Eagle Materials Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and first nine months ended December 31, 2022. Results are unaudited; dollar amounts are in U.S. dollars.
Business context
Eagle Materials manufactures and sells cement, concrete, aggregates, gypsum wallboard, and recycled paperboard across the United States. Its four reportable segments are Cement, Concrete and Aggregates, Gypsum Wallboard, and Recycled Paperboard. The company completed a readymix concrete and aggregates acquisition in April 2022 and a Nashville cement distribution terminal acquisition in September 2022.
Financial performance
| Metric | Three months | Nine months |
|---|---|---|
| Revenue | $511.5 million, up 10% | $1,677.9 million, up 16% |
| Gross profit / margin | $158.8 million / 31% | $503.9 million / 30% |
| Net earnings | $117.2 million, up 14% | $361.2 million, up 20% |
| Diluted EPS | $3.20, up 26% | $9.66, up 34% |
| Net interest expense | $8.9 million, up 58% | $24.8 million, approximately flat |
Revenue and gross profit growth primarily reflected higher selling prices, partly offset by increased operating costs. The nine-month effective tax rate was 22%, consistent with the prior-year period. Average diluted shares fell to 36.6 million for the quarter and 37.4 million year to date, from 40.5 million and 41.5 million, respectively, reflecting share repurchases.
- Segment performance: Quarterly Cement revenue declined 2% and operating earnings fell 9%, with lower volumes due in part to difficult weather and low inventory; higher energy and maintenance costs pressured results. Gypsum Wallboard revenue rose 30% and operating earnings 44%, driven mainly by higher prices and volume. Concrete and Aggregates operating earnings declined 35% in the quarter, while Recycled Paperboard operating earnings increased 232%, helped by lower fiber costs.
- Cash flow: Nine-month operating cash flow was $480.1 million, versus $428.9 million a year earlier. Capital expenditures were $61.0 million. Investing cash outflow was $219.4 million, including $158.5 million of acquisition spending. Cash increased $41.5 million to $60.9 million.
- Debt and liquidity: Total debt principal was $1.075 billion at December 31, 2022, including $750 million of 2.5% notes due 2031, $195 million of term loans, and $130 million drawn on the revolving facility. Cash was $60.9 million; balance-sheet debt, net of discounts and issuance costs, was $1.064 billion. The revolver had $613.6 million available after letters of credit; the company reported compliance with its financial covenants. Debt-to-capitalization was 48.0% and net-debt-to-capitalization 46.5%. Management said available resources should meet anticipated needs for at least 12 months.
- Capital returns: The quarterly dividend was $0.25 per share; dividends paid during the nine months totaled $28.4 million. The company repurchased 2.55 million shares for $313.9 million during the nine-month period.
Outlook, risks, and unusual items
Management described regional construction markets as resilient, with strong demand in major business lines despite inflation, supply-chain and transportation constraints, higher interest rates, and adverse quarter-end weather. Cement was described as near sold out, with limited scope for further volume growth at existing facilities; management expected infrastructure funding and private nonresidential construction to support demand. Wallboard shipments and orders were steady, but higher mortgage rates could weigh on future housing activity. Management expected solid-fuel and electricity costs, important to cement production, to increase in fiscal 2024; natural gas costs had recently declined and freight costs had stabilized.
Fiscal 2023 capital expenditures were projected at $90–$100 million. The ConAgg acquisition contributed $34.7 million of nine-month revenue and $1.3 million of operating earnings; its quarter operating result was a $0.3 million loss. The Terminal acquisition’s purchase-price allocation remained preliminary. Management identified cyclical and seasonal demand, weather, selling prices, energy and freight costs, operational downtime, interest rates, regulation, and acquisition integration among the risks. It did not expect pending legal proceedings to materially affect financial condition, results, or liquidity. Outstanding performance bonds were $26.9 million; no material claims were reported.
Important facts for investors to verify
- Whether cement demand, volumes, and pricing hold up given weather effects, high utilization, and regional construction conditions.
- Whether wallboard demand and pricing withstand higher mortgage rates and any slowdown in residential construction.
- How inflation, energy, maintenance, freight, and raw-material costs affect margins, particularly the expected fiscal 2024 cement energy-cost increases.
- Final purchase accounting and ongoing performance of the ConAgg and Nashville terminal acquisitions.
- Revolver borrowing, variable-rate interest exposure, covenant headroom, and capital allocation across repurchases, dividends, and investment.