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 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 third 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. Thank you for joining us today to discuss our FY25 third quarter results. In the third quarter, once again, the operational performance and strategic focus of our team enabled us to deliver positive results and execute on several strategic priorities. This morning, I'd like to start off with some color on several of those strategic initiatives across Eagle Materials. These initiatives demonstrate our approach to investing for the long term to ensure we remain a low-cost producer throughout economic cycles. Let me highlight three areas of particular importance. These are just a few examples of the many things we do to strengthen our core business. First, our primary focus at EGLE is safety. In this regard, I'm happy to report that we ended the calendar year with our lowest total recordable incident rate, or TRIR, since we began tracking this lagging indicator. While this is an achievement, we don't plan on stopping there. We continue to build out our company-wide safety culture, standardize safety policies and procedures, and ensure we tackle all the necessary protocols for keeping our people safe. we will continue our focus on putting engineering controls in place through the use of leading indicators to continue our journey towards zero. Second, we continue to make meaningful progress on our sustainability initiatives. In our cement business, we have completed investments that are getting us closer to our goal of 100% construction-grade blended cement for our manufactured product. These projects like our mountain cement expansion and modernization, reduce our CO2 intensity while lowering our overall manufacturing cost. We are also making headway on completing our water treatment facility at Republic Paperboard, which should reduce water usage at the plant by 50% and increase the use of recycled water. The third strategic initiative is our recent acquisition of Bullskin Stone and Lime. and its alignment with our overall growth strategy. Bullskin was a rare opportunity to acquire a pure play aggregate asset that fits nicely within our current heavy materials footprint. This combination provides strategic advantages for us, including our ability to serve our regional customers. The acquisition also expands our presence in western Pennsylvania, a market with solid growth fundamentals and healthy DOT spending levels. Acquisitions such as Bullskin fit squarely in our broader growth strategy. We will continue to seek growth investments that strengthen our footprint and meet our strategic and financial criteria as Bullskin does. The acquisition closed in early January and integration is well underway. I'm excited to welcome the Bullskin employees to EGLE. Now let me give some details on our operating performance this past quarter and our views on business conditions more broadly. We generated near record third quarter revenue despite cement volumes being down 7% because of record rainfall in some areas. In key markets, rainfall reached 250% of historical averages. Our people and our plants executed impressively amidst these challenging conditions. As discussed last quarter, we undertook major maintenance at both our Tulsa and Texas Lehigh cement plants. The work planned was completed timely at both locations. The increased maintenance costs, which did affect us this past quarter, were smart investments for the long term, ensuring increased reliability of both plants and enabled us to get back to a normal maintenance cycle. We also continue to realign our customer portfolio at both our Denver and Kansas City concrete and aggregate sites and feel we can position those businesses well for the future. With regards to pricing, we have price increase letters out for the majority of our cement markets and our wallboard operations for the first half of 2025. Despite these tougher operating environments, the demand fundamentals for our products remain solid. and cement federal infrastructure dollars through the IIJA program are just starting to flow through, and private non-residential manufacturing projects should tilt cement consumption higher. Regarding wallboard demand, we're focused on the widely discussed change in the outlook for interest rates and mortgage rates over the next 12 to 24 months. The path to lower rates and the knock-on effects of increased home-buying demand is cloudier today than it was just a quarter ago. Single-family housing, the most important end market for our wallboard businesses, will continue to benefit from the drastic need for more housing in the United States. The affordability challenges facing today's potential homebuyers are being made worse by the lack of homes, and thus we feel the underlying demand for residential construction will be positive for wallboard consumption. Regardless of the short-term demand picture, we continue to generate a significant amount of free cash flow and to focus on how we best invest our cash over cycles. Over the last five years, Eagle Materials has put over $3 billion of capital to work on a combination of high growth, high return projects, and capital returns through share buybacks. These investments include Strategic organic investments to improve the reliability of our plants, including an upgrade to our Republic paper mill, as well as replacing or repairing critical equipment across our footprint to keep our plants in like new condition. Investments in raw material reserves to ensure we have multi-decades of material close to our plants. This is a strategic operational initiative that results in a competitive advantage for EGLE. We also made several strategic inorganic investments to strengthen our low-cost position, including the acquisition of Cosmo Cement, several cement terminals, and multiple aggregate sites. We've made those organic and inorganic investments while maintaining a healthy leverage profile and reducing our outstanding shares by 30% through our share repurchase program. Our commitment to executing similar high-return initiatives through the cycle remains firm, as it has for many years. Now let me turn it over to Craig to go through our financial results.

Thank you, Michael. Third quarter revenue was $558 million, a slight downtick from the prior year. The decline was driven by lower cement and concrete and aggregate sales volume, partially offset by higher wallboard and paperboard sales volume and pricing. Third quarter earnings per share was $3.56. The quarterly EPS reflects lower earnings offset by a 3% reduction in fully diluted shares due to our share buyback program. As we highlighted in the press release, we had one non-routine expense item during the quarter. It was $1.3 million of costs associated with business development and transaction-related activities. 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 declined 4%, primarily because of lower cement sales volume, partially offset by cement sales price increases we implemented earlier this year. Our third quarter cement sales volume was significantly affected by the exceptionally wet weather in our Midwest and Great Plains markets during November. Operating earnings were down 20%, primarily because of the lower cement sales volume, in addition to higher maintenance costs. As we previewed last quarter, we had major maintenance projects at two of our cement plants during the third quarter, which increased maintenance costs by approximately $8 million. The work at both plants has been completed, improving the plant's long-term reliability. As Michael mentioned, we have cement price increases announced in nearly all of our markets for the first part of calendar 25. Moving to the light and materials sector on the next slide, Revenue in this sector increased 6%, reflecting higher wallboard and recycled paperboard sales volume and prices. Wallboard sales volume was up 2% and recycled paperboard sales volume increased 7%. In terms of prices, wallboard increased 4% and recycled paperboard 12%. Operating earnings in the sector were also up 18% to $97 million, driven by the higher wallboard and recycled paperboard sales volume and higher wallboard and paperboard sales prices. Looking now at our cash flow. We continue to generate healthy cash flow and allocate capital in line with our strategic priorities and rigorous financial return criteria. During the first nine months of the year, operating cash flow was $486 million. Capital spending increased to $147 million, primarily because of the modernization and expansion project at our Laramie, Wyoming, cement plant. We also acquired a small aggregates business for $25 million last quarter. The acquired operation is complementary to our existing aggregates business in Kentucky. And finally, we repurchased nearly 800,000 shares of our common stock for $201 million in addition to paying our quarterly dividends, returning a total of $226 million to shareholders during the first nine months of the year. We have approximately 5.1 million shares remaining under our current repurchase authorization. And finally, a look at our capital structure, which continues to provide us significant financial flexibility. At December 31st, 2024, our net debt to cap ratio was 40%, and our net debt to EBITDA leverage ratio was 1.2 times. We ended the quarter with $31 million of cash on hand, bringing total committed liquidity at the end of the quarter to approximately $686 million, and we've no meaningful near-term debt maturities. As Michael mentioned, subsequent to quarter end, we completed the previously announced acquisition of Bullskin, Stone, and Lime, which we funded through a combination of cash on hand and borrowings under our bank credit facility. Thank you for attending today's call. We'll now move to the question and answer session. Dave?