Cement prices are up 15%. Builders in Texas and California are consuming considerably more cement than can be produced in their states. Nonresidential construction is just starting to perk up. So it should be a great quarter for Texas Industries (NYSE:TXI), right?
You'd think so, but it hasn't really worked out that way.
While the overall market conditions in the world of cement, aggregate, ready-mix concrete, and the like are still quite strong, Texas Industries kinda sat out this quarter.
Sales in the in the second quarter were up 13% as solid pricing for cement and ready-mix were offset by lower shipments. The lower shipments (down 5%), in turn, were a product of scheduled maintenance that took the Texas plants offline for part of the quarter. Making matters even more interesting, higher energy prices led to an incremental increase of about $14 million in operating expenses. So with production constraints on one end and higher costs on the other, it's no great wonder that earnings were down about one-third from year-ago levels.
Looking past this quarter, though, I don't think there's a reason to sour on this industry just yet. The company is still the largest producer in Texas and a considerable player in California, as well. What's more, a modernization program should increase not only capacity but efficiency, as well. And while it's true that the market will eventually come back into equilibrium, it looks like cement/aggregate/ready-mix makers still have some more good years ahead of them.
There's still plenty to like about Texas Industries -- not the least of which is the fact that it's barely covered by anyone on Wall Street. It also looks interesting relative to the cash flow it produces. Of course, you should always do your own due diligence and consider other players like Cemex (NYSE:CX), Lafarge (NYSE:LR), Florida Rock (NYSE:FRK), and CRH (NASDAQ:CRHCY) when looking at this industry.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
