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Weather Hits Martin Marietta H1 Volume: Will it Recover in H2?

On Sep 24, we initiated coverage on Martin Marietta Materials, Inc.MLM with a Zacks Rank #3 (Hold).

Martin Marietta is a leading U.S. supplier of construction aggregates which are used for construction of highways, infrastructure projects as well as residential, commercial and industrial construction.

Both residential housing starts as well as non-residential contract awards improved steadily in 2014 and so far this year. This sustained growth in private construction activity has increased the demand for both the aggregates as well as cement businesses of Martin Marietta.

However, inclement weather disrupted shipments in the first half of 2015, particularly in the second quarter, which offset the improving demand momentum. Excessive rainfall throughout the U.S., especially in Texas, delayed aggregates shipments and hurt production and efficiency levels. This resulted in lower operating leverage and higher cost per ton which hurt sales and profits. Moreover, management lowered the 2015 overall Aggregates volume growth expectation.

However, these headwinds are temporary and Martin Marietta expects to make up for the delayed first-half shipments in the second half and in 2016 supported by strong underlying demand.

Though shipments in the non-residential end market were slightly soft in the first half of 2015, management expects the non-residential construction activity to grow in both heavy industrial and commercial sectors as the year progresses. Energy-related activity is expected to remain strong, supported by more than $100 billion of planned projects along the Gulf Coast, including a significant portion in Texas.

Moreover, though shipments in the infrastructure market declined in the second quarter of 2015 due to temporary headwinds from excessive rainfall, management expects infrastructure construction to gain, going ahead, from increased highway funding and state initiatives to finance infrastructure projects, including support from the TIFIA credit assistance.

Also, robust pricing gains, synergies from the Texas Industries acquisition and strong financial position are the other positives.

Martin Marietta acquired Texas Industries, a leading supplier of heavy construction materials in 2014. The buyout solidified the company's position in the aggregates market and increased its concrete presence in high-end markets like Texas. The company also gained exposure to the growing cement markets in Texas and California as Texas Industries was the largest producer of cement in Texas and a major Californian cement producer. Martin Marietta expects annual synergies of $120 million from Texas Industries by the end of 2016.

Stocks to Consider

Some better-ranked stocks in the construction sector are U.S. Concrete, Inc. USCR , D.R. Horton, Inc. DHI and Headwaters Incorporated HW . While U.S. Concrete has a Zacks Rank #2 (Buy), D.R. Horton and Headwaters sport a Zacks Rank #1 (Strong Buy).

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D R HORTON INC (DHI): Free Stock Analysis Report

MARTIN MRT-MATL (MLM): Free Stock Analysis Report

HEADWATERS INC (HW): Free Stock Analysis Report

US CONCRETE INC (USCR): Free Stock Analysis Report

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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.

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