Summary
MLM sees a strong Q3, despite being impacted by weather related issues.
Segment performance remain strong owing to presence in markets with high demand and pricing power, enabled by tailwinds from regulatory support.
Valuation remains low on price to earnings basis, however market leadership and share repurchase can boost earnings growth.
Strong quarter impacted by one-offs
Martin Marietta Materials (MLM) witnessed a very strong Q3 despite a challenging operating environment and put forward a positive outlook for the upcoming year in regards to volume and price. While the current quarter was impacted by weather related events, they should be transitory in nature and the long term story remains intact. Being the second largest US aggregates supplier, and its positioning in strong markets, MLM is expected to benefit from surge in construction activities. Particular case in point are regulatory impetus from the likes of FAST act. Downside risks include lack of growth in these above sectors. From a valuation point of view, the company’s price to earnings ratio remain at a multi-year low, having derated to sub-20x levels, which makes it an interesting story to track. Stock repurchase will add on to earnings growth going forward.
The company’s adjusted EBITDA of c$349 million was above the street estimate of $336 million in 3Q18, a c4% beat. However, the gross profit margin of the aggregates segment fell short of consensus expectations by 30bps, recording 30.4% vis a vis 30.7% street. The marginal reduction in gross profits were due to low performance of the non-aggregates business, as the industry was affected by weather and lower business of asphalt paving and ready-mixed concrete.
