Eagle Materials Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2023; comparative periods ended December 31, 2022. Amounts are U.S. dollars. The filing is unaudited.
Business context and results
Eagle Materials manufactures and sells cement, concrete and aggregates, gypsum wallboard, and recycled paperboard in the United States. Its results are exposed to cyclical and seasonal construction demand and regional economic conditions. The quarter benefited primarily from higher cement pricing; wallboard and recycled paperboard results were softer.
| Metric | Quarter | Change year over year | Nine months | Change year over year |
|---|---|---|---|---|
| Revenue | $558.8 million | +9% | $1,782.6 million | +6% |
| Gross profit | $180.6 million | +14% | $565.6 million | +12% |
| Gross margin | 32% | Up from 31% | 32% | Up from 30% |
| Net earnings | $129.1 million | +10% | $400.5 million | +11% |
| Diluted EPS | $3.72 | +16% | $11.38 | +18% |
| Operating cash flow | Not separately reported for quarter | — | $500.5 million | Up from $480.1 million |
Quarterly interest expense, net, rose 13% to $10.1 million; nine-month expense rose 31% to $32.6 million, mainly reflecting higher rates and average revolving borrowings. The nine-month effective tax rate was approximately 22%, broadly consistent with the prior year. Nine-month capital expenditures were $87.8 million; operating cash flow less capital expenditures was approximately $412.7 million, versus $419.2 million a year earlier.
Segments and material changes
- Cement: Quarterly segment revenue, including intersegment and joint-venture amounts, increased 20% to $308.7 million; operating earnings increased 46% to $105.6 million. Higher prices were the main driver. Nine-month operating earnings rose 29% to $301.1 million. Cement demand was described as strong, with the network near sold out and limited ability to increase existing-facility volumes.
- Concrete and Aggregates: Quarterly operating earnings declined 35% to $1.8 million; nine-month earnings declined 14% to $13.4 million. Higher material and other operating costs weighed on results; concrete volumes fell while aggregates volumes increased.
- Gypsum Wallboard: Quarterly revenue declined 5% to $201.0 million and operating earnings declined 14% to $75.1 million, reflecting lower price and volume and higher costs. Nine-month revenue declined 4% and operating earnings declined 4%. Shipments were down 1% in the quarter and 4% for the nine months.
- Recycled Paperboard: Quarterly operating earnings declined 4% to $7.5 million. Nine-month earnings rose 30% to $22.3 million, as lower fiber and freight costs more than offset lower selling prices. Long-term contract pricing adjustments may lag changes in input costs.
Excluding the Stockton terminal acquisition and Battletown Aggregates, nine-month revenue grew 4%, driven by $120.4 million of higher gross sales prices, partly offset by a $54.4 million volume decline. The May 2023 Stockton cement terminal acquisition cost approximately $55.1 million and contributed $32.5 million of nine-month revenue and a $2.1 million operating loss, including acquisition-related depreciation, amortization, and inventory fair-value effects.
Cash, debt, liquidity, and capital allocation
- At December 31, 2023, cash was $48.9 million, up from $15.2 million at March 31, 2023. Current assets were $587.7 million and current liabilities $225.5 million.
- Total debt was $1.042 billion, compared with $1.100 billion at March 31, 2023. Debt consisted of $750 million of 2.5% senior notes due 2031, $185 million of term loans, and $107 million drawn on the revolving facility. The notes’ disclosed fair value was $631 million.
- The $750 million revolving facility matures in May 2027. Available capacity, net of $8.3 million of letters of credit, was $634.7 million; the company reported compliance with financial covenants. Debt-to-capitalization was 43.9%, down from 48.1% at fiscal year-end.
- Nine-month investing cash outflow was $142.9 million, including $55.1 million for the acquisition and $87.8 million of capital expenditures. Financing cash outflow was $324.0 million, including $248.9 million of share repurchases and $26.7 million of dividends.
- The company repurchased 1.475 million shares for an average $168.71 per share during the nine months; 6.272 million shares remained authorized for repurchase. Quarterly dividends were $0.25 per share.
Outlook, risks, and contingencies
- Management said regional construction activity was generally steady despite changing economic conditions. Cement demand was supported by public infrastructure funding and industrial projects; wallboard demand remained historically strong despite residential affordability pressures and higher interest rates.
- Fiscal 2024 capital expenditures were expected to be $125 million to $140 million. The filing provides no earnings or revenue guidance.
- Natural gas costs had declined and freight costs stabilized year over year, while solid-fuel costs continued to rise. Maintenance costs were elevated, and management expected them to remain so. Recycled-paperboard fiber prices had increased; management anticipated relative near-term stability.
- Key risks include construction cyclicality and seasonality, interest rates, commodity and energy prices, weather, transportation and supply constraints, plant outages and maintenance, competition, regulation, and the ability to execute acquisitions and expansions. A 100-basis-point increase in rates on revolving-facility and term-loan borrowings outstanding at period-end would add approximately $2.9 million to annual interest expense.
- The company reported $29.3 million of performance-bond contingencies and $8.3 million of standby letters of credit, principally associated with insurance obligations. Management said pending legal matters were not expected to have a material effect; no outstanding guarantees were reported.
- Management stated that cash, operating cash flow, and available revolver capacity should cover anticipated operating needs, capital expenditures, dividends, and debt service for at least 12 months. This remains subject to market conditions and covenant compliance.
Important facts for investors to verify
- Whether cement pricing and near-sold-out utilization can offset rising solid-fuel, maintenance, and other operating costs.
- Whether wallboard demand and pricing stabilize, and whether paperboard contract-price adjustments keep pace with fiber-cost changes.
- Progress on the Stockton terminal acquisition, including final purchase-price allocation and profitability after acquisition-related charges.
- Execution of the $125 million to $140 million fiscal 2024 capital-spending plan and resulting cash generation.
- Revolver and term-loan interest-rate exposure, covenant headroom, and the sustainability of substantial share repurchases and dividends.