Eagle Materials Inc

Good day, everyone, and welcome to Eagle Materials' first quarter of fiscal 2024 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 morning. Welcome to Eagle Materials' conference call for our first quarter of fiscal year 2024. This is Michael Hack. Joining me today are Craig Kessler, our Chief Financial Officer, and Alex Haddock, Vice President of Investor Relations, Strategy, and Corporate Development. 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 this call. For further information, please refer to this disclosure, which is also included at the end of our press release. Let me start by saying how pleased I am to discuss another record quarter and a strong start to our fiscal year 2024. This quarter, we generated record revenue and net earnings. expanded gross margin by 240 basis points, increased adjusted EPS by 26%, and returned $83 million to shareholders through share repurchases and dividends. Our performance in the current economic environment, where questions about the U.S. economy have dominated headlines for several quarters, demonstrates how our low-cost producer position benefits us across a variety of market conditions. You've heard me say many times that the ability to maintain our low-cost producer position ultimately relies on the industry-leading execution by our people. Therefore, I want to thank all of the EGLE employees for their time and dedication that went into achieving the results we have had not only this quarter, but over the past years. You make a difference. Safety is a fundamental part of the EGLE culture. I could best summarize our safety culture as one where EGLE employees care for and watch out for each other. We have been successful in minimizing safety issues using our near-miss reporting system that identifies leading indicators to address safety issues before they happen. I'm happy to report that EGLE continues to set the benchmark in industry safety maintaining a total reportable incident rate well below the industry average. Now let me turn to more specifics on our performance this past quarter, starting with the heavy side. Both our cement and concrete and aggregates businesses performed well, growing revenue by 15% on a combined basis versus the prior year first quarter. Our cement business continues to benefit from robust demand that is outpacing industry supply and every plant in EGLE's network remains in a near sold-out position. It should be noted that our western cement network did experience very wet weather over this fiscal quarter, which led to a slower start to the construction season in these states. As a reminder, wet weather means that the timing of a project is delayed or interrupted. It does not generally imply demand destruction. The supply-demand dynamics has proved favorable favorable pricing backdrop for our cement business as well, as we realized a 15% year-over-year price increase. As we mentioned on our last call, we have announced a July 1st price increase in about half our cement markets. We continue to monitor market conditions over the coming quarters to determine if or when we implement additional price increases. During the first quarter of fiscal 2024, our joint venture operation Texas-Lehigh was negatively affected by an extended outage that addressed ongoing equipment issues at this facility over this past year. The extended outage resulted in increased maintenance costs and reduced production. Equipment reliability improved in July, but additional work will need to be completed during our planned maintenance outage in fiscal 2025 which will again increase the outage timeline at the joint venture facility. Growing both our cement and aggregates businesses is a strategic priority for EGLE. As previously announced, we completed the purchase of our cement import terminal in Northern California, strengthening our competitive position in this market. Environmental stewardship is another priority at EGLE Materials to help minimize our CO2 footprint. We are exploring the increased use of alternative fuels at our cement plants, and we are laser-focused on transitioning our construction-grade cement production to Portland limestone cement, or PLC. PLC reduces the carbon intensity of our cement footprint and makes our clinker production go further, supporting our near sold-out position across our network. We are targeting to converting 100% of our manufactured construction-grade cement to PLC or blended cement by 2025. I'm extremely proud to say that this quarter we passed the 50% mark for PLC for our cement plant network. Now let me turn to the performance last quarter on the light side. Over this past year, the rapid rise in interest rates led many to believe housing demand would drop dramatically, along with wallboard demand. However, wallboard sales, volume, and pricing have remained resilient. This is from several factors. First, let's look at the demand side. Our plants are located in the Sun Belt, which is the largest, most stable residential construction region in the US, and continues to be strong. Inventory of existing homes for sale are at near all-time lows, which result in increased demand for new home construction. This has been reflected in an uptick in single-family permits recently. As for the supply side, the reduction of synthetic gypsum supply from the retirement of U.S. coal-fired power plants and the costs of accessing natural gypsum by importing it from abroad is having a significant effect on the industry by increasing the cost curve and capping effective supply for East Coast wallboard producers. Looking at the cost structure of EGLE and our low cost producer position, we are advantaged in several aspects. EGLE owns or controls many decades of reserves in close proximity of all of our wallboard plants, which means we can cost effectively access our raw material. The one plant that we utilize synthetic gypsum has many decades contract for material supply. Our main costs, OCC, freight, and energy, came down sequentially, providing a tailwind. Now let me turn to some thoughts on the balance of the year, starting on the heavy side. Demand fundamentals are in place to provide multi-year visibility in cement and concrete and aggregates. We expect demand for both businesses to remain steady driven by infrastructure spending and heavy industrial and manufacturing construction activity. Infrastructure awards are reaching multi-decade highs, and our cement business is poised to benefit from the federal overlay to robust state and local government spending. The state's EGLE operates and are well ahead of the national average on growth in infrastructure contract awards, proving that geography matters. Non-residential spending is benefiting from elevated levels of activity as well, as it is being sustained by unprecedented spending in manufacturing projects. On the wallboard side of the business, we've stated in the past that the near-term outlook is more unclear than on the heavy side, but in some respects that is still true. That being said, a few things have become clear over the past quarter and the first half of calendar year 2023. First is the supply chain driven backlogs in home building construction continue to support activity. This is evidenced in the fact that multifamily units under construction in June had an all-time record and total units under construction is just 28,000 short of an all-time record. The second factor that's becoming clear is the effect of housing supply shortages on new home building. The lack of existing inventory to support home buyer demand means new home construction is needed to prop up overall inventory levels. While the outlook here is still difficult to predict, we have increasing confidence in the supply-demand scenario for wallboard over the mid and long term. In summary, I am most encouraged about this year ahead because of Eagle's proven track record where it matters. First, we know how to manage through economic cycles. Our current results show that we can execute when and where it counts across dynamic market conditions. Second, our business generates impressive cash flows and we are responsible stewards of that cash. Our focus has been and always will be on how to sustain the cash flow generation capability of our businesses and making the best use of that cash flow. Our capital allocation policies have been and will continue to be centralized around growing our core business. This includes investing in our plants to keep them in like-new condition, growing through acquisitions when they meet our strategic and financial goals, or returning cash to shareholders through stock purchases or dividends. With that, I'll turn it over to Craig for the financial review of our quarter.

Thank you, Michael. As mentioned, first quarter revenue was a record $602 million, an increase of 7% from the prior year. Excluding the recently acquired cement terminal in Northern California, revenue was up 6%. The increase reflects higher wallboard and cement sales prices. The strong performance in both cement and wallboard contributed to record EPS during the quarter. First quarter earnings per share was $3.40, a 24% increase from the prior year. The increase was driven by improved earnings and a 7% reduction in fully diluted shares due to our buyback program. Excluding the non-routine items highlighted in the earnings release, first quarter adjusted EPS was up 26% to $3.55. Turning now to segment performance, highlighted on the next slide, in our heavy materials sector, which includes our cement and concrete and aggregate segments, revenue increased 15% driven by the increase in cement sales prices implemented earlier this year and the contribution from the recently acquired terminal in Northern California. Operating earnings were up 19% primarily because of increased cement prices, which were partially offset by higher maintenance costs during the quarter. The increase in maintenance costs was due to our decision to pull forward maintenance programs at two of our cement facilities, and as Michael mentioned, we also took an extended maintenance outage at our joint venture in Texas, which increased maintenance costs and reduced production. Given the strong demand backdrop, we implemented a second round of cement price increases in early July in approximately half of our markets. And within the concrete and aggregate segment, revenue increased 9% and operating earnings improved 23% on higher pricing and higher aggregate sales volume. The prior year also included approximately $1.2 million of costs associated with the step-up in inventory values related to the acquisition of the aggregates business in northern Colorado. Moving to the light materials sector on the next slide, revenue decreased 2%, reflecting lowered wallboard sales volume, partially offset by higher wallboard sales prices. Operating earnings in the sector increased 12% to $98 million, reflecting higher net sales prices and lower input costs for recycled fiber, freight, and energy. Looking now at our cash flow, We continue to generate very strong cash flow and allocate capital in a disciplined way. In the first quarter, operating cash flow increased 12% to $140 million, reflecting improved earnings and working capital management. And capital spending increased to $36 million. During the quarter, we completed the acquisition of a cement import terminal in Stockton, California, with a purchase price of $55 million, and we also repurchased 484,000 shares of our common stock for $74 million and paid our quarterly dividend, returning $83 million to shareholders. We have 7.3 million shares remaining under our current repurchase authorization. Finally, a look at our capital structure, which continues to give us significant financial flexibility. At June 30th, our net debt to cap ratio was 47%, and our net debt to EBITDA leverage ratio remained at 1.4 times. We ended the quarter with $53 million of cash on hand. Total committed liquidity at the end of the quarter was approximately $573 million, and we have no meaningful near-term debt maturities. Thank you for attending today's call. We'll now move to the question and answer session. Betsy, I'll turn it over to you.