MARTIN MARIETTA MATERIALS INC quarterly report, Q3 FY2015

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

MetricQ3 2015Q3 20149M 20159M 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 flowNot separately providedNot 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.