Eagle Materials Inc

Good day, everyone, and welcome to EGLE Materials' third quarter of fiscal 2023 earnings conference call. This call is being recorded. If you require operator assistance, please press star then zero. 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, Drew.

Good morning. Welcome to Eagle Materials conference call for our third 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. I want to start my comments today by stating that this was a tremendous quarter for Eagle Materials financially, operationally, and strategically. Financially, we achieved record revenues of 10% year-on-year, exceptional margins of 31%, EPS growth of 26%, which reflects the strength of our businesses and our continued pricing opportunities in every segment. This EPS growth also reflects our exceptional cash flows and exits of our operating, growth, and improvement needs. This enabled us to repurchase over $100 million in company shares this quarter, bringing our total cash return to shareholders over the last three years to nearly $1 billion. Operationally, we achieved the best safety performance in company history in terms of both recordable injury rate and lost time injury rate. This achievement is one that I'm most proud of as the result stems from years of focus from every employee at Eagle to ensure that we have a culture of protecting each other and caring for our fellow employees. We have consistently been well below industry averages on this metric, but this year we truly separated ourselves from our peers. I am proud of the Eagle team, the progress we have made, and want to personally thank everyone for their focus to achieve this result. We are also making progress across the board on our company's strategic priorities. One I would highlight today that I have also talked about in the past is an important environmental and operational priority for us. Our rollout of Portland limestone cement or PLC. This priority enables us to make our scarce clinker go further in cement production and it reduces our carbon intensity. Adaption and adoption are not immediate because there are operational investments and state DOT approvals needed. Two quarters ago, I shared that almost 15% of our cement sales were PLC. I'm happy to state that approximately 30% of our construction grade cement sold this quarter was PLC. This progress has given us confidence that we can make a full conversion to PLC for all construction grades by 2025. Very shortly, we'll be more formally updating our progress, goals, and long-term aspirations on this and other matters in our forthcoming updated Environmental and Social Disclosure Report. Now let me turn to the coming year. I entered the year very optimistic about the prospects for EGLE materials, notwithstanding some of the obvious uncertainties about the calendar 2023 macro backdrop. Current business conditions are exceptional and provide a foundation for this year. I can say that our record results this quarter would have been even better if we did not see exceptionally wet weather, particularly in December, across the entire Heartland network. As a reminder, wet weather does not imply demand destruction. It just means interruption and delay. Notwithstanding these temporary conditions, cement demand is strong, leaving us in a relatively sold-out position with virtually no opportunity to build an inventory position. On the light side of the business, our rollboard operations remain busy. Current home construction activity remains robust. The number of multi-family units under construction, for example, is at the highest level since 1973. Of course, the key question today on many of our minds is around what the uncertainty in housing activity ahead will mean. Let me offer the following perspectives on these uncertainties. First, as I have stated before, geography matters. Our enviable U.S. heartland system that we have built will serve us well in the coming years. Specifically for cement, it is hard to see a scenario where U.S. cement demand would decline for us over the midterm. This stems from the fact that state and federal allocations to fund infrastructure are well underway and give better visibility into the next three-year demand picture. There are a few cement substitutes existing today or on the horizon that would fundamentally change this picture over this timeframe. U.S. cement manufacturers will work to make their precious clinker go further and to be put to the highest and best use. These efforts will not add up to enough additional supply to alter the supply-demand fundamentals in front of us in the midterm. As the U.S. cement supply I see very little that would material change the supply tension in relation to demand for the U.S. heartland. Barriers to capacity addition are very high for the U.S. cement industry, both in terms of permitting and construction costs. Even if this were not the case, no new builds or plant expansions could change this picture over the mid-term timeframe, even if the projects commenced tomorrow. High-cost imports will increasingly be required to meet U.S. demand as they have in the past. Again, for a well-positioned heartland producer, imports, to one degree or another, will support pricing in the U.S. heartland as transportation is very expensive and is expected to remain so. Now let's turn the discussion to the uncertainties for the other half of our business, specifically gypsum wallboard. Gibson wall board is used in single and multifamily residential construction, repair and remodeling, and commercial construction. But most significant among these is residential construction. Mortgage rates are key in modulating demand. It is welcome to see that we are off the mortgage rate highs that we saw last quarter. I think Fed Chairman Powell may have expressed the uncertainty right now the best when he said, and I quote, I don't think anyone knows whether we're going to have a recession or not, and if we do, whether it's going to be deep one or not. Many economic scenarios imply a sizable and sustained gap between supply and demand for housing over the midterm, mainly driven by household growth and demolition of older housing stock. The outlook for repair and remodel demand seems especially well supported with record homeowner equity by the average age of U.S. housing stock, and by the number of single family homes entering their prime remodeling years. With higher interest rates, homeowners may be inclined to stay put and improve their homes. The bottom line for light side demand is that there is cause for optimism for the midterm and the long term as it relates to housing construction activity. It is the near term where we see some obvious uncertainty around home buyer demand and home builder activity. If we turn to the gypsum wallboard supply side, we see limits to manufacturing supply response broadly in the industry due to raw material supply limitations. As we have emphasized before, we are insulated from the negative implications of this broad and important trend. We are in fact beneficiaries of it. As we own many decades of natural gypsum, and our one plant that uses synthetic gypsum has a secure and very long-term supply agreement. There is another aspect of the industry supply situation that is important to understand, and history is instructive here. In 1998 through 2000, and in 2005 through 2006 timeframes, we saw increasing pricing for gypsum wallboard. In both cases, shortly thereafter, we saw significant price deflation. In 2021 through 2022, we have again seen pricing progress and it raises the question among observers about what is ahead for wallboard pricing at this time. In those prior periods, increasing demand was also met with significant industry capacity expansion, which culminated just as the market demand began waning. In the case of post 2005 and 2006, we, in fact, entered the longest and deepest housing construction recession in U.S. history as massive capacity was being added to take advantage of synthetic gypsum, which was believed at the time would be plentiful and cheap. This assumption about synthetic gypsum proved to be wrong for several reasons. One reason is the retirement of coal-fired power plants, which is continuing, and the other reason is the greater use among power plants of lower cost natural gas, which does not need to be scrubbed, hence does not produce some synthetic gypsum. In recent years, we have not seen material capacity expansion. In fact, we have observed significant capacity constraints stemming from the ability to secure enough raw materials economically for a new plant or to expand the production of an existing plant. This is a key factor shaping the outlook that I think is unappreciated today. I should also add that for our wallboard businesses, we will benefit from some tailwinds we have not seen for a while, notably in the lower cost of natural gas and OCC inputs, both of which should provide some margin support. Regardless of what 2023 brings, I have confidence that EcoMaterials is positioned well to succeed. I believe this for the following reasons. First, we know how to navigate uncertainty. We have proved this by being one of the very few in our space that has navigated the longest and deepest construction recession in U.S. history and remained profitable every year. This is largely attributable to our low-cost producer positions, which are highly sustainable and from a competitive standpoint are arguably widening. Our pre-tax margins are in the vicinity of 25% for the enterprise, and the gap with the competition is widening. Second, our businesses are strong cash flow generators. Our strategic decision making is heavily focused on making the best use of this cash. The third reason for my confidence, we are good capital allocators. We are highly committed to growth, but believe in growth in the core that meets our strategic and financial return criteria. We have tripled the size of the heavy side of our business in recent years, and as I commented earlier, return nearly a billion dollars to shareholders through share repurchases and dividends over the last three years. Our return on equity stands in the vicinity of 30% today and remains industry-leading. With that, let me turn it over to Craig for a financial review of our quarter.

Craig, thank you, Michael.