Q2 2024 Eagle Materials Inc Earnings Call

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 <unk>.

Good morning, welcome to Eagle materials conference call for our second quarter of fiscal year 2024. This is Michael hack joining me today are Craig Kesler, our Chief Financial Officer, and Al Static 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 Eagle materials Dot com and click on the way 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.

Let me start off by saying that I'm excited to highlight another quarter of record operating and financial performance for Eagle materials and.

In the second quarter of fiscal 2020 for Eagle generated record revenue of $622 million up 3%.

Eagle expanded gross margins to 33, 6% up 150 basis points.

We achieved record net earnings per diluted share of $4.26.

15%.

A key reason for our superior margin performance is our commitment to our long term sustainability of our plants our businesses.

And our employees.

On the employee front I wanted to highlight.

We conducted this past quarter, one that I always look forward to attending and participating in our seventh annual health safety and environment Conference.

This conference brings together, our operations and HSE leaders from across all of Eagle.

We have an open and honest discussion about where Eagle is currently and where we would be going with regards to HFC.

From the focus and dedication of our people Eagle has been able to continue to be an industry leader in keeping our employees safe as measured by our total recordable incident rate.

Reduce emissions through our focused implementation of P. L C sumac redo.

To reduce water usage through the redesign of our systems to ensure that they are closed loop.

And focus our efforts through best practice, sharing and leading indicators to eliminate more serious injuries as demonstrated in our lost time injury rate.

I'll now turn to more specifics on our operational and financial performance for this quarter, starting with the heavy materials businesses.

Revenue increased 10% versus the prior year second quarter within our footprint public Highway and infrastructure Awards continue to outpace the national average Similarly announced manufacturing construction projects of semiconductors, EV batteries clean energy and heavy industrial projects.

Have been benefiting the markets we serve.

These announced projects totaled almost $500 billion nationwide since 2021.

On the supply side U S manufactured cement supply continues to be outpaced by demand.

Total capacity has fallen since 2010, when further regulations were enacted knowing that niche app, making new plant construction and capacity expansion challenging.

This creates the ingredients for a strong pricing environment.

We implemented a second round of cement price increases in early July across half our markets and we have begun announcing in the next round of increases for January of next year.

This quarter, we also made meaningful progress on our conversion to Portland, limestones Tonight or plc, surpassing 60% across our system.

Plc makes her clinker go further and it is an important lever at our disposal for lowering the carbon intensity of our footprint. So we are excited about the opportunity of these plc provides us.

I'd be remiss, if I did not add a little color around Texas Lehigh JV operation since it was mentioned in the last quarterly earnings call.

I'm happy to say that we have made substantial progress on our <unk> system and the plant is performing much better we still recognize that there is some more work to do but I'm very pleased with the progress to date.

In regards to the mid and longer term outlook for cement concrete and aggregates, we have multiyear visibility into demand and the volume picture for cement remains robust across our end markets.

Both the public and private nonresidential construction, particularly within manufacturing projects continues to see strong spending.

With the layering of federal infrastructure dollars, there is a meaningful runway for construction projects for years to come.

There is often a long tail of demand from these projects as well as communities and other local infrastructure must be built out.

Moving to the supply side outlook for the heavy side of our business.

We have very stringent permitting requirements in our industry because of this we do not foresee any significant new plant builds or expansions in our markets that would materially change the supply picture.

Since we are so constrained on manufacturing capacity the sold out markets around the coastal areas, where I have to turn to imported cement in order to meet the demand.

To this extent we have continued the integration of our recently acquired cement import terminal in northern California to supplement our supply chain on the West coast.

Our manufactured cement footprint is made up of U S. Heartland network that will remain largely insulated from import given the high deliberate cost to our markets.

Because of these dynamics, we are optimistic about our short mid and long term outlook for our heavy side businesses.

Now, let me turn to our quarterly performance on the light side.

Our gypsum wallboard sales volumes declined 6%, while the average gypsum wallboard net sales price was flat with the prior year.

It's been encouraging to see shipment orders and pricing maintain their resiliency to date.

Since having is the most critical end market for us we recognize the rise in interest rates, an unclear path with consumer spending mainly in the environment stays choppy in the short term.

Looking at the mid and long term demand outlook for gypsum wallboard business, we operate in markets in the Sun belt in the south.

In this market single family housing starts have held up relatively well.

Similarly single family permits in the south coinciding with homebuilder orders given the limited supply of existing homes for sale should translate in the wallboard consumption in 2020 four.

Looking longer term, we see the structural under our belt of housing in the U S getting worse before it gets better as rate lock ins keep people in their current homes for longer creating a tailwind for our businesses as new homes are built or existing homes undergo repair and remodel projects.

With regard to the mid and long term supply outlook for our lifestyle businesses. We have spoken many times of the effect of the lack of synthetic gypsum is having on the ability to add capacity to the industry.

Let me provide an example, looking at the prior two cycles 1995 through 2002 thousand through 2008 represented two significant housing demand cycles in the U S.

And both of those periods the wallboard industry added significant new capacity through the cycle and beyond with demand P.

This cycle has played out much differently. The industry has added no new capacity in over a decade, even as pricing has reached record levels.

This is indicative of the effect of raw material shortages are having on the broader industry.

It needs to be noted that about half the industry supplies designed to utilize synthetic gypsum because of this the effective economic viability of the industry capacity is likely lower than nameplate figures imply.

Eagle materials benefits from the charity of raw material supply for all of our wallboard plants insulating us from the cost curve and the capacity pressures facing much but the wallboard industry.

In fact, the demand supply dynamics benefiting our wallboard businesses. For example, many of the qualities that make our cement and aggregates businesses, so attractive as well.

Closing out our business performance through the first half of our fiscal year I'd like to mention how well we continue to educate our capital allocation playbook.

Eagle materials cash flow generation is a key reason why the businesses is so attractive through cycles.

Given our businesses are in a cyclical industries, we focus on cycle manage back and on maintaining financial flexibility to create long term value for our shareholders.

Our priorities remain the same to continue to grow our businesses and improve our low cost competitive positions through acquisitions and organic investments.

Meet our strict strategic and financial return criteria.

And when those opportunities don't materialize, we use our share repurchase program to return cash to shareholders in a meaningful way.

Last quarter, we returned $86 million of cash to shareholders through share repurchases and dividends.

We also used our strong cash flow to strengthen our balance sheet, our leverage ratio ended the quarter at one three times.

With that I'll turn it over to Craig to go through our financial results in more detail.

Thank you Michael second.

Second quarter revenue was a record $622 million, an increase of 3% from the prior year.

The increase reflects higher cement sales prices and contribution from the recently acquired cement import terminal in Stockton, California.

Partially offset by lower wallboard and paperboard sales volume.

Excluding the <unk> acquisition revenue was up 1%.

Again, this past quarter, we generated record earnings per share.

Second quarter earnings per share was $4 46.

A 15% increase from the prior year.

The increase was driven by higher earnings and a 5% reduction in fully diluted shares due to our share buyback program.

Turning now to our segment performance highlight on the next slide.

And our heavy materials sector, which includes our cement and concrete and aggregates segment's revenue increased 10% driven primarily by the increase in led sales prices implemented earlier this year and the contribution from the recently acquired cement import terminal in Northern California.

Operating earnings were up 19%, primarily because of increased cement prices.

Given the strong market conditions that Michael discussed we implemented a second round of cement price increases in early July and our average cement price increased approximately $5 per ton or 3% sequentially.

We've also recently announced cement price increases in most of our markets effective January one 2024.

Moving to the light materials sector on the next slide.

Revenue in our light materials sector decreased 8%.

Reflecting lower wallboard and recycled paperboard sales volumes, while wallboard sales prices were flat.

Operating earnings in the sector declined 2% to $93 million, reflecting lower wallboard sales volume, partially offset by reduced input cost primarily for recycled fiber and energy.

Looking now at our cash flow.

We continue to generate strong cash flow and allocate capital in a disciplined way.

During the first six months of our fiscal year operating cash flow improved 4% to $313 million, while capital spending increased to $66 million.

And we acquired the cement import terminal in Stockton for $55 million.

We also repurchased a total of 917000 shares or two 5% of our outstanding for $151 million. In addition to paying our quarterly dividends.

Returning a total of $169 million to shareholders during the first half of our fiscal year.

We have approximately $6 8 million shares remaining under our current repurchase authorization.

Finally, we used our strong cash flow strengthen our balance sheet, let's look at our capital structure.

At September 30th 2023, our net debt to cap ratio was 45%.

And our net debt to EBITDA leverage ratio was one three times.

We ended the quarter with $47 million of cash on hand.

Total committed liquidity at the end of the quarter was approximately $627 million.

And we have no meaningful near term debt maturities, giving us substantial financial flexibility.

Thank you for attending today's calls M. J, we're ready to move to the question and answer session.

Mr. Katz play we will now begin the question and answer session.

I ask a question you May press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

Today's first question comes from Trey Grooms with Stephens. Please go ahead.

Hey, good morning, and thanks for taking my question.

So we've.

We've seen volume down in wallboard now for I guess, the last two quarters and no surprise and I think it's actually holding in better than most would have thought and Michael you gave a little color on the demand outlook there but.

You know understandably with the backdrop of the higher rates you know, there's there's clearly creates more uncertainty at least around the residential back drop here, but you know given what we've seen from our starts and completions on the residential side to the extent that you can talk about it how how are you thinking about.

You know the the wallboard volume outlook in the near term and then what.

What point do you expect that we could start to see some stabilization there.

Yeah, Trey you bring up a lot of interesting points, you'll look the higher interest rate environment.

We will navigate through it there's factors on the other side, most notably <unk>.

Sorted Av homes in many markets across the U S of existing homes.

Which is a very different environment than we've seen in prior cycles.

It's also important to note, where we operate in the southern part of the U S.

Where activity has been more robust than the other parts of the country and I think that's our core market.

And look we continue to have a homeowners are you requiring to live somewhere. So there are there are a lot of factors in.

Have you seen a homebuilder orders improved this quarter or and again last quarter as well.

So it's hard to predict right now, but we think we're positioned pretty well.

Okay, and I guess.

With that just kind of sticking with the demand picture.

On the cement side, you know green.

Granted there's maybe some more or quite a bit more visibility there into the the demand picture, which sounds like it's still pretty good but you know as as we look into maybe the calendar 'twenty for you know with this kind of increased uncertainty again.

That's created by the the the rate situation.

Is it your expectation that we should continue to stay in and you know what is a kind of a sold out position or at least nearly sold out position as we kind of look over the foreseeable.

Foreseeable future.

Yeah, you know.

As opposed to the wallboard industry, which is more residential oriented cement and aggregates demand is more driven by infrastructure spending and and obviously with the multiyear highway bill that those funds are starting to really.

The benefit of all highway awards in that activity.

That should more than offset the residential impact on the on the heavy side.

Not to mention and Michael pointed them out several large I'm kind of manufacturing slash industrial type projects for battery plant semiconductor facilities.

That activity is at a multi decade highs. So that's that's what gives us some confidence around the outlook.

For for the heavy side demand not just for 'twenty, four but beyond that given given those projects are multiyear in nature.

Okay, and I've got a sneak one more in here if I could.

You mentioned you know you you went out with the cement pricing announcements early January any additional color you could give us on maybe magnitude or maybe how widespread these announcements or.

Yeah its across most of our markets a January 1st still evaluating all of our markets, but the announcements a range between 10 to $15 a ton.

Perfect. Thanks for all the color I'll turn it over good luck.

Thank you. The next question comes from Stanley Elliott with Stifel. Please go ahead.

Hey, good morning, guys. Thank you all for the question and congratulations I'm.

Just curious we're talking about the wallboard pricing has been so resilient is there a way to quantify.

If I kind of the differences that you're seeing in the east and the west and east spoke a little bit about some of the synthetic piece I was curious as to what that might have a be having an impact on it.

Yes family look.

And Michael mentioned, its such a different environment this cycle than what we've seen in prior cycles, where not only where you're facing demand pressures, but there had been a significant amount of new supply being added and most of that was centered around the availability of synthetic gypsum as as the.

Source of gypsum has declined significantly as we reduce the power generation vehicle that that's reduced that raw material and its more predominant in the eastern half of the U S. No doubt.

But again, the western and southern part of the country as World a lot of the construction activity has been more robust. So it's a balance and and I'd say pricing was kind of held in a pretty pretty well nationally and different factors across the country for sure.

And he talked a little bit about the balance sheet kind of one 1.3 types of hey, you should be generating a bunch of cash on a go forward basis.

Oh boy help us again with kind of what's happening with the M&A pipeline you've been active buying shares just curious a little if we get a little more color on on planes around that or should we see leverage continue to tick down with it.

Maybe something larger comes down the pipe just just really more curious than anything.

Yeah, you know sale and it's a great question. The capital allocation is an area, where we spent a lot of time and focus because we are generating a high level of free cash flow.

And as we've always said maintaining the assets is paramount and our bedrock function of Eagle as is the capital structure management, which we've put ourselves in a good position in both of those fronts.

And so the next users to continue to grow the enterprise.

As you know we have a very high strict criteria of both financially and strategically for that investment.

And when those investments don't meet that criteria, where we're happy to continue to return cash to shareholders. We obviously saw value in the shares this past quarter and continue to balance that capital allocation between those two.

Hum opportunities and it's dependent upon you know the the balance of whether the investment in front of us meets those criteria or not and that's kind of a way we've operated for a long time.

Perfect. Thanks, so much best of luck.

Thank you. The next question comes from Brent Thielman with D. A Davidson. Please go ahead.

Hey, Thanks, Good morning, just wanted to come back to wallboard.

I'd just be curious as to what you'd see sort of fiscal year to date.

Considering your sort of conversations with customers what you see around your region, we have prevailing mortgage rates I mean does this.

Still feel like sort of a down mid single digit environment for volume over the short term are you are you actually more optimistic than that.

Yeah, Brent as we said in our prepared comments.

Yeah look I think you've got to recognize that the recent increase in interest rates and traditionally what that and how that would impact homebuilding.

Just some other factors today that are in place that are very different than as we pointed them out of the shortage of homes existing homes are that are at a very very low levels across the country and you have this idea of where you've got a significant amount of the mortgage that are outstanding that are you know sub four.

Per cent and so folks just aren't moving like they once were and which just puts more pressure on the need to build new homes.

And so it's hard to predict.

We've kind of been running in this down mid single digits. It wouldn't surprise me that you're in that range for a little while but again you know, it's it's not very different than what we've seen in prior cycles.

Understood and Greg the wallboard margins I mean, considering some top line pressure in the business were comparatively.

Comparatively strong or a little better than last year I Wonder if you could just sort of flush out a few of the variables there that are allowed.

Allowed us to keep margins up.

Yeah.

Look again, it's not a big volume oriented business, it's not a high fixed cost business. So downs down volumes it doesn't hurt us much and.

You know paper prices, which is a large input are down year over year that continued to be a benefit a nice tailwind as his energy. So energy is down a couple of dollars a million versus where we were last year and seems to be continuing to track that direction. So what had been tailwind or headwinds a year ago.

With our current turnaround and help keep margins are pretty flat.

Okay, great. Thank you.

Thank you. The next question comes from Anthony Pettinari with Citi. Please go ahead.

Hi, good morning.

Can you can you talk a little bit more about the rationale for the Stockton terminal acquisition, you know what was attractive about that asset and how it supplements or system and then just following up on Stanley's question on M&A. You know you had a lot of success with the Kosmos acquisition are there heavy side assets out there that could potentially be attractive or are those just kind of so scarce.

Kind of once in a blue Moon.

Yeah. So this is Michael I appreciate the question Yeah. When we look at the first I'll take your second question first we're always involved with any acquisition work come to light, we evaluate a bunch of stuff, but it is Craig.

Operator: 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, MJ. Good morning.

Greg and I. Both mentioned, we have some strict financial performance criteria are there you know.

Michael Haack: Welcome to Eagle Materials Conference Call for our second quarter of fiscal year of 2024. This is Michael Haack. Joining me today are Craig Kessler, our Chief Financial Officer, and Alex Paddock, 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.

But again, if anything were to come to light.

I'd be interested in any one of our cash.

Allocation criteria is to keep our existing assets in like new condition and grow through acquisition, if something were to come available. We look at a lot of different a different businesses out there and we only select the ones that really fit our network the best as far as stock. Then you know if you look at the West coast and everything.

Michael Haack: 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.

Where we stand we have a business on that side.

Import terminal really supports our business as we grow with our Nevada cement opportunity, we were already bringing some of that into California from Nevada, and you know as Nevada continues to grow and some of the surrounding areas are continuing to grow our we're finding we're a little light on supporting our customers. So.

Michael Haack: Let me start off by saying that I'm excited to highlight another quarter of record operating and financial performance for Eagle Materials. In the second quarter of fiscal 2024, Eagle generated record revenue of $622 million, up 3%. Eagle expanded gross margins to 33.6%, up 150 basis points, and we achieved record net earnings per diluted share of $4.26, up 15%. A key reason for our superior margin performance is our commitment to our long-term sustainability of our plants, our businesses, and our employees.

We saw this as a great opportunity to.

Bringing our products support our customers and continue to.

Grow in that market that supports one of our cement facilities there.

Okay. That's very helpful I'll turn it over.

Thank you. The next question comes from Jerry Revich with Goldman Sachs. Please go ahead.

Hi, Good morning, everyone. This is Jeff I'm, calling on behalf of China knowledge. How are you thinking about cement pricing for 'twenty 'twenty four in light of the extreme volatility in diesel prices on overall inflation.

Just to be clear diesel prices don't have as much of an impact on us.

Michael Haack: On the employee front, I want to highlight an event that we conducted this past quarter, one that I always look forward to attending and participating in. Our seventh annual health safety and environment conference. This conference brings together our operations and HSE leaders from across all of Eagle. We have an open and honest discussion about where Eagle is currently and where we'll be going with regards to HSE. From the focus and dedication of our people, Eagle has been able to continue to be an industry leader in keeping our employees safe, as measured by our total recordable incident rate.

Our cement business and.

So we have announced price increases in cement for early January as we said earlier kind of between 10 to $15 a ton dependent depending upon the market and that that's our that's our announced plans at this point.

Alright, Thanks, a lot.

Thank you. The next question comes from Adam Thalheimer with Thompson Davis. Please go ahead.

Hey, good morning, guys nice quarter.

Because.

Michael Haack: Reduce emissions through our focused implementation of PLC cement, reduce water usage through the redesign of our systems to ensure that they are closed loop, and focus our efforts through best practice sharing and leading indicators to eliminate more serious injuries as demonstrated in our last time injury rate.

Craig what was the exit price in wallboard for.

For Q2, it was pretty consistent with the quarterly average.

Got it.

And then cement volumes down 1% year over year, you cited weather how are you thinking about.

The December quarter, you have an easy comp you were down 13% last year I don't even remember what that was probably weather, but how are you thinking about that comp and then.

Michael Haack: I'll now turn to more specifics on our operational and financial performance for this quarter, starting with the heavy materials businesses. Revenue increased 10% versus prior year's second quarter. Within our footprint, public highway and infrastructure awards continue to outpace the national average. Similarly, announced manufacturing construction projects of semiconductors, EV batteries, clean energy, and heavy industrial projects have been benefiting the markets we serve. These announced projects total almost $500 billion nationwide since 2021.

Kind of early 'twenty 'twenty four cement volumes.

Brent.

Yeah look there's always weather different quarters.

But you'll look the underlying fundamental demand for cement continue to go in the right direction.

Now whether that's infrastructure. The highway awards that continue to grow these are large industrial facilities, it's hard to predict quarter to quarter, depending upon when certain things happen or project delays or whatnot, but we continue to see an environment where utilization rates should remain high across.

Michael Haack: On the supply side, US manufacturer cement supply continues to be outpaced by the man. Total capacity has fallen since 2010 when further regulations were enacted known as niche app, making new plant construction and capacity expansion challenging. This creates the ingredients for a strong pricing environment. Thus, we implemented a second round of cement price increases in early July across half our markets. And we have begun announcing the next round of increases for January of next year.

Ross.

Across our network and Theres good demand backdrop for us.

Do you see do you see any more variability than normal.

Geographically.

No I don't I don't think so you know there's.

Again for US it's interesting if you were to think through the prior cycle were nearly three times. The size that we were back then we've got exposure from Northern California, East, Ohio, South, Texas. So you know, we very much more representing national average today versus where we were a decade or so ago, where we were kind of a.

Michael Haack: This quarter we also made meaningful progress in our conversion to Portland limestone cement or PLC surpassing 60% across our system. PLC makes our clinker go further and it is an important lever at our disposal for lowering the carbon intensity of our footprint. So we are excited about the opportunity these PLC provides us.

Barry Reece Smallish regional player.

So we just operate more markets today than we ever had before.

Got it and then I'm trying to back into because the cement margins the cement margins remain exceptional.

But I'm wondering how.

Do you have any thoughts on cement cost per ton in the back half of the year.

Michael Haack: I'd be remiss if I did not add a little color around Texas Lehigh JV operation since it was mentioned in the last quarterly earnings call. I'm happy to say that we have made substantial progress on our kiln system and the plant is performing much better. We still recognize that there is some more work to do, but I'm very pleased with progress today.

Yeah, so yeah.

Yes, as you pointed out our margin profile continues to do very well in that business and as we've said.

What the tailwind a year ago were around energy specifically fuel.

Those have abated certainly here in FY 'twenty for us he start looking beyond FY 'twenty for certainly fuel cost, which for US is today predominantly solid fuels have trended lower.

Michael Haack: In regards to the mid and longer term outlook for cement concrete and aggregates, we have multi-year visibility into demand and the volume picture for cement remains robust across our end markets. Both the public and private non-residential construction, particularly within manufacturing projects, continues to see strong spending. With the layering of federal infrastructure dollars, there is a meaningful runway for construction projects for years to come. There is often a long tail of demand from these projects as well as communities and other local infrastructure must be built out.

So you should see some benefit there.

Maintenance costs, we've seen.

You know inflation.

Across parts and services I would hope that that might start to turn and go the other direction or at least become less inflationary so should be a reasonable environment for us.

Good news thanks, Greg.

Thank you. The next question comes from Sterling with Jefferies. Please go ahead.

Michael Haack: Moving to the supply side outlook for the heavy side of our business, we have very stringent permitting requirements in our industry. Because of this, we do not proceed any significant new plant builds or expansions in our markets that would materially change the supply picture. Since we are so constrained on manufacturing capacity, the sold-out markets around the coastal areas will have to turn the imported cement in order to meet the demand. To this extent, we have continued the integration of our recently acquired cement import terminal in northern California to supplement our supply chain on the west coast. Our manufactured cement footprint is made up of US Heartland Network that will remain largely insulated from imports given the high delivered cost to our markets.

Hey, good morning, this is actually a calling on for Phil.

Michael Haack: Because of these dynamics, we are optimistic about our short mid and long-term outlook for our heavy side businesses.

Wanted to touch on the Stockton terminal really quickly he was a nice contributor to the cement segment. This quarter can you just help us think about the volume contribution from that plant going forward does it have the ability to ramp up from its fiscal two two contribution or is it a capacity at this point and then any color as to how those margins look versus your wholly owned margins.

Yes look imported that margins are going to be lower than your Norway and factoring margins is a function of it's a distribution business versus a versus.

The factoring business, but it is operating with a good margin profile and as we had expected.

We pointed out in the earnings release, there was some kind of purchase price allocation still flowing through there this quarter, but that's largely behind us.

And in a good amount of depreciation but in terms of the volume profile are expected to remain in this level and are in the immediate term and there are some opportunities to expand that that that we are exploring but but we've not made any decisions on that quite yet.

Michael Haack: Now, let me turn to our quarterly performance on the light side. For GIFs and Wahlberg, sales volumes declined 6% while the average GIFs and Wahlberg net sales price was flat with the prior year. It has been encouraging to see shipments, orders, and pricing maintain their resiliency today. Since housing is the most critical end market for us, we recognize the rise in interest rates in an unclear path of consumer spending may mean the environment sees choppy in the short term.

Okay. That's helpful. And then just going to the wallboard side of the business I E. You've seen wallboard EBIT margins north of 40% for the fifth consecutive quarter now I guess, how sustainable is this level of margin just given the uncertain uncertain macro backdrop that we're in.

Michael Haack: Looking at the mid and long-term demand outlook for GIFs and Wahlberg business, we operate in markets in the sunbelt and the south, in this market, single-family housing starts have held up relatively well. Similarly, single-family permits in the south, coincided with home builder orders given the limited supply of existing homes for sale, should translate in the wallboard consumption in 2024. Looking longer term, we see the structural underbuilds of housing in the US getting worse before it gets better, as rate lock-ins keep people in their current homes for longer, creating a tailwind for our businesses as new homes are built for existing homes undergo repair and remodel projects.

Yes, Colin look, it's a function of price and cost and price as we've said it's been much more resilient.

Pretty much flat in almost exactly flat year over year and again, we just don't face some of the other uncertainties that we have in prior cycles. So not surprised to see pricing are more resilient here and then on the cost side you know as we pointed out paper prices have stabilized here.

There are at least sequentially gas prices for us natural gas has remained pretty stable here $3 or a little below that are on them and btu basis.

Those are the primary inputs are into the manufacturing of wallboard and don't see any significant changes on the horizon as we sit here today. So those are the biggest factors in and they've been very supportive so far.

Michael Haack: With regard to the mid and long-term supply outlook for our lifestyle businesses, we have spoken many times of the effect of the lack of synthetic gypsum is having on the ability to add capacity to the industry. Let me provide an example looking at the prior two cycles, 1995 through 2000 and 2000 through 2008, represented two significant housing demand cycles in the US. In both those periods, the wallboard industry added a significant new capacity through the cycle and beyond the demand date.

Great I appreciate the color. Thank you.

Thank you. This concludes our question and answer session I would now like to hand, the call back over to Mr. Michael Haack for closing remarks.

Thank you M J I just.

I just wanted to say I appreciate everybody joining us for the call today, and we will talk to you in early 2024.

The conference has now concluded. Thank you for your participation you may now disconnect.

Michael Haack: This cycle has played out much differently. The industry has added no new capacity in over a decade, even as pricing has reached record levels. This is indicative of the effect of raw material shortages are having on the broader industry. It needs to be noted that about half the industry supplies designed to utilize synthetic gypsum, because of this, the effective economic viability of the industry capacity is likely lower than main plate figures imply.

Okay.

[music].

Michael Haack: Evil material benefits from the severity of raw material supply for all of our wallboard plants, insulating us from the cost curve and the capacity pressures facing much of the wallboard industry. In fact, the demand supply dynamics benefiting our wallboard businesses resemble many of the qualities that make our cement and aggregate businesses so attractive as well.

Michael Haack: Closing out on our business performance through the first half of our fiscal year, I would like to mention how well we continue to educate our capital allocation playbook. Evil material cash flow generation is a key reason why the business is so attractive through cycles. Given our businesses are in a cyclical industries, we focus on cycle management and on maintaining financial flexibility to create long-term value for our shareholders. Our priorities remain the same to continue to grow our businesses and improve our low cost competitive positions through acquisitions and organic investments that meet our strict strategic and financial return criteria.

Michael Haack: And when those opportunities don't materialize, we use our share repurchase program to return cash to shareholders in a meaningful way. Last quarter, we return $86 million of cash to shareholders through share repurchases and dividends. We also used our strong cash flow to strengthen our balance sheet, our leverage ratio, ended the quarter at 1.3 times.

Craig Kessler: With that, I'll turn it over to Craig to go through our financial results and more details. Thank you, Michael. Second quarter revenue was a record $622 million, an increase of 3% from the prior year. The increase reflects higher cement sales prices and contribution from the recently acquired cement import terminal in Stockton, California, partially offset by lower wallboard and paperboard sales volume. Excluding the Stockton acquisition revenue was up 1%. Again this past quarter we generated record earnings per share. Second quarter earnings per share was $4.26, a 15% increase from the prior year. The increase was driven by higher earnings at a 5% reduction in fully diluted shares due to our share buyback program.

Craig Kessler: Starting now to our segment performance, highlight on the next slide. In our heavy material sector, which includes our cement and concrete and aggregate segments, revenue increased 10% driven primarily by the increase in cement sales prices implemented earlier this year and the contribution from the recently acquired cement import terminal in Northern California. Operating earnings were up 19% primarily because of increased cement prices. Given the strong market conditions that Michael discussed, we implemented a second round of cement price increases in early July and our average cement price increased approximately $5 per ton or 3% sequentially. We've also recently announced cement price increases in most of our markets effective January 1st, 2024.

Craig Kessler: Moving to the light material sector on the next slide, revenue in our light material sector decreased 8% reflecting lower wallboard and recycled paperboard sales volume while wallboard sales prices were flat. Operating earnings in the sector declined 2% to $93 million reflecting lower wallboard sales volume, partially offset by reduced input costs primarily for recycled fiber and energy.

Craig Kessler: Looking now at our cash flow, we continue to generate strong cash flow and allocate capital in a disciplined way. During the first six months of our fiscal year, operating cash flow improved 4% to $313 million while capital spending increased to $66 million. And we acquired the cement import terminal in Stockton for $55 million. We also repurchased a total of 917,000 shares or 2.5% of our outstanding for $151 million in addition to paying our quarterly dividends. Returning a total of $169 million to shareholders during the first half of our fiscal year, we have approximately 6.8 million shares remaining under our current repurchased authorization.

Craig Kessler: Finally, we use our strong cash flow to strengthen our balance sheet. Let's look at our capital structure. At September 30, 2023, our net debt to cap ratio was 45%, and our net debt to EBITDA leverage ratio was 1.3 times. We ended the quarter with $47 million of cash on hand, total committed liquidity at the end of the quarter was approximately $627 million, and we have no meaningful near-term debt maturities giving us substantial financial flexibility.

Operator: Thank you for attending today's call.

Operator: MJ, we're ready to move to the question and answer session. Thank you, Mr. Kesler. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time we will pause momentarily to assemble our roster.

Trey Grooms: Today's first question comes from Trey Grooms with Stevens. Please go ahead. Hey, good morning, and thanks for taking my question. So we've seen volume down in wallboard now for, I guess the last two quarters and no surprise. And I think it's actually holding in better than most would have thought. Michael, you gave a little color on the demand outlook there, but understandably with the backdrop of higher rates. This clearly creates more uncertainty, at least around the residential backdrop here.

Michael Haack: But given what we've seen from starts and completions on the residential side, to the extent that you can talk about it, how are you thinking about the wallboard volume outlook in the near term, and then at what point do you expect that we could start to see some stabilization there? Yeah, Trey, you bring up a lot of interesting points. You know, look, the higher interest rate environment will navigate through. There's factors on the other side, you know, most notably a shortage of homes and many markets across the US of existing homes, which is a very different environment that we've seen.

Michael Haack: And prior cycles, it's also important to know where we operate in the southern part of the US where activity has been more robust than other parts of the country. And I think that's our core market. And look, we continue to have homeowners requiring to live somewhere. So there are a lot of factors, and you've seen home builder workers improve this quarter and again last quarter as well.

Michael Haack: So it's hard to predict right now, but we think the position pretty well. Okay, and I guess, you know, with that just kind of sticking with the demand picture on the cement side, you know, granted there's maybe some more or quite a bit more visibility there into the demand picture, which sounds like it's still pretty good. But, you know, as we look into maybe the calendar 24, you know, with this kind of increased uncertainty again, that's created by the the rate situation. Is it your expectation that we should continue to stay in, you know, what is kind of a sold out position or at least nearly sold out position as we kind of look over the foreseeable future?

Michael Haack: Yeah, you know, as opposed to the wallboard industry, which is more residential oriented cement and aggregates demand is more driven by infrastructure spending. And obviously with the multi year highway bill that those funds are starting to really benefit highway awards and that activity. You know, that should more than offset the residential impact on the on the heavy side, not to mention and Michael pointed to the Mount several large kind of manufacturing slash industrial pie projects for battery plants, semiconductor facilities. You know, that activity is at a multi decade high.

Michael Haack: So that's that's what gives us some confidence around the outlook for for the heavy side man, not just for 24, but beyond that given given those projects are multi year. Sure.

Trey Grooms: Okay, and I've got to sneak one more in here if I could. You mentioned, you know, you went out with a cement pricing announcement for early January. Any additional color you could give us on maybe magnitude or maybe how widespread these announcements are? Yeah, it's across most of our markets January 1st, still evaluating all of our markets, but the announcements have ranged between $10 to $15 a ton. Perfect. Thanks for all the color. I'll turn it over. Good luck. Thank you.

Stanley Elliott: The next question comes from Stanley Elliott with Steeple. Please go ahead. Thank you all guys. Thank you all for the question and congratulations. I was just curious. We talked about the wallboard pricing. It's been so resilient. Is there a way to quantify kind of the differences that you're seeing in the east and the west and east? We spoke a little bit about some of the synthetic piece. I was curious to what that might have be having an impact on it.

Stanley Elliott: Yes, Stanley. You know, Michael mentioned, it's such a different environment to cycle than what we've seen in prior cycles, where not only were you facing demand pressures, but there has been a significant amount of new supply being added. And most of that was centered around the availability of synthetic chipsum as the source of gypsum has declined significantly as we've reduced the power generation vehicle that reduced that raw material. And it's more predominant in the eastern half of the US, no doubt.

Stanley Elliott: But again, the western and southern part of the country is where a lot of the construction activity has been more robust. So it's a balance, and I'd say pricing you was kind of held in pretty well nationally and different factors across the country for sure. And you talked a little bit about the balance. She kind of 1.3 times. You should be generating a bunch of cash on a go-for basis. Help us again with kind of what's happening at the M&A pipeline.

Stanley Elliott: You've been active buying shares. Just curious a little for you a bit. We did take down what the thought of maybe something larger coming down the pipe just really more curious than anything. Yeah, Stanley, it's a great question. The capital allocation is an area where we spend a lot of time and focus because we are generating a high level of free cash flow. And as we've always said, maintaining the assets is paramount and a bedrock function of EGLE as is the capital structure management, which we put ourselves in a good position in both of those fronts.

Stanley Elliott: And so the next use is to continue to grow the enterprise. As you know, we have very high strict criteria both financially and strategically for that investment. And when those investments don't meet that criteria, we're happy to continue to return cash to shareholders. We obviously saw value in the shares this past quarter and continue to balance that capital allocation between those two opportunities. And it's dependent upon the balance of whether the investment in front of us meets those criteria or not. And that's kind of way we've operated for a long time.

Stanley Elliott: Perfect. Thanks so much. That's luck. Thank you.

Brent Thielman: The next question comes from Brent Thielman with D.A. Davidson. Please go ahead. Hey, thanks. Good morning. I just wanted to come back to Wallboard. I guess I'd just be curious with what you've seen sort of fiscal year today considering your sort of conversations with customers, what you see around your region. And then we have this perfectly mortgage rate. I mean, does this still feel like sort of a down mid-single digit environment for volume over the short term? Are you actually more optimistic than that?

Michael Haack: Yeah, Brent, as we said in our prepared comments, you know, look, I think you got to recognize the recent increase in interest rates and traditionally what that and how that would impact home building. There's just some other factors today that are in place that are very different. And as we point them out, the shortage of homes, existing homes that are at very, very low levels across the country. And you have this idea where you've got a significant amount of the mortgage that are outstanding that are, you know, sub four percent.

Michael Haack: And so folks just aren't moving like they once were. And which just puts more pressure on the needs of build new homes. And so it's hard to predict. You know, we've kind of been running in this down mid-single digit. You know, would surprise me that you're in that range for a little while. But again, you know, it's not very different than what we've seen in prior cycles.

Craig Kessler: Understood. And Craig, the wallboard margins, I mean, considering some top line pressure and the business were, you know, comparably strong. You know, a little better than last year. Underrated, just sort of flush out a few of the variables there that are allowing you to keep margins up. Yeah, you know, let me, you know, again, it's not a big volume oriented business. It's not a high fixed cost business. So down, that down volumes doesn't hurt as much.

Craig Kessler: And, you know, paper prices, which is a large input are down year over year that continued to be a benefit. A nice tailwind as is energy. So energy is down a couple dollars a million versus where we were last year and seems to be continuing to track that direction. So what had been tailwind or headwinds a year ago have kind of turned around and help keep margins pretty flat.

Operator: Okay. Great.

Operator: Thank you.

Anthony Pettinari: The next question comes from Anthony Pettinari with city. Please go ahead.

Michael Haack: Good morning. Can you talk a little bit more about the rationale for the stocked in terminal acquisition? You know, what was attractive about that asset and how it supplements your system. And then just calling up on Stanley's question on MNA, you know, you had a lot of success with the Cosmos acquisition. Are there heavy side assets out there that could potentially be attractive or are those just kind of so scarce to kind of once a blue moon?

Michael Haack: Yeah, so this is Michael. Appreciate the question. Yeah, when we look at first, I'll think your second question first, you know, we're always involved with any acquisition work come to light. We evaluate a bunch of stuff, but as Craig and I both mentioned, you know, we have some strict financial performance criteria. They're there, you know, but again, if anything were to come to light, we would be interested in it. One of our cash allocation criteria is to keep our existing assets in like new condition and grow through acquisition of some word to come available.

Michael Haack: We look at a lot of different for different businesses out there, and we only select the ones that really fit our network the best. As for Stockton, you know, if you look at the West Coast and in everything where we stand, we have a business on that side. That import terminal really supports our business as we grow with our Nevada cement opportunity. We were already bringing cement into California from Nevada, and you know, as Nevada continues to grow in some of the surrounding areas there continue to grow.

Michael Haack: We were finding we were a little light on supporting our customers. So we saw this as a great opportunity to bring in a product, support our customers, and continue to grow in that market that supports one of our cement facilities there. Okay, that's very helpful. Turn it over.

Operator: Thank you.

Jatin Khanna: The next question comes from Jerry Revich with Goldman Sachs. Please go ahead. Hi, good morning everyone.

Michael Haack: This is Jatin Khanna on behalf of Jerry Revich. How are you thinking about cement pricing for 2024 in light of the extreme volatility in diesel prices and overall inflation? Just to be clear, diesel prices don't have as much of an impact on us in our cement business. And so we have announced price increases in cement for early January, as we said earlier, kind of between $10 and $15, depending upon the market. And that's our announced plans at this point. All right, thanks a lot. Thank you.

Adam Thalhimer: The next question comes from Adam Thalhimer with Thompson Davis. Please go ahead. Hey, good morning guys. Nice quarter. Exactly. Greg, what was the exit price in Wallboard for Qt? I was pretty consistent with the quarterly average. Got it. And then cement volumes down 1% year-over-year. You cited weather. How are you thinking about the December quarter? You have been easy comp. You were down 13% last year. I don't remember what that was.

Adam Thalhimer: Probably weather. But how are you thinking about that comp and then kind of early 2024 cement volumes? You know, Brent, yeah, look, there's always weather in different quarters. But you'll look the underlying fundamental demands for cement continue to go in the right direction, whether that's infrastructure, the highway awards that continue to grow these large industrial facilities. It's hard to predict quarter to quarter depending upon when certain things happen, you know, or project delays or whatnot.

Adam Thalhimer: But we continue to see an environment where utilization rates should remain high across across our network. And there's there's a good demand backdrop for us. Do you see any more variability than normal geographically? No, I don't think so. You know, there's, you know, again, for us, it's interesting if you were to think through the prior cycle, we're nearly three times the size that we were back then. We've got exposure from Northern California, East Ohio, South Texas.

Adam Thalhimer: So, you know, we're very much more representing national average today versus where we were a decade or so ago, where we were kind of a very recent, you know, smallest regional player. So, can we, we just operate more markets today than we ever had before? Got it. And then I'm trying to back into, because the cement remargeons, the cement margins remain exceptional. But I'm wondering, do you have any thoughts on cement cost per ton in the back half of the year?

Adam Thalhimer: Yes. So, yeah, and as you pointed out, a margin profile continues to do very well in that business. And as we've said, you know, what the tailwinds a year ago were around energy, specifically fuel. Those have abated. Certainly here in FY24, as you saw with fuels have trended lower. So, you should see some benefit there. You know, maintenance costs we've seen, you know, inflation across parts and services. I would hope that that might start to turn and go the other direction or at least become less inflationary. So, it should be a reasonable environment for us. Good news. Thanks, Greg. Thank you.

Craig Kessler: The next question comes from Phil Ng with Jeffries. Please go ahead. Hey, good morning. This is actually a colon on for Phil. I just wanted to touch on the stocked internal really quickly. It was a nice contributor to the cement segment this quarter. Can you just help us think about the volume contribution from that plant going forward? Does it have the ability to ramp up from its fiscal two-contribution, or is it at capacity at this point?

Craig Kessler: And then any colors to how those margins look versus your wholly owned margins? Yeah, look, imported margins are going to be lower than your normally manufacturing margins, just a function of its distribution business versus a manufacturing business. But it is operating with a good margin profile and as we expected, we pointed out in the earnings release, there's some kind of purchase price allocation still flowing through there this quarter, but that's largely behind us and a good amount of depreciation.

Craig Kessler: But in terms of the volume profile, I expect it to remain in this level in the immediate term, and there are some opportunities to expand that, that we are exploring, but we've not made any decisions on that quite yet. Great, that's helpful.

Craig Kessler: And then it's going to the wallboard side of the business. You've seen the wallboard even margin is north of 40% for the fifth consecutive quarter now. I guess how sustainable is this level of margin just given the uncertain macro backdrop that we're in? You know, Colin, look, it's a function of price and cost, and price, as we've said, has been much more resilient, you know, pretty much flat and almost exactly flat year over year.

Craig Kessler: And again, we just don't face some of the other uncertainties that we had in prior cycles. So not surprised to see pricing more resilient here. And then on the cost side, you know, as we pointed out, paper prices have stabilized here, at least sequentially gas prices for us natural gas has remained pretty stable here, three dollars or a little below that on them at VTU basis. You know, those are the primary inputs into the manufacturing of wallboard, and don't see any significant changes on the rise as we sit here today. So, you know, those are those are the biggest factors, and they've been very supportive so far. Great, I appreciate the caller. Thank you.

Michael Haack: This concludes our question and answer session. I would now like to hand the call back over to Mr. Michael Hack for closing remarks. Thank you, MJ. I just want to say I appreciate everybody joining us for the call today, and we will talk to you in our early 2024.

Operator: The conference has now concluded. Thank you for your participation. You may now disconnect. . [inaudible]