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3 Construction Earnings to Watch this Week: VMC, MLM & WY

Spring 2016 has been really good for the construction stocks. Of the homebuilders, Lennar Corporation LEN and KB Home KBH were the first to report this earnings season with positive sales and earnings surprises. Other construction stocks include PulteGroup Inc. PHM and D.R. Horton, Inc. DHI, both of which reported on Apr 21.

PulteGroup surpassed the Zacks Consensus Estimate for both earnings and revenues in the first quarter of 2016, for the second quarter in a row. D.R. Horton also displayed robust performance in the second quarter of fiscal 2016 with both earnings and sales beating the Zacks Consensus Estimate.

Higher home sales drove the upside for both the companies. Both the companies are optimistic about the upcoming quarters of 2016, which they expect will be marked by strong housing demand.  

Last week, home improvement and building products company, Masco Corporation MAS posted a positive earnings surprise, though its revenues missed expectations. The company benefitted from growing demand for repair and remodeling and new home construction products in an improving U.S. economy.

Though 2016 started on a shaky note for the construction sector, amid equity market volatility and global concerns, the housing fundamentals seem to be positive for the rest of the year. The construction stocks are expected to benefit from strong demand and traffic trends in the ongoing spring selling season. Most companies also seem quite optimistic about continued momentum through the rest of the year.

However, some markets like Houston are dependent on the oil complex and the volatility in the energy sector is hurting the region’s overall economic growth and in turn, home sales.

An increase in home construction activity not only benefits homebuilders but also spurs demand for homebuilding materials. This, in turn, boosts the growth prospects of companies manufacturing these products.

Three companies from the construction sector, Vulcan Materials Company VMC, Martin Marietta Materials, Inc. MLM and Weyerhaeuser Company WY are set to report their quarterly results this week.

Vulcan Materials Company (VMC)

Birmingham based construction materials company, Vulcan Materials Company is set to report first quarter 2016 results on May 3, before the market opens. Last quarter, the company had posted a positive surprise of 23.33%. Moreover, the company surpassed estimates in two out of the past four quarters, with in-line earnings in the other two, resulting in an average positive surprise of 7.30%.

The company has an">Earnings ESP of +16.67% and a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for the quarter is pegged at 6 cents.

After severe wet weather disrupted Vulcan’s shipments in the first half of 2015, volumes improved in the latter half backed by increasing demand for construction materials. Moreover, pricing momentum remains robust, translating into expanding profit margins. The momentum is expected to continue in 2016 and drive revenues in the soon-to-be reported quarter as well.

However, skilled labor shortages and a slight slowdown in demand trends in Texas can act as headwinds. Also management expects the effect of El-Nino related rainfall to hurt aggregate shipments in early 2016 in California, Arizona and New Mexico. We may witness the said impact in the soon-to-be reported quarter. (Read more: Will Vulcan Materials Beat Estimates in Q1 Earnings?)

Martin Marietta Materials, Inc. (MLM)

Raleigh, NC based construction materials company Martin Marietta Materials is set to report first-quarter 2016 results on May 5, before the market opens. Last quarter, the company delivered a negative earnings surprise of 14.18%. The construction company posted negative earnings surprises in the past four quarters with the average being -16.55%. The company has an Earnings ESP of +22.58% and a Zacks Rank #3. The Zacks Consensus Estimate for the quarter is pegged at 31 cents.  

Martin Marietta Materials expects to witness underlying demand growth and strong pricing in the to-be reported quarter and through the rest of the year. The company expects better volume growth in its key end markets – infrastructure and non-residential construction markets.  

In addition, robust pricing gains, synergies from the Texas Industries acquisition and higher infrastructure shipment volumes should support growth in the first quarter and beyond.

However, aggregate volume trends in the Texas market due to weakness in the oil/gas industry could be somewhat slow. (Read more: Martin Marietta Q1 Earnings: What's in the Cards?)

Weyerhaeuser Company (WY)  

Based in Washington, forest product company Weyerhaeuser is set to report first-quarter 2016 results on May 6, before the market opens. Last quarter, the company delivered in-line results. The company delivered better-than-expected results in two of the four trailing quarters, while recording lower-than-expected results in one and in-line results in the other with an average beat of 7.50%. The company has an Earnings ESP of 0.00% and a Zacks Rank #3. The Zacks Consensus Estimate for the quarter is pegged at 20 cents.  

Weyerhaeuser expects its Timberlands and Wood Products segments to benefit from the ongoing recovery of the U.S housing market. Also, its cost-reduction initiatives will help it reduce controllable costs and improve earnings before interest, tax, depreciation and amortization contributions from various businesses. In addition, the company’s focus on improving its engineered lumber products and distribution businesses will act as tailwinds.

However, Weyerhaeuser is exposed to risks arising from near-term headwinds, including stiff competition, adverse currency translation and geopolitical issues. The Cellulose Fibers business is expected to remain weak in first quarter 2016. Also, the performance of the Timberlands segment will likely be in line with the preceding quarter. (Read more: Weyerhaeuser to Report Q1 Earnings: What’s in Store?)

Stay Tuned! Check later on our full write-up on earnings releases of these stocks.

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MASCO (MAS): Free Stock Analysis Report
WEYERHAEUSER CO (WY): Free Stock Analysis Report
VULCAN MATLS CO (VMC): Free Stock Analysis Report
MARTIN MRT-MATL (MLM): Free Stock Analysis Report
PULTE GROUP ONC (PHM): Free Stock Analysis Report
LENNAR CORP -A (LEN): Free Stock Analysis Report
KB HOME (KBH): Free Stock Analysis Report
D R HORTON INC (DHI): Free Stock Analysis Report
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