Q3 2025 Eagle Materials Inc Earnings Call
Speaker Change: This is a work of fiction. Any resemblance to actual people, or events, or events, or events is purely coincidental.
Speaker Change: Good day everyone and welcome to Eagle Materials fourth quarter and fiscal 2024 earnings conference call.
Speaker Change: 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 Haack. Mr. Haack, please go ahead, sir.
Speaker Change: Thank you. Good morning. Welcome to EGLE Materials conference call for our third quarter of fiscal year 2025. This is Michael Haack.
Speaker Change: Joining me today are Craig Kessler, our Chief Financial Officer, and Alex Haddock, Senior Vice President of Investor Relations, Strategy, and Corporate Development.
Speaker Change: 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.
Speaker Change: While you're accessing the slides, please note that the first slide covers our cautionary disclosure regarding forward-looking statements made during this call.
Speaker Change: 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.
Speaker Change: Thank you for joining us today to discuss our FY25 third quarter results.
Speaker Change: In the third quarter, once again, the operational performance and strategic focus of our team enabled us to deliver positive results and execute on several strategic priorities.
Speaker Change: This morning, I'd like to start off with some color on several of those strategic initiatives across EGLE materials.
Speaker Change: These initiatives demonstrate our approach to investing for the long term to ensure we remain a low-cost producer throughout economic cycles.
Speaker Change: Let me highlight three areas of particular importance. These are just a few examples of the many things we do to strengthen our core business.
Speaker Change: since we began tracking this lagging indicator. While this is an achievement, we don't plan on stopping there.
Speaker Change: We continue to build out our company-wide safety culture, standardize safety policies and procedures, and ensure we tackle all the necessary protocols for keeping our people safe.
Speaker Change: We will continue our focus on putting engineering controls in place through the use of leading indicators to continue our journey towards zero.
Speaker Change: Second, we continue to make meaningful progress on our sustainability initiatives. In our cement business, we have completed investments that are getting us closer to our goal of 100% construction-grade blended cement for our manufactured product.
Speaker Change: These projects, like our mountain cement expansion and modernization, reduce our CO2 intensity while lowering our overall manufacturing costs.
Speaker Change: We are also making headway on completing our water treatment facility at Republic Paperboard, which should reduce water usage at the plant by 50% and increase the use of recycled water.
Speaker Change: The third strategic initiative is our recent acquisition of Bullskin Stone and Lime and its alignment with our overall growth strategy.
Speaker Change: Wolfskin was a rare opportunity to acquire a pure play aggregate asset that fits nicely within our current heavy materials footprint. This combination provides strategic advantages for us, including our ability to serve our regional customers.
Speaker Change: The acquisition also expands our presence in western Pennsylvania, a market with solid growth fundamentals and healthy DOT spending levels.
Speaker Change: Acquisitions such as Bullskin fit squarely in our broader growth strategy. We will continue to seek growth investments that strengthen our footprint and meet our strategic and financial criteria as Bullskin does.
Speaker Change: The acquisition closed in early January and integration is well underway. I'm excited to welcome the Bullskin employees to EGLE.
Speaker Change: Now let me give some details on our operating performance this past quarter and our views on business conditions more broadly.
Speaker Change: We generated near record third quarter revenue despite cement volumes being down 7% because of record rainfall in some areas.
In key markets, rainfall reached 250% of historical averages.
Speaker Change: Are people in our plants executed impressively amidst these challenging conditions?
Speaker Change: As discussed last quarter, we undertook major maintenance at both our Tulsa and Texas Lehigh cement plants. The work plan was completed timely at both locations.
Speaker Change: The increased maintenance costs, which did affect us this past quarter, were smart investments for the long term, ensuring increased reliability of both plants and enabled us to get back to a normal maintenance cycle.
Speaker Change: We also continue to realign our customer portfolio at both our Denver and Kansas City concrete and aggregate sites and feel we can position those businesses well for the future.
Speaker Change: With regards to pricing, we have price increase letters out for the majority of our cement markets and our wallboard operations for the first half of 2025.
Speaker Change: Despite these tougher operating environments, the demand fundamentals for our products remain solid.
Speaker Change: In cement, federal infrastructure dollars through the IIJA program are just starting to flow through, and private non-residential manufacturing projects should tilt cement consumption higher.
Speaker Change: Regarding wallboard demand, we're focused on the widely discussed change in the outlook for interest rates and mortgage rates over the next 12 to 24 months.
Speaker Change: The path to lower rates and the knock-on effects of increased home buying demand is cloudier today than it was just a quarter ago.
Speaker Change: Single-family housing, the most important end market for our wallboard businesses, will continue to benefit from the drastic need for more housing in the United States.
Speaker Change: The affordability challenges facing today's potential homebuyers are being made worse by the lack of homes, and thus, we feel the underlying demand for residential construction will be positive for wallboard consumption.
Speaker Change: Regardless of the short-term demand picture, we continue to generate a significant amount of free cash flow and to focus on how we best invest our cash over cycles.
Speaker Change: Over the last five years, EGLE Materials has put over $3 billion of capital to work on a combination of high growth, high return projects, and capital returns through share buybacks.
Speaker Change: These investments include strategic organic investments to improve the reliability of our plants, including an upgrade to our Republic paper mill, as well as replacing or repairing critical equipment across our footprint to keep our plants in like-new condition.
Speaker Change: Investments in raw material reserves to ensure we have multi-decades of material close to our plants. This is a strategic operational initiative that results in a competitive advantage for EGLE.
Speaker Change: We also made several strategic inorganic investments to strengthen our low-cost position, including the acquisition of Cosmo Cement, several cement terminals, and multiple aggregate sites.
Speaker Change: We've made those organic and inorganic investments while maintaining a healthy leverage profile and reducing our outstanding shares by 30% through our share repurchase program.
Speaker Change: Our commitment to executing similar high-return initiatives through the cycle remains firm, as it has for many years.
Craig Kessler: Now let me turn it over to Craig to go through our financial results.
Craig Kessler: Thank you, Michael. Third quarter revenue was $558 million, a slight downtick from the prior year. The decline was driven by lower cement and concrete in aggregate sales volume, partially offset by higher wallboard and paperboard sales volume and pricing.
Craig Kessler: Third quarter earnings per share was $3.56. The quarterly EPS reflects lower earnings offset by a 3% reduction in fully diluted shares due to our share buyback program.
Craig Kessler: As we highlighted in the press release, we had one non-routine expense item during the quarter. It was $1.3 million of costs associated with business development and transaction-related activities.
Turning now to segment performance, highlighted on the next slide.
Craig Kessler: In our heavy materials sector, which includes our cement and concrete and aggregate segments, revenue declined 4% primarily because of lower cement sales volume, partially offset by cement sales price increases we implemented earlier this year.
Craig Kessler: Operating earnings were down 20% primarily because of the lower cement sales volume in addition to higher maintenance costs. As we previewed last quarter, we had major maintenance projects at two of our cement plants during the third quarter, which increased maintenance costs by approximately $8 million.
Craig Kessler: The work at both plants has been completed, improving the plant's long-term reliability. As Michael mentioned, we have cement price increases announced in nearly all of our markets for the first part of calendar 25.
Craig Kessler: Moving to the Light and Materials sector on the next slide.
Craig Kessler: Revenue in this sector increased 6%, reflecting higher wallboard and recycled paperboard sales volume and prices.
Craig Kessler: Wall board sales volume is up 2% and recycled paper board sales volume increased 7%.
Craig Kessler: In terms of prices, wallboard increased 4% and recycled paperboard 12%.
Craig Kessler: Operating earnings in the sector were also up 18% to $97 million, driven by the higher wall board and recycled paper board sales volume and higher wall board and paper board sales prices.
Looking now at our cash flow.
Craig Kessler: We continue to generate healthy cash flow and allocate capital in line with our strategic priorities and rigorous financial return criteria.
Craig Kessler: During the first nine months of the year, operating cash flow was $486 million. Capital spending increased to $147 million, primarily because of the modernization and expansion project at our Laramie, Wyoming cement plant.
Craig Kessler: We also acquired a small aggregates business for $25 million last quarter. The acquired operation is complementary to our existing aggregates business in Kentucky.
Craig Kessler: And finally, we repurchased nearly 800,000 shares of our common stock for $201 million in addition to paying our quarterly dividends, returning a total of $226 million to shareholders during the first nine months of the year.
Craig Kessler: We have approximately 5.1 million shares remaining under our current repurchase authorization.
Craig Kessler: And finally, a look at our capital structure, which continues to provide us significant financial flexibility. At December 31, 2024, our net debt-to-cap ratio was 40%, and our net debt-to-EBITDA leverage ratio was 1.2 times.
Craig Kessler: We ended the quarter with $31 million of cash on hand, bringing total committed liquidity at the end of the quarter to approximately $686 million, and we have no meaningful near-term debt maturities.
Craig Kessler: As Michael mentioned, subsequent to quarter end, we completed the previously announced acquisition of Bullskin, Stone & Lime, which we funded through a combination of cash on hand and borrowings under our bank credit facility.
Craig Kessler: Thank you for attending today's call. We'll now move to the question and answer session.
Dave?
Craig Kessler: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.
Craig Kessler: If at any time your question has been addressed and you would like to withdraw your question, please press star and then 2.
Speaker Change: Our first question comes from Trey Grooms with Stevens. Please go ahead.
Good morning, Craig and Michael. Thanks for taking my questions.
Speaker Change: one more kind of a one-off in that in that Pennsylvania market and then maybe bigger picture, you know the
Speaker Change: But again, you have been maybe a little more active recently on aggregates M&A. Is aggregates a place where we could expect you all to deploy more capital in a bigger way than you have historically? Or how should we be thinking about that in your approach there?
Yeah, Trey, I'll...
Speaker Change: And it's in a market that we already have a large quarry for our cement manufacturing. The one we procured actually was right down the road from that. It gives us just a little bit more flexibility.
Speaker Change: secures a couple different things. It lets us participate in the aggregate market there locally, and it also gives us secondary supply to our cement plant if it was ever needed. We have plenty of reserves at our existing quarry, but just it fit several strategic criteria for us.
Speaker Change: Up in Pennsylvania, you know, the Bullskin asset, you know, it's...
We are interested in those assets.
Got it.
Speaker Change: Any kind of directional expectations maybe that you could give us for the for overall kind of wallboard demand as we sit here today Is it fair to think?
Law Board.
Speaker Change: more significant changes on the rate front, or is there a more significant move expected? Any high-level thoughts there would be helpful. Thank you.
Speaker Change: That's right. Yeah, I think you actually hit the nail on the head.
Speaker Change: If you were to look at over the last four calendar years
Speaker Change: I think we finished calendar 24 around 27.3 billion square feet, and that number has been consistent.
And so, as you look forward, you know.
Speaker Change: Prior cycles, we've been well north of 30 billion square feet of consumption in the U.S.
Speaker Change: So we're still at pretty low levels of total consumption. We've just got, as Michael pointed out, you know, the affordability issue. Certainly interest rates are a part of that. But there's also good underlying demand. There's healthy employment here in the U.S., healthy wages.
Speaker Change: We would expect to see consumption and housing in total increase. We just got to see the affordability improvement.
Speaker Change: And the next question comes from Brent Thielman with DA Davidson. Please go ahead.
Brent Thielman: Hey, thanks. Good morning. Michael or Craig, I know you previously talked about the price increase in wallboard, you know, swayed it for November. You were going to delay that to the first part of 2025.
Brent Thielman: I mean, any update there? Are you still kind of taking the temperature of the market right now? Just be curious, any comments around that?
Craig Kessler: Yeah, Brent, we've got a price increase that we announced for here early February, so shortly after this call, frankly. So we try not to speculate on exact realization and whatnot, but we do have a price increase in the market, and we're going to move forward with that.
Brent Thielman: Got it. And then, I guess, Craig, in cement, I mean, obviously a pinch here on volume, which is related to the weather, I just was wondering any other extraordinary costs to flush out when we look at the margin in that segment from a year-on-year perspective? I don't know if there's extra maintenance costs or anything else like that in there?
Yes Brent, certainly and we talked about it last quarter.
Brent Thielman: 50-year-old pieces of equipment and the replacement of those so You know that was an eight million dollar headwind in this quarter So yeah, I would say this quarter had a unique
Speaker Change: cost impact from those programs, as Michael mentioned, you know, really about improving the long-term reliability of both of those facilities, and the team did a good job with those projects.
Speaker Change: Got it. This last one, I know we're only a month in, not a lot gets done this time of year anyway, but doesn't seem like some of these weather conditions have...
Speaker Change: abated from what I can see in the news. Just wondering if you can talk a little bit about that and the current quarter and how we ought to be approaching that as we sit here today.
Speaker Change: Most of the country is going through winter. This January is no different than that. Certainly lots of weather activity across the entire entirety of the US. So January always has those types of issues and this will be no different.
Speaker Change: And the next question comes from Anthony Petsanari with Citigroup. Please go ahead.
Speaker Change: Hi, this is Asher Sunanat for Anthony. So thanks for taking my question. Just on the cement side, can you provide some color maybe on early realization you might be seeing on the January hikes? And then have you had any initial conversations around mid-years or just the sense that customers might be bracing for it?
Speaker Change: You know, probably a little too early to speculate on a second round of a cement price increase.
Michael Haack: The as Michael mentioned our we've got price increases in most of our markets
Speaker Change: throughout the first part of calendar 25, not all of January.
some into the springtime as well.
Speaker Change: And as I said earlier, certainly with the weather that we've seen for the first part of January, we'll talk about what we realized as we get into the fourth quarter and go through those results. But it's kind of sporadic throughout the four quarters.
the springtime.
Got it. Got it. And then just I think
Speaker Change: If I strip out the increased maintenance costs of a quarter, it looks like maybe cement margins were roughly flat year-over-year, which is encouraging, you know, given the volume headwind. So I just, how should we maybe think about the margin opportunity for cement over the next couple quarters, you know, with no more maintenance headwind and, you know, potentially weather easing up?
Yeah, you know, again, we're
Speaker Change: Optimistic about going into the spring, you know, as we think about the construction activity and bidding activity that we see, you know, a lot of that, you know, again, we're down in volumes will be down for for the nine months, you know, we're down four or five percent.
Speaker Change: You know, again, a lot of that has been weather throughout calendar 24, it's been highlighted the lack of infrastructure spending coming out of IIJA, as those funds start to trickle through the system. You know, there's a reason to be optimistic, not just about calendar 25, but 26 and 27 as well.
Speaker Change: And, you know, improvement in volumes will certainly go a long way on the margin side as well. You know, and as you said, some of this maintenance has been pretty unique to this year and not necessarily repeatable next year.
Great, thanks. That's really helpful. I'll turn it over.
Jerry Revich: And the next question comes from Jerry Revich with Goldman Sachs, please go ahead
Yes, hi. Good morning, everyone.
Speaker Change: Michael, Craig, you know, the key question that folks have is really given the outstanding wall board.
margin performance and, you know, continuing soft...
Speaker Change: Resu data points, you know, people are asking what's different about
Speaker Change: The Wall Board pricing and margins in this cycle compared to, you know, the 2015 time frame where we saw
Speaker Change: on pricing giveback during a similar mid-cycle pause. Would love your thoughts on that and the level of comfort on the sustainability of the current margin structure in an uneven resi environment, if you don't mind.
Speaker Change: The industry has changed dramatically, and certainly the demand side is one point. And as I mentioned earlier, we've been stuck in neutral as it relates to home building here in the U.S. for quite some time, and therefore wallboard consumption has been...
been pretty consistent at pretty low levels, quite frankly.
Raw Material Issue
Speaker Change: You know, when you're talking about 2015, believe it or not, that's 10 years ago now.
And as we've seen, coal plant closures.
Speaker Change: Some of the synthetic gypsum inventory that had been on the ground has been used. And so, you know, you've seen a significant change in the cost structure as that raw material has become more difficult to find and further away, which now has increased transportation costs.
Speaker Change: you know, that were made many, many moons ago, and when it's a structural advantage for us, not everybody is in that well-positioned.
Brent Thielman: And Craig, you know, on that note, given the high cost position for some of the competitor base, any strategic opportunities emerging for you folks on the wall board side of business or is our capital deployment focus here still strictly on the heavy side?
Brent Thielman: and take advantage of the position that we have across our wallboard network. So we continue to look at those opportunities.
Brent Thielman: You know, with our facilities that are in the western part of the country that sit on decades worth of raw materials and gypsum, those are things that we continue to explore. How do we improve those facilities and take advantage of the cost position that we do have?
Speaker Change: And can we shift gears and talk about cement, so your shipments in the quarter, I thought were pretty good given the maintenance, you know, normally.
Brent Thielman: your shipments are down 20 percent sequentially, you are down just 17 percent sequentially. As we think about the cadence of demand into calendar 25,
Brent Thielman: in the second quarter and just would love to get your views on how that normal seasonality math stacks up versus your expectations for volumes in terms of top comp in the March quarter and then a very easy comp looks like in June.
Brent Thielman: particularly the hardest winter months, and January certainly proved that out here this year. But yeah, as you get into June and get into September, that's when the construction season really starts to kick off. And, you know, sitting here today, you know, I have optimism around the beginning of the construction season. So ready to get there.
Appreciate the conversation. Thank you.
Speaker Change: And the next question comes from Adam Thouheimer with Thompson Davis. Please go ahead.
Hey, good morning, guys.
Speaker Change: On cement prices, were there any push through in January or are those more for April?
Speaker Change: It's a combination across our plants, across our networks. Some markets are in January, some markets are going in April, some in between. So it's kind of across the board, depending upon the market that you're in.
Okay. And then, Craig, for Bullskin...
Speaker Change: How much should we add for aggregates, tonnage, and is their pricing kind of similar to your corporate average?
Speaker Change: You know, good question, Adam. Look, I would tell you from a pricing perspective I don't, you know, consistent with kind of the average across our markets. In terms of volume, we've owned it for less than a month here, so we'll give you a better update on volumes as we have a little more time with the business.
Speaker Change: Quite a bit in Q3. I'm curious, was that mechanical and that will reverse or...?
Is that kind of the new norm, over 600?
Speaker Change: Price improvement is a function of OCC prices earlier in the year, having been higher. OCC prices here in October, November, and December actually came down. And so as we go into the March quarter, you'll see that that pricing probably dip back below $600 a ton.
Speaker Change: Again, it's not a market change. It's just a function of the pricing mechanisms in the long-term contracts
Understood. Okay. Thanks, Craig.
Speaker Change: And the next question comes from Phil Ng with Jefferies. Please go ahead.
Phil Ng: Hey guys, there's been a lot of headlines with funding being paused whether it's for IJ or IRA since Trump has been back in office.
Phil Ng: I'm appreciating this is a super fluid situation. What's the Eagle House view and what this all means? Have you seen any noticeable positive activity projects? And then separately, if there are any tariffs potentially being implemented on cement, how do you think that actually impacts your business, good or bad?
Yeah, Phil on your first question
Here and recently...
Phil Ng: But as it relates to the things that matter to EGLE, we don't think there's much of an issue there. We get a lot of noise, but things that matter to EGLE, we would expect to see infrastructure continue and other construction activity continue.
in terms of, you know,
Phil Ng: you know, TBD, of course, but, you know, it would it would certainly impact the cost of
of imported product into the U.S.
Speaker Change: Super. But it doesn't sound like you've seen any positive projects on the public side thus far. I mean, I know there's not a lot getting done in the winter months of the year, but you haven't seen much activity slow down on that front?
No, no.
Speaker Change: Okay, super. And then on the wallboard side of things, you know, once again, the core was pretty impressive, the man was pretty resilient, and the way that you kind of characterize...
Speaker Change: this environment, you know, muted growth, but pretty steady. Is that what you're seeing on the order front as well? Because some of the distributors out there have talked about demand softening in single-family as well as commercial, but I think the way you've kind of messaged it seems pretty steady, but just want to make sure we're being thoughtful about this.
Speaker Change: Yeah, again, even though wallboard is an indoor sport, it's always hard to generate a lot of trend activity, whether it's orders, shipments in January, but we haven't seen any dramatic swings one way or the other within the wallboard business.
Appreciate all the great color, guys. Thank you.
Speaker Change: And the next question comes from Jonathan Bettenhausen with Truist Securities. Please go ahead.
Speaker Change: Hey guys, I'm on for Keith this morning. Thanks for taking my question. On WallBoard, it looks like the WallBoard volumes outperformed the industry manufacturer shipment number.
Speaker Change: What are the main drivers of that? Is this more of a regional focus or are there some share gains going on? Just any color here would be helpful.
Speaker Change: Our share hasn't changed much in the last five years. There are certainly regional activities that we benefit from just given our footprint in the southern part of the country where construction activity is generally more robust, so I think it's more of that.
Okay, that's helpful. Thank you.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Mr. Haack for any closing remarks.
Thank you, Dave.
Speaker Change: Next quarter marks the end of our fiscal year, and we look forward to reflecting on the year we had, while also laying out our strategic priorities for the year ahead.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.