Martin Marietta upbeat following record-setting quarter

Martin Marietta’s Parkdale Quarry. Photo courtesy of Martin Marietta

Martin Marietta Materials Inc. published its third-quarter performance results, reporting company records for consolidated net sales, gross profit and net earnings. In addition, Martin Marietta’s aggregate product line pricing was up nearly 9 percent.

“Our ability to take advantage of a slow and steady economic expansion and improvement across our markets helped us achieve exceptional performance in each of our business units,” says Ward Nye, chairman, president and CEO of Martin Marietta.

According to Nye, positive underlying market conditions contributed to the company’s Southeast Group and Mid-America Group expanding their gross margin 530 basis points and 90 basis points, respectively. In addition, aggregate product line volume increased 8 percent in the Carolinas, with some markets increasing 15 percent or more.

“This growth was driven by early and small advances in both non-residential and residential demand,” Nye says. “Importantly, these results were achieved despite some market challenges we faced during the quarter. Indeed, volume headwinds were more prevalent than tailwinds during the quarter and constrained construction activity in our markets.”

Specifically, Martin Marietta continues to experience delays in Texas Department of Transportation projects, declines in railroad ballast shipments, abnormally wet weather and a slower energy-related marketplace.

“Our record financial results demonstrate our ability to overcome these and other macro headwinds as our employees focus on executing our business plan and meeting our objectives,” Nye says.

Analysis

According to Martin Marietta’s report, the company’s aggregate product line shipments to the infrastructure market comprised 42 percent of quarterly volumes and decreased 7.2 percent. Infrastructure shipments in the third quarter were impacted by significant rainfall and project startup delays, primarily in Texas, which deferred shipments and led to reduced public-sector volumes, the company says.

The nonresidential market represented 31 percent of quarterly aggregate product line shipments and declined 4.3 percent. The Mid-America Group achieved a 5 percent increase, driven by growth in office, retail and industrial development in North Carolina and South Carolina. The Southeast Group and West Group each experienced a decline in nonresidential activity, primarily related to weather deferrals, further reductions in energy sector headwinds and project timing, according to the company.

The residential market accounted for 18 percent of quarterly aggregate product line shipments, the company adds. Volumes to this segment increased 3 percent, due to the continued housing recovery.

Overall, aggregate product line shipments decreased 4.7 percent, reflecting various department of transportation delays, weather-driven impacts in addition to reduced energy-related shipments and lower ballast demand, Martin Marietta says.

Still, an aggregate product line pricing improvement of 8.5 percent reflects growth in all reportable Martin Marietta groups, led by a 13.7 percent increase in the West Group. The Southeast Group and Mid-America Group reported increases of 7.4 percent and 4.7 percent, respectively.

“As we look forward to 2017, we note that domestic job growth remains a strong catalyst for construction activity and demand for our products,” Nye says. “In fact, during the last three years, the United States added nearly 8 million jobs. Durable employment growth in the East, where North Carolina, Georgia and Florida each rank in the top 10 states nationally for job gains, continues to support the early stages of a construction-centric phase of recovery in many of these states.”

Martin Marietta also anticipates infrastructure activity to grow because of the $305 billion FAST Act and increased state department of transportation funding initiatives.

“We see solid non-residential demand in our key markets driven, in part, by growth in warehousing, data center and wind farm construction, despite the perception of weakening activity at the macroeconomic level,” Nye says. “We believe this perception relates to volatility in quarterly construction start data that is better explained by the natural ebb and flow of mega projects moving through the construction cycle. Residential construction in our key markets is expected to continue increasing, driven largely by historically low levels of construction activity over the previous several years together with low mortgage rates, significant lot absorption and higher multi-family rental rates.

“Our leadership positions in some of the nation’s most vibrant geographic and demographic markets should allow us to capitalize on a durable construction and infrastructure recovery in 2017 and beyond,” Nye adds. “Driven by expected steady growth in volume and pricing, as well as improved cost dynamics, we believe the company’s profitability and cash generation outlook is the strongest it has been in years.”