Eagle Materials Inc

I will now present our conference call to EGLE's President and Chief Executive Officer, Michael Hack. Mr. Hack, please go ahead, sir.

Good morning. Welcome to EGLE Materials' conference call for our first quarter for fiscal 2023. 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 that 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. First, I want to start off by saying we had a very good quarter. Business conditions remained favorable for Eagle. I am pleased to report we enjoyed record adjusted net earnings per share up 25% on record revenues. We were able to capitalize on very favorable market conditions for our products in our U.S. operating geographies. We expanded gross margins by 30 basis points, bringing our gross margins to nearly 27% as we overcame inflationary cost headwinds to achieve this result. This illustrates, once again, that being a low-cost producer in a commodity industry has benefits in good times, not just in tough times. We realized 24% price increases in wallboard for the quarter, reflecting the strong prevailing market demand and we realized 10% higher cement prices for our cement. We are implementing a second round of price increases in cement starting this month as we remain in the virtually sold-out position. We have some headroom left in wallboard capacity, and our wallboard volumes were up 5% for the quarter. The question on many investors' minds now is what is ahead of this construction cycle? Some aspects of the outlook I'm actually quite confident about, and others I'm less confident about. The first thing I'm confident about is that Fed moves will eventually slow the economy. The question is, by how much and for how long? Much of our business strength is driven by infrastructure spend, which is less consumer dependent and more policy dependent. On the infrastructure side, the outlook is very good. We are seeing a willingness to invest in infrastructure for both the federal and the state level. This investment is not only for renewing existing infrastructure, but adding additional infrastructure. In fact, as it relates to both need recognition and funding clarity, there is arguably more visibility than there has ever been before in this aspect of the outlook. For the housing side, which represents the single most critical end use for our products, there is more uncertainty to the outlook. The answer to how the housing side will play out this cycle will depend heavily on the consumer. So far, consumer spending has been remarkably resilient, bolstered in part by stronger household balance sheets and a sense of security about jobs and job prospects. My confidence about this year and the longer term is actually high because of our visibility on the drivers of demand for our products. The midterm is where I have more questions. Short term, the rate of the outlay for federally-aided highway funding and budget allocations for state funding have largely been set, and they will accelerate over the next two years. The momentum associated with a record pace of housing construction, will see us through this year from a standpoint of building materials demand. Single-family units under construction is at the highest level since November of 2006, and multifamily units under construction is at the highest level since 1974. Record home construction backlogs will support a floor for product demand this year. Regarding the long term, what gives me the most confidence about housing is demographics. The age 30 to 39 group is traditionally the most important home buying cohort as it corresponds to when families are most frequently becoming established and inclined to buy homes. This age group has been increasing and is expected to increase further through 2028. Midterm is where it's the greatest uncertainty. Will the Fed overshoot, undershoot, or land the plane just right? What the Fed does is not under our control. Therefore, we will do as we always have, and that is focus on operating our assets safely, efficiently, and effectively. In short, we will focus on what is entirely in our control to add value to our shareholders. We are well positioned and well prepared for the midterm eventualities. Our track record through the cycles is arguably unrivaled in our industry. margins, returns, EVA, safety, customer satisfaction, environmental stewardship, you name it. I'm confident we will meet any challenges that may be served up in the midterm with the same steadfastness in both strategy and execution that has led to the results we are sharing with you today. We are well positioned, well prepared, and cycle experienced. We also continue to hold steadfast to our investment priorities and disciplines. Our first priority remains growth and improvement investments. We remain highly disciplined about our strategic focus and return criteria. We will not compromise either aspect in pursuit of growth for growth's sake. Having said that, we continue to find acquisitions that do meet our criteria. At this time, these are smaller and are directed at extending our network of cement terminals, expanding our aggregate operations, or improving our low-cost producer positions. One such acquisition that we were able to close in the quarter was a concrete and aggregate producer north of Denver. This acquisition gives us multiple decades of aggregates in a market where we participate in today. Our free cash flows are strong. And when we do not find growth investments that meet our criteria, we have a strong track record of returning cash to shareholders, especially through share repurchases. This quarter was no exception. I'm pleased to say we invested $110 million to repurchase 884,000 shares this quarter. Another critical priority for us is advancing our environmental and social agenda. It is a company priority and a personal one. We continue making progress on the rollout of our limestone cement initiative, which will make our finite clinker production go further and reduce the carbon footprint of concrete in use on a per yard basis. Specifically, I'm pleased to report that over half the sales at one of our largest cement plants this quarter was our new Portland limestone cement. This is a major milestone for us. Across our system, nearly 15% of our cement sales for the quarter were limestone cement, a major accomplishment, but only a start. I might add that these sales were at price equivalents with our traditional product. In summary and conclusion, I cannot help but feel optimistic about the prospects for the company and the economy when business is as good as it is today. We remain confident about the short-term and the long term and recognize the midterm introduces a more than usual amount of uncertainty as the Fed rebalances employment and inflation goals. I assure you that we are well prepared and well positioned to capture the opportunities that are presenting themselves today and to meet the challenges of any eventuality ahead. Now let me turn it over to Craig to discuss the financials for the quarter.

Thank you, Michael. As mentioned, first quarter revenue was a record $561 million, an increase of 18% from the prior year. Excluding the recently acquired business, revenue increased 16%. The increase reflects higher wallboard and cement sales prices, as well as increased wallboard sales volume. First quarter earnings per share was $2.75. That's a 22% increase from the prior year. The increase is driven by improved earnings and our reduced share count due to our buyback program. Fully diluted shares are down 10% from the prior year. Excluding non-routine items highlighted in the earnings release, first quarter adjusted EPS was up 25%. Turning now to segment performance. This next slide shows the results in our heavy materials sector, which includes our cement and concrete and aggregate segments. Revenue in the sector increased 10%, driven primarily by the increase in cement sales prices implemented earlier this year. These increases were partially offset by lower cement sales volume. And operating earnings were essentially flat, as increased cement sales prices were partially offset by higher energy and maintenance costs during the quarter. Given the strong demand backdrop, we did implement a second round of cement price increases in early July. Within the concrete and aggregate segment, on a like-for-like basis, our concrete sales volume improved 2% and our aggregate sales volume improved 31%. Moving to the light materials sector on the next slide, revenue in our light materials sector increased 30%, reflecting higher wallboard sales volume and prices. Operating earnings in the sector increased 32% to $88 million, reflecting higher net sales prices partially offset by higher input costs for recycled fiber and energy. And while energy costs remain elevated, we recently increased our forward purchases for natural gas to 40% of company-wide needs at $4.78 per MMBTU. Looking now at our cash flow, which remains strong, In the first quarter, operating cash flow increased 13% to $125 million, reflecting improved earnings and working capital management. Capital spending increased to $15 million. As Michael mentioned, during the quarter, we completed the acquisition of an aggregates-led business in northern Colorado with a purchase price of $121 million. We also repurchased 884,000 shares of our common stock for $110 million and paid our quarterly dividend. Between the share repurchases and dividends, we returned $119 million to shareholders this quarter. Finally, a look at our capital structure. At June 30th, our net debt to cap ratio was 49% and our net debt to EBITDA leverage ratio was 1.6 times. We ended the quarter with $68 million of cash on hand bringing total committed liquidity at the end of the quarter to approximately $631 million. And we have no meaningful near-term debt maturity, giving us substantial financial flexibility. Thank you for attending today's call. We'll now move to the question and answer session. Mike, I'll turn it back over to you.