United States Lime & Minerals Inc Digs Up Another Solid Quarter

By Markets Fool.com

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Sleepy materials maker U.S. Lime & Minerals (NASDAQ: USLM) reported another quiet quarter. That is after increasing demand for the company's core lime and limestone products led to mid-single digit growth on both the top and bottom lines. While weak commodity prices continue to weigh down the company's energy-sensitive revenues, it is more than making up for it with stronger demand from other customer segments.

U.S. Lime results: The raw numbers

Metric

Q3 2016 Actuals

Q3 2015 Actuals

Growth (YOY)

Revenue

$38.7 million

$37.0 million

4.4%

Net Income

$6.1 million

$5.7 million

7.1%

EPS

$1.09

$1.01

7.9%

Data source: U.S. Lime & Minerals.

What happened with U.S. Lime this quarter?

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Environmental and roof shingle customers picked up the slack this quarter.

  • The company's core lime and limestone operations continue to do the heavy lifting. Revenue was up 4.5% to $38.1 million on increased sales volumes to environmental and roof shingle customers, which offset reduced demand from oil and gas customers. That said, while demand was up, pricing was somewhat lower from the year-ago quarter.
  • Meanwhile, revenue from the company's natural gas interests finally stopped plunging. Overall, revenue was basically flat at $0.6 million. While production declined from 177,000 MCF to 156,000 MCF, the average price increased from $3.25 per MCF to $3.56 per MCF.
  • Gross profit in the company's lime and limestone operations rose from $10.3 million to $10.5 million, while gross profit from its natural gas segment edged up as well.

What management had to say

CEO Timothy Byrne commented on the quarter by saying that,

We are pleased that overall demand for our lime and limestone products increased in the third quarter 2016, although pricing remains a challenge in the current competitive environment.

Byrne laments that U.S. Lime does not have much pricing power in the current environment. That said, while aggregate producing rivals Vulcan Materials (NYSE: VMC) and Martin Marietta Materials (NYSE: MLM) have yet to report their third-quarter results, both have pushed through price increases this year. In Vulcan's case, its aggregates shipments expanded 3% during the second quarter while aggregates pricing rose 7%. Martin Marietta, likewise, saw a 7% increase in aggregates pricing in the second quarter, on 4.9% volume growth. These higher prices could be due to their much larger scale, which provides greater diversity of product type and more pricing power.

Looking forward

While U.S. Lime did not offer any forward guidance in its earnings release, we can look at what rivals are saying to get an idea of what to expect. For example, Martin Marietta's CEO Ward Nye said last quarter that his company remains "highly optimistic as we look toward the second half of the year and well beyond." Likewise, Tom Hill, CEO of Vulcan Materials, said last quarter that the "fundamentals of our aggregates-focused business remain attractive" which reinforced his confidence in the outlook for both 2016 and the longer term. Given that U.S. Lime's third-quarter results did not disappoint, this would imply that like its rivals, it should continue to see steady growth in the quarters ahead.

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Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends U.S. Lime and Minerals. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.