Eagle Materials Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended September 30, 2023; comparative periods ended September 30, 2022. The filing is unaudited.
Financial performance
| Metric | Three months | Six months |
|---|---|---|
| Revenue | $622.2 million, up 3% | $1,223.8 million, up 5% |
| Gross profit / margin | $209.0 million / 34%; gross profit up 8% | $385.0 million / 31%; gross profit up 12% |
| Net earnings | $150.6 million, up 8% | $271.4 million, up 11% |
| Diluted EPS | $4.26, up 15% | $7.66, up 19% |
| Operating cash flow | $312.8 million for six months, versus $300.4 million | |
| Capital expenditures | $65.5 million for six months, versus $43.2 million |
Six-month operating cash flow exceeded net earnings, but receivables and other working-capital movements absorbed cash. Investing activities used $120.5 million, including $55.1 million for the Stockton terminal acquisition. Financing activities used $160.3 million, including $151.3 million for common-stock repurchases and $17.9 million for dividends. Cash increased to $47.3 million from $15.2 million at March 31, 2023.
At September 30, principal debt was $1.10 billion: $750 million of 2.5% senior notes due 2031, $187.5 million term loan, and $162 million drawn on the revolving facility. The company had $579.7 million of revolver capacity available after letters of credit and reported compliance with its financial covenants. Debt-to-capitalization was 45.7% and net-debt-to-capitalization 44.6%, down from 48.1% and 47.8% at fiscal year-end. Management said available cash, operating cash flow, and borrowing capacity should meet anticipated needs for at least 12 months.
Material changes and segment results
- Revenue growth reflected higher prices, partly offset by lower volumes. Excluding Battletown Aggregates and the Stockton acquisition, six-month revenue increased 3%; price contributed $91.7 million while lower volume reduced revenue by $57.9 million.
- Cement: Six-month segment revenue rose 14% and operating earnings rose 21% to $195.5 million, primarily on higher prices. Cement volumes were roughly flat overall; management cited weather-related weakness in legacy volumes. The business was described as near sold out.
- Concrete and Aggregates: Six-month revenue increased 7%, but operating earnings declined 10% to $11.7 million. Concrete volumes fell while aggregate volumes increased; higher material and maintenance costs weighed on results.
- Gypsum Wallboard: Six-month revenue fell 3% as volume declined 5%, partly offset by better prices. Operating earnings increased 2% to $176.6 million, supported by lower costs.
- Recycled Paperboard: Six-month revenue declined 18%, reflecting lower prices and volume, while operating earnings rose 57% to $14.8 million due mainly to lower fiber and freight costs.
- Interest expense rose 41% for the six months, primarily because of higher average revolver borrowings and interest rates. The weighted-average share count declined year over year; the company repurchased 916,500 shares during the six months.
Outlook, risks, and unusual items
- Management said construction markets remained generally resilient despite higher rates and inflation, and that activity in most of its regional markets outpaced the national average. Cement demand is expected to remain strong, supported by infrastructure funding, state projects, and heavy industrial work; existing cement capacity limits the company’s ability to increase sales materially.
- Wallboard shipments and orders were down 5% for the first half but remained historically strong, according to management. Residential demand faces affordability challenges from higher interest rates alongside housing supply shortages. Paperboard demand generally follows wallboard demand.
- Fiscal 2024 capital expenditures are expected to be $145 million to $165 million. Management noted that solid-fuel costs continued to rise; near-term OCC pricing was expected to be relatively stable. Contractual paperboard price adjustments may lag changes in input costs.
- The $55.1 million Stockton, California cement-terminal acquisition closed May 3, 2023. It contributed $19.5 million of revenue and a $2.1 million operating loss in the six-month period; the purchase-price allocation remains preliminary.
- A 100-basis-point increase in rates on period-end revolver and term-loan borrowings would increase annual interest expense by approximately $3.5 million. Management cited cyclical and seasonal demand, weather, construction activity, energy and freight costs, operational downtime, competition, regulation, interest rates, and acquisition execution among key risks.
- Contingencies include $8.3 million of standby letters of credit and $29.0 million of performance bonds. Management did not believe pending legal proceedings would materially affect consolidated financial condition, results, or liquidity. Disclosure controls were reported effective.
Important facts for investors to verify
- Whether cement pricing and near-sold-out utilization can offset volume pressure and rising fuel, maintenance, and other operating costs.
- Whether higher interest expense persists, and the company’s covenant headroom and available revolver capacity as rates and borrowing needs change.
- Whether wallboard and paperboard volumes stabilize, and how delayed contractual price adjustments affect margins.
- Final purchase-price allocation and subsequent operating performance of the Stockton terminal, including the preliminary goodwill and acquired-asset valuations.
- Execution and funding of the $145 million–$165 million fiscal 2024 capital plan alongside repurchases, dividends, and debt service.