Martin Marietta: Scaling Specialty, Not Changing Strategy; Lhoist NA Lime Deal Takeaways

Research evidence excerpt

Martin Marietta: Scaling Specialty, Not Changing Strategy; Lhoist NA Lime Deal Takeaways

Barclays | Martin Marietta

miles by truck) and lower than cement (i.e. thousands of miles dry bulk). Permitting and

limestone deposits are additional key barriers that protect the market from competition despite

high prices. By combining with Lhoist NA, the likelihood of further M&A in this space is limited;

meaning there's limited risk that this is a platform for more M&A mostly because they already

got the biggest platform. The company also gets the optionality of having a (more) scaled

specialty business with a long-term shareholder that has a vested and aligned interest for

success. Lockups for Lhoist are likely in years, not months.

FIGURE 1. Lime Production Has Declined, Pricing Accelerated

Source: USGS, Barclays Research

3. Pricing power has been durable, cash flow has been through-cycle, and the industry has

gradually consolidated in various forms: The PPI chart MLM included in its deck (slide 6) is

illuminating. Not only has lime tracked aggregates since 2000 but outperformed it post COVID.

We’re still unsure what exactly changed in the market to drive the price growth (beyond

inflation) over the 12-quarter window of Q1’22 to Q4’24. Industry concentration was similar

pre-2020 vs. post-2020, although over a 10-year window, industry production is ~20% lower by

~20% fewer companies and ~10% fewer production plants. Cash flow conversion has been

~80% for US Lime vs. ~70% for MLM’s overall business. We suspect Lhoist could be greater given

scale and capacity. That’s powerful.

FIGURE 2. Index Pricing To 2018 - Price Steady Since Q4'24

*Indexed to 2018, * US Lime Prices; Used As A Proxy For Industry

Source: Barclays Research, Company Reports

4.