OREANDA-NEWS. Martin Marietta Materials, Inc. today reported results for the second quarter ended June 30, 2016.

Ward Nye, Chairman, President and CEO of Martin Marietta, stated: "We are pleased to deliver top-line and bottom-line growth with record net sales, gross profit and net earnings in the quarter. Net sales increased nearly 8 percent (12 percent excluding net sales attributable to the California cement business divested in the third quarter 2015). Gross profit and net earnings increased 23 percent and 49 percent, respectively. Diluted earnings per share of $1.90 increased 56 percent when compared with the comparable prior-year period. The record results for the quarter reflect our continued ability to capitalize on improving economic conditions across our markets, coupled with our disciplined approach to cost management and operational excellence.

"Aggregates product line pricing growth and cost discipline led to a 340-basis-point increase in our consolidated gross margin (excluding freight and delivery revenues). This gross margin expansion was achieved despite record or near-record rainfall and its attendant effects in many of our key markets, notably Texas, North Carolina and Colorado. Importantly, for every $1.00 increase in net sales, gross profit increased $0.71, which demonstrates the business' strong operating leverage with economic growth. The economic improvements we see across our geographic footprint, including both strong employment growth and population dynamics, together with robust public and private construction activity, further reinforces our positive outlook for a sustained construction-centric recovery during the next several years.

"Domestic job growth remains a strong catalyst for construction activity and, during the trailing-12 months ended June 2016, the United States added nearly two and one half million jobs. The southeastern United States' steady economic recovery is gaining momentum with North Carolina, Georgia and Florida all ranked in the top ten states nationally for employment growth. For the second quarter, these market conditions, among others, helped drive aggregates product line volume growth of 4.9 percent in the Mid-America Group, primarily due to increased private construction activity across North Carolina and South Carolina. Demand in the Mid-America Group was constrained by heavy rainfall during the first two months of the quarter. In fact, for April and May, aggregate volume was down 1.3 percent; however, volume growth of nearly 16 percent in June more than offset the early quarter weather deficit. Volume growth for the Southeast Group was 1.9 percent, benefitting from increasing public-sector demand in Georgia and Florida, while increases were partially impacted by a reduction in ballast shipments.

"Aggregate shipments in the West Group were hindered by extremely wet weather in Texas throughout the majority of the second quarter. As previously predicted by the National Oceanic and Atmospheric Administration, the El Ni?o effect, which began in the spring of 2015, concluded at the end of May 2016. In addition, the reduction of shale-related shipments compared with the prior-year quarter and lower ballast shipments due to decreased rail demand further impacted the West Group's second quarter results. While some construction activity was temporarily displaced, contractor backlogs reveal pent-up aggregate demand. Further, the Dallas-Fort Worth Metroplex continues to be one of the nation's fastest growing areas, benefitting from strong population and employment trends."

Mr. Nye continued, "We remain highly optimistic as we look towards the second half of the year and well beyond. Our team is poised to capitalize on increasing demand, and we expect exceptional performance from all of our businesses. We remain steadfast in our commitment to enhance long-term shareholder value by continuing to build on our proven track record of disciplined and strategic geographic positioning and by benefitting from our world-class employees endowed with a relentless dedication to controlling costs while maintaining industry-leading safety standards."Aggregates product line shipments to the infrastructure market comprised 43 percent of quarterly volumes and increased 1.3 percent. Growth was led by the Southeast Group, which increased 8.9 percent. The Mid-America and West Groups were impacted by significant rainfall and project delays in April and May, which deferred shipments and led to flat public-sector volumes. Growth in the Southeast Group was primarily attributable to large projects in Georgia, a state that is benefitting from legislation passed in 2015 increasing near- and long-term state infrastructure spending.

The nonresidential market represented 33 percent of quarterly aggregates product line shipments and increased 2.8 percent. The Mid-America Group achieved a 13.7 percent increase, followed by an increase of 1.6 percent in the Southeast Group. Notably, a broader improving economy is driving business investment in office and retail development, which are experiencing a rebound in markets not seen in the past several years. The West Group noted a decline in nonresidential activity, primarily related to weather deferrals and further reductions in shale energy demand.

The residential market accounted for 17 percent of quarterly aggregates product line shipments. Volumes to this segment increased 10.8 percent, due to the continued and expanding housing recovery, notably in the southeastern region of the country. While housing activity in the United States generally remains well below historic averages, strong growth in permits, starts and completions among the Company's top states reflects steady momentum in housing construction and indicates additional future gains from increased residential investment. In fact, Dallas and Atlanta, key Martin Marietta markets, are ranked first and second in the country, respectively, in permits growth. Further, during the second quarter, North Carolina, Iowa, Florida and South Carolina all reported double-digit growth in housing starts. The ChemRock/Rail market accounted for the remaining 7 percent of aggregates product line volumes. The volume decline in this segment principally reflects reduced ballast shipments driven by reduced coal demand, which impacts transportation and results in lower capital and maintenance activity by railroads.

Overall, aggregates product line shipments increased 1.3 percent. Geographically, growth was led by the Mid-America Group, which increased 4.9 percent, while the Southeast Group achieved a 1.9 percent increase. This growth offset the weather-impacted decline in the West Group.

Aggregates product line pricing improvement of 6.8 percent reflects growth in all reportable groups, led by a 10.0 percent increase in the West Group. The Southeast Group and Mid-America Group reported increases of 6.2 percent and 4.2 percent, respectively.

The ready mixed concrete product line continued to benefit from strong demand, better pricing and improved operating conditions, driving a 23.7 percent increase in shipments and a 15.4 percent increase in average selling price. In addition, these factors helped drive a 43.5 percent increase in net sales and a 560-basis-point improvement in gross margin (excluding freight and delivery revenues).

The Aggregates business' gross margin (excluding freight and delivery revenues) was 25.4 percent, an increase of 300 basis points, driven largely by broad-based economic recovery, including growth in the southeastern United States.

Cement Business

The Cement business was slowed by wet weather in Texas, constraining shipments during the second quarter. Nonetheless, excluding the impact of the California cement business sold in 2015, cement shipments increased 2.2 percent in the quarter while pricing was down slightly, ahead of price increases taking effect in July and planned for October.

The business generated $59.8 million of net sales and $24.0 million of gross profit. For the quarter, gross profit margin (excluding freight and delivery revenues) in the Cement business was 40.1 percent, which was relatively flat compared with the second quarter of 2015 (excluding the results of the California cement business). Planned cement kiln maintenance costs of $5.7 million were incurred during the quarter and are expected to be $2.0 million and $7.8 million in the third and fourth quarter, respectively.

The Company sees broad-based strength in Texas markets, where cement demand exceeds local supply. The Portland Cement Association, or PCA, forecasts continued supply/demand imbalance in Texas over the next several years.

Magnesia Specialties Business

Magnesia Specialties delivered strong performance and generated second-quarter net sales of $58.8 million, with notable contributions from the magnesia-based chemicals product line. Gross margin (excluding freight and delivery revenues) in the quarter expanded 170 basis points to 36.8 percent. Second-quarter earnings from operations were $19.2 million compared with $18.8 million in the prior-year quarter.

CONSOLIDATED OPERATING RESULTS

SG&A was 6.7 percent of net sales, flat compared with the prior-year quarter. Earnings from operations for the quarter were $187.7 million compared with $137.0 million in the prior-year period, an increase of 37 percent.

The estimated effective income tax rate for the quarter was 30 percent, in line with annual guidance. For the year, the Company expects to fully utilize the $33 million remaining net operating loss carryforwards acquired with TXI.

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operating activities for the first six months of the year was $203.4 million in 2016 compared with $127.1 million in 2015. The increase is principally attributable to higher earnings before depreciation, depletion and amortization expense.

At June 30, 2016, the ratio of consolidated debt to consolidated EBITDA, as defined, for the trailing-12 months was 1.98 times, in compliance with the Company's leverage covenant and in line with the Company's target range.

SHARE REPURCHASE PROGRAM

The Company is authorized to execute a share repurchase program under which it may acquire up to 20 million shares of its outstanding common stock. Repurchases are expected to be carried out through a variety of methods, which may include open market purchases, privately negotiated transactions, block trades, accelerated share purchase transactions, or any combination of such methods. The Company expects to complete the repurchase program over the next several years, though the actual timing of completion will be based on an ongoing assessment of the capital needs of the business, the market price of the Company's common stock and general market conditions. Share repurchases will be undertaken based on then-current business and market factors; therefore, the actual return of capital in any single quarter may vary. The repurchase program may be modified, suspended or discontinued by the Company at any time without prior notice.

During the quarter, the Company repurchased 215,000 shares of its common stock for $40.0 million. The Company has repurchased 4.5 million shares and, including the continued payment of a $1.60 annual dividend per share, returned $869 million to shareholders since announcing its repurchase authorization in February of 2015. As of June 30, 2016, there were 63.8 million shares of Martin Marietta common stock outstanding and 15.5 million shares remaining under the current repurchase authorization.

FULL-YEAR OUTLOOK

The Company is encouraged by positive trends in the markets it serves and its ability to execute its strategic business plans. Notably:

  • For the public sector, continued modest growth is expected in 2016 as new monies begin to flow into the system, particularly in the second half of the year. Additionally, state initiatives to finance infrastructure projects, including support from the Transportation Infrastructure Finance and Innovation Act (TIFIA), are expected to grow and continue to play an expanded role in public-sector activity.
  • Nonresidential construction is expected to increase in both the heavy industrial and commercial sectors. The Dodge Momentum Index is near its highest level since 2009 and signals continued growth. Additionally, energy-related economic activity, including follow-on public and private construction activities in its primary markets, will be mixed with overall strength in large downstream construction projects, providing a counterbalance to declines in shale exploration-related volumes.
  • Residential construction is expected to continue to experience good growth metrics, driven by positive employment gains, historically low levels of construction activity over the previous several years, low mortgage rates, significant lot absorption, and higher multi-family rental rates.

Based on these trends and expectations, including a return to normal weather patterns, the Company anticipates achieving the following for the full year:

  • Aggregates end-use markets compared with 2015 levels are as follows:
    • Infrastructure market to increase mid-to-high single digits.
    • Nonresidential market to increase in the high-single digits
    • Residential market to experience a double-digit increase.
    • ChemRock/Rail market to experience a modest decrease.