01—Abstract
Summary
Summary of the 10-K filed February 21, 2020. Cited figures are marked; the original filing is the authoritative source.
Martin Marietta Materials, Inc. reported record 2019 results in its Form 10-K filed February 21, 2020.
Total revenues rose to $4.74 billiona from $4.24 billion, gross profit increased to $1.18 billion from $966.6 million, and net earnings attributable to Martin Marietta were $611.9 million, or $9.74 per diluted share, compared with $470.0 million, or $7.43 per diluted share, in 2018. Consolidated Adjusted EBITDA reached $1.25 billion. The Building Materials business, comprising aggregates, cement, ready mixed concrete, and asphalt and paving, generated the majority of revenues.
Aggregates product line pricing increased 4.2% and shipments grew 11.7%, and the company cited strong underlying demand in all three end-use markets. The company's cash flow and capital allocation were central to the year. Operating cash flow was $966.1 millionb, and the company returned capital through $129.8 million of dividends, a 15% dividend increase in August 2019, and $98.2 million of share repurchases.
Net debt repayments totaled $350.1 millionc, and the year-end ratio of consolidated debt to consolidated EBITDA, as defined under the Credit Agreement, was 2.16 times. Long-term debt including current maturities was $2.77 billion. The company also completed no acquisitions in 2019, following the $1.64 billion cash acquisition of Bluegrass Materials Company in 2018.
Key risks flagged in the filing include the cyclical construction end-market, reliance on public infrastructure funding (the FAST Act expires September 2020), weather, rail and transportation availability, energy costs, and the goodwill carrying value of the Cement and Southwest Ready Mix Division reporting unit, whose fair value exceeded its carrying value by 35%, or $701.5 milliond. The filing also reports a $15.7 million out-of-period correction to equity earnings from a nonconsolidated affiliate, which reduced 2019 net earnings by $12.0 million.
02—Key points
Key Highlights
- Record 2019 total revenues of $4.74 billion, up from $4.24 billion in 2018, with gross profit of $1.18 billion versus $966.6 million.
- Net earnings attributable to Martin Marietta of $611.9 million, or $9.74 per diluted share, compared with $470.0 million, or $7.43 per diluted share, in 2018.
- Consolidated Adjusted EBITDA of $1.25 billion, compared with $1.09 billion in 2018, a company-defined non-GAAP measure.
- Aggregates average selling price increased 4.2% and aggregates shipments grew 11.7% in 2019; aggregates represented 62% of consolidated products and services revenues.
- Operating cash flow of $966.1 million; dividends of $129.8 million ($2.06 per share) and share repurchases of $98.2 million.
- Net debt repayment of $350.1 million; year-end consolidated debt-to-EBITDA ratio of 2.16 times under the Credit Agreement, within the company's stated 2.0x to 2.5x target range.
- Cement and Southwest Ready Mix Division goodwill of $934.7 million has the thinnest headroom among reporting units, with fair value exceeding carrying value by 35%, and is a critical audit matter.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Martin Marietta Materials kept $0.13.
- Revenue$4.74B100.0%
- Cost of revenue−$3.56B75.1%
- Gross profit$1.18B24.9%
- Operating costs−$294.1M6.2%
- Operating income$884.9M18.7%
- Interest, other & tax−$273.0M5.8%
- Net income$611.9M12.9%
Where FY2019 revenue went
$4.74B- Cost of revenue: $3.56B, 75% of revenue
- Net income: $611.9M, 13% of revenue
- SG&A: $302.7M, 6.4% of revenue
- Interest, other & tax: $273.0M, 5.8% of revenue
Kept 13% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 21, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $4.74B$4.24B | +11.7% |
| Cost of Revenue | $3.56B$3.28B | +8.6% |
| Gross Profit | $1.18B$966.60M | +22.0% |
| SG&A Expenses | $302.70M$280.60M | +7.9% |
| Operating Income | $884.90M$690.70M | +28.1% |
| Interest Expense | $129.30M$137.10M | −5.7% |
| Net Income | $611.90M$470.00M | +30.2% |
| EPS (Basic) | $9.77$7.46 | +31.0% |
| EPS (Diluted) | $9.74$7.43 | +31.1% |
| Shares Outstanding (Basic) | 62.50M62.90M | −0.6% |
| Shares Outstanding (Diluted) | 62.70M63.10M | −0.6% |
05—Questions
Frequently Asked Questions
What drove the increase in 2019 profitability?
Consolidated gross profit rose $212.4 million, driven primarily by higher aggregates gross profit of $199.5 million. That increase reflected $111.5 million from pricing and $139.3 million from volume, partly offset by $51.3 million of operational performance costs. The filing also notes that 2018 cost of revenues included an $18.7 million charge for selling acquired inventory marked up to fair value.
How is the company funding infrastructure demand and what risks does it cite?
The filing states that the FAST Act, which authorizes $305 billion over fiscal years 2016 through 2020, expires in September 2020, and management expects continuing resolutions if no successor bill passes. Public infrastructure shipments were 35% of aggregates shipments in 2019, below the most recent five-year average of 39% and ten-year average of 45%. State and local ballot initiatives approved in November 2019 are estimated to generate over $9.6 billion in revenues.
What is the company's capital allocation policy?
Management lists acquisitions, organic capital investment, and return of cash to shareholders through dividends and share repurchases as its long-standing priorities. The company targets a leverage ratio of 2.0 to 2.5 times consolidated debt to consolidated EBITDA. At December 31, 2019, 13.7 million shares remained under the repurchase authorization, and the company expects to allocate excess free cash flow to additional repurchases subject to that leverage target.
What were the main one-time items affecting 2019 results?
Income tax expense included a discrete benefit of $15.2 million from a change in tax election for an acquired entity. Other nonoperating expense included an out-of-period correction of $15.7 million pretax ($12.0 million after tax) for a prior-period error that overstated equity earnings from a nonconsolidated affiliate. Other operating income included a reversal of $6.9 million of sales tax and unclaimed property accruals.
What is the outlook for the Magnesia Specialties business?
Magnesia Specialties revenues were $271.3 million in 2019, down 5.7% from 2018, and earnings from operations were $83.6 million, down 5.1%. The filing attributes the decline to slowing lime shipments to domestic steel customers and inventory rationalization by international customers. The company has fixed-price agreements for approximately 62% of its 2020 coal, natural gas, and petroleum coke needs, and expects future organic profit growth from pricing, portfolio rationalization, and cost reductions.
06—Continue