Eagle Materials (NYSE: EXP) faced a few headwinds during its fiscal first quarter that negatively impacted its results. Not only did challenging weather conditions dampen cement demand, but it also experienced a shift in customer buying activity due to the timing of a price increase. Despite those issues, the company's outlook for the balance of the year remains positive.
Eagle Materials results: The raw numbers
|Metric||Fiscal Q1 2020||Fiscal Q1 2019||Change|
|Revenue||$370.6 million||$393.8 million||(5.9%)|
|Net earnings||$41.3 million||$66.4 million||(37.8%)|
|Earnings per share||$0.94||$1.38||(31.9%)|
Data source: Eagle Materials.
What happened with Eagle Materials this quarter?
The weather, as well as several other issues, weighed on Eagle Materials' results.
- Revenue from the heavy materials sector segment rose 3% from 2019's fiscal first quarter to $234.7 million. While cement revenue increased by 5% to $195.3 million, concrete and aggregate sales declined 3% to $39.4 million. Operating earnings, meanwhile, fell 3% in cement and 19% in concrete and aggregates. That's because of significant weather issues during the quarter, which hampered the company's ability to move product. Eagle Materials also experienced higher fixed and freight costs that negatively impacted profitability.
- Revenue from the light materials sector, which includes gypsum wallboard and paperboard products, fell 10% to $152.4 million. That's mainly because of lower wallboard volumes and net sales price. The company believes this issue is due to a shift last year in the timing of pre-buying ahead of its price increase last July.
- The company's oil and gas proppants segment continues to struggle. Renewed oil price volatility in the quarter led drillers to keep a firm lid on spending. As a result, Eagle's proppant revenue plunged 45% to $15.2 million due to a 45% slump in prices, which it only partially offset by an 11% improvement in volumes.
- Another factor negatively impacting earnings were some one-time costs associated with the planned separation of its businesses and the retirement of its former CEO. Those items reduced earnings by $8.4 million, or $0.19 per share. Adjusting for these charges, and net earnings would have been $1.13 per share for Eagle Material's fiscal first quarter of 2020.
Image source: Getty Images.
What management had to say
About the quarter, new CEO Michel Haack said, "Our cement sales volume was up 3% to a record 1.6 million tons in the first quarter despite challenging weather conditions and was considerably stronger during periods when the weather was favorable. Market demand for our wallboard also remained healthy when adjusted for a shift in the timing of our price increases and related buying activity."
As Haack points out, the company battled weather issues and timing during the quarter, which weighed on its results. Flooding in the Midwest, for example, disrupted transportation routes to many of its cement markets, which caused delays and increased costs. It anticipates that some of this disruption will continue into the fall.
Despite those weather-related headwinds, Eagle Materials' "outlook for the remainder of the year continues to be positive," stated Haack. The CEO noted that "demand for our products is supported by a number of favorable market dynamics including ongoing growth in jobs and wages, high consumer confidence, and low interest rates."
Eagle Materials announced earlier in the quarter that, as a result of its strategic review, it planned to break up the company. It intends on separating its heavy and light materials businesses into two independent, publicly traded companies. The aim is to spin them off to shareholders by the first half of calendar 2020. The company is also actively pursuing alternatives for its oil and gas proppants business. In the meantime, the combined company continues to generate free cash flow, which it's using to buy back stock. It repurchased nearly 5% of its outstanding shares during the quarter, returning more than $200 million in cash after adding in the dividend.
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