Eagle Materials Inc

Good day, everyone, and welcome to Eagle Materials' fourth quarter and fiscal 2024 earnings conference call. This call is being recorded. At this time, I'd 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, Jamie. Good morning. Welcome to Eagle Materials' conference call for our fourth quarter and fiscal year 2024. This is Michael Hack. Joining me today are Craig Kessler, our Chief Financial Officer, and Alex Haddock, Senior 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 the call. For further information, please refer to this disclosure, which is also included at the end of our press release. Let me start out today by simply saying thank you. More specifically, Thank you to our employees who made fiscal year 2024 a safe, productive year, working diligently to produce industry-leading quality products for our customers. Thank you to our customers who support our local operations daily and use the materials we produce to make America better. Thank you to our investors that believe in the value that Eagle Materials brings to society. Without each of you, I would not be able to report on yet another year of record financials, benchmark safety statistics, and excellent operational performance at Eagle Materials. First, let me take a minute to comment on our most valuable asset, our people. Our results are dependent on our employees. At Eagle, we are dedicated to continuously developing our people and ensuring they understand their role with respect to health, safety, and the environment. In this regard, I'm happy to report that we were able to sustain our below industry total recordable and lost time incident rates across all four of our businesses. Our work on safety will not be complete until we achieve zero. We will continue to focus on leading indicators as highlighted by our 35% increase in near-miss hazard observations since 2021 to drive change and create an even safer workplace. With regards to environmental stewardship, we made meaningful headway this year as demonstrated in our updated corporate sustainability report, which we released earlier this quarter. I'd like to highlight a few items from this report. Our transition from traditional cement to Portland limestone cement and other blended products brought us close to achieving our 2030 aspiration for reduced carbon intensity early. We will continue to find ways to reduce this intensity level over the coming years to exceed our 2030 goal. We reduced our water consumption by 23% company-wide and will continue to find ways to be more water efficient. In terms of how we report our progress, we have incorporated new disclosures in our sustainability report, including data around our Scope 1 and Scope 2 emissions and we started to align with SASB and TCFD reporting frameworks. Turning now to our financial results for the year and the quarter, we achieved a third consecutive year of record financial results despite some weaknesses in the heavy businesses in Q4 due to adverse weather and increased cement maintenance costs. Let me mention just some of the financial highlights for the fiscal year. During fiscal 2024, we reported record revenue of $2.3 billion and record diluted EPS of $13.61. We expanded gross margins by 50 basis points to 30.3%, and we generated operating cash flow of $564 million. As always, these results are a testament to our soundness of our strategy, the consistency of our execution, and the deep talent and commitment of our employees, each of whom contributes to this ongoing success of our company. Thank you and congratulations to every one of you. I'd be remiss if I did not take a few minutes to discuss our fourth quarter results. The weather did affect the demand side picture and had a knock-on effect regarding cost due to several equipment failures and frozen feed systems. However, the larger part of the cost impact was driven from the fact that we chose to do some maintenance when we had an open window to do so. Customer demand was reduced, and we have run these plants very hard over the past several years. It was a great time to do some work that normally would have happened later in the year during a heavy shipping window and completed early. We always want our production systems in like new conditions especially when we see the favorable demand picture in front of us for the coming years. Let me turn to the market environment that drove our financial performance this past year. Our markets mirror many of the dynamics in the broader economy, dynamics that will continue to follow the overall US macro conditions and the path of the US monetary policy. This is the most true for the light side of our business. Last fiscal year, the strength of the US consumer and the continued limited supply of existing home inventory supported the single-family market, while multifamily construction remained elevated. As we move into our new fiscal year, even with the recent uptick in mortgage rates, there are positive signs for the single-family residential market, while multifamily is likely to be a drag on the overall housing market. Because single-family units are two to three times more wallboard-intensive than multifamily units, the industry could see a net increase in consumption if this dynamic does indeed materialize. Additionally, recent data suggests that the repair and remodel market could bottom out as we exit this calendar year, possibly further increasing demand in our light side. The supply-demand picture for the heavy side of our business is more clearly defined and is less sensitive to the uncertainties around interest rates. While volume in our heavy business was down in the fourth quarter of fiscal 2024, the underlying fundamentals in the sector remain positive. We expect federal infrastructure spending to increase this year and into 2025, adding to already healthy public spending at the state and local levels. Non-residential construction, while moderating somewhat, should also continue to grow as the unprecedented manufacturing construction cycle offsets some of the weaker pockets of non-residential spending. As mentioned earlier, residential construction is also showing signs of recovery, although much of the picture there will likely not become clear until the back half of calendar 2024 and early 2025. In the face of our nation's demand needs, adding meaningful capacity to the overall cement and wallboard industries will remain difficult, and we believe the constrained supply picture will not change meaningfully over the medium term. As we look to the year ahead, we remain optimistic about the mid-term demand profile for all of our businesses, and we believe all of our businesses will benefit from structural long-term demand trends as well. Now let me spend a little time on capital allocation. As a reminder, our capital allocation priorities revolve around three main pillars. First, growth through acquisitions organically. Second, keeping our facilities in like new condition. And third, returning cash to shareholders, primarily through stock repurchases. Let me start off with our first priority of growth organically or through acquisition, where the growth meets our strict financial return criteria. This past quarter, we made two exciting announcements in this regard. First, the startup of the new slag grinding facility through our Texas-Lehigh cement JV. Once fully operational later this summer, the facility will have an annual manufacturing capacity of 500,000 tons of slag. This is incremental to the manufacturing capacity of Texas Lehigh's Buda, Texas cement plant and our import terminal in Houston. Black cement will be crucial to meeting the needs of the fast-growing market like Texas, especially given the decreasing availability of other cementitious alternatives like fly ash. The facility is another step in transitioning our cement portfolio to less carbon-intensive blended products. The second organic growth investment is a $430 million project to modernize and expand our mountain cement plant in Laramie, Wyoming, and includes an additional distribution facility in northern Colorado. Our investment in mountain cement checks all the boxes of EGLE's strategy. It increases capacity by approximately 50% in a high-growth market. It lowers manufacturing costs by approximately 25%, enhancing our low-cost position. and it reduces the carbon intensity of that business by 20%. These growth investments, the new slag facility in Texas, the Laramie-Wyoming cement plant expansion, combined with Stockton, California cement terminal acquisition completed at the beginning of the year, meaningfully advanced our strategy and should generate high returns. Moving on to our second pillar of keeping our assets in like new condition, We were able to become more efficient, optimize our network, and be prepared for any down cycle economic conditions by integrating our Battletown, Kentucky aggregates business, which we took full ownership of this year. Battletown extends our aggregate network at a site complementary to our existing cement footprint. Our operating efficiency investments also include our decades-old decisions to ensure our raw materials are next to our plants in an abundant reserve, helping us control our own raw material supply and lower transportation costs. We are also dedicated to ongoing targeted maintenance to keep the plants in like-new condition. This leads me to the third pillar of capital management, returning excess cash flow to shareholders. Our consistent operational performance and financial discipline produce strong enterprise cash flows, putting us in an enviable position of returning excess capital to shareholders, even as we capitalize on growth initiatives and invest in the sustainability of our businesses. This past fiscal year, we returned $343 million to shareholders through share repurchases and dividends. Over the last five years, our share buyback program has reduced the overall stock quote by nearly 30%. Our balance sheet is healthy, with our net leverage ratio staying at 1.3 times, giving us substantial financial flexibility to execute our disciplined capital allocation strategy in varying market conditions. With that, I'll turn it over to Craig for more comments.

Thank you, Michael. Fiscal year 2024 revenue was a record $2.3 billion, up 5% from the prior year. The increase primarily reflects higher cement sales prices and contribution from the Stockton import terminal we acquired in our first fiscal quarter, partially offset by lower wallboard sales volume. Excluding the contribution from the Stockton import terminal, revenue was up 3%. As Michael mentioned, underlying fundamentals remained strong across our businesses, which supported our price increases, drove margin expansion, and ultimately helped us achieve record annual EPS. Revenue for the fourth quarter was up 1% to $477 million, primarily reflecting increased cement sales prices. Diluted earnings per share for the full fiscal year increased 9% to $13.61. In addition to margin expansion, the increase reflects the reduced share count resulting from our share repurchase program. Fully diluted shares are down 5% from the prior year and are down nearly 30% in the last five. Fourth quarter EPS was down 20% largely because of heavy materials results in the quarter when the cement and concrete and aggregate businesses were affected by adverse weather conditions and increased maintenance costs in the cement business. Turning now to segment performance, highlighted on the next slide. In our heavy materials sector, which includes our cement and concrete and aggregate segments, annual revenue increased 12% to $1.5 billion. The increase reflects higher cement sales prices and the contribution from the Stockton import terminal. As Michael mentioned, we faced adverse weather conditions during the fourth quarter across most of our markets. including the coldest January in 17 years in Austin with record rainfall and an extreme cold snap in Kansas City during January that caused disruption not only to sales but also to operations. We estimate the impact on earnings from lower sales volume due to weather delays was $3 to $4 million. The operational impact from equipment downtime to be another $3 to $4 million. An increased maintenance cost was approximately $7 million. One last comment on the weather is the impact was also felt in our concrete businesses, which we largely operate in the same market as our cement plants. Annual operating earnings increased 18% to $351 million, again reflecting higher cement prices partially offset by our operating costs. Our fourth quarter cement price was up 5% as a result of price increases we implemented in January. Flipping to our light materials sector on the next slide, annual revenue in our light materials sector declined 4% to $941 million, reflecting lower wallboard sales volume. Annual operating earnings declined 3% to $366 million, also because of lower wallboard sales volume, partially offset by record paperboard shipments and lower recycled fiber costs. In the fourth quarter, Industry wallboard shipments increased for the first time in five quarters. In response to the favorable outlook for residential construction, we implemented a wallboard price increase during the fourth quarter, the full effect of which is not completely reflected on our quarterly average wallboard price. Looking now at our cash flow, we continue to generate very strong cash flow and allocate capital in a disciplined way throughout fiscal 2024. Operating cash flow was up 4% year-over-year to $564 million. Capital spending increased to $120 million as we continued to invest in and improve our operations. During the year, we also acquired the Stockton cement import terminal for approximately $55 million. We paid $35 million in dividends. and repurchased approximately 1.9 million shares of our common stock, or 5% of the outstanding, for $343 million, returning a total of $378 million to shareholders over the course of the year. We have 5.9 million shares remaining under the current repurchase authorization. As we announced last week and Michael discussed earlier, we are investing $430 million to modernize and expand our mountain cement plant which serves the growing northern Colorado market. The plant will be upgraded from the existing two long dry kilns to a single modern pre-calciner kiln line, which will significantly improve energy efficiency and simplify maintenance programs. The existing plant will continue to operate until construction is complete in the latter half of calendar 2026. Construction is expected to begin this summer, And as a result, we expect total company capital spending in fiscal 2025 to increase to a range of $310 to $340 million. Finally, a look at our capital structure. At March 31st, 2024, our net debt to cap ratio was 45%, and our net debt to EBITDA leverage ratio was 1.3 times. We ended the year with $35 million of cash on hand, and total liquidity at the end of the fiscal year was approximately $607 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. Jamie, I'll turn it over to you.