Martin Marietta Materials, Inc. — 2021 Q2 Form 10-Q Summary
Business context and reporting period
Martin Marietta is a natural resource-based building materials company supplying aggregates, cement, ready mixed concrete, asphalt and paving products, and magnesia-based products. Operations include approximately 310 quarries, mines and distribution yards across 26 states, Canada and The Bahamas. The report covers the three and six months ended June 30, 2021, compared with the corresponding 2020 periods. Results are seasonal and materially affected by construction activity and weather.
Key financial metrics
| Metric | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 |
|---|---|---|---|---|
| Total revenues | $1,377.9 million | $1,270.6 million | $2,360.3 million | $2,228.9 million |
| Gross profit | $385.1 million | $380.5 million | $559.8 million | $522.9 million |
| Earnings from operations | $307.5 million | $306.4 million | $406.8 million | $364.2 million |
| Net earnings attributable to Martin Marietta | $225.8 million | $217.6 million | $291.1 million | $243.5 million |
| Diluted earnings per share | $3.61 | $3.49 | $4.65 | $3.90 |
| Adjusted EBITDA | $439.2 million | $407.0 million | $644.8 million | $556.0 million |
| Cash provided by operating activities | Not separately provided | Not separately provided | $441.2 million | $373.2 million |
Second-quarter gross margin was approximately 27.9%, versus 29.9% in the prior-year quarter, while operating margin was approximately 22.3%, versus 24.1%. Six-month gross margin improved to approximately 23.7% from 23.5%, and operating margin increased to approximately 17.2% from 16.3%.
- At June 30, 2021, cash and cash equivalents were $53.1 million and restricted cash was $17.2 million, compared with cash and restricted cash of $304.4 million at December 31, 2020.
- Total debt was $2.87 billion, including $240.0 million outstanding under the Trade Receivable Facility. Long-term debt was $2.63 billion after current maturities.
- The $700 million revolving facility had no borrowings and $2.6 million of letters of credit outstanding. Unused borrowing capacity under the revolving and trade receivable facilities was $857.4 million, subject to covenant compliance.
- The company’s trailing-twelve-month net debt-to-consolidated EBITDA ratio, as defined by its revolving credit agreement, was 1.95x versus a covenant limit of 3.50x, and the company was in compliance.
- Capital expenditures were $213.0 million and acquisitions used $653.2 million during the first six months. Dividends paid were $71.8 million.
- Total assets increased to $11.22 billion from $10.58 billion at year-end 2020, primarily reflecting the Tiller acquisition and finance lease right-of-use assets.
Material changes versus the prior comparable period
- Second-quarter revenue increased 8.4%, while net earnings attributable to Martin Marietta increased 3.8% and diluted EPS increased 3.4%.
- Six-month revenue increased 5.9%, net earnings increased 19.6%, diluted EPS increased 19.2%, and Adjusted EBITDA increased 16.0%.
- The East Group benefited from stronger construction activity and the Tiller operations; second-quarter East Group revenue increased to $635.3 million from $534.5 million and operating earnings increased to $197.8 million from $169.9 million.
- The West Group experienced weather-related volume pressure. Second-quarter revenue declined to $666.8 million from $682.5 million and operating earnings declined to $101.8 million from $133.2 million.
- Second-quarter aggregates shipments increased 3.3% and pricing increased 2.9%. Aggregates product margin declined 150 basis points because of higher diesel costs and the sale of acquired inventory at a fair-value markup.
- Cement pricing increased 6.8%, but shipments declined 1.9%; cement margin declined because of planned plant outages and higher energy and raw-material costs. Ready mixed concrete shipments increased 8.2%, while margin declined because of higher raw-material and diesel costs.
- Magnesia Specialties product revenue increased 43.2% in the second quarter, with product gross margin improving to 39.9% from 37.3%, reflecting recovery from COVID-19-related weakness in the prior year.
- Other operating income included a $12.3 million gain on the sale of the former corporate headquarters. Six-month 2021 results also included gains on several property sales. Acquisition-related expenses were $9.3 million in the quarter and $10.6 million year to date.
Guidance, outlook, risks and unusual items
- Management did not provide a specific numerical earnings or revenue outlook in the filing. Management stated that cash, projected operating cash flow and financing availability are expected to support operating needs, debt service, capital expenditures, dividends, share repurchases and potential acquisitions for the foreseeable future.
- On April 30, 2021, the company completed the acquisition of Tiller Corporation for aggregates and hot-mix asphalt operations in the Minneapolis/St. Paul region. Preliminary purchase accounting remained subject to further measurement-period adjustments.
- The company agreed to acquire Lehigh West Region for $2.3 billion in cash, with closing expected in the second half of 2021 subject to customary conditions. The transaction is intended to be financed substantially with debt.
- After quarter-end, on July 2, 2021, the company issued $2.5 billion of senior notes: $700 million due 2023, $900 million due 2031 and $900 million due 2051. The longer-dated notes are intended to fund the Lehigh West Region acquisition. If the acquisition is not completed or the agreement is terminated before specified dates, the 2031 and 2051 notes are subject to special mandatory redemption at 101% of principal plus accrued interest.
- The $400 million Trade Receivable Facility had $240 million outstanding and expires September 22, 2021. Management intended to renew it. The company also had $27.6 million of deferred employer Social Security taxes, payable half on December 31, 2021 and half on December 31, 2022.
- Key operating risks include COVID-19 effects, construction and infrastructure spending, project timing, severe weather, fuel and energy inflation, labor and supply-chain constraints, equipment availability, transportation limitations, cement and steel-market conditions, interest rates, environmental regulation, acquisition integration and leverage covenant compliance.
- A hypothetical 100-basis-point increase in rates on the $240 million of variable-rate borrowings would increase annual interest expense by approximately $2.4 million. Management estimated that a 19% energy-price change would affect full-year 2021 energy expense by approximately $44 million, assuming constant volumes.
- The company reported that pending legal and administrative proceedings are not expected to result in a material loss based on currently available information. Disclosure controls and procedures were effective as of June 30, 2021.
Most important facts for investors to verify
- Completion, financing and integration of the $2.3 billion Lehigh West Region acquisition and the resulting leverage and interest burden.
- Renewal or replacement of the Trade Receivable Facility before its September 22, 2021 expiration.
- Whether pricing gains can offset diesel, energy, labor, raw-material and transportation cost inflation, particularly in aggregates, cement and ready mixed concrete.
- The effect of weather-related delays and construction-market demand on West Group volumes and infrastructure shipments.
- Future cash conversion after elevated acquisition spending and capital expenditures, including the decline in unrestricted cash during the first half.
- Compliance with debt covenants and the potential impact of interest-rate increases, credit-rating changes or a failure to realize acquisition synergies.