Both Vulcan Materials and Martin Marietta Materials noted in their respective second-quarter results, that significant rainfall impacted what could have been even-better reports. What is the outlook for the second half of the year?
Regarding the company’s outlook for 2015, Vulcan President and Chief Executive Officer Tom Hill, stated, “Severe weather in the first half of the year, particularly in the second quarter, masked improving fundamentals in construction activity. Underlying demand remains strong and we are encouraged by the accelerating momentum in aggregates pricing throughout our markets. As a result, we are reaffirming our expectation for Adjusted EBITDA of $775 to $825 million, driven by strong growth in aggregates gross profit per ton, earnings improvement in our non-aggregates businesses and continuing leverage of our SAG expenses.
“Through the first half of 2015, same-store aggregates volumes are up 7 percent and total aggregates pricing is up 5 percent,” Hill said. ” We expect a higher rate of pricing growth in the second half. With respect to second half shipments, a key factor will be the ability of our customers to recover weather-delayed volume from the first half, which can be a challenge in a growing market where scheduled work is compressed into a shorter time period.
Ward Nye, chairman, president and CEO of Martin Marietta, emphasized the company’s exceptional employees in assessing the outlook for the rest of the year.
“Our performance in the first half of this year directly reflects the great efforts of our people at all levels of the organization and the geographic diversification of our operational footprint,” he said. “Revenue growth is translating into expanding margins and higher unit profitability – and we intend to keep pushing for additional improvement. We believe executing our sales and operating plans will achieve significant future earnings growth while delivering quality products and services to our customers safely and efficiently. We remain focused on the execution of those plans.
“As we look at the remainder of 2015 and into 2016, contractor backlogs and other macro-economic indicators underscore the pent-up demand for our products, and that should allow us to capture delayed shipments in future quarters,” Nye said. “Job growth on a national level continues to be a strong catalyst for construction activity and, during the trailing-12 months ended June 2015, the U.S. added almost three million jobs. Employment growth in 2015 is at its highest rate since 2005. Texas ranks second in the nation in job growth and has added almost one million jobs during the last three years. This coincides with all major Texas metropolitan areas reporting their highest growth rate in overall economic activity in more than 30 years. Texas continues to lead the nation in nonresidential starts with $33 billion during the trailing-12 months ended June 30, 2015. In a July 9, 2015, report on Houston Economic Indicators, the Federal Reserve Bank of Dallas noted ‘strong improvement in job growth‘, led by retail, administrative, employment services and ambulatory health businesses. Further, the report stated that the Houston region’s ‘refining, petrochemicals and service industries are managing to offset oil-producer woes.’ Additionally, the Texas Department of Transportation’s fiscal year 2015 lettings budget of nearly $7.5 billion reflects the acceleration of major project activities and augments a multi-year backlog. We believe we are well positioned to capitalize on these opportunities throughout Texas.
“We are pleased to announce that we entered into a definitive agreement to sell our California cement business for $420 million,” Nye said. “The sale, which is subject to regulatory approval under the Hart-Scott-Rodino Act and customary conditions, is expected to close in the third quarter of 2015. While we believe the California cement plant is one of the most up-to-date plants in the region, it is not in close proximity to other core Martin Marietta assets and, unlike other marketplace competitors, is not vertically integrated with ready mixed concrete production. After careful evaluation, we determined a divestiture is the best avenue to maximize shareholder value. We expect to use the proceeds from the sale to repurchase additional shares of our stock under the authorization announced in January and commenced during the second quarter.”
Nye concluded, “We look forward to the second half of the year. Assuming normal levels of precipitation, we expect exceptional performance from our businesses in response to strong demand that was delayed during the first half of the year. We believe our strong foundation of assets, geographic positioning and world-class employees, coupled with an unrelenting commitment to controlling costs and maintaining industry-leading safety standards, will lead to enhanced long-term shareholder value.”