Martin Marietta Earnings: Robust Pricing Boosts Results Despite a Pullback in Shipments

Narrow-moat-rated Martin Marietta MLM reported strong first-quarter results as the building materials giant continued to flex its pricing power. Net sales increased 10% year over year, led by double-digit price growth across its four primary segments. That said, shipments were down across the board, with ready-mix concrete and asphalt posting double-digit declines. Nevertheless, gross margins reached nearly 22.5% in the quarter, up substantially from 12.7% a year ago but down roughly 150 basis points sequentially due to higher operating and material costs. We’ve increased our fair value estimate to $304 from $296 per share, mainly due to time value of money.

Martin Marietta’s aggregates business reported a 20.5% increase in revenue year over year as robust pricing (23%) offset a slight pullback in shipments (negative 1%). The decline in shipments was largely attributable to weather conditions in California as demand across much of Martin Marietta’s aggregate portfolio proved resilient. The segment also benefited from a January price increase that would usually be implemented in April. This opens the door for a midyear price increase, with management noting this increase could be larger and further reaching than anticipated. While demand continues to moderate across some of Martin Marietta’s end markets amid heightened economic uncertainty, a midyear price increase would likely offset additional declines in shipments.

While management maintained 2023 guidance, it now expects results to be at the higher end of expectations. After the strong performance in the first quarter, we think guidance likely could have been raised, but management is taking a conservative approach because of uncertainties around the second half of the year. Nevertheless, we think the high end of guidance is achievable, especially when considering the pricing growth achieved in the first quarter, tailwinds from infrastructure spend, and the potential impact of midyear price increases.