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Texas Industries (TXI)

Q3 2013 Earnings Call

March 28, 2013 11:00 am ET

Executives

Thomas Lesley Vines - Chief Accounting Officer, Vice President, Treasurer and Corporate Controller

Melvin G. Brekhus - Chief Executive Officer, President and Director

James B. Rogers - Chief Operating Officer and Vice President

Kenneth R. Allen - Chief Financial Officer and Vice President of Finance

Analysts

Ted Grace - Susquehanna Financial Group, LLLP, Research Division

Kathryn I. Thompson - Thompson Research Group, LLC

John F. Kasprzak - BB&T Capital Markets, Research Division

Garik S. Shmois - Longbow Research LLC

L. Todd Vencil - Sterne Agee & Leach Inc., Research Division

Kevin Money

Michael Betts - Jefferies & Company, Inc., Research Division

Glenn Wortman - Sidoti & Company, LLC

James Barrett - CL King & Associates, Inc., Research Division

Taryn Kuida - D.A. Davidson & Co., Research Division

Presentation

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the TXI Third Quarter Conference Call. [Operator Instructions]

I would now like to turn the conference over to Mr. Les Vines. Please go ahead, sir.

Thomas Lesley Vines

Thank you, Bruno, and good morning, everybody. Thank you again for joining us for our third quarter conference call and webcast. We certainly appreciate your time and interest. On the call with me today are President and CEO, Mel Brekhus; CFO, Ken Allen; and Chief Operating Officer, Jamie Rogers. We will follow the same format as in previous calls, with management providing comments for the quarter and then follow with your Q&A. [Operator Instructions]

Before turning things over to Mel, I'd like to remind you that we are hosting an Investor Day on April 18 in Austin. I think today is the RSVP date, in case you haven't already let us know of your intent to attend. And if you have any questions about the event, you can contact Linda English. Her number is (972) 647-6732.

Also, I need to remind you that certain statements contained in this conference call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements speak only as of the date hereof, and we assume no obligation to publicly update such statements. Such statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements.

Potential risks and uncertainties include, but are not limited to, the impact of competitive pressures and changing economic and financial conditions on our business; the cyclical and seasonal nature of our business; the level of construction activity in our markets; abnormal periods of inclement weather; unexpected periods of equipment downtime; unexpected operational difficulties; changes in the cost of raw materials, fuel and energy; changes in interest rates; the timing and amount of federal, state and local funding for infrastructure; delays in announced capacity expansions; ongoing volatility and uncertainty in the capital or credit markets; the impact of environmental laws, regulations and claims and changes in governmental and public policy; and the risks and uncertainties described in our reports on Forms 10-K, 10-Q and 8-K.

And with that, I'll turn it over to you, Mel.

Melvin G. Brekhus

Okay. Thanks, Les, and good morning, everyone. There are 3 things that I want to make sure you take away from the call today. They are: number one, all of our markets are improving; number two, all of our markets still have a lot of upside before getting back to their historic averages and peaks; and number three, we are positioned better than ever to take advantage of the potential in all of these markets.

I've told you before on a number of occasions that jobs are the key. A healthy employment environment spurs population growth and new home construction, creates the need for supporting infrastructure and commercial construction and helps support the means to fund the public portions of these projects. When you look at the nation's top job growth markets in the United States, 3 of the top 9 metropolitan markets are in our Texas wheelhouse: Houston, Dallas-Fort Worth and Austin. We're #1, 3 and 9 in 2012. But it's just not our Texas markets that are creating jobs. Los Angeles, San Francisco, San Jose and San Diego were numbers 2, 5, 13 and 15, respectively.

Large markets with strong job growth drive a lot of construction activity, and we're in the best markets with this -- in this regard. Nationally, housing starts jumped to a 4-year high late in 2012, and both Texas and California were up approximately 30% compared to 2011. The average forecasted national housing starts for 2013 is 1 million starts, a far cry from the 1.5 million annual average starts going all the way back to 1959. This is why I believe there is a lot more upside to come.

Going back to 2008, we have significantly increased our ability to benefit from the improved levels of construction in our markets. Recall that we built our cement plant in California and brought it online in 2008 as the nation was heading into this severe recession. We added 1 billion tons of capacity and dramatically improved our cost profile in that market, though we have yet to fully realize the benefits.

In Texas, we have strategically realigned our assets to create a stronger vertically integrated position in our markets. We acquired a leading ready-mix profile in Austin, Texas and the surrounding area that now works in tandem with our cement and aggregate operations in that market. And last week, we closed on a transaction where we acquired 42 ready-mix plants throughout the attractive east Texas markets in exchange for our expanded shale and clay operations. These operations will be served by both of our cement plants in Texas. Finally, later this spring, we will complete the commissioning of our new cement kiln in central Texas and add 1.4 million tons of low-cap cost capacity into this strong and growing market.

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