Eagle Materials Inc

Good day, everyone, and welcome to Eagles Materials' second quarter of fiscal 2021 earnings conference call. This call is being recorded. At this time, I would like to turn the call over to Eagles President and Chief Executive Officer, Mr. Michael Heck. Mr. Heck, please go ahead, sir.

All right, thank you. Good morning. Welcome to Eagle Materials' conference call for our second fiscal quarter of 2021. This is Michael Hack. Joining me today are Craig Kessler, our Chief Financial Officer, and Bob Stewart, Executive Vice President of Strategy, Corporate Development, and Communications. We are glad you could be with us today. There will be a slide presentation made in connection with the 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 the call. These statements are subject to risks and uncertainties that could 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. I'm pleased to be able to report another consecutive quarter of record revenue and net earnings growth, along with further strengthening of our balance sheet. Let me begin with four important facts. First, our EPS was up 20%, which I'm sure you appreciate is no small feat in this pandemic environment. Second, we shipped an all-time record 2.2 million tons of cement during the quarter. we shipped the second quarter record 720 million square feet of wallboard. And fourth, and most importantly, we achieved these results safely. Now let's turn to the outlook for each of our businesses. Let me start with cement. Cement volumes were up 23% for the quarter and up 28% for the fiscal year, reflecting the overall strength across all of our land markets. Some on the call may not realize that state and local budgets account for the lion's share of infrastructure funds, not the federal government. State and local budgets have been stretched during this pandemic, but state DOT budgets have remained resilient to date. A significant portion of local government funds is property taxes. It is worth noting that property values actually have been rising considerably through this pandemic. Sales taxes represent another significant portion of the pie and as you know, retail sales have rebounded and retail sales are now in fact above pre-pandemic levels. Gasoline taxes have rebounded as well with the increase in miles driven. The states will be under undeniable pressure since expenditures have been rising as well as revenues. Each state will face different challenges and different urgencies their infrastructure's priorities. The states with the largest negative funding variances from their five-year averages are states largely outside our footprint, such as Washington, Oregon, and some northeastern and southeastern states. Many of our heartland geographies are faring better. We anticipate that demand over the longer term should be positive. especially with the added potential contribution from the federal government for infrastructure funding at some point. I do not want to discount that there is also the potential for slower trend growth over the near term, especially with the current significant uncertainties about the overall economy. The reality is that we at EGLE are operating at very high levels of capacity utilization today, We are working hard to squeeze out every last bit of cement capacity to meet the customer's existing demand. If demand were to continue at the pace we have seen, frankly, our production would not be able to grow with it. Now let me turn to wallboard. The south leads the nation in the housing starts, and it is more important than the northeast, west, and midwest combined in terms of construction activity. We have long believed that the Sunbelt, meaning for us the lower half of the U.S., but not California, is the right place to be in wallboard through cycles. We have strategically positioned ourselves here due to long-term construction activity, growth, and demographic migration trends. Recent developments around out-migration from the Northeast, Chicagoland, and California, and the prospects of even higher taxation in some states reinforcing our optimism that this is a good long-term strategic decision. Our wallboard shipments were up 6% this quarter and were up 6% for the fiscal year, a consistent trend. Latest industry data showed industry shipments up 1% for the quarter. We fared better through the pandemic dip simply due to our geographic positioning. Continued strong housing starts and the latest single-family permits would suggest these trends should remain intact for the foreseeable future. The relationship between single-family starts and wallboard demand is a close one. Single-family construction utilizes more wallboard than multifamily on a per-unit basis. Against this backdrop, we have announced a wallboard price increase to be implemented next week. Finally, let me comment on the status of the planned separation of these two businesses, cement and wallboard. The industrial logic for the separation remains intact, as does our intention to complete the separation, but the timing remains uncertain. Timing is a factor we must watch closely and carefully evaluate. While the economy's 2020 trough seems to be in the rearview mirror, the path to normalcy remains exceptionally uncertain. and remarkably uncertain. Because of this uncertainty, we have not determined the timing for the split. We will continue to evaluate and watch the market. It should be noted that although it is not a driver for the decision timing, a distinct benefit of the business remaining together beyond the obvious ability to weather uncertainty as a larger enterprise is the speed of company deleveraging that is occurring. This deleveraging is highly supportive of a successful separation launch and a benefit that should not be underestimated as we formulate the capital structures and policies around return of cash to shareholders for each business. Now let me turn it over to Craig to discuss the financials.

Thank you, Michael. Second quarter revenue was a record $448 million, an increase of 12% from the prior year. This increase primarily reflects contribution from the Cosmo cement business we acquired in March, and organic revenue improved 2%, reflecting increased cement and wallboard sales volume. Second quarter earnings per share from continuing operations were $2.16, an improvement of 20%. As we highlighted in the press release, the second quarter results included a one-time 14 cents per share tax benefit. This benefit related to regulations issued during the quarter that clarified the calculation of certain interest deduction limitations. Before we turn to the segment performance, I note that having completed the sale of our oil and gas profits business during September, the current and prior period financial results of that business have been presented separately as discontinued operations on the income statement and balance sheet. Let's look at our heavy materials results for the quarter, highlighted on the next slide. The heavy materials sector includes our cement, concrete, and aggregate segments. Revenue in the sector increased 15%, driven primarily by the addition of the recently acquired Cosmo cement business. Organic cement sales volume and prices 1% and 4% respectively. Operating earnings also increased 15%, again reflecting the addition of the Cosmos cement business. As we discussed last quarter, because of COVID-19, we delayed certain planned cement plant maintenance outages until our second quarter, which resulted in approximately $5 million of higher maintenance costs this quarter compared with the prior year period. Moving to the light materials sector on the next slide, second quarter revenue in our wallboard and paper business was up 1% as improved sales volume was partially offset by lower wallboard prices. Quarterly operating earnings in the sector declined 1% to $48 million, again reflecting lower wallboard sales prices, partially offset by increased volume. Looking now at our cash flow, which remains strong, During the first six months of the year, operating cash flow increased 94%, reflecting earnings growth, disciplined working capital management, and the receipt of the majority of our IRS refund. Capital spending declined to $41 million, and we continue to expect capital spending in the range of $60 to $70 million for fiscal 2021. Finally, a look at our capital structure. We continue to prioritize debt reduction as a primary use of cash at this time, and the preservation of financial flexibility in line with pandemic-related uncertainties. At September 30, 2020, our net debt-to-cap ratio was 48%, and our net debt-to-ebitda leverage ratio was two times. Total liquidity at the end of the quarter was over $700 million, and we have no near-term debt maturities. Thank you for attending today's call. We'll now move to the question and answer session. Lisa?