Martin Marietta Materials, Inc. — Form 10-Q Summary
Reporting period: Three months ended March 31, 2011; filed May 3, 2011. The company operates Aggregates businesses in the Mideast, Southeast, and West regions and a Specialty Products segment. The interim results are seasonal and are not indicative of full-year performance.
Financial Performance and Position
| Metric | Q1 2011 | Q1 2010 | Change |
|---|---|---|---|
| Net sales | $306.2 million | $295.6 million | +3.6% |
| Total revenues | $356.5 million | $340.9 million | +4.6% |
| Gross profit | $21.1 million | $19.6 million | +$1.5 million |
| Gross margin on net sales | 6.9% | 6.6% | +30 basis points |
| Loss from operations | $(6.1) million | $(12.9) million | Improved $6.7 million |
| Operating margin on net sales | (2.0%) | (4.4%) | +240 basis points |
| Net loss attributable to Martin Marietta | $(17.4) million | $(24.2) million | Improved $6.8 million |
| Diluted loss per share | $(0.39) | $(0.54) | Improved $0.15 |
| Operating cash flow | $21.3 million | $27.1 million | Down $5.8 million |
| Capital expenditures | $30.7 million | $25.0 million | Up $5.7 million |
Cash and cash equivalents were $176.8 million at March 31, 2011, versus $70.3 million at December 31, 2010 and $221.0 million at March 31, 2010. Total debt was $1.169 billion at March 31, 2011, compared with $1.031 billion at December 31, 2010 and $1.249 billion at March 31, 2010. Total equity was $1.435 billion.
The company generated $21.3 million of operating cash flow, used $28.5 million in investing activities, and generated $113.7 million in financing activities. Financing included $300.0 million of long-term borrowings, $162.2 million of repayments, and $18.4 million of dividends paid. The quarterly dividend was $0.40 per common share.
At March 31, 2011, the company reported $348 million of unused capacity under its revolving facility and $100 million of available borrowings under its accounts receivable facility, subject to covenant compliance. The trailing-twelve-month debt-to-defined EBITDA ratio was 2.73x versus a maximum covenant ratio of 3.5x.
Business and Segment Results
- Aggregates: Net sales increased to $257.1 million from $253.8 million, while operating loss improved to $16.5 million from $19.3 million. Heritage aggregates volume declined 1.2%, while pricing increased 0.4%.
- Specialty Products: Net sales reached a record $49.1 million, up 18%. Operating earnings reached a record $15.1 million, up 35%, driven primarily by magnesia-based chemicals demand and cost controls.
- Regional performance: Mideast operating earnings improved to $5.7 million from $2.1 million. Southeast operating loss widened to $9.8 million from $9.1 million, and West operating loss was $12.5 million versus $12.3 million.
Material Changes Versus the Prior Comparable Period
- Revenue and gross profit increased, and operating and net losses narrowed substantially.
- SG&A expense decreased $4.3 million, or 190 basis points as a percentage of net sales, primarily from lower personnel and pension costs.
- Higher diesel and energy costs negatively affected earnings by approximately $0.05 per diluted share. Direct production costs increased 7%, including a 14% increase in noncontrollable energy costs.
- Interest expense increased to $18.2 million from $17.6 million.
- The effective tax rate increased to approximately 27% from 17% in the prior-year quarter; management attributed the 2010 comparison partly to a $2.8 million charge related to the Affordable Care Act.
- On March 31, 2011, the company entered into a $250 million term loan and a $350 million four-year revolving facility. On April 1, 2011, it borrowed $100 million under its accounts receivable facility and repaid $242.1 million of 6.875% Notes that matured that day. Debt outstanding after the repayment was $1.026 billion.
Guidance, Outlook, Risks, and Unusual Items
- Management expects 2011 aggregates volume to be flat to up 3% and aggregates pricing to range from flat to up 2%.
- Management expects 2011 nonresidential shipments to increase in the mid-single-digit range, with infrastructure activity flat to slightly down and continued improvement in multifamily residential construction.
- Specialty Products is expected to generate $50 million to $52 million of pretax earnings in 2011.
- Expected 2011 interest expense is approximately $60 million, the effective tax rate is approximately 26%, and capital expenditures are forecast at approximately $175 million. A $53 million dolomitic lime kiln project is expected to be completed by the end of 2012.
- Key risks include U.S. economic conditions, construction activity, federal and state infrastructure funding, fuel and energy costs, weather, transportation availability, residential and nonresidential construction, steel-industry demand, interest rates, acquisitions, and compliance with debt covenants.
- A 1% increase in interest rates on $250 million of variable-rate borrowings would increase annual interest expense by approximately $2.5 million. A 10% change in energy costs would affect annual pretax earnings by approximately $15.6 million.
- Other operating income included a $2.4 million land-condemnation gain. Discontinued operations produced a $34,000 net loss in Q1 2011 versus $148,000 of net earnings in Q1 2010.
- Management stated that pending legal and administrative proceedings, including environmental matters, are not expected to have a material adverse effect. Mining operations received 52 significant and substantial citations, one Section 104(b) order, two Section 104(d) citations or orders, three imminent-danger orders, and $63,877 of proposed MSHA assessments during the quarter; no fatalities were reported.
Important Facts for Investors to Verify
- Whether aggregates volume and pricing meet the company’s 2011 outlook amid infrastructure-funding uncertainty.
- The effect of diesel, energy, transportation, and other input-cost inflation on aggregates margins.
- Compliance with the 3.5x debt-to-defined EBITDA covenant, particularly if construction activity or pricing weakens.
- The refinancing and maturity profile of the $1.026 billion of debt outstanding after April 1, 2011.
- Progress, cost, and expected returns from the approximately $53 million dolomitic lime kiln project.
- Sustainability of Specialty Products’ record earnings and the company’s $50 million to $52 million full-year pretax earnings expectation.
- Federal and state infrastructure legislation, stimulus spending, and transportation-budget developments.
- MSHA citation proceedings and the 55 matters pending before the Federal Mine Safety and Health Review Commission.