Strong Construction Demand Boosts United States Lime & Minerals Inc's Earnings

By Markets Fool.com

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Despite several rainy days in its key markets, United States Lime & MineralsInc(NASDAQ: USLM) delivered solid second-quarter results after the closing bell on Thursday. Improving demand from construction customers drove performance during the quarter, offsetting continued weakness in the energy sector.

U.S. Lime results: The raw numbers

Metric

Q2 2016 Actuals

Q2 2015 Actuals

Growth (YOY)

Revenue

$32.9 million

$32.5 million

1.3%

Net income

$3.7 million

$2.6 million

44.1%

EPS

$0.66

$0.46

43.5%

YOY = year over year. Data source: U.S. Lime & Minerals.

What happened with U.S. Lime this quarter?

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Construction demand was the story at U.S. Lime.

  • The company's core lime and limestone operations drove revenue growth in the quarter, with sales in that segment up 1.9% to $32.4 million. Driving demand growth was increased sales volume to construction customers. This demand was partially offset by weaker sales to oil and gas customers, lots of rain, and slightly lower realized pricing.
  • Gross profit in the company's lime and limestone operations increased from $6.8 million to $7.2 million, which drove the bottom-line surge. Higher revenue, as well as recording an increase in the rate of non-cashdepletionexpenses, contributed to the higher earnings.
  • Revenue from the company's natural gas interests slumped 24.9% to just $504,000 after production volumes declined from 183,000 Mfc (thousand cubic feet) to 157,000 Mcf while prices fell from $3.66 per Mcf to $3.21 per Mcf. That resulted in a loss of $4,000 in the segment after it delivered a $204,000 gross profit in the year-ago quarter.

What management had to say

Reviewing the quarter, CEO Timothy Byrne commented, "We are pleased that the increased demand for our lime and limestone products from our construction customers that began in the last half of 2015 continued into the first half 2016, although demand and pricing from our other customers remain a challenge."

Higher construction demand was the story across the materials sector during the quarter. Cement and wallboard maker Eagle Materials (NYSE: EXP), for example, reported a 4.4% increase in revenue to go along with a 24% jump in earnings per share due in part to robust demand for construction-grade cement (though Eagle Materials CEO Dave Powers noted that "all of our construction businesses performed well" during the quarter). On the other hand, Eagles Materials has also been negatively impacted by weak demand from customers in the oil and gas sector, with its oil well cement sales to that segment down 80% over the past two years. Meanwhile, Eagle Materials' oil and gas proppant division's revenue plunged 78% as a result of a 68% drop in frack sand volumes.

Looking forward

There's no telling when the oil and gas market will improve. While there have been some positive signs recently, including a steady rise in the rig count, crude oil just entered a new bear market after its price slumped 20% from its recent peak. Because of the uncertainty surrounding that sector, continued hearty demand from the construction industry remains the key to driving U.S. Lime's results going forward.

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Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends Eagle Materials and U.S. Lime and Minerals. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.