Martin Marietta Reports Third Quarter 2018 Results

Nov 6, 2018

Martin Marietta Reports Third Quarter 2018 Results

COMPANY ACHIEVED RECORD THIRD-QUARTER REVENUES,
GROSS PROFIT AND EARNINGS PER DILUTED SHARE

Double-Digit-Growth in Consolidated Revenues, Gross Profit and Net Earnings

Shipments and Pricing Increased for Aggregates, Cement and Ready Mixed Concrete

Cement Product Gross Margin Expanded 210 Basis Points

Magnesia Specialties Business Posted Record Revenues and Gross Profit

2018 Guidance Updated to Reflect Impact of Weather-Related Events

RALEIGH, N.C., Nov. 06, 2018 (GLOBE NEWSWIRE) -- Martin Marietta Materials, Inc. (NYSE:MLM) today reported results for the third quarter ended September 30, 2018. 

Highlights Include the Following:

   
 ($ in thousands, except per share) Quarter ended September 30,
  2018 2017
Total revenues 1 $ 1,219,640 $ 1,087,732
Products and services revenues 2 $ 1,142,218 $ 1,022,487
Building Materials business products and services revenues $ 1,073,853 $   962,598
Magnesia Specialties business products and services revenues $   68,365 $    59,889
Gross profit $ 312,984 $ 291,678
Adjusted gross profit 3 $   321,333 $   291,678
Earnings from operations $ 240,662 $ 226,964
Adjusted earnings from operations 4 $    256,213 $   228,278
Net earnings attributable to Martin Marietta $ 180,221 $ 151,546
Adjusted EBITDA 5 $ 348,984 $ 303,276
Earnings per diluted share $ 2.85 $ 2.39
         
Total revenues include the sales of products and services to customers (net of any discounts or allowances) and freight revenues.
Products and services revenues include the sales of aggregates, cement, ready mixed concrete, asphalt and Magnesia Specialties products, and paving services to customers, and exclude related freight revenues.
Adjusted gross profit excludes an increase in cost of revenues from the impact of selling acquired inventory after its markup to fair value as part of acquisition accounting.  See appendix to this earnings release for a reconciliation to reported gross profit under generally accepted accounting principles (GAAP).
Adjusted earnings from operations exclude acquisition-related expenses, net; an increase in cost of revenues from the impact of selling acquired inventory after its markup to fair value as part of acquisition accounting; and a restructuring charge.  See appendix to this earnings release for a reconciliation to reported earnings from operations under GAAP.
Adjusted EBITDA is a non-GAAP financial measure.  See appendix to this earnings release for a reconciliation to net earnings attributable to Martin Marietta.
 

Ward Nye, Chairman, President and CEO of Martin Marietta, stated, “Our record third-quarter results demonstrate Martin Marietta’s strong execution as we capitalized on the improving strength of the current construction cycle while successfully managing through near-term challenges. Aggregates, cement and ready mixed concrete shipments meaningfully accelerated in July and August under normal operating conditions.  Pricing also improved, highlighting robust product demand across our geographic footprint. In September, extraordinary weather challenges, including record Texas rainfall and devastation from Hurricane Florence, mostly in the Carolinas, adversely impacted our third quarter. As a result, Texas, our largest state by revenues, and North Carolina, our third-largest state by revenues and leading state by unit profitability, were disproportionately negatively affected during the industry’s busiest and most profitable period.  Despite these short-term disruptions, we remain on track to once again deliver record revenues and EBITDA (Earnings Before Interest, Taxes, and Depreciation and Amortization) for the full year, and we are well-positioned to continue our growth trajectory in 2019.  

“We believe the ongoing construction cycle will continue to promote sustainable and steady growth for the foreseeable future, fueled by strong underlying demand and the long-awaited arrival of increased public-sector activity.  A compelling need for greater infrastructure investment exists to address much-needed maintenance and improvements, support economic growth and rebuild from weather events. We are encouraged by the recent and ongoing actions state and local governments are taking to secure additional funding for transportation projects. Indeed, Martin Marietta is poised to benefit from an acceleration in public lettings and contract awards in key states such as Texas, Colorado, North Carolina, Georgia and Florida. We are prepared to meet these future market demands. Important catalysts to do so will come from increased contractor capacity and logistics improvements. While getting better, these bottlenecks have nonetheless contributed to project delays and constrained construction growth in recent years. That said, these factors are also extending the construction cycle and promoting steady growth.”

Mr. Nye concluded, “Assessing these macroeconomic factors holistically and applying them to Martin Marietta, we anticipate increased private-sector demand, improving infrastructure construction activity and favorable pricing trends throughout 2019. We expect our key states to benefit from continued, favorable construction growth due to their attractive economic drivers and population trends. Our strategic geographic footprint, leading market positions, disciplined execution of our strategic plan and world-class attributes across our business - including safety, efficiency and operational excellence - firmly position Martin Marietta for both further growth and shareholder value creation.”

Operating Results
(All comparisons are versus the prior-year quarter unless noted otherwise)

   
  Quarter ended September 30, 2018
($ in thousands) Revenues Gross profit (loss) Gross margin
Building Materials business:      
Products and services:      
Aggregates $ 687,800   $ 209,082   30.4 %
Cement   98,223     32,543   33.1 %
Ready mixed concrete   254,686     20,632   8.1 %
Asphalt and paving   99,983     25,606   25.6 %
Less:  interproduct revenues   (66,839 )   ---   ---  
Products and services   1,073,853     287,863   26.8 %
Freight   72,264     (47 ) NM  
Total Building Materials business   1,146,117     287,816   25.1 %
Magnesia Specialties business:      
Products and services   68,365     26,823   39.2 %
Freight   5,158     (1,076 ) NM  
Total Magnesia Specialties business   73,523     25,747   35.0 %
Corporate   ---     (579 ) NM  
Total $ 1,219,640   $ 312,984   25.7 %
                 

 

   
  Quarter ended September 30, 2017
($ in thousands) Revenues Gross profit (loss) Gross margin
Building Materials business:      
Products and services:      
Aggregates $ 590,312   $ 187,065   31.7 %
Cement   88,470     27,459   31.0 %
Ready mixed concrete   240,222     23,913   10.0 %
Asphalt and paving   110,973     28,873   26.0 %
Less:  interproduct revenues   (67,379 )   ---   ---  
Products and services   962,598     267,310   27.8 %
Freight   61,229     1,012   NM  
Total Building Materials business   1,023,827     268,322   26.2 %
Magnesia Specialties business:      
Products and services   59,889     21,272   35.5 %
Freight   4,016     (1,362 ) NM  
Total Magnesia Specialties business   63,905     19,910   31.2 %
Corporate   ---     3,446   NM  
Total $ 1,087,732   $ 291,678   26.8 %
                 

Building Materials Business

Aggregates

Volume growth accelerated during the quarter’s first two months, reflecting strong underlying product demand, most notably in Texas, North Carolina, Georgia and Iowa. Despite clear market strength, extreme weather temporarily hindered construction activity. Record precipitation in Texas, compounded by disruptions from Hurricane Florence in the Carolinas, adversely impacted September’s aggregates shipment, production and overall efficiency levels.

Heritage aggregates volume and pricing improved 3.8 percent and 2.9 percent, respectively, excluding the third-quarter 2017 shipments from the Company’s Forsyth, Georgia, quarry that was divested in April 2018. 

  • Shipments for the Mid-America Group heritage operations increased 5.4 percent, driven by several large public and private construction projects in North Carolina and windfarm activity in Iowa. This growth was partially offset by disruptions from Hurricane Florence. Weather and product mix limited heritage pricing gains to 2.8 percent.
     
  • Shipments for the Southeast Group heritage operations increased 11.9 percent, excluding third-quarter 2017 shipments from the Forsyth, Georgia, quarry that was divested in April 2018. This improvement was driven by strong construction activity in North Georgia and improving long-haul shipments from Florida distribution yards. Product mix of the Group’s offshore shipments muted heritage pricing growth to 1.7 percent.
     
  • West Group shipments declined slightly, driven by record precipitation in September in Dallas/Fort Worth and San Antonio, as well as project delays in Colorado. Notably, the Southwest Division achieved double-digit volume growth heading into September, underscoring the region’s healthy construction market. West Group pricing improved 3.1 percent, reflecting robust pricing in Colorado that was partially offset by product mix and a lower percentage of higher-priced rail-shipped volumes in Texas.

Martin Marietta’s third-quarter heritage aggregates shipments by end use are as follows (all comparisons are versus the prior-year quarter):

Infrastructure Market

  • Aggregates shipments to the infrastructure market were flat as large public projects in North Carolina and Texas were weather delayed. The Company remains encouraged by the recent acceleration of state lettings and contract awards. As state Departments of Transportation (DOTs) and contractors continue to address labor constraints, and the broader industry benefits from further regulatory reform, management remains confident that infrastructure demand will continue to improve driven by funding provided by the Fixing America’s Surface Transportation Act (FAST Act) and numerous state and local transportation initiatives. While some contractors are reporting longer lag times between contract awards and project commencement, public construction projects, once awarded, are seen through to completion. Thus, delays from weather or other factors typically serve to extend the duration of the construction cycle for the Company’s single largest end-use market. Aggregates shipments to the infrastructure market comprised 41 percent of third-quarter aggregates volumes. On a year-to-date basis, the infrastructure market represented 39 percent of aggregates shipments, remaining below the Company’s most recent five-year average of 43 percent.

Nonresidential Market

  • Aggregates shipments to the nonresidential market increased 5 percent, driven by both commercial and heavy industrial construction activity. Looking ahead, ongoing energy-sector project approvals, supported by higher oil prices, underpin management’s expectation that the next wave of these large projects, particularly along the Gulf Coast, will contribute to increased aggregates demand for the next several years. The nonresidential market represented 33 percent of third-quarter aggregates shipments.   

Residential Market

  • Aggregates shipments to the residential market increased 7 percent. Florida, Texas, Colorado, North Carolina, South Carolina and Georgia, six of the Company’s key states, ranked in the top ten nationally for growth in single-family housing unit starts for the trailing twelve months ended August 31, 2018. The residential construction outlook across the Company’s geographic footprint remains positive for both single- and multi-family housing, driven by favorable demographics, job growth, land availability and efficient permitting. The residential market accounted for 20 percent of third-quarter aggregates shipments.

ChemRock/Rail Market

  • The ChemRock/Rail market accounted for the remaining 6 percent of third-quarter aggregates shipments. Shipments to this sector increased 6 percent, reflecting improved ballast shipments for the Midwest and Rocky Mountain Divisions.

Aggregates product gross margin was 30.4 percent, inclusive of an $8.3 million negative impact on cost of revenues related to selling acquired inventory after its markup to fair value as part of acquisition accounting.  Excluding this impact, adjusted aggregates product gross margin was 31.6 percent.

Acquired operations shipped 5.1 million tons despite Maryland’s wettest third quarter in history.  Selling prices for acquired operations are 10 percent to 15 percent below the corporate average.  Synergy realization is progressing ahead of plan.

Cement

Third-quarter cement shipments and pricing improved 7.6 percent and 3.3 percent, respectively. Both of the Company’s cement operations reported double-digit volume growth prior to September’s record rainfall, underscoring strong Texas demand. These factors, combined with increased production efficiencies, led to a 210-basis-point expansion in product gross margin to 33.1 percent.

Downstream businesses

Ready mixed concrete shipments increased 3.3 percent, with solid gains throughout the Rocky Mountain and Southwest Divisions, despite September’s record rainfall in Texas. Ready mixed concrete selling prices increased 2.7 percent. Project delays and permitting issues contributed to the 9.1 percent decrease in hot mixed asphalt shipments.  Asphalt pricing was essentially flat.

Magnesia Specialties Business

Magnesia Specialties product revenues increased 14.2 percent to a record $68.4 million with growth in both the chemicals and lime businesses. Operating efficiencies, together with lower unit energy costs, contributed to a 370-basis-point expansion in third-quarter product gross margin to 39.2 percent.   

Consolidated

Other operating expenses, net, included a $7.1 million restructuring charge related to the Company’s Southwest ready mixed concrete business. This primarily consists of asset impairment and related severance charges, as various ready mixed concrete locations are consolidated. These actions are anticipated to improve the long-term profitability of the Southwest ready mixed concrete business.

Liquidity and Capital Resources

Cash provided by operating activities for the nine months ended September 30, 2018 was $441.5 million compared with $418.1 million in the first nine months of 2017.

Cash paid for property, plant and equipment additions for the nine months ended September 30, 2018 was $262.2 million. The Company expects capital expenditures of $375 million for full-year 2018 as it continues to prudently deploy capital into the business.

During the third quarter of 2018, the Company contributed $150.0 million to its qualified defined benefit retirement plan and repurchased 305 thousand shares of its common stock for $60.4 million. Additionally, the Company extended the maturity date of its $400 million trade receivable facility to September 25, 2019.

At September 30, 2018, the Company’s ratio of consolidated net debt-to-consolidated EBITDA, as defined in the applicable credit agreement, for the trailing twelve months was 2.72 times. The Company expects to be modestly above its target leverage ratio of 2.0X to 2.5X by the end of 2018.

Commitment to Enhance Long-Term Shareholder Value

Martin Marietta is dedicated to disciplined capital allocation that preserves the Company’s financial flexibility and further enhances shareholder value. The Company’s capital allocation priorities remain unchanged and include value-enhancing acquisitions that promote the successful execution of the Company’s strategic growth plan, organic capital investment, and the return of cash to shareholders through a meaningful and sustainable dividend and share repurchases.

In August 2018, the Company increased its quarterly cash dividend by 9 percent. Additionally, the Company repurchased 305 thousand shares of common stock pursuant to its share repurchase authorization. The Company has now returned $1.3 billion to shareholders, in the form of dividend payments and share repurchases, since announcing a 20 million share repurchase authorization in February 2015. At September 30, 2018, 14.4 million shares remained under the current repurchase authorization and 62.7 million shares of Martin Marietta common stock were outstanding.

Outlook for 2018

Management has updated its full-year 2018 guidance to reflect current trends and expectations, including the impact of extraordinary weather-related events encountered during the third quarter.

Specifically: 

  • Heritage aggregates average selling price is expected to increase in a range of 3 percent to 4 percent.
  • Heritage aggregates volume is expected to be flat to up 1 percent and expected shipments by end-use market, both compared with 2017 levels and excluding shipments of the Company’s Forsyth, Georgia, quarry that was divested in April 2018, are as follows:
    • Infrastructure shipments to be relatively flat.
    • Nonresidential shipments to increase in the low- to mid-single digits.
    • Residential shipments to increase in the high-single digits.
    • ChemRock/Rail shipments to decrease.
 
2018 GUIDANCE
($ and tons in thousands, except per ton) Low *   High *
Consolidated      
Total revenues 1 $ 4,135,000   $ 4,255,000
Products and services revenues $ 3,855,000   $ 3,985,000
Freight revenues $   250,000   $   270,000
Gross profit $ 960,000   $ 1,000,000
Adjusted gross profit 2 $ 980,000   $ 1,020,000
       
Selling, general and administrative expenses (SG&A) $ 280,000   $ 285,000
Interest expense $ 135,000   $ 140,000
Estimated tax rate (excluding discrete events)   20%     20%
Net earnings attributable to Martin Marietta $ 460,000   $ 505,000
Adjusted EBITDA 3 $ 1,100,000   $ 1,145,000
Capital expenditures $ 375,000   $ 375,000
       
Building Materials Business      
Aggregates      
Volume (total tons) 4   167,000     170,000
% growth 4   6.0%     8.0%
Average selling price per ton (ASP) $ 13.75   $ 13.85
% growth 5   2.0%     3.0%
Total revenues $ 2,530,000   $ 2,600,000
Products and services revenues $ 2,320,000   $ 2,370,000
Freight revenues $    210,000   $    230,000
Gross profit $ 620,000   $ 640,000
Adjusted gross profit 2 $   640,000   $     660,000
       
Cement      
Total revenues $ 390,000   $ 405,000
Products and services revenues $   375,000   $   390,000
Freight revenues $    15,000   $    15,000
Gross profit $ 120,000   $ 130,000
       
Ready Mixed Concrete and Asphalt and Paving      
Products and services revenues $ 1,205,000   $ 1,235,000
Gross profit $ 125,000   $ 130,000
       
Magnesia Specialties Business      
Total revenues $ 280,000   $ 285,000
Products and services revenues $   255,000   $   260,000
Freight revenues $   25,000   $   25,000
Gross profit $ 95,000   $ 100,000
           
 
*  Guidance range represents the low end and high end of the respective line items provided above.
2018 consolidated total revenues exclude $270 million related to estimated interproduct sales.
Adjusted gross profit is a non-GAAP financial measure and in each case excludes a $20 million increase in costs of revenues from the impact of selling acquired inventory after its markup to fair value as part of acquisition accounting.
Adjusted EBITDA is a non-GAAP financial measure.  See appendix to this earnings release for a reconciliation to net earnings attributable to Martin Marietta.
Represents 2018 total aggregates volumes, which includes approximately 10.7 million internal tons. Volume growth ranges are in comparison with total volumes of 157.7 million tons reported for the full year 2017, which included 10.9 million internal tons and 0.9 million tons from the Company’s Forsyth, Georgia, quarry that was divested in April 2018.
ASP growth range is in comparison with ASP of $13.46 per ton reported for the full year 2017.  The 2% to 3% ASP growth shown above reflects the inclusion of legacy Bluegrass Materials pricing which is below the heritage corporate average.
 

Preliminary View of 2019

Management’s preliminary view of 2019 anticipates mid-single-digit growth in both aggregates pricing and shipments. Supported by third-party forecasts, Martin Marietta believes the current construction cycle will continue to expand at a steady pace in 2019 for each of its three primary construction end-use markets. Notably:

  • Infrastructure construction activity should benefit from the funding provided by the FAST Act as state DOTs and contractors continue to address labor constraints and the benefits of further regulatory reform emerge. Additionally, state and local initiatives that support infrastructure funding, including gas tax increases, bond programs and other ballot initiatives, continue to garner voter approval at historically attractive levels and will play an expanded role in public-sector activity. Third-party forecasts support increased infrastructure investment in 2019 and beyond, particularly for aggregates-intensive highways and streets.
     
  • Nonresidential construction activity should increase in both the commercial and heavy industrial sectors for the next several years across many of the Company’s key markets as supported by third-party forecasts. Continued federal regulatory approvals, supported by higher oil prices, should notably contribute to increased aggregates consumption from the next wave of energy-sector projects, particularly along the Gulf Coast. Construction activity for these projects is expected to begin in earnest in 2019 and beyond.
     
  • Residential construction should continue to grow. Management believes a shortage of single-family housing units exists, particularly for entry-level homes; a need the homebuilding industry is now beginning to address. Martin Marietta’s leading positions in southeastern and southwestern states offer superior opportunities for gains in single-family housing driven by a multitude of factors, such as affordable land, lower taxes and fewer regulatory barriers. Residential housing starts of 1.2 million units for the trailing twelve months ended September 2018 remain below the 50-year average of 1.5 million annual starts. Continued strength in residential construction supports future infrastructure and nonresidential activity.

Martin Marietta remains confident in its near- and long-term outlooks given the disciplined execution of its strategic plan and its attractive geographic footprint. Throughout the Company’s portfolio, underlying market fundamentals, including employment, population growth and state fiscal health, are robust and the Company’s markets show no signs of either a slowdown or being overbuilt. 

Non-GAAP Financial Information

This earnings release contains financial measures that have not been prepared in accordance with GAAP.  Reconciliations of non-GAAP financial measures to the closest GAAP measure are included in the accompanying appendix to this earnings release. 

Conference Call Information

The Company will discuss its third-quarter 2018 earnings results on a conference call and an online web simulcast today (November 6, 2018). The live broadcast of the Martin Marietta conference call will begin at 2:00 p.m. Eastern Time today. An online replay will be available approximately two hours following the conclusion of the live broadcast. A link to these events will be available at the Company’s website. Additionally, the Company has posted supplemental information related to its third-quarter performance on its website. For those investors without online web access, the conference call may also be accessed by calling (970) 315-0423, confirmation number 1547199.

About Martin Marietta

Martin Marietta, a member of the S&P 500 Index, is an American-based company and a leading supplier of building materials, including aggregates, cement, ready mixed concrete and asphalt. Through a network of operations spanning 27 states, Canada and The Bahamas, dedicated Martin Marietta teams supply the resources necessary for building the solid foundations on which our communities thrive. Martin Marietta’s Magnesia Specialties business provides a full range of magnesium oxide, magnesium hydroxide and dolomitic lime products. For more information, visit www.martinmarietta.com or www.magnesiaspecialties.com.

Investor Contact:  
Suzanne Osberg
Vice President, Investor Relations
(919) 783-4691
Suzanne.Osberg@martinmarietta.com

MLM-E.

If you are interested in Martin Marietta Materials, Inc. stock, management recommends that, at a minimum, you read the Company’s current annual report and Forms 10-K, 10-Q and 8-K reports to the Securities and Exchange Commission (SEC) over the past year.  The Company’s recent proxy statement for the annual meeting of shareholders also contains important information.  These and other materials that have been filed with the SEC are accessible through the Company’s website at www.martinmarietta.com and are also available at the SEC’s website at www.sec.gov.  You may also write or call the Company’s Corporate Secretary, who will provide copies of such reports.

Investors are cautioned that all statements in this press release that relate to the future involve risks and uncertainties, and are based on assumptions that the Company believes in good faith are reasonable but which may be materially different from actual results.  These statements, which are forward-looking statements under the Private Securities Litigation Reform Act of 1995, give the investor the Company’s expectations or forecasts of future events.  You can identify these statements by the fact that they do not relate only to historical or current facts.  They may use words such as “anticipate”, “expect”, “should”, “believe”, “will”, and other words of similar meaning in connection with future events or future operating or financial performance.  Any or all of our forward-looking statements here and in other publications may turn out to be wrong.

The Company’s outlook is subject to various risks and uncertainties, and is based on assumptions that the Company believes in good faith are reasonable but which may be materially different from actual results. Factors that the Company currently believes could cause actual results to differ materially from the forward-looking statements in this press release (including the outlook) include, but are not limited to: the performance of the United States economy; shipment declines resulting from economic events beyond the Company’s control; a widespread decline in aggregates pricing, including a decline in aggregates volume negatively affecting aggregates price; the history of both cement and ready mixed concrete being subject to significant changes in supply, demand and price fluctuations; the termination, capping and/or reduction or suspension of the federal and/or state gasoline tax(es) or other revenue related to infrastructure construction; the level and timing of federal, state or local transportation or infrastructure projects funding, most particularly in Texas, North Carolina, Iowa, Colorado, Georgia and Maryland; the United States Congress’ inability to reach agreement among themselves or with the current Administration on policy issues that impact the federal budget; the ability of states and/or other entities to finance approved projects either with tax revenues or alternative financing structures; levels of construction spending in the markets the Company serves; a reduction in defense spending, and the subsequent impact on construction activity on or near military bases; a decline in the commercial component of the nonresidential construction market, notably office and retail space; a decline in energy-related construction activity  resulting from a sustained period of low global oil prices or changes in oil production patterns in response to this decline, particularly in Texas; a slowdown in residential construction recovery; unfavorable weather conditions, particularly Atlantic Ocean and Gulf Coast hurricane activity, the late start to spring or the early onset of winter and the impact of a drought or excessive rainfall in the markets served by the Company, any of which can significantly affect production schedules, volumes and profitability; the volatility of fuel costs, particularly diesel fuel, and the impact on the cost, or the availability generally, of other consumables, namely steel, explosives, tires and conveyor belts, and with respect to the Company’s Magnesia Specialties business, natural gas; continued increases in the cost of other repair and supply parts; construction labor shortages and/or supply‐chain challenges; unexpected equipment failures, unscheduled maintenance, industrial accident or other prolonged and/or significant disruption to production facilities; increasing governmental regulation, including environmental laws; transportation availability or a sustained reduction in capital investment by the railroads, notably the availability of railcars, locomotive power and the condition of rail infrastructure to move trains to supply the Company’s Texas, Colorado, Florida, North Carolina and the Gulf Coast markets, including the movement of essential dolomitic lime for magnesia chemicals to the Company’s plant in Manistee, Michigan and its customers; increased transportation costs, including increases from higher or fluctuating passed-through energy costs or fuel surcharges, and other costs to comply with tightening regulations, as well as higher volumes of rail and water shipments; availability of trucks and licensed drivers for transport of the Company’s materials; availability and cost of construction equipment in the United States; weakening in the steel industry markets served by the Company’s dolomitic lime products;  a trade dispute with one or more nations impacting the U.S. economy, including the impact of tariffs on the steel industry; unplanned changes in costs or realignment of customers that introduce volatility to earnings, including that of the Magnesia Specialties business that is running at capacity; proper functioning of information technology and automated operating systems to manage or support operations; inflation and its effect on both production and interest costs; the concentration of customers in construction markets and the increased risk of potential losses on customer receivables; the impact of the level of demand in the Company’s end-use markets, production levels and management of production costs on the operating leverage and therefore profitability of the Company;  the possibility that the expected synergies from acquisitions (including the acquisition of Bluegrass) will not be realized or will not be realized within the expected time period, including achieving anticipated profitability to maintain compliance with the Company’s leverage ratio debt covenant; changes in tax laws, the interpretation of such laws and/or administrative practices that would increase the Company’s tax rate;  violation of the Company’s debt covenant if price and/or volumes return to previous levels of instability; continued downward pressure on the Company’s common stock price and its impact on goodwill impairment evaluations; reduction of the Company’s credit rating to non-investment grade resulting from strategic acquisitions; and other risk factors listed from time to time found in the Company’s filings with the SEC. 

You should consider these forward-looking statements in light of risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2017, our Current Report on Form 8-K filed on March 16, 2018 and other periodic filings made with the SEC.  All of our forward-looking statements should be considered in light of these factors.  In addition, other risks and uncertainties not presently known to us or that we consider immaterial could affect the accuracy of our forward-looking statements, or adversely affect or be material to the Company.  The Company assumes no obligation to update any such forward-looking statements.

 

 
 
 
MARTIN MARIETTA MATERIALS, INC.
Unaudited Statements of Earnings
(In thousands, except per share amounts)
                 
    Three Months Ended    Nine Months Ended 
    September 30,   September 30,
      2018       2017       2018       2017  
Products and services revenues   $   1,142,218     $   1,022,487     $   3,024,300     $   2,811,646  
Freight revenues       77,422         65,245         199,747         183,470  
Total revenues       1,219,640         1,087,732         3,224,047         2,995,116  
                 
Cost of revenues - products and services       828,110         730,459         2,282,159         2,097,272  
Cost of revenues - freight       78,546         65,595         202,595         185,006  
Total cost of revenues       906,656         796,054         2,484,754         2,282,278  
Gross Profit       312,984         291,678         739,293         712,838  
                 
Selling general & administrative expenses       68,441         57,219         209,632         195,127  
Acquisition-related expenses, net       89         1,314         12,925         3,319  
Other operating expenses and (income), net       3,792         6,181         (26,960 )       (2,575 )
Earnings from operations       240,662         226,964         543,696         516,967  
                 
Interest expense       35,468         23,141         103,526         68,037  
Other nonoperating income, net       (4,248 )       (479 )       (19,873 )       (6,434 )
Earnings before income tax expense       209,442         204,302         460,043         455,364  
Income tax expense       29,089         52,763         84,147         119,277  
Consolidated net earnings       180,353         151,539         375,896         336,087  
Less: Net earnings (loss) attributable to noncontrolling interests       132         (7 )       275         (72 )
Net Earnings Attributable to Martin Marietta Materials, Inc.   $   180,221     $   151,546     $   375,621     $   336,159  
                 
Net earnings per common share attributable to common shareholders:                
Basic    $   2.86     $   2.40     $   5.95     $   5.33  
Diluted   $   2.85     $   2.39     $   5.93     $   5.30  
                 
Dividends per common share   $   0.48     $   0.44     $   1.36     $   1.28  
                 
Average number of common shares outstanding:                
  Basic       62,932         62,896         62,970         62,940  
  Diluted       63,167         63,158         63,224         63,218  
                 

 

 
 
MARTIN MARIETTA MATERIALS, INC.
Unaudited Financial Highlights
(In thousands)
                 
    Three Months Ended    Nine Months Ended 
    September 30,   September 30,
      2018       2017       2018       2017  
Total revenues:                
Building Materials Business:                
Mid-America Group   $   377,005     $   308,472     $   906,377     $   788,390  
Southeast Group       125,547         94,843         318,749         277,474  
West Group       643,565         620,512         1,783,174         1,726,742  
Total Building Materials Business       1,146,117         1,023,827         3,008,300         2,792,606  
Magnesia Specialties       73,523         63,905         215,747         202,510  
Total   $   1,219,640     $   1,087,732     $   3,224,047     $   2,995,116  
                 
Gross profit (loss):                
Building Materials Business:                
Mid-America Group   $   131,331     $   117,957     $   270,461     $   242,778  
Southeast Group       30,783         18,371         56,933         51,623  
West Group       125,702         131,994         333,949         349,267  
Total Building Materials Business       287,816         268,322         661,343         643,668  
Magnesia Specialties       25,747         19,910         73,476         65,849  
Corporate       (579 )       3,446         4,474         3,321  
Total   $   312,984     $   291,678     $   739,293     $   712,838  
                 
Selling, general and administrative expenses:                
Building Materials Business:                
Mid-America Group   $   14,113     $   12,671     $   41,260     $   39,934  
Southeast Group       4,440         4,097         13,689         12,896  
West Group       26,600         24,716         79,892         75,665  
Total Building Materials Business       45,153         41,484         134,841         128,495  
Magnesia Specialties       2,404         2,329         7,512         7,146  
Corporate       20,884         13,406         67,279         59,486  
Total   $   68,441     $   57,219     $   209,632     $   195,127  
                 
Earnings (Loss) from operations:                
Building Materials Business:                
Mid-America Group   $   120,344     $   106,235     $   235,221     $   204,939  
Southeast Group       26,372         17,882         60,464         42,331  
West Group        92,090         96,522         249,885         270,246  
Total Building Materials Business       238,806         220,639         545,570         517,516  
Magnesia Specialties       23,301         17,590         65,867         58,589  
Corporate       (21,445 )       (11,265 )       (67,741 )       (59,138 )
Total   $   240,662     $   226,964     $   543,696     $   516,967  
                 

 

 
 
MARTIN MARIETTA MATERIALS, INC.
Unaudited Financial Highlights (Continued)
(In thousands)
                 
    Three Months Ended    Nine Months Ended 
    September 30,   September 30,
      2018       2017       2018       2017  
Total revenues:                
Building Materials business products and services:                
Aggregates   $   687,800     $   590,312     $   1,778,124     $   1,619,282  
Cement        98,223         88,470         300,554         280,961  
Ready Mixed Concrete       254,686         240,222         750,424         704,471  
Asphalt and paving       99,983         110,973         199,489         215,652  
Less:  Interproduct sales       (66,839 )       (67,379 )       (205,681 )       (198,638 )
Subtotal       1,073,853         962,598         2,822,910         2,621,728  
Freight       72,264         61,229         185,390         170,878  
Total Building Materials Business       1,146,117         1,023,827         3,008,300         2,792,606  
Magnesia Specialties business:                
Products and services       68,365         59,889         201,390         189,918  
Freight       5,158         4,016         14,357         12,592  
Total Magnesia Specialties Business       73,523         63,905         215,747         202,510  
Consolidated total revenues   $   1,219,640     $   1,087,732     $   3,224,047     $   2,995,116  
                 
Gross profit (loss):                
Building Materials business products and services:                
Aggregates   $   209,082     $   187,065     $   460,624     $   439,032  
Cement        32,543         27,459         97,582         87,608  
Ready Mixed Concrete       20,632         23,913         66,226         70,542  
Asphalt and paving       25,606         28,873         36,479         44,446  
Subtotal       287,863         267,310         660,911         641,628  
Freight       (47 )       1,012         432         2,040  
Total Building Materials Business       287,816         268,322         661,343         643,668  
Magnesia Specialties business:                
Products and services       26,823         21,272         76,756         69,425  
Freight       (1,076 )       (1,362 )       (3,280 )       (3,576 )
Total Magnesia Specialties Business       25,747         19,910         73,476         65,849  
Corporate       (579 )       3,446         4,474         3,321  
Consolidated gross profit    $   312,984     $   291,678     $   739,293     $   712,838  
                 

 

   
MARTIN MARIETTA MATERIALS, INC.  
Balance Sheet Data  
(In thousands)  
               
    September 30,   December 31,   September 30,  
      2018     2017     2017  
    (Unaudited)   (Audited)   (Unaudited)  
ASSETS              
Cash and cash equivalents   $   53,961   $   1,446,364   $   35,219  
Accounts receivable, net       644,835       487,240       582,532  
Inventories, net       651,295       600,591       576,429  
Other current assets       104,717       96,965       83,809  
Property, plant and equipment, net       5,103,395       3,592,813       3,521,577  
Intangible assets, net       2,908,410       2,666,639       2,664,646  
Other noncurrent assets       121,558       101,899       102,573  
Total assets   $   9,588,171   $   8,992,511   $   7,566,785  
               
               
LIABILITIES AND EQUITY              
Current maturities of long-term debt and short-term facilities   $   380,041   $   299,909   $   80,038  
Other current liabilities       392,645       394,307       388,465  
Long-term debt (excluding current maturities)       2,829,657       2,727,294       1,642,502  
Other noncurrent liabilities       1,043,500       888,524       1,121,798  
Total equity       4,942,328       4,682,477       4,333,982  
Total liabilities and equity   $   9,588,171   $   8,992,511   $   7,566,785  
               

 

   
   
MARTIN MARIETTA MATERIALS, INC.  
Unaudited Statements of Cash Flows  
(In thousands)  
  Nine Months Ended  
  September 30,  
    2018       2017    
Operating activities:        
Consolidated net earnings  $   375,896     $   336,087    
Adjustments to reconcile consolidated net earnings to net cash provided by operating activities:        
Depreciation, depletion and amortization     253,200         221,418    
Stock-based compensation expense     23,084         23,698    
Gain on divestitures and sales of assets     (35,167 )       (17,970 )  
Deferred income taxes     68,833         6,543    
Other items, net     (2,107 )       (9,894 )  
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:        
Accounts receivable, net     (132,176 )       (124,622 )  
Inventories, net     (8,015 )       (54,804 )  
Accounts payable     42,995         3,182    
Other assets and liabilities, net     (145,005 )       34,484    
Net cash provided by operating activities     441,538         418,122    
         
Investing activities:        
Additions to property, plant and equipment     (262,155 )       (308,745 )  
Acquisitions, net of cash acquired     (1,640,698 )       (7,200 )  
Proceeds from divestitures and sales of assets     63,460         33,138    
Investments in life insurance contracts, net     771         276    
Payment of railcar construction advances     (56,033 )       (42,954 )  
Reimbursement of railcar construction advances     56,033         40,930    
Net cash used for investing activities     (1,838,622 )       (284,555 )  
         
Financing activities:        
Borrowings of long-term debt     875,000         1,011,244    
Repayments of long-term debt     (695,039 )       (975,035 )  
Payments of deferred acquisition consideration     (6,707 )       -     
Payments on capital leases     (2,589 )       (2,708 )  
Debt issue costs     (3,194 )       (1,989 )  
Change in bank overdraft     -          1,047    
Contributions by noncontrolling interest to joint venture     -          211    
Repurchases of common stock     (60,377 )       (99,999 )  
Dividends paid     (86,190 )       (80,961 )  
Purchase of remaining interest in existing joint venture     (12,800 )       -     
Proceeds from exercise of stock options     6,993         10,017    
Shares withheld for employees' income tax obligations     (10,416 )       (10,213 )  
Net cash provided by (used for) financing activities     4,681         (148,386 )  
         
Net decrease in cash and cash equivalents     (1,392,403 )       (14,819 )  
Cash and cash equivalents, beginning of period     1,446,364         50,038    
Cash and cash equivalents, end of period $   53,961     $   35,219    
         

 

 
 
MARTIN MARIETTA MATERIALS, INC.
Unaudited Operational Highlights
               
  Three Months Ended    Nine Months Ended 
  September 30, 2018   September 30, 2018
  Volume   Pricing   Volume   Pricing
Volume/Pricing Variance (1)              
Heritage Operations:(2)              
Mid-America Group   5.4 %     2.8 %     1.5 %     4.5 %
Southeast Group   6.2 %     1.7 %     (0.7 %)     1.7 %
West Group   (0.6 %)     3.1 %     (0.9 %)     2.4 %
Total Heritage Aggregates Product Line    3.2 %     2.9 %     0.2 %     3.3 %
Total Aggregates Product Line  (3)   14.9 %     1.5 %     7.4 %     2.3 %
               
  Three Months Ended    Nine Months Ended 
  September 30,   September 30,
Shipments (tons in thousands)   2018       2017       2018       2017  
Heritage Operations:(2)              
Mid-America Group     22,533         21,371         55,453         54,624  
Southeast Group     5,682         5,349         15,465         15,579  
West Group     16,979         17,085         49,186         49,637  
Total Heritage Aggregates Product Line      45,194         43,805         120,104         119,840  
Acquisitions     5,130         -          8,558         -   
Total Aggregates Product Line  (3)     50,324         43,805         128,662         119,840  
               
(1)  Volume/pricing variances reflect the percentage increase (decrease) from the comparable period in the prior year.
(2)  Heritage aggregates operations exclude acquisitions that were not included in prior-year operations for a full year.
(3) Aggregates Product Line includes acquisitions from the date of acquisition and divestitures through the date of disposal.
               
  Three Months Ended    Nine Months Ended 
  September 30,   September 30,
    2018       2017       2018       2017  
Shipments (in thousands)              
Aggregates tons - external customers     47,442         40,787         120,509         111,617  
Internal aggregates tons used in other product lines     2,882         3,018         8,154         8,223  
Total aggregates tons     50,324         43,805         128,663         119,840  
               
Cement tons - external customers     587         523         1,767         1,749  
Internal cement tons used in other product lines     292         294         966         895  
Total cement tons     879         817         2,733         2,644  
               
Ready Mixed Concrete - cubic yards     2,232         2,160         6,799         6,442  
               
Asphalt tons - external customers     394         385         803         863  
Internal asphalt tons used in road paving business     709         829         1,420         1,615  
Total asphalt tons     1,103         1,214         2,223         2,478  
               
Average unit sales price by product line (including internal sales):              
Aggregates (per ton):              
Heritage $   13.79     $   13.40     $   13.87     $   13.43  
Acquisition $   11.86     $   -      $   11.95     $   -   
Total $   13.60     $   13.40     $   13.74     $   13.43  
Cement (per ton) $   110.63     $   107.11     $   108.92     $   105.26  
Ready Mixed Concrete (per cubic yard) $   112.14     $   109.22     $   108.36     $   107.34  
Asphalt (per ton) $   44.40     $   44.73     $   44.39     $   43.08  
               

 

 
 
MARTIN MARIETTA MATERIALS, INC.
Non-GAAP Financial Measures 
(Dollars in thousands)
               
The ratio of Consolidated Debt-to-Consolidated EBITDA, as defined, for the trailing-12 months is a covenant under the Company's revolving credit facility and accounts receivable securitization facility.  Under the terms of these agreements, as amended, the Company's ratio of Consolidated Debt-to-Consolidated EBITDA as defined, for the trailing-12 months cannot exceed 3.50 times as of September 30, 2018, with certain exceptions related to qualifying acquisitions, as defined.
             
The following presents the calculation of Consolidated Debt-to-Consolidated EBITDA, as defined by the Company's Credit Agreement, at September 30, 2018, for the trailing-12 months EBITDA. For supporting calculations, refer to the Company's website at www.martinmarietta.com.
             
      Twelve Month Period        
      October 1, 2017 to         
      September 30, 2018        
Earnings from continuing operations attributable to Martin Marietta Materials, Inc.     $   752,804          
Add back:              
Interest expense         126,976          
Depreciation, depletion and amortization expense         325,410          
Stock-based compensation expense         29,846          
Acquisition-related expenses, net         36,656          
Bluegrass EBITDA - Pre-Acquisition (October 1, 2017 to April 27, 2018)         43,417          
Noncash portion of restructuring expenses         5,245          
Deduct:              
Income tax benefit         (129,691 )        
Interest income         (7,149 )        
Consolidated EBITDA, as defined by the Company's Credit Agreement     $   1,183,514          
               
Consolidated Net Debt, as defined and including debt for which the Company is a co-borrower, at September 30, 2018   $   3,224,046          
               
Consolidated Debt-to-Consolidated EBITDA, as defined by the Company's Credit Agreement, at September 30, 2018, for the trailing-12 months EBITDA    2.72 times         
             
EBITDA is a widely accepted financial indicator of a company's ability to service and/or incur indebtedness.  EBITDA is not defined by generally accepted accounting principles and, as such, should not be construed as an alternative to net earnings or operating cash flow.  For further information on EBITDA, refer to the Company's website at www.martinmarietta.com.  EBITDA is as follows:
               
  Three Months Ended    Nine Months Ended 
  September 30,   September 30,
    2018       2017       2018       2017  
Consolidated Earnings Before Interest, Income Taxes, Depreciation, Depletion and Amortization (EBITDA) $   333,433     $   301,962     $   813,361     $   741,974  
               
A Reconciliation of Net Earnings Attributable to Martin Marietta to Consolidated EBITDA is as follows:
 
  Three Months Ended    Nine Months Ended 
  September 30,   September 30,
    2018       2017       2018       2017  
Net Earnings Attributable to Martin Marietta $   180,221     $   151,546     $   375,621     $   336,159  
Add back:              
Interest Expense     35,468         23,141         103,526         68,037  
  Income Tax Expense for Controlling Interests     29,051         52,744         84,070         119,247  
  Depreciation, Depletion and Amortization Expense     88,693         74,531         250,144         218,531  
Consolidated EBITDA $   333,433     $   301,962     $   813,361     $   741,974  
               
Aggregates shipments in the Southeast Group for January through April of 2018 and the nine months ended September 30, 2017 include the Forsyth, Georgia operation, which was divested in April 2018. 
               
The following table presents aggregates shipment data and volume variance excluding the Forsyth, Georgia operation from the periods of Martin Marietta's ownership to provide a more comparable analysis of aggregates volume variance (tons in 000s).
               
               
  Three Months Ended    Nine Months Ended 
  September 30,   September 30,
    2018       2017       2018       2017  
Southeast Group:              
Reported heritage aggregates shipments     5,682         5,349         15,465         15,579  
Less:  Aggregates shipments for the Forsyth, Georgia quarry during periods of Martin Marietta ownership     -          (272 )       (229 )       (680 )
Adjusted heritage aggregates shipments      5,682         5,077         15,236         14,899  
               
Heritage aggregates volume variance excluding shipments for the Forsyth, Georgia quarry   11.9 %         2.3 %    
               
Total Heritage Business:              
Reported heritage aggregates shipments     45,194         43,805         120,104         119,840  
Less:  Aggregates shipments for the Forsyth, Georgia quarry during periods of Martin Marietta ownership     -          (272 )       (229 )       (680 )
Adjusted heritage aggregates shipments      45,194         43,533         119,875         119,160  
               
Heritage aggregates volume variance excluding shipments for the Forsyth, Georgia quarry   3.8 %         0.6 %    
               

 

 
 
MARTIN MARIETTA MATERIALS, INC.
Non-GAAP Financial Measures (continued)
(Dollars and number of shares in thousands)
                           
Adjusted consolidated gross profit, adjusted consolidated earnings from operations and adjusted consolidated EBITDA for the three months ended September 30, 2018 and 2017, exclude the impact of acquisition-related expenses, net; the impact of selling acquired inventory after its markup to fair value as part of acquisition accounting; and the impact of restructuring charges.  Acquisition-related expenses, net, consist of acquisition and integration expenses and the nonrecurring gain on the required divestiture of a legacy Martin Marietta quarry in Georgia as part of the acquisition of Bluegrass Materials.  Adjusted consolidated gross profit, adjusted consolidated earnings from operations and adjusted EBITDA represent non-GAAP financial measures. Management presents these measures for investors and analysts to evaluate and forecast the Company's financial results, as acquisition-related expenses, net; the impact of selling acquired inventory after its markup to fair value as part of acquisition accounting; and restructuring charges are nonrecurring.
                           
The following reconciles consolidated gross profit in accordance with GAAP to adjusted consolidated gross profit for the three months ended September 30:
                           
                        2018       2017  
Consolidated gross profit in accordance with GAAP $   312,984     $   291,678  
Add back:      
Impact of selling acquired inventory after its markup to fair value as part of acquisition accounting     8,349         -   
Adjusted gross profit $   321,333     $   291,678  
                           
The following reconciles consolidated earnings from operations in accordance with GAAP to adjusted consolidated earnings from operations for the three months ended September 30:
                           
                        2018       2017  
Consolidated earnings from operations in accordance with GAAP $   240,662     $   226,964  
Add back:      
Acquisition-related expenses, net     89         1,314  
Impact of selling acquired inventory after its markup to fair value as part of acquisition accounting     8,349         -   
Restructuring charge     7,113         -   
Adjusted consolidated earnings from operations $   256,213     $   228,278  
                           
The following reconciles consolidated EBITDA to adjusted consolidated EBITDA for the three months ended September 30:
                        2018       2017  
Consolidated EBITDA $   333,433     $   301,962  
Add back:      
Acquisition-related expenses, net     89         1,314  
Impact of selling acquired inventory after its markup to fair value as part of acquisition accounting     8,349         -   
Restructuring charge     7,113         -   
Adjusted consolidated EBITDA $   348,984     $   303,276  
       
Adjusted gross margin for aggregates products excludes the impact of selling acquired inventory after its markup to fair value as part of acquisition accounting and is a non-GAAP measure.  Management presents this measure for investors and analysts to evaluate and forecast the Company's financial results, as the impact of selling acquired inventory after its markup to fair value as part of acquisition accounting is nonrecurring.
                           
The following reconciles gross margin for aggregates products to adjusted gross margin for aggregates products for the three months ended September 30, 2018:
                        2018       2017  
Gross profit for aggregates products $   209,082     $   187,065  
Total revenues for aggregates products $   687,800     $   590,312  
Gross margin for aggregates products in accordance with GAAP   30.4 %     31.7 %
                           
Gross profit for aggregates products in accordance with GAAP $   209,082      
Add back:      
Impact of selling acquired inventory after its markup to fair value as part of acquisition accounting $   8,349      
Adjusted gross profit for aggregates products  $   217,431      
Total revenues for aggregates products $   687,800      
Adjusted gross margin for aggregates products   31.6 %    
                           

 

   
   
MARTIN MARIETTA MATERIALS, INC.  
Non-GAAP Financial Measures (continued)  
(Dollars in thousands)  
                         
The following are reconciliations of the GAAP measure for the midpoints of the 2018 guidance to the midpoints of the adjusted metrics included in the 2018 guidance:  
 
                         
2018 Guidance - Consolidated gross profit:  
                         
Consolidated gross profit in accordance with GAAP $   980,000  
Add back:    
Impact of selling acquired inventory after its markup to fair value as part of acquisition accounting     20,000  
Adjusted consolidated gross profit       $   1,000,000  
                         
2018 Guidance - Aggregates product gross profit:  
                         
Aggregates product gross profit in accordance with GAAP $   630,000  
Add back:    
Impact of selling acquired inventory after its markup to fair value as part of acquisition accounting     20,000  
Adjusted aggregates product gross profit       $   650,000  
                         
2018 Guidance - Adjusted EBITDA  
                         
Net Earnings Attributable to Martin Marietta  $   482,500  
Add back:    
 Interest Expense     137,500  
  Taxes on Income     120,500  
  Depreciation, Depletion and Amortization Expense     340,000  
EBITDA $   1,080,500  
Add back:    
Bluegrass acquisition-related expenses, net     15,000  
Impact of selling acquired inventory after its markup to fair value as part of acquisition accounting     20,000  
Restructuring charge     7,000  
Adjusted EBITDA $   1,122,500  
 

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Source: Martin Marietta Materials, Inc.