Eagle Materials reports first quarter results

Commenting on the first quarter results, Michael Haack, President and CEO, said, “Against the backdrop of a global health crisis and unprecedented business disruption, our company continued to perform well during the quarter, and our markets have proven to be resilient in the current environment. The integration of the Kosmos Cement Business proceeded on schedule and for the first time in Eagle’s history, we sold over two million tons of cement during a quarter. Market demand for our wallboard also remained healthy with shipments up 7%. Our low-cost operations continued to generate meaningful cashflow during the quarter, which, combined with the proceeds from the sale of our northern California businesses, significantly improved our balance sheet and liquidity position.”

Haack continued, “While we are very pleased with our first-quarter performance, we recognise a high level of uncertainty persists in our markets and the overall economy: despite the decline in jobless claims from the March peak, total unemployment remains historically high; state and local governments face ongoing revenue pressure, which could have the potential to constrain infrastructure budgets, and, in some geographic areas important to our business, COVID-19 case numbers continue to escalate. We are closely monitoring the disruptions caused by the COVID-19 pandemic and their possible impact on our business in current and future periods. With this in mind, we continue to enforce strict health and safety protocols to protect our employees, customers and business partners, and we will continue to manage our cash flow prudently and protect our balance sheet.”

Segment Results

Heavy Materials: Cement, Concrete and Aggregates

Revenue in the Heavy Materials sector, which includes cement, concrete and aggregates and joint venture and intersegment cement revenue, was US$305.5 million, a 30% improvement. Heavy Materials operating earnings increased 62% to US$65.9 million primarily because of improved cement sales volume and earnings from the recently acquired Kosmos Cement Business.

Cement revenue for the quarter, including Joint Venture and intersegment revenue, was up 34% to US$261.4 million, and operating earnings were a record US$60.5 million, up 67%. These increases reflect record cement quarterly sales volume and the contribution of the recently acquired Kosmos Cement Business, which accounted for approximately US$47.6 million of revenue and US$10.5 million of operating earnings during the quarter. Cement operating earnings were also affected by expenses of approximately US$3.7 million associated with the impact of purchase accounting on inventory costs at the Kosmos Cement Business.

The average net cement sales price for the quarter was down 1% to US$109.10 per ton. Excluding the impact from the Kosmos Cement Business, the average net sales price improved 1%. Cement sales volume for the quarter was a record 2.1 million tons, up 35%. Excluding sales volume from the recently acquired Kosmos Cement Business, cement sales volume increased 7%.

Concrete and Aggregates revenue increased 12% to US$44.1 million. The revenue improvement was due to the results of the concrete and aggregates business we acquired in August 2019, partially offset by the sale of our northern California concrete and aggregates businesses during the first quarter of fiscal 2021. First quarter operating earnings were US$5.4 million, a 22% increase, reflecting improved concrete sales volume and pricing as well as lower diesel costs. The sale of our northern California concrete and aggregates businesses was completed on 17 April 2020 and resulted in a US$52 million gain on sale, which is reported separately on the Statement of Earnings.

Light Materials: Gypsum Wallboard and Paperboard

Revenue in the Light Materials sector, which includes Gypsum Wallboard and Paperboard, improved slightly to US$152.8 million, as favourable overall results in Gypsum Wallboard were partially offset by declines in Paperboard. Sales volume of Gypsum Wallboard increased 7% to 704 million square feet (MMSF), but net sales prices declined 3% to US$146.28 per MSF.

The average Paperboard net sales price in the quarter was US$461.87 per ton, down 9%, primarily as a result of the pricing provisions in our long-term sales agreements. Paperboard sales volume decreased 5% to 77 000 t. Recycled fibre costs increased US$75 per ton over the course of April and May because of a significant decline in generation as many states issued shelter-in-place orders to combat the pandemic. As state economies began to re-open and recycled fibre generation increased, costs declined US$55 per ton over the course of June and into July.

Operating earnings were US$44.2 million in the sector, a decrease of 8%, as increased Wallboard sales volume was offset by lower net sales prices, higher recycled fibre costs and inefficiencies associated with starting up our papermill after completion of the expansion project in March 2020.

Oil and Gas Proppants

The Oil and Gas Proppants segment reported revenue of US$1.0 million, a decrease of 93%, and an operating loss of US$1.3 million. These financial results reflect deteriorating market conditions in the energy business associated with sharp declines in oil and gas prices, which have resulted in a slowdown in drilling and fracturing activity. During the first quarter, Eagle Materials significantly curtailed its operating activities and reduced headcount at its frac sand facilities. The company is focused on preserving the value of its operating assets for future use and continues to actively pursue alternatives for this business.

Planned Separation of Heavy Materials and Light Materials Businesses

As previously announced on 30 May 2019, the company plans to separate its Heavy Materials and Light Materials businesses into two independent, publicly traded corporations by means of a tax-free spin-off to Eagle shareholders. Eagle remains committed to the separation, although the timing is uncertain. The company continues preparations to ensure that the two businesses are well-positioned for the separation when the markets recover from the effects of the COVID-19 pandemic.

Details of Financial Results

The company conducts one of its cement plant operations through a 50/50 joint venture, Texas Lehigh Cement Company LP (the Joint Venture). Eagle Materials uses the equity method of accounting for our 50% interest in the Joint Venture. For segment reporting purposes only, the company proportionately consolidates its 50% share of the Joint Venture’s revenue and operating earnings, which is consistent with the way management organises the segments within the company for making operating decisions and assessing performance.

In addition, for segment reporting purposes, Eagle Materials reports intersegment revenue as a part of a segment’s total revenue. Intersegment sales are eliminated on the income statement.

Read the article online at: https://www.worldcement.com/the-americas/04082020/eagle-materials-reports-first-quarter-results/