What’s driving the industry’s growth

By , and |  May 31, 2024
Although aggregate volumes are down of late, construction materials firms continue to make gains behind methodical adjustments in pricing. Photo: P&Q Staff
Although aggregate volumes are down of late, construction materials firms continue to make gains behind methodical adjustments in pricing. Photo: P&Q Staff

Throughout the first few months of 2024, leading construction materials companies adeptly navigated a complex economic landscape characterized by decreased volumes, significant weather impacts and dynamic market demands.

Despite these challenges, firms such as Vulcan Materials, Martin Marietta, Holcim, Cemex and Summit Materials were able to use methodical adjustments in pricing to achieve healthy profitability.

Tom Hill, CEO of Vulcan Materials, underscored the effectiveness of these strategies on the company’s first-quarter earnings call.

“Several key trends continue: pricing momentum, cost deceleration, unit profitability expansion [and] robust cash generation,” Hill says.

As such, investors have rewarded these companies in the open market. For example, the Construction Materials Index – FMI Capital Advisors’ proprietary index of publicly traded construction materials companies – outperformed the broader markets throughout the first four months of the year.

Economic factors impacting industry performance

Broader economic conditions have also influenced the industry’s operations. But on a positive note, fewer economists are now predicting a true recession in 2024 versus those who did in previous quarters.

Supply chain dynamics appear to be improving overall, and the general sense of uncertainty seems to be waning.

Still, this good news does not come without a price. The Federal Reserve has temporarily held off on its plan to cut interest rates and is instead opting to utilize a wait-and-see strategy.

Delayed rate decreases are one of several factors stalling residential construction. In addition to rates, investment firms have pulled back on purchasing homes with the intent to rent. This has caused the housing market to stagnate.

Despite these hurdles, many economists remain optimistic about the long-term prospects of the residential sector due to the extreme imbalance in the supply-demand dynamics for single-family homes.

The private & public sectors

The private sector’s increasing interest in establishing manufacturing capabilities in the U.S. has further stimulated the construction materials market.

This trend, partly driven by the broader push toward onshoring and nearshoring manufacturing operations, is aimed at reducing dependencies on overseas labor and enhancing supply chain resilience.

The focus on domestic manufacturing not only boosts the demand for construction materials, but it creates lucrative opportunities for companies to expand their market share through strategic acquisitions.

From a public sector perspective, the influx of government funding from initiatives like the Infrastructure Investment & Jobs Act and the CHIPS Act has injected much-needed certainty and visibility into the market. Both federal and state funding remain strong tailwinds for the construction materials sector in 2024. This government support is expected to bolster demand for infrastructure projects and manufacturing facilities, thereby enhancing market stability and making merger and acquisition (M&A) activities more attractive.

Anne Noonan, president and CEO of Summit Materials, is among those who’ve expressed optimism about this development.

“Public tailwinds mostly are more than offset by variability in private end markets,” says Noonan, on Summit’s first-quarter earnings call “The swing factor on volumes will be on private demand recovery. And at this point, we are cautiously optimistic.”

Inflation is always a concern when it comes to public sector funding, as fixed dollars can result in lower volumes at higher prices. For construction materials companies, this challenge can be mitigated as long as firms stay diligent with maintaining market pricing.

This sentiment is echoed by Ward Nye, chairman and CEO at Martin Marietta, who highlighted the company’s proactive stance on pricing to counteract reduced demand during the company’s first-quarter earnings call.

“Aggregate’s pricing fundamentals remain attractive … underscoring the advantages of our value-over-volume [strategy],” Nye says.

Related: How construction materials firms fared in the first quarter

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