Marietta Marietta posts loss in Q4 2009 but ‘has navigated the most difficult time since the Great Depression’

Tina Grady Barbaccia

February 25, 2010

Martin Marietta Materials, Inc. has announced results for the fourth quarter and year ended Dec. 31, 2009, and provided a preliminary outlook for 2010.

According to the company, notable items in its fourth-quarter 2009 earnings statement were the following:

For the quarter:

  • Net sales of $327.8 million, compared with $413.5 million for the 2008 fourth quarter
  • Heritage aggregates product line volume down 24% and pricing down 1%
  • Record earnings from operations and operating margin in Specialty Products prior-year quarter
  • Earnings from operations of $14.5 million, inclusive of West Group legal reserve, compared with $60.4 million for the
  • Group legal reserve decreased 2009 earnings per diluted share by $0.18
  • Loss per diluted share of $0.07, compared with earnings per diluted share of $0.60 for the prior-year quarter; West Group legal reserve decreased 2009 earnings per diluted share by $0.18.

For the year:

  • Net sales of $1.497 billion, compared with $1.860 billion for the prior year
  • Heritage aggregates product line volume down 23% and pricing up 2% costs and a $11.9 million decrease in selling, general and administrative costs)
  • Earnings from operations of $187.6 million (inclusive of West Group legal reserve, a $74.0 million decrease in energy
  • Record earnings from operations and operating margin in Specialty Products earnings per diluted share by $0.18
  • Earnings per diluted share of $1.91, compared with $4.18 for the prior year; West Group legal reserve decreased 2009.

In a press release announcing the fourth-quarter earnings, Ward Nye, president and CEO of Martin Marietta Materials, stated, “In 2009, Martin Marietta Materials successfully navigated the most difficult economic environment we have seen in our industry since the Great Depression.

However, because of our ability to achieve positive pricing growth and by maintaining our discipline and focusing on controlling the Corporation’s costs, we were able to remain profitable and generate significant cash flows despite the 15 volume.

For the year and quarter, respectively, heritage aggregates volume was down 23.0% and 24.3% and, cumulatively, volumes have declined 40% since the peak of the cycle in 2006. Despite increasingly negative pricing pressure during the  course of the year, we still achieved a 2% increase in heritage aggregates pricing.

“With respect to cost containment, our consolidated cost of sales decreased 13.4%, or $41.4 million, for the quarter and 16.6%, or $230.3 million, for the year,’ Nye noted in the written stsatement. “While a $74.0 million reduction in energy costs for the year was the single largest variance contributor, we reduced our cost of sales in every significant category, with the exception of fixed costs related to depreciation and pension.

“These reduced costs are particularly compelling considering our aggregates business continues to operate significantly below capacity, which restricts our ability to capitalize certain costs into inventory,” Nye continued. “Fourth-quarter 2009 cost of sales includes $17 million of costs that, in a more normalized economy, could have been inventoried; in contrast, fourth-quarter 200 cost of sales included $28 million of these costs. For the full year, cost of sales includes $49 million of costs that could have been inventoried. Our Specialty Products business contributed significantly to our profitability, expanding its operating margin (excluding freight and delivery revenues) for the full year by more than 800 basis points to 25%, despite a 14% decrease in net sales.

Nye said hat the company’s Mideast and West Groups each reported increases in their heritage average annual selling prices of 3.8% and 3.4%, respectively. These positive pricing gains were achieved despite a Mideast Group annual heritage volume decline of 27% and a West Group annual heritage volume decline of 21%.

Aggregates pricing pressure for both the year and the fourth quarter of 2009 was primarily driven by our Southeast Group. Heritage aggregates pricing for the Southeast Group for the fourth quarter decreased 7%, as compared with the prior-year quarter. Our Florida and River markets continued to represent two of the hardest hit geographic areas in terms of quarterly volume decline. Market dynamics and competitive forces vary widely across the company’s footprint and can have a profound impact on pricing. Other markets with significant volume declines in the quarter continued to report price increases, Nye pointed out.

“As expected, each of our end markets, with the exception of our chemical rock (comprised primarily of material used for agricultural lime and flue gas desulfurization) and ballast product sales (referred to as “ChemRock/Rail” and formerly referred to as “Other”), which grew to 13% of total 2009 shipments, experienced a volume decline during 2009.

The infrastructure construction market, which represented 55% of 2009 shipments, was weakened as state budgets were negatively impacted by the prolonged recession and further exacerbated by the expiration of the federal highway bill in September 2009. The federal highway program continues to operate under a Congressional continuing resolution; however, the absence of a fully enacted multi-year appropriation left state departments of transportation reluctant to initiate and undertake new multiyear construction projects.

“While the short-term impact of spending from the American Recovery & Reinvestment Act (“ARRA” or “Stimulus”) was well below expectations, stimulus spending still had a positive effect on 2009,” Nye points out. “For example, as we reported in the third quarter, our business in the state of Iowa benefited greatly from Stimulus projects in 2009. As of Dec. 31, 2009, Iowa had obligated 99% of its stimulus dollars and had actually spent 58% of those funds. These percentages in Iowa compare to a nationwide ARRA obligation average of 85% and an actual spend average of 21%. Thus, the Corporation’s performance in Iowa, which is included in our Midwest Division, generally underscores that the combination of our lean operating cost structure, together with even moderate volume recovery, provides an enormously powerful combination. Specifically, net sales for the Midwest Division were down only 4.7% for the year, but operating margin expanded by 230 basis points, exemplifying the type of performance that we expect to repeat in multiple markets across the corporation as volume rebounds.”

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