Martin Marietta Materials, Inc. — 2021 Q1 Form 10-Q Summary
Business Context and Reporting Period
Unaudited results for the quarter ended March 31, 2021, compared with the quarter ended March 31, 2020. Martin Marietta supplies aggregates through approximately 290 quarries, mines and distribution yards across 26 states, Canada and The Bahamas, and also produces cement, ready mixed concrete, asphalt and paving products, and magnesia-based products.
The Building Materials business comprises the East Group and West Group. Magnesia Specialties is a separate reportable segment. Results are seasonal and significantly affected by weather and construction activity.
Financial and Operating Metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenues | $982.4 million | $958.2 million | 2.5% increase |
| Gross profit | $174.7 million | $142.4 million | 22.7% increase |
| Gross margin | 17.8% | 14.9% | Up 290 basis points |
| Earnings from operations | $99.3 million | $57.8 million | 71.8% increase |
| Operating margin | 10.1% | 6.0% | Up 410 basis points |
| Net earnings attributable to Martin Marietta | $65.3 million | $25.9 million | 152.1% increase |
| Diluted earnings per share | $1.04 | $0.41 | 153.7% increase |
| Adjusted EBITDA | $204.4 million | $149.0 million | 37.2% increase |
| Cash provided by operating activities | $191.9 million | $106.7 million | 79.9% increase |
| Capital expenditures | $110.3 million | $104.1 million | 5.9% increase |
Cash and cash equivalents were $313.9 million at March 31, 2021, compared with $207.3 million at December 31, 2020. Including restricted cash, total cash, cash equivalents and restricted cash was $354.8 million. Total assets were $10.66 billion and total equity was $5.93 billion.
Long-term debt was $2.63 billion, with no current maturities reported. The $700 million revolving facility and $400 million trade receivable securitization facility had no borrowings outstanding. Available borrowing capacity under these facilities was $1.10 billion, subject to covenant compliance. The company’s trailing-twelve-month consolidated net debt-to-EBITDA ratio was 1.74x versus a 3.50x covenant limit.
The company declared dividends of $0.57 per share and paid $36.1 million of dividends during the quarter. No common shares were repurchased; 13.5 million shares remained available under the repurchase authorization.
Material Changes Versus the Prior Comparable Period
- Building Materials products and services revenue increased to $856.6 million from $831.1 million. Magnesia Specialties product revenue increased 8.9% to $65.3 million.
- Building Materials operating earnings increased to $93.6 million from $57.5 million. East Group operating earnings increased to $61.7 million from $34.8 million, while West Group operating earnings increased to $31.9 million from $22.7 million.
- Aggregates gross profit increased to $121.8 million from $93.4 million, driven by $18.9 million of pricing benefit and $14.1 million of operational performance, partially offset by a $4.6 million volume decline.
- Aggregates shipments declined 3.0%, while pricing increased 3.4%, or 2.5% on a mix-adjusted basis. Ready mixed concrete volume increased 26.5%; cement shipments were essentially flat; asphalt shipments declined 36.2%.
- Gross margin improved primarily from pricing, lower contract-service and internal-freight costs, and improved ready mixed concrete performance. Cement margin declined because of costs and inefficiencies related to the February winter storm.
- Other operating income was $5.6 million versus a $5.6 million expense in the prior year, reflecting higher gains on asset sales and lower credit losses. Other nonoperating income was $9.5 million versus a $2.0 million expense, including lower pension expense and the absence of the prior-year railroad maintenance charge.
- The effective tax rate increased to 19.5% from 0.6%; the 2020 rate benefited from a $6.9 million discrete tax benefit related to third-party railroad track maintenance financing.
Guidance, Outlook, Risks and Unusual Items
Management did not provide a specific full-year revenue or earnings guidance figure in the filing. Management stated that cash, projected operating cash flow and financing availability are expected to support operations, debt service, capital expenditures, acquisitions, potential share repurchases and dividends for the foreseeable future.
On April 30, 2021, after quarter-end, the company completed its acquisition of Tiller Corporation, an aggregates and hot mix asphalt supplier in the Minneapolis/St. Paul region. The acquisition was financed with available cash and borrowings under credit facilities; purchase price and expected financial contribution were not provided in the filing.
Restricted cash of $40.9 million was designated for like-kind exchange replacement assets and was available for that purpose until June 15, 2021. The company also deferred $27.6 million of employer Social Security taxes under the CARES Act, with half due December 31, 2021 and the remainder due December 31, 2022.
Key risks include COVID-19 effects, construction and infrastructure spending, adverse weather, energy and input-cost volatility, labor and transportation availability, cement pricing and supply-demand conditions, interest rates, environmental regulation, customer credit risk, acquisition integration, leverage-covenant compliance and potential changes in tax or infrastructure funding policies. Management reported that pending legal and administrative proceedings were not expected to result in a material loss based on currently available information.
Energy costs declined approximately 4% year over year. Management estimated that a hypothetical 4% change in energy expense would affect full-year 2021 energy expense by approximately $9 million, assuming constant volumes. A hypothetical 10% change in cement selling prices would affect cement revenue by approximately $45.3 million, while a 10% change in cement costs would affect ready mixed concrete cost of revenues by approximately $25.5 million, assuming constant volumes.
Important Facts for Investors to Verify
- Review the impact of the Tiller acquisition, including purchase accounting, financing, goodwill and expected synergies, in subsequent filings.
- Verify the sustainability of first-quarter pricing gains and margin expansion as weather normalizes and input costs potentially rise.
- Monitor infrastructure, residential, nonresidential and energy-related demand, particularly in Texas, Colorado and the Midwest.
- Track the $400 million trade receivable facility’s September 22, 2021 expiration and the $700 million revolving facility’s December 5, 2024 maturity.
- Confirm compliance with the 3.50x leverage covenant after the Tiller acquisition and related borrowings.
- Assess the liquidity impact of restricted cash usage, deferred payroll taxes, capital spending, dividends and future acquisitions.
- Review subsequent disclosures regarding COVID-19 operational restrictions, weather-related disruptions, fuel and raw-material costs, and legal or environmental contingencies.