Martin Marietta Materials, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2015; filed November 5, 2015. The company supplies aggregates, asphalt, ready-mixed concrete, road-paving services, cement, and magnesia-based products across the United States and selected international markets. Results include the July 2014 acquisition of Texas Industries, Inc. (TXI).
Financial Performance and Position
| Metric | Q3 2015 | Q3 2014 | 9M 2015 | 9M 2014 |
|---|---|---|---|---|
| Net sales | $1.005 billion | $917.9 million | $2.487 billion | $1.900 billion |
| Total revenues | $1.082 billion | $1.004 billion | $2.695 billion | $2.102 billion |
| Gross profit | $262.5 million | $195.6 million | $536.9 million | $357.0 million |
| Earnings from operations | $179.5 million | $116.0 million | $342.1 million | $196.3 million |
| Net earnings attributable to Martin Marietta | $117.5 million | $53.7 million | $205.6 million | $91.6 million |
| Diluted EPS | $1.74 | $0.79 | $3.03 | $1.70 |
| Operating cash flow | Not separately provided | Not separately provided | $319.6 million | $201.6 million |
- Margins: GAAP gross margin was 24.3% in Q3 and 19.9% year to date, compared with 19.5% and 17.0%, respectively. Excluding freight and delivery revenues, gross margin was 26.1% in Q3 and 21.6% year to date, up 480 and 280 basis points.
- Operating margin: 16.6% in Q3 and 12.7% year to date, compared with 11.6% and 9.3% in the prior-year periods.
- EBITDA: Consolidated EBITDA was $248.2 million for Q3 and $546.3 million for nine months. Adjusted EBITDA, excluding California cement divestiture-related items, was $277.0 million and $576.2 million, respectively.
- Cash and liquidity: Cash and equivalents were $436.4 million at September 30, 2015, compared with $73.6 million at September 30, 2014. Management reported $470 million of unused borrowing capacity under the revolving and trade receivable facilities, subject to covenant compliance.
- Debt: Total debt was $1.705 billion, including $147.5 million of current maturities, versus $1.618 billion a year earlier. The trailing-twelve-month consolidated debt-to-EBITDA covenant ratio was 2.21x, below the 3.50x limit.
- Capital allocation: The company paid $81.2 million in dividends during the first nine months and repurchased $257.7 million of common stock. The quarterly dividend was $0.40 per share.
Material Changes Versus Prior Comparable Period
- Q3 net sales increased 9.5%; nine-month net sales increased 31%, substantially reflecting TXI operations, higher aggregates volumes, and pricing.
- Aggregates product-line volume and pricing each increased 5.4% in Q3. For nine months, volume increased 8.9% and pricing increased 7.9%.
- Aggregates business Q3 net sales increased to $837.4 million from $749.7 million, while operating earnings increased to $180.8 million from $163.6 million.
- Cement Q3 net sales were $110.5 million and gross profit was $38.2 million. Pricing improved, but shipments declined partly because the California operations were sold.
- Magnesia Specialties Q3 net sales declined to $57.3 million from $58.7 million, and operating earnings declined to $17.0 million from $17.7 million.
- SG&A increased to $54.9 million in Q3 and $161.1 million year to date, driven principally by higher pension expense.
- Prior-year results included substantial TXI acquisition-related expenses and inventory fair-value markup effects; 2015 results include California cement divestiture charges, limiting direct comparability.
Guidance, Outlook, Risks, and Unusual Items
- 2015 outlook: Aggregates shipments were expected to increase 7% to 10%, with pricing up 7% to 9%. Aggregates-related downstream net sales were projected at $875 million to $925 million and gross profit at $80 million to $85 million.
- Cement net sales guidance was $375 million to $400 million with gross profit of $105 million to $110 million. Magnesia Specialties net sales guidance was $235 million to $240 million with gross profit of $80 million to $85 million.
- Management projected consolidated EBITDA of $800 million to $820 million, excluding California divestiture items, capital expenditures of $330 million to $350 million, interest expense of $75 million to $80 million, and an effective tax rate of approximately 31%, excluding discrete items.
- The company sold its California cement operations on September 30, 2015, receiving $420 million and recognizing a $25.1 million loss plus $3.6 million of additional third-quarter charges. The total Q3 diluted EPS impact, including related tax effects and an NOL valuation allowance, was approximately $0.30.
- Severe weather deferred an estimated $115 million of net sales and $40 million to $50 million of gross profit earlier in 2015. Hurricane-related flooding damaged South Carolina operations; the company was self-insured for coastal flood losses and could not yet determine the ultimate loss.
- Weather-delayed shipments and capacity constraints were expected to defer some activity into 2016. Key risks include federal highway funding uncertainty, construction-cycle weakness, low oil prices and energy-related demand, weather, fuel and raw-material costs, transportation availability, equipment failures, regulatory costs, pension expense, credit-market conditions, and failure to achieve TXI synergies.
- Off-balance-sheet commitments totaled $80.2 million, including a $55.4 million fixed-price energy purchase commitment and a $24.8 million rail operating lease.
- Management stated that litigation and environmental proceedings were not expected to have a material adverse effect based on currently available information. Disclosure controls were deemed effective as of September 30, 2015.
Investor Verification Checklist
- Reconcile reported results with non-GAAP adjusted earnings, EBITDA, and margin measures, particularly the California divestiture charges and prior-year TXI acquisition items.
- Verify the sustainability of aggregates pricing, shipment growth, and the anticipated 2015 EBITDA range after weather-related deferrals.
- Review the California cement sale’s effect on future cement volumes, margins, tax attributes, and geographic concentration.
- Confirm debt maturities, the September 30, 2016 trade receivable facility expiration, available revolver capacity, and covenant headroom.
- Assess exposure to federal and state infrastructure funding, Texas construction and energy activity, winter and hurricane weather, fuel costs, and rail and trucking constraints.
- Evaluate the company’s planned capital spending, Medina quarry project, share repurchases, pension contributions, and ability to maintain dividends while funding growth.