Markets
MLM

Martin Marietta Banks on Acquisitions, Costs Continue to Rise

Headlines that say Stocks, Finance, Markets, Business and World.
Credit: Shutterstock photo

Martin Marietta Materials, Inc.MLM is likely to benefit from ongoing acquisitions & divestitures, and higher demand in public sector construction. However, higher labor, freight and material costs, as well as a constrained mortgage environment remain concerns for the company.

Driving Factors

Martin Marietta is one of the leading suppliers of construction aggregates in the United States. The company has a vast network of aggregate quarries and distribution centers throughout the United States.

Martin Marietta completed more than 85 smaller acquisitions since its Initial Public Offering in 1994 through 2017, which strengthened its position in the Aggregates business. In April 2018, Martin Marietta acquired Bluegrass Materials Company, which bolstered the high-growth regions of Southeastern and Mid-Atlantic.

Along with acquisitions, the company has been actively divesting various underperforming operations since 2001. Recently, Martin Marietta disposed its heritage Forsyth aggregates quarry, north of Atlanta, Georgia, and the legacy Bluegrass Beaver Creek aggregates quarry in western Maryland.

Meanwhile, the company is experiencing robust the public infrastructure market that accounted for approximately 40% of the company's second quarter of 2018 aggregate volume. Shipments (volume) in the aggregates product line increased 11.3% on 3.5% pricing growth in the second quarter, suggesting an overall construction recovery.

Moreover, the continued higher aggregate shipments are expected to increase the company's profitability in the near future. Additionally, the outlook for residential construction remains robust, particularly in the core Martin Marietta markets.

Factors like positive employment scenario and robust economic fundamentals are driving the sector's performance.The aforementioned initiatives are driving the company's results. In second-quarter 2018, its earnings and revenues increased 43.2% and 13.1% year over year, respectively.

Martin Marietta's shares have increased 1.1%, outperforming its industry growth in the past month. Meanwhile, estimates for the current year have moved up 1.6% over the past 60 days, reflecting analysts' optimism surrounding the stock's earnings prospects.

Concerns

Martin Marietta's businesses are subjected to weather-related risks that can significantly affect production schedules and profitability. Excessive rainfall, flooding, or severe drought can jeopardize shipments, production, and profitability in all of the company's markets.

Currently, abnormally wet weather conditions in many markets are affecting the pace of construction activity. Geographic mix restricted pricing growth to just 2% in the Southeast Group, as weather and railroad inadequacies hindered its ability to move higher-priced aggregate products by rail in Georgia and Florida distribution yards.

Higher costs are likely to pressurize the company's gross margin and also the bottom line. Higher petroleum coke costs and Kiln outages contributed to a 120-basis point reduction in product gross margin to 36.5% in the cement business.

Also, project delays contributed to 6% decrease in hot mixed asphalt shipments in Colorado in its downstream business. Energy and higher equipment rentals have resulted in greater cost-related issues as because the company is anticipating higher volumes in near future.

Zacks Rank & Key Picks

Currently, Martin Marietta carries a Zacks Rank #3 (Hold). Some better-ranked stocks from the same sector include Continental Building Products, Inc. CBPX , PGT Innovations, Inc. PGTI and NCI Building Systems, Inc. NCS . While Continental Building and PGT Innovations sport a Zacks Rank #1 (Strong Buy), NCI carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Continental Building's earnings for 2018 are expected to increase 50.4%.

NCI is expected to record 77.5% earnings growth in fiscal 2018.

PGT Innovations' 2018 earnings are expected to grow 78.7%.

5 Companies Verge on Apple-Like Run

Did you miss Apple's 9X stock explosion after they launched their iPhone in 2007? Now 2018 looks to be a pivotal year to get in on another emerging technology expected to rock the market. Demand could soar from almost nothing to $42 billion by 2025.

Reports suggest it could save 10 million lives per decade which could in turn save $200 billion in U.S. healthcare costs. A bonus Zacks Special Report names this breakthrough and the 5 best stocks to exploit it. Like Apple in 2007, these companies are already strong and coiling for potential mega-gains.

Click to see them right now >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

NCI Building Systems, Inc. (NCS): Free Stock Analysis Report

PGT, Inc. (PGTI): Free Stock Analysis Report

Continental Building Products, Inc. (CBPX): Free Stock Analysis Report

Martin Marietta Materials, Inc. (MLM): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

MLM PGTI

Other Topics

Stocks

Latest Markets Videos

Zacks

Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

Learn More