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How You Should Play Martin Marietta (MLM) Ahead of Q1 Earnings

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Martin Marietta Materials, Inc. (MLM - Free Report) is scheduled to report first-quarter 2024 results on Apr 30, before the opening bell. The Zacks Consensus Estimate for Martin Marietta’s first-quarter earnings is pegged at $1.88 per share, which moved up from $1.85 in the past seven days. The estimated figure suggests a decline of 13% from the year-ago quarter’s reported figure of $2.16. Notably, Martin Marietta’s earnings topped the consensus mark in the last four quarters, the average surprise being 41.5%.

The consensus estimate for net sales is pegged at $1.30 billion, indicating a 4.4% decrease from the prior-year quarter’s figure of $1.35 billion.

In the last reported quarter, the company’s earnings beat the Zacks Consensus Estimate by 16.9%, but revenues missed the same by 2.1%. On a year-over-year basis, earnings of this aggregates producer increased 53.8%, and revenues rose 8.9%.

Our proven model does not conclusively predict an earnings beat for Martin Marietta this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat, which is not the case here. Currently, MLM has an Earnings ESP of -3.13% and a Zacks Rank #3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Factors to Influence Q1

Martin Marietta is anticipated to report first-quarter revenues showcasing strong pricing trends. However, this positive aspect is expected to be counterbalanced by the divestiture of the Texas cement and concrete businesses, alongside decreased volumes in aggregates. These volume reductions are attributed partly to adverse weather conditions and a reduced number of working days in March.

Given the soft start, strong pricing gains in aggregates, acceleration in infrastructure spending and accretive acquisitions will be key driving factors for the quarter. MLM’s business has been sensitive to changes in construction spending, particularly housing and public construction in Texas, Colorado, North Carolina, Georgia, Florida, and Iowa. Infrastructure construction, particularly for aggregates-intensive highways, roads and streets, might have also contributed to its performance in the quarter, as contractors advanced projects that have been awarded and funded. The company predicts a significant increase in aggregate demand in the U.S. economy to boost revenues.

Our model suggests Aggregates pricing to increase to $21.78 per ton, marking 9.8% year-over-year growth. However, we expect Aggregates volume to decline 3.5% to 40.2 million tons from 41.7 million reported a year ago. We expect Aggregates revenues to increase to $965.5 million from $911.9 million a year ago.

We expect cement revenues to drop 46.3% year over year to $91.6 million. Cement pricing is anticipated to rise 7.4% to $183.20 per ton. The same for Cement volume is pegged at 0.5 million tons, down 50% from a year ago.

We expect the Building Material segment revenues, which comprised 95.3% of total revenues in the fourth quarter of 2023, to decline 3.4% year over year to $1.23 billion. Our expectation for gross profit for the Building Material unit is pegged at $274.5 million versus $275.9 million reported a year ago.

Our model suggests Magnesia Specialties revenues are likely to increase 3.9% year over year to $86.7 million. We project gross profit for the Magnesia Specialties unit at $15.3 million versus $25 million reported a year ago.

However, inflation, higher liquid asphalt and diesel fuel costs, a rise in transportation and insurance costs, as well as labor costs, may have put pressure on the bottom line in the first quarter.

Investment Consideration

Despite a sluggish start, Martin Marietta's performance outlook appears promising, particularly with the uptick in activity witnessed in March 2024, attributed to clearer weather conditions. This optimism is further fueled by strategic acquisitions, including Albert Frei & Sons, Inc. (AFS) and 20 active aggregate operations from Blue Water Industries’ affiliates, BWI Southeast, alongside strong selling prices in aggregates.

The company's assertion that 2024 would be a standout year in terms of mergers and acquisitions seems to be materializing, evident in their divestment of South Texas cement and concrete operations. Proceeds from this divestment were reinvested into the aggregates business, notably through acquisitions of AFS, solidifying Martin Marietta's presence in the rapidly growing Denver metropolitan area, and BWI, a significant addition entering the Tennessee market, known for its high average selling prices (ASP) in the nation.

The company expects solid near-term product demand reinforced by healthy customer backlogs across its coast-to-coast footprint, led by infrastructure and heavy non-residential projects of scale.
 

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Over the past year, the company’s shares have gained by 64.7%, outperforming the Zacks Building Products - Concrete and Aggregates industry’s growth of 52.1%.

In an environment marked by elevated interest rates and inflation, companies in the aggregates and cement sectors stand out as particularly resilient. Their primary operations are closely linked to infrastructure and heavy commercial markets, which tend to be less affected by fluctuations in interest rates. This resilience is further bolstered by ongoing government investment in infrastructure projects, providing a stable revenue stream. Additionally, the support of federal tax incentives like the IRA and CHIPS Act bolsters large private nonresidential projects, further fortifying the industry. Moreover, these companies possess the ability to adjust prices in response to increases in energy costs, thus maintaining their profitability even in challenging economic conditions.

While Martin Marietta’s performance outlook appears promising, investors should exercise caution given the stock's recent surge in value. As MLM significantly outperformed the industry in the last year, its valuation looks a bit stretched compared with the industry average. The stock is currently trading at 27.4X forward 12-month earnings, which compares to 20.7X for the Zacks sub-industry and 17.3X for the Zacks Construction sector.

As investors await MLM’s first-quarter earnings report, the company's solid pricing, accretive buyouts and high infrastructure spending paint a positive picture. However, concerns over high costs and stretched valuation warrant caution for potential investors. While MLM’s long-term prospects remain promising as the industry continues to recover, it may be prudent to wait for a more attractive entry point.

Stocks With the Favorable Combination

Here are some other companies in the Zacks Construction sector that, according to our model, have the right combination of elements to post an earnings beat in the quarter to be reported.

TopBuild (BLD - Free Report) has an Earnings ESP of +1.47% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

BLD’s earnings for the to-be-reported quarter are expected to increase 4.6%. The company reported better-than-expected earnings in all the last four quarters, the average surprise being 12.4%.

Fluor Corporation (FLR - Free Report) has an Earnings ESP of +1.23% and a Zacks Rank #3.

FLR’s earnings for the to-be-reported quarter are expected to grow 92.9%. The company reported better-than-expected earnings in three of the last four quarters and missed on one occasion, the average surprise being 47.9%.

Boise Cascade Company (BCC - Free Report) has an Earnings ESP of +0.36% and has a Zacks Rank #3.

BCC’s earnings topped the consensus mark in three of the last four quarters and missed on one occasion, with the average being 20.4%. Earnings for the to-be-reported quarter are expected to decline 5.4% year over year.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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