Martin Marietta (MLM) Down 10.7% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Martin Marietta (MLM). Shares have lost about 10.7% 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 its most recent earnings report in order to get a better handle on the important drivers.

Martin Marietta’s Q1 Earnings Miss Estimates

Martin Marietta Materials reported mixed first-quarter 2022 results, wherein earnings missed the Zacks Consensus Estimate but revenues (products and services) beat the same. Although revenues increased on a year-over-year basis backed by improved pricing across businesses and higher demand, earnings declined due to ongoing inflation.

Ward Nye, the chairman and CEO of Martin Marietta, said, “we believe annual price increases, most of which became effective on Apr 1, the expectation of further widespread pricing actions mid-year, and the disciplined execution of our operational excellence initiatives will enable Martin Marietta to mitigate rising costs and drive upstream margin expansion in the second half of the year. Based on our current expectations, we are raising our full-year outlook for aggregates and cement pricing to offset inflation and replace the earnings from recently divested downstream businesses.”

The company remains optimistic regarding its prospects for the rest of 2022, given secular demand trends across its geographic footprint, including single-family housing strength, key heavy industrial projects, expanded federal and state-level infrastructure investments as well as light non-residential recovery.

Inside the Headlines

Martin Marietta reported adjusted earnings per share from continuing operations of 39 cents, missing the Zacks Consensus Estimate of 71 cents by 45.1%. The reported figure decreased 62.5% from the year-ago level of $1.04 per share. The downside was mainly due to
inflation.

Total quarterly revenues (including Product and Services as well as Freight revenues) came in at $1,230.8 million, up 25.3% from the year-ago figure of $982.4 million. Products and services revenues of $1,147.8 million, accounting for 93% of total revenues, increased 24.5% year over year and topped the consensus mark of $1,119 million. The upside was driven by shipment growth, pricing gains and value-enhancing acquisitions.

Segment Discussion

Building Materials (including aggregates, cement, ready-mixed concrete, asphalt, paving product lines and Freight) reported revenues of $1,153.8 million, which increased 26.6% year over year. Within the segment, product and services revenues amounted to $1,077 million, up 25.7% from the year-ago level. Freight revenues of $76.8 million were up from $54.9 million in the year-ago period.

In, Product and Services, Aggregates revenues of $685.9 million grew 19.8% from the year-ago quarter. Also, Cement revenues rose 22.5% year over year to $134.3 million. Ready Mixed Concrete’s revenues grew 23.3% year over year to $290.1 million. Revenues of Asphalt and Paving product lines also increased 349.2% from the year-ago quarter to $54.8 million.

Shipments & Pricing

Aggregates shipments improved 13.4% year over year (up 2.5% organically) and pricing advanced 5.6% (up 6.5% organically). The upside was driven by public and private product demand at the onset of the construction season.

Geographically, East Group shipments edged up 1.1% from the prior year, given the strong construction activity across Southeast and Midwest regions. Pricing grew 5.1%. West Groups’ aggregate shipments surged 32.7% from a year ago. Pricing in the region grew 9% year over year (up 4.8% on a mix-basis).

Cement shipments advanced 10% year over year. Pricing improved 11.8% year over year.

Within the Downstream business, ready mixed concrete shipments dropped organically from the prior-year quarter owing to the timing of project completions. Organic pricing grew 8.2% from the year-ago quarter. Including the acquired Arizona operations, ready mixed concrete shipments and pricing gained 14.8% and 7.7%, respectively.

Asphalt shipments slipped 3.1% organically due to winter weather conditions in Colorado. Pricing gained 5.8% organically from a year ago. Inclusive of the acquisitions, shipments and pricing gained 509.1% and 27.2%, respectively.

Magnesia Specialties reported product revenues of $70.8 million, up 8.5% year over year.

Operating Highlights

Overall gross margin came in at 12.7%, which decreased from 17.8% a year ago. Adjusted EBITDA of $197.2 million decreased 4.1% year over year.

Liquidity and Cash Flow

As of Mar 31, 2022, Martin Marietta had cash and cash equivalents of $189.6 million compared with $258.4 million at 2021-end. Long-term debt (excluding current maturities) was $5,102.3 million, up slightly from $5,100.8 million at 2021-end. Net cash provided by operations was $169.9 million for the quarter, down from $191.9 million in the year-ago period. It had $1.2 billion of unused borrowing capacity on the existing credit facility in March-end.

The company returned $88.9 million to shareholders in the first quarter through dividend payments.

2022 Guidance

Martin Marietta updated its guidance for the current year, taking into consideration the recently completed acquisitions, favorable pricing dynamics and attractive underlying fundamentals. These tailwinds are expected to offset inflationary headwinds and replace earnings from the downstream businesses it recently divested.

The company expects products and services revenues in the range of $5,640-$5,820 million (compared with $5,780-$5,980 million expected earlier), gross profit in the $1,560-$1,665 million band (earlier expected in the $1,575-$1,695 million range), selling, general and administrative expenses within $395-$405 million (versus $405-$415 million expected earlier) as well as adjusted EBITDA between $1,700 million and $1,800 million. Net earnings are anticipated in the $800-$900 million range versus the earlier projection of $805-$915 million.

Total aggregate shipment growth is still expected in the range of 7-10% (1-4% organically). Total aggregate pricing is expected to grow between 9% and 11% (9% and 11% organically).

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

At this time, Martin Marietta has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, 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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