Martin Marietta Materials has weaker-than-expected fourth-quarter

Martin Marietta Materials reported weaker-than-expected fourth-quarter 2015 results but shares rise 9.4% in response to an optimistic outlook for 2016.

The company expects better demand growth in its end markets this year than previously conveyed in October 2015.

Net sales of $780.8 million increased only 0.2% year over year as strong pricing was offset by lower-than-expected shipment volumes due to wet weather conditions. Net sales also missed the Zacks Consensus Estimate of $843 million by 7.4%.

Excessive rainfall in Texas, North Carolina and South Carolina – three of Martin Marietta’s largest markets – hurt construction activity and shipment volumes which affected sales. The volatility in the energy sector also hurt sales to an extent.

In the reported quarter, heritage sales were $573 million, while acquired operations added $207.7 million to net sales. Heritage operations exclude acquisitions that were not included in operations for a full calendar year.

Total revenue (including freight and delivery) were $844.6 million, down almost 1.4% from the year-ago period. Freight and delivery revenues were $63.8 million, down 17% year over year.

The segment produces, processes and sells aggregates like crushed stone, sand and gravel. The segment also includes Martin Marietta’s vertically-integrated operations, i.e., asphalt products, ready mixed concrete and road paving construction services.

Aggregates business’ net sales (including vertically-integrated operations) grew 7.8% to $669.7 million as strong pricing made up for the softer volumes. Shipments (volume) in the aggregates product lines rose 1.7%, less than 5.4% last quarter. Price per ton increased 8.4%.

Heritage aggregates sales (including vertically-integrated operations) were $522.1 million, up 8% year over year, while acquired operations contributed $147.6 million to net sales.

Heritage aggregates product line volume rose 1.9%, while pricing increased 8%. Shipments growth was led by the Southeast Group. The strongest pricing growth was seen in the West Group.

The acquired aggregates product line (excluding vertically-integrated operations) reported net sales of $37.2 million, while heritage aggregates business added $412.7 million.

The heritage ready mixed concrete product line’s sales of $58.5 million went up 18.9%. The acquired ready mixed concrete operations accounted for $110.4 million of net sales, up 3.2%. The asphalt product line and road paving added $9.6 million and $41.3 million, respectively, to net sales.

Cement segment, formed after the TXI acquisition in Jul 2014, recorded net sales of $60 million in the quarter, almost a 40% slump due to lower volumes. Sale of the California cement business (Sep 2015) and unfavorable weather conditions hurt volumes. Average selling prices were up 10%.

Magnesia Specialties segment which includes magnesium oxide, magnesium hydroxide and dolomite lime products declined 12.4% year over year to $51.0 million due to lower domestic steel production.

Margin Rise

Total adjusted gross margin (excluding freight and delivery revenues) increased 250 basis points (bps) to 23.7% driven by higher margins in aggregates and cement. Aggregates consolidated gross margins grew 330 bps to 25.0%. Cement gross margin expanded 200 bps to 26.3%.

Selling, general and administrative (SG&A) ratio was 7.3%, up 90 bps year over year as lower energy costs were offset by higher pension costs, increased incentive compensation costs and investment in information systems improvements.

Adjusted operating margin was 17.6%, up 240 bps as improved gross margins were offset by higher SG&A.

2015 Results Miss

  • Net sales of $3.27 million jumped 22% year over year but missed the Zacks Consensus Estimate of $3.33 billion by 1.9%.
  • Full-year adjusted earnings per share of $4.50 missed the Zacks Consensus Estimate of $4.71 by 4.5%. However, earnings rose 20.3% year over year.

2016 Outlook
Management seems quite optimistic about witnessing growth in the underlying demand and strong pricing in 2016. An improving economy and job growth are expected to boost private construction activity in the U.S. In non-residential construction market, management expects shipments to increase in both light and heavy construction sectors.

Moreover, a multi-year highway bill – five-year, $305 billion FAST Act – was enacted in Dec 2015 which increases the funding certainty for state transportation programs. This, coupled with state initiatives to finance infrastructure projects, should result in increased infrastructure activity in 2016.

Infrastructure and non-residential construction end markets are now expected to increase in a mid-single digit and high-single digit ranges, respectively. This compares favorably with modest growth guided previously for both at the third-quarter conference call. The residential  range.

Net sales are expected in the range of $3.5 billion to $3.7 billion. Consolidated EBITDA is likely to range within $930 million to $980 million.

Aggregates business’ net sales (excluding downstream business) are expected in the range of $1.95-$2.05 billion. Aggregates product line volume is expected to increase within the 5-7% range. Aggregates product line pricing is likely to increase 6% to 8%. Aggregates product line production cost per ton is likely to be within $7.35-$7.50.

The downstream business is expected to add between $1.0 billion and $1.1 billion to revenues.

Sales in the Magnesia Specialties Products segment are expected between $235 million and $240 million and Cement sales within $310 million to $325 million.

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