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Key Predictions for Q3 Earnings Reports of MLM and VMC

The Q3 earnings season is in full swing, with 54% of the S&P 500 members having reported their results. Per the Earnings Preview  dated Oct 27, approximately 75.7% surpassed earnings, while 66.2% beat revenues. Notably, earnings for these companies have risen 8.7% from the same period last year, with 6.7% revenue growth.

For the third quarter, total earnings for the S&P 500 index are projected to grow 5.4% year over year on 5.5% rise in revenues.

A Look at the Construction Sector

The overall outlook for the construction market is positive. Factors like an improving economy, modest wage growth, low unemployment levels and positive consumer sentiments raise optimism over the sector’s performance. Total third-quarter earnings for the construction sector are projected to increase 9% year over year on 10.1% growth in revenues.

Historically, the building product industry within the construction sector has been facing the brunt of abnormally wet weather conditions, which have jeopardized shipments, production and profits. The recent hurricanes are also likely to cause shipment delays in the short term. Nevertheless, demand for building materials for the repair of damaged properties is expected to somewhat offset the initial concerns regarding business delays, boosting the top line for these companies.

Again, the U.S. construction market in 2017 is expected to get a boost if, as announced, the Trump administration invests heavily in infrastructure. Particularly, Trump’s plans to boost infrastructure by rebuilding highways along with bridges, tunnels, airports, schools and hospitals have brought building product stocks under the limelight.

Building Product Stocks Reporting on Nov 2

Two building product companies — Martin Marietta Materials, Inc. MLM and Vulcan Materials Company VMC — are set to report third-quarter results on Nov 1, before market opens. Let's see how things are shaping up for their announcements.

Martin Marietta’s prospects have been getting marred by weak volumes since 2016 due to labor constraints and delays in large projects. Weather-related risks have been affecting the company’s performance due to the exterior nature of its business despite improving economic conditions, cost management and enhanced operational efficiency.
 
Meanwhile, hurricanes Harvey and Irma are expected to weigh on its second-half 2017 results as Martin Marietta generates 39% of its sales from Texas and Florida. The impact of the hurricanes is likely to lead to weak volumes, negative price/mix along with higher operating costs.

Nonetheless, the company’s string of acquisitions, divestitures and an uptick in private and public construction activity are encouraging. Sustained growth in construction activity drives demand for the aggregates and cement businesses of the company. This is expected to drive results in the to-be-reported quarter.

Overall, for the third quarter, the Zacks Consensus Estimate for earnings is pegged at $2.47, reflecting a 0.8% year-over-year decline. The Zacks Consensus Estimate for revenues is pegged at $1.06 billion, reflecting 2.3% growth.

Our proven model does not conclusively show an earnings beat for the company this quarter, as Martin Marietta does not have a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher.

Our research shows that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3, combined with a positive Earnings ESP, have higher chances of beating earnings estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The company carries a Zacks Rank #5 (Strong Sell) and has an Earnings ESP of -1.62%. Note that we caution against stocks with a Zacks Rank #4 (Sell) or 5 going into the earnings announcement, especially when the company is seeing negative estimate revisions. (Read more: Will Martin Marietta Disappoint This Earnings Season?)

Martin Marietta Materials, Inc. Price and EPS Surprise

Vulcan Materials is susceptible to bad weather conditions as most of its products are used outdoors in the public or private construction industry. Also, the company’s production and distribution facilities are located in the open. Inclement weather conditions affect the company’s ability to produce and distribute products as well as demand.

Aggregates shipments declined 2% in the first six months of 2017 owing to adverse weather conditions. The recent hurricanes will likely cause shipment delays in the third quarter. Nevertheless, increased demand for building materials for the repair of damaged properties will likely offset the initial concerns regarding business delays. The Zacks Consensus Estimate for aggregates shipments is pegged at 50, 776 tons for the third quarter, up 1% year over year.

For the third quarter, the Zacks Consensus Estimate for earnings is pegged at 93 cents, reflecting a decline of 7.7% year over year, while that for revenues stands at $1.06 billion, up 4.7% year over year.

Meanwhile, our proven model does not conclusively show an earnings beat for Vulcan this quarter as it has an Earnings ESP of -7.19%  and a Zacks Rank #5. (Read more: Vulcan Materials Q3 Earnings: Will It Disappoint? )

Vulcan Materials Company Price and EPS Surprise

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Vulcan Materials Company (VMC): Free Stock Analysis Report
 
Martin Marietta Materials, Inc. (MLM): Free Stock Analysis Report
 
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