Bear Of The Day: Martin Marietta

Aug.26.13 | About: Martin Marietta (MLM)

Weak results have led to sharp downward estimates revisions, sending this construction materials company to a Zacks Rank No. 5 (Strong Sell).

About the Company

Headquartered in Raleigh, N.C., Martin Marietta Materials (NYSE:MLM) is the country's second-largest producer of construction aggregates, used primarily for construction of roads, highways, and other infrastructure projects and in the domestic commercial and residential construction industries. The company operates through approximately 300 quarries, distribution yards, and plants located in 28 states, Canada, the Bahamas, and the Caribbean Islands.

Disappointing Results

MLM reported its second-quarter FY 2013 results on July 30, 2013. Diluted EPS for the quarter came in at $0.88 per share, down substantially from the Zacks Consensus Estimate of $1.11 per share. The company said that the results were affected by excessive rainfall in most of their key markets -- particularly in the Midwest and southeastern U.S. According to company estimates, the precipitation reduced shipment volumes between 1.5 million and 1.7 million tons, lowering net earnings by up to $0.11 per diluted share in addition to significantly affecting the operational productivity. For the full year, the company anticipates aggregates product line shipments to increase by 1% to 3%.

Downwards Revisions

Due to disappointing results and uninspiring guidance, quarterly and annual estimates have been revised sharply downward in the past few weeks. Zacks consensus estimates for the current quarter and year are now $1.47 and $2.55 per share, respectively, down substantially from $1.60 and $2.92 per share 30 days ago. The company has missed estimates in three of the past four quarters, with an average negative surprise of 23.9%.

The Bottom Line

MLM is currently a Zacks Rank No. 5 (Strong Sell) stock and has a longer-term recommendation of "Underperform." Furthermore, uninspiring guidance from management regarding the volumes has resulted in a weak outlook for the stock for the time being.

Better Play?

Investors seeking exposure to construction industry could look at some of the homebuilders instead of construction materials suppliers. Among the homebuilders, Meritage Homes (NYSE:MTH) beat the Zacks Consensus Estimate for both revenues and earnings. This Zacks Rank No. 2 (Buy) stock saw increasing demand and pricing in most housing markets during the recent quarter. However, we may add that rising mortgage rates seem to have started impacting the housing market and, as a result, estimates for homebuilders may come down slightly if the trend continues.

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