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Edited Transcript of EXP earnings conference call or presentation 29-Jan-19 1:30pm GMT

Q3 2019 Eagle Materials Inc Earnings Call

Dallas Feb 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Eagle Materials Inc earnings conference call or presentation Tuesday, January 29, 2019 at 1:30:00pm 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

* David B. Powers

Eagle Materials Inc. - CEO & Director

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Conference Call Participants

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* Adam Robert Thalhimer

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

* Brent Edward Thielman

D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst

* Jerry David Revich

Goldman Sachs Group Inc., Research Division - VP

* Joshua Kenneth Wilson

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

* Philip H. Ng

Jefferies LLC, Research Division - Equity Analyst

* Scott Evan Schrier

Citigroup Inc, Research Division - Senior Associate

* Stanley Stoker Elliott

Stifel, Nicolaus & Company, Incorporated, Research Division - VP & Analyst

* Trey Grooms

Stephens Inc., Research Division - MD

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Presentation

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Operator [1]

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Good day, everyone, and welcome to Eagle Materials' Third Quarter of Fiscal 2019 Earnings Conference Call. This call is being recorded.

At this time, I would like to turn the call over to Eagle's Chief Executive Officer, Mr. Dave Powers. Mr. Powers, please go ahead, sir.

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David B. Powers, Eagle Materials Inc. - CEO & Director [2]

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Thank you, Lauren. Good morning to all, and welcome to Eagle Materials' conference call for our fiscal third quarter of 2019. We're glad that 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 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 our press release.

I'd like to begin by saying that all in all, it was a fairly straightforward quarter, notwithstanding the year-over-year comparisons that are complicated by nonrecurring items of a year ago.

There are 3 observations about what the quarter's results represent more broadly about our markets and market conditions that I'd like to touch on before we go into the details of the quarter.

The first is about demand resiliency in our markets. The overall market backdrop of our building materials even with the much discussed volatility in the housing market has remained in positive territory with growth rate trends in the low single digits. Cement prices and volumes were both up modestly this quarter and Wallboard prices were up 5%. Volume comparisons for this segment were also affected by prebuying activity that occurred the same quarter a year ago.

I appreciate that it's always difficult to distinguish between weather and macro-related demand weakness. What I can say is that in our Cement markets that were most affected by rain, such as Texas in October, when it did stop raining, shipments in Texas recovered nicely. The basic fundamentals of low unemployment, low interest rates, higher wages remain favorable and support our outlook for continued single-digit low growth in our Cement for 2019.

Although Gypsum Wallboard shipments for the calendar year were down a little, when you estimate what was actually installed on walls and ceilings net of the prebuy activity of a year ago, my calculations would suggest actual demand was up a little bit for the year.

The second comment that I'd like to make has to do with the implications of high capacity utilization. Nearly all of our Cement and Wallboard plants are in fact operating at high capacity utilization. This factor along with sustained demand, low import threats create a favorable environment for our Cement and Wallboard products. It is against this backdrop that we've announced price increases in all of our Cement and Wallboard markets for early in calendar 2019.

My third comment is around input costs. Overall cost pressures for our inputs are relatively restrained as is the outlook for them over the next year. Labor is a very small component of our business. We own or control our key raw materials and we have long life reserves across our system.

Natural gas prices rose, but have now receded as have OCC costs. All in all, we see fairly smooth sailing in our cost environment for the remainder of the calendar year.

Candidly, an area where we have not performed consistently with my expectations this quarter is with outages in Cement. We had 2 maintenance outages that translated into higher operating costs for the quarter. While these outages represent opportunities for improvement, I would also make the observation that these are operating cost-related opportunities and not input-related cost issues.

We continue to invest in our manufacturing plants in several ways, including in predictive maintenance analytic technologies in an effort to improve upon our already low-cost position.

The stock market has also presented us with a compelling investment opportunity and that is the purchase of our own shares. We are generating considerable cash flow and have expectations for continued strength in cash flow. This quarter, we actually invested about 20% more than our total net earnings in Eagle's stock. For us, the silver lining in the stock market draft that has affected our sector.

Our priorities going forward remain the same: to continue to grow our business in ways that meet our strict strategic and financial return criteria and to continue to improve on our low competitive cost positions.

As I've said in the past, we've never lowered our standards nor loosened our criteria at times when we've had more money in our pockets.

Now let me turn it over to Craig to go over the financial specifics.

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

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Thank you, Dave. Eagle's third quarter revenue declined 7% to $333 million, reflecting the unusual wet weather, timing of prebuy activity in Wallboard and further weakness in the oil and gas business, partially offset by improved pricing in our 2 major businesses.

Eagle's quarterly earnings per share declined 40% to $1.24. However, excluding the nonrecurring items highlighted in the press release, earnings per share declined 11%.

This next slide highlights the results of our Heavy Materials sector, which includes our Cement, Concrete and Aggregate segments. Revenue was down 3% versus the prior year with improved pricing offset by lower sales volume in Concrete and Aggregates. Operating earnings declined 14%. Maintenance costs are the primary factor for the earnings decline in Cement.

Moving to the Light Materials sector. Lower sales volume associated with the shift in timing of our Wallboard price increase and related buying activity drove a 5% decline in our quarterly comparative of Wallboard and Paperboard revenue. In contrast, quarterly operating earnings were up slightly to $51 million, primarily reflecting lower raw material costs.

Eagle's Oil and Gas Proppants revenue declined 47% to $14 million, reflecting lower sales prices and sales volume.

The quarterly operating loss increased primarily associated with lower sales prices. Sales volumes and prices were negatively affected by weakness in completions activity, which was greater than anticipated and the typical seasonal slowdown.

Operating cash flow for the first 9 months of the year improved 7% to $294 million. Capital spending increased to $124 million. This amount included investments to improve and replace existing equipment, complete our frac sand drying capacity, enhance our distribution capabilities and to continue to improve our low-cost operations.

For the first 9 months of the year, Eagle has returned over $200 million or 105% of our net earnings to shareholders through a combination of share repurchases and dividends.

This last slide reflects the cash flow generation results of our highly competitive low-cost position. Our debt-to-cap ratio was 31% at December 31.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first question comes from Trey Grooms with Stephens Inc.

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

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So first question is really around the Wallboard volume. And just -- and the best you can tell at least, how much of the year-over-year decline in Wallboard was due to the timing of the prebuy being down 7 or 8 in the quarter? And I think you said demand up a little bit for the year, but just if you can help us kind of sort out how much it was prebuy in the quarter specifically.

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David B. Powers, Eagle Materials Inc. - CEO & Director [3]

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Yes. Trey, the majority of it was prebuy. We estimate 50 million foot was purchased prebuy December a year ago that affected this year's results for us.

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

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Okay. And so looking into the first quarter now given the timing of the Wallboard increase this year for February, are you guys seeing any or expecting any prebuy activity in your fiscal 4Q?

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David B. Powers, Eagle Materials Inc. - CEO & Director [5]

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Actually, we are. We are experiencing it right now. In the last couple of weeks, our order intake has been really pretty good and our backlog is good at this time. So the answer to that question is yes.

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

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Okay. And just for our benefit on just trying to estimate that, would you -- should we assume similar kind of levels to what we saw prior December as far as prebuy activity?

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David B. Powers, Eagle Materials Inc. - CEO & Director [7]

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It would be in that same area. I would estimate it to be in that same area.

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

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Okay. And then on Cement, the maintenance outages, it was 2 facilities. Can you quantify, Craig, maybe how much of an impact that had to operating profit in that segment? And then also, Dave, I think you mentioned something -- it was something unique about these outages. It wasn't cost related. Could you give us a little more color on the -- what was behind those outages there?

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [9]

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Yes. Trey, there wasn't anything extraordinary or unique about the outages, just the timing. It was about $3.5 million for the quarter, just making sure to keeping the kilns at top level. And as utilization rates are at this high of a level, you're having to plan ahead and we had taken some incremental outages to make sure we could get through the winter season.

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Trey Grooms, Stephens Inc., Research Division - MD [10]

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Okay. Thanks for clearing that up. And then looking into the next quarter or 2, are there any outages that are planned that we should be modeling?

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [11]

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Nothing unusual. The April, May time frame is when we do the typical major annual outages, which is now pretty standard across the system, but we're not anticipating anything before then -- anything significant.

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Trey Grooms, Stephens Inc., Research Division - MD [12]

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Okay. And then last one for me. Dave, you mentioned -- again, kind of going back to the Wallboard volume, you said demand up a little bit for the year. And I think you mentioned something around growth rate trends in the low single digits. Is that kind of the outlook for Wallboard demand and Wallboard volume in your markets for calendar '19, kind of low single digits range?

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David B. Powers, Eagle Materials Inc. - CEO & Director [13]

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Yes. That is our projections. And frankly, Trey, last week I looked at a report where 78 analysts projected housing starts over the next year. The consensus of all those economists were up a little bit this year and up a little bit more next year. And that's what we're planning on. I will tell you that repair and remodel continues to be strong, somewhere in the area of mid-single digits by most people that project that. And in our markets, the construction -- commercial construction business appears to be very, very good.

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Operator [14]

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Our next question comes from Brent Thielman with D.A. Davidson.

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Brent Edward Thielman, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [15]

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On the Proppants business, the volumes actually weren't quite as bad as I thought they might be for the quarter just given various dynamics going on out there. Is there any indication you're nearing a trough in that business, at least from a volume side? Or do things potentially get worse before they get better here?

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David B. Powers, Eagle Materials Inc. - CEO & Director [16]

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We actually hope that we're in a trough. Our customers have very little visibility in the business. They do expect not dramatic volume improvement in the first quarter. They expect a little bit more volume improvement in the second quarter.

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Brent Edward Thielman, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [17]

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Okay. Maybe on the Cement side, just given volumes have been, I guess, stagnant for several quarters now, I guess, what do think the appetite in the market is for Cement price increases right now? And is there anything different around what maybe some of your competitors are doing this year that could either help or hurt your ability to realize these announcements you have out there?

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David B. Powers, Eagle Materials Inc. - CEO & Director [18]

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I'm not going to comment on any competitor activity, but I will tell you our plants are running at near capacity. Price is always determined in the marketplace and I'll have a lot better feel of it a couple of weeks after the effective increase day.

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Brent Edward Thielman, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [19]

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Okay. And then I guess within the Cement business, I mean, it sounds like utilization rates are high everywhere, but are there material differences in demand across the various assets you have?

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David B. Powers, Eagle Materials Inc. - CEO & Director [20]

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The majority of ours are up but some markets are a little bit stronger than others, but we feel pretty good that most of our markets are trending up.

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Operator [21]

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Our next question comes from Scott Schrier with Citigroup.

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Scott Evan Schrier, Citigroup Inc, Research Division - Senior Associate [22]

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Just a follow-up on that last question on the capacity utilization. I know in the past, I think about a year ago, you had said, in order to really start to get that Cement price, you kind of need that strain across the whole network. It seems like you're getting better capacity utilization, but we're not ready to call the network or characterize it as strain. Is that a fair assessment?

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

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Scott, maybe another way to also talk about that is, when you look at some of our markets and this has been well chronicled across many different platforms. But 2018, in many markets, if not the wettest year on record, you're certainly approaching the top 2 or top 3. So you have a lot of -- you look at flat cement volumes, and I think a lot of that is associated with weather. And so they're -- across many of the facilities, they're, if not oversold, near full utilization. I wouldn't say every market is strained at this point yet. But if you were to get normal weather patterns, I think you'll see utilization rates are higher than what we saw in 2018.

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Scott Evan Schrier, Citigroup Inc, Research Division - Senior Associate [24]

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Got it. And it seems like you have some constructive comments on some of the headwinds that you've had from some of the cost buckets, transportation and such, kind of alleviating a little bit. I know in the past you've called out some rail costs eating into your Cement mill net, and similarly, eating in Cement mill net on the Wallboard side. Is that something that you've seen that sort of normalize and you're not really seeing much in terms of those transportation costs eating into your prices in those segments?

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [25]

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Yes. Scott, in the second half of the year, we did see, and I think Dave commented last quarter that freight costs, it kind of leveled out here versus what we had seen earlier in the year. Certainly, there are -- going into calendar '19, the railroads and truckers are pushing for some freight increases and we'll do our best to offset that, but we haven't seen anything significant like we saw this time last year. Now -- and that still did impact the Cement mill net this quarter versus the prior year about at the same level as we saw, it was about $1 a ton, but those costs have seemed to level out here more recently.

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Scott Evan Schrier, Citigroup Inc, Research Division - Senior Associate [26]

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Got it. And one last time -- one last one on frac sand. I just wanted to reconcile some of the comments that you just made and maybe in -- what was seen in the press release of how you're potentially taking steps to rightsize the business. If you could talk about may be what are the potential avenues you're looking at? And how do you look at in terms of -- that you said, maybe you're at a trough, so you think about just waiting it out and seeing if demand really starts to pick up? Or do you go ahead and put in adjustments in the business now?

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David B. Powers, Eagle Materials Inc. - CEO & Director [27]

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We're actually -- we're looking at everything. We're looking at equipment. Maybe we have got a few extra railcars and moveable equipment that we don't need. We're looking at staffing. We're looking at how we're running our operations. Should I run all of them? We're going to go slow because we're also going to plan for the upside. So we're not going to go too quickly, but we are looking at everything from a cost structure point of view.

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Operator [28]

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Our next question comes from Jerry Revich with Goldman Sachs.

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Jerry David Revich, Goldman Sachs Group Inc., Research Division - VP [29]

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I'm wondering if you folks can talk about which markets you're most confident in, in terms of driving growth for your business in Heavy Materials in '17 -- '19 versus '18? And by the same token, which markets are you monitoring that you expect flat to maybe a touch weaker. And if you can comment on what you're hearing on DOT projects in particular, that would be helpful because we are hearing angst from DOTs with high federal mix about potential reemergence of the shutdown. So I'm wondering if that's translating into cadence of activity based on your discussions.

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [30]

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Jerry, as we highlighted in the press release, at the end of the day, the basic underlying fundamentals of sustained job creation, low interest rates, higher wages, those things over time translate into improving demand for our basic construction products. Region-to-region, quarter-to-quarter, things might be slightly different. But on the average, we are expecting to see continued improvement in demand across our products. Again, the low single digits, we try not -- you look at state lettings, they're improving. But as long as you have those basic underlying fundamentals where they are today, our business is shaped up to have a good calendar 2019.

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Jerry David Revich, Goldman Sachs Group Inc., Research Division - VP [31]

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Sure. But can you just give us a bit more context? And I appreciate the importance of looking at the picture as a whole, but can you share with us any markets that stand out that you folks feel very good about based on booking trends or project cadence. Can you just give us a bit more regional flavor?

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [32]

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Yes. Clearly, you have some regions -- I mean, for example, Texas continues to be a very strong economy. Again, if you look at the last 4 months of the calendar year '18, you had more rain in those 4 months than you had in the whole of the first 8 months of the year. So that's going to cause some trends to look a little bit unique. But when the sun shines, Cement is moving. So you have some regions like that, that are very strong. But I'd tell you, again, across the board, we're continuing to see improvement. And albeit, it's all growing in that low to -- low single-digit type of improvement.

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Jerry David Revich, Goldman Sachs Group Inc., Research Division - VP [33]

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Okay. And in terms of any of your discussions point to potential for a slower ramp up to the construction season? Is that factoring into project timing cadence as being communicated to you by your customers because of the government shutdown?

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [34]

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Yes. That's a little too early to tell if there's any impact from that. This is, obviously -- in the winter season, especially in the northern part of the country, they've been demobilized for a while now and they'll start up in the spring.

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Jerry David Revich, Goldman Sachs Group Inc., Research Division - VP [35]

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Okay. And then what really stands out cycle-over-cycle is the margin performance in your Wallboard business where you folks have a really strong cost structure. Looking at the Cement business now and the margins there are in the mid-20s. When you folks were at similar level of capacity utilization in the 2000s, margins were closer to 30%. And I know you've increased plant efficiency over time. Can you just talk about what needs to happen to margins to get back to the 30% range that you folks were able to get to a decade ago?

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [36]

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Yes. So Jerry, the way I look at margins for the Cement business is on an EBITDA basis, so adding back the depreciation and amortization. As you know, we've made a number of acquisitions, more than doubled our Cement capacity in the last 5 or 6 years. And so when I actually go back and look at it on that level, margins are running much higher as the facilities that we've added are very low-cost facilities and so they fit very nicely into our network. But we think even with the network, with where utilization rates are, we can continue to potentially get incremental pricing and that should move margins as well.

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Operator [37]

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Our next question comes from Stanley Elliott with Stifel.

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Stanley Stoker Elliott, Stifel, Nicolaus & Company, Incorporated, Research Division - VP & Analyst [38]

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Quick question. Could you remind us again kind of on the pricing discussions around the Cement side? And I'm curious to think if -- or get your perspective if the lower input costs that we're seeing on the natural gas and some of the other inputs, if that has any meaningful ability in your ability to realize pricing in the coming year?

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David B. Powers, Eagle Materials Inc. - CEO & Director [39]

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I'll take the first question regarding Cement prices. We've announced increases for $6 to $8 in almost all of our markets for the April 1 time frame. We're negotiating with our customers now. I feel pretty good about the market realization there.

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Stanley Stoker Elliott, Stifel, Nicolaus & Company, Incorporated, Research Division - VP & Analyst [40]

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And how do we think about the cadence of repurchases going forward. Should we think about it as more of an opportunistic? Or any sort of color there would be great.

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [41]

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The program we've put in place 3 or 4 years ago, we're continuing to put that into place. And as the -- as Dave mentioned in his earlier comments, sometimes the stock market gives you unique opportunities. And as you can see, we've been buying more as the price has gone down. We continue to see value in the shares, and I'll leave it at that.

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Stanley Stoker Elliott, Stifel, Nicolaus & Company, Incorporated, Research Division - VP & Analyst [42]

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Perfect. And last for me, you talked about the Proppants business kind of troughing out. And I apologize if you mentioned earlier. Does this business get back to kind of a breakeven cash flow by the end of this fiscal year? Or is that something kind of we're looking at more for next year and hopefully some earnings growth out of that business?

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [43]

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Yes. So in terms of the cash flow of that business, the nice thing is that business has hit a point where there's no more incremental capital being spent on the business. We've completed the network that we wanted to. So from that perspective, no more incremental capital. At an operating level, we were slightly below breakeven on an EBITDA basis this quarter, but just slightly. And with some of the actions and the discussions we've had today, we intend to continue to take costs out of that business. And like where we were 4 years ago or so, keeping that business at a cash breakeven level.

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Operator [44]

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Our next question comes from Adam Thalhimer with Thompson, Davis.

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Adam Robert Thalhimer, Thompson, Davis & Company, Inc., Research Division - Director of Research [45]

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Just -- I wanted to follow-up on that last question. Do you have a number in mind for what you want to get the operating losses in frac sand down to?

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

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Yes. Right now, those operating losses are predominantly depreciation and amortization and depletion. And that will stay in this similar level for a while until you have some volume improvement in that business.

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Adam Robert Thalhimer, Thompson, Davis & Company, Inc., Research Division - Director of Research [47]

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And then what's -- remind us what the bull case in frac sand is, again? I mean, what do you think the next upcycle looks like for you guys?

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

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Adam, we've now got a system that sits on all major class 1 rails. So we have a position in Illinois with northern white sand and we have a position in Northern Wisconsin, also one of major class 1. And so as the basins across the U.S. start firing again, that's our opportunity. And we have distribution facilities in all of the major basins. So depending upon the price of oil and other factors that are going on, obviously, we talked a lot in the fall about the Permian really declining completion activity until they get their pipeline installed, so they can start moving the oil out. So there's lots of moving parts. But in terms of how we're positioned for the next upside, we can hit any of the major basins in the U.S. with high-quality northern white sand, and we think that's a strong position for that eventual recovery.

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Adam Robert Thalhimer, Thompson, Davis & Company, Inc., Research Division - Director of Research [49]

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Okay. How did Wallboard prices trend during the quarter?

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [50]

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I think as we talked about last quarter, we exited the quarter, so this goes back to September, our price was lower than the average and prices were pretty much flat during this December quarter.

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Operator [51]

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(Operator Instructions) The next question comes from Phil Ng with Jefferies.

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Philip H. Ng, Jefferies LLC, Research Division - Equity Analyst [52]

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Weather hasn't really been ideal last year as well as start of the year. And that puts you kind of in a tough spot with Cement pricing. With some of the maintenance you've taken late in the year, how does your inventory kind of stack up? Just curious to get your thoughts on supply-demand on that front?

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [53]

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Without getting into daily production activities or daily inventory levels, we're comfortable with where our inventory levels are across the Cement system.

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Philip H. Ng, Jefferies LLC, Research Division - Equity Analyst [54]

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Okay. And then maintenance expense obviously was a little higher than expected this quarter, and I think you called out something of a similar magnitude in 1Q. Is this a bigger year in terms of maintenance? And does that set you up a little more favorably for 2020? And how should we think about maintenance in general going forward from a modeling perspective?

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [55]

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Yes. So the maintenance we highlighted in the first quarter was just associated with the new facility that we had acquired in Ohio and the cadence of how those maintenance outages work. So that was just coincidence that the quantified number was similar because that was just a timing issue. This outage -- these outages here in the fall were separate and unique. So again, we'll get back on to a normal cadence in the June quarter like we had this year.

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Philip H. Ng, Jefferies LLC, Research Division - Equity Analyst [56]

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Okay. I know you guys have a relatively small ags business located in some few markets. I was surprised that you priced it down about 10% year-over-year. What's driving that? And was there any noise in the quarter that stood out?

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [57]

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If you think about, Phil, where we're located in our Concrete and Aggregates business is Central Texas, Kansas City and then Northern California. And as I mentioned earlier, if you look at the rainfall totals for the first 8 months of the year in Austin and you compare those to only the last 4 months, it was an extraordinarily unique fall for almost all of Texas, but very -- in Austin, and that's such a concentrated area when you're shipping Concrete and Aggregates, that type of rainfall could really impact the business. So when you look at the earnings this quarter, that is -- you almost lost October in the state of Texas.

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Philip H. Ng, Jefferies LLC, Research Division - Equity Analyst [58]

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Got it. That's helpful. And just one last one for me. As you kind of highlighted in your -- in the call, multiples across the sector has come in. Just how you're thinking about M&A, especially at this point of the cycle? And how is the pipeline looking?

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

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Yes, we continue to be opportunistic. There are opportunities out there. But as Dave has highlighted many times, we have a strict financial return criteria and we look at those and compare to other opportunities that we might have. And we can -- there's a desire to grow and the balance sheet and the capital structure is certainly well positioned to continue to grow, but we're going to be pretty picky.

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Philip H. Ng, Jefferies LLC, Research Division - Equity Analyst [60]

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And is the focus still primarily on the heavy side of things?

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

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Yes.

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Operator [62]

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Our next question comes from Josh Wilson with Raymond James.

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Joshua Kenneth Wilson, Raymond James & Associates, Inc., Research Division - Senior Research Associate [63]

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Just a clarification question for me. You said the size of the prebuy you think now was 50 million square feet?

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [64]

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Yes. For us, in this -- well, that would have been the December of 2017, correct.

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Joshua Kenneth Wilson, Raymond James & Associates, Inc., Research Division - Senior Research Associate [65]

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Okay. And regarding sort of trying to get a handle on the underlying tone of demand in Wallboard, what were -- how did the monthly volumes evolve as the quarter progressed?

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [66]

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Yes. We wouldn't try to track something as usable on a monthly basis, right? This business is best kind of managed on an annual basis. And especially as you head into the winter months, I'm not sure that trend would make a lot of sense.

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Joshua Kenneth Wilson, Raymond James & Associates, Inc., Research Division - Senior Research Associate [67]

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Okay. And any weather impacts to call out in January?

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [68]

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If you live in the northern half of the country, I think this week's going to be pretty cold and snowy. But again, we try not to get to into the month-to-month type of changes. We're trying to run the business over a much longer period of time.

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Operator [69]

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Our next question is a follow-up from Stanley Elliott.

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Stanley Stoker Elliott, Stifel, Nicolaus & Company, Incorporated, Research Division - VP & Analyst [70]

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Yes, couldn't get out of the queue. But the $3.5 million on the cost, that was wholly owned, right, in Ohio and not JV?

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D. Craig Kesler, Eagle Materials Inc. - Executive VP of Finance & Administration and CFO [71]

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Mostly. There was a little bit in the joint venture, but a significant majority of that would be in the wholly owned business.

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Operator [72]

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And this does conclude today's question-and-answer session. I would now like to turn the call back over to Mr. Powers for any closing remarks.

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David B. Powers, Eagle Materials Inc. - CEO & Director [73]

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I want to thank all of you for participating in the call, and we look forward to talking with you in the spring. Thank you much.

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Operator [74]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone, have a wonderful day.

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