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.

Thank you. We will now begin the question and answer session. As a reminder, to ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If your question has been addressed and you would like to withdraw it, please press star then 2.

At this time, we will pause momentarily to assemble our roster. And today's first question comes from Trey Grooms with Stephens.

Please proceed.

Hey, good morning, everyone. I guess first off on wallboard volume, you know, down almost 14% in the quarter after, you know, seeing some outperformance over the last few quarters. And I understand, you know, you guys are facing tougher comps now and you had some easier comps, you know, earlier this year, but If you could maybe talk about the wallboard performance in a little more color within the quarter, and then kind of what drives the big swings that we've seen from one quarter to the next in any color on maybe directionally how we should be thinking about the demand drivers here.

Yeah, thanks, Trey. Look, I think the first point is, There's no doubt we saw the production from the builders pull back during the July-August timeframe. I think that was pretty well chronicled across the housing space. And so that obviously is the biggest driver of wallboard demand. So we saw that during the quarter. And as you pointed out, quarter to quarter, you can have various reasons for outperformance, which we outperformed the first half of the year. So as I've always looked at these businesses on a trailing 12-month basis, you know, we're in line. It's not slightly ahead of the industry. Quarter-to-quarter shifts happen that can be more noise than anything. You know, my point and interest is you look at where the demand is today for wallboard across the United States is just shy on a trailing 12-month basis of 26 billion square feet. That is akin to the level of consumption in the U.S. to the late 90s. And we have 25% more people in this country than we did back then. And so as we think about the very near term, of course, the headlines around affordability interest rates grab a lot of attention. But as we think a little broader than that, we like our position. We're improving that position. And we are woefully under-consuming wallboard and under-built homes here in the U.S.

And, yeah, that all makes a lot of sense. And, you know, kind of looking at the longer-term picture definitely looks bright. As we think about, you know, more kind of medium-term, you know, it can continue to be choppy possibly. And in that environment, so far you guys have put up very, very stable wallboard pricing, even in the face of, you know, some pretty challenging operating environments with as far as demand goes. And this quarter being an example of the resilience there, is that kind of still the same or your, you know, expectation still the same for wallboard pricing being, you know, relatively stable as we look through this kind of near-term choppiness with what's going on with the demand environment?

Yeah, look, it's always a balance. And I think you've heard us say for years, you know, we're more oriented to price than we are volume. And look, there's lots of factors that have affected this industry over the last 15 years around raw material shortages and things like that, which I think have contributed significantly to a much more stable environment. But, you know, it's a balance, and we've taken the approach of value over volume.

Okay. And if I can sneak one more in there, just with the cement volume, I mean, clearly very, very strong. You know, if you could maybe talk about some of the drivers there. And you mentioned it remains favorable for the rest of the year. And is that – kind of to say that you expect positive demand here to continue maybe through your fiscal year as we look at the cement and aggregates business. Thank you, guys.

Yeah, you know, look, Trey, we can. I think Michael mentioned it. We came into the year cautiously optimistic around cement volume. It's driven by infrastructure spending and private non-res, and those, you know, have continued to be strong demand drivers here. We saw that here in the last quarter, in the June quarter. Continue to see it in the September quarter as those infrastructure dollars actually start to benefit the business. It's delayed from what we would have anticipated, but nice to see, and volumes have continued to trend positive. So cautiously optimistic going forward that we would expect to see something similar. I mean, obviously, we're going to hit the winter months here shortly, but this construction season is turn to be as good, if not better, than what we'd hoped for.

Very good. Thanks for taking my question, guys.

And the next question comes from Brian Brophy with Stiefel.

Please proceed.

Hey, guys. This is Andrew on for Brian. Thank you for taking my question. I just had one on the organic aggregates volume up 35% in the quarter. Are there any particular drivers or sort of one-time projects to call out there? And then also, is that a good run rate for how you're thinking about the next couple quarters?

Yeah. So, you know, when we look at our aggregate volumes, you know, we've been, you know, consistently talking about, you know, kind of how we do our capital allocation and aggregates has always been something that's been an interest to us. You know, during this last year, we've looked at both how we increase the capacity out of our current greenfield Our current operations and then also look at where we did the acquisitions a lot of that growth as as Craig Commented on was from the acquisitions We made however 35% growth on our existing operations was also in there from some of the capital improvements we made You know, we're we're We'll continue to focus on that segment of the business it's one that interested in growing over time if the right acquisitions come available and if not we will continue to look internally as we're doing in our cement and wallboard facilities with our upgrade projects to maximize what we could do out of our existing reserves we have and then sort of along the same lines but very strong profitability in that in concrete and aggregates in the quarter as well wondering how you're thinking about margins there over the next couple quarters thanks

Yeah, Andrew, you know, I think if you recall, we had had some, I'm going to call them one-time things a year ago that we talked at length about, for example, a work stoppage and some other items. So, you know, this is, and we had two acquisitions that completed in the prior year, and you've got a lot of one-time costs associated with those assets coming online for us. So that contributed to the prior year being down. This is a much more normal run rate. As Michael said, you know, the acquisition we completed in January in western Pennsylvania, very happy with that investment and the return on that investment. And so, you know, again, there will be seasonality associated with this business as the two businesses we acquired, you know, one near Pittsburgh and the other in northern Kentucky, but very happy with how that business has performed coming into this year.

Thank you.

And our next question is from Brent Thielman with DA Davidson. Please proceed.

Hey, thanks. Good morning, guys. Hey, I had a question on just cement and the reported ASP and any sort of factors to consider there. I've heard from some others about competitive pressures here and there. Also was just curious if there was any impact from oil well on the reported ASP. Obviously, that's been a softer market. Just hoping you can bridge that out.

Brent, today, given the footprint of Eagle cement business, oil well cement has become a much smaller percentage of our business as we've diversified across the country. I think as we've pointed out in the press release, pricing within the wholly owned business. So, you know, the vast majority of our business is actually pretty stable. You know, Texas, we saw some price degradation, but the rest of the market, you know, hung in there pretty well. And a lot of that, again, is driven off of two years, the calendar 23, calendar 24, having had down volume. So, as I said earlier, it's been nice to see calendar 25 for us start to see year-over-year improvements. As Michael mentioned, we also do have price increase announcements out for the early part of calendar 26. A little early to speculate on the expected realization of those, but certainly the volume improvement is the first step in that direction.

Yeah. And then maybe just on the demand side of the equation, you mentioned the strength and infrastructure, clear factor here. What are your backlogs at your facilities and or sort of customer discussions? Tell you about, you know, call it next six months if you're able to see out that far. I'm just trying to get a feel beyond kind of this next quarter where the climate sits.

Yeah, we don't carry a backlog like an E&C company would necessarily, but certainly the conversations with customers are It gives you a good insight as best that you can about the look forward. And as we said, coming into this year, you know, bidding activity was better for our customers. You know, look, they're continuing to see private non-res starts, especially around data centers and those type of activities improve. And so, you know, you never know when winter hits. So as you talk about the next six months, you know, you've got to take that with a grain of salt as you get into the December, January, February timeframe. But certainly, I think customers have seen improved bidding activity this year and going into next year than they've seen in quite some time.

Okay. Thank you.

And the next question is from Anthony Pecanari with Citigroup.

Please proceed.

Good morning. So with Duke and Laramie, I was just wondering if there were updated thoughts on CapEx in fiscal 26 and understanding you don't give multi-year guidance, if there's any way to think about kind of step up in 27 and maybe what it could look like in 28. And also just on one big beautiful bill, if you can remind us sort of specifically how that impacts EGLE as a cash tax care with the two big projects.

Great questions, Anthony. Capital spending for fiscal 26, which we're halfway through, still expect to be $475 to $500 million, which obviously is a step up from the last several years. That's driven by the mountain cement and the Duke wallboard plant modernization. The wallboard, I'm sorry, the cement plant in Mountain is scheduled to be completed in late calendar 26, so call that our fiscal 27. So you'll have a full, almost a full year of spend there. The new wallboard plant will also have a full year of spend in fiscal 27, but I would expect to see the total spending come down somewhat, you know, closer to the 400 to 425 million in that range for fiscal 27. Then the following year, fiscal 28, you see a pretty significant step down. As Mountain Cement would have finished, the Duke wallboard plant project is nearing completion. So that comes online the second half of calendar 27. So I'd expect to see that stair step down as we get into fiscal 28. And, you know, look, balance sheet's in a great spot. You know, we keep it in this one-and-a-half times debt to EBITDA ratio for a reason. It allows us to continue to make these good long-term investments, but also manage for M&A and other investments that may come around.

Okay, that's very helpful.

And then, Anthony, sorry, on your last part of your – Yeah, the last part of your question. So what's really meaningful about the new tax bill is that you get to accelerate the depreciation, meaning you take the full depreciation of those investments when they're placed in service. So for us, the mountain cement plant goes in service in fiscal 27, which would significantly reduce cash taxes paid in fiscal 27. And then similarly, the following year, as Duke comes online, that will also have an immediate deduction. So, you know, on a cash taxes paid basis, you know, a very good benefit for us.

Got it. Got it. I'll turn it over.

And as a reminder, if you do have a question, please press star then one on your touchtone phone. And the next question comes from Phil Ng with Jefferies.

Please proceed.

Hey, good morning, guys. It's Jesse on for Phil. Just on cement, I wonder if you guys have a view on what actual underlying demand is there. It's obviously probably not up nine, but it's probably not down mid-singles last year with a lot of cross-currents with weather. I'm just curious if you kind of had a view on what underlying demand actually looks like.

It's interesting, Jesse. To your point, We've seen significant weather in the prior year that had an impact on volumes. What I would tell you is cement demand typically grows in the 2% to 4% range, kind of a low single digit. That can be influenced by weather. Those jobs don't get eliminated. They just get delayed. So that's about as, if I look at it over a 20, 25-year time period, You know, that's about the range that I'd expect to see cement demand grow. Part of that is seasonality. You know, you have a finite construction season. There's only so many hours in the day, and logistically, some of those challenges. You know, but similarly to what we talked about with wallboard earlier, cement demand's, you know, in a very similar place. It's well below prior peaks, you know, and, you know, with a – significant increase in the population in this country. So that's what gives us a lot of optimism on both of these businesses that we see upside on volumes over the next several years.

That's helpful. And then just a quick follow-up on kind of cement mostly, but also in wallboard, any kind of big maintenance projects to call out over the next 12 months? I know you pulled forward quite a bit in cement last year, but just anything else to call out that we should be aware of?

No, I would expect to see the cadence of the big maintenance programs pretty similar to what we saw last year.

Okay, great. I'll turn it over.

The next question comes from Jonathan Bettenhausen with Truist.

Please proceed.

Hey guys, I'm on for Keith. Just one quick housekeeping item for me. The price increases, is that wallboard as well or is that just cement?

Just in cement.

Okay, got it. Thank you. And again, if you do have a question, please press star then one.

And at this time, there are no further questioners in the queue. I'd like to turn the call back over to Michael Huck for any closing remarks.

Thank you, Chris. Our performance in the second quarter of fiscal 2026 was a result of consistent financial, operational, and safety discipline. We entered the second half of our fiscal year in a position of strength, focused on operational excellence, and committed to continuing to invest in our assets, in our network, and most importantly, in our people. Thanks for joining the call today. We look forward to discussing results and progress on our modernization projects again next quarter.

Thank you. The conference is now concluded. You may now disconnect your lines and have a pleasant day.