Eagle Materials Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2023, the three months ended June 30, 2022. Comparative figures are for the three months ended June 30, 2021. The filing is unaudited.
Financial performance
| Metric | Q1 FY2023 | Q1 FY2022 | Change |
|---|---|---|---|
| Revenue | $561.4 million | $475.8 million | +18% |
| Gross profit | $150.9 million | $126.5 million | +19% |
| Gross margin | 26.9% | 26.6% | +0.3 percentage points |
| Earnings before income taxes | $136.2 million | $121.7 million | +12% |
| Net earnings | $105.0 million | $95.3 million | +10% |
| Diluted EPS | $2.75 | $2.25 | +22% |
| Operating cash flow | $124.8 million | $111.1 million | +$13.7 million |
Revenue growth reflected higher sales prices and volume; the ConAgg acquisition contributed $11.0 million. Excluding the acquisition, revenue grew 16%, with price contributing approximately $70.7 million and volume $3.9 million. Cost of goods sold rose 18%, primarily from higher operating costs. Interest expense, net, was $7.3 million, up 5%; the effective tax rate rose to 23% from 22%.
Segments: Gypsum Wallboard revenue increased 30% to $216.3 million and operating earnings increased 33% to $84.1 million, supported by pricing and volume. Cement revenue increased 5% to $284.5 million, while operating earnings were essentially flat at $62.3 million; sales volume fell 2%, and energy and maintenance costs increased. Concrete and Aggregates revenue increased 38% to $61.6 million, including the acquisition, and operating earnings rose 7% to $5.7 million. Recycled Paperboard revenue increased 25% to $54.1 million and operating earnings increased 14% to $3.8 million, though higher fiber, energy, and freight costs weighed on margins.
Financial position and liquidity
- At June 30, 2022, cash and cash equivalents were $68.3 million, current assets $547.1 million, and current liabilities $228.6 million.
- Long-term debt, net of discounts and issuance costs, was $1.120 billion; principal debt totaled $1.131 billion, comprising $181.0 million drawn on the revolving facility, a $200.0 million term loan, and $750.0 million of 2.5% senior notes due 2031. Debt increased from $950.0 million in principal at March 31, 2022.
- The revolving facility matures in May 2027. After borrowings and $6.4 million of letters of credit, $562.6 million was available at quarter-end. The company reported compliance with its financial covenants. It may seek to increase facility capacity, subject to lender agreement.
- Debt-to-capitalization and net-debt-to-capitalization ratios were 50.0% and 48.6%, respectively, versus 45.6% and 45.1% at March 31, 2022. Management said available cash, operating cash flow, and facility borrowings should cover anticipated needs for at least 12 months.
- Investing cash use was $136.1 million, including $121.2 million for ConAgg and $14.9 million of capital expenditures. Financing provided $60.1 million, including the $200.0 million term loan, offset in part by share repurchases and dividends. Cash increased $48.9 million during the quarter.
Material developments, outlook, and risks
- ConAgg acquisition: Closed April 22, 2022, for approximately $121.2 million, funded through facility borrowings. It contributed $11.0 million in revenue and reported a $0.1 million operating loss through June 30. Purchase accounting remained preliminary; the recorded allocation included $38.7 million of goodwill.
- Capital returns: The company repurchased 884,000 shares for $109.6 million during the quarter and paid $9.6 million in dividends. The board authorized an additional 7.5 million-share repurchase in May.
- Outlook: Management described end markets as resilient despite inflation, transportation disruptions, supply constraints, and rising interest rates. Cement demand was expected to remain strong, though existing facilities were operating at high utilization. Wallboard orders and shipments remained strong, but management noted tighter monetary policy could affect housing activity. Fiscal 2023 capital expenditures were estimated at $110–$120 million.
- Costs and exposures: Management anticipated continued increases in energy and freight costs. Forward contracts covered approximately 40% of fiscal 2023 natural gas needs at $4.78 per MMBtu. A hypothetical 100-basis-point increase in rates on quarter-end variable-rate borrowings would add approximately $3.8 million of annual interest expense.
- Contingencies and controls: The company reported $26.8 million in performance bonds and $6.4 million in standby letters of credit, principally related to self-insurance. Management did not expect pending legal matters to have a material effect. Disclosure controls were assessed as effective.
Most important facts for investors to verify
- Whether pricing can continue to offset inflation, energy, freight, maintenance, and raw-material cost increases, particularly in Cement and Paperboard.
- ConAgg’s integration, subsequent operating contribution, and final purchase-price allocation, including goodwill and acquired-asset valuations.
- Actual capital spending versus the $110–$120 million fiscal 2023 estimate, and cash demands from acquisitions, repurchases, and dividends.
- Debt levels, variable-rate exposure, covenant compliance, and availability of the revolving facility under changing market conditions.
- Construction and housing demand, infrastructure spending, and the effects of interest rates and economic conditions on the company’s regional markets.