Martin Marietta Materials, Inc. — First-Quarter 2019 Form 10-Q Summary
Business Context and Reporting Period
Martin Marietta Materials is a natural-resource-based building-materials company supplying aggregates, cement, ready-mixed concrete, asphalt and paving services through more than 300 locations across 31 states, Canada, the Bahamas and the Caribbean. The company also operates its Magnesia Specialties business. This unaudited Form 10-Q covers the three months ended March 31, 2019, compared with the first quarter of 2018.
Financial Results and Key Metrics
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Total revenue | $939.0 million | $802.0 million | 17% |
| Gross profit | $142.9 million | $110.4 million | 30% |
| Gross margin | 15.2% | 13.8% | Up 140 basis points |
| Earnings from operations | $69.2 million | $39.1 million | 77% |
| Operating margin | 7.4% | 4.9% | Up 250 basis points |
| Net earnings attributable to Martin Marietta | $42.9 million | $10.0 million | Substantial increase |
| Diluted EPS | $0.68 | $0.16 | Substantial increase |
| Consolidated EBITDA | $158.9 million | $123.3 million | 29% |
| Cash provided by operating activities | $117.9 million | $105.0 million | 12% |
Net earnings benefited from a $13.2 million discrete tax benefit related to changing a subsidiary’s tax status; the overall income tax line was a $5.0 million benefit. Net earnings attributable to Martin Marietta represented approximately 4.6% of revenue, compared with approximately 1.3% in the prior-year quarter.
Building Materials revenue increased to $864.9 million from $732.7 million, while Magnesia Specialties revenue increased to $74.1 million from $69.3 million. Building Materials operating earnings increased to $72.0 million from $43.2 million. Mid-America and Southeast operating earnings rose materially, while West Group operating earnings declined to $19.9 million from $35.0 million, principally reflecting cement maintenance outages, higher rail freight costs and difficult Colorado weather.
Aggregates shipments increased 24.2% overall, including 3.5 million tons from acquisitions, and heritage aggregates pricing increased 4.0%. Cement shipments and pricing increased 7.3% and 3.8%, respectively. Ready-mixed concrete shipments declined 3.8%, while pricing increased 0.5%.
Liquidity, Debt and Capital Resources
- Cash and cash equivalents were $37.4 million at March 31, 2019, compared with $44.9 million at December 31, 2018.
- Total debt was $3.16 billion, including $360.1 million classified as current debt and $2.80 billion of long-term debt. Total debt was $3.12 billion at year-end 2018.
- Net cash used in investing activities was $127.5 million, including $130.1 million of capital expenditures. Full-year capital spending was expected to be $350 million to $400 million.
- Net cash provided by financing activities was $2.1 million, reflecting $125.0 million of borrowings, $85.0 million of debt repayments and $30.4 million of dividends paid.
- The company reported $667.7 million of unused borrowing capacity under its revolving and trade receivable facilities, subject to covenant compliance.
- The trailing-twelve-month debt-to-consolidated-EBITDA ratio, as defined under the revolving facility, was 2.71x versus a 3.50x covenant limit. The company was in compliance at March 31, 2019.
- The $400 million trade receivable facility matures September 25, 2019; the $700 million revolving facility matures December 5, 2023.
Material Changes Versus the Prior Comparable Period
- Results improved substantially as better weather enabled an earlier construction-season start and contractors addressed backlogs that had been delayed in 2018.
- The April 2018 acquisition of Bluegrass contributed to Mid-America and Southeast volumes and revenue. Purchase accounting remained subject to final measurement adjustments at March 31, 2019.
- Aggregates gross margin increased 550 basis points to 18.0% from higher volumes and operating leverage.
- Cement product gross margin decreased 1,270 basis points to 13.9% because of extended and accelerated maintenance outages and higher transportation costs.
- SG&A declined to 8.3% of revenue from 8.7%.
- Other operating income was $4.8 million versus $0.5 million of expense in the prior-year quarter, primarily due to reversal of a $4.2 million Texas Industries acquisition-related accrual and higher asset-sale gains.
- Effective January 1, 2019, the company adopted ASC 842 for leases, recognizing approximately $498.2 million of operating lease right-of-use assets and $496.9 million of operating lease liabilities at March 31, 2019. The adoption did not materially affect earnings or cash flow.
Guidance, Outlook, Risks and Unusual Items
Management reaffirmed its full-year outlook, citing favorable employment, population and state fiscal trends and continued construction demand. Expected aggregate shipment changes versus 2018 were high-single-digit growth for infrastructure, mid- to high-single-digit growth for nonresidential construction, mid-single-digit growth for residential construction and slight growth for ChemRock/Rail.
Key risks include weather, construction-cycle fluctuations, infrastructure funding and project timing, interest rates, fuel and energy costs, transportation and labor availability, equipment failures, environmental regulation, cement pricing and supply-demand conditions, steel-industry weakness, customer credit risk, acquisition synergies, tax-law changes, leverage-covenant compliance and potential credit-rating reductions. The company stated that litigation and environmental proceedings were not expected to have a material adverse effect based on currently available information.
Other notable items include $36.1 million of standby letters of credit, a $12.8 million outstanding balance under a revolving line for which the company is a co-borrower with an affiliate, and a $6.0 million affiliate loan receivable. No common shares were repurchased during the quarter.
Important Facts for Investors to Verify
- Whether the discrete tax benefit and other operating income items are nonrecurring and how normalized earnings compare with reported results.
- The timing and refinancing plan for the $360.0 million of current debt, particularly the trade receivable facility maturing in September 2019.
- Progress toward the reaffirmed shipment outlook and the effect of weather, infrastructure funding and construction demand.
- Whether cement maintenance outages, rail costs and Colorado conditions continue to pressure West Group margins.
- Final purchase-accounting adjustments and realized synergies from the Bluegrass acquisition.
- Compliance with the 3.50x leverage covenant under changing operating conditions and debt levels.
- The effect of energy prices, transportation constraints, labor shortages and regulatory requirements on future costs and margins.