Eagle Materials (NYSE: EXP) delivered solid results in its fiscal second quarter: Revenue reached a quarterly record while its profitability expanded at a double-digit pace, thanks in part to a lower tax rate. That strong showing came even though the weather held back its sales efforts in several markets. With that headwind abating, the company expects to continue delivering strong results in the back half of its fiscal year.
Eagle Materials results: The raw numbers
Fiscal Q2 2019
Fiscal Q2 2018
Earnings per share
Data source: Eagle Materials Inc.
What happened with Eagle Materials this quarter?
The wet weather couldn't dampen the quarter:
- Revenue from the heavy materials sector slipped 1% from last year's fiscal second quarter to $232.4 million. While cement revenue rose 1% to $192.2 million thanks to higher sales prices, concrete and aggregates sales dropped 9% to $57.5 million due to heavy rainfall during the quarter. The wet weather, along with lower profits at its Texas cement facility, caused operating earnings in the heavy materials segment to decline by 4% to $61.5 million.
- Revenue from the light materials sector, which includes sales of gypsum wallboard and paperboard products, rose 3% to $155.2 million as higher wallboard prices offset lower sales volumes. Operating profits, meanwhile, leaped 18% to $54.3 million due to higher wallboard sales prices and lower operating costs.
- The oil and gas proppants segment's revenue declined 13% to $19.1 million, as lower sales prices offset a 2% uptick in frack-sand sales volumes. Driving the higher volumes was the company's new drying plant in Illinois, which began operations during the quarter. However, pipeline issues in the Permian Basin impacted demand for frack sand, causing prices to decline, so the segment reported an operating loss of $7.9 million.
- The profitability improvement from the wallboard segment, combined with a lower tax rate, helped drive the double-digit earnings increase.
- Eagle Materials spent $70 million to repurchase its stock during the quarter, which helped boost its per-share profitability.
Image source: Getty Images.
What management had to say
CEO Dave Powers commented on the company's results in a press release:
We are happy to have delivered strong second quarter results despite unusually wet weather that limited our sales opportunities in many markets. Our Texas cement market experienced one of the wettest Septembers on record, while our southeastern wallboard markets dealt with the impact of Hurricane Florence. Fortunately, our employees and our facilities were unharmed. And we continued to generate meaningful cashflow which was used primarily to repurchase our shares.
Eagle Materials was able to overcome the wet weather to deliver another record-setting quarter. The company complemented those strong operational results by using some of its excess cash to buy back more stock, providing an additional boost to its bottom line on a per-share basis.
"Looking ahead, we continue to believe the prospects for our businesses remain favorable, and we anticipate a good second half," said Powers. However, the company did warn that its oil and gas proppant segment came under pressure during the third quarter from the pipeline issues in the Permian; that slowed the pace of oil and gas companies completing wells, causing demand for frack sand to decline. While the company noted that "it is unclear how long these market conditions will persist," the industry isn't expected to put enough new pipeline capacity into service until the end of 2019, suggesting this segment's results could remain under pressure until that time.
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