Eagle Materials Inc

Good day, everyone, and welcome to EGLE Materials Fiscal 2022 Earnings Conference Call. This call is being recorded. At this time, I would like to turn the call over to EGLE's President and Chief Executive Officer, Mr. Michael Hack. Mr. Hack, please go ahead, sir.

Thank you, Josh. Good morning. Welcome to EGLE Materials Conference Call for our fourth quarter and annual results for Fiscal 2022. 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 this call. To access it, please go to eaglematerials.com and click on the link to the webcast. While you're accessing the slides, please note the first slide covers our cautionary disclosure regarding forward-looking statements made during this 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 want to start off by saying I'm happy to be here today to talk to you about another great year for Eagle Materials. If I take a step back and look at Eagle's results this year, against the world backdrop, it is extraordinary what the Eagle team accomplished. News around the world and in the U.S. was dominated by words like global pandemic, supply chain disruption, invasion, war, and inflation. These were terms the world might have hoped had been largely relegated to history. Instead, each came to represent formidable challenges this last year. Against this challenging backdrop, contrasting terms come to my mind about EGLE materials. These include such terms as performance, resilience, sustainability, and continuity. This year, EGLE has built on its track record of achievement amidst adversity. EGLE has proven once again the power of long-standing, sound strategy, and the value of execution capability as a core competence. Let me offer a few perspectives about EGLE with respect to each of these terms, starting with performance. This was a year of highlights for EGLE materials. These highlights are both financial and operational. Let me start off with a few financial highlights that are worthy of mentioning. Revenue was up 15% this year to a record $1.9 billion, and most notably, gross profit margin increased 270 basis points to 27.9% during this inflationary period. Eagle's EPS from continuing operations was up 14% to a record $9.14. I normally do not highlight these statistics in my comments, But I believe this may be why analysts have observed that among the top 50 publicly traded building materials companies doing business in the US, Eagle's EBITDA margin performance remains among the very best. We view this as one of the key indicators to measure how we are performing. Our measures of performance are not only financial. One measurement that I hold very dear is our safety performance. I'm pleased to say that all of our businesses performed better than industry average this past year. Let's turn to resilience. The definition of resilience is the capacity to recover quickly from difficulties. This year definitely proved a difficult operating environment. Eagle believes that if you have the correct strategy, then you will be resilient. This was never shown more than in this past year where the reasons for these performance and cash flow characteristics relate to the compound effect of many decades of sound strategic decision disciplines. These are especially relevant as we navigated an unpredictable external environment this year. One aspect of this strategy is our commitment to owning manufacturing facilities where we also own or control our raw materials. with decades of reserves that are proximate to these facilities. One way to be resilient in the face of the interrupted supply chain is to own the supply chain, so to speak. The use of this strategy resulted in the acquisition of an aggregates-based business in Colorado. This $120 million investment checks all of our strategic boxes. It has long-lived reserves, is complementary with our cement operations, and it provides sustainable growth in an attractive market. Now to sustainability. There are many ways to look at sustainability. I think of sustainability in three buckets, financial, operational, and environmental. From a financial aspect, I want to highlight that we issued $750 million 10-year bonds with an interest rate of 2.5%. This long-term capital structure will serve EGLE well for the coming decade. From an operational perspective, you have heard many times in past calls how we invest in our facilities, keeping them in like-new conditions. In times of inflationary pressure, this deeply held philosophy has served us especially well. Not only does this minimize costs by having our equipment in like-new conditions, but it reduces labor-intensive operations through investment in technology and process controls. This is very helpful in the current type labor market. On the environmental front, we have started introducing a new product called limestone cement. This product will become our main product offering for us in the near future. In addition to making our clinker manufacturing capacity go further, which is especially important as we are facing sold-out conditions, it reduces the carbon intensity of the cementitious product. Cement, like wallboard, is a necessity, not a luxury, in the growth and renewal of America and is an essential in any path to a net zero carbon future. And finally, continuity. When I think of continuity, I think of consistency. Consistency is important on many fronts. As we have discussed, consistency to a strategy, either operationally or financially, is extremely important. I want to spend a little time on both the operational aspect as well as the financial. First, let me talk briefly about our financial continuity. This past year, we returned $620 million of cash to shareholders through share repurchases and dividends. I want to highlight that our use of cash has been consistent and will continue to be consistent. A proof point of this is that over the last three years, we have dedicated over $1.9 billion of our free cash flow to heavy side growth, light side improvement, and the return of cash to shareholders through share repurchases and dividends. $956 million, or roughly half of the $1.9 billion, was allocated to share repurchases and dividends We have again demonstrated that we can grow the business consistent with our strategy while returning cash to shareholders at meaningful levels. Now let's talk a little bit about operational continuity and how we have been successful in maintaining this over decades. It really comes down to people. At Eagle, we have invested and will continue to invest in succession planning, talent management, organization health, diversity, equity, and inclusion. People make the decisions that drive value in companies, and these decisions determine our results. I'm very proud of the people we have at Eagle, and we have a great talent pipeline to foster continued success. I'll wrap up my discussion today with a few comments about the current environment. First, from a demand perspective, we continue to see steady order trends across each of our major business lines. Despite the well-chronicled uptick in interest rates, demand for housing continues to outpace supply within our core markets. Public infrastructure spending is well supported with state and local government revenue continuing to improve, and federal infrastructure spending should further support cement demand later this year and for the years to come. Finally, private non-residential construction is improving with many data points starting to reflect growing strength. From a cost perspective, we continue to see inflationary pressure on energy and transportation. Against this backdrop, we have announced midyear price increases in wallboard, cement, and concrete and aggregates. We expect our midyear price increases to keep pace with the current cost of inflation. Against this backdrop for FY 2023 is shaping up to be another record year for Eagle Materials. Now let me turn it over to Craig for the specifics on the financial results.

Thank you, Michael. Fiscal year 2022 revenue was a record $1.9 billion, up 15% from the prior year. The increase was driven primarily by increased cement and wallboard sales volume and pricing. Revenue for the fourth quarter was up 20% to $413 million, reflecting improved pricing in both the heavy and light materials sector. Annual diluted earnings per share for the full fiscal year increased 14% to a record $9.14, reflecting strong pricing across each business line, good margin expansion, and our reduced share count. Fourth quarter EPS was up 22%. Turning now to segment performance, let's look at heavy materials results for the year highlighted on the next slide. This slide shows the results in our heavy materials sector, which includes our cement and concrete and aggregate segments. Annual revenue in the sector increased 6%, driven by higher cement sales volume and pricing. Operating earnings increased 10%, again reflecting increased sales volume and pricing, and operating margins improved by 100 basis points. As Michael mentioned previously, in January, we implemented cement price increases of $10 per ton across all markets except Texas, where we did not implement a price increase until April 1st of this year. Within the last few weeks, we announced another round of cement price increases across nearly all of our markets to take effect in early July. It's atypical to have multiple price increases in one calendar year, which demonstrates the very strong demand environment and the sold-out position of the U.S. cement industry. Moving to the light and materials sector on the next slide. Annual revenue in our light and materials sector increased 27%, reflecting improved wallboard sales volume and prices. and annual operating earnings increased 42% to $274 million, reflecting higher net sales prices and wallboard operating margins improving by 680 basis points. We've continued to see inflation pressures for natural gas and freight post our year end. However, we implemented a wallboard price increase in early May to help offset these cost items. Looking now at our cash flow, which remains strong, During fiscal 2022, operating cash flow was $517 million, down 20% from the prior year. The decline reflects the timing of working capital, namely the receipt of our IRS refund. Capital spending increased to $74 million as we continue to invest in and improve our low-cost operations. During the fiscal year, we repurchased approximately 4 million shares of our common stock, or 9% of the outstanding, for $590 million and paid $31 million in dividends, returning nearly $621 million to shareholders. On May 17th, the Board authorized the repurchase of an additional 7.5 million shares of our common stock, bringing our current authorization up to 10.3 million shares. or nearly 25% of our outstanding. In fiscal 2023, we expect capital spending to increase to a range of $115 to $125 million as we ramp up several projects to expand the production of Portland limestone cement and to continue to improve our low-cost assets. And as Michael mentioned, in April, we completed the acquisition of an aggregates-led business in northern Colorado. We financed the acquisition underneath our existing bank credit facility, which we also recently expanded to replenish our availability. And finally, a look at our capital structure. At March 31st, 2022, our net debt to cap ratio was 45%, and our net debt to EBITDA leverage ratio was 1.4 times. Total liquidity at the end of the quarter was approximately $560 million, and we have no near-term debt maturities, giving us substantial financial flexibility. Thank you for attending today's call. We'll now move to the question and answer session. Josh?