Rising Cost Inflation Outweighs Solid Top-Line Performance for Martin Marietta in the First Quarter

Narrow-moat-rated Martin Marietta's first-quarter results were in line with our expectations. Rising cost inflation continues to be the story, as the company’s gross margins (excluding freight and delivery) declined over 530 basis points to 13.6% in the quarter compared with the same period a year ago. That said, we think Martin Marietta will be able to increase prices in the near term to offset cost pressure in the second half of 2022. This leads us to forecast 28.4% gross margins for the full year, roughly in line with 2020 levels (compared with 26.5% in 2021). Looking at sales, the company earned $1.1 billion, which was up 25% year on year compared with the first quarter of 2021, largely due to strong pricing. In 2022, we project Martin Marietta’s top line to grow by 15% year on year to $5.8 billion.