Eagle Materials Inc

Good day, everyone, and welcome to EGLE Materials' fourth quarter and fiscal 2026 earnings conference call. This call is being recorded. At this time, I would like to turn the call over to EGLE's President and Chief Executive Officer, Mr. Michael Hack. Mr. Hack, please go ahead.

Thank you, Bailey, 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. Thanks for joining us today to discuss another year of solid execution at Eagle Materials. In fiscal 2026, during unusually high uncertainty in the economic environment, the Eagle team delivered strong financial and operational results. For the fifth straight year, we generated record revenue, delivering $2.3 billion of annual revenue and strong earnings per share of $13.16. We also returned over $400 million of cash to our shareholders. Eagle has a long track record of consistently investing where it matters. Let me start with the safety of our people. For the past five years, our combined businesses have, on average, maintained a total recordable incident rate below the industry average. In fiscal 2026, we also increased our near-miss hazard observations, the best leading indicator to prevent safety incidents by 24%. With regards to ensuring the long-term sustainability of our operations, we have completed or started several very strategic investments, the most notable Over the next 18 months, EGLE will complete the modernization of one of our oldest cement plants, Mountain Cement, and one of our oldest wallboard plants in Oklahoma. These projects show our continued focus on investing in our assets to keep them in like-new condition. The Mountain Cement plant modernization is approximately 60% complete, and we expect commissioning of the new kiln line to begin in late calendar 2026. Construction on the Duke, Oklahoma wallboard plant is approximately 30% complete, and we expect to commission the new wallboard line in the second half of calendar 2027. These investments will lower our cost structure, improve reliability, and expand the capacity of each plant, which will further increase production flexibility across our plant network and strengthen our already low-cost competitive position. Another area of strategic investment has been in our quarries. The limestone, gypsum, and rock that we have at each quarry and their proximity to their plants is crucial for EGLE's success across all of our business lines. Controlling decades of our primary raw materials gives us a critical competitive advantage in terms of cost and consistent high quality supply. This is particularly important in periods of cost spikes and supply chain disruptions. It also enables us to maintain a consistent high quality product that is reliable for our customers through decades. We have over 50 years on average of quarried reserves at each plant, and we have maintained the 50 year average on a rolling basis through land investments. Turning to the macro level view of our businesses, we could easily get distracted by headline noise and the near-term volatility and become overly focused on the potential knock-on effects for short-term product demand. However, we are disciplined in maintaining a through-the-cycle view. From that perspective, we are still fundamentally bullish on the structural tailwinds that will continue to support our industries for many cycles to come. Our products are essential for building and renewal of America's infrastructure, schools, hospitals, and homes. to name some applications. Though demand for our core products is trending well below prior peak levels, the U.S. population has grown significantly and the U.S. infrastructure of existing homes are reaching record age levels. At the same time, there are no scalable or viable substitutes for our products and supply constraints across cement, wallboard, and aggregates will constrain capacity additions in each industry over the medium to long run. We believe that when demand does strengthen, we are well positioned given our low cost production advantages and our ongoing investments to reinforce those advantages. In fact, we are seeing this play out for Eagle even in the current choppy business environment. In the cement sector, infrastructure and cement-intensive non-residential construction applications are tightening several of our regional markets. Given the federal infrastructure spending still ahead for IIJA, the strength of state-level infrastructure budgets, and the data center projects positively affecting our entire footprint, the volume outlook for our heavy materials businesses remain favorable across our entire footprint. On the cost side of our cement businesses, we are relatively well insulated from energy cost disruptions in the near term, as we already locked in our fiscal 2027 primary fuel costs last winter. On the wallboard side, as we've discussed, the near-term housing outlook is still facing several affordability headwinds. Most notably, we need mortgage rate relief to encourage home inventory turnover which should translate into normalized new home construction activity. We have seen wallboard sales volumes hold steady from a historical perspective, and most importantly, we have seen relative price stability that is not surprising to us given supply constraints and raw material challenges for the rest of the industry. In both our cement and aggregates businesses, where volumes are inflecting positively currently, And in our wallboard business, where in the midterm we believe the volume is poised to rebound as the home building market normalizes, there is significant runway for earnings across our core business lines. We are well positioned to capitalize on that runway. We have continuously invested in our businesses throughout the cycle to capture upside opportunities as they materialize. As Craig will discuss, we have strengthened our already healthy balance sheet, which, in combination with our excess free cash flow generation, enables prudent, disciplined investments that further strengthen our competitive position. Our rigorous strategic and financial criteria mean we will be patient and ensure our inorganic and organic investments will reinforce consistent through the cycle growth. With that, I'll turn it over to Craig.

All right, thank you, Michael. Fiscal year 2026 revenue was a record $2.3 billion, up 2% from the prior year. Fourth quarter revenue was also up 2% to a record $479 million. Both increases were driven by higher cement sales volume and contribution from the two acquired aggregates businesses, which were partially offset by lower wallboard sales volume and prices. Annual earnings per share was $13.16, down 4%. The decrease reflects lower net earnings, which were mostly the result of lower wallboard sales volume and prices, offset by a 5% 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 increased 10%. driven primarily by an 8% increase in cement sales volume and a 19% increase in concrete and aggregates revenue. Aggregate sales volume reached a record 6.6 million tons, up 70% year-over-year, reflecting contributions from our acquired aggregate operations. Importantly, organic aggregate sales volume increased 24%, underscoring healthy underlying demand. Sales volume growth in both business lines was supported by continued strength in public infrastructure spending, as well as key areas of private non-residential construction activity, such as data center development. Operating earnings also increased 10%, driven primarily by higher cement sales volume, partially offset by a 1% decline in net cement sales prices. Moving to the light materials sector on the next slide, Annual revenue in the sector decreased 9% to $881 million, reflecting lower wallboard and recycled paperboard sales volume and a 4% decline in wallboard sales prices, resulting from continued softness in residential construction. Operating earnings in the sector were down 15% to $331 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 manner, consistent with our long-term strategic priorities. During fiscal 2026, operating cash flow increased 12% to $614 million, reflecting the strength of our business and the resiliency of our operating model. Capital expenditures totaled $417 million in fiscal 2026, driven primarily by investments in the modernization and expansion of our mountain cement plant in Laramie, Wyoming, and the modernization of our Duke, Oklahoma, wallboard facility. These projects represent important long-term investments that will enhance plant efficiency, improve reliability, and strengthen our competitive position. Looking ahead to fiscal 2027, we expect capital expenditures to range between $490 and $525 million, reflecting continued progress on these strategic growth initiatives, as well as ongoing sustaining capital investments across the company. Capital spending is expected to peak in fiscal 2027, with the Mountain Cement project scheduled for commissioning later this calendar year and the Duke project anticipated to conclude in mid-fiscal 2028. At the same time, we remain committed to returning capital to shareholders. During fiscal 2026, we returned a total of $414 million through quarterly dividends and the repurchase of approximately 1.7 million shares for $382 million. We ended the year with approximately 2.9 million shares remaining under our current repurchase authorization. And finally, turning to our capital structure. which continues to provide us with significant financial strength and flexibility. During the fiscal year, we further strengthened our balance sheet through the issuance of $750 million of 10-year senior notes at an attractive 5% interest rate. This transaction improved our debt maturity profile, enhanced committed liquidity, and better aligned our capital structure with the long-term strategic investments underway at our Mountain Cement Plant and Duke Wallboard facility. We also used a portion of the proceeds to repay borrowings under our bank credit facility, further enhancing our financial flexibility. At March 31, 2026, our net debt to capital ratio was 50% and our net debt to EBITDA leverage ratio was 1.9 times. levels we believe remain prudent and supportive of our growth strategy. We ended the quarter with $298 million of cash on hand and approximately $1 billion of total committed liquidity. Importantly, we have no significant near-term debt maturities, positioning us well to continue investing in the business while maintaining a strong and flexible balance sheet. Thank you for joining today's call. Bailey, we will now open the line for questions.