S&P Affirms Martin Marietta Materials (MLM) at 'BBB'; Sees Credit Measures Continuing to Improve

Highlights:

• U.S.-based construction aggregates producer Martin Marietta Materials Inc. continues to see improved pricing and demand resulting in better profitability and stronger credit measures.
• We are affirming our 'BBB' corporate credit rating on Martin Marietta. We are also affirming our 'BBB' issue-level rating on the company's unsecured debt.
• We are revising the outlook to positive from stable due to our expectation that the company will continue to enhance profitability, potentially enabling it to reduce leverage to less than 3x.

Standard & Poor's Ratings Services said it affirmed its 'BBB' corporate credit and issue-level ratings on Martin Marietta Materials (NYSE: MLM). At the same time, we revised our rating outlook on the company to positive from stable.

"Our ratings affirmation and outlook revision to positive reflect our expectation that the company's credit measures will continue to improve due to better profitability as the company sees improved pricing and demand for its products," said Standard & Poor's credit analyst Maurice Austin. "Specifically, we forecast the company's debt to EBITDA to fall below 3x by the end of fiscal 2015."

We could consider an upgrade if Martin Marietta's sales improved faster than expected, resulting in increased operating income and enabling it to reduce and sustain leverage below 3x, with FFO to debt above 30%. For this to occur, gross margins would have to improve and remain above 26%.

We would revise our outlook to stable if earnings deteriorated materially from current levels, causing credit measures to remain above 3x on a sustained basis. This could occur if there were a reversal in construction market activity or pullback in federal or state highway spending activity due to fiscal constraints, such that forecast EBITDA declined at least 25%.

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