This is a summary of the first quarter fiscal 2009 earnings call conducted by Eagle Materials, Inc. (EXP: chart) on July 22, 2008.
Management:
CEO, President & Director: Steven R. Rowley
CFO, Executive VP Finance & Administration: Mark V. Dendle
Senior VP & Treasurer: Arthur R. Zunker, Jr.
VP Investor Relations and Corporate Development: Craig Kesler
Key Investor Issues:
- For the quarter ended June 30, 2008, revenues and net earnings were $176.8 million and $7.8 million, respectively.
- Diluted earnings per share for the first quarter of fiscal 2009 were $0.18.
- Consolidated net revenues, declined by 20% from the prior year''s first quarter, and consolidated net earnings, declined 79% from the same period last year.
First Quarter Highlights:
Eagle Materials’ first quarter results were disappointing. Rapidly escalating energy and transportation costs negatively impacted the company’s wallboard operations performance and while a wallboard price increase was successfully implemented during the quarter, it did not occur until the last week. Therefore, it had very little impact on this quarter’s results.
While currently the wallboard industry is suffering from dramatically reduced housing construction, the impact of minimal spec homes currently being built will have a positive impact once the inventory of new homes decline. Additionally, first quarter cement results were impacted by adverse weather conditions in the Midwest and a shift in the timing of the annual major maintenance at the company’s mountain cement plant.
The impact of all of these items caused Eagle’s quarterly comparative revenue to decline 20% and operating earnings to decline 64%.
The unfavorable wallboard supply demand dynamics remained about the same this past quarter with the US wallboard industry operating at about 65% capacity utilization. Low industry capacity utilization combined with the very high price of diesel which increased trucking costs to the marketplace dramatically lowered the average net sales price. Subsequently, quarterly comparative revenues declined 22%.
The poor wallboard operating earnings compared to the prior year was associated with a decline in net sales prices, a significant increase in energy, transportation and raw material costs which have increased approximately $20 per MSF from the same period in the prior year. These increases occurred even while the American Gypsy plant customer service and logistic departments all performed at peak efficiency. In response to the rising energy, transportation and raw material costs, the wallboard industry has announced an additional price increase for August.
A 13% decrease in sales volume was the primary driver of the decline in Eagle’s quarterly comparative cement revenues.
The majority of volume decline was in the Midwest where economic conditions are weak and copious amounts of rain fell during the quarter. First quarter cement earnings were down 18% compared to the prior year primarily due to lower sales volume and a shift in the timing of major maintenance at the Wyoming cement plant. These issues were slightly offset by a record high $97.52 per ton mill net.
During the quarter, approximately 20% of the sales volume was purchased product.
The majority of purchased product is being sold through the joint venture operation in Texas where demand remains strong. Paperboard sales volumes were negatively impacted by reduced sales to the wallboard industry. Lower sales volumes combined with higher OCC and energy costs decreased paperboard operating earnings 26% compared to the prior year.
Concrete and aggregates operating earnings were down 48% from the prior year.
The primary driver in the quarterly comparison decline was an extremely weak construction market in Northern California which continued to put downward pressure on sales volumes in both business lines. However, currently volumes in Northern California have started to improve as the result of several large road construction projects that have recently begun construction.
In addition to lower quarterly earnings, increased inventory of cement, clinker and aggregates associated with lower quarterly sales volumes combined with increased spare parts inventory at Georgetown and Illinois Cement reduced Eagle’s quarterly operating cash flow. Capital spending during the quarter was limited to minor projects throughout the company’s operations. Eagle continue to negotiate with contractors on the new auto cement modernization project therefore no capital was spent on that project during the fourth quarter.
As of June 30, 2008 net debt to capital ratio was approximately 49%, essentially unchanged from March 31, 2008.
Interest expense from the first quarter of fiscal 2009 includes approximately $1.4 million for an outstanding tax item with the IRS.
