A month has gone by since the last earnings report for Martin Marietta (MLM). Shares have lost about 4.7% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Martin Marietta due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Martin Marietta Q2 Earnings Top, Margin Up on Solid Pricing
Martin Marietta Materials, Inc. reported better-than-expected earnings for first-quarter 2021. Its earnings and revenues (products and services) increased on a year-over-year basis, backed by improved pricing in upstream aggregates and cement businesses as well as disciplined cost management throughout the business.
On Apr 30, the company acquired Minnesota-based Tiller Corporation (“Tiller”), which will be integrated into the Central Division. Tiller is the leading aggregates and FOB hot mix asphalt supplier in the Minneapolis/St. Paul region. This strategic and value-enhancing acquisition will enhance Martin Marietta’s high-margin, upstream materials business in one of the largest as well as fastest growing mid-western metropolitan areas.
It expects this Strategic Operating Analysis and Review (SOAR)-aligned acquisition to be immediately accretive to earnings and cash flow as well as contribute $170 million of product revenues and $60 million of adjusted EBITDA in 2021.
Ward Nye, Chairman and CEO of Martin Marietta, said, “Our record-setting first-quarter results underpin our confidence in Martin Marietta’s ability to continue delivering sustainable growth and superior shareholder value creation in 2021 and beyond. The Company’s unrivaled growth opportunities and steadfast commitment to disciplined pricing and operational excellence, combined with emerging demand tailwinds that are expected to support construction activity over the long term, firmly and uniquely position Martin Marietta to SOAR to a Sustainable Future.”
Inside the Headlines
Martin Marietta reported adjusted earnings per share of $1.04, comfortably surpassing the Zacks Consensus Estimate of 50 cents by 108%. The metric also increased a notable 153.7% from the year-ago level of 41 cents per share. The uptrend was mainly driven by pricing gains achieved by upstream aggregates and cement businesses as well as disciplined cost management across the enterprise.
Total quarterly revenues (including Product and services, and Freight revenues) came in at $982.4 million, up 2.5% from the year-ago figure of $958.2 million. Products and services revenues of $921.9 million, accounting for 93.8% of total revenues, increased 3.5% year over year and topped the consensus mark of $905.3 million by 1.8%.
Building Materials (including aggregates, cement, ready-mixed concrete, asphalt, paving product lines and Freight) reported revenues of $911.5 billion, which increased 2.1% year over year. Within the segment, product and services revenues amounted to $856.6 billion, up 3.1% from the year-ago level. However, freight revenues of $54.9 million were down 10.6% from the year-ago period.
Again in product and services, Aggregates’ revenues of $572.6 million grew 0.4% from the year-ago quarter. Also, Cement revenues rose 2.8% year over year to $109.6 million. Ready Mixed Concrete’s revenues grew 24% year over year to $235.3 million. Revenues in Asphalt and paving product lines, however, decreased 32.6% from the year-ago quarter to $12.2 million.
Aggregates shipments declined 3% year over year, while pricing improved 3.4% (2.5% on a mix-adjusted basis).
Geographically, East Group shipments inched up 0.2% from the prior year, given strong residential and nonresidential construction activity in the Carolinas, Georgia, Florida as well as Maryland. This was partially offset by the late construction season in the Midwest and reduced wind energy construction activity. Pricing in the region improved 3.9% from the prior-year quarter. West Groups’ aggregate shipments decreased 7.7% from a year ago. Unfavorable winter weather conditions in both Texas and Colorado as well as reduced energy-sector demand ailed the segment. Pricing grew 1.9% year over year.
Cement shipments inched up 0.3% year over year. Double-digit shipment growth in the Midlothian facility in North Texas offset the weather-related impacts, and reduced energy sector activity in South and West Texas. Pricing improved 1.5% (2.2% on a mix-adjusted basis) year over year.
Within the Downstream business, Ready mixed concrete shipments increased 26.5% from the prior-year quarter, owing to double-digit growth in Texas resulting from large projects and incremental volume from operations acquired in August 2020. The upside was offset by weather-related shipment declines in Colorado.
The Magnesia Specialties reported product revenues of $65.3 million, up 8.9% year over year. The upside was due to improved demand for chemicals and lime products.
Gross margin came in at 17.8%, which improved 290 basis points. Also, adjusted EBITDA of $204.4 million increased 37.2% year over year, driven by pricing momentum and improved cost management across the business.
Liquidity and Cash Flow
As of Mar 31, 2021, Martin Marietta had cash and cash equivalents of $313.9 million compared with $207.3 million at 2020-end. Long-term debt (excluding current maturities) was $2.63 billion, almost in line with the 2020 level. Net cash provided by operations was $191.9 million at first quarter-end, up from $106.7 million in the comparable period of 2020. It had $1.1 billion of unused borrowing capacity on the existing credit facility at March-end.
The company expects products and services revenues in the range of $4.510-$4.700 billion, gross profit in the $1.290-$1.380 billion band, selling, general and administrative expenses within $320-$330 million as well as adjusted EBITDA between $1.35 billion and $1.45 billion. Net earnings are anticipated in the $665-$750 million range.
Aggregate shipment growth is expected in the range of 1-4%. Pricing is expected to grow between 3% and 5%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 5.11% due to these changes.
At this time, Martin Marietta has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren’t focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Martin Marietta has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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