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Martin Marietta Reports Fourth Quarter and Full Year 2018 Results

96 Days ago

Company Achieved Full-Year Record Revenues and EBITDA

2018 Shipments and Pricing Improved for Aggregates, Cement and Ready Mixed Concrete

Magnesia Specialties Business Posted Record Revenues and Profitability

Growth in Company’s Top Ten States Expected to Outperform the Nation in 2019;
Guidance Reaffirmed for Mid-Single-Digit Growth in 2019 Aggregates Shipments and Pricing

RALEIGH, N.C., Feb. 12, 2019 (GLOBE NEWSWIRE) -- Martin Marietta Materials, Inc. (NYSE:MLM) today reported results for the fourth quarter and year ended December 31, 2018. 

Highlights include:

 ($ in thousands, except per share) Quarter ended December 31,
 2018  2017
  Year ended December 31,
  2018  2017
Total revenues 1 $ 1,020,218 $ 970,478   $ 4,244,265 $ 3,965,594
Products and services revenues 2 $ 956,051 $ 911,831   $ 3,980,351 $ 3,723,478
Building Materials business $    888,805 $   849,027   $ 3,711,715 $ 3,470,756
Magnesia Specialties business $    67,246 $    62,804   $    268,636 $   252,722
Gross profit $ 227,284 $ 259,102   $ 966,577 $ 971,940
Adjusted gross profit 3 $ 227,506 $ 259,102   $ 985,315 $ 971,940
Earnings from operations $ 147,041 $ 183,413   $ 690,737 $ 700,381
Adjusted earnings from operations 4 $ 159,542 $ 188,733   $ 741,792 $ 709,019
Net earnings attributable to Martin Marietta 5 $ 94,378 $ 377,182   $ 469,998 $ 713,342
Adjusted EBITDA 6 $ 251,850 $ 267,747   $ 1,103,765 $ 1,013,017
Earnings per diluted share 5, 7 $ 1.50 $ 5.95   $ 7.43 $ 11.25

Total revenues include the sales of products and services to customers (net of any discounts or allowances) and freight revenues.
Products and services revenues include the sales of aggregates, cement, ready mixed concrete, asphalt and Magnesia Specialties products, and paving services to customers, and exclude related freight revenues.
Adjusted gross profit excludes an increase in cost of revenues from the impact of selling acquired inventory after its markup to fair value as part of acquisition accounting.  See appendix to this earnings release for a reconciliation to reported gross profit under generally accepted accounting principles (GAAP) .
2018 fourth-quarter and full-year adjusted earnings from operations exclude an increase in cost of revenues from the impact of selling acquired inventory after its markup to fair value as part of acquisition accounting; asset and portfolio rationalization charges; and acquisition-related expenses, net.  2017 fourth-quarter and full-year adjusted earnings from operations exclude acquisition-related expenses.  See appendix to this earnings release for a reconciliation to reported earnings from operations under GAAP.
2017 fourth-quarter and full-year results include a one-time, non-cash benefit of $258.1 million, or $4.07 per diluted share, resulting from the Tax Cuts and Jobs Act of 2017 (2017 Tax Act).
Adjusted EBITDA is a non-GAAP financial measure.  See appendix to this earnings release for a reconciliation to net earnings attributable to Martin Marietta.
2018 full-year earnings per diluted share includes a loss of $0.22 per diluted share for the impact of selling acquired inventory after its markup to fair value as part of acquisition accounting; a loss of $0.23 per diluted share for asset and portfolio rationalization charges; and a loss of $0.20 per diluted share for acquisition-related expenses, net.  2017 full-year earnings per diluted share includes a loss of $0.10 per diluted share for acquisition-related expenses.

Ward Nye, Chairman, President and CEO of Martin Marietta, stated, “Our industry-leading safety and record financial performance in 2018 can be best summarized as challenges faced and challenges met. We produced record results for the seventh consecutive year and concluded 2018 with the best heritage safety performance in our Company’s history. These accomplishments demonstrate our commitment to operational excellence and the successful execution of our strategic plan.  Full-year revenues increased 7 percent to a record $4.2 billion and adjusted EBITDA (Earnings Before Interest, Taxes, and Depreciation and Amortization) increased 9 percent to an all-time high of $1.1 billion, driven by a modest improvement in heritage Building Materials shipments, solid pricing gains and value-enhancing acquisitions.  We also delivered record net earnings and earnings per diluted share (after adjusting for the one-time benefit in 2017 of the 2017 Tax Act on earnings metrics) for the full year.

“Even more noteworthy, we extended our lengthy history of record performance without meaningful shipment growth from our heritage Building Materials business. Weather, contractor capacity and logistics disruptions challenged both our Company and the industry throughout the year, resulting in aggregates volumes, on a comparable basis, that remained only modestly above 2010 trough levels. Our proven ability to successfully manage short-term external disruptions makes us highly optimistic about our business and ability to achieve both continued profitability growth and shareholder value creation in 2019 and beyond.

“Looking ahead, we expect 2019 to be another record year for Martin Marietta.  The fundamentals of our business and underlying demand trends remain strong across our geographic footprint.  We believe the combination of continued private-sector strength and the long-awaited arrival of increased public-sector activity in our key geographies will drive shipment, pricing and profitability growth in 2019.  Leading employment and population growth across the Sunbelt should continue to bolster private-sector construction activity.  Further, after a decade of underinvestment, infrastructure activity is poised for meaningful growth as evidenced by an acceleration in public lettings and contract awards in our key states of Texas, Colorado, North Carolina, Georgia and Florida.  These trends, combined with an improved pricing outlook, underscore the strength of our markets and the near-term growth trajectory of our business.”

Mr. Nye concluded, “We are confident in Martin Marietta’s outlook given our leading market positions, disciplined pricing strategy and proven execution of our strategic plan.  For 2019, we anticipate construction growth in our key regions to outpace the nation as a whole, driven by attractive employment growth, population trends and favorable momentum from state Departments of Transportation. Additionally, widespread customer optimism and growing contractor backlogs support increased demand for our construction materials.  With both the ability and capacity to meet future market demand, Martin Marietta remains committed to world-class attributes across our business - including safety, efficiency and operational excellence – and is well-positioned to deliver enhanced long-term value for our shareholders.”

Mr. Nye’s CEO Commentary and Market Perspective can be found on the Investor Relations section of the Company’s website.

Fourth-Quarter Operating Results
(All comparisons are versus the prior-year quarter unless noted otherwise)

  Quarter ended December 31, 2018
($ in thousands) Revenues Gross profit (loss) Gross margin
Building Materials business:      
Products and services:      
Aggregates $ 577,549   $ 146,133   25.3 %
Cement   87,277     28,631   32.8 %
Ready mixed concrete   213,346     7,950   3.7 %
Asphalt and paving   69,190     16,438   23.8 %
Less:  interproduct revenues   (58,557 )   ---   ---  
Products and services   888,805     199,152   22.4 %
Freight   59,438     (173 ) NM  
Total Building Materials business   948,243     198,979   21.0 %
Magnesia Specialties business:      
Products and services   67,246     26,151   38.9 %
Freight   4,729     (944 ) NM  
Total Magnesia Specialties business   71,975     25,207   35.0 %
Corporate   ---     3,098   NM  
Total $ 1,020,218   $ 227,284   22.3 %


  Quarter ended December 31, 2017
($ in thousands) Revenues Gross profit (loss) Gross margin
Building Materials business:      
Products and services:      
Aggregates $ 515,646   $ 160,637   31.2 %
Cement   90,272     29,413   32.6 %
Ready mixed concrete   231,566     21,103   9.1 %
Asphalt and paving   76,918     20,248   26.3 %
Less:  interproduct revenues   (65,375 )   ---   ---  
Products and services   849,027     231,401   27.3 %
Freight   53,970     562   NM  
Total Building Materials business   902,997     231,963   25.7 %
Magnesia Specialties business:        
Products and services   62,804     24,625   39.2 %
Freight   4,677     (1,075 ) NM  
Total Magnesia Specialties business   67,481     23,550   34.9 %
Corporate   ---     3,589   NM  
Total $ 970,478   $ 259,102   26.7 %

Building Materials Business

Unfavorable weather persisted across the Company’s geographic footprint and dampened construction activity during an already seasonally-restricted quarter.  Texas, the Company’s largest state by revenues, experienced its wettest October in history, while several southeastern states endured extreme precipitation in the form of both rainfall and snow as well as cold temperatures. These temporary disruptions adversely impacted the Company’s shipping and production levels, as well as its cost structure.  Extreme weather conditions, particularly during periods of robust demand, led to days of low production followed by days of high production as customers accelerate work when weather permits, all of which results in downward pressure on the Company’s operating leverage.

Aggregates

Fourth-quarter heritage aggregates pricing improved 2.3 percent and shipments declined slightly.  Excluding the fourth-quarter 2017 shipments from the Company’s Forsyth, Georgia quarry that was divested in April 2018, fourth-quarter 2018 heritage aggregates volume improved 0.5 percent.

  • Shipments for the Mid-America Group heritage operations increased 1.6 percent, driven by heavy industrial projects in the Mideast Division.  These gains were offset by weather-related delays in several large public and private construction projects in the Carolinas.  Heritage pricing improved 2.1 percent.

  • Shipments for the Southeast Group heritage operations, as reported, decreased 3.2 percent; excluding fourth-quarter 2017 shipments from the Forsyth, Georgia quarry, these shipments increased 1.9 percent.  Weather hindered construction activity in Georgia and Florida.  Heritage pricing improved 7.4 percent, driven by strong gains in North Georgia and a higher percentage of long-haul shipments.

  • West Group shipments declined 1.2 percent, driven by Texas’ record October rainfall, as well as project delays in Colorado. West Group pricing improved 0.5 percent, reflecting robust pricing in Colorado that was partially offset by product mix in Texas.

Martin Marietta’s fourth-quarter heritage aggregates shipments by end use are as follows (all comparisons are versus the prior-year quarter):

Infrastructure Market

  • Aggregates shipments to the infrastructure market decreased 5 percent, as large public projects in North Carolina, South Carolina and Texas were delayed by weather. Public construction projects, once awarded, are seen through to completion.  Thus, delays from weather or other factors typically serve to extend the duration of the construction cycle for the Company’s single largest end-use market.  The Company is encouraged by the acceleration of state lettings and contract awards in key states, including Texas, Colorado, North Carolina, Georgia and Florida.  As state Departments of Transportation (DOTs) and contractors continue to address labor constraints and the broader industry benefits from further regulatory reform, management remains confident that infrastructure demand will continue to improve, driven by funding provided by the Fixing America’s Surface Transportation Act (FAST Act) and numerous state and local transportation initiatives.  Aggregates shipments to the infrastructure market comprised 36 percent of fourth-quarter aggregates volumes.  For the full year, the infrastructure market represented 39 percent of aggregates shipments, remaining below the Company’s most recent ten-year average of 46 percent.

Nonresidential Market

  • Aggregates shipments to the nonresidential market increased 18 percent, driven by both commercial and heavy industrial construction activity.  The Company continues to benefit from robust distribution center, warehouse, data center and wind turbine projects in key geographies.  Notably, the Mideast Division, which experienced favorable weather during the quarter, reported double-digit volume growth as it continued to ship to the Mountaineer Xpress Pipeline project in West Virginia.  The nonresidential market represented 36 percent of fourth-quarter aggregates shipments.   

Residential Market

  • Aggregates shipments to the residential market declined 10 percent stemming from weather delays. Importantly, Florida, Texas, Colorado, North Carolina, South Carolina and Georgia, six of the Company’s key states, were ranked in the top ten nationally for growth in single-family housing unit starts for the trailing twelve months ended November 30, 2018.  The residential construction outlook across the Company’s geographic footprint remains positive for both single- and multi-family housing, driven by favorable demographics, job growth, land availability, steady interest rates and efficient permitting.  The residential market accounted for 21 percent of fourth-quarter aggregates shipments.

ChemRock/Rail Market

  • The ChemRock/Rail market accounted for the remaining 7 percent of fourth-quarter aggregates shipments.  Volumes to this sector decreased 17 percent, driven by reduced agricultural lime shipments from weather-delayed corn and soybean harvests and a depressed farm economy.  Ballast shipments declined due to lower maintenance spending by Class I railroads.

Aggregates product gross margin decreased 590 basis points to 25.3 percent, reflecting higher costs for production personnel, diesel, rail freight and depreciation combined with a lower inventory build. 

Acquired operations shipped 4.4 million tons at selling prices that are 10 percent to 15 percent below the Company’s average, but in line with management’s expectations.  Synergy realization has exceeded the Company’s expectations. 

Cement

Cement product revenues for the fourth quarter decreased 3.3 percent as pricing growth of 2.6 percent was offset by a 5.9 percent volume decline.  Fourth-quarter shipments reflect record precipitation in Texas, particularly in Dallas/Fort Worth.  Lower kiln outage costs and a higher inventory build offset increased costs for natural gas, freight and raw materials, resulting in a product gross margin of 32.8 percent, an improvement of 20 basis points. 

Downstream businesses

Ready mixed concrete shipments decreased 10.9 percent, primarily driven by weather headwinds in Texas, and pricing improved 3.2 percent.  Hot mixed asphalt shipments declined 12.7 percent, reflective of the prior-year quarter that benefited from unseasonably mild weather.  Asphalt pricing improved 1.9 percent. 

Magnesia Specialties Business

Magnesia Specialties product revenues increased 7.1 percent to a fourth-quarter record of $67.2 million, reflecting growth in both the chemicals and lime businesses. Higher costs for energy and repairs contributed to a 30-basis-point reduction in fourth-quarter product gross margin to 38.9 percent.   

Consolidated

Other operating expenses, net, included an $11.7 million non-cash, pretax charge for asset and portfolio rationalization costs related to the Company’s Southwest ready mixed concrete business.

Liquidity and Capital Resources

Cash provided by operating activities was $705.1 million in 2018 compared with $657.6 million in 2017.

Cash paid for property, plant and equipment additions was $376.0 million, as the Company continues to prudently deploy capital into the business.

At December 31, 2018, the Company’s ratio of consolidated net debt-to-consolidated EBITDA, as defined in the applicable credit agreement, for the trailing twelve months was 2.76 times. 

Commitment to Enhance Long-Term Shareholder Value

Martin Marietta is dedicated to disciplined capital allocation that preserves the Company’s financial flexibility and further enhances shareholder value.  The Company’s capital allocation priorities remain unchanged and include value-enhancing acquisitions that promote the successful execution of the Company’s strategic growth plan, organic capital investment, and the return of cash to shareholders through a meaningful and sustainable dividend and share repurchases.

The Company has returned $1.4 billion to shareholders, in the form of dividend payments and share repurchases, since announcing a 20 million share repurchase authorization in February 2015. During the fourth quarter of 2018, the Company repurchased 217,000 shares of common stock pursuant to its share repurchase authorization.  As of December 31, 2018, 14.1 million shares remained under the current repurchase authorization and 62.5 million shares of Martin Marietta common stock were outstanding.


Outlook for 2019

Martin Marietta is confident in its 2019 outlook. The Company’s geographic footprint has attractive underlying market fundamentals, including notable employment gains, population growth and superior state fiscal health – all attributes that promote steady and sustainable construction growth for the foreseeable future.  Supported by third-party forecasts, Martin Marietta believes the current construction cycle will expand further in 2019 for each of the Company’s three primary construction end-use markets. Notably:

  • Infrastructure construction activity, particularly for aggregates-intensive highways and streets, should benefit from recent accelerations in state lettings and contract awards in key Martin Marietta states, continued FAST Act funding and regulatory reform allowing for reduced permitting time for large projects. Importantly, the partial federal government shutdown did not meaningfully delay awarded contracts and construction spending as the FAST Act, and not the federal general fund, supports federal transportation programs. Additionally, state and local initiatives that support infrastructure funding, including gas tax increases, bond programs and other ballot initiatives, will continue to play an expanded role in public-sector activity as they garner voter approval at historically high levels. Further, third-party forecasts also support increased infrastructure investment in 2019 and beyond.

  • Nonresidential construction activity should increase in both the commercial and heavy industrial sectors for the next several years across many of the Company’s key markets. Both the Architectural Billings Index and Dodge Momentum Index suggest commercial and institutional construction activity will remain healthy throughout 2019.  Continued federal regulatory approvals should notably contribute to increased aggregates consumption from the next wave of large energy-sector projects, particularly along the Gulf Coast. To date, management has not seen a slowdown in the regulatory permitting and investing decisions for these projects despite the recent pullback in oil prices.  Construction activity for these projects is expected to begin in earnest in 2019 and continue for several years thereafter.

  • Residential construction should continue to grow.  While mortgage rate increases temporarily paused new residential construction, now stabilized, the residential market is expected to adapt and further strengthen.  Housing starts remain below the 50-year average of 1.5 million annual starts despite notable population gains. Further, management believes a shortage of single-family housing units exists, particularly for entry-level homes; a need the homebuilding industry is now beginning to address. Martin Marietta’s leading positions in southeastern and southwestern states offer superior opportunities for gains in single-family housing driven by a multitude of factors, such as affordable land, lower taxes and fewer regulatory barriers. Continued strength in residential construction supports future infrastructure and nonresidential activity.

Specifically:

• Aggregates shipments by end-use market compared with 2018 levels are as follows:

  • Infrastructure shipments to increase in the high-single digits.
  • Nonresidential shipments to increase in the mid- to high-single digits.
  • Residential shipments to increase in the mid-single digits.
  • ChemRock/Rail shipments to be up slightly.




2019 GUIDANCE
($ and tons in thousands, except per ton) Low *   High *
Consolidated      
Total revenues 1 $ 4,480,000     $ 4,680,000  
Products and services revenues $ 4,230,000     $ 4,380,000  
Freight revenues $   250,000     $   300,000  
Gross profit $ 1,110,000     $ 1,210,000  
       
Selling, general and administrative expenses (SG&A) $ 300,000     $ 310,000  
Interest expense $ 130,000     $ 140,000  
Estimated tax rate (excluding discrete events)   20 %     22 %
Net earnings attributable to Martin Marietta $ 520,000     $ 620,000  
EBITDA 2 $ 1,170,000     $ 1,280,000  
Capital expenditures $ 350,000     $ 400,000  
       
Building Materials Business      
Aggregates      
Volume (total tons) 3   180,000       185,000  
% growth 3   6.0 %     8.0 %
Average selling price per ton (ASP) $ 14.15     $ 14.40  
% growth 4   3.0 %     5.0 %
Total revenues $ 2,800,000     $ 2,910,000  
Products and services revenues $ 2,590,000     $ 2,650,000  
Freight revenues $    210,000     $    260,000  
Gross profit $ 755,000     $ 810,000  
       
Cement      
Total revenues $ 420,000     $ 450,000  
Products and services revenues $   400,000     $   430,000  
Freight revenues $    20,000     $    20,000  
Gross profit $ 130,000     $ 150,000  
       
Ready Mixed Concrete and Asphalt and Paving      
Products and services revenues $ 1,240,000     $ 1,310,000  
Gross profit $ 130,000     $ 150,000  
       
Magnesia Specialties Business      
Total revenues $ 290,000     $ 300,000  
Products and services revenues $   270,000     $   280,000  
Freight revenues $    20,000     $   20,000  
Gross profit $ 100,000     $ 105,000  

*  Guidance range represents the low end and high end of the respective line items provided above.

1  2019 consolidated total revenues exclude $270 million to $290 million related to estimated interproduct sales.

2  EBITDA is a non-GAAP financial measure.  See appendix to this earnings release for a reconciliation to net earnings attributable to Martin Marietta.

3  Represents 2019 total aggregates volumes, which includes approximately 10.9 million internal tons. Volume growth ranges are in comparison with total volumes of 170.8 million tons for the full year 2018, which included 10.6 million internal tons and 0.3 million tons from the Company’s Forsyth, Georgia, quarry that was divested in April 2018.

4  ASP growth range is in comparison with ASP of $13.71 per ton for the full year 2018.

      
Non-GAAP Financial Information

This earnings release contains financial measures that have not been prepared in accordance with GAAP.  Reconciliations of non-GAAP financial measures to the closest GAAP measure are included in the accompanying appendix to this earnings release. 

Conference Call Information

The Company will discuss its fourth-quarter and full-year 2018 earnings results on a conference call and an online web simulcast today (February 12, 2019). The live broadcast of the Martin Marietta conference call will begin at 11:00 a.m. Eastern Time today. An online replay will be available approximately two hours following the conclusion of the live broadcast. A link to these events will be available at the Company’s website. Additionally, the Company has posted supplemental information related to its fourth-quarter and full-year performance on its website. For those investors without online web access, the conference call may also be accessed by calling (970) 315-0423, confirmation number 6094308.

About Martin Marietta

Martin Marietta, a member of the S&P 500 Index, is an American-based company and a leading supplier of building materials, including aggregates, cement, ready mixed concrete and asphalt. Through a network of operations spanning 27 states, Canada and The Bahamas, dedicated Martin Marietta teams supply the resources necessary for building the solid foundations on which our communities thrive. Martin Marietta’s Magnesia Specialties business provides a full range of magnesium oxide, magnesium hydroxide and dolomitic lime products. For more information, visit www.martinmarietta.com or www.magnesiaspecialties.com.

Investor Contact:  
Suzanne Osberg
Vice President, Investor Relations
(919) 783-4691
Suzanne.Osberg@martinmarietta.com

MLM-E.

If you are interested in Martin Marietta Materials, Inc. stock, management recommends that, at a minimum, you read the Company’s current annual report and Forms 10-K, 10-Q and 8-K reports to the Securities and Exchange Commission (SEC) over the past year.  The Company’s recent proxy statement for the annual meeting of shareholders also contains important information.  These and other materials that have been filed with the SEC are accessible through the Company’s website at www.martinmarietta.com and are also available at the SEC’s website at www.sec.gov.  You may also write or call the Company’s Corporate Secretary, who will provide copies of such reports.

Investors are cautioned that all statements in this press release that relate to the future involve risks and uncertainties, and are based on assumptions that the Company believes in good faith are reasonable but which may be materially different from actual results.  These statements, which are forward-looking statements under the Private Securities Litigation Reform Act of 1995, give the investor the Company’s expectations or forecasts of future events.  You can identify these statements by the fact that they do not relate only to historical or current facts.  They may use words such as “anticipate”, “expect”, “should”, “believe”, “will”, and other words of similar meaning in connection with future events or future operating or financial performance.  Any or all of our forward-looking statements here and in other publications may turn out to be wrong.

The Company’s outlook is subject to various risks and uncertainties, and is based on assumptions that the Company believes in good faith are reasonable but which may be materially different from actual results. Factors that the Company currently believes could cause actual results to differ materially from the forward-looking statements in this press release (including the outlook) include, but are not limited to: the performance of the United States economy; shipment declines resulting from economic events beyond the Company’s control; a widespread decline in aggregates pricing, including a decline in aggregates volume negatively affecting aggregates price; the history of both cement and ready mixed concrete being subject to significant changes in supply, demand and price fluctuations; the termination, capping and/or reduction or suspension of the federal and/or state gasoline tax(es) or other revenue related to infrastructure construction; the level and timing of federal, state or local transportation or infrastructure projects funding, most particularly in Texas, North Carolina, Iowa, Colorado, Georgia and Maryland; the United States Congress’ inability to reach agreement among themselves or with the current Administration on policy issues that impact the federal budget; the ability of states and/or other entities to finance approved projects either with tax revenues or alternative financing structures; levels of construction spending in the markets the Company serves; a reduction in defense spending and the subsequent impact on construction activity on or near military bases; a decline in the commercial component of the nonresidential construction market, notably office and retail space; a decline in energy-related construction activity  resulting from a sustained period of low global oil prices or changes in oil production patterns in response to this decline, particularly in Texas; a slowdown in residential construction recovery; unfavorable weather conditions, particularly Atlantic Ocean and Gulf Coast hurricane activity, the late start to spring or the early onset of winter and the impact of a drought or excessive rainfall in the markets served by the Company, any of which can significantly affect production schedules, volumes, product and/or geographic mix and profitability; the volatility of fuel costs, particularly diesel fuel, and the impact on the cost, or the availability generally, of other consumables, namely steel, explosives, tires and conveyor belts, and with respect to the Company’s Magnesia Specialties business, natural gas; continued increases in the cost of other repair and supply parts; construction labor shortages and/or supply‐chain challenges; unexpected equipment failures, unscheduled maintenance, industrial accident or other prolonged and/or significant disruption to production facilities; increasing governmental regulation, including environmental laws; transportation availability or a sustained reduction in capital investment by the railroads, notably the availability of railcars, locomotive power and the condition of rail infrastructure to move trains to supply the Company’s Texas, Colorado, Florida, North Carolina and the Gulf Coast markets, including the movement of essential dolomitic lime for magnesia chemicals to the Company’s plant in Manistee, Michigan and its customers; increased transportation costs, including increases from higher or fluctuating passed-through energy costs or fuel surcharges, and other costs to comply with tightening regulations, as well as higher volumes of rail and water shipments; availability of trucks and licensed drivers for transport of the Company’s materials; availability and cost of construction equipment in the United States; weakening in the steel industry markets served by the Company’s dolomitic lime products;  a trade dispute with one or more nations impacting the U.S. economy, including the impact of tariffs on the steel industry; unplanned changes in costs or realignment of customers that introduce volatility to earnings, including that of the Magnesia Specialties business that is running at capacity; proper functioning of information technology and automated operating systems to manage or support operations; inflation and its effect on both production and interest costs; the concentration of customers in construction markets and the increased risk of potential losses on customer receivables; the impact of the level of demand in the Company’s end-use markets, production levels and management of production costs on the operating leverage and therefore profitability of the Company;  the possibility that the expected synergies from acquisitions will not be realized or will not be realized within the expected time period, including achieving anticipated profitability to maintain compliance with the Company’s leverage ratio debt covenant; changes in tax laws, the interpretation of such laws and/or administrative practices that would increase the Company’s tax rate;  violation of the Company’s debt covenant if price and/or volumes return to previous levels of instability; continued downward pressure on the Company’s common stock price and its impact on goodwill impairment evaluations; reduction of the Company’s credit rating to non-investment grade; and other risk factors listed from time to time found in the Company’s filings with the SEC. 

You should consider these forward-looking statements in light of risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2017, our Current Report on Form 8-K filed on March 16, 2018 and other periodic filings made with the SEC.  All of our forward-looking statements should be considered in light of these factors.  In addition, other risks and uncertainties not presently known to us or that we consider immaterial could affect the accuracy of our forward-looking statements, or adversely affect or be material to the Company.  The Company assumes no obligation to update any such forward-looking statements.


 

               
MARTIN MARIETTA MATERIALS, INC.
Unaudited Statements of Earnings
(In thousands, except per share amounts)
               
  Three Months Ended     Year Ended  
  December 31,   December 31,
   2018      2017      2018      2017  
Products and services revenues $   956,051     $   911,831     $   3,980,351     $   3,723,478  
Freight revenues     64,167         58,647         263,914         242,116  
Total revenues     1,020,218         970,478         4,244,265         3,965,594  
               
Cost of revenues - products and services     727,650         652,215         3,009,810         2,749,488  
Cost of revenues - freight     65,284         59,161         267,878         244,166  
Total cost of revenues     792,934         711,376         3,277,688         2,993,654  
Gross Profit     227,284         259,102         966,577         971,940  
               
Selling general & administrative expenses     70,922         67,001         280,554         262,128  
Acquisition-related expenses, net     554         5,320         13,479         8,638  
Other operating expenses and (income), net     8,767         3,368         (18,193 )       793  
Earnings from operations     147,041         183,413         690,737         700,381  
               
Interest expense     33,542         23,449         137,069         91,487  
Other nonoperating income, net     (2,539 )       (3,600 )       (22,413 )       (10,034 )
Earnings before income tax expense     116,038         163,564         576,081         618,928  
Income tax expense (benefit)     21,557         (213,734 )       105,705         (94,457 )
Consolidated net earnings     94,481         377,298         470,376         713,385  
Less: Net earnings attributable to noncontrolling interests     103         116         378         43  
Net Earnings Attributable to Martin Marietta Materials, Inc. $   94,378     $   377,182     $   469,998     $   713,342  
               
Net earnings per common share attributable to common shareholders:              
Basic  $   1.50     $   5.98     $   7.46     $   11.30  
Diluted $   1.50     $   5.95     $   7.43     $   11.25  
               
Dividends per common share $   0.48     $   0.44     $   1.84     $   1.72  
               
Average number of common shares outstanding:              
  Basic     62,672         62,907         62,895         62,932  
  Diluted     62,918         63,213         63,147         63,217  
               

 

               
MARTIN MARIETTA MATERIALS, INC.
Unaudited Financial Highlights
(In thousands)
               
  Three Months Ended     Year Ended  
  December 31,   December 31,
   2018      2017      2018      2017  
Total revenues:              
Building Materials Business:              
Mid-America Group $   316,857     $   264,936     $   1,223,236     $   1,053,326  
Southeast Group     104,633         85,081         423,382         362,555  
West Group     526,753         552,980         2,309,924         2,279,723  
Total Building Materials Business     948,243         902,997         3,956,542         3,695,604  
Magnesia Specialties     71,975         67,481         287,723         269,990  
Total $   1,020,218     $   970,478     $   4,244,265     $   3,965,594  
               
Gross profit (loss):              
Building Materials Business:              
Mid-America Group $   96,458     $   92,616     $   366,918     $   335,394  
Southeast Group     20,262         23,019         77,193         74,642  
West Group     82,259         116,328         416,212         465,596  
Total Building Materials Business     198,979         231,963         860,323         875,632  
Magnesia Specialties     25,207         23,550         98,682         89,398  
Corporate     3,098         3,589         7,572         6,910  
Total $   227,284     $   259,102     $   966,577     $   971,940  
               
Selling, general and administrative expenses:              
Building Materials Business:              
Mid-America Group $   14,516     $   14,002     $   55,775     $   53,937  
Southeast Group     5,037         4,249         18,727         17,144  
West Group     27,721         26,984         107,613         102,650  
Total Building Materials Business     47,274         45,235         182,115         173,731  
Magnesia Specialties     2,487         2,391         9,999         9,537  
Corporate     21,161         19,375         88,440         78,860  
Total $   70,922     $   67,001     $   280,554     $   262,128  
               
Earnings (Loss) from operations:              
Building Materials Business:              
Mid-America Group $   83,918     $   79,849     $   319,139     $   284,789  
Southeast Group     15,377         18,907         75,840         61,238  
West Group      45,915         90,298         295,801         360,544  
Total Building Materials Business     145,210         189,054         690,780         706,571  
Magnesia Specialties     22,196         20,842         88,063         79,431  
Corporate     (20,365 )       (26,483 )       (88,106 )       (85,621 )
Total $   147,041     $   183,413     $   690,737     $   700,381  
               

 

               
MARTIN MARIETTA MATERIALS, INC.
Unaudited Financial Highlights (Continued)
(In thousands)
               
  Three Months Ended     Year Ended  
  December 31,   December 31,
   2018      2017      2018      2017  
Total revenues:              
Building Materials business products and services:              
Aggregates $   577,549     $   515,646     $   2,355,673     $   2,134,927  
Cement      87,277         90,272         387,830         371,233  
Ready Mixed Concrete     213,346         231,566         963,770         936,037  
Asphalt and paving     69,190         76,918         268,679         292,571  
Less:  Interproduct sales     (58,557 )       (65,375 )       (264,237 )       (264,012 )
Subtotal     888,805         849,027         3,711,715         3,470,756  
Freight     59,438         53,970         244,827         224,848  
Total Building Materials Business     948,243         902,997         3,956,542         3,695,604  
Magnesia Specialties business:              
Products and services     67,246         62,804         268,636         252,722  
Freight     4,729         4,677         19,087         17,268  
Total Magnesia Specialties Business     71,975         67,481         287,723         269,990  
Consolidated total revenues $   1,020,218     $   970,478     $   4,244,265     $   3,965,594  
               
Gross profit (loss):              
Building Materials business products and services:              
Aggregates $   146,133     $   160,637     $   606,759     $   599,670  
Cement      28,631         29,413         126,213         117,021  
Ready Mixed Concrete     7,950         21,103         74,175         91,646  
Asphalt and paving     16,438         20,248         52,917         64,693  
Subtotal     199,152         231,401         860,064         873,030  
Freight     (173 )       562         259         2,602  
Total Building Materials Business     198,979         231,963         860,323         875,632  
Magnesia Specialties business:              
Products and services     26,151         24,625         102,905         94,050  
Freight     (944 )       (1,075 )       (4,223 )       (4,652 )
Total Magnesia Specialties Business     25,207         23,550         98,682         89,398  
Corporate     3,098         3,589         7,572         6,910  
Consolidated gross profit  $   227,284     $   259,102     $   966,577     $   971,940  
               

 

           
MARTIN MARIETTA MATERIALS, INC.  
Balance Sheet Data  
(In thousands)  
           
    December 31,   December 31,  
     2018    2017  
    (Unaudited)   (Audited)  
ASSETS          
Cash and cash equivalents   $   44,892   $   1,446,364  
Accounts receivable, net       523,276       487,240  
Inventories, net       663,035       600,591  
Other current assets       134,613       96,965  
Property, plant and equipment, net       5,157,229       3,592,813  
Intangible assets, net       2,900,400       2,666,639  
Other noncurrent assets       127,974       101,899  
Total assets   $   9,551,419   $   8,992,511  
           
           
LIABILITIES AND EQUITY          
Current maturities of long-term debt and short-term facilities   $   390,042   $   299,909  
Other current liabilities       396,708       394,307  
Long-term debt (excluding current maturities)       2,730,439       2,727,294  
Other noncurrent liabilities       1,084,818       888,524  
Total equity       4,949,412       4,682,477  
Total liabilities and equity   $   9,551,419   $   8,992,511  
           

 

       
MARTIN MARIETTA MATERIALS, INC.
Unaudited Statements of Cash Flows
(In thousands)
  Twelve Months Ended
  December 31,
   2018      2017  
Operating activities:      
Consolidated net earnings  $   470,376     $   713,385  
Adjustments to reconcile consolidated net earnings to net cash provided by operating activities:      
Depreciation, depletion and amortization     344,033         297,162  
Stock-based compensation expense     29,253         30,460  
Gains on sales of assets     (39,260 )       (19,366 )
Deferred income taxes     85,063         (239,056 )
Noncash portion of asset and portfolio rationalization charge   16,970       -  
Other items, net   (8,891 )       (13,437 )
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:      
Accounts receivable, net     (10,617 )       (29,329 )
Inventories, net     (21,984 )       (78,966 )
Accounts payable     20,148         (17,874 )
Other assets and liabilities, net     (179,943 )       14,619  
Net cash provided by operating activities     705,148         657,598  
       
Investing activities:      
Additions to property, plant and equipment     (375,954 )       (410,325 )
Acquisitions, net of cash acquired     (1,642,137 )       (12,095 )
Proceeds from divestitures and sales of assets     69,114         35,941  
Investments in life insurance contracts, net     771         280  
Payment of railcar construction advances     (79,351 )       (43,594 )
Reimbursement of railcar construction advances     79,351         43,594  
Net cash used for investing activities     (1,948,206 )       (386,199 )
       
Financing activities:      
Borrowings of long-term debt     1,000,000         2,408,830  
Repayments of long-term debt     (910,052 )       (1,065,048 )
Payments of deferred acquisition consideration     (6,707 )       (2,774 )
Payments on capital leases     (3,486 )       (3,543 )
Debt issue costs     (3,892 )       (2,204 )
Contributions by noncontrolling interest to joint venture     -          212  
Repurchases of common stock     (100,377 )       (99,999 )
Dividends paid     (116,436 )       (108,852 )
Purchase of the noncontrolling interest in the existing joint venture     (12,800 )       -   
Proceeds from exercise of stock options     7,201         10,110  
Shares withheld for employees' income tax obligations     (11,865 )       (11,805 )
Net cash (used for) provided by financing activities     (158,414 )       1,124,927  
       
Net (decrease) increase in cash and cash equivalents     (1,401,472 )       1,396,326  
Cash and cash equivalents, beginning of period     1,446,364         50,038  
Cash and cash equivalents, end of period $   44,892     $   1,446,364  
       

 

               
MARTIN MARIETTA MATERIALS, INC.
Unaudited Operational Highlights
               
  Three Months Ended     Year Ended  
  December 31, 2018   December 31, 2018
  Volume   Pricing   Volume   Pricing
Volume/Pricing Variance (1)              
Heritage Operations: (2)              
Mid-America Group   1.6 %     2.1 %     1.5 %     3.8 %
Southeast Group   (3.2 %)     7.4 %     (1.3 %)     3.0 %
West Group   (1.2 %)     0.5 %     (1.0 %)     2.0 %
Total Heritage Aggregates Product Line    (0.1 %)     2.3 %     0.1 %     3.0 %
Total Aggregates Product Line  (3)   11.4 %     0.5 %     8.3 %     1.9 %
               
  Three Months Ended     Year Ended  
  December 31,   December 31,
Shipments (tons in thousands)  2018      2017      2018      2017  
Heritage Operations: (2)              
Mid-America Group     18,195         17,915         73,647         72,539  
Southeast Group     4,695         4,849         20,161         20,429  
West Group     14,912         15,094         64,099         64,730  
Total Heritage Aggregates Product Line      37,802         37,858         157,907         157,698  
Acquisitions     4,371         -          12,929         -   
Total Aggregates Product Line  (3)     42,173         37,858         170,836         157,698  
               
(1)  Volume/pricing variances reflect the percentage increase (decrease) from the comparable period in the prior year.
               
(2)  Heritage aggregates operations exclude acquisitions that were not included in prior-year operations for a full year.
               
(3) Aggregates Product Line includes acquisitions from the date of acquisition and divestitures through the date of disposal.
               
  Three Months Ended     Year Ended  
  December 31,   December 31,
   2018      2017      2018      2017  
Shipments (in thousands)              
Aggregates tons - external customers     39,750         35,201         160,259         146,818  
Internal aggregates tons used in other product lines     2,423         2,657         10,577         10,880  
Total aggregates tons     42,173         37,858         170,836         157,698  
               
Cement tons - external customers     519         524         2,286         2,271  
Internal cement tons used in other product lines     256         300         1,222         1,196  
Total cement tons     775         824         3,508         3,467  
               
Ready Mixed Concrete - cubic yards     1,886         2,116         8,685         8,559  
               
Asphalt tons - external customers     272         260         1,076         1,123  
Internal asphalt tons used in road paving business     437         552         1,857         2,167  
Total asphalt tons     709         812         2,933         3,290  
               
Average unit sales price by product line (including internal sales):              
Aggregates (per ton):              
Heritage $   13.86     $   13.55     $   13.86     $   13.46  
Acquisition $   11.49     $   -      $   11.79     $   -   
Total $   13.61     $   13.55     $   13.71     $   13.46  
Cement (per ton) $   111.00     $   108.23     $   109.38     $   105.97  
Ready Mixed Concrete (per cubic yard) $   110.55     $   107.07     $   108.83     $   107.27  
Asphalt (per ton) $   45.27     $   44.42     $   44.60     $   43.41  
               

 

MARTIN MARIETTA MATERIALS, INC.
Non-GAAP Financial Measures  
(Dollars in thousands)
               
The ratio of Consolidated Debt-to-Consolidated EBITDA, as defined, for the trailing-12 months is a covenant under the Company's revolving credit facility and accounts receivable securitization facility.  Under the terms of these agreements, as amended, the Company's ratio of Consolidated Debt-to-Consolidated EBITDA as defined, for the trailing-12 months cannot exceed 3.50 times as of December 31, 2018, with certain exceptions related to qualifying acquisitions, as defined.
             
The following presents the calculation of Consolidated Debt-to-Consolidated EBITDA, as defined by the Company's Credit Agreement, at December 31, 2018, for the trailing-12 months EBITDA. For supporting calculations, refer to the Company's website at www.martinmarietta.com.
             
  Twelve Month Period            
  January 1, 2018 to              
  December 31, 2018            
Earnings from continuing operations attributable to Martin Marietta Materials, Inc. $   469,998              
Add back:              
Interest expense     137,069              
Income tax expense     105,637              
Depreciation, depletion and amortization expense     339,858              
Stock-based compensation expense     29,253              
Acquisition-related expenses, net     32,040              
Bluegrass EBITDA - Pre-Acquisition (January 1, 2018 to April 27, 2018)     16,607              
Noncash portion of asset and portfolio rationalization charge     16,970              
Deduct:              
Interest income     (7,027 )            
Consolidated EBITDA, as defined by the Company's Credit Agreement $   1,140,405              
               
Consolidated Debt, as defined and including debt for which the Company is a co-borrower, at December 31, 2018 $   3,144,071              
               
Consolidated Debt-to-Consolidated EBITDA, as defined by the Company's Credit Agreement, at December 31, 2018, for the trailing-12 months EBITDA  2.76 times              
             
               
EBITDA is a widely accepted financial indicator of a company's ability to service and/or incur indebtedness.  EBITDA is not defined by generally accepted accounting principles and, as such, should not be construed as an alternative to net earnings or operating cash flow.  For further information on EBITDA, refer to the Company's website at www.martinmarietta.com.  EBITDA is as follows:
               
  Three Months Ended     Year Ended  
  December 31,   December 31,
   2018      2017      2018      2017  
Consolidated Earnings Before Interest, Income Taxes, Depreciation, Depletion and Amortization (EBITDA) $   239,349     $   262,427     $   1,052,710     $   1,004,379  
               
A Reconciliation of Net Earnings Attributable to Martin Marietta to Consolidated EBITDA is as follows:
 
  Three Months Ended     Year Ended  
  December 31,   December 31,
   2018      2017      2018      2017  
Net Earnings Attributable to Martin Marietta $   94,378     $   377,182     $   469,998     $   713,342  
Add back:              
Interest Expense     33,542         23,449         137,069         91,487  
Income Tax Expense (Benefit) for Controlling Interests     21,567         (213,647 )       105,637         (94,401 )
Depreciation, Depletion and Amortization Expense     89,862         75,443         340,006         293,951  
Consolidated EBITDA $   239,349     $   262,427     $   1,052,710     $   1,004,379  
               
Aggregates shipments in the Southeast Group for January through April of 2018 and the year ended December 31, 2017 include the Forsyth, Georgia operation, which was divested in April 2018. 
               
The following table presents aggregates shipment data and volume variance excluding the Forsyth, Georgia operation from the periods of Martin Marietta's ownership to provide a more comparable analysis of aggregates volume variance (tons in 000s).
               
  Three Months Ended     Year Ended  
  December 31,   December 31,
   2018      2017      2018      2017  
Southeast Group:              
Reported heritage aggregates shipments     4,695         4,849         20,161         20,429  
Less:  Aggregates shipments for the Forsyth, Georgia quarry during periods of Martin Marietta ownership     -          (243 )       (230 )       (927 )
Adjusted heritage aggregates shipments      4,695         4,606         19,931         19,502  
               
Heritage aggregates volume variance excluding shipments for the Forsyth, Georgia quarry   1.9 %         2.2 %    
               
Total Heritage Business:              
Reported heritage aggregates shipments     37,802         37,858         157,907         157,698  
Less:  Aggregates shipments for the Forsyth, Georgia quarry during periods of Martin Marietta ownership     -          (243 )       (230 )       (927 )
Adjusted heritage aggregates shipments      37,802         37,615         157,677         156,771  
               
Heritage aggregates volume variance excluding shipments for the Forsyth, Georgia quarry   0.5 %         0.6 %    
               

 

MARTIN MARIETTA MATERIALS, INC.
Non-GAAP Financial Measures (continued)
(Dollars in thousands)
               
Adjusted consolidated gross profit, adjusted consolidated earnings from operations and adjusted consolidated EBITDA for the three months and year ended December 31, 2018 and 2017, exclude the impact of acquisition-related expenses, net; the impact of selling acquired inventory after its markup to fair value as part of acquisition accounting; and the impact of the asset and portfolio rationalization charge.  Acquisition-related expenses, net, consist of acquisition and integration expenses and the nonrecurring gain on the required divestiture of a legacy Martin Marietta quarry in Georgia as part of the acquisition of Bluegrass Materials.  Adjusted consolidated gross profit, adjusted consolidated earnings from operations and adjusted EBITDA represent non-GAAP financial measures. Management presents these measures for investors and analysts to evaluate and forecast the Company's financial results, as acquisition-related expenses, net; the impact of selling acquired inventory after its markup to fair value as part of acquisition accounting; and the asset and portfolio rationalization charge are nonrecurring.
               
The following reconciles consolidated gross profit in accordance with GAAP to adjusted consolidated gross profit:        
  Three Months Ended December 31   Year Ended December 31
   2018    2017    2018    2017
Consolidated gross profit in accordance with GAAP $   227,284   $   259,102   $   966,577   $   971,940
Add back:              
Impact of selling acquired inventory due to the markup to fair value as part of acquisition accounting     222       -        18,738       - 
Adjusted consolidated gross profit $   227,506   $   259,102   $   985,315   $   971,940
               
The following reconciles consolidated earnings from operations in accordance with GAAP to adjusted consolidated earnings from operations:
  Three Months Ended December 31   Year Ended December 31
   2018    2017    2018    2017
Consolidated earnings from operations in accordance with GAAP $   147,041   $   183,413   $   690,737   $   700,381
Add back:              
Acquisition-related expenses, net     554       5,320       13,479       8,638
Impact of selling acquired inventory due to the markup to fair value as part of acquisition accounting     222       -        18,738       - 
Asset and portfolio rationalization charge     11,725       -        18,838       - 
Adjusted consolidated earnings from operations $   159,542   $   188,733   $   741,792   $   709,019
               
               
The following reconciles consolidated EBITDA to adjusted consolidated EBITDA:        
  Three Months Ended December 31   Year Ended December 31
   2018    2017    2018    2017
Consolidated EBITDA $   239,349   $   262,427   $   1,052,710   $   1,004,379
Add back:              
Acquisition-related expenses, net     554       5,320       13,479       8,638
Impact of selling acquired inventory due to the markup to fair value as part of acquisition accounting     222       -        18,738       - 
Asset and portfolio rationalization charge     11,725       -        18,838       - 
Adjusted consolidated EBITDA $   251,850   $   267,747   $   1,103,765   $   1,013,017
               
               
The following is a reconciliation of the GAAP measure to the midpoint of the 2019 EBITDA guidance:
               
Net Earnings Attributable to Martin Marietta  $   570,000  
Add back:    
 Interest Expense     135,000  
  Taxes on Income     150,000  
  Depreciation, Depletion and Amortization Expense     370,000  
EBITDA $   1,225,000  
               

 

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