Martin Marietta Materials is reporting record revenues, profits and diluted earnings per share for its second quarter. The company’s gross revenues climbed to $1.20 billion, up from $1.06 billion in the second quarter of 2017. The company’s gross profit hit $316 million, versus $274 million in the second quarter of 2017.
During the quarter, aggregates shipments to the company’s three primary end-use markets increased, demonstrating the breadth of the overall construction recovery. However, the limited availability of transportation and tight contractor labor markets pose challenges for more efficient throughput.
Specifically, suboptimal railroad performance, limited truck availability and contractor capacity limitations, including their notable employee shortages, muted the company’s overall second-quarter volume growth. That said, as capital and increased wages flow into the construction sector, the company expects these temporary bottlenecks will abate, allowing supply and demand to reach equilibrium.
Inclusive of acquired operations, aggregates product revenues increased 15.1 percent for the quarter, reflecting volume growth of 11.3 percent and pricing growth of 3.5 percent. Heritage volume and pricing improved 3.4 percent and 4.4 percent, respectively.
Shipments for the Mid-America Group heritage operations increased 4.6 percent, driven by several large public and private construction projects in North Carolina. These operations generated heritage pricing gains of 6.3 percent, driven by continued price discipline.
Shipments for the Southeast Group heritage operations increased 3.4 percent, driven by strong construction activity in north Georgia. Weather and railroad inefficiencies hindered long-haul shipments from south Georgia to distribution yards in Florida, negatively affecting shipments and limited pricing growth to 1.5 percent.
West Group shipments improved 2.0 percent. Notably, all districts in the Southwest Division posted volume growth; however, this growth was partially offset by reduced Colorado volumes resulting from project delays and lower ballast sales. West Group pricing improved 3.2 percent, reflecting robust pricing in Colorado that was offset by product mix and a lower percentage of commercial rail-shipped volumes in Texas.
Chairman, President and CEO of Martin Marietta Ward Nye stated, “Our record-setting second-quarter results, which were driven by increased shipments, pricing improvements and growth initiatives, extend Martin Marietta’s lengthy track record of operational excellence, disciplined execution of our strategic plan and shareholder value creation. Underlying product demand and customer backlogs remain strong across our markets, with notable growth in Texas, North Carolina, Georgia and Iowa. In addition, our cement operations benefitted from the combination of strong demand and a tight supply environment, resulting in double-digit volume growth and a 680-basis-point improvement in product gross margin for the quarter.
“We are also pleased with the performance of our acquired Bluegrass Materials (Bluegrass) operations, which contributed $42 million in product revenues at anticipated margins comparable to our Mid-Atlantic and Southeast operations,” Nye said. “This strategic acquisition is accretive to our shareholders and positions us to meaningfully enhance future performance as the eastern United States recovers from below mid-cycle aggregates demand. We are also on track to achieve our stated synergies. Additionally, in the second half of June, we enhanced the scale of our Midwest business by acquiring several Omaha, Neb.-based sand and gravel operations and a permitted greenfield site, adding approximately 30 million tons of aggregates reserves. These value-enhancing transactions demonstrate our ability to prudently deploy capital to drive significant value for our shareholders, customers and other stakeholders.
“We believe the United States is in the midst of a construction recovery that will continue through the remainder of 2018 and beyond,” Nye concluded. “Consistent with our forecasts at the beginning of the year, we expect construction activity to accelerate during the second half of this year, with faster growth in our key geographies due to these regions’ attractive economic drivers and population trends. We remain confident about Martin Marietta’s near-and long-term growth trajectory and expect 2018 to be another record year, as evidenced by our decision to raise our 2018 EBITDA guidance.”
Martin Marietta’s second-quarter heritage aggregates shipments by end use are as follows (all comparisons are versus the prior-year quarter on a heritage basis):
Aggregates shipments to the infrastructure market increased 2 percent, driven by large public projects in North Carolina and partially offset by project delays in Texas and Colorado as well as the previously-noted poor railroad service in Texas, south Georgia and Florida.
The company is encouraged by the recent acceleration of state lettings and contract awards; however, some contractors are reporting a longer lag time between contract awards and the commencement of projects. As state Departments of Transportation (DOTs) and contractors address labor constraints and the broader industry benefits from further regulatory reform, management remains confident that infrastructure demand will continue to improve from the funding provided by the Fixing America’s Surface Transportation Act (FAST Act) and numerous state and local transportation initiatives.
Notably, once awarded, public construction projects are typically certain to be fully completed; thus, delays from weather or other factors merely extend the duration of the construction cycle for the company’s single largest end use. Overall, aggregates shipments to the infrastructure market comprised 40 percent of second-quarter aggregates volumes, which remains below the company’s most recent five-year average of 43 percent.
Aggregates shipments to the nonresidential market increased 6 percent, driven by both commercial and heavy industrial construction activity. Additionally, ongoing energy-sector project approvals, supported by higher oil prices, underpin management’s expectation that the next wave of these large projects, particularly along the Gulf Coast, will contribute to increased aggregates demand for the next several years. The nonresidential market represented 33 percent of second-quarter aggregates shipments.
Aggregates shipments to the residential market increased 11 percent. Six of the company’s key states – Texas, Florida, North Carolina, Colorado, Georgia and South Carolina – rank in the top 10 nationally for growth in single-family housing unit starts for the trailing 12 months ended May 2018. The residential construction outlook across the company’s geographic footprint remains positive for both single- and multi-family housing, driven by favorable demographics, job growth, land availability and efficient permitting. The residential market accounted for 22 percent of second-quarter aggregates shipments.