Martin Marietta (MLM) Down 2.6% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Martin Marietta (MLM). Shares have lost about 2.6% 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 Estimates, Margin Up
Martin Marietta Materials, Inc. reported better-than-expected second-quarter 2020 earnings and revenues (products and services) backed by higher demand and operational excellence. Demand for the company’s products remained strong across key markets, including two of its leading vertically-integrated markets — North Texas and the Front Range of Colorado.
Ward Nye, chairman and CEO of Martin Marietta, said, “We remain confident that our favorable pricing trends will continue, aided in part by the continued success of our locally-driven pricing strategy. We expect our full-year 2020 aggregates pricing to increase 3 percent to 4 percent, slightly below our pre-COVID-19 forecast, largely due to year-over-year geographic and product mix fluctuations.”
Despite being designated as “essential business” amid COVID-19-led shutdown, Martin Marietta experienced negative impacts of macroeconomic slowdown. It anticipates industry-wide decline in product demand over the next few quarters, given the uncertainty of additional U.S. federal economic stimulus actions due to budget shortfalls.
Inside the Headlines
Martin Marietta reported adjusted earnings per share of $3.49, surpassing the Zacks Consensus Estimate of $3.04 by 14.8%. The metric also increased 15.9% from the year-ago level of $3.01 per share. The uptrend was mainly attributable to operational excellence and disciplined execution of its strategic plan to combat COVID-19 impacts.
Total quarterly revenues (including Product and services, and Freight revenues) came in at $1.27 billion, slightly down from the year-ago figure of $1.28 billion. Products and services revenues, accounting for 93.65 of total revenues, slipped 0.6% year over year but topped the consensus mark of $1.15 billion by 3.6%. The upside in demand was driven by attractive customer backlogs and continued construction activity. However, macroeconomic slowdown offset the positives.
The Building Materials segment’s (including aggregates, cement, ready-mixed concrete, asphalt, paving product lines and Freight) revenues of $1.22 billion increased 1.1% year over year. Within the segment, product and services revenues amounted to $1.14 billion, up 1.3% from the year-ago level. However, freight revenues of $76.4 million were down 1.4% from the year-ago period.
Again in product and services, Aggregates’ revenues of $754.9 million fell 0.4% from the year-ago quarter. Also, Cement revenues slipped 2.5% year over year to $109.5 million. On the contrary, Ready Mixed Concrete’s revenues grew 1.6% year over year to $245.1 million. Revenues in Asphalt and paving product lines also increased 30.2% from the year-ago quarter to $107 million. Aggregates shipments declined 3.7% year over year, while pricing improved 3.3% owing to strong performance across all divisions.
Geographically, Mid-America Group operations’ shipments declined 7.2% from the prior-year period due to near-record rainfall in most of the regions served and lower infrastructure shipments in North Carolina. Pricing in the region improved just 2.3% from the prior-year quarter owing to geographic mix. Southeast Group operations’ shipments increased 3% from the prior-year quarter. The Florida Department of Transportation boosted certain transportation projects amid the COVID-19 pandemic, which supported the growth. Meanwhile, persistent strength in warehouse, data center and distribution facility construction was partially offset by weather-related construction delays. Pricing improved 0.7% from the prior-year quarter owing to higher percentage of lower-priced base and fines shipments. West Groups’ aggregate shipments slipped 1% from a year ago. Double-digit growth in North Texas and Colorado was more than offset by the completion of certain Gulf Coast liquefied natural gas projects and reduced energy-sector shipments. Pricing grew 5.5% year over year.
Cement shipments decreased 2.7% year over year due to reduced demand for West Texas oil-well specialty cement products caused by historically low oil prices. Ready mixed concrete and Colorado asphalt shipments increased 8.7% and 34.6% year over year, respectively.
The Magnesia Specialties segment — including magnesium oxide, magnesium hydroxide and dolomite lime products — reported total revenues of $53.6 million, reflecting a 29.8% decline from the year-ago period. Product and services revenues of $48.9 million were down 30.6% year over year. Freight revenues of $4.7 million were also down 20.3% from the year-ago period. The downside was due to a decline in lime and periclase shipments, along with tepid domestic and international demand for chemicals products.
Consolidated gross margin came in at 29.9%, which improved 200 basis points. Also, adjusted EBITDA of $407 million increased 7.5% year over year, driven by pricing momentum and improved cost management across the Building Materials business.
Liquidity and Cash Flow
As of Jun 30, 2020, Martin Marietta had cash and cash equivalents of $70.1 million compared with $21 million at 2019-end. Long-term debt (excluding current maturities) was $2.62 billion compared with $2.43 at 2019-end. Net cash provided by operations was $373.2 million at second quarter-end, up from $333.7 million in the comparable period of 2019. It had $967.7 million of unused borrowing capacity on the existing credit facility as of Jun 30, 2020.
How Have Estimates Been Moving Since Then?
It turns out, estimates review flatlined during the past month.
At this time, Martin Marietta has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Martin Marietta has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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