Eagle Materials Inc (EXP) 2021 Q1 法說會逐字稿

Good morning. My name is Lisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Eagle Materials First Quarter Fiscal Year 2021 Earnings Conference Call. (Operator Instructions)

I would now like to turn the call over to Mr. Michael Haack, President and CEO. Please go ahead, sir.

Thank you, Lisa. Good morning. Welcome to Eagle Materials conference call for our first fiscal quarter of 2021. This is Michael Haack. And joining me today are Craig Kesler, our Chief Financial Officer; and Bob Stewart, our 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 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.

Let me start my comments today with a simple thank you to our thousands of team members who have stepped up during these unprecedented times. The world is unanimous about the first half of calendar 2020 being extremely challenging to navigate, especially with regard to the pandemic and its effect on our communities. These unique circumstances have required our team members to adapt how they work regarding how we serve our customers, how we operate efficiently and simply how we take care of each other.

The focus and successful implementation of these items are certainly reflected in our first fiscal quarter results, results which represent an all-time quarterly high watermark for the company. Our results this quarter reflect success in both our growth strategy and in our operational execution.

The integration of Kosmos Cement acquisition proceeded on schedule. I'm proud to say that for the first time in Eagle's history, we sold over 2 million tons of cement during the quarter. Our cement operations performed well. Recent strategic investments to extend our capabilities to satisfy customer requirements are paying off. A good example of this is our expansion of grinding capacity at our Sugar Creek plant. Cement demand has remained strong across all of our markets. We are fortunate to operate in states where construction has largely been uninterrupted by COVID. I can say this is luck, and in many ways, it certainly is, but I do not want to minimize that we have been extremely strategic and selective about our growth targets in the U.S. We have focused on economically resilient and less cyclical U.S. heartland geographies.

We continue to shape our heavy side portfolio with both strategic sales and acquisitions. Our sale of Western Aggregates and Mathews Readymix in Northern California, reflected in this quarter's results was a strategic decision to divest of an asset outside our network. This asset was previously replaced through an acquisition in Northern Nevada, aggregates and ready-mix assets located in better proximity to our Nevada cement operations.

The Northern Nevada asset is fully integrated into our system now and is operating very well. This quarter, our Wallboard business showed that geography matters. Our Wallboard shipments were up 7% over the same quarter a year ago. This is in an environment where national shipments were down about 5%. I want to emphasize this is primarily a reflection of our strategic geographic positioning and long-term attractive markets and our strong operational execution.

Regarding our previously announced Republic Paperboard facility expansion project, the first step of equipment installation and integration is now complete and is giving us increased supply to meet our customer demand. The major cash investment is now behind us for this project. As for frac sand, we have fully idled the facilities to minimize the cost impact and preserve value for future use. As previously announced, we continue to explore alternatives for this business.

In the current market conditions, we recognize there are significant uncertainties about the sustainable level of demand. COVID is uncertain and public policy is uncertain. Second wave risks are real. Caution is certainly warranted. At Eagle, we keep our eyes on the horizon as well on the road in front of us, and there is every reason to believe this period of uncertainty will pass and give way to a healthy runway for our construction materials business. I'm encouraged that policymakers have reacted aggressively with unprecedented monetary and fiscal measures. U.S. house prices are increasing, mortgage rates are low, credit spreads are narrowing. Mortgage prices are advancing. Every week, there's a chance of more scientific breakthroughs in both therapeutics and vaccines.

When economic reopening is completed, economic activity could have another bounce, particularly with the lagging response of U.S. monetary stimulus at work. The bottom line is, I do not know when this period of uncertainty will pass, but I'm confident that it will.

Eagle is prepared to navigate this period of uncertainty regardless of the duration, just as the company did when it profitably navigated through the longest construction recession in U.S. history. We will continue to be cautiously optimistic, but internally, we will continue to confine capital spending until a clearer picture emerges. Our resilience as a company is certainly greatly enabled by the strong cash flow characteristics of our businesses. In this regard, it's worth noting that this quarter, our net leverage declined by $150 million from March 31, and total liquidity improved to over $450 million at June 30.

Now let me turn to the topic of our planned separation of the 2 businesses. We still look forward to executing the separation, which, at this moment, has been delayed by COVID uncertainties. I do not have an update today on timing and won't until there is some increased visibility that we are past the potentially more disruptive effects of this pandemic. I can say that our conviction about the separation remains intact, and we have every intention of completing the separation. That's all for me as far as introductory remarks.

Now let me turn it over to Craig to go through the financial results for the quarter.

Thank you, Michael. First quarter revenue was a record $428 million, an increase of 15% from the prior year. This increase reflects contribution from the Kosmos Cement business we acquired in March and improved cement and Wallboard sales volume. Excluding the recently acquired businesses and the effects of the business we sold in Northern California, revenue improved 2% from the prior year.

First quarter diluted earnings per share were $2.31, an improvement of 146%. As we highlighted in the press release, both the current year and prior year quarters, include the impact of several nonroutine items. Most notably, this year's first quarter results benefited from a sizable gain on the sale of our Northern California businesses. Both quarters also include the effect of business development expenses. Excluding these and other nonroutine items, first quarter adjusted EPS improved 39%.

Turning now to segment performance. This next slide highlights the results of our heavy materials sector, which includes our cement, concrete and aggregate segments. Revenue in the sector increased 30%, driven primarily by the contribution from the recently acquired Kosmos Cement business and a 7% increase in like-for-like cement sales volume.

Operating earnings improved 62%, again, reflecting the contribution for Kosmos and improved sales volume as well as lower diesel prices in our concrete operations. In addition, given the concerns around having contractors on-site during the COVID-19 pandemic, we adjusted the timing and extent of our cement maintenance outages and delayed approximately $6 million of maintenance costs from the first quarter into the second and third.

Moving to the Light Materials sector on the next slide. First quarter revenue in our Wallboard and Paperboard business was up slightly as improved Wallboard sales volume was partially offset by lower Wallboard prices and lower Paperboard sales volume. Quarterly operating earnings in the sector declined 8% to $44 million as improved Wallboard earnings were offset by higher recycled fiber costs and the inefficiencies of starting up the paper mill after the expansion project in March. The earnings impact from startup was approximately $2 million. And by the end of the quarter, our operating efficiencies at the mill were much improved. Here in July, the mill has been setting production speed records.

In the Oil and Gas Proppants sector, revenue was down 93%, and we had an operating loss of $1 million. This business came under increasing pressure in this spring and early summer as lower oil prices further reduced drilling and hydraulic fracturing activity. During the quarter, we significantly curtailed our operations to minimize operating costs and preserve the value of the assets.

This next slide provides summary cash flow information. During the first quarter, operating cash flow improved 88% to $95.3 million, reflecting strong earnings and disciplined working capital management. Total capital spending improved and increased to $26 million as we completed several projects initiated last year, and purchased land in Oklahoma, which will provide our 2 Wallboard plant with over 20 million tons of additional gypsum reserves.

We continued to expect total capital spending in a range of $60 million to $70 million for fiscal 2021. Also during the quarter, we received the proceeds from the sale of our Northern California businesses on April 17.

Finally, a look at our capital structure. Given the ongoing pandemic related uncertainty, we are continuing to fortify our balance sheet and liquidity. At June 30, our net debt-to-cap ratio was 55%, and we had $199 million of cash on hand. Our net debt-to-EBITDA leverage ratio was 2.5x. And total liquidity at the end of the quarter was $459 million, and we have no near-term debt maturities. We received our IRS refund in early July, which has further improved our balance sheet and liquidity post the quarter. Thank you for attending today's call. We will now move to the question-and-answer session. Lisa?

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

It looks like overall demand has continued to hold in pretty nicely, at least in the quarter. You mentioned, of course, that the outlook remains uncertain given the pandemic. But can you talk about how the quarter progressed, demand trends maybe that you're seeing on both sides of the business, here in July? Have you seen any changes in these trends?

Yes. Trey, this is Michael. The demand profile has been pretty consistent from what we've been seeing in the first quarter to how we are in July. Across our network, geography really did matter for us, and the demand profile looks pretty consistent for all businesses, yes.

Good to hear. Okay. And then secondly, overall margins improved nicely. Craig, you mentioned some of the puts and takes there with maintenance costs in cement and a $2 million impact to the Paperboard plan on the negative side there, I guess, of impact. And we can kind of do that math. But there's other things maybe that might be going on like OCC, you talked about that. But how did the OCC price fluctuations, how do we think about that impact of paperboard and wallboard? And then also any other maybe more sustainable kind of benefit you're seeing on the cement side that we should think about?

Yes, Trey. Good questions. On the OCC side of things, as you'll recall, most of our paper is sold under some long-term supply agreements and those agreements have inflators and deflators based on the price of certain inputs, OCC or recycled fibers being one of the major inputs to produce paper. And those -- as those prices rise, we have a quarterly lag in which we then pass-through those costs to the ultimate paper customer. And so here in the June quarter, we absorbed those costs at the paper mill, as you can see. And then we turned around and in July, we'll pass those costs along underneath the pricing provisions. And so we will recoup that profitability there to paper mills this quarter. And then as you said, there are some other nice tailwinds. I can tell you, energy costs here in the U.S. continue to be very low on the wallboard side, on the paper mill side, which is predominantly natural gas. Natural gas remains below $2 a 1 million. I can tell you, electricity costs, which is more of a cement production inputs remained very low across our markets. And so from a cost perspective, we are seeing some benefit there.

Okay. All right. And then lastly, for me, is just around the cement price. You adjusted for Kosmos, was up 1%. It seems like most of the price increases out there were shifted to June. So I guess the biggest thing is, first, is it fair to say that or fair for us to assume that maybe the reported price for the quarter didn't necessarily reflect all of the increase, given the timing? And then secondly, I know that you guys don't really produce much on the oil well cement anymore. But just double checking that there was any impact there from that falling off and any mix impact, another cement player had mentioned some mix impact. And just checking on that. I'm curious around that impact there.

Yes, Trey, this is Michael. You are correct. With the pandemic going on and everything else, our cement increases were delayed until June 1. So the fully recognized value was not in last quarter. It was just a portion of that. And on your second question with regards to oil well cement, that has become less of a demand picture for us. When we look across the network, of course, this quarter was impacted by that. We have been successful, and we are very nimble in moving between oil well and construction grade cement. And so where the market still has the oil well, we are still providing that. But with the decrease, we have shifted that over in construction grade. So it has a smaller impact on our margin portfolio right now.

Your next question comes from the line of Brent Thielman with D.A. Davidson.

I guess I want to pick up on Trey's question just in regards to the June cement price increases and then trying to consider the integration of Kosmos and as well oil well cement. Just about the level of reported pricing you would expect into the fiscal second quarter. Just trying to think about all those moving pieces going forward.

Yes. We've implemented our price increase, and we've implemented those with customers. We feel comfortable with where we stand on that. And I'm not going to get into the specifics of what we did by market by market. It's just we feel we got a good return.

Okay. I guess, on the Paperboard with the expansion, just curious how quickly you think you'll be able to kind of leverage that full capacity of the facility? I know that's market dependent. But just from an operational perspective, how quickly you can ramp up to that full capacity?

Yes. I would tell you, we are pretty much -- we're close to it. As I said in the prepared comments, as we started up in April, obviously, you have some start-up inefficiencies by the time we exited the quarter in June. We had worked through much of those. And here in July, we are setting speed records on the mill. And so we've seen an improvement there on the production output. I can tell you and as Michael mentioned, the Paperboard volumes will fall with Wallboard volumes. Those have been very strong here in July. So we are seeing the benefit already.

Okay. That's great. And then I guess on Wallboard, pricing relatively resilient, I think. But I'm just curious, is -- I mean, the average realized you had this last quarter about where you see the market today?

Say the last part of your question, Brent, I didn't catch that?

Craig, just on the Wallboard side, the average price that you realized here in the quarter, is that about where you see your markets today?

Yes. The prices have really been flat now for, call it, 10 or 11 months at this $146 on a net basis in that range. So that's about where the quarter had exited as well.

Okay. One more for me, I guess, just thinking about the balance sheet. Obviously, delaying the timing of the separation. You just did Kosmos, sold the California business, a lot of moving pieces. Just curious as you guys are looking to preserve some capital and pay down debt. What target level of debt or leverage are you thinking about? Or what do you want to get to, assuming the combined business right now?

Yes, Brent, it's a great question. One of the things that has been a hallmark of Eagle over the years has been, a, a fortress balance sheet and a high cash flow generation business. And so that was really on display this quarter. With the operating cash flow, we can moderate capital spending very quickly. We've maintained these assets in very good condition. And so as we've said, we've taken capital spending down 50% this year, and you will see that amount start to moderate even further as we exit the year. You start finishing projects initiated last year so that the run rate by the end of the calendar year is even much lower than where we were here in Q1. All of that said, we're going to be generating significant cash. We don't set a target leverage level. I can tell you, we like to have a lot of power on the balance sheet so that we can either manage through cycles or grow when the opportunity presents itself. And so here in the near term, we are continuing to delever and prepare for what lies ahead.

Your next question comes from the line of Anthony Pettinari with Citi.

In cement, you referenced pretty strong demand across geographies. And I'm just wondering if that was uniform across end markets, whether it's public or private, residential or nonresidential. And then with regards to the kind of funding environment, budgetary health, maybe of some of your biggest states, if you could just talk about maybe how the DOTs are doing? And how the public side maybe looks in the second half of the year?

Yes. So when we look across our network, really, every one of our facilities had a good demand profile. So it's really across the country where we have that. On your second question is a more complicated question to answer in that every state has impacted a little different from this pandemic. And right now, our portfolio and what we're seeing and what we're -- our demand is going to is pretty consistent with the past with both public, private sector with it. We are seeing housing starts up and everything, so we get more demand on that side. But it's been pretty consistent with the past [mine] oil well, which we're not a big player in anymore. Each state is going to handle their issues differently. And it's kind of a wait and see how they handle those. But right now, our demand profile still looks very strong going forward. So we just don't see that impact as of yet.

Great. Great. And as you think about COVID and the safety precautions that you're taking to protect your people, social distancing and I don't know, limiting contractor access, et cetera, are you incurring kind of meaningful additional kind of operating costs from these measures? Or is there any way that you can help us think about kind of financial impact of maybe some of these precautions?

Yes. We're not seeing that at all. We were aggressive at the beginning of this pandemic. As soon as this started hitting, we implemented some pretty robust policies and procedures. All of the operations have been following those and performing very well with those. And from temperature screenings to face mask wearing, social distancing to restriction of contractors on-site to restriction of vendors on-site. And it just really has not -- we have not seen a cost impact. We've actually seen, which is very good, a really focused workforce. And we can see it in some of our safety statistics and everything else that the workforce understands what's out there, and they've performed to this fabulous. And I think our team has done a tremendous job on it, and there's not any cost impact.

Your next question comes from the line of Adrian Huerta with JPMorgan.

Can you share with us what have you seen in terms of our potential synergies on the back of the Kosmos acquisition?

Yes. Adrian, I'll take that. This is Michael. It's a great question, and we're -- we've seen some that we're exploring right now. But you got to remember, we've taken this asset in the last 3 months. And we had -- went directly into an outage, and then we also had this pandemic where we do not have the flexibility to travel as much. We have identified areas where we really want to pursue. And it will take a whole cycle to look through those and really determine how we attack those. So at this time, I'm not really ready to talk about those synergies, but I will say that we have several identified that we will be progressing on over these next quarters.

Would you say -- thank you, Michael. Would you say that so far has been -- probably will be better than what you originally expected that before you acquired the asset.

Yes. We're very comfortable with this acquisition we made. I mean we hit the ground running with the acquisition. We contributed this quarter with the acquisition. We're on pace to what we had projected in the plan. And these synergies will be additional to that. We feel comfortable with how we value this asset.

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

I'm wondering if you could talk about your planned cadence for price increase in Wallboard. Nice to see a reacceleration in single-family demand. And I'm wondering if we should be thinking about going back to the January 1 price increases. Can you just talk about when you expect to make an announcement to your customers? And how are you thinking about a big cadence?

Yes. Jerry, look, volumes have been strong as we saw here in the quarter. And post the quarter, I think we've also seen some good orders from the homebuilders that have been out in the last week or 2. So we are expecting Wallboard volumes to hang in there. And -- but in terms of anticipating a price increase, we'll hold-off on speculating on specific timing or anything. But certainly, our customers will be the first to know that once we have those plans in place.

Okay. And I appreciate that we're not in a position to talk about magnitude of price increases, but are you in a position to talk about timing? And your expected conversations with customers what the data is, roughly?

That again, we won't speculate on the timing of price increases or amounts or anything. But you do make a good point. You've got very strong volumes right now. And so there's -- and as volumes rise, utilization rates rise, and we're well positioned in our geographies to move forward.

Okay. And then in terms of going through this challenging operating environment, can you talk about are there any opportunities for sustained improved efficiencies on the other side of it, whether it's by digital order management or any other opportunities that have come up that have turned out to be more efficient than analog way we've been doing things previously?

Yes, Jerry, I think it's a good question. I would tell you, we aren't -- that is something that is continually in process here at Eagle, right? It isn't just a pandemic-related change, but we are constantly looking for innovative ways to improve our operations, improve our logistics and just improve the way we go about our business. And sometimes you are forced to do some of those things. But I think we've become very efficient with our truckers and getting them through the plants. So whether that's on the wallboard side or the cement side. But that's just a continuous process around here.

Okay. And lastly, I'm wondering, can you just talk about where your backlogs stand today compared to a year ago compared to last quarter? Just if you don't mind share, how much visibility you have over the next, call it, 90 days compared to normal?

Yes, Jerry, I wouldn't tell you that we have a backlog in a traditional sense of an E&C company. But -- and certainly, it is customer order and they're bringing it to the job site. But I can tell you, look, the volume -- sale volumes has been strong. When we've talked to customers, they have good confidence in the near-term that their volumes will remain intact. But again, as we said, there isn't uncertainty as you look further out. But in very near term, our orders have been pretty strong.

And Craig, can you talk about the time line related to that? When you say very near term, is that a 30-day comment, 90-day comment? Just a bit of context, please?

Yes. I mean, look, it's looking out over the remainder and into fall. I think people feel pretty confident. And you really have to bifurcate it into the 2 businesses. But keep in mind, when you look at housing permits and housing starts, there's a lag between those to Wallboard consumption, and that could be 60 to 90 days at least. And so that gives you some visibility with the orders that are coming in on the homebuilding side and for new homes. That's Wallboard in 2 to 3 months. Cement, similar things. You've got projects that are underway. And certainly, we'll go through completion. So you've got a pretty good forward view here.

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

Can you walk us through -- I know -- I think we touched on this early on, but just the OCC pricing and how that -- I'm thinking specifically in Q2, how that would impact Wallboard and Paperboard margins?

Yes. So it's a good question. In terms of what we experienced in the spring. So we have to back up a little bit. We saw a pretty significant spike in April and May. And then -- and so when that happens, that doesn't get passed along to the ultimate customer until the following quarter. So there's a quarter lag between that increase and when we can pass those costs along, which is why you see the Paperboard profitability down, right? You absorbed a higher cost input and aren't able to pass those along until the next quarter. Then in June and July, as we had anticipated, OCC prices abated significantly in June and July. Again, once the economy is open, we started to generate OCC, recycled fibers, the supply came back and prices came down. So in the second quarter in our second quarter, we will pass that cost along, while at the same time, the input costs have moderated somewhat. So the Wallboard business will experience a slightly higher paper cost here in the September quarter than what they experienced in the June quarter.

Okay. Is that something that's like hundreds of basis points of an impact or more slightly?

Yes. Look, I mean I would point you go back 2 or 3 years to when we saw the last spike in OCC prices like this. You saw a very similar earnings impact from those higher costs and then it rebounds fairly quickly, when we can pass those costs along. But it's pretty -- and it's quick and it's fairly significant, quite frankly.

Okay. Craig, corporate G&A was light in the quarter. Is that sustainable? Or was that just the fact that nobody was traveling?

Yes. Look, I think, actually, you were to take out business development related expenses. And I think we highlighted for those for you in the press release. You'll actually see corporate G&A was pretty well flat year-over-year when you take the pluses and the minuses out. This is kind of in the range that we've been running at here for a couple of quarters in a row. So I think it'll sustain here.

Okay. How big was the IRS refund in July?

Yes, about $104 million that we received right after the end of the quarter. We had some other funds that are still on deposit with the IRS that should be coming as well. But we -- you look at the balance sheet, there was a $120 million more income tax receivable. We got the vast majority of that, that was related to prior years and that NOL carryback that we took advantage of. But then we also have another, call it, almost $20 million on deposit that we should be getting returned to us soon.

Great. Okay. And then just last one for me. In terms of modeling frac sand. So would you just put 0 revenue in and kind of that $1 million or $2 million quarterly loss?

Yes. Look, I think as Michael and I've said, we've significantly curtailed those operations. And with the volatility that we saw this spring, that business has really changed dramatically. So yes, I think a run rate pretty close to where we were this quarter isn't a bad starting place. Subject to change and subject to things as they develop. But sitting where we are today, that's a reasonable run rate.

Your next question comes from the line of Phil Ng with Jefferies.

This is actually Colin on for Phil. I just want to go back to cement volumes. I know you guys called out the strong trends that you saw in July, but how sustainable is like mid - to high single-digit organic volume growth rate through the rest of the second quarter and through the rest of the year, just given you're going to face some tough comps? And you've historically seen this business kind of as the low single-digit grower.

Yes. That's a fantastic question. When we look across our network, we've been taking advantage of some of the capital projects that we have implemented in the past. I called out in the comments about our Sugar Creek grinding capacity we have, all that is dependent on how much inventory you could actually produce. We are very tight across our networks. Right now with cement demand, we're at or near sold out capacity. And as we stated in the last year's comparable was very tight. It was a very good quarter with it. And so we are doing everything we can to -- especially on the cost front of bringing our product closer back to the plants, working with our customers and -- but single-digit -- high single-digit growth, when you get near a sold-out capacity is going to be very challenging to meet.

Great. And then just on the public market side, can you talk about your expectations for Phase IV stimulus for the state DOTs and kind of what your expectations are for long-term funding? And if we don't get any of this Phase IV and we get a CR for highway funding. How are you guys thinking about cement volumes in that kind of environment?

Yes. It's a good question, and it's a very complicated question because there's so many different monetary policies going through. And if it's a state funding, if it's federal funding, if it's -- each state is looking at is different on how they balance their budget. Some states are affected more than other states. We're taking this on a day by day. I mean we're looking for the future with it. We haven't seen the demand impact as much. We've seen 1 or 2 projects delayed, not canceled, but delayed. And we still see a good demand profile in front of us. And there's a monetary policy that went into place, there is money out there, and it's a lagging effect is that -- and we expect that, that will come into play over time. And then depending on what -- how the federal policy comes with an infrastructure bill and everything else, that will have an impact. So right now, it's just -- we're taking it as it comes right now. We're seeing good demand profile right now for the foreseeable future.

Great. And just my last question. I know there's around a 90 -- 60 to 90-day lag on the Wallboard side from when this starts to happen. Have you guys seen any indication that there could be an air pocket of demand, maybe not in the upcoming quarter, but maybe into the -- into your fiscal third quarter, kind of as these starts would be going to completion? Or have you guys not seen any indication of that?

Colin, I would tell you that the snapback was so quick in April and May, that -- and again, in our markets, we don't play up in the northeast. We don't play up in the northwest with our Wallboard business. We are generally in the southern half of the U.S. where the shutdown was much more minimal. And so in our markets, we've not seen that development.

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

Congrats on the quarter. Just a few modeling questions for me here. You mentioned the shift in the outage for the cement plant. Can you -- should we just split that evenly between 2Q and 3Q?

No, I put more of it in Q2 than Q3 and probably a 80-20 mix, something along those lines.

Got it. And then on the -- just one more on the outlook for Wallboard. You said a slight impact from the spike in OCC, but clearly, it was a short-term impact. So can you help us more with what the magnitude of that hit might be? And what you're able to manage around it and you're buying or anything like that?

Yes. It will be -- as we've seen in years past, it's a couple of dollars to 1,000 in terms of what that impacts to the Wallboard business. And again, it's relatively short-lived. It's really the September quarter and then assuming prices remain flat or continue to abate here, by the time you get to December, your -- that OCC price has really moderated at both the paper mill and the Wallboard business. So it's really just a 1 quarter impact on the Wallboard cost. On the paper mill side, right, it's a continued benefit in terms of the lower OCC prices.

Got it. And then your inventory dropped. I know that's mostly maintenance parts, but is that something you pared back during the worst of the shutdowns and are going to need to reinvest in?

Look, I think we had very strict and disciplined working capital management this quarter, and we do always. I think a big piece of that was also when the paper mill was down, we were selling out our paper inventory, just as you would expect, coming out of an outage like that. And then on the cement side, really, that's a reflection of how strong the cement demand has been, and you're working down the inventory levels of clinker across the system. And as Michael said, we've made some investments in the last 12 to 18 months to allow us to move product even more than we had in the past. And so that's allowed us to convert that inventory to cash.

Your next question comes from the line of Keith Hughes with Truist Securities.

This is actually Josh on for Keith. So I have a couple of questions kind of on the Wallboard side. So one, are you seeing the pickup in new home construction in July yet? I understand that it was really -- starts really [for] 2 months ago, but it seems like things have picked up a lot.

Yes. I mean, look, I think as we were saying earlier, there is a lag time between housing starts and Wallboard consumption. And so we would -- we've just decided that the correlations is tighter there over a 60 to 90-day time frame.

Okay. And then can you kind of help us think about pricing with the mix shift since new home construction has been so strong?

Yes. I guess you're talking about the pricing mix between a 0.5 inch and [5 inch], is what I'm assuming you're asking about.

Yes.

Look, I'll tell you, over time, that ratio doesn't change dramatically. You might see it fluctuate a little bit, but that's not driving any sort of pricing changes in our business.

So the $146 million you talked about exiting the quarter roughly is -- it's flat -- like that's a like-for-like basis?

Yes. It's like-for-like.

Okay. And then last kind of question on the Paperboard expansion. Last quarter, you kind of mentioned there was a final stage with some personnel coming, and there were some international travel restrictions maybe causing some delay there, has that been completed? Just kind of update us on where exactly the paperboard is? It sounds like it's pretty much done.

So what I can tell you is the capital spending is virtually complete. And we are able to achieve a lot of significant portion of the expansion. There are some final pieces of equipment that requires some expertise to be installed. We hope to get that done here in the fall. We're trying to be creative with how we get that done that could slip, but it's not impacting the ability of the operation to run. And there's no more significant capital spending there. But there is one final piece to finish there.

And at this time, there are no further questions. I would like to turn the call back over to Mr. Michael Haack for closing remarks.

Thank you for attending this call, and we look forward to talking to you in the fall.

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