An Acquisition Helps Eagle Materials, Inc. Cement a Record Year

Eagle Materials (EXP -0.47%) put the wraps on its fiscal fourth quarter, which cemented a record-setting year for the company. Full-year revenue rose 6% to a best-ever $1.2 billion, fueling a 34% increase in earnings per share to $4.10. That earnings record came despite some extra acquisition-related costs in the last quarter relating to its acquisition of the Fairborn cement plant from Cemex (CX).

Eagle Materials results: The raw numbers

Data source: Eagle Materials Inc.

Image source: Getty Images.

What happened with Eagle Materials this quarter?

The Cemex deal helped and hurt this quarter:

• Cement revenues jumped 17% during the quarter to $116.7 million while operating earnings leaped 19% to $25.9 million thanks to an 11% increase in volumes and a 6% improvement in pricing. The Cemex deal played a significant role in those results since volumes and sales prices would have only increased 5% if not for the incremental impact from the Fairborn plant.
• Concrete and aggregate revenue surged 28% to $39.5 million while operating profit clocked in at $5 million, up 99% versus the year-ago period thanks to record quarterly volumes and prices.
• Gypsum wallboard and paperboard sales slipped 2% to $138.3 million due to lower volumes, which the company only partially offset by higher prices. Because of this and higher operating expenses due to an increase in recycled paper fiber costs during the quarter, operating earnings slumped 13% to $44.5 million.
• The oil and gas proppants segment recovered sharply during the quarter thanks to higher oil and gas drilling activities. Eagle Materials' revenue in this category spiked 98% to $15.8 million due to a 144% improvement in volumes. However, the segment still reported an operating loss of $2.9 million.
• Despite robust revenue growth, net income slipped due to a couple of one-time items relating to the Cemex deal. First, the company recorded $4.4 million, or $0.06 per share, in acquisition-related expenses and $5 million, or $0.07 per share, in annual maintenance costs and the impact of purchase accounting on inventory. Without those extra expenses, earnings would have increased 10% versus the prior year.

What management had to say

On the company's fiscal fourth-quarter conference call, CEO Dave Powers ran through the highlight reel on each of the company's three business segments. He started with cement, by pointing out:

Eagle implemented price increases in many of our cement markets in January and the remainder of our cement markets in April. In February, we were successful in acquiring the Fairborn, Ohio cement plant which was strategically targeted in keeping with the positive long term outlook, the plant's fit with our cement system, and our criteria for new investment. 

As Powers stated, the combination of price increases and the acquisition of the Fairborn plant drove the cement segment's record performance during the quarter. Both initiatives also position the company to deliver stronger results in fiscal year 2018. 

He continued, noting that the wallboard and paperboard segment "achieved partial success in implementing our announced wallboard price increase and our average mill net improved 4%." Meanwhile, Powers pointed out that the cost issues impacting the quarter have started abating and that the company can push those expenses off to customers in future quarters via price adjustments.

Finally, Powers turned to frack sand, and noted:

The third leg of our business is frac sand and the future outlook for this business looks bright. This is a newer business for us and we've said we would hibernate the business at the bottom of the energy cycle, essentially running at a cash flow breakeven or better until conditions justify greater participation. That time is getting closer. Sales opportunities continue to improve. We've seen price improvement from the lows last fall and we expect these trends to continue with higher profit utilization intensity per well pressing supply.

Looking forward

While fiscal year 2017 was a record-setting year for Eagle Materials, the company expects fiscal year 2018 to be even better. Powers was unabashedly bullish on the company's prospects, saying:

One of those remarkable moments in the cyclical industry, that I can say with all candor, that we're benefiting from net tailwinds across all of our business lines and that we expect these tailwinds to continue this fiscal year. We're benefiting from a U.S. economic cycle that's now in an expansionary phase as it relates to our businesses...This supports our outlook for growth across construction markets in new housing, remodeling and in commercial, nonresidential and infrastructure construction. The implication of these positive factors in our businesses is evidenced in our business results and our actions.