Eagle Materials Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended September 30, 2021 (fiscal 2022 second quarter); unaudited. Eagle Materials supplies cement, concrete and aggregates, gypsum wallboard, and recycled paperboard in the United States.
Financial performance
| Metric | Quarter ended Sep. 30, 2021 | Six months ended Sep. 30, 2021 | Comparable prior period |
|---|---|---|---|
| Revenue | $509.7 million | $985.5 million | $447.7 million / $874.7 million |
| Gross profit | $155.3 million | $281.9 million | $122.8 million / $225.1 million |
| Gross margin | 30%, vs. 27% | 29%, vs. 26% | Prior-year periods |
| Continuing-operations earnings | $102.1 million | $197.5 million | $89.9 million / $187.0 million |
| Diluted continuing-operations EPS | $2.46 | $4.70 | $2.16 / $4.49 |
| Net earnings | $102.1 million | $197.5 million | $96.0 million / $192.2 million |
| Operating cash flow | Not stated for quarter | $261.5 million | $358.4 million |
| Capital expenditures | Not stated for quarter | $26.8 million | $40.7 million |
Quarterly revenue rose 14%, reflecting higher selling prices and volume; six-month revenue increased 13%. Six-month operating cash flow declined $96.9 million year over year, primarily from working-capital changes and lower joint-venture distributions. The filing attributes much of the comparison to a large prior-year income-tax receivable being applied in 2020. Cash, cash equivalents, and restricted cash fell to $45.2 million from $268.5 million at March 31, 2021.
Segments and changes versus prior year
- Cement: Quarterly operating earnings rose 11% to $88.8 million; six-month earnings rose 8% to $151.3 million. Higher prices more than offset higher energy, maintenance, and other costs; six-month cement volume was down 1%.
- Concrete and Aggregates: Quarterly operating earnings increased 43% to $7.5 million; six-month earnings increased 21% to $12.9 million. Higher concrete prices and volumes contributed to growth.
- Gypsum Wallboard: Quarterly operating earnings rose 76% to $66.3 million; six-month earnings rose 64% to $129.6 million, primarily on higher prices and volume. Freight, energy, and raw-material costs increased.
- Recycled Paperboard: Quarterly operating earnings fell 91% to $1.0 million; six-month earnings fell 68% to $4.3 million. Higher fiber and energy costs outpaced selling-price increases, which adjust under customer contracts at specified times.
Prior-year comparisons include items absent in fiscal 2022: a $52.0 million gain on the sale of Western Aggregates and Mathews in 2020, and earnings from discontinued Oil and Gas Proppants operations. Accordingly, six-month net earnings grew 3%, while continuing-operations earnings grew 6%.
Debt, liquidity, and capital allocation
- At September 30, total debt principal was $825.0 million; balance-sheet long-term debt, net of discounts and issuance costs, was $812.6 million. Cash was $45.2 million.
- On July 1, Eagle issued $750.0 million of 2.50% senior notes due 2031 and entered a new $750.0 million revolving facility due 2026. It repaid its $665.0 million term loan and subsequently redeemed $350.0 million of 4.50% notes due 2026, paying an $8.4 million early-retirement premium. Debt issuance-cost write-offs were $6.1 million.
- The revolver had $75.0 million drawn and $5.0 million of letters of credit, leaving $670.0 million available. The company reported compliance with financial covenants. Current assets were $472.1 million and current liabilities $188.6 million.
- Six-month financing included $247.8 million of share repurchases and $10.5 million of dividends. The quarterly dividend was reinstated in May 2021; future payments remain subject to board review.
- Management believes cash, operating cash flow, and available revolver capacity should cover anticipated needs for at least 12 months. Debt-to-capitalization was 38.7%; net-debt-to-capitalization was 37.4%.
Outlook, risks, and unusual items
- Management reported strong underlying construction demand but said supply-chain disruption was affecting customers. It expected energy and freight costs to rise further through the rest of fiscal 2022; about 50% of natural-gas needs for the remainder of the fiscal year were covered by forward purchase contracts.
- Management expected limited organic cement volume growth in fiscal 2022 because the integrated cement network was operating at high utilization. It noted that proposed federal infrastructure investment could support additional demand, conditional on passage.
- Higher recycled-paperboard fiber costs may pressure wallboard segment costs before contractual customer price adjustments take effect. The filing also cites cyclical and seasonal demand, weather, commodity pricing, transportation availability, raw-material and energy costs, operational interruptions, regulation, competition, and economic or pandemic-related disruption as risks.
- The filing states estimated capital expenditures of $90–$100 million and describes these as expected “for fiscal 2021,” although the report covers fiscal 2022. The period label is unclear and should be checked against the original filing.
- Management reported no pending legal proceeding expected to materially affect the company, no outstanding guarantees, and no significant deterioration in receivable collectability. It disclosed $5.0 million of contingent liabilities under letters of credit and $26.1 million of performance bonds, principally for reclamation and mining permits.
Important facts for investors to verify
- Confirm the capital-expenditure guidance period and whether the $90–$100 million estimate applies to fiscal 2022.
- Track recycled-paperboard margins and the timing and extent of contractual price increases relative to fiber and energy costs.
- Monitor energy, freight, supply-chain conditions, cement utilization and volume, and the seasonal working-capital cycle.
- Review debt levels, revolver availability, covenant compliance, and the impact of variable rates; a 100-basis-point increase on September 30 revolver borrowings would add about $0.8 million of annual interest expense.
- Assess the sustainability of repurchases and dividends alongside cash generation, planned capital spending, and liquidity.