Ah, aggregate . the stuff that really separates the true value investor from the poseur. You've got to really be willing to do the numbers and your due diligence to come away liking a company that produces aggregate, cement, and concrete. And I'm betting that the investors who took the time to dig into Florida Rock
The story here is actually pretty simple. The market for new residential construction in Florida has been exceptionally strong, and the level of activity in road building and maintenance hasn't been too bad, either. As a result, the company has been able to sell quite a bit of its products and push through price increases.
Sales in the quarter rose 35%, margins expanded notably, and operating profits grew by more than 90%. Now, granted, the year-ago period was pretty tough, with Florida (which makes up the majority of the company's sales) getting rabbit-punched by hurricanes. Still, the company did outperform the average estimates for both revenue and earnings per share.
What of the future? Well, management seems to be cautious on the housing market, going as far as pointing out that "home building is one of those things that can stop quickly." Still, most expectations now are for a slowing of growth, not a complete stoppage of new builds. Turning away from residential, management seemed cautiously optimistic on the non-residential and highway construction markets -- observing that the new federal transportation bill wouldn't mean much but that there's still good spending trends in the state of Florida.
Florida Rock offers a lot to like. Pricing is strong and getting stronger, energy costs may be easing off a bit, and the company features a good return on capital with very little debt. In comparison with other companies such as Vulcan Materials
What concerns me, though, is that Florida Rock is heavily exposed to both residential construction (50% of sales) and the state of Florida. To me, that suggests it's a riskier play than more diversified operators such as Cemex
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
