Martin Marietta Materials, Inc. — Fiscal 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. The filing is an annual Form 10-K and does not provide a separate fourth-quarter income statement or cash-flow presentation.
Business Context
Martin Marietta is a natural-resource-based building-materials company operating approximately 360 quarries, mines and distribution yards across 28 states, Canada and The Bahamas. Its principal businesses are aggregates, cement, ready mixed concrete, asphalt and paving services, collectively reported as Building Materials, plus Magnesia Specialties, which produces magnesia-based chemicals and dolomitic lime.
- Building Materials represented the substantial majority of revenue and profit; aggregates generated 68% of consolidated gross profit.
- The company operates through the East Group, West Group and Magnesia Specialties reportable segments.
- Approximately 36% of 2023 aggregates shipments served public infrastructure, 35% nonresidential construction, 24% residential construction and 5% ChemRock/Rail markets.
Key Financial Metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total revenue | $6,777.2 million | $6,160.7 million | 10.0% increase |
| Gross profit | $2,022.6 million | $1,423.3 million | 42.1% increase |
| Gross margin | 29.8% | 23.1% | 670 basis-point increase |
| Earnings from operations | $1,596.0 million | $1,206.7 million | 32.3% increase |
| Net earnings from continuing operations attributable to Martin Marietta | $1,199.8 million | $856.3 million | 40.1% increase |
| Diluted EPS from continuing operations | $19.32 | $13.70 | 41.0% increase |
| Adjusted EBITDA | $2,127.7 million | $1,600.3 million | 33.0% increase |
| Operating cash flow | $1,528.4 million | $991.2 million | 54.2% increase |
Consolidated net earnings attributable to Martin Marietta, including discontinued operations, were $1,168.9 million, compared with $866.8 million in 2022. Discontinued operations produced a $30.9 million loss in 2023, primarily reflecting divestiture-related results and a $26.3 million pretax loss on the Tehachapi cement-plant sale.
Revenue and Segment Performance
| Business | 2023 Revenue | 2023 Gross Profit | Key change |
|---|---|---|---|
| Aggregates | $4,301.6 million | $1,378.1 million; 32.0% margin | Shipments down 4.3%; pricing up 18.9% |
| Cement | $725.5 million | $333.6 million; 46.0% margin | Shipments down 3.4%; pricing up 22.0% |
| Ready mixed concrete | $1,009.3 million | $102.0 million; 10.1% margin | Volumes down 12.1%, partly due to prior divestitures; pricing up 20.4% |
| Asphalt and paving | $887.1 million | $109.0 million; 12.3% margin | Shipments up 3.5%; pricing up 6.7% |
| Magnesia Specialties | $315.4 million | $97.1 million; 30.8% margin | Revenue up 3.8%; gross profit up 6.9% |
Management attributed the improved profitability primarily to price increases, lower diesel and energy costs, and operational execution, which more than offset lower shipments, higher repairs and maintenance costs, and cement maintenance outages. Cement operations incurred $38.4 million of outage costs in 2023, while Magnesia Specialties incurred $9.9 million.
Cash Flow, Capital Structure and Liquidity
- Capital expenditures were $650.3 million, compared with $481.8 million in 2022.
- Cash provided by investing activities was $458.7 million, including $700.0 million from the release of restricted investments used to repay discharged debt.
- Cash used in financing activities was $1,063.6 million, including $700.0 million of debt repayment, $174.0 million of dividends and $150.0 million of share repurchases.
- Total debt was $4.35 billion at December 31, 2023, including $399.6 million maturing in 2024. Debt declined from $5.04 billion at year-end 2022 after repayment of the discharged 0.650% Senior Notes.
- Cash and cash equivalents were $1.27 billion; unrestricted cash and short-term investments were also reported at approximately $1.27 billion.
- The company had no borrowings under its $800.0 million revolving facility or $400.0 million trade receivable securitization facility. Reported available borrowing capacity was $1.20 billion, and the company was in compliance with its debt covenants.
- Total equity was $8.04 billion, and the company repurchased approximately 0.4 million shares during 2023. The remaining repurchase authorization was 12.7 million shares.
Material Changes Versus 2022
- Revenue, gross profit, operating earnings, continuing-operations net earnings, diluted EPS, Adjusted EBITDA and operating cash flow all reached record levels, despite lower product volumes.
- The company’s value-over-volume strategy resulted in lower aggregates shipments but materially higher selling prices and margins.
- Aggregates gross margin rose to 32.0% from 25.4%; cement gross margin rose to 46.0% from 32.7%.
- Other operating income declined to $28.4 million from $189.2 million because 2022 included a $151.9 million pretax gain on the divestiture of Colorado and Central Texas ready mixed concrete operations.
- Interest expense decreased modestly to $165.3 million from $169.0 million, while interest income increased substantially to $46.7 million from $13.6 million.
- The effective income tax rate declined to 19.6% from 21.5%, primarily due to the effect of the 2022 ready mixed concrete divestiture.
- Long-term debt declined by approximately $695 million, and unrestricted liquidity increased materially from year-end 2022.
Outlook, Strategic Actions and Unusual Items
- Management expects public infrastructure spending to benefit from the Infrastructure Investment and Jobs Act, state and local infrastructure initiatives, and federal investment associated with the Inflation Reduction Act and CHIPS Act.
- Management expects 2024 nonresidential demand to moderate, while single-family residential construction may recover as interest-rate and affordability pressures recede.
- The company completed the $315.0 million sale of its Tehachapi, California cement plant and, on February 9, 2024, completed the $2.1 billion sale of its South Texas cement business and related ready mixed concrete operations to CRH Americas Materials.
- On January 16, 2024, the company acquired Albert Frei & Sons, an aggregates producer in Colorado.
- On February 11, 2024, the company agreed to acquire 20 aggregates operations from Blue Water Industries in the Southeast for $2.05 billion in cash. Closing is expected during 2024, subject to regulatory approvals and customary conditions.
- The Midlothian, Texas, cement finishing-capacity expansion is expected to be completed in mid-2024 and add approximately 0.5 million tons of annual capacity.
- Management expects the portfolio divestitures to improve the product mix and provide balance-sheet flexibility for aggregates acquisitions.
Principal Risks and Contingencies
- Construction cyclicality, elevated interest rates, residential weakness, commercial lending conditions and changes in public infrastructure funding may reduce demand.
- Weather, hurricanes, flooding, drought, wildfire, extreme temperatures and other climate-related events can disrupt production, transportation and construction activity.
- Energy, fuel, raw-material and transportation costs remain significant risks. A hypothetical 10% change in 2024 energy prices would change annual energy expense by approximately $40.5 million, assuming constant volumes.
- Aggregates growth depends on obtaining economically mineable reserves, zoning and permits; environmental restrictions may make quarry expansion more difficult.
- Cement faces import pressure, capacity constraints, commodity-price volatility and substantial energy and maintenance requirements.
- Environmental, climate-change, reclamation, silica-exposure, permitting and litigation risks could increase costs or restrict operations. Direct environmental compliance costs were $45.4 million in 2023.
- Rail, shipping and trucking availability affect product distribution and fuel deliveries, including the Magnesia Specialties supply chain.
- The company had $400.3 million of asset-retirement obligations, $395.2 million of contractual purchase commitments, $69.1 million of non-lease freight commitments and $148.8 million of royalty commitments.
- At December 31, 2023, the company was contingently liable for $32.2 million of letters of credit and $698.3 million of surety bonds. Management believes material litigation and environmental outcomes are unlikely, but cannot assure that an adverse outcome would not be material.
- Management reported no material cybersecurity incident during 2023 and concluded that disclosure controls and internal control over financial reporting were effective. Cybersecurity, data privacy and third-party technology risks remain material exposures.
Facts Investors Should Verify
- Whether pricing gains can continue to offset lower or moderating shipment volumes, particularly in aggregates and cement.
- The timing, funding, leverage impact and regulatory approval of the $2.05 billion BWI Southeast acquisition.
- Use of the $2.1 billion South Texas divestiture proceeds and the resulting change in revenue, margins, debt and geographic exposure.
- Repayment or refinancing of the $399.6 million of debt maturing in 2024.
- Execution and expected returns from the Midlothian cement expansion and other capital investments.
- Actual infrastructure, nonresidential and residential construction demand relative to management’s expectations.
- Exposure to energy prices, weather disruptions, transportation constraints, environmental requirements and potential changes in climate regulation.
- Reconciliation of non-GAAP Adjusted EBITDA and pricing measures to GAAP results when comparing Martin Marietta with peers.