Texas Industries, Inc. (TXI)
F1Q09 Earnings Call
September 25, 2008 1:00 2:00 ET
Linda English - Manager of Investor Communications
Melvin G. Brekhus - President, Chief Executive Officer, Director
Kenneth R. Allen - Chief Financial Officer, Vice President - Finance
Christopher Manuel - KeyBanc Capital Markets
Derrick [Schmoist] – Longbow Research
Trey Grooms - Stephens, Inc.
[Glenn Wartman] - Sidoti & Company
Todd Vencil - Davenport & Company LLC
Katherine Thompson - Avondale Partners
Nitin Dahiya – Lehman Brothers
Meryl Witmer - Eagle Capital
[Mike Detz] - J.P. Morgan
Michael Terwilliger - Bank of America Securities
Louis Sarkes - Chesapeake Partners
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. F4Q08 (Qtr End 05/31/08) Earnings Call Transcript
I’m Linda English, Manager of Investor Communications, and I have the privilege of introducing our senior management team today: President and CEO Mel Brekhus, Vice President - Finance and CFO Ken Allen. We will follow a similar format as in previous teleconferences. Mel and Ken will first provide comments for the quarter and follow with Q&A.
Before we begin, I’d just like to remind you that certain statements contained in this call 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 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 down time, changes in the cost 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 10Q, 10K and 8K.
And now for opening comments, Mel please go ahead.
Melvin G. Brekhus
We are currently experiencing a tale of two markets related to TXI’s operations. The Texas economy which is the dominant driver of TXI sales continues to grow and add jobs. Construction in the state also continues to generate a level of cement consumption that significantly exceeds cement production. We have even seen modest cement price appreciation in this state.
Construction activity in California on the other hand continues to decline. We believe demand for cement in the state is less than the capacity to make cement and that we may not have found the bottom of the cycle there. We have recently experienced a decline in realized cement prices in California as well, both as we ship cement further from the plant and as prices have in fact declined.
In Texas the expansion of our Central Texas cement plant continues to make progress with production expected to begin by late calendar 2009 or early 2010. This plant will add 1.4 million tons of new cement-producing capacity to a plant that already makes approximately 900,000 tons of cement very efficiently.
Our efforts to augment counter production from the large kiln at our North Texas cement plant continued to yield results. In fact the kiln set clinker production records during the August quarter. In order to manage clinker inventories and maximize the efficiencies inherent in the large kiln, we have decided to idle the two smaller kilns at the plant until clinker inventory levels are brought back in line.
Turning to California, we are pleased with the new plant’s capabilities but market conditions are not allowing us to operate the plant at capacity. As a result we are not achieving the financial results or efficiencies from the new plant that we expected to achieve under more normal market conditions. What we do have is a plant that should allow us to achieve world class production efficiencies when operating at full capacity. The California market is clearly a different market today but we believe the state will recover and once again become the largest cement market in the US.
It also appears that construction activity in Texas has begun to slow but we believe that the Texas economy’s much better fundamentals will allow it to weather the current economic uncertainty and volatility without such a dramatic decline in construction activity.
With regard to TXI’s other operations, aggregate pricing has continued to show an upward trend. During the quarter TXI acquired sand and gravel assets near Austin that will enhance our ability to serve that attractive long-term market. The action was essentially a redeployment of assets as proceeds from the sale of TXI’s sand and gravel assets in South Louisiana were used to finance the acquisition.
By now you’re probably aware that we have announced significant ready mix concrete price increases in the neighborhood of 25% effective for October 1. TXI is extremely efficient with regard to labor and truck utilization but raw material and transportation costs have risen significantly and price relief is needed in order to attain acceptable returns for this business.
During the quarter TXI attained $300 million in debt financing. The proceeds were used to pay off approximately $180 million in bank debt and the remainder of the net proceeds will be used to finance the Central Texas expansion. The financing is important because it places TXI in a strong position to weather current economic conditions and continue our strategic cement growth initiatives. When the general economy recovers, we plan to be in position to take full advantage of it.