Eagle Materials Inc

Good day, everyone, and welcome to Eagle Materials' fourth quarter and fiscal 2025 earnings conference call. This call is being recorded, and at this time, I'd like to turn the floor over to Eagle's President and Chief Executive Officer, Mr. Michael Hack. Mr. Hack, please go ahead, sir.

Thank you, Jamie, and welcome, everyone. 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. As our fiscal year ends, it allows me some time to look back on our performance and reflect on the year in totality. There is no question that this year has had its challenges. The true measure of an individual or a company is how they respond to those challenges. I'm extremely grateful to lead a company that has dedicated employees that have made this company stronger. Without this dedication, Eagle would not have been successful, so I want to thank every Eagle employee for making Eagle a better company. I also want to spend a few minutes highlighting what Eagle was able to accomplish this past fiscal year. I want to start these comments with the topic that is Eagle's top priority, employee health and safety. You have heard me state in the past that we are proud of our industry-leading safety record. but this year I am more impressed that we were able to achieve our lowest total recordable injury rate, or TRIR, in company history. This was coupled with a 25% increase in our hazard observation or near-miss reporting, showing that our safety culture is well-established and self-sustaining. Over this next year, we will continue to progress our safety culture with the rollout of a program called EagleSafe, a series of standardized company-wide best practices and procedures to focus our efforts on critical safety issues. I am a true believer that if you have diligence around safety, then you have a culture that strives for diligence around every other aspect in the business, leading to improved results holistically. This is the case for Eagle, where I am proud to say that this year marks our fourth consecutive year of record financial results having generated record fiscal year revenue of $2.3 billion and record earnings per share of $13.77. This was accomplished with day-to-day headline noise surrounding the economy, but with focus, our businesses have continued to perform well and operate efficiently. Next, I want to talk about the efforts we have made with regards to sustainability. you will see a lot of information on the projects we have in process or that are completed in our sustainability report that will be published this summer. For now, let me share a few highlights. We are on track to complete an upgrade of our wastewater treatment facility at our paper mill this summer. This $22 million project, when completed, will reduce our water consumption by approximately 50% through a more closed-loop system. It will also allow us to return water that is already heated to the process, hence reducing our energy consumption and improving our efficiency. In our cement business, we completed our Illinois cement plant's alternative fuel feeder that will enable the plant to run more alternative fuels. We are also nearing completion of a project at Cosmo Cement Facility to expand the use of recycled tires that would otherwise be landfilled. All our environmental projects are similar to these examples. They have meaningful economic benefits, driving efficiency, and lowering costs as we reduce usage of water, solid fuels, and other raw materials. Additionally, our deployment of capital in fiscal 2025 allowed us to strategically expand our ability to serve our customers across our geographic footprint. These investments are both acquisitions and organic investments, I will highlight a few of these. Within aggregates, a key growth area for us, we acquired two pure-play aggregate operations, one in Kentucky and the other in Western Pennsylvania, enhancing our ability to serve these markets, which are complementary to our existing Heaviside footprint. Integration of both operations is going well, and both businesses are already contributing to EGLE, These two additions will increase EGLE's aggregate production capacity by 50%. In cement, we completed commissioning of our Texas Lehigh slag facility this winter, and production will ramp up throughout this upcoming fiscal year, providing additional cementitious tons to the Texas market. In Northern Colorado area, our mountain cement plant expansion continues to be on time and on budget. This next fiscal year, we'll see a major ramp up in construction efforts and capital expenditure. Like the other projects I mentioned above, the mountain cement modernization will have meaningful economic benefits as well as environmental benefits utilizing alternative fuels and lowering our CO2 intensity per ton. Lastly, we announced last week we have initiated a project to modernize and expand our Duke, Oklahoma gypsum wallboard facility. The modernized plant takes advantage of our decades-long natural gypsum position at Duke and upgrades the facility with state-of-the-art technology, enhancing Eagle's low-cost producer position and strengthening our competitive advantage as the rest of the industry continues to struggle to source synthetic gypsum. Duke has advanced geographically, allowing the plant to serve customers throughout the high-growth south and southeast markets. The project is expected to cost about $330 million, and startup is scheduled for the second half of calendar 2027. Our ability to execute on these investment opportunities is underpinned by our capital allocation principles and our balance sheet strengths. In fiscal 2025, we completed over $175 million of M&A transactions and increased our capital expenditure for the mountain cement project, while ending the year with a net leverage ratio of 1.5 times. And even while investing our excess free cash flow in these high return projects, we continue to return capital to shareholders, distributing $332 million of cash to shareholders through share repurchases and dividends. In summary, FY 2025 was a good year for Eagle. We held to our strategy that has always served us well and demonstrates that in periods of uncertainty, like we're facing today, Eagle's steady focus on investing through cycles, not just for a point in the cycle, enables us to navigate through turbulence, continue to perform well, and position ourselves for the future. In fact, as a 100% U.S. domestic manufacturer, we feel well equipped to weather the variety of potential tariff outcomes and the uncertainty as created for the U.S. economy more broadly. Let me now give some color on our fourth quarter performance and outlook. Our fourth quarter results reflect the impact of adverse weather on our cement and concrete and aggregate businesses, which was severe enough to cause production interruptions at some of our facilities. We made the decision to constructively use the downtime caused by the poor weather to pull forward the annual maintenance outage at our Texas Lehigh cement facility. Despite the recent choppiness in our heavy materials financial performance, we believe the underlying fundamentals in the sector remain solid. Demand and supply dynamics remain favorable across all of our business lines, and we are positioned to benefit from these dynamics. In the cement sector, we have seen no material disruption in award funding for public infrastructure projects. Our customers report healthy bidding activities and are anticipating a rebound from the softer 2023 and 2024 demand realization. Looking out further, there's continued bipartisan support for infrastructure funding, which should be additive to cement consumption for the next several years. Turning to the residential outlook, which is a primary end market driver for our wallboard businesses, in many ways we are in a similar place to where we've been for the last several years. While high mortgage rates and housing affordability challenges continue to exert downward pressure on single family housing starts, this pressure is mitigated somewhat by the clear need for new housing and overall pent-up buyer demand. Ultimately, new home construction will be needed to address the affordability issue. Thus, we believe it's a matter of when, not if, single family housing starts will rebound. Turning to supply, we believe the outlook in both cement and wallboard is unlikely to change in the medium term. Significant capacity constraints persist in both cement and wallboard. As a result, even in an environment like last year where cement volumes were down and wallboard volumes remained subdued versus historical figures, both sectors continued to see relatively elevated utilization rates. As we look forward three to five years and beyond, we believe both the demand and supply dynamics will continue to support our business. Our strategy of steady investment through economic cycles and volatile market conditions positions us well to capture the benefits of these dynamics. We are committed to health, safety, sustainability, investing in every one of our plants to maintain our reserves position and keep them in like-new condition. expanding our geographic and customer footprint through compelling organic and M&A investments, and maintaining capital allocation discipline. Those are just some of the reasons why we've been able to outperform and provide value for our shareholders through varied economic cycles and why we continue to do so. Lastly, before I turn it over to Craig, I want to highlight a governance-related announcement we made earlier this month. On May 15th, we announced the appointment of David Rush to our board of directors. Dave is the retired CEO of Builders FirstSource, and prior to being CEO at Builders, he held a variety of senior executive roles over his nearly 30-year career there. Dave brings a wealth of valuable industry and management experience, and we're thrilled to add him to the board. With that, I'll turn it over to Craig.

Thank you, Michael. fiscal year 2025 revenue was a record $2.3 billion, up slightly from the prior year. The increase primarily reflects higher prices across all of our business lines, partially offset by lower cement and concrete and aggregate sales volume. Revenue for the fourth quarter was down 1% to $470 million, primarily reflecting lower cement and gypsum wallboard sales volumes, partially offset by higher cement and aggregate prices. Diluted earnings per share for the full fiscal year increased 1% to $13.77. The increase was due to the reduced share count resulting from our share repurchase program, which more than offset the net earnings decline. Fully diluted shares were down 4% from the prior year and are down 20% in the last five years. Fourth quarter earnings per share was down 11%, largely because of heavy materials results in the quarter when the cement and concrete and aggregates businesses were affected by adverse weather and maintenance costs in the cement business increased. Our quarterly results were also affected by approximately $3.4 million of acquisition, accounting, and related expenses. Adjusting for these items, fourth quarter diluted earnings per share were down 7%. 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 declined 2% to $1.4 billion. The decline reflects lower cement sales volume, which was down 5%, and was partially offset by higher sales prices. The two aggregates businesses acquired during the year contributed approximately $12 million to annual revenue. Annual operating earnings in the heavy materials sector declined 11% to $311 million, again reflecting lower sales volume, partially offset by higher cement prices. During the fourth quarter, heavy materials operating earnings declined 50% to $18.3 million. As Michael mentioned, adverse weather conditions during the fourth quarter, most notably in February, caused disruption to not only cement sales opportunities, but also to cement operations. We estimate the operational impact from equipment downtime to be $4 to $5 million. In addition, we pulled forward our annual maintenance outage at the joint venture to March versus April in the prior year, and the joint venture started up its new slag cement facility in Houston. The combined impact on joint venture results from the timing change of the annual outage and the commissioning cost for the new facility was approximately $4 million. Our fourth quarter cement price was up 2%. Moving to the light materials sector on the next slide, annual revenue in our light materials sector increased 3% to $969 million, driven by higher wallboard sales prices and record recycled paperboard sales volume. Annual operating earnings increased 3% to $389 million, also because of higher wallboard sales prices and record paperboard sales volume, plus lower energy and freight costs. 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. Operating cash flow in fiscal 2025 totaled $549 million. Capital spending increased to $195 million as we continued to invest in and improve our operations. Most of the increase in capital spending was associated with the modernization and expansion of our mountain cement plant, which began construction in July. As a reminder, the plant is being 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, resulting in cost savings of approximately 25%. The project will also increase plant capacity by 50%, enhancing our ability to serve the growing northern Colorado market. And as Michael mentioned, last week we announced plans to modernize our Oklahoma wallboard plant, which will further improve its competitive position. The total investment is $330 million, and construction is expected to start later this year. Considering these two projects, as well as our sustaining capital spending, We expect total company capital spending in fiscal 2026 to increase to a range of $475 million to $525 million. During fiscal 2025, we acquired two aggregates businesses for approximately $175 million. The previously announced acquisition of Bullskin Stone & Lime was completed in early January and was funded with cash on hand and borrowings under our bank credit facility. Also during the year, we paid $34 million in dividends and repurchased approximately 1.2 million shares of our common stock or 4% of the outstanding for $298 million. We have 4.7 million shares remaining under our current repurchase authorization. Finally, a look at our capital structure, which continues to give us significant financial flexibility. At March 31st, 2025, our net debt to cap ratio was 46%, and our net debt to EBITDA leverage ratio was 1.5 times. We ended the year with $20 million of cash on hand. Total liquidity at the end of the fiscal year was approximately $560 million, and we have no meaningful near-term debt maturities, giving us substantial financial flexibility. Thank you for attending today's call. Jamie will now move to the question and answer session.