Investment research report for EXP

Table of Contents

Executive Summary
Valuation Analysis
Industry and Competitors Analysis
Financial Analysis
Earnings Call Multi-Year Analysis
Financial Statements Multi Year
Insider Trading Analysis
Management Compensation Benchmark Analysis
Proxy Statement Analysis
News Analysis
Technical Indicators Analysis
Financial Statements Annual
Financial Statements Quarterly
Earnings Call Analysis

Executive Summary

Company Description

Eagle Materials Inc. is a leading supplier of heavy construction materials, cement, concrete, aggregates, and gypsum wallboard in the United States. The company operates through two segments: Heavy Materials (Cement, Concrete and Aggregates) and Light Materials (Gypsum Wallboard and Recycled Paperboard). Eagle Materials is well-positioned in the Heartland and Sunbelt regions of the country, benefiting from favorable demographic trends and infrastructure spending.

Financial Highlights

  • Record revenue of $2.26 billion and net earnings of $477.6 million in fiscal 2024, representing year-over-year increases of 5% and 3%, respectively.
  • Gross profit margin expanded to 30.3% in fiscal 2024, driven by effective cost management and pricing power.
  • Strong cash flow generation, with $541.7 million in operating cash flow in fiscal 2023, supporting growth investments and shareholder returns.
  • Healthy balance sheet with a debt-to-capitalization ratio of 45.7% and ample liquidity from a $5.7 billion revolving credit facility.

Competitive Advantages

  • Low-cost producer position across business segments, providing a competitive edge in managing costs and maintaining profitability.
  • Vertically integrated operations and control over raw material reserves, mitigating supply chain risks and ensuring consistent product quality.
  • Diversified business model across construction end-markets, providing resilience against cyclical downturns in any single segment.
  • Strategic acquisitions and capacity expansions position the company for future growth in its core markets.

Growth Opportunities and Sustainability

  • Favorable industry trends, including robust infrastructure spending and residential construction demand, support long-term growth prospects.
  • Focus on sustainability initiatives, such as increasing production of blended cement products and deploying low-carbon supplementary cementitious materials, aligns with long-term ESG trends.
  • Disciplined capital allocation, with a balance between growth investments and shareholder returns through share repurchases and dividends.

Back to Table of Contents

Valuation Analysis

PE ratio

  • Low: 5.535500922934766
  • Base: 24.48071210476529
  • High: 43.42592328659581

PB ratio

  • Low: 2.417674372221347
  • Base: 4.1955247852580175
  • High: 5.973375198294688

FCF Growth

  • Low: -6.29%
  • Med: 10.82%
  • High: 17.62%

Value forecast by FCF

  • Low: 121.98
  • Med: 317.28
  • High: 480.91

The price today for EXP is $216.05.

Price target for 18 months from now

  • Low: 201.94
  • Med: 231.23
  • High: 255.78

Price target for 4 years from now

  • Low: 178.42
  • Med: 256.54
  • High: 321.99

Price target for 10 years from now

  • Low: 121.98
  • Med: 317.28
  • High: 480.91

The net present value multiplier discounted at 10.36% the value of the stock is:
– Low: 0.56
– Med: 1.47
– High: 2.23

The upside/downside ratio is 1.08, and our rating is Hold.

Back to Table of Contents

Industry and Competitors Analysis

EXP (Eagle Materials Inc.) and its Competitors

Based on the information provided, EXP (Eagle Materials Inc.) operates in the construction materials industry, primarily producing and supplying heavy construction materials like cement, concrete, aggregates, and gypsum wallboard products. Its main competitors appear to be:

  1. Vulcan Materials Company (VMC) – A major player in the construction aggregates, asphalt, ready-mix concrete, and calcium products markets.

  2. CRH plc (CRH) – A global leader in the building materials industry, offering a diverse range of products including cement, aggregates, ready-mixed concrete, and construction accessories.

  3. Summit Materials, Inc. (SUM) – A construction materials company with operations in aggregates, cement, ready-mix concrete, asphalt, and concrete products.

  4. CEMEX, S.A.B. de C.V. (CX) – A Mexican multinational company that produces, distributes, and sells cement, ready-mix concrete, and aggregates globally.

  5. Martin Marietta Materials, Inc. (MLM) – A leading supplier of aggregates and heavy building materials for infrastructure and construction projects.

Some other notable competitors in the industry include United States Lime & Minerals, Inc. (USLM), Cementos Pacasmayo S.A.A. (CPAC), James Hardie Industries plc (JHX), The Monarch Cement Company (MCEM), and Loma Negra Compañía Industrial Argentina Sociedad Anónima (LOMA).

Competitive Positioning of EXP

In terms of competitive positioning, EXP appears to be a mid-sized player in the construction materials industry, with a strong presence in the United States. Its financial metrics, such as revenue, profitability ratios, and balance sheet strength, are generally in line with or slightly below some of the larger competitors like Vulcan Materials, CRH, and Martin Marietta Materials. However, it seems to have a relatively strong position in its core markets and product segments, such as cement, concrete, and aggregates.

Back to Table of Contents

Chart of Competitors

"Chart of Competitors"

Back to Table of Contents

Financial Analysis

Financial Strength

The company has a relatively strong current ratio, ranging from around 2.1 to 3.9 over the past few years, indicating good liquidity and ability to meet short-term obligations. The debt-to-equity ratio has been fluctuating but generally trending downwards, suggesting the company is managing its debt levels reasonably well. Interest coverage ratios have been mostly healthy, above 10x in recent years, indicating adequate ability to service debt obligations.

Potential for Growth

Revenue growth has been uneven, with some quarters showing strong growth and others declining. The 3-year revenue growth per share has been positive but fluctuating. Earnings growth (EPS and net income growth) has also been volatile, with some periods of strong growth followed by declines. Analyst estimates suggest expectations of continued revenue and earnings growth over the next few years, though the ranges are quite wide.

Competitive Advantage

As a construction materials company, Eagle Materials likely benefits from barriers to entry and economies of scale in its industry. However, the financial data does not provide clear insights into the company’s specific competitive advantages.

Quality of Management

Profitability metrics like return on equity and return on assets have been fluctuating, suggesting room for improvement in management’s ability to generate returns efficiently. The company’s shareholder-friendly actions, such as dividends and share repurchases, have been inconsistent over time.

Shareholder Friendliness

Eagle Materials has paid dividends, though the dividend yield is relatively low, and dividend growth has been uneven. Share repurchases do not appear to be a consistent part of the company’s capital allocation strategy.

Valuation

Valuation metrics like price-to-earnings and price-to-book ratios have varied significantly over time, making it difficult to assess the company’s current valuation based solely on this data. Analyst estimates for future earnings could provide a basis for valuation, but the wide ranges suggest uncertainty.

Overall, Eagle Materials appears to be a reasonably well-managed company with some positive financial indicators, but its growth trajectory and shareholder-friendly actions have been inconsistent. More analysis would be needed to fully assess the company’s competitive position, management quality, and appropriate valuation.

Back to Table of Contents

Chart of Key Per Share Metrics

"Chart of Key Per Share Metrics"

Back to Table of Contents

Chart of Absolute Metrics

"Chart of Absolute Metrics"

Back to Table of Contents

Earnings Call Multi-Year Analysis

Strong Demand Outlook

Eagle Materials operates in sectors with favorable long-term demand drivers, including residential construction, infrastructure spending, and industrial/manufacturing projects. The company is well-positioned to benefit from these trends, particularly in the Sunbelt and Heartland regions of the U.S.

Pricing Power and Cost Management

Eagle Materials has demonstrated the ability to implement price increases across its cement, wallboard, and aggregates businesses, reflecting its pricing power and ability to pass through cost inflation. The company’s low-cost operations, vertical integration, and control over raw materials provide a competitive advantage in managing costs.

Capacity Constraints and Supply Dynamics

The cement and wallboard industries face capacity constraints and supply limitations, with high barriers to entry for new capacity additions. This dynamic supports pricing power and benefits Eagle Materials as a leading producer with access to its own raw material reserves.

Strategic Initiatives and Sustainability Focus

Eagle Materials is proactively investing in strategic initiatives like the transition to Portland Limestone Cement (PLC) and exploring carbon capture technologies. These efforts align with the company’s focus on sustainability and reducing its environmental footprint, positioning it well for the long term.

Disciplined Capital Allocation

The company has a strong track record of disciplined capital allocation, prioritizing organic growth investments, strategic acquisitions, and returning excess cash to shareholders through share repurchases and dividends. Eagle Materials maintains a healthy balance sheet and financial flexibility.

Operational Excellence and Resilience

Eagle Materials has demonstrated operational resilience and the ability to navigate challenging market conditions, such as supply chain disruptions and inflationary pressures. The company’s focus on safety, process automation, and continuous improvement supports its long-term competitiveness.

Cautious Optimism and Uncertainty Management

While the company expresses confidence in the long-term demand outlook, it also acknowledges near-term uncertainties related to factors like interest rates, housing market dynamics, and macroeconomic conditions. Eagle Materials appears to take a prudent approach in managing these uncertainties.

Overall, the key insights suggest that Eagle Materials is a well-managed company with competitive advantages, a favorable long-term demand outlook, and a disciplined approach to capital allocation and sustainability initiatives. These factors make the company an attractive consideration for long-term investors, provided they closely monitor the company’s execution and ability to navigate potential market challenges.

Back to Table of Contents

Financial Statements Multi Year

Strong financial performance

The company has demonstrated strong financial performance with record revenue and earnings growth across most years. This growth has been driven by higher selling prices, volumes, and successful acquisitions, showcasing the company’s ability to navigate challenges and capitalize on market opportunities.

Consistent margin expansion

The company has achieved consistent margin expansion through effective cost management, operational efficiencies, and pricing power. This indicates a low-cost production model and the presence of competitive advantages.

Diversified business model

The company’s diversified business model across cement, concrete, aggregates, gypsum wallboard, and recycled paperboard segments provides resilience against cyclicality in any single market.

Strategic growth initiatives

The company’s strategic acquisitions and capacity expansions position it well for future growth in its core markets. This growth is supported by favorable industry trends, such as infrastructure spending and residential construction.

Robust financial position

The company’s robust cash flow generation and strong balance sheet with ample liquidity enable continued investments in growth initiatives as well as shareholder-friendly capital allocation through share buybacks and dividends.

Sustainability focus

The company’s focus on sustainability initiatives, such as reducing its carbon footprint and deploying low-carbon materials, aligns with long-term ESG trends.

Risks

The company faces risks, including inflationary pressures, supply chain disruptions, economic downturns impacting construction demand, and regulatory compliance costs related to environmental regulations.

Overall, Eagle Materials’ consistent financial performance, diversified operations, growth investments, strong balance sheet, and shareholder-friendly policies make it an attractive long-term investment opportunity, despite potential cyclical and regulatory risks inherent to the industry.

Back to Table of Contents

Insider Trading Analysis

The CEO (Haack Michael) and CFO (Kesler Dale Craig) have been consistently awarded large amounts of restricted stock units and non-qualified stock options over the years, indicating they are being heavily incentivized through equity compensation. Both the CEO and CFO have also made significant sales of their common stock holdings, likely to diversify their personal portfolios. Other key executives like the EVP (Devlin William R) and SVP (Cribbs Eric) have also received equity awards and made sales, though to a lesser extent than the CEO and CFO.

Short-term Implications

The large equity awards to the CEO and CFO suggest they are expected to drive long-term value creation for the company. The insider sales, particularly by the CEO and CFO, indicate they may be taking some chips off the table, potentially signaling confidence in the near-term stock price performance. Overall, the insider trading patterns suggest the company’s leadership team is well-aligned with shareholders through equity incentives, but also prudently managing their personal financial positions.

For long-term investors, the consistent equity awards to key executives are a positive sign that they are incentivized to grow the business over the long run. The insider sales by the CEO and CFO may raise some short-term concerns, but are likely part of prudent personal financial management rather than a lack of confidence in the company’s prospects. Monitoring future patterns in equity awards and sales will be important to assess the leadership team’s commitment to long-term value creation.

Back to Table of Contents

Management Compensation Benchmark Analysis

Base Salary Portion of Total Compensation

Based on the executive compensation details provided, the base salary portion of total compensation for EXP executives is relatively low compared to the other companies analyzed. The average base salary portion for EXP executives is 26.51%, which is lower than the averages for VMC (19.84%), SUM (24.88%), MLM (29.22%), and USLM (65.05%).

Incentive-Based Compensation

EXP executives receive a significant portion of their total compensation in the form of stock awards and incentive plan compensation, rather than base salary. This suggests the compensation structure is designed to align the interests of executives with long-term shareholder value creation.

CEO Compensation

The CEO of EXP, Michael R. Haack, has the lowest base salary portion of total compensation among the EXP executives, at only 13.13% in 2023. This indicates his compensation is heavily weighted towards long-term incentives.

Alignment with Shareholder Interests

The compensation structure for EXP executives appears to be focused on incentivizing long-term performance and shareholder value creation, which should be favorable for long-term investors. The low base salary portions and high variable/equity-based pay components suggest the executives’ interests are closely aligned with those of shareholders.

In summary, the executive compensation structure at EXP seems well-designed to motivate and retain top talent while also aligning their interests with long-term shareholder value. This should be a positive signal for long-term investors in the company.

Back to Table of Contents

Proxy Statement Analysis

Executive Compensation Structure

The proxy statement outlines the components of executive compensation, including base salary, annual cash incentives tied to performance metrics, and long-term equity incentives. The mix and structure of these elements can indicate the alignment with long-term value creation.

Performance Metrics

The specific performance metrics used for annual and long-term incentive plans are disclosed. Metrics tied to long-term value drivers, such as revenue growth, profitability, return on capital, and shareholder returns, can demonstrate alignment with long-term interests.

Equity Incentives

Details on equity-based compensation, including the types of awards (e.g., stock options, restricted stock, performance shares) and vesting schedules, are provided. The use of performance-based equity awards with longer vesting periods can align executive pay with sustained long-term performance.

Stock Ownership Guidelines

The proxy statement may disclose any stock ownership guidelines or requirements for executives, which can further align their interests with long-term shareholders.

Clawback and Recoupment Policies

The presence of robust clawback and recoupment policies that allow the company to recover incentive compensation in the event of financial restatements or misconduct can be an important governance feature for long-term investors.

By carefully analyzing these key elements, a long-term investor can assess the degree to which the company’s executive compensation practices are designed to incentivize and reward the creation of sustainable long-term value for shareholders.

Back to Table of Contents

News Analysis

Positive

The company has been reporting record quarterly revenues, earnings, and EPS growth over the past few years, driven by strong construction activity and demand.

Eagle Materials has made several strategic acquisitions to expand its cement and building materials business, providing growth opportunities.

The company is well-positioned to benefit from potential infrastructure spending initiatives in the U.S.

Management has taken actions like spinning off businesses and increasing share buybacks to enhance shareholder value.

The stock has received positive analyst ratings and price target increases from brokerages.

Potential Concerns

Earnings and revenues can be cyclical and tied to construction/housing market conditions, which can be volatile.

The company suspended its dividend in 2020 during the pandemic to preserve cash, though it has since reinstated payouts.

Supply chain constraints, rising costs, and economic uncertainty could pressure near-term profitability.

The planned separation of the heavy and light materials businesses faced potential delays due to COVID-19 disruptions.

Overall, the sentiment seems relatively positive, with Eagle Materials demonstrating solid financial performance, strategic initiatives for growth, and potential tailwinds from infrastructure investment. However, investors should monitor cyclical risks, cost pressures, and execution of the planned business separation. A long-term outlook would depend on the company’s ability to sustain growth and navigate industry cycles effectively.

Back to Table of Contents

Technical Indicators Analysis

Next Week Trading

The recent price action and technical indicators suggest a potential short-term pullback or consolidation in the next week. The 10-day RSI is in the 30s, indicating the stock may be oversold in the near-term. Additionally, the 20-day TEMA has been declining, hinting at potential selling pressure. Traders may look for opportunities to take profits or enter short-term positions on any further weakness.

Resistance and Support Levels

The 50-day and 200-day SMAs appear to be providing dynamic support and resistance levels. The stock has been trading above the 200-day SMA, suggesting overall bullish sentiment. However, the recent decline has brought the price closer to the 200-day SMA, which could act as a support level. Traders may monitor the 50-day SMA as a potential resistance level in the near-term.

Short-Term Investor

Short-term investors may want to closely monitor the stock’s price action and technical indicators for potential trading opportunities. The recent pullback and oversold RSI reading could present a chance to enter long positions, with the 200-day SMA as a potential support level. However, caution is advised as the overall trend appears to be weakening in the short-term.

Long-Term Investor

For long-term investors, the overall technical picture remains relatively positive. The stock is still trading above the 200-day SMA, indicating a bullish long-term trend. The 50-day SMA also remains above the 200-day SMA, supporting the positive long-term outlook. Long-term investors may consider this as an opportunity to accumulate the stock, as the current pullback could be a temporary correction within the broader uptrend.

Back to Table of Contents

Chart of Valuation History

"Chart of Valuation History"

Back to Table of Contents

Financial Statements Annual

Financial Statements Annual 2024 Q3

Strong Financial Performance

Eagle Materials achieved record Revenue of $2.26 billion and record Net Earnings of $477.6 million in fiscal 2024, representing increases of 5% and 3% respectively compared to the prior year. The company expanded its Gross Profit margin to 30.3% in fiscal 2024.

Resilient Demand

Demand for the company’s products, including cement, concrete, aggregates, and gypsum wallboard, remained strong despite macroeconomic headwinds like inflation and rising interest rates. The company expects continued robust demand, particularly in its Cement and Gypsum Wallboard segments, driven by growth in infrastructure spending and residential construction.

Cost Management and Operational Efficiency

Eagle Materials has maintained its position as a low-cost producer across its business segments. The company was able to manage rising input costs, such as energy and freight, through operational efficiencies and pricing actions. This allowed the company to expand its operating margins in the Cement and Recycled Paperboard segments.

Disciplined Capital Allocation

The company continues to balance growth investments, such as the expansion and modernization of its cement plant in Wyoming, with returning capital to shareholders. In fiscal 2024, Eagle Materials repurchased $353.7 million of its common stock and paid $35.3 million in dividends, demonstrating its commitment to shareholder value creation.

Sustainability Initiatives

The company made meaningful progress on its environmental, social, and governance (ESG) priorities, including increasing the production and sale of blended cement products to reduce the carbon intensity of its operations, entering into agreements to deploy low-carbon supplementary cementitious materials, and linking executive compensation to the advancement of its ESG goals.

Prudent Financial Management

Eagle Materials maintains a strong balance sheet with a debt-to-capitalization ratio of 45.7% and a net debt-to-capitalization ratio of 44.9% as of March 31, 2024. The company has ample liquidity from its $5.7 billion available under its revolving credit facility to fund its operations, capital expenditures, and strategic initiatives.

Overall, Eagle Materials’ fiscal 2024 results demonstrate the company’s ability to navigate challenging market conditions, maintain its operational excellence, and execute on its strategic priorities, positioning it well for long-term growth and value creation.

Financial Statements Annual 2023 Q3

Strong Financial Performance

Achieved record revenue of $2.15 billion in fiscal 2023, up 15% year-over-year. Net earnings increased 23% to $461.5 million, with diluted EPS growing 36% to $12.46. Gross profit margin expanded by 190 basis points to 29.8%, demonstrating the company’s ability to effectively manage costs.

Diversified Business Model

Eagle Materials operates in two main sectors – Heavy Materials (Cement, Concrete and Aggregates) and Light Materials (Gypsum Wallboard, Recycled Paperboard). This diversification across construction end-markets provides regional economic diversification and helps mitigate the impact of cyclical downturns in any one segment.

Operational Efficiency and Cost Management

The company’s focus on being a low-cost producer, continuous process improvements, and effective management of raw materials, energy, and freight costs have enabled it to maintain strong operating margins. Cement and Gypsum Wallboard segments reported operating margins of 26% and 40% respectively, demonstrating the company’s pricing power and operational efficiency.

Strategic Acquisitions and Investments

Eagle Materials has grown its business through strategic acquisitions, including the ConAgg Acquisition in fiscal 2023, which expanded its Concrete and Aggregates segment. The company has also invested in capacity expansions and modernization of its cement and wallboard facilities, positioning it for future growth.

Strong Balance Sheet and Cash Flow

The company generated $541.7 million in operating cash flow in fiscal 2023, providing ample liquidity to fund capital expenditures, acquisitions, and shareholder returns. Eagle Materials maintains a prudent capital structure, with a debt-to-capitalization ratio of 48.1% as of March 31, 2023, providing financial flexibility.

Shareholder-Friendly Capital Allocation

The company has a track record of returning capital to shareholders through share repurchases and dividends, having repurchased approximately 48% of its shares since becoming a public company in 1994. The board recently authorized an additional 7.5 million shares for repurchase, demonstrating the company’s commitment to enhancing shareholder value.

Overall, Eagle Materials’ strong financial performance, diversified business model, operational efficiency, strategic investments, and shareholder-friendly capital allocation make it an attractive long-term investment opportunity for investors.

Financial Statements Annual 2022 Q3

Strong Financial Performance

Revenue increased 15% to $1.86 billion in fiscal 2022, driven by higher sales prices and volumes. Net Earnings from Continuing Operations increased 12% to $374 million. Diluted Earnings per Share from Continuing Operations increased 14% to $9.14. The company maintained a strong gross profit margin of 27.9% in fiscal 2022, up from 25.1% in the prior year.

Operational Highlights

Cement segment revenue and operating earnings increased 8% and 11% respectively, benefiting from higher prices and volumes. Gypsum Wallboard segment revenue and operating earnings increased 28% and 56% respectively, driven by strong pricing. The company completed the $1.21 billion acquisition of a concrete and aggregates business in Colorado in April 2022, expanding its footprint.

Capital Allocation and Liquidity

The company repurchased approximately 40 million shares of stock during fiscal 2022. In July 2021, the company refinanced its debt, issuing $750 million of 10-year senior notes and repaying its term loan and prior senior notes. As of March 31, 2022, the company had $19 million in cash and $200 million outstanding under its $7.5 billion revolving credit facility.

Outlook and Risks

The company expects continued strength in its end markets, supported by favorable demographic trends and infrastructure spending. However, the company faces risks related to inflation, supply chain disruptions, and potential economic downturns that could impact construction activity. The company’s operations are subject to extensive environmental regulations, which could result in increased compliance costs.

Overall, the financial statements demonstrate Eagle Materials’ ability to deliver strong financial and operational performance despite a challenging environment. The company’s diversified business model, strategic acquisitions, and prudent capital allocation have positioned it well for continued growth and value creation.

Back to Table of Contents

Financial Statements Quarterly

Financial Statements Quarterly 2024 Q3

Strong financial performance

The company reported solid revenue growth of 9% and 6% for the three and nine months ended December 31, 2023, respectively, compared to the prior year periods. This was driven by higher selling prices across the business segments.

Profitability improvement

Gross profit and operating earnings increased 14% and 12% for the three and nine months ended December 31, 2023, respectively, compared to the prior year periods. This was due to the higher selling prices, partially offset by increased operating costs.

Cement segment strength

The Cement segment, which is the largest contributor to revenue and earnings, saw a significant increase in operating earnings of 46% and 29% for the three and nine months ended December 31, 2023, respectively. This was driven by higher selling prices and sales volumes.

Gypsum Wallboard segment resilience

Despite a decline in sales volume, the Gypsum Wallboard segment maintained its profitability, with operating earnings decreasing only 14% and 4% for the three and nine months ended December 31, 2023, respectively. This demonstrates the segment’s ability to manage cost pressures.

Liquidity and capital structure

The company has a strong liquidity position, with $634 million of available borrowing capacity under its revolving credit facility as of December 31, 2023. The debt-to-capitalization ratio improved to 43.9% from 48.1% at March 31, 2023, indicating a healthy capital structure.

Shareholder returns

The company continued to return capital to shareholders through dividends and share repurchases, with $267 million in dividends paid and $249 million in share repurchases during the nine months ended December 31, 2023.

Overall, the financial statements demonstrate the company’s ability to navigate market challenges, maintain profitability, and generate strong cash flows, which should be attractive to long-term investors.

Financial Statements Quarterly 2024 Q2

Strong Revenue and Earnings Growth

The company reported solid revenue and earnings growth across its business segments in the three and six months ended September 30, 2023 compared to the prior year periods. This indicates the company is executing well and benefiting from favorable market conditions.

Margin Expansion

Gross margins expanded in the Cement, Gypsum Wallboard, and Recycled Paperboard segments, demonstrating the company’s ability to effectively manage costs and pricing. This suggests the company has pricing power and operational efficiency.

Diversified Business Model

The company operates across Heavy Materials (Cement, Concrete and Aggregates) and Light Materials (Gypsum Wallboard, Recycled Paperboard) sectors, providing diversification and resilience against cyclical swings in any one end market.

Healthy Balance Sheet and Cash Flows

The company has a strong balance sheet with ample liquidity from its revolving credit facility. Operating cash flows remain robust, supporting the company’s ability to fund capital expenditures, acquisitions, and shareholder returns.

Disciplined Capital Allocation

The company continues to invest in organic growth through capital expenditures while also returning capital to shareholders through dividends and share repurchases. This balanced approach suggests prudent management of the business.

Acquisition Integration

The recent Stockton Terminal Acquisition appears to be integrating well, contributing to the Cement segment’s performance. This demonstrates the company’s ability to successfully identify and integrate strategic acquisitions.

Overall, the financial statements indicate the company is well-positioned with a diversified business model, strong operational execution, healthy balance sheet, and disciplined capital allocation – all of which should appeal to long-term investors.

Financial Statements Quarterly 2024 Q1

Revenue Increased 7% to $601.5 Million

Revenue increased 7% to $601.5 million, driven by higher selling prices across all business segments, partially offset by lower sales volumes.

Gross Profit Increased 17% to $176.0 Million

Gross profit increased 17% to $176.0 million, as the benefit of higher selling prices more than offset higher operating costs.

Cement Segment Performance

Cement segment revenue and operating earnings increased 16% and 19% respectively, reflecting higher selling prices, though operating costs also rose due to higher maintenance and energy expenses.

Concrete and Aggregates Segment Performance

Concrete and Aggregates segment revenue and operating earnings increased 9% and 23% respectively, driven by higher selling prices and volumes.

Gypsum Wallboard Segment Performance

Gypsum Wallboard segment revenue increased 1%, while operating earnings grew 8%, as higher selling prices offset lower sales volumes and increased operating costs.

Recycled Paperboard Segment Performance

Recycled Paperboard segment revenue declined 26%, but operating earnings increased 89% due to lower input costs, particularly for fiber and freight.

Acquisition of Stockton Terminal

The company completed the $55 million acquisition of the Stockton Terminal in May 2023, which contributed to the revenue and earnings growth in the Cement segment.

Cash Flow and Capital Allocation

Cash flow from operations increased 13% to $140.5 million, supporting capital expenditures of $36.0 million and share repurchases of $74.1 million.

Financial Flexibility

The company’s debt-to-capitalization ratio of 48.4% and net-debt-to-capitalization ratio of 47.2% provide financial flexibility to fund growth initiatives and return capital to shareholders.

Overall, the financial results demonstrate the company’s ability to navigate inflationary pressures and maintain profitability across its diversified business segments. The strategic acquisition and ongoing capital allocation priorities position the company well for long-term value creation.

Financial Statements Quarterly 2023 Q4

Strong Revenue and Earnings Growth

The company reported a 10% increase in revenue and a 14% increase in net earnings for the three months ended December 31, 2022 compared to the prior year period. For the nine months ended December 31, 2022, revenue increased 16% and net earnings increased 20% compared to the prior year period. This indicates the company is experiencing robust demand and pricing power across its business segments.

Margin Expansion

Gross profit margin increased from 30% to 31% for the three months ended December 31, 2022, and from 29% to 30% for the nine months ended December 31, 2022. This margin expansion was driven by higher selling prices, which offset increases in operating costs. The company’s ability to maintain pricing power and manage costs is a positive sign for long-term profitability.

Acquisition Integration

The company completed two strategic acquisitions during fiscal 2023 – the ConAgg Acquisition in April 2022 and the Terminal Acquisition in September 2022. The financial statements indicate these acquisitions are being successfully integrated and contributing to the company’s overall growth and performance.

Strong Cash Flow and Balance Sheet

The company generated $480 million in operating cash flow during the first nine months of fiscal 2023, up from $429 million in the prior year period. This strong cash flow, combined with the company’s $6.1 billion in available borrowing capacity under its revolving credit facility, provides ample financial flexibility to fund capital expenditures, acquisitions, and shareholder returns.

Shareholder Returns

The company returned $313.9 million to shareholders through share repurchases during the first nine months of fiscal 2023. Additionally, the company maintained its quarterly dividend, which was reinstated in fiscal 2021. The company’s commitment to shareholder returns is a positive sign for long-term investors.

Overall, the financial statements demonstrate the company’s ability to generate consistent revenue and earnings growth, expand margins, successfully integrate acquisitions, and maintain a strong balance sheet and cash flow – all of which are attractive characteristics for long-term investors.

Back to Table of Contents

Earnings Call Analysis

Earnings Call Analysis 2024 Q3

Demand Outlook

The cement, concrete, and aggregates businesses have a robust demand outlook, driven by strong public infrastructure spending and private manufacturing/industrial projects. The gypsum wallboard business faces some near-term uncertainty due to rising interest rates, but the long-term demand outlook remains positive due to the structural housing shortage in the U.S.

Supply Dynamics

The cement industry is facing capacity constraints, with limited new plant builds or expansions expected, which should support pricing power. The gypsum wallboard industry has struggled to add new capacity due to raw material (synthetic gypsum) shortages, which benefits Eagle Materials’ vertically integrated position.

Operational Excellence

Eagle Materials is focused on sustainability and operational efficiency, with initiatives like the conversion to Portland Limestone Cement (PLC) to lower carbon intensity. The company has a strong track record of managing its businesses through cycles and maintaining financial flexibility.

Capital Allocation

Eagle Materials has a disciplined approach to capital allocation, prioritizing organic growth, strategic acquisitions, and returning cash to shareholders through share repurchases. The company’s strong cash flow generation and healthy balance sheet provide financial flexibility to execute on its capital allocation strategy.

Analyst Insights

Analysts are focused on the near-term demand outlook, particularly for the gypsum wallboard business, given the uncertain macroeconomic environment. The company’s ability to maintain margins in the wallboard business, despite volume declines, is a key area of interest. Analysts are also closely monitoring the company’s cement pricing actions and the impact on margins in the heavy materials segment.

Overall, the key insights suggest that Eagle Materials is well-positioned to navigate the current market environment and capitalize on long-term growth opportunities in its core businesses, while maintaining a strong financial profile and disciplined capital allocation approach.

Earnings Call Analysis 2024 Q2

Cement and Concrete/Aggregates Segments

Cement demand remains robust, outpacing industry supply. The company’s cement plants are near sold-out capacity. The company has implemented price increases in the cement business, with more potential increases on the horizon as the supply-demand dynamics remain favorable. The company is focused on expanding its cement production capacity through initiatives like the acquisition of a cement import terminal and increasing the use of Portland Limestone Cement (PLC) to reduce carbon intensity. Concrete and aggregates volumes have been strong, benefiting from infrastructure spending and industrial/manufacturing construction activity.

Wallboard Segment

Wallboard demand has remained resilient despite concerns about a housing slowdown, driven by factors like low existing home inventory and continued strength in the Sunbelt region where the company’s plants are located. The company expects an improving outlook for wallboard demand as homebuilder order activity picks up, though the near-term outlook remains somewhat unclear. Wallboard pricing has been stable, with the company not anticipating any further price increases for the rest of the fiscal year.

Financial Performance and Capital Allocation

The company has generated strong cash flows and maintained a healthy balance sheet, providing financial flexibility for investments and shareholder returns. The company has been disciplined in its capital allocation, prioritizing investments in core business growth (e.g., acquisitions, plant upgrades) and returning cash to shareholders through share repurchases and dividends. The company is closely monitoring market conditions and input costs to determine the appropriate timing and magnitude of any future price increases.

Overall, the key insights suggest that Eagle Materials is well-positioned to navigate the current economic environment, with strong demand fundamentals in its core cement and aggregates businesses and a resilient wallboard segment. The company’s focus on operational excellence, cost control, and strategic capital allocation appears to be serving it well.

Earnings Call Analysis 2024 Q1

Strong financial and operational performance

Eagle Materials reported record results across safety, financials, and operations in fiscal 2023. This was achieved despite market uncertainties, highlighting the company’s focus on what it can control.

Favorable demand outlook for heavy materials

Strong public support for infrastructure spending, growing infrastructure contract awards, and limited supply capacity increases point to a multi-year tailwind for Eagle’s cement business.

Resilient wallboard demand

While the overall housing outlook is uncertain, certain areas like the Southern U.S. have seen continued resilience in construction activity. The lack of new wallboard supply capacity also provides support.

Disciplined capital allocation

Eagle maintains a healthy balance sheet with low leverage, allowing it to manage cycles and pursue strategic acquisitions. It also prioritizes returning cash to shareholders through dividends and share buybacks.

Sustainability focus

Eagle is making progress on its transition to Portland Limestone Cement, with over 30% of its cement production now PLC. This aligns with its broader environmental sustainability initiatives.

Cautious optimism

While the demand outlook has some uncertainty, Eagle appears well-positioned to navigate potential volatility given its low-cost producer status, variable cost structure, and geographic diversification.

The analyst questions suggest a focus on cement and wallboard pricing and volume trends, the impact of input cost changes, and the company’s M&A strategy and priorities. Overall, Eagle’s performance and strategic positioning seem to provide confidence in its long-term prospects.

Earnings Call Analysis 2023 Q4

Strong financial and operational performance

Eagle Materials reported record revenues, exceptional margins, and EPS growth, reflecting the strength of its businesses and continued pricing opportunities across all segments.

Sustainable competitive advantages

Eagle has low-cost producer positions that are highly sustainable and widening the gap with competition. Its strategic decision-making is focused on making the best use of its strong cash flow generation.

Disciplined capital allocation

Eagle is a good capital allocator, committed to growth in the core that meets its strategic and financial return criteria. It has tripled the size of the heavy side of its business and returned nearly $1 billion to shareholders through share repurchases and dividends over the last three years.

Cement demand outlook

Despite some near-term uncertainties, the cement demand outlook remains positive, driven by ongoing state and federal infrastructure spending, as well as recovery in private non-residential construction. Barriers to new cement capacity additions are high, supporting pricing power.

Wallboard market dynamics

While the near-term outlook for residential construction is uncertain, the company believes it is well-positioned due to its advantaged cost structure, secure raw material supply, and limited industry capacity expansion. The company expects to benefit from tailwinds such as lower natural gas and OCC prices.

Cautious on analyst questions

The company appears to be cautious in its responses to analyst questions, providing limited details on specific operational and financial metrics. This suggests the need for investors to closely scrutinize the company’s disclosures and seek independent analysis.

Overall, the key insights point to Eagle Materials’ strong competitive position, disciplined capital allocation, and cautious optimism about the market outlook, despite some near-term uncertainties. Investors should closely monitor the company’s execution and ability to navigate potential market challenges.

Earnings Call Analysis 2023 Q3

Cement and Aggregates Outlook

Strong demand visibility for cement and aggregates over the next 3-5 years, driven by robust public construction and infrastructure spending. Limited capacity expansion in cement markets, providing pricing power for Eagle Materials. Cement price increases announced for January 2023 to offset cost inflation.

Wallboard Demand and Pricing

Wallboard demand remains strong currently, supported by record housing units under construction and favorable repair/remodel trends. Potential softening in wallboard demand due to rising interest rates, but the company is well-positioned in the high-growth Sun Belt region. Wallboard pricing has remained strong, and the company expects to pass through higher input costs like recycled fiber.

Operational Excellence and ESG Initiatives

The company is focused on improving the reliability and sustainability of its operations, including investments to address equipment issues at the Texas Lehigh cement plant. Significant progress in transitioning cement production to Portland Limestone Cement (PLC), which improves the carbon footprint. The company aims to have all its cement plants producing 100% PLC by 2025.

Financial Strength and Capital Allocation

Strong cash flow generation and a healthy balance sheet, providing financial flexibility. Disciplined capital allocation, including strategic acquisitions, share repurchases, and dividend payments. The company’s capital structure and cash flow resilience position it well to navigate economic cycles.

Overall, the key insights suggest that Eagle Materials is well-positioned for long-term success, with a focus on operational excellence, strategic growth, and sustainability initiatives that should benefit shareholders over time.

Earnings Call Analysis 2023 Q2

Short-term outlook is strong

The company is seeing favorable market conditions and strong demand across its cement, wallboard, and aggregates businesses. This is driven by robust infrastructure spending and a large backlog of residential construction.

Uncertainty in the medium-term

The company is less confident about the medium-term outlook, as it will depend heavily on how the Federal Reserve navigates the interest rate environment and its impact on the housing market.

Long-term confidence

The company is confident about the long-term outlook, citing favorable demographic trends and the need for continued infrastructure investment.

Cost control and pricing power

The company has demonstrated its ability to manage inflationary cost pressures through pricing actions and operational efficiency. Its position as a low-cost producer provides advantages in both good and tough times.

Disciplined capital allocation

The company remains focused on strategic, value-accretive investments, while also returning cash to shareholders through share repurchases. It will not compromise its return criteria in pursuit of growth.

Environmental initiatives

The company is making progress on its limestone cement initiative, which reduces the carbon footprint of concrete. This aligns with its focus on environmental and social priorities.

Competitive positioning

The company appears to have a structural cost advantage over competitors, particularly in the wallboard business, due to its vertical integration and efficient operations.

Overall, the company seems well-positioned to navigate the current market environment and capitalize on long-term growth opportunities, while maintaining a disciplined approach to capital allocation and environmental sustainability.

Earnings Call Analysis 2023 Q1

Operational and Financial Resilience

Eagle Materials has demonstrated strong resilience in the face of challenging external conditions like the pandemic, supply chain disruptions, and inflation. This is attributed to their strategic focus on owning manufacturing facilities with control over raw materials and decades of reserves.

Consistent Capital Allocation

Over the last 3 years, Eagle has allocated over $1.9 billion of free cash flow towards growth, improvements, and returning cash to shareholders through share repurchases and dividends. This consistent approach is valued by investors.

Margin Expansion and Pricing Power

Eagle has been able to expand gross profit margins by 270 basis points to 27.9% despite inflationary pressures. This suggests strong pricing power, which is critical in an inflationary environment.

Sustainability Focus

Eagle is introducing new products like limestone cement that reduce the carbon intensity of their cementitious products, aligning with the path to net-zero carbon future. Their investments in operational efficiency and technology also contribute to sustainability.

Analyst Questions Imply:

  • Concerns about the impact of rising interest rates on housing demand, but Eagle remains confident in the strength of their order books.
  • Interest in how Eagle’s wallboard margins may hold up in a potential housing downturn, given their vertical integration and control over raw materials.
  • Curiosity about Eagle’s capital allocation priorities and their ability to capitalize on growth opportunities during economic cycles.

Overall, the key insights point to Eagle Materials’ operational excellence, financial discipline, and strategic foresight – all of which should be attractive to long-term investors. The company’s ability to navigate challenging conditions and maintain consistent performance is a strong indicator of its long-term sustainability.

Earnings Call Analysis 2022 Q4

Operational Resilience

Eagle Materials has demonstrated strong operational resilience in the face of headwinds like the Omicron disruption, supply chain issues, and inflation. This is attributed to their safety culture, control over raw material inputs, and investments in process automation.

Favorable Demand Outlook

The company sees strong underlying demand for its products, particularly in the residential and infrastructure sectors. The outlook for wallboard and cement demand is robust, with potential for continued pricing power.

Strategic Initiatives

Eagle Materials is proactively investing in initiatives like limestone cement (PLC) production to reduce its carbon footprint and unlock incremental cement capacity. These strategic moves position the company well for the future.

Capital Allocation

The company is generating significant cash flow and is disciplined in its capital allocation, prioritizing growth investments while also returning capital to shareholders through share repurchases.

Analyst Scrutiny

Analysts are closely monitoring the company’s pricing actions, cost inflation impacts, and the potential for further price increases, especially in the cement business. The pace of the company’s PLC rollout and associated capital investments are also areas of interest.

Overall, the key insights suggest that Eagle Materials is well-positioned to capitalize on favorable market conditions, while also making strategic investments to enhance its long-term competitiveness and sustainability. The company’s operational excellence and prudent capital allocation are positive indicators for long-term investors.

Earnings Call Analysis 2022 Q3

Favorable market outlook

Eagle Materials is well-positioned as a leading producer of cementitious materials and gypsum wallboard in the U.S. heartland and southern regions, which are experiencing strong demand drivers like housing construction and infrastructure spending.

Capacity expansion opportunities

Eagle is exploring ways to increase cement production capacity through initiatives like increasing limestone addition, which could add the equivalent of another cement plant’s worth of product over the next 3 years.

Cost management

Eagle owns and controls most of its raw materials, mitigating supply chain issues. It has also hedged a significant portion of its natural gas needs, helping manage energy cost volatility.

Pricing power

Eagle has been able to implement double-digit cement price increases and has seen 33% year-over-year wallboard price increases, demonstrating its ability to pass through cost inflation.

Capital allocation

Eagle prioritizes maintaining its assets, pursuing strategic growth opportunities, and returning excess cash to shareholders through share repurchases when acquisition targets do not meet its high hurdle rates.

Carbon capture initiatives

Eagle is collaborating on a carbon capture project at one of its cement plants, positioning it to potentially reduce its carbon footprint over the long-term.

Overall, Eagle appears to be well-positioned to navigate the current market environment and capitalize on favorable demand trends in its core businesses. The company’s focus on cost control, pricing power, and disciplined capital allocation suggest it is a well-managed business for long-term investors.

Earnings Call Analysis 2022 Q2

Favorable Demand Outlook

Residential construction, especially single-family housing, is a major driver of demand for Gypsum Wallboard (80%) and Cement (30%). The outlook for housing starts remains strong, supported by low mortgage rates and a shortage of homes. Repair and remodeling activity is also healthy, driven by factors like federal stimulus and strong house price appreciation. Cement demand is also driven by infrastructure, and potential federal infrastructure spending could further increase demand.

Constrained Supply Capability

The supply of synthetic gypsum, a key input for Gypsum Wallboard, is diminishing due to the shift away from coal-fired power plants. This benefits Eagle Materials, which has access to its own natural gypsum deposits. There are significant regulatory and capital barriers to expanding cement capacity in the U.S., leading to a reduction in clinker capacity and the number of cement kilns since 2010. High-cost cement imports are increasingly required to serve coastal markets, which have a larger carbon footprint than domestic producers like Eagle Materials.

Competitive Positioning

Eagle Materials is well-positioned in the Heartland of the U.S., away from the coast, and can benefit from the supply dynamics in both the Gypsum Wallboard and Cement markets. The company operates some of the most modern and efficient plants in the U.S., with a focus on sustainability and reducing carbon footprint.

Financial Strength and Capital Allocation

Eagle Materials has a strong balance sheet, providing financial flexibility for growth opportunities. The company has restarted its share repurchase program and recently refinanced its capital structure, further strengthening its financial position. The capital allocation priorities focus on profitable growth, maintaining assets, and returning excess cash to shareholders through share repurchases.

Overall, the key insights suggest that Eagle Materials is well-positioned to capitalize on the favorable demand environment and constrained supply capabilities in its core markets, leveraging its competitive advantages and financial strength to drive long-term value for investors.

Earnings Call Analysis 2022 Q1

Demand Outlook

Residential construction and repair/remodeling are strong demand drivers, supported by low mortgage rates and a shortage of housing inventory. Infrastructure demand is expected to remain robust, with state and local budgets in good shape despite pandemic concerns. Non-residential demand is showing signs of improvement, particularly in areas like warehouses and data centers.

Supply Constraints

The cement industry is facing capacity constraints, with limited expansion of clinker capacity and cement kilns in the U.S. since 2010. The gypsum wallboard industry is facing a diminishing supply of synthetic gypsum, which benefits Eagle’s natural gypsum reserves. Regulatory and capital barriers make it challenging to expand cement capacity in the U.S.

Pricing Power

Eagle has been able to implement price increases in both cement and wallboard, taking advantage of the strong demand environment. The company is closely monitoring market conditions and will continue to evaluate the need for further price increases.

Financial Strength

Eagle’s balance sheet is in a strong position, with net debt to EBITDA of 1.3x and significant liquidity. The company was able to repay the entire $665 million Kosmos acquisition during the fiscal year, providing financial flexibility. Capital allocation priorities remain focused on growth investments, organic improvements, and returning cash to shareholders.

Strategic Decisions

The Board’s decision to remain a combined company was based on the size, financial strength, and strategic flexibility of the combined entity. The reinstatement of the quarterly cash dividend reflects the company’s confidence in the resilience of the business and commitment to rewarding shareholders.

Overall, the key insights suggest that Eagle Materials is well-positioned to capitalize on the favorable demand environment, constrained supply, and pricing power in its core markets. The company’s financial strength and strategic decisions indicate a focus on long-term value creation for shareholders.

Earnings Call Analysis 2021 Q4

Demand outlook is very strong across Eagle Materials’ business segments:

Residential construction, especially single-family housing, is driving robust demand for Wallboard and cement. Infrastructure spending, though facing some state budget pressures, is expected to remain relatively stable and potentially see an uplift from federal support. Non-residential construction remains depressed but some improvement is seen in manufacturing and warehouse construction.

Eagle Materials is well-positioned to capitalize on the favorable demand environment:

The company has a high-performing, low-cost operational network that can maximize production and earnings. In Wallboard, the company has ample capacity to grow volumes and benefit from pricing power. In cement, the company is operating at very high utilization rates, limiting its ability to significantly increase volumes, but expects pricing to be the key earnings driver.

Potential risks and uncertainties:

The ongoing COVID-19 pandemic and its impact on the economy and construction activity remains a key uncertainty. The timing of the planned business separation is unclear due to the pandemic-related uncertainties. Regulatory changes under the new administration, particularly related to environmental policies, are being closely monitored.

Financial performance and capital allocation:

The company has demonstrated strong cash flow generation and has been prioritizing debt reduction, providing financial flexibility. The company remains disciplined in its approach to M&A, evaluating opportunities that fit its strategic priorities and can improve returns.

Overall, the key insights suggest that Eagle Materials is well-positioned to benefit from the favorable demand environment, with a strong operational platform and financial flexibility to navigate potential uncertainties. The company’s focus on pricing power, cost control, and prudent capital allocation appear to be the critical factors for long-term investors to consider.

Back to Table of Contents

The information provided on this blog is for informational purposes only and should not be considered as financial advice. You should consult with a qualified financial professional before making any investment decisions. Past performance is not indicative of future results. Investing involves risk, including the potential loss of principal.