Eagle Materials Inc. — Form 10-Q Summary
Reporting period: Three months ended June 30, 2021, the first quarter of fiscal 2022. Unaudited consolidated results; comparisons are with the three months ended June 30, 2020. Dollar figures below are in millions unless stated otherwise.
Financial performance
| Metric | Q1 FY2022 | Q1 FY2021 | Change |
|---|---|---|---|
| Revenue | $475.8 | $427.0 | +11% |
| Gross profit / margin | $126.5 / 26.6% | $102.3 / 24.0% | Profit +24% |
| Earnings from continuing operations | $95.3 | $97.1 | -2% |
| Net earnings | $95.3 | $96.2 | -1% |
| Diluted EPS from continuing operations | $2.25 | $2.33 | -3% |
| Operating cash flow | $111.1 | $95.3 | +$15.8 |
| Capital expenditures | $11.9 | $26.0 | -$14.1 |
Revenue gains reflected higher prices (about $40.1 million) and volume (about $8.7 million). Higher prices lifted gross margin despite increased operating costs. Prior-year earnings included a $52.0 million gain on the sale of Western Aggregates and Mathews Readymix; the absence of that gain explains why pretax earnings declined 6% despite stronger segment results and lower interest expense. Interest expense fell 50% to $7.0 million. The effective tax rate was 22%, versus 25%.
Segments and material period changes
- Gypsum Wallboard: Revenue rose 28% to $166.3 million and operating earnings rose 53% to $63.3 million, driven by higher prices and sales volume; operating costs also increased.
- Cement: Segment revenue rose 3% to $270.3 million and operating earnings rose 3% to $62.5 million. Sales volume declined 2%; higher prices were partly offset by maintenance, energy, and freight costs.
- Concrete and Aggregates: Revenue rose 1% to $44.8 million; operating earnings fell 1% to $5.3 million, with lower aggregate volume and higher costs.
- Recycled Paperboard: Revenue rose 18% to $43.3 million and operating earnings rose 15% to $3.3 million. Higher fiber costs offset part of the benefit from improved prices and volume.
- The Oil and Gas Proppants business was sold in September 2020 and is reported as discontinued operations. The prior-year quarter also included the sale gain from Western and Mathews.
Balance sheet, cash flow, and liquidity
At June 30, 2021, cash and cash equivalents were $306.5 million, restricted cash was $5.0 million, and current assets and current liabilities were $731.3 million and $189.0 million, respectively. Long-term debt carrying value was $1,009.0 million, comprising $665.0 million of term loans and $350.0 million of senior notes, net of debt costs. Debt-to-capitalization was 42.2% and net-debt-to-capitalization was 33.7%.
Operating cash flow was $111.1 million; share repurchases used $61.9 million in financing cash flow. Cash, cash equivalents, and restricted cash increased $43.0 million during the quarter. No dividend was paid in the quarter; a $0.25-per-share dividend declared in May was paid in July.
Subsequent financing: On July 1, the company issued $750 million of 2.50% notes due 2031, repaid and terminated its $665 million term loan, and replaced its revolving facility with a new $750 million facility due 2026. On July 19, it redeemed the $350 million 4.50% notes, using note proceeds, cash, and a $100 million revolver draw; the redemption included an approximately $8.4 million premium. After these transactions, reported debt was $850 million gross and $838.1 million net of discounts and issuance costs; $645.7 million of revolver capacity remained available, net of letters of credit.
Management said available cash, operating cash flow, and revolver capacity should meet anticipated operating, capital, dividend, and debt-service needs for at least 12 months. The filing reports $25.6 million of performance bonds and $4.3 million of standby letters of credit; management did not expect pending legal proceedings to materially affect results, financial condition, or liquidity.
Outlook, commentary, and risks
- Management reported robust residential construction and high infrastructure activity, and expected Wallboard and Cement demand to remain strong through fiscal 2022. Cement volume growth was expected to be limited because the integrated network was operating at high utilization.
- The company cited a Portland Cement Association estimate of approximately 2% growth in calendar-year 2021 cement consumption. Further infrastructure demand was conditional on passage of the proposed federal program.
- Management expected rising old corrugated container prices to pressure paperboard costs; contractual price escalators were expected to offset only part of the effect. Cement costs were also affected by maintenance, energy, and freight.
- The filing states expected capital expenditures of $90–$100 million but labels the estimate “fiscal 2021,” although the reported quarter is fiscal 2022; verify the intended forecast period.
- Key stated risks include cyclical and seasonal construction demand, weather, energy and transportation costs, commodity pricing, operating interruptions and maintenance, customer nonpayment, competition, regulation, interest rates, economic conditions, and pandemic-related disruption. Management stated disclosure controls were effective.
Important facts for investors to verify
- Whether the $90–$100 million capital expenditure estimate refers to fiscal 2022, given the filing’s fiscal-year label.
- The completed July debt refinancing, including the $8.4 million redemption premium, $100 million revolver borrowing, and remaining available capacity.
- Whether Wallboard pricing and volume strength can persist as freight, energy, and paper input costs change.
- Whether high cement utilization, maintenance requirements, and limited expected organic volume growth constrain future results.
- The timing and amount of the reinstated $0.25 quarterly dividend and future share repurchases; neither is assured by the reported quarter.