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Eagle Materials Ends Its Fiscal 2019 on a Sour Note

By Matthew DiLallo - May 16, 2019 at 2:35PM

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The diversified materials company wrote down the value of its oil and gas proppants business.

Eagle Materials (EXP -3.46%) continued to face several headwinds in its fiscal fourth quarter, which negatively affected results. For starters, the company battled persistently wet weather, which weighed on demand for the heavy materials it produces. On top of that, volatility in the oil market and a shift in how oil companies obtain sand for fracking new wells hurt its oil and gas proppant business. On a more positive note, the company does see continued positives in the construction materials market, which should drive better results through the rest of this calendar year. 

Eagle Materials results: The raw numbers

Metric

Fiscal Q4 2019

Fiscal Q4 2018

Year-Over-Year Change

Revenue

$284.7 million

$284.4 million

0%

Net earnings

($127.8 million)

$37 million

N/A

Earnings per share

($2.82)

$0.76

N/A

Data source: Eagle Materials.

What happened with Eagle Materials this quarter? 

Wet weather and a writedown affected the quarter:

  • Revenue from the company's heavy materials segment declined by 3% from the year-ago period to $138.9 million, while operating earnings fell 9% to $24.9 million. Cement sales declined 2% while operating earnings fell 8% due to persistently wet weather across many of its markets, which weighed on volumes. Concrete and aggregate revenue, meanwhile, slumped 7% while operating earnings declined 20% due to heavy rainfall, which affected Eagle's ability to move product during the quarter.
  • Sales within the light materials sector, which includes gypsum wallboard and paperboard products, jumped 13% to $154.4 million while operating earnings improved by 10%. The company benefited from a 22% surge in volumes, which more than offset a lower net sales price.
  • Revenue from the oil and gas proppants segment plummeted 43% to $17.7 million because of a 41% decrease in average frack sand prices.
  • Continued weakness in the oil and gas proppants market caused Eagle Materials to record two impairment charges for that business during the quarter, totaling $168 million or $3.58 per share. If we adjust for these charges, the company would have reported $0.87 per share of earnings, implying a nearly 15% year-over-year increase due to stronger profitability in the light materials business.
  • For the full year of fiscal 2019, Eagle Materials hauled in $1.4 billion of revenue, which was flat with fiscal 2018. Meanwhile, net earnings fell 72% to $1.47 per share as a result of the writedown in the oil and gas proppants business. Adjusted earnings, on the other hand, came in at $5.05 per share, a 4% decline from fiscal 2018.
A worker pouring a cement slab.

Image source: Getty Images.

What management had to say 

CEO Dave Powers commented on the company's results:

In fiscal 2019, our businesses continued to generate strong earnings and cashflow, despite challenging weather trends that depressed sales opportunities throughout much of our fiscal year. Importantly, we continued to improve our already low-cost position throughout the year, making meaningful investments to further improve our operational efficiency, while continuing to repurchase shares in line with our capital allocation strategy. In fiscal 2019, we purchased more than 3.3 million shares, or 7% of our outstanding shares, and we returned nearly $300 million to shareholders, through a combination of share repurchases and dividends.

As Powers pointed out, Eagle Materials delivered solid results overall despite persistent issues with the weather and in the oil and gas market. One of the highlights was cash flow, which the company is increasingly returning to shareholders through the dividend as well as a meaningful repurchase program.

Looking forward 

Powers also stated, "Looking ahead, a strong jobs market, coupled with real wage growth and low interest rates, bodes well for our key construction markets in calendar 2019. We are confident that we will continue to produce industry-leading margins and generate significant cash flow, and our ongoing strategic portfolio review will ensure that Eagle's inherent value is appropriately reflected in the marketplace." As Powers pointed out, Eagle Materials launched a strategic review of its portfolio in mid-April. The company plans to carefully consider a range of options to enhance shareholder value, including the potential of separating businesses. The company also intends to return more cash to investors via an expanded stock buyback program of up to 10 million additional shares. 

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Stocks Mentioned

Eagle Materials Inc. Stock Quote
Eagle Materials Inc.
EXP
$121.85 (-3.46%) $-4.37

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