Eagle Materials Reports Third Quarter Results

Eagle Materials Inc. (NYSE: EXP) today reported financial results for the third quarter of fiscal 2019 ended December 31, 2018. Notable items for the quarter are highlighted below (unless otherwise noted, all comparisons are with the prior years fiscal third quarter):

Third Quarter Fiscal 2019 Results

  • Third quarter revenue of $333.3 million, down 7%
  • Earnings before income taxes of $74.5 million, up 45%
  • Net earnings per diluted share of $1.24, down 40%
    • Prior-year results were affected by two non-recurring items detailed below
  • Approximately 950,000 shares repurchased for $69 million

Eagles prior-year financial results included two non-recurring items affecting the comparability of our quarterly results: (i) a tax benefit of approximately $61 million, or $1.25 per share, as a result of the Tax Cuts and Jobs Act enacted on December 22, 2017 and (ii) a litigation settlement charge of $39 million, or $0.56 per share, related to the settlement of class action wallboard antitrust litigation claims against Eagle and its subsidiary, American Gypsum.

Commenting on recent results, Dave Powers, Chief Executive Officer, said, Adjusting for the effects of unusual weather trends during calendar 2018 and a shift in the timing of wallboard price increases and related buying activity, we estimate that the overall market demand for our building materials, notably cement and wallboard, remained in positive territory in calendar 2018, with growth rates in the low single digits. The outlook for calendar 2019 continues to be positive as the basic underlying fundamentals of low unemployment, low interest rates and higher wages remain favorable. Specific to this quarters results, our wallboard business continued to perform very well with operating margins improving 440 bps. Cement prices and volume were up, but margins were affected by higher costs resulting primarily from maintenance outages at two facilities.

Mr. Powers concluded, Our low-cost operations continue to generate strong cashflow that we are investing to improve our operational efficiency and lower our cost position while continuing to repurchase shares in line with our capital allocation strategy. To date, in fiscal 2019, we have purchased nearly 2.2 million shares, or 5% of our outstanding shares.

Segment Results

Heavy Materials: Cement, Concrete and Aggregates

Revenue in the Heavy Materials sector, which includes Cement, Concrete and Aggregates, and Joint Venture and intersegment Cement revenue, was $194.2 million, a 3% decline. Heavy Materials operating earnings decreased 14% to $48.2 million primarily because of higher operating costs within the Cement segment and unusually wet weather that affected both our Cement and Concrete and Aggregates businesses.

Cement revenue, including Joint Venture and intersegment revenue, was up 1% to $163.7 million, reflecting improved net sales prices and sales volume. The average net sales price for the quarter improved 1% to $107.54 per ton. Cement sales volume for the quarter was 1.3 million tons, a slight improvement versus the prior year.

Operating earnings from Cement were $47.2 million, 10% below the same quarter a year ago. The earnings decline was primarily due to higher maintenance costs. We performed two maintenance outages within our Cement group and installed upgraded emission control equipment. These two outages increased maintenance costs and reduced production output for the quarter.

Concrete and Aggregates revenue for the third quarter was $30.5 million, a decrease of 21%. Third quarter operating earnings were $1.0 million, a 70% decline, reflecting lower sales volume partially offset by improved concrete pricing. Our primary concrete and aggregates markets experienced heavier rainfall than typical during the quarter, which hampered their ability to move product.

Light Materials: Gypsum Wallboard and Paperboard

Revenue in the Light Materials sector, which includes Gypsum Wallboard and Paperboard, decreased 5% to $153.8 million. The decline reflects lower wallboard and paperboard sales volume partially offset by improved wallboard net sales prices. The average Gypsum Wallboard net sales price was $159.38 per MSF, a 5% improvement. Gypsum Wallboard sales volume was 653 million square feet (MMSF), down approximately 8%. The decline in wallboard sales volume versus the prior-year period was primarily due to a shift in the timing of pre-buying activity ahead of our winter wallboard price increase. In the prior year, our price increase was scheduled for early January; therefore, the pre-buy activity increased December 2017 shipments.

The average Paperboard net sales price this quarter was $519.29 per ton, down 11%, consistent with the pricing provisions in our long-term sales agreements. Paperboard sales volume for the quarter was down 9% reflecting the change in wallboard shipment activity.

Operating earnings were $51.0 million in the sector, an increase of 1%, reflecting improved wallboard net sales prices and lower operating costs. The reduced operating costs primarily reflected lower recycled fiber costs during the quarter.

Oil and Gas Proppants

Revenue in the Oil and Gas Proppants segment declined 47% to $14.1 million, reflecting lower frac sand sales volume and net sales prices. The third quarters operating loss of $9.3 million included $7.0 million of depreciation, depletion and amortization. Sales volume and net sales prices were negatively affected by weakness in completions activity, which was greater than anticipated, and the typical seasonal slowdown. We continue to analyze our cost structure and will right-size the business given these near-term challenges.

Details of Financial Results

We conduct one of our cement plant operations through a 50/50 joint venture, Texas Lehigh Cement Company LP (the Joint Venture). We use 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 Ventures revenue and operating earnings, which is consistent with the way management organizes the segments within Eagle for making operating decisions and assessing performance.

In addition, for segment reporting purposes, we report intersegment revenue as a part of a segments total revenue. Intersegment sales are eliminated on the income statement. Refer to Attachment 3 for a reconciliation of these amounts.

About Eagle Materials Inc.

Eagle Materials Inc. manufactures and distributes Portland Cement, Gypsum Wallboard and Recycled Gypsum Paperboard, and Concrete, Sand and Aggregates from more than 75 facilities across the US. Eagles corporate headquarters is in Dallas, Texas.

EXPs 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 Tuesday, January 29, 2019. The conference call will be webcast simultaneously on the EXP website, eaglematerials.com. A replay of the webcast and the presentation will be archived on the website for one year.

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 revenue 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, 2018, the Companys Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2018 and subsequent quarterly reports upon filing. These reports are filed with the Securities and Exchange Commission. 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 Revenue and Earnings by Lines of Business
Attachment 3 Sales Volume, Average Net Sales Prices and Intersegment and Cement Revenue
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

December 31,

Nine Months Ended

December 31,

2018 2017 2018 2017
Revenue $ 333,285 $ 359,371 $ 1,108,540 $ 1,101,807
Cost of Goods Sold 252,864 264,805 838,554 824,428
Gross Profit 80,421 94,566 269,986 277,379
Equity in Earnings of Unconsolidated JV 9,507 11,372 28,931 33,203
Corporate General and Administrative Expenses (9,408 ) (9,883 ) (27,333 ) (29,383 )
Litigation Settlements and Losses (39,098 ) (1,800 ) (39,098 )
Other Non-Operating Income 1,292 1,084 2,291 2,728
Earnings before Interest and Income Taxes 81,812 58,041 272,075 244,829

Interest Expense, net

(7,294 ) (6,653 ) (20,743 ) (21,592 )
Earnings before Income Taxes 74,518 51,388 251,332 223,237

Income Tax (Expense) Benefit

(16,803 ) 49,992

(54,675

) (3,613 )
Net Earnings $ 57,715 $ 101,380 $ 196,657 $ 219,624

EARNINGS PER SHARE
Basic $ 1.25 $ 2.10 $ 4.18 $ 4.56
Diluted $ 1.24 $ 2.08 $ 4.15 $ 4.52
AVERAGE SHARES OUTSTANDING
Basic 46,275,198 48,221,093 47,059,408 48,132,276
Diluted 46,495,994 48,757,762 47,403,271 48,641,430

Eagle Materials Inc.

Attachment 2

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

December 31,

Nine Months Ended

December 31,

2018 2017 2018 2017
Revenue*
Heavy Materials:
Cement (Wholly Owned) $ 134,845 $ 131,915 $ 453,800 $ 442,747
Concrete and Aggregates 30,495 38,454 110,247 124,989
165,340 170,369 564,047 567,736
Light Materials:
Gypsum Wallboard 130,954 133,348 402,978 383,229
Gypsum Paperboard 22,891 29,262 76,249 83,518
153,845 162,610 479,227 466,747
Oil and Gas Proppants 14,100 26,392 65,266 67,324
Total Revenue $ 333,285 $ 359,371 $ 1,108,540 $ 1,101,807

Segment Operating Earnings
Heavy Materials:
Cement (Wholly Owned) $ 37,690 $ 41,151 $ 113,147 $ 121,253
Cement (Joint Venture) 9,507 11,372 28,931 33,203
Concrete and Aggregates 1,037 3,414 10,621 15,054
48,234 55,937 152,699 169,510
Light Materials:
Gypsum Wallboard 43,543 39,841 139,694 123,237
Gypsum Paperboard 7,475 10,903 26,078 22,358
51,018 50,744 165,772 145,595
Oil and Gas Proppants (9,324 ) (743 ) (19,554 ) (4,523 )
Sub-total 89,928 105,938 298,917 310,582
Corporate General and Administrative Expense (9,408 ) (9,883 ) (27,333 ) (29,383 )
Litigation Settlements and Losses (39,098 ) (1,800 ) (39,098 )
Other Non-Operating Income 1,292 1,084 2,291 2,728
Earnings before Interest and Income Taxes $ 81,812 $ 58,041 $ 272,075 $ 244,829

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

Eagle Materials Inc.

Attachment 3

Eagle Materials Inc.
Sales Volume, Average Net Sales Prices and Intersegment and Cement Revenue
(unaudited)
Sales Volume
Quarter Ended

December 31,

Nine Months Ended

December 31,

2018 2017 Change 2018 2017 Change
Cement (M Tons):
Wholly Owned 1,126 1,123 0% 3,740 3,734 0%
Joint Venture 218 216 +1% 672 686 -2%
1,344 1,339 0% 4,412 4,420 0%
Concrete (M Cubic Yards) 237 303 -22% 846 993 -15%
Aggregates (M Tons) 747 820 -9% 2,616 2,764 -5%
Gypsum Wallboard (MMSF) 653 709 -8% 1,992 2,014 -1%
Paperboard (M Tons):
Internal 32 33 -3% 95 96 -1%
External 42 48 -13% 140 143 -2%
74 81 -9% 235 239 -2%
Frac Sand (M Tons) 365 379 -4% 1,129 1,083 +4%
Average Net Sales Price*
Quarter Ended

December 31,

Nine Months Ended

December 31,

2018 2017 Change 2018 2017 Change
Cement (Ton) $ 107.54 $ 106.83 +1 % $ 107.94 $ 106.91 +1 %
Concrete (Cubic Yard) $ 102.94 $ 100.71 +2 % $ 102.72 $ 100.06 +3 %
Aggregates (Ton) $ 8.68 $ 9.68 -10 % $ 9.30 $ 9.37 -1 %
Gypsum Wallboard (MSF) $ 159.38 $ 151.13 +5 % $ 161.63 $ 154.52 +5 %
Paperboard (Ton) $ 519.29 $ 581.95 -11 % $ 520.02 $ 564.46 -8 %

*Net of freight and delivery costs billed to customers.

Intersegment and Cement Revenue
Quarter Ended

December 31,

Nine Months Ended

December 31,

2018 2017 2018 2017
Intersegment Revenue:
Cement $ 3,518 $ 4,160 $ 11,769 $ 13,743
Concrete and Aggregates 346 288 1,178 1,103
Paperboard 16,747 19,127 49,799 54,643
$ 20,611 $ 23,575 $ 62,746 $ 69,489
Cement Revenue:
Wholly Owned $ 134,845 $ 131,915 $ 453,800 $ 442,747
Joint Venture 25,369 25,526 78,112 79,696
$ 160,214 $ 157,441 $ 531,912 $ 522,443

Eagle Materials Inc.

Attachment 4

Eagle Materials Inc.
Consolidated Balance Sheets
(dollars in thousands)
(unaudited)
December 31, March 31,
2018 2017 2018*

ASSETS

Current Assets “
Cash and Cash Equivalents $ 17,060 $ 21,676 $ 9,315
Restricted Cash 38,753
Accounts and Notes Receivable, net 133,873 143,662 141,685
Inventories 251,260 239,628 258,159
Federal Income Tax Receivable 314 5,750
Prepaid and Other Assets 6,966 20,378 5,073
Total Current Assets 409,473 425,344 458,735
Property, Plant and Equipment “ 2,659,148 2,547,430 2,586,528
Less: Accumulated Depreciation (1,031,996 ) (972,706 ) (991,229 )
Property, Plant and Equipment, net 1,627,152 1,574,724 1,595,299
Investments in Joint Venture 61,988 55,337 60,558
Notes Receivable 3,022 296 115
Goodwill and Intangibles 236,936 240,145 239,342
Other Assets 16,845 12,197 13,954
$ 2,355,416 $ 2,308,043 $ 2,368,003

LIABILITIES AND STOCKHOLDERS EQUITY

Current Liabilities “
Accounts Payable $ 77,611 $ 73,203 $ 73,459
Accrued Liabilities 66,921 101,432 105,870
Federal Income Tax Payable
Current Portion of Senior Notes 36,500
Total Current Liabilities 181,032 174,635 179,329
Long-term Liabilities 30,554 35,112 31,096
Bank Credit Facility 245,000 185,000 240,000
Private Placement Senior Unsecured Notes 36,500 36,500
4.500% Senior Unsecured Notes due 2026 344,924 344,255 344,422
Deferred Income Taxes 133,569 116,352 118,966
Stockholders Equity “
Preferred Stock, Par Value $0.01; None issued
Common Stock, Par Value $0.01; Authorized 100,000,000
Shares; Issued and Outstanding 46,238,591; 48,664,650 and
48,282,784 Shares, respectively 462 487 483
Capital in Excess of Par Value 156,834 122,379
Accumulated Other Comprehensive Losses (3,844 ) (6,805 ) (4,012 )
Retained Earnings 1,423,719 1,265,673 1,298,840
Total Stockholders Equity 1,420,337 1,416,189 1,417,690
$ 2,355,416 $ 2,308,043 $ 2,368,003

*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 table presents depreciation, depletion and amortization by lines of business for the quarter and

nine months ended December 31, 2018 and 2017:

Depreciation, Depletion and Amortization
Quarter Ended

December 31,

Nine Months Ended

December 31,

2018 2017 2018 2017
Cement $ 13,242 $ 13,117 $ 38,909 $ 38,258
Concrete and Aggregates 2,049 2,007 6,154 5,851
Gypsum Wallboard 4,978 4,599 15,009 13,514
Paperboard 2,150 2,204 6,387 6,513
Oil and Gas Proppants 6,964 6,370 24,403 22,682
Corporate and Other 402 353 1,099 1,085
$ 29,785 $ 28,650 $ 91,961 $ 87,903

For additional information, contact at 214-432-2000.
David
B. Powers

Chief Executive Officer
D. Craig Kesler
Executive
Vice President and Chief Financial Officer

Robert S. Stewart
Executive
Vice President, Strategy, Corporate Development and Communications