Eagle Materials Inc. (EXP) 2026-07-29 Earnings Call Transcript

Good day and welcome to the Eagle Materials first-quarter of fiscal 2027 earnings conference call. This call is being recorded at time, I would like to turn the call over to Eagle’s President and Chief Executive Officer, Mr. Michael Haack. Mr. Haack, please go ahead sir. ⚑

Thanks Chuck Good Morning. Welcome to Eagle Materials Conference call for our first-quarter costs. Of fiscal year 2027. This is Michael Haack. Joining me today are Craig Kessler our Chief Financial Officer, and Alex Haddock, Senior Vice President of Investor Relations, Strategy and Corporate Development. There will be a slide presentation made in connection with this call. To access it, please go to eaglematerials.com and click on the link to the webcast. While you are accessing the slides, please note that the first slide covers our cautionary disclosure regarding forward looking statements made during this call. These statements are subject to risks and uncertainties that could cause results to differ from those discussed during the call. For further information, please refer to this disclosure which is also included at the end of our press release.  Thank you all for joining us today. Against the backdrop of macroeconomic uncertainty, we are pleased to report steady results for the first quarter of the fiscal year. Our first quarter revenue was a record $651 million. We generated earnings per share of $3.29 and our gross margin was 24.8%. These results highlight how our low cost producer position allows us to successfully navigate and execute in dynamic environments. Last month, we published our annual report Shareholder Letter and an updated Corporate Sustainability report highlighting our progress across Eagle for FY26. These documents highlight how we strive to consistently make our operations safer and our assets more efficient to maintain our low cost producer position. It is our belief that a safe, efficient operation also yields better shareholder returns. Everything we do at Eagle starts with protecting our employee’s health and well being. Candidly, our safety results were not where we want them to be.  We are not at zero. We will continue to expand our use of technology, training and the sharing of best practices to further improve our safety culture at Eagle. Environmentally across our asset footprint, we have driven down our CO2 intensity and overall emissions levels while increasing the usage of alternative fuels at our facilities. Our drive for efficiency led us to explore alternative uses of previous waste streams across all of our businesses. Moving mine material multiple times is not efficient and is costly. Through testing and analysis, we have found new uses for a lot of the material that was once considered waste. Most of this material will be converted to revenue streams while the remainder will help improve manufacturing processes. To this extent, I am happy to report that we utilized over 550,000 tons of materials that were reclaimed or would have been placed back in the quarry in previous years during fiscal year 26. Importantly, our safety and operational investments are not influenced by changing macroeconomic fluctuations. Our strategy is to execute through cycles on projects that have compelling paybacks. We seek to increase the long term profitability potential of our core businesses with a multi cycle approach focused on resilience peak to trough and compounding earnings potential peak-to-peak. This is especially valuable in the current demand environment when our end markets continue to be in different points of their respective cycles.  On the heavy-side, our cement and aggregates volumes continue to be supported by elevated infrastructure spending driven by federal IIJA bill and elevated state DOT budgets. Even as questions remain about what comes next from the potential new federal infrastructure bill or the growth profile of state dot budgets, our customers report a robust pipeline of mufti infrastructure projects. Similarly, our customers across all of our regions are seeing growth in data center construction. We are structurally quantifying the impact on our volumes of rapid data center growth. What we do know is our customers are seeing an increased number of projects building footprint sizes and visibility from project announcement to actual construction. They are also seeing this growth spill over into other categories such as utilities, warehousing and community bailouts. The volume growth in the cement and aggregates was also supported by our pricing initiatives in these businesses. With the gross price of Cement up about 1% year-over-year, the strength of our cement prices, volumes was offset by an approximately $6 million earnings impact resulting from unexpected equipment failure at the Mountain Cement facility, some of which we expect to recover through our insurance coverage.  The Kilns at Mountain are 1960s vintage and they are showing their age, further underscoring the rationale and importance of the new modern kiln line we are installing. The fact that our sales volumes were not impacted shows how robust the cement network we have built is as we were able to bring in cement from across our footprint to meet customer demand without any disruption. Here in late July, the equipment issues have been largely resolved. These additional movements and elevated freight rates broadly impacted our net cement prices. Net volume growth, however should set-up nicely for better net price realization over the medium term, further benefiting from energy costs that should normalize. Infrastructure and non residential construction make up about 80% of our Heaviside end market exposure, so growth in those markets has offset the softness in residential construction. On the light side of our businesses, residential construction represents about 80% of our wallboard end market exposure. While there has not been a near term catalyst to help bring down mortgage rates and spur a rebound in home construction. We have seen relatively stable demand levels.  Our wallboard is priced on a delivered basis, so the increased freight rates we saw last quarter were the primary driver for our June 1 price increase in wallboard, which would not be typical in this volume environment. We believe wallboard pricing additionally reflects the cost pressures that the rest of the industry other than Eagle are facing and that go beyond the elevated freight costs. Outside of freight, our costs were relatively benign this quarter especially given our unique raw materials position with decades of low cost gypsum across our wallboard footprint. Both the dynamic macroeconomic environment and the freight cost disruptions we have seen clearly demonstrate the benefits of our strategy to reinforce our position at the low end of the cost curve and to invest in high return projects through the cycles. Whether through our typical capital projects across our plants and quarries or larger modernizations that meet our strategic and financial criteria, we are making excellent progress on two larger and unique high return modernization projects currently underway.  The project at our Laramie, Wyoming cement plant will reduce the facility’s operating cost by 25% in the Duke, Oklahoma wallboard plant modernization will reduce the operating costs of that facility by 20%. Construction for Laramie cement plant is still on track to be completed late this year and commissioning planned for the first part of next year and the Duke wallboard plant should commission towards the later half of 2027. Through the investments we make, larger modernizations or routine smaller capital projects we remain well-positioned despite cost spikes and challenged end market dynamics like we are seeing in-housing today. With our capital expenditures from these two projects reaching a peak this year, we are still able to pursue additional high return growth opportunities organically or through M&an and return capital to our shareholders. With those comments, let me turn it over to you Craig.

Thank you Michael. As mentioned, we delivered record first quarter revenue of $651 million, up 3% year-over-year. The increase was driven primarily by higher cement sales volume record Recycled Paperboard sales volume and increased aggregate sales. The revenue growth was offset by higher operating costs primarily in cement and wallboard. Increased freight costs and unexpected downtime at our Mountain Cement plant were the primary drivers contributing to a 13% decrease in first quarter earnings per share. This impact was partially offset by a 5% reduction in our fully diluted shares as a result of our share repurchase program. Turning now to segment performance highlighted on the next slide.  In our Heavy Materials sector which includes our cement and concrete and aggregate Segments, revenue was up 8% driven primarily by increased cement and aggregate sales volume, underscoring healthy underlying demand. Sales volume growth in both business lines was supported by continued strength in public infrastructure spending as well as key areas of private non residential construction such as data center development. Operating earnings in the sector were down 11%, primarily because of the impact of higher freight and raw-material costs and the $6 million impact from the downtime of Mountain cement. Moving to Light Materials Sector on the next slide, first quarter revenue in our Light Materials sector declined 5%, reflecting lower wallboard sales volume and sales prices, which were partially offset by record Recycled Paperboard sales volume.  Operating earnings in the sector were down 16%, reflecting lower wallboard sales volume and higher freight costs. Looking now at our and, we continue to generate strong cash flow and allocate capital in a disciplined manner consistent with our long term strategic priorities. During the sheet. During the first-quarter, operating cash flow increased 13% to $154 million, reflecting the strength of our businesses, the resilience of our operating model and the expected tax benefits from the capital spending program. expenditures totaled $121 million during the quarter, driven primarily by investments in the modernization and expansion of our Mountain Cement plant in Laramie, Wyoming and the modernization of our Duke Oklahoma wallboard facility. These projects will enhance operating efficiency, improve reliability and further strengthen our competitive position. We continue to expect fiscal 2027 capital expenditures to range between $490 million and $525 million. to fund these strategic growth initiatives as well as ongoing sustaining capital investments across the company. Capital spending is expected to peak in fiscal 2027, with construction of  Mountain Cement scheduled to be completed later this year and the Duke project anticipated to be completed in mid-fiscal 2028. 2028. At the same time, we remain committed to returning capital shareholders. A goal enabled by our strong balance sheet. During the first quarter, we returned a total of $92 million through our quarterly dividend and the repurchase of approximately 406,000 shares for $84 million. We ended the quarter with approximately 2.5 million shares remaining under our current repurchase authorization. Let us look now at our capital structure. We remain committed to maintaining a prudent capital structure that gives us significant financial flexibility which is especially important in uncertain economic conditions. At June 30, 2026, our net debt to cap ratio is 51% and our net debt to EBITDA leverage ratio was 2.1 times. We believe these levels are both prudent and supportive of our growth strategy. We ended the quarter with $234 million of cash-on-hand, and nearly $1 billion of total committed liquidity. Importantly, we have no significant near term debt maturities positioning us well to continue investing in the businesses while returning cash to our shareholders and maintaining a strong and flexible balance sheet.  Thank you for joining today’s call. Chuck will now open the line for questions.

Thank you. We will now begin the question-and-answer session. (Operator Instructions). And our first question for today will come from Trey Grooms with Stevens. Please go ahead.

Hey, good morning, Craig, Michael, great work in the quarter. Congrats on that. Wanted to touch on wallboard volume. So it held in really well, especially given the tough comps and you saw the strong industry numbers. Just curious to maybe get your thoughts on what is going on there. The starts data has just kind of been bouncing around still pretty subdued. Levels and wallboards seem to really outperform in this most recent data and in your results. So anyway, just curious your take on the relative strength there.

Yeah Look, Trey, we talked a lot about where housing is today and has been now for quite some time. We are at what I would typically look at trough level activities. And so again with interest rates being a little bit higher over the last period of time, that is kept the activity level a little lower. But there is still good demand and we are still structurally short supply of homes in the U.S. so there is a balance there. But the activity levels are hanging in there, as you say, better than anticipated. But that is just given the environment and the low construction activity we have been at for many, many years now.

Yeah. Okay. I did not know if there was anything unique going on in the quarter, but it does not sound like that is the case. Okay. And then you mentioned on cement kind of better net pricing realization maybe over the medium term, which kind of brings up the question around maybe the Canadian tariffs on cement. I would love to get your take on any potential impacts that this could have in your markets, maybe any impact to supply or potential pricing in any of your maybe your more Midwest markets.

Yeah.

When you look at that tray in particular, you look at, you got to take a step back and look at the US As a whole first and then a drill into where those impacts would happened. And we are pretty Balanced on cement supply demand dynamics across the US and you can see the volume movements that we have had this past quarter to kind of reflect that with it. Any kind of pressure on that will have kind of a little bit of a waterfalling effect with it. We do not participate as much in the northeast section where most of that cement comes in. However, there probably would be a waterfall type impact to that. So any tightening of the supply chain is just, it is already tight today with the supply-demand dynamics. So any tightening of that would be beneficial for a pricing environment or for supply demand environment.

Yep. Okay, that makes sense. Thanks for that last one for me. And this one’s looking out a bit, a little bit higher level. But you guys continue to put up nice cash generation, you continue to buy back stock, your capital projects are going well and they are going to be winding down, I guess in the next 12 months or so, just roughly. And presumably we would be in a better kind of demand environment at that point. With the lower cost operations that you are going to have in those plants, it seems like you would be in a position of very strong free cash flow generation when we get, especially once we get past these capital projects. So my question on that is, is longer term thinking on, are there other internal projects that you see where there is opportunity? Because it seems like it is a continuous kind of effort from you guys that you have seen over the last several decades. But any additional internal projects worth noting, thoughts on how you would approach the stock buyback, M&A et-cetera because you are going to have a lot of cash flow generation once these projects are behind you.

Yeah. Trey, when we look at it all of our operations continuously. Each of our operations we do a, a set strategy for and look at where they reside, what the health of that facility is investments need to be and kind of plan those out over multi years with it. The main thing on the growth side with continue with the unique projects we have with regards to Mountain and Duke, still revolve around the permitting aspect of a lot of those facilities. It is very difficult to get a permit just to even expand a facility. So that is where like I said, we continue to look at everything that would make sense to improve, but it still resides back down to a long permitting process if we could even get that permit And then what those investments are with it on the M&A front. We have always continuously looked at M&A. we are value buyers in a lot of ways. So we will look at M&A transactions with it, with our financial criteria. That makes sense for us. That determines the price really determines what we will do on the M&A and where it is located it fits into our strategic footprint with it. We look at a lot of transactions every year. We will continue to look at a lot of transactions and if they make sense from our financial perspectives, we will be definitely buyers. We have the financial balance sheet to do M and A transactions with it, but they have to meet those strict criteria we have. Then I will turn it over to Craig on the share buyback side and some of other uses capital that we have on that side.

I think you pointed out we positioned ourselves with couple a good balance sheet, good free cash flow. We can continue to balance the approach of capital allocation, whether that is good growth projects, as Michael highlighted, whether that is organic or M&A. And then we have been a serial acquirer of our own shares for not just the last five or 10 years, but for 20 and we continue to see good value in the shares. And so it’ll be a continued balanced approach to how we deploy capital.

That is it from me. Thanks for all the color, guys. I will pass it on.

The next question will come from Brian trophy with Stifel. Please go ahead.

2027? Yeah. Look, thanks. Good morning everybody. Appreciate you taking the question. It looks like cement volumes were a little bit stronger than some of the other peers that have reported. Just any color that you are seeing on what is driving this and where the sources of strength have been? Thanks.

It was pretty broad-based across our markets, Brian. And look it is consistent with what we have been talking about in terms of the primary driver for demand in the US for cement is public infrastructure. We have very supportive federal spending levels, state levels continue to be very supportive. So strength there. The private non-residential construction activity, especially around data centers and the activities that follow along with that, continue to be strong probably in the early innings of some of that activity. So we have been very happy with continues and our footprint continues to perform very well.

Yeah, that is helpful. And then just as a follow-up to that, to that, are there any notable differences in cement pricing that you are seeing across your footprint? And I am particularly curious as to what you are seeing in Texas at the moment. Thanks.

Cement is a very Regional business The shipping radius is pretty limited. So you will see dynamics, regions have different dynamics, whether that is demand oriented or supply oriented. So we had definitely some markets where we were able to move pricing in the springtime, if you will, here in the early summer, and then other markets were not conducive to that. So it is really market by market as how we manage the business.

Appreciate it. I will pass it on.

The next question will come from Anthony Pettinari with Citi. Please go ahead.

Good morning. Your net cement sales price was down 2%. And if I look at last year at fiscal 1Q, they were also, I guess flat year-over-year. So we are kind of on two years of maybe flat to down prices. I am just wondering from a big picture if you could give any context in terms of what you think is sort of driving the sort of flattish pricing in the phase of rising costs. Is it really just come down to the housing market? Are there changes to import dynamics? Are there really strong regional changes? I am just wondering, kind of stepping back, how you characterize the last year and a half in terms of pricing and what is driving that.

Yeah, Anthony, good identification. I would say it is two separate issues If you go back to a year ago with pricing being flattish, recall that we were coming off of two consecutive years with nationally cement consumption being down in the US and so much tougher environment to get a price increase. So that is a year ago now. We have continued to see improvements in volume over the last 12 months. And so that is why we bifurcated in the earnings Release Gross Prices vs Net. So the second issue, which is this year’s issue, so we actually did have some markets that saw a gross price increase, but with elevated freight costs that more than offset those price increases. So that is why we tried to separate the two. But we did see some gross price improvement, but on a net basis, net of freight, they were down slightly.

Okay, that is very helpful. And then that spread, that $3 a ton gross up 1% net, down 2%. Any kind of view on how that would be trending in July or thinking about fiscal 2Q understanding it is just a very volatile situation on fuel freight.

Yeah, look, I think probably a little early to call a lot of geopolitical issues across the globe right now. That is really driving a lot of. Certainly, oil still being elevated diesel that is driving some of that. And we have also seen underlying freight rates go up. So I do not want to say it was all diesel oriented, which in some ways is a good thing that the truckers are busy. But a little early to try to speculate if and when that comes down.

Okay, understood. I will turn it over.

The next question will come from tina Tanners with Wells Fargo. Please go ahead.

Hey, good morning. I wanted to approach the question a little differently. Perhaps if I could for some color on any market from your wallboard price hike you mentioned. It was abnormal. So how is that being received? To the extent you can talk about that? And similarly, what is the latest on cement price increases as well?

Yeah, thanks, tina.  We did have a price increase that went through late in the quarter in June. We pushed it through given the elevated freight environment that we have experienced for the last five or six months and you see it in our numbers, the freight moved meaningfully and so we did push through a price increase in June. Michael highlighted in his comments that not typical in this demand environment, but given freight rate increases, it was necessary. Wallboard price increases were largely in the April timeframe. As I mentioned earlier, we did see increases across a couple of our markets. There was some offset with higher freight costs. Too early to speculate the next round of increases at this point.

Okay, I appreciate it. And then I know there is a question about Canadian tariffs, but I guess it is also appropriate to ask about any thoughts on 301 tariffs and the chatter around those.

Yeah, look, longer term. And Michael highlighted this. The US Cement industry is structurally undersupplied. We have not built a new cement plant in the US for pushing 20 years, if not more than that. Modernizing and expanding existing facilities continues to be very difficult. And given that we are over, - we have more demand than we do supply. So we require imports to meet that demand need. Trying to get wage or guess where tariffs may go and what their exact input is hard to guess at this point. Those things can be changed. We have seen that over the last 18 months to 24 months. So we are not all that fixated on that. And long term we continue to see an opportunity to push pricing and therefore margin expansion, especially with the mountainous cement expansion coming online over the next year or so.

Okay, fair enough. And if I could sneak in a last one, kind of also asking for your thoughts on maybe things that are tough to speculate. But on the state budget side, some preliminary numbers have come in. Any thoughts about those as they seem to be trending down in some regions so any thoughts about your experience with state budgets or the outlook for 2027?

Yeah, look, I do not know that you have some states that have actually passed higher budgets. You have an example here recently with Oklahoma having had a very significant increase, I think more than double the miles and more than double the funding levels. So we have seen in our markets continued very healthy state budgets.

Okay, thanks again.

The next question will come from Adam Thalhimer with Thompson Davis. Please go ahead.

Hey, good morning, guys. Craig, I do not know if you mentioned this, but where was wallboard pricing at the end of the June quarter?

We pretty much exited at the same level as the average for the quarter.

Okay, and do you have any cement price increases announced for fiscal Q2?

No, all of our increases were for April. We have not announced anything yet.

And then lastly on data centers, how many of your cement plants do you feel like are well-positioned for that? For that?

It is across our network, Adam. We bid double the number of data centers in first-half calendar ’26 versus what we bid on in the first half of calendar 25. And some markets a little more or some a little less. But we are seeing it pretty broadly across our footprint.

Can you just unpack the mechanics there a little bit? I would figure it would be your Ready mix customers who are bidding on that and then they come back to you. Or how does that work?

Yeah, depending upon the job. But yeah, we are not. It is kind of like a highway job where it is going to be a multi year engagement. So it is a little more than just your day to day activity. So you will be looking at those projects specifically? Essentially, yeah.

When you look at it, that has a couple different things depending on where you are in the country. So when you look at it, it is like a highway job. If you have soil stabilization, then we work with soil stabilization groups. If you have tilt up, then you have tilt up. The foundation side you work with Ready mix. So it is a broad mix of who we work with, the consumption trends for the soil stabilization in some of these is very beneficial for us and very high demand. So we are seeing it from multiple aspects of end users.

Wow. Okay. All right, I will turn it over. Thanks guys.

The next question will come from Garrett Greenblatt with J.P. Morgan. Please go ahead.

Thanks for taking that question. Just a quick follow up on the wallboard pricing. As you saw in 2Q, I think you got price increases as of June 1. So how did pricing trend as we move through the quarter month by month. And then on the cost side of Wallboard, let us say there is much more pressure in 2Q or 1Q as opposed to 4Q in terms of those cost pressures on a go-forward basis, how should we think about those impacts? And then last one, on the recent announcement from the administration on the coal industry investments in that production, increase in production in coal, how do we think about the long term impact of those investments on the cost dynamics between synthetic versus natural gypsum? Thank you.

Yeah, I will try to address all your questions as best as I can. So in Wallboard we generally do not talk month by month in terms of pricing. I mentioned earlier that we exited the quarter around the - at the end of June around the quarterly average. We also pointed out there a lot of the sequential change on the net basis was driven by freight. Freight was up $5 a thousand as you will see when we file the 10Q. So that had the most meaningful impact, if you will, for the entire quarter and really drove majority of change in net pricing in wallboard this quarter, at least on a sequential basis. On your last question, we have not seen any significant change in synthetic gypsum availability. The freight cost issues that are being seen across the country, we no doubt have seen as you have had to move synthetic gypsum around and further around the country in order to satisfy some of these wallboard plants. I do not see that changing dramatically. I think you were asking about cement first quarter costs. This is our quarter when we do the vast majority of our maintenance programs across our cement footprint. So the June quarter always has an elevated operating cost because of those annual outages that happen in April and May and then that abates into September and the December quarter.

And this will conclude our question-and-answer session. I would like to turn the conference back over Mr Michael Haack for any closing remarks. Please go ahead, sir.

Thanks, Chuck. In closing, I want to acknowledge the efforts and focus of the whole Eagle team during this extended period of changing macroeconomic conditions. It is their focus and commitment that enables us to execute our strategy and deliver results for our shareholders through cycles and over the long term. Thanks for joining our call today and I look forward to updating you next quarter.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.