Martin Marietta Materials, Inc. (NYSE:MLM) Q3 2023 Earnings Call Transcript
Martin Marietta Materials, Inc. (NYSE:MLM) Q3 2023 Earnings Call Transcript November 1, 2023
Martin Marietta Materials, Inc. beats earnings expectations. Reported EPS is $6.94, expectations were $6.06.
Operator: Good day and welcome to Martin Marietta's Third Quarter 2023 Earnings Conference Call. All participants are now in 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 Director of Investor Relations. Jacklyn, you may begin.
Jacklyn Rooker: Thank you. It's my pleasure to welcome you to our third quarter 2023 earnings call. Joining me today are Ward Nye, Chairman and Chief Executive Officer; and Jim Nickolas, Executive Vice President and Chief Financial Officer. Today's discussion may include forward-looking statements as defined by 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 Nye will begin today's earnings call with a discussion of our operating performance and the outlook for the remainder of 2023.
Jim Nickolas will then review our financial results and capital allocation after which Ward will conclude with end market trends and our preliminary view for 2024. 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: Thank you, Jacklyn. Welcome, everyone and thank you for joining today's teleconference. Martin Marietta once again delivered record results across nearly every financial and operational measure extending our long track record of industry-leading performance and responsible profitable growth. Thanks to the dedication of our colleagues across the enterprise, we achieved accompanying milestone by exceeding $2 billion in trailing 12 months adjusted EBITDA for the first time. Our exceptional third quarter is highlighted by a 42% improvement in aggregates gross profit per ton despite lower shipments further validating the benefits of our value over volume commercial strategy and our commitment to operating with excellence, while meeting and exceeding our customers' needs.
Importantly, while our work in continuous safety improvement is never done, I'm proud to report the company concluded our safest third quarter on record with total and lost time incident rates surpassing world-class levels. On another third quarter event it's notable that just yesterday on October 31 we finalized the sale of our Tehachapi California Cement plant substantially completing the planned asset sales from the 2021 Lehigh Hanson West acquisition. Consistent with our SOAR 2025 initiatives, this divestiture of a non-strategic asset provides us with additional balance sheet flexibility to advance our well-articulated path of quality aggregates-led growth. As detailed in today's earnings release, we raised our full year 2023 adjusted EBITDA guidance to a range of $2.05 billion to $2.15 billion, as pricing momentum will more than offset lower shipments and recently increased energy and related costs.
Turning now to Martin Marietta's third quarter financial performance. We established all-time quarterly records across a number of areas, including consolidated total revenues of $2 billion, a 10.1% increase. Consolidated gross profit of $676 million, a 38.6% increase. Earnings per diluted share from continuing operations of $6.94 of 48.6% increase. Adjusted EBITDA of $705.2 million, a 32.3% increase and aggregates gross profit per ton of $7.89 of 42.4% increase. These results reinforce the durability of our aggregates-led business, which is strategically situated in well-curated geographies. These record results also reflect our team's focus on what we can control, despite heightened geopolitical tensions and persistent macroeconomic headwinds, including growth restrictive monetary policy and continued inflation.
Shifting now to our third quarter shipment and pricing results. Aggregate shipments declined 7.3%. Our value over volume strategy is clearly an unapologetic component of that result, as a softening demand in certain Midwest and Southwest markets, which was partially offset by continued strength in key Southeast markets. Aggregates pricing fundamentals remain very attractive with pricing increasing 20% or 17.2% on a mix adjusted basis, as we continue to expect fair value for our depleting resources. Near sold-out Texas cement conditions, particularly in the Dallas-Fort Worth Metroplex, continue to drive strong product demand in a favorable commercial environment. Third quarter cement shipments of 1.1 million tons were flat to last year's comparable period and pricing grew 18.9%, as we continue to largely sell as much as we can produce.
We expect favorable Texas Cement pricing dynamics will continue and accordingly announced a $15 per ton price increase effective January 1. Turning to our targeted downstream businesses. Ready-mixed concrete shipments increased 3.6%, while pricing improved a solid 20.9%. Asphalt shipments increased 5.7% and pricing increased 6.7%. Before providing our outlook for the remainder of 2023 and a preliminary view of 2024, I'll turn the call over to Jim to conclude our third quarter discussion with a review of the company's financial results. Jim?
Jim Nickolas: Thank you, Ward and good morning, everyone. The Building Materials business posted record quarterly revenue of $1.92 billion, a 10.5% increase over last year's third quarter and record quarterly gross profit of $649.5 million, a year-over-year increase of 38.4%. Aggregates gross profit improved to 32.1% relative to the prior year period to a record $440.6 million, as pricing growth more than offset lower shipments and higher production costs, underscoring the strength and effectiveness of our value-over-volume commercial strategy, as a distinguishing hallmark to grow profitability through economic cycles. The business also achieved an aggregate gross profit margin of 36.2%, setting a new all-time profitability record despite the shipment decline.
Our Texas Cement business also extended its track record of outstanding performance. Revenues increased 18.3% to $199.1 million, while gross profit increased 61.5% to $108.7 million. Pricing growth and lower energy costs, more than offset higher raw materials and maintenance costs. Domestic production capacity constraints and robust demand continue to drive extremely tight supply particularly in North Texas. As a reminder, Martin Marietta has taken two notable steps to increase our Texas Cement production capacity to capitalize on the supply-demand dynamics. First, we've homely converted our construction cement customers from Type 1, Type 2 cement to less carbon-intensive Portland-limestone cement also known as Type 1L, at both our Midlothian and Hunter Texas plants.
This conversion not only reduces our carbon footprint, but also expanded our production capacity by approximately 10%. Second, our Midlothian Texas plant is installing a new finish mill, providing 450,000 tons of incremental high-margin annual production capacity. This project should be fully operational in the third quarter of 2024. As previously discussed, we began utilizing the new silos to low customer trucks in July. In addition to increasing cement storage capacity by over 60%, these silos have considerably enhanced the customer experience by reducing lot cycle times and are saving our customers up to an hour at peak shipping times each day. Our concrete revenues increased 25.3% to $285.2 million and gross profit increased 81.8% to $34.1 million, driven primarily by steady volume growth pricing gains and mega project contributions which more than offset higher upstream raw material and delivery costs.
Our asphalt and paying revenues increased 14.6% on $359.9 million and gross profit increased 33% to $66.1 million, reflecting higher selling prices and lower bitumen costs. Magnesia Specialties revenues totaled $75.5 million in the third quarter in line with the prior period and gross profit increased 3.6% to $21.4 million, softening demand in certain Magnesia end markets including TPO roofing and metal lining was more than offset by commercial and operational excellence initiatives and energy tailwinds. We expect demand to soften due to labor unrest in the automotive sector and Magnesia end-markets remaining weak in the fourth quarter and as such have reduced our Magnesia Specialties full year gross profit guidance. During the quarter, our Board of Directors approved a 12% increase to our quarterly cash dividend paid in September, demonstrating its confidence in the durability and sustainability of our company's future growth and free cash flow generation.
Our annualized cash dividend rate is now $2.96. Since our repurchase authorization announcement in February 2015, we have returned a total of $2.6 billion to shareholders through a combination of meaningful and sustainable dividends as well as share repurchases. Our net debt-to-EBITDA ratio was 1.8 times as of September 30th, representing balance sheet strength and flexibility to responsibly grow through quality acquisitions and prudent capital investments, while returning capital to Martin Marietta to shareholders. To conclude my prepared remarks, I want to emphasize that the record-breaking financial performance of this quarter and year-to-date has demonstrated a disciplined execution of our value over volume commercial strategy yields higher margins, higher profits and higher cash flow without the benefit of growing volumes.
With that, I'll turn the call back to Ward.
Ward Nye: Thanks, Jim. Looking ahead to the remainder of the year and into 2024, we remain confident Martin Marietta is well positioned to capitalize on attractive market fundamentals across our coast-to-coast footprint, specifically infrastructure demand from increased federal and state level investments and heavy industrial projects of scale should counterbalance headwinds in the light nonresidential and historically underbuilt residential sectors, which are more sensitive to tightening credit conditions and higher for longer interest rate expectations. In the third quarter, infrastructure accounted for 39% of total shipments, predictably building to a higher and more normalized portion of our overall business. The value of state and local government highway, bridge and tunnel contract awards, a leading indicator for our future product demand is meaningfully higher year-over-year.
These infrastructure contract awards grew 18% to a record $114 billion for the 12-month period, ending September 30, 2023. Collectively, we anticipate that the historic increase in public sector investment from the Infrastructure Investment and Jobs Act or IIJA, record state departments of transportation budgets and voter-approved state and local transportation ballot initiatives will provide sustained multiyear demand to this aggregates intensive often countercyclical end market. Aggregate shipments to the non-residential market accounted for 33% of our third quarter shipments. Heavy side energy and manufacturing projects of scale continue to drive demand in this segment, as warehouse and data center construction continues to moderate from the post-COVID period.
Construction spending for manufacturing in the United States continues to trend favorably with the August season adjusted annual rate of spending for 2023 at $198 billion at 66% increase from the August 2022 value of $120 billion. The Inflation Reduction Act and CHIPS act together with significant private investments, provide funding certainty for these large-scale manufacturing and energy projects that we believe will be disproportionately and positively impactful in Martin Marietta markets. Importantly, we have both the ability and capacity to supply these large projects and with the successful execution of our commercial and operational excellence strategies will do so in a manner that is margin accretive. Moving to white non-residential, while third quarter shipments remained resilient, we expect the recent interest rate acceleration together with tighter commercial lending conditions may impact future demand.
That said, the anticipated softness in this segment should be partially offset by the extended cycle and strength of the more aggregates intensive heavy nonresidential sector. Softening in the residential end market, which accounted for 23% of aggregate shipments this quarter, is expected to continue, driven by current mortgage rates which are nearing 23-year highs at 8%. While single-family housing starts, a leading indicator of aggregates demand signaled a near-term bottom and inflection point over the summer, the current higher rates are exacerbating affordability challenges and driving our revised expectations of soft demand in this end market. Nonetheless, we fully expect this current single-family housing slowdown will reverse once home prices and borrowing rates find equilibrium, as demand far exceeds supply across key Martin Marietta markets, the result of significant underbuilding over the last decade and homeowners' reluctance to abandon low-rate mortgages.
As we look to 2024, our preliminary view anticipates aggregate shipments will be effectively flat as increased infrastructure investment coupled with robust activity from heavy non-residential projects of scale should help balance expected softness in interest rate sensitive private construction end markets. We remain confident that favorable commercial dynamics underpinned by our value over volume pricing strategy will be supported by 2023 exit rates as well as the realization of our previously announced January 1, 2024 price increases. Together, we expect this will drive low-double-digit growth in aggregates pricing and another year of profitable growth in 2024. To conclude, our team achieved impressive results in nearly every aspect of our business against a challenging macroeconomic and geopolitical backdrop.
One of Martin Marietta enduring qualities is our proven ability to adapt quickly and respond effectively and durably to changing circumstances. Accordingly, we are extremely proud of our company's exceptional safety, operational and financial performance through the first nine months of 2023. Moreover, our record-setting third quarter performance, together with our fourth quarter expectations, reinforce our confidence that we will deliver our full year adjusted EBITDA guidance midpoint of $2.1 billion on organic improvement of $500 million or 31% over 2022. Through the disciplined execution of our strategic plan, we intend to continue driving responsible and profitable growth in 2023 and into the future. If the operator will now provide the required instructions, we will turn our attention to addressing your questions.
Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Kathryn Thompson with Thompson Research Group. Please go ahead.
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