Eagle Materials, Inc. Q1 2027 Earnings Call

Good day. Welcome to the Eagle Materials first quarter of fiscal 2027 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.

Thanks, Chuck. Good morning. Welcome to Eagle Materials conference call for our first quarter of fiscal year 2027. 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. There will be a slide presentation made in connection with this 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 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. Thank you all for joining us today.

Against a backdrop of macroeconomic uncertainty, we are pleased to report steady results for the first quarter of the fiscal year. Our first quarter revenue was a record $651 million. We generated earnings per share of $3.29, and our gross margin was 24.8%. These results highlight how our low-cost producer position allows us to successfully navigate and execute in dynamic environments. Last month, we published our annual report, shareholder letter, and an updated corporate sustainability report highlighting our progress across Eagle for FY 2026. These documents highlight how we strive to consistently make our operations safer and our assets more efficient to maintain our low-cost producer position. It is our belief that a safe, efficient operation also yields better shareholder returns. Everything we do at Eagle starts with protecting our employees' health and well-being. Candidly, our safety results weren't where we want them to be. We are not at zero.

We will continue to expand our use of technology, training, and the sharing of best practices to further improve our safety culture at Eagle. Environmentally, across our asset footprint, we have driven down our CO2 intensity and overall emissions levels while increasing the usage of alternative fuels at our facilities. Our drive for efficiency led us to explore alternative uses of previous waste streams across all of our businesses. Moving mined material multiple times is not efficient and is costly. Through testing and analysis, we have found new uses for a lot of the material that was once considered waste. Most of this material will be converted to revenue streams, while the remainder will help improve manufacturing processes.

To this extent, I'm happy to report that we utilized over 550,000 tons of materials that were reclaimed or would have been placed back in the quarry in previous years during fiscal year 2026. Importantly, our safety and operational investments are not influenced by changing macroeconomic fluctuations. Our strategy is to execute through cycles on projects that have compelling paybacks. We seek to increase the long-term profitability potential of our core businesses with a multi-cycle approach focused on resilience, peak to trough, and compounding earnings potential peak to peak. This is especially valuable in the current demand environment when our end markets continue to be in different points of their respective cycles. On the heavy side, our cement and Aggregates volumes continue to be supported by elevated infrastructure spending, driven by federal IIJA bill and elevated state DOT budgets.

Even as questions remain about what comes next from the potential new federal infrastructure bill or the growth profile of state DOT budgets, our customers report a robust pipeline of multi-year infrastructure projects. Similarly, our customers across all of our regions are seeing growth in data center construction. We are still quantifying the impact on our volumes of rapid data center growth. What we do know is our customers are seeing an increased number of projects, building footprint sizes, and visibility from project announcement to actual construction. They are also seeing this growth spill over into other categories such as utilities, warehousing, and community build-outs. The volume growth in the cement and Aggregates was also supported by our pricing initiatives in these businesses, with the gross price of cement up about 1% year-over-year.

The strength of our cement sales volumes was offset by an approximately $6 million earnings impact resulting from unexpected equipment failure at the Mountain Cement facility, some of which we expect to recover through our insurance coverage. The kilns at Mountain are 1960s vintage, and they are showing their age, further underscoring the rationale and importance of the new modern kiln line we are installing. The fact that our sales volumes were not impacted shows how robust the cement network we've built is, as we were able to bring in cement from across our footprint to meet customer demand without any disruption. Here in late July, the equipment issues have been largely resolved. These additional movements and elevated freight rates broadly impacted our net cement prices.

Cement volume growth, however, should set up nicely for better net price realization over the medium term, further benefiting from energy costs that should normalize. Infrastructure and non-residential construction make up about 80% of our heavy side end market exposure, so growth in those markets has offset the softness in residential construction. On the light side of our businesses, residential construction represents about 80% of our wallboard end market exposure. While there has not been a near-term catalyst to help bring down mortgage rates and spur a rebound in home construction, we have seen relatively stable demand levels. Our wallboard is priced on a delivered basis, so the increased freight rates we saw last quarter were the primary driver for our June 1st price increase in wallboard, which would not be typical in this volume environment.

We believe wallboard pricing additionally reflects the cost pressures that the rest of the industry, other than Eagle, are facing, and that go beyond the elevated freight costs. Outside of freight, our costs were relatively benign this quarter, especially given our unique raw materials position with decades of low-cost gypsum across our wallboard footprint. Both the dynamic macroeconomic environment and the freight cost disruptions we've seen clearly demonstrate the benefits of our strategy to reinforce our position at the low end of the cost curve and to invest in high return projects through the cycles, whether through our typical capital projects across our plants and quarries, or larger modernizations that meet our strategic and financial criteria. We are making excellent progress on two larger and unique high return modernization projects currently underway.

The project at our Laramie, Wyoming cement plant will reduce the facility's operating cost by 25%, and the Duke Oklahoma wallboard plant modernization will reduce the operating cost of that facility by 20%. Construction for Laramie Cement plant is still on track to be completed late this year, and commissioning planned for the first part of next year. The Duke wallboard plant should commission towards the later half of 2027. Through the investments we make, larger modernizations or routine smaller capital projects, we remain well-positioned despite cost spikes and challenged end market dynamics like we're seeing in housing today. With our capital expenditures from these two projects reaching a peak this year, we're still able to pursue additional high return growth opportunities organically or through M&A, and return capital to our shareholders. With those comments, let me turn it over to you, Craig.

Thank you, Michael. As mentioned, we delivered record first quarter revenue of $651 million, up 3% year-over-year. The increase was driven primarily by higher cement sales volume, record Recycled Paperboard sales volume, and increased Aggregates sales. The revenue growth was offset by higher operating costs, primarily in cement and wallboard. Increased freight costs and unexpected downtime at our Mountain Cement plant were the primary drivers, contributing to a 13% decrease in first quarter earnings per share. This impact was partially offset by a 5% reduction in our fully diluted shares as a result of our share repurchase program. Turning now to segment performance, highlighted on the next slide. In our Heavy Materials Sector, which includes our cement and concrete and Aggregates segments, revenue was up 8%, driven primarily by increased cement and Aggregates sales volume, underscoring healthy underlying demand.

Sales volume growth in both business lines was supported by continued strength in public infrastructure spending, as well as key areas of private non-residential construction, such as data center development. Operating earnings in the sector were down 11%, primarily because of the impact of higher freight and raw material costs and the $6 million impact from the downtime at Mountain Cement. Moving to Light Material Sector on the next slide. First quarter revenue in our Light Material Sector declined 5%, reflecting lower wallboard sales volume and sales prices, which were partially offset by record Recycled Paperboard sales volume. Operating earnings in the sector were down 16%, reflecting lower wallboard sales volume and higher freight costs. Looking now at our cash flow. We continue to generate strong cash flow and allocate capital in a disciplined manner, consistent with our long-term strategic priorities.

During the first quarter, operating cash flow increased 13% to $154 million, reflecting the strength of our businesses, the resilience of our operating model, and the expected tax benefits from the capital spending program. Capital expenditures totaled $121 million during the quarter, driven primarily by investments in the modernization and expansion of our Mountain Cement plant in Laramie, Wyoming, and the modernization of our Duke Oklahoma wallboard facility. These projects will enhance operating efficiency, improve reliability, and further strengthen our competitive position. We continue to expect fiscal 2027 capital expenditures to range between $490 million and $525 million to fund these strategic growth initiatives, as well as ongoing sustaining capital investments across the company. Capital spending is expected to peak in fiscal 2027 with construction of Mountain Cement scheduled to be completed later this year, and the Duke project anticipated to be completed in mid-fiscal 2028.

At the same time, we remain committed to returning capital to shareholders, a goal enabled by our strong balance sheet. During the first quarter, we returned a total of $92 million through our quarterly dividend and the repurchase of approximately 406,000 shares for $84 million. We ended the quarter with approximately two and a half million shares remaining under our current repurchase authorization. Let's look now at our capital structure. We remain committed to maintaining a prudent capital structure that gives us significant financial flexibility, which is especially important in uncertain economic conditions. At June 30th, 2026, our net debt to cap ratio is 51%, and our net debt to EBITDA leverage ratio is 2.1 times. We believe these levels are both prudent and supportive of our growth strategy. We ended the quarter with $234 million of cash on hand and nearly $1 billion of total committed liquidity.

Importantly, we have no significant near-term debt maturities, positioning us well to continue investing in the businesses while returning cash to our shareholders and maintaining a strong and flexible balance sheet. Thank you for joining today's call. Chuck will now open the line for questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. Our first question for today will come from Trey Grooms with Stephens. Please go ahead. Hey, good morning, Craig and Michael.

Great work in the quarter. Congrats on that. Wanted to touch on wallboard volume. It held in really well, especially given the tough comps and you saw the strong industry numbers as well. Just curious to maybe get your thoughts on what's going on there. The starts data has just kind of been bouncing around. It's still pretty subdued levels and wallboard seemed to really outperform in this most recent data and in your results. Just curious your take on the relative strength there.

Yeah, Trey, we talked a lot about where housing is today and has been now for quite some time. What I would typically look at, is trough level activities. Again, with interest rates being a little bit higher over the last period of time, that's kept the activity level a little lower, but there's still good demand, and we're still structurally short supply of homes in the U.S. There's a balance there. The activity levels are hanging in there, as you say, better than anticipated. That's just given the environment and the low construction activity we've been at for many, many years now.

Yep. Okay. I didn't know if there was anything unique going on in the quarter, but it doesn't sound like that's the case. You mentioned on cement, kind of better net pricing realization maybe over the medium term, which kind of brings up the question around maybe the Canadian tariffs on cement. I'd love to get your take on any potential impacts that this could have in your markets. Maybe any impact to supply or potential pricing in any of maybe your more Midwest markets.

Yeah. When you look at that, Trey, in particular, you got to take a step back and look at the U.S. as a whole first, and then kind of drill into where those impacts would happen. We are pretty balanced on cement supply-demand dynamics across the U.S., and you can see the volume movements that we've had this past quarter to kind of reflect that with it. Any kind of pressure on that will have kind of a little bit of a waterfalling effect with it. We don't participate as much in the Northeast section, where most of that cement comes in. However, there probably would be a waterfall type impact to that. Any tightening of the supply chain, it's already tight today with the supply-demand dynamics. Any tightening of that would be beneficial for a pricing environment or for a supply-demand environment.

Yep. Okay. That makes sense. Thanks for that. Last one for me. This one's looking out a bit, a little bit higher level. You guys continue to put up nice cash generation. You continue to buy back stock. Your capital projects are going well, and they're going to be winding down, I guess, in the next 12 months or so, just roughly. Presumably, we would be in a better kind of demand environment at that point. With the lower cost operations that you're going to have within those plants, it seems like you'd be in a position of very strong free cash flow generation, especially once we get past these capital projects. My question on that is longer term thinking on, are there other internal projects that you see where there's opportunities?

It seems like it's a continuous kind of effort from you guys that you've seen over the last several decades. Any additional internal projects worth noting, thoughts on how you would approach the stock buyback, M&A, et cetera? Because you're going to have a lot of cash flow generation once these projects are behind you.

Yeah. Trey, when we look at it, we look at all of our operations continuously. Each of our operations, we do a set strategy for and look at where they reside, what the health of that facility is, what the investments of that facility need to be, and plan those out over multi years with it. The main thing on the growth side with that, with the unique projects we have with regards to Mountain and Duke, still revolve around the permitting aspect of a lot of those facilities. It is very difficult to get a permit just to even expand a facility. That's where, like I said, we continue to look at everything that would make sense to improve, but it still resides back down to a long permitting process, if we could even get that permit, and then what those investments are with it.

On the M&A front, we've always continuously looked at M&A. We are value buyers in a lot of ways, so we will look at M&A with our financial criteria that makes sense for us. The price really determines what we'll do on the M&A front and where it's located, and it fits into our strategic footprint with it. We look at a lot of transactions every year. We will continue to look at a lot of transactions. If they make sense from our financial perspectives, we will be definitely buyers. We have the financial balance sheet to do M&A transactions with it, but they have to meet those strict criteria we have. Then I'll turn it over to Craig on the share buyback side and some of the other uses of capital that we have on that side.

Trey, I think you pointed out, we positioned ourselves with a good balance sheet, good free cash flow. We can continue to balance the approach of capital allocation, whether that's good growth projects, as Michael highlighted, whether that's organic or M&A. We've been a serial acquirer of our own shares for not just the last five or 10 years, but for 20 years. We continue to see good value in the shares. It'll be a continued balanced approach to how we deploy capital.

All right. That's it for me. Thanks for all the color, guys. I'll pass it on. The next question will come from Brian Brophy with Stifel.

Please go ahead. Thanks. Good morning, everybody.

Appreciate you taking the question. It looks like cement volumes were a little bit stronger than some of the other peers that have reported. Just any color that you're seeing on what's driving this and where the sources of strength have been. Thanks. It was pretty broad-based across our markets, Brian.

Look, it's consistent with what we've been talking about in terms of the primary driver for demand in the U.S. for cement is public infrastructure. We have very supportive federal spending levels. State levels continue to be very supportive, so strength there. The private non-residential construction activity, especially around data centers and the activities that follow along with that, continue to be strong, probably in the early innings of some of that activity. We've been very happy with our footprint, and our footprint continues to perform very well.

Yeah, that's helpful. Then just as a follow-up to that, are there any notable differences in cement pricing that you're seeing across your footprint? I'm particularly curious as to what you're seeing in Texas at the moment. Thanks. Cement is a very regional business.

The shipping radius is pretty limited. You will see different regions have different dynamics, whether that's demand-oriented or supply-oriented. We had definitely some markets where we were able to move pricing in the springtime, if you will, here in the early summer, then other markets weren't conducive to that. It's really market by market is how we manage the business.

Appreciate it. I'll pass it on.

The next question will come from Anthony Pettinari with Citi. Please go ahead. Good morning.

Your net cement sales price was down 2%. If I look at last year at fiscal 1Q, they were also, I guess, flat year-over-year. We're kind of on two years of maybe flat to down prices. I'm just wondering from a big picture, if you could give any context in terms of what you think is sort of driving the sort of flat-ish pricing in the face of rising costs. Is it really just come down to the housing market? Are there changes to import dynamics? Are there really strong regional changes? I'm just wondering, kind of stepping back, how you'd characterize the last year and a half in terms of pricing and what's driving that.

Yeah, Anthony. Good identification. I would say it's two separate issues. If you go back to a year ago with pricing being flat-ish, recall that we were coming off of two consecutive years with nationally cement consumption being down in the U.S. Much tougher environment to get a price increase. That's a year ago. Now we've continued to see improvements in volume over the last 12 months. That's why we bifurcated in the earnings release, gross prices versus net. The second issue, which is this year's issue, we actually did have some markets that saw a gross price increase, with elevated freight costs, that more than offset those price increases. That's why we tried to separate the two. We did see some gross price improvement, on a net basis, net of freight, they were down slightly.

Okay. That's very helpful. That spread, that $3 a ton, gross up 1%, net down 2%. Any kind of view on how that would be trending in July or thinking about fiscal 2Q, understanding it's just a very volatile situation on fuel and freight?

Yeah. Look, I think probably a little early to call. I mean, a lot of geopolitical issues across the globe right now that is really driving a lot of that. Certainly, oil still being elevated, diesel being elevated, that's driving some of that. We've also seen underlying freight rates go up. I don't want to say it was all diesel-oriented, which in some ways is a good thing that the truckers are busy. A little early to try to speculate if and when that comes down.

Okay. Understood. I'll turn it over.

The next question will come from Timna Tanners with Wells Fargo. Please go ahead. Yeah. Hey, good morning.

I wanted to approach the question a little differently perhaps, if I could, for some color on any market color from your wallboard price hike you mentioned, and you mentioned it was abnormal. How is that being received to the extent you can talk about that? Similarly, what's the latest on cement price increases as well? Thanks. Thanks, Timna. We did have a price increase that went through late in the quarter, in June.

We pushed it through given the elevated freight environment that we've experienced for the last five or six months. You see it in our numbers, the freight moved meaningfully. So we did push through a price increase in June. Michael highlighted in his comments that, not typical in this demand environment, but given freight rate increases, it was necessary. wallboard price increases were largely in the April timeframe. As I mentioned earlier, we did see increases across a couple of our markets. There was some offset with higher freight costs. Too early to speculate the next round of increases at this point.

I appreciate it. I know there was a question about Canadian tariffs, but I guess it's also appropriate to ask about any thoughts on Section 301 tariffs and the chatter around those.

Look, longer term, Michael highlighted this, the U.S. cement industry is structurally undersupplied. We haven't built a new cement plant in the U.S. for pushing 20 years, if not more than that. Modernizing and expanding existing facilities continues to be very difficult. Given that, we have more demand than we do supply, so we require imports to meet that demand need. Trying to get a read on or guess where tariffs may go and what their exact input is hard to guess at this point. Those things can be changed. We've seen that over the last 18-24 months. We're not all that fixated on that. Long term, we continue to see an opportunity to push pricing and therefore margin expansion, especially with the Mountain Cement expansion coming online over the next year or so.

Fair enough. If I could sneak in a last one, kind of also asking for your thoughts on maybe things that are tough to speculate on, but on the state budget side, some preliminary numbers have come in. Any thoughts about those, as they seem to be trending down in some regions? Any thoughts about your experience with state budgets or the outlook for 2027?

Yeah. Look, I don't know that. You have some states that have actually passed higher budgets. You have an example here recently with Oklahoma having had a very significant increase, I think more than double the miles and more than double the funding levels. We've seen in our markets continued very healthy state budgets.

Okay. Thanks again. The next question will come from Adam Thalhimer with Thompson Davis.

Please go ahead. Hey, good morning, guys.

Good morning. Craig, I don't know if you mentioned this, where was wallboard pricing at the end of the June quarter?

Yeah. We pretty much exited at the same level as the average for the quarter.

Okay. Do you have any cement price increases announced for fiscal Q2?

No, all of our increases were for April. We have not announced anything yet beyond that.

Lastly, on data centers, how many of your cement plants do you feel like are well-positioned for that?

It is across our network, Adam. We bid double the number of data centers in the first half of calendar 2026 versus what we bid on in the first half of calendar 2025. Some markets a little more or some a little less, but we're seeing it pretty broadly across our footprint.

Can you just unpack the mechanics there a little bit? I would figure it would be your ready-mix customers who are bidding on that and then they come back to you, or how does that work?

Yeah. Depending upon the job. Yeah, it's kind of like a highway job where it's going to be a multi-year engagement. It's a little more than just your day-to-day activity. You'll be looking at those projects specifically.

Yeah. Essentially, you- Yeah, when you look at it, that has a couple different things depending on where you are in the country.

When you look at it is like a highway job. If you have soil stabilization, then we work with soil stabilization groups. If you have tilt up, then you have tilt up. The foundation side, you work with ready-mix. It's a broad mix of who we work with. The consumption trends for the soil stabilization in some of these is very beneficial for us, and very high demand. We're seeing it from multiple aspects of end users.

Wow, okay. All right, I'll turn it over. Thanks, guys. The next question will come from Garrett Greenblatt with JPMorgan.

Please go ahead. Hey, thanks for taking my question.

Just a quick follow-up on the wallboard pricing. As you saw in 2Q, I think you got price increases as of June 1st. How did pricing trend as we moved through the quarter month by month? On the cost side of wallboard, it looks like there was much more pressure in 1Q as opposed to 4Q. In terms of those cost pressures on a go-forward basis, how should we think about those impacts? Last one on the recent announcement from the administration on the coal industry investments in that increase in production in coal. How do we think about the long-term impact of those investments on the cost dynamics between synthetic versus natural gypsum? Thank you. I'll try to address all your questions as best that I can.

In wallboard, we generally don't talk month by month in terms of pricing. I mentioned earlier that we exited the quarter at the end of June around the quarterly average. We also pointed out there, a lot of the sequential change on the net basis was driven by freight. Freight was up $5 a thousand, as you'll see when we file the 10-Q. That had the most meaningful impact, if you will, for the entire quarter and really drove the majority of the change in net pricing in wallboard this quarter, at least on a sequential basis. On your last question, we've not seen any significant change in synthetic gypsum availability.

The freight cost issues that are being seen across the country, we no doubt have seen as you've had to move synthetic gypsum further and further around the country in order to satisfy some of these wallboard plants. I don't see that changing dramatically. I think you were asking about cement first quarter costs. This is our quarter when we do the vast majority of our maintenance programs across our cement footprint. The June quarter always has an elevated operating cost because of those annual outages that happen in April and May. That abates into September and the December quarter.

This will conclude our question and answer session. I would like to turn the conference back over to Mr. Michael Haack for any closing remarks. Please go ahead, sir. Thanks, Chuck.

In closing, I want to acknowledge the efforts and focus of the whole Eagle team during this extended period of changing macroeconomic conditions. It's their focus and commitment that enables us to execute our strategy and deliver results for our shareholders through cycles and over the long term. Thanks for joining our call today, and I look forward to updating you next quarter.

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