Business Context and Reporting Period
This Form 10-Q covers Centex Construction Products, Inc. (CXP) for the quarter and nine months ended December 31, 1998. The company operates in the cement, gypsum wallboard, and concrete/aggregates sectors. As of February 9, 1999, 19,930,965 shares of common stock were outstanding, with Centex Corporation owning 60.0% of the outstanding shares.
Key Financial Metrics
Quarter Ended December 31, 1998 (vs. Prior Year)
- Revenues: $84.9 million (up 20% from $70.5 million).
- Net Earnings: $20.3 million (up 54% from $13.2 million).
- Earnings Per Share (Diluted): $0.99 (up 65% from $0.60).
- Operating Margins: Improved across all segments; Cement margin rose to $28.71/ton, Gypsum to $49.45/MSF.
Nine Months Ended December 31, 1998 (vs. Prior Year)
- Revenues: $256.5 million (up 11% from $231.9 million).
- Net Earnings: $60.0 million (up 30% from $46.1 million).
- Earnings Per Share (Diluted): $2.84 (up 37% from $2.08).
- Cash Flow from Operations: $82.5 million (up from $73.5 million).
- Capital Expenditures: $23.5 million (up significantly from $7.5 million due to expansion projects).
- Stock Repurchases: $54.2 million spent on retiring common stock.
Liquidity and Debt
- Cash and Equivalents: $66.8 million as of December 31, 1998.
- Working Capital: $73.4 million (down from $77.7 million at March 31, 1998).
- Debt: The company maintains a "virtually debt-free" balance sheet with $0.48 million in long-term debt and $0.08 million in current portion of long-term debt. A $35 million unsecured revolving credit facility is available.
Material Changes and Drivers
The company reported record earnings and revenues for both the quarter and the nine-month period. Growth was driven by a strong national economy, increased consumption in cement and gypsum wallboard, and favorable pricing.
- Cement: Revenues up 22% for the quarter due to a 5.7% price increase and 15% volume increase (driven by unseasonably warm weather).
- Gypsum Wallboard: Revenues up 23% for the quarter; operating earnings up 91% due to volume gains and a 14% price increase. Cost of sales declined due to the absence of a $2.0 million asset disposition provision recorded in the prior year.
- Concrete/Aggregates: Revenues up 11% for the quarter; earnings up 66% driven by higher sales prices and volume in aggregates.
- Share Count: Diluted EPS growth outpaced net earnings growth due to a significant reduction in average shares outstanding from stock repurchases.
Outlook, Risks, and Contingencies
Management Outlook
Management expects a fifth consecutive year of record financial performance, assuming no significant change in the economic climate. Key expansion projects include the Eagle gypsum wallboard plant (completion expected Q1 FY2000) and a 4,000 horsepower cement mill in Illinois (start-up expected Q2 FY2000).
Risks and Contingencies
- Year 2000 Compliance: The company is actively managing Y2K compliance. Financial systems are being remediated by March 31, 1999, and non-financial systems by September 30, 1999. While the company believes a material adverse effect is unlikely, risks remain regarding third-party providers (utilities, transportation, raw materials) failing to be compliant.
- Market Risks: Performance depends on home building activity, infrastructure spending, raw material costs, and interest rates.
- Inventory Levels: Finished cement inventory was down at period-end due to low production rates earlier in the year and delayed contract starts, though demand remains strong.
Investor Verification Checklist
- Verify the sustainability of the 14% price increase in Gypsum Wallboard and 5.7% increase in Cement prices.
- Confirm the status of the $54.2 million stock repurchase program and remaining authorization (approx. 348,000 shares).
- Monitor the timeline and budget adherence for the Eagle gypsum and Illinois cement expansion projects.
- Assess the progress of Year 2000 compliance testing for third-party vendors and utilities.
- Review the impact of the $23.5 million capital expenditure increase on future depreciation and cash flow.