Tuesday, November 3, 2009

Vulcan, Martin Marietta give a clearer view of a potential recovery (VMC,MLM)

I've previously cited Vulcan Materials (VMC) and Martin Marietta (MLM) as good "reads" of the current economic environment. Politicians can claim stimulus spending results without backing up those claims, but the true results show up in earnings reports from these companies on the economic front lines.

Both firms beat earnings guidance, although revenues came in below expectations. Of particular interest is their commentary regarding stimulus spending, and how quickly it is actually being implemented. It's rather disheartening that nearly all the management commentary is surrounding government-subsidized spending, rather than sustainable private sector demand.

Martin Marietta's earnings release includes commentary that warns not only of the problems with federal stimulus, but outlines their concerns over state budget problems:

"we continue to see delays in stimulus-related jobs reaching the actual construction phase. While there is no question that stimulus will generate additional volume, we now believe that about 15% of stimulus projects will progress to the actual construction phase during 2009 with the bulk of the activity being earmarked for construction to commence in 2010.

"We are concerned that the rescission, combined with a very short extension, could further weaken any confidence at the state level and contribute to a further pullback in state spending. In addition, we are watching closely as many states explore alternative means of funding their infrastructure over the longer term. It is safe to say that infrastructure demand, as funded directly by the states, will continue to be pressured as states grapple with long-term resolutions for their budget deficits."

Vulcan Materials, in their release, notes that less than 10% of allocated stimulus dollars in the states they do business in have been spent:


"Economic stimulus funds of $27 billion designated for highway projects are working their way into the U.S. economy. While 73 percent of these funds had been obligated to specific projects by the end of September, only $2.4 billion of these stimulus funds had been paid to contractors for construction work performed. Vulcan-served states generally have obligated funds for new highway projects at the same pace as other states; however, our states have lagged the rest of the country when it comes to starting stimulus-related construction. At the end of September, our states had spent less than 7 percent of their available stimulus funds for work performed compared to 12 percent for the rest of the country."

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