Eagle Materials Inc. — Form 10-Q Summary
Business context and period. This unaudited report covers the three months ended June 30, 2023, Eagle Materials’ first quarter of fiscal 2024, compared with the same quarter of fiscal 2023. The company makes and sells cement, concrete and aggregates, gypsum wallboard, and recycled paperboard, primarily in the United States. Results may be seasonal and cyclical.
Financial performance
| Metric | Quarter ended June 30, 2023 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $601.5 million | $561.4 million | +7% |
| Gross profit | $176.0 million | $150.9 million | +17% |
| Gross margin | 29% | Not stated | Expanded |
| Earnings before income taxes | $155.4 million | $136.2 million | +14% |
| Net earnings | $120.8 million | $105.0 million | +15% |
| Diluted earnings per share | $3.40 | $2.75 | +24% |
| Net cash from operating activities | $140.5 million | $124.8 million | +$15.7 million |
Higher selling prices were the main driver of improved revenue and gross profit; lower sales volume and higher operating costs partly offset the benefit. Interest expense rose 67% to $12.2 million, mainly because of higher average revolving-credit borrowings and interest rates. The effective tax rate was 22%, versus 23% a year earlier.
Segment results
- Cement: Segment revenue including intersegment and joint-venture amounts increased 16% to $329.0 million; operating earnings increased 19% to $74.1 million. Sales volume rose 1% and average net sales price per ton rose 15%. Higher maintenance and energy costs offset part of the pricing benefit.
- Concrete and Aggregates: Revenue including intersegment amounts increased 14% to $70.5 million and operating earnings rose 23% to $7.0 million. Concrete volume declined 5%, while aggregate volume increased 46%, including the effect of Battletown Aggregates.
- Gypsum Wallboard: Revenue rose 1% to $219.1 million despite a 4% volume decline; higher prices lifted operating earnings 8% to $90.9 million. Operating margin was 41%.
- Recycled Paperboard: Revenue including intersegment amounts declined 16% to $45.3 million, primarily due to lower selling prices. Operating earnings increased 89% to $7.2 million as lower fiber and freight costs more than offset price pressure. Operating margin was 16%.
Balance sheet, cash flow, and capital
- At June 30, 2023, cash was $53.1 million, total assets $2.916 billion, and stockholders’ equity $1.238 billion. Current assets were $616.0 million and current liabilities $229.7 million.
- Total debt was $1.162 billion, including $222.0 million drawn on the revolving facility, a $190.0 million term loan, and $750.0 million of 2.5% senior notes due 2031. The company had $519.7 million of available revolver capacity after letters of credit and reported compliance with financial covenants.
- Debt-to-capitalization was 48.4%; net-debt-to-capitalization was 47.2%. Management said available cash, operating cash flow, and revolver capacity should cover anticipated needs for at least 12 months.
- Operating cash flow was $140.5 million. Investing activities used $91.1 million, including $36.0 million of capital expenditures and $55.1 million for the Stockton Terminal acquisition. Financing activities used $11.5 million, including $74.1 million for share repurchases and $9.0 million in dividends, partly offset by $65.0 million of additional revolver borrowings and $10.4 million from option exercises.
- Fiscal 2024 capital expenditures were expected to range from $145 million to $165 million. The quarterly dividend was $0.25 per share.
Material changes, outlook, and risks
- Revenue increased 7%; management attributed the increase mainly to higher gross selling prices, partly offset by lower volume. Excluding Battletown Aggregates and Stockton, revenue increased 6%.
- On May 3, 2023, Eagle acquired the Stockton, California cement import terminal for approximately $55.1 million, funded with revolver borrowings. Its preliminary purchase-price allocation includes $14.0 million of goodwill and remains subject to finalization. Included post-acquisition results were $6.5 million revenue and a $1.9 million operating loss; the loss included acquired-inventory fair-value expense and depreciation and amortization.
- Management described end markets as resilient despite higher interest rates and persistent inflation. Cement was near sold out, with limited ability to increase volume at existing facilities; wallboard shipments and orders remained historically strong despite declining 4% year over year. Management cited infrastructure funding and industrial projects as cement demand supports.
- Cost outlook was mixed: natural gas costs had declined and freight costs stabilized, while solid-fuel costs were expected to rise in fiscal 2024 and maintenance inflation was expected to continue into fiscal 2025. OCC fiber prices were expected to remain relatively flat in the near term.
- No specific full-year earnings or revenue guidance was provided. The filing identifies risks including construction cyclicality and seasonality, interest rates, energy and transportation costs, operational downtime and maintenance, weather, regulation, competition, and acquisition integration. A 100-basis-point increase in rates on the term loan and revolver borrowings outstanding at quarter-end would increase annual interest expense by approximately $4.1 million.
- The company reported no material pending legal proceeding in management’s view. It disclosed $8.3 million of standby letters of credit and $28.2 million of performance bonds, principally tied to insurance and mining-related obligations.
Important facts for investors to verify
- Whether pricing strength and strong cement demand persist, and whether volume changes affect future margins.
- Whether higher solid-fuel, maintenance, and financing costs offset pricing gains; monitor variable-rate debt and covenant headroom.
- The final Stockton purchase-price allocation and the terminal’s operating performance after the disclosed initial operating loss.
- Execution and funding of the $145–$165 million fiscal 2024 capital expenditure plan alongside repurchases, dividends, and debt service.
- Whether working-capital movements, including receivables and acquired inventory, convert into sustained operating cash flow.