Eagle Materials Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended March 31, 2022. The filing is an annual report, not a standalone fourth-quarter report. Eagle Materials manufactures cement, concrete and aggregates, gypsum wallboard, and recycled paperboard in the United States.
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $1,861.5 million | $1,622.6 million | +15% |
| Gross profit / margin | $519.6 million / 27.9% | $408.4 million / 25.2% | Margin +270 bps |
| Continuing-operations net earnings | $374.2 million | $334.2 million | +12% |
| Diluted continuing-operations EPS | $9.14 | $7.99 | +14% |
| Cash from operating activities | $517.2 million | $643.1 million | Down $125.9 million |
| Capital expenditures | $74.1 million | $53.9 million | Up $20.2 million |
Revenue growth reflected higher selling prices (about $211.2 million of the increase) and higher sales volume (about $27.7 million). Higher prices more than offset higher input and operating costs. Operating cash flow fell largely because FY2021 included $125.6 million of income tax refunds.
Segments and material changes
- Cement: Revenue $1,007.1 million, up 7%; operating earnings $259.6 million, up 11%. Sales volume rose 1%, and average net price per ton rose 7%. Energy, maintenance, and purchased-cement costs increased.
- Concrete and Aggregates: Revenue $177.1 million, up 5%; operating earnings $18.5 million, down 3%. Concrete volume and prices improved, but aggregate sales volume declined 22%; materials and diesel costs rose.
- Gypsum Wallboard: Revenue $692.2 million, up 28%; operating earnings $261.5 million, up 56%. Volume rose 3%, average net price per MSF rose 27%, and operating margin improved to 38% from 31%. Higher freight, energy, and raw-material costs partly offset pricing gains.
- Recycled Paperboard: Revenue $194.1 million, up 19%; operating earnings $12.6 million, down 50%. Fiber and energy inflation pressured earnings; operating margin fell to 6% from 16%. Fiber prices rose about 50% year over year.
Cash, debt, and capital allocation
At March 31, 2022, cash and cash equivalents were $19.4 million and reported long-term debt was $938.3 million, representing $950.0 million of principal before unamortized discounts and issuance costs. Principal comprised $750.0 million of 2.5% senior notes due 2031 and $200.0 million drawn on the revolving facility. Debt-to-capitalization was 45.6%, versus 42.8% a year earlier. The company reported $517.2 million of operating cash flow and spent $589.7 million repurchasing shares. It paid $0.75 per share in dividends for the year.
In July 2021, Eagle issued the $750 million, 10-year 2.5% notes and used the proceeds, revolver borrowings, and cash to retire $350 million of 4.5% notes and repay a $665 million term loan. The refinancing produced an $8.4 million early-retirement premium and a $6.1 million debt-issuance-cost write-off.
Subsequent to year-end, Eagle acquired northern Colorado concrete and aggregates assets for approximately $121.2 million. On May 5, 2022, it amended and extended its credit facility to May 2027, added a $200 million term loan, and switched to SOFR-based pricing. After the amendment and related paydown, the company reported $156 million of revolving borrowings and $589 million of available revolving capacity.
Outlook, risks, and unusual items
- Management expected slight U.S. cement-consumption growth in calendar 2022 and anticipated residential demand to remain strong through the rest of that year, while noting higher inflation and mortgage rates. Cement capacity utilization was already high, limiting volume growth from existing plants.
- Fiscal 2023 capital expenditures were estimated at $115–$125 million. Management expected continued increases in energy and freight costs; estimated freight costs could rise 5%–10%. Forward contracts covered about 30% of anticipated natural-gas needs for fiscal 2023. Fiber prices were expected to remain relatively level for the remainder of that fiscal year.
- Key exposures include cyclical and seasonal construction demand, severe weather, commodity pricing, transportation constraints, and rising fuel, power, and raw-material costs. Cement and wallboard operations also face potential costs or restrictions from greenhouse-gas and air-quality regulation, including proposed ozone-related NOx limits.
- Two customers accounted for about 30% of Gypsum Wallboard segment sales. Two external customer contracts represented about 50% of Recycled Paperboard segment revenue; management warned that loss or nonrenewal could materially affect the company.
- Management said it expected liquidity sources to cover anticipated operating needs, capital expenditures, and debt service for at least 12 months. It reported compliance with debt covenants. Pending legal matters were not expected by management to materially affect consolidated financial condition, results, or liquidity. The filing also discloses $25.9 million of performance-bond contingencies and $5.0 million of outstanding letters of credit related to self-insurance.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting. The critical audit matter concerned measurement and existence of raw-materials and in-progress inventory.
Important facts for investors to verify
- Whether pricing can continue to offset inflation in energy, freight, fiber, and other operating inputs—especially in paperboard.
- Actual FY2023 capital spending, cash generation, and debt levels after the ConAgg acquisition and credit-facility amendment.
- Construction demand, cement and wallboard volumes, and the impact of interest rates, public infrastructure spending, weather, and regional market conditions.
- Renewal or replacement of the two major external paperboard customer contracts, and the ongoing concentration of wallboard customers.
- Developments in environmental rules, permits, and potential emissions-compliance costs.