Martin Marietta Materials Inc. reported record results for the third quarter ended Sept. 30, 2015, including consolidated net sales of $1.0 billion compared with $917.9 million, an increase of 9.5 percent.
- Aggregates product line volume increased 5.4 percent; while aggregates product line prices also increased 5.4 percent.
- Cement business net sales totaled $110.5 million and gross profit reached $38.2 million .
- Magnesia Specialties net sales totaled $57.3 million and earnings from operations reached $17.0 million.
Ward Nye, chairman, president and CEO of Martin Marietta, stated, "Our record third-quarter results reflect the company's considerable earnings power resulting from the continued successful execution of our strategic plan. We believe that a construction-centric recovery is underway in our geographic markets, as evidenced by the growing demand for construction materials and favorable pricing that led to consolidated net sales of more than $1 billion, a milestone for our shareholders and employees. Looking beyond the third quarter, we are extremely pleased with our contractor backlogs, including future deliveries of weather-related delays from the first half of the year. Absent the early onset of winter weather, our outlook for the fourth quarter remains strong. Additionally, growing state Department of Transportation initiatives, plus the increasing likelihood that a multi-year federal highway bill will pass, make us highly optimistic that the construction-centric momentum will continue to grow our sales and profits in 2016 and beyond.
"Aggregates product line volume growth was led by a 9 percent increase in the Southeast Group. Nye said. “The Mid-America Group, which includes North and South Carolina, generated a 5 percent increase, despite record rainfall during the latter part of September. Employment growth, which provides a foundation for increased construction activity, is experiencing its strongest improvement since 2000, with North Carolina, Georgia and Florida each ranking in the top 10 states for job growth. This trend is expected to further the ongoing recovery in the Southeastern United States, a region of disproportionate profitability for our business.
"The West Group achieved a 5 percent increase in aggregates product line shipments,” Nye continued. “This coincides with Texas ranking third in the country for job growth, underscoring that state's economic diversity. Notably, Dallas-Fort Worth-Arlington is the third ranked metro area in the United States for job growth, according to the Bureau of Labor Statistics. A key driver of Texas' sustained success is its recognition of the link between infrastructure investment and economic growth. To that effect, the Texas Department of Transportation commissioned $7.4 billion in projects in fiscal year 2015, which added to a multi-year backlog, and is operating with a strong 2016 budget forecasted to exceed $10 billion. Further, Proposition 7, a Texas ballot initiative that would dedicate an additional $2.5 billion annually for non-toll road projects, is expected to receive voter approval today.
"On Sept. 30, 2015, we completed the sale of our California cement business to CalPortland Cement Co. for $420 million,” Nye concluded. “We are grateful to the skilled workforce at these operations for their contributions during the period of Martin Marietta's ownership. As previously indicated, we expect to use the net proceeds from the sale to repurchase additional shares of our stock under our existing authorization. In anticipation of the sale proceeds, during the third quarter we repurchased 917,000 shares for $158 million.”
Aggregates product line shipments to the infrastructure market comprised 43 percent of quarterly volumes and increased 5 percent. Each reportable group achieved an increase, led by growth of 8 percent in the West Group. Major project activity in Texas, Florida, Georgia and North Carolina continues to accelerate, as states take increased responsibility for funding infrastructure investments.
“In fact, highway awards for the trailing 12 months through July were at their highest level since 2000, despite federal funding being provided under a Congressional continuing resolution,” the company stated. “The provisions of the Moving Ahead for Progress in the 21st Century, or MAP-21, have been extended through Nov. 20, 2015. Management continues to anticipate that Congress will pass and the President will sign a new multi-year bill later this year. Presently, relevant committees in both the House and Senate have proposed six-year bills that each provide increased funding levels serving to alleviate state-level uncertainty currently hampering the pace of construction activity; this is particularly relevant for rural construction markets.”
The nonresidential market represented 30 percent of quarterly aggregates product line shipments and were relatively flat. The light nonresidential component, which includes the commercial sector, increased in each reportable group and reported overall growth of 29 percent. This improvement was offset by a decline in the heavy nonresidential component, which includes the industrial and energy sectors.
Texas continues to lead the nation in nonresidential construction, with the benefits of multi-year, energy-related projects offsetting direct shipments to the shale fields that are currently lower due to reduced oil prices. Notwithstanding the challenging commodity price environment, the company continues to expect energy-related activity to remain strong, supported by more than $100 billion of planned projects along the Gulf Coast with a significant portion of these projects in Texas. On a national scale, Florida, North Carolina and South Carolina each rank in the top 15 in growth (based on dollars invested) in nonresidential construction.
The residential end-use market accounted for 18 percent of quarterly aggregates product line shipments, and volumes within this market increased 15 percent. Nationally, residential starts increased 10 percent for the trailing 12 months ended September 2015. Florida and Georgia each rank in the top five states for growth in total residential starts while Texas, Colorado, North Carolina and South Carolina each rank in the top 10 states for single-family housing starts. Consistent with the National Association of Homebuilders latest market index in October, the company continues to witness strong residential subdivision development in nearly all of its relevant markets.
The ChemRock/Rail market accounted for the remaining 9 percent of aggregates product line shipments. Volumes to this end use increased 7 percent, attributable to higher railroad ballast shipments.
Aggregates product line pricing grew in all reportable groups, led by the 6.6 percent increase in the West Group, with notable improvement in Central and South Texas. The Southeast Group and Mid-America Group reported increases of 5.8 percent and 4.1 percent, respectively. Aggregates product line total production cost per ton shipped declined slightly. Lower energy costs continue to benefit the cost structure.
The Aggregates business gross margin (excluding freight and delivery revenues) was 25.3 percent, an increase of 500 basis points. Incremental gross margin (excluding freight and delivery revenues) for the aggregates business was 68 percent, with each reportable group exceeding internal expectations.
- The heritage ready mixed concrete product line reported a 19 percent increase in shipments and a 9 percent increase in average selling price. For the quarter, the legacy TXI ready mixed concrete operations contributed $137 million of net sales, an increase of 8 percent.
- The hot mixed asphalt product line reported a slight increase in average selling price and $27 million of net sales.
- The Cement business is benefitting from continued resilience in the Texas market, where pricing advances are proving more impactful than near-term demand dynamics. Average selling price increased 16.3 percent, reflective of price increases over the past 12 months coupled with the impact of the expiration of legacy TXI cement contracts with below-market pricing.
Based on these external trends, the company anticipates the following for the full year:
- Aggregates end-use markets compared to 2014 levels are as follows:
- Infrastructure market to increase in the low-single digits.
- Nonresidential market to increase in the mid-single digits.
- Residential market to experience a double-digit increase.
- ChemRock/Rail market to remain relatively flat.
- Aggregates product line shipments to increase by 7 to 10 percent compared with 2014 levels.
- Heritage aggregates shipments to increase 3 to 5 percent
- Aggregates product line pricing to increase by 7 to 9 percent compared with 2014.
- Aggregates product line production cost per ton shipped to remain relatively flat.
- Aggregates-related downstream product lines to generate between $875 million and $925 million of net sales and $80 million to $85 million of gross profit.
While the company is optimistic regarding the passage of a multi-year highway bill, the preliminary 2016 outlook excludes any resulting increase in infrastructure construction activity.
Nye concluded, "As we begin to conclude 2015, we are encouraged by how well we performed, especially in light of the significant task of integrating TXI into Martin Marietta. It is a testimonial to our people and our processes that the integration went as smoothly as it did. Importantly, I look no further than the 50 percent improvement in the safety record of the acquired businesses, as evidence of integrating the cultures of our combined company. More importantly, with the effort substantially behind us, and the positive economic environment in our geographies, we are excited about our outlook for 2016 and beyond. Our leading position in the overwhelming majority of our markets should provide us with continued opportunities to increase profitability. We remain committed to executing our strategic plan, investing in the growth of our business and returning capital through share repurchases, all with the view towards increasing shareholder value."