Martin Marietta Earnings: Pricings Gains Show No Signs of Slowing, but Shares Look Expensive

Narrow-moat-rated Martin Marietta Materials MLM reported solid second-quarter results as a slowdown in shipments was more than offset by pricing gains across its portfolio. Net sales increased 11% year over year as three of its four primary segments reported double-digit growth in average selling prices. Despite near-term pressure on shipments, Martin Marietta continues to flex its pricing power, which we expect will offset shipment headwinds through the end of the year. As such, we’ve increased our fair value estimate to $323 per share from $304 due to higher near-term profitability in our forecast.

Martin Marietta’s aggregates business reported mixed results in the quarter, with shipments decreasing 6% due to the lag between aggregate shipments and last year’s decline in housing starts, but average selling prices surged almost 19% as previously announced price increases continued to bear fruit. Additionally, gross margins expanded over 300 basis points from a year ago to 32.2% as higher non-energy-related costs were more than offset by selling price gains. Martin Marietta’s aggregates business continues to perform well due to solid construction spending, but shipments remained pressured despite the significant funds allocated for infrastructure in many of its markets. While we expect shipments will remain pressured through the end of the year, robust pricing should provide a tailwind for growth.

The cement business continued to perform well amid strong market dynamics in Texas, with revenue growing 21% year over year and gross margins reaching an impressive 47% in the quarter due to higher selling prices and lower energy costs. Martin Marietta announced cement price increases on July 1, which should provide an added tailwind for the segment in the second half of the year. Additionally, Martin Marietta’s new mill in Texas is expected to be completed in the second half of 2024, which should provide much-needed capacity in the nearly sold-out Texas cement market.