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Vulcan Materials Company (VMC), Martin Marietta Materials, Inc. (MLM): A Rock-Solid Investment

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The aggregate industry, i.e. crushed rock and stone, has no doubt been hit hard by the slowing economy and weak housing market–but have we finally hit an inflection point?

The industry has had a number of setbacks of late due a wetter-than-expected spring season and the threat of rising interest rates, which have led to concerns surrounding a possible slowdown in the real estate market. But the recent pullbacks could be a great buying opportunity.

In the $15 billion crushed-stone industry, Vulcan Materials Company (NYSE:VMC) and Martin Marietta Materials, Inc. (NYSE:MLM) own the market, having 17% and 13% of the market share, respectively. The aggregates industry mines and produces gravel and other related products to be used in construction and infrastructure projects.

Aggregates account for nearly 90% of Martin Marietta Materials, Inc. (NYSE:MLM)’s sales. Vulcan Materials Company (NYSE:VMC) has a bit more of a diversified product portfolio; 60% of revenue is from aggregates, while the concrete segment is around 17%, asphalt mix 14% and cement segment 2%.

Last week, Martin posted 2Q EPS of $0.89 compared to $0.92 last year, but well below consensus of $1.14. As mentioned, this was due to unusually wet weather. However, the weak EPS due to wet weather was expected, and the stock is actually up nearly 5% over the past 30 days.

Martin saw volumes fell 1.6% year-over-year, driven by infrastructure. Infrastructure volumes fell 8%, but non-residential construction was up 7% and residential up 4%.

The other thing for Martin was that it cut full-year 2013 volume growth guidance from the 4%-to-6% range to 1% to 3%. However, the reduced guidance was due to the shortfall in the first half of 2013.

Vulcan Materials Company (NYSE:VMC) also came out with 2Q EPS last week. It posted earnings of $0.23 per share, improving nicely from a loss of $0.02 in 1Q and well above the 2Q 2012 EPS loss of $0.13. Revenue was also up 6.4% year-over-year thanks to volume and pricing boosts in its aggregate segment. Vulcan has guided for 2013 volume growth for 1% to 5%.

Vulcan Materials Company (NYSE:VMC) is also focusing on reducing costs and simplifying its structure. In 2012, the company consolidated eight divisions into four regions, helping reduce general and administrative costs by 11% in 2012.

As well, Vulcan Materials Company (NYSE:VMC) is looking to get rid of non-core assets, such as ready-mix concrete, cement operations, and various real estate assets to focus on the aggregates business. All in all, these asset sales are expected to bring in $500 million. As part of this, Vulcan sold a portion of future production for four aggregate quarries in South Carolina to Plum Creek Timber Co. Inc. (NYSE:PCL) for $75 million last year.

Small time

The smaller industry operator is Texas Industries, Inc. (NYSE:TXI)). The company operates via two segments:  cement and aggregate products, and structural steel and specialty bar products. In terms of size, Texas Industries generates some $700 million in revenue annually, compared to Vulcan Materials Company (NYSE:VMC)’s $2.6 billion and Martin’s $2. billion.

Texas Industries, Inc. (NYSE:TXI) focuses on the Texas and California markets, which have been hit the hardest by the financial and real estate crisis. The company recently announced fiscal 4Q EPS that showed pretax income of $4 million, compared to the loss of $2 million for the same period last year.

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