01—Abstract
Summary
Summary of the 10-K filed February 23, 2018. Cited figures are marked; the original filing is the authoritative source.
Martin Marietta Materials, Inc. reported record 2017 results despite significant weather headwinds, with total revenues of $3.97 billiona, earnings from operations of $700.4 million, and record net earnings attributable to Martin Marietta of $713.3 million, or $11.25 per diluted share.
The net earnings figure includes a one-time, non-cash, provisional income tax benefit of $258.1 million from the 2017 Tax Act, which equated to $4.07b per diluted share. Consolidated EBITDA was $1.00 billion, and operating cash flow was $657.9 million. The Building Materials business, which includes aggregates, cement, ready mixed concrete and asphalt and paving, generated $3.7 billion of total revenues and $707 million of earnings from operations in 2017.
Aggregates product line pricing rose 4.5%, while aggregates volume declined 0.6%, reflecting heavy precipitation, government uncertainty over infrastructure funding, and labor constraints. Magnesia Specialties posted record total revenues of $270.0 millionc and earnings from operations of $79.4 million. The company's most significant pending event is the $1.625 billion cash acquisition of Bluegrass Materials Company, which it expects to complete in the first half of 2018, subject to Department of Justice review.
To fund it, Martin Marietta issued $1.4 billiond of senior notes in 2017 (including $1.1 billion in December), and long-term debt rose to $3.03 billion at year-end, against cash of $1.45 billion. Its consolidated net debt-to-EBITDA ratio, as defined by its credit agreement, was 1.58 times, within the 3.50 times covenant maximum.
02—Key points
Key Highlights
- Record 2017 total revenues of $3.97 billion and record earnings from operations of $700.4 million, versus $3.82 billion and $677.3 million in 2016.
- Net earnings attributable to Martin Marietta of $713.3 million, or $11.25 per diluted share, include a $258.1 million one-time provisional tax benefit from the 2017 Tax Act ($4.07 per diluted share).
- Aggregates product line average selling price increased 4.5% in 2017, while shipments declined 0.6%, weighed down by precipitation, infrastructure funding uncertainty and labor constraints.
- Pending $1.625 billion cash acquisition of Bluegrass Materials Company, expected to close in the first half of 2018, funded in part by December 2017 senior notes totaling $1.4 billion.
- Operating cash flow of $657.9 million; returned $208.9 million to shareholders through $100.0 million of share repurchases and $108.9 million of dividends.
- Cash and cash equivalents of $1.45 billion at year-end 2017, with $300 million of 6.60% senior notes due April 2018 to be repaid from proceeds.
- Consolidated EBITDA of $1.00 billion, a 25% EBITDA margin on total revenues, and a net debt-to-EBITDA ratio of 1.58 times, versus a 3.50 times covenant maximum.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Martin Marietta Materials kept $0.18.
- Revenue$3.97B100.0%
- Cost of revenue−$2.99B75.5%
- Gross profit$971.9M24.5%
- Operating costs−$271.5M6.8%
- Operating income$700.4M17.7%
- Interest, other & tax$12.9M0.3%
- Net income$713.3M18.0%
Where FY2017 revenue went
$3.97B- Cost of revenue: $2.99B, 75% of revenue
- Operating income: $700.4M, 18% of revenue
- SG&A: $262.1M, 6.6% of revenue
Kept 18% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 23, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $3.97B$3.82B | +3.8% |
| Cost of Revenue | $2.99B$2.91B | +3.0% |
| Gross Profit | $971.90M$911.74M | +6.6% |
| SG&A Expenses | $262.10M$241.61M | +8.5% |
| Operating Income | $700.40M$677.27M | +3.4% |
| Interest Expense | $91.50M$81.68M | +12.0% |
| Net Income | $713.30M$425.39M | +67.7% |
| EPS (Basic) | $11.30$6.66 | +69.7% |
| EPS (Diluted) | $11.25$6.63 | +69.7% |
| Shares Outstanding (Basic) | 62.90M63.61M | −1.1% |
| Shares Outstanding (Diluted) | 63.20M63.86M | −1.0% |
05—Questions
Frequently Asked Questions
What drove the large increase in 2017 net earnings?
Net earnings attributable to Martin Marietta rose 68% to $713.3 million, but this includes a one-time, non-cash provisional income tax benefit of $258.1 million from remeasuring deferred tax assets and liabilities at the new 21% federal corporate tax rate. The company also states that it achieved record diluted EPS even excluding this benefit.
How is the Bluegrass Materials acquisition being financed and what is its status?
The $1.625 billion cash purchase is being financed in part by December 2017 debt issuance of $300 million Floating Rate Senior Notes due 2019, $500 million of 3.500% Senior Notes due 2027 and $600 million of 4.250% Senior Notes due 2047. The company is working with the Department of Justice on its review and anticipates completing the deal in the first half of 2018. If the acquisition is not completed by September 30, 2018, the 2027 and 2047 notes are subject to a special mandatory redemption at 101%.
What are the main headwinds to aggregates volumes that management cites?
Management cites excessive precipitation, notably in Texas and the Southeast, including Hurricanes Harvey and Irma, along with government uncertainty over infrastructure funding, project delays and tight labor markets. Aggregates volumes declined 0.6% in 2017 after a 1.4% increase in 2016, and the company says volumes remain approximately 10% below mid-cycle demand.
What is the outlook for 2018?
Management guides 2018 consolidated total revenues of $4.16 billion to $4.355 billion, consolidated gross profit of $1.04 billion to $1.14 billion, and net earnings attributable to Martin Marietta of $490 million to $595 million, with an effective tax rate of 20% to 22% excluding discrete events. The guidance excludes any benefit from increased federal infrastructure funding and from the pending Bluegrass acquisition.
06—Continue