Eagle Materials Inc. — Fiscal 2020 Form 10-K
Business context and reporting period. This 10-K covers the fiscal year ended March 31, 2020; it is not a calendar-year or standalone “2019 Q4” filing. Eagle supplies cement, concrete and aggregates, gypsum wallboard, recycled paperboard, and frac sand in the United States. Demand is cyclical and seasonal. The filing reports fiscal fourth-quarter results separately below.
Financial performance and key metrics
- Revenue: $1.451 billion, up 4% from $1.393 billion. Acquisitions contributed about $32.2 million; excluding acquisitions, higher volume was partly offset by lower average prices.
- Profit: Gross profit was $331.3 million, up 1%, with a 23% gross margin, unchanged. Pretax earnings fell 43% to $45.7 million. Net earnings were $70.9 million, up 3%, and diluted EPS was $1.68, up 14%.
- Tax and unusual items: Net earnings included a $25.2 million income-tax benefit, including a $31.7 million discrete benefit from CARES Act net-operating-loss carrybacks. Results also included $224.3 million of Oil and Gas Proppants impairment charges; fiscal 2019 included $220.3 million of such charges.
- Fiscal Q4: Revenue was $315.4 million, gross profit $63.9 million, net earnings $72.4 million, and diluted EPS $1.74. The quarter included the CARES Act tax benefit and costs related to separation/business development, Kosmos outage and purchase accounting, and the paper mill expansion.
- Cash flow and investment: Operating cash flow was $399.3 million, versus $350.3 million. Capital expenditures were $132.1 million, versus $168.9 million. Cash used in investing was $831.1 million, largely reflecting $699.4 million of acquisition spending.
- Liquidity: Cash and equivalents were $118.6 million; working capital was $508.5 million. The company reported $183.5 million available under its revolving credit facility, net of letters of credit, at year-end.
- Debt: Total debt was $1.575 billion, compared with $696.5 million a year earlier, principally following the Kosmos acquisition and increased revolver borrowing. Debt-to-capitalization was 61.7%, versus 36.4%. The company was in compliance with its financial covenants at March 31, 2020.
Material changes versus prior year
- Segment results: Cement revenue rose 15% to $752.0 million and operating earnings rose 10% to $181.3 million, driven mainly by higher volume. Concrete and Aggregates revenue rose 30% to $182.8 million, partly due to the ConAgg acquisition. Gypsum Wallboard revenue fell 5% to $508.1 million and operating earnings fell 14% to $154.6 million, primarily because net selling price declined 8%. Recycled Paperboard revenue fell 5% to $160.0 million; operating earnings were nearly flat at $35.0 million. Oil and Gas Proppants revenue declined 44% to $46.8 million; the segment reported a $14.6 million operating loss, excluding impairment charges.
- Acquisitions and divestitures: Eagle acquired Kosmos Cement for approximately $668.9 million in March 2020 and a concrete-and-aggregates business for approximately $30.4 million in August 2019. After year-end, it sold Western Aggregates and Mathews Readymix for approximately $93.5 million, subject to closing adjustments.
- Capital allocation: Eagle repurchased 3.57 million shares for approximately $313.9 million during fiscal 2020. The quarterly dividend was $0.40 per share for the year; after year-end, the company announced future dividends would be suspended.
Outlook, risks and other notable items
- COVID-19: Management said the pandemic had not significantly affected fiscal 2020 results because of its timing, but expected subsequent-period effects were uncertain. Potential impacts include weaker construction demand, delayed or cancelled projects, supply-chain disruption, and pressure on customer collections. Most new drilling activity had been suspended since March 2020, sharply weakening frac-sand demand.
- Guidance: Fiscal 2021 capital expenditures were expected to be $60–$70 million, focused on critical maintenance, safety, and regulatory projects. The Portland Cement Association forecast approximately 2% growth in calendar-2020 U.S. cement consumption, but Eagle cautioned that pandemic effects made the outlook uncertain.
- Business plans: Eagle remained committed to separating Heavy Materials and Light Materials into two public companies through a tax-free spin-off, but timing was uncertain. It was also evaluating alternatives for Oil and Gas Proppants, including a sale, curtailment, or closure; no sale or significant proceeds were assured.
- Other pressures: In-basin sand substitution and oil-market volatility threaten frac-sand demand. Recycled-paper costs faced pressure as OCC prices rose from $45 per ton in March 2020 to $120 in May. Environmental requirements, permitting, weather, energy and transport costs, and debt covenants are additional risks.
- Audit and controls: Ernst & Young issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting. The audit excluded controls over the acquired Kosmos assets, which represented 23% of year-end assets and less than 1% of fiscal-year revenue.
Investor facts to verify
- How COVID-19 affected subsequent-quarter volumes, pricing, cash generation, receivable collections, and construction activity.
- Whether Eagle maintained covenant compliance and adequate liquidity after the increase in debt; review facility availability, maturities, rates, and restrictions.
- Whether the $31.7 million CARES Act tax benefit and related tax positions, including the $4.2 million reserve, were ultimately realized or revised.
- Progress and costs of the planned spin-off, and the eventual disposition or closure plan and additional impairment exposure for Oil and Gas Proppants.
- Completion adjustments and proceeds from the post-year-end $93.5 million asset sale, and the impact of suspended future dividends and continued capital allocation.