In reporting its financial results for the third quarter and the first nine months of the year, Martin Marietta Materials saw net sales drop 18% in the quarter and aggregate products volume down 22%. However, prices on aggregate went up 1% in the quarter and energy costs dropped by nearly half.

Stephen P. Zelnak, Jr., chairman and CEO of Martin Marietta Materials, said, "Our performance in the third quarter reflected both the difficult macroeconomic environment in which we are operating, and our success in dealing with the challenges we are facing. This translated into significantly reduced aggregates demand and increased pressure on the pricing environment that resulted in an 18% decrease in consolidated net sales. Offsetting that was our ability to generate consolidated gross margin (excluding freight and delivery revenues) of 27.5%, the highest quarterly gross margin we reported this year. EBITDA as a percentage of net sales increased 150 basis points to 31.4% for the quarter. “Our profits were positively affected by stringent cost controls that enabled us to reduce consolidated cost of sales by 17%, or $63 million, with a $24 million decrease in energy costs as the single largest contributor. We reduced our cost of sales in every significant cost category, with the exception of depreciation and pension costs, which increased $5.6 million.

“In addition, our aggregates business continues to operate at a level significantly below capacity, which restricts our ability to capitalize certain costs into inventory. As a result, third-quarter 2009 cost of sales includes $21.3 million of costs that could have been inventoried; in contrast, third-quarter 2008 cost of sales included $13.2 million of these costs. Had capacity utilization been consistent with the prior-year quarter, our consolidated gross margin (excluding freight and delivery revenues) would have been 29.4%, or a 60-basis-point improvement over the prior-year quarter.

"We continue to see slower progress with respect to the actual commencement of stimulus jobs than we had originally hoped for when the government-financed stimulus program was first announced, with wet weather in September, continuing into October, being a negative factor.

“A significant exception to that trend is Iowa where we expect the Iowa Department of Transportation will finish the majority of its stimulus work in 2009. Iowa's approach to stimulus projects, coupled with our resulting performance in the geographic area, underscores the view that the combination of our lean operating cost structure, together with even moderate volume recovery, provides an enormously powerful combination. Specifically, despite aggregates volume being down 15% quarter-on-quarter in Iowa, our Midwest Division reported record quarterly gross profit.

"Overall heritage aggregates pricing increased 1% over the prior-year quarter. We continue to experience a wide range in pricing across our markets, from an increase of 12% in one market to a price decrease of 12% in another market, and other levels in between. Those areas experiencing pricing declines are typically markets where competitors driven by the need for cash flow are setting prices relative to their cash costs. The range of pricing is tighter for the year-to-date period, ranging from a price increase of 9% to a decrease of 4%. We are pleased that the majority of our markets continue to report price increases for both the quarter and the year-to-date period, albeit at levels closer to historical averages, and believe this is a testament to the strength of our markets and the industry fundamentals. In the early part of the fourth quarter, we are beginning to see pricing return to levels consistent with our forecast for the year.

"As expected, commercial construction activity remains weak, primarily in office and retail construction. Heavy industrial jobs, including alternative-energy construction projects, have sustained volume throughout the year; however, our customers have reported a decrease in the number of heavy industrial construction jobs in their backlog or coming up for bid. Further, while little has changed during 2009 with respect to residential construction, indicators increasingly point to the beginning of a recovery in this sector.

"Our specialty products business continues to perform exceptionally well given the current environment, and we are encouraged to see some stabilization in steel production. Operating margin (excluding freight and delivery revenues) expanded over 1,000 basis points to a record 30% despite a net sales decrease of $7 million, or 15%, compared with the prior-year quarter. The specialty products business has continued to focus on operational efficiency initiatives driving the record profitability for the third quarter. Earnings from operations of $12 million increased about $3 million compared with the prior-year quarter.

"For the third quarter of 2009, we reported earnings from operations of $89 million compared with $115 million in the third quarter of 2008. Consolidated operating margin (excluding freight and delivery revenues) was 20.8% for the third quarter of 2009 compared with 21.9% in the third quarter of 2008.

"Despite the challenging economy and its impact on the level of our sales and profits, we continue to maintain a strong balance sheet. Strict attention to how we allocate capital, manage our working capital, along with reduced capital expenditures, have helped us generate solid cash flows. We ended the quarter with $194 million in cash and cash equivalents and available borrowings of $323 million on our revolving credit agreement and $100 million on our secured accounts receivable credit facility. At September 30, 2009, our ratio of debt to trailing 12-month EBITDA was 2.95 times, well within our leverage covenant of 3.25 times. Capital expenditures have been further curtailed from previous guidance and now are expected to be approximately $150 million in 2009. We remain confident that we have sufficient liquidity from cash flows generated in the operation of the business and from reduced capital expenditures, as well as sufficient incremental financial flexibility, to service our debt and to create value for our shareholders in these challenging times.

"For the nine months ended Sept., 30, 2009, net cash provided by operating activities was $235 million, down $40 million from the comparable prior-year period. This resulted primarily from a $62 million decline in consolidated net earnings. Cash used for investing activities was down significantly from the prior-year period as we scaled back capital expenditures to $100 million for the nine-month period in 2009, down $124 million from prior-year period capital spending of $224 million.

"While there is no question that stimulus will generate additional volume, we now believe that about 15% of stimulus projects will progress to the actual construction phase during 2009 with the bulk of the activity being earmarked for construction to commence in 2010. We have been awarded jobs from other stimulus components, including Army Corps of Engineers projects along our river-distribution network. These jobs will also be weighted toward 2010.

"We are carefully monitoring the fiscal condition and activities of the states in which we do business and are watching closely to see if recent actions taken by Congress relative to the Safe, Accountable, Flexible and Efficient Transportation Equity Act - A Legacy for Users, the federal highway bill that ended Sept., 30, 2009, will have an effect on state spending. We are concerned that the rescission, combined with a very short extension, could further weaken any confidence at the state level and contribute to a further pullback in state spending. In addition, we are watching closely as many states explore alternative means of funding their infrastructure over the longer term. It is safe to say that infrastructure demand, as funded directly by the states, will continue to be pressured as states grapple with long-term resolutions for their budget deficits.

"Commercial demand is weak, primarily in office and retail construction and, while we believe residential construction has neared its bottom in many of our markets, we do not expect growth in the homebuilding sector to materialize significantly in 2009. In contrast, we expect steady growth for chemical-grade aggregates used for flue gas desulfurization and in agriculture lime, as well as ballast used in the railroad industry. In our specialty products segment, demand for magnesia-based chemicals products should track the general economy. We continue to expect favorable energy prices to contribute a range of $35 million to $50 million to operating profitability in 2009.

"Based upon our current economic view, we have revised our 2009 guidance for net earnings per diluted share to a range of $2.20 to $2.45. This outlook assumes: aggregates volumes to range from down 21% to 23% compared with 2008; the rate of price increase for the aggregates product line to range from 2% to 3% compared with 2008; and Specialty Products segment to contribute $31 million to $33 million in pretax earnings.

"Although it is too early to provide guidance for 2010, we have begun to frame our initial view on the upcoming year. As we have said, we see many of the projects that we had anticipated to commence in 2009 now beginning next year. Specifically, we believe there will be an increase in infrastructure-related projects as the effects of federal economic stimulus work their way into the economy.

"We continue to believe we will see a moderate increase in aggregates volume to portions of homebuilding, and steady growth for chemical-grade aggregates used for flue gas desulfurization and in agricultural lime, as well as ballast used in the railroad industry. These markets, combined with infrastructure, cumulatively comprised 69% of our 2008 aggregates volumes, and we expect them to increase in 2010. Commercial construction represents the balance of our aggregates volume and, while we expect a decline in commercial construction volumes in 2010, we do not have meaningful visibility into these markets at this time. We expect aggregates pricing growth in 2010 to be comparable to the 2009 revised guidance. All told, while our preliminary outlook for 2010 promises to be a stronger year for us in terms of our sales and profits, it is too soon for us to quantify with any confidence how much improvement we expect to achieve."