Eagle Materials Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended March 31, 2023; comparisons are primarily with fiscal 2022. The filing is an annual report, not a standalone fourth-quarter report.
Business context
Eagle Materials manufactures cement, ready-mix concrete and aggregates, gypsum wallboard, and recycled paperboard in the United States. Its four reporting segments are Cement, Concrete and Aggregates, Gypsum Wallboard, and Recycled Paperboard. Demand is cyclical and seasonal, tied to construction activity, weather, interest rates, and infrastructure spending.
Financial results and liquidity
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Revenue | $2,148.1 million | $1,861.5 million | +15% |
| Gross profit | $639.3 million | $519.6 million | +23% |
| Gross margin | 29.8% | 27.9% | +190 basis points |
| Net earnings | $461.5 million | $374.2 million | +23% |
| Diluted EPS | $12.46 | $9.14 | +36% |
| Operating cash flow | $541.7 million | $517.2 million | +$24.6 million |
| Capital expenditures | $110.1 million | $74.1 million | +$36.0 million |
Higher selling prices drove much of the revenue and earnings growth; higher costs partly offset those gains. FY2023 interest expense, net, was $35.2 million, up 14%, mainly reflecting higher rates on revolving-credit and term-loan borrowings. Cash and cash equivalents were $15.2 million at year-end, versus $19.4 million a year earlier. Working capital was $308.6 million.
Total debt was $1,099.5 million at March 31, 2023, including $750 million of 2.5% senior notes due 2031, $192.5 million on the term loan, and $157 million on the revolver. The company reported $586.6 million of available revolver capacity, net of letters of credit, and compliance with its debt covenants. Debt-to-capitalization was 48.1%, compared with 45.6% in FY2022. Management said cash, operating cash flow, and available borrowing capacity were expected to cover anticipated needs for at least 12 months.
Share repurchases totaled approximately $387.7 million for 3.1 million shares; dividends paid were $37.5 million. The annual dividend was $1.00 per share.
Segment performance and material changes
- Cement: Revenue, including intersegment and joint-venture amounts, rose 7% to $1,074.1 million; operating earnings rose 7% to $278.8 million. Sales volume fell 5%, while average net sales price increased 13%. Higher energy, maintenance, and purchased-cement costs offset pricing gains.
- Concrete and Aggregates: Revenue rose 35% to $239.5 million, including $44.5 million from the ConAgg acquisition. Operating earnings were $18.3 million, down 1%, as higher material, maintenance, and delivery costs offset pricing and volume gains.
- Gypsum Wallboard: Revenue rose 26% to $872.5 million; operating earnings increased 35% to $352.5 million. Sales volume rose 4%, average net sales price rose 22%, and operating margin increased to 40% from 38%.
- Recycled Paperboard: Revenue including intersegment sales rose 4% to $201.3 million, but external revenue declined 3% to $108.4 million. Operating earnings doubled to $25.2 million, primarily on higher prices and lower fiber costs.
Two FY2023 acquisitions expanded the business: a northern Colorado concrete and aggregates operation for approximately $120.2 million and a Nashville cement terminal for approximately $39.5 million. A Stockton, California cement import terminal was acquired on May 3, 2023, after year-end, for inclusion in FY2024. A May 2022 credit-facility amendment added a $200 million term loan and extended the facility to May 2027.
Outlook, risks, and unusual items
- Management expected cement demand to remain strong, supported by infrastructure funding, state projects, and heavy industrial construction; it noted limited scope for additional sales volume from existing facilities operating at high utilization. The Portland Cement Association forecast a modest decline in U.S. cement consumption in calendar 2023.
- Wallboard orders and shipments were described as resilient, but management reported a modest shipment decline early in FY2024 and cited higher mortgage rates as a risk. Home-construction backlogs were expected to cushion the effect, though magnitude and duration were uncertain.
- FY2024 capital expenditures were forecast at $145–$165 million. Management expected solid-fuel costs to rise, affecting Cement; freight costs were expected to increase about 5%–10%. Natural gas prices had recently declined, and the company had forward purchases covering approximately 30% of anticipated FY2024 natural gas use.
- Environmental regulation is a significant contingency. EPA actions on interstate ozone emissions could require additional controls, capital spending, and operating costs at certain cement plants, or potentially constrain operations. Eagle and several states challenged related EPA state-plan disapprovals; outcomes and financial effects were not predictable. The company anticipated $7.5 million of FY2024 Cement environmental-compliance spending and $10 million for a paperboard water-treatment project.
- Other key exposures include construction downturns, seasonal or severe weather, inflation and interest rates, energy and transport costs, commodity-price competition, operating disruptions, permitting and mining rights, and cyber incidents. Three customers represented approximately 45% of Gypsum Wallboard segment sales; two external paperboard customer contracts represented approximately 50% of that segment’s revenue and expire within two to three years.
- About 30% of FY2023 cement sales volume was lower-carbon Portland Limestone Cement (PLC); management planned to continue the transition in FY2024. The company also received U.S. Department of Energy funding to design, build, and operate a cryogenic carbon-capture engineering-scale process at its Sugar Creek plant.
- The filing reports no material effect on consolidated financial condition, results, or liquidity expected from currently pending legal proceedings, based on management’s assessment. The financial statements received an unqualified audit opinion, and the auditor identified inventory existence and measurement as a critical audit matter. No goodwill impairment was recorded in FY2023.
Important facts for investors to verify
- Whether higher prices continue to offset inflation in fuel, freight, materials, maintenance, and labor, particularly in Cement.
- Whether cement and wallboard demand, volumes, and pricing track management’s outlook amid higher interest rates and construction-market cyclicality.
- The outcome and potential cost of EPA ozone-related litigation and any resulting plant-control requirements or operating restrictions.
- Whether customer concentration and the renewal or replacement of paperboard supply contracts create revenue or margin risk.
- Debt levels, variable-rate exposure, covenant headroom, and the availability of revolver capacity as acquisitions, buybacks, dividends, and capital spending continue.
- Post-acquisition performance and integration, including whether acquired operations deliver expected returns; FY2023 ConAgg contributed $44.5 million of revenue and $1.6 million of operating earnings.