Martin Marietta Materials, Inc. (NYSE:MLM) Q4 2023 Earnings Call Transcript
Martin Marietta Materials, Inc. (NYSE:MLM) Q4 2023 Earnings Call Transcript February 14, 2024
Martin Marietta Materials, Inc. beats earnings expectations. Reported EPS is $4.63, expectations were $3.96. MLM isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Welcome to Martin Marietta's Fourth Quarter and Full Year 2023 Earnings Conference Call. All participants are now in a listen-only mode. A question-and-answer session will follow the company's prepared remarks. As a reminder, today's call is being recorded and will be available for replay on the company's website. I will now turn the call over to your host, Ms. Jacklyn Rooker, Martin Marietta's Director of Investor Relations. Jacqueline, you may begin.
Jacklyn Rooker: Good morning and thank you for joining Martin Marietta's fourth quarter and full year 2023 earnings call. With me today are Ward Nye, Chairman and Chief Executive Officer; and Jim Nicholas. Executive Vice President and Chief Financial Officer. Today's discussion may include forward-looking statements as defined by the United States securities laws in connection with future events, future operating results, or financial performance. Like other businesses, Martin Marietta is subject to risks and uncertainties that could cause actual results to differ materially. We undertake no obligation, except as legally required to publicly update or revise any forward-looking statements, whether resulting from new information, future developments, or otherwise.
Please refer to the legal disclaimers contained in today's earnings release and other public filings, which are available on both our own and the Securities and Exchange Commission's website. We have made available during this webcast and on the Investors section of our website, supplemental information that summarizes our financial results and trends. As a reminder, all financial and operating results discussed today are for continuing operations. In addition, non-GAAP measures are defined and reconciled to the most directly comparable GAAP measure in the appendix to the supplemental information as well as our filings with the SEC and are also available on our website. Ward and I will begin today's earnings call with a discussion of our 2023 financial highlights and operating performance.
Jim Nickolas will then review our financial results and capital allocation in more detail. After which, Ward will conclude with end market trends and our 2024 outlook. A question-and-answer session will follow. Please limit your Q&A participation to one question. I will now turn the call over to Ward.
Ward Nye: Jacklyn, thank you. Good morning and thank you so much for joining today's teleconference. I'm pleased to report 2023 was the safest and most profitable year in Martin Marietta's history. We delivered both record financial performance, eclipsing $2.1 billion in adjusted EBITDA and also world-class safety results, achieving a world-class total injury incident rate for the third year in a row and a world-class lost-time incident rate for the seventh consecutive year. This year was also highlighted by several portfolio enhancing transactions significantly strengthening both the durability of our business and our balance sheet and which cumulatively, positions us well to continue delivering sustainable growth. Our 2023 achievements were accomplished despite a macroeconomic environment encumbered by restrictive monetary policy, a housing slowdown, and heightened geopolitical tensions.
That our team was able to successfully overcome these challenges further underscores the continued success of our strategic operating analysis and review or SOAR plan, the vitality of our purposely curated geographic footprint, our team's steadfast execution of our proven value over volume commercial strategy, and the resiliency and earnings power of our aggregates-led business. Subsequent to year-end, on January 12th, we closed the acquisition of Albert Frei & Sons, a leading aggregates producer in Colorado, expanding our aggregates platform in the high-growth Denver metropolitan area. More recently, on February 11, 2024, we entered into a definitive agreement to acquire the Alabama, South Carolina, South Florida, Tennessee, and Virginia aggregates operations of Blue Water Industries, a closely held pure-play aggregates producer with a portfolio of 20 active operations and attractive Southeast markets, including Nashville, Knoxville, and Miami.
Consistent with our SOAR plan upon closing of the Blue Water Industries acquisition, which is expected to occur later this year, subject to regulatory approvals and customary closing conditions, these two pure-play aggregates transactions will not only add approximately 1 billion tons of high-quality reserves in specific SOAR-targeted markets, but also enhance the product mix of our portfolio. Assuming these transactions have closed on January 1, 2024, we would have expected these two acquisitions to generate approximately $180 million of adjusted EBITDA in 2024, more than offsetting the adjusted EBITDA divested in the February 9, 2024 sale of the company's South Texas Cement and related concrete business. As we turn the page to 2024, favorable commercial dynamics underpinned by our value over volume pricing strategy and giving effect to the recently closed Colorado acquisition and Texas divestiture, we expect to deliver consolidated adjusted EBITDA of $2.24 billion at the midpoint.
However, assuming these transactions and the recently announced Bluewater Industries' acquisition had all been completed as of January 1, 2024, we would have expected the new portfolio to generate adjusted EBITDA of $2.37 billion in 2024 at the midpoint. Before discussing our full year 2023 results, I'll highlight a few notable takeaways from our record fourth quarter. Aggregates pricing increased 15%, driving product line gross profit of $328.6 million, a year-over-year increase of 36.8% and gross profit per ton of $7.04, a year-over-year increase of 39.8%, both fourth quarter records. While aggregate shipments decreased 2.1%, these financial results clearly demonstrate the success of our sales team's commitment to receiving appropriate commercial consideration for our valuable and long-lived reserves.
The primary and disproportionate organic earnings growth driver of our business. Turning now to our full year 2023 results. As previously noted, we established new financial records in each of the following year-over-year metrics. Consolidated total revenues of $6.8 billion, a 10% increase. Consolidated gross profit of $2 billion, a 42.1% increase. Earnings per diluted share from continuing operations of $19.32, a 41% increase. Adjusted EBITDA of $2.1 billion, a 33% increase and aggregates gross profit per ton of $6.93, a 46.4% increase. Moreover, we successfully implemented midyear price increases across the majority of our markets as we endeavor to pass through persistently high cost inflation. Shifting now to our full year 2023 operating performance beginning with aggregates.
Aggregate shipments declined 4.3%, the combined result of our value over volume strategy and softer demand in certain Midwest and Southwest markets, partially offset by continued strength in key Southeast markets. Aggregates pricing increased to 18.9% or 17.2% on a mix-adjusted basis as pricing fundamentals remain attractive. Texas Cement shipments decreased 3.4% to 4 million tonnes. Pricing increased 22% or 21.6% on a mix-adjusted basis, driven by favorable supply/demand dynamics in the Dallas-Fort Worth Metroplex. Turning to our targeted downstream businesses. Ready-mixed concrete shipments decreased 12.1%, but that reduction was largely driven by the April 2022 divestiture of the company's Colorado and Central Texas concrete businesses. Pricing increased a robust 20.4%.
Asphalt shipments increased 3.5% and pricing increased 6.7%. Before providing end market trends and our 2024 outlook, Jim will now discuss our full year financial results. Jim?
Jim Nickolas: Thank you, Ward and good morning everyone. As Ward mentioned, we completed the sale of our South Texas Cement plant and related concrete operations last week on February 9th. While these businesses were classified as held for sale on the balance sheet as of December 31st, revenues and profits from these operations through the divestiture date are included in the earnings from continuing operations. Accordingly, the revenues and profits from these assets are included in both 2023 as reported earnings from continuing operations and in our 2024 earnings guidance through the February 9th close date. The revenues and profits from the Colorado assets acquired on January 12th, 2024, also are included in our forward earnings guidance.
Lastly, the Bluewater Industries transaction has not yet closed and remain subject to customary closing conditions and regulatory review. Accordingly, the contributions from the pending acquisitions are not included in our 2024 earnings guidance. That said, we will provide updated earnings guidance after closing Bluewater transaction, which is expected to occur later this year. The Building Materials business posted full year 2023 revenues of $6.5 billion, an increase of 10.3% and gross profit of $1.9 billion, a notable 43.7% increase year-over-year, both new records. The aggregates business achieved all-time record revenues in 2023, growing 10.9% to $4.3 billion. Gross profit increased 40.1% to $1.4 billion, and gross margin increased 660 basis points to 32%.
Again, both all-time records. Solid pricing growth more than offset lower shipments, further demonstrating how the disciplined execution of our value over volume, commercial strategy yields, higher profits and higher margins even without the benefit of growing volumes. Our Texas Cement business extended its track record of outstanding performance and once again delivered record top and bottom-line results. Revenues increased 17% to $725.5 million and gross profit increased 64.6% to $333.6 million, driven primarily by favorable supply/demand dynamics in the Dallas-Fort Worth Metroplex and energy cost tailwinds. As a reminder, the new finish mill at our Midlothian, Texas plant in North Texas is expected to be fully operational in the third quarter of 2024, adding approximately 450,000 tons of incremental high margin annual production capacity.
Moving to our targeted downstream businesses. Our concrete revenues increased 5.9% to $1 billion and gross profit increased 44.2% to $102 million, driven primarily by pricing gains and mega project contributions, which more than offset higher upstream, raw material, and delivery costs. Asphalt and paving revenues increased 12.6% to $887.1 million. Gross profit increased 34.7% to $109 million. The result of strong demand and lower bitumen costs. Magnesia Specialties full year revenues increased 3.8% to $315.4 million, while gross profit increased 6.9% to $97.1 million. Strong pricing and energy cost tailwinds more than offset weaker demand in certain magnesia end markets, including TPO roofing and cobalt mining. We continue to balance our long-standing disciplined capital allocation priorities to responsibly grow our business.
In 2023, we invested $650 million of capital into our business and returned $324 million to shareholders through both an increased dividend and share repurchases. Since our repurchase authorization announcement in February of 2015, we have returned a total of $2.6 billion to shareholders through both dividends and share repurchases. Our net debt to EBITDA ratio was 1.4 times as of December 31st, assuming the Albert Frei & Sons and Bluewater Industries' acquisitions and South Texas Cement and related concrete operations divestiture were effective as of January 1st, 2024, after giving effect to the impacts of these transactions, our net debt to EBITDA ratio would have been 1.85 times, just below our targeted range of 2 times to 2.5 times, which would provide ample dry powder to take advantage of additional value-enhancing acquisitions.
With that, I'll turn the call back to Ward to discuss end market trends.
Ward Nye: Jim, thanks so much. We're enthusiastic about Martin Marietta's prospects in 2024 and beyond. We anticipate healthy demand in public and heavy non-residential construction will largely offset softness in the residential sector and expected moderation in light non-residential construction. However, anticipated decreases in mortgage rates should provide tailwinds in residential demand and an uptick in single-family home construction as evidenced by recent [Indiscernible] data. As you've heard us say for years in this business, where you are matters and Martin Marietta is uniquely positioned to capitalize on these long-term secular trends. Infrastructure activity is expected to remain resilient as funds from the Infrastructure Investment and Jobs Act or IIJA, along with record State Department of Transportation or DOT budgets, as well as voter-approved state and local transportation-related ballot initiatives coalesce to per years of steady investment and demand.
The value of state and local government highway, bridge, and tunnel contract awards, a leading indicator for our future product demand, grew 8% to $113 billion in 2023. According to the American Road & Transportation Builders Association or ARPA, Texas, Colorado, California, Georgia, and Florida, key Martin Marietta states are among some of the largest growing markets based on contract awards. Importantly, our investment in our nation's infrastructure continues to maintain broad bipartisan support. During the November 2023 election, voters approved 88% of transportation-related state and local ballot initiatives, representing approximately $7 billion of additional infrastructure funding. We expect this enhanced level of federal, state, and local infrastructure investment will yield steady, multiyear demand in this important aggregates-intensive often countercyclical end market.
Moving to non-residential and starting with heavy industrial, strong demand for large manufacturing and heavy side energy projects is expected to counterbalance ongoing moderation in warehouse and data center construction from its COVID peak. Construction spending from manufacturing in the United States continues to trend positively with the December seasonally adjusted annual rate of spending for 2023 at $214 billion, a 61% increase from the December 2022 value of $133 billion. Manufacturing projects continue to be supported by health demand from the ongoing reshoring of critical product supply chains, including semiconductors and electric vehicle battery manufacturing. As an example, in the fourth quarter of 2023, Toyota announced an $8 billion expansion to their battery manufacturing campus in North Carolina, bringing their total investment to approximately $14 billion.
This incremental investment solidifies North Carolina is Toyota's central hub for lithium-ion battery production in North America with this campus having over 7 million square feet. Importantly, our quarries are well-positioned to supply the aggregates needs for this type of multiyear project. Shifting to light non-residential, while demand remained resilient through 2023 despite higher interest rates, high office vacancy rates, and tighter commercial lending additions, we expect 2024 demand in this segment to moderate as it generally follows single-family residential development with a lag. Given the structural housing deficit and favorable population trends in key Martin Marietta markets, we fully expect the affordability-driven single-family residential slowdown will recover as interest rates declined further and monthly mortgage payments become relatively more affordable.
Although there's still near-term uncertainty, we're encouraged by recent trends in single-family housing starts, a leading indicator of aggregate demand, which were 1 million units in December, an increase of 16% from a year ago. Looking ahead, we expect 2024 to be another record year for Martin Marietta. As previously mentioned, we anticipate flat aggregate shipments as infrastructure and large-scale non-residential projects should largely offset softness in the residential and light non-residential sectors. With steady product demand, supporting favorable commercial dynamics and the disciplined execution of our value over volume strategy, we expect double-digit aggregates pricing growth to overcome inflationary pressures and lead to expanded gross margins and unit profitability growth.
Combined with contributions from our cement, downstream and Magnesia Specialties businesses and contributions from our recently acquired Colorado assets, we are confident in our expectations for consolidated adjusted EBITDA of $2.24 billion at the midpoint. To conclude, we're extremely proud of our record-setting performance in 2023. We demonstrated our ability to successfully navigate another challenging macroeconomic environment and deliver superior returns for shareholders. As we begin the new year, our teams remain committed to employee health and safety, commercial, and operational excellence, sustainable business practices, and the execution of our SOAR 2025 initiatives as we build the safest, best-performing, and most durable aggregates-led public company.
We look forward to continuing our strong momentum in driving responsible and profitable growth in 2024 and beyond. If the operator will now provide the required instructions, we'll turn our attention to addressing your questions. Thank you.
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