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Martin Marietta (MLM) Sees 12.7% Six-Month Gains Amid Inflation
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Martin Marietta Materials, Inc. (MLM - Free Report) is likely to be a solid bet for 2023 despite inflationary pressure and a slowdown in single-family residential construction. Higher public infrastructure investment and continued strength in large-scale energy, domestic manufacturing and multi-family residential projects should act as catalysts for the company’s growth.
Earlier this month, Martin Marietta reported mixed financial numbers for third-quarter 2022. Earnings missed the Zacks Consensus Estimate, but revenues surpassed the same. On a year-over-year basis, the metrics improved, backed by double-digit pricing growth on relatively flat organic aggregates shipments.
The company’s focus on value-over-volume strategy has been driving growth as double-digit pricing growth drove record profitability in the third quarter despite relatively flat organic aggregates shipments. MLM expects a return to expanding margins in the fourth quarter of 2022 as the compounding effect of multiple pricing actions throughout the year offsets continued inflationary pressure and a slowdown in single-family residential construction.
Indeed, this Zacks Rank #3 (Hold) company’s margins remain vulnerable to ongoing inflationary pressure and lower aggregate volume. Owing to these headwinds, the company’s shares have gained 12.7% over the past six months compared with the industry’s 18.6% rise. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Image Source: Zacks Investment Research
Factors Favoring the Stock
Higher Infrastructural Spending: Martin Marietta and other concrete & aggregates producers are expected to benefit from strong global trends in infrastructure modernization, energy transition, national security, and a potential super-cycle in global supply-chain investments. The need to rebuild the nation’s deteriorating roads and bridges is expected to help MLM.
The company expects a diverse mix of federal projects for road and bridge work, water control, harbors and ports and the power grid, which will likely drive growth in 2023. MLM sees substantial opportunities in 2023 across federally funded infrastructure projects, industrial manufacturing, energy and power. It expects to deliver another year of profitable growth, strong cash flow and attractive returns for shareholders.
In the near term, it expects affordability-driven headwinds in the single-family residential end market. This will be offset by a significant acceleration in public infrastructure investment and continued strength in large-scale energy, domestic manufacturing and multi-family residential projects.
The Zacks Consensus Estimate for 2023 earnings of $15.38 per share calls for 20.5% year-over-year growth.
Regular Acquisitions/Divestitures: The company has been reshaping its operations and portfolio via regular acquisitions and divestitures. On Oct 1, 2021, the company acquired Lehigh Hanson, Inc.’s West Region business (Lehigh West Region) that added 17 active aggregates quarries, two cement plants with related distribution terminals and targeted downstream operations to its portfolio.
Meanwhile, the company also reviews the overall portfolio for opportunities to maximize value by monetizing or exchanging select assets. On Aug 9, 2022, the company entered into a contract to sell the Tehachapi, CA cement plant and related distribution terminals to CalPortland for $350 million in cash.
Solid Long-Term Plan: Martin Marietta has been gaining strength from long-term strategic plans — markedly SOAR (Strategic Operating Analysis and Review) 2025 initiatives — and delivered the most profitable 2021 performance in its history. It is to be noted that 2021 marked 10 years of consecutive growth in consolidated products and services revenues, adjusted gross profit, adjusted EBITDA and adjusted earnings per share.
Martin Marietta has been focusing on SOAR plans that include portfolio optimization, assessing business combinations and arrangements with other companies engaged in similar businesses, increasing footprint in core businesses, investing in internal expansion projects in high-growth markets as well as pursuing new opportunities associated with the existing markets served.
Headwinds
Inflationary Pressures: The company uses large amounts of electricity, diesel fuel, liquid asphalt and other petroleum-based resources, subject to potential supply constraints and significant price fluctuation, which could affect operating results and profitability. The availability and pricing of these resources are subject to market forces. Variability in the supply and prices of these resources could affect the company’s operating costs, and the rising costs could erode profitability.
Aggregate product gross margin again declined 170 basis points (bps) year over year during the third quarter of 2022 due to higher energy, internal freight and repairs and maintenance costs. The continued acceleration of liquid asphalt costs contributed to the gross margin compression of 360 bps, or 470 bps on an adjusted basis, in the third quarter of 2022 for the Downstream businesses.
Lowered View: Owing to ongoing inflationary pressure and lower aggregate volume, MLM lowered its expectations for consolidated products and services revenues, gross profit and adjusted EBITDA for 2022. The company expects consolidated products and services revenues in the range of $5,740-$5,845 million (compared with $5,770-$5,910 million expected earlier), gross profit in the $1,445-$1,510 million band (earlier expected in the $1,500-$1,585 million range), selling, general and administrative expenses within $390-$400 million and adjusted EBITDA between $1,610 million and $1,675 million (versus $1, 670-$1,750 million expected earlier).
3 Better-Ranked Construction Stocks in the Limelight
Some better-ranked stocks, which warrant a look in the Construction sector, include:
Headquartered in Temple, GA, Janus International Group, Inc. (JBI - Free Report) , carrying a Zacks Rank #2 (Buy), manufactures and supplies turn-key self-storage and commercial and industrial building solutions. Solid backlog levels, an impressive project pipeline, productivity improvements and commercial actions, including pricing, are expected to drive growth. The company is expected to benefit from its one-stop-shop offering with a leading market share in self-storage doors and related design and installation services.
Janus’ earnings for 2023 are expected to rise 16.9%. The Zacks Consensus Estimate for current-year and next-year earnings has improved to 75 cents per share and 88 cents per share from 69 cents per share and 80 cents per share, respectively, over the past 60 days.
Altair Engineering (ALTR - Free Report) — holding a Zacks Rank #2 — provides software and cloud solutions in simulation, high-performance computing, data analytics and artificial intelligence worldwide.
ALTR’s expected earnings growth rate for 2023 is 21.5%.
Sterling Infrastructure, Inc. (STRL - Free Report) — carrying a Zacks Rank #2 — provides transportation, e-infrastructure, and building solutions.
STRL’s expected earnings growth rate for 2023 is 6.3%. The Zacks Consensus Estimate for 2023 earnings has improved to $3.37 from $3.26 over the past 60 days.
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Martin Marietta (MLM) Sees 12.7% Six-Month Gains Amid Inflation
Martin Marietta Materials, Inc. (MLM - Free Report) is likely to be a solid bet for 2023 despite inflationary pressure and a slowdown in single-family residential construction. Higher public infrastructure investment and continued strength in large-scale energy, domestic manufacturing and multi-family residential projects should act as catalysts for the company’s growth.
Earlier this month, Martin Marietta reported mixed financial numbers for third-quarter 2022. Earnings missed the Zacks Consensus Estimate, but revenues surpassed the same. On a year-over-year basis, the metrics improved, backed by double-digit pricing growth on relatively flat organic aggregates shipments.
The company’s focus on value-over-volume strategy has been driving growth as double-digit pricing growth drove record profitability in the third quarter despite relatively flat organic aggregates shipments. MLM expects a return to expanding margins in the fourth quarter of 2022 as the compounding effect of multiple pricing actions throughout the year offsets continued inflationary pressure and a slowdown in single-family residential construction.
Indeed, this Zacks Rank #3 (Hold) company’s margins remain vulnerable to ongoing inflationary pressure and lower aggregate volume. Owing to these headwinds, the company’s shares have gained 12.7% over the past six months compared with the industry’s 18.6% rise. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Image Source: Zacks Investment Research
Factors Favoring the Stock
Higher Infrastructural Spending: Martin Marietta and other concrete & aggregates producers are expected to benefit from strong global trends in infrastructure modernization, energy transition, national security, and a potential super-cycle in global supply-chain investments. The need to rebuild the nation’s deteriorating roads and bridges is expected to help MLM.
The company expects a diverse mix of federal projects for road and bridge work, water control, harbors and ports and the power grid, which will likely drive growth in 2023. MLM sees substantial opportunities in 2023 across federally funded infrastructure projects, industrial manufacturing, energy and power. It expects to deliver another year of profitable growth, strong cash flow and attractive returns for shareholders.
In the near term, it expects affordability-driven headwinds in the single-family residential end market. This will be offset by a significant acceleration in public infrastructure investment and continued strength in large-scale energy, domestic manufacturing and multi-family residential projects.
The Zacks Consensus Estimate for 2023 earnings of $15.38 per share calls for 20.5% year-over-year growth.
Regular Acquisitions/Divestitures: The company has been reshaping its operations and portfolio via regular acquisitions and divestitures. On Oct 1, 2021, the company acquired Lehigh Hanson, Inc.’s West Region business (Lehigh West Region) that added 17 active aggregates quarries, two cement plants with related distribution terminals and targeted downstream operations to its portfolio.
Meanwhile, the company also reviews the overall portfolio for opportunities to maximize value by monetizing or exchanging select assets. On Aug 9, 2022, the company entered into a contract to sell the Tehachapi, CA cement plant and related distribution terminals to CalPortland for $350 million in cash.
Solid Long-Term Plan: Martin Marietta has been gaining strength from long-term strategic plans — markedly SOAR (Strategic Operating Analysis and Review) 2025 initiatives — and delivered the most profitable 2021 performance in its history. It is to be noted that 2021 marked 10 years of consecutive growth in consolidated products and services revenues, adjusted gross profit, adjusted EBITDA and adjusted earnings per share.
Martin Marietta has been focusing on SOAR plans that include portfolio optimization, assessing business combinations and arrangements with other companies engaged in similar businesses, increasing footprint in core businesses, investing in internal expansion projects in high-growth markets as well as pursuing new opportunities associated with the existing markets served.
Headwinds
Inflationary Pressures: The company uses large amounts of electricity, diesel fuel, liquid asphalt and other petroleum-based resources, subject to potential supply constraints and significant price fluctuation, which could affect operating results and profitability. The availability and pricing of these resources are subject to market forces. Variability in the supply and prices of these resources could affect the company’s operating costs, and the rising costs could erode profitability.
Aggregate product gross margin again declined 170 basis points (bps) year over year during the third quarter of 2022 due to higher energy, internal freight and repairs and maintenance costs. The continued acceleration of liquid asphalt costs contributed to the gross margin compression of 360 bps, or 470 bps on an adjusted basis, in the third quarter of 2022 for the Downstream businesses.
Lowered View: Owing to ongoing inflationary pressure and lower aggregate volume, MLM lowered its expectations for consolidated products and services revenues, gross profit and adjusted EBITDA for 2022. The company expects consolidated products and services revenues in the range of $5,740-$5,845 million (compared with $5,770-$5,910 million expected earlier), gross profit in the $1,445-$1,510 million band (earlier expected in the $1,500-$1,585 million range), selling, general and administrative expenses within $390-$400 million and adjusted EBITDA between $1,610 million and $1,675 million (versus $1, 670-$1,750 million expected earlier).
3 Better-Ranked Construction Stocks in the Limelight
Some better-ranked stocks, which warrant a look in the Construction sector, include:
Headquartered in Temple, GA, Janus International Group, Inc. (JBI - Free Report) , carrying a Zacks Rank #2 (Buy), manufactures and supplies turn-key self-storage and commercial and industrial building solutions. Solid backlog levels, an impressive project pipeline, productivity improvements and commercial actions, including pricing, are expected to drive growth. The company is expected to benefit from its one-stop-shop offering with a leading market share in self-storage doors and related design and installation services.
Janus’ earnings for 2023 are expected to rise 16.9%. The Zacks Consensus Estimate for current-year and next-year earnings has improved to 75 cents per share and 88 cents per share from 69 cents per share and 80 cents per share, respectively, over the past 60 days.
Altair Engineering (ALTR - Free Report) — holding a Zacks Rank #2 — provides software and cloud solutions in simulation, high-performance computing, data analytics and artificial intelligence worldwide.
ALTR’s expected earnings growth rate for 2023 is 21.5%.
Sterling Infrastructure, Inc. (STRL - Free Report) — carrying a Zacks Rank #2 — provides transportation, e-infrastructure, and building solutions.
STRL’s expected earnings growth rate for 2023 is 6.3%. The Zacks Consensus Estimate for 2023 earnings has improved to $3.37 from $3.26 over the past 60 days.