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Edited Transcript of EXP earnings conference call or presentation 31-Oct-19 12:30pm GMT

Q2 2020 Eagle Materials Inc Earnings Call

Dallas Nov 11, 2019 (Thomson StreetEvents) -- Edited Transcript of Eagle Materials Inc earnings conference call or presentation Thursday, October 31, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* D. Craig Kesler

Eagle Materials Inc. - Executive VP of Finance & Administration and CFO

* Michael R. Haack

Eagle Materials Inc. - CEO, President, COO & Director

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Conference Call Participants

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* Adam Robert Thalhimer

Thompson, Davis & Company, Inc., Research Division - Director of Research

* Jatin Khanna

Goldman Sachs Group Inc., Research Division - Research Analyst

* Joshua Kenneth Wilson

Raymond James & Associates, Inc., Research Division - Senior Research Associate

* Keith Brian Hughes

SunTrust Robinson Humphrey, Inc., Research Division - MD

* Kevin William Hocevar

Northcoast Research Partners, LLC - VP & Equity Research Analyst

* Philip H. Ng

Jefferies LLC, Research Division - Senior Research Analyst

* Trey Grooms

Stephens Inc., Research Division - MD

* Zane Adam Karimi

D.A. Davidson & Co., Research Division - Research Associate

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Presentation

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Operator [1]

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Good day, everyone, and welcome to Eagle Materials Second Quarter of Fiscal 2020 Earnings Conference Call. This call is being recorded. At this time, I would like to turn the call over to the Eagle's President and Chief Executive Officer, Mr. Michael Haack. Mr. Haack, please go ahead, sir.

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Michael R. Haack, Eagle Materials Inc. - CEO, President, COO & Director [2]

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Thank you. Good morning. Welcome to Eagle Materials Conference Call for the Second Fiscal Quarter of 2020. We are glad you could be with us today. Joining me today are Craig Kesler, our Chief Financial Officer; and Bob Stewart, Executive Vice President of Strategy, Corporate Development and Communications.

There will be a slide presentation made in connection with this call. To access it, please go to www.eaglematerials.com and click on the link to the webcast. While you're accessing the slides, please note that the first slide covers our cautionary disclosure regarding forward-looking statements made during the call. These statements are subject to risks and uncertainties that could cause results to differ from those discussed during the call. For further information, please refer to this disclosure, which is also included at the end of the press release.

Let me begin this morning by updating you on our announced plans to separate the heavy and light sides of our businesses into 2 independent publicly traded companies. The separation process is on track, and is still expected to be complete in the first half of calendar 2020. But there are important developments that occur between now and then, you can be assured that we will brief you in a timely manner.

After the separation, the company's Heartland cement plant system will operate as a distinct pure play. The business will be the largest U.S.-owned cement producer and will have excellent future prospects. These cement assets and their productive capacity gives this business substantial scale to stand-alone independently.

The business also owned ample raw material reserves that will supply its operations over the long term. Eagle's Light Materials business comprised of Gypsum Wallboard and Recycled Paperboard, has a long track record of superior margin performance. These financial results are driven by sustainable low-cost producer positions in the U.S. Sunbelt markets with long-lived raw material reserves. The business has uniquely distinguished itself through industry business cycles and has achieved industry-leading levels of customer satisfaction.

In short, as per our previously announced separation plan, we are creating 2 independent benchmark businesses. Businesses that new and existing investors will be able to value based from each business' distinct operational and financial results and future prospects. We also stated in our press release that we'll continue to evaluate any additional opportunities to create shareholder value that may arise prior to the completion of the separation. We remain fully committed to that intention.

To underscore this commitment about shareholder value creation, it is worth noting that during the first half of our fiscal year, we repurchased nearly 3.6 million shares or 8% of our shares outstanding and returned over $320 million to our shareholders through a combination of share repurchases and dividends, illustrating our confidence in these businesses and their prospects. We made these repurchases without jeopardizing our financial flexibility to pursue any attractive growth or improvement opportunities that may emerge. That is all prepared comments upon today regarding the separation and share repurchases, nor will we be able to answer questions about these matters at the end of the call today.

Now let me turn it to our business results for the quarter. It was a record quarter for Eagle in terms of both our top and bottom lines, and the outlook for the rest of the year remains positive.

First, the heavy side. Cement sales volumes for the quarter were a record 1.8 million tons, 14% over the prior year, and earnings were up 15%. We're operating at high levels of capacity utilization and demand outlook remains positive. We are especially encouraged by U.S. -- recent U.S. state-level approvals for infrastructure spending plans in key states across our U.S. Heartland footprint, which should further attention the supply over the years to come. Notably, these states include Illinois, and mostly recently, Wyoming.

This last quarter, we acquired a small concrete and aggregates operation complementary to our Cement footprint. While generally we tend not to taper downstream integration, this was a unique opportunity for us. We will always look favorably at these types of acquisition opportunities in geographies where our primary cement operations are located, and our criteria for growth investment both strategic and financial can be met.

We have a balanced strategy in Cement on growth and improvement. I would add, much of our strategic improvement emphasis actually supports our growth intentions. We have a track record of consistent reinvestment in our business through cycles to lower cost, create more value for our customers and realize the full earnings potential of our assets. Three of the specific ways we do this are by investing to optimize the match of our clinker capacity with our grinding capacity, ensuring that we have terminal reach to serve customers on a timely basis with volumes they need and having the cement storage capacity to ensure that our product is available when seasonal demand is greatest.

Our recent investments in the vertical mill in Sugar Creek, the expansion of our distribution network in Altoona, Iowa and the completion of our railroading project in Illinois are but a few of the most recent examples. All these investments lead to increased sales volumes and better customer support. Identifying and pursuing these improvement opportunities, opportunities that lower cost, increase saleable volumes and provide better customer support, and importantly, doing all of these safely, are the top priorities for me personally.

We are well recognized by our strong operational performance position, but I want to assure you we still have a lot of runway in front of us to achieve the earnings improvement and find the prospects here very exciting.

Turning to the light side. Results in the Gypsum Wallboard were more mixed. Volume was up 8% in the quarter to about 680 million square feet, but net sales prices declined 10%. Volumes reflect continued strength in the end-use markets, notably the housing and repair and remodeling. You see this business still on-trend for its low single-digit growth that we have been discussing, recognizing that pre-buy activity, hurricanes, and the light seldom made growth a straight line.

Our price performance simply reflects pressures in the commodity market environment. I would add that pricing has been fairly flat since June, we remain close to a 10% market share of the U.S. Wallboard market today. Residential construction drives Wallboard demand and with fundamentals here, clearly on the upswing, we look forward to coming -- the coming year with a degree of optimism.

We're also currently enjoying an operating cost tailwind in Wallboard due to the lower recycled fiber costs for our Paperboard that we expect to remain with us for the foreseeable future.

China's exit from the U.S. recycled paper market is a development that supports the near-term outlook for stabilized OCC costs. In our heavy and light business separation announcement, we had indicated that we are also exploring strategic alternatives for our sand business and that process is underway. In the meantime, we are making adjustments that will continue to enable us to operate at roughly cash cost neutrality during periods like this, where the business conditions are challenged and while we explore strategic alternatives. That's all for me as part of the introductory remarks. Now let me turn it over to Craig to go through the financials for the quarter.

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [3]

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Thank you, Michael. Eagle's second quarter revenue was a record $415 million, an increase of 9% from the prior year, reflecting increased cement sales volume and pricing, improved Wallboard and Paperboard sales volume and the results of a recent acquisition in the Aggregates and Concrete segment. The acquired business contributed approximately $8.5 million of revenue during the quarter. Second quarter earnings per share was also a record of $1.72, reflecting improved earnings from the Heavy Materials business, and a 12% reduction in our diluted shares outstanding. The current share count is Eagle's lower share count on record. Also, included in the quarterly corporate G&A cost is approximately $2.7 million of cost related to the separation process.

Turning now to the segment performance. This next slide highlights the results of our Heavy Materials sector, which includes our Cement, Concrete and Aggregate segments. Revenue in the sector increased 22%, driven primarily by a 14% improvement in cement sales volume, improved pricing in both cement and concrete and results of the recent acquisition. Operating earnings increased 20%, again, reflecting the improvement in sales volume and pricing.

Moving to the Light Materials sector on the next slide. Improved Wallboard and Paperboard sales volume was offset by a 10% decline in wallboard prices, which kept Light Materials revenue nearly flat with the prior year. Quarterly operating earnings in our Light Materials business declined 11% to $49 million, reflecting lower net sales prices, partially offset by higher sales volume. Recycled paper costs continue their downward trend year-over-year and Republic margins were the highest in the last 3.5 years.

In the Oil and Gas Proppants sector, second quarter revenue was down 41%, and we had an operating loss of $5 million. During the second quarter, operating cash flow increased 44% through $134 million and capital spending was down slightly to $38 million. As we've noted earlier, we completed the acquisition of a small aggregates and concrete company during August with the purchase price of approximately $31 million. Also during the quarter, we returned nearly $120 million to shareholders through a combination of share repurchases and dividends, which represented 167% of our net earnings during the quarter.

Finally, on this last slide, our debt-to-cap ratio was 49% at September 30. While Eagle's leverage has increased and continues to be at the lower end of the range for our industry, we had $54 million of cash on hand at September 30. And we have ample operating cash flow and flexibility to meet investment opportunities as they arise.

Thank you for attending today's call. We will now move to the question-and-answer session.

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Questions and Answers

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Operator [1]

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Your first question comes from the line of Mr. Trey Grooms.

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Trey Grooms, Stephens Inc., Research Division - MD [2]

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Congrats on a great quarter. So the cement business, cement volume very strong. Texas clearly strong and I think this is some of the best organic volume growth we've seen on the wholly-owned side in quite some time. And I'm sure there was some catch-up there from bad weather earlier in the year. But can you talk about how the demand shook out, kind of, within your plant network and maybe your outlook for the different markets you're in there? I know there is some concern that some of the Midwest states might be slowing a little bit. But these results certainly wouldn't suggest that. So any color you could give us on that, Michael, it would be great.

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Michael R. Haack, Eagle Materials Inc. - CEO, President, COO & Director [3]

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Yes. No problem, Trey. Yes. When we look across the network, we've had good growth in all of our markets. We're a little more challenged. We're heavy into the oil and gas industry, which is primarily our Oklahoma base. But other than that, Trey, every one of our markets have performed better. We do see some infrastructure mills coming into play that should help us and give us some uplift here in some of the states that are most challenged, which is Illinois and also with Wyoming. So we have a positive outlook on the markets.

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Trey Grooms, Stephens Inc., Research Division - MD [4]

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Okay. Great. And then the margins on the cement business made some good headway, but still down a little if my math was right. Can you talk about some of the costs there and maybe what you're seeing on that front? And then how we should be thinking about cement margins as we look forward?

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [5]

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Yes. Trey, so I refer you to look at EBITDA margins. We -- as Michael has laid out on the last couple of calls, we've made some investments over the last year and half, so depreciation is running higher. That's a big contributor. And certainly -- but even at that level, the margins were down 60 or 70 basis points. A lot of that is attributed to some fixed cost that we had in some of our cement plants. And then we did still see some freight increases. We talked about that last quarter, especially in Midwest, where they were recovering from some of the flooding. But those are really the 2 primary contributors there.

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Trey Grooms, Stephens Inc., Research Division - MD [6]

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Okay. And the freight, others, that have had to deal with that as the year's gone on, it seems like it's kind of lingering somewhat. Is that expected to ease as we get, kind of, going into this quarter here, the December quarter?

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [7]

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Yes. You will start to see that. And we saw that improved a little bit as we went through the summer and into the early fall. Shipping lanes are starting to open. So yes, that should be behind -- virtually behind us.

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Trey Grooms, Stephens Inc., Research Division - MD [8]

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Okay. Perfect. And then last one for me. So Michael, you mentioned wallboard volume, kind of, on track for low single digits. Quarterly, there's been some pretty big swings this year. But this year, we had, in calendar '19, clearly, a pause in the housing market with starts. But it looks like that's improving. The homebuilder commentary seems very good. The outlook for starts seems better. So how are you think about the wallboard demand looking out a bit further, maybe into calendar '20 with this backdrop of res clearly expected to improve?

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Michael R. Haack, Eagle Materials Inc. - CEO, President, COO & Director [9]

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Yes. Trey, we see kind of the same trend that we've been talking about for a while now, that we see steady growth in the low single digits area, like you said, there was a pause midyear with it. But it seems to get some more momentum now. And if we factor out some of the onetime events with hurricanes, pre-buys and everything, we've been consistently in that low single digits growth. And that's what we're using going forward.

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Operator [10]

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Your next question comes from the line of Jerry Revich.

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Jatin Khanna, Goldman Sachs Group Inc., Research Division - Research Analyst [11]

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This is Jatin Khanna, on for Jerry. It's -- just a recent -- just a question on the cement shipments actually. If we apply normal seasonalities to cement shipments for your December quarter that would imply year-over-year growth of about 9%. Is that the cadence we should be thinking about? Or will demand pull forward, particularly given the cement shipments that grew 14% sequentially for fiscal 2Q?

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [12]

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Yes. I would encourage you to look at over the last almost 5 or 6 quarters. We have seen a tremendous amount of wet weather across almost every one of our markets. And as we've been talking about what ends up happening in those situations, is projects don't get canceled, they just get delayed, they get pushed out. And I think you're seeing that in this market right now where those projects are, it's been dry, right? We enjoy the dry summer and into the early fall, and that's a reflection. We don't necessarily want to give any guidance on quarter-to-quarter shipments in cement. But I think as we've been saying, we feel good about the underlying demand fundamentals of our business. We're seeing encouraging signs at the state level for infrastructure spending. And at this point, we continue to see growth in our cement business.

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Operator [13]

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Your next question comes from the line of Adam Thalhimer.

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Adam Robert Thalhimer, Thompson, Davis & Company, Inc., Research Division - Director of Research [14]

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Craig, can I just get you to expand on that a little bit, because you talked about, in wallboard, you said it's kind of a low single-digit growth environment. What's your best guess for cement with the normalized weather?

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [15]

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Yes. So look, I would point you to the PCA, those type of forecasts. Cement demand over a long period of time grows low single digits. And that's as what we -- the underlying business has been growing at for the last couple of years. But that's been difficult for external people to see, right? We've seen, whether it was Hurricane Harvey in Houston a year ago, Midwest flooding of last -- in the springtime, it's been massed by significant weather issues. And you're finally seeing a quarter where the weather is clear, the sun was shining and we were able to ship pretty well. So again, low single digits in cement is what we typically see. And against the backdrop of already high-utilization rates.

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Adam Robert Thalhimer, Thompson, Davis & Company, Inc., Research Division - Director of Research [16]

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And then in the past when you've had situations like this, that catch-up period, I mean, does it all get caught up in a quarter? Or does it take a couple of quarters to flow through?

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [17]

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Yes. No, it takes a little while. There's been so -- it's been wet for so long that it does -- these jobs to drag out and you eventually pick them up.

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Adam Robert Thalhimer, Thompson, Davis & Company, Inc., Research Division - Director of Research [18]

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Okay. One question on cement pricing. Last quarter, you talked about some competition, I believe, in a couple of markets. Did that improve in Q2?

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [19]

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Yes. I think it's always a competitive market. But we had price increases that went into effect in April across the majority of our markets. You've seen the pricing -- price improvement that we saw this quarter, is up about 2%. And I'd say that's been pretty consistent.

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Adam Robert Thalhimer, Thompson, Davis & Company, Inc., Research Division - Director of Research [20]

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And the last one for me. Can you just give some additional color on this acquisition? Where was it and what are the annual revenues you expect?

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Michael R. Haack, Eagle Materials Inc. - CEO, President, COO & Director [21]

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Yes. So I'll update you on that a little bit. When we look at acquisitions, typically we don't do much of downstream acquisitions. When we look at what's the favorable outcome for us, when we look at markets that we have cement in, in those markets, we look at markets that have not a broad-based -- not 30 different operations in that or better competitors in that market. And this one met our financial and strategic goals. It's in the west. It actually will support our Nevada operation with it, and it's in the renewable market area. We haven't been a big buyer of ready-mix, and we won't be a big buyer of ready-mix unless it meets our strategic and operational goals that we see that adds value to our plant network.

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Adam Robert Thalhimer, Thompson, Davis & Company, Inc., Research Division - Director of Research [22]

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Okay. And can you get -- I mean, if I annualize kind of 6 weeks of -- that you had in Q2, maybe it's a $60 million, $70 million business?

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [23]

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It's not that size. It's a seasonal business in that marketplace and -- so it's significantly less than that. So it's relatively small, but certainly an important addition to our asset.

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Operator [24]

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Your next question comes from the line of Phil Ng.

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Philip H. Ng, Jefferies LLC, Research Division - Senior Research Analyst [25]

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Good to see the strength in cement and you obviously sound pretty optimistic about the outlook. Can you give us an early rate on how backlogs are shaping up for cement for calendar 2020?

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Michael R. Haack, Eagle Materials Inc. - CEO, President, COO & Director [26]

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Yes. We see as, kind of, we've discussed before, each of our markets had a good improvement. And as Craig talked about, with these backlog of projects as long as the weather holds out, we see strong fundamentals in the market, not only from our traditional end-market users, but also from some of the infrastructure projects that we are optimistic that should come through with the announcements recently in some of the states we participate in. So it should be a solid demand picture going forward.

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Philip H. Ng, Jefferies LLC, Research Division - Senior Research Analyst [27]

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And would you be able to help quantify that or at least directionally, how it's stacking up this year versus like last year this time?

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Michael R. Haack, Eagle Materials Inc. - CEO, President, COO & Director [28]

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Like Craig was saying, we see a low single-digits growth rate and then the only variable in that will be what backlogs move into the projects that are held up that move into the current picture. But our model has always been in that low single-digit growth for the Cement side. And then the backlog is going kind of wildcard in there what that percentage will be. But we see this as a strong fundamental demand picture.

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Philip H. Ng, Jefferies LLC, Research Division - Senior Research Analyst [29]

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Got it. And then could you give us some color if you and your competitors are out with any cement price increase for 2020. I believe, at least handful of guys are out with an $8 increase. Just wanted some color around the magnitude and timing? And if you've seen any difference in behavior, better or worse?

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Michael R. Haack, Eagle Materials Inc. - CEO, President, COO & Director [30]

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Yes. With all of our price increases, we evaluate all the markets we participate in, and we will have those discussions with our customers and determine by market-by-market basis of what those increases will be. We have not announced anything at this time. We -- our customers will be the first to know on what those prices increases will be.

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Operator [31]

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Your next question comes from the line of Josh Wilson.

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Joshua Kenneth Wilson, Raymond James & Associates, Inc., Research Division - Senior Research Associate [32]

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Congrats on the quarter.

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [33]

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Thanks, Josh.

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Joshua Kenneth Wilson, Raymond James & Associates, Inc., Research Division - Senior Research Associate [34]

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On the theme of pricing, we've seen some of your competitors in Wallboard come out with price for January. What are your current thoughts on the outlook there for pricing?

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Michael R. Haack, Eagle Materials Inc. - CEO, President, COO & Director [35]

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Yes. The outlook on pricing is the same as kind of with the cement. We're evaluating what that price increase will be. And we will -- again, we will let our customers know, they'll be the first to know. We have not announced anything at this time yet. We know some of our competitors have announced. But we're independently looking at this and seeing what -- and our customers will be the first to know.

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Joshua Kenneth Wilson, Raymond James & Associates, Inc., Research Division - Senior Research Associate [36]

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Okay. And then regarding the acquisition, can you give us a sense of how its margins compare with the rest of the legacy business? And whether it had any impact on the margin or pricing in the quarter?

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [37]

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Yes. So it's been a very attractive business for us. And it has a margin profile better than our other businesses. And pricing-wise, it is a slightly higher-priced market than our average.

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Joshua Kenneth Wilson, Raymond James & Associates, Inc., Research Division - Senior Research Associate [38]

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And then last one for me. You talked about continuing to look for alternatives for Proppants. Any additional color you can provide on how that's progressing? Or any sense of rough timing of when you might have more of an update?

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [39]

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Yes. So Josh, as we've always said, we are constantly looking at opportunities and weighing those in terms of the financial value that we are paying for and the return on investment. And without getting into any details on that, that is a continuous process here, and we're constantly looking at those opportunities. And then as you've seen from us the other part of that capital allocation program is a share repurchase program. And it's a balance between a desire to continue to grow the business, but at good values with good returns and profitable growth. And if those returns -- those investment opportunities don't meet our return criteria, we are happy to return that cash to shareholders as we've done.

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Operator [40]

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Your next question comes from the line of Keith Hughes.

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Keith Brian Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [41]

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On the share count, did it come in -- the ending share count come in lower than the average share count in the quarter? And if so, what was -- can you give us a rough idea of the number?

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [42]

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Yes. So it would have. We were buying shares during the quarter. So yes, your exit number would have been lower than the average. And so it was 1.3 million shares that were repurchased during just this quarter.

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Keith Brian Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [43]

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Okay. And you had made some comments on share repurchase. Let me ask it this way, given the process you're going under here, are you -- is your share repurchase ability, size, timing limited by what's going on?

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [44]

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Yes. It's certainly a discussion topic. I'll say, there's always lots of factors as to how we go about that share repurchase program, whether that is investment opportunities and weighing those, certainly looking at the financial -- the capital structure of the company and making sure that the balance sheet is in good health, which absolutely is. So there are a lot of factors that affect the pace, at which we repurchase shares. And we're very comfortable with where we are, leverage is somewhere around 2x. And that's a very manageable number for Eagle. And so it's a lot of factors, not just an individual one.

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Keith Brian Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [45]

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Okay. So the pending split, just one of the factors, it's not a limiting factor by any stretch. Is that correct?

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [46]

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Yes. And look, we announced the separation back in late May, and we were buying back shares post that. So it's -- there's lots of factors.

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Keith Brian Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [47]

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Okay. Final question on wallboard pricing. The price you saw on the quarter, was that roughly equivalent to what you exited the prior quarter at on a sequential basis?

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [48]

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Yes. So as we said back in the last call on July, prices had really been flat since June and that was consistent throughout this quarter.

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Operator [49]

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Your next question comes from the line of Zane Karimi.

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Zane Adam Karimi, D.A. Davidson & Co., Research Division - Research Associate [50]

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So are there proppants losses this quarter effectively or you'll be expecting going forward? And are there other opportunities for improvement even if a market environment doesn't really change?

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [51]

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Yes. I think, look, we're very proud of our management team and the way they were effectively able to keep this at a cash flow breakeven-level business and the environment that they're operating within. And so on an EBITDA basis and there was actually an inventory impairment in that business during the quarter, but absent that, it was effectively a cash flow breakeven quarter in a very tough environment.

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Operator [52]

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Your next question comes from the line of [Mr. Paul Roger].

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Unidentified Analyst, [53]

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Congratulations on Q3. Can I just follow-up on some of the questions on the outlook. I mean, clearly, you sound quite confident, so do your competitors. And yet when we look at some of the other data, like, for example, the outbound contract awards, they've been quite weak this year. How do you reconcile your outlook comments with that type of data? And are you concerned about that at all?

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [54]

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Yes. I think we would suggest that, as you look at the U.S. economy, you've got the same job growth, you've got low interest rate environment, those are generally very good factors for construction activity in the U.S. As we've pointed out a little bit earlier, we actually also have states that are starting to become a little more creative to support infrastructure spending within their own states. So Illinois being a perfect example of that, and Wyoming more recently. So contract awards, there's lots of data to look at. But in terms of talking to our customers, they're starting -- they see good volumes ahead as well. And so -- and it's our markets. We're not across the U.S. But in our markets, we're seeing good demand levels.

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Unidentified Analyst, [55]

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And just a follow-up question on the M&A side. I feel your competitors have also talked about the pipeline improving recently. Is that something you've seen? And could you be interested in maybe doing something a little bit bigger than the deal you've announced today? Or will all that pretty much have to wait until the separation next year?

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [56]

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There's always a pipeline of opportunities, and we're constantly weighing those opportunities against our return criteria. And then that's about where we would leave it.

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Operator [57]

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Your next question comes from the line of Kevin Hocevar.

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Kevin William Hocevar, Northcoast Research Partners, LLC - VP & Equity Research Analyst [58]

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Congrats on a nice quarter. Can you talk about the competitive environment in Wallboard? It seems like in the June quarter, there were some pretty intense pricing competition that seem to just completely go away here in this -- really at the end of June. So can you kind of talk about what changed there? And why do you think that, that was able to stabilize? Was this just the function of the kind of underlying indicators, housing getting better volumes, they're good in the quarter. Or just curious, your thoughts there.

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [59]

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Kevin, I guess, I would suggest, there's always competitive marketplace. And that doesn't change. But certainly, over the summer, as interest rates fell, you can look at sale -- housing sale trends, housing store trends, those things started to improve. And right after the end of the day what impacts the business is demand. Demand improving is a good thing.

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Kevin William Hocevar, Northcoast Research Partners, LLC - VP & Equity Research Analyst [60]

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Okay. And then the $2.7 million of cost that you incurred this quarter related to the separation, do you have an expectation for how much of that will continue going forward?

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [61]

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No. We will certainly quantify that for you as we go quarter-to-quarter. You can imagine there's a long hole in the tent around the process to the IRS going through the SEC reporting process. So you're incurring cost and they'll fluctuate a little bit as you go forward here. But we'll certainly quantify that for you.

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Operator [62]

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We don't have any questions at this time. Mr. Haack, please continue.

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Michael R. Haack, Eagle Materials Inc. - CEO, President, COO & Director [63]

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Yes. I just wanted to say thank you for participating in today's conference call and webcast, and we look forward to talking to you early next year.

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Operator [64]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Have a great day.