Martin Marietta Materials, Inc. — Q2 2020 Form 10-Q Summary
Business context and reporting period
Unaudited results cover the three and six months ended June 30, 2020, compared with the respective 2019 periods. Martin Marietta supplies aggregates, cement, ready mixed concrete, asphalt and paving products through approximately 300 locations in 27 states, Canada and The Bahamas. Its reportable segments were Mid-America, Southeast, West and Magnesia Specialties. Operations were generally treated as essential during the COVID-19 pandemic.
Financial performance and key metrics
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenues | $1,270.6 million | $1,279.5 million | $2,228.9 million | $2,218.4 million |
| Gross profit | $380.5 million | $356.9 million | $522.9 million | $499.8 million |
| Gross margin | 29.9% | 27.9% | 23.5% | 22.5% |
| Earnings from operations | $306.4 million | $285.9 million | $364.2 million | $355.1 million |
| Operating margin | 24.1% | 22.3% | 16.3% | 16.0% |
| Net earnings attributable to Martin Marietta | $217.6 million | $189.5 million | $243.5 million | $232.3 million |
| Diluted EPS | $3.49 | $3.01 | $3.90 | $3.69 |
| Adjusted EBITDA | $407.0 million | $378.5 million | $556.0 million | $536.7 million |
| Cash flow from operations | Not separately provided | Not separately provided | $373.2 million | $333.7 million |
Second-quarter revenue declined 0.7%, while gross profit increased 6.6%, operating earnings increased 7.2%, net earnings increased 14.8%, diluted EPS increased 15.9%, and Adjusted EBITDA increased 7.5%. Six-month revenue increased 0.5%, gross profit increased 4.6%, operating earnings increased 2.6%, net earnings increased 4.8%, diluted EPS increased 5.7%, and Adjusted EBITDA increased 3.6%.
- Building Materials products and services revenue increased to $1,140.6 million from $1,125.7 million in Q2 and to $1,971.7 million from $1,934.9 million year to date.
- Magnesia Specialties products revenue fell to $48.9 million from $70.4 million in Q2 and to $108.8 million from $139.5 million year to date, primarily because COVID-19 reduced steel and chemicals demand.
- Q2 aggregates shipments decreased 3.7%, but pricing increased 3.3%; aggregates product gross margin increased to 35.5% from 33.2%.
- Q2 ready mixed concrete shipments were broadly flat as reported and increased 8.7% excluding divested ArkLaTex operations; asphalt volume increased 34.6%.
- Q2 included $3.4 million of COVID-19 cleaning and sanitization expenses; year-to-date COVID-19 expenses were $3.5 million.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $70.1 million at June 30, 2020, compared with $21.0 million at December 31, 2019.
- Total debt was $2.75 billion, compared with $2.77 billion at year-end; long-term debt was $2.62 billion. The carrying value and estimated fair value of long-term debt were $2.75 billion and $3.05 billion, respectively.
- The company issued $500 million of 2.5% senior notes due 2030 and used proceeds partly to repay $300 million of floating-rate notes due in May 2020.
- The $700 million revolving facility had no borrowings outstanding; the $400 million trade receivable facility had $130 million outstanding and expires September 23, 2020. Unused borrowing capacity under both facilities was $967.7 million, subject to covenant compliance.
- Trailing-twelve-month debt-to-consolidated EBITDA under the revolving facility was 2.11x versus a 3.50x covenant limit. The company was in compliance at June 30, 2020.
- Capital expenditures were $175.7 million year to date. The company paid $69.4 million of dividends and repurchased $50.0 million of stock; repurchases were temporarily suspended in March 2020.
- Management stated that cash, operating cash flow and financing resources should be sufficient for foreseeable operating needs, debt service, capital expenditures, dividends and potential acquisitions.
Material changes, outlook and risks
- Weather materially affected Mid-America shipments, while infrastructure activity remained relatively resilient in Texas, Colorado and Florida. Low oil prices reduced energy-related and specialty cement demand.
- Pricing, production efficiencies and lower fuel costs supported Building Materials margins. Magnesia Specialties experienced significant volume and earnings pressure from COVID-19-related steel and chemicals weakness.
- The filing does not provide formal quantitative full-year earnings or revenue guidance. Management cautioned that quarterly results are seasonal and not indicative of full-year performance, particularly because of weather and COVID-19 uncertainty.
- Key risks include further COVID-19 outbreaks or operating restrictions, project delays or cancellations, reduced infrastructure funding and fuel-tax revenues, construction and energy-market weakness, adverse weather, fuel and other input-cost volatility, labor and transportation constraints, environmental regulation, equipment disruptions, customer credit losses and debt-covenant or credit-rating pressure.
- The company estimated approximately $25 million of deferred employer Social Security taxes under the CARES Act, with repayment scheduled in 2021 and 2022. It had not used the employee retention credit or the CARES Act credit facility.
- Effective July 1, 2020, management consolidated operating divisions into four divisions; segment reporting will be revised beginning with the quarter ended September 30, 2020.
- In July 2020, the company agreed to sell investment land for gross proceeds of $97 million.
- Management considered currently pending legal and administrative proceedings unlikely to result in a material loss, although the company had $31.8 million of contingent letters of credit at June 30, 2020.
Investor verification checklist
- Verify the extension or refinancing of the trade receivable facility before its September 23, 2020 expiration.
- Monitor COVID-19 effects on infrastructure, nonresidential, residential, energy, steel and chemicals demand, including any changes to essential-operation status.
- Reconcile reported volume, pricing and margin trends, especially aggregates pricing and the Magnesia Specialties decline.
- Track leverage covenant headroom, debt maturities, interest-rate exposure and available liquidity.
- Assess the effect of weather, fuel prices, transportation availability and public-project funding on seasonal cash flow and profitability.
- Review the subsequent four-division organizational structure and related segment reclassifications in later filings.