Martin Marietta Materials (NYSE: MLM) reported Q1 EPS of $0.41, $0.08 worse than the analyst estimate of $0.49. Revenue for the quarter came in at $958.2 million versus the consensus estimate of $881.86 million.

• LONG-TERM FUNDAMENTALS OF BUSINESS REMAIN POSITIVE
• Shipments and Pricing Increased Across Majority of Building Materials Business in the First Quarter
• Cement and Magnesia Specialties Delivered First-Quarter Margin Expansion
• Company Strengthened Balance Sheet through Long-Term Debt Offering in Early March
• Company Well Prepared for COVID-19 Challenging Operating Conditions
• Withdraws Previously-Issued Full-Year 2020 Guidance in Light of COVID-19 Uncertainty

Ward Nye, Chairman and CEO of Martin Marietta, stated, “For the first three months of the year, Martin Marietta delivered strong financial and operational performance, generating Adjusted EBITDA of $149 million. We established a new first-quarter record for consolidated revenues, as product demand led to improved shipments and pricing across most of our Building Materials business. Notably, production efficiencies improved our year-over-year per unit aggregates cost. While this is what we aim for, as lower unit costs improve operating margins, in the current quarter, this lower unit cost served to reduce aggregates inventory valuation. This year-over-year impact alone lowered earnings per share by $0.18. Further, the prior-year’s first-quarter benefitted from a change in tax election for a subsidiary of $0.21 per share. Understanding those circumstances largely contextualizes our impressive first-quarter 2020 performance. Additionally, we strengthened the Company’s balance sheet and cash position through the early March issuance of $500 million of 2.5% senior notes due in 2030. While our solid first-quarter performance provided a promising start to 2020, we recognize this will now be a challenging year for our country, customers, communities and industry as a whole. Thus, given the unprecedented level of uncertainty surrounding the length, breadth and severity of the coronavirus (COVID-19) pandemic, we have withdrawn our previously-issued full-year 2020 guidance and will not update it at this time. With that said, we remain confident that the attractive underlying market fundamentals and long-term secular growth trends in our key geographies, both of which underpinned the Company’s record 2019 performance and strong first-quarter 2020 results, remain intact and will be evident once again as the U.S. economy stabilizes and recovers.

“Our Company’s commitment to operational excellence, disciplined approach to growth and tradition of preparedness have positioned us well to weather this period of uncertainty. We have thoughtfully developed and consistently executed on our strategic plans, positioning our business as an aggregates leader in attractive high-growth geographies, aligning our product offerings to leverage strategic cement and targeted downstream opportunities and prudently allocating capital while maintaining financial flexibility. In doing so, we have built a business that is durable and resilient. While Martin Marietta is not immune to the impact of COVID-19, we believe our Company is well prepared to meet the current and coming challenges.

“Importantly, the Company’s balance sheet remains healthy and we have ample liquidity for the foreseeable future. Martin Marietta, along with our customers, continues to operate as an “essential business” in most jurisdictions and, through the end of April, we have seen minimal disruption to our operations, workforce and supply chains from the effects of COVID-19 and related government agency responses. Nonetheless, we anticipate product demand will soften in the coming months, as businesses and governments prioritize actions in response to COVID-19. Our team has plans for a variety of scenarios and will react appropriately to changing conditions. We will continue to closely monitor the situation and focus on safeguarding our stakeholders’ health and well-being, operating safely and efficiently, preserving liquidity and aligning costs with customer demand.”

Mr. Nye concluded, “Consistent with our values of safety, integrity, excellence, community, and stewardship, Martin Marietta is committed to providing the products and services our communities need. I am enormously proud of the determination, professionalism and devotion of our Martin Marietta employees who are working each and every day. Their dedication supports our communities and business partners who are persevering through the impacts of the current crisis. We remain appropriately focused on our tactical day-to-day responsibilities and ever mindful of the values and strategies that have driven our long track-record of success. Guided by our shared commitment to the world-class attributes of our business, safety, operational excellence, cost management, and the disciplined execution of our proven strategic plan, Martin Marietta has the right strategies, priorities and team to responsibly navigate through these challenging times and drive sustainable long-term growth and shareholder value.”

Full-Year Outlook

The Company has withdrawn its 2020 full-year guidance issued on February 11, 2020, given the economic disruptions driven by the COVID-19 pandemic and the multiple measures put in place to treat and minimize the spread of the virus. We cannot reliably forecast the impact these disruptions will have on the U.S. economy, the timing and benefits of related governmental actions and, more specifically, demand for the Company’s products and services. While most jurisdictions have deemed the supply of construction materials as an essential business, Martin Marietta believes its industry will likely experience lower overall demand during the COVID-19 crisis. However, the magnitude of decline and speed and rate of recovery are likely to vary by construction end-use market and geography.

• Of the Company’s three primary end uses, the outlook for infrastructure construction, particularly for aggregates-intensive highways and streets, is expected to be the most near-term resilient. While the majority of the United States has currently been ordered to shelter in place, most state Departments of Transportation (DOTs) are currently operational and continue to advance transportation projects, capitalizing on the reduction of vehicles on the road and related traffic congestion. Florida, for example, recently announced plans to accelerate $2.1 billion of critical transportation projects. That said, state DOTs are experiencing lower revenue collections and states may have other short-term funding needs relating to the COVID-19 impact that may decrease the scale and/or postpone the timing of future construction. Industry representatives are actively engaging with Congress to address surface transportation infrastructure in the “Phase 4” emergency relief and economic recovery COVID-19 legislation, including an immediate $49.95 billion in flexible federal funding to offset an estimated 30 percent loss in state transportation revenues in the next 18 months and the passage of a comprehensive major surface transportation reauthorization package.
• Nonresidential construction activity on existing projects has continued in most regions. However, according to an April 2020 survey published by the Associated General Contractors of America, an overwhelming number of respondents indicated that commercial projects in the design or planning stages are being delayed or canceled. Unlike commercial activity, industrial construction is not expected to experience significant near-term disruption from COVID-19. Warehouses, distribution centers and data centers are expected to perform relatively well in the current environment as businesses increase e-commerce activity, secure regional supply chains and become more reliant on cloud and network services. Similarly, large energy-sector projects along the Gulf Coast of Texas that are actively underway are expected to continue.
• Residential construction activity is expected to decline in 2020, as homebuilders and homebuyers delay plans in the wake of unprecedented economic uncertainty. Supported by third-party forecasts, management believes the residential decline will be widespread but not as persistent as the period of low activity seen during the Great Recession as Freddie Mac estimates that 2.5 million housing units are needed to address the current nationwide housing shortage. This situation is particularly evident in states with significant undersupply, including Texas, Colorado, North Carolina and Florida. On a national level, housing starts remain below the 50-year annual average of 1.5 million despite notable population gains.

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