MARTIN MARIETTA MATERIALS, INC. RESULTS OF OPERATIONS
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
OVERVIEWMartin Marietta Materials, Inc. (the Company or Martin Marietta) is a natural resource-based building materials company. The Company supplies aggregates (crushed stone, sand and gravel) through its network of approximately 310 quarries, mines and distribution yards in 26 states,Canada and TheBahamas . In the southwestern and westernUnited States , Martin Marietta also provides cement and downstream products and services, namely, ready mixed concrete, asphalt and paving, in vertically-integrated structured markets where the Company has a leading aggregates position. The Company also provides asphalt inMinnesota , subsequent to a business combination in the quarter endedJune 30, 2021 . The Company's heavy-side building materials are used in infrastructure, nonresidential and residential construction projects. Aggregates are also used in agricultural, utility and environmental applications and as railroad ballast. The aggregates, cement, ready mixed concrete and asphalt and paving product lines are reported collectively as the "Building Materials" business.
The Company's
BUILDING MATERIALS BUSINESS
Reportable Segments East Group West Group
Operating Locations Alabama, Florida, Georgia, Arkansas, Colorado, Louisiana,
Indiana, Iowa, western
Kansas, Kentucky, Maryland, Nebraska, Oklahoma, Texas, Utah,
Minnesota, Missouri, eastern Washington and Wyoming
Nebraska,
North Carolina, Ohio,
Pennsylvania,
South Carolina, Tennessee,
Virginia,
West Virginia, Nova Scotia and
The Bahamas
Product Lines Aggregates and Asphalt Aggregates, Cement, Ready
Mixed Concrete, Asphalt and
Paving
Facility Types Quarries, Mines, Plants and Quarries, Mines, Plants and
Distribution Facilities Distribution Facilities
Modes of Transportation Truck, Railcar and Ship Truck and Railcar
The Building Materials business is significantly affected by weather patterns
and seasonal changes. Production and shipment levels for aggregates, cement,
ready mixed concrete and asphalt and paving materials correlate with general
construction activity levels, most of which occur in the spring, summer and
fall. Thus, production and shipment levels vary by quarter. Operations
concentrated in the northern and midwestern United States generally experience
more severe winter weather conditions than operations in the southeast and
southwest. Excessive rainfall, and conversely excessive drought, can also
jeopardize production, shipments and profitability in all markets served by the
Company. Due to the potentially significant impact of weather on the Company's
operations, current-period results are not necessarily indicative of expected
performance for other interim periods or the full year.
The Company has a Magnesia Specialties business with manufacturing facilities in
Manistee, Michigan , and Woodville, Ohio . The Magnesia Specialties business
produces magnesia-based chemicals products used in industrial, agricultural and
environmental applications and dolomitic lime sold primarily to customers in the
steel and mining industries.
Page 28 of 52
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the QuarterJune 30, 2021 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) CRITICAL ACCOUNTING POLICIES The Company outlined its critical accounting policies in its Annual Report on Form 10-K for the year endedDecember 31, 2020 . There were no changes to the Company's critical accounting policies during the six months endedJune 30, 2021 .
RESULTS OF OPERATIONS
Earnings before interest; income taxes; depreciation, depletion and amortization; the earnings/loss from nonconsolidated equity affiliates; acquisition-related expenses; and the impact of selling acquired inventory after its markup to fair value as part of acquisition accounting (Adjusted EBITDA) is an indicator used by the Company and investors to evaluate the Company's operating performance from period to period. Adjusted EBITDA is not defined by accounting principles generally accepted inthe United States and, as such, should not be construed as an alternative to net earnings, earnings from operations or cash provided by operating activities. However, the Company's management believes that Adjusted EBITDA may provide additional information with respect to the Company's performance and is a measure used by management to evaluate the Company's performance. Because Adjusted EBITDA excludes some, but not all, items that affect net earnings and may vary among companies, Adjusted EBITDA as presented by the Company may not be comparable with similarly titled measures of other companies. A reconciliation of net earnings attributable to Martin Marietta to Adjusted EBITDA is as follows: Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 (Dollars in Millions) Net Earnings Attributable to Martin Marietta$ 225.8 $ 217.6 $ 291.1 $ 243.5 Add back: Interest expense, net of interest income 28.2 31.0 55.5 60.7 Income tax expense for controlling interests 62.2 61.4 78.1 61.5 Depreciation, depletion and amortization and earnings/loss from nonconsolidated equity affiliates 106.1 97.0 201.9 190.3 Acquisition-related expenses 9.3 - 10.6 - Impact of selling acquired inventory after markup to fair value as a part of acquisition accounting 7.6 - 7.6 - Adjusted EBITDA$ 439.2 $ 407.0 $ 644.8 $ 556.0 Page 29 of 52
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the Quarter June 30, 2021 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Mix-adjusted average selling price (mix-adjusted ASP) excludes the impacts of product, geographic and other mix from the current-period average selling price and is a non-GAAP measure. Mix-adjusted ASP is calculated by comparing current-period shipments to like-to-like shipments in the comparable prior period. Management uses this metric to evaluate the effectiveness of the Company's pricing increases and believes this information is useful to investors as it provides same-on-same pricing trends. The following reconciles reported average selling price to mix-adjusted ASP and corresponding variances. Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020West Group - Aggregates: Reported average selling price$ 14.03 $ 13.93 $ 13.93 $ 13.75 Adjustment for unfavorable impact of product, geographic and other mix 0.24 0.18 Mix-adjusted ASP$ 14.27 $ 14.11 Reported average selling price variance 0.7 % 1.3 % Mix-adjusted ASP variance 2.4 % 2.6 % Cement: Reported average selling price$ 122.11 $ 114.34 $ 118.80 $ 114.06 Adjustment for favorable impact of product, geographic and other mix (2.97 ) (1.30 ) Mix-adjusted ASP$ 119.14 $ 117.50 Reported average selling price variance 6.8 % 4.2 % Mix-adjusted ASP variance 4.2 % 3.0 %
Quarter Ended
Financial highlights for the quarter ended
? Consolidated total revenues of
?
compared with
? Magnesia Specialties products revenues of
million
? Consolidated gross profit of
? Consolidated earnings from operations of
million
? Net earnings attributable to Martin Marietta of
$217.6 million ? Adjusted EBITDA of$439.2 million compared with$407.0 million ? Earnings per diluted share of$3.61 compared with$3.49 Page 30 of 52
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the Quarter June 30, 2021 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The following tables present total revenues, gross profit (loss), selling, general and administrative (SG&A) expenses and earnings (loss) from operations data for the Company and its reportable segments by product line for the three months endedJune 30, 2021 and 2020. In each case, the data is stated as a percentage of revenues of the Company or the relevant segment or product line, as the case may be. Three Months Ended June 30, 2021 2020 Amount Amount (Dollars in Millions) Total revenues: Building Materials business: Products and services East Group Aggregates$ 554.2 $ 499.7 Asphalt 47.1 - Less: Interproduct revenues (4.8 ) - East Group Total 596.5 499.7 West Group Aggregates 247.6 255.2 Cement 116.5 109.5 Ready mixed concrete 268.4 245.1 Asphalt and paving 88.2 107.0 Less: Interproduct revenues (91.9 ) (75.9 ) West Group Total 628.8 640.9 Products and services 1,225.3 1,140.6 Freight 76.8 76.4 Total Building Materials business 1,302.1 1,217.0 Magnesia Specialties: Products 70.0 48.9 Freight 5.8 4.7 Total Magnesia Specialties 75.8 53.6 Total$ 1,377.9 $ 1,270.6 Page 31 of 52
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the Quarter June 30, 2021 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Three Months Ended June 30, 2021 2020 Amount % of Revenues Amount % of Revenues (Dollars in Millions) Gross profit (loss): Building Materials business: Products and services East Group Aggregates$ 212.2 38.3$ 194.0 38.8 Asphalt 11.8 25.0 - - East Group Total 224.0 37.5 194.0 38.8 West Group Aggregates 60.8 24.6 74.0 29.0 Cement 36.1 31.0 43.4 39.7 Ready mixed concrete 19.1 7.1 26.1 10.6 Asphalt and paving 16.9 19.2 21.9 20.4 West Group Total 132.9 21.1 165.4 25.8 Products and services 356.9 29.1 359.4 31.5 Freight 0.7 (0.3 ) Total Building Materials business 357.6 27.5 359.1 29.5 Magnesia Specialties: Products 27.9 39.9 18.2 37.3 Freight (0.9 ) (1.3 ) Total Magnesia Specialties 27.0 35.6 16.9 31.5 Corporate 0.5 4.5 Total$ 385.1 27.9$ 380.5 29.9
Aggregates Products Gross Profit Rollforward
The following presents a rollforward of aggregates products gross profit (dollars in millions):
Aggregates products gross profit, quarter ended
17.2
Pricing 22.1
Operational performance (1) (34.3 )
Change in aggregates products gross profit 5.0
Aggregates products gross profit, quarter ended
(1) Inclusive of cost increases/decreases, product and geographic mix and other
operating impacts
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the Quarter June 30, 2021 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Three Months Ended June 30, 2021 2020 % of % of Amount Revenues Amount Revenues (Dollars in Millions) Selling, general & administrative expenses: Building Materials business: East Group$ 26.3 $ 24.4 West Group 33.6 32.7 Total Building Materials business 59.9 57.1 Magnesia Specialties 3.7 3.4 Corporate 18.8 10.7 Total$ 82.4 6.0$ 71.2 5.6 Earnings (Loss) from operations: Building Materials business: East Group$ 197.8 $ 169.9 West Group 101.8 133.2 Total Building Materials business 299.6 303.1 Magnesia Specialties 23.1 13.2 Corporate (15.2 ) (9.9 ) Total$ 307.5 22.3$ 306.4 24.1Building Materials Business The following tables present aggregates volume and pricing variance data and shipments data by segment: Three Months Ended June 30, 2021 Volume Pricing Volume/Pricing variance(1) East Group 7.0 % 3.6 % West Group (3.6 %) 0.7 % Total aggregates operations(2) 3.3 % 2.9 % Page 33 of 52
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the Quarter June 30, 2021 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Three Months Ended June 30, 2021 2020 (Tons in Millions) Shipments East Group 35.4 33.0 West Group 17.5 18.2
Total aggregates operations(2) 52.9 51.2
(1) Volume/pricing variances reflect the percentage increase/(decrease) from the comparable period in the prior year.
(2) Total aggregates operations include acquisitions from the date of acquisition and divestitures through the date of disposal.
The following table presents shipments data for theBuilding Materials business by product line: Three Months Ended June 30, 2021 2020 % Change Shipments Aggregates (in millions): Tons to external customers 48.8 47.9 Internal tons used in other product lines 4.1 3.3 Total aggregates tons 52.9 51.2 3.3 % Cement (in millions): Tons to external customers 0.5 0.7 Internal tons used in ready mixed concrete 0.4 0.3 Total cement tons 0.9 1.0
(1.9 %)
8.2 %
Asphalt (in millions): Tons to external customers 1.2 0.2 Internal tons used in paving business 0.6 0.9 Total asphalt tons 1.8 1.1 67.6 % The average selling price by product line for theBuilding Materials business is as follows: Three Months Ended June 30, 2021 2020 % Change Aggregates (per ton)$ 15.07 $ 14.66 2.9 % Cement (per ton)$ 122.11 $ 114.34 6.8 % Ready Mixed Concrete (per cubic yard)$ 114.27 $ 112.89 1.2 % Asphalt (per ton)$ 48.83 $ 46.54 4.9 % Page 34 of 52
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the QuarterJune 30, 2021 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Aggregates End-Use Markets Aggregates shipments to the infrastructure market declined, primarily driven by weather-related project delays in key geographies and the timing of projects. The infrastructure market accounted for 34% of second-quarter aggregates shipments.
Aggregates shipments to the nonresidential market increased 17%, driven by robust demand in heavy industrial projects of scale, across our geographic footprint. The nonresidential market represented 36% of second-quarter aggregates shipments.
Aggregates shipments to the residential market increased 8%. Low available resale inventory and underbuilt conditions continue to drive robust residential construction activity. The residential market accounted for 25% of second-quarter aggregates shipments.
The
Building Materials Business Product Lines
Second-quarter aggregates shipments and pricing increased 3.3% and 2.9%, respectively, compared with prior-year quarter. Organic aggregates shipments and pricing increased 1.5% and 3.4%, respectively. East Group shipments increased 7.0% reflecting strong construction activity in the Carolinas,Georgia ,Florida andMaryland across all three primary end-use markets, coupled with incremental volumes from the Tiller operations, which more than offset the weather-induced project delays in the Midwest. Pricing increased 3.6% in the East Group, reflecting favorable geographic mix.West Group shipments decreased 3.6%, despite robust underlying demand, due to significant rainfall in bothTexas andColorado .West Group's pricing increased 0.7%, reflecting a lower percentage of higher-priced commercial rail-shipped volumes. Pricing in theWest Group increased 2.4% on a mix-adjusted basis. Aggregates product gross margin decreased 150 basis points to 34.0%, driven by higher diesel costs of$12.2 million and a$6.1 million increase in cost of revenues from the impact of selling acquired inventory after its markup to fair value as part of acquisition accounting. Cement pricing improved 6.8%, or 4.2% on a mix-adjusted basis, following annual price increases that went into effectApril 1, 2021 . Cement shipments decreased 1.9% despite robust demand and construction activity throughout theTexas Triangle, due to extreme precipitation from late April through mid-June. Product gross margin declined 870 basis points to 31.0%, driven by the timing of planned outages at the Hunter plant as well as higher energy and raw materials costs. Ready mixed concrete shipments increased 8.2%, or 2.3% organically, driven by incremental volume from large projects and operations acquired inAugust 2020 . This growth more than offset weather-related shipment declines. Pricing increased 1.2% in second quarter 2021 compared with second quarter 2020, reflecting geographic mix from a lower percentage of higher-pricedColorado shipments. Product gross margin decreased 350 basis points to 7.1%, driven primarily by higher raw material and diesel costs. Asphalt shipments increased 67.6% as incremental volume from the acquired Tiller operations more than offset weather-related shipment declines inColorado . Pricing increased 4.9% due to price increases inColorado as well as mix impact from higher priced Tiller asphalt sales, both contributing to asphalt and paving products and services gross margin improvement of 80 basis points. Page 35 of 52
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the QuarterJune 30, 2021 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Magnesia Specialties Business Magnesia Specialties second-quarter product revenues increased 43.2% to$70.0 million , reflecting improved demand for chemicals and lime products compared with a COVID-19-challenged prior year. Product gross profit was$27.9 million compared with$18.2 million . Product gross margin increased 260 basis points to 39.9% on strong volume increases. Second-quarter earnings from operations were$23.1 million in 2021 compared with$13.2 million in 2020.
Consolidated Operating Results
Consolidated SG&A for second quarter 2021 was 6.0% of total revenues compared with 5.6% in the prior-year quarter. During second-quarter 2021, the Company incurred$0.7 million in COVID-19-related expenses versus$3.4 million in the prior-year quarter for enhanced personal protective equipment, as well as cleaning and sanitizing protocols across the Company's operations, which are recorded in SG&A. The Company incurred acquisition-related expenses of$9.3 million in the quarter endedJune 30, 2021 . Earnings from operations for the quarter were$307.5 million in 2021 compared with$306.4 million in 2020. Among other items, other operating (income) and expenses, net, includes gains and losses on the sale of assets; recoveries and write-offs related to customer accounts receivable; rental, royalty and services income; accretion expense, depreciation expense and gains and losses related to asset retirement obligations. For the second quarter, consolidated other operating (income) and expenses, net, was income of$14.1 million in 2021 and expense of$2.4 million in 2020. The 2021 income primarily reflects gain on the sale of the former corporate headquarters. Other nonoperating (income) and expenses, net, includes interest income; pension and postretirement benefit cost excluding service cost; foreign currency transaction gains and losses; equity earnings or losses from nonconsolidated affiliates and other miscellaneous income and expenses. For the second quarter, other nonoperating income, net, was$8.7 million and$3.8 million in 2021 and 2020, respectively. The 2021 amount reflected lower pension expense of$4.6 million .
Six Months Ended
Financial highlights for the six months ended
? Consolidated total revenues of
?
compared with
? Consolidated gross profit of
? Consolidated earnings from operations of
million
? Net earnings attributable to Martin Marietta of
$243.5 million ? Adjusted EBITDA of$644.8 million compared with$556.0 million ? Earnings per diluted share of$4.65 compared with$3.90 Page 36 of 52
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the Quarter June 30, 2021 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The following tables present total revenues, gross profit (loss), SG&A expenses and earnings (loss) from operations data for the Company and its reportable segments by product line for the six months endedJune 30, 2021 and 2020. In each case, the data is stated as a percentage of revenues of the Company or the relevant segment or product line, as the case may be. Prior-year segment information has been reclassified to conform to the operations and management reporting structure change effectiveJuly 1, 2020 (see Note 1 to financial statements). Six Months Ended June 30, 2021 2020 Amount % of Revenues Amount % of Revenues (Dollars in Millions) Total revenues: Building Materials business: Products and services East Group Aggregates$ 926.8 $ 857.6 Asphalt 47.1 - Less: Interproduct revenues (4.8 ) - East Group Total 969.1 857.6 West Group Aggregates 447.6 467.6 Cement 226.1 216.1 Ready mixed concrete 503.7 434.8 Asphalt and paving 100.5 125.1 Less: Interproduct revenues (165.0 ) (129.5 ) West Group Total 1,112.9 1,114.1 Products and services 2,082.0 1,971.7 Freight 131.6 137.9 Total Building Materials business 2,213.6 2,109.6 Magnesia Specialties: Products 135.2 108.8 Freight 11.5 10.5 Total Magnesia Specialties 146.7 119.3 Total$ 2,360.3 $ 2,228.9 Page 37 of 52
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the Quarter June 30, 2021 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Six Months Ended June 30, 2021 2020 Amount % of Revenues Amount % of Revenues (Dollars in Millions) Gross profit (loss): Building Materials business: Products and services East Group Aggregates$ 298.6 32.2$ 253.9 29.6 Asphalt 11.8 25.0 - - East Group Total 310.4 32.0 253.9 29.6 West Group Aggregates 96.1 21.5 107.4 23.0 Cement 51.4 22.7 70.7 32.7 Ready mixed concrete 38.6 7.7 32.0 7.4 Asphalt and paving 8.6 8.6 13.8 11.1 West Group Total 194.7 17.5 223.9 20.1 Products and services 505.1 24.3 477.8 24.2 Freight 0.5 (0.6 ) Total Building Materials business 505.6 22.8 477.2 22.6 Magnesia Specialties: Products 56.3 41.7 44.3 40.7 Freight (1.9 ) (2.2 ) Total Magnesia Specialties 54.4 37.1 42.1 35.3 Corporate (0.2 ) 3.6 Total$ 559.8 23.7$ 522.9 23.5
Aggregates Products Gross Profit Rollforward
The following presents a rollforward of aggregates products gross profit (dollars in millions):
Aggregates products gross profit, six months ended
Aggregates products: Volume 10.3 Pricing 40.9 Operational performance (1) (17.8 ) Change in aggregates products gross profit 33.4
Aggregates products gross profit, six months ended
(1) Inclusive of cost increases/decreases, product and geographic mix and other
operating impacts
Page 38 of 52
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the Quarter June 30, 2021 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Six Months Ended June 30, 2021 2020 % of Total % of Total Amount Revenues Amount Revenues (Dollars in Millions) Selling, general & administrative expenses: Building Materials business: East Group$ 50.5 $ 49.2 West Group 66.9 66.0 TotalBuilding Materials business 117.4 115.2 Magnesia Specialties 7.4 6.9 Corporate 37.4 27.8 Total$ 162.2 6.9$ 149.9 6.7 Earnings (Loss) from operations: Building Materials business: East Group$ 259.5 $ 204.7 West Group 133.6 155.9 TotalBuilding Materials business 393.1 360.6 Magnesia Specialties 46.7 34.9 Corporate (33.0 ) (31.3 ) Total$ 406.8 17.2$ 364.2 16.3Building Materials Business The following tables present aggregates volume and pricing variance data and shipments data by segment: Six Months Ended June 30, 2021 Volume Pricing Volume/Pricing variance(1) East Group 4.2 % 3.6 % West Group (5.5 %) 1.3 % Total aggregates operations(2) 0.6 % 3.1 %
Organic aggregates operations (0.4 %) 3.4 %
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the Quarter June 30, 2021 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Six Months Ended June 30, 2021 2020 (Tons in Millions) Shipments East Group 58.1 55.7 West Group 31.9 33.8
Total aggregates operations(2) 90.0 89.5
(1) Volume/pricing variances reflect the percentage increase/(decrease) from the comparable period in the prior year.
(2) Total aggregates operations include acquisitions from the date of acquisition and divestitures through the date of disposal.
The following table presents shipments data for theBuilding Materials business by product line: Six Months Ended June 30, 2021 2020 % Change Shipments Aggregates (in millions): Tons to external customers 83.3 83.9 Internal tons used in other product lines 6.7 5.6 Total aggregates tons 90.0 89.5 0.6 % Cement (in millions): Tons to external customers 1.2 1.3 Internal tons used in ready mixed concrete 0.7 0.6 Total cement tons 1.9 1.9
(0.8 %)
16.1 %
Asphalt (in millions):
Tons to external customers 1.3 0.3
Internal tons used in paving business 0.6 1.0
Total asphalt tons 1.9 1.3 53.1 %
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the Quarter June 30, 2021 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The average selling price by product line for theBuilding Materials business is as follows: Six Months Ended June 30, 2021 2020 % Change Aggregates (per ton)$ 15.17 $ 14.72 3.1 % Cement (per ton)$ 118.80 $ 114.06 4.2 % Ready Mixed Concrete (per cubic yard)$ 113.25 $ 113.53 (0.2 %) Asphalt (per ton)$ 48.85 $ 46.38 5.3 %
Aggregates Product Line End-Use Markets
For the six months endedJune 30, 2021 , aggregates shipments to the infrastructure market accounted for 33% of aggregates volumes and declined 8% compared to the prior-year period, primarily attributable to weather-impacted project delays and timing of projects. Aggregates shipments to the nonresidential market increased 9%, driven by robust warehouse and data center activity. The nonresidential market represented 36% of year-to-date aggregates shipments.
Aggregates shipments to the residential market increased 8%, reflecting sustained robust housing demand. The residential market accounted for 26% of year-to-date aggregates shipments.
The
Building Materials Business Product Lines
For the six months endedJune 30, 2021 , aggregates shipments increased 0.6%, reflecting strong construction activity in the Carolinas,Georgia ,Florida andMaryland , offset by weather-induced delays in the Midwest,Texas andColorado . Pricing increased 3.1% compared with the prior-year period which led to a 140-basis-point improvement in aggregates product gross margin to 28.7%. Aggregates shipments declined 0.4% and pricing increased 3.4% on an organic basis.
For the six months ended
Ready mixed concrete shipments increased 16.1%, or 9.6% organically, driven by incremental volume from large projects and operations acquired inAugust 2020 , partially offset by weather-related delays. Ready mixed concrete pricing for the six months endedJune 30, 2021 decreased 0.2%, reflecting a lower percentage of shipments fromColorado , which carry higher average selling prices. Asphalt shipments improved 53.1% compared with the prior-year period, attributable to incremental volumes from the acquired Tiller operations. Asphalt pricing increased 5.3% reflecting increased pricing and favorable mix impact from Tiller operations.
Magnesia Specialties Business
For the six months endedJune 30, 2021 , Magnesia Specialties reported product revenues of$135.2 million compared with$108.8 million for the prior-year period. Lower lime and periclase shipments to the steel industry due to COVID-19-induced shutdowns of domestic auto manufacturers in the prior year resulted in lower revenues for 2020. Product gross profit was$56.3 million compared with$44.3 million , primarily driven by higher volumes and revenues. Product line Page 41 of 52
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the QuarterJune 30, 2021 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
gross margin for the six months ended
Consolidated Operating Results
For the six months endedJune 30, 2021 , consolidated SG&A was 6.9% of total revenues compared with 6.7% in 2020. During the first six months of 2021, the Company incurred$1.7 million in COVID-19-related expenses compared with$3.5 million in the prior-year period for enhanced cleaning and sanitizing protocols across the Company's operations, which are recorded in SG&A. The Company incurred$10.6 million of acquisition-related expenses for the six months endedJune 30, 2021 . Earnings from operations for the six months endedJune 30 were$406.8 million in 2021 compared with$364.2 million in 2020. Among other items, other operating income, net, includes gains and losses on the sale of assets; recoveries and write-offs related to customer accounts receivable; rental, royalty and services income; accretion expense, depreciation expense and gains and losses related to asset retirement obligations. For the six months endedJune 30 , consolidated other operating income, net, was income of$19.8 million and expense of$8.0 million in 2021 and 2020, respectively. The 2021 amount is primarily attributable to the gains on the sales of several properties of$16.5 million . The 2020 amount reflected higher credit loss expenses and increased asset reclamation costs. Other nonoperating income, net, includes interest income; pension and postretirement benefit cost, excluding service cost; foreign currency transaction gains and losses; equity in earnings or losses of nonconsolidated affiliates and other miscellaneous income. For the six months endedJune 30 , other nonoperating income, net, was$18.2 million in 2021 and$1.9 million in 2020. The 2021 amount reflected lower pension expense of$7.8 million compared with the prior year. The 2020 amount included an expense of$5.6 million to finance third-party railroad track maintenance.
Income Tax Expense
For the six months endedJune 30, 2021 , the effective income tax rate was 21.2%. For the six months endedJune 30, 2020 , the effective income tax rate of 20.2% reflected a$6.9 million discrete benefit from financing third-party railroad track maintenance. In exchange, the Company received a federal income tax credit and deduction.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities for the six months endedJune 30, 2021 and 2020 was$441.2 million and$373.2 million , respectively. Operating cash flow is primarily derived from consolidated net earnings before deducting depreciation, depletion and amortization, and the impact of changes in working capital. Depreciation, depletion and amortization were as follows: Six Months Ended June 30, 2021 2020 (Dollars in Millions) Depreciation$ 172.4 $ 167.0 Depletion 17.5 16.4 Amortization 16.6 10.0 Total$ 206.5 $ 193.4 Page 42 of 52
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the QuarterJune 30, 2021 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The seasonal nature of construction activity impacts the Company's interim
operating cash flow when compared with the full year. Full-year 2020 net cash
provided by operating activities was
During the six months ended
The Company can repurchase its common stock through open-market purchases pursuant to authority granted by its Board of Directors or through private transactions at such prices and upon such terms as the Chief Executive Officer deems appropriate. The Company did not repurchase any shares of common stock during the first six months of 2021. AtJune 30, 2021 , 13,520,952 shares of common stock were remaining under the Company's repurchase authorization. OnApril 30, 2021 , the Company completed the acquisition ofTiller Corporation (Tiller), a leading aggregates and hot mix asphalt supplier in theMinneapolis/St. Paul region, one of the largest and fastest growing midwestern metropolitan areas. The acquired operations complement the Company's existing Central Division's product offerings in the surrounding areas. The Company financed the acquisition using available cash and borrowings under its credit facilities. OnJuly 2, 2021 , the Company issued$700 million aggregate principal amount of 0.650% Senior Notes due 2023 (the 0.650% Senior Notes),$900 million aggregate principal amount of 2.400% Senior Notes due 2031 (the 2.400% Senior Notes) and$900 million aggregate principal amount of 3.200% Senior Notes due 2051 (the 3.200% Senior Notes) and, together with the 0.650% Senior Notes and the 2.400% Senior Notes (the Senior Notes). The Company intends to use the net proceeds of the 2.400% Senior Notes and the 3.200% Senior Notes to pay the consideration for the acquisition ofLehigh Hanson, Inc.'s West Region business (Lehigh West Region ). The net proceeds of the 0.650% Senior Notes will be used for general corporate purposes, which may include funding acquisitions (includingLehigh West Region ) or repaying indebtedness. If (i) theLehigh West Region acquisition is not consummated prior toMarch 31, 2022 , (ii) the securities purchase agreement in respect of the acquisition is terminated at any time prior toMarch 31, 2022 (other than as a result of consummating the acquisition) or (iii) the Company publicly announces at any time prior toMarch 31, 2022 that it will no longer pursue the consummation of the acquisition, then the Company will be required to redeem all of the outstanding 2.400% Senior Notes and 3.200% Senior Notes pursuant to a special mandatory redemption at a redemption price equal to 101% of the aggregate principal amount of the 2.400% Senior Notes and the 3.200% Senior Notes, respectively, plus accrued and unpaid interest to, but excluding, the date of such special mandatory redemption. The 0.650% Senior Notes will not be subject to the special mandatory redemption. See Note 6 for further information regarding the Senior Notes. The Company, through a wholly-owned special-purpose subsidiary, has a$400 million trade receivable securitization facility (the Trade Receivable Facility), which expires onSeptember 22, 2021 . The Trade Receivable Facility contains a cross-default provision to the Company's other debt agreements. Management intends to renew the Trade Receivable Facility beyondSeptember 22, 2021 . The Company has a$700 million five-year senior unsecured revolving facility (the Revolving Facility), which expires onDecember 5, 2024 . The Revolving Facility requires the Company's ratio of consolidated debt-to-consolidated EBITDA, as defined, for the trailing-twelve-month period (the Ratio) to not exceed 3.50x as of the end of any fiscal quarter, provided that the Company may exclude from the Ratio debt incurred in connection with certain acquisitions during the quarter or the three preceding quarters so long as the Ratio calculated without such exclusion does not exceed 3.75x. Additionally, if there are no amounts outstanding under the Revolving Facility and the Trade Receivable Facility, consolidated debt, including debt for which the Company is a co-borrower, may be reduced by the Company's unrestricted cash and cash equivalents in excess of$50 million , such reduction not to exceed$200 million , for purposes of the covenant calculation. Page 43 of 52
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the Quarter June 30, 2021 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The Ratio is calculated as debt, including debt for which the Company is a co-borrower, divided by consolidated EBITDA, as defined by the Company's Revolving Facility, for the trailing-twelve months. Consolidated EBITDA is generally defined as earnings before interest expense, income tax expense, and depreciation and amortization expense. Additionally, stock-based compensation expense is added back and interest income is deducted in the calculation of consolidated EBITDA. During periods that include an acquisition, pre-acquisition adjusted EBITDA of the acquired company is added to consolidated EBITDA as if the acquisition occurred on the first day of the calculation period. Certain other nonrecurring items, if they occur, can affect the calculation of consolidated EBITDA. AtJune 30, 2021 , the Company's ratio of consolidated net debt-to-consolidated EBITDA, as defined by the Company's Revolving Facility, for the trailing-twelve months was 1.95 times and was calculated as follows: July 1, 2020 to June 30, 2021 (Dollars in Millions) Earnings from continuing operations attributable to Martin Marietta $ 768.5 Add back: Interest expense 112.7 Income tax expense 184.7 Depreciation, depletion and amortization expense
402.8
Stock-based compensation expense
31.1
Acquisition-related expenses
18.2
EBITDA related to acquired operations (Pre-acquisition
July 1, 2020 toApril 30 , 2021)(1)
34.6
Deduct:
Interest income
(0.2 ) Consolidated EBITDA, as defined by the Company's Revolving Facility
$ 1,552.4
Consolidated net debt, as defined and including debt for which the Company
is a co-borrower, atJune 30, 2021 $
3,027.6
Consolidated net debt-to-consolidated EBITDA, as defined by the Company's
Revolving Facility, at
1.95 times
(1) Inclusive of one-time, non-recurring and transaction-related expenses. In the event of a default on the Ratio, the lenders can terminate the Revolving Facility and Trade Receivable Facility and declare any outstanding balances as immediately due. There was$240 million outstanding under the Trade Receivable Facility and no borrowings under the Revolving Facility as ofJune 30, 2021 . Cash on hand, along with the Company's projected internal cash flows and availability of financing resources, including its access to debt and equity capital markets, is expected to continue to be sufficient to provide the capital resources necessary to support anticipated operating needs, cover debt service requirements, address near-term debt maturities, meet capital expenditures and discretionary investment needs, fund certain acquisition opportunities that may arise, allow the repurchase of shares of the Company's common stock and allow for payment of dividends for the foreseeable future. AtJune 30, 2021 , the Company had$857.4 million of unused borrowing capacity under its Revolving Facility and Trade Receivable Facility, subject to complying with the related leverage covenant. Historically, the Company has Page 44 of 52
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the QuarterJune 30, 2021 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
successfully extended the maturity dates of these credit facilities. Further, as
of
As ofJune 30, 2021 , the Company had restricted cash of$17.2 million for the purchase of like-kind exchange replacement assets under Section 1031 of the Internal Revenue Code and relatedIRS procedures (Section 1031) available to use untilNovember 22, 2021 . The Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law inMarch 2020 and provided liquidity support for businesses. Through the CARES Act, the Company deferred payment of$27.6 million , representing the 6.2% employer share ofSocial Security taxes for the period fromMarch 27, 2020 throughDecember 31, 2020 . Half of the deferred obligation will be dueDecember 31, 2021 and the remaining half will be dueDecember 31, 2022 . There will be no interest assessed on amounts deferred.
TRENDS AND RISKS
The Company outlined the risks associated with its business in its Annual Report
on Form 10-K for the year ended
OTHER MATTERS
If you are interested in Martin Marietta stock, management recommends that, at a minimum, you read the Company's current annual report and Forms 10-K, 10-Q and 8-K reports to theSecurities and Exchange Commission (SEC) over the past year. The Company's recent proxy statement for the annual meeting of shareholders also contains important information. These and other materials that have been filed with theSEC are accessible through the Company's website at www.martinmarietta.com and are also available at theSEC's website at www.sec.gov. You may also write or call the Company's Corporate Secretary, who will provide copies of such reports. Investors are cautioned that all statements in this Form 10-Q that relate to the future involve risks and uncertainties, and are based on assumptions that the Company believes in good faith are reasonable but which may be materially different from actual results. These statements, which are forward-looking statements under the Private Securities Litigation Reform Act of 1995, provide the investor with the Company's expectations or forecasts of future events. You can identify these statements by the fact that they do not relate only to historical or current facts. They may use words such as "anticipate," "expect," "should be," "believe," "will," and other words of similar meaning in connection with future events or future operating or financial performance. Any or all of management's forward-looking statements here and in other publications may turn out to be wrong. The Company's outlook is subject to various risks and uncertainties, and is based on assumptions that the Company believes in good faith are reasonable but which may be materially different from actual results. Factors that the Company currently believes could cause actual results to differ materially from the forward-looking statements in this Form 10-Q (including the outlook) include, but are not limited to: the ability of the Company to face challenges, including those posed by the COVID-19 pandemic and implementation of any such related response plans; fluctuations in COVID-19 cases inthe United States and the extent that geography of outbreak primarily matches the regions in which the Company'sBuilding Materials business principally operates; the resiliency and potential declines of the Company's various construction end-use markets; the potential negative impact of the COVID-19 pandemic on the Company's ability to continue supplying heavy-side building materials and related services at normal levels or at all in the Company's key regions; the duration, impact and severity of the impact of the COVID-19 pandemic on the Company, including the markets in which the Company does business, its suppliers, customers or other business partners as well as Page 45 of 52
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the QuarterJune 30, 2021 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) the Company's employees; the economic impact of government responses to the pandemic; the performance ofthe United States economy, including the impact on the economy of the COVID-19 pandemic and governmental orders restricting activities imposed to prevent further outbreak of COVID-19; shipment declines resulting from economic events beyond the Company's control; a widespread decline in aggregates pricing, including a decline in aggregates shipment volume negatively affecting aggregates price; the history of both cement and ready mixed concrete being subject to significant changes in supply, demand and price fluctuations; the termination, capping and/or reduction or suspension of the federal and/or state gasoline tax(es) or other revenue related to public construction; the level and timing of federal, state or local transportation or infrastructure or public projects funding, most particularly inTexas ,Colorado ,North Carolina ,Georgia ,Iowa ,Florida ,Minnesota andMaryland ; the impact of governmental orders restricting activities imposed to prevent further outbreak of COVID-19 on travel, potentially reducing state fuel tax revenues used to fund highway projects; theUnited States Congress' inability to reach agreement among themselves or with the Administration on policy issues that impact the federal budget; the ability of states and/or other entities to finance approved projects either with tax revenues or alternative financing structures; levels of construction spending in the markets the Company serves; a reduction in defense spending and the subsequent impact on construction activity on or near military bases; a decline in the commercial component of the nonresidential construction market, notably office and retail space, including a decline resulting from economic distress related to the COVID-19 pandemic; a decline in energy-related construction activity resulting from a sustained period of low global oil prices or changes in oil production patterns or capital spending, particularly inTexas ; increasing residential mortgage interest rates and other factors that could result in a slowdown in residential construction; unfavorable weather conditions, particularlyAtlantic Ocean andGulf of Mexico hurricane activity, the late start to spring or the early onset of winter and the impact of a drought or excessive rainfall in the markets served by the Company, any of which can significantly affect production schedules, volumes, product and/or geographic mix and profitability; whether the Company's operations will continue to be treated as "essential" operations under applicable government orders restricting business activities imposed to prevent further outbreak of COVID-19 or, even if so treated, whether site-specific health and safety concerns might otherwise require certain of the Company's operations to be halted for some period of time; the volatility of fuel costs, particularly diesel fuel, and the impact on the cost, or the availability generally, of other consumables, namely steel, explosives, tires and conveyor belts, and with respect to the Company's Magnesia Specialties business, natural gas; continued increases in the cost of other repair and supply parts; construction labor shortages and/or supplychain challenges; unexpected equipment failures, unscheduled maintenance, industrial accident or other prolonged and/or significant disruption to production facilities; increasing governmental regulation, including environmental laws; the failure of relevant government agencies to implement expected regulatory reductions; transportation availability or a sustained reduction in capital investment by the railroads, notably the availability of railcars, locomotive power and the condition of rail infrastructure to move trains to supply the Company'sTexas ,Colorado ,Florida , Carolinas andGulf Coast markets, including the movement of essential dolomitic lime for magnesia chemicals to the Company's plant inManistee, Michigan and its customers; increased transportation costs, including increases from higher or fluctuating passed-through energy costs or fuel surcharges, and other costs to comply with tightening regulations, as well as higher volumes of rail and water shipments (leading to reduced profit margins when compared with aggregates moved by truck); availability of trucks and licensed drivers for transport of the Company's materials; availability and cost of construction equipment inthe United States ; weakening in the steel industry markets served by the Company's dolomitic lime products; trade disputes with one or more nations impacting theU.S. economy, including the impact of tariffs on the steel industry; unplanned changes in costs or realignment of customers that introduce volatility to earnings, including the Magnesia Specialties business; proper functioning of information technology and automated operating systems to manage or support operations; inflation and its effect on both production and interest costs; the concentration of customers in construction markets and the increased risk of potential losses on customer receivables; the impact of the level of demand in the Company's end-use markets, production levels and management of production Page 46 of 52
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the QuarterJune 30, 2021 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) costs on the operating leverage and therefore profitability of the Company; the possibility that the expected synergies from acquisitions will not be realized or will not be realized within the expected time period, including achieving anticipated profitability to maintain compliance with the Company's leverage ratio debt covenant; changes in tax laws, the interpretation of such laws and/or administrative practices that would increase the Company's tax rate; violation of the Company's debt covenant if price and/or volumes return to previous levels of instability; downward pressure on the Company's common stock price and its impact on goodwill impairment evaluations; the possibility of a reduction of the Company's credit rating to non-investment grade; and other risk factors listed from time to time found in the Company's filings with theSEC . You should consider these forward-looking statements in light of risk factors discussed in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 and other periodic filings made with theSEC . All of the Company's forward-looking statements should be considered in light of these factors. In addition, other risks and uncertainties not presently known to the Company or that the Company considers immaterial could affect the accuracy of its forward-looking statements, or adversely affect or be material to the Company. The Company assumes no obligation to update any such forward-looking statements.
INVESTOR ACCESS TO COMPANY FILINGS
Shareholders may obtain, without charge, a copy of Martin Marietta's Annual
Report on Form 10-K, as filed with the
Martin Marietta Attn: Corporate Secretary4123 Parklake Avenue
Additionally, Martin Marietta's Annual Report, press releases and filings with
the
Telephone: (919) 783-4691
Website address: www.martinmarietta.com
Information included on the Company's website is not incorporated into, or otherwise creates a part of, this report.
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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES FORM 10-Q For the Quarter EndedJune 30, 2021
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