Can Texas Industries' Earnings Ride the New Housing Boom?

Texas Industries (NYSE: TXI) will release its quarterly report on Wednesday, and investors expect the producer of construction aggregates will eke out a small profit for the August quarter. But in the long run, Texas Industries' earnings could depend on whether the recent boom in housing translates to lasting strength in nonresidential construction activity.

Texas Industries doesn't build homes and other buildings, but it provides the cement, gravel, sand, and other heavy construction materials that builders use in their projects. As a result, Texas Industries and its peers do best when building activity is at full capacity, strengthening demand and keeping prices high. Recently, though, Martin Marietta Materials (MLM 1.28%) and Vulcan Materials (VMC 0.79%) have seen share-price declines similar to those hitting Texas Industries as higher interest rates raise fears of slowdowns in both the housing market and commercial construction. Let's take an early look at what's been happening with Texas Industries over the past quarter and what we're likely to see in its report.

Stats on Texas Industries

Source: Yahoo! Finance.

Can Texas Industries earnings build higher this quarter?
Analysts have scaled back on their expectations on Texas Industries earnings in recent months. They've cut their estimates for the quarter that ended in August by a penny per share, and they've gone from expecting a $0.13 per share profit for the 2014 fiscal year to projecting a $0.09 per share loss. That's consistent with revisions we've seen at Martin Marietta Materials and Vulcan Materials. Texas Industries stock has largely treaded water, falling about 2% since late June.

Despite gloomy expectations, Texas Industries actually surprised investors positively last quarter. Even though the company saw net income drop by more than 25%, a revenue increase of 35% helped power much better results than investors had thought to see. In particular, Texas Industries' cement segment benefited from both higher volume and stronger pricing conditions, helping to boost its sales gains to 29%. That's consistent with the experience of CEMEX (NYSE: CX) investors, as the Mexican cement giant has prospered recently from higher U.S. sales of cement in light of better housing conditions.

Yet even with those strong results, Texas Industries faces a tough industry environment. In Martin Marietta's most recent quarterly results, the company cited poor results from its infrastructure business, but boosts in commercial construction and in residential building helped to offset some of those sales drops. Vulcan Materials, meanwhile, was able to show solid growth as demand for aggregates allowed it to raise prices on customers. With Texas Industries relying largely on its core Texas and California markets, competition from these two larger rivals is a constant consideration for its corporate leadership.

Overhanging all three companies, moreover, is substantial debt that leaves them vulnerable to higher interest rates. Vulcan sold off rights to future aggregates production for immediate cash last year, in part to help improve its balance sheet, but further efforts might prove necessary to get debt where the company would like. For Texas Industries, cutting costs is essential to allow it to divert more of its cash flow toward cutting debt levels.

In the Texas Industries earnings report, watch to see how the company positions itself against both cement rival CEMEX and aggregates competitors Vulcan and Martin Marietta. As a smaller business, Texas Industries needs to be nimble enough to capitalize on opportunities its larger peers can't.

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