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Will Martin Marietta (MLM) Disappoint This Earnings Season?

Martin Marietta Materials, Inc. MLM is set to report third-quarter 2017 results on Nov 2, before market open.

Martin Marietta’s prospects are getting marred by weak volumes since 2016 due to labor constraints and delays on large projects. Importantly, weather-related risks have been negatively impacting the company’s performance due to the exterior nature of the business despite improving economic conditions, cost management and enhanced operational efficiency.  

Meanwhile, recent hurricanes, Harvey and Irma, will weigh on its third quarter results as Martin Marietta has significant exposure in Texas and Florida, generating 39% of its sales. The company’s results are likely to get affected by weak volumes, negative price/mix along with higher operating costs due to the hurricanes.

Nonetheless, the company is well positioned given its solid market exposures in the states like Texas, Colorado, Georgia, Florida, North Carolina in the South East and the West. Along with this, the company’s Midwest exposure and Magnesia business help it moderate the cyclicality during a downturn.

Although the company is experiencing weak volumes, it is expected to grow with federal funding from the FAST Act that is likely to flow in the second half of 2017. Again, many state level initiatives in important markets, good momentum in residential industry as well as solid pipeline of LNG projects are likely to aid the company’s performance.

Notably, as Martin Marietta highlighted in the second-quarter earnings call, the residential market, accounting for 20% of aggregates product line shipments, is benefiting from continued economic recovery, particularly in Florida, North Carolina, Colorado, Georgia, South Carolina, and Iowa. The company’s string of acquisitions, divestitures and an uptick in private and public construction activity are encouraging. Sustained growth in construction activity drives the demand for both the aggregates and cement businesses of the company. This can be expected to benefit 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 decrease. Again, the Zacks Consensus Estimate for revenues is pegged at $1.06 billion, reflecting 2.3% growth.

Here is what our quantitative model predicts.

Martin Marietta does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — to increase the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter

Zacks ESP: Martin Marietta has an Earnings ESP of -1.62%.

Zacks Rank: Martin Marietta carries a Zacks Rank #5 (Strong Sell). Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Last quarter, the company delivered a negative earnings surprise of 5.46%. The company missed estimates in three of the trailing four quarters, with an average negative surprise of 2.43%.

Stock Worth a Look

Here is a stock in the construction sector that has the right combination of elements to beat on earnings this quarter.

Louisiana-Pacific Corporation LPX has an Earnings ESP of +3.90% and a Zacks Rank #1.

Key Picks

Investors can also consider better-ranked stocks in the sector that include NVR, Inc. NVR and KB Home KBH. While NVR sports a Zacks Rank #1 (Strong Buy), KB Home carries a Zacks Rank #2 (Buy). NVR’s earnings are expected to grow 41.3% in 2017, while that of KB Home by 56.8%.

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Louisiana-Pacific Corporation (LPX): Free Stock Analysis Report
 
Martin Marietta Materials, Inc. (MLM): Free Stock Analysis Report
 
KB Home (KBH): Free Stock Analysis Report
 
NVR, Inc. (NVR): Free Stock Analysis Report
 
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