Sources: Martin Marietta Materials, Raleigh, N.C.; Vulcan Materials Co., Birmingham, Ala.; CP
With stakes in some of the strongest cement, concrete and aggregate markets, two of the industry’s top bellwether operators kicked off August with parallel messages to investors: Even with the negative effect of heavy spring rains on shipments, especially in Texas, first half sales and profits climbed when compared to the first six months of 2014. Upbeat second quarter 2015 earnings reports, plus solid sales, pricing and profit projections, sent Martin Marietta Materials stock toward an all-time high, $170/share, and Vulcan Materials stock to an eight-year high, hovering $96/share.
Martin Marietta cites National Oceanic and Atmospheric Administration figures indicating the U.S. experienced the second wettest second quarter in more than a century. In Texas, where the producer holds much sway on the heels of its 2014 merger with TXI, agency figures show 2015 bringing the wettest January–June for the 121 years rainfall data has been tracked.
“These highly unusual factors resulted in nearly $100 million in deferred net sales across all product lines, which lowered gross profit by an estimated $27 million,” says Martin Marietta CEO Ward Nye. “Assuming normal levels of precipitation, we expect exceptional performance from our businesses in response to strong demand that was delayed during the first half of the year … As we look at the remainder of 2015 and into 2016, contractor backlogs and other macro‐economic indicators underscore the pent‐up demand for our products, and that should allow us to capture delayed shipments in future quarters. Job growth on a national level continues to be a strong catalyst for construction activity and, during the trailing‐12 months ended June 2015, the U.S. added almost three million jobs.
“Texas ranks second in the nation in job growth and has added almost one million jobs during the last three years. This coincides with all major Texas metropolitan areas reporting their highest growth rate in overall economic activity in more than 30 years.” A July 2015 Federal Reserve Bank of Dallas report, he adds, notes Houston’s “refining, petrochemicals and service industries are managing to offset oil‐producer woes,” while the Texas Department of Transportation’s fiscal year 2015 lettings budget of nearly $7.5 billion reflects major project activity acceleration and augments a multiyear backlog.
Vulcan Materials logged second quarter revenue and gross profit increases of 13 percent and 34 percent, respectively, from the prior year, while existing aggregate sites’ shipments climbed 5 percent and freight-adjusted aggregates prices rose 6 percent against comparable 2014 figures. “The continuing recovery in construction activity across most of our markets was masked by extremely wet weather, particularly in April and May,” says CEO Tom Hill. “Despite deferred shipments and operating cost challenges due to these weather conditions, our local teams delivered another quarter of significant margin improvements—a pattern of performance sustained since the gradual recovery in shipments began eight quarters ago. Customer confidence and the overall demand outlook continue to improve, and, as expected, pricing momentum continues to strengthen.”
A key factor in shipments for the second half of 2015, he adds, “will be the ability of our customers to recover weather-delayed volume from the first half, which can be a challenge in a growing market where scheduled work is compressed into a shorter time period.”