Martin Marietta Materials (NYSE: MLM) is a company, headquartered in Raleigh, North Carolina, which deals in industrial materials that include aggregate, chemical, and composite materials. The company’s stock trades for $81.62 per share as of January 28th, 2011 while paying a $1.60 (2.00%) dividend per year, making it a fairly stable income stock for interested investors. However, due to increased operating expenses, oil prices, and decreased shipping, the company is not the most secure bet out there for investors.
MLM hosted its third quarter earnings call on November 3rd, 2011, and reported an increase in earnings for said quarter. According to Howard Nye, President and CEO of MLM, the company experienced record growth this quarter by increasing sales 19% over the past year’s third quarter. In fact, net sales in this past quarter were over $50 million dollars, which was a record for any quarter. Based on these results, Nye believes that the following year’s earnings can have a positive, increased upward spin (http://seekingalpha.com/article/304241-martin-marietta-materials-ceo-discusses-q3-2011-results-earnings-call-transcript). This projection, however, seems to run counter to other analysts’ predictions that the company is in for a slight decrease in value for its 1-year target estimate. Furthermore, the company faces a potential issue in the increase in oil prices, as oil prices represent an uncontrollable aspect of their energy costs.
Because MLM’s infrastructure relies on a consistent stream of oil being purchased by the company, there is no telling what the company’s expense sheet could look like as the price of oil climbs. As Nye puts it, the company saw an increase to the tune of 46% in the past year alone; such spending, while necessary, eats into the company’s profit margin, having a negative impact on operating expenses and making it harder for the net profit margin to rise. Though it does not seem that MLM was entirely crippled by oil prices this past quarter (the aforementioned section on their increased, record sales holds testament to this assumption), because oil prices are highly unpredictable, the company could see a dramatic increase in energy costs if another war in the Middle East breaks out.
That being said, the company still shows signs of confidence, and is encouraging further confidence in its shareholders. Anne H. Lloyd, the company’s CFO and VP, announced the company’s regular cash dividend (payable in March of 2012) in late January of 2012 (http://finance.yahoo.com/news/Martin-Marietta-Materials-Inc-bw-3903480328.html?x=0). This bold move speaks to investors in such a manner that MLM is secure enough in its current financial position to start paying back its investors. Of course, this could also be MLM’s display that it is confident in its future projects, such as the large investments it has made in organic growth, maintenance initiatives, and other such projects.
Still, no matter what sort of a dividend the company is paying, it is impossible to ignore that the company is lacking in necessary federal funding to maintain its current level of performance indefinitely. During the conference call, Nye pointed out that, despite federal highway funding being extended through the end of March 2012, the lack of “long-term federal funding” has left the company in a position in which more construction projects are happening that do not require the level of aggregate-intensity that MLM would need to adequately profit off such a project. With this in mind, it is no surprise that MLM saw a 3% decrease in infrastructure shipments this quarter; yet, Nye believes that this problem will be fixed by the demand for projects in which MLM would be a viable source of materials in the future. For the company’s sake, it is imperative that this demand exist in the near future.
MLM faces competition from Vulcan Materials (NYSE: VMC), the largest supplier of crushed stone, sand, and gravel in the United States. However, there has recently been a dispute in which MLM has attempted to buy out Vulcan by trying to appoint five of its own nominees to Vulcan’s board of directors (http://finance.yahoo.com/news/Martin-Vulcan-proxy-fight-apf-1316740406.html?x=0). MLM is attempting a hostile takeover of the company after 19 months of attempts to make the company merger a friendly one, and now the companies are embroiled in a proxy fight.
“We believe Vulcan shareholders should have the opportunity to realize the substantial immediate and long-term benefits of an approximate 58 percent ownership interest in the combined Martin Marietta and Vulcan,” said Nye. However, it seems that Vulcan does not see these long-term benefits, meaning that the company will be involved in this battle for at least a little while longer. If either side were to give ground, the possibility of a successful, friendly merger of the two materials giants could be viable; however, until the companies reach a peaceful resolution, relations between them will be strained, and they will be treated as separate businesses.
Overall, Martin Marietta Materials could be a good investment for the future; however, there are too many unknown variables, such as oil prices and the outcome of their proposed takeover with Vulcan, which make the company a risky investment. While the company seems confident in its financial position, it is quite possible that the stock will dip a little more before it recovers. Still, its record quarterly profits should not be ignored, as they may be a useful selling point for the stock’s purchase. This stock could easily go either way, but investors should gather more data (which means waiting a bit longer) before making a decision.