Martin Marietta Materials, Inc. — 2023 Second-Quarter Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Martin Marietta is a natural-resource-based building materials company operating approximately 350 quarries, mines and distribution yards across 28 states, Canada and The Bahamas. Its continuing operations comprise the East Group, West Group and Magnesia Specialties segments. The filing is unaudited.
Financial performance and position
| Metric | Three months ended June 30, 2023 | Three months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 |
|---|---|---|---|---|
| Total revenues | $1,820.8 million | $1,641.7 million | $3,174.9 million | $2,872.5 million |
| Gross profit | $560.4 million | $425.2 million | $863.2 million | $581.3 million |
| Gross margin | 30.8% | 25.9% | 27.2% | 20.2% |
| Earnings from operations | $463.3 million | $478.6 million | $659.3 million | $538.4 million |
| Net earnings attributable to Martin Marietta | $348.3 million | $366.5 million | $469.7 million | $387.9 million |
| Diluted EPS from continuing operations | $5.60 | $5.65 | $7.76 | $6.04 |
| Adjusted EBITDA | $596.1 million | $478.3 million | $920.0 million | $675.5 million |
Second-quarter revenue increased 10.9%, while gross profit increased 31.8%. Six-month revenue increased 10.5%, gross profit increased 48.5%, and Adjusted EBITDA increased 36.2%. Adjusted EBITDA is a non-GAAP measure and excludes or adjusts for items described in the filing.
- Building Materials revenue was $1.74 billion in the second quarter and $3.01 billion for the six-month period, compared with $1.56 billion and $2.71 billion, respectively, in the prior-year periods.
- Second-quarter Building Materials gross margin expanded to 30.8% from 25.6%; six-month gross margin increased to 27.0% from 19.8%.
- Second-quarter aggregates shipments declined 5.7%, but pricing increased 18.6%, or 17.0% on a mix-adjusted basis. Cement pricing increased 21.8%, ready-mixed concrete pricing increased 21.9% and asphalt pricing increased 7.9%.
- For the first six months, aggregates shipments declined 3.6%, cement shipments declined 3.2%, ready-mixed concrete shipments declined 21.9% and asphalt shipments declined 3.9%. Pricing increases more than offset lower volumes.
- Cash provided by operating activities was $518.5 million for the six months ended June 30, 2023, compared with $286.2 million in the prior-year period.
- Capital expenditures were $293.4 million, compared with $220.7 million in the prior-year period. Dividends paid were $82.5 million and share repurchases were $150.0 million.
- Cash and cash equivalents were $421.5 million at June 30, 2023, compared with $358.0 million at December 31, 2022. Restricted investments of $702.3 million were held in escrow for discharged 2023 notes.
- Total debt was $5.04 billion, including $700.0 million of discharged notes due in 2023 and $4.34 billion of long-term debt. The 2023 notes were repaid in full on July 17, 2023.
- No borrowings were outstanding under the $800.0 million revolving facility or the $400.0 million trade receivable securitization facility at June 30, 2023. The company reported approximately $1.20 billion of unused borrowing capacity, subject to covenant compliance.
- The company was in compliance with its consolidated net debt-to-EBITDA covenant at June 30, 2023. The revolving facility matures in December 2027; the trade receivable facility matures September 20, 2023.
Material changes versus the prior comparable periods
- Pricing actions implemented in 2022 and 2023 to recover prior inflationary cost increases were the primary driver of improved revenue and margins. Lower fuel and energy costs also benefited profitability.
- Second-quarter operating earnings declined despite higher gross profit because the second quarter of 2022 included a $151.7 million pretax gain on the divestiture of Colorado and Central Texas ready-mixed concrete operations. Excluding that unusual gain, underlying operating performance improved.
- Six-month operating earnings increased to $659.3 million from $538.4 million despite the prior-year period including the same $151.7 million divestiture gain.
- Magnesia Specialties second-quarter revenue declined 1.4%, while gross profit increased 13.0%. Six-month revenue increased 3.3% and gross profit increased 5.0%.
- Accounts receivable increased to $979.2 million and inventories increased to $954.7 million from December 31, 2022, contributing to working-capital cash usage.
- The company sold its Stockton, California cement import terminal on May 3, 2023. The Tehachapi, California cement-plant sale agreement with CalPortland was terminated on April 26, 2023 after required Federal Trade Commission approval was not obtained timely; the company is pursuing other potential buyers.
Outlook, commentary, risks and unusual items
Management expects cash on hand, internal cash generation and available financing resources to support operating needs, debt service, capital expenditures, dividends, share repurchases and potential acquisitions for the foreseeable future. The filing does not provide a specific full-year revenue, earnings or margin guidance range.
- Infrastructure demand indicators were favorable, including higher state and local highway, bridge and tunnel contract awards, although project delays affected current shipments.
- Nonresidential demand was affected by delays in large manufacturing, data-center and energy projects. Residential demand remained constrained by affordability concerns, although improved builder sentiment and a Sun Belt housing shortage supported demand.
- Key risks include construction-market cyclicality, interest rates, government infrastructure funding, weather, fuel and energy prices, labor and supply-chain constraints, transportation availability, environmental regulation, commodity pricing, inflation, customer receivables and potential covenant pressure if pricing or volumes deteriorate.
- A 10% change in energy prices, assuming constant volumes, would change 2023 energy expense by approximately $50.0 million. A 10% change in cement pricing would affect full-year cement revenue by approximately $60.2 million based on 2022 revenue.
- Discontinued operations produced a $12.2 million net loss for the first six months of 2023 versus $10.2 million of net earnings in the prior-year period, primarily reflecting the remaining California cement and ready-mixed concrete operations.
- Management stated that pending legal and administrative proceedings, including environmental matters, are not expected to result in a material loss based on currently available information. Standby letters of credit totaled $26.8 million.
- Management concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm repayment and final accounting treatment of the $700.0 million 2023 notes after the July 17, 2023 settlement.
- Monitor the September 20, 2023 maturity and any renewal or replacement of the trade receivable securitization facility.
- Assess whether pricing gains remain sufficient to offset lower volumes, labor, maintenance, raw-material and energy costs.
- Track the potential sale, carrying values and operating results of the Tehachapi cement plant and other assets held for sale.
- Evaluate infrastructure, nonresidential and residential construction demand, particularly the effect of interest rates and public-project funding.
- Reconcile management’s non-GAAP Adjusted EBITDA and mix-adjusted pricing measures to GAAP results and review the effect of discontinued operations and prior-year divestiture gains.
- Review the company’s 2022 Form 10-K for the complete risk-factor disclosures, debt terms, environmental matters and pension assumptions.