Eagle Materials Reports Record Second Quarter Results

Rhea-AI Summary

Eagle Materials Inc. (NYSE: EXP) reported record revenue of $447.7 million for Q2 FY2021, up 12% year-over-year. Diluted EPS from continuing operations reached $2.16, an increase of 20%, bolstered by a $5.9 million non-recurring tax benefit. The Heavy Materials sector saw a 15% revenue increase to $324.4 million, while Cement sales volume hit a record 2.2 million tons, up 23%. The sale of the Oil and Gas Proppants business yielded a $9 million gain. The planned spin-off of Heavy and Light Materials remains on track despite COVID-19 uncertainties.

Positive

• Record Q2 FY2021 revenue of $447.7 million, up 12% year-over-year.
• Record diluted EPS from continuing operations at $2.16, up 20%.
• Heavy Materials revenue increased 15% to $324.4 million.
• Cement sales volume reached 2.2 million tons, up 23%.
• Completed sale of Oil and Gas Proppants business, leading to a $9 million gain.
• Cash flow improved significantly, strengthening the balance sheet.

Negative

• Concrete and Aggregates revenue decreased 17% to $46.3 million due to business sales.
• Wallboard net sales prices declined 3% despite increased sales volume.

DALLAS--(BUSINESS WIRE)--Eagle Materials Inc. (NYSE: EXP) today reported financial results for the second quarter of fiscal 2021 ended September 30, 2020. Notable items for the quarter are highlighted below (unless otherwise noted, all comparisons are with the prior year’s fiscal second quarter):

Second Quarter Fiscal 2021 Results

• Record second quarter revenue of $447.7 million, up 12%
• Record second quarter diluted earnings per share from continuing operations of $2.16, up 20%
  • Net earnings from continuing operations include a non-recurring tax benefit of $5.9 million, or $0.14 per share, due to regulations issued during the quarter clarifying the calculation of certain interest deduction limitations.

Commenting on the second quarter results, Michael Haack, President and CEO, said, “We are pleased to have delivered another quarter of record revenue and net earnings growth while further strengthening our balance sheet. Our end markets remain resilient as COVID-related uncertainty persists: the housing market continued its strong rebound, and cement demand remained robust, despite wet weather in the first half of September. Our wallboard shipments were up 6%, and we shipped an all-time record 2.2 million tons of cement during the quarter. We generated strong operating cash flow, which, combined with the receipt of the majority of our tax refund in the quarter, significantly improved our balance sheet and liquidity position.”

Mr. Haack continued, “We also achieved a major strategic goal of exiting a non-core business with the sale of our Oil and Gas Proppants business in September. We are very pleased with our second-quarter performance and the resilience of our markets, and we are closely monitoring the disruptions caused by the COVID-19 pandemic and their possible impact on our business in current and future periods. We continue to enforce strict health and safety protocols to protect our employees, customers and business partners, and we will continue to manage our cash flow prudently and protect our balance sheet.”

Segment Results

Heavy Materials: Cement, Concrete and Aggregates

Revenue in the Heavy Materials sector, which includes Cement, Concrete and Aggregates as well as Joint Venture and intersegment Cement revenue, was $324.4 million, a 15% improvement. Heavy Materials operating earnings increased 15% to $85.2 million primarily because of improved Cement net sales prices and earnings from the recently acquired Kosmos Cement Business.

Cement revenue for the quarter, including Joint Venture and intersegment revenue, was up 22% to $278.1 million and operating earnings were a record $79.9 million, up 20%. These increases reflect improved Cement net sales prices and the contribution of the recently acquired Kosmos Cement Business, which accounted for approximately $50.0 million of revenue and $14.4 million of operating earnings during the quarter.

The average net sales price for the quarter increased 2% to $111.59 per ton. Excluding the impact from the Kosmos Cement Business, the average net sales price increased 4%. Cement sales volume for the quarter was a record 2.2 million tons, up 23% versus the prior year. Excluding sales volume from the recently acquired Kosmos Cement Business and the impact from selling our Northern California concrete business, our Cement sales volume would have been up 1%.

Concrete and Aggregates revenue decreased 17% to $46.3 million. The decline reflects the sale of our Northern California concrete and aggregates businesses during the first quarter of fiscal 2021. Excluding the results from the sold businesses, Concrete and Aggregates revenue was up 1%. Second quarter operating earnings for Concrete and Aggregates were down 28% to $5.3 million, primarily reflecting the sale of our northern California businesses. Excluding the results from the sold businesses, operating earnings decreased 8% reflecting lower concrete sales volume.

Light Materials: Gypsum Wallboard and Paperboard

Revenue in the Light Materials sector, which includes Gypsum Wallboard and Paperboard, increased 1% from the prior year, as improved sales volume was partially offset by lower pricing. Gypsum Wallboard sales volume was a second quarter record 720 million square feet (MMSF), up 6%, while the average Gypsum Wallboard net sales price declined 3% to $143.41 per MSF.

Paperboard sales volume for the quarter also increased 1% to a record 87,000 tons. The average Paperboard net sales price was $513.11 per ton, up 8% from the prior year, consistent with the pricing provisions in our long-term sales agreements.

Operating earnings were $48.3 million in the sector, a decline of 1%, reflecting improved Wallboard and Paperboard sales volume offset by lower Wallboard net sales prices.

Sale of Oil and Gas Proppants Business

On September 18, 2020, the Company sold its Oil and Gas Proppants business to Smart Sand, Inc. The purchase price was $2 million, paid in shares of Smart Sand, Inc. The Company also agreed to make available up to $5 million in loans for working capital and expenses of the sold business for up to one-year, after which, any unpaid borrowings will convert to a note receivable maturing in September 2024. The sale of the business resulted in a $9 million gain on sale. The gain on sale and current-year and prior-year financial results of the Oil and Gas Proppants segment have been classified as Discontinued Operations on the Statement of Earnings. The assets and liabilities of the Oil and Gas Proppants segment have been reflected on separate lines for Discontinued Operations on the Balance Sheet.

Planned Separation of Heavy Materials and Light Materials Businesses

As previously announced on May 30, 2019, the Company plans to separate its Heavy Materials and Light Materials businesses into two independent, publicly traded corporations by means of a tax-free spin-off to Eagle shareholders. We remain committed to the separation and continue to make preparations to ensure that the two businesses are well-positioned for the separation, although the timing of the separation remains uncertain given the effects of the COVID-19 pandemic.

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 Venture’s revenue 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 revenue as a part of a segment’s total revenue. Intersegment sales are eliminated on the consolidated 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, Recycled Gypsum Paperboard and Concrete and Aggregates from more than 70 facilities across the US. Eagle’s corporate headquarters is 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 Thursday, October 29, 2020. The conference call will be webcast on the Eagle 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 businesses; 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 or changes in the nature of activity in the oil and gas industry, including fluctuations in the level of fracturing activities and the demand for frac sand and changes in processes or substitutions in materials used in well fracturing; 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 and other environmental 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; cyber-attacks or data security breaches; announced increases in capacity in the gypsum wallboard and cement industries; changes in the demand for residential housing construction or commercial construction or construction projects undertaken by state or local governments; risks related to pursuit of acquisitions, joint ventures and other transactions or the execution or implementation of such transactions, including the integration of operations acquired by the Company; 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. With respect to our acquisition of certain assets from Kosmos Cement Company, factors, risks and uncertainties that may cause actual future events and developments to vary materially from those anticipated in such forward-looking statements include, but are not limited to, failure to realize expected synergies from or other benefits of the transaction, significant difficulties encountered in integration or unexpected ownership transition costs, unknown liabilities or other adverse developments affecting the assets acquired and the target business, including the effect on the acquired business of the same or similar factors discussed above to which our Heavy Materials business is subject. Additionally, the proposed separation of our Heavy Materials and Light Materials businesses into two independent, publicly traded corporations is subject to various risks and uncertainties, including risks related to conditions in debt and equity markets and risks related to the effects of the COVID-19 pandemic, and may not be completed on the terms or timeline currently contemplated, or at all. Finally, any forward-looking statements made by the Company are subject to the risks and impacts associated with natural disasters, pandemics or other unforeseen events, including, without limitation, the COVID-19 pandemic and responses thereto designed to contain its spread and mitigate its public health effects, as well as their impact on economic conditions, capital and financial markets. The COVID-19 pandemic and responses thereto may disrupt our business and are likely to have an adverse effect on demand for our products, attributable to, among other things, reductions in consumer spending, increases in unemployment and decreases in revenues and construction budgets of state or local governments. These and other factors are described in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2020 and subsequent quarterly and annual 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

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,
		2020				2019				2020				2019
Revenue		$	447,684			$	400,569			$	874,673			$	755,934
Cost of Goods Sold			324,835				291,549				649,527				568,820
Gross Profit			122,849				109,020				225,146				187,114
Equity in Earnings of Unconsolidated JV			10,577				12,357				18,373				21,789
Corporate General and Administrative Expenses			(11,109	)			(13,458	)			(28,898	)			(34,712	)
Gain on Sale of Businesses			-				-				51,973				-
Other Non-Operating (Loss) Income			(90	)			585				(399	)			723
Earnings from Continuing Operations before Interest and Income Taxes			122,227				108,504				266,195				174,914
Interest Expense, net			(12,556	)			(10,137	)			(26,597	)			(18,983	)
Earnings from Continuing Operations before Income Taxes			109,671				98,367				239,598				155,931
Income Tax Expense			(19,800	)			(23,303	)			(52,636	)			(37,534	)
Earnings from Continuing Operations		$	89,871			$	75,064			$	186,962			$	118,397
Gain (Loss) from Discontinued Operations, net of tax			6,163				(3,271	)			5,278				(5,300	)
Net Earnings		$	96,034			$	71,793			$	192,240			$	113,097
BASIC EARNINGS (LOSS) PER SHARE
Continuing Operations		$	2.17			$	1.81			$	4.51			$	2.77
Discontinued Operations		$	0.15			$	(0.08	)		$	0.13			$	(0.12	)
Net Earnings		$	2.32			$	1.73			$	4.64			$	2.65
DILUTED EARNINGS (LOSS) PER SHARE
Continuing Operations		$	2.16			$	1.80			$	4.49			$	2.75
Discontinued Operations		$	0.15			$	(0.08	)		$	0.13			$	(0.12	)
Net Earnings		$	2.31			$	1.72			$	4.62			$	2.63
AVERAGE SHARES OUTSTANDING
Basic			41,450,013				41,572,127				41,430,511				42,714,896
Diluted			41,649,319				41,833,775				41,606,401				42,985,715

Attachment 2
Eagle Materials Inc.
Revenue and Earnings by Lines of Business
(dollars in thousands)
(unaudited)
		Quarter Ended September 30,						Six Months Ended September 30,
		2020	2019					2020		2019
Revenue*
Heavy Materials:
Cement (Wholly Owned)		$ 244,602	$ 190,422					$ 474,682		$ 353,977
Concrete and Aggregates		46,300	55,564					90,384		94,965
		290,902	245,986					565,066		448,942
Light Materials:
Gypsum Wallboard		131,210	128,660					261,360		255,384
Gypsum Paperboard		25,572	25,923					48,247		51,608
		156,782	154,583					309,607		306,992
Total Revenue		$ 447,684	$ 400,569					$ 874,673		$ 755,934
Segment Operating Earnings
Heavy Materials:
Cement (Wholly Owned)		$ 69,336			$ 54,169			$ 121,995		$ 80,858
Cement (Joint Venture)		10,577			12,357			18,373		21,789
Concrete and Aggregates		5,255			7,255			10,673		11,689
		85,168			73,781			151,041		114,336
Light Materials:
Gypsum Wallboard		37,606			38,456			78,931		76,388
Gypsum Paperboard		10,652			10,095			13,547		20,039
		48,258			48,551			92,478		96,427
Other Operations		-			(955)			-		(1,860)
Sub-total		133,426			121,377			243,519		208,903
Corporate General and Administrative Expense		(11,109)			(13,458)			(28,898)		(34,712)
Gain on Sale of Businesses		-			-			51,973		-
Other Non-Operating Income		(90)			585			(399)		723
Earnings from Continuing Operations before Interest and Income Taxes		$ 122,227			$108,504			$ 266,195		$ 174,914
* Excluding Intersegment and Joint Venture Revenue listed on Attachment 3

Attachment 3
Eagle Materials Inc.
Sales Volume, Average Net Sales Prices and Intersegment and Cement Revenue
(unaudited)
		Sales Volume
		Quarter Ended September 30,						Six Months Ended September 30,
		2020		2019		Change		2020		2019		Change
Cement (M Tons):
Wholly Owned		1,947		1,529		+27%		3,813		2,847		+34%
Joint Venture		233		249		-6%		452		481		-6%
		2,180		1,778		+23%		4,265		3,328		+28%
Concrete (M Cubic Yards)		357		428		-17%		705		738		-4%
Aggregates (M Tons)		475		1,060		-55%		950		1,859		-49%
Gypsum Wallboard (MMSFs)		720		681		+6%		1,424		1,341		+6%
Paperboard (M Tons):
Internal		39		33		+18%		69		66		+5%
External		48		53		-9%		95		101		-6%
		87		86		+1%		164		167		-2%

		Average Net Sales Price*
		Quarter Ended September 30,												Six Months Ended September 30,
		2020				2019				Change				2020				2019				Change
Cement (Ton)		$	111.59			$	109.35			+2%				$	110.38			$	109.51			+1%
Concrete (Cubic Yard)		$	116.55			$	107.69			+8%				$	115.10			$	105.94			+9%
Aggregates (Ton)		$	10.02			$	9.25			+8%				$	9.90			$	9.42			+5%
Gypsum Wallboard (MSF)		$	143.41			$	148.16			-3%				$	144.83			$	149.53			-3%
Paperboard (Ton)		$	513.11			$	475.98			+8%				$	489.13			$	492.71			-1%
*Net of freight and delivery costs billed to customers.

		Intersegment and Cement Revenue
		Quarter Ended September 30,						Six Months Ended September 30,
		2020			2019			2020			2019
Intersegment Revenue:
Cement		$	6,267		$	6,703		$	12,298		$	10,956
Concrete and Aggregates			-			407			106			784
Paperboard			20,499			15,924			34,568			32,939
		$	26,766		$	23,034		$	46,972		$	44,679
Cement Revenue:
Wholly Owned		$	244,602		$	190,422		$	474,682		$	353,977
Joint Venture			27,193			29,888			52,493			57,393
		$	271,795		$	220,310		$	527,175		$	411,370

Attachment 4
Eagle Materials Inc.
Consolidated Balance Sheets
(dollars in thousands)
(unaudited)
		September 30,								March 31,
		2020				2019				2020*
ASSETS
Current Assets –
Cash and Cash Equivalents		$	200,858			$	53,684			$	118,648
Restricted Cash			5,000				-				-
Accounts and Notes Receivable, net			177,138				170,268				145,808
Inventories			227,106				233,661				272,121
Federal Income Tax Receivable			28,671				-				128,413
Prepaid and Other Assets			9,634				7,520				6,135
Current Assets of Discontinued Operations			-				21,922				7,092
Total Current Assets			648,407				487,055				678,217
Property, Plant and Equipment, net			1,706,200				1,268,495				1,756,417
Investments in Joint Venture			74,331				71,662				73,958
Operating Lease Right of Use Asset			28,139				40,605				29,483
Notes Receivable			8,287				6,436				9,139
Goodwill and Intangibles			394,524				230,619				396,463
Assets from Discontinued Operations			-				210,715				6,739
Other Assets			11,395				10,624				10,604
		$	2,871,283			$	2,326,211			$	2,961,020
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities –
Accounts Payable and Accrued Liabilities		$	156,275			$	139,511			$	154,625
Operating Lease Liabilities			6,810				5,971				6,585
Current Portion of Senior Notes			-				36,500				-
Current Liabilities of Discontinued Operations			-				12,793				8,487
Total Current Liabilities			163,085				194,775				169,697
Long-term Liabilities			79,005				67,816				74,071
Bank Credit Facility			245,000				585,000				560,000
Bank Term Loan			661,621				-				660,761
4.500% Senior Unsecured Notes due 2026			346,095				345,426				346,554
Deferred Income Taxes			208,446				98,298				166,667
Liabilities from Discontinued Operations			-				24,141				15,427
Stockholders’ Equity –
Preferred Stock, Par Value $0.01; Authorized 5,000,000
Shares; None Issued			-				-				-
Common Stock, Par Value $0.01; Authorized 100,000,000 Shares; Issued and Outstanding 41,816,942; 41,625,996 and 41,649,041 Shares, respectively			418				416				416
Capital in Excess of Par Value			18,584				2,990				10,943
Accumulated Other Comprehensive Losses			(3,276	)			(3,248	)			(3,581	)
Retained Earnings			1,152,305				1,010,597				960,065
Total Stockholders’ Equity			1,168,031				1,010,755				967,843
		$	2,871,283			$	2,326,211			$	2,961,020
*From audited financial statements

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 quarters ended September 30, 2020 and 2019:
		Depreciation, Depletion and Amortization
		Quarter Ended September 30,
		2020			2019
Cement		$	19,258		$	13,868
Concrete and Aggregates			2,698			2,754
Gypsum Wallboard			5,661			5,147
Paperboard			3,344			2,203
Corporate and Other			1,201			598
		$	32,162		$	24,570