Eagle Materials Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended September 30, 2022 (the second quarter of fiscal 2023). Unaudited results are compared with the corresponding 2021 periods. The company manufactures and sells cement, concrete and aggregates, gypsum wallboard, and recycled paperboard in the United States.
Financial performance
| Metric | Three months ended Sep. 30, 2022 | Year-over-year change | Six months ended Sep. 30, 2022 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $605.1 million | +19% | $1,166.5 million | +18% |
| Gross profit | $194.2 million | +25% | $345.1 million | +22% |
| Gross margin | 32% | Up from 30% | 30% | Up from 29% |
| Net earnings | $139.0 million | +36% | $244.0 million | +24% |
| Diluted earnings per share | $3.72 | +51% | $6.46 | +37% |
| Operating cash flow | Not presented quarterly | $300.4 million | Up from $261.5 million |
- Higher sales prices drove most of the revenue growth. Excluding the ConAgg acquisition, revenue increased 16% in both the quarter and half-year; management attributed most of that increase to pricing, with a smaller contribution from sales volume.
- Quarterly segment results: Cement operating earnings were $98.8 million (+11%); Concrete and Aggregates $7.3 million (-3%); Gypsum Wallboard $89.8 million (+35%); and Recycled Paperboard $5.6 million, versus $1.0 million.
- For the six-month period, Cement operating earnings rose 6% to $161.1 million, Concrete and Aggregates were approximately flat at $13.0 million, Gypsum Wallboard rose 34% to $173.8 million, and Recycled Paperboard rose 118% to $9.4 million.
- Six-month capital expenditures were $43.2 million, compared with $26.8 million. Cash used in investing was $201.7 million, including $158.5 million of acquisition spending.
Balance sheet, debt, and liquidity
- At September 30, 2022, cash was $84.1 million; total debt was $1,147.5 million, including $200.0 million drawn on the revolving facility, a $197.5 million term loan, and $750.0 million of 2.500% notes due 2031. Debt carrying value was $1,136.4 million after discounts and issuance costs.
- Available revolving credit was $543.6 million, net of $6.4 million of letters of credit. The company reported compliance with financial covenants. The revolving facility and term loan mature in May 2027.
- Debt-to-capitalization was 49.7%, versus 45.6% at March 31, 2022; net-debt-to-capitalization was 47.8%, versus 45.1%. The current ratio was approximately 2.5x, based on reported current assets and liabilities.
- Operating cash flow of $300.4 million was partly offset by investing outflows and financing outflows, including $210.4 million of share repurchases and $19.1 million of dividends. Cash increased by $64.7 million from March 31, 2022.
- Management said cash, operating cash flow, and available revolver capacity should cover anticipated operating needs, capital spending, dividends, and debt service for at least 12 months.
Material changes and notable items
- The company acquired a readymix concrete and aggregates business (ConAgg) for approximately $120.2 million in April 2022, and a Nashville cement distribution terminal for approximately $39.5 million in September. Both were funded with revolving-facility borrowings. ConAgg contributed $13.9 million of quarterly revenue and $24.9 million for the six-month period.
- Average shares outstanding declined year over year, alongside 1.724 million shares repurchased during the six months for approximately $210.4 million. The board authorized an additional 7.5 million shares for repurchase in May.
- In the prior-year periods, results included an $8.4 million loss on early retirement of senior notes and approximately $6.1 million of debt issuance cost write-offs. Their absence helped comparisons of earnings and interest expense.
- Interest expense benefited from the absence of prior-year write-offs but was pressured by higher interest rates and revolving borrowings. A hypothetical 100-basis-point increase on the reported revolving and term-loan balances would add about $4.0 million to annual interest expense.
Outlook, commentary, and risks
- Management described end markets as resilient despite transportation disruptions, supply constraints, inflation, and rising interest rates. Cement was near sold out; management expected infrastructure funding to support demand in the latter half of fiscal 2023 and calendar 2023, while noting limited ability to grow cement volume at existing facilities.
- Management expected wallboard backlogs to support demand through the rest of fiscal 2023, but warned that higher mortgage rates could weigh on future residential construction. Wallboard shipments rose 6% in the quarter; cement volume fell 2% but remained historically high.
- Fiscal 2023 capital expenditures were forecast at $110 million to $120 million. The company had forward-purchased about 50% of its natural gas needs for the rest of fiscal 2023 at $5.53 per MMBtu. Management anticipated continued energy and freight cost pressure into fiscal 2024 and expected recycled-paperboard input prices to be relatively level for the rest of fiscal 2023.
- Key risks include cyclical and seasonal construction demand, interest rates, commodity pricing, energy and freight costs, operational downtime, weather, regulation, litigation, and acquisition integration. The company reported no pending legal proceeding expected by management to materially affect its financial condition, results, or liquidity. It also disclosed $26.8 million of performance bonds and customary indemnities; management did not expect these to have a material adverse effect.
Important facts for investors to verify
- Whether price increases can continue to offset rising energy, freight, materials, and maintenance costs—and how that affects segment margins.
- Whether higher interest rates, housing-market weakness, or construction slowdowns affect demand, cash generation, or covenant headroom.
- Acquisition integration and returns, including final purchase-price allocation for the Nashville terminal and the effect of acquired assets on goodwill and earnings.
- Progress against the $110 million–$120 million fiscal 2023 capital-expenditure outlook, alongside continued repurchases, dividends, and increased debt.
- Whether cement production and sales volumes are constrained by high utilization or equipment downtime, particularly at the joint venture.