Martin Marietta Off to Strong Start in 2017

Martin Marietta Materials Inc. reported strong results for the first-quarter ended March 31, 2017. The company achieved record consolidated net sales of $791.7 million, an increase of 7.9 percent compared with $734.0 million in the prior-year’s first quarter.

The company is also reporting:

  • Record Building Materials net sales of $728.4 million compared with $674.5 million in the prior-year’s first quarter, an increase of 8.0 percent.
  • Record Magnesia Specialties net sales of $63.3 million compared with $59.5 million in the prior-year’s first quarter, an increase of 6.4 percent.
  • Record consolidated gross profit of $147.1 million compared with $145.3 million in the prior-year’s first quarter.
  • Aggregates product line pricing increase of 5.3 percent; volume relatively flat.

Ward Nye, Chairman, president and CEO of Martin Marietta, stated, “Our strong first-quarter results mark a solid beginning to a very promising year. The vibrant construction environment for our infrastructure, non-residential and residential markets is encouraging. We are optimistic about the remainder of 2017 and beyond as we see increased momentum across almost our entire geographic footprint, aided by the ongoing, durable economic recovery and employment growth.

“Our results for the quarter are particularly impressive when considering the comparison against a record first quarter in 2016, which, as we have previously noted in our public commentary, was largely aided by the unseasonably cold and wet conditions in late 2015 which created meaningful project and shipment delays. By contrast, this year’s first quarter was measured against a more normalized period. Importantly, our 2017 performance was driven by each product line in our Building Materials business generating solid top-line growth, with overall gains coming from aggregates and ready mixed concrete. Broad based pricing improvements were seen across our aggregates product line, led by the Southeast Group’s 10.3 percent increase. Consistent with our expectation for accelerating economic recovery in the southeastern United States, our Georgia and Florida business delivered robust first-quarter results and has the strongest outlook we have seen in many years.

“Strategic acquisitions in our targeted, downstream markets, predominantly Texas and Colorado, completed in 2016, contributed $27 million in first-quarter net sales growth with modest margin contribution. Margins in these acquired businesses are typical of early-stage acquisitions. We remain confident that, with our team’s continued focus on operational excellence and cost discipline, we will achieve margin expansion in these newly acquired businesses that is consistent with our track record.

“In anticipation of a busy 2017, we accelerated several operational initiatives in the first quarter. Where possible, we increased production, invested in our labor force, and performed grading and equipment maintenance early to ensure our operations are poised to satisfy anticipated customer needs, particularly for high-demand products that meet Department of Transportation specifications. The continued ramp up in production should lead to increased leverage and will favorably impact our cost structure throughout the year.

“We remain highly confident that we are in a multi-year construction recovery and that Martin Marietta is particularly well positioned to benefit from the expected increased demand. We are strategically aligned with the right people and the right assets in premier market positions to enhance long-term shareholder value,” Nye concluded.

For the quarter, shipments to the infrastructure market comprised 37 percent of aggregates product line volumes. The percentage of shipments going into the infrastructure market remains below the company’s five-year average, attributable to continued under-investment in the nation’s infrastructure and greater private sector nonresidential and residential investments.

Also, infrastructure construction activity predictably saw little first-quarter benefit from the Fixing America’s Surface Transportation, or FAST, Act. Management expects increased federal, state and local infrastructure activity as the year progresses and the construction season begins in earnest.

The nonresidential market represented 32 percent of first-quarter aggregates product line shipments. The light nonresidential market, which consists primarily of office and retail construction, increased for the quarter; however, heavy nonresidential activity, which includes industrial building as well as energy and energy-related construction, was lower, resulting in a 5.0 percent decrease in overall nonresidential shipments.

In line with management’s expectations, the decline in heavy nonresidential was primarily due to the completion in 2016 of several large energy-related projects in the West Group that were not immediately replaced in the first quarter 2017 and also a more typical start to the Mid-America Group’s construction season.

The residential market accounted for 22 percent of aggregates product line shipments for the first quarter. Volumes to this segment increased 27 percent, driven by continued strength in housing across the company’s geographic footprint.

Florida, Texas, North Carolina and Georgia, key geographies for the Building Materials business, comprised the top four states for single-family housing starts as of February 2017. Additionally, on the metro-level, Austin, Atlanta, Charlotte, Dallas, Orlando, Tampa and Raleigh comprised the top seven for single-family unit starts, with all but Dallas experiencing double-digit growth.

The ChemRock/Rail market accounted for the remaining 9 percent of aggregates product line volumes. The volume decline in this market principally reflects reduced ballast shipments.

The company said it is encouraged by positive trends in the markets it serves and its ability to execute its strategic business plans. Notably:

  • Public sector growth is expected to continue in 2017 as new monies flow into the system. FAST Act projects should accelerate through the year, supported by ongoing activity funded through the Transportation Infrastructure Finance and Innovation Act (TIFIA). Additionally, state and local initiatives increasing infrastructure funding, including ballot initiatives passed over the past 24 months, are expected to grow and continue to play an expanded role in public-sector activity.
  • Nonresidential construction is expected to modestly increase in both the heavy industrial and commercial sectors. The Dodge Momentum Index is at its highest level since 2009, signaling continued growth. Additional energy-related economic activity, including follow-on public and private construction, will be mixed. While $47 billion of new energy-related projects are scheduled to start in 2017 and 2018, the certainty and timing of commencement will affect nonresidential growth.
  • Residential construction is expected to continue growing, particularly in key Martin Marietta markets, driven by employment gains, historically low levels of construction activity over the previous years, low mortgage rates, higher lot development, and higher multi-family rental rates.

Based on these trends and expectations, including a return to more normal weather patterns, the company said it anticipates Aggregates product line end-use markets compared with 2016 levels are as follows:

  • Infrastructure market to increase mid-single digits.
  • Nonresidential market to increase in the low- to mid-single digits.
  • Residential market to increase in the mid- to high-single digits.
  • ChemRock/Rail market to remain stable.

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