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Extreme Weather to Hurt Martin Marietta's (MLM) Q4 Earnings

Zacks Equity Research

Martin Marietta Materials, Inc. MLM is scheduled to report fourth-quarter 2018 results on Feb 12, before the opening bell.

In the last reported quarter, the company’s top and bottom lines surpassed the Zacks Consensus Estimate by 1.6% and 8%, respectively. Also, Martin Marietta generated higher revenues and earnings on a year-over-year basis. The upside mainly stemmed from higher shipments, pricing improvement, along with benefits from growth initiatives owing to strong underlying demand and increased public-sector activity.

Although the company reported better-than-expected results in the last reported quarter, it trimmed its guidance for 2018 owing to weather-related challenges experienced in certain markets during the same quarter. This pessimistic outlook makes analysts cautious about Martin Marietta’s earnings prospects. The company’s performance is likely to be impacted in the to-be-reported quarter as well.


Martin Marietta Materials, Inc. Price and EPS Surprise

Martin Marietta Materials, Inc. Price and EPS Surprise | Martin Marietta Materials, Inc. Quote

How are Estimates Faring?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release.

For the quarter to be reported, the Zacks Consensus Estimate for earnings has declined from $1.81 to $1.71 per share over the past 60 days. In fact, this reflects a decrease of 9% from $1.88 reported in the year-ago quarter. Revenues are expected to be $935.99 million, marginally up from the year-ago figure of $911.3 million.

Let’s See How Things are Shaping Up for This Announcement

Weather-related risks have been affecting Martin Marietta’s performance since the last reported quarter, as stated by the company itself. Notably, its first and fourth quarters are most affected by winter. Also, hurricane activity in the Atlantic Ocean and Gulf Coast is mostly active during the third and fourth quarters, thereby affecting its earnings performance in the said quarters. In the third quarter of 2018, profitability was negatively impacted by $40-45 million due to severe weather conditions.

Additionally, higher labor, freight and material costs, as well as a constrained mortgage environment are threatening margins of late. Overall gross margin contracted 110 basis points (bps) to 25.7% in the last reported quarter. Also, selling, general & administrative expenses, as a percentage of total revenues, increased 30 bps to 5.6%.

Nevertheless, Martin Marietta’s underlying product demand and product shipments remain solid across its markets. The company is experiencing robust construction activity, primarily in the public sector. Notably, the public infrastructure market accounted for approximately 41% of the company’s aggregates product line shipments volume in third-quarter 2018.

Its aggregates revenues, accounting for 60% of total Building Materials revenues in the third quarter, increased 16.5% year over year. The Zacks Consensus Estimate for the Building Materials Business is pegged at $955 million, up 12.4% from the year-ago figure of $850 million.

Martin Marietta’s string of acquisitions, divestitures and uptick in private construction activity are expected to provide some cushion to revenues and earnings in the to-be-reported quarter.

What Our Model Indicates

Our proven model does not show that Martin Marietta is likely to beat earnings estimates in the to-be-reported quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can see the complete list of today’s Zacks #1 Rank stocks here.

Martin Marietta currently has a Zacks Rank #3 and an Earnings ESP of -4.67%, making surprise prediction difficult. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks Worth a Look

Here are a few construction stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat in the upcoming release:

Forterra, Inc. FRTA has an Earnings ESP of +8.99% and a Zacks Rank #2.

Toll Brothers Inc. TOL has an Earnings ESP of +1.91% and holds a Zacks Rank #2.

Owens Corning OC has an Earnings ESP of +5.83% and a Zacks Rank #3.

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