Analyst Comments Following Texas Cement Shipment Numbers

By Carrie Williams

Construction materialYesterday, equity analyst Mike Betts from Jefferies reported that the Texas Comptroller of Public Accounts provided the August cement shipment numbers, which were 12.6% lower than in August 2015. The decline in shipments are attributed to worse weather conditions, although the analyst suggests that the poor results may signal weaker underlying demand.

Betts noted that this 12.6% decrease was the fourth decline in cement shipments in the last five months and the third negative double-digit result in the last four months. For the first eight months of the year, Texas cement consumption was reported to be 1% lower than the same period in 2015.

The Jefferies’ analyst highlights that the July 2015 comparative data showed a strong result of 6.4%, which makes the significance of the -12.6% August data even more concerning. Also, the number of working days in August 2016 increased to 23 from 21 in 2015 due to the fact that 2015 contained 5 weekends. This increase in working days could have potentially boosted cement shipments by 9.5%, which suggests that demand was in fact weaker than the -12.6% headline suggests.

In terms of the weather in August 2016, according to the data from the National Climatic Data Center, rainfall in Texas ranked 118 as opposed a ranking of 26 in August 2015. This figure is quite high considering the wettest August since records began was rated 122. That said, cold weather does not always lead to lower cement shipments as the real concern in Texas in August is extremely hot conditions, which required additional precautions to stop the concrete from drying to quickly.

In light of these results, Betts estimates that Texas Industries was the market leader in 2015, supplying 20.5% of the cement shipped in the state. Texas Industries is owned by Martin Marietta (NYSE: MLM) and Betts placed a Hold rating on the stock.

The second largest cement supplier in the state in 2015 was Cemex (NYSE: CX) and the analyst rates this stock as a Buy. Cemex accounted for 16.4% of the 2015 shipments although this figure declined by 11% in August 2016.

LafargeHolcim (VTX: LHN) comes in third place supplying 14.3% of Texas cement shipments in 2015 and Bett’s also has a Buy for this name. LafargeHolcom’s August 2016 results declined by 25%.

The analysts track record according to data, which provides success rate measurements based on the the analyst’s stocks picks, is quite impressive with a 92% success rate and a 23.2% average return per recommendation.