Eagle Materials Inc

Good day, everyone, and welcome to Eagle Materials' first quarter and fiscal 2020 earnings conference call. This call is being recorded. At this time, I would like to turn the call over to Eagle's President and Chief Executive Officer, Mr. Michael Hack. Mr. Hack, please go ahead, sir.

Thank you. Good afternoon. Welcome to Eagle Materials' conference call for our first fiscal quarter of 2020. We are glad you could be with us today. Joining me today are Craig Kessler, our Chief Financial Officer, and Bob Stewart, Executive Vice President of Strategy, Corporate Development, and Communications. There will be a slide presentation made in connection with this call. To access it, please go to www.eaglematerials.com and click on the link to the webcast. While you're accessing the slides, please note that the first slide covers our cautionary disclosure regarding forward-looking statements made during this call. These statements are subject to risks and uncertainties and can cause results to differ from those discussed during the call. For further information, please refer to this disclosure, which is also included at the end of our press release. Let me begin by addressing the news at the top of mind with many of our shareholders this quarter, namely our announced plans to separate the heavy and light sides of our business into two independent, publicly traded companies. This separation is expected to be complete in the first half of calendar 2020. We feel that both businesses are well positioned for future growth, are best in class in their respective industries, will be resilient during tough times through their low-cost producer position, and have achieved sufficient size to stand on their own. The separation of these two businesses will give each business the opportunity to focus on its distinct strategic priorities priorities that best position the business for profitability and growth, implement a capital structure that is tailored to the needs of the business, allocate resources and deploy capital in a manner consistent with its strategic priorities, and finally, it will allow new and existing investors to value the two companies based on their pure play, operational, and financial results. After the separation, the company's heavy material, U.S.-only Heartland Cement Plant System will operate as a distinct pure play. The business will possess excellent teacher prospects as the largest U.S.-owned cement producer, owning its raw material reserves that will supply its operations over the long term. Eagle's light materials business, comprised of gypsum wallboard and recycled paperboard, has a long track record of superior margin performance. These financial results are driven by its sustainable, low-cost producer positions in U.S. Sunbelt markets and its long-lived raw material reserves. This business has uniquely distinguished itself financially through the industry business cycles, as well as achieving industry-leading levels of customer satisfaction. As we announced, creating two distinct benchmark businesses is the path we are pursuing. I think our announcements and actions show our commitment to shareholder value creation. On a related note, it is also worth commenting that we repurchased nearly $200 million of our shares during the quarter, illustrating our confidence in these businesses and their prospects. We did this repurchase without jeopardizing our financial flexibility. That is all I'm prepared to comment upon today regarding the separation and share repurchases. We will not answer further questions at the end of the call today about our separation process or progress. Now let me turn to our business results for the quarter. It was a mixed quarter in a number of respects. While we're approaching high levels of capacity utilization in both major businesses, this quarter only translated into modest price improvement in cement, and in fact, some price slippage in wallboard. This month we announced a price increase in wallboard effective in early August, as backlogs are good, but the marketplace will determine our level of success, and we will report on that in the next earnings call. Heavy materials revenues were up 3% due to progression on both price and volume, but operating earnings were off 5% due to increased freight costs and unusually wet weather, which hampered the contributions from our concrete and aggregates in particular. We have discussed on many occasions how the cement business is indeed very regional. This was never more clearly exemplified than this quarter. I was quite pleased with the price increases in our cement business attained in each of our regions except two, and a lack of progress in those two regions affected the overall price progression that we posted. In both cases, it was an illustration of having to meet competitive situations. Freight and logistics, of course, also played a role. Light material revenues were up 10% and operating earnings were down 21% on lower volumes and sales prices. We still see low single-digit volume growth for the full fiscal year, recognizing the mixed start to this fiscal year. I might add that we are pleased with our wallboard volumes in July, which have remained strong. Finally, I'd point out that although our oil and gas profit segment has been under pressure, it remained cash flow positive this quarter, a testament to the talented management team making quick decisions in response to market developments. As part of our heavy life business separation announcement, we have indicated that we are exploring strategic alternatives for this segment, and that process is underway. Now let me turn it over to Craig to go through the financial specifics for the quarter.

Thank you, Michael. First quarter revenue was $371 million, a decline of 6% from the prior year, reflecting lower wallboard sales volume and sales prices, partially offset by improved cement sales volume and sales prices. First quarter earnings per share were 94 cents. As we highlighted in the press release, the first quarter included 19 cents primarily associated with the planned separation of our heavy and light materials businesses. Turning now to the segment performance. This next slide highlights the results of our heavy materials sector, which includes our cement, concrete, and aggregate segments. Revenue in the sector increased 3%, driven primarily by a 3% improvement in cement sales volume and improved pricing in both cement and concrete. Operating earnings declined 5%, reflecting higher fixed and freight costs, coupled with wet weather throughout the quarter, which limited our concrete and aggregate sales volume. Moving to the light materials sector on the next slide, lower wallboard sales volume and prices drove a 10% decline in light materials revenue. Early operating earnings in our wallboard and paperboard business declined 21% to $48 million. Reflecting lower wallboard sales volume and net sales prices, partially offset by lower recycled fiber costs. In the oil and gas profit sector, revenue was down 45%, and we had an operating loss of $4 million. So our sales volume improved 11%, reflecting the results of our new facility in Illinois. During the quarter, operating cash flow declined to $51 million, consistent with the net earnings decline, and capital spending declined to $22 million. As Michael mentioned, we returned over $200 million to shareholders through a combination of share repurchases and dividends during the quarter. And finally, at June 30th, 2019, our debt-to-cap ratio was 46%. Thank you for attending today's call. We will now move to the question and answer session. Andrew?