Martin Marietta Sees Strong Price Growth Despite Slowdown in Residential Construction Demand 

Equity Analyst

Spencer Liberman

Revenue segments as reported by the company.

Products and services revenues

Freight revenues

Revenue Segments

Gross Profit, Operating Income, and Net Income as a percentage of Revenue

Gross Margin

Operating Margin

Profit Margin

Margins

An operating expense is an expense a business incurs through its normal business operations. Often abbreviated as OPEX.

Selling, general & administrative expenses

Acquisition and integration expenses

Other operating income, net

Operating Expenses

Year over year growth in Revenue and Operating Expenses.

Revenue Y/Y

OpEx Y/Y

Growth

Shares outstanding refer to a company's stock currently held by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company's officers and insiders.

Outstanding Shares

Market Cap

Also known as Price/Sales Ratio. Calculated using Average market cap for the quarter / Annualized quarterly revenue.

Revenue Multiple

Martin Marietta is well positioned to benefit from increased U.S. infrastructure spending. Although mainly an aggregates producer, the company also has cement production in Texas. We forecast strengthening demand growth for the public sector and modest growth for the private sector. Accounting for roughly half of shipments, public-sector demand is generally more stable, and projects, primarily highway construction, are more aggregate-intensive per dollar of spending. However, in recent years, this sector's demand has been low relative to historical levels amid underfunding that has led to worsening conditions. Federal funding power has weakened over time, as better vehicle mileage and inflation have diminished the buying power of the $0.18 per gallon gasoline tax, unchanged since 1993. The FAST Act, passed in December 2015, provided stability and near-term funding certainty, but did not solve the still-weakening gas tax. However, long-term federal funding was passed in late 2021, totaling $1.2 trillion. 

The outlook for road spending differs considerably from state to state. Differences in population growth, road conditions, funding mechanisms, and overall state fiscal health influence spending. Martin Marietta's footprint—heavy in Texas, Colorado, Georgia, North Carolina, and Minnesota—has significant road spending needs and strong finances to support robust growth. 

Private-sector demand consists of residential and nonresidential construction, including commercial and industrial properties. Nonresidential construction is the most important driver in the category, as spending is more material-intensive per dollar than residential construction. We forecast nonresidential spending growth to moderate in the longer term, as we expect many key sectors to make more efficient use of their construction spending. Additionally, we expect residential starts to converge to our long-term housing-start forecast of 1.35 million by 2032. Residential construction historically supports nonresidential construction growth.

Business Strategy & Outlook

We think Martin Marietta benefits from durable competitive advantages that should support economic profits for at least the next 10 years. We assign Martin Marietta a narrow moat rating based on its intangible assets and cost advantage. Martin Marietta is one of the largest producers of aggregates in the United States. The company also produces ready-mixed concrete, cement, asphalt, and magnesia-based products. The U.S. aggregates market is highly fragmented and comprises over 1,000 companies. Many of these firms operate small, local operations that pale in comparison to Martin Marietta. The low value/weight ratio of aggregates severely limits the range of deliveries and places an importance on quarry locations while permits are very difficult to obtain. Martin Marietta also benefits from a regional transportation cost advantage over distant competitors. This advantage stems from the company’s permits, which prevent significant increases in supply in Martin Marietta’s existing regions. The commoditized nature of building materials requires companies to possess cost advantages in order to reliably generate economic profits.

Aggregates account for over half of Martin Marietta’s consolidated revenue and an even larger portion of the companies’ gross profits. Aggregates typically sell for roughly $16 or more per ton, leading to an extremely low value/weight ratio. Given the lack of water or rail access at most quarries, more than three fourths of aggregates ship by truck. Transportation by truck costs roughly $0.15-$0.65 per ton per mile, limiting the potential range of deliveries to roughly 50 miles or less before transportation costs begin to outweigh the cost of the aggregate itself. Martin Marietta’s quarries tend to be located close to its customers in highly populated urban areas. Distant outside operators would need to subsidize their prices (lowering profitability) to encourage customers to incur higher transportation costs. With most aggregates producers lacking efficient water or rail alternatives, markets tend to be extremely localized, with high barriers to entry. The highly fragmented nature of the industry, which consists of many local markets and low market shares, is testament to the difficulty of transporting the product long distances.

Martin Marietta benefits from permits (intangible assets) that are difficult to obtain and make it challenging for competitors to open new quarries. Building material producers face extreme opposition from local communities in obtaining approval for quarries due to the environmental impact and noise pollution that production causes. Not-in-my-backyard tendencies make the permitting process difficult in developed markets and create a high barrier to entry. Once a quarry is present in a region, the likelihood of authorities permitting additional capacity is highly unlikely. Furthermore, while populous metropolitan areas are the centers of construction activity, new quarry permits are difficult to obtain as a result of not-in-my-backyard tendencies. We think Martin Marietta’s competitive advantage is durable because we do not anticipate the importance of aggregates in construction diminishing, transportation costs to fall, or new quarry permits to become easier to obtain.

Infrastructure projects are typically resilient during economic downturns as governments tend to fund projects through the cycle to support the economy and prevent job losses. Stable demand has supported consistent price increases through economic cycles and led to subsequent margin expansion for manufacturers. From 2004 to 2021, Martin Marietta’s price increases exceeded inflation in all but five years. During this period, the company’s price per ton rose more than 90%, while inflation rose roughly 43%. Additionally, Martin Marietta only recorded one year of price contraction during this 18-year period. This is a testament to the firms’ durable pricing power, even during times of softer demand. During the most recent construction demand trough, the company failed to generate returns on invested capital in excess of its cost of capital as historical levels of construction led to a record slowdown in spending. Utilization rates took years in some areas to catch up with completed projects, which slowed recovery and weighed on Martin Marietta’s returns for multiple years. 

During the most recent construction demand trough (the period prior to the COVID-19 downturn), the company failed to generate returns on invested capital in excess of its cost of capital. We think high capacity utilization will be necessary to generate excess returns. Because we do not have the confidence that demand will be strong enough to reach appropriate levels of utilization throughout the entire construction cycle, we refrain from assigning the company a wide moat rating at this time.

Martin Marietta’s cement business benefits from similar competitive advantages as its aggregates business and accounts for roughly 10% of the firm’s revenue. While cement typically sells for over $130 per ton (compared with $15 per ton for aggregates), the potential range of deliveries is limited to around 250 miles or less before transportation becomes unprofitable. Unlike aggregates, where numerous quarries are spread across the U.S, there are roughly 100 cement plants in the U.S compared with well over 1,000 aggregates quarries. While cement can be transported slightly farther than aggregates due to its higher price per ton, the industry still benefits from a similar transportation cost advantage. Regulatory permits are also difficult to obtain for cement plants and they tend to come with operating and production limits. Like aggregate quarries, not-in-my-backyard tendencies exist with cement plants and make it difficult to open a new plant. 

We think downstream materials such as ready-mixed concrete and asphalt (byproducts of cement and aggregates) do not benefit from an economic moat. The low value-to-weight argument (cost advantage) does not hold since producers do not require permits (intangible assets) that prevent new entrants. For asphalt, 95% of the weight is composed of aggregates while aggregates make up roughly 80% of ready-mixed concrete. Essentially, aggregates are mixed with water and cement or liquid asphalt cement to produce ready-mixed concrete and asphalt. There are almost no barriers to entry for the mixing process, as anyone can purchase the inputs to produce concrete or asphalt. This creates a highly competitive market where participants compete on price. These products are also relatively commoditized, which results in these businesses generating lower profit margins than producers of upstream materials, which exhibit greater barriers to entry. Martin Marietta produces cement internally, but a majority of its supply is sourced from third parties. 

While Martin Marietta’s building materials business is moatworthy, we don't think its magnesia specialties business operates with a durable competitive advantage. The segment sells magnesia-based chemical products and dolomitic lime to a variety of industries. We don’t think this business enjoys the barriers to entry that protect the company’s aggregates business, as the location the of facilities is not as important and the ability to open new kilns is not as difficult. Nevertheless, as the segment accounts for roughly 5% of the company’s total sales, we do not think the business’ lack of competitive advantage is enough to negate the moat established by Martin Marietta’s building materials business.

Narrow

Economic Moat

Martin Marietta Materials

Martin Marietta Materials, Inc. engages in the provision of aggregates including crushed stone, sand, and gravel through its network of quarries and distribution yards. It operates through the following geographical segments: East Group and West Group. The East Group segments provide aggregated products only. The West Group offers aggregates, as well as cement and downstream products including mixed concrete, asphalt, and paving services. The company was founded in November 1993 and is headquartered in Raleigh, NC.

Earnings data Q1 2024

Revenue

Cost of revenue

Gross profit

Operating expenses

SG&A

Other

Operating income

EBITDA

Net income

Earnings per share

Total assets

Current assets

Cash & equivalents

Receivables

Inventory

Non-current assets

Net PPE

Intangibles

Total liabilities

Current liabilities

Short term debt

Income tax payable

Non-current liabilities

Long-term debt

Total equity

Stockholders equity

Minority interest

Total liabilities & equity

Total debt

Net debt

Book value per share

Cash from operations

Funds from operations

Change in working capital

Cash from investing

Capital expenditure

Purchase/sale of investments

Purchase/sale of business

Other sources

Cash from financing

Change in stock

Change in debt

Cash dividends paid

Cash from other sources

Net change in cash

Free cash flow

Martin Marietta (MLM) reported earnings 30 days ago. What's next for the stock?

Martin Marietta (MLM) Up 5.4% Since Last Earnings Report: Can It Continue?

The Zacks Style Scores offers investors a way to easily find top-rated stocks based on their investing style. Here's why you should take advantage.

Here's Why Martin Marietta (MLM) is a Strong Value Stock

Martin Marietta (MLM) to sell its South Texas cement business and some of its related concrete operations to CRH Americas Materials, Inc. for $2.1 billion.

Martin Marietta (MLM) to Divest South Texas Business for $2.1B

CRH PLC

CRH CRH said it's paying $2.1 billion for South Texas cement operations from Martin Marietta Materials MLM. CRH, which separately reported earnings, said the combined portfolio of assets is expected to generate pro-forma 2023 EBITDA of approximately $170 million.

CRH to buy $2.1 billion for South Texas cement operations of Martin Marietta Materials

RALEIGH, N.C., Nov. 21, 2023 (GLOBE NEWSWIRE) -- Martin Marietta Materials, Inc. (NYSE: MLM) (“Martin Marietta” or the “Company”) today announced that it has entered into a definitive agreement to sell its South Texas cement business and certain of its related concrete operations to CRH Americas Materials, Inc., a subsidiary of CRH plc, for $2.1 billion in cash. More specifically, the facilities to be divested include the Hunter cement plant in New Braunfels, related cement distribution terminals and 20 concrete plants serving the Austin and San Antonio region.

Martin Marietta to Divest South Texas Cement and Related Concrete Operations to CRH plc

Does Martin Marietta (MLM) have what it takes to be a top stock pick for momentum investors? Let's find out.

Martin Marietta (MLM) Is Up 2.48% in One Week: What You Should Know

Whether you're a value, growth, or momentum investor, finding strong stocks becomes easier with the Zacks Style Scores, a top feature of the Zacks Premium research service.

Here's Why Martin Marietta (MLM) is a Strong Growth Stock

Martin Marietta (MLM) is at a 52-week high, but can investors hope for more gains in the future? We take a look at the company's fundamentals for clues.

Martin Marietta Materials, Inc. (MLM) Soars to 52-Week High, Time to Cash Out?

Martin Marietta (MLM) is well positioned to outperform the market, as it exhibits above-average growth in financials.

Looking for a Growth Stock? 3 Reasons Why Martin Marietta (MLM) is a Solid Choice

RALEIGH, N.C. , Nov. 09, 2023 (GLOBE NEWSWIRE) -- Martin Marietta Materials, Inc. (NYSE: MLM) (“Martin Marietta” or the “Company”) today announced that its Board of Directors has declared a regular quarterly cash dividend of $0.74 per share on the Company's outstanding common stock. This dividend, which represents a cash dividend of $2.96 per share on an annualized basis, is payable December 29, 2023, to shareholders of record at the close of business on December 1, 2023.

Martin Marietta Declares Quarterly Cash Dividend

Aflac

Eagle Materials

Vulcan Materials

Investors looking for companies with a competitive edge in their industry may want to consider Aflac (AFL) and Martin Marietta's (MLM) stock as their earnings outlook remains compelling.

Time to Buy Stock in These 2 Attractive Industry Leaders After Earnings

Martin Marietta Materials, Inc. (NYSE:MLM ) Q3 2023 Earnings Conference Call November 1, 2023 10:00 AM ET Company Participants Jacklyn Rooker - Director-Investor Relations Ward Nye - Chairman, President & Chief Executive Officer Jim Nickolas - Executive Vice President & Chief Financial Officer Conference Call Participants Kathryn Thompson - Thompson Research Group Trey Grooms - Stephens Stanley Elliott - Stifel Jerry Revich - Goldman Sachs Anthony Pettinari - Citi Phil Ng - Jefferies Timna Tanners - Wolfe Research Tyler Brown - Raymond James David MacGregor - Longbow Research Michael Dudas - Vertical Research Adam Thalhimer - Thompson Davis Operator Good day and welcome to Martin Marietta's Third Quarter 2023 Earnings Conference Call. All participants are now in listen-only mode.

Martin Marietta Materials, Inc. (MLM) Q3 2023 Earnings Call Transcript

Increased investment in large infrastructure and manufacturing projects accompanied by value-over-volume commercial strategy and favorable pricing aided Martin Marietta's (MLM) third-quarter 2023 results. Yet, prevailing economic uncertainties are concerning.

Martin Marietta's (MLM) Q3 Earnings Beat, Revenues Lag, View Up

While the top- and bottom-line numbers for Martin Marietta (MLM) give a sense of how the business performed in the quarter ended September 2023, it could be worth looking at how some of its key metrics compare to Wall Street estimates and year-ago values.

Martin Marietta (MLM) Reports Q3 Earnings: What Key Metrics Have to Say

Achieved Record Quarterly Consolidated Revenues, Profitability and Margins Aggregates Gross Profit Per Ton Increased 42.4 Percent to $7.89 Robust Earnings Growth Reinforces Benefits of Value-Over-Volume Strategy Raised Adjusted EBITDA Guidance RALEIGH, N.C., Nov. 01, 2023 (GLOBE NEWSWIRE) -- Martin Marietta Materials, Inc. (NYSE: MLM) (“Martin Marietta” or the “Company”), a leading national supplier of aggregates and heavy building materials, today reported results for the third quarter ended September 30, 2023.

Martin Marietta Reports Third-Quarter 2023 Results

Martin Marietta's (MLM) third-quarter results to benefit from solid product demand and pricing actions.

Martin Marietta (MLM) Q3 Earnings to Aid From Demand & Pricing

Here is how Martin Marietta (MLM) and Vulcan Materials (VMC) have performed compared to their sector so far this year.

Are Construction Stocks Lagging Martin Marietta Materials (MLM) This Year?

Addus HomeCare

Brookfield Renewable Partners

California Water Service Group

Ensign Group

Hess Midstream Partners

TXO Energy Partners LP

The spooky occasion Halloween can turn into an occasion of angels for Wall Street. Top-ranked sectors like energy, construction, medical and utilities, especially, have the potential to experience a Halloween Effect this year.

Can Stocks Enjoy Halloween Effect Despite Rising Rate Fear?

Martin Marietta (MLM) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

Martin Marietta (MLM) Earnings Expected to Grow: What to Know Ahead of Next Week's Release

Caterpillar

United Continental Hlds

Caterpillar and other S&P 500 construction stocks fell Wednesday on peak demand fears. Terex raised 2023 earnings guidance, but not enough.

Caterpillar, These S&P 500 Construction Stocks Tumble On Peak Demand Fears. This Is The Trigger.

Wondering how to pick strong, market-beating stocks for your investment portfolio? Look no further than the Zacks Style Scores.

Here's Why Martin Marietta (MLM) is a Strong Momentum Stock

Why Martin Marietta (MLM) is a Top Value Stock for the Long-Term

RALEIGH, N.C., Oct. 09, 2023 (GLOBE NEWSWIRE) -- Martin Marietta Materials, Inc. (NYSE:MLM) (“Martin Marietta” or the “Company”) will host its third-quarter 2023 earnings conference call on Wednesday, November 1, 2023 at 10:00 a.m. Eastern Time. The Company will release results for the quarter ended September 30, 2023, that morning before the market opens.

Martin Marietta Announces Third-Quarter 2023 Earnings Conference Call

Summit Materials

Federal infrastructure spending and improving residential market should help the Zacks Building Products - Concrete & Aggregates industry players like VMC, MLM and SUM amid high costs.

3 Stocks to Watch From the Promising Concrete & Aggregates Industry

MLM has seen strong revenue growth in Q2, 2023, driven by significant price increases across its product portfolio. The company's revenue growth and margin improvement prospects remain strong. Valuation is reasonable.

News for Martin Marietta Materials Stock (MLM)