Eagle Materials Inc (EXP) 2026 Q3 法說會逐字稿

Good day, everyone. Welcome to Eagle Materials' third-quarter of fiscal 2026 earnings conference call.

The 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, [Drew]. Good morning. Welcome to Eagle Materials' conference call for our third quarter of fiscal year 2026.

This is Michael Haack. Joining me today are Craig Kesler, our Chief Financial Officer; and Alex Haddock, Senior Vice President of Investor Relations, Strategy, and Corporate Development.

A slide presentation accompanies this call. To access it, please go to eaglematerials.com and click on the link to the webcast. While you're accessing the slides, note that the first slide covers our cautionary disclosure regarding forward-looking statements made during this call. These statements are subject to risks and uncertainties that could cause results to differ from those discussed during the call. For further information, please refer to this disclosure, which is also included at the end of our press release.

In our third-quarter fiscal 2026, despite the mixed construction environment, our businesses continue to perform well. We generated $556 million in revenue. Our earnings per share were $3.22. We delivered a gross profit margin of 28.9%.

In these choppy times, Eagle will continue to operate as it always has. We will control what is in our control and adjust to current market conditions to maximize profitability in both the short and long term.

Our strategy is consistent. We will invest in the health and safety of our largest differentiating asset; our people; our plans to control costs and support our customers through increased reliability, efficiency, and capacity; our short- and long-term strategy, with return-focused projects or acquisitions -- all of this while ensuring our balance sheet remains in pristine condition.

Foundational to everything we do is maintaining the highest standards of health and safety. Our annual safety conference was held in December. It is always a great opportunity to interact with the leaders of the organization to review our safety and environmental performance, pass along some important messages and set our path for continued improvement.

Our journey to zero incidents is ongoing but every employee at Eagle understands that the safety of our people always comes first. If we cannot perform a job safely, we will not perform the job.

These meetings with the best-practice sharing and commitment from the team have allowed Eagle to maintain an industry-leading safety record. To say the least, I'm proud of all Eagle's employees and the safety culture we have built.

Regarding our plants, we work to maintain the reliability of our assets, increase efficiency and capacity, which gives us operational flexibility to execute efficiently through economic cycles. This past quarter, we advanced several initiatives that convert our waste streams into revenue streams to help further improve our low-cost producer position.

Let me give a few examples:

In Cement, we have been able to reclaim decades-old waste streams that can be used as a source of raw materials in our production process. In our Aggregates operations, we have begun using fines and overburden to support our raw materials or extend our reserves at our Cement plants and Aggregates facilities.

In the Light side of our business, we are expanding the capabilities of our Republic paper mill to repurpose non-wallboard-grade paper and trim rolls into higher value-add products.

At American Gypsum, we are recycling 100% of our waste wallboard back into the production process, except at our Duke facility, which will also be at 100%, following the completion of our modernization there.

Importantly, many of these projects require minimal or no capital investment, while having an outsized positive benefit on our operations. These initiatives complement some larger strategic projects we have underway that benefit our overall system reliability, capacity, and profitability, namely the modernization of our Mountain Cement plant and the Duke Wallboard facility.

We made good progress on both projects during the quarter, which means that our Laramie, Wyoming Cement plant should be going through its commissioning late this calendar year, followed by our Duke, Oklahoma commissioning in the second half of calendar 2027. Each investment will lower the cost structure of the respective plant, strengthen our already low-cost competitive position, and deliver a strong return on investment.

I'm incredibly excited for what's ahead, as we are experiencing some downtime at the Mountain Cement kilns recently, increasing the justification for the modernization project. In the meantime, we can use our network of Cement plants to meet our customer needs, albeit at an increased cost. We'll continue to report on progress, as we approach the end of each plant's construction timeline.

With both plants coming online over the next 18 months, let me pivot now to where we think we are in the economic cycle. At Eagle, we don't operate in a way that is overly focused on short-term demand cycles. Our primary products are essential commodities; meaning, demand will fluctuate. That being said, Heavy Materials and Wallboard appear to be at different inflection points today.

Our Cement and Aggregates sales volumes grew last quarter. We believe the support from federal, state, and local infrastructure spending, plus solid growth on key non-residential end markets, will continue support for our Heavy Materials business. As discussed last quarter, we have announced price increases for the first quarter of calendar 2026 in most of our markets, further reflecting our volume expectations for our Heavy Materials business.

At the same time, residential construction, which drives Wallboard volumes, was challenged last quarter. Current housing data reflects the affordability issues that have been plaguing the homebuilding industry for quite some time. Recent housing policy announcements, combined with more accommodative monetary and fiscal policy, recognize the fundamental need for new home construction in the US so we are monitoring these developments closely.

Nonetheless, as I said, our focus is on our operations, not on predicting demand. Over decades, we've demonstrated that we can operate equally well in strong economic environments and in mixed construction environments.

Our low-cost producer position gives us opportunities and advantages for managing cost. In Wallboard, our sustaining maintenance costs are already low. We benefit from the ability to flex production to match sales.

Finally, as I mentioned earlier, our focus on financial discipline and balance sheet strength remains. During the quarter, we strengthened our already solid financial position, issuing $750 million in 10-year senior notes, aligning our capital structure with our ongoing investments at the Laramie, Wyoming Cement plant and Duke, Oklahoma Wallboard plant.

While making significant progress on our major capital projects, we increased our return of capital to shareholders. During our fiscal third quarter, we returned nearly $150 million to shareholders through our dividend and share repurchases. Our leverage ratio of 1.8 times allows us to navigate cycles and stay in growth mode, even as our end markets have endured choppiness.

Craig, with those comments, I will now turn it over to you.

Thank you, Michael.

Third-quarter revenue was $556 million, down slightly from the prior year. The decrease reflects lower Wallboard and Paperboard sales volume, partially offset by higher Cement sales volume and the contribution from the recently acquired Aggregates business.

Third-quarter earnings per share was $3.22, down 10% from the third quarter of fiscal 2025. The decrease reflects lower net earnings, mostly the result of lower Wallboard sales volume, offset by a 5% reduction in fully diluted shares due to our share buyback program.

Turning now to segment performance:

In our Heavy Materials sector, which includes our Cement and Concrete and Aggregates segments, revenue was up 11%, driven primarily by a 9% increase in Cement sales volume and a 22% increase in Concrete and Aggregates revenue. Aggregate sales volume was up 81% to a record 1.6 million tons, reflecting a 34% increase in organic Aggregates sales volume and the contribution from the recently acquired Aggregates business.

Operating earnings were up 9%, driven primarily by the 9% increase in Cement sales volume. As Michael mentioned, Cement price increases have been announced in most of our markets to take effect in the first part of calendar 2026.

Moving to the Light Materials sector on the next slide:

Revenue in the sector decreased 16% to $203 million, reflecting lower Wallboard and Recycled Paperboard sales volume and a 5% decline in Wallboard sales prices. Operating earnings in the sector were down 25% to $73 million, primarily because of lower Wallboard sales volume and prices.

Looking now at our cash flow, we continue to generate strong cash flow and allocate capital in a disciplined way, in line with our strategic priorities. During the first nine months of the fiscal year, operating cash flow increased 5% to $512 million.

Capital spending increased to $295 million. Most of this increase was associated with the modernization and expansion of our Mountain Cement plant in Laramie, Wyoming and the modernization of our Duke, Oklahoma Wallboard plant. Considering these two projects, as well as our sustaining capital spending, we expect total capital spending in fiscal 2026 to be in the range of $430 million to $450 million.

During our fiscal third quarter, while investing in these growth projects, we also significantly increased our shareholder distribution. We returned nearly $150 million to shareholders through our quarterly dividend payment and the repurchase of approximately 648,000 shares of our common stock.

Through the first nine months of fiscal '26, we have repurchased approximately 1.4 million shares or 4% of our outstanding. We have approximately 3.3 million shares remaining under our current repurchase authorization.

Finally, a look at our capital structure, which continues to give us significant financial flexibility. As Michael mentioned, during the quarter, we further strengthened our financial position by issuing $750 million of 10-year senior notes, with an interest rate of 5%. This issuance enhances our debt maturity schedule, increases committed liquidity, and aligns our capital structure with the long-term investments we're making at our Mountain Cement plant and Duke Wallboard facility.

We also used a portion of the proceeds to repay our bank credit facility. At December 31, 2025, our net debt-to-cap ratio was 48% and our net debt-to-EBITDA leverage ratio was 1.8 times.

We ended the quarter with $419 million of cash on hand. Total committed liquidity at the end of the quarter was approximately $1.2 billion. We have no meaningful near-term debt maturities, giving us substantial financial flexibility.

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

Drew, I'll throw it back to you.

(Operator Instructions)

Trey Grooms, Stephens Inc.

Cement. If we could start there, the Cement volume, up nicely, again, in the quarter. Also, organic Aggregates volume, as well.

You touched on a few things there in the press release or in the slide deck, rather, that were -- where we were seeing some strength, maybe infrastructure, data centers, those types of things. Can you talk about -- is that demand pretty well widespread across your markets? Or is it more isolated to some specific geographies? And then, has that strength continued, as we've started off here into calendar '26?

Yeah. Trey, look, I would tell you, it's pretty broad-based across our markets. I think we came into calendar '25 -- if you think about a year ago, we were optimistic around infrastructure, some of the non-residential key markets. That played out as we had expected in many parts of our markets.

We're a broad national footprint. And so, as we head into calendar '26, we have some optimism -- continue to have that optimism around infrastructure and some of the non-residential markets.

Always hard to generate a trend in January and February, given winter weather. Certainly, we've all lived through that in the last week or so. But, optimism, coming into '26.

Good deal. Okay. Sticking with Cement, the margins impacted a bit here or down a little bit here. I understand there was maybe a slight decline in pricing but volume, again, here was strong, like we discussed.

Can you talk about what's driving the margins there? I didn't see anything unusual called out in the press release, as far as maintenance or anything but, just, if you can maybe touch on the margins in Cement.

Yeah. Look, costs were largely in line. We did have some raw material costs -- purchased raw materials costs -- that were up this quarter. But maintenance was largely in check.

Fuel costs, as we've talked about, have been largely in line. So nothing stands out significantly.

Okay. Okay. Fair enough. And then, last one for me is: On Wallboard pricing, you saw a little bit of a decline there, sequentially. I think it was about 3% or so; not overly surprising.

But has this pricing trend maybe continued into January? Or how should we be thinking maybe about the, directionally at least -- around Wallboard pricing here in the near term, as we bump along at these lower demand levels, with nothing looking to change drastically on that front, at least in the near term? Any color you could give us on how we should be thinking about that?

Yeah. You hit on it, Trey. The annual shipments for calendar '25 for Wallboard came in at about 25.4 billion square feet. That's back to a 2018 pace. In this type of residential market, not at all surprised to see pricing have some downward trend.

But, again, very range bound, relative to what we've seen and, certainly, relative to the demand environment that we're in. So not surprised by that at all.

Yeah. Yeah. But I assume it's still your take that there's been a lot of changes in the industry and with the cost structure that we've talked about for years that have, I think, maybe made some changes with pricing over the long term being somewhat structurally higher, just given the backdrop of some of those things.

Is it still your take that modest declines could be expected but these changes are still in place, such that we shouldn't be expecting any replay of some of the more drastic price swings that we saw -- maybe, go back 10-plus years ago?

Yeah. No, exactly. Given all the changes that have happened with raw material costs, this is what you would have expected to see happen: a pretty range-bound pricing environment, even in light of a very difficult residential environment. So I don't see anything changing, from that perspective.

I do think there's upside on pricing, as we get housing to recover and back to a reasonable level of construction activity. I think you'd see that fairly quickly.

But, in the current environment, yeah, I still think prices are relatively range-bound.

Brent Thielman, DA Davidson.

Just had a follow-up on the Wallboard side, just down 14%, in terms of shipments. Just thoughts in terms of whether that's consistent across the footprint or you've got some -- potentially, some regions outperforming that.

No. That was pretty consistent across our regions. If you look at the total GA numbers, they were down 8%. Our regions underperformed that. So our business was pretty much in line with the regional performance.

Okay. And then, on the Lehigh JV, Craig, has been anticipating some improvement, in terms of the profit contribution. Just wanted to get a sense of what we're seeing here in the December quarter, indicative of the market trends? Or there's still some operational noise under the hood there?

Yeah. With the JV itself, the plant itself is performing better. Texas was probably our most challenged market, both from a pricing standpoint and some on demand and its competitive nature with it.

I know Trey asked the previous question about, across the US, where we see our demand and our pricing and everything with it? We've been very stable in every location, except Texas had the most pressure.

So you could really look at this as more of, we had to adjust our pricing more in that area, which offset some of the benefits you'd see from our plant operating better on the profit side.

Okay. All right. I appreciate that. Maybe just last quick one.

Just in terms of the proposed price increases in Cement here to start the year, I think, typically, you do some in January and some in spring. Just from past experience, obviously, terrible weather across the country. Does that potentially push some of this more into the spring? Any thoughts around that?

Yeah. Brent, I would say, we have terrible spring every January and February. So, yeah, look, the volume improvement we saw here in calendar '25 is really good to see, in terms of the incremental pricing opportunity, as we head into calendar '26.

We do have increases out there, as we talked about. They're spread throughout here the first couple of months of calendar '26. Exact realization, we'll certainly update everybody on.

But we have the volume momentum -- that's a good sign -- and expect that to continue here into calendar '26.

Anthony Pettinari, Citigroup.

Hi. This is Asher Sohnen, on for Anthony.

I was just wondering how we should think about, maybe, natural gas costs for Wallboard and Cement in the fiscal fourth quarter. I think natural gas prices have risen pretty meaningfully in recent weeks. I'm just wondering how you guys are looking at that.

Yeah. It's really more of a Wallboard thing.

In Cement, you're going to burn typically more solid fuels than natural gas.

In Wallboard, we do have a hedging program in place. So we're a little more than 50% hedged here through the winter, which is where we like to be because you will see these spikes when you get these winter storms that pop up. I think that's what's driven natural gas here in the last week or so with the colder temps. Fully expect that to come back down more in line.

There's not something that's structurally changed in the natural gas markets so just a short period here, during the winter. We've got a good hedge position from that.

Okay. Great. And then, one more for me.

With the pressure in Wallboard, it seems like it's coming a lot from new build. But I was wondering if you could talk about roughly what portion of the business is repair and remodel -- I know it's a little bit smaller, maybe harder to estimate; and then, what trends you might be seeing in that end market, if you're able to get that visibility?

Yeah. No. It's a good question.

We talk about a lot of the new residential construction activity but repair and remodel is, call it, a third of the demand profile for Wallboard. It's certainly meaningful and has been growing over the last many, many years. It's a much steadier market; harder to get forecast data exactly but, at least, the forward-look there continues to see low-single-digit type of growth and a very meaningful market for us.

So it's a good question.

Timna Tanners, Wells Fargo.

I was hoping to follow up on the comments or questions about the upcoming quarter, if you had any specific observations on any impact to your operations from these storms? Anything you can comment on there?

As it relates specifically to the winter storms, our folks have done a really, really good job of preparing the facilities for very extreme cold temps: weather-proofing lines -- raw material lines and things like that.

From the winter storm perspective, our folks and our plants are ready for it.

Okay. I appreciate that. And then, I was wondering if you can get into some more specifics about what you're seeing about Cement imports. I think that's what you're alluding to, in terms of Texas and California. But any updated observations there?

Yeah. Really, how you look at it is, any of the markets that could be served by imports, of course, it all depends on the freight rates and everything coming in. Texas is not just impacted by imports, though, with my comments there. There's been a structural change in the market in Texas a little bit with the ownership.

Every time there is changes in it, people operate their plants a little bit differently and look at markets a little bit differently. So I think there has been some structural changes on how those plants -- that changed ownership, which is a significant portion of the production in the Texas market between -- the two facilities have different owners that they look at it different.

So we've just had different competitive pressures in Texas. As you get closer to the coast, imports definitely do have an impact. But it's a -- it's not just one thing that's affecting Texas, it's more -- and that led us to respond to some competitive pressures.

Got it. Helpful. And then, just finally from us, on the CapEx comments, it seems like it was lowered from prior numbers. I'm just wondering if there's any basis or explanation for that.

No. Thanks, Timna, for bringing that up. We have been forecasting closer to $500 million. It's just timing. When you get these very, very large projects, like Mountain Cement and the Duke plant, it's hard to exactly forecast when spending will occur. Nothing to change there.

And then, sustaining capital, we look very hard at what spending needs to occur there. In light of the elevated capital spending, we've done a good job of prioritizing more of the sustaining capital, which ends up with a slightly lower number.

Adam Thalhimer, Thompson Davis.

I wanted to start on capital allocation. How are you guys thinking about share repurchases and acquisitions after the November bond deal?

Yeah. Look, that's where we spend a lot of our time. We've positioned the assets well. We've got a good group of operators. And so how we continue to allocate capital to generate value is where we spend the majority of our time.

As we've said -- and this really hasn't changed over decades -- and that is the priority is to continue to grow the organization but with a high bar for that growth, both strategically and financially; and whether that's M&A or organic.

So we have the two large organic projects underway, very excited about those and the returns they will generate.

But we've also got a balance sheet that we can continue to pursue M&A activity but remaining very disciplined on valuation there.

And then, you have our capital return strategy. We certainly repurchased more shares this quarter than we had in quite some time. Some of that's also relative to the stock price. And so we still see value in the shares.

But we're fortunate we can continue to have a balanced offense across all three of those.

Great. And then, I wanted to ask about Wallboard margins. Can you talk a little bit about the puts-and-takes there? What I'm really getting after is if margins could stabilize at that Q3 level?

Yeah. Look, I think we talked about we saw some sequential price declines there. I still think they're moderated, given the structure and the changes that have occurred.

Cost-wise, OCC continues to be at a pretty low level. Natural gas, again, it fluctuates a little bit during the winter but don't see that as a long-term change. We own our primary raw materials. So nothing significant on the cost side that we're looking at today.

But, in a volume environment, we'll see where that goes. But we've positioned the business to continue to perform at this high level, even in this difficult environment for residential construction. So I think we'll continue to see good performance.

Okay. Last one for me. The Wallboard comps get a lot easier starting in late calendar '26. I'm just curious if there's any reason for optimism on volume stabilization or, maybe, even a little bit of growth, as we get to the back half of the year.

Yeah. Look, there's a lot of moving parts when it comes to homebuilding, right now. So I would say our optimism is around how well our assets are positioned; the cash flow that we're generating, even in this environment; and our ability to continue to make good return investments.

So we'll deal with the choppiness. When it does recover, I think it recovers meaningfully. You'll see a significant upward inflection there. But, maybe, a little early to call that.

Philip Ng, Jefferies.

Michael, great color on the Texas market for Cement. Are you seeing any other regions where you're seeing price competition be a little more elevated, perhaps in the West? I know the last earnings call, you guys announced an $8 per ton Cement price increase in all the markets, ex-Texas and the West.

Have you announced price increases in those markets? Any early read on how the Jan increase is progressing? Are you seeing any traction? Or are you seeing some pushback here?

It's a great question. When we look across the US, we're very happy with the remainder of our markets. Some markets -- each market is independent of each other, when you look at the supply-demand dynamics with it. But, for the most part, we've announced price increases across the majority of our network with it.

I highlighted Texas is the one that's the most challenged. Every other market, structurally, is in very good position, we feel. So there's nothing I would point out there.

What we're really going to determine over the next months is which ones -- as we talk with our customers, what that number is and if it's a January increase or an April increase. That will be determined by individual markets.

Okay. That's helpful. And then, a question for you, Craig. Wallboard prices bled a little bit, right? No surprise there, just given the dynamic on the homebuilding side.

Are you expecting prices to stabilize here? Some of the weakness, is that destocking-related or it's just normal trends, in terms of underlying demand? How should we think about the Wallboard side of things?

Yeah. Not really destocking, in my view. Just, it's a perishable product so you can't store it outside. You're subject to the indoor storage at our manufacturing facilities and the distributors.

Look, as we said in the beginning, I'm not surprised by some of the pricing weakness but it's all relative. It's down but not down anything like what we would have seen in prior cycles, especially at this demand level.

Utilization rates are higher, just given some of the raw material issues.

Again, I think pricing stays range-bound. I wouldn't be surprised to see some further decline here. But I think it's all relative -- and, certainly, versus where we are with the demand side.

Got you. Just one final question on the Wallboard side.

Two of, I believe, your larger customers on the Pro distribution side now are owned by [big box]. I'm just curious, as you look into 2026, have that relationship dynamic changed any way, in terms of how you're talking about procurement conversations? Is it the same people or it's merge where you have the retail side versus the Pro side having one conversation; and any movement from a placement standpoint we should be mindful of this year?

Yeah, Phil. I think it's probably a little early to have that definitive -- see how -- again, you mentioned it -- and it's an important point -- very different business models: the traditional retail versus the mass distribution.

How they run those is, I think, to be determined, if they run them together or keep them independent because they are so different. So it's something that we'll continue to monitor. But, maybe, a little early to talk about that.

Keith Hughes, Truist.

A couple of questions on Wallboard. Given the volume, did you have to take extra downtime? In the December quarter, you were expecting. Same thing on the March quarter, we have some of that, just given where housing is and where the trends are.

Keith, like we've always done, you match the production with the sales opportunity. It's more of a variable cost business; very different than Cement.

You can run a Wallboard plant seven days a week; you can run it 4 days a week. So you'll certainly modulate shifts, depending upon the opportunity.

Okay. Switching back over to Cement. On the Cement side, I know you got price increases out. When will you be able to definitively tell what pricing is going to be like for the year? Is that something that becomes evident in March? Or does it take well into the second quarter before the price settles in?

Keith, really, it's going to be dependent on our conversations we have with our customers and what those individual markets are. We'll update you on each quarter. You'll see it in the financial results, with where we did the price increases and when.

Really, our conversations, right now, are on timing. We've announced them in those markets. It's just on what timing we implement that makes sense for us and our customers.

Garrett Greenblatt, JP Morgan.

I was wondering, if you just touch on Cement pricing, once again, in terms of what have you announced in your current letters that you've already sent?

And then, maybe something like a low-single-digit volume growth year for Cement, what has been the historical realization rate?

Yeah. In terms of the price increases that have been announced, they've been around $8 a ton for most of our markets across the US, excluding Texas and the Far West markets.

Timing ranges somewhere between January and April; the first part of your calendar '26. Michael said it earlier but these markets are very regional. So they'll have a very different -- the pricing will be determined regionally, rather than a national average. That's what we're going through, right now.

Look, we're coming off of -- calendar '25, for us, is really the first year where we -- in the first three years -- the last three years where we've seen volume improve. And so that has certainly improved utilization rates. And so that's been good to see.

As we head into calendar '26, again, optimism around volume continuing to grow and should push utilization rates higher.

And then, just a follow-up on Wallboard: How did those demand trends progress through the fourth quarter? Was there any momentum coming into calendar 1Q?

Look, it's been pretty consistent here in the second half of the year, which, I think, is pretty consistent with what the homebuilders has been reporting and others within this Light building materials sector, where the second half of the year was -- had a meaningful drop in demand profile.

So I think as we head into calendar '26, again, you've got some winter issues here but expect to continue to see a similar trend.

This concludes our question-and-answer session.

I would like to turn the conference back over to Michael Haack for any closing remarks.

Thank you, Drew.

As we enter the final quarter of our fiscal year, we continue to prioritize health and safety, operational excellence, and financial discipline, while seeking growth opportunities that meet our strategic and financial criteria.

I look forward to elaborating more on our strategic priorities next quarter, as we wrap up our fiscal year 2026.

Thanks to everyone for joining our call today.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.