Martin Marietta Materials Inc. reported its results for the fourth-quarter and year ending Dec. 31, 2015. The company is reporting consolidated net sales of $780.8 million in the fourth quarter, compared to $779.5 million in the previous year's fourth quarter; and $3.3 billion for the full year, compared to $2.7 billion in 2014. Heritage aggregates business net sales were up 8 percent for the quarter and 8.2 percent for the full year.
Its fourth-quarter performance established quarterly records for net sales and profitability, driven by strong pricing, disciplined execution of its strategic plan and steady growth in general construction activity, according to the company. All segments in its aggregates business delivered increased net sales and gross profit, while expanding gross profit margin.
"We exceeded our incremental gross margin target for heritage Martin Marietta businesses, as well as on a consolidated basis," said Ward Nye, chairman, president and CEO of Martin Marietta Materials. "The West Group led gross profit margin (excluding freight and delivery revenues) expansion with a 630-basis-point improvement, largely the result of strong pricing and realized synergies from the TXI acquisition. Importantly, we achieved these consolidated results despite heightened and sustained adverse weather trends that constrained both shipments and efficient production.
"The National Oceanic and Atmospheric Administration has tracked precipitation levels for 121-years, and the fourth quarter was the wettest, at both the national level and in our key states of Texas, North Carolina and South Carolina, in their history," Nye said. "Similarly, Iowa and Georgia experienced their second and third wettest recorded periods, respectively. These conditions significantly constrained construction and related activity, which led to lower-than-expected shipment and production volumes during the quarter. However, our unrelenting focus on operational excellence and cost discipline, coupled with strong pricing in the Aggregates business, led to attractive margin expansion and earnings growth.
For the full-year 2015, the company achieved record net sales and profitability, expanded consolidated gross profit margin (excluding freight and delivery revenues) by 260 basis points, and exceeded both incremental margin targets for the consolidated heritage businesses and acquisition synergy targets ahead of the expected timeline, the company said. In addition, the company invested strategic capital in its business, completed several bolt-on acquisitions and returned nearly $630 million to shareholders through dividends and share repurchases.
"We continue to execute against our strategic objective of securing and solidifying leading market positions in economically-diverse, high-growth areas," Nye said. "To that end, in November 2015, and last week, we closed two acquisitions near Colorado Springs, Colo., that complement our position in metro-Denver and northern Colorado, collectively the Front Range. The Front Range runs north-south along the Interstate 25 corridor, and over 80 percent of Colorado's population lives in this area. These two businesses add nearly one billion tons of aggregates reserves and will serve as a high-quality source of construction aggregates to a market transitioning from rapidly depleting alluvial reserves. Coupled with our existing operations, these transactions secured an estimated 100 years of aggregates reserves in the Front Range."
Nye continued, "In addition to job growth, positive private sector construction activity and favorable population dynamics in our key markets, we now have a multi-year federal highway bill for the first time in a decade. The five-year, $305 billion Fixing America's Surface Transportation Act, or FAST Act, provides the funding certainty states have needed to commit to much-needed longer-term projects to improve America's transportation network. We believe the FAST Act, coupled with state-level funding initiatives in four of our top five states, namely Texas, North Carolina, Georgia and Iowa, will drive large, multi-year, aggregate-intensive construction projects. Further, it is also likely we will see meaningful projects in rural areas of those states that have been infrastructure-starved during the last decade and will now be better able to develop new avenues for growth and commerce. We are well positioned, through our leading market positions and strong foundation, to capitalize on these opportunities and enhance long-term shareholder value."
For the full year, shipments to the company's infrastructure market increased five percent in 2015. The growth reflects state-level funding initiatives positively impacting Texas, Iowa, Georgia and Florida. Major infrastructure activity is accelerating at the state-level and, when combined with the FAST Act, will likely increase the rate of infrastructure growth, the duration of the projects and the mix of aggregate-intensive new construction for 2016 and beyond. As one example, shortly after passage of state funding initiatives, the North Carolina Department of Transportation announced an accelerated schedule for 90 highway projects already included in the state's strategic transportation improvement plan. The nonresidential market represented 32 percent of fourth-quarter and full-year aggregate product line shipments and increased three percent for full-year 2015. Light nonresidential construction increased approximately 27 percent for the year, following growth in residential demand and driven by construction activity across all geographies, offsetting a reduction in direct energy shipments into the shale fields. For the year, we shipped 3.6 million tons to the shale fields compared with 7.5 million tons in 2014.
The residential end-use market aggregates product line shipments increased 20 percent for the full-year 2015, reflecting the continued steady recovery of residential investment. Florida, Colorado and North Carolina each rank in the top-ten states in housing starts. At the metro-level, particular strength is seen in Dallas/Fort Worth, Texas illustrating the resilience and diversity of the Texas economy. In addition, strength is seen in Atlanta, Georgia, indicative of the continuing recovery in the Southeastern United States. Aggregate product line shipments to the ChemRock/Rail market increased nine percent in 2015.
Heritage aggregates product line shipments increased two percent for both the fourth-quarter and full-year 2015. Geographically, heritage aggregates product line shipment gains were led by volume growth in the Southeast Group, where increasing demand throughout Georgia and Central Florida drove a 6.5 percent increase in shipments for the full year. Aggregates product line shipments in the Mid-America Group for 2015 increased five percent. West Group shipments declined by three percent for the year 2015, driven largely by historic rainfall in Texas and Oklahoma, a reduction in shale energy volumes, and the required divestitures related to the TXI acquisition in the third quarter of 2014.
Heritage aggregates product line pricing increased in each reportable group in both the fourth-quarter and full-year 2015, led by the West Group's 12 percent improvement for the quarter and 11 percent improvement for the full year.
On a consolidated basis, full-year total production cost per ton shipped for the aggregates product line increased 1.5 percent. The cost per ton reflects lower energy costs offset by higher operating expenses associated with poor weather, most visible in lower productivity per man hour.
Incremental gross margin (excluding freight and delivery revenues) for the heritage aggregates business exceeded targeted objectives for both the fourth-quarter and full-year 2015. The incremental gross margin of 82 percent for the full-year 2015 was led by growth in both the West Group and the Southeast Group, which achieved incremental gross margin of 135 percent and 78 percent, respectively. The heritage Aggregates business gross margin (excluding freight and delivery revenues) was 23.8 percent for the full-year 2015, an increase of 480 basis points.
"Based on current forecasts and indications of market activity, we remain positive about the outlook of our business in 2016," Nye said. "Aggregates product line pricing is expected to increase from six to eight percent. Volume growth is expected to continue with an increase of five to seven percent. These gains in aggregates, coupled with pricing improvements across the downstream and cement businesses together with our cost discipline and strategic growth initiatives, are expected to drive increased earnings for the year."
The company also expects positive trends in its business and markets, notably:
- Nonresidential construction is expected to increase in both the heavy industrial and commercial sectors. The Dodge Momentum Index is near its highest level since 2009 and signals continued growth.
- Energy-related economic activity, including follow-on public and private construction activities in its primary markets, will be mixed with overall strength in downstream activity more than offsetting the decline in shale-related volumes.
- Residential construction is expected to continue to grow, driven by positive employment gains, historically low levels of construction activity over the previous several years, low mortgage rates, significant lot absorption, and higher multi-family rental rates.
- For the public sector, modest growth is expected in 2016 as new monies begin to flow into the system, particularly in the second half of the year. Additionally, state initiatives to finance infrastructure projects, including support from the Transportation Infrastructure Finance and Innovation Act (TIFIA), are expected to grow and continue to play an expanded role in public-sector activity.