Eagle Materials Inc (EXP) 2003 Q3 法說會逐字稿

Please standby. Good day and welcome to the Centex Construction products incorporated financial results third quarter and fiscal year 2003 earnings conference call. Today's call is being recorded. At this time, for opening remarks and introductions, I will turn the call over to Mr. Richard Jones, President of Centex Construction products incorporated. Please go ahead, sir.

All right, thanks, Carolyn. Welcome to your third quarter earnings release conference call. On the call with me today is Steve Rowley our COO and Art Zunker our CFO from Dallas. Dave House, our Executive Vice President of Gypsum and Paper Board from Albuquerque, New Mexico. And Jerry Ethelon, our new Executive VP of Cement and Concrete additives from Austin, Texas. While Jerry's new to his position, he has over 27 years of experience with the company. Most recently, he was president of the Texas Lee High cement company.

After I give a brief overview of third quarter results, Dave House and Jerry Ethelon will discuss their business lines in more detail. Then Art Zunker will cover a few miscellaneous details and give our near term estimates.

First I'd like to point out we have a forward-looking statement release which says that the company's current view of future events and financial performance involves known and unknown risks and uncertainties. And these list factors are listed in our annual report, so that the actual results may vary from the planned or expected results. The annual report is on file with the SEC.

We had a -I think we have a very good quarter. Our quarterly earnings were up about 33 percent at 83 cents per diluted share over 63 cents for the same quarter last year. Gypsum and paper board had very good improved results. We also had decreased interest expense which helped contribute to the earnings. Our cement [inaudible] were a little bit less than the previous period. Also for the nine months, our earnings were up about 66 percent at 260 a share compared to a $1.57 for the same period last year.

At this time, I'd like Jerry Ethelon to get into a little bit more detail about the quarter as it occurred in our Cement concrete operation. Jerry.

Thank you, Dick. Cement revenues for the fiscal year '03 third quarter totaled 42.2 million or six percent below the 44.7 million for the same quarter a year ago. Operating earnings also decline six percent to 14.4 million from 15.4 million mainly due to decreased sales volumes and reduced operating margins. The sales volume for the third quarter totaled 576,000 tons which was four percent below the same quarter last year of 602,000 tons. This was mainly due to reduced sales in the Texas market because of unseasonably wet weather probably as a result of the effect of El Nino during this quarter. Also, the mid west market experienced reduced sales towards the end of the quarter.

Purchase cement sales were 30,000 tons for the quarter. And that was 62 percent less than prior year's third quarter with declines in all markets. Although demand in certain markets h as softened, we're able to reduce our purchase cement sales with the lower margins and still be in a sold out position for the 17th consecutive year.

Cement net sales price of 6.77 per ton is basically flat with 66.89 per ton for the same quarter a year ago. And that concludes my summary of the cement operations, Dick.

All right, Jerry. Did you want to give us any information on the concrete aggregates?

Sure.

Would you cover that also at this time?

Yes, sir. Concrete and aggregate operations had revenues of 12.8 million for the third quarter, eight percent higher than 11.8 million for the same quarter a year ago. The $305,000 profit reported for the quarter was 38 percent below the same quarter of last year, of 493,000. The decline was mostly due to decreased aggregate sales volume. Aggregate sales volume of 868,000 tons for the quarter was seven percent less than the 937,000 tons for the same quarter last year.

The reduced sales volume was mainly from decreased aggregate sales at our Texas operation. Average net sales price of $5 per ton for the current quarter was 12 percent greater than the $4.45 per ton last year. Concrete sales volume was 151,000 cubic yards, or 19 percent higher than the same quarter last year as 127,000 cubic yards. The gain was primarily, again, from our Texas concrete operation.

Due to lower sales prices in the Texas market, the current quarter average concrete net sales price the 53.68 per cubic yard was five percent below the same quarter a year ago of 56.66 per yard. And that's the summary of the current ag, Dick.

Thanks, Jerry.

Yes, sir.

Dave House, will you run through gypsum and paper?

Wall board revenues for the quarter were 39.3 million, a 10 percent increase over 45 million for the same quarter a year ago. Operating profit was 6.7 million, a 140 percent increase from the 2.8 million operating profit same quarter last year. Earnings improvements were mostly due to higher net sales prices. The average net sale price for this quarter was 89.03, up 11 percent from the same quarter a year ago.

Sales volume was 440 million square feet, one percent above the previous year. Both pricing and demand softened during the quarter. Industry shipments for the October were off somewhat even though they're still at good levels. A price increase in September eroded away through the winter which typically has some impact on pricing. But we do have an announcement from one manufacturing for an increase in mid February of 15 percent. The rest of the industry has not followed at this time. Costs are well under control with lower waste paper cost, giving us lower paper cost. That being offset though by higher energy costs end of the winter time.

For the current nine months, wall board reported 24.3 million operating profit, compared to a 2.9 million operating loss for the same period a year ago. Increased net sales price was offset by decreased volume for the quarter, for the nine months.

The current nine months gypsum and wall board ribbons were 156 million, a 21 percent increase from 129 million, the same period a year ago. Wall board sales volume of 1.385 million square feet for the current nine months was two percent less than the 1.4 for the same period last year. The average net sale price for the nine month period this year was 90 - was 30 percent above the 69 for the previous year.

On the paper board side, revenues for the quarter were 23.8 million up 24 percent from 19.2 million, the same period as last year. Operating earnings of 5.3 million for the quarter, this year was 52 percent above the 3.59 million for the third quarter a year.

This year's third quarter paper board sales volume of 55,000 tons at an average net sale price of 428 compared to last year's sales line of 48,000 tons for a net sales prices of $403 per ton, increase in the average net sales price was due to increased sales prices for all grades of paper. On the paper board side, waste paper prices are decreasing. And our energy costs in our contract are down, so going forward we'll probably have a little less price there. These things trial some, so over the next quarter, too, they should flow into our cost statements.

For the nine months paperboard operating earnings were 11.9 million up 129 percent from the 5.2 million for the same period due to increased sales volume and higher operating margins. And just as last year's operating earnings were negatively impacted by the closing of the Denver mill, paper board revenues for the nine months this year were 67.4 million, an 11 percent improvement over revenues of 60.9 million for the same period last year.

Paper board sales volume for the current nine months was 166,000 tons that an average price of $404 per ton compared to a 152,000 tons an average sales price of 397 tons for the same period last year. That concludes my comments, Dick.

OK, Dave. Dave why don't you also bring us up to date a little bit on where we think the capacity of the Lauten Mill is now.

The Lauten Mill is probably getting close to 265,000 tons a year under current operating conditions. We won't average that for the year. But we continue to ramp up volume there. And as we do costs should continue to come down.

Good. Thanks, Dave. Art, would you do us a little wrap up and a look forward, please?

Yes, thank you, Dick. Let me give you a couple of numbers that are not in the earnings release that most of you will be interested in. Our book value at the end of the quarter id $25.64 per share. Depreciation for the quarter was $5.3 million. And for people doing their models look for the same number in the fourth quarter.

Capital expenditures from the third quarter were $2.9 million. We're looking for something a little bit higher, somewhere around in the $4 million range for the fourth quarter. Debt to cap at the end of the quarter was 17.5 percent. And as annunciated in the earnings release we have fully reduced debt to approximately $100 million at December 31st.

Looking forward, the yearly numbers that we preface, the early guidance which stables at fourth quarter traditionally are low as earnings quarter, also our lowest volume quarter in all of our segments. And traditionally we do see similar weakening of pricing growth in the fourth quarter.

Also, Dave alluded to in the paper board segment that pricing will probably be down a little bit at the end of the fourth quarter due to some annual cost adjustments. And usually running - I say usually these are running at an annual basis that will be reducing the price going forward of [inaudible] some of our contracts during the fourth quarter.

Also, with the uncertainty of weather and other market conditions, we're looking for - I mean excuse me for the year's end somewhere in the $3.10 to $3.20 per range. And that concludes my comments, Dick.

OK, Art. That concludes the management presentation portion of the earnings release conference call. I'd like - Carolyn would you open this up to questions please?

Certainly. The question-and-answer session will be conducted electronically. If you'd like to ask a question today, please press the star key followed by the digit one on your touch-tone phone. Again, that is star one to ask a question and we'll pause for just a moment.

And our first question comes from Trip Rogers with UBS Warburg.

Hi, good afternoon.

Hi.

Just a question first on the cement side. It looks like if you exclude the purchase cement volumes, the decline in that, you actually would have had high volumes year over year had those been the same. And yet, the margin came down a little bit. Anything else going on there?

Steve.

Really, our production keeps coming up. Everything is fine there. However, out on the west coast we're still hit with pretty high power costs. As well a we still had some quarter to quarter maintenance shift.

Trip, this is [inaudible]. Let me interject as well. Know that we have a disparity between our mid west production cost and our west coast production cost. And our sales volume was down in the mid west on this thing. So we get that little error play between the lower priced part and the higher priced part to the total mix.

Right. OK. It makes sense. Any price increases talked about in cement year for the next year?

Jerry, do you want to cover that?

Sure. There are a couple of them that are out there right now. In Illinois there's a price increase that has been announced for April first, and that's looking pretty good. Real good support from all of the competitors in the market. Mountain cement region in Colorado, there's a price increase announcement for January one that right now is in place. And also in California, there's an anticipated price increase for April first. Nothing in the text is marketed at this time.

And this size of those generally?

Anywhere from two to $5.

OK. Jumping over to wall board. Dave, can you - you said shipments are down and you said the industry shipments and yours as well. Can you talk about kind of what you think that's going on there? I mean the housing numbers that we see are still pretty strong. This just shipment got ahead of themselves or what do you see going on?

We had a price increase in September and I suspect some of them loaded up a little bit. I mean they aren't very much, just a little bit. Going forward, there were some good housing starts in the fall. And it looks like they're continuing through part of the winter. That should help voice some of that up. We lag typically from a housing start to the wall board of three to four months chiefly.

OK. And can you remind, are you guys hedged at all right now on natural gas?

We've done less of that mostly because a lot of those brokers are not around anymore. And we didn't want to get caught up in one of those.

Right. So at this point, you would ...

We're about a third hedged at the most right now.

All right. And just finally just on the paper side, how much of the paper do you - the 55,000 ton you produced are you consuming internally now?

Probably a little less than half, something less than half, maybe 40 percent.

OK. Thanks a lot.

And our next question comes from Barbara Allen with Natex Bischroeder.

Natexis Bischroeder is our new name. Good afternoon, you all. A - how's the wet weather in Texas effecting cement? Is that continuing in January? I'm sorry I haven't been watching the weather reports.

It actually has not. Sales have been doing pretty well in Texas. There has been that pinned up demand that has carried over from the wet weather in December. So we're seeing pretty strong demand right now in January.

OK. Do you have - what's the rough number on wall board shipments to change for the full year? I mean you mentioned November and December were down for the industry?

Yes, I think we should still have a record year because of the earlier shipments, although they'll be off in the last quarter a little bit.

OK. Just then. OK. Thank you.

And once again, if you do have a question please press star one at this time. And we'll return to Trip Rogers.

Dave, just one question I forgot to ask. Could you tell us where wall board prices were at the end of the quarter, know $83 - what's your average in the quarter?

They're probably in the mid to low eighties. Eighty-nine was our average. Or that 89, I think, for the quarter too.

Right.

And we're down a little bit from that, probably in the mid to low 80s.

OK. And would expect - I mean do you think that basically holds in the fourth quarter? Or do you ...

Well we're hoping that it firms up. Right now they're stable and with the price announcement that typically firms things up. If things pick up a little bit, hopefully they'll hold up.

Right. But right now, there's only just the one price that's currently out there, right?

Yes, that's right. So that means maybe March or some other time.

Right.

Before long, hopefully.

OK. Great. Thanks a lot.

And our next question comes from Michael Carelli with Barry Vogel and Associates.

Hi, could you talk about two things, one what your plans are fourth quarter debt repayment? And where are those charges that you talked about in the release?

Mike, this is Art. The thing - debt repayment in the fourth quarter, through tradition the fourth quarter is our lowest earnings quarter. And this is the time of year that we start building inventories. And so I don't see that maybe at the backs of $10 million digital reduction probably is somewhere between the $5 million range. But I don't think it will be no more than $10 million.

And then the charges we're talking about on the earnings release on the - are a little less than $600,000 for the interest rate swap bust. That charge is an interest expense included in that number. And then on the loss - on the sale of the lands and the other income numbers.

OK. And they were around 600,000 each?

Right. Yes, that's - Mike it's 560 to 584. I forget which is which.

OK. Thank you.

And one final reminder, if you do have a question please press star one. And Mr. Jones, it appears we have no further questions at this time.

Good.

I'll turn things back over to you.

Thank you very much and thank you all for participating in the call. This ends the - our Centex Construction products third quarter earnings release call. Carolyn, we're going to go to a private conference.

That does conclude today's conference. Thank you for your participation.