Martin Marietta Materials Inc. reported its results for the first quarter ended March 31, 2015. The company is reporting:
- Consolidated net sales of $631.9 million compared with $379.7 million, an increase of 66 percent.
- Aggregates product line volume increase of 17.1 percent; aggregates product line price increase of 11.4 percent.
- Heritage aggregates product line volume increase of 7.0 percent, excluding shipments from 2014 divestitures from prior-year quarter; reported heritage volume increase of 3.7 percent.
- Heritage aggregates product line price increase of 10.5 percent.
- Cement business net sales of $96.6 million, earnings from operations of $12.2 million and EBITDA of $27.5 million.
- Magnesia Specialties net sales of $58.8 million and earnings from operations of $17.8 million.
- Heritage consolidated gross margin (excluding freight and delivery revenues) of 12.5 percent, up 570 basis points; consolidated gross margin (excluding freight and delivery revenues) of 11.8 percent, up 500 basis point.
- Consolidated selling, general and administrative expenses (SG&A) of $49.5 million, or 7.8 percent of net sales, a reduction of 120 basis points
Ward Nye, chairman, president and CEO of Martin Marietta, stated: "We are pleased to report improved margins and increased profitability, both considerably ahead of our internal plans, and a first-quarter profit for the first time since 2008. These quarterly results serve as a further validation of our success in executing on our strategic objectives, as well as our relentless commitment to operational excellence and cost discipline. Notably, we achieved volume growth and reported a double-digit pricing increase in our heritage aggregates product line despite severe late winter weather in many markets and significant rainfall in Texas. We view this volume and pricing momentum as an indication of a more construction-centric phase of economic recovery. Our first-quarter results and outlook for the full year have led us to increase our annual aggregates product line pricing guidance from an increase of 4 percent to 6 percent to an increase of 7 percent to 9 percent over 2014.
"Texas ranks second in the nation in job growth, supported by increased construction activity and a diverse industrial base," Nye said. "Our leading position in Texas' major northern, central and southern markets will allow us to capitalize on this trend as our customers' backlogs across the construction end-use spectrum continue to improve. Construction activity is led by the state Department of Transportation's nearly $9 billion fiscal year 2015 letting budget, which includes multi-year projects and adds to an existing infrastructure backlog. Texas also ranks first in nonresidential starts, with $39 billion in the trailing-12 months, and second in housing starts, which represented more than 15% of the nation's housing starts for the trailing-12 months through March.
"We continue to see indicators of further recovery in the eastern half of the United States, where Martin Marietta has leading market positions," Nye continued. "North Carolina, Georgia and Florida all rank in the top five in job growth and, similar to Texas, construction activity is improving. Further, both North Carolina and Georgia are among several states considering legislation to expand infrastructure funding, supporting the importance of transportation investment in spurring economic growth. Additionally, Iowa enacted a $0.10 per gallon increase in the state gas tax on March 1, 2015, to increase annual funding for infrastructure projects by an estimated $215 million"
Heritage aggregates product line shipments reflect growth in all end-use markets. Shipments to the infrastructure market comprised 40 percent of quarterly volumes and increased 8 percent. Growth was driven by large projects in the Mid-America Group (notably in North Carolina and Iowa) and the Southeast Group. Shipments in the West Group were hampered by rainfall. The federal highway bill, Moving Ahead for Progress in the 21st Century, or MAP-21, will expire on May 31, 2015. However, management anticipates the U.S. Congress will pass another continuing resolution through the fall, while working towards passage of a multi-year bill.
The nonresidential market represented 34 percent of quarterly heritage aggregates product line shipments and increased slightly. Diversified state economies have generated other nonresidential and infrastructure projects to replace energy-related shipments currently displaced by volatility in oil prices. Further, the Company expects energy-related activity to remain strong, supported by more than $100 billion of planned projects along the Gulf Coast, including a significant portion in Texas. Nonresidential activity varies significantly by state, with growth strongest in Texas and California. The Dodge Momentum Index for March was 122.3. For the first three months of 2015, the index was 12 percent higher than the comparable period in 2014, signaling continued growth in nonresidential activity.
The residential end-use market accounted for 15 percent of quarterly heritage aggregates product line shipments, and volumes to this market increased 4 percent. The overall rate of residential growth has slowed compared with the last few years, in part due to a temporary reduction in available building lot inventory in the company's markets. Importantly though, subdivision development, which consumes the majority of stone used in residential construction activity, has increased in a number of states. Notably, Colorado, Georgia, Florida and South Carolina all reported double-digit growth in housing starts for the trailing-12 months through March.
Overall, heritage aggregates product line shipments increased 7.0 percent, excluding shipments from the third-quarter 2014 divestiture of three operations from the prior-year quarter. The divestiture included an Oklahoma quarry and two Dallas, Texas rail yards and was required by the Department of Justice in the TXI acquisition. Shipments from these divestitures continue to be reported in heritage volumes in the prior-year quarter. Aggregates product line shipments in the Mid-America Group increased 18.1 percent, and the Southeast Group achieved an increase of 2.2 percent. The West Group shipments were up slightly, excluding shipments from the divested operations from the prior-year quarter. The reported variance for the West Group is a 6.1 percent decline.
Heritage aggregates product line pricing represents growth in all reportable groups, led by the 17.6 percent increase in the West Group. The most significant improvement was achieved in South Texas. The Southeast Group and Mid-America Group reported increases of 6.0 percent and 3.2 percent, respectively.
The legacy TXI aggregates product line operations continue to benefit from integration, which has resulted in expanded margins. Inclusive of two small acquisitions completed during the first quarter, these operations had net sales of $31.9 million and a gross margin (excluding freight and delivery revenues) of 21.7 percent.
Weather adversely affected the aggregates product line total production cost per ton shipped, which remained relatively flat. Lower energy costs continue to benefit the cost structure.
The heritage Aggregates business gross margin (excluding freight and delivery revenues) was 9.7 percent, an increase of 730 basis points. The Southeast Group, which benefitted from recovery in Georgia and improved performance by offshore operations, led with an increase of 1,040 basis points. Incremental margin for the heritage aggregates business was 76 percent and was led by the Mideast and Southeast Divisions.
Nye concluded, "We are excited about the solid foundation we have created and the transformational power of Martin Marietta's business model, which positions us to deliver substantial value to shareholders going forward. The integration of TXI continues on schedule and will, at a minimum, yield synergies in line with our updated guidance. We will continue to operate the business with rigorous discipline. The growing demand for building materials should allow us to strengthen our balance sheet, increase our financial flexibility and invest in our business, all while returning significant value to our shareholders through our repurchase program."