Martin Marietta Materials Inc

Martin Marietta was the largest detractor year-to-date based on relative performance vs. the benchmark. Shares were pressured by elevated expectations rather than any meaningful deterioration in fundamentals. Despite the support from the Infrastructure Investment and Jobs Act (IIJA) funding and data center construction, the lack of insider buying and confidence in the company's ability to compound earnings over the long term led to the decision to sell the position. The manager expressed concerns about the company's performance and the need for consistent results.

Martin Marietta Materials, a leading supplier of construction aggregates and building materials, was a detractor during the quarter. Shares modestly declined as investors remained focused on the pace of recovery in residential and private non-residential construction activity, despite continued strength in infrastructure, energy and data center-related demand. While the stock underperformed during the period, it remains a strong performer over the past 12 months.

We bought new positions in Martin Marietta Materials during the quarter. Martin Marietta is a leading aggregates producer with terrific assets and a solid capital allocation track record. The investment is a natural extension of our longstanding 'rocks and gravel' theme. We see a clear path to modest organic growth, operating margin expansion, and value-creating capital deployment.

We increased our position in Martin Marietta Materials, Inc. (MLM) due to our positive view of the aggregates industry, which is characterized by an oligopoly with pricing power, strong return on capital, and double-digit operating margins. MLM’s underappreciated network optimization initiative has delivered tangible cost-saving results. The aggregate end-market backdrop remains constructive as infrastructure spending continues to benefit from the Infrastructure Investment and Jobs Act (IIJA) funding, with ~50% of funds still to be deployed and state DOT budgets aligned in MLM markets growing at high-single-digit rates.

Martin Marietta Materials Inc. supplies aggregates to the building industry and is well positioned to benefit from the current market dynamics. The company announced an asset swap with Quikrete, which will enhance its aggregates operations across several states. This strategic move was positively received by the market, resulting in a 15% increase in its shares over the quarter. The focus on companies less susceptible to commodity price swings aligns with our investment strategy, making Martin Marietta a compelling addition to our portfolio.

We initiated positions in the three largest businesses in the American aggregates sector, including Martin Marietta Materials. The aggregates business benefits from extensive physical network effects, making it difficult for new supply to enter the market due to NIMBY dynamics. This results in local monopolies and oligopolies, allowing companies like Martin Marietta to maintain pricing power. With rising demand for aggregates and regulatory costs increasing, we believe Martin Marietta will continue to grow its pricing, revenue, and profits faster than inflation for years to come.