Eagle Materials (NYSE:EXP) delivered record fiscal third-quarter results thanks to its most recent acquisition and strong demand for most of its construction-related materials. In addition, the company recorded a significant tax benefit during the quarter relating to the enactment of the Tax Cuts and Jobs Act at the end of the quarter. Earnings therefore appeared to grow much faster than they really did, though it was still an excellent quarter for the construction material maker. 

Eagle Materials results: The raw numbers

Metric

Fiscal Q3 2018

Fiscal Q3 2017

Year-Over-Year Change

Revenue

$359.4 million

$302.4 million

18.8%

Net earnings

$101.4 million

$56.4 million

79.8%

EPS

$2.08

$1.17

77.8%

Data source: Eagle Materials Inc. EPS=earnings per share. 

A person mixing cement with a shovel.

Image source: Getty Images.

What happened with Eagle Materials this quarter? 

Demand was healthy across all its business segments:

  • Cement revenue rose 17% from the year-ago period to $161.6 million, in part because of last year's acquisition of the Fairborn, Ohio, plant from Cemex (NYSE:CX). That purchase drove a 6% increase in the net sales price and a 12% increase in sales volume, which combined to grow earnings to a quarterly record of $52.5 million, up 16% from the last year's fiscal third quarter. It's worth noting, however, that without this addition, cement sales prices would have increased only 4% while sales volumes would have declined 2%.
  • Concrete and aggregate sales slipped 5% to $38.5 million while operating earnings slumped 26% to $3.4 million. Lower sales volumes resulting from wet weather in Austin, Texas, late in the quarter more than offset record quarterly pricing.
  • Revenue from the gypsum wallboard and paperboard segment leaped 11% to $162.6 million. While gypsum wallboard prices slipped 1%, sales volume hit a record 709 million square feet, up 10% year over year. Meanwhile, paperboard sales volume and pricing rose 7% and 11%, respectively, versus the year-ago period.
  • Higher oil prices drove a rebound in drilling activities in the U.S., which helped fuel a remarkable 208% revenue increase from Eagle's oil and gas proppants segment to $21.9 million. However, this business unit did report a $1 million loss, mainly because of $5.8 million in depreciation, depletion, and amortization expenses.
  • While reported earnings soared 78%, that's mainly because the company recorded a $61 million, or $1.25 per share, tax benefit resulting from the enactment of a lower U.S. corporate tax rate. That more than offset a $39 million charge relating to the settlement of its class action wallboard antitrust litigation. Adjusted for those one-time items, gross profit would have been up 8% year over year, because of the acquisition of the Fairborn plant and improved sales prices across most of its business.

What management had to say 

CEO Dave Powers commented on the company's results on its quarterly conference call:

Let me begin by simply saying that Eagle Materials had a strong fiscal third quarter from an operating standpoint and an exceptional quarter from an earnings standpoint. Our operations exceeded my expectations in capturing the market opportunities available to them over the quarter. Beyond this record operating contribution, the company is already benefiting from tax reform. And we can expect this tax reform will enable us to more fully invest in our people and our operations over the years to come. We were also able to put the wallboard antitrust class action lawsuits behind us with agreements to settle all direct and indirect purchaser claims, and this did reduce the magnitude of our record earnings. Well, we did nothing wrong. We made the business decision to put the litigation risk, the expense and the distraction behind us. 

As Powers notes, while the impact of the new tax law and an antitrust settlement affected earnings, the company still delivered strong underlying operating and financial performance, with its results exceeding his expectations. 

Looking forward 

Powers expects this strong performance to continue given his current outlook, which he also provided on the call: 

We believe we have better-than-average visibility on the prospects for our business over the next two years. And these prospects are very good indeed. We feel it would take a lot to derail the train right now, but the biggest risk being more geopolitical uncertainty than economic uncertainty. Eagle's strategy has been to remain exclusively a U.S. company, and U.S. construction markets are a great place to be looking forward, especially for our businesses.

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool recommends Eagle Materials. The Motley Fool has a disclosure policy.