Eagle Materials Inc

Good day, everyone, and welcome to the Eagle Materials second quarter of fiscal 2026 earnings conference call. Today's 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 Haack. Mr. Haack, please go ahead, sir.

Thank you, Chris. Good morning. Welcome to Eagle Materials conference call for our second quarter of fiscal year 2026. This is Michael Haack. 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 can 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. Thanks for joining us on today's call. I'm looking forward to discussing the details of our first half of fiscal 2026. I'll start by saying how proud I am of the EGLE team having achieved financial, operational, and safety performance we did this quarter. even as we felt the headwinds from the residential construction pullback. Financially, we were able to achieve record revenue of $639 million, gross margin of 31.3%, and deliver an EPS of $4.23. Strategically, we made significant progress on our Laramie, Wyoming plant modernization and expansion, and commenced construction of our Duke, Oklahoma wallboard plant upgrade. I'll talk about both strategic capital investments more in a few minutes as they tie directly to our capital allocation principles and value generation for our shareholders. Turning to safety performance, the halfway point of our fiscal year is also a time when we reflect on our safety performance and prepare for our upcoming Annual Health, Safety, and Environment, or HSE, conference. Eagle Materials has a fantastic safety track record, consistently performing below the industry average for total recordable incident rates across all of our businesses. While we are proud of this safety history, our goal is zero incidents. At this year's HSE conference, we will focus on how we can capitalize on our momentum by being proactive and continuing our emphasis on leading indicators to drive further improvement. I'm excited to welcome our employees to our HSE conference later this quarter. Thank you to each and every one of you for everything you do to keep our people safe. Next, let me comment on the business outlook for the remainder of our fiscal year and beyond, starting with the heavy side of the business. We entered this calendar and fiscal year cautiously optimistic about potential volume recovery in cement and aggregates. In line with our expectations, our cement and aggregates volume increased for the second consecutive quarter, and we're up for the first half of the year. The backdrop for cement and aggregates volumes remains favorable for the remainder of our fiscal year for several factors. About 60% of the investment in the Infrastructure and Jobs Act, or IIJA funds, have yet to be spent, and all signs point to those IIJA dollars flowing into construction projects. We also continue to believe private non-residential construction dynamics should support cement consumption. Against the improving volume outlook for cement and aggregates, we have announced price increases across most of our markets effective January 1, 2026. Our views regarding residential construction activity, the primary driver for wallboard consumption, remains more reserved in the near term. Volumes this quarter are affected by reduced demand due to high interest rates and affordability challenges. As the builders pulled back over the summer, our wallboard volumes were impacted. The stability in wallboard pricing, however, is the clearest evidence to date of the structural changes benefiting our business. The capacity reduction and steepening of the cost curve brought about by the decline in synthetic gypsum availability has kept capacity utilization rates reasonable even in the challenging home-building environment that has persisted in the United States. The decades of underbuilding of homes should lead to mid- and long-term growth in wallboard demand. The obvious question that follows is often, when will housing turn? At EGLE, we do not obsess over near-term demand drivers. We run our businesses and invest in their long-term growth. Even in this more challenging market, we continue to generate meaningful, excess-free cash flow. And thus, we do obsess over how we best invest the cash to generate shareholder value. I'm excited about two organic growth investment projects we have underway, both of which currently are on budget and on schedule. Both projects are unique and compelling, albeit for different reasons. At our Laramie, Wyoming cement plant, we are on track to complete our $430 million modernization and expansion project by the end of calendar 2026. This project provides us with several unique advantages. Federal and state environmental regulations make it increasingly difficult to permit greenfield or brownfield cement capacity additions, and we have not seen any loosening of restrictions. The Laramie Wyoming plant is also one of the oldest and therefore a higher cost cement plant in our network. Modern cement kiln technology is much more efficient than the 1960s vintage kilns currently used at our Laramie facility. This allows us to reduce our manufacturing costs by 25%. The new pre-heater, pre-calciner tower and single kiln system will replace the current long dry two kiln system. This will result in lower energy usage in the form of fuel and electricity and allow us to use a significantly higher proportion of alternative fuels and natural gas while having meaningful savings on annual plan maintenance. We are undertaking a similar modernization project at our southern Oklahoma wallboard facility. Again, much of the return is driven by the fact that our Duke, Oklahoma wallboard plant is one of the oldest highest cost wallboard plants in our network. Upon completion, we will lower the per unit cost of the wallboard production by about 20% by reducing electricity consumption, automating the production process, and lowering our annual maintenance needs. Importantly, when volume does recover, Laramie and Duke will be well positioned to capitalize on long-term growth drivers. In tandem, With these projects, we continue to look for other high growth, high return, and high impact projects. This includes M&A opportunities that meet our return criteria. We also continue to return capital prudently in the form of share repurchases while maintaining flexibility on our balance sheet. With that, Craig, I'll turn it over to you.

Thank you, Michael. Second quarter revenue was a record $639 million. up 2% from the prior year. The increase was driven by higher cement sales volume and the contribution from the recently acquired aggregates businesses. Excluding the acquired businesses, consolidated revenue was up 1% from the prior year. Second quarter earnings per share was $4.23, down 1% from the second quarter of fiscal 2025. The quarterly EPS reflects lower net earnings, mostly the result of lower wallboard sales volume, offset by a 4% 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 is up 11%, driven primarily by increased cement sales volume and a 24% increase in concrete and aggregate's revenue. Record aggregate sales volume was up 103%, including the contribution from the recently acquired aggregate businesses. Organic aggregate sales volume was up 35%. Operating earnings were also up 11%, primarily because of the 8% increase in cement sales volume, which was partially offset by a 1% decline in net sales prices. We also have recently announced cement price increases in most of our markets, effective January 1, 2026. Moving to the light materials sector on the next slide, second quarter revenue in our light materials sector decreased 13% to $213 million, reflecting lower wallboard sales volume and a 2% decrease in wallboard sales prices. Operating earnings in the sector were down 20% to $78 million, primarily because of lower wallboard sales volume. Looking now at our cash flow, we continue to generate strong cash flow and allocate capital in a disciplined way. During the second quarter, operating cash flow decreased 12% to $205 million, primarily reflecting working capital changes on tax payment timing. Capital spending increased to $109 million. Most of this increase was associated with the modernization and expansion of our mountain cement plant, and the project to modernize our Duke-Oklahoma wallboard plan. Considering these two projects, as well as our sustaining capital spending, we expect total company capital spending in fiscal 26 to be in the range of $475 to $500 million. During the quarter, we continued to distribute cash to shareholders while investing in the two growth projects. We repurchased approximately 396,000 shares for $89 million in addition to paying our quarterly dividends, returning a total of $97 million to shareholders in the second quarter. We have approximately 3.9 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 30, 2025, our net debt-to-cap ratio was 45%, and our net debt to EBITDA leverage ratio was 1.6 times. We ended the quarter with $35 million of cash on hand. Total committed liquidity at the end of the quarter was approximately $520 million, and we have no meaningful near-term debt maturities, giving us substantial flexibility. Thank you for attending today's call. Chris will now move to the question and answer session.