Eagle Materials Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2020. All dollar amounts below are U.S. dollars; financial statement amounts are in millions unless noted. The filing is unaudited.
Business context and performance
Eagle supplies cement, concrete and aggregates, gypsum wallboard, and recycled paperboard in the United States. Its businesses operate in cyclical, seasonal construction markets. The quarter’s results include the Kosmos cement business, acquired in March 2020. Eagle sold Western Aggregates and Mathews Readymix in April 2020 and its Oil and Gas Proppants business in September 2020; proppants results are presented as discontinued operations.
Management characterized the quarter as strong, citing resilient regional construction markets, wallboard shipments up 9%, and organic cement sales volume flat. The reported increases also reflect acquisitions and portfolio changes.
Key financial metrics
| Metric | Three months ended Dec. 31, 2020 | Nine months ended Dec. 31, 2020 |
|---|---|---|
| Revenue | $404.7 million; up 18% | $1,279.3 million; up 16% |
| Gross profit / margin | $113.4 million / 28% (27% prior year) | $338.5 million / 27% (26% prior year) |
| Continuing-operations earnings | $81.2 million; diluted EPS $1.94 | $268.2 million; diluted EPS $6.43 |
| Net earnings (loss) | $81.2 million, versus loss of $114.6 million | $273.4 million, versus loss of $1.5 million |
| Operating cash flow | Not separately provided for the quarter | $542.0 million, versus $320.6 million |
| Capital expenditures | Not separately provided for the quarter | $45.5 million, versus $84.1 million cash-flow statement additions |
| Cash and restricted cash | Balance-sheet date: $147.8 million total, including $5.0 million restricted | — |
| Debt | December 31 principal debt $1,015.0 million; carrying value $1,008.3 million | — |
Nine-month continuing earnings include a $52.0 million gain on the sale of Western and Mathews. Nine-month net earnings also include $5.3 million from discontinued operations, including the $9.2 million proppants sale gain. The prior-year comparisons were affected by substantial proppants impairment charges, including a $158.1 million after-tax discontinued-operations loss in the prior-year quarter.
Segments and material changes
- Cement: Third-quarter segment revenue was $234.1 million, up 28%, and operating earnings were $70.4 million, up 30%. Nine-month operating earnings rose 34% to $210.8 million. The Kosmos acquisition contributed $45.4 million of third-quarter revenue and $13.3 million of operating earnings.
- Concrete and Aggregates: Third-quarter revenue declined 8% to $43.5 million, reflecting the sale of Western and Mathews; operating earnings rose 52% to $5.1 million. Nine-month revenue fell 6% to $134.0 million and operating earnings rose 5% to $15.7 million.
- Gypsum Wallboard: Third-quarter revenue increased 8% to $135.7 million and operating earnings increased 6% to $40.8 million, supported by 9% higher shipment volume. Nine-month operating earnings rose 4% to $119.7 million.
- Recycled Paperboard: Third-quarter revenue rose 5% to $39.6 million, but operating earnings fell 21% to $7.2 million. Nine-month operating earnings fell 29% to $20.7 million, primarily due to mill start-up inefficiencies and higher fiber and depreciation costs.
For the quarter, revenue excluding the acquisition and dispositions increased 7%; gross profit on the same basis increased 9%. For the nine-month period, revenue excluding acquisitions and dispositions increased 5%, and gross profit increased 8%. These are management-presented comparisons.
Cash, debt, and liquidity
Operating cash flow for the nine months was supported by a $126.5 million income-tax refund and working-capital changes; it should not be viewed as solely recurring operating improvement. Investing cash flow was positive $45.5 million, including $91.0 million of business-sale proceeds. Financing cash outflow was $558.4 million, primarily reflecting repayment of $560.0 million of revolving-credit borrowings. Cash and restricted cash increased $29.1 million from the start of the fiscal year.
At December 31, Eagle had $142.8 million of cash, no revolving-credit borrowings, and $745.0 million of revolver availability after letters of credit, for stated total liquidity of approximately $887.8 million. Its $665.0 million term loan and $350.0 million of 4.5% senior notes remained outstanding. The company reported compliance with debt covenants. Debt-to-capitalization was 44.6%, down from 61.7% at March 31, 2020. The revolver and term loan mature in August 2022; the notes mature in August 2026. A January 13, 2021 amendment extended all revolver lender commitments to August 2022.
Outlook, commentary, and risks
- Management said it had not experienced a material operational or financial impact from COVID-19 to date and believed available resources could fund at least the next 12 months. It cautioned that the pandemic’s effects remain uncertain, including potential impacts on demand, construction budgets, collections, staffing, manufacturing, and supply chains.
- Management expects fiscal 2021 capital expenditures of $55–$65 million, focused on critical maintenance, safety, and regulatory projects.
- Cement price increases were implemented across markets in early summer; wallboard price increases were implemented in November 2020 and again in early January 2021.
- The planned tax-free separation of Heavy Materials and Light Materials remains under preparation, but timing is uncertain, including because of COVID-19 and capital-market conditions.
- Floating-rate debt creates interest-rate exposure: the filing estimates a 100-basis-point increase on $665 million of variable-rate borrowings would add approximately $6.7 million of annual interest expense. Commodity exposure includes coal, coke, natural gas, and power.
- Other disclosed items include $23.6 million of performance bonds, $5.0 million of letters of credit, and approximately $42.4 million of operating lease liabilities. Management said it had no outstanding guarantees and did not expect ordinary-course indemnifications to have a material adverse effect.
No specific earnings or revenue guidance is provided in the filing. Quarterly dividends were suspended in April 2020; no dividend was paid in the reported quarter.
Important facts for investors to verify
- How much reported growth reflects the Kosmos acquisition and sold businesses versus comparable, organic performance.
- Whether strong operating cash flow persists after the large income-tax refund and working-capital benefits.
- Progress on paperboard cost recovery and mill operating efficiency, and on cement and wallboard pricing.
- COVID-19 effects on construction demand, customer collections, plant operations, and the timing of the planned business separation.
- Ability to refinance or repay the 2022 term loan and revolver maturities while maintaining covenant compliance and planned capital spending.