EXP Eagle Materials Inc

Eagle Materials Inc. (NYSE: EXP) today reported financial results for the second quarter of fiscal 2017 ended September 30, 2016. Notable items for the quarter include (all comparisons, unless otherwise noted, are with the prior year’s second quarter):

Company Second Quarter Results

• Record revenues of $332.7 million, up 1%
• Earnings before income taxes of $89.4 million, up 109%
  • Prior year results included certain charges of $37.8 million (pre-tax)
• Net Earnings of $60.2 million, up 102%
• Net Earnings per diluted share of $1.25, up 112%

Other Highlights

• Eagle repurchased 263,800 shares of its common stock
• Net debt-to-capitalization ratio of 27%

Eagle’s construction products and building materials businesses performed well during the quarter, with the Cement business reporting record second quarter operating earnings of $50.7 million. Second quarter cash flow from operations improved 22% and was used to fund capital improvements, pay dividends, reduce debt and repurchase shares.

As previously announced, on September 11, 2016, Eagle entered into a definitive agreement with a subsidiary of CEMEX S.A.B. de C.V. ("Cemex") to purchase Cemex’s Fairborn, Ohio cement plant and related assets. The purchase price is $400 million, subject to customary post-closing adjustments. Eagle expects that the acquisition will increase its U.S. annual cement capacity by approximately 20% to nearly 6 million tons. The transaction is expected to close in the fourth quarter of calendar 2016, or shortly thereafter. Eagle intends to finance the acquisition through a combination of cash on hand and borrowings under its existing bank credit facility.

The prior year’s second quarter results include an impairment charge related to several intangible assets originally recorded in connection with our acquisition of CRS Proppants and a write-down of raw sand inventory values. The impairments and inventory revaluation charges totaled approximately $37.8 million (pre-tax) and were recorded in Cost of Goods Sold within our Oil and Gas Proppants segment.

Cement, Concrete and Aggregates

Cement revenues for the second quarter, including joint venture and intersegment revenues, totaled $166.8 million, which was 1% higher than the same quarter last year. The average net sales price for this quarter was $99.95 per ton, 3% higher than the same quarter last year. Wholly-owned average net sales prices improved 5% from the second quarter last year. The average net cement sales price at our Joint Venture declined year-over-year reflecting the shift from oil well cement to construction-grade cement over the past year; however, profitability improved 4% at the Joint Venture. Total Cement sales volumes for the quarter were 1.4 million tons, 3% lower than the same quarter a year ago. Cement sales volumes were negatively impacted during the quarter by above average rainfall in our Midwestern markets.

Operating earnings from Cement for the second quarter were a record $50.7 million and 4% greater than the same quarter a year ago. The earnings improvement was driven primarily by improved average net cement sales prices.

Concrete and Aggregates reported revenues for the second quarter of $38.8 million, an increase of 7%. Second quarter operating earnings were $4.8 million, a 25% improvement from the same quarter a year ago, reflecting improved aggregates sales volumes and improved concrete and aggregates sales prices.

Gypsum Wallboard and Paperboard

Gypsum Wallboard and Paperboard revenues for the second quarter totaled $151.9 million, which were 6% greater than the same quarter a year ago. The average Gypsum Wallboard net sales price this quarter was $154.41 per MSF, 2% less than the same quarter a year ago. Gypsum Wallboard sales volume for the quarter of 650 million square feet (MMSF) represents a 5% increase from the same quarter last year. Paperboard sales volumes for the quarter were a record 86,000 tons, 15% greater than the same quarter a year ago. The average Paperboard net sales price this quarter was $501.84 per ton, 1% less than the same quarter a year ago.

Gypsum Wallboard and Paperboard reported second quarter operating earnings of $51.9 million, up 8% from the same quarter last year. The earnings improvement primarily reflects improved Gypsum Wallboard and Paperboard sales volumes and lower operating costs primarily driven by lower energy and maintenance costs during the quarter.

Oil and Gas Proppants

Oil and Gas Proppants reported second quarter revenues of $6.6 million, a 64% decrease from the prior year primarily reflecting a 45% decline in frac sand sales volumes. The second quarter’s operating loss of $4.1 million includes depreciation, depletion and amortization of $4.3 million. Our frac sand business continues to be impacted by the significant slowdown in oil and gas drilling activity over the past two years.

Details of Financial Results

We conduct one of our cement plant operations, Texas Lehigh Cement Company LP, through a 50/50 joint venture (the “Joint Venture”). We utilize the equity method of accounting for our 50% interest in the Joint Venture. For segment reporting purposes only, we proportionately consolidate our 50% share of the Joint Venture’s revenues and operating earnings, which is consistent with the way management organizes the segments within the Company for making operating decisions and assessing performance.

In addition, for segment reporting purposes, we report intersegment revenues as a part of a segment’s total revenues. Intersegment sales are eliminated on the income statement. Refer to Attachment 3 for a reconciliation of the amounts referred to above.

About Eagle Materials Inc.

Eagle Materials Inc. manufactures and distributes Cement, Gypsum Wallboard, Recycled Paperboard, Concrete and Aggregates, and Oil and Gas Proppants from 40 facilities across the US. Eagle is headquartered in Dallas, Texas.

Eagle’s senior management will conduct a conference call to discuss the financial results, forward-looking information and other matters at 8:30 a.m. Eastern Time (7:30 a.m. Central Time) on October 24, 2016. The conference call will be webcast simultaneously on the Eagle Web site http://www.eaglematerials.com. A replay of the webcast and the presentation will be archived on that site for one year. For more information, contact Eagle at (214) 432-2000.

Forward-Looking Statements. This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the context of the statement and generally arise when the Company is discussing its beliefs, estimates or expectations. These statements are not historical facts or guarantees of future performance but instead represent only the Company's belief at the time the statements were made regarding future events which are subject to certain risks, uncertainties and other factors, many of which are outside the Company's control. Actual results and outcomes may differ materially from what is expressed or forecast in such forward-looking statements. The principal risks and uncertainties that may affect the Company's actual performance include the following: the cyclical and seasonal nature of the Company's business; public infrastructure expenditures; adverse weather conditions; the fact that our products are commodities and that prices for our products are subject to material fluctuation due to market conditions and other factors beyond our control; availability of raw materials; changes in energy costs including, without limitation, natural gas, coal and oil; changes in the cost and availability of transportation; unexpected operational difficulties, including unexpected maintenance costs, equipment downtime and interruption of production; material nonpayment or non-performance by any of our key customers; fluctuations in activity in the oil and gas industry, including the level of fracturing activities and the demand for frac sand; inability to timely execute announced capacity expansions; difficulties and delays in the development of new business lines; governmental regulation and changes in governmental and public policy (including, without limitation, climate change regulation); possible outcomes of pending or future litigation or arbitration proceedings; changes in economic conditions specific to any one or more of the Company's markets; competition; a cyber-attack or data security breach; announced increases in capacity in the gypsum wallboard, cement and frac sand industries; changes in the demand for residential housing construction or commercial construction; risks related to pursuit of acquisitions, joint ventures and other transactions; general economic conditions; and interest rates. For example, increases in interest rates, decreases in demand for construction materials or increases in the cost of energy (including, without limitation, natural gas, coal and oil) could affect the revenues and operating earnings of our operations. In addition, changes in national or regional economic conditions and levels of infrastructure and construction spending could also adversely affect the Company's result of operations. These and other factors are described in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2016 and the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2016. These reports are filed with the Securities and Exchange Commission. With respect to our proposed acquisition of certain assets from Cemex as described in this press release, factors, risks and uncertainties that may cause actual events and developments to vary materially from those anticipated in such forward-looking statements include, but are not limited to, the need to obtain antitrust clearance of the transaction under the Hart-Scott-Rodino Antitrust Improvements Act and other factors that may create obstacles for or interfere with our ability to complete the acquisition within the expected timeframe or at all, failure to realize any expected synergies from or other benefits of the transaction, possible negative effects of announcement or consummation of the transaction, significant transaction or ownership transition costs, unknown liabilities or other adverse developments affecting the assets to be acquired and the target business, including the results of operations of the target business prior and after the closing, the effect on the target business of the same or similar factors discussed above to which our business is subject, including changes in market conditions in the construction industry and general economic and business conditions that may affect us following acquisition. All forward-looking statements made herein are made as of the date hereof, and the risk that actual results will differ materially from expectations expressed herein will increase with the passage of time. The Company undertakes no duty to update any forward-looking statement to reflect future events or changes in the Company's expectations.

 

Attachment 1

Statement of Consolidated Earnings

Attachment 2

Revenues and Earnings by Lines of Business (Quarter and Six Months)

Attachment 3

Sales Volume, Net Sales Prices and Intersegment and Cement Revenues

Attachment 4

Consolidated Balance Sheets

Attachment 5

Depreciation, Depletion and Amortization by Lines of Business

     

Eagle Materials Inc.

Attachment 1

  Eagle Materials Inc. Statement of Consolidated Earnings (dollars in thousands, except per share data) (unaudited)   Quarter Ended

September 30,

Six Months Ended

September 30,

  2016       2015     2016       2015     Revenues $ 332,658 $ 328,988 $ 630,162 $ 613,951   Cost of Goods Sold   241,448     284,694     466,997     508,560     Gross Profit 91,210 44,294 163,165 105,391   Equity in Earnings of Unconsolidated JV 12,147 11,680 20,127 19,510 Other, net 504 572 1,579 1,007 Acquisition and Litigation Expense - - - - Corporate General and Administrative Expenses   (8,832 )   (9,364 )   (18,665 )   (18,355 )   Earnings before Interest and Income Taxes 95,029 47,182 166,206 107,553

Interest Expense, net

  (5,656 )   (4,342 )   (9,557 )   (8,828 )   Earnings before Income Taxes 89,373 42,840 156,649 98,725

Income Tax Expense

  (29,136 )   (13,021 )   (51,068 )   (31,144 )   Net Earnings $ 60,237   $ 29,819   $ 105,581   $ 67,581  

 

EARNINGS PER SHARE Basic $ 1.26   $ 0.60   $ 2.20   $ 1.36   Diluted $ 1.25   $ 0.59   $ 2.18   $ 1.34     AVERAGE SHARES OUTSTANDING Basic   47,809,476     49,828,189     47,911,276     49,797,972   Diluted   48,229,485     50,470,151     48,375,116     50,460,947  

   

Eagle Materials Inc.

Attachment 2

  Eagle Materials Inc. Revenues and Earnings by Lines of Business (dollars in thousands) (unaudited)   Quarter Ended

September 30,

Six Months Ended

September 30,

  2016     2015     2016       2015   Revenues*   Gypsum Wallboard and Paperboard: Gypsum Wallboard $ 122,923 $ 119,701 $ 236,185 $ 234,753 Gypsum Paperboard   29,007   23,549     57,316     44,316   151,930 143,250 293,501 279,069   Cement (Wholly Owned) 135,300 131,022 251,669 229,061   Oil and Gas Proppants 6,631 18,307 11,727 41,132   Concrete and Aggregates   38,797   36,409     73,265     64,689     Total $ 332,658   $ 328,988   $ 630,162   $ 613,951  

 

Segment Operating Earnings     Gypsum Wallboard and Paperboard: Gypsum Wallboard $ 41,698 $ 40,002 $ 81,034 $ 80,896 Gypsum Paperboard   10,220     8,138     21,447     14,168   51,918 48,140 102,481 95,064   Cement: Wholly Owned 38,569 36,897 62,189 54,780 Joint Venture   12,147     11,680     20,127     19,510   50,716 48,577 82,316 74,290   Oil and Gas Proppants (4,090 ) (44,600 ) (10,002 ) (50,236 )   Concrete and Aggregates 4,813 3,857 8,497 5,783   Other, net   504     572     1,579     1,007     Sub-total 103,861 56,546 184,871 125,908 Acquisition and Litigation Expenses - - - - Corporate General and Administrative Expenses   (8,832 )   (9,364 )   (18,665 )   (18,355 )   Earnings Before Interest and Income Taxes $ 95,029   $ 47,182   $ 166,206   $ 107,553  

 

* Net of Intersegment and Joint Venture Revenues listed on Attachment 3

 

Eagle Materials Inc.

Attachment 3

  Eagle Materials Inc. Sales Volume, Net Sales Prices and Intersegment and Joint Venture Revenues (unaudited)   Sales Volume Quarter Ended

September 30,

  Six Months Ended

September 30,

2016   2015   Change 2016   2015   Change   Gypsum Wallboard (MMSF’s) 650 619 +5 % 1,237 1,196 +3 %   Cement (M Tons): Wholly Owned 1,200 1,248 -4 % 2,233 2,239 0 % Joint Venture 242 236 +3 % 460 448 +3 % 1,442 1,484 -3 % 2,693 2,687 0 % Paperboard (M Tons): Internal 30 30 0 % 58 58 0 % External 56 45 +24 % 111 86 +29 % 86 75 +15 % 169 144 +17 %   Concrete (M Cubic Yards) 315 324 -3 % 602 573 +5 %   Aggregates (M Tons) 1,027 764 +34 % 1,971 1,431 +38 %   Frac Sand (M Tons) 111 203 -45 % 185 434 -57 %   Average Net Sales Price* Quarter Ended

September 30,

  Six Months Ended

September 30,

  2016     2015   Change   2016     2015   Change   Gypsum Wallboard (MSF) $ 154.41 $ 157.88 -2 % $ 155.97 $ 160.57 -3 % Cement (Ton) $ 99.95 $ 97.21 +3 % $ 100.27 $ 97.74 +3 % Paperboard (Ton) $ 501.84 $ 505.12 -1 % $ 500.41 $ 504.49 -1 % Concrete (Cubic Yard) $ 95.00 $ 92.07 +3 % $ 93.92 $ 92.06 +2 % Aggregates (Ton) $ 8.64 $ 8.50 +2 % $ 8.48 $ 8.24 +3 % *Net of freight and delivery costs billed to customers.   Intersegment and Cement Revenues Quarter Ended

September 30,

  Six Months Ended

September 30,

  2016     2015   2016     2015 Intersegment Revenues: Cement $ 4,536 $ 4,232 $ 8,071 $ 7,358 Paperboard 15,452 15,596 29,958 30,147 Concrete and Aggregates   343   262   626   514 $ 20,331 $ 20,090 $ 38,655 $ 38,019   Cement Revenues: Wholly Owned $ 135,300 $ 131,022 $ 251,669 $ 229,061 Joint Venture   26,975   29,536   51,863   56,547 $ 162,275 $ 160,558 $ 303,532 $ 285,608

   

Eagle Materials Inc.

Attachment 4

  Eagle Materials Inc. Consolidated Balance Sheets (dollars in thousands) (unaudited)   September 30, March 31,   2016       2015   2016*

ASSETS

Current Assets – Cash and Cash Equivalents $ 54,506 $ 6,348 $ 5,391 Accounts and Notes Receivable, net 155,241 154,959 120,221 Inventories 217,582 224,667 243,595 Federal Income Tax Receivable 1,046 - 5,623 Prepaid and Other Assets   6,761     9,026     5,173   Total Current Assets   435,136     395,000     380,003   Property, Plant and Equipment – 2,089,499 2,041,242 2,072,776 Less: Accumulated Depreciation   (855,148 )   (779,010 )   (817,465 ) Property, Plant and Equipment, net 1,234,351 1,262,232 1,255,311 Investments in Joint Venture 47,852 49,883 49,465 Notes Receivable 1,158 2,760 2,672 Goodwill and Intangibles 162,506 177,069 165,827 Other Assets   27,132     33,306     30,357   $ 1,908,135   $ 1,920,250   $ 1,883,635  

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities – Accounts Payable $ 62,481 $ 70,584 $ 66,614 Accrued Liabilities 53,793 50,066 45,975 Federal Income Tax Payable - 5,108 - Current Portion of Senior Notes   8,000     57,045     8,000   Total Current Liabilities   124,274     182,803     120,589   Long-term Liabilities 59,922 70,425 61,122 Bank Credit Facility - 327,000 382,000 Private Placement Senior Unsecured Notes 117,714 125,714 117,714 4.500% Senior Unsecured Notes due 2026 343,468 - - Deferred Income Taxes 164,027 144,617 161,679 Stockholders’ Equity – Preferred Stock, Par Value $0.01; None Issued - - - Common Stock, Par Value $0.01; Authorized 100,000,000

Shares; Issued and Outstanding 48,223,617; 50,286,652 and

48,526,843 Shares, respectively

482 503 485 Capital in Excess of Par Value 130,638 273,372 168,969 Accumulated Other Comprehensive Losses (10,785 ) (11,428 ) (11,409 ) Retained Earnings   978,395     807,244     882,486   Total Stockholders’ Equity   1,098,730     1,069,691     1,040,531   $ 1,908,135   $ 1,920,250   $ 1,883,635   *From audited financial statements.  

Eagle Materials Inc.

Attachment 5  

Eagle Materials Inc.

Depreciation, Depletion and Amortization by Lines of Business

(dollars in thousands)

(unaudited)

   

The following presents depreciation, depletion and amortization by segment for the quarters ended September 30, 2016 and 2015:

   

Depreciation, Depletion andAmortization($ in thousands)

Quarter EndedSeptember 30,

  2016     2015   Cement $ 8,784 $ 8,629 Gypsum Wallboard 4,768 4,819 Paperboard 2,106 2,063 Oil and Gas Proppants 4,261 7,205 Concrete and Aggregates 1,920 1,565 Other   547   489 $ 22,386 $ 24,770

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Eagle Materials Inc.David B. Powers, 214-432-2000President and Chief Executive OfficerorD. Craig Kesler, 214-432-2000Executive Vice President and Chief Financial OfficerorRobert S. Stewart, 214-432-2000Executive Vice President, Strategy, Corporate Development and Communications