Eagle Materials Inc. — Form 10-Q Summary
Business context and reporting period. This unaudited filing covers the fiscal third quarter and first nine months ended December 31, 2021, compared with the corresponding 2020 periods. Eagle Materials supplies construction and building materials through Cement, Concrete and Aggregates, Gypsum Wallboard, and Recycled Paperboard segments. The company reported strong demand but noted seasonal and cyclical exposure.
Financial performance
| Metric | Quarter ended Dec. 31, 2021 | Nine months ended Dec. 31, 2021 |
|---|---|---|
| Revenue | $462.9 million, up 14% | $1,448.4 million, up 13% |
| Gross profit | $138.6 million, up 22% | $420.4 million, up 24% |
| Gross margin | 30%, versus 28% | 29%, versus 26% |
| Net earnings | $102.5 million, up 26% | $299.9 million, up 10% |
| Diluted continuing-operations EPS | $2.53, up 30% | $7.23, up 12% |
| Operating cash flow | Not provided for the quarter | $428.9 million, versus $542.0 million |
| Capital expenditures | Not provided for the quarter | $55.2 million, versus $45.5 million |
Quarterly revenue gains reflected higher prices (about $52.1 million) and volume (about $6.2 million). For the nine-month period, higher prices contributed about $141.2 million and higher volume about $27.9 million. The company’s share of joint-venture earnings declined 15% in the quarter and 13% year to date.
Segment developments
- Cement: Quarterly revenue rose 12% and operating earnings 13%; nine-month operating earnings rose 10%. Higher pricing supported results, while energy and maintenance costs increased. Management expects limited organic cement volume growth in fiscal 2022 because the network is operating at high utilization.
- Concrete and Aggregates: Quarterly revenue fell 3% and operating earnings fell 19%, primarily reflecting lower aggregates volume and higher costs. Nine-month revenue and operating earnings increased 4% and 8%, respectively.
- Gypsum Wallboard: Quarterly revenue rose 21% and operating earnings 49%; nine-month revenue rose 27% and operating earnings 59%. Higher selling prices more than offset cost increases, although freight, energy, and raw-material costs rose.
- Recycled Paperboard: Quarterly revenue rose 26%, but operating earnings fell 67%; nine-month revenue rose 15%, while operating earnings fell 68%. Higher fiber and energy costs outpaced pricing; contractual price adjustments may lag cost changes.
Financial position, cash flow, and capital allocation
- At December 31, 2021, cash and cash equivalents were $17.4 million, compared with $263.5 million at March 31, 2021. Working capital was $221.7 million.
- Debt was $850.0 million gross, or $837.9 million net of unamortized discounts and issuance costs, versus $1,015.0 million gross at March 31. Debt-to-capitalization was 41.0%; net-debt-to-capitalization was 40.5%.
- The company had $645.0 million available under its $750.0 million revolving facility after $100.0 million of borrowings and $5.0 million of letters of credit. It was in compliance with financial covenants.
- In July 2021, Eagle issued $750.0 million of 2.500% senior notes due 2031, repaid its $665.0 million term loan, and redeemed $350.0 million of 4.500% notes due 2026. The refinancing resulted in an $8.4 million early-retirement premium and a $6.1 million debt-cost write-off.
- Financing cash outflow included $436.0 million of share repurchases and retirements and $20.5 million of dividends paid. The company repurchased 2.92 million shares during the nine months. It reinstated its quarterly dividend in May 2021; future payments remain subject to board approval.
- Fiscal 2022 capital expenditures were estimated at $80–$90 million. Management stated that cash flow, cash on hand, and available revolver capacity should fund anticipated needs for at least the next 12 months.
Outlook, risks, and unusual items
Management said underlying market conditions were strong in calendar 2021 and expected demand to remain strong in calendar 2022, supported in part by the Infrastructure Investment and Jobs Act. Supply-chain disruption had adversely affected some customers. Energy and freight costs rose across businesses in the fiscal third quarter, with further increases anticipated through the rest of fiscal 2022; forward contracts covered about 50% of remaining fiscal-year natural gas needs. Higher old corrugated container prices pressured paperboard costs, while customer contract escalators may provide only delayed, partial relief.
Key risks cited include cyclical and seasonal construction demand, weather, commodity pricing, energy and transportation costs, raw-material availability, operational interruptions, competition, regulation, interest rates, customer nonpayment, and pandemic or other economic disruption. The company reported $25.9 million of performance bonds, primarily for reclamation and mining permits, and $5.0 million of contingent liabilities under letters of credit. Management did not expect pending legal proceedings or indemnifications to have a material adverse effect. The prior-year comparison includes a $52.0 million gain from the sale of Western Aggregates and Mathews and $5.3 million of discontinued-operations earnings; neither item recurred in the current nine-month period.
Important facts for investors to verify
- Whether price increases continue to offset inflation in energy, freight, maintenance, and raw materials—especially fiber costs in Recycled Paperboard.
- Whether demand and pricing remain strong, and how high cement utilization constrains volume growth.
- Cash generation and liquidity after substantial share repurchases, given the decline in cash and the reliance on the revolving facility as a committed external funding source.
- Execution of the $80–$90 million fiscal 2022 capital expenditure plan and continued compliance with debt covenants.
- The timing and effectiveness of contractual price escalators and natural-gas hedges in mitigating cost pressure.