CORRECTING and REPLACING Martin Marietta Materials, Inc. Announces Third-Quarter Results
October 28, 2008 at 09:49 AM EDT
Twelfth graph, fifth sentence of release should read: Accordingly, we reaffirm our 6% to 8% range for the rate of heritage aggregates price increases in 2008 (sted Accordingly, we reaffirm our 6% to 8% range for the rate of heritage aggregates price increases in 2009).
The corrected release reads:
MARTIN MARIETTA MATERIALS, INC. ANNOUNCES THIRD-QUARTER RESULTS
Martin Marietta Materials, Inc. (NYSE:MLM) today announced results for the third quarter and nine months ended September 30, 2008. Notable items were:
Stephen P. Zelnak, Jr., Chairman and CEO of Martin Marietta Materials, stated, “We are very pleased with our third-quarter results as they highlight our ability to adapt our business to successfully address the most challenging economic times in the Corporation’s history. Aggregates volumes declined for the tenth consecutive quarter, diesel fuel and natural gas costs escalated 47% during the quarter, and adverse weather conditions in the wake of Tropical Storm Fay and Hurricanes Gustav, Hannah and Ike had a negative impact on operations not only in the Gulf Coast region, but also in the Southeast and Central United States as the storm systems moved inland. Nevertheless, our management team and employees again balanced the productive capacity of our operations to market demand and aggressively addressed controllable costs.
“We continued to achieve sustainable pricing growth within all groups of the aggregates business with heritage aggregates pricing up 8% for the quarter. With the exception of Iowa and Arkansas, the difficult economic environment caused aggregates volumes to fall in all of our states with the overall volume in the heritage aggregates business declining 13%. The strong farm economy, coupled with increased alternative energy construction in Iowa and energy expansion projects in Arkansas, East Texas and Northwest Louisiana, supported volume growth in these areas. Infrastructure and commercial construction demand remains challenging, most notably from the lack of credit availability, which has stalled overall construction activity. Our West Group experienced its first quarterly volume decline of the year, reflecting the impact of the hurricanes as well as weakness in construction activity. We estimate that the third-quarter hurricane season caused our West Group to reduce shipments by 0.8 million tons and, when coupled with lost sales and increased production costs from storms in the Mideast and Southeast Groups, adverse weather lowered profitability of the Aggregates business by approximately $6 million, or $0.08 per diluted share.
“Although petroleum-based energy prices are beginning to decline, increased energy costs continued to have a negative impact on both costs and sales in the past quarter. Liquid asphalt, used in the production of hot-mix asphalt products, increased approximately 128% over the prior year with average pricing approaching $800 per ton at peak. Our customers, and oftentimes end users, cannot react quickly enough to these escalating costs and, when possible, have chosen to defer work in anticipation of future potential cost reductions. The rise in the cost of petroleum-based products resulted in additional production costs of $16 million, or $0.23 per diluted share, for the quarter.
“Selling, general and administrative expenses of $37.7 million included a settlement charge of $2.6 million for payment of vested benefits provided by the Corporation’s SERP (Supplemental Excess Retirement Plan). Selling, general and administrative expense, excluding this charge, was $35.1 million compared with $36.4 million in the prior-year period, reflecting our continued focus on cost management.
“During the year, we have been evaluating a number of strategic initiatives in our ongoing efforts to enhance our business and create shareholder value. Related to these undertakings, we incurred $3 million in non-recurring expenses during the third quarter for professional fees paid to advisors. These expenses are included in other operating income and expenses, net. The combination of the SERP and strategic initiatives expenses reduced earnings by $0.08 per diluted share.
“On a positive note, the State of Florida has recently launched the ‘Accelerate Florida’ initiative aimed at advancing start dates on $1.4 billion in road construction funding to create jobs and stimulate the state’s weakening construction economy. The Florida Department of Transportation announced that these projects will employ 39,000 people and generate $7.84 billion in economic benefits, a $5.60 return on each state dollar invested. Martin Marietta is uniquely positioned to provide high-quality granite construction aggregates into the Florida infrastructure market from our offshore quarry in Nova Scotia and interior fall line quarries in Georgia and South Carolina. Our new plant in Augusta, Georgia, will begin operations in the fourth quarter of 2008 versus the prior forecast of second quarter 2009. The earlier completion of this project, which increases aggregates capacity from 2 million tons to 6 million tons annually, is enabling us to engage in marketing discussions with major Florida customers in advance of the infrastructure acceleration.
“Our Specialty Products business continues to perform exceptionally well. The United States’ steel market has remained positive, leading to increased dolomitic lime demand. Similarly, we’ve experienced increased demand for magnesia-based chemicals products used in a number of environmental applications as well as for our heat-resistant products. The business delivered record third-quarter net sales of $46.4 million, an increase of 18% compared with the prior-year quarter, with earnings from operations of $8.6 million, or approximately 19% of net sales.
LIQUIDITY AND CAPITAL RESOURCES
“Our business continues to generate solid cash flows even in a weak economy. For the nine months ended September 30, 2008, net cash provided by operating activities was $271 million, down $2 million versus the comparable prior-year period, in spite of a $55 million decline in net earnings during the same period. Control of working capital and lower cash taxes, resulting from lower pretax earnings and higher benefits from bonus depreciation deductions, have contributed to maintaining our cash flows. We ended the quarter with $14 million in cash, no outstanding commercial paper balance, $323 million available under our revolving credit agreement and debt-to-trailing-12-month EBITDA of 2.49 times, within our targeted range of 2.0 to 2.5 times.
“On October 24, 2008, we amended our credit agreement to provide for an increase in our leverage covenant to 3.25 times debt-to-trailing-12-month EBITDA. In exchange for the covenant modification, the Corporation agreed to an increase in the drawn facility fee under a pricing grid tied to long-term debt rating, currently LIBOR plus 225 basis points.
“Moody’s and Standard & Poor’s have continued to view our industry with concern for the near term, so it was not unexpected that the agencies placed the Corporation on a negative credit watch. Further, on October 24, 2008, Moody’s downgraded the Corporation’s long-term rating from Baa3 to Baa1, and downgraded our commercial paper rating to P-3 from P-2 with a stable outlook. While we understand that the agencies are taking a suitably cautious approach in gauging the effect of the current economic downturn on the Corporation’s ability to generate sufficient cash flow, we are comfortable with our leverage covenant and we have liquidity available to refinance the $200 million, 5.875% Senior Notes due December 1, 2008. In addition, based on discussions with our bank group, we expect to have continued access to the public credit markets, although at a higher cost of debt when compared with our 5.9% weighted average interest rate at September 30, 2008. However, given the dynamic, unpredictable state of the credit markets, accessing the availability under our credit facility remains an option. We continue to believe that we have sufficient liquidity from the cash flows generated in the operation of the business, from our ability to reduce levels of capital expenditures – expected to be no more than $185 million in 2009, and from our ability to execute against an aggressive cost-reduction plan.
“Over the past 45 to 60 days, the lack of available business credit has stalled construction activity and further affected demand for our products. Construction projects underway have had credit effectively pulled, and new projects are subject to increasingly tighter lending standards. The unpredictable state of the economy, energy inflation, credit market uncertainty and lagging construction demand make forecasting increasingly difficult. That said, pricing continues to remain positive, even in this challenging climate. Accordingly, we reaffirm our 6% to 8% range for the rate of heritage aggregates price increases in 2008. However, with the pressure on volumes, we now expect our aggregates shipments to be down 11% to 12% for the year. We continue to expect record sales and pretax earnings of $36 million to $38 million from our Specialty Products segment. Based on these factors, we expect net earnings for 2008 to be in the range of $4.25 to $4.65 per diluted share.
“We are beginning to develop our preliminary views on 2009 as we complete our regional operating plans and would characterize the upcoming year as a period of stabilization with the first half subject to continued aggregates volume pressure. We currently expect modest price increases, stabilizing aggregates demand and a deflationary cost environment, as it relates to energy costs. While we are taking a very conservative view in our 2009 planning, it is becoming more likely that the federal government will create a new economic stimulus package, and it appears that both federal and state governments will look toward making increased investment in road construction and other infrastructure as a jobs-creation tool. We will provide our full guidance for 2009 when we release annual earnings for 2008 early next year and have more information about government spending on infrastructure projects.”
RISKS TO EARNINGS EXPECTATIONS
The 2008 estimated earnings range includes management’s assessment of the likelihood of certain risk factors that will affect performance within the range. The most significant risk to 2008 earnings, whether within or outside current earnings expectations, continues to be the performance of the United States economy, the uncertainty and availability of credit markets and the effect on construction activity.
Risks to the earnings range are primarily volume related and include a greater-than-expected drop in demand as a result of the continued decline in residential construction, continued decline in commercial construction, delays in infrastructure projects, or some combination thereof. Further, increased highway construction funding pressures as a result of either federal or state issues can affect profitability. Currently, North Carolina, Georgia, Texas, and South Carolina are experiencing state-level funding pressures, and these states may disproportionately affect profitability. The price of liquid asphalt is a significant cost component in the production of hot-mix asphalt products and can cause road builders and commercial contractors to delay or defer work in anticipation of liquid asphalt cost changes. The level of aggregates demand in the Corporation’s end-use markets, production levels and the management of production costs will affect the operating leverage of the Aggregates business and, therefore, profitability. Production costs in the aggregates business are also sensitive to energy prices, the costs of repair and supply parts, and the start-up expenses for large-scale plant projects. The continued rising cost of diesel and other fuels increases production costs, either directly through consumption or indirectly through the higher cost of energy-related consumables, namely steel, explosives, tires and conveyor belts. Sustained periods of diesel fuel cost at the current level will continue to have a negative impact on profitability. The Aggregates business is also subject to weather-related risks that can significantly affect production schedules and profitability. Hurricane activity in the Atlantic Ocean and Gulf Coast generally is most active during the third and fourth quarters. Opportunities to reach the upper end of the earnings range depend on the aggregates product line demand exceeding expectations triggered by a significant reduction in liquid asphalt prices and/or increased credit availability, and continued decline in energy-related costs.
Risks to earnings outside of the range include a change in volume beyond current expectations as a result of economic events outside of the Corporation’s control. In addition to the impact of residential and commercial construction, the Corporation is exposed to risk in its earnings expectations from tightening credit markets and the availability of and interest cost related to its short- and intermediate-term financing. The Corporation’s commercial paper program is rated A-2 by Standards & Poor’s and P-3 by Moody’s.
CONSOLIDATED FINANCIAL HIGHLIGHTS
Net sales for the quarter were $526.2 million, a 3% decrease versus the $544.4 million recorded in the third quarter of 2007. Earnings from operations for the third quarter of 2008 were $115.0 million compared with $136.9 million in 2007. Net earnings were $66.3 million, or $1.58 per diluted share, versus 2007 third-quarter net earnings of $90.3 million, or $2.13 per diluted share.
Net sales for the first nine months of 2008 were $1.449 billion compared with $1.484 billion for the year-earlier period. Year-to-date earnings from operations were $262.7 million in 2008 versus $331.0 million in 2007. The Corporation posted an after-tax gain on discontinued operations of $5.1 million in 2008 compared with $1.3 million in 2007. For the nine-month period ended September 30, net earnings were $151.0 million, or $3.60 per diluted share, in 2008 compared with net earnings of $206.2 million, or $4.73 per diluted share, in 2007.
BUSINESS FINANCIAL HIGHLIGHTS
Net sales for the Aggregates business for the third quarter were $479.8 million compared with 2007 third-quarter sales of $505.2 million. Aggregates pricing at heritage locations was up 7.5%, while volume decreased 13.3%. Including acquisitions and divestitures, aggregates pricing increased 7.8% and aggregates volume declined 12.4%. Earnings from operations for the quarter were $112.4 million in 2008 versus $134.1 million in the year-earlier period. Year-to-date net sales for the Aggregates business were $1.314 billion versus $1.366 billion in 2007. Earnings from operations on a year-to-date basis were $262.7 million in 2008 compared with $333.1 million in 2007. For the nine-month period ended September 30, 2008, heritage aggregates pricing increased 6.0%, while volume was down 10.5%. Including acquisitions and divestitures, aggregates average selling price increased 6.2%, while volume declined 10.0%.
Specialty Products’ third-quarter net sales of $46.4 million increased 18.1% over prior-year net sales of $39.2 million. Earnings from operations for the third quarter were $8.6 million compared with $9.0 million in the year-earlier period. For the first nine months of 2008, net sales were $134.5 million and earnings from operations were $27.5 million compared with net sales of $117.5 million and earnings from operations of $24.5 million for the first nine months of 2008.
CONFERENCE CALL INFORMATION
The Corporation will host an online Web simulcast of its third-quarter 2008 earnings conference call later today (October 28, 2008). The live broadcast of Martin Marietta Materials' conference call will begin at 2:00 p.m. Eastern Time. An online replay will be available approximately two hours following the conclusion of the live broadcast. A link to these events will be available at the Corporation’s Web site: www.martinmarietta.com.
For those investors without online web access, the conference call may also be accessed by calling 719-325-4748, confirmation number 8860430.
Martin Marietta Materials is a leading producer of construction aggregates and a producer of magnesia-based chemicals and dolomitic lime. For more information about Martin Marietta Materials, refer to the Corporation's Web site at www.martinmarietta.com.
If you are interested in Martin Marietta Materials, Inc. stock, management recommends that, at a minimum, you read the Corporation's current annual report and Forms 10-K, 10-Q and 8-K reports to the SEC over the past year. The Corporation's recent proxy statement for the annual meeting of shareholders also contains important information. These and other materials that have been filed with the SEC are accessible through the Corporation's Web site at www.martinmarietta.com and are also available at the SEC's Web site at www.sec.gov.You may also write or call the Corporation's Corporate Secretary, who will provide copies of such reports.
Investors are cautioned that all statements in this press release that relate to the future involve risks and uncertainties, and are based on assumptions that the Corporation believes in good faith are reasonable but which may be materially different from actual results. Forward-looking statements give the investor our expectations or forecasts of future events. You can identify these statements by the fact that they do not relate only historical or current facts. They may use words such as "anticipate," "expect," "should be," "believe," and other words of similar meaning in connection with future events or future operating or financial performance. Any or all of our forward-looking statements here and in other publications may turn out to be wrong.
Factors that the Corporation currently believes could cause actual results to differ materially from the forward-looking statements in this press release include, but are not limited to the level and timing of federal and state transportation funding, particularly in North Carolina, Texas and Georgia, three of the Corporation’s largest and most profitable states, and in South Carolina, the Corporation’s fifth largest state as measured by 2007 Aggregates business’ net sales; levels of construction spending in the markets the Corporation serves; the severity and duration of a continued decline in the residential construction market; the impact of limited credit availability on commercial construction; unfavorable weather conditions, including hurricane activity; the ability to recognize quantifiable savings from internal expansion projects; the ability to successfully integrate acquisitions quickly and in a cost-effective manner; the volatility of fuel costs, most notably diesel fuel, liquid asphalt and natural gas; continued increases in the cost of repair and supply parts; logistical issues and costs, notably barge availability on the Mississippi River system and the availability of railcars and locomotive power to move trains to supply the Corporation’s Texas and Gulf Coast markets; continued strength in the steel industry markets served by the Corporation’s dolomitic lime products; availability of funds for financing and increases in interest costs; the impact of the Corporation’s credit ratings on capital structure and financing costs; and other risk factors listed from time to time found in the Corporation’s filings with the Securities and Exchange Commission. Other factors besides those listed here may also adversely affect the Corporation, and may be material to the Corporation. The Corporation assumes no obligation to update any such forward-looking statements.