Eagle Materials Inc

Good day, everyone, and welcome to Eagle Materials' third quarter of fiscal 2026 earnings conference call. The 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, Drew. Good morning. Welcome to Eagle Materials' conference call for our third 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. A slide presentation accompanies this call. To access it, please go to eaglematerials.com and click on the link to the webcast. While you're accessing the slides, 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. In our third quarter fiscal 2026, despite the mixed construction environment, our businesses continued to perform well. We generated $556 million in revenue. Our earnings per share were $3.22. and we delivered a gross profit margin of 28.9%. In these choppy times, Eagle will continue to operate as it always has. We will control what is in our control and adjust to current market conditions to maximize profitability in both the short and long term. Our strategy is consistent. We will invest in the health and safety of our largest differentiating asset, our people, Our plans to control costs and support our customers through increased reliability, efficiency, and capacity. Our short and long-term strategy with return-focused projects or acquisitions. All of this while ensuring our balance sheet remains in pristine condition. Foundational to everything we do is maintaining the highest standards of health and safety. Our annual safety conference was held in December. It is always a great opportunity to interact with the leaders of the organization to review our safety and environmental performance, pass along some important messages, and set our path for continued improvement. Our journey to zero incidents is ongoing, but every employee at EGLE understands that the safety of our people always comes first. If we cannot perform a job safely, we will not perform the job. These meetings with the best practice sharing and commitment from the team have allowed Eagle to maintain an industry-leading safety record. To say the least, I'm proud of all Eagle's employees and the safety culture we have built. Regarding our plants, we work to maintain the reliability of our assets, increase efficiency and capacity, which gives us operational flexibility to execute efficiently through economic cycles. This past quarter, we advanced several initiatives that convert our waste streams into revenue streams to help further improve our low cost producer position. Let me give a few examples. In cement, we have been able to reclaim decades old waste streams that can be used as a source of raw materials in our production process. In our aggregates operations, we have begun using fines and overburden to support our raw materials or extend our reserves at our cement plants and aggregate facilities. In the light side of our business, we are expanding the capabilities of our Republic Paper Mill to repurpose non-wallboard grade paper and trim rolls into higher value add products. At American Gypsum, we are recycling 100% of our waste wallboard back into the production process, except at our Duke facility, which will also be at 100% following the completion of our modernization there. Importantly, many of these projects require minimal or no capital investment while having an outsized positive benefit on our operations. These initiatives complement some larger strategic projects we have underway that benefit our overall system reliability, capacity, and profitability. namely the modernization of our mountain cement plant and the Duke wallboard facility. We made good progress on both projects during the quarter, which means that our Laramie, Wyoming cement plant should be going through its commissioning late this calendar year, followed by our Duke, Oklahoma commissioning in the second half of calendar 2027. Each investment will lower the cost structure of the respective plant strengthen our already low-cost competitive position, and deliver a strong return on investment. I'm incredibly excited for what's ahead, as we are experiencing some downtime at the mountain cement kilns recently, increasing the justification for the modernization project. In the meantime, we can use our network of cement plants to meet our customer needs, albeit at an increased cost. We'll continue to report on progress as we approach the end of each plant's construction timeline. With both plants coming online over the next 18 months, let me pivot now to where we think we are in the economic cycle. At Eagle, we don't operate in a way that is overly focused on short-term demand cycles. Our primary products are essential commodities, meaning demand will fluctuate. That being said, Heavy materials and wall work appear to be at different inflection points today. Our cement and aggregate sales volumes grew last quarter, and we believe the support from federal, state, and local infrastructure spending, plus solid growth on key non-residential and markets, will continue support for our heavy materials business. As discussed last quarter, we have announced price increases for the first quarter of calendar 2026 in most of our markets, further reflecting our volume expectations for our heavy materials business. At the same time, residential construction, which drives wallboard volumes, was challenged last quarter. Current housing data reflects the affordability issues that have been plaguing the homebuilding industry for quite some time. Recent housing policy announcements, combined with more accommodative monetary and fiscal policy, recognize the fundamental need for new home construction in the US. So we are monitoring these developments closely. Nonetheless, as I said, our focus is on our operations, not on predicting demand. Over decades, we've demonstrated that we can operate equally well in strong economic environments and in mixed construction environments. Our low cost producer position gives us opportunities and advantages for managing cost. In wallboard, our sustaining maintenance costs are already low, and we benefit from the ability to flex production to match sales. Finally, as I mentioned earlier, our focus on financial discipline and balance sheet strength remains. During the quarter, we strengthened our already solid financial position, issuing $750 million in 10-year senior notes. aligning our capital structure with our ongoing investments at the Laramie, Wyoming cement plant and Duke, Oklahoma wallboard plant. While making significant progress on our major capital projects, we increased our return of capital to shareholders. During our fiscal third quarter, we returned nearly $150 million to shareholders through our dividend and share repurchases. Our leverage ratio of 1.8 times allows us to navigate cycles and stay in growth mode, even as our end markets have endured choppiness. Craig, with those comments, I will now turn it over to you.

Thank you, Michael. Third quarter revenue was $556 million, down slightly from the prior year. The decrease reflects lower wallboard and paperboard sales volume. partially offset by higher cement sales volume and the contribution from the recently acquired aggregates business. Third quarter earnings per share was $3.22, down 10% from the third quarter of fiscal 2025. The decrease reflects lower net earnings, mostly the result of lower wallboard sales volume, offset by a 5% reduction in fully diluted shares due to our share buyback program. Turning now to segment performance. In our heavy materials sector, which includes our cement and concrete and aggregate segments, revenue is up 11%, driven primarily by a 9% increase in cement sales volume and a 22% increase in concrete and aggregates revenue. Aggregate sales volume was up 81% to a record 1.6 million tons, reflecting a 34% increase in organic aggregate sales volume and the contribution from the recently acquired aggregates business. Operating earnings were up 9%, driven primarily by the 9% increase in cement sales volume. As Michael mentioned, cement price increases have been announced in most of our markets to take effect in the first part of calendar 2026. Moving to the light materials sector on the next slide. Revenue in the sector decreased 16% to $203 million. reflecting lower wallboard and recycled paperboard sales volume, and a 5% decline in wallboard sales prices. Operating earnings in the sector were down 25% to $73 million, primarily because of lower wallboard sales volume and prices. Looking now at our cash flow. We continue to generate strong cash flow and allocate capital in a disciplined way, in line with our strategic priorities. During the first nine months of the fiscal year, Operating cash flow increased 5% to $512 million. Capital spending increased to $295 million. Most of this increase was associated with the modernization and expansion of our mountain cement plant in Laramie, Wyoming, and the modernization of our Duke, Oklahoma, wallboard plant. Considering these two projects, as well as our sustaining capital spending, we expect total capital spending in fiscal 2026 to be in the range of $430 to $450 million. During our fiscal third quarter, while investing in these growth projects, we also significantly increased our shareholder distribution. We returned nearly $150 million to shareholders through our quarterly dividend payment and the repurchase of approximately 648,000 shares of our common stock. Through the first nine months of fiscal 26, we've repurchased approximately 1.4 million shares or 4% of our outstanding. We have approximately 3.3 million shares remaining under our current repurchase authorization. Finally, a look at our capital structure, which continues to give us significant financial flexibility. As Michael mentioned, during the quarter, we further strengthened our financial position by issuing $750 million of 10-year senior notes with an interest rate of 5%. This issuance enhances our debt maturity schedule increases committed liquidity, and aligns our capital structure with the long-term investments we're making at our Mountain Cement Plant and Duke Wallboard facility. We also used a portion of the proceeds to repay our bank credit facility. At December 31st, 2025, our net debt to cap ratio was 48%, and our net debt to EBITDA leverage ratio was 1.8 times. We ended the quarter with $419 million of cash on hand, Total committed liquidity at the end of the quarter was approximately $1.2 billion, and we have no meaningful near-term debt maturities, giving us substantial financial flexibility. Thank you for attending today's call. We'll now move to the question and answer session. Drew, I'll throw it back to you.