Eagle Materials Inc. — Form 10-K Summary
Reporting period: Fiscal year ended March 31, 2021, compared with fiscal 2020. Although the request references 2020 Q4, this filing is an annual report; fiscal fourth-quarter figures are noted below. Dollar amounts are in millions unless stated otherwise.
Business context
Eagle Materials supplies construction materials across the United States through Heavy Materials (cement, concrete and aggregates) and Light Materials (gypsum wallboard and recycled paperboard). Results are seasonal and cyclical, reflecting construction activity, weather, regional economic conditions and infrastructure spending.
Financial performance and liquidity
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $1,622.6 | $1,404.0 | +16% |
| Gross profit | $408.4 | $342.7 | +19% |
| Gross margin | 25% | 24% | +1 percentage point |
| Continuing-operations net earnings | $334.2 | $231.2 | +45% |
| Diluted EPS from continuing operations | $7.99 | $5.47 | +46% |
| Net earnings | $339.4 | $70.9 | +379% |
| Cash from operating activities | $643.1 | $399.3 | +61% |
Reported revenue grew 16%; excluding acquisitions and dispositions, revenue rose 5%, driven by higher prices and volumes. Net earnings growth also reflects a $52.0 million gain on the sale of Western Aggregates and Mathews, and comparison with FY2020, which included substantial impairment losses in discontinued operations. FY2021 continuing-operations tax expense was $89.9 million (21% effective rate), versus $24.5 million (10%) in FY2020; the prior-year rate benefited from the CARES Act.
Cash from operations included favorable working-capital movements, notably a $125.6 million income-tax refund and lower inventory. Capital expenditures were $53.9 million, down from $132.1 million. Cash and cash equivalents were $263.5 million at year-end, plus $5.0 million restricted cash. Total debt was $1,015.0 million: $665.0 million term loan and $350.0 million notes; the revolving facility had no borrowings. The company repaid $560.0 million of revolver borrowings during the year. Available revolving capacity, net of letters of credit, was $745.7 million, for reported total liquidity of approximately $1,009.2 million. Debt-to-capitalization was 42.8%, versus 61.7% a year earlier.
Segment results and material changes
- Cement: revenue increased 26% and operating earnings 29% to $234.0 million, principally reflecting the Kosmos acquisition. Sales volume rose 26% including Kosmos; organic volume increased 1%. Average net sales price per ton increased 1%.
- Concrete and Aggregates: revenue declined 8% and operating earnings increased 9% to $19.1 million. Disposition of the northern California operations affected comparability; excluding acquisitions and dispositions, revenue rose 5%.
- Gypsum Wallboard: revenue increased 6% and operating earnings 8% to $167.3 million. Shipments rose 6%, while average net sales price was up 1%.
- Recycled Paperboard: reported segment revenue increased 2%, but net revenue declined 2%; operating earnings fell 27% to $25.4 million. Higher fiber and depreciation costs and mill start-up inefficiencies weighed on results.
In the fiscal fourth quarter, revenue was $343.3 million versus $305.2 million, while continuing-operations net earnings were $66.0 million versus $69.3 million; diluted continuing-operations EPS was $1.56 versus $1.67. Winter Storm Uri curtailed production and shipments and raised energy costs.
Outlook, commentary, risks and unusual items
- Management reported resilient markets and said the company was positioned to meet customer needs. The PCA forecast U.S. cement consumption growth of approximately 2% for calendar 2021; management expected organic cement volume growth to be limited by high utilization. Residential housing starts were expected to remain strong.
- FY2022 capital expenditures were estimated at $80–$100 million. Management expected freight costs to increase approximately 5%; it also expected paper/fiber costs to rise, and a local utility had requested an electricity-rate increase whose amount was not yet determined. The filing provides no company earnings or revenue guidance.
- Winter Storm Uri’s estimated FY2021 fourth-quarter effects included approximately $6.0 million of additional cement costs, $2.8 million of lower wallboard operating earnings, and $3.2 million of lower paperboard operating earnings. Responsibility for certain storm-related charges remained under discussion with counterparties, so the final impact was not determined.
- After the reporting year, the Board announced on May 19, 2021 that it would not pursue the planned separation of Heavy and Light Materials at that time, while retaining periodic review of strategic alternatives. The Board also reinstated the quarterly dividend and declared $0.25 per share for payment in July 2021. No shares were repurchased in FY2021.
- Key risks include construction-cycle and seasonal demand, adverse weather, commodity pricing and fuel/energy costs, customer and supplier concentration in certain businesses, environmental permitting and potential greenhouse-gas regulation, operating interruptions, labor disputes, and debt covenants. Three customers represented approximately 35% of wallboard segment sales; two external paperboard customer contracts represented approximately 50% of paperboard segment revenue.
- Management stated that pending legal proceedings were not expected to have a material effect based on currently available facts. The company disclosed $24.3 million of performance-bond exposure, primarily for reclamation and mining permits, and $4.3 million of outstanding letters of credit. It reported compliance with debt covenants and liquidity sufficient for anticipated needs for at least 12 months.
Important facts for investors to verify
- How much of revenue, earnings and cement-volume growth came from Kosmos and other portfolio changes versus organic performance.
- The recurring earnings and cash-flow contribution after removing the $52.0 million divestiture gain and the effects of prior-year impairments and CARES Act tax benefits.
- Whether fiber, freight, fuel and electricity cost increases can be offset by pricing, and the outcome of the utility-rate request.
- The final allocation of Winter Storm Uri charges and whether any related costs or recoveries affect subsequent periods.
- Debt repayment, covenant headroom and liquidity as the $665.0 million term loan approaches its August 2023 maturity; the filing reports variable-rate exposure.
- Customer-contract renewal and concentration exposure in Recycled Paperboard, and environmental permitting or emissions developments affecting operating sites.
The independent auditor issued an unqualified opinion on the consolidated financial statements and an unqualified opinion on internal control over financial reporting.