Release Date: May 21, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Eagle Materials Inc (EXP, Financial) reported record revenue of $2.3 billion and record diluted EPS of $13.61 for fiscal 2024.
- The company expanded gross margins by 50 basis points to 30.3% and generated operating cash flow of $564 million.
- Eagle Materials Inc (EXP) made significant progress in environmental stewardship, including a 23% reduction in water consumption and new disclosures in their sustainability report.
- The company announced two major growth investments: a new slag grinding facility in Texas and a $430 million project to modernize and expand the Mountain cement plant in Wyoming.
- Eagle Materials Inc (EXP) returned $343 million to shareholders through share repurchases and dividends, reducing the overall stock flow by nearly 30% over the last five years.
Negative Points
- The fourth quarter saw weaknesses in the heavy materials segment due to adverse weather and increased cement maintenance costs.
- Fourth quarter EPS was down 20%, largely due to the impact of weather conditions and increased maintenance costs in the cement business.
- The company faced operational disruptions from equipment failures and frozen feed systems during the fourth quarter.
- Wallboard sales volume declined, impacting the Light Materials sector's annual revenue and operating earnings.
- The company anticipates continued rain and weather-related delays in the early part of fiscal 2025, which may affect demand and project timelines.
Q & A Highlights
Q: Craig, you mentioned several things on the cement side, some maintenance, a few other things you called out there. And I'm sure the lower organic volume didn't help. Clearly, it's a seasonally slower quarter as well. So that can amplify things. But it sounds like a lot of these things are transitory. And if I did my math right, I think the margin would have been closer to 22.4% kind of range, which would have been up about 300 basis points. Is that -- am I in the neighborhood with that? And I guess, also as you kind of look at those things you called out or any of those going to be kind of trickling into the 1Q or anything like that?
A: Yes. No, I think you're on the right path, Trey. Look, January, I think it's been pretty well chronicled especially in this industry. The difficult weather conditions we faced in January, even a little bit into early February really impacted demand from a timing perspective. The nice thing about weather is the projects are still there, they just get delayed and that's what we saw during the quarter. And as Michael mentioned, when you're dealing with that type of weather and already with a slower seasonal period, we took the opportunity to go out and perform some maintenance that we haven't had the chance to for many years as these facilities have been running at full steam. So take the opportunity, as I mentioned, and then you even had some of the weather that frankly impacted the facilities and their ability to operate, we had some frozen fuel bends. We had some frozen raw material bends that caused downtime at the plant. So it's not just the sales volume impact, there's actually an operational impact the $3 million to $4 million on the sales volume is similar to what we then had in terms of some operational downtime. And then we highlighted specifically the $7 million in maintenance costs, yes look the maintenance costs are kind of focused on the quarter and contained in the quarter. Yes, I will point out, we still have seen some rain here in April and May across most parts of the country. Again, it just pushes out the projects, but still feel really good about where the demand picture is for the heavy side. As we look forward, customers continue to tell us they expect to be very, very busy this year and into the next several years.
Q: Okay. And then kind of sticking with the cement margin here. I believe you guys are expecting some energy cost to kind of ease some in the cement business here for fiscal '25. Is that still the case? And I would guess that with any additional price realization in April, we should be probably looking for a rebound in the cement margins to some degree in fiscal 1Q, assuming weather doesn't just completely derail it?
A: Yes. Look, as I always say, you've got to look at the Cement business on a trailing 12-month basis. And I know you know this, the June quarter is when we perform the majority of our kiln maintenance. So the June quarter is always our lowest margin quarter for the year. But as you said, you look at over the broader year for fiscal '25. We've got some benefits on the energy side, more specifically in the solid fuels that should help margins. And as we remain at full utilization and these price increases, we would expect to see margin improvement as we move forward.
Q: I'd like to -- I guess if you could talk a little bit more about the Laramie expansion, very, I think, interesting and interesting timing, too. Should we read into it, one, I guess, the M&A markets, maybe what -- were a little too frothy compared to what you all were looking at? Or is it just more kind of confidence and opportunities that you saw in the Salt Lake and the Denver markets?
A: Yes, Stanley, great question. And really, there's 2 parts to that. One is the project itself. Look, it's an older facility. I mentioned it operates 2 long dry kilns, which are a little older technology. We'll be modernizing that to a precalciner single kiln line for the cement head, that's important and that it reduces the energy consumption significantly, much more energy efficient and simplifies the maintenance program, you go 2 kilns down to one more modern technology. So -- and it's in a growing market, right? So while the plant sits in Laramie, Wyoming, its primary market is south to Denver. And we've got some advantages into that market in terms of terminals that exist and terminals that we will be building, which are all included in that capital cost. And that market remains constrained, supply-constrained, especially given its location in the middle of the country. So that project in and of itself, it reminds me very much of a project we completed years ago at our Illinois cement facility when we modernized that facility, it's very low cost today, very similar margin profile with these 2 facilities. And that Illinois cement modernization had a high, high return more than that our internal hurdle rates. And that's what this project is about. Your other question more broadly about capital allocation, we're very fortunate that we've positioned the balance sheet at below 1.5x. We have good free cash flow. And so we've really positioned ourselves that while this is an important project, the Mountain Cement expansion and relatively large dollars, that does not preclude us from continuing to invest in inorganic or M&A opportunities that may come around. And frankly, if that doesn't happen, continuation of our share repurchase program. So I just think this is just one more opportunity to invest and we still have the ability to invest in other ways as well.
Q: Craig, just as a follow-up to a previous question, it wasn't quite clear to me. Did you essentially pull forward most or all of that cement maintenance from June to the March quarter?
A: Yes. Some of it certainly is that. But I'll tell you, and I think Michael said it well. These plants have been running at full utilization for several years now as we've discussed. And so some of this is maintenance that you just haven't had the time to perform over the last couple of years and you finally had the opportunity to this quarter. So I don't know that I would necessarily say it's pulling forward as much as it was the opportunity presented itself. And it pulled it forward in the sense that you were going to have to do it eventually, whether that was in fiscal '25 or fiscal '26, it was some point needed to be done, and we took the opportunity.
Q: Craig, at Texas Lehigh, I think you had some ongoing repairs and plans around that facility. Could you just update us on that and maybe any sort of cadence we should expect that might create some downtime at that plant, in particular, through this year?
A: Yes. Yes. We've mentioned we've got a couple of larger projects. They're largely slated for this fall. They'll go through their normal maintenance program here in
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
