Construction aggregates companies
Martin Marietta Materials
both crushed first-quarter earnings estimates and gave upbeat forecasts as spending on infrastructure projects ramps up.
(ticker: VMC) reported $1.07 billion in first-quarter revenue and adjusted earnings of 69 cents a share. Wall Street was looking for $1.02 billion and 45 cents.
Martin Marietta Materials
(MLM) had $1.04 in adjusted earnings per share, blowing past the consensus forecast for 49 cents, according to FactSet. Revenue of $922 million edged the $903 million consensus estimate.
Both stocks were trading higher Tuesday, with Vulcan up 2.7% to around $184 and Martin gaining 1.6% to $360. The S&P 500 was down 1.1%.
The companies struck upbeat tones in their commentary and calls with analysts. Congress may pass a major infrastructure bill this summer, and the companies are highlighting the potential increases in spending, along with other revenue boosters coming from a recovering economy
J. Thomas Hill
said in a statement that the company is seeing strength in residential construction and that increases in highway spending and employment trends “bode well” for growth throughout the year. Nonresidential construction is also picking up with spending on data centers and warehouses, he added.
Infrastructure spending could be another tailwind. “The good news is that our nation’s infrastructure problem and potential solutions are on the front page of the paper every day,” Hill said on a call with analysts. While it’s too early to say what the final figures will be, sales of aggregates—sand, gravel and crushed stone—will benefit as the foundation for roads and bridges. he added.
Martin highlighted similar trends in its earnings release, noting that accelerating e-commerce and remote-work trends are fueling construction of fulfillment and distribution centers for companies such as
Martin’s shipments of aggregates declined 3% year over year in the quarter, but the company said average sales prices rose 3.4%.
The federal government’s budget for its 2021 fiscal year includes $45 billion for surface transportation projects like highway construction. But annual spending could increase under proposals now in Congress. A measure in the House would raise annual highway spending to $64 billion while Biden’s American Jobs Plan could raise it to an annual average of $68 billion.
State-level spending on roads and other transportation projects could also pick up. There were 303 transportation ballot measures throughout the U.S. in the November elections, and 94% were approved, Martin noted in its presentation.
Residential housing could be another growth driver of spending on cement, asphalt, aggregates and other materials. Housing starts were at 991 million in 2020, well below the 1.7 million high in 2005. As construction picks up, it could spur demand for roads, sewers, schools and commercial buildings.
The stocks have been winners over the last six months; Martin is up 41% while Vulcan has gained 35%. Both are beating the S&P 500’s 22% return over that span.
Yet while the overall revenue picture is looking up, it isn’t necessarily going to lift profits. Martin, for instance, forecast $1.4 billion in adjusted Ebitda this year compared to $1.39 billion in 2020 (based on earnings before interest, taxes, depreciation, and amortization).
Investors are also paying steep premiums to ride the exuberance over infrastructure spending. Martin trades at 27 times earnings, well above its five-year average of 23, based on next-12-month estimates. Vulcan fetches 34 times earnings, well ahead of its five-year average of 27 times.
The multiples may prove reasonable if the companies can ramp up profit margins on higher sales volumes. But infrastructure spending is a slow drip; it’s doled out gradually over years. While the stocks could get another lift from Congress, assuming a bill passes this summer, the revenue gains may not aggregate to the bottom line for some time.
Write to Daren Fonda at [email protected]