January 1, 2014
Third quarter earnings results for the publicly traded construction materials companies are coming in and showing mixed results. Some markets are showing dramatic improvements, while others are still flat, if not depressed. Data produced by the U.S. Geological Survey shows crushed stone and sand and gravel volumes through the first six months of the year to be flat compared to the same period in 2012. The market seems poised for a recovery as home building improves; however, continued uncertainty around federal highway funding continues to put a damper on enthusiasm.
The graph below shows the performance of the FMI Construction Materials Index, a composite of construction materials companies, versus the market as a whole using the S&P 500 and Dow Jones Industrials average as proxies. As shown, the construction materials sector outperformed the market in the run up of the residential housing boom, but has yet to come close to matching its high in 2007. At the same time, the overall market has recovered nicely and has been establishing new highs here recently.
The market looks for growth in earnings and, in essence, handicaps the predictability of future earnings. Housing and highway construction are the two primary drivers for the demand for construction aggregates. Housing has bounced off its bottom and begun its recovery. Highway construction remains in a cloud of uncertainty. The long-term fundamentals are sound for highway construction as our infrastructure needs ongoing maintenance. Unfortunately, federal highway funding is right in the middle of the politics in Washington, and there remains uncertainty as to the outlook for future funding.
Permian Basin Materials, LLC, formed by private equity company WL Ross & Co., has acquired Crockett County Mining, Highland Concrete, and Wallach Concrete. The companies will continue to operate under their existing trade names. The combined operations include 10 aggregates operations and 16 ready-mix concrete plants in the Permian Basin areas of west Texas and eastern New Mexico.
Brampton Brick Ltd. entered into an asset purchase agreement to acquire substantially all of the assets of Atlas Block Co. Limited from KPMG Inc., the court-appointed receiver of Atlas Block. Atlas Block manufactures concrete products for landscaping and construction. The
company offers paving stones, walls, slabs, curbs, brick and stone, concrete block, and fencing products. The company was founded in 1949 and is based in Midland, Canada. Brampton Brick, together with its subsidiaries, manufactures and sells clay brick products in Ontario and Quebec in Canada, and the Northeast and Midwestern United States. Brampton Brick was founded in 1871 and is headquartered in Brampton, Canada.
George H. Reddin is a principal in FMI’s Investment Banking practice. He can be reached at 919-785-9286 or at email@example.com.