Eagle Materials Inc (EXP) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the FY14 Eagle Materials Incorporated earnings conference call.

My name is Denise, and I'll be the operator for today.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes.

I will now turn the conference over to Mr. Steve Rowley, President and CEO of Eagle Materials.

Please proceed.

Thank you, and welcome to Eagle Materials' conference call for the fourth quarter and FY14.

Joining me today are Craig Kesler, our Chief Financial Officer, and Bob Stewart, Executive Vice President, Strategy, Corporate Development and Communications.

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're accessing the slides, please note that the first slide covers our cautionary disclosure regarding forward-looking statements made during the 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.

Increased demand for our products, combined with higher net sales prices, resulted in a 40% year-over-year increase in Eagle's consolidated revenues, and 104% increase in Eagle's earnings per share this past year.

The $898 million in consolidated revenues represents Eagle's second highest revenues on record.

[If] we include revenues from our Texas joint venture, like we do for segment reporting, Eagle's FY14 revenues were a record $1 billion.

While this Winter's weather was unusually cold and wet and long, we are very pleased by the level of construction activity in between Winter storms.

As Winter turned to Spring, our sales opportunities have us smiling and scrambling to meet our customers' needs.

A 39% increase in our annual cement sales volumes and a 5% increase in our average net cement sales price were the primary drivers of the increase in Eagle's annual cement, concrete and aggregate revenues.

Cement price increases have been realized in all of our markets during this past year.

Increased wallboard average net sales prices and increased gypsum wallboard paper sales volumes resulted in a 22% increase in our annual comparative of wallboard and paperboard revenues.

Those same factors resulted in the 46% increase in our annual wallboard and paperboard operating income.

Now let me turn this over to Craig for more details on the financials.

Thank you, Steve.

Cash flow from operations during FY14 was $170 million, up 37% from the prior year.

Capital spending of approximately $59.5 million was used primarily towards the buildout of our frac sand operation and maintenance capital.

Excess cash flow was used to pay dividends and reduce outstanding borrowings.

And interest expense was $18.3 million during FY14.

Our effective tax rate for the year was 32%.

As this last slide reflects, Eagle is generating meaningful cash flow from operations, as we benefit from improvement in market conditions across a larger footprint of operations, while also improving on our low-cost competitive position.

We have primarily used this cash flow to reduce debt and improve our financial flexibility.

Our net-debt-to-cap ratio was 31% at March 31, 2014.

Thank you for attending today's call.

We'll now move to the question-and-answer session.

Denise?

(Operator Instructions)

Kathryn Thompson, Thompson Research Group.

The first is on the Wallboard segment.

Volumes were up 2% for the quarter, which when you compare regions which you compete seems a little light.

Granted East South Central for the industry was up 0.8% for the quarter but West South Central which could have covered your Tulsa plant was up high-single-digits per quarter.

Could you reconcile what we would have thought were a little bit lighter volumes and also on that could you discuss how volumes trended between storms or maybe as we headed into April and May.

Thank you.

So you started out with Wallboard.

Were you talking about Cement or Wallboard volumes?

Wallboard.

Yes, so in Wallboard, if you remember, there's a pretty good pre buy ahead of January.

So we're always a little slower in the first part of the year with the pre buy ahead of the price increase January 1. But I guess the easiest way for me to answer that is in April, our Wallboard shipments on a per day basis were 25% greater than the March quarter.

That'll give you a feel for what's happening with Wallboard.

If I wanted to look at Wallboard in April shipments year-over-year versus April a year ago, they're 11% higher than last year's April.

So we're very, very happy with the volume for Wallboard.

And in addition to that, we have finished closing the books for April.

The price of our Wallboard mill net in April is actually slightly up over the March quarter.

It was about [$164.50] for the month of April.

So the trends in Wallboard are very, very positive.

Okay, great, that's very helpful.

And once again, for your Illinois -- excuse me, your Cement volumes, you had greater exposure to more severe weather chances, Illinois and the Mountain region.

To what extent did volumes versus the plant maintenance impact volumes in the quarter?

Yes, so the answer, our volumes were up.

We met all our sales needs for what our customers required and volumes year-over-year in Cement are up 4%.

So what that means is in between storms the demand was very strong.

We're very happy with demand.

Maybe in one region or one plant at Illinois as the weather continued, we decided why keep fighting it, we're going to do an outage next month let's just shut down now and do our annual maintenance a little bit early.

Our inventories are full, it makes sense to do it.

So rather than try to stockpile stuff out in the snow, we chose to shut down and perform our maintenance a little bit earlier.

So that was the only real impact that we would have had as we pull forward the maintenance outage that normally would have been held in April rather than March.

Okay and most of those costs were realized in the quarter just reported, so we shouldn't see as much flow into Q1?

That's correct.

Now I think some of our other plants had their normal maintenance as planned in April, but clearly the Illinois cost would not flow in.

Okay.

And final question, where are you in terms of the frac sand build out, just from an infrastructure standpoint?

And could you give an update on the water runoff permit?

We're still waiting on the permit.

Really think that we could have in hand any day now.

But as far as the -- all of the pieces in place to continue to expand that project and to expand that business, they -- every quarter we continue to make more progress, I think this last quarter we applied for some more extension of what we're doing in Illinois and expansion of what we're doing in Illinois and all of that seems on track.

So we're very happy with the progress that we're making.

Our goal of what I've been saying was three to four years, maybe it's two to three years of supplying 4 million to 5 million tons of frac sand to various basins looks right on track.

Okay great and one last question, I'll get back in queue.

The 6% increase in Cement pricing, the quarter, does that [primarily] reflect price increases from 2013 and how much of it reflects the Mountain region price increase that was implemented in January?

The Mountain increase was very, very solid.

I'm not sure the volume of that relative, I'd have to get back with you and pull out the impact of that.

But clearly we had increases throughout the year.

The one area that we had a January as opposed to an April increase was in Mountain.

That held very strong.

Cement demand is very strong.

It looks like it's -- it should be up high to single-digits this year across our markets.

Supply is in the better markets is extraordinarily tight requiring some type of controlled distribution.

In these instances where we're struggling to meet our customer needs, we're doing our best to water fall cement from neighboring markets but logistics remain very challenging requiring a daily effort just to keep that cement flowing.

So price increases right now we're holding as cement becomes more and more challenging to find.

Our mills currently -- all of our mills now are sold out for the shipping season.

Okay, great.

Thank you so much for taking the questions.

Trey Grooms, Stephens.

Quick question I guess on the pre buy you mentioned Steve in Wallboard.

How long does that typically take to burn off the excess or higher inventory in the channel that's a result of the pre buy?

Every year is a little bit different.

I think this year the pre buy was a little stronger than in the past.

So I think it took the better part of the month of January to burn a lot of that off.

So January was weaker than normal.

Got you.

But as far as February was concerned, by the time you get into the back half of the quarter, that's pretty well run its course through the channel?

That's correct.

Okay and on Wallboard pricing, I know you guys report a mill net.

What if any impact did freight have on that reported price that you had there?

Freight keeps going up and we keep trying to ship Wallboard closer and closer the same reasons I mentioned just a minute ago in Cement.

Logistics just continue to remain challenging for Wallboard.

So we are choosing to focus our commercial efforts closer and closer to our plants primarily to ensure customer service but also to control costs.

So costs went up.

They're up $36 or something right now, but that's on a per mile basis -- they're up to $36 not up $36.

And -- but on a per mile basis, they keep going up but there's a reason.

The flat bed trucking industry is currently operating near 100%, maybe 98% utilization.

So there's a reason why it's really hard to get the product to where it needs to go in a timely fashion and to keep your customers satisfied.

Right and so that $36, how did that compare a year ago or maybe even just in the fourth quarter?

Up a couple of bucks.

All right, very helpful.

And Craig, you called out Wallboard maintenance in the quarter.

I don't remember you guys breaking that out in the past.

Is this type of maintenance unusual or nonrecurring or something special about this type of maintenance that occurred in the quarter?

Yes Wallboard is not as lumpy as Cement when it comes to maintenance, but every once in a while you really do need to take these plants down for a little more extended maintenance.

And that's what we did this quarter.

And does that occur every year or (multiple speakers).

We have an opportunity and we really had an opportunity with the pre buy, so then you have some time when you can get some stuff done you've really wanted to get done.

Got you.

Okay and my last question and then I'll jump back in queue as well.

The recent announcement from Lafarge and Holcim, I know you guys are very adamant and very vocal about your interest in expanding when the opportunity arises, expanding the heavy side of your business, the Cement and in Aggregates and things like that through acquisition.

Looking at the overlap there, is there anything that if there were some divestitures that would have to take place assuming this deal proceeds, would there be anything there that might pique your interest?

We're always interested in these type of assets and we don't know what type of an overlap may or may not be out there.

But if there is some overlap that comes available, certainly we'd be very interested.

Okay.

I do want to sneak one more in on frac sand real quick.

Frac sand pricing, I know you guys aren't really out in the market too heavily or anything but I know you're -- you definitely have feet on the ground and things like that in the various basins.

Can you talk about what you're hearing, at least from your perspective, what you're hearing on frac sand pricing in the market?

Sounds like across many grades, if not all, they're trending up.

But I didn't know if you could comment on that at all.

Thanks.

Pricing is definitely up.

Definitely up from last summer when it spiked down pretty hard from a year ago.

But pricing is definitely coming up and coming up in dramatic fashion as things got very tight because it was hard to get sand moving when we had the severe winter weather up in the Northern part of Minnesota, Wisconsin.

So pricing did get much better and looks like it's holding firm as we speak.

Great.

Thanks a lot.

Good luck.

Jack Kasprzak, BB&T.

The land, Steve, the land you mentioned that you're expanding in Utica, are you moving all of your processing for that site to the new land or is that part of an expansion?

Wondering -- some color there.

Yes, so this is part of the build out of what we talked about.

So the initial site in Illinois was a mine site.

The site that we permitted currently or that we're working on, on zoning and permitting would be to put another drying plant.

And it is right on the railroad.

It also allows us access to get our raw sand from the mine directly on to a barge on the river without having to put it on a truck.

So it's a conduit to get the sand down to Corpus very inexpensively.

And it also allows us to build a drying plant similar to what we have at Corpus right on a major railroad.

Okay.

According to some news reports I've seen, there's supposedly a mining moratorium in La Salle County.

Would that not apply to this expansion or somehow you guys might be exempt from that?

Or do I have that right?

Yes, I do not know if you have that right.

There are maybe up in Wisconsin there are some moratoriums.

I do not know of mining moratoriums in La Salle County.

I know there are some other people that have been applying for them.

but this property or at least what we're currently doing is -- does not involve mining.

So the process would not involve permitting for mining.

It would be a processing facility.

Got it.

Okay, great.

And then the December quarter your average price in Aggregates was $11.

This quarter it was down to $7.

And can you talk -- last quarter there was some (multiple speakers) frac sand and now it maybe went down.

Yes, I think we changed the way we reported that.

I'll let Craig speak to that.

So Jack, if you look in the -- on that attachment 3 of the press release, we highlight there that the Aggregate both on a sales volumes and on a net sales price basis are -- exclude frac sand and are more of the traditional Aggregate net sales price and sales volumes.

Was there any particular -- yes, sorry.

In the previous quarter we had just lumped it all together and probably shouldn't have done that.

Got it.

Okay, great.

Thanks a lot.

Jerry Revich, Goldman Sachs.

Good morning, it's Matt Rybak on behalf of Jerry.

Can you share your perspective on why the industry isn't realizing more of the 20% Wallboard price increase?

I know last year you announced 20% and realized close to 18% the year before.

I'm sorry, last year announced 25% and realized close to 23%.

The year before you were right around 35% and realized 31%.

Any context on what's changed particularly in the context of accelerating trucking costs?

I -- it's hard to say in great detail other than you do sell to some different segments and some places it might be a little harder to get some of the pricing.

But probably the biggest thing is you have had realized some pretty significant price increases albeit from extraordinarily low of almost impossibly low prices from where we started.

So the earlier prices are a little easier to achieve and then there's always some room to work on pricing as you go forward.

Our focus continues, though, to be -- to stay close to our plants and we're more concerned about price than we are volume, although we see both going up in the markets that we serve.

So is it fair to say that you think that you'll get closer to the full 20% over the course of the year or are these the levels that you would expect for the remainder?

No, I think near these levels is where we expect and that's just a function of product mix and geographic mix and customer mix.

And that's just the way it ended up this year.

Understood.

And then on the frac sand business, it looks like you maybe more than doubled your sales in the quarter to around $13 million.

Are you locking any long-term agreements as you introduce the product?

Can you give us some detail on the product grade and quality you're delivering, how this might compare to some of your other suppliers and competitors in the region on crush strength and uniformity?

We still are waiting for our mining permit to get our own sand ups.

We're buying third-party sand, we're happy with the quality, we're buying high-quality sand and selling the higher grade sand as opposed to the lower grade sands into the marketplace.

So the answer is a little early for us to be too responsive to those questions.

Understood.

Thank you.

Garik Shmois, Longbow Research.

First question on Cement capacity.

You indicated that your plants are pretty much sold out and you've got your balance sheet in very good shape.

Wondering if you could talk about if there's any plans in the works that are imminent to expand capacity, your existing facilities?

So it's really on a seasonable basis and on a milling system basis that we're sold out.

We don't have any more finish mill capacity.

And yes, there are some places because of the seasonality where we know we need to improve our finished mill capacity so we balanced the plants out over the course of a full year.

So we clearly are looking at some of those opportunities to spend capital wisely to allow us to fully utilize the kiln or clinker producing capacity of the plants that we have.

And you did provide your volume growth in Wallboard into April.

I was wondering if you could do the same for Cement?

Cement sales in April, Craig I didn't write those down.

Yes, so I think Steve alluded to it earlier that we expect to have an upper single-digit number for volume growth for the year and Cement in the month of April was consistent with that.

Okay, thank you.

And then looking at fracking, you concurred about $5 million in start-up costs for the year, FY14.

Was wondering if you could break out how much of those losses occurred in the fourth quarter and how you would be thinking about start-up costs in FY15?

Yes so Garik, in this fiscal fourth quarter so we've given you some numbers through the third quarter.

The fourth quarter was closer to right around $1 million loss.

And again, this is that we're ramping up the business and putting a sales group in place, late labor costs associated as near start-up of the business and the mine.

So at least until we get the permit, we've set a close type of run rate until we open up our own line.

Okay, thanks so much for the help.

Glenn Wortman, Sidoti & Company.

So assuming you can get the mine permit for fraction in the next couple of months, how fast would you expect to ramp up to at or near your full processing capacity for the Corpus Christi facility?

So it takes -- once we get the permit, it's going to take a couple of months to finish the retention ponds that we have to build but then we could be up and running very rapidly.

Because during that time, we'll have finished tweaking the start-up of the facility and checking it out.

And so it's not a terribly complex process, the wet end of sizing sand.

So we would anticipate then after that to be able to have sand on the river within a reasonable period of time.

And then once we have sand on the river, it's about a month to get it down to Corpus Christi and then get the Corpus Christi plant operating at rated capacity.

Okay and then any decision on a Wallboard price increase for 2015?

There was one announced.

It's been announced a week or two now at 15% January 1 for the entire year.

Thanks for taking my questions.

Evan Wingren, D.A. Davidson.

Backing out the maintenance costs from the wholly owned Cement operations, it looks like profits were down a little bit year-over-year, are there any [reasons] you point to given strong pricing and volumes in the quarter?

(technical difficulty)

If you look at, quarterly things can be lumpy, if you look at year-over-year for Cement, our costs are actually down a couple of bucks.

Okay and some of that is -- yes that's roughly split half between the lower fuel costs and half between maintenance costs.

So Cement because things are so lumpy on a quarterly basis, you really need to look at annual basis.

And on an annual basis our costs are down.

Thanks for that.

And then for the Illinois, Tulsa and Kansas City Cement, could you give us an update on what proportion of your current production there is coming from (technical difficulty)?

The question was --?

(Technical difficulty) Cement between Illinois, Tulsa and Kansas City, that's still in the early stages there.

It's a small proportion.

It's not near the proportion that we have in Texas or in the Mountain Cement plant.

All right, and then one last one.

Do you have any plans with regards to your idle New Mexico Wallboard facility at this time?

Not at this time.

All right, thanks for taking my questions.

Todd Vencil, Sterne, Agee.

Steve, following up on the comments of the Illinois expansion that you guys are doing.

So I want to make sure I understand.

You're adding a second drying plant up there in addition to the one in Corpus, right?

That's correct.

How much additional capacity is this second one going to be able to handle?

When everything is finalized, it'll be about double the size of Corpus.

Okay.

So -- I'm sorry the Illinois plant itself is double or it's about the same size and therefore you're doubling?

The Illinois plant will be nearly double.

Got it.

And -- okay.

And which sales in particular are you looking to hit with that plant?

Or that drying facility, where will that sand go?

The nice thing about the location of the mine and the location of the facility is you have access to all kinds of logistical transportation.

So you have access to four major rails which gets you to a lot of difference places.

You have access to the UP, the BNSF, the CSX and the Norfolk Southern, all very, very close to the site.

And then you also have access to the water which we decided is the best place for us to start.

So anyway, it'll allow us to hit many, many basins and from many different directions.

And really excited about our ability to do that.

Good, thanks for that.

On the cost side, I know you were just talking about it on Cement, and I don't think you answered this, it was breaking up a little bit.

So if you did, I apologize.

On the Wallboard business as well, we're looking at -- as you know, we break down cash costs per thousand.

And that's been creeping on you for the past year or so I guess.

I was looking at it the [70s] -- the high [70s] in FY13 and then it's been consistently more like in the [80s] in FY14.

Is there anything -- any secular cost creep going on there?

Year-over-year, there's about a $3 in combination of gas and repair.

So if you look at year-over-year for Gypsum, we got -- we have about $3.

Some of that you might be a one-time gas, it's just a function of gas prices.

We don't do a lot of hedging there.

Then we have some stuff that just show up in other like legal bills and what not that happen from time to time.

Got it.

Do you expect those to stay in there or should that fade?

Those should definitely fade.

Okay.

All right.

And then, Craig, couple of things.

Can you give me the DD&A by segment?

I certainly can.

So I'll give you for the fiscal year, the quarter for total was $17.7 million and the breakout not a whole lot different than what it was for the last couple of quarters.

So Cement for the year $31.8 million.

Wallboard $21 million even.

Paper segment $8.7 million.

The Concrete and Aggregate segment $6.9 million and then the other $1.5 million.

So total of about $70 million.

Thanks for that.

And then another question for you, and I don't think you answered it, but what are you looking at for a tax rate going forward this year?

So our tax rate for FY14 was about 32%.

As earnings improve, that may creep up closer to 33%, somewhere in that range.

32%, 33%, okay.

Thanks a lot.

Jim Barrett, CL King Associate.

Steve, to ship the 4 million to 5 million tons of frac sand you foresee over the next two to three years, can you do that from your existing Utica mine or do you foresee purchasing another mine in the future?

We have mentioned the fact that we think the industry is getting closer to a timely consolidation.

We will clearly look at those opportunities as well.

But with what we're doing in Corpus and the expansion up in Illinois, we'll get pretty close to those type of volumes just between those two facilities.

And the Illinois facility is very centrally located which provides excellent logistics to many, many basins.

Okay, understood.

And then on a related point, Craig, the capital expenditures to get to 4 million to 5 million tons of frac sand, could you give us some guideline for FY15?

Sure.

So for FY15, you could probably budget -- so as we think about total capital spending sustaining capital needs in the $20 million to $25 million range depending upon the time frame of when the capital is spent up in Northern Illinois could be $30 million to $40 million.

There might be a little bit more than that to finish the project, but for FY15, that might be a pretty good estimate.

So all-in is that what $50 million to $65 million?

Yes, in that range.

Thank you both very much.

[Sandy Prysis with RC].

Hi.

This is for [Kosta] for Sandy.

And I'm sorry if you already answered the question, but on this mine permitting process, I'm sure it's hard to put a time frame on the permitting and what not but is there anything that's specifically -- is there anything specific that's causing a delay in the permitting process?

Yes, I really don't think there's a delay.

It took longer than we anticipated because halfway through the process, we had to switch from one type of a permit to a different type of permit.

I'm talking about the two years, two-plus years of process that we've gone through to get this permit.

But then once that was done, everything went effectively as you would expect with a permitting process.

Requiring a fair amount of due process with town meetings and public comment periods.

All that has been complete and complete at least to our understanding to the IEPA satisfaction.

So now they're reviewing all of that and again, we expect the timing to be any time now.

I don't want to put any pressure on anybody but the timing of receipt, I think the due process has been complete and we should receive a permit sometime soon.

Okay, great, thanks.

We have no further questions.

I would now turn the call back over to Management for closing remarks.

Please proceed.

Well thank you.

It really was an outstanding FY14 for Eagle Materials and looking forward to really a super FY15.

We're finally very, very happy to be in a place and an environment where you have rising prices and rising volumes for the products that we sell.

Thank you.

This concludes today's conference.

You may now disconnect.

Have a great day.