Eagle Materials Inc (EXP) 2007 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the financial results for second quarter of fiscal year 2007 conference call.

During the presentation, all participants will be in a listen-only mode.

Afterwards we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded Wednesday, November 1, 2006.

I would now like to turn the conference over to Steve Rowley, President and Chief Executive Officer.

Please go ahead, sir.

Thank you and welcome to Eagle Materials conference call for the second quarter of fiscal year 2007.

Joining me today are Art Zunker, our Senior Vice President and CFO;

Craig Kesler, our Vice President Investor Relations and Corporate Development; and Jim Graass, Executive Vice President and General Counsel.

There will be a slide presentation made in connection with this call.

To access it, please go to www.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.

Despite a softening of residential construction in most U.S. markets, Eagle's regional sales opportunities allowed Eagle to set record highs for second-quarter revenues and operating earnings.

The increases were driven by record sales volumes in cement combined with record high wallboard and record high cement prices.

During the first six months of fiscal 2007, we generated $153 million of cash flow from operations, a 69% increase from the same period year ago.

The cash was utilized to fund approximately $67 million in capital expenditures, primarily directed toward our Illinois Cement expansion project and construction of our new wallboard plant in South Carolina.

As of September 30, 2006, our net debt to cap ratio was 19% compared to 24% as of March 31, 2006.

During the quarter, we repurchased approximately 1.4 million shares of Eagle's stock at an average price of $36.43 per share.

We also repurchased an additional 780,000 shares of Eagle's stock in early October at an average price of $32.52 per share.

Total U.S. construction spending is up 4% through August with year-to-date shipments of both wallboard and cement at record levels; however because of a major slowdown in new residential construction, wallboard shipments in both August and September were down sharply compared to the prior year and wallboard pricing has begun to decline.

Eagle's wallboard revenues increased 18% in the second quarter primarily because of price increases successfully implemented throughout 2005 and early 2006.

Record high wallboard pricing for the quarter combined with our low-cost wallboard operations generated record quarterly wallboard earnings despite an 8% decline in our wallboard sales volumes.

Our average wallboard net sales price for the quarter was $176 per MSF, however, our average net sales price in September declined to $171 per MSF.

Eagle's second quarter cement consumption was strong in all of our markets.

Our second-quarter revenue increase was associated with both price and volume improvements of 12% and 4% respectively.

Eagle's cement earnings have improved because price increases have outpaced the impact of higher cost purchase cement and higher energy cost.

Demand for cement remains at record levels with imports projected to fulfill over 30% of U.S. construction industry demand this year.

This graph illustrates the current strength of the cement industry.

Our $93 per ton [mil] net is a record high quarterly price for Eagle Materials.

Currently cement price increases of from $10 to $12 per ton have been announced by all of our cement facilities for early 2007.

Our paperboard earnings declined 41% during this quarter compared to a year ago.

The decline is due to an increase in sales of lower margin containerboard grade paper associated with the decline in wallboard sales volumes, increased recycled fiber cost and an increase in maintenance expenditures during the quarter.

Our concrete volumes, price, and earnings are improving primarily because of the improved market conditions in Austin, Texas.

Although we saw a slight reduction in our aggregate volumes, construction activity remains strong in both of our aggregate markets.

Our 55% increase in operating earnings was predominantly driven by improved pricing in the marketplace.

Art?

Thank you, Steve.

We are issuing guidance for the third-quarter fiscal 2007 based on our internally reforecasted comps, volumes and prices.

We anticipate our third-quarter diluted EPS to range between $0.75 and $0.85 per share.

For fiscal 2007, we estimate that our EPS will range between $3.80 and $4.20 per diluted EPS.

Included in our third quarter estimate is the impact of shutting down Illinois Cement for the tie-in of new equipment, which approximates $0.08 per diluted share.

Thank you for attending today's call.

We will now move to the question-and-answer session.

(OPERATOR INSTRUCTIONS) David MacGregor, Longbow Research.

Good morning, this is Garik Shmois in for David.

First off, can you talk a little bit about the $10 to $12 price increase from cement?

What kind of response have you been getting so far?

Has the MSF pricing dynamics changed since housing has started to soften?

All of the industry really has supported these price increases.

One thing of note is that manufacturer inventories have swelled a little bit during this last quarter as I think there was anticipated greater volume this year.

And so there were a lot -- and it takes a long time for the imports to reach the U.S., so we have a huge queue of imports coming in and to avoid the barrage, the industry typically then would just raise the volumes a little bit.

So that would be potentially a little bit of a negative, but on the positive is the price of these imports have gone up dramatically from where they were a year ago.

So the high cost of imports landing in the U.S. really will be what supports price increases for next year.

Okay, and just to clarify on the aggregate side, I know that it is not a very big part of your business but have you been seeing a shift in demand in Austin, Texas as opposed to your northern California market?

Is Austin starting to weaken as well or is most of the aggregate volume decline in northern California?

Most of decline was in northern California.

Boston remains very strong and northern California again residential is off dramatically and some of the road jobs were delayed, however in October we are seeing volumes start to pick back up in northern California.

Wonderful.

Thanks a lot to.

Jack Kasprzak, BB&T Capital Markets.

I just want to make sure on one point of clarification, the $171 in September, that was the average price for September, is that correct, of wallboard?

That is correct.

Can you tell us what it was at the end of September?

Was it very different from that?

I can tell you that currently our estimate for October is the mid to upper 160s.

Okay.

Can you tell us the share count at the end of the quarter to give us an idea of for modeling purposes what we should be putting in a model?

The share count at the end of the quarter?

Hold on, Jack.

This is Art.

Diluted it is about 49 I believe.

At the end of the quarter, was 49,050,000 and then as Steve mentioned earlier, subsequent to the end of the quarter we purchased another 780,000 shares.

So we should be somewhere in the 48.250 million range, give or take.

Got it.

Okay.

Then the cement margin in the quarter even taking away the tariff payment was tremendous.

It was excellent over 31% I think and I just wonder if you could talk a little bit more about what was going on there?

You mentioned prices were up obviously nicely and more than offsetting higher costs.

Is it as simple as that or was there anything else we should be aware of that led to such a stellar performance?

In addition to that we did have a $3 million approximate $3 million claim for -- if you remember a year ago we had an issue of Mountain Cement associated with a failure of a large gear box and we received approximately $3 million in the quarter as far as a business interruption claim.

So that would be the only other impact to those costs.

Jack, this is Art.

Approximately $2.6 million of it went through the income statement.

$2.6 million?

Okay.

The tax rate was a little lower than normal.

Did that have anything to do with these onetime items flowing through and should we expect it to go back up more to that mid 30 kind of range where it has been?

No, it should be worked out at the end of this second quarter.

So that should stay 33.5 or so?

Right.

That is correct.

Okay, thanks a lot.

(OPERATOR INSTRUCTIONS) A follow-up from David MacGregor, Longbow Research.

It's David MacGregor calling in.

I hope you can hear me all right.

I'm calling on a cellphone.

For calendar '07, can you just review for us what new capacity is expected in the industry and are you seeing any cancellations or do you sense there are any push outs for many of your competitors in terms of the rate at which they would be bringing that capacity on given the (indiscernible) in pricing starting to decline?

What we are seeing is really two things.

One, most of the industry is starting to operate their facilities, especially the ones that have high cost facilities, at lower utilization.

So Eagle Materials, we're currently with the industry at about 90% capacity utilization.

We shift -- we have shifted to a three shift operation, which allows us to handle this 90% capacity utilization nicely.

We see the industry doing the same.

As far as new capacity coming on next year, we have a plant that is just coming on line, up at (indiscernible) in New York, another one of USG's early next year in Virginia.

Beyond that, the rest of the capacity should come on line late summer or actually late fall of next year.

Can you talk about the total billion square footage of new capacity that you're expecting to be in the market for 2007?

For 2007, I guess you could do a weighted average, but on a weighted average I would say it's probably not much more than one billion.

Than one billion?

Okay, so what would you expect in 2008?

In 2008 it would be much higher, another 2.5 billion.

Great.

Thanks very much, gentlemen.

Alan Mitrani, Sylvan Lake Asset Management.

Can you just -- what is your CapEx year-to-date so far and what are your planned expectations for the full year for this fiscal year?

Then if you can give us next year's CapEx as well.

Our CapEx year-to-date is about $66.5 million and for the remainder of the year another $50 million to $60 million I believe should finish the remainder of our major capital expenditures this year.

Then next year it will be somewhat less as we are just finishing up the Georgetown project and just starting the Nevada Cement project.

Okay.

Those numbers seem a lot lower than what you had put out earlier for your expectations.

You're saying CapEx is going to peak this year?

I think it really is a function of when we actually get Nevada Cement started.

Our plans would be that we really start the project in kind of late spring or early summer and the major spend for that really won't occur until the tail end of fiscal '08.

Got it, so about 126.5 this year and then you said next year roughly flattish to down so then fiscal '09 could see a bigger jump?

That his correct.

Okay.

Given that you're going to likely have more cash flow than maybe you thought a year ago, is there a plan to continue to leverage the balance sheet or to start leveraging the balance sheet more in terms of share repurchase?

Just remind us where you are in share repurchases, how much you have left?

We have about 850,000 shares left under the current authorization and absolutely if we believe that our share price is intrinsically undervalued we are going to continue to repurchase our shares.

Any other comment regarding -- I saw -- I realize it's a much bigger scale than you have more international but CEMEX an offer for Rinker for and as well Texas Industries seems to have attracted some interest from outside parties.

Any thoughts on the consolidation in the industry or whether you see opportunities as well?

Really we don't have any comments at this time.

Thank you.

Michael Corelli, Barry Vogel & Associates.

Just a question about the wallboard pricing.

I know you said what you were expecting for an average in October.

Could you give us some color on what it is currently?

Currently we are in the mid 160s.

Our best estimate right now -- October is just finishing, so we really don't have a financial, but it is going to be somewhere between $165 and $170.

And that is still where it is today?

That is where the price is today.

Okay, thank you.

Mr. Rowley, I'm showing no further questions at this time.

I will now turn the call back to you.

Thank you and I look forward to talking to you in another quarter.

Ladies and gentlemen, that does conclude the conference call for today.

We thank you for your participation and ask that you please disconnect your lines.