Eagle Materials Inc (EXP) 2021 Q3 法說會逐字稿

Good day, everyone, and welcome to Eagle Materials' Third Quarter of Fiscal 2021 Earnings Conference Call. This call is being recorded.

At this 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.

Thank you, Lisa. Good morning. Welcome to Eagle Materials conference call for our third fiscal quarter of 2021. This is Michael Haack. Joining me today are Craig Kesler, our Chief Financial Officer; and Bob Stewart, Executive Vice President of Strategy, Corporate Development and Communications. We are glad you could be with us today.

There will be a slide presentation made in connection with the call. To access it, please go to 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.

Let me start today by acknowledging that we had another solid quarter of increasing earnings and what is shaping up to be an exceptional fiscal year for Eagle Materials. Our results reflect that we are entering into a cyclical phase for our businesses where the demand for all of our products are strong. There are 2 overreaching reasons for this. One relates to market conditions, which are on an improving trajectory in most respects. The second relates to Eagle's high-performing, low-cost, geographically advantaged operations that can take advantage of these market opportunities.

Let me start with some foundational comments about market conditions. Having construction is an important driver for both sides of our business, and single-family starts are especially important for Gypsum Wallboard. There are positive short-term, midterm and long-term dimensions to the robust housing-related demand for our materials. As for the short term, Wallboard is installed on walls and ceilings in the later phase of the building construction process after framing has occurred. This means that the recent increase in starts and permits will have the greatest impact in the months ahead.

Pandemic has resulted in a surge in home buying. Pent-up demand that has been swelling over more than a decade of under building is now being realized. What is more remarkable is even with the improved rate of home construction, we as a nation, still do not have a balanced supply and demand picture for housing.

Home inventories on the market remain at all-time lows. We believe the annual housing supply-demand imbalance is unlikely to be rectified by new construction before 2022. This is in part due to the pace of what is possible for homebuilders to get into production this supply-demand pressure will challenge housing affordability, but given the Fed's commitment to keep interest rates low for an extended period, this should translate into a multiyear continuation of favorable mortgage rate environment. Another important end-use segment for us is repair and remodeling. Research shows that purchasers of existing homes spend money on remodeling materials in the wake of their home purchase, to make the home their own and to more fully conform to their needs and pace. Longer-term trends also favor our geographic positioning. We exited from states such as California, New York and New Jersey, states in the sunbelt from the Carolina to Arizona, and in the U.S. Heartland, including Texas and Colorado is expected to continue. This migration aligns well with our network of facilities within Eagle Materials. We have the in-place capacity to flex with the demand growth for Wallboard without additional capital investment. We expect to benefit from higher volumes, higher margins and restraining costs due to our ownership position in our Gypsum raw materials and paper.

Now let me turn to the market outlook as it relates to the heavy side. Infrastructure spend drives about half the U.S. cement demand, with residential being the next important -- most important driver. State budgets have been the lion's share of infrastructure spend for many years. We do now want to minimize the pressure that some state budgets are experiencing, but our analysis of the sources of state revenue, including sales taxes, property taxes, income taxes and corporate taxes, suggest to us that many states and cities would not be as severely affected as some might fear. This is especially relevant for many of the states in which we operate.

What our analysis shows is that income and sales tax, which account for more than half of the state and the local revenues, fell in calendar Q2, but surged above pre-COVID levels in Q3. The states still have choices on what to do with this money, but we maintain our expectation that even without federal support, to states and cities, trend demand for cement will be sustained in low-single-digits across much of our footprint. Of course, state DOTs could receive further federal support with the new administration, and this would provide an uplift to infrastructure construction activity.

To be clear, that activity that multiyear federal funding bills generate, generally takes years to materialize into demand for our products. Nonresidential is the smallest end-use segment for Heavy, and we continue to see short term pressure. Nonresidential construction continues to be depressed by the potential dangers posed by many indoor activities. The pipeline for office projects has been significantly and is also very geographic dependent. Spending on manufacturing buildings is beginning to see some improvement in warehouse construction trends to be strong in many of our geographies.

Now let me address the second factor mentioned, which is the high-performing, low-cost network of plants we have created to take advantage of the market opportunities that are presenting themselves to us. Opportunities which, in our view, should continue for some time. The only limitations in our ability to capture these opportunities are in Cement. We are operating at very high levels of capacity utilization today, and we are facing a tightening cycle that would challenge our resourcefulness to squeeze out every bit of production through optimization of grinding, seasonal storage and market selection. Whereas in Wallboard, we have headroom for earnings expansion through volume and price growth.

Going forward, we expect price will be the most important earnings growth lever for us in Cement. Against this positive backdrop, uncertainties are bound. Most important of these relate to the pandemic and getting it under control. Because of this, I do not have an update today on timing for the spend, and I won't until there is some increased visibility that we are past to potentially more disruptive effects of this pandemic.

We are hopeful that vaccines will be a game-changer. The optimist in me believes that risks for the business tilt to the upside and the best is yet to come.

With the introduction on context for our results, let me turn it over to Craig to discuss the financials.

Thank you, Michael. Eagle's third quarter revenue was $405 million, an increase of 18% in the prior year. This increase primarily reflects contribution from the Kosmos Cement business we acquired in March. And adjusting for the acquisition and the sale of our Northern California Concrete and Aggregates business, organic revenue improved 7%, reflecting increased Cement and Wallboard sales volume and prices. Third quarter earnings per share from continuing operations were $1.94, an improvement of 87%. As we highlighted in the press release, prior year results included $0.47 per share asset impairment charge. Excluding the nonroutine charge, third quarter EPS increased 28%.

Turning now to segment performance. Let's look at Heavy Materials results for the quarter highlighted on the next page. The Heavy Materials sector includes our Cement, Concrete and Aggregates segments. Revenue in the sector increased 21%, driven primarily by the contribution from the Kosmos Cement business. Organic cement sales prices improved 4%, while organic sales volume was flat, with our facilities continuing to operate at very high utilization rates.

Operating earnings increased 31%, again, reflecting the addition of the Kosmos Cement business. And organic operating earnings increased 8%, reflecting primarily higher net cement sales prices. Our Concrete and Aggregates business continued to benefit from higher organic sales volume and lower diesel fuel costs, with the margins improving significantly from the prior year.

Moving to the Light Materials sector on the next slide. Third quarter revenue in our Wallboard and Paperboard business was up 8%, reflecting record third quarter Wallboard sales volume and a 1% increase in Wallboard sales prices. As we highlighted in the earnings release, the quarterly average Wallboard price doesn't fully reflect the price increase that was implemented mid-quarter. For perspective, the December average price was $152 per thousand square foot versus the quarterly average of $148. Quarterly operating earnings in the sector increased 1% to $48 million, reflecting the increased Wallboard sales volume and prices, partially offset by higher input costs, namely recycled fiber costs.

Looking now at our cash flow, which remains strong. During the first 9-months of the year, operating cash flow increased 69%, reflecting earnings growth, disciplined working capital management and the receipt of our IRS refund. Capital spending declined to $46 million.

Finally, a look at our capital structure. During the quarter, we continued to prioritize debt reduction as a primary use of cash, providing us significant financial flexibility in line of pandemic-related uncertainties and potential opportunities. At December 31, 2020, our net debt-to-cap ratio was 41%, down from 60% at the end of our fiscal year. And our net debt-to-EBITDA leverage ratio was well below 2x. We ended the quarter with $143 million of cash on hand and total liquidity at the end of the quarter was $888 million, and we have no near-term debt maturities.

Thank you for attending today's call. We'll now move to the question-and-answer session. Lisa?

(Operator Instructions) Your first question comes from the line of Trey Grooms of Stephens.

Congrats on a great quarter. So I guess, first off, on the Wallboard business, volume was very strong. And it seems like you outperformed the -- some of the industry numbers that we've seen, even for your region. So I guess, #1 is, do you feel like there was any prebuy going on in the quarter, given the price increases that were announced?

Or do you think this is mostly driven by the improvement we've seen in new residential demand? And is there any -- or do you feel like there was any market shifts or anything like that in the quarter? I think I know the answer to that, but market share shifts, just given the outperformance?

Yes. Thanks, Trey. It's a good question. Similar to the last couple of quarters, I would tell you that if you look at the regional breakdown of both housing starts and the Wallboard shipment data across the country we once again benefited from a very strong regional footprint, and where we are generally in the Southern half of the U.S. So that's remained consistent from where we have been in the last several months. And then in terms of just -- yes, underlying demand for Wallboard has been very strong. As Michael commented, 80% to 85% of Wallboard is driven by residential construction activity.

The most important part of that being new residential construction. And even more specifically within that, single-family construction activity is what really drives Wallboard demand at the end of the day. And we've all seen the recent housing start data, the housing permit data. That has continued to be very strong, which sets up really well for Wallboard. I think that's why you're seeing the strength broadly for the Wallboard business right now.

Got it. Okay. And then on the pricing, from your October increase, it looks like it's getting traction, especially given the details you gave us around the quarter ended price, I believe, was $152. So a pretty good sequential improvement. So as we're looking forward, and I know you guys have a January increase, it's, I'm sure, too early to really have a sense for what's going on there just yet. But bigger picture, as we're looking forward, I know you guys are looking for higher volume, you're looking for higher margins in Wallboard. You're getting some traction on pricing. Demand looks good. So how should we be thinking about the longer-term pricing picture for Wallboard as we're kind of looking over the next year or 2 years, as demand continue to improve?

Yes. Look, I think you pointed out several of the important aspects. And the most important part of that is the demand outlook. And with single-family construction activity really picking up momentum, one thing we haven't seen in many, many years. And I don't want to overexaggerate, move back out to the suburbs and single-family construction activity. But as we've said before, single-family construction consumes more than 2x the amount of Wallboard than a multifamily unit does. So the single-family construction activity is really important. And that's what will be the opportunity for further pricing from here.

Yes. Okay. Well, it seems like a good setup. And then on -- last one for me and then I'll hop out and pass it on. But on the JV volume being down I think 6%, what -- can you talk a little bit about that? The drivers there? It sounds like in most markets, you guys are seeing some pretty decent demand. So can you talk a little bit about what was behind the 6% down in JV and then what you're seeing in that market currently?

Yes. I could take that one. When we look at the Texas market, that plant has been one where we flexed up and down with some oil well cement. While oil well is not a significant portion of our portfolio, that market, we are converting more into -- away from oil as well as we use that as a lever back and forth. And so some of the demand decrease you do see with some of the reduction in oil well drilling this time. And as we work to migrate that into the construction grade, materials that we provide with it, you should see that picking up a little bit more in closing that gap.

Next question comes from the line of Brent Thielman with D.A. Davidson & Company.

Great. Congratulations as well. I had a question on the Cement business. You made the comment, continue to operate at very high levels of capacity utilization. And as far back as I can remember, I think you guys have been in that position. I guess my question is, is there a desire to expand the capacity of some of these assets right now? Are you seeking to make any preparations for that?

If you -- you might remember in some of the previous calls, we did some expansions during this year, and we actually set record Cement shipment numbers and our base businesses last quarter -- not the last quarter, the quarter before, I should say. We did an expansion at our Sugar Creek facility with grinding capacity. We've also done some work around our networking and distribution channels with it. Right now, when we look at a lot of our assets we are at capacity, that doesn't mean we're not trying to squeeze every single ton out of every single facility that we have.

And we do have some strategic projects on board to look at expanding capacities. It's just not in the existing facilities. It's just not ones that are our significant volume additions with it. So that's why our comments were that we're at or near capacity until some of these projects come in, and then capacity is not going to grow significantly from our existing structure.

Okay. I appreciate that. And then you guys have obviously paid down a lot of debt, leverage ratio is coming down. Any thoughts on kind of growth initiatives right now? I know you guys are still making preparations around the separation. How do you think about potentially looking at M&A today versus a couple of quarters ago?

Yes, every time. We're always looking M&A and M&A has to meet several thresholds for us. We -- as you're probably well aware, we're very disciplined in where we play and how we view the businesses. We will always look at opportunities that make sense for us, that fit into our network, that are -- cover returns that we think we could improve those businesses for. So we're always open to that side. Just the opportunity has to be right for our business.

Understood. And I guess coming back to Cement, I'll give it a shot. Just curious if you offer any commentary on any price initiatives planned for calendar '21. And curious if you think, just given the fact that you guys and others in the industry are operating at such high levels of capacity. Do you think the industry can get back to sort of the traditional plan of 2 price increases this year?

That's going to be really dependent on our customer base and what the demand profile looks coming forward. As we said in our comments, we see the demand being very strong this year. Typically, in the industry, cement price increases come in the early summer, late spring time frame. So we are working with customers on those and having those discussions now. And as those unfold, we'll be able to provide you more insight on to where those reside in the coming quarters.

Okay. Last one for me. Just love to get any perspective you have in -- just in terms of changed administration and potential possible regulatory implications to come, obviously, different view on things than the prior regime. So just curious what you're watching from Washington on that front.

Yes, that's a good question. We -- one of the things that has made a lot of high line is the infrastructure bill, and we continuously watch that. We do want to be pretty frank, and you can see in my comments that we think the states are strong by themselves, but a federally funded infrastructure bill would be a significant benefit to us. And where we want to be cautious with that is that takes -- those bills are for multi-years. It takes a lot of planning up front, which translates into demand for our products later down. We do think that, that is a potential possibility with the new administration, and we're going to watch that closely.

And sorry, Michael, I was just referring more from the EPA environmental front. I mean anything on that end that you guys are closely monitoring?

We always continuously watch that and monitor that. We -- our core values are to do more with less so we are continuously watching on that side. All of our plants have permit levels and limits that we follow stringently and try to drive value out of those with doing more with less with regards to fuels, additives and everything else. So where we continuously watch what the new administration may change in those metrics with it, and we'll keep our eye on that, but we're well prepared for that.

Next question comes from the line of Adrian Huerta with JPMorgan.

Congrats on the results as well. Just going back quickly on the previous question. Do you have any existing plans in place to reduce CO2 emissions? That's my number 1 question. And then the number 2 question would be have you been looking on blended cement, basically to be able to reduce the clinical factor? We understand that some DOTs, including the one in Texas is now allowing for lower clinker factors on cement. So are you looking for any opportunities to reduce it by using other substitutes?

Yes. When we look at Cement as a whole, we've always looked at that side with it. That's something that we've always been interested in. And it ties to your first part of the question on your ton of Cement and CO2 emissions with it. If you can do some blended cement or some other all additives into it. We have a fly ash business, we do pozzolan. We've always been looking at how to reduce CO2 emissions. And part of that is through blending cement, and we also have a swag operation that falls into that same category. And so we've been looking at all the aspects of that for several years, and we plan on doing it going forward also.

Our next question comes from the line of Anthony Pettinari with Citigroup.

On an organic basis, your Concrete and Aggs revenue was up, I think, 13% year-over-year. I'm just wondering if you can break that out between volume and price. And in terms of what's driving that strength, if it's fair to say that's exposure to residential? And is that kind of growth cadence may be possible over the next couple of quarters? Or is there a reason it would accelerate or decelerate?

Yes, Anthony, good question. I'll make a couple of comments. First, consider that we are -- our Concrete and Aggregates business is really in 3 markets today, Northern Nevada, Kansas City and Austin. And when you're in that few markets, you're really subject to a change in one market can really impact the average. So you're right, we saw good -- frankly, the improvement was across both volume and pricing on an organic basis. And we just had some really fortuitous events in a couple of our markets, not to mention on the margin side, right, lower diesel fuel cost really helped us. And our teams have done a fantastic job of some operational efficiencies as well. So look, so far, we've done very well. It looks like housing will continue to be strong for us, and that should continue to support our Concrete and Aggregates volumes.

Okay. That's helpful. And then is it possible to quantify the benefit you saw from hydrocarbon deflation in the quarter? And is there a way we can think about the impact of that in 4Q, either lessening or reversing, just based on how these costs are trending in January so far?

Yes. So when you say hydrocarbons, I mean you have, along with the Concrete business, we saw the benefit there. It was under $1 million in the total for the quarter. On the Wallboard and Paper side where we generally use natural gas, those costs have been pretty flat here for years now, sub-$3 a million. So it fluctuates a little bit within that range, but it hasn't moved dramatically over the last 3 or 4 years.

Your next question comes from the line of Jerry Revich with Goldman Sachs.

I'm wondering if you could talk about -- on infrastructure. We've seen lettings activity slowing over the course of this year. And the last time we had discussions about an infrastructure build, that drove to a further slowdown to lettings. Can you just talk about what you're seeing in your markets in terms of pace of DOT activity and the if hope for federal money is driving any change in the pace of lettings either to date or from here?

Yes. Jerry, in my comments section, kind of -- I was alluding to some of that is that we see the states responsible for a lot of the infrastructure build and spend. And the same tax receipts from all of our analysis look to be at or near pre-COVID levels, in some cases, higher than pre-COVID levels. There was a dip that we need to recognize in the second quarter there with it. But I can -- and I know that states are under some pressure on where that money goes to. But we have not seen a significant driver in any of our markets or even a drop in a lot of our markets on that side with it.

So we see that the states are more responsible. As it comes to the federal side, those take longer to materialize. That will be some extra benefit that the states will get for support from the federal government if a bill is to be passed. But again, that would be -- by the time those projects come into play, the engineering work is done on those and the work in construction starts, the demand for our products would be kind of like when we say with the housing starts, a couple of quarters down the road, where we see the significant on that side.

But for the states we operate in ourselves, we feel fairly comfortable with what the pressure will be this next year.

Okay. And then on Wallboard, in the past, you folks had a single price increase a year. And obviously, you put 2 increases in over a short period of time here. Can you just talk about your pricing philosophy and message to customers going forward? When are you telling customers to generally expect price increase announcements? How much lead time do you expect to give them? Can you just talk about how the framework has changed versus a couple of years ago when it was a January 1 date?

Yes, Jerry. Look, I think I would tell you that the demand environment is more important than the cadence of the price increase. As you point out, years ago, we went to an annual price increase setup. And that was the right timing for the situation we were in, given the demand environment that we find ourselves in today, there's no doubt that the cadence of pricing has changed. Consistent -- that's very consistent with the demand environment that we see today. So I wouldn't use past experience to totally count on the cadence of pricing.

And Craig, the lead time, can you just comment on that? How much lead time and do you seek to give customers future pricing actions?

Yes. We won't go into exactly how we negotiate with customers. It's just going to be demand driven from here. And so far, the demand environment has been very supportive of our Wallboard business.

Okay. And lastly, I appreciate the update on the separation. I'm wondering if you could just expand on your prepared remarks and just talk about some signposts or some areas that you're working on to complete the separation? And if you care to comment on any updated thoughts on net debt allocation between the businesses.

Yes. This is -- the separation, obviously, is a standing discussion point at our Board meeting. So we will be having another discussion about this at that time. So I really don't have any further comments or any clarification around that separation at this time until after we have our Board meeting and when we discuss it. But we discuss it at every single Board meeting. And as soon as we have a clear path forward, we will be announcing that out.

Next question comes from the line of Stanley Elliott with Stifel, Nicolaus.

Can you all talk about whether it's delivery times on the Wallboard side or maybe describe kind of what you all are seeing inventory levels at the dealer more broadly across the industry?

Yes. Thanks for the question. Look, I think a couple of thoughts there. One is the supply chain, and I'll speak more broadly for anything that's supplying the homebuilding business right now is being stressed. And stressed in a way that it hasn't seen in many, many years. It's one thing to navigate 1 million housing starts, it's another thing to navigate in an environment of 1.5 million or more housing starts.

So whether you're talking about appliances or Wallboard, that supply chain is being stressed. And so lead times are extending out a little bit in that environment. So other than that, I wouldn't say there's any other significant changes there.

And then kind of turn it back to the M&A environment. You mentioned kind of an always on, kind of always looking. Would you say you're looking more at the heavy side or on the lighter side, all else being equal? And maybe where are there more opportunities now?

Yes. So like I said, we're always looking, and we look at a lot of opportunities that become available, and we're very selective in what we choose with it. We've had a long-term strategy to grow our heavy side of the business, and our strategy has not changed over the near term on this at all. So we look at opportunities on both sides of the business, but we really focus on the heavy side of the business for the most growth opportunities.

Your next question comes from the line of Adam Thalhimer with Thompson, Davis.

What is your Wallboard capacity? I mean when we see housing starts and permits up 30%. Just trying to think through how much you can grow your Wallboard shipments.

Yes. I don't think we disclosed it, obviously, in our Form 10-K. It's just shy of 4 billion square feet with 5 plants, 4 of which are located in West of Mississippi, sit on the natural gypsum deposits, which are extremely plentiful right near the facilities. And the other plant, fifth plant is in South Carolina with a long-term some embedded supply contract there. And so I think what you've seen is as the housing demand has picked up, that's pushing demand, which is pushing utilization rates. But there is a finite shipping ranges from which you can ship from. So that is -- one thing to keep in mind as you look at growth in Wallboard demand, we've been very fortunate that it's grown stronger in our markets than several others.

But I mean you could conceivably see a scenario where you're at that 4 billion?

Yes. Look, I think we're not there yet. We still have room to go at our facilities, certainly in Oklahoma and New Mexico. But certainly -- utilization rates have certainly picked up in the last couple of months.

And then, Craig, what should we expect for Kosmos volumes in the March quarter?

Yes. The market that, that plant operates in is more of a Northern market. So I would say it's a similar type of environment, Illinois, even Kansas City, where very strong June, September and even in the December quarter. But this quarter, the March quarter is always about winter and the environment that we find ourselves in. So far, winter has been pretty mild for most parts of the country, that could change. But this will be, and generally, it's always the slowest quarter in the Cement business because there's more seasonality here.

What did it do last March?

Recall, we only took ownership of that asset like March 6. So we only have it for a very small portion of the quarter. And so you're still going to have a year-over-year comparison issue that we'll highlight for you.

No. No, I get that. But what did Kosmos sell? Just looking at Kosmos, what did they sell in the March quarter last year?

Yes. So some of that -- like I said, for 2-months of the quarter, we didn't own it. And so we wouldn't go in that level of granularity, nor would we give you simply the 1 month that we owned it in March.

Our next question comes from the line of Philip Ng with Jefferies.

This is actually Colin on for Phil. I just wanted to touch on the costs in the Wallboard business. It looks like may more than offset some of the margin benefit from the higher operating leverage and higher prices. I was just wondering if you could talk about the different drivers there and how you're thinking about these headwinds going forward? And I guess, just EXP's ability to offset these costs with those price increases?

Yes. Colin, keep in mind, the price increase was only implemented halfway through the quarter. So we really didn't see the full benefit of the price increase this quarter. In terms of on the cost side, there were some input cost increases, predominantly in recycled fiber costs. We did see those creep up a little bit here this quarter. It's too early to tell where those prices are going to go longer term. But that was predominantly what was driving this quarter's cost increase.

Got you. And then just on the Paperboard business, external volumes were flat. Internal volumes were down 3%. But you're adding a high-speed capacity, demand for Wallboard appears strong and just appears to be getting stronger as we head into calendar year 2021. Can you just walk us through the divergence in volume trends between the Paperboard and the Wallboard business?

Yes. And that happens from time to time. Just given inventory levels at the Wallboard plants versus at the paper mill, you can see that cadence dislocate for a period of time. And it has to do just with the buying patterns that both we do internally and some of our external customers. As we've said, that plan continues to operate in the [solar] acquisition. So in addition to the inventory swells, we have also moved away from noncontract sales in terms of third-party sales to make sure that we satisfy the needs of our customers. So the new equipment is installed, we're learning to operate it. There's some uptime that we'll continue to improve on.

But you should see those over a broader period of time, more of an annual basis, you'll see that those volume changes be in line with each other.

Okay. And then just pivoting back to demand on the Wallboard side. Just the robust housing starts and permits and things like that point to some really strong demand. But you're also hearing some bottlenecks from the builders, about labor and things like that. So I guess just in terms of Wallboard volumes, you typically guided to a low single-digit volume over time. Is this 6% trailing 12-month growth rate sustainable in this kind of environment? Or do you think that, that's a little aggressive just given some of the constraints that the market is seeing?

So I think in our markets, and again, I think we've highlighted this multiple times, our markets are continuing to outperform the national average. So we don't necessarily give guidance specifically, but given the current strength in home building, this is a pretty sustainable pace when it comes to Wallboard demand. And again, in our markets, I can't speak. We don't go to the Northeast. We don't really go to the Northwest much, but we continue to see strength in our markets, and we like where we're positioned.

Our next question comes from the line of Josh Wilson with Raymond James.

Congratulations on the quarter. I wanted to circle back on the Paperboard question. Margins were down a fair amount there. Is that purely a function of the timing of the recycled fiber and that's a headwind that's yet to come to the Wallboard side but should normalize? Or are there some other factors impacting the margins more?

Yes. Certainly, the biggest piece of that is the input cost on the recycled fibers that then get passed through the Wallboard business on a quarterly lag. But as I said, I think we'll also continue to see efficiency improvements now that we've installed all of the equipment at the paper mill, that should benefit us as well. The other thing I do want to make sure and highlight, when you look at operating income realized, there's a pretty decent amount of depreciation that's been added into that business. So you really have to look at it on an EBITDA margin basis on a year-over-year comparison because of that incremental depreciation.

Got it. And then your Aggregates pricing slipped, can you talk through what the driver was there?

Yes. Within Aggregates pricing, you've got base pricing in sand and rock, and we just had a little bit of more base sales on average or on the weighted average relative to where we were last year. And then base is generally lower price products. So nothing other than that.

Okay. And then last one for me. As it relates to the split, can you give us some more color on what tasks you've completed already to prepare for the split? And how quickly you can consummate it once the environment is to your liking?

It's probably a little too early to comment on exact timing or cadence. But look, there are some long lead items, whether that's with the SEC on the financial reporting side, with the IRS. So those are things that we've been working on, and we'll continue to work on. There's other administrative items in the background that will be completed, but that's to be done going forward.

At this time, I would like to turn the call back over to Mr. Michael Haack for any closing remarks.

Thank you very much for attending our call, and we look forward to talking to you at the end of the next quarter.

This concludes today's conference call. You may now disconnect.