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Lime and limestone products continued to be in high demand from construction and environmental customers. That drove solid revenue growth for U.S. Lime & Minerals (USLM +0.13%) during the fourth quarter, enabling it to end 2016 on a high note. However, while the company ended 2016 in a good position, it continues to face pricing pressure because of a competitive market, which could hold down growth in 2017.
U.S. Lime results: The raw numbers
|
Metric |
Q4 2016 |
Q4 2015 |
Year-Over-Year Change |
|---|---|---|---|
|
Revenue |
$34.2 million |
$31.3 million |
9.2% |
|
Net income |
$3.9 million |
$2.3 million |
71.5% |
|
EPS |
$0.70 |
$0.41 |
70.7% |
Data source: U.S. Lime & Minerals.
What happened with U.S. Lime this quarter?
Environmental and construction customers drove demand.
- U.S. Lime's lime and limestone operations continue to provide most of its revenue. For the quarter, sales were up 9% to $33.6 million because of rising demand from construction and environmental customers. Meanwhile, full-year sales rose 6.9% to $137.2 million as healthy demand from construction, environmental, and roof shingle customers more than offset weaker demand from oil and gas services customers.
- The rest of the company's revenue came from its natural gas interests. During the quarter, sales jumped 21% to $0.6 million, as higher gas prices more than offset lower volumes. That said, full-year natural gas revenue fell 14.5% to $2.1 million because of a decline in volumes and a slight decrease in the average realized price for its gas production.
- Gross profit in the company's lime and limestone operations rose to $7.4 million in the fourth quarter, up from $5.6 million in the year-ago quarter. Meanwhile, gross profit from the natural gas interests was $0.1 million, reversing a year-ago loss. For the full year, gross profit rose 15.2% to $33.1 million as stronger lime and limestone profits offset weaker profitability from the gas assets.
What management had to say
CEO Timothy Byrne commented on the company's results:
We are pleased that our 2016 operating results improved over last year, leaving us with $75 million in cash at Dec. 31, 2016, compared to $60 million at Dec. 31, 2015, and no debt. With our diverse customer base, overall demand for our lime and limestone products increased in the fourth quarter and full year 2016, although pricing remains a challenge in the current competitive environment.
Byrne continues to mention that pricing is a problem for U.S. Lime because of competitive pressure. Some of its larger competitors, however, don't seem to have the same complaints. During the third quarter, for example, aggregate-producing rivals Vulcan Materials (VMC +0.33%) and Martin Marietta Materials (MLM 0.28%) both mentioned that sales prices increased. In Vulcan Materials' case, it saw a 7% increase in the average freight-adjusted sales price, while Martin Marietta Materials said pricing in its aggregates product line was up nearly 9%. That said, these product segments include more than just lime and limestone, which suggests that the diversification and larger scale of Vulcan and Martin Marietta have shielded them from the pricing issues affecting U.S. Lime.
Looking forward
Other than complaining about competitive pricing pressure, U.S. Lime didn't offer any other forward guidance. However, on a more positive note, the company ended last year debt-free and cash-rich. The company continues to return some of this money to shareholders by announcing a 12-month extension of its share repurchase program -- which had $7.2 million remaining -- and increasing the dividend from $0.125 per share each quarter up to $0.135 per share on a quarterly basis. However, those two uses of cash are minimal compared with what's currently on its balance sheet, which means the company has built up quite a war chest that it could use to acquire a competitor and reduce some of the pricing pressure.
