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Texas Industries, Inc. (TXI)
F4Q08 Earnings Call
July 10, 2008 2:00 pm ET
Kenneth R. Allen – Vice President & Treasurer
Melvin G. Brekhus – President & Chief Executive Officer
Richard M. Fowler – Chief Financial Officer & Executive Vice President Finance
David McGregor – Longbow Research
Trey Grooms – Stephens Inc.
Jack Kasprzak – BB&T Capital Markets
Nitin Dahiya – Lehman Brothers
Todd Vencil – Davenport & Co.
Christopher Manuel – KeyBanc Capital Markets
Glenn Wortman – Sidoti & Company
Barry Vogel – Barry Vogel & Associates
Brad Lundy – Ivory Capital
Previous Statements by TXI
» Texas Industries, Inc. F1Q10 (Qtr End 08/31/09) Earnings Call Transcript
» Texas Industries, Inc. F2Q09 (Qrtr End 11/30/08) Earnings Call Transcript
» Texas Industries, Inc. F1Q09 (Qtr End 08/31/08) Earnings Call Transcript
Kenneth R. Allen
Welcome to TXI’s fourth quarter and year-end teleconference. With us today Mel Brekhus, the Chief Executive Officer of TXI, and also Dick Fowler, the Chief Financial Officer. We will follow a similar format as in previous teleconferences. Mel and Dick will first provide comments and then we will follow with a Q&A session.
But, before we begin, let me remind you that certain statements made in this teleconference are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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 level of construction activity in our markets, abnormal periods of inclement weather, unexpected periods of equipment downtime, changes in the costs of raw materials, fuel and energy, and the impact of environmental laws, regulations, and claims and risks and uncertainties described more fully in the company’s reports on SEC Forms 10-Q, 10-K and 8-K.
With that I’ll turn things over to Mel for opening comments. Mel, go ahead.
Melvin G. Brekhus
We are pleased to report that our new California plant is up and running. We now have state-of-the-art cement production at all three of our plants. As you have by now read in the earnings press release, the old plant was clearly on its last legs and is, in fact, no longer operating.
The new plant is online and has shown its ability to operate very efficiently. In fact, we have run the plant for extended periods of time and at rated levels of capacity. We now employ about 35% fewer people at the plant. Efficiency improvements in fuel and electricity consumption have been of a similar magnitude.
Employees at the plant can now focus and expend energy in the positive direction of running a world-class plant rather than keeping the old plant cobbled together. While the plant has shown its ability to operate, we did decide to have some work done on it in June in order to correct design issues regarding the clinker cooler as well as other modifications in the clinker production line.
It is extremely important to have this new plant online at this time of rising energy costs because its high efficiency places us in a much better position to compete in this environment of higher energy costs.
With regard to overall demand in California, construction activity has continued to decline, led by the fall in residential construction. Today cement consumption is near capacity in the state. You will recall that we have said many times that we expect the new plant to have an incremental EBIT benefit of about $60 million annually if market conditions remain stable.
That benefit assumed that we would be able to sell roughly the full capacity of the plant at EBIT margins of around 30%. With the softer market in California, today’s increased energy costs, and the chance of lower cement prices and production, we believe it will take us longer to reach the EBIT benefit than we originally planned.
But that focus is only on the short term. We believe California will once again become the number one cement-consuming state in the nation, and TXI is well positioned to take advantage of that very attractive market.
In Texas, cement consumption has remained at high levels even though residential building has slowed. Consumption remains above capacity in the state. Imports continue to make up the difference between demand and supply and the cost of bringing imported cement in continues to remain high.
Cement price increases announced for April of $10 per ton have partially held. Prices are up on average about $4 per ton. Recall that it takes two to three quarters for price increases to be fully realized. To offset increased electricity and fuel costs, we have announced additional price increases of $5 per ton, effective July 1, 2008, in South and Central Texas and another $5 per ton effective October 1, 2008.
You have read that we sold our South Louisiana sand and gravel operations in May. These five plants shipped approximately 3 million tons in fiscal year 2008. Our efforts to improve financial results in the Aggregate side of the business over the last two years by replenishing the capital base of the segment bore through in fiscal year 2008 as well.
Operating profit in the segment increased by $10 million compared to a year ago, excluding the one-time gains that occurred in fiscal year 2008. Our capital replenishment program has largely been completed. That program, along with the sale of the South Louisiana operations, reflects our focus of strategically improving the segment’s competitive position. Depending on the market, we expect Aggregate’s average prices to continue to improve at a mid- to high-single digit annual rate.