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Texas Industries (TXI)

Q1 2014 Earnings Call

October 03, 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

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

Analysts

Wenjun Xu - 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

Glenn Wortman - Sidoti & Company, LLC

Christopher David Olin - Cleveland Research Company

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

Tim Robinson - Susquehanna Financial Group, LLLP, Research Division

Wayne Pinsent

Michael Betts - Jefferies LLC, Research Division

Matthew Dodson

Presentation

Operator

Good morning, ladies and gentlemen, and thank you for standing by, and welcome to the Texas Industries First Quarter Results Conference Call. [Operator Instructions] And as a reminder, this call is being recorded today, October 3, 2013. I would now like to turn the call over to Les Vines, Treasurer. Please go ahead, sir.

Thomas Lesley Vines

Thank you, Craig. Good morning, everyone, and thank you for joining us for our first quarter conference call and webcast. We certainly appreciate your time and interest in TXI. On the call with me today are President and CEO, Mel Brekhus; and CFO, Ken Allen. Our Chief Operating Officer, Jamie Rogers, is traveling today and is unable to participate in the call. We will follow the same format as in previous calls, with management providing comments for the quarter, and then followed with your Q&A. [Operator Instructions]

Before I turn things over to Mel, 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 a broad range of risks, uncertainties and other factors, which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. I refer you to our reports on Forms 10-K, 10-Q and 8-K for a more thorough discussion of some of the risks and uncertainties.

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

Melvin G. Brekhus

All right, thank you, Les. Good morning, everyone. On track. I think those 2 words reflect my assessment of where we are currently. All of our markets are continuing to improve, and we continue to make progress as we expected because of this growing demand that is continuing.

The results for the quarter are certainly consistent with this view. EBITDA increased $23.3 million on $58.6 million higher net sales, reflecting a doubling of our EBITDA as a percentage of net sales compared to a year ago. Gross margins improved for each segment, with a 7% improvement at ready-mix margins being the clear leader. Demand in all of our markets continues to improve for all of our products. Texas is clearly our strongest market, as we posted strong double-digit improvement in Texas shipments of all of our products compared to a year ago. In August, Texas posted its 17th consecutive month of cement volume growth, and TXI was the largest producer of cement in Texas for the fifth straight month.

The fact that, in Texas, our monthly shipments in 2 out of the last 4 months have been the highest shipments for that month in the last 10 years further illustrates the strength of our primary market and our improving position within that market. As we indicated in July, we are accelerating the work required to resume production from our original 900,000-ton kiln in Central Texas to help with this improving demand. We intend to complete the work and resume production in early 2014. The South and Central Texas markets need these additional tons,, and the additional tons will be a good complement to the new kiln, which, by the way, continues to exceed my expectations, given we are only 5 months removed from the completion of its commissioning.

Earlier, I referred to significantly improved margins in ready-mix. While we have realized improvements in all of our ready-mix operations, the operations we acquired in the prior year are a significant reason for the dramatic increase. Results from these operations have exceeded our expectation thus far.

Turning to pricing. While there has been improvement, pricing still remains well below levels seen prior to the recession and thus, I believe there is significant room for improvement. I think this is particularly true given the changing cost environment, especially in California. I also believe that, while modest, the price improvement we are realizing is somewhat masked by the fact that we are shipping at pricing levels we committed to prior to and in anticipation of the new cement capacity we brought online. Once all of our capacity is online for a while, I expect we'll experience a more positive trend in cement pricing.

Finally, I'm encouraged by the improvement we see in all of our markets, including California. Our focus continues to be on operating our assets as efficiently as possible and doing everything we can to accelerate our full earnings potential.

With that, I'll turn it over to Ken for his comments.

Kenneth R. Allen

Thank you, Mel, and good morning. The quarter's financial results clearly show both the impact of improved construction activity in our markets and also our success in becoming a more focused and leaner company. Total revenue from continuing operations was up 34% for the quarter. When revenues from the ready-mix operations that were acquired last spring are excluded, consolidated sales were up 17%. The improved sales occurred despite wetter-than-normal weather during the June and July periods in Texas. At least as significant, the consolidated EBITDA margin on reported net sales doubled from 8% last year to 16% this year. This reflects the positive impact of increasing volumes on cement unit cash costs, and also reflects our successful efforts in prior years to become leaner and more efficient.

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