Charley. Frances. Ivan. Jeanne. Floridians must wonder what they did to deserve the Four Horsemen of Mother Nature. Insurance companies such as The Hartford Financial Services Group (NYSE:HIG) and St. Paul Travelers (NYSE:STA) are petrified by the estimated $30 billion in damages.
Meanwhile, construction companies such as Hughes Supply (NYSE:HUG) and Dycom Industries (NYSE:DY) are cashing in on the rebuilding. And while some businesses rebuild, others need to start pouring cement, a key ingredient in concrete.
That is, if they can unearth any. There is a worldwide cement shortage, thanks to the continuing U.S. housing boom and rebounding Asian construction. With China gobbling up ships to haul its raw materials, the availability of ocean vessels to import cement into the U.S. has been seriously curtailed. The result is a steadfast cement shortage affecting 29 states, including Florida. Twenty-three percent of 2003's cement usage was imported, but in Florida's case, that number cracked 40%.
Enter Florida Rock (NYSE:FRK), a $2 billion company with its own cement plant! Woo-hoo! With demand high and supply constrained, economic theory becomes reality and cement prices rise -- double woo-hoo!
Except economic theory chips both ways. Florida Rock raises cement prices, but shortages mean less concrete available for sale. Boo-hoo! So they must rely on imports and thus pay higher prices for the decreased availability of ocean vessels. Double boo-hoo!
Eventually the unfavorable imbalances will ameliorate, but demand should remain high enough so Florida Rock can bolster its foundation in the cement biz. In the most recent quarter, the company mined a 34% earnings increase over the prior year on a 27% increase in sales. Current fiscal-year estimates show an expected 41% increase, with another 20% due the year after. The company also chiseled out a special dividend of $1 per share from its quarry and increased its regular dividend 20% to 80 cents per share, a yield of 1.7%.
With ample free cash flow, a forward P/E of 15, and better gross and operating margins than competitor Vulcan Materials, Florida Rock is a solid candidate for further exploration. Along with its stronger balance sheet than competitor Lafarge North America (NYSE:LAF), strong housing demand, and Mother Nature's wrath in full swing, Florida Rock should prove to be a steady bet for some time to come.
Fool contributor Lawrence Meyers does not own shares in any of the companies mentioned and prefers the excitement of earthquakes over hurricanes.
