AggMan Index: Riding the Overall Market Wave

John Neuner is the managing director at Harris Williams & Co. He can be reached at 804-648-0072 or jneuner@harriswilliams.com.

The AggMan Index posted another solid month of gains as the overall economy continues to show positive signs of recovery, which will hopefully trickle into positive future activity for the construction material industry. For the month, the index increased 8.9 percent to 118.4 and saw a second straight monthly gain in the 8-percent range. While slightly below its year-end value, the index is at its highest point since Jan. 19, 2010, but the valuations appear to be riding the wave of the overall market versus reacting to specific news in the industry. Over the past few weeks, many of the companies in the index have reported earnings that continue to show the pressures on industry profitability. Despite the lower earnings reports, the index managed to outpace the broader market over the past 30 days by about 5 percent. However, the overall S&P 500 is up 8.4 percent year to date (as compared to a decline of 3.1 percent for the AggMan Index), and the S&P 500 is at its highest point since Sept. 26, 2008 (as compared to the AggMan Index that was at 150.6 on this date and has declined more than 21 percent during this period). While the construction material sector is looking to the future for improved performance, many in the S&P 500 have already started to post solid performance with 75.9 percent of the 269 companies reporting beating revenue estimates by an average of 13.1 percent over the same period the prior year. Similarly, 74.1 percent of these S&P 500 companies posted an average increase in operating profit of 97.2 percent. Hopefully, the performance of the S&P 500 companies is representative of the broader markets and economic recovery, and the solid increase in performance will find its way to the materials sector in the near future.

Not Out of the Woods Yet, but Progress Continues

George H. Reddin is a principal in FMI’s Investment Banking practice. He can be reached at 919-785-9286 or at greddin@fminet.com.

Holcim, Vulcan, Martin Marietta, Granite Construction, Cemex, and Eagle Materials all reported increased losses for the first quarter of 2010 compared to the same period in 2009. A more complete analysis of the first quarter results will be available in the next issue. Additionally, there was continued progress on capital raising and balance sheet restructuring, and another acquisition by a financial buyer.

Summit Materials, LLC continued its acquisition campaign by acquiring Cornejo & Sons, Inc. in Wichita, Kan. Cornejo & Sons, Inc. specializes in concrete and asphalt paving, ready-mix concrete, sand and gravel extraction, demolition, and warehousing. This marks Summit’s third acquisition in the last six months.