Eagle Materials Inc

Good day, everyone, and welcome to EGLE Materials' second quarter of fiscal 2025 earnings conference call. This call is being recorded. At this time, I'd like to turn the floor over to EGLE's president and chief executive officer, Mr. Michael Hack. Mr. Hack, please go ahead.

Thank you, Jamie. Good morning. Welcome to EGLE Materials' conference call for our second quarter of fiscal year 2025. 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 my comments by highlighting a very important meeting conducted a few weeks ago at EGLE Materials, that being our annual Health, Safety, and Environment Conference, or what we term HSE. Each year, I have the pleasure of spending two days with approximately 90 leaders in our organizations across the US to discuss health, safety, and environmental items facing EGLE materials. We get to share best practices across the organization, discuss how we strengthen our safety culture, and how we make a difference in our operations for all employees. We always prefer to look at leading indicators to eliminate items before they happen but is also a time to reflect on the progress we have made in our lagging indicators. This progress is highlighted in our sustained below industry average TRIR rate for safety, our enhanced sustainability report we released last year showing our continued progress in reduced CO2 emissions per ton of cementitious product, and highlights investments in projects that not only financially return, but environmentally return benefits to EGLE. Some of the projects highlighted in this conference include we started commissioning our joint venture Texas-Lehigh slag grinding facility in Houston. This plant will provide the local market with over 500,000 tons of low carbon intensity slag. We have commissioned an additional alternative fuel feeder and expanded another facilities feeder to reduce our use of coal and coke at these facilities. We reduced the water usage at our Republic Paperboard facility by approximately 40% through engineering redesign of an on-site water facility. Our blended cement production surpassed 90% of our sales. These items would not happen if we did not have the best people in the industry. I want to thank all EGLE employees who contributed to the success of another great HSE conference and to their continued leadership on safety, efficiency, and sustainability. Now let me move on to the financial results for the quarter. In our fiscal second quarter of 2025, we again achieved record revenue, reaching $624 million and increased in cash flow from operations by 35%. Craig will go through the financial results in his comments, but I wanted to specifically address a few items in my comments. Our heavy side of the business was down 5% on a volumetric basis, while our concrete and aggregate locations had a larger volume impact during this quarter across our network, but most dramatically in two locations, Denver and Kansas City. Denver was impacted from reduced demand across the board, but more dramatically impacted by our aggregate supplied oilfield services customers. This demand has not recovered, so the team has been diligently working on cost control measures and securing new customers. In Kansas City, our concrete union operation has been in a work stoppage situation as we were negotiating the current contract. This has been resolved, but impacted our volume sold during the quarter. Our drivers in this operation are no longer union, so this operation will be right-sized in the focus on the non-union market in the future. A few items I want to mention for the upcoming quarter are we currently are in process of replacing our clinker cooler at Texas Lehigh. As I mentioned in several previous earnings calls, we have some maintenance to do at this facility and it was planned for this timeframe. We are currently wrapping up a 40-plus day outage to do this extensive work. We will have further work at this facility in a few months as we address our mills. All the work is going as planned. We also have a planned outage at our Tulsa cement facility to address an issue we had with our kiln. This work is going well and will be completed ahead of schedule. Both projects will add additional maintenance costs to our upcoming quarter. We have been working with our customers to minimize the impact of sales volumes during these outages. It also should be noted that both projects are one-off in nature and will make the plants more reliable after completion. Turning now to what we see ahead for our businesses and the demand outlook more broadly. I'll start with the infrastructure, where we've been talking for a couple years about the demand visibility afforded by us by both the trillion-dollar federal infrastructure bill, IIJA, and the health of state and local budgets. For a variety of reasons, from weather-related days to labor constraints, the level of IIJA spending has been slower to materialize than previously anticipated. Nearly 75% of IIJA funding remains to be spent. However, we believe it will continue to be spent beyond the bill's expiration date in 2026. Turning to non-residential construction, demand has varied depending on the subsector. While certain sub-tech sectors such as warehousing have been softer, we remain optimistic that announced large-scale manufacturing and industrial projects will continue to be strong as they are still benefiting from federal government bills. Lastly, residential construction has held up relatively well in a tepid housing starts environment, and several factors suggest it should rebound. Underlying builder demand and lower rates as the US Federal Reserve moves toward more accommodative monetary policy are just a couple of factors that support a favorable residential construction landscape. Against this end market backdrop, let me provide some observations on our specific businesses. In our heavy materials business, project delays and weather continue to affect both cement and concrete and aggregate volumes. In calendar 2024, our heavy materials volumes have not played out in the way we anticipated when we began the year. In fact, industry association forecasts originally projected cement volumes in calendar 2024 to be up by 1% to 2%, and are now forecasting a year-over-year decline across the industry. While that view is consistent with what we're seeing within our own footprint, we believe the demand tailwinds will bounce back given the high level of IIJA funds yet to be spent and the anticipated rebound in non-residential and residential construction. Our strong position in the U.S. heartland market supports our outlook to an even greater extent. as these markets currently have higher demand than the national average and are generally insulated from imports. Considering these favorable conditions, we announced a price increase for early January 2025 across most of our markets and look forward to speaking more about them in the next quarter's call. Turning to our light materials segment, residential construction and more specifically, single family building activity is, as you know, the most important driver of wallboard demand. As you can see from our sales volumes, the wallboard business has kept its consistent demand pace despite one of the more restrictive rate environments we've seen in quite some time. In some ways, current demand levels have played out as expected since decades of underbuilding have created the need for new housing construction to keep pace with household formations. Also, homeowners with low mortgage rates are tending to stay in their homes longer, which in turn created better than expected new home construction, resulting in better than expected wallboard demand. What has not been a surprise to us is the overall steadiness of our margins, given significant cost pressures and constrained capacity brought about by the synthetic gypsum shortage for the rest of the industry. When demand turns higher, these pressures will become increasingly difficult for others to manage, and we feel EGLE is well positioned to capture future opportunities for our wallboard businesses. With these supply-demand dynamics, we have announced a wallboard price increase for early November, but most likely this increase will be delayed to the first part of 2025. All in all, we're excited about what's ahead, especially given our history of executing when and where it matters. At Eagle, we're always looking for ways to improve our businesses and ensure they are sustainable for multiple generations of employees and investors. This can be demonstrated by several facts that makes us different. We have long been a low-cost producer in our industry because of the long track record of strategic decisions that has created structural advantages that are hard to replicate. We are relentless in our operational focus to consistently improve our assets and footprint. Our businesses have high barriers to entry. Our products are necessities for the growth and renewal of America. Our healthy balance sheet gives us the flexibility to invest in growing our core businesses and finding inorganic growth opportunities. Our acquisitions and internal investments are designed to strengthen our current network, extend our healthy reserves position, and to continuously refresh our infrastructure to keep it like new. For example, this quarter we acquired a small bolt-on aggregates business to help extend the customer reach of our Battletown Materials aggregate business in Louisville, Kentucky. Our cash flow generation also means we can execute on these opportunities while still returning excess cash flow to shareholders. We have a long-term horizon when we think about where best to invest our capital. Our businesses have been in some communities for nearly 100 years, and our investments are designed to help us maintain the viability of our assets for another 50 years or more. This can be best seen with our recently announced upgrade to our mountain cement plant. I am pleased to say that we broke ground on this project with several foundations being put in place before the winter hits us. Our pipeline of M&A opportunities remains robust, and our commitment to continuously upgrading our current asset base remains resolute. As such, I'm confident we can sustain industry-leading margins and invest our cash flows to create value for our shareholders. With that, I'll turn it over to Craig for some more details on our financial performance last quarter.

Thank you, Michael. Second quarter revenue was a record $624 million, a slight uptick from the prior year. The increase was driven by higher cement sales prices and higher wallboard sales prices and sales volumes. partially offset by lower cement sales volume. Second quarter earnings per share was $4.26, even with the prior year. The quarterly EPS reflects lower earnings, offset by 5% reduction in fully diluted shares due to our share buyback program. As we highlighted in the press release, we had two non-routine expense items during the quarter. First, $1.6 million of costs associated with selling acquired inventory after its markup to fair value as a part of acquisition accounting, plus related business development costs. And second, a litigation loss of $700,000. Turning now to our segment performance, highlighted on the next slide. In our heavy materials sector, which includes our cement and concrete and aggregate segments, revenue declined 2%, primarily because of lower cement sales volume, partially offset by cement sales price increases we implemented earlier this year. Operating earnings were down 9%, primarily because of the lower cement sales volume, in addition to higher maintenance costs. Moving to the light materials sector on the next slide. Revenue in the sector increased 5%, reflecting higher wallboard and recycled paperboard sales volume. and a 1% increase in wallboard sales prices. Operating earnings in the sector were also up 5% to $98 million, driven by the higher wallboard and recycled paperboard sales volume and higher wallboard sales prices. Looking now at our cash flow. We continue to generate strong cash flow and allocate capital in a disciplined way, in line with our strategic priorities and rigorous financial return criteria. During the second quarter, operating cash flow increased 35% to $233 million, reflecting strong working capital management. Capital spending increased to $66 million. As Michael mentioned, during the quarter we began construction on our modernization and expansion project at our Laramie, Wyoming cement plant. This construction project accounted for approximately $27 million of the total capital spending this quarter. We also acquired a small aggregates business for $25 million. The acquired operation is complementary to our existing aggregates business in Kentucky. And finally, we repurchased 253,000 shares of our common stock for $61 million in addition to paying our quarterly dividend, returning a total of $69 million to shareholders during the quarter. We have approximately 5.3 million shares remaining under our current repurchase authorization. Finally, a look at our capital structure, which continues to give us significant financial flexibility. At September 30th, our net debt to cap ratio was 41%, and our net debt to EBITDA leverage ratio was 1.2 times. We ended the quarter with $94 million of cash on hand. Total committed liquidity at the end of the quarter was approximately $679 million, and we have no meaningful near-term debt maturities. giving us substantial financial flexibility. Thank you all for attending today's call. Jamie will now move to the question and answer session.