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Investing.com -- On April 23, 2025, Moody’s Ratings confirmed the Baa2 senior unsecured notes ratings for Martin Marietta Materials (NYSE:MLM), Inc., while adjusting the company’s outlook from positive to stable. This change is due to an expectation that the company’s credit metrics will moderate because of ongoing economic uncertainties, despite its robust operating performance.
The impact of tariffs on Martin Marietta is expected to be minimal. However, a slowdown in economic activity and the pace of construction projects in North America could limit further improvements in the company’s credit metrics in the near future.
The affirmation of the Baa2 rating is based on the expectation of Martin Marietta’s continued robust operating performance. The company’s adjusted EBITDA margin is expected to remain slightly above 30%, one of the highest levels of profitability among rated building materials companies. The company’s leverage is also expected to remain just below 3x adjusted debt/EBITDA through at least 2026.
Peter Doyle, a Moody’s Ratings VP-Senior Analyst, stated that the change in outlook to stable from positive reflects economic uncertainties that could slow down construction projects, reducing Martin Marietta’s growth trajectory. Despite these challenges, Martin Marietta, as one of the largest suppliers of aggregates in the U.S. and with strong liquidity, is well positioned to manage ongoing disruptions.
The Baa2 rating acknowledges Martin Marietta’s scale, geographical diversification across the U.S., and strong EBITDA margins, which contribute to healthy cash generation and strong liquidity. However, the inherent cyclicality of demand in the U.S. construction industry, a primary driver of its revenue, could lead to higher volatility in volumes and earnings for Martin Marietta in the near term.
Martin Marietta is expected to face intense competition, which could make further expansion operating margins and market share gains challenging to achieve, and necessitate growth through acquisitions.
The stable outlook reflects the expectation that Martin Marietta will face a more challenging growth environment and will operate with a leverage of around 2.5-3.0x adjusted debt/EBITDA and generate retained cash flow/net debt of around 25% in the next 12-18 months.
The company is projected to maintain strong liquidity, generating about $600 million in free cash flow in 2025 and nearing $650 million in 2026. Martin Marietta has full access to its $800 million revolving credit facility and $400 million securitization facility, further contributing to the company’s healthy liquidity.
A ratings upgrade could occur if end markets remain supportive of organic growth such that adjusted debt/EBITDA stays around 2x and adjusted retained cash flow/net debt trends above 30%. A ratings downgrade could occur if adjusted debt-to-EBITDA is sustained above 3x or adjusted retained cash flow/net debt trends below 20% for an extended period. Negative ratings pressure may also transpire if the company experiences material contraction in operating performance, deterioration in liquidity, or adopts aggressive acquisition or financial policies.
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