Texas construction market should benefit Martin Marietta
Martin Marietta announced its 4Q17 and YtD results this week and continues to see profits from its North American operations. ICR has a look at the background behind the pick-up in the company's performance and whether US infrastructure spending can provide Martin Marietta with improved profits going forward.
Ward Nye, chairman, president and CEO of Martin Marietta, stated, "By nearly all meaningful measures, 2017 was an extraordinary year for Martin Marietta. Among our accomplishments are two significant milestones – the best safety performance in our history and EBITDA exceeding US$1bn. We also delivered record revenues, profitability and earnings per diluted share for both the fourth quarter and full year, building on the momentum created by record performance in prior years."
US government proposals set to boost demand
Martin Marietta, like other US cement, ready-mix and aggregate producers, has already been helped by the reduction of the federal corporate tax rate from 35 to 21 per cent and the Trump administration is aiming to boost public spending on infrastructure by 900bps from the minimum in June 2017. At the end of January, President Trump called for US$1.5trn to be invested in revitalising the country's infrastructure. This has been enshrined by his legislative goals to rebuild the nation’s infrastructure:
• US$200bn in federal funds to spur at least US$1.5trn in infrastructure investments.
• new investments in rural America
• return of decision-making authority to state and local governments
• removal of regulatory barriers that needlessly get in the way of infrastructure
• streamlining and shortening of infrastructure permitting processes
• support and strengthening of the country's workforce.
Meanwhile, housebuilding in the USA climbed rapidly by 13.7 per cent in October 2017, the largest sector being the multi-family properties that jumped 37.4 per cent in this period. There remains a large shortage of housing units and in February 2018, the Trump administration announced a proposed Fiscal Year 2019 Budget for the US Department of Housing and Urban Development of US$41.24bn. Residential construction is expected to continue growing, particularly in key Martin Marietta markets, driven by employment gains, historically low levels of construction activity over the previous years, low mortgage rates and higher lot development. Notably, six of Martin Marietta's key states rank in the top 10 for single-family housing unit permits.
House construction in the south is expected to be strong following the damage inflicted by hurricanes Harvey and Irma. Texas manufacturing and service sectors are expanding, driven by strong job growth and a robust housing market, particularly in Dallas/Fort Worth, Houston, San Antonio and Austin. While the pace of permitting and final investment decisions has been slower than anticipated, new energy-related projects along the Gulf Coast are progressing, claims Martin Marietta. Numerous projects will be bid in 2018 with construction activity starting from 2019 onwards.
US cement production rising
The nadir of US domestic cement production in recent times was in 2010 when production sank to 70Mt from a high of approximately 126Mt in 2005. Cement capacity utilisation has been on a steady upward trajectory and climbed to 78.9 per cent in 2017, according to the PCA. If the trend continues on such a rise it could hit 109Mt by 2020. US demand per capita is approximately 285kg, still below the pre-bubble levels if 433kg, says Cementos Argos, who also published its positive US results this week. So, there is still plenty of spare installed production capacity, while import terminals were estimated to be operating at about 30 per cent utilisation rate in 2016.
The latest US cement consumption data from US Geological Survey reports that cement sales reached 96.8Mt in 2017, up from 94.2Mt in 2016.
Marietta well-positioned
Martin Marietta is well-positioned in the Texas market and reported that its cement product line generated pricing growth of 4.1 per cent for the quarter, reflecting strong ongoing construction activity in the Dallas/Fort Worth area. The company has two cement plants in Texas at Midlothian and Hunter (New Braunfels) and operates a terminal in Houston. The other integrated plant it owns in California at Crestmore consists of a grinding unit and a white cement kiln line.
