Eagle Materials Inc

Good day, everyone, and welcome to the Eagle Materials first quarter of fiscal 2026 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, Chuck. Good morning. Welcome to Eagle Materials conference call for our first quarter of fiscal year 2026. 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 for 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. I'm pleased to report that we had a solid start to our fiscal year 2026. We generated record first quarter revenue of $634.7 million in diluted net earnings per share of $3.76, despite challenging weather conditions across many of our cement, concrete, and aggregate markets. Throughout our history, our low-cost producer position and operational focus has helped us weather tougher periods in the cycle and capture the benefits of stronger conditions. Regardless of specific near-term conditions, our operations maintain the same discipline focus every quarter and every year. Improving our operational metrics is always a key priority, and this long-term, multi-cycle approach to operational improvement is an important competitive advantage for Eagle Materials. For me, that all starts with our safety performance. I'm pleased we continued our safety progress, maintaining our total recordable incident rate well below the industry average and near our all-time record as a company. And as always, we aim to do better to establish our safety culture so it is self-sustaining. The progress we've made is tangible, and I'm grateful to our employees for their relentless efforts. We've also made substantial progress on our sustainability initiative. Capturing the economic benefits of being a low-cost producer means sustainability has always been part of our operational DNA. We're always looking for ways to do more with less. Over the last five plus years, we have expanded our investments that offer us good return focused on improving our sustainability. I think our progress is evidenced in our results across several initiatives, which can be found in our newly published updated sustainability report. To highlight just a few examples, we met our 2030 midterm cement CO2E intensity goal early. This does not mean we are done. We'll continue to focus on efforts so we can improve this metric, operate more efficiently, and provide a return to our investors. We continue to enhance our reporting. For example, in our most recent report, we separate cement GHG emissions by fuel and process for the first time. We also made an investment in Terra CO2 as a lead investor to further our efforts to produce low-carbon supplementary cementitious material to help meet the expected future demand for cement more broadly. Overall, I'm pleased with our progress and believe we still are in the early innings and will show further improvements. With that, let me turn to a few comments on our business environment. First, from a demand perspective, despite headline macroeconomic and policy uncertainty, we saw stable order trends across each of our major business lines. Our aggregate volumes improved meaningfully year over year, both from the integration of our two recently acquired quarries and on an organic basis. Our cement volumes also improved year over year, which is especially impressive given the major weather disruptions in several of our cement markets. This is the first quarter since December 2023 that we've seen a year over year increase in cement sales volumes. Our Heaviside customers continue to express cautious optimism for their business outlooks as DOT state budgets remain healthy and infrastructure awards accelerate. Against this backdrop, once cement sales volumes rebound from the slower than anticipated consumption we had in calendar 2023 and 2024, we believe the high capacity utilization rates across the cement industry should also lead to an improved pricing environment. Our near-term outlook on volumes for the wallboard business remains more subdued. Single-family new home building constraints persist, primarily driven by affordability challenges for the new home buyer. For wallboard volumes to recover, interest rates and or home prices will need to come down to aid buyer demand more broadly. However, putting the current environment into context, annual consumption of wallboards sits at levels akin to the late 1990s when the U.S. had a much lower population base, and despite the tougher residential construction environment, our wallboard business has performed exceptionally well. Even against a softer demand environment, we have been able to maintain our margin profile across our businesses given our operational advantages. Our cement footprint is more modern than prior cycles thanks to strategic acquisitions, and in cement and wallboard, structural constraints on adding supply remain. We believe long-term demand fundamentals favor the consumption of our products. U.S. infrastructure assets and the U.S. housing stock continue to age, and the replenishment of our roads, bridges, and homes will require cement, concrete, and aggregates, and a wallboard. That is why, as we look out over the next three to five years, we believe we can continue to grow and expand our margins further. We also continue to prudently invest our substantial excess free cash flow. I recently visited our Laramie, Wyoming cement plant, and I'm happy with the progress we are making on modernizing and expanding the plant. The project remains on budget and on schedule for late calendar 2026 commissioning. Construction for our Duke, Oklahoma wallboard plant modernization will also commence this summer, and we have already begun purchasing major equipment. Both projects highlight our investment philosophy well. we plan to continue to seek strategic projects, whether acquisitions or organic opportunities, that meet our financial return criteria and position our company for the next 40 years or more. Alongside these projects, we plan to continue to invest in our company through opportunistic share repurchases as well. There's a lot of meaningful value-creating work underway at Eagle Materials, and I'm excited to share our progress along the way. With that, Craig, I'll pass it over to you.

Thank you, Michael. As mentioned, first quarter revenue was a record $635 million, an increase of 4%. The increase primarily reflects higher cement and wallboard sales volume, as well as the contribution from the recently acquired aggregate businesses. Excluding the acquired businesses, consolidated revenue was up 2%. First quarter earnings per share were down 5% to $3.76, The decrease was driven by lower earnings, mostly in cement, as a result of higher operating costs, partially offset by a 3% reduction in fully diluted shares due to our share buyback program. 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 was up 5%, driven primarily by increased cement sales volume and a 21% increase in concrete and aggregates revenue. Aggregate sales volume was up 117%, including the contribution from the recently acquired aggregate businesses. Organic aggregate sales volume was up 29%. Operating earnings in the sector were down 5%, primarily because of the impact of lower production volumes on fixed costs, as well as increased raw material costs. Moving to the light materials sector on the next slide. First quarter revenue in our light materials sector increased 1%, reflecting higher wallboard sales volume, partially offset by lower wallboard sales prices. Operating earnings in the sector were down slightly, reflecting lower net sales prices, partially offset by lower input costs, primarily for recycled fiber. Looking now at our cash flow, we continue to generate substantial cash flow and allocate capital in a disciplined way. In the first quarter, operating cash flow increased by 3% to $137 million, reflecting improved working capital management. Capital spending increased to $76 million as we continued to invest in and improve our operation. Most of the increase was associated with the modernization and expansion of our mountain cement plant and equipment purchases for the project to modernize our Duke, Oklahoma wallboard facility. These two projects, as well as our sustaining capital spending, we continue to expect total company capital spending in fiscal 2026 to be in the range of $475 to $525 million. We repurchased 358,000 shares of our common stock for $79 million and paid our quarterly dividend, returning $87 million to shareholders during the first quarter. We have 4.3 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 remained at 46%, and our net debt to EBITDA leverage ratio was 1.6 times. We ended the quarter with $60 million of cash on hand, Total committed liquidity at the end of the quarter was approximately $525 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.