On Nov 14, shares of Martin Marietta Materials, Inc. (MLM - Free Report) rallied to a new 52-week high of $236.41. The stock pulled back to end the trading session at $231.50. This construction company with a market cap of around $14.58 billion has seen its shares rise roughly 70.5% so far this year as compared with a 7.5% increase for the S&P 500 over the same period.
What’s Driving Martin Marietta?
Although Martin Marietta missed analysts’ expectations in the third quarter 2016 for both the top and the bottom line, it recorded a 43% and 3.3% increase in earnings and revenues on a year-over-year basis, respectively.
In the third quarter, the company delivered significant margin expansion as well as record gross profit. The company’s gross margin rose 570 basis points (bps) year over year while adjusted operating margin showed a 530-bps improvement. The company is encouraged by the positive trends in the markets it serves and its ability to execute strategic business plans.
Martin Marietta is a leading supplier of construction aggregates in the U.S. used for construction of highways, infrastructure projects and residential, commercial and industrial building development. The company has a vast network of aggregate quarries and distribution centers throughout the southern U.S., in the Bahamas and Canada, as well as distribution centers along the Gulf of Mexico and Atlantic coasts. Recent economic improvement has boosted sales and profits in the Aggregates business. The aggregates product line accounted for around 55% of its total sales in 2015.
Aggregate product line pricing in the third quarter increased approximately 9% which, coupled with its focus on diligent cost control, enabled the company to leverage the increased net sales into gross margin expansion.
Meanwhile, the company has completed over 80 smaller acquisitions since its Initial Public Offering in 1994 which strengthened its position in the Aggregates business. Martin Marietta’s Texas Industries acquisition solidified the company’s position in the aggregates market and increased its concrete presence in high-end regions like Texas. Notably, Texas Industries is a leading supplier of heavy construction materials. The company also gained exposure to the growing cement markets in Texas and California as Texas Industries was the largest producer of cement in Texas and a major Californian cement producer. Martin Marietta expects annual synergies of $120 million from the buyout by the end of 2016.
That said, the company’s volume headwinds were quite prevalent during the quarter. The company also faced constrained construction activity in its markets. Specifically, the company experienced delays in Texas Department of Transportation projects, declines in railroad ballast shipments, abnormally wet weather conditions and a slower energy-related marketplace.
Martin Marietta carries a Zacks Rank #5 (Strong Sell).
Now, if we take a look at some of the other construction companies’ third-quarter releases, Masco Corporation ‘s (MAS - Free Report) third-quarter earnings and revenues missed the Zacks Consensus Estimate. PulteGroup Inc.’s (PHM - Free Report) third-quarter earnings were in line with the Zacks Consensus Estimate while revenues missed the mark. Meanwhile, D.R. Horton Inc. (DHI - Free Report) exhibited a mixed performance in the fourth quarter of fiscal 2016 with earnings missing the Zacks Consensus Estimate and sales surpassing the same.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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