Image source: Getty Images.
Continue Reading Below
Eagle Materials (NYSE: EXP) reported excellent results for its fiscal third quarter on the back of increasing demand for construction products and building materials. The company set new fiscal third-quarter records for revenue and net income, thanks to record performance across its cement, paper, concrete, and aggregates business. The company sees even better days ahead, as a rebound in the oil and gas industry as well as continued robust cement demand should drive future results even higher.
Eagle Materials results: The raw numbers
Data source: Eagle Materials Inc.
What happened with Eagle Materials this quarter?
Results were strong across both construction products and building materials:
- Cement revenue rose 2% to $138 million, thanks to a 4% increase in the average net sales price. That helped overcome a 1% decline in volumes, which fell to 1.2 million tons during the quarter because of early winter conditions across northern markets. Operating earnings, meanwhile, rose 8% to $45.3 million, which was a third-quarter record. The cement segment remains on pace to experience a significant boost when the company closes its acquisition of Cemex's (NYSE: CX) Fairborn, Ohio, cement plant, which will increase Eagle's annual cement capacity by 20%.
- Concrete and aggregate revenue surged 29% to $40.6 million, while operating profit rocketed 202% to $4.8 million. Driving those results were record quarterly concrete volumes, as well as record sales prices for both concrete and aggregates.
- Gypsum wallboard and paperboard sales increased 12% to $146.9 million thanks to 14% growth in gypsum wallboard sales volume, which offset a 3% decrease in sales pricing. Paperboard sales volumes and net sales price rose 7% and 3%, respectively, which drove record operating earnings for the segment. Overall, gypsum wallboard and paperboard operating earnings increased 12% to $50.5 million.
- The oil and gas proppants segment continues to feel the impact of the oil market downturn, with sales slipping another 15% to $7.1 million, and the segment turned in an operating loss of $1.7 million. However, volumes were up 7% year over year, which is a positive sign. Further, rival frack sand producers U.S. Silica (NYSE: SLCA) and Hi-Crush Partners (NYSE: HCLP) have reported positive signs in recent months. U.S. Silica noted that at the end of the third quarter it had only 600 railcars in storage, down from 1,900 six months earlier. Meanwhile, Hi-Crush Partners expected a double-digit increase in volume during the fourth quarter.
What management had to say
On the company's fiscal third-quarter conference call, CEO Dave Powers offered the following comments on the quarter:
As Powers noted, demand for construction materials is so healthy that the company can push through price increases. Those higher prices should lead to higher revenue and earnings even if volumes flatten out.
Powers also offered his outlook on the future:
Aside from higher prices, Powers sees several other important catalysts driving future results. First, the recovery in the oil market should lead to higher proppant sales, which could return that segment to profitability. Further, the company also sells oil well cement, which should see a rebound in sales. Finally, as mentioned, the company is close to closing its acquisition of Cemex's Fairborn plant, which will provide an immediate boost to its cement segment next quarter. That acquisition is coming at an excellent time, given the robust outlook for the cement market.
10 stocks we like better than Eagle Materials When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Eagle Materials wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of January 4, 2017