Martin Marietta Materials, Inc. (MLM - Analyst Report) delivered strong second-quarter 2014 results, beating the Zacks Consensus Estimate for both earnings and revenues as the aggregates business did significantly well in the quarter. The leading supplier of aggregates and heavy building materials also raised its volume expectations for the full year.
Martin Marietta’s second-quarter earnings of $1.34 per share beat the Zacks Consensus Estimate of $1.23 and increased 50.6% year over year. The double-digit increase in earnings was driven by strong sales and lower costs.
Net sales of $601.9 million increased 18.7% year over year and beat the Zacks Consensus Estimate of $555 million by 8.5% driven largely by improved volume and pricing in the aggregate business which accounts for almost 90% of the company’s net sales. Freight and delivery revenues were $67.3 million, up 24.6% year over year.
Aggregates business’ total revenue grew almost 20% to $540 million driven by shipment (volume) growth of 12.7% and pricing gain of 5% in the aggregates products line. While the strongest shipment growth was seen in the west group, aggregates pricing was the highest in the southeast group.
The company saw aggregates volume growth in all the end markets with particular strength in private construction. Shipments grew 16% in the non-residential market due to strength in the energy and commercial sectors and 20% in private residential market due to improving housing starts. Public construction shipments, comprising 45% of the aggregates product line, increased 9% in the quarter seeing strength in the west and southeast groups.
The aggregates business also includes Martin Marietta’s vertically-integrated operations, i.e., asphalt products, ready mixed concrete and road paving construction services. All these product lines also witnessed improved sales in the quarter.
Specialty Products segment which provides magnesium oxide, magnesium hydroxide, and dolomite lime products grew 9.4% year over year to $61.9 million driven by growth in the chemicals product line.
Total adjusted gross margin (excluding freight and delivery revenues) increased 140 basis points (bps) to 22.5% driven by strong revenues. Aggregates business’ gross margin (excluding freight and delivery revenues) grew 170 bps to 20.7%. Specialty segment’s gross margins grew 20 bps to 37.8%.
Adjusted consolidated earnings were $101.5 million in the quarter, up more than 30% year over year driven by strong gross margins and low overhead costs.
Impressive 2014 Outlook
The company raised its full-year aggregates product line volume guidance to a range of 6% to 8% from 2013 levels, higher than 4–5% expected previously.
While private construction is expected to remain strong, management expects the non-residential construction activity to grow in both heavy industrial and commercial sectors. Public construction activity is expected to gain from increased highway funding and state government funding of infrastructure projects.
Aggregates product line pricing is expected to increase 3% to 5% (maintained).
Sales in the Specialty Products segment are expected between $225 million and $235 million while that in the vertically integrated businesses are expected within $385 to $405 million.
Moreover, Martin Marietta’s purchase of Texas Industries, Inc. earlier this month further sealed the former’s position in the aggregates market as well as increased its concrete presence in high-end markets like Texas. It also exposed Martin Marietta to the growing cement markets in Texas and California.
In order to resolve competition issues with respect to the acquisition, Martin Marietta entered into a deal with the U.S. Department of Justice (DOJ) to divest its North Troy aggregate quarry in Mill Creek, OK and its two rail yards sites in Dallas and Frisco, TX. The assets will be divested in the second half of the year.
Also, in connection with the acquisition, Martin Marietta issued $700 million of senior year notes.
Other Stocks to Consider
Martin Marietta Materials carries a Zacks Rank #3 (Hold).
Investors interested in the building construction/building products sector can consider stocks like Beazer Homes USA Inc. (BZH - Snapshot Report) , United Rentals, Inc. (URI - Snapshot Report) and Quanex Building Products Corporation (NX - Snapshot Report) . All the three companies have a Zacks Rank #2 (Buy).