Martin Marietta Ends 2022 With Robust Pricing Gains, but Moderating Demand

Narrow-moat-rated Martin Marietta MLM reported solid fourth-quarter results on strong aggregate and cement pricing gains. Construction end markets in much of the U.S. held up during the fourth quarter, but volumes were down across the company’s products against tough comps and softening demand. Net sales decreased 1% year over year as higher selling prices and the benefit of acquisitions were more than offset by lower volumes. Gross margins improved roughly 80 basis points year over year to 24% but declined 290 basis points sequentially. Pricing remains strong across Martin Marietta’s portfolio, with all product lines seeing double-digit price growth in 2022.

Martin Marietta’s aggregate business saw shipments in the fourth quarter decrease roughly 12% from a year ago while selling prices increased almost 17%. Higher energy and freight costs weighed on the segments gross margins during the quarter but were somewhat offset by pricing actions. Martin Marietta has benefited from robust demand in recent years, but rising interest rates and heightened economic uncertainty appear to be weighing on some of its end markets. That said, the firm continues to push through price increases, with its most recent increase announced at the beginning of 2023.

Looking ahead, we maintain our view that infrastructure spending will start in 2023 and ramp up through 2024. We expect Martin Marietta to see a majority of these shipments in 2024 and thereafter, once budgets have been finalized and projects ramp. This will offset slowing in residential and nonresidential construction but will leave 2023 with minimal volume growth. This is somewhat concerning as fourth-quarter volumes were down across most of the firm’s product lines. That said, we expect additional pricing actions during the year as Martin Marietta uses its pricing power to offset lower volumes and higher operating costs. We are maintaining our fair value estimate of $296 per share.