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Martin Marietta Reports Strong First Quarter

Martin Marietta Materials Inc. reported results for the first quarter ended March 31, 2020. Total revenues were $958.2 million, versus $939 million in the first quarter of 2019.

First-quarter operating results demonstrated the strength of overall demand, most notably in Colorado, Iowa, Indiana and Maryland, against a challenging prior-year comparison. The aggregates, cement and downstream operations in Texas, the company’s largest state by revenue, experienced project delays as the Dallas/Fort Worth area experienced record first-quarter precipitation. Additionally, Georgia, the company’s fourth-largest state by revenue, experienced its sixth wettest first quarter in 125 years.

First-quarter aggregates shipments and pricing improved 2.3% and 2.7%, respectively, compared with the prior-year quarter.

Shipments for the Mid-America Group increased 4.3%. Robust warehouse and data center construction activity in Iowa and Indiana more than offset the anticipated lower infrastructure shipments in North Carolina. Geographic mix limited pricing growth to 1.4%.

Shipments for the Southeast Group decreased 3.2% as significant rainfall hindered otherwise robust construction activity. Pricing growth of 4.7% reflected the underlying strength of the North Georgia and Florida markets.

West Group shipments increased 2.5%, with double-digit growth in Colorado partially offset by weather-impacted construction delays in Texas. Pricing improved 3.7%.

Aggregates shipments to the infrastructure market increased, driven by large projects in Texas, Colorado, Iowa and Indiana. The infrastructure market accounted for 32% of first-quarter aggregates shipments, which is below the company’s most recent 10-year annual average of 45% but consistent with historical first-quarter trends. 

Aggregates shipments to the nonresidential market increased modestly following double-digit growth in commercial and heavy industrial construction activity in the prior-year quarter. The company continued to benefit from distribution center, warehouse and data center projects in key geographies, including Texas, Colorado, Georgia, Florida and Iowa, as well as the early phases of several large energy-sector projects along the Gulf Coast. The nonresidential market represented 36% of first-quarter aggregates shipments.

Aggregates shipments to the residential market declined slightly when compared with the robust growth in homebuilding activity in the prior-year quarter. Ongoing homebuilding activity in Texas and Georgia was hindered by significant rainfall during first-quarter 2020. The residential market accounted for 25% of first-quarter aggregates shipments.

The ChemRock/Rail market accounted for the remaining 7% of first-quarter aggregates shipments. Volumes to this end use increased, driven by improved ballast shipments to the Class I western railroads and higher agricultural lime shipments.

Aggregates product gross margin declined 160 basis points despite improved operating leverage, largely driven by geographic mix and a $15.2 million, or 260-basis-point, year-over-year impact of lower unit production costs on inventory standard cost revaluation.

Ward Nye, chairman and CEO of Martin Marietta, stated, “For the first three months of the year, Martin Marietta delivered strong financial and operational performance, generating Adjusted EBITDA of $149 million. We established a new first-quarter record for consolidated revenues, as product demand led to improved shipments and pricing across most of our Building Materials business. Notably, production efficiencies improved our year-over-year per unit aggregates cost. While this is what we aim for, as lower unit costs improve operating margins, in the current quarter, this lower unit cost served to reduce aggregates inventory valuation. This year-over-year impact alone lowered earnings per share by $0.18. Further, the prior-year’s first-quarter benefitted from a change in tax election for a subsidiary of $0.21 per share. Understanding those circumstances largely contextualizes our impressive first-quarter 2020 performance. Additionally, we strengthened the company’s balance sheet and cash position through the early March issuance of $500 million of 2.5% senior notes due in 2030. While our solid first-quarter performance provided a promising start to 2020, we recognize this will now be a challenging year for our country, customers, communities and industry as a whole. Thus, given the unprecedented level of uncertainty surrounding the length, breadth and severity of the coronavirus (COVID-19) pandemic, we have withdrawn our previously-issued full-year 2020 guidance and will not update it at this time. With that said, we remain confident that the attractive underlying market fundamentals and long-term secular growth trends in our key geographies, both of which underpinned the company’s record 2019 performance and strong first-quarter 2020 results, remain intact and will be evident once again as the U.S. economy stabilizes and recovers.

“Our company’s commitment to operational excellence, disciplined approach to growth and tradition of preparedness have positioned us well to weather this period of uncertainty. We have thoughtfully developed and consistently executed on our strategic plans, positioning our business as an aggregates leader in attractive high-growth geographies, aligning our product offerings to leverage strategic cement and targeted downstream opportunities and prudently allocating capital while maintaining financial flexibility. In doing so, we have built a business that is durable and resilient. While Martin Marietta is not immune to the impact of COVID-19, we believe our company is well prepared to meet the current and coming challenges.

“Importantly, the company’s balance sheet remains healthy and we have ample liquidity for the foreseeable future. Martin Marietta, along with our customers, continues to operate as an “essential business” in most jurisdictions and, through the end of April, we have seen minimal disruption to our operations, workforce and supply chains from the effects of COVID-19 and related government agency responses. Nonetheless, we anticipate product demand will soften in the coming months, as businesses and governments prioritize actions in response to COVID-19. Our team has plans for a variety of scenarios and will react appropriately to changing conditions. We will continue to closely monitor the situation and focus on safeguarding our stakeholders’ health and well-being, operating safely and efficiently, preserving liquidity and aligning costs with customer demand.”

Nye concluded, “Consistent with our values of safety, integrity, excellence, community, and stewardship, Martin Marietta is committed to providing the products and services our communities need. I am enormously proud of the determination, professionalism and devotion of our Martin Marietta employees who are working each and every day. Their dedication supports our communities and business partners who are persevering through the impacts of the current crisis. We remain appropriately focused on our tactical day-to-day responsibilities and ever mindful of the values and strategies that have driven our long track-record of success. Guided by our shared commitment to the world-class attributes of our business, safety, operational excellence, cost management, and the disciplined execution of our proven strategic plan, Martin Marietta has the right strategies, priorities and team to responsibly navigate through these challenging times and drive sustainable long-term growth and shareholder value.”