62.8 million shares of Martin Marietta common stock outstanding and 14.6 million shares remaining under the current repurchase authorization.

2017 Guidance

Net sales are expected in the band of $3.75 billion to $3.95 billion.

Aggregates Product line net sales are projected in the band of $2.2–$2.3 billion. Aggregates product line volume is expected to increase in the range of 4–5.5%.

Cement Product Line net sales are projected in the range of $380–$400 million.

Ready Mixed Concrete and Asphalt/Paving Product Lines net sales are expected in the range of $1.3–$1.4 billion.

Magnesia Specialties Business net sales are likely to come in between $235 billion and $240 billion.

Non-residential market is expected to increase in a low to mid-single digit range. Meanwhile, the residential market is expected to grow in the mid to high single-digit range. The ChemRock/Rail market volumes are likely to remain stable.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter.

Martin Marietta Materials, Inc. Price and Consensus

VGM Scores

At this time, Martin Marietta's stock has an average Growth Score of 'C', though its Momentum is doing a bit better with a 'B'. The stock was allocated a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for growth and momentum investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.


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